Manual of Regulations For Banks

MANUAL OF REGULATIONS
FOR BANKS
ANKS
FOREWORD
The 2005 Manual of Regulations for Banks (MORB) is an updated compilation of

banking regulations and policy issuances of the Bangko Sentral ng Pilipinas (BSP). Available
in hard and soft copies, it is a convenient reference and guide for banks in the conduct of their
operations.
The updated MORB incorporates regulatory policies issued to align banking practices
on risk management, good corporate governance, and capital adequacy, accounting and
reporting with international standards. It also includes rules implementing legislative
reform measures, the more significant of which are the General Banking Law of 2000, the
Anti-Money Laundering Act of 2001 and the Special Purpose Vehicle Act of 2002.
In providing banks and the banking public easy access to this information, the updated
MORB seeks to facilitate compliance with the BSP’s supervisory and regulatory requirements
that will contribute to the enhancement of the partnership between BSP and the banking
sector, and ultimately to the strengthening of the Philippine Banking System and the economy.
AMANDO M. TETANGCO, JR.

Governor
FOREWORD
Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the
Monetary Board recognized the need not only to update but also to improve the presentation
of the Manual of Regulations for Banks to make it a more useful and accessible information
resource for the banking industry and the interested public. A special committee was therefore
created to revise the old Manual accordingly.
This revised format Manual is the outcome of that effort. It benefits from the inputs of
many concerned departments of the BSP as well as the various banking industry associations.
By combining the multi-dimensional perspective, we are hopeful that this new Manual and
its subsequent updates will be able to more effectively disseminate the regulatory issuances
of the BSP on a timely basis and provide appropriate guidance to the banking community.
We also believe that it will be a especially useful tool at this time when the BSP has
come up with many new banking regulations and issuances in response to the unprecedented
challenges posed by the Asian crisis.
Nevertheless, we recognize that there will always be room for improvement. Our
task is therefore a continuing one of constant search for a better product to provide better
services to the public.
GABRIEL C. SINGSON
Governor
PREFACE
The 2005 Manual of Regulations for Banks (MORB) is an updated edition of the 1996
MORB. The updates consist of the significant policy developments and changes in statutory
laws. It shall serve as the principal source of banking regulations issued by the Monetary
Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance
with the rules and regulations embodied therein.
A multi-departmental Committee on the Updating of the Manual of Regulations for

Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series
of 2007 dated 08 June 2007. Under the aforesaid office order, the Committee is tasked to
update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose
revision/deletion of provisions which have become obsolete, redundant, irrelevant or
inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv) oversee
printing of the Manuals/Updates in coordination with the Corporate Affairs Office.
The Committee is composed of Deputy Director Alberto A. Reyes (Central Point of

Contact [CPC] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the General
Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse, Manager II
(Centralized Applications and Licensing Group [CALG]); Mr. Aristides R. Wylengco, Manager II
(Supervision and Examination Department [SED] III); Ms. Jocelyn L. Lobas, Manager II (SED V);
Atty. Ruben B. Parto, Acting Manager II (SED I); Ms. Ma. Corazon T. Alva, Acting Manager II
(SED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of Supervisory Policy Development
[OSPD]); Atty. Lord Eileen S. Tagle, Bank Attorney I, (OGCLS); Ms. Maria Cynthia M. Sison,
Bank Officer III (OSPD); Mr. Armando M. Dizon, Bank Officer II (CALG)); Atty. Florabelle S. Madrid,
Bank Officer I (CPC I), members; and Deputy Governor Nestor A. Espenilla, Jr. of the
Supervision and Examination Sector, Adviser.
The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst. Manager

(SED IV), Head; Ms. Ma. Corazon B. Bilgera, Bank Officer I (OSPD); Ms. Donah P. Marcelino,
Administrative Services Officer III (SED V); Mr. Felix B. Corsino, Jr., Administrative Services
Officer III (SED III), members.
The Bangko Sentral ng Pilipinas
v
PREFACE
The Manual of Regulations Banks (the “New Manual”) is not only an updated edition
but also a revised and consolidated version of the first three volumes of the present Manual of
Regulations for Banks and Other Financial Intermediaries, Book I, II and III (the "Old Manual").
Its adoption was impelled by certain considerations, namely: (1) that the Central Bank of the
Philippines as the administrative agency of the monetary, banking and credit system which
promulgated the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the
central monetary authority, (2) that the Old Manual was last updated as of 31 December 1989
and since that time, significant developments in the statutory law and the financial system of
the country have rendered many of its provisions obsolete or irrelevant, and (3) that there was
need to simplify the code of banking regulations for ready accessibility to, and the convenience
of, the users.
To accomplish the work of proposing revisions to the Old Manual, the Monetary
Board of the BSP, in its Resolution No. 1203 dated 07 December 1994, directed the creation
of a multi-departmental Ad Hoc Review Committee. This committee was officially
constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General
Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services), as chairman;
Deputy Director Ma. Dolores B. Yuvienco (Supervisory Reports and Studies Office);
Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director
Danilo A. Monasterio (Department of Rural Banks); Deputy Director Erlinda S. J. Marzan
(Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing
Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad
Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head;
and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III, Atty. Policarpo
G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco,
Manager II, as members. Deputy Governor Armando L. Suratos, the BSP General Counsel,
acted as committee consultant.
Under the aforesaid office order, the Ad Hoc Committee was instructed to examine,
evaluate and review the provisions of the four (4) volumes of the Old Manual for purposes of
(1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous or
inconsistent with law, (2) amending provisions so as to make them consistent with each
other or to harmonize them with existing statutes, executive issuances and official policies,
and (3) reformulating provisions to make them more responsive to the needs and concerns of
the banking and financial intermediation industry.
In discharging its mandated tasks, the Ad Hoc Review Committee sought the
comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange,
Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to
provisions of the Old Manual relevant to their operations. Likewise consulted were the
various associations in the banking industry, such as the Bankers Association of the Philippines,
the Chamber of Thrift Banks, the Rural Bankers Association of the Philippines and the Trust
Officers Association of the Philippines. Their valuable suggestions contributed much to the
accomplishment of this project.
vi
The New Manual comprises substantially the regulatory issuances of the BSP, as well
as those of its predecessor agency, the Central Bank of the Philippines, as they were amended
or revised through the years, up to 31 December 1996. It shall serve as the principal source
of all substantive banking regulations issued by the Monetary Board and the Governor of the
BSP and shall be cited as the authority for enjoining compliance with the rules and regulations
embodied therein.
It is fervently hoped that the publication of this long-awaited new code of banking
regulations will measure up to the expectations of the Philippine banking sector.
The Bangko Sentral ng Pilipinas
vii
INSTRUCTIONS TO USERS
The Manual of Regulations for Banks (the “Manual”) is the comprehensive authority
on the specific subjects covered therein. New rules and amendments to the rules shall
immediately form part of the affected section or subsection of the Manual while repealed
rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e., circular
or memorandum, but shall instead cite the particular section or subsection of the Manual.
Banks shall comply with the provisions of the Manual and any violation thereof shall be
punishable under its specific and/or general provisions on sanctions.
As a code of regulations, the Manual is divided into six (6) Parts, further subdivided
into major topic headings which introduce the corresponding sections, and subsections
that made up the provisions governing a particular aspect of bank operations.
Coding of the Manual provisions utilizes six (6) digits where the first four (4) digits
refer to a Section while the last two (2) digits (if there is any and which is separated from the
first four digits by a period) refer to a Subsection.
The first digit refers to a type of bank to which the regulation is applicable. "X"
denotes a common provision applicable to all types of banks; "1" means that the regulation is
applicable to commercial banks (KBs); "2" means that it applies to thrift banks (TBs); and "3"
to rural banks (RBs) and cooperative banks (Coop Banks).
The second digit refers to the Part of the Manual, i.e., "1" refers to "Organization,
Management and Administration"; "2" for "Deposits and Borrowing Operations"; "3" for
"Loans, Investments and Special Credits"; "4" for "Trust, Other Fiduciary Business and
Investment Management Activities; "5" for "Foreign Currency Deposit System and Other
Operations in Foreign Currency"; and "6" for "Miscellaneous Provisions". The third and fourth
digits refer to the main caption of the provision while the fifth and sixth digits, if any, refer to
the subcaption or subsection under the main caption.
viii
Thus, to illustrate, the code numbers X161.2 and 1162.13 would indicate
Main caption on “Records”
Subcaption on “SFAS”
X 1 6 1 . 2
Part One on “Organization, Management and Administration"
Manual of Regulations for Banks (Common provision)
Main caption on “Records”
Subcaption on “Additional
Reports from KBs"
1 1 6 2 . 13
Part One on “Organization, Management and Administration"
Manual of Regulations for Banks (Unique provision for KBs)
The paging is by Parts, each Part beginning with page 1, and so on, corresponding to the
number of pages of the particular Part. For example, Part I, consisting of six (6) pages will
start with a first page indicated as “Part I - Page 1”, and “Part I - Page 6” as its last page. The
pages for updates will follow the same pagination, with letters added to indicate inserted
pages, in the event amendatory regulations require additional pages.
ix
MANUAL OF REGULATIONS FOR BANKS
TABLE OF CONTENTS
PART ONE - ORGANIZATION, MANAGEMENT AND

ADMINISTRATION
A. CLASSIFICATIONS AND POWERS OF BANKS
SECTION X101 Classifications, Powers and Scope of Authorities of Banks

X101.1 Expansion of banking authorities (superseded by
Circ. 271 dated 08 Jan. 2001)
X101.2 Prerequisites for the grant of a universal banking
authority
X101.3 – X101.5 (Reserved)
X101.6 Conditions for the grant of authority to convert into
a lower category
SECTION X102 Basic Guidelines in Establishing Banks

X102.1 Suspension of the grant of new banking licenses on
the establishment of new banks
X102.2 Partial lifting of general moratorium on the licensing
of new thrift banks and rural banks
SECTION X103 Certificate of Authority to Register
SECTIONS X104 - X105 (Reserved)
B. CAPITALIZATION
SECTION X106 Bank Capital

X106.1 Minimum capitalization
X106.2 Capital build-up program
X106.3 Memorandum of Understanding; Prompt Corrective
Action Program; sanctions
C. MERGER OR CONSOLIDATION OF BANKS
SECTION X111 Merger or Consolidation to Meet Minimum Capital

X111.1 Requirement of Bangko Sentral approval
X111.2 Rules on exchange of shares
xi
SECTION X112 Merger or Consolidation Incentives
D. RISK-BASED CAPITAL ADEQUACY RATIO
SECTION X116 Minimum Ratio

X116.1 Qualifying capital
X116.2 Risk-weighted assets
X116.3 Definitions
X116.4 Required reports
X116.5 (Reserved)
1116.5 Market risk capital requirement
2116.5 (Reserved)
3116.5 (Reserved)
X116.6 Sanctions
X116.7 Temporary relief
X116.8 Capital treatment of exposures/investments in certain
products
SECTION X119 Issuance of Unsecured Subordinated Debt

X119.1 Minimum features of USD
X119.2 Prior BSP approval
X119.3 Pre-qualification requirements of issuing bank
X119.4 Public issuance of unsecured subordinated debt
X119.5 Private or negotiated issuance of unsecured
subordinated debt
X119.6 Issuance overseas of unsecured subordinated debt
X119.7 Qualified investors/buyers
X119.8 Prohibitions on holdings of USD
X119.9 Accounting treatment
X119.10 - X119.12 (Reserved)
X119.13 Sanctions
SECTION X120 Issuance of Hybrid Tier 1 Capital Instruments
E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN

BANKS
SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks

X121.1 Modes of entry of foreign banks
X121.2 Qualification requirements
xii
X121.3 Guidelines for selection
X121.4 Capital requirements
X121.5 Composition of capital accounts; compliance with
capital ratios
X121. 6 Prescribed ratio of Net due to and permanently
assigned capital
X121.7 Head office guarantee
X121. 8 Scope of authority for locally incorporated subsidiaries
of foreign banks as well as branches with full banking
authority
X121. 9 Limitations
X121.10 Change from one mode of entry to another
X121.11 Listing of shares with the Philippine Stock Exchange
X121.12 Applicability to Philippine corporations
F. STOCK, STOCKHOLDERS AND DIVIDENDS
SECTION X126 Shares of Stock of Banks

X126.1 Limits of stockholdings in a single bank
X126.2 Transfer of shares
X126.3 Other foreign equity investment in domestic banks
X126.4 Convertibility of preferred stock to common stock
X126.5 Issuance of redeemable shares: conditions;
certification and report; sanctions
X126.6 Stock options/warrants
X126.7 - X126.9 (Reserved)
X126.10 Dealings with stockholders and their related interests
SECTION 1127 Shares of Stock of Universal/Commercial Banks

1127.1 Limits on stockholdings in several banks
1127.2 - 1127.5 (Reserved)
SECTION 2127 Shares of Stock of Thrift Banks

2127.1 Moratorium on ownership ceilings
2127.2 Preferred shares
2127.3 - 2127.5 (Reserved)
SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks

3127.1 Moratorium on ownership ceiling
3127.2 Government-held shares
3127.3 Limits on stockholdings in several rural banks
xiii
3127.4 Convertibility of preferred stock to common stock
3127.5 Equity investment by holding corporations
SECTION X136 Dividends

X136.1 Definitions
X136.2 Requirements on the declaration of dividends
X136.3 Net amount available for dividends
X136.4 Reporting and verification
X136.5 Recording of dividends
X136.6 Issuance of fractional shares
SECTION 1137 (Reserved)
SECTION 3137 Limitations/Amount Available on Dividends Declared by Rural

Banks and Cooperative Banks
3137.1 Dividends on government shares
G. DIRECTORS, OFFICERS AND EMPLOYEES
SECTION X141 Definition and Qualifications of Directors; Responsibilities and

Duties of Board of Directors
X141.1 Definition/limits
X141.2 Qualifications of a director
X141.3 Powers/responsibilities and duties of directors
X141.4 Confirmation of the election/appointments of directors
and officers
X141.5 Place of board of directors’ meeting
X141.6 - X141.8 (Reserved)
X141.9 Reports required
X141.10 Sanctions
SECTION X142 Definition and Qualifications of Officers

X142.1 Definition of officers
X142.2 Qualifications of an officer
X142.3 Appointment of officers
xiv
SECTION X143 Disqualification of Directors and Officers
X143.1 Persons disqualified to become directors
X143.2 Persons disqualified to become officers
X143.3 Effect of non-possession of qualification or possession
of disqualifications
X143.4 Disqualification procedures
X143.5 Watchlisting
SECTION X144 Bio-data of Directors and Officers
SECTION X145 Interlocking Directorships and/or Officerships

X145.1 Representatives of government
SECTION X146 Profit Sharing Programs
SECTION X147 Compensation and Other Benefits of Directors and Officers
SECTION 3147 Bonding/Training of Directors, Officers and Employees
SECTION X148 (Reserved)
SECTION X149 Conducting Business in an Unsafe/Unsound Manner

X149.1 – X149.8 (Reserved)
X149.9 Sanctions
SECTION X150 Rules of Procedure on Administrative Cases Involving Directors

and Officers of Banks
H. BANKING OFFICES
SECTION X151 Establishment/Relocation/Voluntary Closure/Sale of Branches

X151.1 Prior Monetary Board approval
X151.2 Prerequisites for the grant of authority to establish a
branch/banking office
X151.3 Application for authority to establish branches
X151.4 Branching guidelines
X151.5 Branch processing fee
X151.6 Date of opening
X151.7 Requirements for opening a branch
xv
X151.8 Relocation/transfer of branches
X151.9 Voluntary closure/ sale of banking offices
X151.10 Sanctions
X151.11 Relocation/Transfer of branch licenses of closed banks
X151.12 Establishment of branches/ loan collection and
disbursement points of microfinance-oriented banks;
establishment of microfinance-oriented branches/loan
collection and disbursement points of banks that are
not microfinance-oriented (deleted by Cir. 505 dated
12 October 2005)
X151.13 - X151.14 (Reserved)
X151.15 Relocation/Transfer of branch licenses of closed banks
SECTION X152 Relocation/Transfer of Head Offices

X152.1 Sanctions
SECTION X153 Establishment of Additional Branches of Foreign Banks

X153.1 Application for authority to establish additional branch
X153.2 Requirements for establishment of additional branch
X153.4 Requirements for opening a branch
X153.5 Choice of locations for establishment of branches
X153.6 Sanctions
SECTION X154 Establishment of Offices Abroad

X154.1 Application for authority to establish an office abroad
X154.2 Requirements for establishing an office abroad
X154.3 Conditions attached to the approved application
X154.5 Requirements for opening an office abroad
X154.6 Sanctions
X154.7 - X154.8 (Reserved)
X154.9 Establishment of a foreign subsidiary by a bank
subsidiary
SECTION X155 Tellering Booths
I. BANKING DAYS AND HOURS
SECTION X156 Banking Days and Hours

X156.1 Banking hours beyond the minimum
X156.2 Report of, and changes in, banking days and hours
X156.3 Posting of schedule of banking days and hours
xvi
J. RECORDS AND REPORTS
SECTION X161 Records

X161.1 Adoption of the Manual of Accounts
X161.2 Philippine Financial Reporting Standards/Philippine
Accounting Standards
X161.3 - X161.8 (Reserved)
1161.9 (Reserved)
2161.9 (Reserved)
3161.9 Retention and disposal of records of rural/cooperative
banks
SECTION X162 Reports

X162.1 Categories and signatories of bank reports
X162.2 Sanctions in case of willful delay in the submission of
reports/refusal to permit examination
X162.3 Submission of certain required information
X162.4 Report on crimes/losses
X162.5 Report on real estate/chattel transactions
X162.6 Reconciliation of head office and branch transactions
X162.7 List of stockholders and their stockholdings
X162.8 Bangko Sentral offices, where reports are submitted
X162.9 Publication/Posting of statement of condition
X162.10 Consolidated financial statements of banks and their
subsidiaries engaged in financial allied undertakings
X162.11 Reports of other banking offices
X162.12 Reports required of foreign subsidiaries/affiliates/
banking offices or non-bank entities of domestic banks
1162.13 Additional reports from UBs/KBs
2162.13 (Reserved)
3162.13 (Reserved)
X162.14 Reports of strikes and lockouts
X162.15 Report on the Sworn Statement on Real Estate/Chattel
Transactions
K. INTERNAL CONTROL
SECTION X163 Internal Control System

X163.1 Proper accounting records
X163.2 Independent balancing
X163.3 Division of duties and responsibilities
xvii
X163.4 Joint custody
X163.5 Signing authorities
X163.6 Dual control
X163.7 Number control
X163.8 Rotation of duties
X163.9 Independence of the internal auditor
X163.10 Confirmation of accounts
X163.11 Other internal control standards
X163.12 Internal control procedures for dormant/inactive
accounts
SECTION X164 Internal Audit Function

X164.1 Status
X164.2 Scope
X164.3 Qualification standards of the internal auditor
X164.4 Code of Ethics and Internal Auditing Standards
L. MISCELLANEOUS PROVISIONS
SECTION X165 Selection, Appointment and Reporting Requirements for External

Auditors; Sanction; Effectivity
SECTION X166 Audited Financial Statements of Banks

X166.1 Financial audit
X166.2 Posting of audited financial statements
X166.3 Disclosure of external auditor’s adverse findings to
the Bangko Sentral; sanction
X166.4 Disclosure requirement in the notes to the audited
financial statements
X166.5 Disclosure requirements in the annual report
X166.6 Posting and submission of annual report
SECTION X167 Business Name
SECTION X168 Management Contracts
SECTION X169 Duties and Responsibilities of Banks and their Directors/Officers

in All Cases of Outsourcing of Banking Functions
X169.1 Prohibition against outsourcing certain banking functions
X169.2 Outsourcing of information technology systems/
processes
X169.3 Outsourcing of other banking functions
X169.4 Service providers
X169.5 Review of subsisting outsourcing contracts
xviii
X169.6 - X169.10 (Reserved)
X169.11 Other banking services for subsidiaries, affiliates and
related companies
X169.12 - X169.18 (Reserved)
X169.19 Penalties
SECTION X170 Compliance System; Compliance Officer

X170.1 Compliance system
X170.2 Compliance officer
X170.3 Compliance risk
X170.4 Responsibilities of the board of directors and senior
management on compliance
X170.5 Status
X170.6 Independence
X170.7 Role and responsibilities of the compliance function
X170.8 Cross-border issues
X170.9 Outsourcing
SECTION X171 Bank Protection

X171.1 Objectives
X171.2 Designation of security officer
X171.3 Security program
X171.4 Security devices
X171.5 Reports
X171.6 Bangko Sentral inspection
SECTION X196 Voluntary Liquidation

X196.2 Liquidation plan
X196.3 - X196.7 (Reserved)
X196.8 Liquidation report
SECTION X198 Insolvency or Receivership of Banks

X198.1 Definition of term
X198.2 Prohibited acts
X198.3 - X198.8 (Reserved)
X198.9 Penalties and sanctions
SECTION X199 General Provision on Sanctions
xix
PART TWO - DEPOSIT AND BORROWING OPERATIONS
A. DEMAND DEPOSITS
SECTION X201 Authority to Accept or Create Demand Deposits

X201.1 Prerequisites to accept or create demand deposits
for Thrift Banks/Rural Banks/Cooperative Banks
X201.2 Requirements for accepting demand deposits
X201.3 Sanctions
SECTION X202 Temporary Overdrawings; Drawings Against Uncollected

Deposits
SECTION X203 Checks Without Sufficient Funds
SECTION X204 Current Accounts of Bank Officers and Employees
SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to Accept
Demand Deposits
SECTION 3205 Check Clearing Rules for Rural Banks Who Are Members of the
Philippine Clearing House Corporation
SECTION X206 - X212 (Reserved)
B. SAVINGS DEPOSITS
SECTION X213 Servicing Deposits Outside Bank Premises
SECTION X214 Withdrawals
SECTION X215 Rental Deposits of Lessees
C. NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS
SECTION X223 Authority to Accept Negotiable Order of Withdrawal Accounts

X223.1 Prerequisites to accept NOW accounts for thrift banks/
rural banks/cooperative banks
X223.2 Requirements for accepting NOW accounts
X223.3 Sanctions
xx
SECTION X224 Rules on Servicing NOW Accounts
SECTION X225 Minimum Features
SECTION X226 Clearing of NOW
D. TIME DEPOSITS
SECTION X231 Term of Time Deposits
SECTION X232 Special Time Deposits
SECTION X233 Certificates of Time Deposit

X233.1 Prerequisites to issue NCTDs for thrift banks/rural
banks/cooperative banks
X233.2 Requirements for issuing NCTDs
X233.3 Minimum features
X233.4 Insurance coverage
X233.5 Desistance from issuing new NCTDs
X233.6 Sanctions
X233.7 - X233.8 (Reserved)
X233.9 Long-term negotiable certificates of time deposit
X233.10 (Reserved)
X233.11 Long-term non-negotiable tax-exempt certificates of
time deposit
E. DEPOSIT SUBSTITUTE OPERATIONS (QUASI-BANKING

FUNCTIONS)
SECTION X234 Scope of Quasi-Banking Functions

X234.1 Elements of quasi-banking
X234.2 Definition of terms and phrases
X234.3 Transactions not considered quasi-banking
X234.4 Pre-conditions for the exercise of quasi-banking
functions
X234.5 Certificate of Authority from the Bangko Sentral
SECTION X235 Deposit Substitute Instruments

X235.1 Prohibition against use of acceptances, bills of
exchange and trust certificates
X235.2 Negotiation of promissory notes
xxi
X235.4 Interbank loan transactions
X235.5 Delivery of securities
X235.6 Other rules and regulations governing the issuance
and treatment of deposit substitute instruments
X235.7 - X235.11 (Reserved)
X235.12 Repurchase agreements covering government
securities, commercial papers and other negotiable
and non-negotiable securities or instruments
SECTION X236 Minimum Trading Lot and Minimum Term of Deposit Substitute
SECTION X237 Money Market Placements of Rural Banks

X237.1 Definition of terms
X237.2 Conditions required on accepted placements not
covered by prohibition
X237.3 Sanctions
SECTION X238 Without Recourse Transactions

X238.1 Delivery of securities
X238.2 Sanctions
X238.3 Securities custodianship operations
SECTION X239 Issuance of Bonds

X239.2 Compliance with Securities and Exchange
Commission rules on registration of bond issues
X239.3 Notice to Bangko Sentral ng Pilipinas
X239.5 Issuance of commercial papers
F. GOVERNMENT DEPOSITS
SECTION X240 Statement of Policy

X240.2 Banks which may accept government funds
X240.3 Prerequisites for the grant of authority to accept
deposits from the Government and government
entities
X240.4 Application for authority
X240.5 Limits on funds of the Government and government
entities that may be deposited with banks
X240.6 Liquidity floor
xxii
X240.7 Exempt transactions
X240.8 Reports
X240.9 Sanctions
X240.10 - X240.14 (Reserved)
X240.15 Acceptance by banks with internet banking facility
of payment of fees for account of government entities
G. INTEREST
SECTION X242 Interest on Deposits/Deposit Substitutes

X242.1 Time of payment of interest on time deposits/deposit
substitutes
X242.2 Treatment of matured time deposits/deposit substitutes
SECTION X243 Disclosure of Effective Rates of Interest
H. RESERVES AGAINST DEPOSIT AND DEPOSIT SUBSTITUTE

LIABILITIES
SECTION X253 Accounts Subject to Reserves; Amounts Required

X253.1 Regular reserves against deposit and deposit substitute
liabilities
X253.2 Liquidity reserves
SECTION X254 Composition of Reserves

X254.1 Allowable drawings against reserves
X254.2 Exclusion of uncleared checks and other cash items
X254.3 Interest income on reserve deposits
X254.4 Book entry method for reserve securities
SECTION X255 Exemptions from Reserve Requirements
SECTION X256 Computation of Reserve Position

X256.1 Measurement of reserve requirement
X256.2 – X256.4 (Reserved)
X256.5 Guidelines in calculating and reporting to the BSP
the required reserves on deposit substitutes evidenced
by repurchase agreements covering government
securities
xxiii
SECTION X257 Reserve Deficiencies; Sanctions
X257.1 Chronic reserve deficiency; penalties
X257.2 Failure to cover overdrawings with the Bangko Sentral
X257.3 Payment of penalties on reserve deficiencies
SECTION X258 Report on Compliance
I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS
SECTION X261 Booking of Deposits and Withdrawals

X261.1 Clearing cut-off time
X261.2 Definitions
X261.3 Booking of cash deposits
X261.4 Booking of non-cash deposits
X261.5 Booking of deposits after regular banking hours
X261.6 Other records required
X261.7 Notice required
SECTION X262 Miscellaneous Rules on Deposits

X262.1 Specimen signatures, ID photos
X262.2 Insurance on deposits
X262.3 Certification of compliance with Subsection 55.4 of
R.A. No. 8791
SECTION X263 Service and Maintenance Fees

X263.1 Amendments to terms and conditions for the
imposition of service charges/fees
SECTION X264 Unclaimed Balances
SECTION X265 Acceptance, Encashment or Negotiation of Checks Drawn in

Favor of Commissioner/Collector of Customs
SECTION X266 Deposit Pick-up/Cash Delivery Services

X266.1 Operation of armored cars
SECTION 3266 Qualifying Criteria Before a Rural/Cooperative Bank Engages in

Deposit Pick-up Services
xxiv
SECTION X267 Automated Teller Machines
J. BORROWINGS FROM THE BANGKO SENTRAL
SECTION X268 Eligibility Requirements for Availment of the BSP Rediscounting

Facility by Banks
X268.1 Eligibility requirements for applicant banks
X268.2 Eligible papers and collaterals
X268.3 - X268.9 (Reserved)
X268.10 Constitutional prohibition
SECTION X269 Terms and Conditions of the BSP Loan

X269.1 Rediscounting line
X269.2 (Reserved)
X269.3 Loan value
X269.4 Maturities
X269.5 Rediscount/lending rates and liquidated damages
X269.6 Release of proceeds
X269.7 Remittance of collections/ repayments/arrearages
X269.8 Prohibited transactions
X269.9 Credit examination of borrowing banks
X269.10 Penalties/sanctions
X269.11 Interlocking directorship/officership
X269.12 Transitory provisions
SECTION X270 Repurchase Agreements with the Bangko Sentral
SECTION X271 Bangko Sentral Liquidity Window

X271.1 Nature of liquidity window
X271.2 Terms of credit
X271.3 Limit
SECTION X272 Emergency Loans or Advances to Banking Institutions

X272.1 Nature of emergency loans or advances
X272.2 When an emergency loan or advance may be availed
of
X272.3 Procedures
X272.4 Allowable amount of emergency loan or advance
X272.5 Manner and conditions of release
X272.6 Types of acceptable collaterals
X272.7 Interest rate
X272.8 Term
X272.9 Other documentary requirements
X272.10 General terms and conditions
xxv
SECTION X273 Facility to Committed Credit Line Issuers
X273.1 Nature of special credit accommodations
X273.2 Conditions to access
X273.3 Terms of credit
X273.4 Ceiling
SECTION 2274 Countryside Financial Institutions Enhancement Program for

Thrift Banks (CFIEP)
SECTION 3274 Countryside Financial Institutions Enhancement Program for

Rural and Cooperative Banks
SECTION X275 Recording and Reporting of Borrowings
SECTION X276 Rediscounting Window for Low-Cost Housing as Defined by the

Housing and Urban Development Coordinating Council
(HUDCC)
SECTION 1277 Rediscounting Window Available to All Universal and

Commercial Banks for the Purpose of Providing Liquidity
Assistance to Investment Houses
SECTION 2277 Rediscounting Window Available to TBs for the Purpose of

Providing Liquidity Assistance to Support and Promote
Microfinance Programs
SECTION 3277 Rediscounting Window Available to Rural and Cooperative

Banks for the Purpose of Providing Liquidity Assistance to Support
and Promote Microfinance Programs
3277.1 Eligibility requirements
3277. 2 Microcredit (MCR) line
3277. 3 Terms and conditions
3277.4 Documentary requirements
3277.5 Remittance of collections/ payments/repayments
3277.6 Reports required
3277.7 Accounts verification
3277.8 Sanctions
xxvi
K. OTHER BORROWINGS
SECTION X281 Borrowings from the Government

X281.1 Exemption from reserve requirement
SECTION X282 Borrowings from Trust Departments or Investment Houses
SECTION 2283 Mortgage/Chattel Mortgage Certificates of Thrift Banks
SECTION 3284 Borrowings of Rural Banks/Cooperative Banks
PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS
SECTION X301 Lending Policies

X301.1 (Reserved)
1301.1 Rules and regulations to govern the development and
implementation of banks’ internal credit risk rating
systems
X301.2 – X301.5 (Reserved)
X301.6 Large exposures and credit risk concentrations
SECTION X302 Loan Portfolio and Other Risk Assets Review System
X302.1 Provisions for losses; booking
X302.2 Sanctions
A. LOANS IN GENERAL
SECTION X303 Credit Exposure Limits to a Single Borrower

X303.2 Rediscounted papers included in loan limit
xxvii
X303.3 Credit risk transfer
X303.4 Exclusions from loan limit
X303.5 Sanctions
X303.6 – X303.7 (Reserved)
X303.8 Limit for wholesale lending activities of government
banks
SECTION X304 Grant of Loans and Other Credit Accommodations

X304.1 General guidelines
X304.2 Purpose of loans and other credit accommodations
X304.3 Prohibited use of loan proceeds
X304.4 Signatories
SECTION X305 Interest and Other Charges

X305.1 Rate of interest in the absence of stipulation
X305.2 Escalation clause; when allowable
X305.3 Floating rates of interest
X305.4 Accrual of interest earned on loans
SECTION X306 Past Due Accounts

X306.1 Accounts considered past due
X306.2 Demand loans
X306.3 Renewals/extensions
X306.4 Restructured loans
X306.5 Write-off of loans as bad debts
X306.6 Writing-off microfinance loans as bad debts
SECTION X307 “Truth in Lending Act” Disclosure Requirement

X307.2 Information to be disclosed
X307.3 Inspection of contracts covering credit transactions
X307.4 Posters
SECTION X308 Amortization on Loans and Other Credit Accommodations.
SECTION X309 Non-Performing Loans

X309.1 Accounts considered non-performing; definitions
X309.2 Reporting requirement
xxviii
B. SECURED LOANS
SECTION X311 Loans Secured by Real Estate Mortgages

X311.1 Loans secured by junior mortgage on real estate
1311.2 (Reserved)
2311.2 (Reserved)
3311.2 Eligible real estate collaterals on rural/cooperative
bank loans
X311.3 Insurance on real estate improvements
1311.4 (Reserved)
2311.4 Foreclosure by thrift banks
3311.4 Foreclosure by rural/cooperative banks
X311.5 Redemption of foreclosed real estate mortgage
SECTION X312 Loans and Other Credit Accommodations Secured By Chattels

and Intangible Properties
SECTION X313 Loans and Other Credit Accommodations Secured By Personal

Properties
SECTION X314 Increased Loan Values and Terms of Loans for Home-Building
SECTION X315 Loans Secured by Certificates of Time Deposit
C. UNSECURED LOANS
SECTION X319 Requirement for Grant of Loans and Other Credit

Accommodations
X319.1 General guidelines
X319.2 Proof of financial capacity of borrower
X319.3 Signatories
X319.4 - X319.5 (Reserved) (deleted by Cir. 389 dated
25 June 2003)
X319.6 Credit card receivables (superseded by Cir. 398 dated
21 August 2003)
SECTION X320 Credit Card Operations; General Policy

X320.2 Risk management system
X320.3 Minimum requirements
X320.4 Information to be disclosed
xxix
X320.5 Interest accrual on past due loans
X320.6 Finance charges
X320.7 Deferral charges
X320.8 Late payment/penalty fees
X320.9 Confidentiality of information
X320.10 Suspension, termination of effectivity and reactivation
X320.11 Inspection of records covering credit card transactions
X320.12 Offsets
X320.13 Handling of complaints
X320.14 Unfair collection practices
X320.15 Sanctions
D. RESTRUCTURED LOANS
SECTION X322 Restructured Loans; General Policy

X322.1 Definition; when to consider performing/non-
performing
X322.2 Procedural requirements
X322.3 Restructured loans considered past due
X322.4 Classification
E. LOANS AND OTHER CREDIT ACCOMODATIONS TO

DIRECTORS, OFFICERS, STOCKHOLDERS AND THEIR RELATED
INTERESTS
SECTION X326 General Policy

X326.1 Definitions
SECTION X327 Transactions Covered
SECTION X328 Transactions Not Covered

X328.1 Applicability to credit card operations
SECTION X329 Direct or Indirect Borrowings
SECTION X330 Individual Ceilings

X330.1 Exclusions from individual ceiling
SECTION X331 Aggregate Ceiling; Ceiling on Unsecured Loans, Other Credit

Accommodations and Guarantees
xxx
SECTION X332 Exclusions from Aggregate Ceiling
SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks
SECTION X334 Procedural Requirements
SECTION X335 Reportorial Requirements
SECTION X336 Sanctions
SECTION X337 Waiver of Secrecy of Deposit
SECTION X338 Financial Assistance to Officers and Employees

X338.1 Mechanics
1338.2 Funding by foreign banks
X338.3 Other conditions/limitations
SECTION X339 Transitory Provisions

X339.1 - X339.3 (Reserved)
X339.4 Reportorial requirements
F. MANDATORY CREDITS
SECTION X341 Agrarian Reform and Agricultural Credit

X341.2 Who may borrow; purposes
X341.3 Required allocation for agrarian reform and
agricultural credit in general
X341.4 Computation of loanable funds
X341.5 Allowable alternative compliance
X341.6 Syndicated type of agrarian reform credit/agricultural
credit
X341.7 Interest and other charges
X341.8 Unused agri-agra funds to be utilized for socialized
and low-cost housing
X341.9 Submission of reports
X341.10 - X341.11 (Reserved)
X341.12 Consolidated compliance
X341.13 - X341.14 (Reserved)
X341.15 Sanctions
xxxi
SECTION X342 Mandatory Credit to Small Enterprises
X342.2 Mandatory allocation of credit resources to small and
medium enterprises
X342.3 Eligible investments
X342.4 Ineligible instruments
X342.5 Guarantee coverage
X342.6 Submission of reports
X342.7 Lendings to medium enterprises
X342.8 Sanctions
X342.9 - X342.14 (Reserved)
X342.15 Accreditation guidelines for rural and thrift banks
under the SME Unified Lending Opportunities for
National Growth (SULONG)
G. SPECIAL TYPES OF LOANS
SECTION X343 Interbank Loans

X343.1 Systems and procedures for interbank call loan
transactions
X343.2 Accounting procedures
X343.3 Settlement procedures for interbank loan transactions
SECTION X344 Loans to Thrift/Rural/Cooperative Banks

X344.1 Loans under Section 12 of R.A. No. 7353, Section
10 of R.A. No. 7906 and Article 108, R.A. No. 6938
X344.2 Loans under Section 14 of R.A. No. 7353
SECTION X347 Standby Letters of Credit

X347.1 Domestic standby letters of credit
X347.2 Ceiling
X347.3 Reports
SECTION X348 Committed Credit Line for Commercial Paper Issues

X348.1 Who may grant line facility
X348.2 Ceilings
X348.3 Terms; conditions; restrictions
X348.4 Reports to the Bangko Sentral
X348.5 Loan limit
xxxii
SECTION X349 Agriculture and Fisheries Projects with Long Gestation Periods
X349.2 Grace period
X349.3 Responsibility of lending banks
X349.4 Past due loans
X349.5 Non-performing loans
SECTION X361 Microfinancing Loans

X361.1 Definition
X361.2 Loan limit; amortization; interest
X361.3 Credit information exemption
X361.4 Exemptions from rules on unsecured loans
X361.5 Sanctions
SECTION X365 Loans to Barangay Micro Business Enterprises

X365.1 Credit delivery
X365.2 Interest on loans to BMBEs
X365.3 Amortization of loans to BMBEs
X365.4 Waiver of documentary requirements
X365.5 Incentives to participating financial institutions
X365.6 Credit guarantee
X365.7 Record
X365.8 Reports to congress
X365.9 Administrative sanctions
H. EQUITY INVESTMENTS
SECTION X376 Scope of Authority

X376.1 Conditions for investment in equities
X376.2 - X376.4 (Reserved)
X376.5 Guidelines for major investments
SECTION X377 Financial Allied Undertakings
SECTION X378 Limits on Investment in the Equities of Financial Allied

Undertakings
xxxiii
SECTION X379 Investments in Venture Capital Corporations
X379.1 Requirements for investors
X379.2 Equity investments of venture capital corporations
X379.3 Business name of venture capital corporations
X379.4 Reportorial requirements; examination by Bangko
Sentral
X379.5 Interlocking directorships and/or officerships
SECTION X380 Non-Financial Allied Undertakings
SECTION 1381 Investments in Non-Allied or Non-Related Undertakings

1381.1 Non-allied undertakings eligible for investment by
universal banks
1381.2 Limits on investments in non-allied enterprises
1381.3 Report on outstanding equity investments in and
outstanding loans to non-allied enterprises
SECTION X382 Investments in Subsidiaries and Affiliates Abroad

X382.1 Application for authority to establish or acquire
subsidiaries and affiliates abroad
X382.2 Requirements for establishing subsidiaries or affiliates
abroad
X382.3 Conditions for approval of application
X382.4 - X382.7 (Reserved)
X382.8 Investment of a bank subsidiary in a foreign subsidiary
SECTION X383 Other Limitations and Restrictions
I. (RESERVED)
J . OTHER OPERATIONS
SECTION X388 Purchase of Receivables and Other Obligations

X388.1 Yield on purchase of receivables
X388.2 Purchase of receivables on a “without recourse” basis
X388.3 Purchase of commercial paper
X388.4 Reverse repurchase agreements with Bangko Sentral
X388.5 Investment in debt and readily marketable equity
securities
xxxiv
SECTION 1389 Guidelines on the Investment of UBs and KBs in Credit-Linked
Notes, Structured Products and Securities Overlying
Securitization Structures
SECTIONS X390 – X392 (Reserved)
K. MISCELLANEOUS PROVISIONS
SECTION X393 Loans-to-Deposits Ratio

X393.1 Statement of policy
X393.2 Other methods of compliance
X393.3 Geographical groupings
X393.4 Lagged computation
X393.5 Real and other properties acquired as part of
compliance
SECTION X394 Acquired Assets in Settlement of Loans

X394.1 Posting
X394.2 Booking
X394.3 Sales contract receivable
X394.4 - X394.9 (Reserved)
X394.10 Transfer/sale of non-performing assets to a special
purpose vehicle or to an individual
SECTION X395 Credit Policies of Government-Owned Corporations
SECTION X396 Parcellary Plans on Crop Loans
SECTION 1397 Limits on Real Estate Loans of Universal Banks/Commercial

Banks
SECTION X398 Debt Service Limit on Local Government Borrowings
xxxv
PART FOUR - TRUST, OTHER FIDUCIARY BUSINESS AND
INVESTMENT MANAGEMENT ACTIVITIES
SECTION X401 Statement of Principles
SECTION X402 Scope of Regulations
SECTION X403 Definitions
A. TRUST AND OTHER FIDUCIARY BUSINESS
SECTION X404 Authority to Perform Trust and Other Fiduciary Business

X404.1 Application for authority to perform trust and other
fiduciary business
X404.2 Required capital
X404.3 Prerequisites for engaging in trust and other fiduciary
business
X404.4 Pre-operating requirements
SECTION X405 Security for the Faithful Performance of Trust and Other Fiduciary
Business
X405.1 Basic security deposit
X405.2 Eligible securities
X405.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X405.4 Compliance period; sanctions
X405.5 Reserves against peso-denominated Common Trust
Funds and Trust and Other Fiduciary Accounts -
Others
X405.6 Composition of reserves
X405.7 Computation of reserve position
X405.8 Reserve deficiencies; sanctions
X405.9 Report of compliance
SECTION X406 Organization and Management

X406.1 Organization
X406.2 Composition of trust committee
X406.3 Qualifications of committee members, officers and
staff
X406.4 Responsibilities of administration
SECTION X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management

Activities
xxxvi
SECTION X408 Unsafe and Unsound Practices
X408.1 – X408.8 (Reserved)
X408.9 Sanctions
SECTION X409 Trust and Other Fiduciary Business

X409.1 Minimum documentary requirements
X409.2 Lending and investment disposition
X409.3 Transactions requiring prior authority
X409.4 Ceilings on loans
X409.5 Funds awaiting investment or distribution
X409.6 Other applicable regulations on loans and
investments
X409.7 Operating and accounting methodology
X409.8 Tax-exempt individual trust accounts
X409.9 - X409.15 (Reserved)
X409.16 Qualification and accreditation of private banks acting
as trustee on any mortgage or bond issuance by any
municipality, government-owned or controlled
corporation, or any body politic
SECTION X410 Unit Investment Trust Funds/Common Trust Funds

X410.1 Definitions
X410.2 Establishment of a Unit Investment Trust Fund
X410.3 Administration of a Unit Investment Trust Fund
X410.4 Relationship of trustee with Unit Investment Trust Fund
X410.6 Plan rules
X410.7 Minimum disclosure requirements
X410.8 Exposure limit to single person/entity
X410.9 Allowable investments and valuation
X410.10 Other related guidelines on valuation of allowable
investments
X410.11 Unit Investment Trust Fund administration support
X410.12 Counterparties
X410.13 Foreign currency-denominated Unit Investment Trust
Funds
X410.14 Exemptions from statutory and liquidity reserves,
single borrower's limit, DOSRI
SECTION X411 Investment Management Activities

X411.1 Minimum documentary requirements
X411.2 Minimum size of each investment management
account
xxxvii
X411.3 Commingling of funds
X411.4 Lending and investment disposition
X411.5 Transactions requiring prior authority
X411.6 Title to securities and other properties
X411.7 Ceilings on loans
X411.9 Tax-exempt individual investment management
accounts
SECTION X412 FCDU/EFCDU Trust Accounts

X412.1 Banks with trust authority
X412.2 Banks without trust authority
X412.3 Additional deposit for the faithful performance of trust
duties
X412.4 Liquidity requirement for FCDU/EFCDU Common
Trust Funds
X412.5 Applicability of rules and regulations
SECTION X413 Required Surplus
B. INVESTMENT MANAGEMENT ACTIVITIES
SECTION X414 Authority to Perform Investment Management

X414.1 Prerequisites for engaging in investment management
activities
X414.2 Pre-operating requirements
SECTION X415 Security for the Faithful Performance of Investment Management

Activities
X415.2 Eligible securities
X415.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X415.4 Compliance period; sanctions
SECTION X416 Organization and Management
SECTION X417 Non-Investment Management Activities
SECTION X418 Unsound Practices
SECTION X420 Required Surplus
xxxviii
C. GENERAL PROVISIONS
SECTION X421 Books and Records
SECTION X422 Custody of Assets
SECTION X423 Fees and Commissions
SECTION X424 Taxes
SECTION X425 Reports Required

X425.1 To trustor, beneficiary, principal
X425.2 To the Bangko Sentral
X425.3 Post-Bond Flotation Report
SECTION X426 Audits

X426.1 Internal audit
X426.2 External audit
X426.3 Board action
SECTION X427 Authority Resulting from Merger or Consolidation
SECTION X428 Receivership
SECTION X429 Surrender of Trust or Investment Management License.
SECTION X441 Securities Custodianship and Securities Registry Operations

X441.1 Statement of policy.
X441.2 Applicability of this regulation
X441.3 Prior Bangko Sentral approval
X441.4 Application for authority
X441.5 Pre-qualification requirements for a securities
custodian/registry
X441.6 Functions and responsibilities of a securities custodian
X441.7 Functions and responsibilities of a securities registry
X441.8 Protection of securities of the customer
X441.9 Independence of the registry and custodian
X441.10 Registry of scripless securities of the Bureau of the
Treasury
X441.11 Confidentiality
X441.12 Compliance with anti-money laundering laws/
regulations
xxxix
X441.14 Reportorial requirements
X441.15 – X441.28 (Reserved)
X441.29 Sanctions
PART FIVE - FOREIGN CURRENCY DEPOSIT SYSTEM AND OTHER

OPERATIONS IN FOREIGN CURRENCY
SECTION X501 Foreign Currency Deposit System

X501.2 Qualification requirements
X501.3 Authorized transactions
X501.4 Foreign currency cover requirements
X501.5 Foreign currency deposit with the Bangko Sentral
X501.6 Currency composition of the cover
X501.7 Secrecy of deposits
X501.8 Numbered accounts
X501.9 Withdrawability and transferability of deposits
X501.10 Insurance coverage
X501.11 Rates of interest
X501.12 Eligibility as collateral
X501.13 Taxes
X501.14 Exemption from court order or process
X501.15 Inapplicability of the Usury Law
X501.16 Accounting
X501.17 Supervision
X501.18 Sanctions
SECTION X502 Other Transactions in Foreign Currency

X502.1 Mobile foreign exchange booths
X502.2 Off-site automatic multi-currency money changers
SECTION X503 Recognition of positions arising from banks’ foreign currency

options in the computation of net open FX position
SECTION X531 Securities Lending
xl
SECTION X532 Repurchase Agreements Involving Foreign Currency-
Denominated Government Securities
SECTION X565 Conversion to Peso Loans/ROPA and Transfer to RBU of FCDU/

EFCDU Loans/ROPA
PART SIX - MISCELLANEOUS
A. OTHER OPERATIONS
SECTION X601 Open Market Operations

X601.1 Repurchase agreements with Bangko Sentral
X601.2 Reverse repurchase agreements with Bangko Sentral
X601.3 Settlement procedures on the purchase and sale of
government securities under repurchase agreements
with the Bangko Sentral
SECTION X602 Derivatives

X602.1 Scope and pre-qualification requirements
X602.2 Authorized transactions
X602.3 Renewals
X602.4 Risk management guidelines
X602.5 Accounting guidelines
X602.6 Reporting requirements
X602.7 Sanctions
X602.8 - X602.13 (Reserved)
X602.14 Forward and swap transactions
X602.16 Documentation
X602.17 Tenor/maturity of FX forward or swap
X602.18 Cancellations, roll-overs or non-delivery of FX forward
contracts
X602.19 Non-deliverable forward contracts with non-residents
X602.20 Compliance with Anti-Money Laundering rules
X602.21 Reporting requirements
X602.22 - X602.25 (Reserved)
X602.26 Sanctions
xli
SECTION 1602 Forward Contracts With Non-Residents
SECTION X603 Clearing Operations
SECTION X604 Collection of Customs Duties/ Taxes/Levies and Other Revenues

X604.1 Coverage
X604.2 Collection and reporting of internal revenue taxes
X604.3 Collection and reporting of customs duties and import
processing fees
X604.4 Collection and reporting of export/premium duties
X604.5 Remittances thru debit/credit advices
X604.6 Reconciliation of revenue collections
X604.7 Penalty for willful delay on the reporting of
collections/remittances
X604.8 Fines for delayed reports/remittances of collections
X604.9 Liquidity floor requirement on revenue collections
X604.10 Collection of import duties at the time of opening of
letters of credit
SECTION X605 Miscellaneous Operations

X605.1 Collection and paying agents of the Social Security
System
X605.2 Commercial banks as depository of rediscounting
proceeds
X605.3 Collection agents of PhilHealth
B. SUNDRY PROVISIONS
SECTION X606 Bank Premises and Other Fixed Assets

X606.1 Appreciation or increase in book value
X606.2 Ceiling on total investments
X606.3 Reclassification of real and other properties acquired
as bank premises
X606.4 Lease of bank premises
X606.5 - X606.9 (Reserved)
X606.10 Batas Pambansa Blg. 344 – An Act To Enhance The
Mobility Of Disabled Persons By Requiring Certain
Buildings, Institutions, Establishments And Public
Utilities To Install Facilities And Other Devices
SECTION X607 Bank Advertisements
SECTION X608 Assessment Fees on Banks

X608.1 Annual fees on banks
xlii
SECTION X609 Collection of Fines and Other Charges from Banks
X609.1 Payment of fines by banks
X609.2 Cost of checks and documentary stamps
X609.3 Check/demand draft payments to the Bangko Sentral
of thrift, cooperative and rural banks
SECTION X610 Philippine and Foreign Currency Notes and Coins

X610.2 Treatment and disposition of counterfeit Philippine
and foreign currency notes and coins
X610.3 Reproduction and/or use of facsimiles of legal tender
Philippine currency notes
X610.4 Reproduction and/or use of facsimiles of legal tender
Philippine currency coins
X610.5 Clean Note Policy
X610.6 Replacement and redemption of mutilated or unfit
legal tender Philippine currency notes and coins
X610.7 Treatment of Philippine currency notes and coins
called in for replacement
X610.8 Sanctions
SECTION X621 Electronic Banking Services

X621.1 Application
X621.2 Pre-screening of applicants
X621.3 Approval in principle
X621.4 Documentary requirements
X621.5 Conditions for Monetary Board approval
X621.6 Pending applications
X621.7 Exemption
X621.8 Transitory provision
X621.9 - X621.11 (Reserved)
X621.12 Sanctions
SECTION 1631 Financial Products of Allied Undertakings or Investment House

Units of Banks
1631.1 Statement of principles
1631.2 Prior Monetary Board approval
1631.3 Minimum documentary requirements
1631.4 Financial ratios and other related requirements
xliii
1631.5 Promotional materials; stationeries and other
paraphernalia
1631.6 Contracts/Information to be disclosed
1631.7 Training
1631.8 Other requirements
1631.9 - 1631.10 (Reserved)
1631.11 Sanctions
SECTION X632 Prohibition on the Sale of Foreign-Based Mutual Funds by Banks
SECTION 1633 Credit-linked Notes and Similar Credit Derivative Products
SECTION 1635 Banks’ Exposures to Structured Products.

1635.1 Statement of policy.
1635.2 Definition
1635.3 Qualified banks.
1635.4 Capital treatment of banks’ exposures to structured
products
1635.5 BSP approval not required
SECTION 1636 EFCDUs Investments in Foreign Currency Denominated

Structured Products
1636.1 Statement of policy
1636.2 Scope
1636.3 Other conditions
1636.4 Capital treatment of EFCDUs
1636.6 Sanctions
xliv
SECTION 1648 Investments in Securities Overlying Securitization Structures

1648.1 Statement of policy
1648.2 Definition
1648.3 Qualified banks
1648.4 Capital treatment of investments in securities
overlying securitization structures
SECTION 1650 Offering in the Philippines of Products by Parent Bank and

Branches Abroad of the Parent Bank
SECTION X651 Asset-Backed Securities

X651.2 Authority
X651.3 Management oversight
X651.4 Minimum documents required
X651.5 Minimum features of ABS
X651.6 Disclosures
X651.7 Conveyance of assets
X651.8 Representations and warranties
X651.9 Third party review
X651.10 Originator and seller
X651.11 Trustee and issuer
X651.12 Servicer
X651.13 Underwriter
X651.14 Guarantor
X651.15 Credit enhancement
X651.16 Clean-up call
X651.17 Prohibited activities
X651.18 Amendment
X651.19 Miscellaneous provision
X651.20 Report to BSP
xlv
SECTION X654 Recognition and Derecognition of Domestic Credit Rating

Agencies for Bank Supervisory Purposes
X654.1 Statement of policy
X654.2 Minimum eligibility criteria
X654.3 Pre-qualification requirements
X654.4 Inclusion in BSP list
X654.5 Derecognition of credit rating agencies
X654.6 Recognition of PhilRatings as domestic credit rating
agency for bank supervisory purposes.
SECTION X658 Examination by the BSP
SECTION X659 Internationally Accepted Credit Rating Agencies

X659.1 – X659.5 (Reserved)
X659.6 Recognition of FITCH SINGAPORE PTE LTD as
international credit rating agency for bank supervisory
purposes
SECTION X660 – X690 (Reserved)
SECTION X691 Anti-Money Laundering Regulations

X691.1 Minimum guidelines for fund transfers and
correspondent banking account opening and
customer identification
X691.2 - X691.3 (Reserved)
1691.4 Electronic monitoring systems for money laundering
X691.5 – X691.8 (Reserved)
X691.9 Sanctions and penalties
xlvi
List of Appendices
05.12.31
LIST OF APPENDICES
No. SUBJECT MATTER
1 Guidelines for the Issuance of a Universal Banking Authority
2 Prescribed Application Forms for the Entry of Foreign Banks
3 Guidelines for the Issuance of a Universal Banking Authority for Branches of

Foreign Banks
4 Format of Affidavit on Transfer of Stocks
5 Standard Pre-Qualification Requirements for the Grant of Banking Authorities
5a Prerequisites for the Grant of Authority to Operate FCDU
5b Qualification requirements for a bank/NBFI applying for accreditation to act as

trustee on any mortgage or bond issued by any municipality, government-owned
or -controlled corporation, or any body politic
6 Reports Required of Banks
7 Certain Information Required from Banks
8 Documents/Information on Organizational Structure and Operational Policies
9 Guidelines for Consolidation of Financial Statements of Banks and Their

Subsidiaries Engaged in Financial Allied Undertakings (deleted by Cir. 494 dated
20 September 2005)
10 Format Certification on Compliance With Rules and Regulations on Bank Protection
11 Pro-Forma Order of Withdrawal for “NOW” Accounts
12 Samples of Standardized Instruments Evidencing Deposit Substitute Liabilities
13 New Rules on the Registration of Long-Term Commercial Papers
14 New Rules on Registration of Short-Term Commercial Papers
15 List of Reserve - Eligible and Non-Eligible Securities
16 Implementing Guidelines of the Countryside Financial Institutions Enhancement

Program
Manual of Regulations for Banks Appendices Page 1

List of Appendices
05.12.31
No. SUBJECT MATTER
17 Rules Governing Issuance of Mortgage/Chattel Mortgage Certificate by Thrift Banks
18 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets
and Setting Up of Allowance for Probable Losses
19 Format of Disclosure Statement on Loan/Credit Transaction
20 Abstract of “Truth in Lending Act” (Republic Act No. 3765)
21 Agreement for the Enhanced Interbank Call Loan Funds Transfer System
21a Settlement Procedures for Interbank Loan Transactions and Purchase and Sale of
Government Securities Under Repurchase Agreements with the Bangko Sentral
21b Intraday Liquidity Facility for the Implementation of Settlement Procedures Under
Appendix 21a thru the Improved Interbank Call Loan Funds Transfer System
(MIPS 2)
22 List of Non-Allied Undertaking where UBs may Invest in Equities
23 Credit Priority Classification
24 Sample Investment Management Agreement
25 Risk Management Guidelines for Derivatives
26 Risk Disclosure Statement for Derivatives Activities
27 Accounting Guidelines For Derivatives (Incorporated in X602.5)
28 Clearing Procedures
28a Clearing Operations Between Regional Clearing Center and the Manila Clearing
Center (Tarlac, Tarlac Used As Sample)
29 Procedures on Collection of Fines From Banks
30 Prescribed Format Memorandum of Understanding
31 Implementing Guidelines for Thrift Banks Authorized to Accept Demand Deposits

and Rural Banks who are Members of the Philippine Clearing House Corporation
32 Illustrations when a Director, Officer and Stockholder (DOS) shall Waive the
Secrecy of Deposits
Appendices Page 2 Manual of Regulations for Banks

List of Appendices
05.12.31
No. SUBJECT MATTER
33 Classification, Accounting Procedures, Valuation and Sales and Transfers of

Investments in All Debt Securities and Marketable Equity Securities
33a Establishing the Market Benchmarks/Reference Prices and Computation Method

Used to Mark-To Market Debt and Marketable Equity Securities
34 Guidelines on the Use of Scripless (Ross) Securities as Security Deposit for the
Faithful Performance of Trust Duties
35 Proforma Payment Form
36 Suggested Gestation/Grace Periods for Agriculture and Fisheries Projects
37 Basic Guidelines in Establishing Banks
38 Guidelines for the Organization of Cooperative Banks
39 Settlement of Interbank Transactions Vis-À-Vis Covering Reserve Requirement/

Deficiency of Banks’ DDA with BSP
40 Guidelines Governing the Rediscounting of Housing Loan Papers of Qualified

Banks Under HUDCC Program
41 Minimum Criteria for Accreditation of Participating Financial Institutions (PFIs) In

Government Banks Wholesale Lending Program
42 Deed of Undertaking for the Issuance of Redeemable Preferred Shares
43 Guidelines to Govern the Selection, Appointment and the Reporting Requirement

for External Auditors of Banks
44 Implementing Rules and Regulations of Republic Act No. 6848 (The Islamic Bank
Charter)
45 Notes on Microfinance
46 Guidelines to Incorporate Market Risk in the Risk-Based Capital Adequacy

Framework
46a Market Risk Capital Treatment for Dollar-Linked Peso Notes
46b Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
Based Capital Adequacy Ratio Covering Combined Credit Risk and Market Risk
(For Universal Banks and Commercial Banks with Expanded Derivatives Authority)

List of Appendices
05.12.31
No. SUBJECT MATTER
46c Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
(For Universal Banks and Commercial Banks with Expanded Derivatives Authority
But Without Options Transactions)
46d Instructions for Accomplishing the Report on Computation of the Adjusted Risk-
(For Universal Banks and Commercial Banks Without Expanded Derivatives
Authority)
46e Procedures to be Observed by Universal and Commercial Banks Applying for

BSP Recognition of Their Own Internal Models for Calculating Market Risk Capital
47 Guidelines for the Establishment and Administration/Management of Sinking Fund

for the Redemption of Redeemable Private Preferred Shares
48 Activities Which May Be Considered Unsafe and Unsound Banking Practices
49 Certification of Compliance with Section 55.4 of Republic Act No. 8791
50 Guidelines on Retention and Disposal of Records of Rural and Cooperative Banks
51 Format Certification on FCDU Lending to RBU
51a Sample Computation on FCDU Lending to RBU
52 Revised Implementing Rules and Regulations R.A. No. 9160, as Amended by

R.A. No. 9194
52a Anti-Money Laundering Regulations
52b Minimum Guidelines for Fund Transfers
52c Minimum Guidelines for Correspondent Banking Account Opening and Customer
Identification
53 Certification of Compliance with Anti-Money Laundering Regulations
54 Details on the Computation of Quarterly Interest Payments Credited to the Demand

Deposit Accounts of Banks’ Legal Reserve Deposits with BSP
55 SME Unified Lending Opportunities for National Growth (SULONG) Bank

Accreditation Application for Rural and Thrift Banks Eligibility and Documentary
Requirements
Appendices Page 4 Manual of Regulations for Banks

List of Appendices
05.12.31
No. SUBJECT MATTER
56 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or to an

Individual
56a Accounting Guidelines on the Sale of Non-Performing Assets to Special Purpose

Vehicles and to Qualified Individuals for Housing Under “The Special Purpose
Vehicle (SPV) Act of 2002”
57 Circular No. 402 Revised Guidelines on the Flotation of Bonds by Local

Government Units (LGUs) [Without National Government Guarantee]
58 Guidelines and Minimum Documentary Requirements for Foreign Exchange (FX)

Forward and SWAP Transactions
59 Conversion/Transfer of FCDU Loans to RBU
60 Rules and Regulations on Common Trust Funds
61 Checklist of BSP Requirements in the Submission of Audited Financial Statements

and Annual Report
62 Quarterly Investment Disclosure Statement
63 Implementation Plans Under the New International Capital Standards as Contained

in the Basel Committee on Banking Supervision (BCBS) Document International
Convergence of Capital Measurement and Capital Standards
63a Qualifying Capital Under the Risk Based Capital Adequacy Framework
64 BSP Rules of Procedure on Administrative Cases Involving Directors and Officers

of Banks
65 Format Certification
66 Regulatory Requirements in Investing in Credit-Linked Notes, Structured Products

and Securities Overlying Securitization Structures by UBs and KBs
67 The Guidelines for the Imposition of Monetary Penalty for Violations/Offenses

with Sanctions Falling Under Section 37 of R.A. No. 7653 on Banks, Directors
and/or Officers

§ X101
05.12.31
PART ONE
ORGANIZATION, MANAGEMENT AND ADMINISTRATION
A. CLASSIFICATIONS AND POWERS (d) in case of publicly-listed UBs, the

OF BANKS power to own up to one hundred percent
(100%) of the voting stock of only one
Section X101 Classifications, Powers (1) other UB or KB.
and Scope of Authorities of Banks. The A UB may perform the functions of an
following are the classifications, powers and IH either directly or indirectly through a
scope of authorities of banks, as well as the subsidiary IH; in either case, the
prerequisites for the grant of banking underwriting of equity securities and
authorities. securities dealing shall be subject to
a. Classifications of banks. Banks are pertinent laws and regulations of the
classified into the following subject to the Securities and Exchange Commission
power of the Monetary Board to create other (SEC): Provided, That if the IH functions are
classes or kinds of banks: performed directly by the UB, such
(1) Universal banks (UBs); functions shall be undertaken by a separate
(2) Commercial banks (KBs); and distinct department or other similar
(3) Thrift banks (TBs), as defined in unit in the UB: Provided, further, That a
Republic Act (R.A.) No. 7906, which shall UB cannot perform such functions both
be composed of: (a) savings and mortgage directly and indirectly through a subsidiary.
banks, (b) stock savings and loan associations,
and (c) private development banks; (2) KBs. In addition to the general
(4) Rural banks (RBs), as defined in powers incident to corporations and those
R. A. No. 7353; provided in other laws, a KB shall have the
(5) Cooperative banks (Coop Banks), as authority to exercise all such powers as may
defined in R. A. No. 6938; and be necessary to carry on the business of
(6) Islamic banks (IBs), as defined in commercial banking, such as accepting
R.A. No. 6848. drafts and issuing letters of credit;
b. Powers and scope of authorities discounting and negotiating promissory
The following are the powers and scope of notes, drafts, bills of exchange, and other
authorities of banks. evidences of debt; accepting or creating
(1) UBs. A UB shall have the authority demand deposits; receiving other types of
to exercise, in addition to the powers and deposits and deposit substitutes; buying
services authorized for a KB as enumerated and selling foreign exchange and gold or
in Item “b(2)” and those provided by other silver bullion; acquiring marketable bonds
laws, the following: and other debt securities; and extending
(a) the powers of an investment house credit, subject to such rules as the Monetary
(IH) as provided under existing laws; Board may promulgate. These rules may
(b) the power to invest in non-allied include the determination of bonds and
enterprises; other debt securities eligible for investment,
(c) the power to own up to one the maturities and aggregate amount of
hundred percent (100%) of the equity in a such investment.
TB, an RB, a financial allied enterprise, or a It may also exercise or perform any or
non-financial allied enterprise; and all of the following:
Manual of Regulations for Banks Part I - Page 1

§ X101
05.12.31
(a) invest in the equities of allied (i) act as correspondent for other
enterprises as provided in Sections 31 and financial institutions;
32 of R.A. No. 8791; (j) purchase, hold and convey real
(b) purchase, hold and convey real estate as specified under Sections 51 and
estate as specified under Sections 51 and 52 of R.A. No. 8791; and
52 of R.A. No. 8791; (k) offer other banking services as
(c) receive in custody funds, provided in Section 53 of R.A. No. 8791.
documents and valuable objects; With prior approval of the Monetary
(d) act as financial agent and buy and Board, and subject to such guidelines as
sell, by order of and for the account of their may be established by it, TBs may also
customers, shares, evidences of indebtedness perform the following services:
and all types of securities; (l) open current or checking accounts;
(e) make collections and payments for (m) engage in trust, quasi-banking
the account of others and perform such functions and money market operations;
other services for their customers as are not (n) act as collection agent for
incompatible with banking business; government entities, including but not
(f) upon prior approval of the Monetary limited to, the Bureau of Internal Revenue
Board, act as managing agent, adviser, (BIR), Social Security System (SSS) and the
consultant or administrator of investment Bureau of Customs (BOC);
management/advisory/consultancy (o) act as official depository of national
accounts; agencies and of municipal, city or
(g) rent out safety deposit boxes; and provincial funds in the municipality, city
(h) engage in quasi-banking functions. or province where the TB is located;
(3) TBs. In addition to the powers (p) issue mortgage and chattel
provided in other laws, a TB may perform mortgage certificates, buy and sell them for
any or all of the following services: its own account or for the account of others,
(a) grant loans, whether secured or or accept and receive them in payment or
unsecured; as amortization of its loan; and
(b) invest in readily marketable bonds (q) invest in the equity of allied
and other debt securities, commercial undertakings.
papers and accounts receivable, drafts, bills (4) RBs. In addition to the powers
of exchange, acceptances or notes arising provided in other laws, an RB may perform
out of commercial transactions; any or all of the following services:
(c) issue domestic letters of credit; (a) extend loans and advances
(d) extend credit facilities to private and primarily for the purpose of meeting the
government employees; normal credit needs of farmers, fishermen
(e) extend credit against the security of or farm families as well as cooperatives,
jewelry, precious stones and articles of similar merchants, private and public employees;
nature, subject to such rules and regulations (b) accept savings and time deposits;
as the Monetary Board may prescribe; (c) act as correspondent of other
(f) accept savings and time deposits; financial institutions;
(g) rediscount paper with the Land (d) rediscount paper with the LBP, DBP
Bank of the Philippines (LBP), Development or any other bank, including its branches
Bank of the Philippines (DBP), and other and agencies. Said banks shall specify the
government-owned or-controlled corporations; nature of paper deemed acceptable for
(h) accept foreign currency deposits as rediscount, as well as the rediscount rate
provided under R.A. No. 6426, as amended; to be charged by any of these banks;
Part I - Page 2 Manual of Regulations for Banks

§ X101
05.12.31
(e) act as collection agent; (f) accept drafts and issue letters of
(f) offer other banking services as credit or letters of guarantee, negotiate notes
provided in Section 53 of R.A. No. 8791. and bills of exchange and other evidence
With prior approval of the Monetary of indebtedness under the universally
Board, an RB may perform any or all of the accepted Islamic financial instruments;
following services: (g) act as collection agent insofar as the
(g) accept current or checking payment orders, bills of exchange or other
accounts: Provided, That such RB has net commercial documents are exclusive of riba
assets of at least P5.0 million; or interest prohibitions;
(h) accept NOW accounts; (h) provide financing with or without
(i) act as trustee over estates or collateral by way of leasing, sale and
properties of farmers and merchants; leaseback, or cost plus profit sales
(j) act as official depository of arrangement;
municipal, city or provincial funds in the (i) handle storage operations for goods
municipality, city or province where it is or commodity financing secured by
located; warehouse receipts presented to the bank;
(k) sell domestic drafts; and (j) issue shares for the account of
(l) invest in allied undertakings. institutions and companies assisted by the
(5) Coop Banks. A Coop Bank shall be bank in meeting subscription calls or
organized primarily to provide financial and augmenting their capital and/or fund
credit services to cooperatives and may requirements as may be allowed by law;
perform any or all of the services offered (k) undertake various investments in all
by RBs. transactions allowed by the Islamic Shari’a
(6) IBs. In addition to the general in such a way that shall not permit the
powers incident to corporations and those haram (forbidden), nor forbid the halal
provided in other laws, as well as in (permissible);
Circular No. 105 (Appendix 44), insofar as (l) act as an official government
they are not inconsistent or incompatible depository, or its branches, subdivisions and
with the provisions of R.A. No. 6848, an IB instrumentalities and of government-owned
may perform any or all of the following or -controlled corporations, particularly
services: those doing business in the autonomous
(a) open savings accounts for region;
safekeeping or custody with no (m) issue investment participation
participation in profit and losses except certificates, muquaradah (non-interest-
unless otherwise authorized by the account bearing bonds), debentures, collaterals and/
holders to be invested; or the renewal and refinancing of the
(b) accept investment account same, with the approval of the Monetary
placements and invest the same for a term Board to be used by the IB in its financing
with the IB’s funds in Islamically permissible operations for projects that will promote the
transactions on participation basis; economic development primarily of the
(c) accept foreign currency deposits Autonomous Region;
from banks, companies, organizations and (n) carry out financing and joint
individuals, including foreign governments; investment operations by way of mudarabh
(d) buy and sell foreign exchange; purchasing for others on a cost-plus
(e) act as correspondent of banks and financing arrangement, and invest funds
institutions to handle remittances or any directly in various projects or through the
fund transfers; use of funds whose owners desire to invest

§§ X101 - X101.6
05.12.31
jointly with other resources available to the A bank whose shares of stock are
IB on a joint mudarabh basis; and already listed in the Philippine Stock
(o) invest in equities of the following Exchange (PSE) at the time of filing of its
allied undertakings: application for UB authority shall be
(1) Warehousing companies; deemed to have complied with the public
(2) Leasing companies; offering requirement. Likewise, an
(3) Storage companies; applicant bank may opt to have its shares
(4) Companies engaged in the listed in the PSE directly instead of passing
management of mutual funds but not in the through the process of public offering. In
mutual funds themselves; and either case, at least ten percent (10%) of
(5) Such other similar activities as the the applicant bank’s capital stock should
Monetary Board has declared or may be held by public stockholders before it can
declare as appropriate from time to time, be granted the license for authority to
subject to existing limitations imposed by law. operate as a UB.
c. Listing of bank shares in the stock
§ X101.1 Expansion of banking exchange. Domestic banks granted a UB
authorities. (Superseded by Circular 271 license, existing or new, must list their
dated 8 Jan. 2001) shares in the PSE within three (3) years:
Provided, That in the case of new UBs, the
§ X101.2 Prerequisites for the grant three (3) year period shall be reckoned from
of a universal banking authority the date the license to operate as a UB was
a. Compliance with guidelines. A granted. In the case of existing UBs which
domestic bank seeking authority to operate have not listed their shares in the exchange,
as a UB shall submit an application to the the three (3) year period lapsed on 27
appropriate supervising and examining December 1998.
department (SED) of the BSP. The applicant The guidelines on public offering and
shall comply with the guidelines for the listing of bank shares are enumerated in
issuance of a UB authority and shall submit Appendix 1.
all the documentary requirements
enumerated in Appendix 1. §§ X101.3 – X101.5 (Reserved)
b. Public offering of bank shares. A
domestic bank applying for a UB authority § X101.6 Conditions for the grant of
shall, as a condition to the approval of its authority to convert into a lower category
application, make a public offering of at a. That the bank must have complied
least ten percent (10%) of the required with the end-2000 minimum capital
minimum capital and this condition must requirement and other laws/regulations
be complied with before it can be granted applicable to the lower bank category into
the license for authority to operate as a UB. which it is converting. For this purpose,
The term public offering shall mean the the term “capital” shall be as defined under
offer to sell equity shares to the public. Sec. X106;
Public shall refer to all prospective b. That the bank immediately upon
stockholders, excluding the bank’s receipt of notice of approval of conversion
directors, shareholders owning twenty shall not engage in nor renew transactions
percent (20%) or more of the bank’s under authorities not associated with those
subscribed capital stock, together with those allowed for the lower bank category into
of their relatives within the fourth degree of which it is converting and within six (6)
consanguinity or affinity, and corporations months from date of receipt of notice of
controlled or affiliated with them. approval of its application for conversion,

§§ X101.6 - X102.1
05.12.31
the bank shall phase-out all inherent mentioned in Item “b” above shall be
powers and activities under special imposed;
authorities not normally associated to the d. That the bank shall submit the
lower bank category into which it is pertinent amended Articles of Incorporation
converting: Provided, That a TB (previously and By-Laws duly registered with the SEC
authorized by the Monetary Board to accept within six (6) months from date of receipt
demand deposits) may be allowed to retain of notice of approval of its application;
such authority when converting into an RB e. That the bank shall fully disclose its
but may clear checks only through a new status in its signage, financial
correspondent bank and shall not be statements and stationeries; and
allowed to participate directly in the PCHC f. That the bank shall start operation
and the BSP check clearing operations: in the lower category into which it is
Provided, further, That for failure to comply converting after approval by the SEC of the
with these requirements, the following bank’s amended Articles of Incorporation
monetary and non-monetary penalties shall and By-Laws, its compliance with all the
be imposed reckoned from the set deadline conditions of approval of the conversion
until the bank has fully complied with the and the issuance by the BSP of a certificate
said requirements of authority to operate.
(1) Monetary penalties The same conditions and sanctions
From UB to KB P30,000/day mentioned in Items “a” to “f” above shall
From KB to TB 15,000/day apply to all banks which have downgraded
From TB to RB or with approved downgrading prior to
Within Metro Manila P 5,000/day 13 March 2000: Provided, That the
Outside Metro Manila 500/day penalties mentioned in Items “b” and “c”
(2) Non-monetary penalties above shall be reckoned from their
(a) Suspension of branching privileges; respective prescribed deadlines or within
(b) Suspension of declaration of cash six (6) months from 13 March 2000, if no
dividends; such deadline is prescribed.
(c) Restriction on lending to affiliates;
(d) Denial of access to BSP Sec. X102 Basic Guidelines in Establishing
rediscounting facilities; Banks. In establishing a new banking
(e) Suspension of authority to accept organization and a Coop Bank, the basic
or handle government deposits; guidelines shown in Appendix 37 and
(f) Suspension of authority to engage Appendix 38, respectively, shall be
in derivatives activities (for a UB converting observed.
into a KB); and
(g) Suspension of authority to invest in § X102.1 Suspension of the grant of
allied undertakings. new banking licenses on the establishment
c. That a bank which has not of new banks. Pending completion of a
corrected as of date of application the major study, there shall be an indefinite
findings/violations noted in its latest moratorium on the establishment of new
examination shall submit upon application banks, except in cities and municipalities
a Memorandum of Understanding that it where there are no existing banking offices.
shall correct the same within a period of The moratorium shall apply to all
six (6) months from date of receipt of notice applications for establishment of new banks,
of approval of its application, otherwise, the including pending ones received prior to
same monetary and non-monetary penalties 16 August 1999.

§§ X102.1 - X102.2
05.12.31
However, approved but not yet opened d. The moratorium under Section 8 of
banks shall be exempted from the R. A. No. 8791 shall not be applicable to:
moratorium. Requests for extension of the (1) acquisition or purchase by foreign
period within which to open approved but banks of up to one hundred percent (100%)
not yet opened banks shall, however, be of the voting stock of existing domestic KBs;
evaluated on a case-to-case basis (2) the transfer of license of an existing
depending, among others, on the bank’s KB to another corporation, subject to prior
substantial compliance with the pre- approval of the Monetary Board;
operating requirements. (3) new KBs resulting out of mergers
In the case of KBs, the following rules or consolidations where at least one (1) of
shall govern: the banks involved in such merger or
a. No new KB shall be established consolidation is a KB; and
within three (3) years from 13 June 2000 (4) downgrading or refocusing of UBs
which is the date of effectivity of R.A. No. into KBs.
8791 or until 12 June 2003. The
moratorium as mandated by said law § X102.2 Partial lifting of general
covers only KBs classified and defined as moratorium on the licensing of new thrift
such under Sections 3.2(b) and 29 of R. A. banks and rural banks. The general
No. 8791 as well as in Item “b.2” of Sec. moratorium on the licensing of new TBs
X101 without prejudice, however, to and RBs is partially lifted to allow the entry
existing or future moratoriums on other of microfinance-oriented banks as follows:
types of bank as has been or may be a. Microfinance-oriented banks may
declared by the Monetary Board. be established on a very selective basis,
b. The moratorium under Section 8 of preferably in places not fully served by
R.A. No. 8791 shall cover all applications existing RBs or in areas not fully serviced
for issuance of new commercial banking by microfinance-oriented banks, subject to
licenses as well as upgrading or conversion the following additional criteria (in addition
of old banking licenses into commercial to standard licensing requirements):
banking licenses, the organization and (1) That the microfinance-oriented
incorporation by foreign banks of new bank to be established shall either be a TB
commercial banking subsidiaries and any or an RB;
and all other transactions that may result in (2) That the capital of the microfinance-
the issuance of new commercial banking oriented banks to be established should be
licenses. owned by private persons, multilateral
c. All such pending applications as of entities or a combination thereof;
13 June 2000, including those which have (3) That in the case of an RB to be
already been decided but with any incident established as a microfinance bank, the
thereto still unresolved or are on minimum paid-in capital shall be P5.0 million
reconsideration or appeal, shall not be or the applicable existing capitalization
further acted upon by the BSP and shall be requirement for a new RB, whichever is
returned to the applicant banks without higher. The capitalization requirement under
prejudice to the resubmission or re-filing existing regulations shall apply to TBs;
thereof upon expiration of the moratorium (4) That the organizers must have the
at the option of the applicant banks. No capacity to engage in microfinancing, which
such application shall be considered as may be indicated by the following:
automatically resubmitted or re-filed upon (a) At least twenty percent (20%) of the
expiration of the moratorium. paid-in capital of the proposed bank must

§§ X102.2 - X105
05.12.31
be owned by persons or entities with track microfinance-oriented bank may apply for
record in microfinancing. establishment of a branch but the Monetary
(b) Majority of the members of the Board may require additional capital to be
board of directors have experience in infused for every branch in addition to the
microfinancing with at least one (1) minimum capital of the TB/RB.
member having actual banking d. Existing microfinance organizations
experience. applying for authority to establish, or
(c) The proposed bank must have as a convert into a TB or RB may also be allowed
minimum, an adequate loan tracking to convert their existing branches/offices
system that allows daily monitoring of loan into branches of the bank proposed to be
releases, collection and arrearages, and established by simultaneously applying
any restructuring and refinancing. for authority for the purpose. However,
(5) In addition to the requirements for the standard requirements for the
the establishment of banks in Appendix 37, establishment of branches, particularly the
the application for authority to establish a capitalization requirement, have to be
microfinance-oriented bank must be complied with. Moreover, there must be a
accompanied by the following proof that the area is not fully served by
documents: any existing RB.
(a) A vision and mission statement
with clear expression of the commitment Sec. X103 Certificate of Authority to
to reach low-income clients. Register. The SEC shall not register the
(b) A written manual of operations, articles of incorporation of any bank, or any
which shall include the administrative and amendment thereto, unless accompanied
credit program systems and procedures. by a certificate of authority issued by the
The Manual must be consistent with the Monetary Board, under its seal. The
core principles, characteristics and features certificate shall not be issued unless the
of microfinance indicated in Sec. X361. Monetary Board is satisfied from the
(6) At least fifty percent (50%) of the evidence submitted that:
bank’s gross loan portfolio shall at all times a. All requirements of existing laws
consist of microfinance loans as defined and regulations to engage in the business
in Sec. X361. for which the applicant is proposed to be
b. The requirement that the President, incorporated have been complied with;
Chief Operating Officer or General b. The public interest and economic
Manager of a TB or RB must have at least conditions, both general and local, justify
two (2) years experience in banking and/ the authorization; and
or finance may be substituted with c. The amount of capital, the
microfinance experience in cases of financing, organization, direction and
officers of a microfinance organization administration, as well as the integrity and
applying for authority to establish, or responsibility of the organizers and
convert into a TB or RB: Provided, That administrators reasonably assure the safety
the concerned officer is a college graduate. of deposits and the public interest.
c. Subject to the standard branching LIkewise, the SEC shall not register the
requirements, microfinance-oriented banks by-laws of any bank, or any amendment
are also exempted from the general thereto, unless accompanied by a certificate
moratorium on the establishment of bank of authority from the BSP.
branches, under Sec. X151. After one (1)
year of profitable operations, a Secs. X104 - X105 (Reserved)

§§ X106 - X106.1
05.12.31
B. CAPITALIZATION § X106.1 Minimum capitalization.The

minimum capital of banks shall be as
Sec. X106 Bank Capital. The following follows:
provisions shall govern the capital a. UBs - P5.4 billion each
requirements for banks. b. KBs - P2.8 billion each
The term capital shall be synonymous c. TBs -
to unimpaired capital and surplus, (1) With head offices within Metro
combined capital accounts and net worth Manila - P400.0 million each; and
and shall refer to the total of the unimpaired (2) With head offices outside Metro
paid-in capital, surplus and undivided Manila - P64.0 million each.
profits, less: d. RBs -
a. Unbooked valuation reserves and (1) An RB may be established in any
other capital adjustments as may be city or municipality, except in the cities of
required by the BSP; Manila, Kalookan, Quezon, Pasay,
b. Total outstanding unsecured credit Mandaluyong, Makati and Parañaque; in
accommodations, both direct and indirect, the municipalities of Malabon, Navotas
to directors, officers, stockholders, and their and San Juan; and in the cities of Cebu and
related interests (DOSRI) granted by the Davao, with minimum capital requirements
bank proper; as follows:
c. Deferred income tax; (a) In first, second and third class cities
d. Appraisal increment reserve and in first class municipalities - P8.0 million
(revaluation reserve) as a result of each;
appreciation or an increase in the book (b) In fourth, fifth and sixth class cities
value of bank assets; and in second, third, and fourth class
e. Equity investment of a bank in municipalities - P4.8 million each; and
another bank or enterprise, whether foreign (c) In fifth and sixth class
or domestic, if the other bank or enterprise municipalities - P3.2 million each.
has a reciprocal equity investment in the (2) Existing RBs within the excepted
investing bank, in which case, the cities and municipalities shall maintain the
investment of the bank or the reciprocal following minimum capital requirements:
investment of the other bank or enterprises, (a) In the cities of Manila, Kalookan,
whichever is lower; and Quezon, Pasay, Mandaluyong, Makati and
f. In the case of RBs/Coop Banks, the Parañaque and in the municipalities of
government counterpart equity, except Malabon, Navotas and San Juan - P32.0
those arising from conversion of arrearages million each; and
under the BSP rehabilitation program. (b) In the cities of Cebu and Davao -
With respect to Item “b” hereof, the P16 million each.
provisions in Subsec. X326.1 shall apply e. Coop Banks -
except that in the definition of stockholders Coop Banks that may be established
in said Subsection, the qualification that his shall have a minimum authorized capital
stockholdings, individually and/or together of:
with his related interest in the lending bank (1) P200.0 million for national Coop
should at least amount to two percent (2%) Banks divided into such number of shares
or more of the total subscribed capital stock with a minimum par value of P1,000 per
of the bank shall not apply for the purpose share, with a private paid-in capital of at
of this Item. least P20.0 million; and

§§ X106.1 - X106.2
05.12.31
(2) P20.0 million for local Coop Banks b. TBs which are existing, or which
divided into such number of shares, with a are newly authorized but not yet operating,
private paid-in capital of at least P1.25 or persons from whom completed
million, except as follows: applications to establish TBs have been
(a) P20.0 million minimum private received as of 12 March 1998 but pending
paid-in capitual for Coop Banks to be action by the BSP, are allowed the
established in Metro Manila; following time frame within which to meet
(b) P10.0 million minimum private paid- the above minimum capital requirement:
in capital for Coop Banks to be established
(1) With head office within Metro Manila:
in the cities of Cebu and Davao; and - P250 million on or before 24 December 1998;
(c) P5.0 million minimum private paid- - P325 million on or before 31 December 1999; and
in capital for Coop Banks to be established - P400 million on or before 31 December 2000;* and
in other cities: Provided, however, That for (2) With head office outside Metro Manila:
the first Coop Bank organized in the - P52 million on or before 31 December 1999; and
- P64 million on or before 31 December 2000:*
province, although it will be located in a
city, the minimum private paid-in capital Provided, That for the P325.0 million,
shall be P1.25 million. P400.0 million, P52.0 million and P64.0
The foregoing minimum capital million minimum capital, TBs shall submit
requirements for UBs, KBs, TBs, and RBs to the BSP a capital build-up program for
shall immediately apply to applications filed this purpose within three (3) months from
after 12 March 1998. 12 March 1998.
c. RBs which are existing, or which
§ X106.2 Capital build-up program are newly authorized but not yet operating,
a. UBs and KBs which are existing, or or persons from whom completed
which are newly authorized but not yet applications to establish RBs have been
operating, or banks from which completed received as of 12 March 1998 but pending
applications to operate under an UB/KB authority action by the BSP, are allowed the
have been received as of 12 March 1998 but following time frame within which to
pending action by the BSP, are hereby meet the above minimum capital
allowed the following time frame within requirement:
which to meet the above minimum capital (1) In the cities of Manila, Kalookan,
requirement: Quezon, Pasay, Mandaluyong, Makati
(1) P4.5 billion for UBs and P2.0 and Parañaque and in the municipalities
billion for KBs on or before 24 December of Malabon, Navotas and San Juan:
- P26 million on or before 31 December 1999; and
1998; - P32 million on or before 31 December 2000;
(2) P4.95 billion for UBs and P2.4 (2) In the cities of Cebu and Davao:
- P13 million on or before 31 December 1999; and
billion for KBs on or before 31 December
- P16 million on or before 31 December 2000;*
1999; and
(3) In first, second and third class cities
(3) P5.4 billion for UBs and P2.8
and first class municipalities:
billion for KBs on or before 31 December - P6.5 million on or before 31 December 1999; and
2000:*Provided, That for the P 4.95 billion/ - P8.0 million on or before 31 December 2000;*
P2.4 billion and P5.4 billion/P2.8 billion (4) In fourth, fifth and sixth class cities
minimum capital, UBs/KBs shall submit and second, third and fourth class
to the BSP a capital build-up program for municipalities:
this purpose within three (3) months from - P3.9 million on or before 31 December 1999; and
12 March 1998. - P4.8 million on or before 31 December 2000;*
*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.

§§ X106.2 - X106.3
05.12.31
(5) In fifth and sixth class municipalities: § X106.3 Memorandum of

- P2.6 million on or before 31 December 1999; and Understanding; Prompt Corrective Action
- P3.2 million on or before 31 December 2000:*
Program; sanctions. The following are the
Provided, That RBs shall submit to the BSP a policy guidelines and the corresponding
capital build-up program for this purpose sanctions for banks failing to comply with
within three (3) months from 12 March 1998: the minimum capital requirements and the
Provided, further, That if the prescribed corresponding sanctions:
minimum capital necessitates an increase a. Memorandum of Understanding;
in the authorized capital stock, the RB Prompt Corrective Action Program
shall cause the corresponding (1) The adoption of the Memorandum
amendments to its articles of of Understanding (format shown in
incorporation and submit the same to the Appendix 30) between the bank and the
BSP together with its capital build-up BSP; and
program. (2) The implementation of the Prompt
The deadline of the second phase (1st Corrective Action Program as detailed below:
phase for TBs outside Metro Manila and (a) For undercapitalized banks of up
RBs) of the capital build-up program of to twenty percent (20%) -
banks is extended from 31 December 1999 (i) Require the bank to execute a
to 31 January 2000.* Memorandum of Understanding (MOU)
For banks that have executed a with the BSP, binding itself, among others,
Memorandum of Understanding (MOU) to implement a viable capital restoration
with the BSP, in compliance with Subsec. plan acceptable to the BSP within thirty (30)
X106.3, the following guidelines shall days from date of notice;
apply: (ii) Require the intensified monitoring
(a) For banks with capital deficiency by BSP of bank’s financial condition; and
but with capital-to-risk assets ratio within (iii) BSP to conduct a special
the minimum prescribed and with no examination of the bank.
weaknesses (i.e., high past due loans, (b) For significantly undercapitalized
DOSRI violations, etc.), the MOU may be banks of up to sixty percent (60%) -
set aside: Provided, That the bank will be (i) BSP to call a meeting with bank
able to comply with the minimum capital directors/principal officers to discuss and
requirements as herein prescribed; and agree on remedial measures to be taken and
(b) For banks with capital deficiency the timetable for implementation;
but with significant weaknesses (i.e., (ii) Intensify monitoring by the
deficiency in capital-to-risk assets ratio, Supervision and Examination Sector (SES)
liquidity problems, high past due loans, of the bank’s financial condition;
etc.), the MOU, as executed, shall continue (iii) BSP to conduct immediately an
to be in full force and in effect until such extensive on-site examination;
time that it shall be amended by mutual (iv) Require the bank to execute an
consent of the parties; waived and/or MOU with the BSP, binding itself, among
terminated by the BSP. others, to implement a viable capital
Non-compliance with the above capital restoration plan acceptable to the BSP
requirements shall subject the bank to within thirty (30) days from date of
sanctions/penalties provided under existing discussion. Among the options to be
banking laws and BSP rules and regulations. considered are:
*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.

§ X106.3
05.12.31
- disposition of a majority - sale of bank to highest bidder

shareholder’s interest; subject to terms set by BSP; and
- sale of assets; - merger (assisted or unassisted) or
- issuance of additional stock/capital consolidation with a stronger bank;
infusion; (vi) Create a BSP Ad Hoc Committee to
- sale of bank to highest bidder oversee the implementation of the action plan;
subject to terms set by BSP; and (vii) Require the creation of a separate
- merger (assisted or unassisted) or unit in the bank – remedial asset
consolidation with a stronger bank; management group to take care of bank’s bad
(v) Require the creation of a separate unit assets and make progress reports to the BSP;
in the bank – remedial asset management (viii)Appoint an external auditor at the
group which will take care of bank’s bad expense of the bank to perform financial or
assets and make progress reports to the BSP; operational audit under the terms of
(vi) Appoint an external auditor at the reference of the BSP;
expense of the bank to perform a financial (ix) If bank’s condition further
or operational audit under the terms of deteriorates to the extent that depositors
reference provided by BSP; and and creditors protection is at stake and
(vii) If necessary, appoint a consultant its capital base is already deficient by
specialist to diagnose the problem and to more than eighty percent (80%), appoint/
recommend the appropriate remedial assist a resident examiner/comptroller or
measures (i.e., introduce new profit conservator, if legally feasible, to oversee/
opportunities, improve internal and take over management of the bank; and
accounting controls, etc.) to restore bank’s (x) If necessary, appoint a consultant
viability. specialist to diagnose the problem and to
(c) For critically undercapitalized recommend the appropriate remedial
banks of more than sixty percent (60%) - measures (i.e., introduce new profit
(i) Place the bank under Prompt opportunities, improve internal and
Corrective Action Unit since this requires accounting controls, etc.) to restore bank’s
more than normal bank supervision; viability.
(ii) BSP to call a meeting with bank’s b. Sanctions. The following sanctions
principal shareholders/directors; for non-compliance with the minimum
(iii) BSP to conduct immediately an capital requirements are hereby prescribed:
extensive on-site examination; (1) Monetary Penalty
(iv) BSP to conduct an intensive For delayed or non-submission of the
monitoring of bank’s financial condition; capital build-up program reckoned from the
(v) Require the bank to execute an time bank was notified in writing up to the
MOU with the BSP, binding itself, among time the program has been submitted, per
others, to implement a viable capital banking day of delay, a monetary penalty of:
restoration plan acceptable to the BSP Type of Bank Amount of Penalty
within thirty (30) days from date of meeting. (a) UBs/ KBs P 10,000.00
Among the options to be considered are: (b) TBs 5,000.00
- disposition of a majority (c) RBs 1,000.00
shareholder’s interest; (2) Non-Monetary Penalty
- sale of assets; Non-monetary penalties shall depend
- issuance of additional stock/capital on the degree of capital deficiency incurred
infusion; by the bank as follows:

§ X106.3
05.12.31
RBs/ - Denial of access to BSP 9 9 9

UBs/ Coop rediscounting facilities
Penalty KBs TBs Banks - Suspension of authority to 9 9 9
(a) Up to twenty percent (20%) - accept or handle govern-
- Suspension of authority to 9 NA NA ment deposits
invest in non-allied under- - Suspension of authority to 9 9 NA
takings (for UBs only) engage in quasi-banking
- Suspension of authority to 9 NA NA activities
invest in allied undertakings - Suspension of authority to 9 NA NA
- Suspension of securities 9 NA NA engage in derivatives
and dealership functions activities
(for UBs only) - Suspension of FCDU/ 9 9 NA
- Suspension of branching 9 9 9 EFCDU activities
privileges - Suspension of trust operations 9 9 NA
- Suspension of declaration 9 9 9 - Suspension of authority to NA 9 9
of cash dividends accept or create demand
deposits or operate
(b) Up to forty percent (40%) - NOW accounts
- Suspension of authority 9 NA NA
to invest in non-allied under- (d) Up to eighty percent (80%) -
takings (for UBs only) - Suspension of authority to 9 NA NA
- Suspension of authority to 9 NA NA invest in non-allied under-
invest in allied undertakings takings (for UBs only)
- Suspension of securities 9 NA NA - Suspension of authority 9 9 9
and dealership functions to invest in allied undertakings
(for UBs only) - Suspension of securities 9 NA NA
- Restrictions on lending 9 9 NA and dealership functions
to affiliates (for UBs only)
- Suspension of branching 9 9 9 - Suspension of branching 9 9 9
privileges privileges
- Suspension of declara- 9 9 9 - Suspension of declaration 9 9 9
tion of cash dividends of cash dividends
- Restrictions on overall 9 9 9 - Denial of access to BSP 9 9 9
loan growth/investments rediscounting facilities
(new loans to the extent - Suspension of authority to NA 9 9
of collections only) accept or create demand
- Denial of access to BSP 9 9 9 deposits or operate NOW
rediscounting facilities accounts
- Suspension of authority NA 9 9 - Suspension of authority to 9 9 9
to accept or create demand accept or handle govern-
deposits or operate ment deposits
NOW accounts - Suspension of authority to 9 9 NA
- Suspension of authority to 9 9 9 engage in quasi-banking
accept or handle govern- activities
ment deposits - Suspension of authority to 9 NA NA
engage in derivatives
(c) Up to sixty percent (60%) - activities
- Suspension of authority to 9 NA NA - Suspension of FCDU/ 9 9 NA
invest in non-allied under- EFCDU activities
takings (for UBs only) - Suspension of trust operations 9 9 NA
- Suspension of authority to 9 9 9 - Suspension of international 9 NA NA
invest in allied undertaking banking activities
- Suspension of securities 9 NA NA - Suspension of lending 9 9 9
and dealership functions activities
(for UBs only) - Suspension of issuance NA 9 NA
- Suspension of branching 9 9 9 of domestic L/Cs
privileges
- Suspension of declaration 9 9 9 (e) More than eighty percent (80%) -
of cash dividends - Suspension of clearing 9 9 9
- Restrictions on overall 9 9 9 privileges
loan growth/investments - Suspension of granting 9 9 9
(new loans to the extent of of bonuses/profit-sharing
collections only) not covered by existing
- Restrictions on lending to 9 9 NA contracts or By-Laws
affiliates - Cease and desist ü ü 9

§§ X107 - X112
05.12.31
Secs. X107 - X110 (Reserved) § X111.2 Rules on exchange of shares

As a general rule, the ratio of exchange of
C. MERGER OR CONSOLIDATION shares between or among the participants
OF BANKS in a bank merger or consolidation shall be
based on mutual agreement of the parties
Sec. X111 Merger or Consolidation to concerned. However, any appraisal
Meet Minimum Capital. The merger or increment reserve (revaluation reserve)
consolidation of banks or of bank(s) and arising from the revaluation of the fixed
other financial intermediary(ies) to meet assets, as may be agreed upon by the
minimum capital requirements shall be parties shall be limited to premises,
allowed subject to the following improvement, and equipment which are
regulations. necessary for its immediate
For purposes of merger and accommodation in the transaction of the
consolidation, the following definitions bank’s business. Such revaluation should
shall apply: be based on fair valuation of the property
a. Merger - is the absorption of one which shall be subject to review and
(1) or more corporations by another approval by the BSP.
existing corporation, which retains its
identity and takes over the rights, Sec. X112 Merger or Consolidation
privileges, franchises, and properties, and Incentives. In pursuance of the policy to
assumes all the liabilities and obligations promote mergers and consolidations
of the absorbed corporation(s) in the same among banks and other financial
manner as if it had itself incurred such intermediaries as a means to develop larger
liabilities or obligations. The absorbing and stronger financial institutions,
corporation continues its existence while constituent entities may, subject to BSP
the life or lives of the other corporation(s) approval, avail themselves of any or all of
is/are terminated. the following incentives:
b. Consolidation – is the union of two a. Revaluation of premises, improve-
(2) or more corporations into a single new ments and equipment of the institutions:
corporation, called the consolidated Provided, That such revaluation shall be
corporation, all the constituent based on fair valuation of the property
corporations thereby ceasing to exist as conducted by a reputable appraisal
separate entities. The consolidated company which shall be subject to review
corporation shall thereupon and thereafter and approval by the BSP.
possess all the rights, privileges, The following rules shall govern the
immunities, franchises and properties, and revaluation of assets:
assume all the liabilities and obligations of (1) The revaluation of the premises,
each of the constituent corporations in the improvements and equipment shall be
same manner as if it had itself incurred such allowed only to all institutions participating
liabilities or obligations. in a merger or consolidation if all of them
belong to the same category, or at least two
§ X111.1 Requirement of Bangko (2) of them belong to the highest category
Sentral approval. Mergers and among the merging or consolidating
consolidations including the terms and institutions;
conditions thereof shall comply with the (2) In case the merging or
provisions of applicable law and are consolidating institutions do not belong to
subject to approval by the BSP. the same category or only one (1) of them

§ X112
05.12.31
falls under the highest category, all of them (1) The booking on staggered basis
may be allowed to revalue their premises, over a maximum period of five (5) years of
improvements and equipment: Provided, unbooked valuation reserves based upon
That the amount of appraisal increment examination by the BSP may be allowed to
resulting from such revaluation shall be all institutions participating in a merger or
limited to the amount of the total resources consolidation if all of them belong to the
of the institution belonging to the lower same category, or at least two (2) of them
category or categories. belong to the highest category among the
(3) The appraisal increment resulting merging or consolidating institutions.
from the revaluation shall form part of (2) In case the merging or
capital for purposes of determining the consolidating institutions do not belong to
single borrower’s limit and capital-to-risk the same category or only one (1) of them
assets ratio. The use of appraisal increment falls under the highest category, all of them
for cash dividend shall be governed by the may be allowed to book the required
provisions of the Corporation Code. valuation reserves based upon examination
(4) The revaluation of premises, by the BSP on a staggered basis over a
improvements, and equipment of the maximum of five (5) years: Provided, That
institution as well as the recognition of the aggregate amount of the required
goodwill as an incentive to mergers or valuation reserves shall be limited to the
consolidations as provided in item "e" amount of the total resources of the
hereof shall only be allowed if the following institution belonging to the lower category
conditions are met: or categories.
(i) The surviving or consolidated entity c. Exemption from the forty percent
will meet the existing capital requirements (40%) and sixty percent (60%) ownership
after all adjustments are taken up in the limits prescribed in Subsec. X126.1 in the
books of accounts of the merging or new or surviving institution of any Filipino
consolidating entities but before individual or domestic non-bank
considering appraisal increments and corporation: Provided, That this shall be
goodwill, or there will be infusion of fresh allowed only if the bank that is being
capital to meet said existing capital merged is distressed as may be determined
requirements; and by the Monetary Board and such merger is
(ii) The merger or consolidation will for the purpose of rehabilitating the bank:
result in a more viable financial institution Provided, further, That whenever any of
as a result of cost savings and improved said stockholders exceed the prescribed
competitive position. limits, his holdings shall not be increased,
In case of purchase or acquisition of the but may be reduced and once reduced,
majority or all of the outstanding shares of shall not thereafter be increased beyond
stocks of a bank, the same conditions must such limits.
be satisfied. In the case of purchase or acquisition
b. Unbooked valuation reserves based of majority or all of the outstanding shares
upon the BSP examination and other of a bank/quasi-bank by another bank/
capitaladjustments resulting from the quasi-bank, the revaluation of the assets and
merger or consolidation may be booked on the booking of the required valuation
staggered basis over a maximum period of reserves based upon examination by the
five (5) years. BSP over a period of five (5) years shall be
The following guidelines shall govern allowed only if such purchase or acquisition
the staggered booking of valuation reserves: is for the purpose of rehabilitating the

§ X112
05.12.31
former bank/quasi-bank: Provided, That the institutions into branches of the new or
revaluation of assets and staggered booking surviving financial institutions;
of valuation reserves shall be allowed in g. Condonation of liquidated damages
full only if both banks/quasi-banks belong and/or penalties on loan arrearages to the
to the same category. Otherwise, only the BSP of RBs which are parties to the merger
bank/quasi-bank being acquired/ or consolidation: Provided, That loan
rehabilitated shall be allowed to recognize arrearages of RBs to the BSP are paid in full
in full the appraisal increment resulting or covered by a plan of payment payable
from revaluation of assets and to book on an equal monthly amortization schedule
valuation reserves on a staggered basis, over a period not exceeding ten (10) years;
while in the case of the acquiring bank/ h. Relocation of branches/offices may
quasi-bank, the appraisal increment be allowed within one (1) year from date of
resulting from revaluation of assets and the merger or consolidation in cases where the
privilege of staggered booking of valuation merger or consolidation resulted in
reserves shall each be limited to the amount duplication of branches/offices in a service
of the total resources of the bank/quasi-bank area, or in such other cases/circumstances as
being acquired/rehabilitated. may be prescribed by the Monetary Board;
The exemption from the ownership i. Outstanding penalties in legal
limits prescribed in Subsec. X126.1 on reserve deficiencies and interest on
existing stockholdings of any Filipino overdrafts with the BSP as of the date of the
individual or domestic non-bank merger or consolidation may be paid in
corporation in a banking institution, as an installments over a period of one (1) year;
incentive to purchase or acquisition of j. Rediscount ceiling of 150% of
majority or all of the outstanding shares of adjusted capital accounts for a period of one
stock of bank/quasi-bank shall be allowed (1) year, reckoned from the date of merger
only if the bank being purchased or or consolidation: Provided, That the
acquired is distressed as may be determined merged/consolidated bank meets the
by the Monetary Board and such merger is required net worth-to-risk assets ratio and
for the purpose of rehabilitating the bank/ all of the other requirements for
quasi-bank. rediscounting;
d. If by reason of merger or k. UBs/KBs whose total outstanding
consolidation, the resulting bank is unable real estate loans exceed twenty percent
to comply fully with the prescribed net (20%) of total loan portfolio may be given
worth-to-risk assets ratio, the Monetary a period of one (1) year within which to
Board may, at its discretion, temporarily comply with the prescribed twenty percent
relieve the bank from full compliance with (20%) ratio reckoned from the date of
this requirement under such conditions as merger or consolidation;
it may prescribe; l. Restructuring/plan of payment of
The recognition of goodwill as an past due obligations of the proponents with
incentive to mergers or consolidations shall the BSP as of the date of merger/
only be allowed subject to the conditions consolidation over a period not exceeding
in Item "a (4)". ten (10) years;
e. (Deleted by Circular 494 dated 20 m. In the case of RBs, grant of access
September 2005); to the rediscounting window of the BSP for
f. Conversion or upgrading of the a period of two (2) years from the date of
existing head offices, branches and/or other merger or consolidation even if its past due
offices of the merged or absorbed ratio exceeds twenty five percent (25%) of

§§ X112 - X116.2
05.12.31
loan portfolio but not exceeding thirty percent The foregoing incentives may also be
(30%): Provided, That the merged/ granted in cases of purchases or acquisitions
consolidated bank meets all the other of majority or all of the outstanding shares of
requirements. During said period of two (2) stock of a bank/quasi-bank.
years, its rediscounting limit per application
may also be increased to an amount Secs. X113 - X115 (Reserved)
equivalent to the total of the rediscounting
limit per application of each of the constituent D. RISK-BASED CAPITAL ADEQUACY
banks before merger or consolidation; RATIO
n. Subject to approval of the Monetary
Board concurrent officerships between a Sec. X116 Minimum Ratio. The risk-
merged or consolidated bank/financial based capital ratio of a bank, expressed as
institution and another bank/financial a percentage of qualifying capital to risk-
institution may be allowed; weighted assets, shall not be less than ten
Likewise, with prior approval of the percent (10%) for both solo basis (head
Monetary Board, concurrent directorships office plus branches) and consolidated basis
may be allowed in cases where a bank (parent bank plus subsidiary financial allied
acquires shares of stock of another bank for undertakings, but excluding insurance
the purpose of merging or consolidating the companies).
two (2) banks regardless of whether the The ratio shall be maintained daily.
banks belong to the same category or both (The BSP’s implementation plans for the
have quasi-banking functions; new international capital standards or Basel
o. Subject to other requirements on 2, contained in the Basel Committee on
the establishment of branches, the merged/ Banking Supervision document “International
consolidated RBs may be allowed to Convergence of Capital Measurement and
establish a branch each in Cebu City and Capital Standards: A Revised Framework”,
Davao City if it has put up the minimum are shown in Appendix 63)
capital requirement for these places;
p. Grant of automatic extension of five § X116.1 Qualifying capital. The
(5) years for retirement of government composition of qualifying capital is shown
preferred shares to be reckoned from the in Appendix 63a.
date of merger or consolidation;
q. Training of officers and staff of the § X116.2 Risk-weighted assets. The
merging or consolidating RBs by the BSP; and risk-weighted assets shall be determined by
r. Any right or privilege granted a assigning risk weights to amounts of on-
merging bank under a rehabilitation balance sheet assets and to credit
program previously approved by the equivalent amounts of off-balance sheet
Monetary Board or under any special items (inclusive of derivatives contracts):
authority granted by the Monetary Board Provided, That the following shall be
shall continue to be in effect. deducted from the total risk-weighted
The revaluation of assets and staggered assets: (1) general loan loss provision (in
booking of valuation reserves shall be excess of the amount permitted to be
available for a period of two (2) years from included in upper Tier 2 capital) and
19 February1999 while the rest of the unbooked valuation reserves and (2) other
incentives enumerated under Sec. X112 capital adjustments affecting asset accounts
shall be available for a period of three (3) based on the latest report of examination
years from 31 August 1998. as approved by the Monetary Board.

§ X116.2
05.12.31
a. On-Balance sheet assets. The risk- with the highest credit quality as defined in
weighted amount shall be the product of Subsec. X116.3;
the book value of asset multiplied by the risk (c) Claims on or portions of claims
weight associated with that asset, as follows: guaranteed by Philippine incorporated
(1) Zero percent (0%) risk weight – banks/quasi-banks with the highest credit
(a) Cash on hand; quality as defined in Subsec. X116.3;
(b) Claims on or portions of claims (d) Claims on or portions of claims
guaranteed by or collateralized by guaranteed by foreign incorporated banks
securities issued by - with the highest credit quality as defined in
i. Philippine National Government Subsec. X116.3;
and BSP; and (e) Claims on Philippine incorporated
ii. Central governments and central private enterprises with the highest credit
banks of foreign countries with the highest quality as defined in Subsec. X116.3;
credit quality as defined in Subsec. X116.3; (f) Claims on foreign incorporated
(c) Claims on or portions of claims private enterprises with the highest credit
guaranteed by or collateralized by quality as defined in Subsec. X116.3;
securities issued by multilateral (g) Loans to exporters to the extent
development banks; guaranteed by Small Business Guarantee
(d) Loans to the extent covered by and Finance Corporation (SBGFC):
hold-out on, or assignment of, deposits/ Provided, That loans to exporters to the
deposit substitutes maintained with the extent guaranteed by the Guarantee Fund
lending bank; for Small and Medium Enterprises (GFSME)
(e) Loans or acceptances under letters outstanding as of the date of the effectivity
of credit to the extent covered by margin of the merger of the SBGFC and GFSME
deposits; shall continue to have a zero percent (0%)
(f) Portions of special time deposit risk weight: Provided, further, That the zero
loans covered by Industrial Guarantee and percent (0%) risk weight shall not apply to
Loan Fund (IGLF) guarantee; loans renewed after the merger of the
(g) Real estate mortgage loans to the SBGFC and the GFSME; and
extent guaranteed by the Home Guaranty (h) Foreign currency checks and other
Corporation (HGC); cash items denominated in currencies
(h) Loans to the extent guaranteed by acceptable as international reserves.
the Trade and Investment Development (3) Fifty percent (50%) risk weight –
Corporation of the Philippines (TIDCORP); (a) Loans for housing purpose, fully
(i) Foreign currency notes and coins secured by first mortgage on residential
on hand acceptable as international property that is or will be occupied or leased
reserves; and out by the borrower, which are not classified
(j) Gold bullion held either in own as non-performing; and
vaults, or in another’s vaults on an allocated (b) Local government unit (LGU) bonds
basis, to the extent it is offset by gold bullion which are covered by Deed of Assignment of
liabilities; Internal Revenue Allotment of the LGU and
(2) Twenty percent (20%) risk weight- guaranteed by the LGU Guarantee Corporation;
(a) Checks and other cash items (COCIs); (4) Seventy five percent (75%) risk
(b) Claims on or portions of claims weight
guaranteed by or collateralized by (a) Defined small and medium
securities issued by non-central government enterprise (SME) and microfinance loan
public sector entities of foreign countries portfolio that meets the following criteria:

§ X116.2
05.12.31
(i) For individual claims that may form shall be increased to one hundred percent
part of the SME and microfinance loan 100% in 2007;
portfolio (5) One hundred percent (100%) risk
(aa) Claim must be on a small or weight –
medium business enterprise as defined All other assets including, among
under existing BSP regulations; and others, the following:
(bb) Claims must be in the form of: (a) Claims on central governments and
- Direct loans; or central banks of foreign countries other than
- Unavailed portion of committed credit those with the highest credit quality;
lines and other business facilities such as (b) Claims on Philippine local
outstanding guarantees issued and unused government units;
letters of credit: Provided, That the credit (c) Claims on non-central government
equivalent amounts thereof shall be public sector entities of foreign countries other
determined in accordance with Subsec. than those with the highest credit quality;
X116.2.b. (d) Claims on government-owned or -
(ii) For the SME and microfinance controlled commercial corporations;
portfolio - (e) Claims on Philippine incorporated
(aa) It must be a highly diversified banks/quasi-banks other than those with the
portfolio, i.e., it has at least 500 borrowers highest credit quality
that are distributed over a number of (f) Claims on foreign incorporated
industries; and banks other than those with the highest
(bb)The past due ratios of the defined credit quality;
SME and microfinance loan portfolio for (g) Claims on Philippine incorporated
each of the immediately preceding three (3) private enterprises and claims on foreign
years do not exceed five percent (5%). incorporated private enterprises other than
(iii) For the bank - those with the highest credit quality;
(aa) It must have adequate risk (h) Loans to companies engaged in
management process approved by the speculative residential building or property
board of directors, including as a minimum, development;
a rigorous credit approval process and an (i) Equity investments (except those
adequate loan tracking system that allows deducted from capital);
timely monitoring of loan releases, (j) Bank premises, furniture, fixtures
collection and arrearages, and any and equipment (net);
restructuring and refinancing; and (k) Appraisal increment - bank premises,
(bb)The bank must be financially sound furniture, fixtures and equipment (net);
and in compliance with major prudential (l) Real and other properties owned or
requirements, particularly the following: acquired (net);
- CAMELS composite rating of at least (m) Foreign currency notes and coins on
“3” and management score of at least “3” hand not acceptable as international reserves;
in its latest BSP examination; and (n) Gold bullion held in either own
- Minimum applicable capital vaults, or in another’s vaults on an allocated
adequacy ratio. basis, that is not offset by gold bullion
(b) Non-performing loans for housing liabilities;
purpose, fully secured by first mortgage on (o) Foreign currency COCIs not
residential property that is or will be denominated in foreign currencies acceptable
occupied or leased out by the borrower; as international reserves;except those which
Provided, That risk weighting for such loans are deducted from capital, as follows:

§ X116.2
05.12.31
(i) Unsecured credit accommodations, secured by first mortgage on residential

both direct and indirect, to DOSRI; property that is or will be occupied or
(ii) Deferred income tax; leased out by the borrower) and all non-
(iii) Goodwill; performing debt securities: Provided, That
(iv) Sinking fund for redemption of risk weighting for such exposures shall be
limited life redeemable preferred stock with increased to 150% in 2007.
the replacement requirement upon Non-performing loans, which are
redemption; secured by eligible collaterals or guaranteed
(v) Sinking fund for redemption of by eligible guarantors below, shall be
limited life redeemable preferred stock assigned the risk weight of the collateral or
without the replacement requirement upon guarantor: Provided, That in cases of
redemption (limited to the balance of guarantees, the bank is able to pursue the
redeemable preferred stock after applying guarantor of any monies outstanding within
the cumulative discount factor); the period of time stipulated in the
(vi) Equity investments in guarantee contract. Otherwise, the loan in
unconsolidated subsidiary banks and other question shall be assigned the risk weight
financial allied undertakings, but excluding applicable for non-performing loans.
insurance companies; (a) List of eligible collaterals
(vii) Investments in debt capital (i) Securities issued by the Philippine
instruments of unconsolidated subsidiary banks; national government and BSP, and central
(viii) Equity investments in subsidiary governments and central banks of foreign
insurance companies and non-financial countries with the highest credit quality as
allied undertakings; defined in Subsec. X116.3;
(ix) Reciprocal investments in equity of (ii) Securities issued by multilateral
other banks/enterprises; development banks listed under Sec. X116.3;
(x) Reciprocal investments in (iii) Cash in the form of hold out on or
unsecured subordinated term debt assignment of deposits/deposit substitutes
instruments of other banks/quasi-banks in maintained with the lending bank, and
excess of the lower of: margin deposits for loans or acceptances
(aa) an aggregate ceiling of five percent under letters of credit; and
(5%) of total Tier 1 capital of the bank; or (iv) Securities issued by non-central
(bb) ten percent (10%) of the total government public sector entities of foreign
outstanding unsecured subordinated term countries with the highest quality as defined
debt issuance of the other bank/quasi-bank; and in Subsec. X116.3.
(xi) Net due “from” head office, (b) List of eligible guarantors
branches, subsidiaries and other offices (i) Philippine national government and
outside the Philippines, if any (for foreign BSP, and central governments and central
bank branches); and banks of foreign countries with the highest
(p) Starting 2007, non-performing credit quality as defined in Subsec. X116.3;
loans for housing purpose, fully secured by (ii) Multilateral development banks
first mortgage on residential property that listed under Sec. X116.3;
is or will be occupied or leased out by the (iii) IGLF;
borrower. (iv) Home Guaranty Corporation
(6) One hundred twenty five percent (HGC);
(125%) risk weight – (v) TIDCORP;
All non-performing loans (except non- (vi) Non-central government public
performing loans for housing purpose, fully sector entities of foreign countries with the

§ X116.2
05.12.31
highest credit quality as defined in Subsec. counterparty with whom the transaction has
X116.3; been entered into.
(vii) Philippine incorporated banks/ (2) Fifty percent (50%) credit
quasi-banks with the highest credit quality conversion factor –
as defined in Subsec. X116.3; This shall apply to certain transaction-
(viii) Foreign incorporated banks with related contingent items, e.g., performance
the highest credit quality as defined in bonds, bid bonds, warranties and standby
Subsec. X116.3; letters of credit related to particular
(ix) SBGFC; and transactions, and shall include –
(x) LGU Guarantee Corporation (a) Standby letters of credit - domestic
(LGUGC), but only those guaranteed loans (net of margin deposit) established as a
covered by Deed of Assignment of Internal guarantee that a business transaction will
Revenue Allotment of the LGU. be performed; and
b. Off-balance sheet items. The risk- (b) Standby letters of credit - foreign
weighted amount shall be calculated using (net of margin deposit).
a two (2)-step process. This shall also apply to -
First, the credit equivalent amount of (c) Note issuance facilities and
an off-balance sheet item shall be revolving underwriting facilities; and
determined by multiplying its notional (d) Other commitments, e.g., formal
principal amount by the appropriate credit standby facilities and credit lines with an
conversion factor, as follows: original maturity of more than one (1) year.
(1) One hundred percent (100%) This shall include underwritten accounts
credit conversion factor - unsold.
This shall apply to direct credit (3) Twenty percent (20%) credit
substitutes, e.g., general guarantees of conversion factor –
indebtedness (including standby letters of This shall apply to short-term, self-
credit serving as financial guarantees for liquidating trade-related contingencies, e.g.,
loans and securities) and acceptances documentary credits collateralized by the
(including endorsements with the character underlying shipments, and shall include –
of acceptances), and shall include - (a) Outstanding guarantees issued -
(a) Outstanding guarantees issued - shipside bonds/airway bills;
foreign loans; (b) Domestic letters of credit
(b) Outstanding guarantees issued – outstanding (net of margin deposit);
other than foreign loans and shipside bonds/ (c) Sight import letters of credit
airway bills; and outstanding (net of margin deposit);
(c) Export letters of credit – confirmed. (d) Usance import letters of credit
This shall also apply to sale and outstanding (net of margin deposit);
repurchase agreements and asset sales with (e) Deferred letters of credit (net of
recourse where the credit risk remains with margin deposit); and
the bank (to the extent not included in the (f) Revolving letters of credit (net of
balance sheet), as well as to forward asset margin deposit) arising from movement of
purchases, forward forward deposits and goods and/or services.
partly-paid shares and securities which (4) Zero percent (0%) credit conversion
represent commitments with certain factor –
drawdown: Provided, That these items shall This shall apply to commitments with
be weighted according to the type of asset an original maturity of up to one (1) year,
and not according to the type of or which can be unconditionally cancelled

§ X116.2
05.12.31
at any time, and shall include committed Provided, That for contracts with multiple
credit line for commercial paper issues. exchanges of principal, the factors are to be
This shall also apply to those not multiplied by the number of remaining
involving credit risk, and shall include – payments in the contract: Provided, further,
(a) Inward bills for collection; That for contracts that are structured to settle
(b) Outward bills for collection; outstanding exposure following specified
(c) Items held for safekeeping/ payment dates and where the terms are reset
custodianship; such that the market value of the contract is
(d) Trust department accounts zero (0) on these specified dates, the residual
(e) Late deposits/payments received maturity would be set equal to the time until
(f) Items held as collaterals; the next reset date, and in the case of interest
(g) Travelers’ checks; etc. rate contracts with remaining maturities of
Second, the credit equivalent amount more than one (1) year that meet these criteria,
shall be treated like any on-balance sheet the potential future credit conversion factor is
asset and shall be assigned the appropriate subject to a floor of five tenths percent
risk weight, i.e., according to the obligor, (0.5%): Provided, furthermore, That no
or if relevant, the qualified guarantor or the potential future credit exposure shall be
nature of collateral. calculated for single currency floating/
c. Derivatives contracts. The credit floating interest rate swaps, i.e., the credit
equivalent amount shall be the sum of the exposure on these contracts would be
current credit exposure (or replacement evaluated solely on the basis of their mark-to-
cost) and an estimate of the potential future market value.
credit exposure (or add-on): Provided, That The credit equivalent amount shall be
the following shall not be included in the treated like any on-balance sheet asset, and
computation: shall be assigned the appropriate risk
(1) Instruments which are traded on weight, i.e., according to the obligor, or if
exchange where they are subject to daily relevant, the qualified guarantor or the
receipt and payment of cash variation nature of collateral: Provided, That a fifty
margin; and percent (50%) risk weight shall be applied
(2) Exchange rate contracts with in respect of obligors which would
original maturity of fourteen (14) calendar otherwise attract a one hundred percent
days or less. (100%) risk weight.
The current credit exposure shall be the The extent to which a claim is
positive mark-to-market value of the guaranteed/collateralized shall be
contract (or zero if the mark-to-market value determined by the amount of guarantee
is zero or negative). The potential future coverage/current market value of securities
credit exposure shall be the product of the pledged, in comparison with the book value
notional principal amount of the contract of the on-balance sheet asset or the notional
multiplied by the appropriate potential principal amount of the off-balance sheet
future credit conversion factor, as indicated exposure, except for derivatives contracts
below: for which determination is generally made
Interest Exchange in relation to credit equivalent amount.
Residual Maturity Rate Contract Rate Contract The capital treatment of investments in
credit-linked notes (CLNs) and similar credit
One (1) year or less 0.0% 1.0 %
Over one (1) year to
derivative products such as credit-linked
five (5) years 0.5% 5.0 % deposits (CLDs) and credit-linked loans (CLLs)
Over five (5) years 1.5% 7.5% shall comply with the guidelines in Sec. 1633.

§ X116.3
05.12.31
§ X116.3 Definitions (15) Trading account securities – equity

a. Amount due from the BSP. This (for UBs);
refers to all deposits of the reporting bank (16) Available for sale securities;
with the BSP. (17) Investments in bonds and other
b. Appraisal increment reserve. This debt instruments (IBODI); and
shall form part of capital only if authorized (18) Others, e.g., accounts receivable
by the Monetary Board. and accrued interest receivable.
c. Bank premises, furniture, fixtures Accruals on a claim shall be classified
and equipment net of depreciation. This and risk weighted in the same way as the
refers to the cost of land and improvements claim. Bills purchased shall be classified
used as bank premises, and furniture, as claims on the drawee banks.
fixtures and equipment owned by the bank. g. Consolidated basis. This refers to
d. Cash on hand. This refers to total combined statement of condition of parent
cash held by the bank consisting of both bank and subsidiary financial allied
notes and coins in Philippine currency. undertakings, but excluding insurance
e. Central government of a foreign companies.
country. This refers to the central government h. Debt capital instruments. This
which is regarded as such by a recognized refers to unsecured subordinated term debt
banking supervisory authority in that country. instruments qualifying as capital of banks.
f. Claims. This refer to loans or debt i. Equity investments. This refers to
obligations of the entity on whom the claim investments in capital stock of companies,
is held, and shall include, but shall not be firms or enterprises, made for purposes of
limited to, the following accounts, inclusive control, affiliation or other continuing
of accumulated market gains/(losses) and business advantage.
accumulated bond discount/(premium j. Exchange rate contracts. This
amortization), and net of specific allowance includes cross-currency interest rate swaps,
for probable losses: forward foreign exchange contracts,
(1) Due from BSP; currency futures, currency options
(2) Due from other banks; purchased and similar instruments.
(3) Interbank loans receivable; k. Financial allied undertakings. This
(4) Loans and discounts; refers to enterprises or firms with
(5) Agrarian reform and other homogenous or similar activities/
agricultural credit loans - P.D. 717; business/functions with the financial
(6) Development incentive loans; intermediary and may include but not
(7) Bills purchased; limited to leasing companies, banks, IHs,
(8) Customers’ liability on bills/drafts financing companies, credit card
under LCs/TRs; companies, financial institutions catering
(9) Customers’ liability for this bank’s to small and medium scale industries
acceptances outstanding; (including venture capital corporations),
(10) Restructured loans; companies engaged in stock brokerage/
(11) Trading account securities – loans; securities dealership, companies engaged
(12) Underwriting accounts - debt in foreign exchange dealership/brokerage,
securities (for UBs); holding companies (for UBs), and such
(13) Underwriting accounts - equity other similar activities as the Monetary
securities (for UBs); Board may declare as appropriate from time
(14) Trading account securities – to time, but excluding insurance
investments; companies.

§ X116.3
05.12.31
l. Claims on foreign country and If a claim has only one (1) rating by any
foreign incorporated bank/private of the BSP recognized rating agencies, that
enterprise and Philippine incorporated rating shall be used to determine the risk
bank/quasi bank/private enterprise with the weight of the claim; in cases where there
highest credit quality. This refers to claims are two (2) or more ratings which map into
on a country, bank or private enterprise different risk weights, the higher of the two
given the highest credit ratings by any of (2) lowest risk weights should be used.
the following BSP-recognized credit rating m. Forward asset purchases. This refers
agencies: to a commitment to purchase a loan,
security or other asset at a specified future
(1) International rating agencies: date, usually on prearranged terms.
Rating Agency Highest Rating
(1) Moody’s “Aa3” and above
n. Forward forward deposits. This
(2) Standard and Poor’s “AA-” and above refers to an agreement between two (2)
(3) FitchRatings “AA-” and above parties whereby one (1) will pay and the
(4) And such other as may be approved by the
Monetary Board other will receive an agreed rate of interest
on a deposit to be placed by one (1) party
(2) Domestic rating agencies: with the other at some predetermined date
Rating Agency Highest Rating in the future.
(1) PhilRatings “PRS Aa” and
o. Gold bullion held in another’s vault
above
(2) And such other rating agencies as may be on an allocated basis. This refers to gold
approved by the Monetary Board bullion held by others to the order of the
bank, and which is separately ascertainable.
Provided, That for purposes of this p. Goodwill. This refers to an
Subsection: intangible asset that represents the excess
(i) Any reference to credit rating shall of the purchase price over the fair market
refer to issue-specific rating; the issuer rating value of identifiable assets acquired less
may be used only if the claim being risk- liabilities assumed in acquisitions accounted
weighted is a senior obligation of the issuer for under the purchase method of
and is of the same denomination applicable accounting.
to the issuer rating (e.g., local currency q. Interest rate contracts. This includes
issuer rating may be used for risk weighting single-currency interest rate swaps, basis
local currency denominated senior claims), swaps, forward rate agreements, interest rate
or in cases of guarantees; futures, interest rate options purchased and
(ii) For loans, risk weighting shall similar instruments.
depend on either the rating of the borrower r. Loans for housing purpose, fully
or the rating of the unsecured senior secured by first mortgage on residential
obligation of the borrower: Provided, That property that is or will be occupied or leased
the loan is of the same denomination out by the borrower. This shall not include
applicable to the borrower rating or rating loans to companies engaged in speculative
of the unsecured senior obligation; residential building or property
Domestic debt issuances may be rated by development.
BSP-recognized domestic or international s. Loans or acceptances under letters
credit rating agencies who may use a of credit to the extent covered by margin
national rating scale acceptable to the BSP, deposits. This shall not include the
while international debt issuances should unnegotiated letters of credit or the
be rated by BSP-recognized international unutilized portion thereof, or other items
credit rating agencies only; and booked under contingent accounts. This

§ X116.3
05.12.31
shall also not include margin deposits y. Other commitments with an original
against loans or acceptance accounts which maturity of up to one (1) year. This includes
are fully liquidated. any revolving or undated open-ended
t. Loans to the extent covered by hold- commitments, e.g., overdrafts or unused
out on, or assignment of, deposits or deposit credit lines, providing that they can be
substitutes maintained in the lending bank. unconditionally cancelled at any time and
A loan shall be considered as secured by a subject to credit revision at least annually.
hold-out on, or assignment of deposit or z. Partly-paid shares and securities.
deposit substitute only if such deposit or This arises where only a part of the issue
deposit substitute account is covered by a price or nominal face value of a security
hold-out agreement or deed of assignment purchased has been subscribed and the
signed by the depositor or investor/placer issuer may call for the outstanding balance
in favor of the bank. This shall not include (or a further installment), either on a date
loans transferred to/carried by the bank’s predetermined at the time of issue, or at an
trust department secured by deposit hold- unspecified future date.
out/assignment. aa. Perpetual preferred stock. This
u. Multilateral development banks. refers to preferred stock that does not have
These refer to the World Bank Group a maturity date, that cannot be redeemed
comprised of the International Bank for at the option of the holder of the instrument,
Reconstruction and Development (IBRD) and that has no provision that will require
and the International Finance Corporation future redemption of the issue. Consistent
(IFC), the Asian Development Bank (ADB), with these provisions, any perpetual
the African Development Bank (AfDB), the preferred stock with a feature permitting
European Bank for Reconstruction and redemption at the option of the issuer may
Development (EBRD), the Inter-American qualify as capital only if the redemption is
Development Bank (IADB), the European subject to prior approval of the BSP.
Investment Bank (EIB); the Nordic bb. Philippine local government units.
Investment Bank (NIB); the Caribbean This refers to the Philippine government
Development Bank (CDB), the Council of units below the level of national
Europe Development Bank (CEDB) and such government, such as city, provincial, and
others as may be recognized by the BSP. municipal governments.
v. Non-central government public cc. Philippine national government.This
sector entity of a foreign country. This refers shall refer to the Philippine national
to entities which are regarded as such by a government and their agencies such as
recognized banking supervisory authority in departments, bureaus, offices, and
the country in which they are incorporated. instrumentalities, but excluding
w. Note issuance facilities and government-owned and controlled
revolving underwriting facilities. This refers commercial corporations.
to an arrangement whereby a borrower may dd. Private sector. This refers to entities
draw down funds up to a prescribed limit other than banks and governments. This
over an extended period by repeated issues shall also include commercial companies
to the market of promissory notes which the owned by the public sector, such as
bank committed to underwrite. government-owned or controlled
x. Other commitments. This includes commercial corporations.
undrawn portion of any binding ee. Redeemable preferred stock. This
arrangements which obligate the bank to refers to preferred stock which may be
provide funds at some future date. redeemed at the specific dates or periods

§§ X116.3 - X116.4
05.12.31
fixed for redemption, only upon prior which is directly or indirectly owned,
approval of the BSP and, where the controlled or held with the power to vote
conditions of the issuance specifically state, by a bank.
only if the shares redeemed or replaced ii. Treasury shares. This refers to shares
with at least an equivalent amount of newly of the parent bank held by a subsidiary
paid-in shares so that the total paid-in financial allied undertaking in a
capital stock is maintained at the same level consolidated statement of condition.
immediately prior to redemption: Provided, jj. Private enterprises. This refers to
That redemption shall not be earlier than five all commercial companies whether
(5) years after the date of issuance: Provided, organized in the form of a corporation,
further, That such redemption may not be partnership, or sole proprietorship.
made where the bank is insolvent or if such kk. Non-performing debt securities. This
redemption will cause insolvency, refers to debt securities as described below:
impairment of capital or inability of the bank (i) For zero-coupon debt securities,
to meet its debts as they mature. and debt securities with quarterly, semi-
Banks which have issues of limited life annual, or annual coupon payments, they
redeemable preferred shares compliant shall be considered non-performing when
with Subsec. X126.5 and outstanding prior principal and or coupon payment is unpaid
to 01 July 2001 shall be allowed to redeem for thirty (30) days or more after due date.
the same prior to the set redemption date, (ii) For debt securities with monthly
without the need for replacement with at coupon payments, they shall be considered
least an equivalent amount of newly paid- non-performing when three (3) or more
in shares within one (1) year from 26 coupon payments are in arrears: Provided,
September 2003 (effectivity of Circular No. however, That when the total amount of
397) upon prior BSP approval: Provided, arrearages reaches twenty percent (20%) of
That: (i) The redeemable preferred the total outstanding balance of the debt
shareholders will give consent; (ii) The bank security, the total outstanding balance of the
meets the required minimum risk-based debt security shall be considered as non-
capital adequacy ratio (CAR) and minimum performing.
capital level for the bank category after such
redemption; and § X116.4 Required reports. Banks
Such redemption will not cause the shall submit a report of their risk-based
inability of the bank to meet its obligations capital adequacy ratio on a solo basis (head
as they mature. office plus branches) and on a consolidated
ff. Sale and repurchase agreements basis (parent bank plus subsidiary financial
and asset sales with recourse. This refers allied undertakings, but excluding
to arrangements whereby a bank sells a insurance companies) quarterly to the
loan, security or fixed asset to a third party appropriate SED of the BSP in the prescribed
with a commitment to repurchase the asset forms within the deadlines, i.e., fifteen (15)
after a certain time, or in the event to a banking days and thirty (30) banking days
certain contingency. after the end of reference quarter,
gg. Solo basis. This refers to combined respectively. Only banks with subsidiary
statement of condition of head office and financial allied undertakings (excluding
branches. insurance companies) which under existing
hh. Subsidiary. This refers to a regulations are required to prepare
corporation or firm more than fifty percent consolidated statements of condition on a
(50%) of the outstanding voting stock of line-by-line basis shall be required to submit

§§ X116.4 - X119.1
05.12.31
report on a consolidated basis. The met. The Monetary Board may restrict or
abovementioned reports shall be classified prohibit the making of new investments of
as Category A-2 reports. any sort by the bank, with the exception of
purchases of readily marketable evidences
§ X116.5 (Reserved) of indebtedness issued by the Philippine
National Government and BSP included in
§ 1116.5 Market risk capital Item “a(1)(b)i” of Subsec. X116.2, until the
requirement. UBs/KBs shall also measure minimum required capital ratio has been
and apply capital charges for market risk, restored.
in addition to the credit risk capital
requirement in this Section, in accordance § X116.7 Temporary relief. In case of a
with the Guidelines to Incorporate Market bank merger, or consolidation, or when a
Risk in the Risk-Based Capital Adequacy bank is under rehabilitation under a program
Framework in Appendix 46. approved by the BSP, the Monetary Board
The capital treatment of market risk may temporarily relieve the surviving bank,
exposures arising from the holdings of consolidated bank, or constituent bank or
Dollar-Linked Peso Notes (DLPNs) is corporations under rehabilitation from full
indicated in Appendix 46a. compliance with the required capital ratio for
The instructions for accomplishing the a maximum period of one (1) year.
report on computation of the Adjusted Risk-
Based Capital Adequacy Ratio covering § X116.8 Capital treatment of
combined credit risk and market risk are exposures/investments in certain products
shown in Appendices 46b (for UBs and KBs The guidelines on the capital treatment of
with expanded derivatives authority), 46c bank’s exposures/investments in the
(for UBs and KBs with expanded derivatives following products are in Part VI:
authority but without options transactions) a. Credit-linked notes in Sec. 1633.
and 46d (for UBs and KBs without expanded b. Structured products in Subsec. 1635.4.
derivatives authority). c. EFCDU investments in Subsec.
1636.4.
§ 2116.5 (Reserved) d. Investment in securities overlying
securitization structures in Subsec.
§ 3116.5 (Reserved) 1648.4.
§ X116.6 Sanctions. Whenever the Secs. X117 - X118 (Reserved)

capital accounts of a bank are deficient with
respect to the prescribed risk-based capital Sec. X119 Issuance of Unsecured
adequacy ratio (which for UBs/KBs shall Subordinated Debt. The guidelines for the
pertain to adjusted capital adequacy ratio issuance of unsecured subordinated debt
covering combined credit risk and market (USD) eligible as Tier 2 capital are as
risk), the Monetary Board, after considering follows:
a report of the appropriate SED of the BSP
on the state of solvency of the institution § X119.1 Minimum features of USD
concerned, shall limit or prohibit the a. Form. A USD that will be publicly
distribution of the net profits and shall distributed may either be scripless in form
require that part or all of net profits be used or evidenced by certificates such as:
to increase the capital accounts of the bank promissory note, debenture or other
until the minimum requirement has been appropriate certificate of indebtedness. A

§§ X119.1 - X119.4
05.12.31
USD in scripless form shall comply with the § X119.3 Pre-qualification requirements
provisions of R.A. No. 8792, otherwise of issuing bank. A bank applying for authority
known as the “Electronic Commerce Act”, to issue a USD shall comply with the
particularly on the existence of an assurance following requirements:
on the integrity, reliability and authenticity of a. It has complied with the minimum
the USD in electronic form. An independent amount of capital required under Subsec.
third party USD Registry shall maintain X106.1 or its paid-in capital is at least equal
unissued USD certificates and the USD to the amount required therein.
Registry Book, which must be electronic if b. It has established a risk management
the USD is scripless in form. A USD that will system appropriate to its operations
be issued privately or on a negotiated basis characterized by clear delineation of
shall be evidenced by certificates. responsibility for risk management,
All USD shall be registered in the name adequate risk measurement systems,
of individuals or entities and pre-numbered appropriately structured risk limits, effective
serially. internal controls and complete, timely and
b. Denomination. The USD must be efficient risk reporting system.
issued in minimum denominations of c. It is a locally incorporated bank.
P500,000 or its equivalent if denominated
in a foreign currency. § X119.4 Public issuance of unsecured
c. Mandatory provisions. If the USD subordinated debt. Public issuance of
is not scripless in form, the following USD is an issuance offered to the general
provisions must appear in bolder prints on public, which may or may not be qualified
the face of every note, debenture or other investors/buyers as hereinafter defined. The
certificate evidencing the same: Issuing Bank must be rated by an
(1) This obligation is not a deposit and independent credit rating agency
is not insured by the Philippine Deposit recognized by the BSP and a Public Trustee
Insurance Corporation (PDIC); and shall be appointed for investor protection.
(2) This obligation is subordinated to a. Application for authority
the claims of depositors and ordinary (1) The application shall be signed by
creditors, unsecured, not covered by the the president or officer of equivalent rank
guaranty of (name of Bank) or its of the applicant bank;
subsidiaries and affiliates, and ineligible as (2) The application for authority on
collateral for a loan granted by (name of each USD issue/issue program shall be filed
Bank), its subsidiaries and affiliates. with the appropriate SED of the BSP:
If the USD is scripless in form, the Provided, That the period of an issue
foregoing provisions/information shall be program of two (2) or more tranches shall
furnished every buyer/investor in a separate not exceed one (1) year from date of
written instrument receipt of which must approval; and
be duly acknowledged by him. (3) The application shall be
d. Term. The minimum maturity of a accompanied by:
USD shall be ten (10) years for Upper Tier (a) A certified true copy of the
2 capital and five (5) years for Lower Tier 2 resolution of the Issuing Bank’s board of
capital. directors authorizing the issuance of the
USD indicating, among others, the issue
§ X119.2 Prior BSP approval. No USD size, terms and conditions, offering period,
shall be issued without the prior approval purpose or intended use of proceeds
of the BSP. thereof, the names of the Underwriter/

§ X119.4
05.12.31
Arranger, USD Registry, Selling Agent(s) (a) A written confirmation from the
and Market Maker(s), and Public Trustee; president or officer of equivalent rank of the
(b) A certification by the corporate Issuing Bank stating that the bank has been
secretary that the issuance of the USD has rated by an independent credit rating
been approved by the stockholders owning agency duly recognized by the BSP;
or representing at least two-thirds (2/3) of (b) Information disclosure of the USD
the outstanding capital stock of the Issuing issuance prepared by the Underwriter/
Bank if the USD has convertibility feature; Arranger;
(c) A written confirmation from the (c) Promotional materials;
president or officer of equivalent rank of the (d) Specimen of the proposed Purchase
Issuing Bank stating that all the conditions Advice and Registry Confirmation; and
for USD under Item “b(1)(h)” or Item (e) Copy of the agreements between
“b(2)(c)” of Subsec. X116.1 are complied the Issuing Bank and the Underwriter/
with and that such conditions shall be Arranger/USD Registry/Selling Agent(s)/
contained in the USD Certificates if the USD Market Maker(s), and Public Trustee.
is not in scripless form, in the Information The BSP reserves the right to suspend
Disclosure and Purchase Advice; the date of offering, within the fifteen (15)
(d) A written undertaking from the banking day period from submission of the
president or officer of equivalent rank of the above-mentioned requirements.
Issuing Bank not to support, directly or (2) Within ten (10) banking days after
indirectly, by extending loans, issuing issuance of the initial and subsequent
payment guarantees or otherwise, the buyer/ tranches:
holder of the USD of the Issuing Bank; (a) A written notice of the actual date
(e) A written confirmation from the of issuance/offering of each initial and
president or officer of equivalent rank of the subsequent tranches.
Issuing Bank stating that the designated c. Requirements for other parties
Underwriter/Arranger, USD Registry, involved
Selling Agent(s) and Market Maker(s) were (1) Underwriter/Arranger
provided with a complete list of subsidiaries (a) It is either a UB or an IH: Provided,
and affiliates of the Issuing Bank including That if an offering is on a best effort basis, the
their subsidiaries and affiliates; Arranger may also be a KB: Provided, further,
(f) A written undertaking from the That if an offering is denominated in foreign
president or officer of equivalent rank of the currency, the Underwriter/Arranger may also
Issuing Bank to update the above- be any reputable international investment
mentioned list within three (3) banking days bank.
from the date of change in composition (b) It must be an independent third
thereof; and party that has no subsidiary/affiliate or any
(g) Specimen of the USD. other relationship with the Issuing Bank that
b. Additional requirements for the would undermine the objective conduct of
issuance of USD due diligence.
After a bank’s application to issue a (c) If Underwriter, it must have
USD has been approved, the applicant shall adequate risk management and must be
submit the following additional requirements well capitalized, which for a local
to the appropriate SED of the BSP: Underwriter, shall be evidenced by
(1) At least fifteen (15) banking days compliance with the risk-based CAR
before the date of offering: prescribed under Sec. X116 for the past

§ X119.4
05.12.31
sixty (60) days immediately preceding the There is no need for a Market Maker if
date of application where applicable. the USD is to be held on to maturity:
(2) USD Registry Provided, That this condition is properly
(a) It may be a UB, a KB, or such other disclosed in the Purchase Advice, Registry
specialized entity that may be qualified by Confirmation and Prospectus/Information
the Monetary Board. Disclosure.
(b) It must be a third party that has no (5) Public Trustee
subsidiary/affiliate or any other relationship (a) It must be a financial institution
with the Issuing Bank that would authorized by the BSP to engage in trust and
undermine its independence. other fiduciary business.
(c) It must not be an Underwriter or a (b) It must be a third party that has no
Market Maker of the USD. subsidiary/affiliate or any other relationship
(d) It must have adequate facilities and with the Issuing Bank that would undermine
the organization to do the following: its independence.
(i) Maintain certificates of unissued (c) It must have adequate risk
USD and the Registry Book which must be management system and must be well
electronic if the USD is in scripless form; capitalized as evidenced by compliance
(ii) Deliver transactions within the with the risk-based CAR prescribed under
agreed trading period; and Sec. X116 for the past sixty (60) days
(iii) Issue Registry Confirmations and immediately preceding the date of
USD Certificates if they are not in scripless application where applicable. The sixty
form to buyers/holders of USD. (60)-day compliance period with the risk-
(e) It must have a CAMELS composite based CAR shall be waived in evaluating a
rating of at least “3” in the last regular bank’s eligibility to act as Public Trustee for
examination, where applicable. another bank’s Unsecured Subordinated
(3) Selling Agent Debt Tier 2 Offering, if the former bank has
(a) It may be any financial institution instituted remedial measure to its CAR
with dealership or brokering license and is deficiency by issuing Tier 2 capital.
under the supervision of the BSP. (d) It may also be the USD Registry.
(b) It must be a third party that has no (e) A Public Trustee is mandatory if
subsidiary/affiliate or any other relationship USD shall be offered to the general public
with the Issuing Bank that would undermine and optional if offering will be limited to
its independence. qualified investors/buyers.
(4) Market Maker d. Functions/Responsibilities of other
(a) It must be a financial institution with parties involved
a dealership or brokering license and is The respective parties shall have, among
under the supervision of the BSP. others, the following functions/
(b) It must be a third party that has no responsibilities:
subsidiary/affiliate or any other relationship (1) Underwriter/Arranger
with the Issuing Bank that would undermine (a) Conducts due diligence on the
its independence. Issuing Bank and determines the valuation/
(c) It must have adequate risk pricing of the primary issue;
management and must be well capitalized (b) Prepares the prospectus/information
as evidenced by compliance with the risk disclosure, including updates for multi-
based CAR prescribed under Sec. X116 for tranche USD issues;
the past sixty (60) days immediately preceding (c) Formulates the distribution/
the date of application where applicable. allocation plan for the initial offering and

§ X119.4
05.12.31
ensures proper and orderly distribution of The sale or distribution of USD may also
the primary offering of the USD; be performed by the issuer through its head
(d) Disseminates information to office and branches subject to the following
prospective investors of USD on the terms conditions:
and conditions of the issue (including (i) The in-house distribution shall not
information of non pre-termination at the exceed fifty percent (50%) of the total issue;
initiative of the holder and the liquidity (ii) The sale/distribution must be done
mechanism in secondary trading) and the under the supervision of an officer of the
rights and obligations of the holder, issuer, Issuing Bank who is capable of determining
Underwriter/Arranger, USD Registry, Selling the suitability of the investor and ensuring
Agent, Market Maker and Public Trustee; and that he fully understands the risk in USD;
(e) When selling to its clients, it must (iii) All personnel assigned to distribute/
perform the functions/responsibilities of the sell USD must be capable of determining
Selling Agent under Item “d(3)” hereof. the suitability of the investor and ensuring
(2) USD Registry that he fully understands the risk in USD; and
(a) Keeps unissued USD certificates (iv) It must also perform the functions/
and maintains USD Registry book, which responsibilities of the Selling Agent.
must be electronic if USD is scripless in form; (4) Market Maker
(b) Records initial issuance of the USD (a) Sets an independent pricing for the
and subsequent transfer of ownership; secondary trading of USD;
(c) Issues USD Certificates for primary (b) Posts daily the bid and offer prices
offerings if USD is not scripless in form; for the USD on the screen of at least one (1)
(d) Issues Registry Confirmation to of the information providers until the operation
buyers/holders; of a fixed income exchange for USD;
(e) Functions as paying agent for (c) Verifies identity of each investor to
periodic interest and principal payments; ascertain that Subsec. X119.8 is not violated
(f) Monitors compliance with the and applies appropriate standards to combat
prohibitions on holdings of USD, as money laundering as required under
prescribed under Subsec. X119.8 hereof; and existing BSP regulations;
(g) Submits within ten (10) banking (d) Determines the suitability of the
days from end of reference month, an buyer and ensures that he fully understands
exception report on Subsec. X119.8 to the the risk involved in a USD;
appropriate SED of the BSP. This report shall (e) Issues the Purchase Advice for the
be classified as a “Category B” report. secondary trading of the USD to the buyer
(3) Selling Agent and sends a copy thereof to the USD
(a) Verifies identity of each investor to Registry; and
ascertain that Subsec. X119.8 is not violated (f) Ensures secondary market transfers
and applies appropriate standards to combat and registration in coordination with the
money laundering as required under USD Registry.
existing BSP regulations; (5) Public Trustee
(b) Determines the suitability of the (a) Monitors compliance of the Issuing
investor and ensures that he fully Bank with the terms and conditions of the USD;
understands the features of the USD and the (b) Monitors compliance of the other
risk involved therein; and parties with their functions and responsibilities
(c) Issues the Purchase Advice for the prescribed under this Memorandum;
primary offering of the USD to the buyer and (c) Reports regularly to USD holders
sends a copy thereof to the USD Registry. non-compliance of the Issuing Bank with

§ X119.4
05.12.31
the terms and conditions of the USD and (5) This USD cannot be terminated by
such other developments that adversely the holder nor by the Issuing Bank before
affect their interest and advise them of the (maturity date). However, negotiations/
course of action they should take to protect transfers from one holder to another do not
their interest; and constitute pre-termination.
(d) Act on behalf of the USD holders (Item “g(5)” above shall apply if the
in case of bankruptcy of the Issuing Bank. Issuing Bank commits no pre-termination of
e. Change of Underwriter/Arranger, the USD. Otherwise it shall read as follows):
USD Registry, Selling Agent(s), Market This USD cannot be terminated by the
Maker(s). After an application for authority holder before (maturity date). However, it
to issue a USD has been approved by the may be pre-terminated at the instance of the
BSP, the Issuing Bank cannot change its Issuing Bank upon:
Underwriter/ Arranger, USD Registry, (a) Prior approval of the BSP subject
Selling Agent(s), Market Maker(s) and Public to the following conditions:
Trustee without prior BSP approval. (i) The bank’s capital adequacy ratio
f. Agreements Between Issuing Bank is at least equal to the required minimum
and other parties involved. The agreements ratio; and
between the Issuing Bank and the USD (ii) The debt is simultaneously replaced
Registry/Selling Agent(s)/Market Maker(s)/ with the issues of new capital which is
Public Trustee shall comply with the neither smaller in size nor of lower quality
provisions of Sec. X169 on bank service than the original issue.
contracts. The Issuing Bank shall be liable (b) Prior notice to holders on record.
to investors for any damages caused by Negotiations/transfers from one (1)
actions of the USD Registry, Selling Agent(s) holder to another do not constitute pre-
and Market Maker(s), which are contrary to termination.
the agreements entered into. (6) The holders/owners of this USD
g. Purchase Advice and Registry cannot set off any amount they owe to the
Confirmation. The Purchase Advice and Issuing Bank against this USD.
Registry Confirmation shall contain all the (7) All negotiations/transfers of this
terms and conditions on the issuance of USD prior to maturity must be coursed
USD and shall conspicuously state the through a Market Maker until the operation
following caveat: of a fixed income exchange.
(1) This USD is not a deposit and is not (8) The payment of principal may be
insured by the PDIC. accelerated on this USD only in the event
(2) This USD is unsecured and not of insolvency of the Issuing Bank.
covered by a guarantee of the Issuer/ (9) This USD may be converted into
Underwriter/Arranger or related party of the common or preferred shares or payment of
Issuer/Underwriter/ Arranger. principal and interest thereof may be
(3) In case of insolvency, this USD is deferred at the instance of the Issuer if the
subordinated in the right of payment of capital adequacy ratio of the Issuing Bank
principal and interest to all depositors and becomes less than the required minimum
other creditors of the bank, except those ratio.
creditors expressed to rank equally with, or (10) The payment of interest on this
behind holders of the USD. USD shall be deferred in the event of
(4) This USD is not eligible as collateral elimination of dividends on all
for a loan made by the Issuing Bank, its outstanding common or preferred stocks
subsidiaries or affiliates. of the Issuing Bank.

§§ X119.4 - X119.5
05.12.31
(11) The payment of principal and by the Selling Agent or the Market Maker,
interest due on this USD shall not be made as the case may be, with the original given
if the Issuing Bank is insolvent. to the buyer and a second copy to the USD
N.B.: The last three items [i.e., (9), (10) Registry. Upon presentation by the buyer
and (11)] are applicable only to USD of the original copy of Purchase Advice, the
qualifying under Upper Tier 2 capital.The USD Registry shall:
foregoing information shall also be shown (a) record the primary issuance in the
in the Prospectus/Information Disclosure. Registry Book and issue a Registry
h. Pre-termination by the Issuer Confirmation and the corresponding USD
(1) The Issuing Bank may pre- certificate to the buyer if it is not scripless
terminate the USD subject to the following in form; and
conditions: (b) register the transfer of ownership
(a) The Information Disclosure, in the USD Registry Book and issue a
Purchase Advice and Registry Confirmation Registry Confirmation to the buyer, in the
shall include the information that the Issuing case of secondary trading.
Bank has the option to pre-terminate the
USD; § X119.5 Private or negotiated
(b) Compliance with Items “b(1)(h)vi” issuance of unsecured subordinated debt
or of “b(2)(c)vi” as may be applicable, of a. Private or negotiated issuance of
Subsec. X116.1; USD is the issuance of USD to qualified
(c) Prior notification of thirty (30) banking investors/buyers, whether individuals or
days or more to holders of record; and institutions as defined under Subsec.
(d) Notwithstanding any agreement to X119.7. There is no limit on the number
the contrary, the Issuer shall shoulder the of qualified investors/buyers and on the sale
tax due, if any, on the interest income or negotiation of the USD: Provided, That
already earned by the holders. such sale or negotiation shall only be made
(2) Within ten (10) banking days after the to another qualified investor/buyer.
completion of the pre-termination transaction, b. Application for authority of the
the Issuing Bank must submit a written notice Issuing Bank
to the appropriate BSP SED of the following: (1) The application shall be signed by
(a) Actual pre-termination date; and the president or officer of equivalent rank
(b) New capital composition. of the Issuing Bank.
i. Primary offering/secondary trading (2) The application for authority on
(1) The primary offering of a USD shall each negotiated USD issue shall be filed
be executed through an Underwriter under with the appropriate SED of the BSP.
a firm commitment or through an Arranger (3) The application shall be
on a best effort basis. Initial sale/distribution accompanied by:
of USD shall be made by a Selling Agent, (a) A certified true copy of the resolution
the Underwriter/Arranger or, to a limited of the Issuing Bank’s board of directors
extent, the Issuing Bank itself. Subsequent authorizing the private/negotiated issuance of
negotiations in secondary trading must be USD indicating, among others, the amount,
executed through authorized Market duration/maturity, interest rate, purpose or
Maker(s) until the operation of a fixed intended use of proceeds of the USD;
income exchange. (b) A Certification by the corporate
The primary offering as well as the secretary that the issuance of the USD has
secondary trading of a USD must be been approved by the stockholders owning
supported by Purchase Advice to be issued or representing at least two-thirds (2/3) of

§ X119.5
05.12.31
the outstanding capital stock of the Issuing Issuing Bank and the investor/buyer as
Bank if the USD has convertibility feature; specified inthe application for authority to
(c) A written confirmation from the issue negotiated USD; and
president or officer of equivalent rank of (3) A copy of the income tax return of
the Issuing Bank stating that all the the investor/buyer in case of a natural person.
conditions for USD under Item “b(1)(h)” d. Debt agreement/contract
excluding Item “(xi)” or Item “b(2)(c)” The Debt Agreement/Contract shall
excluding Item “(viii)” of Subsec. X116.1 contain all the terms and conditions on the
are complied with and that such conditions issuance of USD and shall conspicuously
shall be contained in the USD Certificates, state the following caveat:
Prospectus/Information Disclosure and (1) This USD is not a deposit and is not
Debt Agreement/Contract; insured by the PDIC.
(d) An undertaking from the president (2) This USD is unsecured and not
or officer of equivalent rank of the Issuing covered by a guarantee of the Issuer or
Bank that the USD shall be issued only to related party of the Issuer.
qualified investors/buyers; (3) In case of insolvency, this USD is
(e) A certification from the president subordinated in the right of payment of
or officer of equivalent rank of the Issuing principal and interest to all depositors and
Bank that the investor/buyer shall not be other creditors of the bank, except those
among those prohibited to hold USD under creditors expressed to rank equally with, or
Subsec. X119.8 and that the Issuing Bank behind holders of the USD.
has applied appropriate standards to (4) This USD is not eligible as collateral
combat money laundering as required for a loan made by the Issuing Bank, its
under existing BSP regulations; subsidiaries or affiliates.
(f) A written undertaking from the (5) This USD cannot be terminated by
president or officer of equivalent rank of the holder nor by the Issuing Bank before
the Issuing Bank not to support, directly nor (maturity date).
indirectly, by extending loans, issuing (Item “d(5)” above shall apply if the Issuing
payment guarantees or otherwise, the buyer/ Bank commits no pre-termination of the USD.
holder of the USD of the Issuing Bank; and Otherwise it shall read as follows):
(g) Specimen of the proposed Debt This USD cannot be terminated by the
Agreement/Contract containing the terms holder before (maturity date). However, it
and conditions of the USD issuance. may be pre-terminated at the instance of the
c. Additional Requirements for the Issuing Bank upon:
Private Issuance of USD. Within ten (10) (a) Prior approval of the BSP subject
banking days after issuance of the USD, the to the following conditions:
Issuing Bank shall submit the following (i) The bank’s capital adequacy ratio
additional requirements to the appropriate is at least equal to the required minimum
SED of the BSP: capital ratio; and
(1) A written notice of the actual date of (ii) The debt is simultaneously replaced
full receipt of proceeds, accompanied by a with the issues of new capital which is
certification from the president or officer of neither smaller in size nor of lower quality
equivalent rank of the Issuing Bank stating that than the original issue.
the pre-qualification requirements under (b) Prior notice to investors/buyers.
Subsec. X119.3 have been complied with up (6) This USD cannot be sold or
to the time of full receipt of proceeds; transferred and must be held on to maturity by
(2) A copy of each of the duly signed the investor/buyer (in case of negotiated issuance
Debt Agreements/Contracts between the of USD to nineteen (19) or less investors/buyers).

§§ X119.5 - X119.6
05.12.31
(7) This USD may only be sold, (a) Actual pre-termination date; and
transferred or negotiated to another (b) New capital composition.
qualified institutional investor/buyer (in case f. Functions/Responsibilities of the
of qualified issuance to institutional buyers). Issuing Bank
(8) The holders/owners of this USD (1) Prepares the Prospectus/Information
cannot set off any amount they owe to the Disclosure on the USD issues;
Issuing Bank against this USD. (2) Disseminates to prospective
(9) The payment of principal may be investors/buyers information on the terms
accelerated on this USD only in the event and conditions of the USD (including
of insolvency of the Issuing Bank. information on no pre-termination at the
(10) This USD may be converted into initiative of the holder, and where
common or preferred shares or payment of applicable, the liquidity mechanism in
principal and interest thereof may be secondary trading) and the rights and
deferred at the instance of the Issuer if the obligations of the holder and the issuer;
capital ratio of the Issuing Bank becomes less (3) Keeps unissued USD certificates
than the required minimum capital ratio. and maintains USD Register;
(11) The payment of interest on this USD (4) Records initial issuance of USD
shall be deferred in the event of elimination and subsequent transfer of ownership;
of dividends on all outstanding common or (5) Issues USD Certificates and Registry
preferred stocks of the Issuing Bank. Confirmation to original investors/ buyers;
(12) The payment of principal and (6) Issues Registry Confirmation to
interest due on this USD shall not be made subsequent buyers/holders where applicable;
if the Issuing Bank is insolvent. (7) Ensures compliance with X119.8
N.B.: The last three (3) items (10), (11) and applies appropriate standards to
and (12) are applicable only to USD combat money laundering as required
qualifying under Upper Tier 2 capital. under existing BSP regulations; and
e. Pre-termination by the Issuer (8) Determines suitability of the
(1) The Issuing Bank may pre-terminate investors/buyers (original or subsequent)
the negotiated USD subject to the following and assures that he fully understands the
conditions: risk involved in a USD.
(a) The Debt Agreement/Contract shall
include the information that the Issuing Bank § X119.6 Issuance overseas of
has the option to pre-terminate the USD; unsecured subordinated debt. The
(b) Compliance with Items “b(1)(h)vi” overseas issuance of USD shall also be
or “b(2)(c)vi”, as may be applicable, of subject to the provisions of these guidelines,
Subsec. X116.1; except for the following:
(c) Prior notification of thirty (30) a. Overseas issuance of unsecured
banking days or more to lender/investor; and subordinated debt (USD) may be allowed
(d) Notwithstanding any agreement to to be governed by the laws and applicable
the contrary, the Issuer shall shoulder the rules and regulations of the country where
tax due, if any, on the interest income the USD is to be issued with respect to form,
already earned by the holders. qualified investors/buyers and subsequent
(2) Within ten (10) banking days after sale or negotiation;
the completion of the pre-termination b. The requirements under Subsecs.
transaction, the Issuing Bank must submit a X119.1c(1), X119.5d(6) and X119.5d(7)
written notice to the appropriate BSP SED may be allowed to be dispensed with in
of the following: cases of overseas issuance of USD; and

§§ X119.6 - X119.9
05.12.31
c. The subsequent sale/negotiation in b. Common trust funds (CTFs)

the Philippines of the USDs originally managed by the Trust Department of the
issued overseas shall not be allowed unless Issuing Bank, its subsidiaries and affiliates
all the requirements for domestic issuance or other related entities: Provided, That
are complied with. other funds being managed by the Trust
It is however understood that the Department of the Issuing Bank, its
applicant/issuer shall also secure the subsidiaries and affiliates or other related
approval of the International Operations entities are allowed to purchase or invest
Department (IOD) of the BSP for the in USD of the Issuing Bank subject to the
overseas issuance of foreign currency following conditions:
denominated USD. (1) That the fund owners give prior
authority/instruction to the Trust
§ X119.7 Qualified investors/buyers Department to purchase or invest in the
Qualified buyers of, or suitable investors USD of the Issuing Bank; and
in, a USD can be any of the following: (2) That the authority/instruction of the
a. Banks; fund owner and his understanding of the
b. Investment house (IH); risk involved in purchasing or investing in
c. Insurance company; USD are fully documented.
d. Pension or retirement fund of other For purposes of this Section, an affiliate
entities which have no subsidiary/affiliate or refers to a related entity linked by means
any other relationship with the Issuing Bank; of ownership of at least twenty percent
e. Investment company; (20%) to not more than fifty percent (50%)
f. Funds managed by another bank or of its outstanding voting stock.
other entities duly authorized to engage in
trust or other fiduciary business; § X119.9 Accounting treatment
g. Domestic corporate or institutional Obligations arising from the issuance of
investors with total assets of at least P100 USD shall be booked under a new General
million; Ledger account title “Unsecured
h. Foreign multilateral organizations Subordinated Debt”, which shall be
such as, the ADB and IFC; presented separately in the financial
i. High net-worth individual investor/ statements between total liabilities and capital
buyer who is sophisticated enough to accounts. However, only the net proceeds
understand and appreciate the significance actually received from debt issues shall be
of and the risk involved in USD as may be considered as Tier 2 capital. Moreover, if the
indicated by his/her educational background debt is issued at a premium, the premium
and/or employment/business experience; and shall not be counted as part of Tier 2 capital.
j. Stockholder, director or officer with The net proceeds actually received
the rank of at least a Vice-President of the from the debt issues, whether at a discount
Issuing Bank. or premium shall be considered in the
computation of loanable funds for purposes
§ X119.8 Prohibitions on holdings of of determining compliance with the
USD. The following persons and entities mandatory allocation of funds for agri-agra
are prohibited from purchasing/holding credit required under P.D. No. 717, as
USD of the Issuing Bank: amended.
a. Subsidiaries and affiliates of the Cost incurred related to the issuance
Issuing Bank including their subsidiaries of USD shall be charged to current
and affiliates; and operations or booked under “Deferred

§§ X119.9 - X120
05.12.31
Charges” account to be amortized equally c. On the USD Registry

over a period not exceeding five (5) years. (1) Disqualification from being
A USD denominated in foreign appointed as USD Registry for three (3)
currency may be recorded in the regular years; and
banking unit (RBU) or foreign currency (2) Monetary penalty of P30,000 for
deposit unit (FCDU/EFCDU) of the Issuing each violation.
Bank: Provided, That if booked in the d. On the Selling Agent/Market
FCDU/EFCDU, the following conditions Maker
shall be strictly observed: (1) Disqualification from being
a. The Issuing Bank shall indicate in appointed as Selling Agent or Market
its application that the USD shall be booked Maker for three (3) years; and
in its FCDU/EFCDU; (2) Monetary penalty of P30,000 for
b. The USD shall remain in the FCDU/ each violation.
EFCDU books until full settlement; and e. On the Public Trustee
c. The USD shall be issued only to (1) Disqualification from being
non-residents and offshore banking units appointed as Public Trustee for three (3)
in accordance with Section 72.2.e of CB years; and
Circular No. 1389, as amended. (2) Monetary penalty of P30,000 for
each violation.
§§ X119.10 - X119.12 (Reserved) f. On the certifying officer - A fine
of P5,000 per banking day from the time
§ X119.13 Sanctions. Without of required disclosure up to the time
prejudice to the other sanctions prescribed disclosure was made, or from the time
under Section 37 of R.A. No. 7653 and misrepresentation was made up to the time
the provisions of Section 16 of R.A. No. the information was corrected, and a
8791, sanctions shall be imposed on the possible disqualification if warranted by the
Issuing Bank, USD Registry and other gravity of the offense committed.
parties involved in the transaction for failure g. On the responsible officer - A fine
to perform their respective functions/ of P30,000 for participating in or tolerating
responsibilities and for non-disclosure or the non-disclosure or misrepresentation of
misrepresentation of information, as information, and a possible disqualification
follows: if warranted by the gravity of the offense
a. On the Issuing Bank committed.
(1) Suspension of its authority to issue
remaining tranches, if any; Sec. X120 Issuance of Hybrid Tier 1
(2) Disqualification from future Capital Instruments. Except for the
issuance of USD; accounting treatment, the issuance of the
(3) Disqualification of all outstanding Hybrid Tier 1 capital instruments shall
issues as eligible Tier 2 capital; and generally follow the guidelines on the
(4) Monetary penalty of P30,000 for issuance of unsecured subordinated debts
each violation. eligible as Upper or Lower Tier 2 capital
b. On the Underwriter/Arranger as provided in Sec. X119.
(1) Disqualification from being Eligible Hybrid Tier 1 capital instrument
Underwriter/Arranger for three (3) years; shall be booked as equity instrument under
and the account “Other Equity Instrument –
(2) Monetary penalty of P30,000 for Others”, which shall be accounted for in
each violation. accordance with the provisions of PAS 32.

§§ X121 - X121.3
05.12.31
E. LIBERALIZED ENTRY AND SCOPE (1) Widely-owned and publicly-listed

OF OPERATIONS OF FOREIGN BANKS (listed in any stock exchange authorized
by the government of the country of
Sec. X121 Liberalized Entry and Scope of origin), unless more than fifty percent
Operations of Foreign Banks. The following (50%) of the capital stock of said foreign
rules shall govern the liberalized entry and bank applicant is owned by the
scope of operation of foreign banks. government of its country of origin. The
bank is considered as widely-owned if it
§ X121.1 Modes of entry of foreign has at least fifty (50) stockholders without
banks. With prior approval of the any stockholder owning more than fifteen
Monetary Board, foreign banks may percent (15%) of its capital stock:
operate in the Philippines through any one Provided, That if the bank is owned/
(1) of the following modes: controlled by a holding company, this
a. By acquiring, purchasing or requirement shall apply to the holding
owning up to sixty percent (60%) of the company; and
voting stock of an existing domestic bank (2) Among the top 150 banks in the
(including banks under receivership or world or the top five (5) banks in its
liquidation, provided no final court country of origin.
liquidation order has been issued); The determination of the top 150
b. By investing in up to sixty percent banks in the world may be based on lists
(60%) of the voting stock of a new banking prepared and published by reputable
subsidiary incorporated under the laws of organizations/publications.
the Philippines; or The determination of the top five (5)
c. By establishing branches with full banks in the country of origin shall be
banking authority. based on information supplied by the bank
Interested foreign banks shall file with supervisory authorities in which country
the Office of the Governor, BSP, their of origin as to the ranking of banks based
application for authority to operate in the on net worth. However, the Monetary
Philippines through any of the modes of Board may also use total assets as a
entry mentioned above. The application criterion: Provided, That the same shall be
must be submitted in the prescribed forms based on book accounts only and on the
shown in Appendix 2. consolidated balance sheet of the head
office and all branches, excluding
§ X121.2 Qualification requirements subsidiaries and affiliates.
a. Investment in an existing In addition to the foregoing
domestic bank. A foreign bank seeking requirements, the foreign bank applicant
to acquire, purchase or own up to sixty must be in compliance with capital
percent (60%) of the voting stock of an requirements as prescribed by the laws
existing domestic bank needs only to and regulations of its country of origin.
meet the selection criteria under Subsec.
X121.3. § X121.3 Guidelines for selection
b. Establishment of subsidiary or The following factors shall be considered
branch. Any foreign bank seeking to in selecting the foreign bank which will
establish a new banking subsidiary or to be allowed to invest in majority of the
establish branches with full banking authority, voting stock of an existing domestic bank
in addition to satisfying the criteria prescribed or to establish a subsidiary or branch in
Subsec. X121.3, must be - the Philippines.

§§ X121.3 - X121.4
05.12.31
a. Geographic representation and § X121.4 Capital requirements

complementation. Representation from a. For locally incorporated subsidiaries
the different parts of the world and/or the - The minimum capital required for locally
international financial centers shall be incorporated subsidiaries of foreign banks
ensured. shall be the same as that prescribed by the
b. Strategic trade and investment Monetary Board for domestic banks of the
relationships between the Philippines and same category.
the country of incorporation of the foreign b. For foreign bank branches with full
bank. Consideration shall be given to the banking authority - A foreign bank
countries of origin of applicant foreign authorized to establish branches with full
banks- banking authority in the Philippines shall
(1) With substantial financial inwardly remit and convert into Philippine
assistance to, and loans and investments, currency, as permanently assigned capital,
past and present, in the Philippines; and the U.S. Dollar equivalent of P210.0 million
(2) With which the Philippines has at the exchange rate prevailing on 05 June
significant volume of trade especially to 1994 (the date of effectivity of R.A. No.
those with which the country has 7721), i.e., P26.979 to US$1. The foreign
substantial net exports. bank shall thereby be entitled to establish
c. Relationship between the three (3) branches in locations of its choice.
applicant bank and the Philippines. For purposes of this Subsection, the
Consideration shall be given to the same foreign bank may open three (3)
capability of the foreign bank to promote additional branches in locations designated
trade with, and to bring foreign investments by the Monetary Board by inwardly
into, the Philippines. Long standing remitting and converting into Philippine
financial and commercial relationship currency, as additional permanently
with, and assistance extended to, the assigned capital the U.S. Dollar equivalent
Philippines, shall likewise be taken into of P35.0 million for every additional
account. branch, computed at the same exchange
d. Demonstrated capacity, global rate of P26.979 to US$1. The Monetary
reputation for financial innovations and Board, in determining the location of the
stability in a competitive environment of next three (3) branches established pursuant
the applicant. Demonstrated capacity and to the provisions of R.A. No. 7721, shall
stability may be indicated by the fact that consider, among other things, development
the applicant ranks among the top 150 in requirements of a region and the
the world or top five (5) in its country of contribution of a bank branch may make
origin. Global reputation may be to regional development, expansion of
measured by international presence, e.g., basic financial services and enhanced
number of branches with full banking access to credit by small and medium-scale
authority outside of its country of origin. enterprises: Provided, That the total number
e. Reciprocity rights enjoyed by of branches for each new foreign bank
Philippine banks in the applicant’s entrant shall not exceed six (6).
country. Philippine banks shall enjoy c. For foreign banks with existing
reciprocity rights in the applicant's country. branches in the Philippines -
f. Willingness to fully share (1) A foreign bank with existing branch
technology. The applicant bank shall or branches in the Philippines upon the
submit an undertaking to this effect effectivity of R.A. No. 7721 shall comply
together with its application. with the required permanently assigned

§§ X121.4 - X121.5
05.12.31
capital by inwardly remitting and converting of this Section, the bank shall comply
into Philippine currency the U.S. Dollar immediately with the aforesaid ratio.
equivalent of P210.0 million computed at the d. Capital of Foreign Bank Branch
same exchange rate of P26.979 to US$1, Authorized to Operate as Expanded
within a period of one and one-half (1½) Commercial Bank - The capital of a
years from 05 June1994. Philippine branch of a foreign bank which
The said foreign bank may establish up is authorized to operate as a UB may consist
to six (6) branches in addition to its branch of its permanently assigned capital plus the
or branches existing as 05 June1994, the Net due to account: Provided, That at no
first three (3) additional branches in time shall the aggregate of said accounts
locations of its choice, and the next three fall below the amount required for UB
(3) additional branches in locations authority under Subsecs. X106.1 and
designated by the Monetary Board: X106.2: Provided, further, That the amount
Provided, That upon establishing any of the Net due to which may be added to
additional branch, the bank shall comply permanently assigned capital shall not
immediately with the permanently assigned exceed the equivalent of three (3) times the
capital mentioned in the next preceding amount of the permanently assigned capital.
paragraph: Provided, further, That the said The Net due to as described in the
permanently assigned capital shall be the preceding paragraph shall be net of the
capital for the bank’s first three (3) additional items enumerated in Subsec. X121.5d.
branches, including its existing branch or e. Applicable Exchange Rate - It is
branches, and for each branch established understood that the exchange rate of
in addition thereto, the U.S. Dollar P26.979 to US$1 mentioned hereinabove
equivalent of P35 million computed at the is applicable only to the minimum capital
same exchange rate of P26.979 to US$1, requirements provided in Items b and c of
shall be inwardly remitted and converted this Subsection. For other purposes, the
into Philippine currency. exchange rate prevailing at the time of
If the permanently assigned capital of remittance shall be applicable.
the existing branch/es of said foreign bank
that has been converted to Philippine § X121.5 Composition of capital
currency is sufficient to cover the above- accounts; compliance with capital ratios
mentioned amount of assigned capital a. Foreign bank branches shall
required for the additional branches, no comply with the same capital ratios
additional assigned capital shall be applicable to domestic banks of the same
required; otherwise, the foreign bank shall category.
comply immediately with the capital b. For Philippine branches of foreign
requirements under the above paragraphs. banks, the term capital shall include
(2) Foreign banks with existing permanently assigned capital which shall
branches in the Philippines on 5 June1994 be inwardly remitted and converted to
shall have a period of one and one-half (1½) Philippine currency and Net due to up to
years from said date within which to comply an amount prescribed under Subsec.
with the ratio between the assigned capital X121.6. Should there be any Net due from
and the Net due to head office, branches, head office, branches, subsidiaries and
subsidiaries and offices outside the other offices outside the Philippines, the
Philippines prescribed in Subsec. X121.6: same shall be deducted from the capital
Provided, That upon establishing any accounts for purposes of determining
additional branch pursuant to the provisions compliance with the required capital ratios.

§§ X121.5 - X121.8
05.12.31
c. Earnings not remitted to the head be subject to conversion into Philippine

office shall constitute part of the Net due to currency.
of the local branch of a foreign bank: If there is non-compliance with the
Provided, That said bank may elect to prescribed fifteen percent (15%) of Net due
consider such earnings as part of the to required to be inwardly remitted and
assigned capital, in which case said earnings converted to pesos, the bank shall
may no longer be remittable to the head office. immediately inwardly remit and convert to
d. The term Net due to shall be net of: Philippine currency the amount of the
(1) unbooked valuation reserves and other deficiency.
capital adjustments as may be required by Branches of foreign banks shall submit
the BSP; (2) total outstanding unsecured the reports prescribed in Appendix 6 to
credit accommodations, both direct and indirect, show compliance with the requirement that
to DOSRI; and (3) deferred income tax. at least fifteen percent (15%) of its Net due
e. Where a foreign bank has more to shall be inwardly remitted and converted
than one (1) branch or banking office in into Philippine currency.
the Philippines, all its branches and
banking offices shall be treated as a unit § X121.7 Head office guarantee. The
for purpose of determining compliance head office of foreign bank branches shall
with the legal reserve requirement and guarantee prompt payment of all liabilities
with capital requirement prescribed in of its Philippine branches, as well as the
laws/regulations. observance of the constitutional rights of
the employees of such branches.
§ X121.6 Prescribed ratio of Net due
to and permanently assigned capital. The § X121.8 Scope of authority for locally
amount of Net due to which may be added incorporated subsidiaries of foreign banks
to permanently assigned capital for as well as branches with full banking
purposes of determining compliance with authority. Subsidiaries and branches of
capital ratios prescribed in laws/regulations foreign banks established under Subsec.
shall not exceed the equivalent of four (4) X121.1 shall be allowed to perform the same
times the amount of permanently assigned functions and enjoy the same privileges of,
capital: Provided, That for the purpose of a and be subject to the same limitations
foreign bank branch seeking to operate as a imposed upon, a Philippine bank of the same
UB, the ratio shall not exceed three (3) times category. Privileges shall include the eligibility
as provided in Item "d" of Subsec. X121.4. to operate under an expanded commercial
At least fifteen percent (15%) of the Net banking authority subject to compliance with
due to required to comply with the existing rules and regulations and the
prescribed capital ratio shall be inwardly guidelines enumerated in Appendix 3 on the
remitted and converted into Philippine matter: Provided, That foreign bank branches
currency: Provided, That amounts invested authorized to operate under an expanded
in productive enterprises or utilized by commercial banking authority shall be
Philippine companies for export activities, exempted from the requirement of publicly
including foreign currency denominated offering at least ten percent (10%) of its shares.
loans granted to Philippine exporters and The limitations include, among other things,
loans for productive purposes such as the the single borrower's limit, the capital-to-risk
following: agriculture, fisheries and forestry; assets ratio, and the capitalization and other
manufacturing; mining; public utilities; requirements under R.A. No. 337, as
construction; and home building, need not amended, and other related laws.

§§ X121.9 - X121.11
05.12.31
§ X121. 9 Limitations (i) the granting of authority to establish

a. Limit on mode of entry for each additional subsidiaries and branches;
foreign bank - A foreign bank may avail itself (ii) the granting of authority to (a)
of only one (1) mode of entry provided engage in expanded commercial banking
under Items "a" to "c" of Subsec. X121.1: and trust activities; (b) open an FCDU; (c)
Provided, That entry pursuant thereto shall collect taxes and customs duties; and (d)
not preclude investment in the equity of a invest in the equity of other entities; and
domestic bank pursuant to the provisions (iii) access to rediscounting facilities.
of R.A. No. 337, as amended. A foreign
bank that comes in via the establishment of § X121.10 Change from one mode
branches under R.A. No. 7721 may still of entry to another
invest in the equity of a domestic bank a. As a general rule, a foreign bank which
subject to the provisions of R.A. No. 337, has been authorized to operate in the
as amended. Philippines through any one (1) of the
b. Limit on the number of foreign allowable modes of entry may change to another
banks which may be allowed to establish mode by giving up the first mode it availed of.
branches. The Monetary Board may b. A foreign bank which pursuant to
authorize up to six (6) new foreign banks Items “a” and “b” of Subsec. X121.1, has
to establish branches. However, upon established or acquired a banking subsidiary
recommendation of the Monetary Board, may sell its stockholdings therein and may
the President of the Republic of the apply for authority to establish a branch
Philippines may approve, as the national subject to the provisions of Subsec. X121.9c
interest may require, four (4) additional new and to the following conditions:
foreign banks to establish branches, subject (i) that the disposition/sale of its
to compliance with provisions of this stockholdings in the subsidiary is done
Section. within five (5) years from 5 June 1994;
c. Limit on the period for entry (ii) that the foreign bank qualifies under
through establishment of branches. Foreign the provisions of Subsec. X121.2b; and
banks shall be allowed entry under Item “c” (iii) that the limit of ten (10) foreign
of Subsec. X121.1 by establishing branches banks establishing branches as a mode of
with full banking authority within five (5) entry has not yet been reached.
years from 05 June 1994. The entry of c. Foreign banks with existing
foreign banks through the establishment of branches in the Philippines, as well as those
a new banking subsidiary and through that may be allowed to establish branches
investment in existing domestic banks shall under R.A. No. 7721, may incorporate
not be subject to any time limitation. under Philippine laws, in which case said
d. Control of the resources of the foreign banks may own up to sixty percent
banking system. The Monetary Board shall (60%) of the voting stock of the new bank.
adopt such measures as may be necessary
to ensure that at all times the control of § X121.11 Listing of shares with the
seventy percent (70%) of the resources or Philippine Stock Exchange. At least ten
assets of the entire banking system is held percent (10%) of the capital of banks in
by domestic banks more than fifty percent which foreign banks have invested under
(50%) of the subscribed capital of which is Subsec. X121.1a and b, shall be listed in
owned by Filipinos. Said measures may the PSE within a reasonable period of time
include review of, among other things, the after the investment is made as may be
existing policies on - determined by the Monetary Board.

§§ X121.12 - X126.1
05.12.31
§ X121.12 Applicability to Philippine citizenship of the individual stockholders

corporations in that bank.
a. Any right, privilege or incentive b. A Filipino individual and a
granted to foreign banks or their subsidiaries domestic non-bank corporation may each
or affiliates under R.A. No. 7721 shall be own up to forty percent (40%) of the voting
equally enjoyed by, and extended under the stock of a domestic bank. There shall be
same conditions to, domestic banks. no ceiling on the aggregate ownership by
b. Philippine corporations, whose such individuals and corporations in a
shares of stocks are listed in the PSE, or domestic bank.
which are of long standing for at least ten c. A natural person and a corporation
(10) years, as determined by the Monetary or corporations which are wholly-owned,
Board, shall have the right to acquire, or a majority of the voting stock of which
purchase or own up to sixty percent (60%) is owned, by him may own only up to a
of the voting stock of a domestic bank: combined forty-percent (40%) of the voting
Provided, That said corporations, as well stock of a domestic bank.
as foreign banks may own up to sixty d. The right of Philippine
percent (60%) of the voting stock of only corporations, however, under Section 8 of
one (1) domestic bank. R.A. No, 7721, as implemented under
Subsec. X121.12 shall continue to be in
Secs. X122 - X125 (Reserved) force and effect.
e. Stockholdings of family groups or
F. STOCK, STOCKHOLDERS related interests. Individuals related to
AND DIVIDENDS each other within the fourth degree of
consanguinity or affinity, whether
Sec. X126 Shares of Stock of Banks. The legitimate, illegitimate or common-law,
following shall govern transactions affecting shall be considered family groups or
shares of stock of banks and the limits on related interests but may each own up to
stockholdings in a single bank or in several forty percent (40%) of the voting stock of a
banks. domestic bank: Provided, That said
relationship must be fully disclosed in all
§ X126.1 Limits of stockholdings in a transactions by such corporations or related
single bank. The stockholdings of an groups or persons with the bank.
individual, family, corporate or business f. Two (2) or more corporations
group in any bank shall be subject to the owned or controlled by the same family
limits prescribed in Sections 11, 12, 13 and group of same group of persons shall be
14 of R.A. No. 8791. considered related interests but may each
a. Foreign individuals and non-bank own up to forty percent (40%) of the voting
corporations may own or control up to forty stock of a domestic bank: Provided, That
percent (40%) of the voting stock of a said relationship must be fully disclosed
domestic bank: Provided, That the in all transactions by such corporations or
aggregate foreign-owned voting stock related groups of persons with the bank.
owned by foreign individuals and non-bank g. Ceiling on stockholdings in a Coop
corporations in a domestic bank shall not Bank. The equity investment of any
exceed forty percent (40%) of the cooperative in any Coop Bank shall not
outstanding voting stock of the bank. The exceed forty percent (40%) of the
percentage of foreign-owned voting stock subscribed capital stock of such Coop
in a bank shall be determined by the Bank.

§§ X126.1 - X126.2
05.12.31
h. Stockholdings in excess of ceilings. (2) The sale or transfer of voting stock

Unless otherwise allowed under existing of banks to any individual or entity, if such
laws, rules or regulations, any or all, as the sale or transfer, in itself, or in relation with
case may be, of the above-mentioned another previous sale or transfer shall result
stockholders owning more than forty in the ownership by foreign persons and/
percent (40%) of the voting stock of a KB or foreign non-bank corporations in excess
or a UB shall comply with said ceiling of forty percent (40%) of the voting stock
within thirty (30) days from 13 May 2002. in a UB or a KB and sixty percent (60%) in
i. Determination of foreign-owned case of a TB.
voting stock and citizenship of corporate (3) The sale or transfer of voting stocks
stockholders in a bank as well as the of UB or KB to any corporation, if such
relationship of stockholders of a bank. sale or transfer, in itself, or in relation with
(1) The percentage of foreign-owned another previous sale or transfer shall result
voting stocks in a bank shall be determined in the ownership by such corporation in
by the citizenship of all the stockholders in excess of forty percent (40%) of the voting
that bank. stock of the bank, unless allowed under
(2) The citizenship of the corporation, R.A. No. 7721 and R.A. No. 8791.
which is a stockholder of a bank shall (4) The sale or transfer of voting shares
follow the citizenship of the controlling of stocks of UBs or KBs or RBs1 to (a) any
stockholders of the corporation, natural person; and (b) any corporation or
irrespective of the place of incorporation. corporations which are wholly-owned or
For purposes hereof, the term “controlling a majority of the voting stock of which is
stockholders” shall refer to stockholders owned by such natural person if such sale
holding more than fifty percent (50%) of of transfer in itself, or in relation with
the voting stock of the corporate another previous sale or transfer, shall
stockholders of the bank. result in the combined ownership by such
(3) The relationship of individuals who natural person and such corporations in
are stockholders of a bank shall be excess of forty percent (40%) of the voting
determined in accordance with the stock of the bank, unless allowed under
provisions of Articles 963 to 966 of the Civil R.A. No. 7721 and R.A. No. 8791.
Code of the Philippines. (5) Any arrangement, such as voting
trust agreement or proxy, which vests in
§ X126.2 Transfer of shares. The any person or corporation the right to vote
following regulations shall govern transfer or control voting stocks in banks, if such
of voting shares of stocks in banks: agreement in itself, or in relation with
a. Unlawful and void transactions another previous similar agreement or
involving voting stocks in banks. The previous sale or transfer shall result in the
following transactions, to the extent of the acquisition of control, in excess of the
excess over any of the prescribed ceilings prescribed limitations.
are hereby declared unlawful. b. Duties of a corporate secretary. In
(1) The sale or transfer of voting stock all transactions, which may lawfully come
of a UB, a KB or an RB1 to any individual, to the knowledge of the corporate secretary
if such sale or transfer, in itself, or in relation involving transfer of voting shares of stock
with another previous sale or transfer shall or registration of voting trust agreements,
result in the ownership by an individual in or any form of agreement vesting the right
excess of forty percent (40%) of the voting to vote the voting shares of stock of the
stock of the bank. bank, the corporate secretary shall:
1 Effective 03 April 2002

§ X126.2
05.12.31
(1) ascertain the identity and citizenship Governor of the BSP of the attempted illegal
of the transferee, voting trustee, proxy or transfer or arrangements, together with the
person vested with the right to vote, and for names, addresses of parties and other
this purpose, he should require the pertinent data with respect to the particular
transferee, voting trustee, proxy or the stock transaction.
person vested with the right to vote to submit In the event the corporate secretary has
proof of citizenship, which may consist, in reason to doubt the legality of the transfer
case of a corporation, of a certified true copy or of the arrangement sought to be
of the articles of incorporation, accompanied registered, he may commence an action
by the affidavit of the corporate secretary before the appropriate body;
of the corporation, certifying to the (4) promptly inform stockholders who
correctness and accuracy of the list of have reached any of the ceilings imposed
stockholders and the percentage of shares by law, of their ineligibility to own or control
owned by them; more than the applicable ceiling; and
(2) require the transferee, voting (5) disclose the ultimate beneficial
trustee, proxy or person vested with the right owners of bank shares held in the name of
to vote, at the time of the receipt of the Philippine Central Depository (PCD)
request for transfer or registration, or at any Nominee Corporation in the quarterly
time thereafter, to disclose all information with report on Consolidated List of Stockholders
respect to persons related to the transferee, and Their Stockholdings which report shall
voting trustee, proxy or person vested with be made under oath by the authorized bank
the right to vote, within the fourth degree of officers/signatories. Any violation of the
consanguinity or affinity, whether legitimate, provision of this Subsection shall be subject
illegitimate or common-law, as well as to a penalty of P30,000 per day until the
corporations, partnerships or associations correct report is submitted to the BSP.
where the transferee, voting trustee, proxy or c. Transfers requiring prior Monetary
person vested with the right to vote has Board approval
controlling interest, and the extent thereof; (1) Prior approval of the Monetary
(3) require the transferee to execute an Board shall be required on the following:
affidavit (sample format shown in Appendix (a) Any sale or transfer or series of sales
4) stating, among other things, that the or transfers which will result in ownership
transferee is a bona fide owner of shares of or control of more than twenty percent
stock and that he acknowledges full (20%) of the voting stock of a bank by any
awareness of the requirements of the law person whether natural or juridical or which
and the prohibitions against exceeding will enable such person to elect, or be
ownership of voting stocks beyond the elected as, a director of such bank; and
prescribed limitations. (b) Any sale or transfer or series of sales
If the request for transfer or the or transfers which will effect a change in
arrangement sought to be registered will the majority ownership or control of the
patently cause the voting stocks of a person voting stock of the bank from one (1) group
or a corporation, to exceed the limits of persons to another group: Provided, That
prescribed by law, the corporate secretary in no case shall such sale or transfer be
shall deny the transfer or registration and approved unless the bank concerned shall
forthwith inform the parties to the immediately comply with the prescribed
transaction in writing. Simultaneous with minimum capital requirement for new
the notice to the parties, the corporate banks, notwithstanding any approved
secretary shall submit a written report to the capital build-up program.

§§ X126.2 - X126.4
05.12.31
(2) For purposes of these regulations, the voting stock of a domestic bank, including
the sale or transfer of voting stock shall refer foreign-owned shares outstanding and
to sales or transfers of voting stock which foreign-held as of 27 April 1973 and which
are allowed under existing laws or BSP rules continued to be held by the foreign
and regulations and which have not been stockholder up to the date of the acquisition
registered/recorded in the transfer book/ by the foreign banks.
stock ledger or other records of banks. b. (Deleted by Cir. No. 256 dated 15
(3) Sanctions. Any violation of the August 2000)
provisions under Items “c(1)(a)” and “(b)” c. The prior authority of the Monetary
above shall be subject to the sanctions Board is not required if the foreign
prescribed under Sections 36 and 37 of R.A. investor is (1) an individual, (2) a non-
No. 7653, without prejudice to the financial entity, or (3) a non-bank financial
appropriate legal actions for the rescission entity which is not owned or controlled by
and invalidation of the sale or transfer. a bank, its subsidiary or holding company,
d. Requirement for newly established and the investor is acquiring foreign-owned
banks. Entities which may hereinafter apply shares in existing domestic banks:
for a license to engage in banking business Provided, That said shares were outstanding
shall, before being allowed to operate, and foreign-held as of 27 April 1973 and
submit - which continued to be foreign-held up to
(1) An alphabetical list of stockholders the date of acquisition by the foreign
with the number and percentage of voting investor.
stock owned by them; and d. The maximum stockholdings
(2) A separate list containing the names foreigners may own in domestic banks shall
of persons who own voting stocks in banks continue to be governed by existing
and who are related to each other within provisions of law.
the fourth degree of consanguinity or e. Only foreign-owned shares directly
affinity, whether legitimate, illegitimate or funded by inward remittance of foreign
common-law, with proper indication of the exchange sold to the local banking system
combined percentage of voting stocks held are qualified for registration with the BSP
by them in the particular bank, as well as through its appropriate department for
corporations which are wholly-owned or a capital repatriation and remittance of profits/
majority of the stock of which is owned by dividends privileges, in accordance with
any of such persons, including their existing BSP rules and regulations.
subsidiaries.
§ X126.4 Convertibility of preferred
§ X126.3 Other foreign equity stock to common stock. Out of the
investment in domestic banks. Except as convertible preferred shares of stock which
otherwise covered under Sec. X121 and KBs/TBs may henceforth be authorized to
Subsec. X126.1, the following guidelines issue, at least fifty percent (50%) of each
shall be observed on equity investments of such issue, shall be convertible into
foreigners in domestic banks: common stock at the option of the holders
a. The prior authority of the Monetary thereof after five (5) years from date of issue:
Board shall be obtained by foreign banks, Provided, however, That :
including their subsidiaries and their a. The bank concerned may allow the
holding companies having majority conversion of such preferred stock into
holdings in such foreign banks, whenever common stock even before the lapse of five
acquiring more than forty percent (40%) of (5) years from date of issue;

§§ X126.4 - X126.5
05.12.31
b. At the time of the sale of the so that the total paid-in capital stock is
preferred stock, both classes thereof (one maintained at the same level immediately
with convertibility feature and the other prior to redemption: Provided, That the
without convertibility feature) shall be redemption shall not be earlier than five
offered to the purchasers, with the (5) years after the date of issuance:
purchasers having the option to acquire Provided, further, That such redemption
either or both classes of preferred stock; and may not be made where the bank is
c. Preferred shares of stock with a insolvent or if such redemption will cause
cumulative feature issued by banks shall insolvency, impairment of capital or
automatically be convertible into common inability of the bank to meet its debts as
shares of stock at the option of the holders they mature;
thereof whenever the right as may be (b) A sinking fund for the redemption
acquired by the holders by virtue of such of preferred shares is to be created upon
cumulative feature are not satisfied by the their issuance. This is to be effected by
bank within a period of three (3) years from the transfer of free surplus to a restricted
date of issue. surplus account. The fund shall not be
available for dividends. The guidelines for
§ X126.5 Issuance of redeemable the establishment and administration/
shares: conditions; certification and report; management of sinking fund for the
sanctions redemption of redeemable private
a. Conditions. Banks may issue preferred shares are shown in Appendix
redeemable shares subject to the following 47.
conditions: (c) The issuing bank shall not treat in
(1) The applicant bank prior to the any way redeemable preferred shares as
approval of the amendment of articles of time deposit, deposit substitute or other
incorporation to issue redeemable preferred form of borrowings;
shares, has complied with the requirements (d) No dividend shall be declared or
under Items “B1” to “B6”, Appendix 5. paid on redeemable shares in the absence
The articles of incorporation of an of sufficient undivided profits, free surplus
applicant bank shall incorporate the and approval of the BSP;
conditions in Items “a (3)(a)”, “a(3)(b)”, (e) The issuing bank shall execute
“a(3)(c)” and “a(3)(d)” of this Subsection. within ten (10) days after the first issuance
(2) The applicant bank prior to the a Deed of Undertaking (see Appendix 42),
issuance of redeemable shares shall comply to be signed by its directors and principal
with, in addition to the conditions in Item officers, binding them to comply with the
“(1)” above, the requirements under Items requisites and conditions set forth in Items
“B7”, “B8”, and “B12” to “B16”, Appendix 5. “(a)” to “(d)” above; and
(3) The applicant bank after the (f) The conditions in Items “(3)(a)”,
issuance of redeemable shares shall comply “(3)(b)”, “(3)(c)” and “(3)(d)” above shall be
with the following: incorporated in the certificates of stock.
(a) Redemption of shares shall be (g) Shares issued with the replacement
allowed at the specific dates or periods fixed requirement upon redemption shall be
for redemption only upon prior approval eligible as Upper Tier 2 capital for purposes
of the BSP and, where the conditions of the of computing qualifying capital as provided
issuance specifically state, only if the shares in Subsec. X116.1. Shares issued without
redeemed are replaced with at least an such condition shall be eligible as Lower
equivalent amount of newly paid-in shares Tier 2 capital.

§§ X126.5 - X126.10
05.12.31
b. Certification and report. The bank (d) For failure to submit report of
shall submit within fifteen (15) days after issuance of redeemable preferred shares, a
every issuance of at least twenty percent fine of P1,200 for UBs/KBs; P600 for TBs;
(20%) of the redeemable shares whether and P180 for RBs/Coop Banks per banking
issued in series or at one (1) time, a day of default until the report is submitted.
certification signed by its President/ (2) On the directors and officers:
Chairman under oath, stating that the (a) For violation of any of the terms of
requirements under Items “a(1)” and “a(2)” the Deed of Undertaking, the following shall
above, including all other conditions that the be imposed against the officers and directors
BSP may impose, have been complied with. of the bank who signed the deed:
The applicant bank shall, not later than i. First offense - A fine of P500 per day
ten (10) banking days from the end of for each violation from the time the violation
reference year, submit a yearly report of was committed or up to the time the
issuances of preferred shares to the violation is corrected;
appropriate SED of the BSP indicating ii. Second and subsequent offenses –
therein the name/s of the subscriber/s, the A fine of P5,000 per day from the time the
date the shares were issued and the violation was committed up to the time the
number/amount of shares issued. violation is corrected.
c. Sanctions. Any violation of the (b) If the certification submitted by the
foregoing provisions shall be subject to the bank as required in these guidelines is found
following sanctions: to be false, a fine of P5,000 per day from
(1) On the bank: the time the certification was made up to
(a) For failure to comply with Items the time the certification was found to be false,
“a(3)(a)” to “a(3)(d)” above: shall be imposed against the certifying officer.
i. Suspension of branching privilege;
ii. Prohibition against granting of new § X126.6 Stock options/warrants. A
unsecured loans to DOSRI; bank may grant options/warrants to
iii. Prohibition against declaration of subscribe at par to its capital stock:
dividends; Provided, That:
iv. Denial of access to BSP a. Provisions authorizing such options/
rediscounting facilities; warrants shall be embodied in its articles of
v. Revocation of authority to accept incorporation and in its by-laws; and
government deposits and to handle b. Such options/warrants may be
government funds as a result of agency granted for a maximum period of three (3)
agreements with the BIR, SSS, etc. years from the date such options/warrants
(b) For failure to infuse capital in an become effective.
amount at least equivalent to amount of
redeemed shares as required in Item “a(3)(a)”: §§ X126.7 - X126.9 (Reserved)
i. Sanctions in Item “(a)” above;
ii. No new loans and investments, § X126.10 Dealings with stockholders
except in government securities; and their related interests. Dealings of a
iii. P1,000 fine per banking day until bank with any of its stockholders and their
the required infusion is made. related interests shall be upon terms not less
(c) If the certification submitted by the favorable to the bank than those offered to
bank required in these guidelines is found others. Towards this end, every natural
to be false, suspension of authority to issue person acquiring shares cumulatively
preferred shares for one (1) year. amounting to at least two percent (2%) of

§ X126.10 - 2127.2
05.12.31
the total subscribed capital of a domestic Any natural person or a family group,
bank must disclose all relevant information who, together, with any corporation
on all persons related to him within the majority or all of the equity of which is
fourth degree of consanguinity or affinity, owned by such person or family group,
whether legitimate, illegitimate or common owns more than forty percent (40%) of the
law as well as corporations, partnership or voting stock of any UB or KB may not
associations where he has controlling acquire more than forty percent (40%) of
interests. A corporation acquiring shares the voting stock in any other UB or KB, even
amounting to at least two percent (2%) of the if the shares of stock are being acquired from
total subscribed capital of a domestic bank a natural person in a single transaction and
must disclose its controlling stockholders or the stockholding is in excess of forty percent
group of stockholders as well as the (40%) of the bank’s voting stock.
corporations, partnerships or association For purposes of determining
where such controlling stockholders or group applicability of the limitations provided in
of stockholders have controlling interest. this Section, stockholders shall be deemed
The foregoing information shall also be as affiliated to each other through common
disclosed in cases of the following business interest or a business group in
transactions: availment of credit facility cases where the holdings of such
from the bank; purchase or sale of asset stockholders altogether constitute a majority
from/to the bank; leasing property from or or control in one (1) or more enterprises.
to the bank; providing janitorial,
messengerial, security and other services to §§ 1127.2 - 1127.5 (Reserved)
the bank; and such other transactions as may
be required to be disclosed by the Monetary Sec. 2127 Shares of Stock of Thrift Banks
Board. Where the stockholdings of such The following regulations shall also govern
individual/organization together with his/its shares of stock in TBs.
related interests amount to at least two
percent (2%) of the total subscribed capital § 2127.1 Moratorium on ownership
stock of the bank, the foregoing transactions ceilings. Stockholdings in a TB shall be
shall be subject to the procedural exempt from the ownership ceilings
requirements and the reportorial prescribed under Subsec. X126.1 until 16
requirements prescribed under Secs. X334 March 2005.
and X335, respectively.
§ 2127.2 Preferred shares. Private
Sec. 1127 Shares of Stock of Universal/ development banks may also issue ordinary
Commercial Banks. The following preferred shares of stock to private persons,
guidelines shall also govern shares of stock other than the preferred stock representing
in UBs and KBs. government counterpart capital
contribution: Provided, That said preferred
§ 1127.1 Limits on stockholdings in stock sold to private persons shall be
several banks. Stockholders affiliated to governed by the pertinent BSP regulations
each other through a common interest for preferred stock issued to private
herein termed a business group or any investors.
corporation or association majority or all Preferred shares of stock of private
of the equity of which is owned by a development banks held by DBP/LBP and
business group may not control more than sold thereafter to private persons may, at
one (1) KB nor more than one (1) UB or both. the option of the purchasers, be retained

§§ 2127.2 - 3127.3
05.12.31
with the same rights as when such shares DBP or any government-owned or
of stock were held by DBP/LBP, or controlled bank or financial institution,
converted at not less than par to common which shall be non-voting and preferred as
shares or to ordinary preferred shares of to assets upon liquidation; and (c) preferred
the class issued to private shareholders. stock with such rights, voting powers,
preferences and restrictions, as may be
§§ 2127.3 - 2127.5 (Reserved) approved by the Monetary Board. Preferred
and common stocks shall have a minimum
Sec. 3127 Shares of Stock of Rural Banks par value of ten pesos (P10) per share:
and Cooperative Banks. The following Provided, That this requirement shall not
rules shall govern stockholdings in RBs and apply to existing RBs whose par value per
Coop Banks. share of stock is less than ten pesos (P10).
An RB may not issue no-par value stock.
§ 3127.1 Moratorium on ownership For Coop Banks, preferred and common
ceiling. Individual stockholdings in RBs in shares shall have a minimum par value of
excess of the forty percent (40%) ceiling as P1,000 per share for national Coop Banks;
of 02 April 2002 and as provided in Section and P100 per share for local Coop Banks:
11 of R.A. No. 8791 may be retained: Provided, That a Coop Bank may not issue
Provided, That such excess stockholdings no-par value shares.
were approved by the Monetary Board: The LBP, the DBP, or any government-
Provided, further, That such stockholdings owned or controlled bank or financial
shall not be further increased, but may be institution, on representation of the said
reduced and once reduced, shall not private shareholders but subject to the
thereafter be increased beyond the forty investment guidelines, policies and
percent (40%) ceiling prescribed under said procedures of the bank or financial institution
Section 11. and upon approval of the Monetary Board,
Any request for exemption from the shall subscribe to the capital stock of any RB/
prescribed ownership ceilings of individual/ Coop Bank, which shall be paid in full at the
non-bank/corporate stockholdings shall be time of subscription in an amount equal to
submitted to the Monetary Board for approval the fully paid subscribed and unimpaired
through the appropriate SED of the BSP and capital of the private shareholders or such
the exemption shall be reflected in the amount as the Monetary Board may prescribe
required report on stock transactions. In cases as may be necessary to promote and expand
where unsubscribed shares of stock are sold rural economic development and/or
to any person other than the existing cooperative movement.
stockholders, the bank’s corporate secretary
shall execute a certificate under oath that all § 3127.3 Limits on stockholdings in
the pertinent requirements of the Corporation several rural banks. Any individual and/or
Code on a valid stock transfer/subscriptions his wholly or majority-owned corporation
have been complied with. or non-bank corporations may own up to
100% of the voting stock in three (3) RBs:
§ 3127.2 Government-held shares Provided, That the individual and/or its
The articles of incorporation of RBs or the subsidiary/ies, may thereafter own shares
articles of cooperation of Coop Banks shall in any number of other RBs only to such an
provide for: (a) common stock with the extent as would not enable this group of
power to vote; (b) preferred stock to investors to elect by virtue of its shareholdings
represent the counterpart capital of the LBP, a director of each additional RB.

§§ 3127.4 - X136.1
05.12.31
§ 3127.4 Convertibility of preferred § 3127.5 Equity investment by holding

stock to common stock. RBs may convert corporations. With the exception of
their unissued preferred shares into shareholdings of non-bank corporations in
common stock. the equities in RBs as provided for under
In the case of sale by the DBP, LBP or Section 11 of R.A. No. 8791, and of
any government-owned or controlled bank Filipino-controlled domestic banks, the
or financial institution of preferred stock to capital stock of any RB shall be fully owned
private persons, such stock may be and held directly or indirectly by citizens
converted into common stock: Provided, of the Philippines or corporations,
That pending amendment of the bank’s associations or cooperatives qualified under
articles of incorporation, if necessary for the Philippine laws to own and hold such
purpose of reflecting the conversion, the capital stock.
transfer shall be recorded by the bank in its The equity investment of any non-bank
stock and transfer book and such corporation in any RB shall not exceed forty
shareholders shall thereafter enjoy all the percent (40%) of the voting stock of such RB.
rights and privileges appurtenant to the A holding corporation for purposes of
converted stock. The certificates for the this Subsection shall refer to a corporation
government preferred stocks so transferred primarily organized to hold equities in RBs.
shall be surrendered and cancelled and the
corresponding common stock certificates Secs. X128 - X135 (Reserved)
shall be issued.
The corporate secretary of the bank shall Sec. X136 Dividends. Pursuant to Section
submit to the appropriate SED and the SEC 57 of R.A. No. 8791, no bank shall declare
a report of every transfer of preferred stock dividends greater than its accumulated net
from the LBP, DBP or any government- profits then on hand, deducting therefrom
owned or controlled bank or financial its losses and bad debts. Neither shall the
institution to private shareholders within five bank declare dividends if, at the time of
(5) banking days from the date of such transfer. declaration, it has not complied with the
When all the preferred shares of stocks provisions of Subsec. X136.2.
held by the LBP, DBP or any government-
owned or controlled bank or financial § X136.1 Definitions. For purposes of
institution have been sold to private this Section, the following definitions shall
shareholders, the bank’s articles of apply:
incorporation shall be amended to reflect a. Bad debts - shall include any debt
the conversion, if any, of the preferred on which interest is past due for a period
shares of stock into common stock. of six (6) months, unless it is well secured
For this purpose, a certificate that all and in process of collection.
preferred shares have been sold and A loan payable in installments with an
transferred to private shareholders shall be automatic acceleration clause shall be
issued, duly signed by the president, the considered a bad debt within the
corporate secretary, and a majority of the contemplation of this Subsection where
board of directors. The bank shall submit installments or amortizations have become
copies of such certificate and the amended past due for a period of six (6) months,
articles of incorporation to the BSP for the unless the loan is well secured and in
issuance of a certificate of authority for the process of collection. For a loan payable
purpose of registering the amended articles in installment without an acceleration
with the SEC. clause, only the installments or

§§ X136.1 - X136.2
05.12.31
amortizations that have become past due § X136.2 Requirements on the

for a period of six (6) months and which declaration of dividends. At the time of
are not well secured and in the process of declaration, banks shall have complied with
collection shall be considered bad debts the following:
within the contemplation of this Section. a. Clearing account with the BSP is not
b. Well secured - A debt shall be overdrawn;
considered well secured (or fully secured), b. Liquidity floor requirement for
if it is covered by collateral in the form of a government funds;
duly constituted mortgage, pledge, or lien c. Minimum capitalization requirement
on real or personal properties, including and risk-based capital ratio;
securities, having a loan value sufficient to d. Prescribed EFCDU/FCDU cover
discharge the debt in full, including consisting of:
accrued interest and other pertinent fees (1) Thirty percent (30%) liquidity cover; and
and expenses. (2) One hundred percent (100%) asset
c. In process of collection - A debt due cover.
to a bank shall be considered in process of e. Statutory and liquidity reserves
collection when it is the subject of requirement;
continuing extrajudicial or judicial f. No past due loans or
proceedings aimed towards its full accommodations with the BSP or with any
settlement or liquidation or otherwise to institution;
place it in current status. g. No net losses from operations in any
The extrajudicial proceedings, such as one (1) of the two (2) fiscal years
the writing of collection or demand letters, immediately preceding the date of dividend
must have been initiated by the bank and/ declaration;
or its lawyers before the interest or h. Has not committed any of the
installments or amortizations on the debt following major violations:
have become past due and unpaid for a (1) Loans and other credit
period of six (6) months. accommodations and guarantees granted in
The debt shall continue to be excess of the single borrower’s limit;
considered in process of collection for a (2) Loans and other credit
period of six (6) months counted from date accommodations granted/extended in
of the first collection or demand letter and excess of the ceilings on accommodations
if, within this period, the debtor fails to to DOSRI;
make a paymentof at least twenty percent (3) Unsafe and unsound banking practice
(20%) of the outstanding balance of the as defined under existing BSP regulations;
principal on his account, plus all interest (4) Equity investments in excess of the
which may have accrued thereon, the same prescribed ceilings;
shall automatically be classified as bad debts (5) Investments in real estate, bank
unless judicial proceedings are instituted. premises and equipment in excess of
The debt shall continue to be prescribed ceilings;
considered in process of collection during (6) Major violations/exceptions cited in
the pendency of the judicial proceedings. the previous examination not duly acted
When judgment against the debtor has upon or not yet corrected;
been obtained, the bank must be active in (7) Transactions or activities without
enforcing the judgment for the debt to prior approval or necessary license from the
continue to be considered in process of BSP such as, but not limited to, derivatives,
collection. trust and e-banking;

§§ X136.2 - X136.5
05.12.31
(8) Refusal to permit examination into For purposes of this Subsec., any
the affairs of the institution or any willful balance of Paid-in Surplus account may
making of a false or misleading statement be included in the amount available for
to the Monetary Board or to the appropriate stock dividends.
SED; and
(9) Failure to comply with the capital § X136.4 Reporting and verification
build-up program approved by the Declaration of dividends shall be reported
Monetary Board. by the bank concerned to the appropriate
The prescribed duration of compliance SED of the BSP in the prescribed form within
with Items “a” to “e” above shall be the deadline indicated in Appendix 6.
reckoned from the last eight (8) weeks Pending verification of above-
immediately preceding the date of the mentioned report by the appropriate SED
dividend declaration up to the record date of the BSP, the bank concerned shall not
of said dividends. make any announcement or communication
On the other hand, banks which have on the declaration of dividends nor shall
committed any of the major violations under any payment be made thereon.
Item “h” above may only be allowed to Banks, however, whose shares are
declare dividends by the Monetary Board listed with any domestic stock exchange
upon recommendation of the appropriate may declare dividends and give immediate
SED that the bank has corrected the major notice of such declaration to the SEC and
violation/s that it has committed. the stock exchanges, in compliance with
pertinent rules of SEC: Provided, That no
§ X136.3 Net amount available for record date is fixed for such dividend
dividends. The net amount available for pending verification of the report on such
dividends shall be the amount of declaration by the appropriate SED of the
unrestricted or free earned surplus and BSP.
undivided profits less: In any case, the declaration may be
a. Bad debts against which valuation announced and the dividends paid, if after
reserves are not required by the BSP to be thirty (30) banking days from the date the
set up; report required herein shall have been
b. Unbooked valuation reserves, and received by the BSP, no advice against
other unbooked capital adjustments such declaration has been received by the
required by the BSP, whether or not allowed bank concerned.
to be set up on a staggered basis;
c. Deferred income tax; § X136.5 Recording of dividends
d. Accumulated profits not yet received The liability for dividends declared shall
but already recorded by a bank representing be taken up in the books upon receipt of
its share in profits of its subsidiaries under the BSP approval thereof, or if no such
equity method of accounting; approval is received, after thirty (30)
e. Accrued interest as required to be banking/business days from the date the
excluded pursuant to Item “d” of Subsec. required report on dividend declaration
X305.4, net of booked valuation reserves was received by the appropriate SED of
on accrued interest receivable or allowance the BSP, whichever comes earlier. A
for uncollectible interest on loans; and memorandum entry may be made to
f. Foreign exchange profit arising from record the dividend declaration on the
revaluation of foreign exchange date of approval by the board of directors
denominated accounts. and for full disclosure purposes, the

§§ X136.5 - 3137
05.12.31
dividends declared may be disclosed in declare cash dividends only if the amount
the financial statements by means of a of its reserve for retirement of government
footnote which should include a preferred stock is at least equal to the
statement to the effect that the dividend amount which should have been
declaration is subject to review by the accumulated had the bank transferred
BSP. annually to the reserve account from its
Dividends of all kinds, whether on undivided profits an amount equal to at
common or on preferred shares of stock, least an average of one-tenth (1/10) of the
should not be treated as interest expense, total amount of preferred stock.
considering that as a general policy, only In no case shall cash dividends be
irredeemable stock may be issued by declared whenever any of the following
banks. circumstances is present:
(i) Arrearages in its obligations with
§ X136.6 Issuance of fractional the BSP amount to P1.0 million or more
shares. Whenever the declaration of stock unless covered by an approved plan of
dividend results in the issuance of payment which is being fully complied
fractional shares, banks may observe the with: Provided, however, That cash
following guidelines: dividends shall not exceed ten percent
a. The amount corresponding to the (10%) per annum; or
fraction should be given in the form of cash (ii) Past due loans comprise twenty-five
dividend; and percent (25%) or more of the total loan
b. The certificate of stock issued portfolio at any time during the last six (6)
should be in whole numbers, and the months prior to the dividend declaration.
fractional shares shall be issued in the form b. Coop Banks
of scrip certificates. In no case shall the (1) Interest on share capital -
certificate of stock be issued including such (a) Interest on share capital shall be
fractional share. The scrip certificate is declared only upon compliance with the
temporary in nature and should be requirements prescribed under Sec. 3137a.
redeemed in cash when the bank is in a (b) Government preferred shares shall
position to do so, or stockholders holding be entitled to interest as enumerated in
such scrip certificates may negotiate with Subsec. 3137.1: Provided, That no
other stockholders for the purchase or sale cumulative interest shall be allowed for any
of such shares to convert them into full kind or class of share issued by the Coop
shares, subject to the limitations on Bank.
stockholdings as provided by law. Unless otherwise provided for in the by-
laws of the Coop Bank, the share capital
Sec. 1137 (Reserved) shall earn interest at the rate computed as
follows:
Sec. 2137 (Reserved) Rate of Interest = X (Net Surplus less
Statutory Reserves) ÷
Sec. 3137 Limitations/Amount Available (Total Average Share Month)
on Dividends Declared by Rural Banks where:
(i) “X“ shall be a percentage to be deter-
and Cooperative Banks. The following
mined by the board of directors
rules shall also govern the declaration of
allocated for interest on share capital;
dividends by RBs and Coop Banks. and
a. RBs. In addition to the requirements (ii) “Statutory Reserves” shall refer to Article
prescribed in Sec. X136, an RB may 87of R.A. No. 6938.

§§ 3137 - 3137.1
05.12.31
No allocation of interest on share (iv) If within any period of time

capital shall be made without the approval specified in the by-laws, any subscriber
of the general assembly which may who has not fully paid his subscribed share
increase or decrease any or both. capital or any non-member patron which
(2) Patronage refund - has accumulated the sum necessary for
(a) The amount allocated for membership but does not request nor
patronage refund shall not be less than agree to become a member or fails to
thirty percent (30%) of the net surplus after comply with the provision of the by-laws
deducting the statutory reserves based on for admission to membership, the amount
the principle of equity; so accumulated or credited to their
(b) The rate of patronage refund shall account together with any part of the
not be more than twice the rate of interest general fund for non-member patrons shall
on share capital; be credited to the reserve fund or to the
(c) The sum allocated for patronage education and training fund of the Coop
refunds shall be made available at the Bank.
same rate to all cooperative patrons of the
Coop Bank in proportion to their § 3137.1 Dividends on government
individual patronage: Provided, That - shares
(i) In the case of a cooperative a. Held prior to 09 June 1992.
member patron with paid-up share capital Whenever dividends of not less than
contribution, its proportionate amount of fourteen percent (14%) are declared on
patronage refund shall be paid unless it common stock, government preferred
agrees to credit the amount to its account stock shall be entitled to a cash dividend
as additional share capital contribution; not to exceed two percent (2%) of total
(ii) In the case of a cooperative outstanding preferred stock. Should the
member patron with unpaid share capital dividends declared on common stock be
contribution, its proportionate amount of less than fourteen percent (14%), the
patronage refund shall be credited to its dividend on preferred stock shall be
share capital contribution; proportionately reduced.
(iii) In the case of a non-member patron, b. Held on or after 09 June 1992.
its proportionate amount of patronage Shares held by the LBP, DBP, or by any
refund shall be set aside in a general fund government-owned or-controlled bank or
for such patrons and shall be allocated to financial institution shall share in dividend
non-member patrons only upon request distributions from the date of issuance in
and presentation of evidence of the amount the amount of four percent (4%) on the
of its patronage. The amount so allocated first and second years; six percent (6%) on
shall be credited to such patron toward the third and fourth years; eight percent
payment of the minimum capital (8%) on the fifth and sixth years; ten
contribution for membership. When a sum percent (10%) on the seventh and eighth
equal to this amount has accumulated at years; and twelve percent (12%) on the
any time within a period specified in the ninth to the fifteenth years, which shall be
by-laws, such patron shall be deemed and cumulative: Provided, That the RB and the
become a member of the Coop Bank if it government-owned or-controlled bank are
so agrees or requests and complies with not precluded from entering into an
the provisions of the by-laws for admission agreement providing for rates of dividends
to membership; and other than those prescribed by law.

§§ X138 - X141.1
05.12.31
Secs. X138 - X140 (Reserved) (4) Is not a relative within the fourth
degree of consanguinity or affinity,
G. DIRECTORS, OFFICERS AND legitimate or common-law of any director,
EMPLOYEES officer or majority shareholder of the bank
or any of its related companies;
Sec. X141 Definition and Qualifications (5) Is not acting as a nominee or
of Directors; Responsibilities and Duties representative of any director or substantial
of Board of Directors. For purposes of this shareholder of the bank, any of its related
Section, the following shall be the definition companies or any of its substantial
and qualifications, responsibilities and duties shareholders; and,
of directors and board of directors, (6) Is not retained as professional adviser,
respectively. consultant, agent or counsel of the institution,
any of its related companies or any of its
§ X141.1 Definition/limits substantial shareholders, either in his personal
a. Definition of directors. Directors capacity or through his firm; is independent
shall include: of management and free from any business
(1) directors who are named as such or other relationship, has not engaged and
in the articles of incorporation; does not engage in any transaction with the
(2) directors duly elected in institution or with any of its related companies
subsequent meetings of the stockholders; or with any of its substantial shareholders,
and whether by himself or with other persons or
(3) those elected to fill vacancies in the through a firm of which he is a partner or a
board of directors. company of which he is a director or
b. Limits on the number of the members substantial shareholder, other than
of the board of directors. Pursuant to transactions which are conducted at arms
Sections 15 and 17 of R.A. No. 8791, there length and could not materially interfere with
shall be at least five (5), and a maximum of or influence the exercise of his judgment.
fifteen (15) members of the board of An independent director of a bank can
directors of a bank at least two (2) of whom be elected as an independent director of its:
shall be independent directors: Provided, (a) parent or holding company; (b)
That in case of a bank/quasi-bank/trust subsidiary or affiliate; (c) substantial
entity merger or consolidation, the number shareholder; or (d) other related companies,
of directors may be increased up to twenty- or vice-versa: Provided, That he is not a
one (21). substantial shareholder of the bank or any
An independent director shall mean a of the said concerned entities.
person who – The foregoing terms and phrases used
(1) Is not or has not been an officer or in Items “(1) to (6)” of this Section shall have
employee of the bank, its subsidiaries or the following meaning:
affiliates or related interests during the past (a) Parent is a corporation which has
three (3) years counted from the date of control over another corporation directly or
his election; indirectly through one (1) or more
(2) Is not a director or officer of the intermediaries.
related companies of the institution’s (b) Subsidiary means a corporation
majority stockholder; more than fifty percent (50%) of the voting
(3) Is not a majority stockholder of the stock of which is owned or controlled
institution, any of its related companies, or directly or indirectly through one (1) or
of its majority shareholders; more intermediaries by a bank.

§ X141.1
05.12.31
(c) Affiliate is a juridical person that (g) Substantial or major shareholder

directly or indirectly, through one (1) or shall mean a person, whether natural or
more intermediaries, is controlled by, or is juridical, owning such number of shares
under common control with the bank or its that will allow him to elect at least one (1)
affiliates. member of the board of directors of a bank
(d) Related interests as defined under or who is directly or indirectly the registered
Sections 12 and 13 of R.A. No. 8791 shall or beneficial owner of more than ten
mean individuals related to each other percent (10%) of any class of its equity
within the fourth degree of consanguinity security.
or affinity, legitimate or common law, and (h) Majority stockholder or majority
two (2) or more corporations owned or shareholder means a person, whether
controlled by a single individual or by the natural or juridical, owning more than fifty
same family group or the same group of percent (50%) of the voting stock of a bank.
persons. Non-Filipino citizens may become
(e) Control exists when the parent owns members of the board of directors of a bank
directly or indirectly through subsidiaries to the extent of the foreign participation in
more than one-half of the voting power of the equity of said bank: Provided, That
an enterprise unless, in exceptional pursuant to Section 23 of the Corporation
circumstance, it can be clearly Code of the Philippines (BP Blg. 68), a
demonstrated that such ownership does not majority of the directors must be residents
constitute control. Control may also exist of the Philippines.
even when ownership is one-half or less of The meetings of the board of directors
the voting power of an enterprise when may be conducted through modern
there is: technologies such as, but not limited to,
i. power over more than one-half of teleconferencing and videoconferencing as
the voting rights by virtue of an agreement long as the director who is taking part in
with other stockholders; or said meetings can actively participate in the
ii. power to govern the financial and deliberations on matters taken up therein:
operating policies of the enterprise under a Provided, That every member of the board
statute or an agreement; or shall participate in at least fifty percent
iii. power to appoint or remove the (50%) and shall physically attend at least
majority of the members of the board of twenty-five percent (25%) of all board
directors or equivalent governing body; or meetings every year: Provided, further, That
iv. power to cast the majority votes at in the case of a director who is unable to
meetings of the board of directors or physically attend or participate in board
equivalent governing body; or meetings via teleconferencing or
v. any other arrangement similar to videoconferencing, the corporate secretary
any of the above. shall execute a notarized certification
(f) Related company means another attesting that said director was given the
company which is: (a) its parent or holding agenda materials prior to the meeting and
company; (b) its subsidiary or affiliate; or that his/her comments/decisions thereon
(c) a corporation where a bank or its were submitted for deliberation/discussion
majority stockholder own such number of and were taken up in the actual board
shares that will allow/enable him to elect at meeting, and that the submission of said
least one (1) member of the board of certification shall be considered compliance
directors or a partnership where such with the required fifty percent (50%)
majority stockholder is a partner. minimum attendance in board meetings.

§§ X141.2 - X141.3
05.12.31
§ X141.2 Qualifications of a director certain responsibilities to different

A director shall have the following constituencies or stakeholders, i.e., the
minimum qualifications: bank itself, its stockholders, its depositors
a. He shall be at least twenty-five (25) and other creditors, its management and
years of age at the time of his election or employees, and the public at large. These
appointment; constituencies or stakeholders have the
b. He shall be at least a college right to expect that the institution is being
graduate or have at least five (5) years run in a prudent and sound manner.
experience in business; The board of directors is primarily
c. He must have attended a special responsible for the corporate governance
seminar on corporate governance for board of the bank. To ensure good governance
of directors conducted or accredited by the of the bank, the board of directors should
BSP: Provided, That incumbent directors as establish strategic objectives, policies and
well as those elected after 17 September 2001 procedures that will guide and direct the
must attend said seminar on or before activities of the bank and the means to attain
30 June 2003 or within a period of six (6) the same as well as the mechanism for
months from date of election for those monitoring management’s performance.
elected after 30 June 2003, as the case may While the management of the day-to-day
be; and affairs of the institution is the responsibility
d. He must be fit and proper for the of the management team, the board of
position of a director of the bank. In directors is, however, responsible for
determining whether a person is fit and monitoring and overseeing management
proper for the position of a director, the action.
following matters must be considered: c. Specific duties and responsibilities
integrity/probity, competence, education, of the board of directors
diligence and experience/training. (1) To select and appoint officers who
The foregoing qualifications for are qualified to administer the bank’s affairs
directors shall be in addition to those effectively and soundly and to establish
required or prescribed under R.A. No. 8791 adequate selection process for all
and other existing applicable laws and personnel. It is the primary responsibility
regulations. of the board of directors to appoint
competent management team at all times.
§ X141.3 Powers/responsibilities and The board of directors should apply fit and
duties of directors proper standards on key personnel.
a. Powers of the board of directors. Integrity, technical expertise and
The corporate powers of a bank shall be experience in the institution’s business,
exercised, its business conducted and all its either current or planned, should be the key
property shall be controlled and held by its considerations in the selection process.
board of directors. The powers of the board And because mutual trust and a close
of directors as conferred by law are original working relationship are important, the
and cannot be revoked by the stockholders. board’s choice should share its general
The directors hold their office charged with operating philosophy and vision for the
the duty to act for the bank in accordance institution. The board of directors shall
with their best judgment. establish an appropriate compensation
b. General responsibility of the board package for all personnel which shall be
of directors. The position of a bank director consistent with the interest of all
is a position of trust. A director assumes stakeholders.

§ X141.3
05.12.31
(2) To establish objectives and draw up The board should have a schedule of
a business strategy for achieving them. matters and authorities reserved to it for
Consistent with the institution’s objectives, decision, such as: major capital
business plans should be established to expenditures, equity investments and
direct its on-going activities. The board divestments.
should ensure that performance against plan (6) To effectively supervise the bank’s
is regularly reviewed, with corrective action affairs. The board of directors should
taken as needed. establish a system of checks and balances
(3) To conduct the affairs of the which applies in the first instance to the
institution with high degree of integrity. board itself. Among the members of the
Since reputation is a very valuable asset, it board, an effective system of checks and
is in the institution’s best interest that in balances must exist. The system should
dealings with the public, it observes a high also provide a mechanism for effective
standard of integrity. The board of directors check and control by the board over the
should prescribe corporate values, codes of chief executive officer and key managers
conduct and other standards of appropriate and by the latter over the line officers of
behaviour for itself, the senior management the bank.
and other employees. Among others, (7) To monitor, assess and control the
activities and transactions that could result performance of management. The board
or potentially result in conflict of interest, shall put in place an appropriate reporting
personal gain at the expense of the system so that it is provided with relevant
institution, or unethical conduct shall be and timely information to be able to
strictly prohibited. It should provide policies effectively assess the performance of
that will prevent the use of the facilities of management. For this purpose, it may
the bank in furtherance of criminal and constitute a governance committee.
other illegal activities. (8) To adopt and maintain adequate
(4) To establish and ensure risk management policy. The board of
compliance with sound written policies. directors shall be responsible for the
The board should adopt written policies on formulation and maintenance of written
all major business activities, i.e., policies and procedures relating to the
investments, loans, asset and liability management of risks throughout the
management, business planning and institution. The risk management policy
budgeting. A mechanism to ensure shall include:
compliance with said policies shall also be (a) a comprehensive risk management
provided. approach;
(5) To prescribe a clear assignment of (b) a detailed structure of limits,
responsibilities and decision-making guidelines and other parameters used to
authorities, incorporating a hierarchy of govern risk-taking;
required approvals from individuals to the (c) a clear delineation of lines of
board of directors. The board should responsibilities for managing risk;
establish in writing the limits of the (d) an adequate system for measuring
discretionary powers of each officer, risk; and
committee, sub-committee and such other (e) effective internal controls and a
group for the purpose of lending, investing comprehensive risk-reporting process.
or committing the bank to any financial The board may constitute a committee
undertaking or exposure to risk at any time. for this purpose.

§ X141.3
05.12.31
(9) To constitute the following control, auditing or other issues to persons

committees :1 or entities that have the power to take
(a) Audit committee. The audit corrective action. It shall ensure that
committee shall be composed of members arrangements are in place for the independent
of the board of directors, at least two (2) of investigation, appropriate follow-up action,
whom shall be independent directors, and subsequent resolution of complaints.
including the chairman, preferably with (b) Corporate governance committee.
accounting, auditing, or related financial The corporate governance committee shall
management expertise or experience. The assist the board of directors in fulfilling its
audit committee provides oversight of the corporate governance responsibilities. It
institution’s financial reporting and control shall review and evaluate the qualifications
and internal and external audit functions. of all persons nominated to the board as
It shall be responsible for the setting up of well as those nominated to other positions
the internal audit department and for the requiring appointment by the board of
appointment of the internal auditor as well directors. The committee shall be composed
as the independent external auditor who of at least three (3) members of the board
shall both report directly to the audit of directors, two (2) of whom shall be
committee. It shall monitor and evaluate independent directors.
the adequacy and effectiveness of the The corporate governance committee
internal control system. shall have a written charter that describes
Upon setting up the audit committee, the duties and responsibilities of its
the board of directors shall draw up a members. This charter shall be approved
written charter or terms of reference which by the board of directors and reviewed and
clearly sets out the audit committee’s updated at least annually.
authority and duties, as well as the reporting The committee shall be responsible for
relationship with the board of directors. This ensuring the board’s effectiveness and due
charter shall be approved by the board of observance of corporate governance
directors and reviewed and updated principles and guidelines. It shall oversee
periodically. the periodic performance evaluation of the
The audit committee shall have explicit board and its committees and executive
authority to investigate any matter within management; and shall also conduct an
its terms of reference, full access to and annual self-evaluation of its performance.
cooperation by management and full The committee shall also decide whether
discretion to invite any director or executive or not a director is able to and has been
officer to attend its meetings, and adequate adequately carrying out his/her duties as
resources to enable it to effectively director bearing in mind the director’s
discharge its functions. contribution and performance (e.g.,
The audit committee shall ensure that competence, candor, attendance,
a review of the effectiveness of the institution’s preparedness and participation). Internal
internal controls, including financial, guidelines shall be adopted that address the
operational and compliance controls, and risk competing time commitments that are faced
management, is conducted at least annually. when directors serve on multiple boards.
The audit committee shall establish and The committee shall make
maintain mechanisms by which officers and recommendations to the board regarding
staff may, in confidence, raise concerns about the continuing education of directors,
possible improprieties or malpractices in assignment to board committees,
matters of financial reporting, internal succession plan for the board members and
1 Mandatory for all banks effective 01 January 2005 under Circular 456 dated 04 October 2004

§ X141.3
05.12.31
senior officers, and their remuneration major risks. It shall identify practical strategies
commensurate with corporate and to reduce the chance of harm and failure or
individual performance. minimize losses if the risk becomes real.
The corporate governance committee (iii) Implement the risk management
shall decide the manner by which the plan. The risk management committee shall
board’s performance may be evaluated and communicate the risk management plan
propose an objective performance criteria and loss control procedures to affected
approved by the board. Such performance parties. The committee shall conduct
indicators shall address how the board has regular discussions on the institution’s
enhanced long term shareholders’ value. current risk exposure based on regular
(c) Risk management committee. The management reports and direct concerned
risk management committee shall be units or offices on how to reduce these risks.
responsible for the development and (iv) Review and revise the plan as
oversight of the institution’s risk needed. The committee shall evaluate the
management program. The committee shall risk management plan to ensure its
be composed of at least three (3) members continued relevancy, comprehensiveness,
of the board of directors who shall possess and effectiveness. It shall revisit strategies,
a range of expertise as well as adequate look for emerging or changing exposures,
knowledge of the institution’s risk exposures and stay abreast of developments that affect
to be able to develop appropriate strategies the likelihood of harm or loss. The
for preventing losses and minimizing the committee shall report regularly to the board
impact of losses when they occur. It shall of directors the entity’s over-all risk
oversee the system of limits to discretionary exposure, actions taken to reduce the risks,
authority that the board delegates to and recommend further action or plans as
management, ensure that the system necessary.
remains effective, that the limits are (d) (Deleted by Cir. 456 dated
observed and that immediate corrective 04 October 2004)
actions are taken whenever limits are (10) To meet regularly. To properly
breached. discharge its function, the board of directors
The risk management committee shall shall meet regularly. Independent views in
have a written charter that defines the duties board meetings shall be given full
and responsibilities of its members. The consideration and all such meetings shall
charter shall be approved by the board of be duly minuted.
directors and reviewed and refined (11) To keep the individual members of
periodically. the board and the shareholders informed.
The core responsibility of the risk It is the duty of the board to present to all
management committee are: its members and to the shareholders a
(i) Identify and evaluate exposures. balanced and understandable assessment
The committee shall assess the probability of of the bank’s performance and financial
each risk becoming reality and shall estimate condition. It should also provide
its possible effect and cost. Priority areas of appropriate information that flows
concern are those risks that are the most likely internally and to the public. All members
to occur and are costly when they happen. of the board shall have reasonable access
(ii) Develop risk management to any information about the institution.
strategies. The risk management committee (12) To ensure that the bank has
shall develop a written plan defining the beneficial influence on the economy. The
strategies for managing and controlling the board has a continuing responsibility to

§ X141.3
05.12.31
provide those services and facilities which (2) To act honestly and in good faith,
will be supportive of the national economy. with loyalty and in the best interest of the
(13) To assess at least annually its institution, its stockholders, regardless of
performance and effectiveness as a body, the amount of their stockholdings, and
as well as its various committees, the chief other stakeholders such as its depositors,
executive officer and the bank itself. The investors, borrowers, other clients and the
composition of the board shall also be general public. A director must always act
reviewed regularly with the end in view of in good faith, with the care which an
having a balanced membership. Towards ordinarily prudent man would exercise
this end, a system and procedure for under similar circumstances. While a
evaluation shall be adopted which may director should always strive to promote
include, but not limited to, the setting of the interest of all stockholders, he should
benchmark and peer group analysis. also give due regard to the rights and
(14) To keep their authority within the interests of other stakeholders.
powers of the institution as prescribed in (3) To devote time and attention
the articles of incorporation, charter, by- necessary to properly discharge their
laws and in existing laws, rules and duties and responsibilities. Directors
regulations. To conduct and maintain the should devote sufficient time to familiarize
affairs of the institution within the scope of themselves with the institution’s
its authority as prescribed in its charter and business. They must be constantly aware
in existing laws, rules and regulations, the of the institution’s condition and be
board shall appoint a compliance officer knowledgeable enough to contribute
who shall be responsible for coordinating, meaningfully to the board’s work. They
monitoring and facilitating compliance with must attend and actively participate in
existing laws, rules and regulations. The board and committee meetings, request
compliance officer shall be vested with and review meeting materials, ask
appropriate authority and provided with questions, and request explanations. If a
appropriate support and resources. It may person cannot give sufficient time and
also constitute a compliance committee. attention to the affairs of the institution, he
d. Specific duties and responsibilities should neither accept his nomination nor
of a director run for election as member of the board.
(1) To conduct fair business (4) To act judiciously. Before
transactions with the bank and to ensure deciding on any matter brought before the
that personal interest does not bias board board of directors, every director should
decisions. Directors should, whenever thoroughly evaluate the issues, ask
possible, avoid situations that would give questions and seek clarifications when
rise to a conflict of interest. If transactions necessary.
with the institution cannot be avoided, it (5) To exercise independent
should be done in the regular course of judgment. A director should view each
business and upon terms not less favorable problem/situation objectively. When a
to the institution than those offered to disagreement with others occurs, he should
others. The basic principle to be observed carefully evaluate the situation and state
is that a director should not use his position his position. He should not be afraid to
to make profit or to acquire benefit or take a position even though it might be
advantage for himself and/or his related unpopular. Corollarily, he should support
interests. He should avoid situations that plans and ideas that he thinks will be
would compromise his impartiality. beneficial to the institution.

§§ X141.3 - X141.10
05.12.31
(6) To have a working knowledge of The election/appointment of all

the statutory and regulatory requirements incumbent directors and officers of all types
affecting the institution, including the of banks as of 17 September 2001 not
content of its articles of incorporation and previously approved/confirmed by the
by-laws, the requirements of the BSP and Monetary Board shall be submitted to the
where applicable, the requirements of BSP through the appropriate SEDs for
other regulatory agencies. A director confirmation.
should also keep himself informed of the
industry developments and business trends § X141.5 Place of board of directors'
in order to safeguard the institution’s meeting. Banks shall include in their by-
competitiveness. laws a provision that meetings of their board
(7) To observe confidentiality. of directors shall be held only within the
Directors must observe the confidentiality Philippines.
of non-public information acquired by
reason of their position as directors. They §§ X141.6 - X141.8 (Reserved)
may not disclose said information to any
other person without the authority of the § X141.9 Reports required. Banks
board. shall furnish all of their directors with a copy
of the specific duties and responsibilities of
§ X141.4 Confirmation of the election/ the board of directors prescribed under
appointments of directors and officers. The Items “b” and “c” of Subsec. X141.3 within
election/appointment of directors and thirty (30) banking days from 17 May 2001
officers of banks shall be subject to in cases of incumbent directors and at the
confirmation by the: time of election in cases of directors elected
Confirming Authority Position Level
after such date.
a. Monetary Board Directors, Senior Vice The directors concerned shall each be
President and above required to acknowledge receipt of the
of UBs and KBs, as copies of such specific duties and
well as the Directors, responsibilities and shall certify that they
President, Chief fully understand the same.
Executive Officer, Copies of the acknowledgment and
Chief Operating certification herein required shall be
Officer, Senior Vice submitted in accordance with Appendix 6.
President or quivalent
rank of TBs, IBs, RBs
and Coop Banks
§ X141.10 Sanctions. Without prejudice
with total assets of at to the other sanctions prescribed under
least P1.0 billion. Section 37 of R.A. No. 7653 and to the
b. A Committee to Directors, Senior provisions of Section 16 of R.A. No. 8791,
be composed of: Vice President and any director of a bank who violates or fails to
· The Deputy above or equivalent observe and/or perform any of the above
Governor - SES rank of TBs, IBs, RBs responsibilities and duties shall for each
· Managing and Coop Banks violation or offense, be penalized as follows:
Directors of SE I whose election
For directors of Amount
and II appointment is not
· Directors of the subject to confirmation UBs/KBs P 30,000
concerned by the Monetary TBs/IBs 15,000
RBs/Coop Banks (national) 5,000
SED of SES Board.
Coop Banks (local) 1,000

§§ X142 - X143.1
05.12.31
Sec. X142 Definition and Qualifications following matters must be considered:

of Officers. For purposes of this Section, integrity/probity, competence, education,
the following shall be the definition and diligence and experience/training.
qualification of officers. The foregoing qualifications for
officers shall be in addition to those
§ X142.1 Definition of officers required or prescribed under R.A. No.
Officers shall include the president, 8791 and other existing applicable laws
executive vice president, senior vice and regulations.
president, vice president, general
manager, secretary, treasurer, trust officer § X142.3 Appointment of officers
and others mentioned as officers of the a. The appointment of officers of UBs/
bank, or those whose duties as such are KBs/TBs with the rank of Senior Vice
defined in the by-laws, or are generally President (SVP) and above, whether
known to be the officers of the bank (or incumbent or proposed, shall not be subject
any of its branches and offices other than to Monetary Board approval but rather to
the head office) either through Monetary Board confirmation. Appointment
announcement, representation, publication of officers below the rank of SVP shall be
or any kind of communication made by subject neither to Monetary Board approval
the bank. nor Monetary Board confirmation.
A person holding the position of The appointment of above-mentioned
chairman, vice-chairman or any other officers shall be deemed to have been
position of the board who also performs confirmed by the BSP, if after sixty (60)
functions of management such as those banking days from receipt of the required
ordinarily performed by regular officers reports, no advice against said
shall also be considered an officer. appointment has been received by the
bank concerned.
§ X142.2 Qualifications of an officer b. (Deleted by Cir. 434 dated
An officer shall have the following 04 October 2004)
minimum qualifications:
a. He shall be at least twenty-one (21) Sec. X143 Disqualification of Directors
years of age; and and Officers. The following regulations
b. He shall be at least a college shall govern the disqualification of bank
graduate, or have at least five (5) years directors and officers.
experience in banking or trust operations
or related activities or in a field related to § X143.1 Persons disqualified to
his position and responsibilities, or have become directors. Without prejudice to
undergone training in banking or trust specific provisions of law prescribing
operations acceptable to the appropriate disqualifications for directors, the
SED of the BSP: Provided, however, That following are disqualified from becoming
trust officers shall have at least two (2) years directors:
of actual experience or training in trust a. Permanently disqualified
operations or fund management or other Directors/officers/employees
related fields; and permanently disqualified by the Monetary
c. He must be fit and proper for the Board from holding a director position:
position he is being proposed/appointed to. (1) Persons who have been convicted
In determining whether a person is fit and by final judgment of the court for offenses
proper for a particular position, the involving dishonesty or breach of trust such

§ X143.1
05.12.31
as estafa, embezzlement, extortion, forgery, (a) Delinquency in the payment of

malversation, swindling and theft; obligations means that an obligation of a
(2) Persons who have been convicted person with a bank where he/she is a
by final judgment of the court for violation director or officer, or at least two (2)
of banking laws; obligations with other banks/financial
(3) Persons who have been judicially institution, under different credit lines or loan
declared insolvent, spendthrift or contracts, are past due pursuant to Sec. X306;
incapacitated to contract; or (b) Obligations shall include all
(4) Directors, officers or employees of borrowings from a bank obtained by:
closed banks who were responsible for such (i) A director or officer for his own
institutions’ closure as determined by the account or as the representative or agent of
Monetary Board. others or where he/she acts as a guarantor,
b. Temporarily disqualified endorser or surety for loans from such
Directors/officers/employees financial institutions;
disqualified by the Monetary Board from (ii) The spouse or child under the
holding a director position for a specific/ parental authority of the director or officer;
indefinite period of time. Included are: (iii) Any person whose borrowings or
(1) Persons who refuse to fully disclose loan proceeds were credited to the account
the extent of their business interest to the of, or used for the benefit of a director or
appropriate SED when required pursuant to officer;
a provision of law or of a circular, (iv) A partnership of which a director
memorandum or rule or regulation of the or officer, or his/her spouse is the managing
BSP. This disqualification shall be in effect partner or a general partner owning a
as long as the refusal persists; controlling interest in the partnership; and
(2) Directors who have been absent or (v) A corporation, association or firm
who have not participated for whatever wholly-owned or majority of the capital of
reasons in more than fifty percent (50%) of which is owned by any or a group of
all meetings, both regular and special, of persons mentioned in the foregoing Items
the board of directors during their “(i)”, “(ii)” and “(iv)”;
incumbency, or any twelve (12) month period This disqualification shall be in effect
during said incumbency and directors as long as the delinquency persists.
who failed to physically attend for (4) Persons convicted for offenses
whatever reasons in at least twenty-five involving dishonesty, breach of trust or violation
percent (25%) of all board meetings in any of banking laws but whose conviction has not
year, except that when a notarized yet become final and executory;
certification executed by the Corporate (5) Directors and officers of closed
Secretary has been submitted attesting that banks pending their clearance by the
said directors were given the agenda Monetary Board;
materials prior to the meeting and that (6) Directors disqualified for failure to
their comments/decisions thereon were observe/discharge their duties and
submitted for deliberation/discussion and responsibilities prescribed under existing
were taken up in the actual board regulations. This disqualification applies
meeting, said directors shall be until the lapse of the specific period of
considered present in the board meeting. disqualification or upon approval by the
(3) Persons who are delinquent in the Monetary Board on recommendation by the
payment of their obligations as defined appropriate SED of such directors’ election/
hereunder: reelection;

§§ X143.1 - X143.4
05.12.31
(7) Directors who failed to attend the or Accountant of a branch or office of a bank
special seminar for board of directors is disqualified from holding or being
required under Item “c” of Subsec. X141.2. appointed to any of said positions in the
This disqualification applies until the same branch or office.
director concerned had attended such c. In the case of UBs, KBs, and TBs,
seminar; any appointive or elective official, whether
(8) Persons dismissed/terminated from full time or part time, except in cases where
employment for cause. This disqualification such service is incident to financial assistance
shall be in effect until they have cleared provided by the government or government-
themselves of involvement in the alleged owned or -controlled corporations or in cases
irregularity; allowed under existing law.
(9) Those under preventive suspension; d. In the case of Coop Banks, any
and officer or employee of CDA or any elective
(10) Persons with derogatory records public official, except a barangay official.
with the National Bureau of Investigation e. Except as may otherwise be
(NBI), court, police, interpol and monetary allowed under Commonwealth Act No.
authority (central bank) of other countries 108, otherwise known as “The Anti-Dummy
(for foreign directors and officers) involving Law”, as amended, foreigners cannot be
violation of any law, rule or regulation of officers or employees of banks.
the Government or any of its
instrumentalities adversely affecting the § X143.3 Effect of non-possession of
integrity and/or ability to discharge the qualification or possession of
duties of a bank director/officer. This disqualifications. Directors/officers elected
disqualification applies until they have or appointed without possessing the
cleared themselves of involvement in the qualifications mentioned under Subsecs.
alleged irregularity. X141.2 and X142.2 shall not be confirmed
by the confirming authority provided under
§ X143.2 Persons disqualified to Subsec. X141.4 and may be removed from
become officers office even if he/she has assumed the position
a. The disqualifications for directors to which he/she was elected or appointed.
mentioned in Subsec. X143.1 shall likewise Directors/officers possessing any of the
apply to officers, except those stated in disqualifications as enumerated herein shall
Items “b(2)” and “b(7)”. be subject to the disqualification procedures
b. Except as may be authorized by the provided under Subsec. X143.4 hereof.
Monetary Board or the Governor, the
spouse or a relative within the second § X143.4 Disqualification procedures
degree of consanguinity or affinity of any a. The board of directors and
person holding the position of Chairman, management of every institution shall be
President, Executive Vice President or any responsible for determining the existence
position of equivalent rank, General of the ground for disqualification of the
Manager, Treasurer, Chief Cashier or Chief institution’s director/officer or employee
Accountant is disqualified from holding or and for reporting the same to the BSP. While
being elected or appointed to any of said the concerned institution may conduct its
positions in the same bank; and the spouse own investigation and impose appropriate
or relative within the second degree of sanction/s as are allowable, this shall be
consanguinity or affinity of any person without prejudice to the authority of the
holding the position of Manager, Cashier, Monetary Board to disqualify a director/

§ X143.4
05.12.31
officer/employee from being elected/ f. If the disqualification is based on

appointed as director/officer in any financial any of the grounds for permanent
institution under the supervision of the BSP. disqualification enumerated under Items
Grounds for disqualification made known “(1)” to “(4)” of Subsec. X143.1(a), the
to the institution, shall be reported to the disqualification and watchlisting of the
appropriate SED of the BSP within seventy- concerned director/officer shall be elevated
two (72) hours from knowledge thereof. to the Monetary Board for approval subject
b. On the basis of knowledge and to the same procedures provided in Items
evidence on the existence of any of the “a”, “b” and “c” above.
grounds for disqualification mentioned in g. Upon approval by the Monetary
Subsecs. X143.1 and X143.2, the director Board, the concerned director/officer shall
or officer concerned shall be notified be informed by the appropriate SED through
through registered mail with registry return registered mail with registry return receipt
receipt card at his/her last known address card, at his/her last known address of his/
by the appropriate SED of the BSP of the her disqualification from being elected/
existence of the ground for his/her appointed as director/officer in any financial
disqualification and shall be allowed to institution under the supervision of BSP and/
submit within fifteen (15) days from receipt or of his/her inclusion in the master list of
of such notice an explanation on why he/ watchlisted persons so disqualified.
she should not be disqualified and included h. The board of directors of the
in the watchlisted file. The head of said concerned institution shall be immediately
department may allow an extension on informed of cases of disqualification
meritorious ground. approved by the Monetary Board and shall
c. The director/officer concerned shall be directed to act thereon not later than the
thus be afforded the opportunity to defend/ following board meeting. Within seventy-
clear himself/herself and to submit evidence two (72) hours thereafter, the corporate
in support of his/her position to the secretary shall report to the Governor of the
appropriate SED which shall then evaluate BSP through the appropriate SED the action
the case and submit the recommendations taken by the board on the director/officer
to the Monetary Board. involved.
d. Failure of the director/officer i. Persons who are elected or
concerned to reply within the prescribed appointed as director or officer in any of
period shall be considered a waiver and the the BSP-supervised institutions for the first
SED shall proceed to evaluate the case and time but are subject to any of the grounds
submit recommendations to the Monetary for disqualification provided for under
Board. Subsecs. X143.1 and X143.2 shall be
e. If the ground for disqualification afforded the procedural due process
is delinquency in the payment of prescribed above.
obligation, the concerned director or j. Whenever a director/officer is
officer shall be given a period of thirty (30) cleared in the process mentioned under
days within which to settle said obligation Item “c” above or, when the ground for
or, restore it to its current status or, to disqualification ceases to exist, he/she
explain why he/she should not be would be eligible to become director or
disqualified and included in the officer of any bank, quasi-bank, trust entity
watchlisted file, before the evaluation on or any institution under the supervision of
his disqualification and watchlisting is the BSP only upon prior approval by the
elevated to the Monetary Board. Monetary Board. It shall be the

§§ X143.4 - X144
05.12.31
responsibility of the concerned SED of the Board. Delisting may be approved by the
BSP to elevate to the Monetary Board the Monetary Board in the following cases:
lifting of the disqualification of the concerned (1) Watchlist – Disqualification File “B”
director/officer and his/her delisting from the (Temporary) –
master list of watchlisted persons. (a) After the lapse of the specific period
of disqualification;
§ X143.5 Watchlisting. To provide the (b) When the conviction by the court
BSP with a central information file to be for crimes involving dishonesty, breach of
used as reference in passing upon and trust and/or violation of banking law
reviewing the qualifications of persons becomes final and executory, in which case
elected or appointed as director or officer the director/officer/employee is relisted to
of a bank, quasi-bank or trust entity, the SES Watchlist – Disqualification File “A”
shall maintain a watchlist of persons (Permanent); and
disqualified to be a director or officer of (c) Upon favorable decision or clearance
such entities under its supervision under by the appropriate body, i.e., court, NBI, BSP,
the following procedures: bank, quasi-bank, trust entity or such other
a. Watchlist categories. Watchlisting agency/body where the concerned individual
shall be categorized as follows: had derogatory record.
(1) Disqualification File “A” Directors/officers/employees delisted
(Permanent) – Directors/officers/employees from the Watchlist – Disqualification File
permanently disqualified by the Monetary “B” other than those upgraded to Watchlist
Board from holding a director/officer position. – Disqualification File “A” shall be eligible
(2) Disqualification File “B” for re-employment with any bank, quasi-
(Temporary) – Directors/officers/employees bank or trust entity.”
temporarily disqualified by the Monetary
Board from holding a director/officer Sec. X144 Bio-data of Directors and
position. Officers
b. Inclusion of directors/officers/ a. Banks shall submit to the appropriate
employees in the watchlist. Directors/ SED of the BSP a bio-data of their directors
officers/employees disqualified under and officers after their election or appointment,
Subsec. X143.4 shall be included in the in a prescribed form and within the deadline
watchlist disqualification files “A” or “B”. indicated in Appendix 6.
c. Confidentiality. Watchlist files shall The bio-data shall be updated in any of
be for internal use only of the BSP and may the following instances:
not be accessed or queried upon by outside (1) Change in educational attainment,
parties including banks, quasi-banks and experience or additional qualifications in
trust entities except with the authority of banking that will enhance the director’s or
the person concerned and with the officer’s competence or will qualify him to
approval of the Deputy Governor, SES or his present position;
the Governor or the Monetary Board. (2) Promotion; and
d. Delisting. All delistings shall be (3) Transfer to other banks.
approved by the Monetary Board upon The bio-data shall be submitted only
recommendation of the operating once. For purposes of updating, only the
departments of SES except in cases of pertinent sections and pages shall be
persons known to be dead where delisting submitted to the BSP.
shall be automatic upon proof of death and b. Banks shall submit to the
need not be elevated to the Monetary appropriate SED of the BSP for evaluation,

§§ X144 - X145
05.12.31
a list of the incumbent members of the board his personal capacity or through his firm; is
of directors and officers (chief executive independent of management and free from
officers down the line) after the annual any business or other relationship, has not
election of the board of directors as engaged and does not engage in any
provided in the bank’s by-laws. Any change transaction with the institution or with any
in the composition of the board of directors of its related companies or with any of its
shall also be reported to the BSP after the substantial shareholders, whether by
election or appointment of a member. himself or with other persons or through a
c. If after evaluation, the Monetary firm of which he is a partner or a company
Board shall find grounds for disqualification, of which he is a director or substantial
the director/officer so elected/appointed shareholder, other than transactions which
may be removed from office even if he/she are conducted at arms length and could not
has assumed the position to which he/she materially interfere with or influence the
was elected/appointed pursuant to Section exercise of his judgment; and
9-A of R.A. No. 337, as amended. (7) Complies with all the qualifications
In the case of the independent directors, required of an independent director and
the bio-data shall be accompanied by a does not possess any of the disqualifications
certification under oath from the director therefor; and has not withheld nor
concerned that he/she is an independent suppressed any information material to his
director as defined under Subsec. X141.1 or her qualification or disqualification as an
that all the information thereby supplied are independent director.
true and correct, and that he/she:
(1) Is not or has not been an officer or Sec. X145 Interlocking Directorships and/
employee of the bank, its subsidiaries or or Officerships. In order to safeguard against
affiliates or related interests during the past the exercise by the same person or group of
three (3) years counted from the date of his persons of undue influence over the policy-
election; making and/or management functions of
(2) Is not a director or officer of the similar financial institutions that could have
related companies of the institution’s an adverse effect on competition or which
majority stockholder; could result in conflict of interest situations
(3) Is not a majority stockholder of the to the detriment of others, the following
institution, any of its related companies, or regulations shall govern interlocking
of its majority shareholders; directorships and/or officerships within the
(4) Is not a relative within the fourth financial system.
degree of consanguinity or affinity, a. Interlocking directorships
legitimate or common-law of any director, (1) Except as may be authorized by the
officer or majority shareholder of the bank Monetary Board or as otherwise provided
or any of its related companies; hereunder, there shall be no concurrent
(5) Is not acting as a nominee or directorships between banks or between a
representative of any director or substantial bank and a non-bank financial intermediary;
shareholder of the bank, any of its related and
companies or any of its substantial (2) Without the need for prior approval
shareholders; of the Monetary Board, concurrent
(6) Is not retained as professional directorships between entities not involving
adviser, consultant, agent or counsel of the an IH shall be allowed in the following cases:
institution, any of its related companies or (a) Banks not belonging to the same
any of its substantial shareholders, either in category: Provided, That not more than one

§ X145
05.12.31
(1) of the banks shall have quasi-banking at least twenty percent (20%) but less than
functions; majority of the equity of each of the banks
(b) A non-bank financial intermediary, and non-bank financial intermediaries is
other than an IH, not per-forming quasi- owned by a holding company or a bank and
banking functions, and a bank; the interlocking arrangement is necessary
(c) A bank not performing quasi- for the holding company or the bank to
banking functions and an NBQB; and provide technical expertise or managerial
(d) A bank and one (1) or more assistance to its affiliates.
financial institutions in each of which Aforementioned concurrent officerships
majority interest is held by the bank. may be allowed, subject to the following
For purposes of the foregoing, a conditions:
husband and his wife shall be considered (a) that the positions do not involve
as one (1) person. any functional conflict of interests;
b. Interlocking directorships and (b) that the positions of President, Chief
officerships Executive Officer, Chief Operating Officer
(1) Except as may be authorized by the and Chief Financial Officer or their
Monetary Board or as otherwise provided equivalent may not be held concurrently;
hereunder, there shall be no concurrent (c) that the officer involved, or his
directorship and officership between banks spouse or any of his relatives within the first
or between a bank and a non-bank financial degree of consanguinity or affinity or by
intermediary; and legal adoption, or a corporation, association
(2) Without need for prior approval of or firm wholly- or majority-owned or
the Monetary Board, concurrent controlled by such officer or his relatives
directorship and officership in a bank and enumerated above, does not own in his/its
one (1) or more of its subsidiary financial own capacity more than twenty percent
institutions other than an IH, shall be allowed. (20%) of the subscribed capital of the entities
c. Interlocking officerships in which the bank has equity investments; and
As general rule, there shall be no (d) that where any of the positions
concurrent officerships between banks/ involved is held on full-time basis, adequate
quasi-banks or between a bank/quasi-bank justification shall be submitted to the
and non-bank financial intermediary, Monetary Board.
whether or not performing quasi-banking (3) With prior approval of the Monetary
functions, except as follows: Board, the following concurrent officership
(1) With prior approval of the Monetary positions in the same capacity which do not
Board, concurrent officerships may be involve management functions, i.e., internal
allowed: auditor, corporate secretary, assistant
(a) Between a bank and not more than corporate secretary and security officer, may
two (2) of its subsidiary financial institutions; or be allowed between a bank/quasi-bank and
(b) Between two (2) banks and one (1) two (2) or more of its subsidiary/affiliate
of their subsidiary non-bank financial financial institutions within the group.
intermediaries. Transitory provision. Officers
(2) With prior approval of the Monetary concurrently holding the positions of
Board, concurrent officerships may also be president, chief executive officer, chief
allowed between banks, between a bank operating officer and chief financial officer or
and a non-bank financial intermediary other their equivalent in two (2) or more financial
than an IH, or between an NBQB and a non- institutions under BSP supervision shall be
bank financial intermediary: Provided, That given one (1) year from 02 April 2004 within

§§ X145 - X147
05.12.31
which to comply with the aforementioned base for profit sharing for the year during
regulation. which the reversal is made;
For purposes of this Section, members (6) Accumulated profits not yet
of a group or committee, including sub- received but already recorded by a bank
groups or sub-committees, whose duties representing its share in profits of its
include functions of management such as subsidiaries under the equity method of
those ordinarily performed by regular officers, accounting; and
shall likewise be considered as officers. b. The bank may provide in its by-
laws for other priorities in the computation
§ X145.1 Representatives of of net profits for purposes of profit sharing:
government. The provisions of this Section Provided, That in no case shall profit
shall not apply to persons appointed to such sharing take precedence over any of the
positions as representatives of the items in the preceding paragraph; and
government or government-owned or c. Prior approval of the Monetary
controlled entities. Board shall be necessary before a bank
which has received financial assistance
Sec. X146 Profit Sharing Programs. Profit from the BSP may implement its profit
sharing programs adopted in favor of sharing program. Financial assistance shall
directors, officers and employees shall be refer to emergency loans and advances and
reflected in the by-laws of the bank, subject such other forms of credit accommodations
to the following guidelines: which are intended to provide banks with
a. The base in any profit sharing liquidity in times of need.
program shall be the net income for the year
of the bank as shown in its Consolidated Sec. X147 Compensation and Other
Statement of Income and Expenses for the Benefits of Directors and Officers. To protect
year, net of the following: the funds of depositors and creditors, the
(1) All cumulative dividends accruing Monetary Board may regulate/restrict the
to preferred stock to the extent not covered payment by the bank of compensation,
by earned surplus; allowances, fees, bonuses, stock options,
(2) Accrued interest receivable credited profit sharing and fringe benefits to its
to income but not yet collected, net of directors and officers in exceptional cases and
reserves already set up for uncollected when the circumstances warrant, such as, but
interest on loans; not limited to, the following:
(3) Unbooked valuation reserves on a. When the bank is under
loans or the amount required to update controllership, conservatorship or when it
valuation reserves in accordance with the has outstanding emergency loans and
schedule approved by the Monetary Board, advances and such other forms of credit
as well as all amortizations due on deferred accommodation from the BSP which are
charges; intended to provide it with liquidity in times
(4) Provisions for current year’s taxes; of need;
(5) Income tax deferred for the year. b. When the institution is found by the
Provided, however, That in case of reversal Monetary Board to be conducting business
of deferred income taxes which were in an unsafe or unsound manner;
deducted from net income in computing for c. When it is found by the Monetary
profit sharing of previous years, the deferred Board to be in an unsatisfactory financial
income tax reversed to expense shall be condition such as, but not limited to, the
added back to net income to arrive at the following cases:

§§ X147 - X149
05.12.31
(1) Its capital is impaired; Sec. 3147 Bonding/Training of Directors,

(2) It has suffered continuous losses Officers and Employees. Officers and
from operations for the past three (3) years; employees handling funds or securities
(3) Its composite CAMEL(S) rating in amounting to P5,000 or more in any one
the latest examination is below “3”; and (1) year shall be bonded in an amount
(4) It is under rehabilitation by the determined by the Monetary Board.
BSP/PDIC which rehabilitation may Directors, officers and other personnel
include debt-to-equity conversion, etc. of RBs/Coop Banks shall undergo such
In the presence of any one (1) or more training in banking as may be required by
of the circumstances mentioned above, the BSP.
the Monetary Board may impose the
following restrictions in the compensation Sec. X148 (Reserved)
and other benefits of directors and officers:
a. In the case of profit sharing, the Sec. X149 Conducting Business in an
provision of Sec. X146 shall be observed Unsafe/Unsound Manner. Whether a
except that for purposes of this Section, particular activity may be considered as
the total amount of unbooked valuation conducting business in an unsafe or
reserves and deferred charges shall be unsound manner, all relevant facts must
deducted from the net income. be considered. An analysis of the impact
b. Except for the financial assistance thereof on the bank’s operations and
to meet expenses for the medical, financial conditions must be undertaken,
maternity, education and other including evaluation of capital position,
emergency needs of the directors or asset condition, management, earnings
officers or their immediate family, the posture and liquidity position.
other forms of financial assistance may be In determining whether a particular act
suspended. or omission, which is not otherwise
c. When the total compensation prohibited by any law, rule or regulation
package including salaries, allowances, affecting banks, may be deemed as
fees and bonuses of directors and officers conducting business in an unsafe or
are significantly excessive as compared unsound manner, the Monetary Board,
with peer group averages, the Monetary upon report of the head of the supervising
Board may order their reduction to or examining department based on
reasonable levels: Provided, That even if findings in an examination or a complaint,
a bank is in financial trouble, it may shall consider any of the following
nevertheless be allowed to grant relatively circumstances:
higher salary packages in order to attract a. The act or omission has resulted
competent officers and quality staff as part or may result in material loss or damage,
of its rehabilitation program. or abnormal risk or danger to the safety,
The foregoing provisions founded on stability, liquidity or solvency of the
Section 18 of R.A. No. 8791 shall be institution;
deemed part of the benefits and b. The act or omission has resulted
compensation programs of banks. or may result in material loss or damage
or abnormal risk to the institution’s
Sec. 1147 (Reserved) depositors, creditors, investors,
stockholders, or to the BSP, or to the public
Sec. 2147 (Reserved) in general;

§§ X149 - X151
05.12.31
c. The act or omission has caused any d. Suspension of rediscounting

undue injury, or has given unwarranted privileges or access to BSP credit facilities;
benefits, advantage or preference to the e. Suspension of lending or foreign
bank or any party in the discharge by the exchange operations or authority to accept
director or officer of his duties and new deposits or make new investments;
responsibilities through manifest partiality, f. Suspension of responsible directors
evident bad faith or gross inexcusable and/or officers;
negligence; or g. Revocation of quasi-banking
d. The act or omission involves license; and/or
entering into any contract or transaction h. Receivership and liquidation under
manifestly and grossly disadvantageous to Section 30 of R.A. No. 7653.
the bank, whether or not the director or All other provisions of Sections 30 and
officer profited or will profit thereby. 37 of R.A. No. 7653, whenever
The list of activities which may be appropriate, shall also be applicable on the
considered unsafe and unsound is shown conduct of business in an unsafe or
in Appendix 48. unsound manner.
The imposition of the above sanctions
§§ X149.1 – X149.8 (Reserved) is without prejudice to the filing of
appropriate criminal charges against
§ X149.9 Sanctions. The Monetary culpable persons as provided in Sections
Board may, at its discretion and based on 34, 35 and 36 of R.A. No. 7653.
the seriousness and materiality of the acts
or omissions, impose any or all of the Sec. X150 Rules of Procedure on
following sanctions provided under Section Administrative Cases Involving Directors
37 of R.A. No. 7653 and Section 56 of R.A. and Officers of Banks. The rules of
No. 8791, whenever a bank conducts procedure on administrative cases
business in an unsafe and unsound manner: involving directors and officers of banks are
a. Issue an order requiring the bank shown in Appendix 64.
to cease and desist from conducting
business in an unsafe and unsound manner H. BANKING OFFICES
and may further order that immediate
action be taken to correct the conditions Sec. X151 Establishment/Relocation/
resulting from such unsafe or unsound Voluntary Closure/Sale of Branches. The
practice; BSP shall promote healthy competition in
b. Fines in amounts as may be the banking system and maximize the
determined by the Monetary Board to be delivery of efficient banking services
appropriate, but in no case to exceed especially in underserved areas. Toward
P30,000 a day on a per transaction basis this end, the following are the rules and
taking into consideration the attendant regulations that shall govern the
circumstances, such as the gravity of the establishment, relocation, voluntary closure
act or omission and the size of the bank, to and sale of local branches of domestic
be imposed on the bank, their directors banks, including locally incorporated
and/or responsible officers; subsidiaries of foreign banks and the
c. Suspension of interbank clearing establishment of branches of foreign banks
privileges/immediate exclusion from in the Philippines shall continue to be
clearing; governed by the provisions of Sec. X121.

§§ X151.1 - X151.2
05.12.31
§ X151.1 Prior Monetary Board under existing regulations, which as of 22

approval. No bank operating in the December 2005 are as follows:
Philippines shall establish, open or operate
branches, or transact business outside the Bank Category Minimum Capital
premises of its duly authorized principal (In Millions)
office without the prior approval of the BSP. Universal Banks P 4,950
For purposes of this Section, the term
branch shall refer to any office or place of Commercial Banks P 2,400
business in the Philippines outside of the
Thrift Banks:
head office at which deposits are regularly With Head Office P 325
received or withdrawn but shall exclude within Metro Manila
stand alone Automated Teller Machine With Head Office P 52
(ATM) or cash-acceptance machine and ad outside Metro Manila
hoc tellering booth. Other banking offices
such as convenience banking centers, Rural Banks:
express banking centers, representative Within Metro Manila P 26
offices, sales/service outlets and banking Cities of Cebu and Davao P 13
kiosks shall be considered a branch subject 1st/2nd/3rd class cities and
1st class municipalities P 6.5
to branching/application rules if manned by
4 /5 /6 class cities and
th th th
P 3.9
at least three (3) officers/employees at any
2nd/3rd/4thclass
time, and deposits are received/accepted municipalities P 3.9
even through ATM or cash acceptance 5th and 6th class
machine. It shall maintain separate books of municipalities P 2.6
accounts and shall be subject to the reportorial
requirements of the BSP. b. The bank’s risk-based capital
Banking offices other than branch as adequacy ratio (CAR) at the time of filing
defined herein may be allowed anywhere, the application is not lower than twelve
without prior BSP approval, subject to the percent (12%);
submission of a certification by the head of c. The bank’s CAMELS composite
the branches department with the rank of rating in the latest examination is at least
vice president or its equivalent or by a “3”, with management component score
higher ranking officer that said banking not lower than “3”;
office shall neither accept deposits nor d. The bank has established a risk
service withdrawals. The certification shall management system appropriate to its
be submitted to the appropriate SED of the operations, characterized by clear delineation
BSP not later than five (5) banking days from of responsibility for risk management,
date of opening. adequate risk measurement system,
appropriately structured risk limits, effective
§ X151.2 Prerequisites for the grant internal control system and complete, timely
of authority to establish a branch/banking and efficient risk reporting system;
office. With prior approval of the Monetary e. No major supervisory concerns
Board, banks may establish branches outstanding on safety and soundness, i.e.,
subject to the following pre-qualification the bank has complied, during the period
requirements: immediately preceding the date of
a. Compliance with the minimum application with the following regulatory
capital required or as may be required checkpoints:

§ X151.2
05.12.31
(1) No unbooked as of date of (13) Real estate loans ratio as of date of

valuation reserves application does not exceed twenty application
percent (20%) of total
(2) Regular and liquidity 12 weeks loan portfolio (for UBs/
reserve requirements on KBs only)
deposits and deposit
substitutes (14) No findings of unsafe 6 months
and unsound banking
(3) Asset and liquidity 3 months practices
cover for EFCDU/
FCDU liabilities (15) Accounting records, as of date of
systems, procedures application
(4) Ceilings on loans 3 months and internal control
to DOSRI are adequate
(5) Liquidity floor on 3 months (16) The applicant bank as of date of
government deposits has generally complied application
(6) Loans-to-deposits ratio 2 quarters with banking laws, rules
and regulations, orders
(7) Past due loans ratio as of date of or instructions of the
does not exceed application Monetary Board and/or
twenty percent (20%) BSP Management
of total loan portfolio
(17) Member in good as of date of
(8) No outstanding as of date of standing of the PDIC application
violation on single application
borrower’s loan limit and f. For purposes of evaluating branch
limit on total investments applications, theoretical capital shall be
in real estate and assigned to each branch to be established,
improvements including including approved but unopened
bank equipment branches/offices, as follows (in millions):
(9) No past due obligation as of date of LOCATION/ UB/KB TB/ RB/
with the BSP or with any application TYPE OF BANK NATIONAL LOCAL
financial institution COOP COOP
(10) No float items out- 3 months 1) National Capital
standing in the “Due Region and the Cities P 50 P 15 P5
From/To Head Office/ of Cebu and Davao
Branches/Offices” and 2) 1st to 3rd class P 25 P5 P 2.5
“Due from BSP” cities
accounts exceeding one
percent (1%) of the total 3) 4th to 6th class P 25 P5 P 1.5
resources as of end of cities
preceding month
4) 1st to 3rd class P 20 P5 P 1.0
(11) Mandatory allocation 2 quarters municipalities
of credit resources to
small and medium 5) 4th to 6th class P 15 P 2.5 P 0.5
municipalities
(12) Mandatory allocation 2 quarters
of loanable funds for The assigned theoretical capital shall
agrarian reform and be deducted from existing qualifying
agricultural credit in capital as defined under Subsec. X116.1
general for purposes of determining compliance

§§ X151.2 - X151.3
05.12.31
with the ten percent (10%) risk-based capital needs of the basic or disadvantaged sectors
adequacy ratio (CAR). such as farmer-peasants, artisanal fisherfolk,
If the applicant bank’s risk-based CAR workers in the formal sector and migrant
after deducting the assigned capital for the workers, workers in the informal sector,
proposed branch from the existing indigenous peoples and cultural
qualifying capital would be less than ten communities, women, differently-abled
percent (10%), its application shall not be persons, senior citizens, victims of
processed unless it infused such amount as calamities and disasters, youth and students,
may be necessary to maintain its risk-based children, urban poor and low income
CAR to at least ten percent (10%); households for their microenterprises and
g. The bank has been operating small businesses so as to enable them to
profitably for the year immediately raise their income levels and improve their
preceding the date of application, or in the living standards. Microfinance loans are
case of newly-established banks, the granted on the basis of the borrower’s cash
submitted projection showed that flow and are typically unsecured.
profitability will be attained on the third
year of operations, at the latest; and § X151.3 Application for authority to
h. Additional requirements for the establish branches. An application for
establishment of branches of microfinance- authority to establish a branch shall be signed
oriented banks and/or microfinance- by the president of the bank or officer of
oriented branches of regular banks: equivalent rank and shall be accompanied by
(1) Manual of operations on the following information/documents:
microfinancing duly approved by the board a. Business plan detailing the primary
of directors (for microfinance-oriented banking activities/products and services to
branches of regular banks only); be offered; competition analysis to show
(2) The branch shall have an adequate that its application will not lead to over
loan tracking system that allows daily banking in the target market; and financial
monitoring of loan releases, collections and projections for the first three (3) years of
arrearages, and any restructuring and operations showing sustained viability, as
refinancing arrangements; may be required by the appropriate SED.
(3) The proposed branch shall be In the evaluation of the business plan, due
managed by a person with adequate consideration shall be given to banks that are
experience or training in microfinancing able or are committed to invest or deploy
activities; and branch resources in their area of operations;
(4) At least seventy percent (70%) of the b. Certified true copy of the resolution
deposits generated by the branch to be of the bank’s board of directors authorizing
established shall be actually lent out to the establishment of the branch and
qualified microfinance borrowers and the indicating its proposed site;
microfinance loans of said branch shall at c. Organizational set up of the
all times be at least fifty percent (50%) of proposed branch showing the proposed
its gross loan portfolio (for microfinance- staffing pattern; and
oriented branches of regular banks only). d. Certification/Undertaking signed by
For purposes of this Section, a the president or the executive vice president
microfinance-oriented bank or a that the bank has complied or will comply,
microfinance-oriented branch is a bank or as the case maybe, with the prerequisites
branch, respectively, that provides financial for the grant of authority to establish a branch/
services and caters primarily to the credit banking office under Subsec. X151.2.

§ X151.4
05.12.31
§ X151.4 Branching guidelines shopping malls or commercial center

Branches may be established, subject to the complexes, including but not limited
following guidelines: to special export processing zones, public
a. Only one (1) branch application may markets, fish ports, livestock/agricultural
be submitted at any time except for banks trading centers, Bureau of Internal Revenue
with at least P100.0 million unimpaired (BIR) collection offices and industrial/
capital accounts which may be allowed a technological parks;
maximum of five (5) including approved but f. Maximum of two (2) banking
unopened branch applications, at any time; offices shall be allowed in 4th to 6th class
b. Only complete applications shall municipalities;
be accepted. Processing shall be on a first- g. An RB and a local coop bank shall
come, first-served basis; only be allowed to establish a branch if
c. Industry/market notice of their unimpaired capital accounts is at least
application for authority to establish a P10.0 million;
branch shall be posted at the BSP website h. A qualified RB or local coop bank
upon receipt thereof; with unimpaired capital accounts of at least
d. Banks shall be allowed to establish P10.0 million but less than P50.0
branches anywhere in the Philippines, million may establish a branch anywhere
except in the cities of Makati, within two (2) - hour normal travel time by
Mandaluyong, Manila, Parañaque, Pasay, land/sea public transport from the head
Pasig and Quezon and the Municipality of office, except in the NCR;
San Juan, Metro Manila: Provided, That i. An RB with unimpaired capital
branches of microfinance-oriented banks, accounts of at least P50.0 million but less
microfinance-oriented branches of regular than P100.0 million may establish
banks and branches that will cater primarily branches in any island group (Luzon,
to the credit needs of Barangay Micro Visayas or Mindanao) where the head
Business Enterprises (BMBEs) duly- office is located, except in the NCR;
registered under R.A. No. 9178 may be j. A large RB with at least P100.0
established anywhere, subject to million unimpaired capital accounts may
compliance with the minimum capital establish branches anywhere in the
requirements under Subsec. X151.2 and Philippines, except in the NCR;
the following conditions: k. A qualified bank with unimpaired
(1) A microfinance-oriented bank with capital accounts at least equivalent to the
head office outside the National Capital minimum capital required for a TB with
Region (NCR) may establish a branch in the head office in the NCR may establish
NCR after it has put up the minimum capital branches anywhere, except in the cities of
required for a TB with head office in the NCR; Makati, Mandaluyong, Manila, Parañaque,
and Pasay, Pasig and Quezon, and the
(2) A bank with head office outside the Municipality of San Juan, Metro Manila,
NCR may be allowed to establish a unless qualified under Item “d” above; and
microfinance-oriented branch in the NCR l. The BSP may decide to disapprove
only after it has put up the minimum capital an otherwise qualified branch application
required for a TB with head office in the NCR; if in its determination such branch
e. The proposed branch shall be application will lead to an overbanking
located at least 200 meters away from an situation in the specific market: Provided,
existing banking office: Provided, That said That such disapproval shall be subject to
distance requirement shall not apply in confirmation by the Monetary Board.

§§ X151.5 - X151.8
05.12.31
§ X151.5 Branch processing fee (1) Installation of the required security

Branch processing fee shall be as follows: devices under Subsec. X171.4 has been
complied with; and
a. Microfinance- - P 5,000
(2) Requirements enumerated under
oriented branches/
banks
Subsec. X151.2 have been complied with
b. RB /local coop - P 25,000 up to the time of actual opening.
banks A bank that fails to continuously comply
c. Non-affiliated TBs/ - P100,000 with the requirements under Subsec.
national coop banks X151.2 shall be given an extension of time
d. UBs/KBs/affiliated TBs - P200,000 to open such branch after it has shown
compliance for another test period of the
Provided, That a proposed branch to same duration for each requirement under
be manned by no more than three (3) said Subsection: Provided, That the
officers/employees at any time shall be provisions of Subsec. X151.6 shall be
assessed half (1/2) of the above branch observed if the branch cannot open within
processing fees: Provided, further, That six (6) months from the date of approval
branches of TBs, RBs and local coop banks thereof: Provided, further, That before such
to be established within the region where branch opens for business, the bank shall
the head office is located shall be free from submit to the BSP the requirements under
assessment. Items “a” and “b (1)” of this Subsection; and
a certification by the bank officer mentioned
§ X151.6 Date of opening. Approved under Item “b” hereof that upon opening
branches shall be opened within six (6) of the branch, the bank has complied within
months from the date of approval thereof: the period prescribed therein.
Provided, That an applicant bank may be Banks shall submit a written notice to
given a final extension of another six (6) the appropriate SED of the BSP of the actual
months by the Deputy Governor, SES, date of opening of their branches not later
subject to the presentation of justification than five (5) banking days from such
and valid reason for the bank’s failure to opening.
open within the original six (6)-month
period and proof that said branch/es can § X151.8 Relocation/transfer of
be opened within the succeeding six (6)- branches. Transfer/relocation of branches
month period. shall be allowed without prior BSP approval
subject to the following conditions:
§ X151.7 Requirements for opening a a. Notice of transfer to depositors and
branch. After a bank’s application to establish other creditors by registered mail or Proof
a branch has been approved, it may open the of Delivery (POD) Service by the Philippine
same subject to the following conditions: Postal Corporation (PhilPost) or other mail
a. Submission of the personal couriers and posters in conspicuous places
information sheet (bio-data) of the proposed in the premises of the banking office to be
manager and other officers of the branch transferred at least three (3) months prior to
at least thirty (30) days prior to the intended the transfer: Provided, That said notification
date of opening; and period may be reduced to forty-five (45)
b. A certification signed by the officer- days under any of the following
in-charge of the Branches Department with circumstances:
the rank of a vice president, or its equivalent (1) as an incentive to merger or
or by a higher officer that: consolidation of banks;

§§ X151.8 - X151.9
05.12.31
(2) as an incentive to purchase or only with prior approval of the Bangko

acquisition of majority or all of the Sentral and shall be subject to the following
outstanding shares of stock of a distressed conditions:
bank for the purpose of rehabilitating the (1) Notice of closure to depositors and
same; or other creditors by registered mail or Proof
(3) the proposed transfer site is within of Delivery (POD) Service of the Philippine
the same barangay or district of the same city Postal Corporation (PhilPost) or other mail
or municipality of the branch to be relocated. couriers and posters in conspicuous places
b. A certification signed by the head in the premises of the banking office to be
of the Branches Department with the rank closed at least three (3) months prior to the
of Vice President or its equivalent or by closure;
a higher ranking officer informing the (2) A certification signed by the head
appropriate SED of the BSP of the transfer of the Branches Department with the rank
and that the above requirements have been of vice president or its equivalent or by a
complied with, which shall be submitted higher ranking officer informing the
not later than five (5) banking days from appropriate SED of the BSP of the closure
the date of transfer. The certification shall and that the above requirements have
be accompanied by a certified true copy of been complied with, which shall be
the resolution of the bank’s board of submitted at least ten (10) banking days
directors authorizing the transfer; prior to the date of closure. The
c. Branches located in the cities of certification shall be accompanied by a
Makati, Mandaluyong, Manila, Parañaque, certified true copy of the resolution of the
Pasay, Pasig and Quezon, and the bank’s board of directors authorizing the
Municipality of San Juan, Metro Manila may closure.
be relocated/transferred anywhere; and b. Sale of branches.
d. Branches located in other areas (1) Sale of branches may be allowed
may be relocated/transferred anywhere with prior approval of the Monetary Board
except in the cities of Makati, and subject to the following conditions:
Mandaluyong, Manila, Parañaque, Pasay, (a) The selling and purchasing banks
Pasig and Quezon, and the Municipality shall secure the prior written consent of
of San Juan, Metro Manila: Provided, the PDIC in the transfer of assets and
That branches of RBs and local coop assumption of liabilities as provided
banks may be relocated/transferred only under Section 21 of the PDIC Charter
in areas where they are allowed to (R.A. No. 3591), as amended by R.A. No.
establish branches: Provided, further, 9302;
That existing RBs and local coop banks (b) The selling bank shall get the prior
in cities and municipalities of Metro approval of the BSP to close the branches
Manila other than Makati, Mandaluyong, to be sold subject to the following
Manila, Parañaque, Pasay, Pasig, conditions:
Quezon, and San Juan may be relocated/ (i) Notice of sale to depositors and
transferred anywhere, except in the other creditors by registered mail or POD
aforementioned cities and municipality. Service of the PhilPost or other mail
couriers and posters in conspicuous
§ X151.9 Voluntary closure/sale of places in the premises of the banking
banking offices office at least three (3) months prior to
a. Voluntary closure. Voluntary the closure: Provided, That said
closure of banking offices may be effected notification period may be reduced to

§§ X151.9 - X152.1
05.12.31
forty-five (45) days when there is no each banking office opened, transferred
actual branch closure or disruption of or closed without prejudice to the
branch operations. The depositors shall sanctions under Section 35 of R.A. No.
likewise be informed of their option to 7653.
withdraw their deposits or to maintain the
same with the acquiring bank; § X151.11 Relocation/Transfer of
(ii) A certification signed by its branch licenses of closed banks. Buyers
president or executive vice president of closed banks shall be allowed to relocate/
(EVP) informing the appropriate SED of transfer acquired branches subject to the
the BSP of the closure and that the above conditions stated under Items “c.” and “d.”
requirements have been complied with, of Subsec. X151.8.
which shall be submitted at least ten (10)
banking days prior to the date of closure. § X151.12 Establishment of branches/
The certification shall be accompanied loan collection and disbursement points
by a certified true copy of the resolution of microfinance-oriented banks;
of the bank’s board of directors establishment of microfinane-oriented
authorizing the closure. branches/loan collection and
(2) The acquiring bank shall pay a disbursement points of banks that are not
licensing fee per branch as follows: microfinance-oriented (Deleted by Cir.
Within Outside
505 dated 22 December 2005)
Type of Bank Metro Manila Metro Manila
UBs and KBs P 1.0 million P 0.5 million §§ X151.13 - X151.14 (Reserved)
TBs P 0.5 million P 0.25 million
§ X151.15 Relocation/Transfer of
§ X151.10 Sanctions. Any violation branch licenses of closed banks. Buyers of
of the provisions of Subsections X151.2 closed banks shall be allowed to relocate/
to X151.4 shall be a ground for the transfer the branch licenses of the acquired
cancellation of the franchise and closure closed banks under the terms and
of any branch established hereunder conditions indicated in Item “b(3)” of
without prejudice to the imposition Subsec. X151.9.
of the applicable criminal and
administrative sanctions prescribed Sec. X152 Relocation/Transfer of Head
under Sections 36 and 37, respectively, Offices. Transfer of a head office or any of
of R.A. No. 7653. its departments shall require prior BSP
If any part of the certification submitted approval and shall be subject to the
by the bank as required in this Section is conditions enumerated under Subsec.
found to be false, the following sanctions X151.8, except that the certification shall
shall be imposed: be signed by the officer with the rank of
a. On the bank. Suspension for one senior vice president or its equivalent or
(1) year of the privilege to establish and/or by a higher ranking officer.
to open approved banking offices.
b. On the certifying officer. A fine § X152.1 Sanctions. If any part of the
of P5,000 per day (P200 per day for RBs/ certification submitted by the bank as
Coop Banks) from the time the required in this Section is found to be false,
certification was made up to the time the the sanctions under Subsec. X151.10 shall
certification was found to be false for be imposed.

§§ X153 - X153.4
05.12.31
Sec. X153 Establishment of Additional § X153.2 Requirements for

Branches of Foreign Banks. The following establishment of additional branch. In
guidelines shall govern the establishment of addition to the standard pre-qualification
additional branches of foreign banks in the requirement for the grant of banking
Philippines pursuant to R.A. No. 7721. authorities in Appendix 5, the applicant
For purposes of this Section, the term bank shall comply with requirements
bank shall refer to the existing branches of prescribed in Subsecs. X121.4b and c,
the applicant bank in the Philippines and X121.6.
reckoned as a single unit.
In the case of a foreign bank which has § X153.3 Date of opening. The
more than one (1) branch and/or other office opening of approved branches shall be
in the Philippines, all such branches/offices subject to the provisions of Subsec. X151.6.
shall be treated as one (1) unit and all
references to the Philippine branches/offices § X153.4 Requirements for opening a
of such foreign bank shall be held to refer branch. After a bank’s application to
to such unit pursuant to Section 74 of the establish a branch has been approved, it
R.A. No. 8791. may open the same subject to the following
conditions:
§ X153.1 Application for authority to a. Submission by the applicant bank
establish additional branch. An application of a written notice at least thirty (30) days
for authority to establish additional branch prior to the intended date of opening,
or branches shall be signed by the Country accompanied by the following:
Manager or the highest ranking officer in (1) Proof or evidence of inward
the Philippines of the applicant foreign bank, remittance needed to meet the requirements
and shall be accompanied by the following prescribed in Subsecs. X121.4b and c, and
information/documents: X121.6;
a. Certified true copy of the (2) List of principal and junior officers
resolution of the bank’s board of directors of the proposed branch/es and their
authorizing the establishment of the respective designations and salaries;
additional branch/es and indicating its (3) Personal information sheet (bio-
proposed site/s and/or authority of the data) for each of the officers to enable the
bank’s Country Manager or highest BSP to evaluate their qualifications as
ranking officer in the Philippines to apply officers; and
for authority to establish additional (4) A certification signed by the bank’s
branch/es and represent the bank in Philippine Country Manager that the
connection therewith; requirements enumerated under Subsec.
b. Banking facilities and services to be X153.2 has been complied with up to the
offered; date of the aforementioned written notice.
c. Organizational set up of the A bank that fails to continuously comply
proposed branch showing the proposed with the requirements under Subsec.
staffing pattern; and X153.2 shall be given an extension of time
d. Certification signed by the bank’s to open such branch after it has shown
Country Manager that the bank’s existing compliance for another test period of the
branches in the Philippines reckoned as a same duration required of each requirement
single unit, have complied with all the in Subsec. X153.2: Provided, That the
requirements enumerated under Subsec. provisions of Subsec. X153.3 shall be
X153.2. observed if the branch cannot open within

§§ X153.4 - X154.2
05.12.31
six (6) months from the date of approval Sec. X154 Establishment of Offices
thereof: Provided, further, That before such Abroad. The following rules shall govern
branch opens for business, the bank shall the establishment by domestic banks of
submit to the BSP the requirements under branches and other offices abroad.
Subsec. X153.4a with the certification to For purposes of this Section, the term
the effect that the bank has complied with offices shall include branches, agencies,
requirements of Subsec. X153.2 up to the representative offices, remittance centers,
date of the written notice within the period remittance desk offices and other offices.
prescribed therein;
b. The foreign bank branch has § X154.1 Application for authority to
adequate staff, equipment, and other establish an office abroad. An application
facilities to meet the needs of its for authority to establish an office abroad
commercial banking operations: Provided, shall be signed by the president of the bank
That the bank’s premises, vault and office and shall be accompanied by the following
equipment, after inspection by the information/documents:
representatives of the SES of the BSP shall a. Certified true copy of the resolution
have been found to be substantially in of the bank’s board of directors authorizing
compliance with specifications on security the establishment of that office indicating
standards and ready for use by the bank; and its proposed site;
c. Issuance by the Governor of the b. Economic justification for such
permit to open and operate the approved establishment, indicating among other
branch/es. things, the services to be offered, the
Banks shall submit a written notice to minimum outlay such as capital
the appropriate SED of the BSP of the actual requirement of the host country, outlay for
date of opening of their branches not later furniture, fixture and equipment, rental and
than ten (10) banking days from such other expenses;
opening. c. Organizational set up of the
proposed office showing the proposed
§ X153.5 Choice of locations for positions and the names, qualifications and
establishment of branches experience of the proposed manager and
a. A foreign bank authorized to other officers;
establish branches in the Philippines d. Certification signed by the
pursuant to the provisions of R.A. No. president or the executive vice president
7721, may open its first three (3) branches that the bank has complied with the
in locations of its choice. standard pre-qualification requirements for
b. The same foreign bank may open the grant of banking authorities enumerated
its next three (3) additional branches only in Appendix 5; and
in locations designated by the Monetary e. Certification from the host country
Board to ensure balanced economic that the duly authorized personnel/
development in all the regions. examiners of the BSP will be authorized to
examine the proposed office.
§ X153.6 Sanctions. If a bank fails to
submit any certification as required in this § X154.2 Requirements for
Section, or any part of the certification establishing an office abroad. In addition
submitted by the bank as required in this to the standard prequalification
Section is found to be false, the sanctions requirements of Appendix 5, the applicant
under Subsec. X151.10 shall be imposed. bank shall comply with the following:

§§ X154.2 - X154.5
05.12.31
a. The citizenship requirements, e. An office not authorized to perform

ownership ceilings and other limitations on banking business (e.g., representative and
voting stockholdings in banks under liaison offices) shall not carry any of the
existing law and regulations; business of a bank as contemplated within
b. Experience and expertise in the context of the Philippine banking
international banking operations as shown system; and
by: f. The applicant shall defray the
(1) Its international banking operations necessary cost and expenses to be incurred
for at least three (3) years prior to the date by the appropriate SED of the BSP.
of application;
(2) Substantial income derived from § X154.4 Date of opening. The
international banking operations; and opening of any office abroad shall be
(3) Established correspondent relation- subject to the provisions of Subsec. X151.6.
ship with reputable banks.
§ X154.5 Requirements for opening
§ X154.3 Conditions attached to the an office abroad. After a bank’s application
approved application. An approved to establish a branch has been approved, it
application to establish a banking office may open the same subject to the following
abroad shall be subject to the following conditions:
conditions: a. Submission by the applicant bank
a. Without prejudice to the of a written notice at least thirty (30) days
qualification requirements in the country prior to the intended date of opening,
where the office is to be established, the accompanied by the following:
proposed officer(s), at the time of (1) Proof or evidence of outward
appointment must be at least: remittance needed to meet the capital
(1) Twenty-five (25) years of age; requirements prescribed by the host
(2) A college graduate, preferably with country;
training and experience abroad; (2) List of principal and junior officers
(3) With three (3) years experience in of the proposed branch/es and their
international banking operations; and respective designations and salaries; and
(4) Must not possess any of the (3) Personal information sheet (Bio-
disqualification of an officer as provided for data) for each of the officers to enable the
under existing regulations; BSP to evaluate their qualifications as
b. The applicant bank shall comply officers; and
with the licensing requirements of the host b. A certification signed by the bank’s
country and the necessary license to president or executive vice president that
operate shall be secured from the the standard prequalification requirements
appropriate government agency of the host enumerated in Appendix 5 have been
country; complied with up to the date of the
c. The outward investment representing aforementioned written notice.
initial capital outlay and other outlays shall A bank that fails to continuously
be subject to existing regulations; comply with the requirements shall be
d. The proposed office shall submit given an extension of time to open such
periodic reports on its financial condition office after it has shown compliance for
and profitability and such other reports that another test period of the same duration
may be required by the BSP; required of each requirement: Provided,

§§ X154.5 - X156
05.12.31
That the provisions of Subsec. X151.6 c. The applicant bank has complied
shall be observed if the branch cannot with the standard prequalification
open within six (6) months from the date requirements prescribed in Appendix 5; and
of approval thereof: Provided, further, d. Tax collections received shall be
That before such branch opens for subject to rules on government deposits.
business, the bank shall submit to the
BSP the requirements under Subsec. I. BANKING DAYS AND HOURS
X154.5a together with a certification
stating that the bank has complied with Sec. X156 Banking Days and Hours
the standard prequalification requirements Banks, including their branches and
in Appendix 5 up to the date of the offices, doing business in the Philippines,
written notice within the period shall observe for the conduct of their
prescribed therein. business a regular banking week of five
(5) days, except when such days are
§ X154.6 Sanctions. If any part of the holidays. The regular banking week
certification submitted by the bank as should fall on Mondays to Fridays unless
required in this Section is found to be otherwise authorized by the BSP in the
false,the sanctions under Subsec. X151.10 interest of the banking public. On these
shall be imposed. days, said institution shall transact
business for at least six (6) hours each day.
§§ X154.7 - X154.8 (Reserved) Subject to compliance with other
relevant laws, banks, including their
§ X154.9 Establishment of a foreign branches and offices, may opt to observe
subsidiary by a bank subsidiary. The a banking week in excess of the five (5)
establishment of a foreign subsidiary by a days after reporting to the BSP the
bank subsidiary are subject to the additional days during which such banks
guidelines in Subsec. X382.8. or their branches or offices shall transact
business for at least three (3) hours each
Sec. X155 Tellering Booths. The following day.
rules shall govern the establishment of Without the need for prior approval
tellering booths in BIR offices: of the BSP, and even in the absence of an
a. As a general policy, the approved local holiday, banks and/or their
establishment of tellering booths in BIR branches or other offices are allowed to
offices are not authorized. However, in close on certain days in celebration of
cases where tellering booths in offices important historical and/or religious
are needed as determined by the BIR, events in the locality where these banks
banks shall secure prior Monetary Board operate: Provided, That said closure has
approval; the prior approval of the bankers’
b. A bank’s application shall be association in the locality and in the case
accompanied by a letter from the BIR of bank branches, their respective head
Commissioner or Deputy Commissioner or offices: Provided, further, That said
other officer specifically authorized by the closure will only be allowed in the
Commissioner to sign such letter, stating municipality or city where the festivities
that the BIR has agreed to allow the are centered.
applicant bank to establish a tellering booth Banks and/or their branches or other
in the specified BIR office; offices shall submit, either individually or

§§ X156 - X161
05.12.31
through their head offices, to the banks shall be reported in writing to the
appropriate SED of the BSP a prior notice appropriate SED of the BSP. Banks may
of their intended closure on account of a change the banking days and hours
specific local festivity, together with a previously reported to the BSP by giving
copy of the resolution of the local bankers prior written notice: Provided, That changes
association approving said closure, at in banking days or hours shall not be made
least two (2) days after the date of said oftener than once every thirty (30) days,
resolution. except during emergencies. Emergency
The required notice shall be supported shall mean (a) condition of an area or
by a certification that: locality proclaimed by the President of the
a. On the date of the temporary Philippines as in a state of emergency; or
closure, the bank and/or branch will (b) an event or occasion or a combination
maintain a skeletal force to handle “out-of- of circumstances equivalent to a public
town” clearing items in line with the calamity resulting from fire, flood, or like
provisions of Section X603; disaster, or through some unusual
b. The notice of the bank’s closure and occurrence or pressing necessity not
the reason thereof shall be posted reasonably subject to anticipation calling for
conspicuously in the bank’s premises; and immediate action or remedy.
c. For branches of banks, the closure The prior written notice to the BSP on
has the prior approval of their respective changes in banking days and hours shall
head offices. be given through the fastest means of
communication, at least seven (7) banking
§ X156.1 Banking hours beyond the days before the intended effectivity of the
minimum. For purposes of servicing change in banking hours or days. In case a
deposits and withdrawals, banks may, at bank, due to an emergency, has to open
their discretion, remain open beyond the outside, or close during, the banking hours
minimum six (6) hours and for as long as or days reported to the BSP, a written report
they find it necessary, even before 8:00 AM submitted within twenty-four (24) hours
or after 8:00 PM. Banks may, after prior from opening or closing, as the case may
written notice, also remain open beyond the be, will suffice. The report shall state the
minimum six (6) hours for banking services specific nature of the emergency and the
other than the servicing of deposits and period the bank opened or closed or shall
withdrawals but in no case shall such open or close by reason of emergency.
banking hours start earlier than 8:00 AM
nor extend beyond 8:00 PM: Provided, § X156.3 Posting of schedule of
however, That branches of banks at any banking days and hours. The schedule of
international airport or major fish port are banking days and hours reported to the BSP
allowed to operate on flexible banking shall be posted conspicuously at all times
hours within a twenty-four (24)-hour period, in the bank’s premises.
subject to the condition that the individual
bank’s management will inform the BSP of Secs. X157 - X160 (Reserved)
the schedule of its banking hours which shall
in no case be less than six (6) hours a day. J. RECORDS AND REPORTS
§ X156.2 Report of, and changes in, Sec. X161 Records. Banks shall have a true
banking days and hours. The banking days and accurate account, record or statement
and hours selected for each of the offices of of their daily transactions, particularly those

§§ X161 - X161.2
05.12.31
referring to their deposit liabilities. The § X161.2 Philippine Financial

making of any false entry or the willful Reporting Standards/Philippine Accounting
omission of entries relevant to any Standards
transaction, is a ground for the imposition Statement of policy. It is the policy
of administrative sanctions under Section of the BSP to promote fairness,
37 of R.A. No. 7653 and the transparency and accuracy in financial
disqualification from office of any director reporting. It is in this light that the BSP
or officer responsible therefor under Section aims to adopt all Philippine Financial
9-A of R.A. No. 337, as amended. This is Reporting Standards (PFRS) and
without prejudice to their criminal Philippine Accounting Standards (PAS)
liability under Sections 35 and 36 of R.A. issued by the Accounting Standards
No. 7653 and/or the applicable Council (ASC) to the greatest extent
provisions of the Revised Penal Code. possible.
Banks shall adopt the Philippine
§ X161.1 Adoption of the Manual of Financial Reporting Standards (PFRS) and
Accounts. Banks shall strictly adopt the Philippine Accounting Standards (PAS)
Manual of Accounts prescribed by the which are in accordance with generally
BSP for recording daily transactions accepted accounting principles in recording
including reportorial and publication transactions and in the preparation of
requirements. financial statements and reports to BSP.
Local branches of foreign banks may However, in cases where there are
continue using their parent bank’s general differences between BSP regulations and
ledger accounts: Provided, That PFRS/PAS as when more than one (1) option
published statements and reports are allowed or certain maximum or
submitted to the BSP follow the account minimum limits are prescribed by the PFRS/
definitions in the BSP-prescribed Manual PAS, the option or limit prescribed by BSP
of Accounts: Provided, further, That the regulations shall be adopted by banks.
mathematical formulas for reconciling For purposes hereof, the PFRS/PAS shall
such published statements and submitted refer to issuances of the Accounting
reports with the general ledger accounts Standards Council and approved by the
of the bank are submitted to the Professional Regulation Commission (PRC).
appropriate SED of the BSP: Provided, Accounting treatment for prudential
finally, That said banks prepare for BSP reporting. For prudential reporting, banks
use, reconciliations of their ledger shall adopt in all respect the PFRS and PAS
accounts with the BSP prescribed Manual except as follows:
of Accounts during regular or special a. In preparing consolidated financial
bank examinations. statements, only investments in financial
Any bank which fails or refuses to allied subsidiaries except insurance
adopt the prescribed Manual of Accounts, subsidiaries shall be consolidated on a
or any of the applicable accounts line-by-line basis; while insurance and
contained therein, or adopts any general non-financial allied subsidiaries shall be
ledger account not specified in the said accounted for using the equity method.
Manual of Accounts without prior written Financial/non-financial allied/non-allied
approval of the Governor of the BSP, shall associates shall be accounted for using the
be penalized by revocation or suspension equity method in accordance with the
of its authority to engage in quasi-banking provisions of PAS 28 “Investments in
function. Associates”.

§§ X161.2 - X162.1
05.12.31
b. For purposes of preparing separate is strongly encouraging banks to submit

financial statements, financial/non-financial their regular reports to the BSP in
allied/non-allied subsidiaries/associates, electronic form.
including insurance subsidiaries/associates, However, the BSP cannot presently
shall also be accounted for using the equity guarantee the security/confidentiality of
method; and data in the course of electronically
c. Banks shall be required to meet the transmitting reports to BSP. BSP
BSP recommended valuation reserves. recommends that sensitive or
Notwithstanding the exceptions in confidential information be provided by
Items “a”, “b” and “c”, the audited annual ordinary post or courier. The BSP will
financial statements required to be accept no responsibility for electronic
submitted to the BSP in accordance with messages/reports/information that may be
the provision of Subsection X164.1 shall hacked or cracked, intercepted, copied
in all respect be PFRS/PAS compliant: or disclosed outside BSP’s information
Provided, That financial institutions shall system.
submit to the BSP adjusting entries
reconciling the balances in the financial § X162.1 Categories and signatories
statements for prudential reporting with of bank reports
that in the audited annual financial a. Categories of reports. Reports
statements. required to be submitted to the BSP by
banks are grouped into Category A-1,
§§ X161.3 - X161.9 (Reserved) Category A-2, Category A-3 and Category
B reports as indicated in Appendix 6.
§ 1161.9 (Reserved) b. Authorized signatories
(1) Category A-1 reports shall be
§ 2161.9 (Reserved) signed by the bank’s chief executive
officer or, in his absence, by the
§ 3161.9 Retention and disposal of executive vice president, and by the
records of rural/cooperative banks. To comptroller or, in his absence, by the
guide RBs/Coop Banks in the disposition of chief accountant, or officers holding
their records and documents which no equivalent positions.
longer need to be retained and in (2) Category A-2 reports shall be
determining which of the records are of signed by the president, executive vice
permanent value and therefore should be president, vice president or by an officer
preserved, RBs/Coop Banks shall follow the holding equivalent position.
guidelines on retention and disposal of (3) Category A-3 and Category B
records in Appendix 50. reports shall be signed by officers or their
alternates, duly designated by the board of
Sec. X162 Reports. Banks shall submit to directors.
the appropriate SED of the BSP all their The designated signatories of
statements and/or periodic reports listed Categories A-1, A-2, A-3 and B reports
in Appendix 6 in such frequency and including their specimen signatures shall
deadlines indicated therein. In the be contained in a resolution approved by
preparation of said statements/reports, the board of directors. A copy of the
banks shall use and strictly follow the board resolution covering the initial
forms prescribed by the BSP. designation and subsequent change(s) in
In line with the policy direction of signatories as well as specimen signatures
R.A. No. 8792 (E-Commerce Act), the BSP of the signatories and alternates, shall be

§§ X162.1 - X162.2
05.12.31
submitted to the appropriate SED of the (1) Report shall refer to any report or
BSP in such frequency and within the statement required to be submitted by a
deadline indicated in Appendix 6. bank to the BSP.
(4) Reports in computer media that are (2) Willful delay in the submission of
submitted by banks shall be subject to the reports shall refer to the failure of any
same requirements regarding authorized bank to submit on time the report defined
signatories. in Item “a(1)” above. Failure to submit a
(5) Any report submitted to the BSP report on time due to fortuitous events,
that is signed by an officer who is not listed such as fire and other natural calamities,
or included in any of the resolutions and public disorders including strike or
mentioned above, shall be considered as lockout affecting a bank as defined in the
not having been submitted at all. Labor Code, or of a national emergency
(6) All authorized agent banks shall affecting operations of banks, shall not be
submit to the Director, Branch Operations, considered as willful delay.
BSP, the updated specimen signatures of (3) Examination shall include, but
Senior Bank Officers in their respective need not be limited to, the verification,
Head Offices who are authorized to review, audit, investigation and
authenticate the signatures of their inspection of the books and records,
provincial branch officers transacting business affairs, administration and
business with the BSP Regional Offices/ financial condition of any bank including
Branches. the reproduction of banking records, as
The BSP Branch Operations shall be well as the taking possession of the books
advised of any changes in authorized and records and keeping them under BSP’s
branch signatories, as well as custody after giving proper receipts therefor.
authenticating Head Office Senior Officers. It shall also include the interview of the
c. Deadline for submission of reports directors and personnel of any bank
(1) Regular reports. Unless including its Electronic Data Processing
otherwise specified, the deadlines for (EDP) servicer. Books and records shall
submission of reports enumerated in include, but not limited to, data and
Appendix 6, shall be reckoned on the information stored in magnetic tapes, discs,
basis of banking days. For this purpose, diskettes printouts, logbooks and manuals
banking days shall be understood to kept and maintained by the bank or by the
mean Monday through Friday or banking EDP servicer, that are necessary and
days of the BSP. incidental to the use of EDP systems by the
(2) Call Reports. The deadline of bank.
submission of call reports shall be specified (4) Refusal to permit examination shall
in the letter calling for the report. mean any act or omission which impedes,
delays or obstructs the duly authorized
§ X162.2 Sanctions in case of willful BSP officer/examiner/employee from
delay in the submission of reports/refusal conducting an examination, including the
to permit examination. For willful delay act of refusing to accept or honor a letter
in the submission of reports, specific of authority to examine presented by any
sanctions shall be imposed in accordance officer/examiner/employee of the BSP.
with the following rules. b. Fines for willful delay in the
a. Definitions. For purposes of this submission of reports.
Subsection, the following definitions shall (1) Amount of fine. Any bank which
apply. shall incur willful delay in the submission

§ X162.2
05.12.31
of required reports shall pay a fine in with the appropriate SED of the BSP or with
accordance with the following schedule: the BSP Regional Offices, or by sending
(a) For Category A-1, A-2 and A-3 them by registered mail or by special
reports delivery through a private courier, unless
(1) UBs/KBs - P1,200; otherwise specified in the circular or
(2) TBs - 600; memorandum of the BSP.
(3) RBs/Coop Banks - 180; In the first case, the date of
per business day of default until the report acknowledgment by the appropriate
is filed with the BSP: Provided, That for the SED of the BSP or the BSP Regional
report on compliance with the mandatory Office appearing on the copies of such
credit allocation required under R.A. No. reports filed or submitted, and in the
6977 (as amended by R.A. No. 8289) the second case, the date of mailing
amount of fines shall be: postmarked on the envelope or the date
(i) UBs/KBs/FXBs - P 1,000; of the registry receipt or the date of
(ii) TBs - 500; special delivery receipt, shall be
(iii) RBs/Coop Banks - 250; considered as the date of filing.
per business day of default until report is c. Fines for refusal to permit
filed with the BSP; and examination.
(b) For Category B reports (1) Amount of fine - A bank which
(i) UBs/KBs/FXBs - P 240; shall willfully refuse to permit
(ii) TBs - 120; examination shall pay a fine of P3,000
(iii) RBs/Coop Banks - 60; daily from the day of refusal and for as
per business day of default until report is long as such refusal lasts.
filed with the BSP. (2) Basis and effectivity of the
In the implementation of the foregoing imposition of fine.
rules, delay or default shall start to run (a) The BSP officer/examiner/
on the day following the last day required employee shall report the refusal of the
for the submission of reports. However, bank to permit examination to the head
should the last day of filing fall on a non- of the appropriate SED of the BSP, who
working day in the locality where the shall forthwith make a written demand
reporting bank is situated, delay or default upon the bank concerned for such
shall start on the day following the next examination. If the bank continues to
banking day. The due date/deadline for refuse said examination without any
submission of reports to BSP as prescribed satisfactory explanation thereof, the BSP
under Sec. X162 governing the frequency officer/examiner/employee concerned
and deadlines indicated in Appendix 6 shall shall submit a report to that effect to the
be automatically moved to the next banking said department head.
day whenever a half-day suspension of (b) The fine shall be imposed
business operations in government offices starting on the day following the receipt
is declared due to an emergency such as by the said department of the written
typhoon, floods, etc. report submitted by the BSP officer/
Delayed schedules/attachments and examiner/employee con-cerned
amendments shall be considered late regarding the continued refusal of the
reporting subject to the above penalties. bank to permit the desired examination.
(2) Manner of filing. For the purpose of d. Manner of payment or collection
establishing delay or default, the submission of fines. The regulations embodied in
of reports shall be effected by filing them Subsec. X609.1 shall be observed in the

§§ X162.2 - X162.5
05.12.31
collection of fines from banks for willful b. Incidents involving material loss,
delay in the submission of reports or for destruction or damage to the bank’s
refusal to permit examination. property/facilities, other than arising from
e. Other penalties. The imposition of a crime, when the amount involved per
the foregoing penalties shall be without incident is P100,000 or more.
prejudice to imposition of the other c. The following guidelines shall be
administrative sanctions and to the filing of observed in the preparation and
a criminal case as provided for in other submission of the report:
provisions of law. (1) The report shall be prepared in the
f. Appeal to the Monetary Board. prescribed form in two (2) copies and shall
An aggrieved bank may appeal to the be submitted to the appropriate SED and
Monetary Board any fine imposed by the to the BSP Security Coordinator, thru the
BSP. Director, Security, Investigation and
Transport Department within the deadline
§ X162.3 Submission of certain stated in Appendix 6;
required information. Banks shall submit (2) Where a thorough investigation
to the appropriate SED of the BSP the and evaluation of facts is necessary to
information on bank’s profile required in complete the report, an initial report
Appendix 7. Any change in any of the submitted within the deadline may be
required information submitted, after the accepted: Provided, That a complete report
initial submission, shall be reported to the is submitted not later than fifteen (15)
said department immediately. banking days from termination of
Banks shall likewise submit to the said investigation; and
department any or all of the documents/ (3) Proof of submission of the report
information on bank’s organizational within the deadline shall be determined
structure and operational policies by the date of postmark, if the report was
enumerated in Appendix 8. Any subsequent sent by mail or by the date received, if
change/issuance should be furnished the handcarried to the appropriate SED,
department within fifteen (15) banking days Manila, or in applicable cases, to the unit
from such change/issuance. of the SED in any of the Regional Offices
of the BSP.
§ X162.4 Report on crimes/losses
Banks shall report on the following matters § X162.5 Report on real estate/chattel
to the appropriate SED. transactions. Banks shall within ten (10)
a. Crimes whether consummated, banking days from approval of the transaction:
frustrated or attempted against property/ a. Report to the appropriate SED of
facilities (such as robbery, theft, swindling the BSP, any real estate/chattel transaction
or estafa, forgery and other deceits) and (such as, but not limited to, rentals or
other crimes involving loss/destruction of leases, purchases and sales, or foreclosed
bank property when the amount involved, assets) between the bank and its director(s),
in each crime is P20,000 or more. officer(s), employees, stockholder(s)
Crimes involving bank personnel, owning at least two percent (2%) of the
regardless of whether or not such crimes bank’s subscribed capital stock, or any firm
involve the loss/destruction of bank substantially owned (in the aggregate of at
property, even if the amount involved is less least twenty percent (20%) of the paid-in
than P20,000, shall likewise be reported to capital of such firm) by one (1) or more of
the BSP. such directors/officers/stockholders; and

§§ X162.5 - X162.9
05.12.31
b. Certify to the BSP that such a notation, viz “no change(s) since last
transaction has been thoroughly reviewed report submitted for quarter ended,
and verified as having been entered into in _________ _____, 20_”.
the best interest of the bank.
§ X162.8 Bangko Sentral offices,
§ X162.6 Reconciliation of head office where reports are submitted. Submission
and branch transactions. Banks shall of BSP periodic or call reports shall be as
prepare reconciliation statements covering follows:
transactions between the head office and all a. All banking offices shall submit
its branches within thirty (30) banking days the required reports in accordance with
after the end of each month. Appendix 6 to the BSP, Manila or to the
All items which are unresponded or nearest BSP Regional Offices: Provided,
outstanding in the reconciliation statement That the head office of a bank may submit
for more than (6) months as of reconciliation to the SRSO in electronic form the
statement date shall be reported, with batched copy of all its banking units’
explanations/reasons for their being Quarterly Statement of Condition and
outstanding, to the appropriate SED of the Statement of Income and Expenses by
BSP in such frequency and within the Banking Unit in behalf of its branches and
deadline set in Appendix 6. other offices;
The reconciliation statement shall be b. Where a particular report form calls
made available to any authorized bank for distribution of copies to other
examiner for inspection/examination departments of the BSP, the bank concerned
without need of advance notice. shall furnish said copies of the report direct
A copy of the year-end reconciliation to the respective departments of the BSP;
statement covering transactions between and
the bank’s head office and all its branches c. As an exception to Item “a” above,
shall be furnished the said department not the duplicate copy of the bio-data for
later than the end of January of the directors/officers shall be submitted to the
following year. SRSO of the BSP.
§ X162.7 List of stockholders and their § X162.9 Publication/Posting of

stockholdings statement of condition
a. Banks shall submit to the a. UBs/KBs and TBs with resources of
appropriate SED of the BSP annually a P1.0 billion and above
complete list of stockholders and their (1) Banks belonging to this category
stockholdings in the prescribed form within shall accomplish the prescribed form and
the deadline indicated in Appendix 6. publish their quarterly statements of
b. Any change in the list shall also condition (SOCs) as of the cut-off date
be reported to the said department in such indicated in the call letter of the appropriate
frequency and within the deadline SED of the BSP. The Consolidated Statement
indicated in Appendix 6, indicating the of Condition (CSOC) of a bank and its
name(s) and/or stockholdings involved subsidiaries and affiliates shall be published
which is/are to be cancelled or replaced, side by side with the SOC of its head office
and the new name(s) and/or stockholdings and its branches/other offices subject to the
which shall be included for that quarter. following guidelines:
In case no change occurred during a (a) The CSOC of the bank and its
particular quarter, the report shall provide subsidiaries and associates shall conform

§ X162.9
05.12.31
with the guidelines of PAS 27 to the appropriate SED of the BSP before
“Consolidated and Separate Financial the publication and within twelve (12)
Statements”, except that for purposes of banking days from receipt of the call
consolidated financial statements, only letter. Thereafter, the published reports
investments in financial allied shall be submitted within twenty (20)
subsidiaries except insurance subsidiaries banking days after the receipt of said call
shall be consolidated on a line-by-line letter.
basis; while insurance and non-financial b. TBs with resources of less than P1.0
allied subsidiaries shall be accounted for billion
using the equity method. Financial/non- (1) A TB belonging to this category may
financial allied/non-allied associates shall either publish its quarterly SOC as of the
be accounted for using the equity method cut-off date indicated in the call letter of the
in accordance with the provisions of PAS appropriate SED of the BSP, in a newspaper
28 “Investments in Associates”. For of general circulation as in Item “a” above
purposes of separate financial statements, or post the same in the most conspicuous
investments in financial/non-financial area of its premises, in the municipal
allied/non-allied subsidiaries/associates, building, municipal public market, barangay
including insurance subsidiaries/ hall and barangay public market where the
associates, shall be accounted for using head office and all its branches are located.
the equity method. The posting shall be printed on 12”x18”
(b) The publication of the CSOC of a white paper, preferably white buff paper
bank and its subsidiaries and affiliates (cartolina) and shall be made within twenty
shall start with the report as of December (20) banking days from the end of every
2002; and quarter and for a period of thirty (30)
(c) The published CSOC as of 20 successive days;
September 2002 shall be that of a bank and (2) The names and position/designation
its financial subsidiaries. of the members of the board of directors,
(2) Such SOC shall be published in a president and executive vice president
newspaper of general circulation in the (senior vice president, if there is no
city/province where the principal office, executive vice president), shall be published
in the case of a domestic bank, or the and shown in the right side column of the
principal branch/office, in the case of a published statement of condition as of June
foreign bank, is located, but if no of every year; and
newspaper is published in the same (3) A copy of the posted statement of
province, then in a newspaper published condition together with an affidavit
in Metro Manila or in the nearest city/ executed by the president or, in his
province. absence, the vice-president or manager
(3) The names and position/ shall be submitted to the appropriate SED
designation of the members of the board of within twenty (20) banking days after the
directors, president and executive vice end of the quarter.
president (senior vice president, if there are (4) TBs shall comply with the following
no executive vice president), shall be guidelines:
published and shown in the right side (a) The duplicate published SOC shall
column of the published statement of be submitted electronically in accordance
condition as of June of every year; and with existing deadlines using either cc:mail
(4) The original and a copy of the or E-mail with the same address at srso-
statement of condition shall be submitted pubcsoctb@bsp.gov.ph;

§ X162.9
05.12.31
(b) Amount shall be in absolute figures; the appropriate SED within twenty (20)
(c) Existing regulations on imposition of banking days after the end of the quarter.
penalties for delayed/erroneous reporting d. Additional information required
shall continue to apply; Banks shall disclose the following
(d) Upon transmission of the information in the quarterly published/
published SOC template file, the bank posted statements of condition:
shall also fax the notarized Control (1) Amount of non-performing loans and
Prooflist on the contents of the data sent ratio to total loan portfolio;
via electronic mail to BSP-SRSO. Original (2) Amount of classified loans and other
copy of the control prooflist, the risk assets;
published SOC and the Publisher’s (3) General loan-loss reserves;
Certificate shall likewise be submitted to (4) Specific loan-loss reserves;
the appropriate SED; and (5) Return on equity (ROE);
(e) SRSO shall run an official validation (6) DOSRI loans/advances and ratio to
test on the reports submitted using the same total loan portfolio; and
program provided to banks. Banks shall be (7) Past due DOSRI loans/advances and
promptly advised on the validation results ratio to total loan portfolio.
and shall be required to correct reports when For purposes of arriving at a uniform
necessary. method of calculating the additional
c. RBs and Coop Banks financial information required, all amounts
(1) An RB/Coop Bank may either and ratios to be reported shall be as of the
publish its statement of condition at the end same call date. However, the basis for
of each quarter in a newspaper of general computing the ROE shall be the latest
circulation as in Item "a" above or post the quarter immediately preceding the call date
same in the most conspicuous area of its using the following formula:
premises, in the municipal building,
municipal public market, barangay hall and Return on Average Equity (%) =
Net Income (or Loss) after Income Tax x 100
barangay public market where the head Average Total Capital Accounts
office and all its branches are located. The
posting shall be printed on 12”x18” Where net income after tax and average
white paper, preferably white buff paper capital accounts shall be:
(cartolina) and shall be made within
Net Income Average TotalCapital
twenty (20) banking days from the end of After Tax Accounts
every quarter and for a period of thirty March Quarter end net Sum of end-month capital
(30) successive days; income after tax accounts (December -
multiplied by 4. March) divided by 4.
(2) The names and position/designation June Semester end net Sum of end-month capital
of the members of the board of directors, income after tax accounts (December -
president and executive vice president multiplied by 2. June) divided by 7.
Sept. Nine (9) mos. net Sum of end-month capital
(senior vice president, if there is no income after tax accounts (December -
executive vice president), shall be published multiplied by September) divided by10.
and shown in the right side column of the 1.33333.
Dec. Year end net Sum of end-month capital
published statement of condition as of June
income after tax. accounts (December -
of every year; and December) divided by 13.
(3) A copy of the posted statement of
condition together with an affidavit executed e. Deferment of publication requirement.
by the president or, in his absence, the vice- The above-mentioned publication
president or manager shall be submitted to requirement may be deferred by the

§§ X162.9 - X162.12
05.12.31
Monetary Board by at least five (5) as an extension office of a bank without

affirmative votes upon application by the separate books of accounts which directly
bank concerned during periods of national reports its transactions to its mother
and/or local emergency or of imminent branch.
panic which directly threaten monetary and
banking stability. § X162.12 Reports required of foreign
subsidiaries/affiliates/banking offices or
§ X162.10 Consolidated financial non-bank entities of domestic banks. The
statements of banks and their subsidiaries submission of periodic reports of a foreign
engaged in financial allied undertakings subsidiary/affiliate/banking offices or non-
Banks shall submit after the end of the bank entities of domestic banks shall be
calendar year or the end of the fiscal year governed by the following rules:
adopted by the bank their consolidated a. For foreign subsidiaries/affiliates of
financial statements and supported by the domestic banks, the local investor-bank(s)
individual annual financial statements of concerned shall regularly submit to the
their subsidiaries engaged in financial allied appropriate SED of the BSP a quarterly
undertakings. statement of condition and quarterly/
For purposes of this Subsection, the annual report of income and expenses
consolidated financial statements shall concerning the operations of the foreign
conform to the guidelines of PAS 27 subsidiaries/affiliates, including such
“Consolidated and Separate Financial other periodic reports which may be
Statements” except that for purposes of required from time to time in the forms
consolidated financial statements, the prescribed by the BSP for domestic
provisions of Subsec. X161.2a shall financial intermediaries to the extent that
apply. their operations are applicable;
The consolidated financial statements b. For foreign subsidiaries/affiliates of
and the supporting individual financial domestic banks, the appropriate SED shall
statements of their subsidiaries shall be be furnished by said domestic banks copies
submitted to the appropriate SED of the of the annual report prescribed by any of
BSP within the deadline indicated in the supervisory/regulatory authorities in the
Appendix 6. country of operations;
c. When material changes noted in
§ X162.11 Reports of other banking the annual financial statements warrant an
offices. Extension offices of banks which interim comprehensive evaluation, the
maintain separate books of accounts shall foreign affiliate concerned shall be
be subject to all reporting requirements of requested to submit to the appropriate
a regular branch. SED, through its domestic investor-bank,
An extension office whose record of copies of its quarter/interim reports to
transactions/accounts is consolidated daily stockholders or the call reports in the case
with its mother unit shall submit only the of U.S. banks;
Selected Financial Accounts form as listed d. Audited financial statements (AFS)
in Appendix 6. of the foreign banking offices and
Convenience Banking Centers (CBCs) subsidiaries; and
are not required by BSP to submit e. Examination reports done by the
Statement of Condition (SOC) and foreign bank supervisory authority.
Statement of Income and Expenses (SIE). The submission of the documents in
A CBC is not considered as a branch but Items “d” and “e” to BSP shall not be later

§§ X162.12 - X162.14
05.12.31
than thirty (30) banking days from date of be prepared weekly) and submitted weekly
submission/release of said reports to the by all head offices of UBs/KBs to the
foreign banking offices and subsidiaries of Department of Economic Research of the
Philippine banks. Material findings, if any, BSP not later than 4:00 PM on Thursday
contained in said reports should be after end of reference week.
highlighted. b. Short-term prime rates. All UBs and
f. For purposes of this Subsection, KBs shall submit in the prescribed form a
affiliate shall refer to an entity linked report on the volume and interest rates on
directly or indirectly to a bank by means credit line availments under short-term
of: prime rates in such frequency and within
(1) Ownership, control or power to the deadline indicated in Appendix 6.
vote, of ten percent (10%) or more of the c. (Deleted by Cir. 405 dated
outstanding voting stock of the entity, or 28 August 2003).
vice-versa; d. Foreign Exchange Position Report.
(2) Interlocking directorship or Banks may be allowed to submit on a
officership, except in cases involving weekly basis the notarized certification
independent directors as defined under signed by the bank’s President/CEO/
existing regulations; Country Manager and the Treasurer to cover
(3) Common stockholders owning ten the daily hard copies of Schedule 13, FX
percent (10%) or more of the outstanding Form I and CFXPR pertaining to each day
voting stock of each financial intermediary of the week. Delayed submission of the
and the entity; notarized certification shall be subject to
(4) Management contract or any monetary penalty, as follows:
arrangement granting power to the bank Daily Penalty
to direct or cause the direction of 1 banking day of P6,000.00 (equivalent
st
management and policies of the entity, delay P1,200.00 per day for
or vice-versa; and five report dates covered
(5) Permanent proxy or voting trusts in by the certification on the
assumption that the five (5)
favor of the bank constituting ten percent
weekdays of the reference
(10%) or more of the outstanding voting week are all banking days)
stock of the entity, or vice-versa.
For purposes of this Manual, the above 2nd banking day of P1,200.00/day
definition of affiliate shall be adopted delay and onwards
except where the provision of the regulation
expressly states otherwise. § 2162.13 (Reserved)
§ 1162.13 Additional reports from § 3162.13 (Reserved)

UBs/KBs
a. Volume and weighted average § X162.14 Reports of strikes and
interest rates of deposits and loans. Data lockouts. Banks through their president or
on the volume of transactions and weighted chief executive officer shall immediately
average interest rates of certificates of time apprise the Deputy Governor of the SES of
deposits and secured/unsecured loans the BSP on the status of strikes/lockouts
granted, classified by maturity, and involving their banks, if unsettled after seven
outstanding savings deposits classified by (7) calendar days. The bank shall disclose
interest rates, shall be prepared daily the following pertinent information on the
(except data on savings deposits which shall strike/lockout:

§§ X162.14 - X163.2
05.12.31
a. Cause of the strike/lockout and bank connection with any firm, partnership or
management’s position on its legality; and corporation organized for profits, of all the
b. Bank operations affected. bank directors, officers and major
stockholders as defined under Subsec.
§ X162.15 Report on the Sworn X326.1 should be maintained.
Statement on Real Estate/Chattel e. Information/data pertaining to the
Transactions. The Report on the Sworn electronic data processing (EDP) department
Statement on Real Estate/Chattel or EDP servicer of the bank particularly on
Transactions submitted under BSP Form organization, input controls, processing
Nos. NP06-KB, NP06-TB and RB/COB 20 controls, output controls, software controls,
need not be under the signature of all the program and documentation standards, logs
members of the bank’s board of directors: on the operation of mainframes and
Provided, That: peripherals, hardware controls and such other
(a) transactions reported are being EDP internal control standards prescribed by
availed of strictly in accordance with the the BSP in separate rules and regulations.
terms and conditions of a fringe benefit
program approved by the bank’s board of § X163.1 Proper accounting records
directors and by the BSP; and a. All banks shall maintain proper and
(b) the signatory to the certification is adequate accounting records.
an officer duly authorized by the bank’s b. These records should be kept up-
board of directors. to-date and shall contain sufficient detail so
Transactions not covered under the that an audit trail is established.
bank’s fringe benefit plan shall still be c. All tickets shall bear official
reported under the signatures of all the approval and should be initiated by the
members of the bank’s board of directors. person originating and another person by
checking them.
K. INTERNAL CONTROL
§ X163.2 Independent balancing
Sec. X163 Internal Control System. The a. Independent balancing shall mean
following provisions are the minimum that records posted by a person or cash held
internal control standards for banks to help by a teller or cashier shall be balanced or
promote effective control system. counted by another person.
For this purpose, the following b. The following minimum
records/data shall be compiled and made independent balancing procedures shall be
available for the inspection of BSP adopted.
examiners: (1) Monthly reconciliation of general
a. Records showing compliance with ledger balances against respective
independent balancing procedures. These subsidiary and supporting records and
records should indicate the accounts and the documentation by someone other than the
periodic balancing procedures performed. bookkeeper or the person handling the
b. Statements of actual duties of records.
persons assigned to handle cash and (2) Irregular and unannounced count
securities. of teller’s cash and checks and other cash
c. All internal control audit reports or items at least twice a month and vault
their equivalent. cash including Automated Tellering
d. Information/data on the direct and/ Machine’s (ATM) cash dispensers at least
or indirect equity holdings and/or once a month by the auditor/control

§§ X163.2 - X163.4
05.12.31
officer or by an officer not connected with (5) The receipt of statements from
cash department. depository bank shall be assigned to an
(3) Monthly reconciliation of due from employee other than the one connected
banks, cash in bank accounts (domestic and with the preparation, recording and signing
foreign) and due from/to head office/ of bank drafts;
branches by someone other than the person (6) Custodians of securities shall not
handling the records or posting the general be allowed to handle security transactions;
ledger entries. (7) Collateral appraisal shall be done by
(4) Periodic verification of securities an employee/officer who does not approve
and collaterals by someone other than their loans;
custodian. (8) Incoming checks and other cash
(5) Periodic verification of the accuracy items shall be recorded chronologically in
of the interest credits to deposit liabilities a register by an employee other than the
accounts. bookkeeper before they are forwarded for
posting purposes;
§ X163.3 Division of duties and (9) Credit reports shall be obtained by
responsibilities someone other than lending officers ;
a. The duties of all the officers and (10) Mailing of customers’ statements
employees shall be segregated, clearly and delinquent notices shall be done by
defined, understood, documented and an employee other than the one who
manualized. No individual shall have granted the loan or the one handling the
complete authority and responsibility for records; and
handling all phases of any transaction from (11) Dispatching and delivery of current
beginning to end, without some check or account statements shall be done by
balance from some other part of the someone who is not involved in current
organization. account operations.
b. The physical handling of a c. Extensive background checking
transaction shall be separated from its of persons intended to be assigned to
recording and supervision as follows: handle cash and securities shall be
(1) A person handling cash shall not be conducted. Frequent follow-up checking
permitted to post the ledger records nor after their employment shall also be
should posting the general ledger be made.
performed by an employee who posts the
depositor’s subsidiary ledgers; § X163.4 Joint custody
(2) A lending officer shall never be a. Joint custody shall mean the
allowed to disburse proceeds of notes, processing of transactions in the presence
accept note payment nor post loan of and under the direct observation of a
ledgers; second person. Both persons shall be
(3) The functions of issuing, recording equally accountable for the physical
and signing of drafts/checks shall be protection of the items and records
separated; involved.
(4) Checks and other cash items shall b. Physical protection shall be
be maintained either by an employee not deemed established through the use of two
handling cash or by the Rack/Distributing (2) locks or combinations on a file chest or
Department provided that adequate control vault compartment.
as to custody and disposition of funds are c. Two (2) or more persons shall be
properly maintained; assigned to each half of the control so that

§§ X163.4 - X163.6
05.12.31
operating efficiency is not impaired if one a. Lending;

(1) person is not immediately available. b. Investment;
d. Persons who are related to each c. Approval of expense;
other within the third degree of d. Various supervisory reports; and
consanguinity or affinity shall not be made e. Bank drafts, manager’s/cashier’s
joint custodians. checks, bank money orders and certificates
e. The following shall be under joint of time deposit.
custody:
(1) Cash in vault and in ATM cash § X163.6 Dual control
dispensers; a. Dual control shall mean the work
(2) All accountable forms; of one (1) person is to be verified by a second
(3) Collaterals; person to ensure that the transaction is
(4) Securities; properly authorized, recorded and settled.
(5) Documents of title and/or b. The routine and completion of each
ownership of properties or fixed assets; transaction shall involve at least two (2) or
(6) Dormant or inactive deposit more individuals.
ledgers/EDP print-outs and corresponding c. Except as herein provided, the
signature cards including on-line posting of following accounts/transactions shall be
dormant/inactive accounts; under dual control:
(7) Import documents; (1) Cashier's/manager's checks,
(8) Trust receipts; telegraphic transfers (TTs) and electronic
(9) Collection items; fund transfer system (EFTS) - The signature
(10) Duplicate keys, safe deposit spare of at least two (2) officers should be required
locks and keys, and keys to unrented safe in the issuance of cashier’s/manager’s
deposit boxes; checks and payment orders (incoming and
(11) Safekeeping items; outgoing) of TTs and EFTS. The board of
(12) Vault door and safe combinations; directors may, however, prescribe a
(13) Unissued specimen signature predetermined amount by which one (1)
books; senior officer can sign checks or payment
(14) Correspondent’s and bank’s own orders, subject to appropriate control
telegraphic and/or electronic fund transfer measures.
system or cable test keys currently in use; (2) Certificates of Time Deposit - The
(15) Test key fixed numbers unissued; board of directors of a bank is given the
(16) Unissued and captured ATM cards discretion to determine the number of
and similar devices; signatories for the issuance of certificates
(17) Access locks and keys to on-line of time deposit (CTDs).
EDP terminals and similar devices; and For this purpose, all banks shall submit
(18) Access locks and keys to EDP to the appropriate SED of the BSP their
mainframes and peripherals. respective internal control measures for
the issuance of CTDs, the minimum of
§ X163.5 Signing authorities. Signing which shall include the following
authorities for the different levels of officers activities:
to sign for and in behalf of the banks shall (a) Joint custody of unissued CTD
be approved by the board of directors and forms;
the extent of each level of authority shall (b) Accounting for all issued/cancelled
be clearly defined. These signing authorities CTDs;
shall include but need not be limited to the (c) Signature requirement for the
following: issuance of CTDs;

§§ X163.6 - X163.10
05.12.31
(d) Counterchecking of issued CTDs (11) Loan accounts;

against the tellers’ proofsheets/validated (12) Expense vouchers;
slips; and (13) Payment orders (incoming and
(e) Recording of CTD transactions. outgoing ) of TTs and EFTS;
Any change in the internal control (14) Transfer requests through EFTS
measures shall be submitted to the involving bank’s accounts abroad;
appropriate SED of the BSP not later than (15) EDP batch transmittal slips of
thirty (30) days prior to the documents; and
implementation. For newly established (16) Due to/from head office/branches
banks, the requirement shall be submitted tickets.
not later than a month from the start of
banking operations. § X163.8 Rotation of duties
(3) Bank Drafts - The signature of two a. The duties of personnel handling
(2) authorized officers should be required cash, securities and bookkeeping records
in the issuance of bank draft. shall be rotated.
(4) Borrowings - The signature of at least b. Rotation assignment shall be
two (2) authorized officers should be irregular, unannounced and long enough
required. to permit disclosure of any irregularities or
(5) All transactions giving rise to Due manipulations.
to or Due from accounts and all instruments c. Tellers/cashiers shall be
of remittances evidencing these transactions temporarily relieved of their duties during
particularly those involving substantial the actual count of their cash
amounts should be approved by two (2) accountabilities by BSP examiners or by
authorized officers. internal/external auditors.
§ X163.7 Number control § X163.9 Independence of the internal

a. Sequence number controls shall be auditor
incorporated in the accounting system and a. The by-laws shall provide for the
should be used in registering notes, in position of internal auditor together with the
issuing official checks and in other similar duties and responsibilities, scope and
situations. Bank management shall objectives of internal auditing.
designate a person who is detached from b. The internal auditor shall report
the banking operations involved to monitor directly to the board of directors or to an
said sequence number controls. audit committee composed of directors
b. The following are the forms, who do not hold executive positions in
instruments and accounts that shall be the bank.
number-controlled: c. The internal auditor shall not install
(1) Bank drafts; nor develop procedures, prepare records or
(2) Manager’s and cashier’s checks; engage in other activities which he normally
(3) Promissory notes; reviews or appraises.
(4) Savings deposit accounts;
(5) Demand deposit accounts; § X163.10 Confirmation of accounts
(6) CTDs; At least once a year, the internal auditing
(7) Letters of credit; staff shall confirm by direct verification with
(8) Collection items; bank clients, the following:
(9) Official and provisional receipts; a. Balances of loans and credit
(10) Certificates of stocks; accommodations of borrowers;

§§ 163.10 - X163.12
05.12.31
b. Deposit account balances documents under Section 13 of R.A. No.

particularly new deposit accounts, inactive 8792, otherwise known as the “Electronic
or dormant accounts and closed accounts; Commerce Act”.
c. Outstanding balances of borrowings Undelivered statements shall be
and other liabilities; and retained by an organizational unit not
d. Outstanding balances of responsible for demand deposit account
receivables/payables. processing.
(11) An officer shall be designated to
§ X163.11 Other internal control attend to customers who report differences
standards on their statements.
a. Deposit accounts (12) Checkbooks shall be issued only
(1) Entries to dormant account ledgers against requisition forms signed by an
shall be verified and approved by a authorized signatory to the account.
designated officer. His initials shall be (13) Banks shall adopt a system to
placed next to the entry on the ledger sheet. establish the identity of their depositors.
(2) Dormant accounts shall be b. Miscellaneous
segregated from active account ledgers with (1) Loan applications and related
a separate subsidiary control. documents shall be verified to ensure their
(3) Signature cards for dormant authenticity particularly the name,
accounts shall be removed from active files. residence, employment and current
(4) All new current accounts shall be reputation of the borrower.
approved by a designated officer. (2) Tellers paying checks to strangers
(5) Signature cards and deposit ledger shall obtain positive identification of the
sheets shall be authenticated by some form person and the account on which the checks
of validation. Subsequent changes shall are drawn should be verified.
also be validated. (3) No employee shall be permitted to
(6) Signature cards and deposit ledger process transaction affecting his own
sheets shall be accessible only to authorized account.
persons. (4) Tellers and other employees having
(7) Deposit tickets shall be contact with customers shall be prohibited
occasionally examined at irregular intervals from preparing deposit ticket, withdrawal
to determine that postings are made on the slip or other forms for the customer.
actual date deposits are received. (5) All banks shall have a sound
(8) Checks shall be cancelled as soon recruitment policy.
as they have been paid and posted. (6) In the case of TBs, all accountable
(9) Reports on closed accounts and officers and employees shall be bonded.
returned checks shall be prepared daily.
(10) All current account statements § X163.12 Internal control procedures
shall be mailed or sent electronically via for dormant/inactive accounts
electronic mail (e-mail), or such other a. Definition of dormant or inactive
electronic means direct to depositors: accounts
Provided, That banks using the electronic (1) Current or checking accounts
means of sending the current account showing no activity (deposit or withdrawals)
statements shall have prior BSP-approved for a period of one (1) year.
internet banking service and shall strictly (2) Savings account showing no activity
observe the required retention of (deposit or withdrawals) for a period of two
electronic data messages or electronic (2) years.

§§ X163.12 - X164.2
05.12.31
b. Procedures for classification. Banks (7) A trial balance of dormant account

shall review and segregate dormant ledgers shall be taken periodically and
accounts as herein defined at least once in balances with the general control account
every semester. by an employee other than the bookkeeper.
c. Internal control measures (8) Dormant or inactive accounts shall
(1) As a matter of policy, banks shall be verified directly with depositors.
exert all efforts to prevent checking and (9) All transactions affecting dormant
savings accounts from becoming dormant. accounts shall be subject to audit by the
When it becomes apparent that an internal auditor.
account is inactive, a short letter should (10) A semestral report on deposit
be sent to the depositor encouraging him accounts transferred to dormant shall be
to use his account. rendered to bank management.
In case of checking accounts, the
banks shall ensure that the monthly Sec. X164. Internal Audit Function. Internal
statement of accounts reach the audit is an independent, objective assurance
depositors. If the depositors cannot be and consulting function established to
located, the following steps should be examine, evaluate and improve the
undertaken: effectiveness of risk management, internal
(a) Check any significant changes or control, and governance processes of an
fluctuations in the depositors’ account organization.
balances over a period of time with
emphasis on accounts with decreasing § X164.1 Status. The internal audit
balances; function must be independent of the
(b) Verify apparent reactivation entries, activities audited and from day-to-day
represented either by deposit or withdrawal, internal control process. It must be free to
that appears to have prevented the account report audit results, findings, opinions,
from being classified as dormant; and appraisals and other information to the
(c) Investigate any obvious alteration of appropriate level of management. It shall
the ledger records. have authority to directly access and
(2) Segregated dormant accounts shall communicate with any officer or employee,
be placed under joint custody of two (2) to examine any activity or entity of the
responsible officers/employees. institution, as well as to access any records,
(3) A separate ledger control for files or data whenever relevant to the
dormant accounts shall be maintained. exercise of its assignment. The Audit
(4) Signature cards for dormant Committee or senior management should
accounts shall also be segregated from active take all necessary measures to provide the
files and held under joint custody. appropriate resources and staffing that
(5) Entries to dormant account would enable internal audit to achieve its
ledgers shall be verified and approved by objectives.
a designated officer. His initials shall be
placed next to the entry on the ledger § X164.2 Scope. The scope of
sheet. internal audit shall include:
(6) All inquiries on dormant accounts a. Examination and evaluation of the
shall be coursed to one officer who should adequacy and effectiveness of the internal
obtain sufficient identification from the control systems;
inquirer to assure that he is entitled to the b. Review of the application and
information. effectiveness of risk management

§§ X164.2 - X164.4
05.12.31
procedures and risk assessment or KB as auditor-in-charge, senior auditor

methodologies; or audit manager.
c. Review of the management and The internal auditor of an RB, NSSLA
financial information systems, including the or local coop bank must be at least an
electronic information system and accounting graduate with two (2) years
electronic banking services; experience in external audit or in the
d. Assessment of the accuracy and regular audit of an RB, NSSLA or local
reliability of the accounting system and of coop bank or, in lieu thereof, at least one
the resulting financial reports; (1) year experience in the regular audit
e. Review of the systems and (internal or external) of a UB, KB, TB,
procedures of safeguarding assets; quasi-bank, trust entity or national coop
f. Review of the system of assessing bank as auditor-in-charge, senior auditor
capital in relation to the estimate of or audit manager.
organizational risk; A qualified internal auditor of a UB
g. Transaction testing and or a KB shall be qualified to audit TBs,
assessment of specific internal control quasi-banks, trust entities, national coop
procedures; and banks, RBs, NSSLAs, local coop banks,
h. Review of the compliance system subsidiaries and affiliates engaged in
and the implementation of established allied activities, and other financial
policies and procedures. institutions under BSP supervision.
A qualified internal auditor of a TB
§ X164.3 Qualification standards of or national coop bank shall likewise be
the internal auditor. The internal auditor qualified to audit quasi-banks, trust
of a UB or a KB must be a Certified Public entities, RBs, NSSLAs, local coop banks,
Accountant (CPA) and must have at least subsidiaries and affiliates engaged in
five (5) years experience in the regular allied activities, and other financial
audit (internal or external) of a UB or KB institutions under BSP supervision.
as auditor-in-charge, senior auditor or
audit manager. He must possess the § X164.4 Code of Ethics and Internal
knowledge, skills, and other Auditing Standards. The internal auditor
competencies to examine all areas in should conform with the Code of
which the institution operates. Professional Ethics for CPAs and ensure
Professional competence as well as compliance with sound internal auditing
continuing training and education shall standards, such as the Institute of Internal
be required to face up to the increasing Auditors’ International Standards for the
complexity and diversity of the Professional Practice of Internal Auditing
institution’s operations. (e-mail: standards@theiia.org; Web: http:/
The internal auditor of a TB, quasi-bank, /www.theiia.org.) and other supplemental
trust entity or national coop bank must be a standards issued by regulatory authorities/
CPA with at least five (5) years experience government agencies. The Standards
in the regular audit (internal or external) of address independence and objectivity,
a TB, quasi-bank, trust entity or national professional proficiency, scope of work,
coop bank as auditor-in-charge, senior performance of audit work, management
auditor or audit manager or, in lieu thereof, of internal audit, quality assurance
at least three (3) years experience in the reviews, communication and monitoring
regular audit (internal or external) of a UB of results.

§§ X165 - X166
05.12.31
L. MISCELLANEOUS PROVISIONS be included in the list of BSP selected

external auditors. In case of partnership,
Sec. X165 Selection, Appointment and inclusion in the list of BSP selected external
Reporting Requirements for External auditors shall apply to the audit firm only
Auditors; Sanction; Effectivity. Under and not to the individual signing partners
Section 58, R.A. No. 8791, the Monetary or auditors under its employment.
Board may require a bank to engage the The BSP will circularize to all banks,
services of an independent auditor to be quasi-banks, trust entities and NSSLAs the
chosen by the bank concerned from a list of list of selected external auditors once a
certified public accountants acceptable to the year. The BSP, however, shall not be
Monetary Board. liable for any damage or loss that may
It is the policy of the BSP to promote arise from its selection of the external
high ethical and professional standards in auditors to be engaged by banks, quasi-
public accounting practice and to encourage banks, trust entities or NSSLAs for regular
coordination and sharing of information audit or special engagements.
between external auditors and regulatory a. Rules and regulations. The rules
authorities of banks, quasi-banks, trust and regulations to govern the selection
entities and/or NSSLAs to ensure effective and delisting by the BSP of external
audit and supervision of these institutions auditors of banks and their subsidiaries
and to avoid unnecessary duplication of and affiliates engaged in allied activities
efforts. In furtherance of this policy and to are shown in Appendix 43.
ensure that reliance by regulatory authorities b. Sanctions. The applicable
and the public on the opinion of external sanctions/penalties prescribed under
auditors is well placed, the BSP hereby Sections 36 and 37 of R.A. No. 7653 to
prescribes the rules and regulations that shall the extent applicable shall be imposed
govern the selection, appointment, reporting on the bank, its audit committee and the
requirements and delisting for external directors approving the hiring of external
auditors of banks, quasi-banks, trust entities, auditors who are not in the BSP list of
NSSLAs, their subsidiaries and affiliates selected auditors for banks, quasi-banks,
engaged in allied activities and other trust entities, NSSLAs or for hiring, and/
financial institutions which under special or retaining the services of the external
laws are subject to BSP supervision. auditor in violation of any of the
The selection of external auditors shall provisions of this Section and for non-
be valid for a period of three (3) years. BSP compliance with the Monetary Board
selected external auditors shall apply for the directive under Item “l” in Appendix 43.
renewal of their selection every three (3) Erring external auditors may also be
years. The provisions of Items “A” and “B” reported by the BSP to the PRC for
of Appendix 43 shall likewise apply for each appropriate disciplinary action.
application for renewal.
The SES shall make an annual assessment Sec. X166 Audited Financial Statements
of the performance of external auditors and of Banks. The following rules shall govern
will recommend deletion from the list even the utilization and submission of audited
prior to the three(3)-year renewal period, if financial statements (annual reports) of
based on assessment, the external auditors’ banks. For purposes of this Section, the
report did not comply with BSP requirements. audited financial statements (annual
External auditors who meet the reports) of banks with subsidiaries shall be
requirements specified in this Section shall presented side by side on a solo basis and

§§ X166 - X166.1
05.12.31
on a consolidated basis (bank and In addition, the external auditor shall

subsidiaries). be required by the concerned institution
to submit an LOC indicating any material
§ X166.1 Financial audit. Banks shall weakness or breach on the institution’s
cause an annual financial audit by an internal control and risk management
external independent auditor acceptable systems within thirty (30) calendar days
to the BSP not later than thirty (30) after submission of the financial audit
calendar days after the close of the report. If no material weakness or breach
calendar year or the fiscal year adopted is noted to warrant the issuance of an
by the concerned institution. Report of LOC, a certification stating said fact shall
such audit shall be made and submitted be submitted in its stead together with
to the board of directors and the the financial audit report.
appropriate SED of the BSP not later than The board shall consider and act on
ninety (90) calendar days after the start the LOC and shall submit, within thirty
of the audit. The report to the BSP shall (30) banking days after receipt of the
be accompanied by the: (1) certification LOC, a copy of its resolution together
on the: (a) dates of start and termination with the said LOC to the appropriate SED
of audit; (b) dates of submission of the of the BSP. The resolution shall show,
financial audit report (AFS) and letter of among other things, the action(s) taken
comments (LOC) to the board of directors/ on the findings and recommendations
executive officer/country head; and (c) the and the names of the directors present
absence of any direct or indirect financial and absent.
interest and other circumstances that may Government-owned or controlled
impair the independence of the external banks, including their subsidiaries and
auditor; (2) reconciliation statement affiliates, as well as other financial
between the audited financial statements institutions under BSP supervision which
and the CSOC and consolidated are under the concurrent jurisdiction of
statement of income and expenses (CSIE) the Commission on Audit (COA) shall be
submitted to the BSP; and (3) other exempt from the aforementioned annual
information that may be required. financial audit by an acceptable external
The audited annual financial statements auditor: Provided, That when warranted
required to be submitted shall in all respect by supervisory concern such as material
be PFRS/PAS compliant: Provided, That weakness/breach in internal control and/
banks shall submit to the BSP adjusting or risk management systems, the
entries reconciling the balances in the Monetary Board may, at the expense of
financial statements for prudential reporting the concerned institution and upon
with that in the audited annual financial recommendation of the appropriate SED
statements. of the BSP, require the financial audit to
The board of directors, in a regular or be conducted by an external
special meeting, shall consider and act on independent auditor acceptable to the
the financial audit report and shall submit, BSP: Provided further, That when
within thirty (30) banking days after receipt circumstances such as loans from
of the report, a copy of its resolution to the multilateral financial institutions,
appropriate SED of the BSP. The resolution privatization, or public listing warrant,
shall show, among other things, the action(s) the financial audit of the concerned
taken on the report and the names of the institution by an acceptable external
directors present and absent. auditor may also be allowed.

§§ X166.1 - X166.4
05.12.31
In consonance with the aforementioned ground for civil, criminal or disciplinary

regulations, banks are to be guided with proceedings against the former.
the checklist of BSP requirements in the Bank management shall be present
submission of AFS and annual report as during discussions or at least be informed
shown in Appendix 61. of the adverse findings in order to preserve
Delayed submission of certification of the concerns of the supervisory authority
the external auditor, schedules/attachments and external auditors regarding the
and amendments in the required reports in confidentiality of information.
Appendix 61 shall be considered late b. Sanction. The auditing firm(s)
reporting, subject to the penalties under shall be blacklisted by the Monetary
Subsec. X162.2b(b). Board for a period as the Board may
deem appropriate for their failure to
§ X166.2 Posting of audited financial perform their duty of reporting to the BSP
statements. Banks shall post in a any matter adversely affecting the
conspicuous place in all their branches and condition or soundness of the bank.
other banking offices, their latest audited Banks shall not be allowed to engage the
financial statements consisting of the services of the blacklisted auditing firm.
following:
(a) Balance sheet; § X166.4 Disclosure requirement in
(b) Income statement; the notes to the audited financial
(c) Statement of changes in equity; statements. Banks shall require their
(d) Cash flow statement; external auditors to include the following
(e) Notes to financial statements, which additional information in the notes to
shall include, among other things, disclosure financial statements:
of the volume of past due loans as well as a. Basic quantitative indicators of
loan-loss provisions; and financial performance such as return on
(f) Auditor’s opinion. average equity, return on average assets and
net interest margin;
§ X166.3 Disclosure of external For purposes of computing the
auditor’s adverse findings to the Bangko indicators, the following formulas shall be
Sentral; sanction used:
a. Findings to be disclosed. Banks shall
(1) Return on Average Equity (%) =
require their external auditors to report to Net Income (or Loss) after Income Tax x 100
the BSP any matter adversely affecting the Average Total Capital Accounts
condition or soundness of the bank, such
Where:
as, but not limited to: Average Total = Sum of Total Capital Accounts as of the 12
(1) Any serious irregularity, including Capital month-ends in the calendar/fiscal year
Accounts adopted by the Bank
those involving fraud or dishonesty, that 12
may jeopardize the interest of depositors
and creditors; (2) Return on Average Assets (%) =
Net Income (or Loss) after Income Tax x 100
(2) Losses incurred which substantially Average Total Assets
reduce the capital funds of the bank; and
(3) Inability of the auditor to confirm Where:
Average = Sum of Total Assets as of the 12 month-ends in
that the claims of creditors are still covered Total the calendar/fiscal year adopted by the Bank
by the bank’s assets. Assets 12
The disclosure of information by the
(3) Net Interest = Net Interest Income x 100
external auditor to the BSP shall not be a Margin (%) Average Interest Earning Assets

§§ X166.4 - X166.6
05.12.31
Where: general accounting principles, changes in

Net = Total Interest Income – Total Interest Expense
Interest accounting policies/practices, principles
Income of consolidation, policies and methods
Average = Sum of Total Interest Earning Assets as of the
for determining when assets are impaired,
Interest 12 month-ends in the calendar/fiscal year recognizing income on impaired assets
adopted by the Bank and losses on non-performing credits,
12
income recognition, valuation policies
b. Risk-based capital adequacy ratio and accounting policies on
under Section 34 of R.A. No. 8791/Sec. X116; securitizations, foreign currency
c. Concentration of credit as to translations, loan fees, premiums and
industry/economic sector where discounts, repurchase agreements,
concentration is said to exist when total premises/fixed assets, income taxes and
loan exposures to a particular industry/ derivatives.
economic sector exceeds thirty percent
(30%) of total loan portfolio; § X166.5 Disclosure requirements in
d. Breakdown of total loans as to the annual report. UBs, KBs, and TBs with
secured and unsecured and breakdown of at least P1.0 billion resources shall prepare
secured loans as to type of security; an annual report which shall include, in
e. Total outstanding loans to bank’s addition to the audited financial statements
DOSRI, percent of DOSRI loans to total loan and other usual information contained
portfolio, percent of unsecured DOSRI loans therein, a discussion and/or analysis of the
to total DOSRI loans, percent of past due following information:
DOSRI loans to total DOSRI loans and a. Financial performance;
percent of non-performing DOSRI loans to b. Financial position and changes
total DOSRI loans; therein;
f. Nature and amount of c. Overall risk management
contingencies and commitments arising philosophy (i.e., a general statement of the
from off-balance sheet items [include risk management policy adopted by the
direct credit substitutes (e.g., export LCs bank's board of directors which serves as
confirmed, underwritten accounts the basis for the establishment of its risk
unsold), transaction-related contingencies management system), risk management
(e.g., performance bonds, bid bonds, system and structure;
standby LCs), short-term self-liquidating d. Qualitative and quantitative
trade-related contingencies arising from information on risk exposures (credit,
the movement of goods (e.g., sight/usance market, liquidity, operational, legal and
domestic LCs, sight/usance import LCs), other risks); and
sale and repurchase agreements not e. Basic business management and
recognized in the balance sheet; interest corporate governance information such as
and foreign exchange rate related items; the bank’s organizational structure,
and other commitments; incentive structure including its
g. Provisions and allowances for remuneration policies, nature and extent of
losses and how these are determined; transactions with affiliates and related
h. Aggregate amount of secured parties.
liabilities and assets pledged as security;
and § X166.6 Posting and submission of
i. Accounting policies which shall annual report. A copy of the latest annual
include, but shall not be limited to, report shall be posted by the bank in a

§§ X166.6 - X169.1
05.12.31
conspicuous place in its head office, all its responsibility and/or accountability of
branches and other offices. anyone elected or appointed to an officer
The deadline for the submission of the position shall be personal in nature and
annual report to the appropriate SED of the cannot be delegated to a corporation; and
Bangko Sentral is 180 calendar days after c. Any bank that enters into contracts
the close of the calendar or fiscal year contrary to this policy shall be denied the
adopted by the bank. credit facilities of the BSP.
Sec. X167 Business Name Sec. X169 Duties and Responsibilities of

a. UBs/KBs. Only a bank that is Banks and their Directors/Officers in All
granted universal/commercial banking Cases of Outsourcing of Banking Functions
authority may represent itself to the When outsourcing of banking functions is
public as such in connection with its allowed by law, banks shall:
business name. a. Carry out the same in accordance
b. TBs. TBs may be allowed to with proper standards, ensuring the integrity
adopt and use any name: Provided, That of the data, systems and controls of the
the words A Thrift Bank, A Savings Bank, banks and subject to the supervisory,
A Private Development Bank or A Stock regulatory and administrative authority of
Savings and Loan Association, as the the BSP over the banks and their directors/
case may be, are affixed after its business officers;
name. b. Be responsible for the
c. RBs/Coop Banks. RBs/Coop performance thereof in the same manner
Banks may adopt a corporate name or and to the same extent as it was before
use a business name/style with the word the outsourcing;
Rural or Coop, as the case may be. Said c. Comply with all laws and
banks may also adopt a name without regulations governing the banking activities/
such words: Provided, That the services performed by the qualified service
identifying phrase, A Cooperative Bank providers in its behalf such as, but not
or A Rural Bank, as the case may be, is limited to, keeping of records and
affixed after its business name: Provided, preparation of reports, signing authorities,
further, That where the name of the bank internal control and clearing regulations;
is shown on letterheads, billboards and and
other advertising materials, the size of d. Manage, monitor and review on an
the letters of such phrase shall be at least ongoing basis the performance by the
one-half (½) the size of the business qualified service providers of the
name. outsourced banking activities/services.
Sec. X168 Management Contracts § X169.1 Prohibition against

a. Management contracts of banks outsourcing certain banking functions
with management firms shall be limited to No bank or any director, officer, employee,
consultancy and advisory services; or agent thereof shall outsource inherent
b. Only a natural person may be banking functions.
elected or appointed as an officer of a For purposes of this Section,
bank, without prejudice to such person outsourcing of inherent banking functions
being a nominee of a management shall refer to any contract between the bank
corporation: Provided, That the and a service provider for the latter to

§§ X169.1 - X169.2
05.12.31
supply, or any act whereby the latter (b) Fee structure;

supplies, the manpower to service the (c) Provisions regarding on-line
deposit transactions of the former. communication availability, transmission
Banks cannot outsource management line security, and transaction
functions except as may be authorized by authentication;
the Monetary Board when circumstances (d) Responsibilities regarding hardware,
justify. software and infrastructure upgrades;
(e) Provisions governing amendment
§ X169.2 Outsourcing of information and pretermination of contract;
technology systems/processes. Subject to (f) Mandatory notification by the
prior approval of the Monetary Board, banks service provider of all systems changes that
may outsource all information technology will affect the bank;
systems and processes except for functions (g) Details of all security procedures
excluded in Item “a” below. and standards;
a. Certain functions affecting the (h) Responsibility, fines, penalties and
ability of the bank to ensure the fit of accountability of the service provider for
technology services deployed to meet its errors, omissions and frauds;
strategic and business objectives and to (i) Confidentiality clause covering all
comply with all pertinent banking laws data and information; solidary liability of
and regulations, such as, but not limited service provider and bank for any violation
to, strategic planning for the use of of R.A. No. 1405 (the Bank Deposits Secrecy
information technology; determination of Law) actions that the bank may take against
system functionalities; change the service provider for breach of
management inclusive of quality confidentiality or any form of disclosure of
assurance and testing; service level and confidential information; and the applicable
contract management; and security policy penalties;
and administration, may not be (j) Segregation of the data of the bank
outsourced. Subject to prior approval of from that of the service provider and its other
the Monetary Board and submission of the clients;
same documentary requirements in Item (k) Disaster recovery/business continuity
“b” hereof, consultants and/or service contingency plans and procedures;
providers may be engaged to provide (l) Adequate insurance for fidelity and
assistance/support to the bank personnel fire liability;
assigned to perform such functions. (m) Ownership/maintenance of the
b. Documentary requirements. A bank computer hardware, software (program
intending to outsource information source code), user and system documenta-
technology systems and processes shall tion, master and transaction data files;
submit the following documents to BSP (n) Guarantee that the service provider
which shall treat the same as strictly will provide necessary levels of transition
confidential: assistance if the bank decides to convert to
(1) Proposed contract between the other service providers or other
bank and the service provider which arrangements;
should, at a minimum, include all the (o) Access to the financial information
following: of the service provider;
(a) Complete description of the work (p) Access of internal and external
to be performed or services to be auditors to information regarding the
provided; outsourced activities/services which they

§§ X169.2 - X169.3
05.12.31
need to fulfill their respective oversight committee to handle and oversee

responsibilities; the efficient implementation and monitoring
(q) Access of BSP to the operations of of the applications/operations of the service
the service provider in order to review the provider to ensure that the same is in
same in relation to the outsourced accordance with the existing information
activities/services; technology initiatives, policies and
(r) Provision which requires the service guidelines of the bank; the list of the
provider to immediately take the necessary members of such committee, its
corrective measures to satisfy the findings organizational chart, and a detailed
and recommendations of BSP examiners description of the roles and responsibilities
and those of the internal and/or external of its members must be included in the
auditors of the bank and/or the service minutes of the meeting or submitted as
provider; and attachments thereto;
(s) Remedies for the bank in the (d) The creation, organization and
event of change of ownership, membership of a help desk to resolve all
assignment, attachment of assets, queries, problems and other concerns
insolvency, or receivership of the service arising from the applications/operations
provider. rendered by the service provider; and
(2) Minutes of meetings of the board (e) The systems and user acceptance
of directors of the bank concerned signed tests that will be conducted by the service
by majority thereof, certified by the provider before full implementation of the
secretary and attested by the President outsourced systems/processes and the
documenting their discussions on the unsatisfactory results of which shall be
following: valid ground to rescind the contract with
(a) The benefits and advantages of the service provider.
outsourcing with respect to, among others, (3) Profile of the selected service
its role and contribution to the accom- provider or the non-bank partner, in case
plishment of the strategic and business plans of joint ventures and other similar
of the bank as well as the economy, arrangements, which should include:
efficiency and quality of its over-all (a) Most recent and complete financial
operations; and operational information;
(b) The careful and diligent (b) Track record;
evaluation, prior to selecting the service (c) List of clientele, particularly banks
provider with which it is entering into an and the services provided thereto by the
outsourcing contract, by the bank of service provider; and
various service providers and their (d) At the option of the service
proposals, including their reputation, provider or non-bank partner, other
financial condition, cost for development, documents demonstrative of its
maintenance and support, internal competence and reputation in the field
controls, recovery processes, service level of information technology as applied to
agreements, availability of competent, banking operations.
technically qualified and experienced
personnel, strategic or convenient § X169.3 Outsourcing of other banking
location of support services and such functions
similar other considerations; a. Subject to prior approval of the
(c) The creation, organization and Monetary Board, banks may outsource the
membership of a senior management following functions, services or activities:

§ X169.3
05.12.31
(1) data imaging, storage, retrieval and be performed by the external service
other related systems; provider;
(2) clearing and processing of checks (iii) state that the outsourced internal
not included in the Philippine Clearing audit services are subject to regulatory
House System; review and that BSP examiners shall be
(3) printing of bank deposit statements; granted full and timely access to internal
(4) credit card services; audit reports and related working papers;
(5) credit investigation and collection; (iv) state that the external service
(6) processing of export, import and provider will not perform management
other trading transactions; functions, make management decisions, or
(7) property appraisal; act or appear to act in a capacity equivalent
(8) property management services; to that of a member of management or an
(9) internal audit, subject to the employee of the institution, and will comply
following conditions: with professional and regulatory
(a) the board of directors and senior independence guidelines;
management of the regulated entity remain (v) specify that the external service
responsible for maintaining an effective provider must maintain the audit reports and
system of internal control and for providing related working papers/files for at least five
active oversight of the outsourced internal (5) years;
audit activities/functions; (vi) state that internal audit reports are
(b) the external service provider shall the property of the institution, that the
be an independent external auditor institution will be provided with copies of
included in the list of BSP selected external related working papers/files it deems
auditors or a parent company which owns necessary, and any information pertaining
or controls more than fifty percent (50%) to the institution must be kept confidential;
of the subscribed capital stock of the and
outsourcing entity: Provided, That Item (vii) establish a protocol for changing
“A2” of the general requirements under the terms of the service contract and
Appendix 43 shall apply to the parent stipulations for default and termination of
company while Items “A2”, “A4”, “A5”, the contract;
and “A6” shall apply to the independent (10) marketing loans, deposits and other
external auditor; bank products and services, provided it does
(c) the contract/service agreement not involve the actual opening of deposit
with the external service provider shall not accounts;
be entered into for a period longer than (11) general bookkeeping and
five (5) years; accounting services, Provided, That these
(d) there shall be a contingency plan activities do not include servicing bank
to mitigate any significant disruption, deposits or other inherent banking
discontinuity or gap in audit coverage, functions;
particularly for high-risk areas; (12) offsite records storage services;
(e) the written engagement contract or (13) front/back office functions, i.e.,
service agreement with the external service trade support services and downstream
provider shall, as a minimum: processing activities, by parent to a
(i) define the rights, expectations and subsidiary or vice-versa, subject to the
responsibilities of both parties; following conditions:
(ii) set the scope and frequency of, (a) The bank intending to outsource
and the fees to be paid for, the work to the aforementioned functions shall certify

§§ X169.3 - X169.5
05.12.31
that the front office functions to be done by (7) public relations services,
its parent/subsidiary (service provider) shall procurement services, and temporary
be limited to trade support services; staffing: Provided, That these activities do
(b) The bank shall remain a parent/ not include servicing bank deposits or other
subsidiary of its subsidiary/parent (service inherent banking functions;
provider) and such service provider shall (8) sorting and bagging of notes and
service only entities belonging to its coins;
business group; (9) maintenance of computer
(c) The bank shall certify that no hardware, e.g., disk drives, printers,
inherent banking functions involving monitors, UPS, network cabling systems;
deposit transactions shall be outsourced to (10) payroll of bank employees;
its parent/subsidiary (service provider); (11) telephone operator/receptionist
(d) The bank shall submit a Service services;
Level Agreement duly signed by the (12) sale/disposal of acquired assets
concerned parties and any amendments (ROPA);
thereto, detailing the functions to be (13) personnel training and
outsourced, the respective responsibilities development;
of the bank and its parent/subsidiary (14) buildings, ground and other
(service provider), and a confidentiality facilities maintenance;
clause; and (15) legal services from local legal
(e) Any breach in any of the above counsel;
conditions shall subject the outsourcing of (16) compliance risk assessment and
the aforementioned banking functions to all testing; and
the requirements of this Section; (17) such other activities as may be
(14) back-up and data recovery determined by the Monetary Board.
operations; and
(15) such other activities as may be § X169.4 Service providers. When
determined by the Monetary Board. allowed by law, banks may enter into
The bank concerned must submit the outsourcing contracts only with service
same documentary requirements listed in providers with demonstrable technical and
Subsec. X169.2b, except where they financial capability commensurate to the
exclusively pertain to information services to be rendered.
technology operations.
b. Without need of prior Monetary § X169.5 Review of subsisting
Board approval, banks may outsource the outsourcing contracts. Within six (6)
following functions, services or activities: months from 5 December 2000 –
(1) printing of bank loan statements a. Banks should submit a list of all
and other non-deposit records, bank forms their existing contracts with service
and promotional materials; providers, detailing the:
(2) transfer agent services for debt and (1) Services/activities being outsourced;
equity securities; (2) Terms of the contracts;
(3) messenger, courier and postal (3) Measures, if any, undertaken by
services; the bank and/or service provider to ensure
(4) security guard services; the secrecy of bank deposits and
(5) vehicle service contracts; confidentiality of all other data and
(6) janitorial services; information; and

§§ X169.5 - X170.1
05.12.31
(4) Such other information as may be (2) As service provider, the following
necessary to show compliance with the shall be upheld by the bank:
pertinent provisions of this Section or be (a) Confidentiality of bank deposits and
required by the Monetary Board; and investment in government bonds;
b. For outsourcing contracts not in (b) Prohibition against outsourcing of
accordance with this Section, the inherent banking functions; and
following alternative courses of action are (c) Prohibition on cross-selling except
available to the bank concerned: as allowed under applicable regulations.
(1) preterminate said contracts;
(2) renegotiate or remedy the same §§ X169.12 - X169.18 (Reserved)
and submit the amendments thereto or new
contracts to the BSP; or § X169.19 Penalties. Violation of this
(3) submit a program of compliance to Section shall be subject to Sections 34, 35,
the BSP. 36 and 37 of R.A. No. 7653, the New
Central Bank Act. If the offender is a director
§§ X169.6 - X169.10 (Reserved) or officer or a bank, the Monetary Board may
also suspend or remove such director or
§ X169.11 Other banking services for officer.
subsidiaries, affiliates and related
companies. A bank may be authorized, Sec. X170 Compliance System; Compliance
upon prior Monetary Board approval, to Officer. Banks shall develop and
render the following services in favor of implement a compliance system and
subsidiaries, affiliates and companies appoint/designate a compliance officer to
related to it by at least five percent (5%) oversee its implementation.
common ownership:
a. Credit card, bank and loans § X170.1 Compliance system. The
reconciliation; compliance system shall have the following
b. Credit card billing; basic elements.
c. Time deposit processing; a. A written compliance program
d. Merchant settlement and care approved by the board of directors:
service; (1) The compliance program shall
e. Collections; enable the bank to identify the relevant
f. Credit application processing; Philippine laws and regulations, analyze
g. Call center support; the corresponding risks of non-
h. Telemarketing of bank and credit compliance, and prioritize the
card products; compliance risks (e.g., low, medium,
i. Human resource-related service; high).
j. Finance/accounting functions; (2) The program shall provide for
k. Documentation; periodic compliance testing with applicable
l. Cashiering; legal and regulatory requirements. Testing
m. Reports preparation; and frequency shall be commensurate with
n. Safekeeping of securities identified risk levels (e.g., annual testing for
subject to the following conditions; low-risk, quarterly testing for medium-risk,
(1) The particular type of service to monthly testing for high-risk). It shall also
be rendered by the bank should be provide for the reporting of compliance
submitted for prior approval of the findings noted to appropriate levels of
Monetary Board; management.

§§ X170.1 - X170.3
05.12.31
(3) The program shall establish the coordinate the implementation of the
responsibilities and duties of the compliance compliance system. His responsibility shall
officer and other personnel (if any) involved include the identification, monitoring and
in the compliance function. controlling of compliance risk.
(4) A copy of the compliance program b. The appointment/designation of a
and the written approval of the Board of compliance officer shall require prior
Directors shall be submitted to the approval of the Monetary Board. The bio-
appropriate SED of the BSP within twenty data of the proposed compliance officer
(20) banking days from date of approval. shall be submitted to the appropriate SED
(5) The program shall be updated at of the BSP.
least annually to incorporate changes in laws c. The compliance officer shall have
and regulations. Any changes in the program the skills and expertise to provide
shall likewise be approved by the bank’s appropriate guidance and direction to the
board of directors and submitted to BSP bank on the development, implementation
within twenty (20) banking days from the and maintenance of the compliance
date of approval. program.
b. A constructive working relationship d. For UBs/KBs, an independent full-
with regulatory agencies. time compliance officer, who shall have a
The bank, through its compliance rank of at least a Vice President, shall be
officer, may consult the regulatory appointed. However, they are allowed on
agencies for additional clarification on a case-to-case basis, upon recommendation
specific provisions of laws and regulations of the SED concerned, to designate an
and/or discuss compliance findings with incumbent officer (including the Internal
the regulatory authorities. A dialogue may Auditor) as the bank’s compliance officer:
also be initiated with respect to borderline Provided, (i) That such will not give rise to
issues. any conflict of interest situation, (ii) That the
c. A clear and open communication main function of the officer shall be that of
process within the bank to educate and a compliance officer and (iii) That he is
address compliance matters. considered a senior officer in the
Officers and staff shall be trained on the organizational set-up of the bank.
regulatory requirements through regular e. For other types of banks, an
meetings, distribution of manuals and incumbent senior officer may be designated
dissemination of regulatory issuance. concurrently as the bank’s compliance
d. Continuous monitoring and officer: Provided, That such designation will
assessment of the compliance program. not give rise to any conflict of interest
The program shall provide for the situation.
periodic review of the compliance function The internal auditor of a bank may
to measure its effectiveness. The review may also be designated as its compliance
be carried out by the internal audit officer subject to the condition that his
department of the bank. primary duty will be to act as compliance
The compliance program may operate officer.
parallel to or as part of a bank’s internal
control and auditing program. § X170.3 Compliance risk. Compliance
risk is the risk of legal or regulatory
§ X170.2 Compliance officer sanctions, financial loss, or loss to reputation
a. The principal function of the a bank may suffer as a result of its failure to
compliance officer is to oversee and comply with all applicable laws,

§§ X170.3 - X170.7
05.12.31
regulations, codes of conduct and standards (5) its right to conduct investigations
of good practice. of possible breaches of the compliance
policy;
§ X170.4 Responsibilities of the board (6) its formal reporting relationships to
of directors and senior management on senior management and the board of
compliance. Aside from the duties and directors; and
responsibilities of the board of directors (7) its right of direct access to the board
mentioned under Subsec. X141.3, the of directors or an appropriate committee of
board should oversee the implementation the board.
of the compliance policy and ensure that The compliance charter or other formal
compliance issues are resolved document defining the status of the
expeditiously. Senior management should compliance function shall be
be responsible for establishing a communicated throughout the
compliance policy, ensuring that it is organization.
observed, reporting to the board of
directors on its ongoing implementation § X170.6 Independence. The
and assessing its effectiveness and compliance function should be
appropriateness. Senior management independent from the business activities of
should, at least once a year, report to the the institution. It should be able to carry
board of directors or a committee of the out its responsibilities on its own initiative
board on matters relevant to the compliance in all units or departments where
policy and its implementation, compliance risk exists and must be provided
recommending any required changes to the with sufficient resources to carry out its
policy. The report should assist the board responsibilities effectively. It must be free
members in making an informed assessment to report to senior management and the
as to whether the institution is managing its board or a committee of the board on any
compliance risk effectively. However, any irregularities or breaches of laws, rules and
material breaches of laws, rules and standards discovered, without fear of
standards shall be reported promptly. retaliation or disfavor from management or
other affected parties. The compliance
§ X170.5 Status. The compliance function should have access to all
function should have a formal status within operational areas as well as any records or
the organization established by a charter or files necessary to enable it to carry out its
other formal document approved by the duties and responsibilities.
board of directors that defines the
compliance function’s standing, authority § X170.7 Role and responsibilities of
and independence, and addresses the the compliance function. The role and
following issues: responsibilities of the compliance
(1) measures to ensure the function should be clearly defined. If
independence of the compliance function there is a division of duties and
from the business activities of the bank; responsibilities between different
(2) its role and responsibilities; functions such as legal, compliance,
(3) its relationship with other functions internal audit or risk management, the
or units within the organization; allocation of duties and responsibilities
(4) its right to obtain access to to each function should be properly
information necessary to carry out its delineated. There should likewise be
responsibilities; formal arrangements for cooperation

§§ X170.7 - X171.2
05.12.31
between each function and for the concerned, must be submitted to the
exchange of relevant information. appropriate SED of the BSP at least thirty
(30) days prior to its execution to enable
§ X170.8 Cross-border issues. The review of its compliance with existing
compliance function for institutions that regulations on outsourcing of banking
conduct business in other jurisdictions functions.
should be structured to ensure that local The service level agreement shall ensure
compliance concerns are satisfactorily a clear allocation of responsibilities between
addressed within the framework of the the external service providers and the bank.
compliance policy for the organization as Furthermore, the outsourcing bank should
a whole. As there are significant manage residual risks associated with
differences in legislative and regulatory outsourcing arrangements, including
frameworks across countries or from default, operational failures, and possible
jurisdiction to jurisdiction, compliance disruption of services.
issues specific to each jurisdiction should
be coordinated within the structure of the Sec. X171 Bank Protection. Banks shall
institution’s group-wide compliance observe the following rules and regulations
policy. The organization and structure of on bank protection.
the compliance function and its
responsibilities should be in accordance § X171.1 Objectives. These
with local legal and regulatory regulations are designed to:
requirements. a. Ensure maximum protection of life
and property against bank robberies;
§ X170.9 Outsourcing. Banks should b. Prevent and discourage bank
establish policies for managing the risks robberies; and
associated with outsourcing activities. c. Assist law enforcement agencies in
Outsourcing of services/activities can identifying, apprehending and prosecuting
reduce the institution’s risk profile by perpetrators of bank robberies.
transferring activities to others with the
necessary expertise to manage the risks § X171.2 Designation of security
associated with specialized business officer. The board of directors of each
activities. However, the use of third bank shall appoint or designate a
parties does not diminish the qualified security officer who shall be
responsibility of the board of directors and under the direct supervision of the
senior management to ensure that the president and shall be responsible for the
outsourced activity is conducted in a safe development and administration of a
and sound manner and in compliance security program and the installation,
with applicable laws and regulations. maintenance and operation of security
Compliance risk assessment and devices in accordance with the standards
testing may be outsourced, subject to prescribed by the BSP in separate rules
appropriate oversight by the compliance and regulations.
officer: Provided, That a copy of the The security officer must be: (a) at least
outsourcing agreement stating the duties twenty-five (25) years of age; (b) a college
and responsibilities as well as rights and graduate; (c) with at least two (2) years
obligations of the contracting parties, experience in law-enforcement or police
which agreement shall be approved by the matters; (d) of unquestionable integrity; and
board of directors of the institution (e) of good moral character.

§§ X171.3 - X196
05.12.31
§ X171.3 Security program. The (1) The incidence of crimes against

security program of each bank shall be in banks and other business establishments in
writing, approved by its board of directors the area in which the banking office is located;
and retained in such form as will readily (2) The amount of currency or other
permit determination of its adequacy and valuables exposed to robbery;
effectiveness and shall contain provisions (3) The distance of the banking office
as may be prescribed by the BSP. from the nearest law-enforcement officers
and the time ordinarily required for such
§ X171.4 Security devices. Within law-enforcement officers to arrive at the
thirty (30) calendar days from the banking office;
designation of the security officer in the (4) The cost of the security devices;
case of a bank with less than ten (10) (5) Other existing security measures in
branches; sixty (60) calendar days in the effect at the banking office; and
case of a bank with ten (10) but less than (6) The physical characteristics of the
twenty (20) branches; and ninety (90) banking office structure and its
calendar days in the case of a bank with surroundings. Each bank shall install,
twenty (20) or more branches, the security maintain and operate security devices which
officer shall, under the direction of the are expected to give a general level of bank
bank’s president, conduct a security protection equivalent, at least, to the
survey and submit a report on the needed standards prescribed by the BSP in separate
security devices in each of the bank’s rules and regulations.
banking offices.
Banks shall effect the installation, § X171.5 Reports. As of the last
maintenance and operation, as individually business day of December of every year,
appropriate, of the following in each each bank shall submit not later than 15
banking office: January of the following year to the
a. A lighting system for illuminating, appropriate SED of the BSP a certification
during the hours of darkness, the area of compliance with the requirements of BSP
around the vault, if the vault is visible from rules and regulations on bank protection in
outside the bank premises; accordance with the format shown in
b. Time delay device to be installed Appendix 10.
in the cash vault or safe;
c. Tamper-resistant locks on exterior § X171.6 Bangko Sentral inspection
doors and windows designed to be Banks shall be subject to inspection by the
opened; BSP to determine if the security measures,
d. An alarm system or other devices or procedures used or adopted by
appropriate device for promptly notifying a bank meet the requirements of these
the nearest law enforcement officers of an regulations and its supplementary
attempted or perpetrated robbery; and regulations. If the bank fails to meet the
e. Such other devices as the security standard herein set forth, the Governor may
officer shall determine to be appropriate direct or require the bank to take necessary
for discouraging robberies and for corrective actions.
assisting in the identification and
apprehension of persons who commit Secs. X172 – X195 (Reserved)
such acts: Provided, That the security
officer shall consider, among other things, Sec. X196 Voluntary Liquidation. The
the following: following guidelines shall be observed when

§§ X196 - X198
05.12.31
a bank decides to undertake voluntary thirty (30) days from submission of

liquidation as a consequence of voluntary aforesaid inventory of assets and
dissolution, such as (i) by vote of the board liabilities.
of directors and stockholders, where no c. Conversion of assets into money.
creditors are affected; (ii) judgment of the Projected timetable in the conversion,
SEC after hearing the petition for voluntary manner of sale (public auction, sealed
dissolution; (iii) amending the articles of bidding, or on negotiated basis), notice
incorporation to shorten the corporate by publication requirement, and report on
term. liquidation to be submitted to the
Monetary Board.
§ X196.1 Prior Monetary Board d. Final notice to claimants/creditors.
approval. Upon voluntary dissolution of Undertaking of the board of directors/
a bank pursuant to the provisions of the trustee/ receiver to cause, within thirty (30)
Corporation Code, voluntary liquidation days from conversion into money of all or
may be undertaken by the bank itself substantially all of the assets of the bank,
through its board of directors, by a trustee the publication in a newspaper of general
appointed by the bank, or by a receiver circulation at least once a week for two
appointed to the bank: Provided, (2) consecutive weeks of a notice giving
however, That no voluntary dissolution claimants/creditors fifteen (15) days within
shall be undertaken by a bank without which to file their claims.
prior approval of the Monetary Board: e. Inventory of remaining claims
Provided, further, That requests for against the bank. Submission to the
approval of a voluntary dissolution shall be Monetary Board of a complete list of all
accompanied by a liquidation plan which remaining claims against the bank, within
lays down the procedure to be adopted by thirty (30) days from the deadline given in
the bank in the event of liquidation: the final notice to claimants/creditors.
Provided, finally, That written notice shall f. Plan for distribution of proceeds of
be sent to the Monetary Board before actual sales and distribution of liquidating
liquidation is undertaken in accordance with dividends. Submission to the Monetary
the liquidation plan previously approved by Board of a distribution plan of assets
the Monetary Board. within thirty (30) days from conversion
of all or substantially all of the assets of
§ X196.2 Liquidation plan. The the bank.
minimum requirements to be set forth in a
liquidation plan are the following: §§ X196.3 - X196.7 (Reserved)
a. Inventory/Appraisal of assets and
liabilities. Submission to the Monetary § X196.8 Final liquidation report. The
Board within thirty (30) days from written board of directors/trustee/receiver shall
notice of liquidation, a schedule/inventory submit to the Monetary Board a final
and status/appraisal reports on assets and liquidation report after winding up the
liabilities of the bank. affairs of the bank.
b. Notice to creditors requirement.
Notice by registered mail to all recorded Sec. X197 (Reserved)
claimants of the bank, and notice by
publication in a newspaper of general Sec. X198 Insolvency or Receivership of
circulation at least once a week for two Banks. The rules and regulations governing
(2) consecutive weeks, to be made within insolvency and receivership are as follows:

§§ X198.1 - X199
05.12.31
§ X198.1 Definition of term. A “bank f. transferring or permitting or causing

declared insolvent or placed under to be transferred any securities or property
receivership by the Monetary Board” shall of said bank.
refer to a banking institution that has been
forbidden from doing business in the §§ X198.3 - X198.8 (Reserved)
Philippines by the Monetary Board under
the applicable grounds provided for under § X198.9 Penalties and sanctions. Any
Section 30 of R.A. No. 7653 and placed director or officer of a bank declared
under receivership of the PDIC. insolvent or placed under receivership by
the Monetary Board who commits any of
§ X198.2 Prohibited acts. Any director the foregoing acts shall be subject to the
or officer of a bank declared insolvent or sanctions under Sections 36 and 37 of R.A.
placed under receivership by the Monetary No. 7653, in correlation with Section 66 of
Board shall not commit any of the following R.A. No. 8791. Moreover, any such director
acts: or officer thereby sanctioned shall be
a. refusing to turn over the bank’s included in the watchlist files of directors/
records and assets to the designated officers disqualified by the Monetary Board
receivers; from holding any position in any bank or
b. tampering with bank records; financial institution.
c. appropriating for himself or another
party, or destroying or causing Sec. X199 General Provision on Sanctions
misappropriation and destruction of the Except as otherwise provided, any violation
bank’s assets; of the provisions of this Part shall be subject
d. receiving or permitting or causing to Sections 36 and 37 of R.A. No. 7653.
to be received in said bank any deposit, The guidelines for the imposition of
collection of loans and/or receivables; monetary penalty for violations/offenses
e. paying out or permitting or with sanctions falling under Section 37 of
causing to be paid out any funds of said R.A. No. 7653 on banks, their directors and/
bank; and or officers are shown in Appendix 67.

§§ X201 - X201.3
05.12.31
PART TWO
DEPOSIT AND BORROWING OPERATIONS
A. DEMAND DEPOSITS actually accept such deposits, subject to

the following conditions:
Section X201 Authority to Accept or a. Submission of a certification signed
Create Demand Deposits. Banks may by the President/Chairman of the Board
accept or create demand deposits subject of the bank stating that the requirements
to withdrawal by check. enumerated under Subsec. X201.1 have
A UB/KB may accept or create demand been complied with up to the day before
deposits subject to withdrawal by check, the checking account services are actually
without prior authority from the BSP. offered/extended to the public;
A TB/RB/Coop Bank may accept or b. That if it is not a member of the
create demand deposits upon prior Philippine Clearing House Corporation
authority of the BSP. (PCHC), it has appointed a commercial
bank, or a normally operating thrift bank
§ X201.1 Prerequisites to accept or which is a direct participant in clearing with
create demand deposits for Thrift Banks/ the PCHC/BSP and has complied with the
Rural Banks/Cooperative Banks. In minimum capital required for commercial
addition to the Standard Pre-qualification banks, thru which it shall participate in
Requirements for the Grant of Banking the check clearing system; and
Authorities enumerated in Appendix 5, a c. That it has complied with all other
TB/RB/Coop Bank applying for authority to conditions that the BSP may impose.
accept or create demand deposits shall also The applicant bank shall submit a
comply with the following requirements: written notice to the appropriate
a. The applicant TB must have supervising and examining department of
complied with the minimum capital required the BSP of the actual date when the
under Subsecs. X106.1 and X106.2. demand deposit service is offered to the
In the case of RB/Coop Bank, it must public not later than ten (10) banking days
have net assets of at least P5.0 million: from such offering of the service.
Provided, That RBs which have been
authorized to accept or create demand § X201.3 Sanctions. If any part of
deposits prior to the approval of R.A. No. the certification submitted by the bank as
7353 (Rural Banks Act of 1992) shall be required in these guidelines is found to be
allowed to continue servicing such deposits. false, the following sanctions shall be
The terms capital and net assets shall imposed, without prejudice to the
have the same meaning as in Sec. X106. sanctions under Section 35 of R.A. No.
b. It must be a member of the 7653.
Philippine Deposit Insurance Corporation a. On the Bank
(PDIC) in good standing. Suspension of its authority to accept
or create demand deposits for one (1) year.
§ X201.2 Requirements for accepting b. On the Certifying Officer
demand deposits. After a TB’s/RB’s/Coop A fine of P5,000 per day from the time
Bank’s application to accept demand the certification was made up to the time
deposits has been approved, it may the certification was found to be false.
Manual of Regulations for Banks Part II - Page 1

§§ X202 - X203
05.12.31
Sec. X202 Temporary Overdrawings; banks with commercial banks shall not
Drawings Against Uncollected Deposits be subject to the above-mentioned
The following regulations shall govern regulations: Provided, That:
temporary overdrawings and drawings (a) The maintenance of non-resident
against uncollected deposits (DAUDs). correspondent bank’s peso checking
a. Temporary overdrawings. accounts and overdrawings therefrom are
Temporary overdrawings against current covered by reciprocal arrangement;
account shall not be allowed, unless (b) Temporary overdrawings are
caused by normal bank charges and other covered within fifteen (15) days from the
fees incidental to handling such accounts. date overdrawings are incurred; and
Banks which violate these regulations shall (c) Such accounts are credited only
be subject to a fine of one-tenth of one through foreign exchange inward remittance.
percent (1/10 of 1%) per day of violation, b. Drawings against uncollected
computed on the basis of the amount of deposits. DAUDs shall be prohibited
overdrawing or fines in amounts as may except when the drawings are made
be determined by the Monetary Board, but against uncollected deposits representing
not to exceed P30,000 a day for each manager’s/cashier’s/treasurer’s checks,
violation, whichever is lower. treasury warrants, postal money orders and
Technical overdrawings arising from duly funded “on us” checks which may be
“force posting” in-clearing checks shall be permitted at the discretion of each bank.
debited by banks under “Returned Checks
and Other Cash Items Not in Process of Sec. X203 Checks Without Sufficient
Collection” which is part of “Other Assets” Funds. To complement the provisions of
in the Statement of Condition. Items to Batas Pambansa Blg. 22, (An Act Penalizing
be lodged under this account shall consist the Making or Drawing and Issuance of a
only of in-clearing checks which may Check Without Sufficient Funds or Credit),
result in “technical overdrawn” accounts the following regulations shall govern:
and shall be immediately reversed the a. The drawee bank shall stamp, write
following day. or print on a dishonored check or on a paper
The checks lodged under “Returned attached thereto the date the check is
Checks, etc.” shall either be returned or presented for payment and the reason for the
honored the following day before clearing. refusal to pay the same to the holder thereof.
The items to be used as cover for the b. Where the reason for the dishonor
honored checks should only consist of any of a check is stamped, written or printed
of the following: on a paper attached to the checks, the
(1) Cash drawee bank shall indicate the pertinent
(2) Cashier’s, Manager’s or Certified details, such as the names of the drawer,
Checks the payee and the drawee bank, the date
(3) Bank Drafts and amount of the check, the check
(4) Postal Money Orders number and the date of dishonor.
(5) Treasury Warrants c. The drawee bank shall use only
(6) Duly funded “On us” Checks the remark or notation “Drawn Against
(7) Fund transfers/credit memos within Insufficient Funds”, “No Funds”, or
the same bank representing proceeds of loans “Insufficient Funds” stamped, written, or
granted under existing regulations. printed on, or attached to the check
Peso demand deposit accounts dishonored or returned by reason of
maintained by foreign correspondent insufficiency of funds or credit.
Part II - Page 2 Manual of Regulations for Banks

§ X203
05.12.31
d. Notwithstanding receipt of an from the returned COCI. The process

order to stop payment, the drawee bank restores the balances of the demand
shall likewise stamp, write, or print on, or deposits of banks with the BSP to their
attach to the check any of the remarks or position prior to the settlement of the
notations mentioned in Item “c” hereof clearing results affected by the COCI later
indicating that there were no sufficient returned due to insufficient funds or credit.
funds in or credit with such bank for the (b) PM Returned COCI Clearing - The
payment in full of such check, if such be PM returned COCI clearing window shall
the fact. The bank shall also indicate coincide with the afternoon regular
receipt of a stop payment order. clearing. Other dishonored COCI not
e. A check and other clearing item returned in the morning clearing session
(COCI) dishonored by reason of shall be presented by the drawee bank to
insufficiency of funds or credit shall be the negotiating bank in the afternoon
returned by the drawee bank to the regular clearing. Such returned COCI shall
negotiating bank not later than the next be given value on the date the returned
clearing for returned COCI. COCI was presented to PCHC for the
(1) For Local Exchanges integrated Metro Manila area and to BSP
There shall be two (2) separate clearing RCCs.
windows for COCIs returned due to Return of Dishonored COCI - A COCI
insufficient funds or credit in the local dishonored by reason of insufficiency of
exchanges in the integrated Metro Manila funds or credit shall be returned by the
area served by the PCHC and the BSP drawee bank to the negotiating bank not
Regional Clearing Centers (RCCs). (The later than the next clearing for returned
settlement of interbank transactions vis-à- COCI.
vis covering reserve requirement/ (2) For Out-of-town Exchanges
deficiency of banks’ DDA is shown in For out-of-town exchanges, a COCI so
Appendix 39.) dishonored shall be returned by the drawee
(a) AM Returned COCI Clearing - The bank to the negotiating bank within the
AM returned COCI clearing in the period specified in the clearing Circular
integrated Metro Manila local exchange Letters issued by BSP.
shall be conducted from 7:30 AM to 10:00 (3) COCI not coursed through the
AM on the banking day immediately Clearing System
following the original date of presentation A COCI dishonored by reason of
of the COCI to PCHC. insufficiency of funds or credit which was
The AM returned COCI clearing not coursed through the clearing system
window for local exchanges in the BSP shall be returned by the drawee bank to
RCCs shall be conducted from 8:00 AM the holder or the negotiating bank, as the
to 9:30 AM on the banking day immediately case may be, not later than the business
following the original date of presentation day following the date the COCI is
of the COCI to the RCC. presented for payment with the drawee
Returned COCI in the AM clearing bank.
windows shall be given value on the same The negotiating bank shall, in turn,
date as the date of original presentation of return a COCI dishonored by reason of
the COCI to PCHC and RCC. The amount insufficiency of funds or credit to the holder
of debits and credits on the date of original not later than the business day following
presentation shall be reversed to the extent its receipt of the dishonored COCI from
of the amount of credits and debits arising the drawee bank.

§§ X204 - 2205
05.12.31
Sec. X204 Current Accounts of Bank b. In conduit arrangements, caps shall

Officers and Employees. The following be set on the net clearing losses to be
officers and employees of banks are passed on to the conduit KB by the conduit
prohibited from maintaining demand TB.
deposits or current accounts with the To address the settlement risks, the pro-
banking office in which they are assigned: forma conduit arrangement should include
a. All officers; provisions setting aforementioned cap on
b. Employees of the bank’s cash the net clearing losses. The cap is defined
department/cash units; and as the combined value of the following
c. Other employees who have direct amounts:
and immediate responsibility in the handling (1) the TB's reserve deposit with BSP;
of transactions and/or records pertaining to and
demand deposits or current accounts. (2) the value of collateralized
The above-mentioned prohibition shall overdraft line that may be extended by the
include the spouses and relatives within the conduit KB to the conduit TB.
second degree of consanguinity and affinity Parties to existing conduit
of the officers and employees covered by arrangements shall have thirty (30) days
the prohibition, and the business interests from 8 April 1998 to comply with the
of such officers and employees, their above requirement.
spouses and relatives within the second c. For TBs authorized to participate
degree of consanguinity and affinity, in in the PCHC and BSP check clearing
single proprietorships, or partnerships or operations, ceilings for clearing losses not
corporations in which such officers and covered by interbank borrowings shall be
employees, individually or as a group, own established and unwinding of the clearing
or control at least a majority of the capital transactions shall be authorized when the
of the partnership or the outstanding ceilings are breached.
subscribed capital stock (voting and non- (1) The proposed ceiling is defined as
voting) of the corporation. the collateralized overnight clearing line
that will be extended by BSP. Every TB
Sec. 1205 (Reserved) authorized to participate directly in the
clearing operations of PCHC and BSP
Sec. 2205 Check Clearing Rules for Thrift should apply for this line with the BSP
Banks Authorized to Accept Demand Department of Loans and Credit (DLC).
Deposits. The following are the check The availments against the approved loan
clearing rules for TBs authorized to accept line shall bear interest at the ninety-one
demand deposits: (91)-day Treasury Bill rate of the last
a. TBs authorized to accept demand auction immediately preceding the
deposits may participate in the clearing availments.
process conducted by the PCHC in the (2) Procedures for unwinding shall
integrated Metro Manila clearing area and apply to all inward items, other than
by the BSP in regional clearing centers Returned Items and to local exchanges
through either of the following modes: (i) only.
maintenance of NOW accounts with KBs; (3) The aggregate value of all inward
(ii) conduit arrangements with KBs; and items of all clearing centers, including On
(iii) direct participation in clearing Manila clearing demands presented to
operations, at the option of the TB PCHC, shall be ranked from highest to
concerned. lowest. The unsettled net clearing losses

§§ 2205 - X213
05.12.31
shall be eliminated by unwinding the borrowings. The ceiling is defined as the

inward items starting from the clearing collateralized overnight clearing line that
centers, including PCHC, with highest will be extended by BSP DLC. The
aggregate value. availments against the approved loan line
(4) In case the aggregate value of the shall bear interest at the ninety-one (91)-
inward items for a given clearing center, day Treasury Bill rate of the last auction
except PCHC, exceeds the unsettled net immediately preceding the availments.
clearing losses, the total inward items for (3) Should the overdraft exceed the
that clearing center shall be the subject of ceiling, the BSP Accounting Department is
unwinding. authorized to instruct the PCHC and the
(5) In the case of checks cleared BSP regional clearing centers to unwind the
through PCHC, the inward clearing items clearing transactions following the
shall be unwound to the extent of the procedures defined in Item "c" of this
unsettled net clearing loss. The selection Section.
of the specific demand items to be covered The operating guidelines implementing
by unwinding shall be based on PCHC Items "c" and "d" of this Section are in
rules. Appendix 31.
(6) Checks which are the subject of the
unwound clearing transactions shall be Sec. 3205 Check Clearing Rules for Rural
returned to the presenting banks not later Banks Who Are Members of the Philippine
than 9:00 A.M. of the following clearing Clearing House Corporation. The
day. provisions of Items "c" and "d" of Sec. 2205
d. TBs authorized to participate and the implementing operating guidelines
directly in the clearing in PCHC and BSP in Appendix 31 shall also apply to RBs
regional clearing centers shall be subject which are members of the PCHC.
to the following measures to manage the
settlement risks: Secs. X206 - X212 (Reserved)
(1) Settlement of Outward items shall
be value dated on the day the checks are B. SAVINGS DEPOSITS
cleared, net of returns. For this purpose,
the value date or settlement date referred Sec. X213 Servicing Deposits Outside
to herein shall be defined uniformly as the Bank Premises. Banks may be authorized
next clearing day when dishonored checks by the BSP to solicit and accept deposits
are returned within the reglementary outside their bank premises, subject to the
period, reckoned after the date of following conditions:
presentation for local clearing in the a. Minimum capital requirement is met;
integrated Manila Clearing area for PCHC b. No major supervisory concerns
and in all BSP regional clearing centers. affecting safety and soundness;
For inter-regional clearing items, outward c. The area of operations shall be
Manila clearing items and to Manila within one (1)- hour normal travel time by
clearing items, the value or settlement date land/sea from any head office or branch,
shall be defined in clearing circulars to be except in remote areas where more than one
issued by BSP. (1)- hour normal travel time may be allowed;
(2) A ceiling shall be set on the amount and
of overdraft a TB authorized to accept d. Applicant bank shall institute and
demand deposits may incur due to failure maintain the following minimum
to cover clearing losses through interbank safeguards:

§§ X213 - X215
05.12.31
(1) All deposit solicitors shall be (7) Deposits/withdrawals shall be

initially bonded for at least P1,000 subject recorded by the bookkeeper or any ledger
to the increase thereof to approximate their clerk, except any bank solicitor, in the
daily collections; depositor’s ledger cards and passbooks on
(2) Deposit solicitors shall be provided the same day that such deposits/
with proper identification cards with withdrawals are accepted. Passbooks shall
photograph and signature of each respective be returned to the depositors not later than
solicitor, certified to by the appropriate the following business day;
officer of the bank. Said identification cards (8) At the end of each month,
shall be worn by each solicitor at all times depositors shall be advised in writing of
at the upper breast of his outer garment the balances of their deposits with the
when soliciting deposits; and bank, the advise slips of which shall never
(3) Adequate insurance coverage for be handcarried by the solicitors
funds in transit (representing deposits themselves;
collected outside banking premises) shall (9) Places of assignments of bank
be secured by applicant bank from solicitors shall be rotated at least
insurance companies not included in the quarterly.
list of companies blacklisted by the
Insurance Commissioner; Sec. X214 Withdrawals. Banks are
(4) Deposit slips shall be in booklet prohibited from issuing/accepting
form, prenumbered, in triplicate copies and withdrawal slips or any other similar
in three (3) colors - the original to be issued instruments designed to effect withdrawals
to the depositor, the second copy to be of savings deposits without requiring the
used for posting reference, and the third depositors concerned to present their
copy to be retained in the booklet; passbooks and accomplishing the
(5) All collections shall be turned over necessary withdrawal slips, except for
to the cashier at the end of each day banks authorized by the BSP to adopt the
accompanied by a Collection Summary no passbook withdrawal system: Provided,
Report to be accomplished in duplicate That banks which are already adopting the
which shall contain the following no passbook withdrawal system shall be
minimum information: given six (6) months from effectivity of this
(a) Date of the report Manual of Regulations (MOR) to seek
(b) Names and addresses of the approval from the BSP.
depositors The provisions of Sec. X202b shall also
(c) Deposit slip numbers apply to withdrawals from savings
(d) Amounts of deposit deposits.
(e) Savings account and passbook
numbers Sec. X215 Rental Deposits of Lessees
(f) Name and signature of solicitor The following guidelines shall govern the
rendering the report opening and handling by banks of deposits
(6) Depositors shall always be made by lessees under Section 5(b) of Batas
required to accomplish a Signature Card Pambansa Blg. 25, otherwise known as the
when opening an account, which card Rent Control Law:
shall be used always as reference in a. The deposit made by the lessee
checking the genuineness/authenticity of shall only be accepted by the bank under a
signatures affixed on withdrawal slips or special savings account in the name of the
authorizations for withdrawal; lessor;

§§ X215 - X223.2
05.12.31
b. The bank shall require the lessee demand feature of checks and investment
to submit a copy of the written notice sent feature of savings accounts.
to the lessor for the deposit made, stating A UB/KB may offer NOW accounts
among other things, the date and amount without prior authority of the Monetary
of the deposit and the name and address Board.
of the lessor; A TB/RB/Coop Bank may accept NOW
c. The bank, at its option, may require accounts upon prior approval of the
the lessee to submit any supporting Monetary Board.
document, such as the lease contract or
official receipts of previous rentals paid, § X223.1 Prerequisites to accept NOW
which will show the specimen signature accounts for thrift banks/rural banks/
of the lessor, or other papers to identify cooperative banks. In addition to the
the lessor; Standard Pre-qualification Requirements
d. The bank shall segregate from its for the Grant of Banking Authorities
regular savings deposit accounts and enumerated in Appendix 5, a TB/RB/Coop
maintain a separate subsidiary control Bank applying for authority to accept
ledger for deposits made under Section 5(b) NOW accounts shall also comply with the
of Batas Pambansa Blg. 25; following requirements:
e. Any withdrawal against these special a. The applicant TB must have
savings deposit accounts may only be complied with the minimum capital
allowed in favor of the lessee concerned required under Subsecs. X106.1 and X106.2.
before the amount deposited under In the case of RB/Coop Bank, it must
consignation has been accepted by the have net assets of at least P5.0 million:
lessor, or when authorized by the lessor; Provided, That RBs which have been
f. The expenses which may be authorized to accept or create NOW
incurred by the bank with respect to such accounts prior to the approval of R.A. No.
rental deposits shall be charged against 7353 (Rural Banks Act of 1992) shall be
the lessor; allowed to continue servicing such
g. All the minimum internal control deposits.
standards applicable to savings deposit The terms capital and net assets shall
accounts prescribed in Sec. X163 shall be have the same meaning as in Sec. X106.
complied with; and b. It must be a member of the PDIC in
h. The acceptance of such rental good standing.
deposits, however, shall be optional or
discretionary only upon the bank § X223.2 Requirements for accepting
concerned. NOW accounts. After a TB’s/RB’s/Coop
Bank’s application to accept NOW account
Secs. X216 - X222 (Reserved) has been approved, it may actually accept
the same subject to the following
C. NEGOTIABLE ORDER OF conditions:
WITHDRAWAL ACCOUNTS a. Submission of a certification signed
by the President/Chairman of the Board
Sec. X223 Authority to Accept Negotiable of the bank stating that the requirements
Order of Withdrawal Accounts enumerated under Subsec. X223.1 have
Negotiable Order of Withdrawal (NOW) been complied with up to the day before
accounts are interest-bearing deposit the NOW account services are actually
accounts that combine the payable on offered/extended to the public; and

§§ X223.2 - X232
05.12.31
b. That it has complied with all other f. A bank statement shall be sent to
conditions that the BSP may impose. each depositor at the end of each month
The applicant bank shall submit a for confirmation of balances.
written notice to the appropriate g. Banks must use the form prescribed
supervising and examining department of by present rules for NOW accounts.
the BSP of the actual date when the NOW Nothing herein shall be construed as
account deposit service is offered to the precluding a TB, RB or Coop Bank from
public not later than ten (10) banking days applying for authority to accept both
from such offering of the service. demand deposits and NOW accounts.
§ X223.3 Sanctions. If any part of the Sec . X225 Minimum Features. The order
certification submitted by the bank as of withdrawal form shall have a size of three
required in these guidelines is found to be (3) inches by seven (7) inches, and shall
false, the following sanctions shall be be printed on security/check paper. It shall
imposed, without prejudice to the sanctions contain as a minimum the features of the
under Section 35 of R.A. No. 7653: proforma order of withdrawal shown in
a. On the Bank Appendix 11.
Suspension of its authority to accept
or create NOW accounts for one (1) year. Sec. X226 Clearing of NOW. Any NOW
b. On the Certifying Officer which may be deposited with a bank other
A fine of P5,000 per day from the than the drawee bank may be cleared
time the certification was made up to the through the PCHC in Manila and the
time the certification was found to be false. Regional Clearing Units in regional
clearing centers designated by the BSP in
Sec. X224 Rules on Servicing NOW accordance with the clearing procedures.
Accounts. The following rules shall be Nothing in this Section shall prevent direct
observed in servicing NOW accounts: settlement between the parties concerned.
a. Prior to or simultaneous with the The provision of Sec. X202 shall also
opening of a NOW account, the bank shall apply for withdrawals on NOW accounts.
inform the depositor of its terms and
conditions. Secs. X227 - X230 (Reserved)
b. The bank shall be responsible for
the proper identification of its depositors; D. TIME DEPOSITS
it shall require, among other things, two
(2) specimen signatures and such other Sec. X231 Term of Time Deposits. Time
pertinent information. deposits shall be issued for a specific period
c. Deposits shall be covered by of term.
deposit slips in duplicate duly validated
and initialed by the teller receiving the Sec. X232 Special Time Deposits
deposit. A copy of the deposit slip shall be Authority shall be automatically granted
furnished the depositor. to any accredited banking institution which
d. NOW accounts shall be kept and may participate in the supervised credit
maintained separately from the regular program to accept special time deposits
savings deposits. from the Agrarian Reform Fund
e. Blank NOW forms shall be Commission with interest lower than the
prenumbered and shall be controlled as rate allowed on time deposits accepted
in the case of unissued blank checks. from the general public. Such deposits

§§ X232 - X233.4
05.12.31
shall be exempt from the legal reserve b. That it has complied with all other
requirements, as an exception to the conditions that the BSP may impose.
existing policies on the matter. The applicant bank shall submit a
written notice to the appropriate
Sec. X233 Certificates of Time Deposit supervising and examining department of
a. Negotiable Certificates of Time the BSP of the actual date when the NCTDs
Deposit (NCTDs) are actually issued to the public not later
1. UBs/KBs may issue NCTDs than ten (10) banking days from such
without approval of the BSP. issuance.
2. TBs/RBs/Coop Banks may issue
NCTDs upon the prior approval of the § X233.3 Minimum features
BSP. a. Form; denomination - NCTDs may
b. Non-Negotiable Certificates of be issued in bearer or other form denoting
Time Deposit negotiability and shall have a standard
Banks may issue long-term non- format to be prescribed by the BSP which
negotiable tax-exempt certificates of time shall be prenumbered serially and
deposit without approval of the BSP. predenominated. The minimum
denomination shall be at the discretion
§ X233.1 Prerequisites to issue of the issuing bank. No certificate payable
NCTDs for thrift banks/rural banks/ to bearer shall contain words prohibiting
cooperative banks. In addition to the its negotiation.
Standard Pre-qualification Requirements b. Term - The minimum maturity of
for the Grant of Banking Authorities the certificates shall be 731 days.
enumerated in Appendix 5, a TB/RB/Coop c. Manner of issuance - The certificates
Bank applying for authority to issue shall be issued only upon receipt of funds
NCTDs shall also comply with the equivalent to their face value.
following requirements: d. Manner of printing - NCTDs shall
a. Applicant’s capital must be at least be printed on security paper by the
P150.0 million. For this purpose, capital Security Printing Plant (SPP) of the BSP.
shall have the same meaning as in Sec. Orders for the printing of the desired
X106; and forms shall not exceed a total value
b. It must be a member of the PDIC equivalent to twenty percent (20%) of the
in good standing. issuing bank’s capital accounts (based on
the quarter immediately preceding the
§ X233.2 Requirements for issuing request for printing) at any one time.
NCTDs. After a TB’s/RB’s/Coop Bank’s Additional orders for printing which shall
application to issue NCTDs has been result in an excess over the prescribed
approved, it may actually issue the benchmark shall require prior BSP
same subject to the following approval.
conditions:
a. Submission of a certification § X233.4 Insurance coverage. The
signed by the President/Chairman of the NCTDs shall be insured with the PDIC.
Board of the bank stating that the Banks issuing bearer certificates shall
requirements enumerated under Subsec. imprint on the instrument the following:
X233.1 have been complied with up to “For purposes of deposit insurance by
the day before the NCTDs are actually the PDIC, the holder shall have his name
issued to the public; and registered in the books of the issuing bank.”

§§ X233.5 - X233.9
05.12.31
§ X233.5 Desistance from issuing new resolution of the bank’s board of directors
NCTDs. Unless authorized by the BSP, authorizing the issuance of LTNCTD
TBs/RBs/Coop Banks with outstanding indicating, among others, the issue size,
NCTDs shall immediately desist from offering period, purpose or intended use
issuing new NCTDs. of proceeds thereof, Registry Bank,
All outstanding NCTDs shall be valid Underwriter/Arranger, Selling Agent(s) and
and negotiable up to their maturity dates Market Maker(s).
and shall not be subject to renewal. c. Pre-qualification requirements
(1) Issuing bank
§ X233.6 Sanctions. If any part of A bank applying for authority to issue
the certification submitted by the bank an LTNCTD shall comply with the
as required in these guidelines is found following requirements:
to be false, the following sanctions (a) It has complied with the following
shall be imposed, without prejudice capital adequacy requirements:
to the sanctions under Section 35 of (i) Minimum capitalization as defined
R.A. No. 7653. under Section X106; and
a. On the Bank (ii) Risk-based capital adequacy ratio
Suspension of its authority to issue under Sec. X116 within the sixty (60) days
NCTDs for one (1) year. immediately preceding the date of
b. On the Certifying Officer application.
A fine of P5,000 per day from the time (b) It has not incurred net weekly
the certification was made up to the time reserve deficiencies within eight (8) weeks
the certification was found to be false. immediately preceding the date of
application;
§§ X233.7 - X233.8 (Reserved) (c) It has generally complied with
banking laws, rules and regulations, orders
§ X233.9 Long-term negotiable or instructions of the Monetary Board and/
certificates of time deposit. The following or BSP Management in the last two (2)
guidelines shall govern the issuance of long- preceding examinations prior to the date
term negotiable certificates of time deposit of application, more particularly:
(LTNCTD) with a minimum maturity of five (i) The ceilings on credit accom-
(5) years: modations to DOSRI;
a. Prior BSP approval. No LTNCTD (ii) Liquidity floor requirements for
shall be issued without the prior approval government deposits;
of the BSP. (iii) Single borrower’s loan limit; and
b. Application for authority of the (iv) Investment in bank premises and
issuing bank. An application for authority other fixed assets.
on each issue/issue program of LTNCTD (d) It maintains adequate provisions
shall be filed with the appropriate SED of for probable losses commensurate to the
the BSP: Provided, That the issue period quality of its asset portfolio but not lower
of an issue program of two (2) or more than the required valuation reserves as
tranches shall not exceed one (1) year from determined by the BSP;
approval. (e) It does not have float items
The application shall be signed by the outstanding for more than sixty (60)
President/Country Manager (branch of a calendar days in the “Due From/To Head
foreign bank) of the bank. It shall be Office/Branches/Offices” accounts and the
accompanied by a certified true copy of the “Due From Bangko Sentral“ account

§ X233.9
05.12.31
exceeding one percent (1%) of the total (ii) it is not related in any manner that
resources as of date of application; would undermine the objective conduct of
(f) It has no past due obligations with due diligence.
the BSP or with any government financial (c) Underwriters must be well-
institution; capitalized and must have adequate risk
(g) It has established a risk management management as evidenced by compliance
system appropriate to its operations with Items “c(1)(a), (d), (g) and (h)” as may
characterized by clear delineation of be applicable.
responsibility for risk management, adequate (4) Selling Agent.
risk measurement systems, appropriately It may be any financial institution, with
structured risk limits, effective internal dealership or brokering license, under the
controls and complete, timely and efficient regulatory supervision of the BSP.
risk reporting system; (5) Market Maker
(h) It has a CAMELS Composite Rating (a) It must not be the Issuing Bank;
of at least “3” in the last regular (b) It must be a third party which is
examination; and not related to the Issuing Bank in any
(i) It is a member of PDIC in good manner that would undermine its
standing. independence;
(2) Registry Bank (c) It must be a financial institution,
(a) It may be a UB, a KB, or such with dealership or brokering license, under
other specialized entity that may be the regulatory supervision of the BSP; and
qualified by the Monetary Board; (d) It must be well-capitalized and must
(b) In the case of a UB or a KB: have adequate risk management as
(i) It must be a third party: evidenced by compliance with Items
(aa) with no subsidiary/affiliate “c(1)(a), (d), (g) and (h)” as may be
relationship with the Issuing Bank; and applicable.
(bb) which is not related to the Issuing d. Additional requirements for the
Bank in any manner that would undermine issuance of LTNCTD. After a bank’s
its independence. application to issue an LTNCTD has been
(ii) It must have adequate facilities approved, it may issue the same, subject to
and the organization to do the following: the submission of the following additional
(aa) Maintain the Electronic Registry requirements:
Book (ERB); (1) At least fifteen (15) days before the
(bb) Deliver transactions within the date of offering:
agreed trading period; and (a) Written waiver of the secrecy of
(cc) Issue registry confirmations to deposits on said LTNCTD by the Issuing
holders of LTNCTDs. Bank, its subsidiaries, affiliates and wholly
(iii) It must have a CAMELS or majority-owned or -controlled entities of
Composite Rating of at least “3” in the last such subsidiaries and affiliates;
regular examination. (b) Information disclosure and the
(3) Underwriter/Arranger terms and conditions of the LTNCTD
(a) It is either a UB or an IH: Provided, issuance;
That if an offering is on a best-efforts basis, (c) Promotional materials; and
such Arranger may also be a KB; (d) Specimen of the proposed registry
(b) It must be a third party, such that: confirmation and purchase advice from
(i) it has no subsidiary/affiliate each Selling Agent/Market Maker which will
relationship with the Issuing Bank; and evidence sale of the LTNCTD.

§ X233.9
05.12.31
(2) Within ten (10) days after issuance (3) Selling Agent
of the initial and subsequent tranches: (a) Verifies identity of each investor
Written notice to the appropriate SED and applies other standards to combat
of the actual date of initial/tranche offering money laundering as required under Sec.
accompanied by a certification by the X691; and
President/Country Manager that the pre- (b) Issues the purchase advice for the
qualification requirements under Item primary offering of the LTNCTDs.
“c(1)” have been complied with up to the (4) Market Maker
time of offering. (a) Sets independent pricing for the
e. Functions/responsibilities of the secondary trading of LTNCTDs;
parties involved. The respective parties shall (b) Posts daily the bid and offer prices
have, among others, the following for the LTNCTDs on the screen of at least
functions/responsibilities: one (1) of the information providers until
(1) Registry Bank the operation of a fixed income exchange
(a) Generates and maintains the ERB; for LTNCTDs;
(b) Records any transfer of ownership; (c) Verifies identity of each investor
(c) Issues and sends registry and applies other standards to combat
confirmation to holders; money laundering as required under Sec.
(d) Functions as paying agent for X691;
periodic interest and principal payments; and (d) Issues the purchase advice for the
(e) Monitors compliance with the secondary sale of the LTNCTDs; and
prohibition on holdings of LTNCTD, as (e) Ensures secondary market transfers
prescribed under Item “h” hereof. and registration in coordination with the
(2) Underwriter/Arranger Registry Bank.
(a) Conducts due diligence on the f. Change of Underwriter/Arranger,
Issuing Bank and determines the valuation/ Registry Bank, Selling Agent(s)/Market
pricing of the primary issue; Maker(s). After an application for authority
(b) Prepares the prospectus/ to issue LTNCTDs has been approved by
information disclosure/ updates for multi- the BSP, the Issuing Bank cannot change
tranche issues; its Underwriter/Arranger, Registry Bank,
(c) Formulates the distribution/ Selling Agent(s) and Market Maker(s)
allocation plan for the initial offering and without the prior approval of the BSP.
ensures proper and orderly distribution of g. W a i v e r o f t h e s e c r e c y o f
the primary sale/issue of the LTNCTDs; deposits for Market Makers. A market
(d) Disseminates information to maker who holds an LTNCTD for its own
prospective depositors/investors of account must issue a waiver of the secrecy
LTNCTDs on the terms and conditions of of deposits in favor of the BSP for
the issue (including information of non- examination purposes. Any information
pretermination by the depositor prior to obtained from an examination of said
original maturity and the liquidity LTNCTD shall be held strictly confidential.
mechanism in secondary trades) and the h. Prohibition on holdings of
rights and obligations of the holder, Issuer, LTNCTDs. The Issuing Bank including its
Market Maker/Selling Agent, Underwriter/ related companies (subsidiaries and
Arranger and Registry Bank; and affiliates and wholly or majority-owned or
(e) When selling to its clients, it must -controlled entities of such subsidiaries and
perform the functions/responsibilities of the affiliates) cannot be a holder of the
Selling Agent under Items “e(3)(a) and (b)”. LTNCTDs of the Issuing Bank.

§ X233.9
05.12.31
The Issuing Bank shall provide the (1) The Purchase Advice and Registry
Registry Bank with an updated list of all Confirmation shall conspicuously contain
related companies. This report shall be a the following caveat:
“Category B” report. (a) “This LTNCTD cannot be
For purposes of this Subsection, an terminated by the holder nor the Issuing
affiliate is an entity, at least twenty percent Bank before (maturity date). However,
(20%) but not exceeding fifty percent negotiations/transfers from one (1) holder to
(50%) outstanding voting stock of which another do not constitute pretermination.”
is, owned by the Issuing Bank. The caveat shall apply if the Issuing
i. Agreements between Issuing Bank Bank commits no pretermination.
and Registry Bank/Selling Agent(s)/Market Otherwise, it shall read as follows:
maker(s). The agreements between the “This LTNCTD cannot be terminated
Issuing Bank and the Registry Bank/Market by the holder before (maturity date).
Makers/Selling Agents shall comply with However, it may be preterminated at the
the provisions of Sec. X169 on bank service instance of the Issuing Bank upon prior
contracts. The Issuing Bank shall be liable notice to the holder on record.
for any damages to investors/depositors Negotiations/transfers from one (1) holder
caused by actions of said Registry Bank, to another do not constitute
Selling Agent(s)/Market Maker(s) contrary pretermination”. and
to the agreements entered into. (b) “All negotiations/transfers of this
j. Minimum features LTNCTD prior to maturity must be coursed
(1) Form; denomination - An through a Market Maker”.
LTNCTD shall be in scripless form with a (2) The Selling Agent/Market Maker
third party Registry Bank maintaining the shall issue a Purchase Advice to evidence
ERB. To have legal effect, it shall comply initial purchase/ secondary trading of
with the provisions of R.A. No. 8792 LTNCTD with the original copy given to
(Electronic Commerce Act) particularly on the holder.
the existence of an assurance on the (3) The Registry Bank shall issue a
integrity, reliability and authenticity of the Registry Confirmation to evidence
LTNCTD in electronic form. LTNCTDs ownership of the LTNCTD, with the
shall be registered in the name of original copy given to the holder.
individuals or corporations, negotiable and l. Issue size and aggregate ceiling. An
prenumbered serially. The minimum Issuing Bank can issue LTNCTDs up to
denomination shall be at the discretion of 300% of its total capital accounts as defined
the Issuing Bank. under Subsec. X106/X121.5: Provided,
(2) Currency - Denomination shall be That each issue/issue program size does not
in Philippine pesos. exceed P5.0 billion pesos. This ceiling shall
(3) Term - The minimum maturity of be subject to a regular review by the BSP.
the LTNCTDs shall be five (5) years. m. Deposit insurance coverage. The
(4) Primary Offering/Secondary LTNCTDs shall be insured with the PDIC,
Trading – The initial offering shall be subject to applicable rules and regulations,
executed through an Underwriter or an among others, on maximum insurance
Arranger. Subsequent negotiations in coverage.
secondary trading must be executed n. Pretermination by the issuer.
through authorized Market Maker(s). LTNCTDs may be preterminated by the
k. Purchase Advice and Registry Issuing Bank, subject to the following
Confirmation conditions:

§§ X233.9 - X233.11
05.12.31
(1) The Information Disclosure, LTNCTDs and a monetary penalty of P

Purchase Advice and Registry Confirmation 30,000 for each violation.
shall include the information that the (2) On the Registry Bank -
LTNCTD may be preterminated by the Disqualification to be a Registry Bank for
Issuing Bank; one(1)-year and a monetary penalty of
(2) Thirty (30) days prior notification P30,000 for each violation.
must be given to the appropriate SED of (3) On all authorized Selling Agents/
the BSP together with the justification for Market Makers – Disqualification to be
the pretermination; appointed as Selling Agent/Market Maker
(3) Thirty (30) days prior notification for one (1) year and a monetary penalty of
to holders of record; P30,000 for each violation.
(4) Notwithstanding any agreement to (4) On the Certifying Officer - A fine
the contrary, the Issuer shall shoulder the of P5,000 per banking day from the time
tax due on the interest income already of required disclosure up to the time
earned by the holders; and disclosure was made; or from the time
(5) The Issuing Bank’s reserve positions misrepresentation was made up to the time
shall be recomputed retroactively based on the information was corrected.
the applicable reserve rate(s) for regular time (5) On the Responsible Officer – A fine
deposits during the affected periods. of P30,000 for participating or confirming
If the recomputed amounts result in a in the non-disclosure or misrepresentation
reserve deficiency, the Issuing Bank shall of information.
be fined with the corresponding monetary
penalties. The preceding monetary penalty, § X233.10 (Reserved)
however, shall not be imposed if
pretermination by the Issuer is due to a § X233.11 Long-term non-negotiable
change in law or regulation that will tax-exempt certificates of time deposit
increase the cost of maintaining the The issuance of long-term non-negotiable
LTNCTDs. tax-exempt certificates of time deposit shall
o. Non-pretermination by the holder. be governed by the following rules.
Presentation of the LTNCTD to the Issuing a. Minimum features
Bank for payment before the maturity date (1) Form; denominations - The
is not allowed. However, negotiation or certificate shall contain words denoting its
transfer from one (1) holder to another shall non-negotiability and shall be issued by
not constitute pretermination of the banks only in the name of individuals with
LTNCTD. denominations in increments of P1,000.00.
p. Sanctions. Without prejudice to the (2) Term - The minimum maturity of
other sanctions prescribed under Section the certificate shall be five (5) years.
37 of R.A. No. 7653 and the provisions of (3) Manner of issuance - The certificate
Section 16 of R.A. No. 8791, the following shall be issued only upon receipt of funds
sanctions will be imposed on any Issuing equivalent to their face value.
Bank, Registry Bank and other parties for (4) Manner of printing - The certificate
failure to perform their respective functions/ shall be printed on security paper.
responsibilities and for non-disclosure or (5) Pre-termination - In case of pre-
misrepresentation of information: termination, the deposit shall be subject to
(1) On the Issuing Bank – Suspension income tax as provided under Section
of its authority to issue LTNCTDs, 24(B)(1) of the Tax Reform Act of 1997
disqualification from future issuance of which states that “xxx a final tax shall be

§§ X233.11 - X234.3
05.12.31
imposed on the entire income and shall § X234.2 Definition of terms and
be deducted and withheld by the phrases. The following terms and phrases
depository bank from the proceeds of the shall be understood as follows:
long-term deposit or investment certificate a. Borrowing shall refer to all forms
based on the remaining maturity thereof: of obtaining or raising funds through any
(a) Four (4) years to less than of the methods and for any of the purposes
five (5) years 5% provided in Subsec. X234.1 whether the
(b) Three (3) years to less than borrower’s liability thereby is treated as
four (4) years 12% real or contingent.
(c) Less than three (3) years 20%" b. For the borrower’s own account
b. Insurance coverage. The deposits shall refer to the assumption of liability in
shall be insured with the PDIC, subject to one’s own capacity and not in
applicable rules and regulations, among representation, or as an agent or trustee,
others, on maximum insurance coverage. of another.
c. Reserves against long-term non- c. Purchasing of receivables or other
negotiable certificates of time deposit. The obligations shall refer to the acquisition
rate and form of required reserves on regular of claims collectible in money, including
time deposit shall also apply to the required interbank borrowings or borrowings
reserves on long-term non-negotiable tax- between financial institutions, or of
exempt certificates of time deposit. acquisition of securities, of any amount
and maturity, from domestic or foreign
E. DEPOSIT SUBSTITUTE OPERATIONS sources.
(QUASI-BANKING FUNCTIONS) d. Relending shall refer to the
extension of loans by an institution with
Sec. X234 Scope of Quasi-Banking antecedent borrowing transactions.
Functions. The following rules and Relending shall be presumed, in the
regulations shall govern the quasi-banking absence of express stipulations, when the
operations of banks. institution is regularly engaged in lending.
e. Regularly engaged in lending
§ X234.1 Elements of quasi-banking shall refer to the practice of extending
The essential elements of quasi-banking are: loans, advances, discounts or rediscounts
a. Borrowing funds for the borrower’s as a matter of business, as distinguished
own account; from isolated lending transactions.
b. Twenty (20) or more lenders at any
one time; § X234.3 Transactions not considered
c. Methods of borrowing are quasi-banking. The following shall not
issuance, endorsement, or acceptance of constitute quasi-banking:
debt instruments of any kind, other than a. Borrowing by commercial,
deposits, such as acceptances, promissory industrial and other non-financial
notes, participations, certificates of companies through any of the means listed
assignments or similar instruments with in Subsec. X234.1 hereof, for the limited
recourse, trust certificates, repurchase purpose of financing their own needs or
agreements, and such other instruments as the needs of their agents or dealers; and
the Monetary Board may determine; and b. The mere buying and selling
d. The purpose of which is (1) without recourse of instruments
relending, or (2) purchasing receivables or mentioned in Subsec. X234.1: Provided,
other obligations. That:

§§ X234.3 - X234.5
05.12.31
(1) The institution buying and selling R.A. 8791, is not a condition but an
without recourse shall indicate in authorization for the bank or quasi-bank,
conspicuous print on its instrument the phrase once the Monetary Board has granted the
without recourse, sans recourse or words quasi-banking license.
of similar import that will convey the absence In addition to the Standard Pre-
of liability or guarantee by said institution; and qualification Requirements for the Grant of
(2) In the absence of the phrase Bank Authorities enumerated in Appendix
“without recourse”, “sans recourse” or 5, a TB securing BSP authority to engage
words of similar import, the instrument so in quasi-banking functions must meet the
issued, endorsed or accepted, shall following requirements:
automatically be considered as falling within a. The bank must have a networth or
the purview of these regulations: Provided, combined capital of at least P650.0 million
further, That any of the following practices computed in accordance with Section
or practices similar and/or tantamount thereto X106;
in connection with a without recourse b. The bank is well capitalized with
transaction is hereby prohibited: risk-based capital adequacy ratio of not
(a) Issuance of postdated checks by a lower than twelve percent (12%) at the time
financial intermediary, whether for its own of filing the application;
account or as an agent of the debt c. The bank’s operation during the
instrument issuer, in payment of the debt preceding calendar year and for the period
instrument, sold, assigned or transferred immediately preceding the date of
without recourse; or application has been profitable;
(b) Issuance by a financial intermediary d. The bank has elected at least two
of any form of guaranty on sale transactions (2) independent directors and all its
or on negotiations or assignment of debt directors have attended the required
instruments without recourse; and seminar for directors of banks conducted
(c) Payment with its own funds by a or accredited by the BSP;
financial intermediary which assigned, e. The bank has established a risk
sold or transferred the debt instrument management system appropriate to its
without recourse, unless the financial operations characterized by clear
intermediary can show that the issuer has delineation of responsibility for risk
with the said financial intermediary funds management, adequate risk measurement
corresponding to the amount of the systems, appropriately structured risk limits,
obligation. effective internal controls, and complete,
timely and efficient risk reporting system; and
§ X234.4 Pre-conditions for the f. The bank has a CAMELS Composite
exercise of quasi-banking functions. No Rating of at least “3” in the last regular
bank shall engage in quasi-banking examination with management rating of not
functions without authority from the BSP: lower than “3”.
Provided, however, That banks authorized
by the BSP to perform universal or § X234.5 Certificate of Authority from
commercial banking functions shall the Bangko Sentral. A bank securing BSP’s
automatically have the authority to engage Certificate of Authority to engage in quasi-
in quasi-banking functions: Provided, banking functions shall file an application
further, That the authority to obtain funds with the appropriate SED of the BSP. The
from the public, which shall mean twenty application shall be signed by the bank
(20) or more persons under Section 8.2 of president or officer of equivalent rank and

§§ X234.5 - X235.1
05.12.31
shall be accompanied by the following with this requirement: Provided, further,

documents: That in case, the TB has no approved capital
a. Certified true copy of the build-up program, the minimum capital
resolution of the bank’s board of directors requirement may be substituted by a capital
authorizing the application; build-up program for a period of not more
b. A certification signed by the than five (5) years from 11 November 2004
president or the officer of equivalent rank and which must be approved by the
that the institution has complied with all Monetary Board. Such capital build-up
conditions/prerequisites for the grant of program shall be in equal annual or
authority to engage in quasi-banking diminishing amounts and shall be
functions; submitted to the appropriate SED of the BSP
c. An information sheet; within three (3) months from 11 November
d. Bio-data signed under oath, of the 2004.
members of the managerial staff who will TBs which fail to comply with the
undertake quasi-banking operations; required capitalization upon expiration of
e. Borrowing-investment program for said two (2) year period given them or those
one (1) year which should include at the which fail to comply with approved capital
minimum: build-up program shall liquidate their
(1) planned distribution of portfolios quasi-banking operations within one (1)
as to – year and shall be considered revoked/
(a) underwriting; cancelled. The license of a TB with
(b) commercial paper markets; authority to engage in quasi-banking
(c) stocks and bonds; functions but has not actually engaged in
(d) government securities; quasi-banking functions and has not
(e) receivables financing, discounting complied with the above minimum capital
and factoring; requirements as of 11 November 2004,
(f) leasing; and shall automatically be revoked.
(g) direct loans;
(2) expected sources of funds to support Sec. X235 Deposit Substitute Instruments
investment program classified as to – Any deposit substitute transaction by a
(a) maturity: short, medium and long- bank performing quasi-banking functions
term; shall be limited to its own promissory notes,
(b) interest rates; and repurchase agreements, and certificates
(c) domestic or foreign sources of assignment/participation with recourse.
whether institutional or personal.
TBs authorized to engage and are § X235.1 Prohibition against use
actually performing quasi-banking of acceptances, bills of exchange and
functions but do not meet the new capital trust certificates. Acceptances, bills of
requirement are hereby given a period of exchange, and trust certificates shall not be
two (2) years reckoned from 11 November used by banks as evidence of deposit
2004 within which to comply with the substitute liabilities in connection with
minimum capital requirement in Subsec. their quasi-banking functions. This
X234.4 (a): Provided, That in case the TB prohibition shall not apply to the
has an approved capital build-up program acceptance or negotiation of bills of
under Subsec. X501.2, for its FDCU exchange in connection with trade
license, the approved capital build-up transactions, or to the issuance of trust
program, may be considered compliance certificates creating trust relationships.

§§ X235.2 - X235.3
04.12.31
§ X235.2 Negotiation of promissory f. A conspicuous notice at the lower

notes. Negotiable promissory notes center margin of the face of the instrument
acquired by banks in connection with their that the transaction is not insured by the
quasi-banking functions shall not be PDIC shall be indicated.
negotiated by mere indorsements and/or g. The corporate name of the issuer
delivery, if they do not conform with the shall be printed at the upper center margin
minimum features prescribed under of the instrument and directly below which
Subsec. X235.3. If these notes do not shall be a designation of the instrument,
contain the features, their negotiation shall such as “Promissory Note” or “Repurchase
be covered by any of the appropriate deposit Agreement”.
substitute instruments above-mentioned. h. The words “duly authorized
officer“ shall be placed directly below the
§ X235.3 Minimum features. Deposit signature of the person signing for the
substitute instruments issued by entities maker or issuer.
performing quasi-banking functions shall i. Each instrument shall be serially
have the following minimum features: pre-numbered.
a. The present value and maturity j. The copy delivered to the payee
value and/or the principal amount and shall bear the word “Original” and the
interest rate and such other information as copies retained by the issuer shall be
may be necessary to enable the parties to identified as “Duplicate”, “File Copy” or
determine the cost or yield of the borrowing words of similar import.
or placement shall be specified. k. Only security paper with adequate
b. The date of issuance shall be safeguards against alteration or falsification
indicated at the upper right corner of the shall be used.
instrument, and directly below which shall Borrowings of banks from the loans and
be the maturity period or the word discounts window of other banks or non-
“demand”, if it is a demand instrument. bank financial intermediaries shall be
c. The payee may be identified by his exempted from the documentation
trust account/deposit account number in requirements prescribed in this Subsection:
both negotiable and non-negotiable Provided, That the exemption from the
instruments. documentation requirements prescribed in
d. Securities which are the subject of this Subsection shall not be construed or
a repurchase agreement or a certificate of interpreted as exempting said borrowings
assignment/participation with recourse, from other regulations standardizing
shall be particularly described on the face deposit substitute instruments and from
of said instruments or on a separate other BSP regulations on deposit
instrument attached and specifically substitutes.
referred to therein and made an integral Deposit substitute instruments shall
part thereof as to the maker, value, conform to the language prescribed by the
maturity, serial number, and such other BSP. Any substantial deviation therefrom
particulars as shall clearly identify the or any additional stipulation therein shall
securities. be referred to the BSP for prior approval.
e. The instrument shall provide for the The size and appearance of these
payment of liquidated damages, in addition instruments, shall not be similar to the size
to stipulated interest, in case of default by and appearance of these instruments, shall
the maker or issuer, as well as attorney’s not be similar to the size and appearance
fees and costs of collection in case of suit. of checks. Rubber stamping, typewriting or

§§ X235.3 - X235.6
05.12.31
handwriting some provisions shall not be The delivery shall be effected upon
considered compliance with said payment and shall be evidenced by a
regulations. (Shown in Appendix 12 are securities delivery receipt duly signed by
the samples of standardized instruments authorized officers of the custodian and
as evidence of deposit substitute liabilities.) delivered to both the lender/purchaser and
seller/borrower.
§ X235.4 Interbank loan transactions b. Sanctions. Violation of any
Except for interbank loan transactions provision of this Subsection shall be subject
evidenced by interbank loan advice or to the following sanctions/penalties:
repayment transfer tickets settled thru the (1) Monetary penalties
demand deposit accounts with the BSP, First Offense – Fine of P10,000 a day
all interbank loan transactions shall be for each violation reckoned from the date
evidenced by a promissory note the violation was committed up to the date
containing the minimum features it was corrected.
prescribed in Subsec. X235.3. Subsequent offenses – Fine of P20,000
a day for each violation reckoned from the
§ X235.5 Delivery of securities 1 date the violation was committed up to the
a. Securities, warehouse receipts, date it was corrected.
quedans and other documents of title (2) Other sanctions
which are the subject of quasi-banking First offense – Reprimand for the directors/
functions, such as repurchase agreements, officers responsible for the violation.
shall be physically delivered, if certificated, Subsequent offense –
to a BSP accredited custodian that is (a) Suspension for ninety (90) days
mutually acceptable to the lender/ without pay of directors/officers responsible
purchaser and borrower/seller, or by for the violation;
means of book-entry transfer to the (b) Suspension or revocation of the
appropriate securities account of the BSP accreditation to perform custodianship
accredited custodian in a registry for said function;
securities, if immobilized or (c) Suspension or revocation of the
dematerialized while the overlying authority to engage in quasi-banking
principal borrowing instrument shall be function; and/or
physically delivered to the lender/ (d) Suspension or revocation of the
purchaser. The custodian shall hold the authority to engage in trust and other
securities in the name of the borrower/ fiduciary business.
seller, but shall keep said securities
segregated from the regular securities § X235.6 Other rules and regulations
account of the borrower/seller if the governing the issuance and treatment of
borrower/seller has an existing securities deposit substitute instruments
account with the custodian: Provided, That a. If there is any stipulation that
a bank/other entity authorized by the BSP payment of the deposit substitute shall be
to perform custodianship function may not chargeable against a particular deposit
be allowed to be custodian of securities account, it shall further provide that the
issued or owned by said bank/entity, its liability of the maker or issuer of the
subsidiaries or affiliates, or of securities in instrument shall not be limited to the
bearer form. outstanding balance of said account.
1
Amendments under Circular 392 dated 23 July 2003 shall take effect on 01 January 2005 for all securities transactions,
regardless of the date of their execution under Circular 460 dated 12 November 2004.

§§ X235.6 - X235.12
05.12.31
b. Any agreement allowing the issuer in accordance with existing BSP

or maker to substitute the underlying regulations.
securities shall further provide that the The absence of proper documentation for
actual substitution shall be with the prior repurchase agreements is tantamount to
written consent of the payee. willful omission of entries relevant to any
c. Automatic renewal upon maturity transaction, which shall be a ground for the
of the instrument may be effected only imposition of administrative sanctions and
under terms and conditions previously the disqualification from office of any
stipulated by the parties. director or officer responsible therefor
d. Stipulations between the maker or under existing laws and regulations.
issuer and the payee which are embodied b. Responsibilities of the Chief
in separate instruments shall be specifically Executive Officer (CEO) or Officer of
referred to in the deposit substitute Equivalent Rank.
instruments and made an integral part It shall be the responsibility of the CEO
thereof. or the officer of equivalent rank in a bank
e. In the case of repurchase to:
agreements and certificates of (1) Institute policies and procedures to
assignment/participation with recourse, prevent undocumented or improperly
the stipulation shall clearly state either (1) documented repurchase agreements
that the underlying securities are being covering government securities,
delivered to the buyer or assignee as commercial papers and other negotiable
collaterals or (2) that the ownership and non-negotiable securities or
thereof is being transferred to the buyer instruments;
or assignee. (2) Submit a notarized certification at
the end of every semester that the bank did
§§ X235.7 - X235.11 (Reserved) not enter into any repurchase agreement
covering government securities,
§ X235.12 Repurchase agreements commercial papers and other negotiable
covering government securities, and non-negotiable securities or
commercial papers and other negotiable instruments that are not documented in
and non-negotiable securities or accordance with existing BSP regulations
instruments. The following regulations shall and that the bank has strictly complied with
govern repurchase agreements covering the pertinent rules of the SEC and the BSP
government securities, commercial papers on the proper sale of securities to the public
and other negotiable and non-negotiable and performed the necessary
securities or instruments of banks as well as representations and disclosures on the
sale on a without recourse basis of said securities particularly the following:
securities by banks. (a) Informed the clients that such
a. Proper recording and documentation securities are not deposits and as such, do
of repurchase agreements. not benefit from any insurance otherwise
Banks shall have a true and accurate applicable to deposits such as, but not
account, record or statement of their daily limited to, R.A. No. 3591, as amended,
transactions. As such, repurchase otherwise known as the PDIC law;
agreements covering government securities, (b) Informed and explained to the
commercial papers and other negotiable client all the basic features of the security
and non-negotiable securities or instruments being sold on a without recourse basis, such
must be properly recorded and documented as but not limited to:

§ X235.12
05.12.31
(i) issuer and its financial condition; (d) Clearly stated to the client that:
(ii) term and maturity date; (i) The bank does not guarantee the
(iii) applicable interest rate and its payment of the security sold on a “without
computation; recourse basis” and in the event of default
(iv) tax features (whether taxable, tax by the issuer, the sole credit risk shall be
paid or tax-exempt); borne by the client; and
(v) risk factors and investment (ii) The bank is not performing any
considerations; advisory or fiduciary function.
(vi) liquidity feature of the instrument: (3) Report to the appropriate SED of the
(aa) procedures for selling the security BSP any undocumented repurchase
in the secondary market (e.g., OTC or agreement within seventy-two (72) hours
exchange); from knowledge of such transactions.
(bb) authorized selling agents; and c. Treatment as Deposit Substitutes.
(cc) minimum selling lots. All sales of government securities,
(vii) disposition of the security: commercial papers and other negotiable and
(aa) registry (address and contact non-negotiable securities or instruments that
numbers); are not documented in accordance with
(bb) functions of the registry; and existing BSP regulations shall be deemed
(cc) pertinent registry rules and to be deposit substitutes subject to regular
procedures. reserves.
(viii) collecting and paying agent of the d. Certification. The submission
interest and principal; and deadline for the required certification from
(ix) other pertinent terms and the CEO/officer of equivalent rank of the
conditions of the security and if possible, a bank shall initially be 1 February 2005 using
copy of the prospectus or information sheet the format attached as Annex A of Appendix
of the security. 65. Thereafter, the required succeeding
(c) Informed the client that pursuant certification shall be submitted within five
to Subsecs. X235.5 and X238.1: (5) banking days from end of reference
(i) Securities sold under repurchase semester using the format attached as
agreements shall be physically delivered, Appendix 65.
if certificated, to a BSP accredited custodian e. Sanctions. The Monetary Board
that is mutually acceptable to the client and may, at its evaluation and discretion, impose
the bank, or by means of book-entry transfer any or all of the following sanctions to a
to the appropriate securities account of the bank or the director/s or officer/s found to
BSP accredited custodian in a registry for be responsible for repurchase agreements
said securities, if immobilized or covering government securities, commercial
dematerialized; and papers and other negotiable and non-
(ii) Securities sold on a without negotiable securities or instruments that are
recourse basis are required to be delivered not documented in accordance with existing
physically to the purchaser, or to his BSP regulations:
designated custodian duly accredited by (1) Fine of up to P30,000 a day to the
the BSP, if certificated, or by means of concerned entity for each violation from the
book-entry transfer to the appropriate date the violation was committed up to the
securities account of the purchaser or his date it was corrected;
designated custodian in a registry for said (2) Suspension of interbank clearing
securities if immobilized or privileges/immediate exclusion from
dematerialized. clearing;

§§ X235.12 - X237.2
05.12.31
(3) Suspension of access to BSP § X237.1 Definition of terms. As used

rediscounting facilities; in this Section, the following terms shall
(4) Suspension of lending or foreign have the following meanings:
exchange operations or authority to accept a. Money market placements shall
new deposits or make new investments; include investments in debt instruments,
(5) Revocation of quasi-banking license; including purchase of receivables with
(6) Revocation of authority to perform recourse to the lending institution, except
trust operations; and purchase of government securities on an
(7) Suspension for one hundred twenty outright basis.
(120) days without pay of the directors/ b. Government securities shall include
officers responsible for the violation. evidences of indebtedness of the Republic
of the Philippines, the BSP and other
Sec. X236 Minimum Trading Lot and evidences of indebtedness or obligations of
Minimum Term of Deposit Substitute government entities the servicing and
a. The minimum size of any single repayment of which are fully guaranteed by
deposit substitute transaction shall be the Republic of the Philippines.
P50,000. c. Persistent violation shall mean the
No bank performing quasi-banking violation of any of the provisions of these
functions shall issue deposit substitute rules by the director or officer concerned
instruments in the name of two (2) or more for four (4) or more times within a twelve
persons or accounts except those falling (12)-month period from the date the first
under the following relationships in which offense was committed.
cases, commingling may be allowed: (a)
husband and wife; (b) persons related to § X237.2 Conditions required on
each other within the second degree of accepted placements not covered by
consanguinity; and (c) “in trust for” (ITF) prohibition. Placements accepted which
arrangements. are otherwise not covered by the above
b. The minimum term of any single prohibition must comply with the
deposit substitute transaction shall be following conditions:
fifteen (15) days except interbank a. That total money market placements
borrowings, which shall not be subject to of an RB as stated in the certification,
this limitation. including the placement being accepted by
the entity concerned, shall not exceed the
Sec. X237 Money Market Placements of RB’s combined capital accounts or net worth
Rural Banks. Banks shall not accept less current obligations with the BSP or other
money market placements from any RB government financial entities;
unless the latter presents a certification b. The maturity of the money market
under oath stating: (a) that it has no overdue placement shall not exceed sixty (60) days;
special time deposits; (b) that it has no past and
due obligations with the BSP or other c. That placements shall be evidenced
government financial institutions; (c) the in all cases by promissory notes of
amount of its current obligations, if any, acceptingentities/repurchase agreements
with said government financial institutions; and/or certificates of participation/
and (d) the amount of its total outstanding assignment with recourse and that
money market placements. However, in underlying instruments shall be certificates
no case shall such banks sell receivables of indebtedness issued by the BSP or other
to RBs without recourse. government securities the servicing and

§§ X237.2 - X238.1
05.12.31
repayment of which are guaranteed by the Unregistered commercial papers may

Republic of the Philippines. be sold, discounted, assigned, or negotiated
by banks to the following:
§ X237.3 Sanctions. Violations of the a. other banks;
provisions of this Section shall be subject b. quasi-banks;
to the following sanctions/penalties: c. investment houses (IHs);
a. Monetary Penalties d. insurance companies;
First Offense - Fines of P3,000 a day, e. finance companies;
reckoned from the date placement started f. investment companies;
up to the date when said placement was g. pension or retirement plan
withdrawn, for each violation shall be maintained by the government of the
assessed on the bank. Philippines or any political subdivision
Subsequent Offenses - Fines of P5,000 thereof or managed by a bank or other
a day, reckoned from the date placement persons authorized by the Bangko Sentral
started up to the date placement was to engage in trust functions;
withdrawn, for each violation shall be h. funds managed by another bank or
assessed on the bank. other entities duly authorized to engage in
b. Other Sanctions trust or other fiduciary business; and
First Offense - Reprimand for the i. such other person as the SEC may by
directors/officers who approved the rule determine as qualified buyers, on the basis
acceptance/placement with a warning that of such factors as financial sophistication, net
subsequent violations will be subject to worth, knowledge, and experience in financial
more severe sanctions. and business matters, or amount of assets
Subsequent offenses - under management.
(1) Suspension for ninety (90) days
without pay for directors/officers who § X238.1 Delivery of securities1
approved the placement. a. Securities sold on a without
(2) Suspension or revocation of the recourse basis allowed under Section X238
authority to engage in quasi-banking shall be delivered physically to the
functions. purchaser, or to his designated custodian
duly accredited by the BSP, if certificated,
Sec. X238 Without Recourse Transactions or by means of book-entry transfer to the
No bank shall sell, discount, assign, or appropriate securities account of the
negotiate, in whole or in part, such as purchaser or his designated custodian in a
thru syndications, participations and other registry for said securities, if immobilized
similar arrangements, any notes, or dematerialized, while the confirmation
receivables, loans, debt instruments and of sale or document of conveyance by the
any type of financial asset or claim, except seller shall be physically delivered to the
government securities, or be a party in purchaser. The custodian shall hold the
any capacity in any of the above securities in the name of the buyer: Provided,
transactions, on a without recourse basis That a bank/other entity authorized by the
unless such receivables, notes, loans, debt BSP to perform custodianship function may
instruments and financial assets or claims not be allowed to be custodian of securities
are registered with the SEC. This issued or sold on a without recourse basis by
prohibition includes transactions between said bank/entity, its subsidiaries or affiliates,
a bank and its trust department. or of securities in bearer form.
1
Effective 01 January 2005 under Circular 460 dated 12 November 2004.

§§ X238.1 - X238.3
05.12.31
The delivery shall be effected upon § X238.3 Securities custodianship

payment and shall be evidenced by a operations
securities delivery receipt duly signed by a. Securities sold on a without
the authorized officer of the custodian and recourse basis shall be delivered to the
delivered to the purchaser. purchaser, or to his designated custodian
b. Sanctions. Violation of any duly accredited by the BSP: Provided, That
provision of this Subsection shall be subject a bank/other entity authorized by the BSP
to the following sanctions/penalties: to perform custodianship function may not
(1) Monetary penalties be allowed to be custodian of securities
First offense – Fine of P10,000 a day issued or sold on a without recourse basis
for each violation reckoned from the date by said bank/entity, its subsidiaries or
the violation was committed up to the date affiliates, or of securities in bearer form.
it was corrected. Existing securities being held under
Subsequent offenses – Fine of P20,000 custodianship by banks/other entities
a day for each violation reckoned from the under BSP supervision, which are not in
date the violation was committed up to the accordance with said regulation, must
date it was corrected. therefore, be delivered to a BSP accredited
(2) Other sanctions third party custodian. However, banks and
First offense – Reprimand for the other financial institutions under BSP
directors/officers responsible for the supervision may maintain custody of
violation. existing securities of their clients who are
Subsequent offense – unable or unwilling to take delivery
(a) Suspension for ninety (90) days pursuant to the provisions of Subsec.
without pay of directors/officers X235.5 but who declined to deliver their
responsible for the violation; existing securities to a BSP accredited third
(b) Suspension or revocation of the party custodian subject to the following
accreditation to perform custodianship conditions:
function; (1) the custody arrangements with
(c) Suspension or revocation of the clients have been in existence prior to 05
authority to engage in quasi-banking November 2004 (effectivity of Circular 457
function; and/or dated 14 October 2004);
(d) Suspension or revocation of the (2) the dealing bank/NBFI under BSP
authority to engage in trust and other supervision had been informed in writing
fiduciary business. by the client that he is not willing to have
his existing securities delivered to a third
§ X238.2 Sanctions. Unless specific party custodian;
sanctions are prescribed under these rules, (3) any BSP regulated institution shall
any violation of the provisions of this not enter into securities transactions with
Section shall be subject to any or all of the a client who has outstanding securities not
following sanctions: delivered to a BSP accredited third party
a. Suspension of quasi-banking custodian; and
authority for a period of six (6) months; (4) it shall be the responsibility of any
and BSP regulated institution to satisfy itself that
b. Monetary penalty of P500 per day the person purchasing securities from it has
per transaction for each officer of the bank no outstanding securities holdings which
involved in any capacity in any transaction were not delivered to a BSP accredited
violative of these regulations. third party custodian.

§§ X238.3 - X239.4
05.12.31
b. Sanctions. Without prejudice to the b. Net book value shall refer to the
penal and administrative sanctions provided acquisition cost of property or accounts
for under Sections 36 and 37, respectively, plus additions and improvements thereon
of the R.A. No. 7653, violation of any less valuation reserves, if any.
provision of this Subsection shall be subject c. Current market value shall refer to
to the following sanctions/penalties: the value of the property as established by
(1) First Offense – a duly licensed and independent appraiser.
(a) Fine of up to P10,000 a day for the
institution for each violation reckoned from § X239.2 Compliance with Securities
the date the violation was committed up and Exchange Commission rules on
to the date it was corrected; and registration of bond issues. All banks with
(b) Reprimand for the directors/officers quasi-banking authority issuing or
responsible for the violation. intending to issue bonds shall comply with
(2) Second Offense - the New Rules on Registration of Long-
(a) Fine of up to P20,000 a day for the Term Commercial Papers promulgated by
institution for each violation reckoned from the SEC (Appendix 13).
the date the violation was committed up
to the date it was corrected; and § X239.3 Notice to Bangko Sentral ng
(b) Suspension for ninety (90) days Pilipinas. Within three (3) days from approval
without pay of directors/officers by SEC of its bond issue, the bank concerned
responsible for the violation. shall notify the appropriate SED of the BSP
(3) Subsequent Offenses – of the approval attaching thereto the
(a) Fine of up to P30,000 a day for the documents required by the SEC for the
institution for each violation from the date issuance and registration of the bond issue.
the violation was committed up to the date
it was corrected; § X239.4 Minimum features. Bonds
(b) Suspension or revocation of the issued by banks shall have the following
authority to act as securities custodian and/ minimum features:
or registry; and a. Form; issue price; denomination.
(c) Suspension for one hundred twenty The trust indenture and the name of the
(120) days without pay of the directors/ indenture trustee shall be indicated on the
officers responsible for the violation. face of the bond certificate.
The SEC-assigned bond registration
Sec. X239 Issuance of Bonds. The number and expiry date, if any, shall
following guidelines shall govern the likewise be indicated, stamped on the face
issuance of bonds by banks with quasi- of each bond certificate issued.
banking authority. Bonds may be issued at face value, at
a discount or at a premium. Minimum
§ X239.1 Definition of terms. For denomination shall be P20,000.
purposes of this Section, unless the context b. Term - The minimum term of the
clearly indicates otherwise, the following bonds shall be four (4) years. No optional
shall have the meaning as indicated: redemption before the fourth year shall be
a. Government securities shall refer allowed.
to evidences of indebtedness of the c. Interest; manner; form of payment
Republic of the Philippines or its The bonds shall not be subject to interest
instrumentalities, or of the BSP, and must rate ceilings prescribed by the Monetary
be freely negotiable and regularly serviced. Board or Act No. 2655, as amended.

§§ X239.4 - X240
05.12.31
d. Trust indenture; collaterals; sinking § X239.5 Issuance of commercial

fund - A trust indenture shall be executed papers. The issuance of other forms of
between the issuer and a qualified trust commercial papers by banks with quasi-
corporation as trustee, which shall neither banking authority shall be subject to the
be an affiliate nor a subsidiary of the new rules on registration of short-term and
issuer. long-term commercial papers appended
The following shall be deemed as hereto as Appendices 13 and 14.
eligible collateral and shall be maintained
at respective values indicated in relation F. GOVERNMENT DEPOSITS
to the face value of the bond issue:
(1) Government - Aggregate Sec. X240 Statement of Policy. As a
securities current general policy, cash balances of the
market value Government, its political subdivisions and
of 100% instrumentalities as well as of government-
(2) Readily marketable - Aggregate
owned or controlled corporations shall be
private securities current
listed in the big board market value deposited with the BSP, with only
of stock exchanges of 150% minimum working balances to be held by
(3) Real estate - Net book government-owned banks and such other
value of 100% banks incorporated in the Philippines as
(4) Unmatured - Net book the Monetary Board may designate:
receivables acquired value of 150% Provided, That such banks may be
with recourse authorized by the Monetary Board to hold
(5) Unmatured - Net book deposits of the political subdivisions and
receivables acquired value of 200% instrumentalities of the Government beyond
without recourse their minimum working balances whenever
Government and private securities, such subdivisions and instrumentalities have
certificates of title and documents outstanding loans with said banks.
evidencing receivables offered as security For purposes of this Section:
shall be physically delivered to the a. The term government-owned or
indenture trustee. Substitution of controlled corporations shall refer to
collaterals shall be allowed provided that government-owned or -controlled
in no case shall the collateral fall below corporations which are created by special
the herein required ratios. laws. It shall exclude government financial
The issuer may, at his option, provide institutions such as DBP, LBP and Al-
for the retirement at maturity of the bond Amanah Islamic Investment Bank of the
issue through the sinking fund to be Philippines, corporations which are
deposited with and managed by the created under the provisions of the
indenture trustee. Corporation Law (Act No. 1459, as
e. Bond registry - The bonds shall be amended) or the Corporation Code (BP
fully registered as to principal and interest. Blg. 68) and private corporations which are
The issuer, its trustee, agent or underwriter taken over by government-ownedor-controlled
must maintain a bond registry duly corporations.
approved by the SEC for recording initial b. Minimum working balances
and subsequent transfers the names of shall represent the minimum amounts
transferees, date of transfer, purchase price necessary to enable the government
and serial numbers of bonds transferred. instrumentality/political subdivision

§§ X240 - X240.2
05.12.31
making the deposit to transact business (2) an RB may only act as official
efficiently and effectively as determined depository of municipal, city or
by the Department of Finance. provincial funds in the municipality,
city or province where the RB is located;
§ X240.1 Prior Monetary Board and
approval. No private bank shall, without (3) a Coop Bank may accept deposits
prior approval of the Monetary Board, of all government departments, agencies
accept, as depository, any fund or money and units of the national and local
from the Government, its political governments including government-
subdivisions and instrumentalities, and owned or-controlled corporations.
government-owned or-controlled c. Where there is no government
corporations; nor shall a private bank bank or BSP office in the province and
borrow any fund or money therefrom, the nearest government bank or BSP
through the issuance or sale of its office is inaccessible by ordinary
acceptances, notes or other evidences of transportation, or transporting/withdrawing
indebtedness. the government deposits to and from
the said office is impractical or risky,
§ X240.2 Banks which may accept the province, as well as cities and
government funds municipalities located therein, may
a. Banks, the majority of the capital seek approval of the Monetary Board to
of which is owned by the Government, consider all their funds eligible for
may act as depository of funds of the deposits with a qualified private
Government, its political subdivisions and depository bank within the province,
instrumentalities, and government-owned city or municipality, as the case may
or-controlled corporations. be.
b. Private banks incorporated in the d. Banks acting as official
Philippines may act as depository of depository of government funds may
government funds only with the prior accept demand, savings or time
approval of the BSP. Local government deposits.
units may maintain depository accounts e. The authority of a bank to
preferably in government banks and, in accept government deposits does not
exceptional cases and with the prior obligate the Government, its subdivisions
approval of the Monetary Board, in the and instrumentalities and government-
name of their respective government owned or-controlled corporations to
units, in private banks located in or deposit with that bank. Thus, even if a
nearest to their respective areas of TB or RB is authorized by the Monetary
jurisdiction but the depository bank(s) Board to accept government deposits,
must also seek the prior approval of the a municipality is not obligated to
BSP: Provided, That a TB/RB/Coop Bank deposit with that TB or RB. Similarly, a
may only act as official depository of bank which is authorized to accept
government funds pursuant to R.A. Nos. deposits of the Government or a
7906, 7353 and 6938, as follows: government corporation because of
(1) a TB may only act as official outstanding loans granted by the bank
depository of national agencies, and of cannot demand as a matter of right that
municipal, city or provincial funds in the the Government or government
municipality, city or province where corporation make deposits unless there
the TB is located; is a stipulation in the loan agreement.

§§ X240.3 - X240.5
05.12.31
§ X240.3 Prerequisites for the grant or-controlled corporations shall be

of authority to accept deposits from the supported by the following documents
Government and government entities. In whenever applicable:
addition to the Standard Pre-qualification a. A copy of the resolution of the
Requirements for the Grant of Banking barangay, municipal or city council
Authorities enumerated in Appendix 5, (Sangguniang Bayan/Panglunsod) or the
private banks applying for authority to provincial board (Sangguniang
accept deposits from the Government, its Panlalawigan) authorizing the deposit of
subdivisions and instrumentalities and municipal, city or provincial funds;
government-owned or-controlled b. A copy of the resolution of the
corporations and government banks board of directors of the government-
applying for authority to accept owned or controlled corporations
government deposits in excess of minimum authorizing the deposit of funds of said
working balances shall also comply with corporations; or
the following conditions: c. In case of the National
a. The applicant bank must have Government, its unincorporated branches,
complied with the minimum capital agencies and instrumentalities, a written
required under Subsecs. X106.1 and authority to deposit government funds
X106.2; and signed by the duly authorized official of
b. It must be a member of the PDIC the department, agency, office or unit
in good standing. making the deposit.
The resolution or authority should state
§ X240.4 Application for authority the name and location of the depository
An application for authority to accept bank, type and terms of the deposit, and
government deposits shall be signed by that the amount to be deposited represents
the president of the bank and shall be filed working balances.
with the appropriate SED of the BSP. The
application shall be accompanied by a § X240.5 Limits on funds of the
certification by the bank president or Government and government entities that
executive vice-president that the bank may be deposited with banks
has complied with all the requirements a. Funds of the Government, its
enumerated under Subsec. X240.3. subdivisions and instrumentalities and
Banks authorized to accept government government-owned or-controlled
funds as depository shall continuously corporations, deposited with banks
comply with the conditions enumerated authorized to receive deposits shall be
under Subsec. X240.3 even after the limited to the minimum working balance
authority to accept government deposits of the depositor.
has been granted and during the period With prior Monetary Board approval,
while the banks actually hold government government or private banks may be
deposits, otherwise, any violation may be authorized to accept amounts in excess
a basis for the imposition of sanctions of minimum working balances if the
against the bank, its directors and officers, Government or government entity making
or revocation of the authority to accept the deposit has outstanding loan
government deposits. obligations to the depository bank but such
Deposits maintained by the amounts shall not exceed the amount of
Government, its subdivisions and its outstanding loan obligations to the
instrumentalities and government-owned depository bank. The amount of non-

§§ X240.5 - X240.6
05.12.31
transferable and non-negotiable Eligible securities being used as such

government securities with market or reserve shall not in any way be encumbered
below market interest rate at the time of or be subject to any transaction without prior
issue, issued by the National Government approval of the BSP.
to the depository bank shall be considered Also eligible for liquidity floor are the
as “outstanding loans” of the National following:
Government to said bank within the a. The free portion of the “Due from
meaning of Section 113 of R.A. No. 7653. Bangko Sentral - Local Currency” after
b. The aggregate amount of satisfying the legal and other reserve
government funds which a private bank requirements; and
can hold at any given time shall not b. NDC Agri-Agra ERAP Bonds, which
exceed 200% of the bank’s net worth. are not being used as alternative compliance
c. Where any director, officer or with PD 717. Such bonds shall not in any
stockholder of a private bank, as defined way be encumbered or be subject to any
under Subsec. X326.1, is also an elective transaction without prior approval of the BSP.
or appointive official of a municipality, city c. Securities backed by the unreleased
or province, said bank is prohibited from Internal Revenue Allotments (IRA) of local
accepting deposits from said municipality, government units (issued by a Special
city or province unless it is the only bank Purpose Trust administered by the DBP
existing therein: Provided, That this under the IRA Monetization Program of the
provision shall not be construed as a grant Union of Local Authorities of the
of authority to such elective or appointive Philippines) the release of which IRA on
public official to act as director or officer scheduled date of payment has been
of a private bank. certified by the DBM as not being subject
to any conditionalities: Provided, That
§ X240.6 Liquidity floor. Unless such securities shall be eligible only to the
otherwise prescribed by the Monetary extent of the present value of the bond
Board, authorized government depository computed using the original yield to
banks other than the BSP, and authorized maturity (as of auction/issue date).
private banks shall, inclusive of the d. Tobacco Excise Tax Receivables
required reserves against deposits and/or Monetization Program Investment
deposit substitutes, maintain a fifty percent Certificates (TEXTR Certificates) backed by
(50%) liquidity floor with respect to receivables representing the unreleased
deposits of, borrowings from, and all other portion of the obligation of the National
liabilities to, the Government and Government to its LGU for their share of
government entities, in the form of the Tobacco Excise Taxes under R.A. No.
transferable government securities which 7171 amounting to P1.85 billion and
represent direct obligations of the National covering the years 2001 and 2002: Provided,
Government. That such securities shall be eligible only to
Government securities representing the extent of the present value of the securities
direct obligations of the National computed using the original yield to maturity
Government regardless of maturity, issued as of auction/issue date.
pursuant to the provisions of R.A. No. 245, For purposes of computing the fifty
as amended by P.D. No. 142, which are percent (50%) liquidity floor requirement
not otherwise earmarked or used as part on all government funds held by authorized
of other reserve requirements of the BSP, banks, banks shall adopt a one (1)-week
shall be eligible as liquidity reserves. lag system, effective 04 May 2001.

§§ X240.7 - X240.9
05.12.31
§ X240.7 Exempt transactions. The a. The deposit account with the BSP
following deposits of, borrowings from and/ of the bank concerned shall be debited
or liabilities to, the Government and by the Accounting Department of the
government entities shall be exempt from BSP in the amount of the unauthorized
the liquidity floor: deposit or borrowing upon receipt of a
a. Obligations to the BSP arising report or notice from the appropriate SED
from rediscounting facilities and those of the BSP and the deposit account of
through the sale of government securities the government institutions with the BSP
under repurchase agreements made in shall be credited for the same amount. A
connection with the provisions of Sec. copy of said report or notice of the SED
X269 and Subsec. X601.1 of the MOR; shall be furnished each to the bank
b. Special time deposits (STDs) and concerned and the government institutions.
deposit substitutes under the special b. The withdrawal of previously
financing program of the Government and/ granted authority to accept government
or international financial institution; funds;
c. Obligations to the BSP consisting c. Without prejudice to the sanctions
of emergency advances, overdraft facilities, under Section 35 of R.A. No. 7653, the
and those arising from peso swap following administrative sanctions shall be
differentials and supervision and imposed if any part of the certification as
examination fees; required in this Section is found to be false
d. Marginal deposits on importations; or misleading:
e. Due to the Treasurer of the On the Bank - Cancellation of the
Philippines (unclaimed deposit balances); authority to accept government deposits
f. Funds held by participating if one has already been granted and/or
financial institutions (PFIs) under the GSIS disqualification to act as a government
Housing Loan Programs: Provided, That the depository for not more than one (1) year.
agreement between GSIS and the conduit On the Certifying Officer - A fine of
banks specify that such funds may be held P5,000 per day from the time the
by the conduit banks for a period of not certification was found to be false, for each
more than seven (7) calendar days prior to application filed with the BSP.
their release to the borrower and prior to d. Any bank with deficiency in the
the remittance by the conduit banks of required liquidity floor against deposits of,
payment to the GSIS; and/or borrowings from, the Government
g. Deposits of the BIR and BOC; and and government entities or with excess
h. Any other form of deposits, holdings of such deposits shall: (1) be
borrowings and/or liabilities specifically denied the credit facilities of the BSP; and
authorized by law or exempted by the (2) if the deficiency lasts for four (4)
Monetary Board. consecutive weeks, the bank shall be
prohibited from declaring cash dividends
§ X240.8 Reports. Banks shall submit and making new loans and investments,
to the appropriate SED of the BSP a report of except investments in government securities.
their government deposits from all sources The prohibition shall be lifted by the
in the aggregate in the prescribed form. Governor of the BSP, upon certification by
the appropriate SED that the bank has had
§ X240.9 Sanctions. Any violation of no deficiency in its liquidity floor and no
this Section shall be a ground for the excess holdings of government deposits for
imposition of the following sanctions: at least four (4) consecutive weeks.

§§ X240.10 - X243
05.12.31
§§ X240.10 - X240.14 (Reserved) § X242.2 Treatment of matured time

deposits/deposit substitutes
§ X240.15 Acceptance by banks with a. A time deposit not withdrawn or
internet banking facility of payment of renewed on its due date shall be treated as
fees for account of government entities a savings deposit and shall earn interest
Domestic private banks with BSP- from maturity to the date of actual
approved internet banking facility are withdrawal or renewal at a rate applicable
allowed to accept payment of fees/other to savings deposits.
charges of similar nature for the account b. A deposit substitute instrument
of the departments, bureaus, offices and not withdrawn or renewed on its maturity
agencies of the government as well as all date shall from said date become payable
government-owned and controlled on demand and shall earn an interest or
corporations: Provided, That the funds so yield from maturity to actual withdrawal
accepted/collected shall be treated as or renewal at a rate applicable to a deposit
deposit liabilities subject to existing substitute with a maturity of fifteen (15) days.
regulations on government deposits and Banks performing quasi-banking
shall not exceed the minimum working functions shall continue to consider
balance of the said government entities. matured and unwithdrawn deposit
These banks are required to notify substitutes as such and subject to reserves.
the appropriate SED that supervises the
bank, copy furnished the Head of the Sec. X243 Disclosure of Effective Rates
Technical Working Group on E- of Interest. Banks are required to disclose
Banking, Supervisory Data Center to depositors the following information on
(SDC), of the names of the government interest computation and payments:
institutions that will interface with their a. Type/kind of deposit;
systems and any changes that may b. Nominal rate of interest and
subsequently be made on the period covered;
arrangements. c. Manner of interest payment, i.e.,
whether credited in advance or otherwise;
Sec. X241 (Reserved) d. Basis of interest payment, i.e.,
whether based on average daily balance
G. INTEREST compounded quarterly or otherwise;
e. Effective rate of interest expressed
Sec. X242 Interest on Deposits/ as a simple annual rate, on the basis of the
Deposit Substitutes. Demand, savings, information above given and indicating the
NOW accounts, time deposits and formula used to arrive at the effective rate
deposit substitutes shall not be subject to of interest; and
interest ceilings. f. Illustration of basis of computing
interest on a hypothetical deposit account.
§ X242.1 Time of payment of Copies of the above-mentioned
interest on time deposits/deposit information shall be made available to
substitutes. Interest or yield on time each and every depositor by attaching
deposit/deposit substitute may be paid at these copies to savings deposit passbooks
maturity or upon withdrawal or in and time deposit certificates. Posters
advance: Provided, however, That interest disclosing the above information and
or yield paid in advance shall not exceed aggregate deposit rates shall also be displayed
the interest for one (1) year. conspicuously within the bank premises.

§§ X244 - X253.2
05.12.31
Secs. X244 - X252 (Reserved) only to REPOs, the documentation of which

conforms with, and were delivered to a BSP
H. RESERVES AGAINST DEPOSIT accredited third party custodian as required
AND DEPOSIT SUBSTITUTE LIABILITIES under existing BSP regulations.
Sec. X253 Accounts Subject to Reserves; § X253.2 Liquidity reserves. On top

Amounts Required. The following rules of the regular reserve requirements,
and regulations shall govern the reserves liquidity reserves against peso demand,
against deposit and deposit substitute savings, time deposit and deposit substitute
liabilities. liabilities shall be maintained, as follows:
§ X253.1 Regular reserves against Liquidity

deposit and deposit substitute liabilities Category of Banks Reserves
The rates of regular reserves against deposit a. UBs/KBs 11%3
and deposit substitute liabilities in local b. TBs 2%
currency of banks shall be as follows: c. RBs/Coop Banks:
(1) Demand Deposits 0%
RBs/ (2) Savings/Time
UBs/KBs TBs Coop Banks Deposits 0%
a. Demand
Deposits 10%1 6% 6%
The liquidity reserves for LTNCTDs
b. NOW Accounts 9% 6% 6%
shall be 0%.
c. Savings
Deposits 10%1 6% 2% The required liquidity reserves may be
d. Time Deposits, maintained in the form of:
Negotiable CTDs, a. Short-term market-yielding government
Long-Term Non- 10%1 6% 2% securities purchased directly from the BSP-
Negotiable Tax- Treasury Department;
Exempt CTDs b. NDC Agri-Agra ERAP Bonds which
Long-term NCTDs 2% 2% 2% are not being used as alternative
e. Deposit compliance with P.D. No. 717. Such bonds
Substitutes 10% 6% NA
shall not in any way be encumbered or be
f. IBCL 0% 0% 0%
subject to any transaction without prior
(Sec. X343)
g. Bonds 5% 5% NA approval of the BSP; and
h. Mortgage/ c. Poverty Eradication and Alleviation
CHM cert. NA 5% NA Certificates (PEACe) bonds only to the
extent of the original gross issue proceeds
Provided, That deposit substitutes determined at the time of the auction, plus
evidenced by repurchase agreements capitalized interest on the underlying zero-
(REPOs) covering government securities up coupon Treasury Notes as and when the
to the amount equivalent to the adjusted corresponding interest is earned over the
Tier 1 capital of the bank shall be subject life of the bonds.
to the statutory reserve of two percent (2%)2: Any deficiency shall be in the form
Provided, further, That such rate shall apply prescribed in Items “a” and “b” of Sec. X254.
1
From 9 % to 10% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.
2
The statutory reserve of two percent (2%) may not yet be availed of pending:
(a) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions evidenced
by REPOs covering government securities; and
(b) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP-accredited third party
custodian.
3
From 10% to 11% under Circular 491 dated 12 July 2005 effective the reserve week starting 15 July 2005.

§§ X254 - X254.2
05.12.31
Sec. X254 Composition of Reserves. The Provided, That any substitution or

composition of the required reserves shall acquisition satisfies the eligibility
be as follows: requirements prescribed above: Provided,
a. Deposits with the BSP. At least further, That the bank notifies the BSP of
twenty-five percent (25%) shall be in the any such change in the prescribed forms
form of deposits with the BSP. not later than the reporting day following
b. Government securities and cash the change. Securities counted as reserves
in vault. The remaining portion of the may not be hypothecated or encumbered
required reserves may be held by all banks in any way or earmarked for any other
in the form of cash in vault and/or purpose without automatically losing their
government securities or evidences of eligibility as reserves.
indebtedness of the Republic of the Only the buying/lending bank in an
Philippines. agreement covering eligible government
To support the implementation of the securities may use such securities as
provisions of Subsecs. X343.3 and X601.3, reserves against deposits/deposit
the cash-in-vault (CIV) component of substitutes. Conversely, the selling/
available reserves shall be based on the borrowing bank in a resale agreement
actual CIV balance outstanding one (1) covering eligible government securities
banking day lag, for purposes of computing may not use such securities as reserves
the reserve position of the current day. against deposits/deposit substitutes.
For purposes of this Section, The list of reserve-eligible and non-
government securities which may form part eligible securities may be found in
of the reserves against deposits/deposit Appendix 15.
substitute liabilities of banks shall refer to The reserve eligibility of government
bonds or other evidences of indebtedness securities under the reverse repurchase
representing direct obligations of the operations of the BSP shall be suspended
Government of the Republic of the during the term of the reverse repurchase
Philippines: Provided, That such securities agreement.
shall have the following minimum features/ The phrase non-reserve eligible shall
conditions: be stamped on the face of the custodian
(1) The securities must bear an interest receipt being issued by the BSP to buyer
rate of not more than four percent (4%) financial institutions.
per annum, must be non-negotiable and
shall carry BSP support; and § X254.1 Allowable drawings against
(2) The amount, maturity date and rate reserves. Deposit with the BSP to comply
of interest must be definite and stated in with reserve requirements are not regular
the certificate itself. current accounts. The use, therefore, of
Other government securities being BSP checks for drawings against reserve
used for reserve purposes shall continue deposits shall be limited to (a) settlement
to be eligible as such: Provided, That of obligations with the BSP, and (b)
whenever said securities shall have withdrawals to meet cash requirements.
matured, they shall be replaced by
securities carrying the above features. § X254.2 Exclusion of uncleared
The securities held as reserves under checks and other cash items. Checks and
Item "b" and last paragraph of Sec. X253 other cash items which have not been
shall be valued at cost of acquisition and cleared yet through the Clearing Office
the bank may freely alter its composition: should not be debited to the account Due

§§ X254.2 - X256
05.12.31
from the BSP and should not be considered Sec. X255 Exemptions from Reserve
as available reserves against deposit/ Requirements. The following shall be
deposit substitute liabilities. Such items exempt from reserve requirements:
shall be debited to the Checks and Other a. All collections credited to the special
Cash Items account. account “Due to BSP - Internal Revenue
Only after the checks and other cash Account (Other Cities and Municipalities)”;
items have been cleared through the b. Special time deposits from the
Clearing Office can the bank debit the Due Agrarian Reform Fund Commission and
from the BSP account for said items. special savings deposits from farmer-
borrowers; and
§ X254.3 Interest income on reserve c. Unclaimed balances of deposit
deposits. Deposits maintained by banks liabilities already reported to the Treasurer
with the BSP up to forty percent (40%) of of the Philippines in accordance with the
the reserve requirement (excluding the Unclaimed Balances Act (Act No. 3936,
liquidity reserve mentioned in Subsec. as amended) and transferred/reclassified
X253.2 against the combined deposit and from the deposit liability/other credit
deposit substitute liabilities of banks accounts to the liability account “Due to
allowed to be maintained in the form of the Treasurer of the Philippines.”
short-term market yielding government Local banks may deduct from the
securities purchased directly from the BSP- amount of their gross demand deposits,
Treasury Department) shall be paid interest the total of their Due from Local Banks -
at four percent (4%) per annum based on Demand and Due from PNB - Clearing in
the average daily balance of said deposits an amount not exceeding the total of their
to be credited quarterly. Demand Deposits-Banks and Due to Local
The computation of quarterly interest Banks. As used herein, the term “gross
payments credited to the demand deposit demand deposits” shall mean the sum of
accounts (DDAs) of banks’ legal reserve all individual deposits, including deposits
deposits with BSP are shown in Appendix 54. made by other local banks, the Philippine
Effective 01 July 2003, published interest Government, its political subdivisions and
rates that will be applied on BSP’s Regular instrumentalities, and government-owned
DDAs of banks shall be inclusive of the ten or -controlled corporations.
percent (10%) Value Added Tax (VAT).
Sec. X256 Computation of Reserve
§ X254.4 Book entry method for Position. The reserve position of any bank
reserve securities. In the implementation and the penalty on reserve deficiency shall
of the book entry system for transactions be computed based on a seven (7)-day
in government securities eligible for week, starting Friday and ending Thursday,
reserves, transactions concerning reserve- including Saturdays, Sundays, public
eligible securities shall be entered in the special/legal holidays, non-banking days,
respective securities account of each bank unexpected declared non-banking days or
with the BSP and shall be evidenced by declared half-day holidays and days when
securities account debit or credit advices there is no clearing: Provided, That with
to be promptly furnished the institution/s reference to public special/legal holidays,
concerned. No certificate shall be issued non-banking days, unexpected declared
for any purpose. Transactions with third non-banking days, declared half-day
parties other than the BSP shall not be holidays and days when there is no
recognized. clearing, the reserve position as calculated

§§ X256 - X257
05.12.31
at the close of the business day immediately the corresponding penalties on reserve
preceding such public special/legal deficiencies shall also apply.
holidays, non-banking days and unexpected c. The lagged system in the
declared non-banking days and declared measurement of a bank’s reserve
half-day holidays and days when there is requirement, as provided in Subsec.
no clearing, shall apply thereon. For this X256.1, shall also be adopted in the
purpose, the principal office in the calculation of the two percent (2%)
Philippines and all other banking offices statutory reserve requirements for REPOs
located therein shall be treated as a single covering government securities.
unit. d. Deposit substitutes evidenced by
repurchase agreements covering
§ X256.1 Measurement of reserve government securities in excess of the
requirement. The required reserves in the adjusted Tier 1 capital shall be treated as
current period (reference reserve week) regular deposit substitutes and shall be
shall be computed based on the subject to the regular statutory and liquidity
corresponding levels of deposit and deposit reserve requirements under existing
substitute liabilities of the prior week. regulations.
§§ X256.2 – X256.4 (Reserved) Sec. X257 Reserve Deficiencies; Sanctions

Whenever the reserve position of any bank
§ X256.5 Guidelines in calculating and computed in the manner specified in Sec.
reporting to the BSP the required reserves X256 is below the required minimum, it
on deposit substitutes evidenced by shall pay the BSP one-tenth of one percent
repurchase agreements covering (1/10 of 1%) per day on the amount of the
government securities deficiency or the prevailing ninety-one (91)
a. The Supervisory Data Center (SDC) day Treasury Bill rate plus three (3)
shall determine the maximum allowable percentage points, whichever is higher:
amount of REPOs covering government Provided, however, That a bank shall be
securities that will qualify for the reduced permitted to offset any reserve deficiency
statutory reserve requirements of two percent occurring one (1) or more days of the
(2%). It shall be based on the amount week covered by the report against excess
reported by banks in their weekly reserves which it may hold on other days
Consolidated Daily Report of Condition. The of the same week, and shall be required
adjusted Tier 1 capital reported daily should to pay the penalty only on the average
approximate the quarterly adjusted Tier 1 daily net deficiency during the week.
capital as submitted by banks in compliance In case of abuse, a bank shall
with the provisions of Sec. X116. automatically lose the privilege of offsetting
b. Any material differences that may reserve deficiency in the aforesaid manner
be noted by the SDC between the daily until such time that it maintains its daily
and the quarterly report shall be considered reserve position at the required minimum
as erroneous reporting and shall be subject for at least two (2) consecutive weeks.
to the penalties under existing As used in this Section, “abuse”* in
regulations. The SDC shall also make a re- the privilege of offsetting reserve
run of its computation of the bank’s reserve deficiencies against excess reserves shall
position and in the event that the reserve mean having reserve deficiencies
position resulted to a reserve deficiency/ies, occurring four (4) or more times during
* The reserve weeks, 20 to 26 December 2002 and 27 December 2002 to 2 January 2003, shall be considered as a
single reserve week for the purpose of determining “abuse” of the privilege of offsetting reserve deficiencies against excess
reserves during the reserve week.

§§ X257 - X261.1
05.12.31
any given week for two (2) consecutive consecutive banking days; and (c)
weeks, whether or not resulting in net establishing branches. The denial from
weekly deficiencies. availment of credit facilities of the BSP shall
continue for as long as the bank maintained
§ X257.1 Chronic reserve deficiency; credit balances with the BSP for at least
penalties. In cases where the bank has fifteen (15) consecutive banking days.
chronic reserve deficiency in deposit/ For purposes of computing the total
deposit substitute liabilities, the bank shall available reserves against deposit/deposit
be denied the credit facilities of the BSP; substitute liabilities, the total amount
and the Monetary Board may: (a) limit or of overdrawing in the clearing account with
prohibit the making of new loans or the BSP shall be deducted from available
investments by the bank; and (b) prohibit reserves after the required reserves against
the declaration of cash dividends. The deposit/deposit substitute liabilities shall
board of directors of said bank shall be have been satisfied.
notified of such chronic reserve deficiency
and the penalties therefor, and be required § X257.3 Payment of penalties on
to immediately correct the reserve position reserve deficiencies. Penalties if unpaid
of the bank. within fifteen (15) days from receipt of
As used in this Subsection, “chronic the assessment, shall be charged against
reserve deficiency” shall mean having net the demand deposits of banks with the
reserve deficiencies for two (2) BSP: Provided, That where the bank’s
consecutive weeks. credit balance is insufficient and it fails to
settle the assessment, the Monetary Board
§ X257.2 Failure to cover overdrawings may limit or prohibit the making of new
with the Bangko Sentral. Any bank which loans or investments by the bank.
incurs an overdrawing in its deposit
account with the BSP shall fully cover said Sec. X258 Report on Compliance. Every
overdraft not later than the next clearing bank shall make a weekly report to the
day including interest thereon equivalent BSP of its daily required and available
to one-tenth of one percent (1/10 of 1%) reserves on deposit/deposit substitute
per day or the prevailing ninety-one (91) liabilities in the prescribed forms.
day Treasury Bill plus three (3) percentage
points, whichever is higher. In case a bank Secs. X259 - X260 (Reserved)
fails to cover its overdrawings, it shall be
excluded from clearing on such day and it I. SUNDRY PROVISIONS
shall also be denied the credit facilities ON DEPOSIT OPERATIONS
of the BSP. Such exclusion from clearing
shall continue for as long as it has not Sec. X261 Booking of Deposits and
maintained credit balances with the BSP Withdrawals. The following regulations
for at least five (5) consecutive banking shall govern the booking of deposits and
days. If its clearing account is overdrawn withdrawals of banks.
for five (5) consecutive banking days, it
shall be prohibited from (a) making new § X261.1 Clearing cut-off time. As a
loans or investments, except investment in general rule, all deposits and withdrawals
government securities with BSP support; during regular banking hours shall be
(b) declaring cash dividends until it has credited or debited to deposit liability
maintained credit balances in its BSP accounts on the date of receipt or payment
clearing account for at least fifteen (15) thereof: Provided, however, That a bank

§§ X261.1 - X262.1
05.12.31
may set a clearing cut-off time for its head banking hours, may, at the option of the
office not earlier than two (2) hours before bank, be booked as deposits on the day of
the start of clearing at the BSP, and not receipt.
earlier than three and one-half (3-1/2) Other non-cash deposits received after
hours before the start of clearing for all its the selected clearing cut-off time shall
branches, agencies and extension offices be treated as contingent accounts on the
doing business in the Philippines, after day of receipt and shall be booked as
which time, deposits received shall be deposits the following banking day.
booked as hereinafter provided:
Provided, further, That banks which are § X261.5 Booking of deposits after
located in areas where there are no BSP regular banking hours. Deposits, whether
regional/clearing arrangements may set a cash or non-cash, received after the close
clearing cut-off time not earlier than two of the regular banking hours shall be treated
(2) hours before the start of their local as contingent accounts on the day of receipt
clearing after which time, deposits and shall be booked as deposits the
received shall be booked likewise as following banking day.
hereinafter provided.
§ X261.6 Other records required
§ X261.2 Definitions. As used in this For record and control purposes, banks
Section, the following terms shall have the shall prepare a daily abstract of deposit
following meanings: transactions treated as contingent accounts.
a. Regular banking hours shall refer
to the banking hours reported to the BSP § X261.7 Notice required. Banks
pursuant to Sec. X156, including the shall post at a conspicuous place near each
extended banking hours reported for teller’s window a notice to depositors indi-
servicing deposits and withdrawals; and cating their selected clearing cut-off time
b. Clearing cut-off time shall mean and a statement to the effect that non-cash
the bank’s closing time for the acceptance items deposited after said cut-off time shall
of deposits in the form of checks, bills and be treated as transactions for the next
other demand items for clearing on the banking day.
day of their receipt.
Sec. X262 Miscellaneous Rules on
§ X261.3 Booking of cash deposits Deposits. Banks shall also be governed
Cash deposits received after the selected by the following miscellaneous rules on
clearing cut-off time until the close of the deposits.
regular banking hours shall be booked as
deposits on the day of receipt. § X262.1 Specimen signatures, ID
photos. All banking institutions are
§ X261.4 Booking of non-cash required to set a minimum of three (3)
deposits. Deposits of checks including specimen signatures to be simultaneously
“on us” checks, manager’s/cashier’s/ required from each of their depositors and
treasurer’s checks and demand drafts, to update the specimen signatures of their
which are drawn against the depository depositors every five (5) years or sooner,
bank and all its offices, as well as treasury at the discretion of the bank. Banks may,
warrants and postal money orders, at their option, require their depositors to
received after the selected clearing cut- submit ID photos together with the
off time until the close of the regular specimen signatures.

§§ X262.2 - X263
05.12.31
§ X262.2 Insurance on deposits. All required minimum monthly average daily

banks shall indicate the coverage of the balance (ADB), subject to the following
PDIC in each passbook, certificate of conditions:
time deposit and/or cover of checkbook a. the imposition of such charges or
for demand deposit/NOW accounts fees is clearly stated among the terms and
stating, among other things, the maximum conditions of the deposit;
amount of insurance. b. the rate or amount of such charges
or fees is properly disclosed among the
§ X262.3 Certification of compliance terms and conditions of the deposit;
with Subsection 55.4 of R.A. No. 8791 c. the deposit account balances have
Banks shall submit to the appropriate fallen below the required minimum
supervising and examining department of monthly ADB for dormant accounts and for
the BSP, through the Deputy Governor of at least two (2) consecutive months for
SES, a statement within seven (7) banking active accounts;
days after end of June and December, d. the required minimum monthly
signed solely by the Vice-President for ADB of deposits are properly disclosed
Administration or Human Resource or among the terms and conditions of the
Personnel, or by any officer assuming deposit; and
equivalent responsibility, certifying their e. in the case of charges and fees for
institution’s compliance with Subsection dormant accounts or dormancy fee, the
55.4 of R.A. No. 8791, which prohibits period of dormancy as prescribed under
banks from employing casual, nonregular Subsec. X163.12 shall be properly
personnel or too lengthy probationary disclosed among the terms and conditions
personnel in the conduct of its business of the deposit, and that the depositors shall
involving bank deposits. A format for the be informed by registered mail with return
certification of compliance is shown in card or Proof of Delivery (POD) service of
Appendix 49. the Philippine Postal Corporation and other
The definition contained in Articles mail couriers on his last known address at
280-281 of the Labor Code of the least sixty (60) days prior to the imposition
Philippines for private banks and Section of dormancy fee.
2 of the Civil Service Commission Said Proof of Delivery Receipt will be
Memorandum Circular No. 40 and Rule accomplished upon the addressee-
VII of Civil Service: Laws and Rules for depositor’s receipt of the letter, with the
government banks shall apply in postal personnel or courier required to
classifying employee/personnel as casual, obtain and safekeep a copy of the signed
regular or probationary. Personnel with POD, for submission to the sender/bank.
too lengthy probationary status are The PhilPost system likewise employs
employees who are allowed to work after a Delivery/Monitoring Report that tallies the
a probationary period of six (6) months number of mails with POD received,
without being considered a regular/ delivered and returned per client/bank,
permanent employee. indicating the name of the letter carrier, his
signature and date signed. Said POD and
Sec. X263 Service and Maintenance Fees Delivery/Monitoring Report may be system
Banks may impose and collect service generated by the bank so as not to rely on
charges and/or maintenance fees on savings the manual inscription of the required
and demand deposit accounts, whether information by the PhilPost and/or other
active or dormant, that fall below the mail courier personnel.

§§ X263 - X266
05.12.31
Regardless of the forms adopted by the kind, and interest thereon already reported
PhilPost and/or other mail couriers, the to the Treasurer of the Philippines in
proper implementation of the POD service accordance with the Unclaimed Balances
requires as a minimum, that the following Act (Act No. 3936, as amended) shall be
information be stated clearly: (1) name and transferred/reclassified from the deposit
address of the addressee/depositor; (2) liability/other credit accounts to the liability
actual date of delivery/receipt; (3) name and account, “Due to the Treasurer of the
address of sender/bank; and (4) name of Philippines,” until they are deposited with
recipient and relationship to the addressee/ or turned over to the Treasurer of the
depositor. Philippines upon order of the court that
the same have been escheated in favor of
§ X263.1 Amendments to terms and the Government of the Republic of the
conditions for the imposition of service Philippines and as such, the unclaimed
charges/fees. Any change in the terms and deposit liabilities shall no longer be covered
conditions for the imposition of service by reserves required of deposit liabilities.
charges and/or maintenance fees, e.g.,
increase in the amount of such charges and Sec. X265 Acceptance, Encashment or
fees or increase in the required minimum Negotiation of Checks Drawn in Favor of
monthly ADB of deposits, shall take effect Commissioner/Collector of Customs. All
only after due notice to the depositor: checks payable to the Commissioner/
Provided, That information by regular mail, Collector of Customs shall be accepted for
statement of account messages, electronic deposit only to the account of the
mail, courier delivery and/or other Commissioner/Collector of Customs.
alternative modes of communication on the Banks where the Commissioner/Collector
depositor’s last known address at least sixty of Customs has no account shall not encash,
(60) days prior to implementation shall be accept nor negotiate checks payable to the
considered sufficient notice: Provided, Commissioner/Collector of Customs.
further, That failure of the depositor to Any attempt to defraud the government
manifest or register his objection to the new or the bank through the irregular or
service charges and maintenance fees or any unauthorized encashment or deposit of
change in their terms and conditions in these checks to accounts other than that of
writing within thirty (30) days from receipt the Commissioner/Collector of Customs
of written notice of amendment shall be shall be reported immediately by the head
deemed to constitute acceptance of such of the banking office to the BOC, copy
changes, for purposes of this Subsection. furnished the BSP.
Banks shall likewise post said
information on their respective websites, Sec. X266 Deposit Pick-up/Cash Delivery
Automated Time Machine (ATM) on-screen Services. The following are the guidelines
messages, and in conspicuous places within on the deposit pick-up/cash delivery
the bank premises and other places near the services of banks;
bank’s own ATM at least sixty (60) days a. As a general rule, deposit pick-up/
prior to implementation. cash delivery services shall be limited to
the following:
Sec. X264 Unclaimed Balances. All (1) To service the need of valued clients
unclaimed balances, which include credits whose daily average deposit amounts to:
or deposits of money, bullion, securities P500 thousand – for Metro Manila and
or other evidences of indebtedness of any Metro Cebu clients/ depositors

§§ X266 - X266.1
05.12.31
P300 thousand – for outside Metro (3) The risk of loss involved in the pick-
Manila and Metro Cebu clients/ depositors up of deposits/cash delivery shall be
(2) To be serviced during regular adequately covered by insurance, and the
banking hours and days only, unless the armored car/non-armored car to be used
nature of the business and the volume of shall be provided, with at least two (2)
the deposits/cash would warrant servicing armed guards and supervised by at least
beyond regular banking hours and days, in two (2) officers of the bank;
which case justification therefore should be (4) The deposit/cash delivery
submitted to the satisfaction of the transactions shall be booked in accordance
appropriate SED. with existing regulation;
b. Prior BSP authority is not required (5) Pick-up of deposits/cash delivery
before banks can engage in deposit pick- shall not be allowed on days other than
up/cash delivery services, provided, the the bank’s regular banking days;
following conditions are complied with: (6) The strictest measure of safeguards,
(1) Pick-up of deposits/cash delivery control and confidentiality will be adopted
shall be made with the use of armored cars, in implementing the services;
which shall not be operated as a mobile (7) A separate record/log book for each
bank used in soliciting deposits from the armored car/non-armored car shall be
general public, or in any manner in carrying maintained by the bank which shall contain
out banking transactions/services other than the information on the deposit pick-up/cash
to afford security of deposit/cash items in delivery activities of the armored car/non-
transit; armored car to be supported by “trip tickets”
(2) Pick-up of deposits/cash delivery signed by a responsible officer of the bank;
may be made with the use of non-armored (8) Records and/or such other reports
vehicles in the following cases/ that may be required of the bank from time
circumstances: to time shall be made available for
(a) On an unscheduled request; examination/inspection by the authorized
Provided, That: representative(s) of the appropriate SED of
(i) all armored vehicles have already the BSP; and
been fielded and the request has to be c. If the use of the non-armored car
served immediately; and under Item “b(2)(a)” becomes regular, the
(ii) it is within a five (5) kilometer radius bank shall engage an armored car to take
of a servicing banking office. its place. Regularity shall mean daily (i.e.,
(b) In rugged terrain/mountainous regular banking days) or periodic (e.g., every
roads or roads not suitable for heavy 15th or end of the month) servicing of a valued
armored vehicles; client within a three (3) month period.
(c) In critical or rebel-infested areas d. If any of the above conditions are
where there are peace and order problems not met, the BSP may suspend the deposit
as certified by the local police authorities; and pick-up/cash delivery operations of the
(d) In island provinces where the bank without prejudice to the imposition of
transport of cash to a branch or office may sanctions under Section 37 of R.A. No. 7653.
be made only with the use of a ferry boat:
Provided, That the non-armored § X266.1 Operation of armored cars
vehicles are equipped with dual control safe Except for Item “b(2)” of this Section, banks
and supported with adequate security back- shall use armored cars to afford security in
up. Their movements may be coordinated collection and/or delivering cash or
with law enforcement authorities. securities and other valuables from or to

§§ X266.1 - X268
05.12.31
their clients, branch or extension offices or (4) such other information pertinent to
the BSP, provided such armored cars are the application.
not operated as mobile banks.
Sec. X267 Automated Teller Machines
Sec. 1266 (Reserved) a. Off-site Automated Teller
Machines (ATMs). Banks may establish off-
Sec. 2266 (Reserved) site ATMs, subject to the following
conditions:
Sec. 3266 Qualifying Criteria Before a (1) Banks shall submit a report to
Rural/Cooperative Bank Engages in the appropriate department of the BSP on
Deposit Pick-up Services ATMs which they establish;
a. An RB/Coop Bank desiring to (2) The off-site ATMs shall be
undertake deposit pick-up service must installed only in centers of activity like
meet the following criteria: shopping centers, supermarkets, hospitals,
(1) Its total resources should not be less university campuses: Provided, That
than P100.0 million and its net assets should adequate internal control and security
be at least P10.0 million or the minimum measures shall be adopted and submitted
capital required under Subsec. X106.1, to the BSP; and
whichever is higher; (3) Only banks which have shown
(2) It should not be deficient in its general compliance with laws, rules and
networth-to-risk assets ratio; regulations shall be allowed to open off-
(3) Its past due loan ratio should not site ATMs.
be more than fifteen percent (15%); b. Mobile ATMs. Banks may also
(4) It has no past due obligations with establish mobile ATMs, subject to the
the BSP or with any government financial following conditions:
institution; (1) The mobile ATMs should be
(5) It should have continuous allowed to visit only centers of activity as
profitable operations; and mentioned in Item a(2) above and should
(6) It must show adherence to law, and confine their itinerary to Metro Manila until
BSP rules and regulations. further notice;
b. An RB/Coop Bank that meets the (2) The bank shall secure insurance
above criteria shall submit for evaluation, coverage or adopt a self-insurance scheme
the following justifications on the need for to protect itself against losses of whatever
the RB/Coop Bank and its branches to nature in its mobile ATM operations; and
undertake such service which should (3) The bank shall notify the SED of
contain, among other things, the following: the BSP of the actual date a mobile ATM
(1) the names of clients/companies to be becomes operational and when no longer
serviced, estimated daily average deposit and in operation.
distance/proximity of client from applicant bank;
(2) the names and number of banks, J. BORROWINGS FROM THE
branches, if any, in the area where BANGKO SENTRAL
depositor is situated;
(3) the arrangement in writing between Sec. X268 Eligibility Requirements for
the bank and the client desiring to avail of Availment of the BSP Rediscounting
the service, which arrangement shall define Facility by Banks. The following are the
and specify the respective responsibilities eligibility requirements for availment of the
of the parties; and BSP rediscounting facility.

§§ X268.1 - X268.2
05.12.31
§ X268.1 Eligibility requirements for l. No past due obligations or

applicant banks. Banks applying for collateral deficiencies on account of
availment of the BSP rediscounting facility matured notes/unremitted collections/
must meet the following eligibility missing collaterals.
requirements at all times: m. A CAMELS composite rating of “3”
a. Minimum capital prescribed under or higher based on the latest general
Subsecs. X106.1 and X106.2, as amended examination of the appropriate SED.
based on the latest available report n. Submission of required reports on
submitted to SRSO. time to the departments and/or offices of
b. Risk-based capital adequacy ratio the BSP.
as required under Sec. X116 continuously o. Compliance with other applicable
for a period of thirty (30) days immediately laws, rules and regulations, and/or
preceding date of application based on directives of the Monetary Board.
latest available report submitted to SRSO.
c. Required loan-loss provision and/ § X268.2 Eligible papers and
or valuation reserves as determined in the collaterals. The BSP shall accept loan
last examination of the appropriate SED. papers covering all economic activities
d. Required reserves against deposit except the following: interbank loans,
liabilities/deposit substitutes for two (2) DOSRI loans, extended/ restructured loans,
consecutive weeks immediately preceding past due loans, unsecured loans, other than
the date of application based on latest microfinance loans, personal consumption
available report submitted to SRSO. loans and loans for capital assets acquisition.
e. Past due direct and indirect loans Credit instruments offered as collateral
to DOSRI to the aggregate past due loans shall be subject to the eligibility
of not more than five percent (5%) based requirements provided under Section 82
on latest available report submitted to of R.A. No. 7653.
SRSO. a. Commercial credits – Bills,
f. Past due ratio not exceeding the acceptances, promissory notes and other
industry average plus two percent (2%) as credit instruments with maturities of not
of the latest quarterly report released by the more than180 days from the date of their
SRSO. rediscount, discount or acquisition by the
g. Compliance with the loans-to- BSP and resulting from transactions related
deposit ratio based on latest available report to:
submitted to SRSO. (1) the importation, exportation,
h. Investment in bank premises not purchase or sale of readily saleable goods
exceeding fifty percent (50%) of net worth and products, or their transportation within
based on the latest available report the Philippines; or
submitted to SRSO. (2) the storing of nonperishable goods
i. Required liquidity floor for and products which are duly insured and
government deposits based on latest deposited, under conditions assuring their
available report submitted to SRSO. preservation, in authorized bonded
j. Compliance with the mandatory warehouses or in other places approved
allocation of credit to small and medium by the Monetary Board.
enterprises based on the latest available b. Production credits – Bills,
report submitted to SRSO. acceptances, promissory notes and other
k. No overdrawings in its demand credit instruments having maturities of not
deposit accounts with the BSP. more than 360 days from the date of their

§§ X268.2 - X269.1
05.12.31
rediscount, discount or acquisition by the (2) Controlling interest in a bank. Any

BSP and resulting from transactions related of the government officials mentioned in
to the production or processing of Section 16, Article XI of the Constitution
agricultural, animal, mineral, or industrial (the "Official") shall be deemed to have a
products. controlling interest in a bank if he owns
c. Other credits – Special credit more than fifty percent (50%) of the voting
instruments not otherwise rediscountable stock of such bank. For the purpose of this
under the immediately preceding Items “a” Subsection, the stockholdings of the spouse
and “b” such as agricultural loans for or minor child of the Official shall be
projects with long gestation period may be included in determining if he has such
eligible for rediscounting in accordance controlling interest.
with rules and regulations which the BSP b. Certification required. A bank
shall prescribe. applying for a loan or financial
The promissory notes (PNs)/export bills accommodation with the BSP shall submit,
(EBs) shall be endorsed in favor of the BSP together with the application, a certification
and certified that the same are still under oath of the President of the bank that
outstanding as of the time of application, the bank and/or any of its stockholders do
by at least two (2) responsible officers not fall within the prohibition under
holding positions not lower than a manager Section 16, Article XI of the Constitution.
or equivalent rank, authorized by the
borrowing bank’s board of directors. Sec. X269 Terms and Conditions of the
BSP Loan. The following are the terms and
§§ X268.3 - X268.9 (Reserved) conditions which shall govern the grant of
the BSP loan.
§ X268.10 Constitutional prohibition
The following regulations shall govern the § X269.1 Rediscounting line. The
implementation of Section 16, Article XI rediscounting availments of all eligible
of the Constitution, which reads as follows: banks shall be drawn against their
"Sec. 16. No loan, guaranty, or other rediscounting line to be based on their total
form of financial accommodation for any credit score under the new Credit
business purpose may be granted, directly Information System (CRIS), which shall
or indirectly, by any government-owned or consider the following factors:
controlled corporation or financial institution a. Management and risk assessment
to the President, the Vice-President, the (1) Management
Members of the Cabinet, the Congress, the (2) Risk management system
Supreme Court, and the Constitutional b. Financial indicators
Commissions, the Ombudsman, or to any (1) Capital adequacy
firm or entity in which they have controlling (2) Asset quality
interest, during their tenure." (3) Profitability
a. Definition (4) Liquidity
(1) The terms "loan", "guaranty" or c. Credit experience
"other form of financial accommodation" (1) Repayment record
as used in these regulations shall refer to (2) Compliance with other terms and
transactions which involve the grant, conditions
renewal or extension to a bank by the BSP The CRIS guidelines shall be reviewed on
of any loan, advance, discount, rediscount a regular basis to maximize its effectiveness
or credit in any form whatsoever. in managing the credit risk of the BSP.

§§ X269.1 - X269.4
05.12.31
The BSP Department of Loans and application together with the related
Credit (DLC) or the appropriate BSP Statement of Income and Expenses.
Regional Loans and Credit Unit (RLCU) (3) Consolidated Daily Report of
shall conduct a credit rating of all banks Condition (CDRC) covering the past two
applying for a rediscounting line. The term (2) consecutive weeks immediately
of the line shall be for one (1) year unless preceding the date of application.
sooner cancelled or revoked by DLC or (4) For RBs and Coop Banks, a
RLCU, renewable annually upon tripartite depository agreement by and
submission of application at least one (1) among the applicant RB/Coop Bank,
quarter before expiry of said line. Should designated depository bank (duly concurred
there be special circumstances or urgency by its Head Office) and the DLC/RLCU;
in the intervening period, a review of the (5) Articles of Incorporation (for new
rediscounting line of the bank concerned applicants only);
will be made immediately. The approval (6) Organizational chart;
of the line/renewal of the same shall be (7) List of board of directors and
subject to the bank’s full compliance with principal officers (top three executive
the prescribed eligibility requirements officers)/education/training and work
provided in Subsection X268.1. The experience;
Director of the DLC or BSP Branch (8) CSOC as of the preceding four (4)
Operations shall approve the rediscounting calendar years ending cut-off date;
line of the applicant bank. (9) CSIE covering the preceding four
a. Basis. The rediscounting line of the (4) calendar years; and
applicant bank shall be based on its total (10) Annual report/audited financial
credit score obtained as follows: statements for the immediately preceding
CRIS Score Rediscounting Line year.
90.1 to 100 200% of net worth
80.1 to 90.0 150% of net worth § X269.2 (Reserved)
70.1 to 80.0 125% of net worth
60.1 to 70.0 100% of net worth § X269.3 Loan value. The loan value
50.1 to 60.0 75% of net worth of all eligible papers shall be eighty percent
up to 50 50% of net worth (80%) of the outstanding balance of
borrower’s PN/EB.
b. Application procedure. Banks
applying for a rediscounting line shall § X269.4 Maturities. The maturity of
submit their application in the prescribed BSP loans/advances/rediscounts are as
form to the DLC or the appropriate RLCU, follows:
together with the following documents: a. Commercial credits - Not to exceed
(1) Board Resolution duly signed by 180 days from the date the proceeds of
the board of directors of the applicant bank, such loans/advances/rediscounts are
authorizing the bank to apply for a released to the applicant bank.
rediscounting line with the BSP and b. Production credits - Not to exceed
designating at least two (2) officers 360 days from the date the proceeds for
authorized to endorse PNs/EBs and sign all such loans/advances/rediscounts are
papers pertaining to rediscounting in the released to the applicant bank.
prescribed BSP forms. c. Other credits – Not to exceed 360
(2) CSOC as of the end of month days, including loans for agricultural
immediately preceding the date of purposes with long gestation periods.

§§ 269.4 - X269.7
05.12.31
The maturity date of the bank’s a. Total collections received by the

rediscounting loan from the BSP, as borrowing bank before maturity of the
indicated in its PN, shall not be longer than rediscounted PN shall be remitted to the
the latest maturity date indicated in the DLC or RLCU, not later than five (5)
borrower’s collateral paper submitted by banking days following the date of receipt
the bank to support its rediscounting of collections.
availments. In the case of negotiated EBs when the
bank receives the corresponding payment
§ X269.5 Rediscount/lending rates and from its correspondent bank either through
liquidated damages. The rediscount rates actual remittance or credit advice or
for peso loans shall be based on the through entry(ies), charging its
applicable T-Bill rates for the preceding correspondent bank before receipt of
week as follows: advice, the amount rediscounted plus
interest and other charges due shall be
Loan Maturity Applicable T-Bill Rate remitted to the DLC not later than five (5)
90 days or less 91-day banking days following the date of receipt
91 – 180 days 182-day of payment and/or entry(ies) by Head
181 – 360 days 364-day Office/branches.
The bank shall ensure that adequate
The rediscount rate shall continue to records are maintained in its Head Office
be one percentage (1%) point below the on the collections made by the branches.
91-day T-bill rate of the last auction week b. If the borrower’s PN matures
of the previous month. On 04 October before the maturity date of the bank’s
2004, the rediscount rate shall rediscounting loans from the BSP, the loan
automatically revert to the market-based value of the borrower’s rediscounted PN,
pricing mechanism provided under this including the accrued interest thereon,
Section. shall be debited against the bank’s demand
The lending rates that the banks may deposit account with the BSP. For this
charge on their rediscounted papers shall purpose, banks are required to maintain
not be subject to any ceiling. However, sufficient balance in their demand deposit
the spreads made by banks shall be closely accounts with the BSP equivalent to
monitored by the BSP to ensure that these maturing rediscounting obligations;
are consistent with prevailing market rates. otherwise, their rediscounting privilege
Past due BSP loans and unpaid matured will be suspended and all their existing
notes shall be levied liquidated damages loans with the BSP shall be immediately
equivalent to five percent (5%) per annum. due and demandable.
c. The loan value of the unaccounted
§ X269.6 Release of proceeds. The rediscounted PNs and/or underlying
proceeds of the rediscounting availment collaterals discovered during the credit
shall be credited to the borrower bank’s examination, including the accrued
demand deposit account or its depository interest thereon shall be debited against
bank’s demand deposit account with BSP. the bank’s demand deposit account with
the BSP.
§ X269.7 Remittance of collections/ d. The BSP may execute all necessary
repayments/arrearages. The following collection measures allowed by law, such
shall govern remittance of collections, as foreclosure proceedings against banks
repayments and arrearages: with past due loans.

§§ X269.8 - X269.10
05.12.31
§ X269.8 Prohibited transactions. The 1st Offense - Warning

following shall not be allowed: 2nd Offense - If remittance is delayed,
a. Substitution of rediscounted PNs or suspension of rediscounting privilege for
underlying collaterals on outstanding loans fifteen (15) calendar days from date of
with BSP. discovery. If not remitted, suspension shall
b Renewal of rediscounted PN start on the date of DLC/RLCU discovery
without remitting payment while the loan and end fifteen (15) calendar days after date
released against the rediscounted PN is still of payment.
outstanding with the BSP. 3rd Offense - If remittance is delayed,
c. Acceptance of properties as suspension of rediscounting privilege for
payment (dacion en pago) without prior thirty (30) calendar days from date of DLC/
approval of BSP. RLCU discovery. If not remitted,
suspension shall start on the date of DLC/
§ X269.9 Credit examination of RLCU discovery and shall end thirty (30)
borrowing banks. The DLC or the calendar days after date of payment.
appropriate RLCU shall undertake periodic 4th Offense - Cancellation of
credit examination of borrowing banks for rediscounting privilege unless restored in
the purpose of: the next review but in no case shall the
a. determining the extent of their period of suspension be less than ninety
compliance with the terms and conditions (90) calendar days.
of the loans granted to them and adherence b. Non-negotiation of assigned Letters
to applicable laws, rules and regulations and of Credits(LCs)/Purchase Orders(POs)/Sales
credit policies of the BSP; and Contracts (SCs). A penalty of one-tenth of
b. evaluating the effectiveness of their one percent (1/10 of 1%) per day of delay
credit and collection system. DLC/RLCU based on the face value/outstanding
shall obtain documents from other lending balance of the rediscounted PNs but not
institutions and other departments of BSP exceeding P30,000 per day shall be
to validate information. imposed on banks for non-negotiation of
assigned LCs/POs/SCs reckoned from the
§ X269.10 Penalties/sanctions. The date of the BSP grant to date of payment,
following penalties and sanctions shall be unless the BSP has earlier received a written
imposed on the erring bank and/or the notice of extension of the expiry date/
bank’s authorized/certifying officers. validity period of LCs/POs/SCs from the
a. Unremitted collections/delayed bank concerned.
remittances. Without prejudice to the c. Collaterals with technical
criminal sanctions against the culpable deficiency. A penalty of one-tenth of one
persons provided under existing laws, a percent (1/10 of 1%) per day for collaterals
penalty of one-tenth of one percent (1/10th with technical deficiency (which will
of 1%) per day of delay on unremitted increase the credit risk, such as: expired
collections/delayed remittance of insurance, unendorsed PN, etc.) but not
collections commencing from the day exceeding P30,000 per day shall be
following the deadline prescribed in charged to banks, if the deficiency is not
Subsec. X269.7a, shall be imposed on the corrected within fifteen (15) days from date
erring bank. Penalties imposed shall not, of DLC examination.
however, exceed P30,000 per day. In d. Other violations. In addition to the
addition, the following non-monetary penalties prescribed herein, any
sanctions shall be imposed: misrepresentation, violation of the terms

§§ X269.10 - X271.2
05.12.31
and conditions of the bank’s PN and/or the a. Rediscount ceiling. Banks which
rediscounting line agreement, and have outstanding rediscounted loans-to-net
unauthorized withdrawal of collaterals worth ratio exceeding 100%, as required
from the depository bank, shall subject the under Subsec. X269.1 shall be given five
borrowing bank to the following sanctions: (5) years from 4 October 2002 to reduce
1st Offense - Warning their outstanding rediscounted loans and/
2nd Offense - Suspension of or increase their net worth in order to attain
rediscounting privilege for fifteen (15) the 100% required ratio of rediscounted
calendar days from date of discovery. loans to net worth, in accordance with the
3rd Offense - Suspension of following schedule:
rediscounting privilege for thirty (30) Twenty-five percent (25%) yearly
calendar days from date of discovery. reduction in the ratio of rediscounted loans
4th Offense - Cancellation of the to net worth, starting end-October 2004
rediscounting privilege unless restored in and the succeeding years thereafter until a
the next review but in no case shall the 100% rediscounted loans-to-net worth ratio
period of suspension be less than ninety is reached by year 2007.
(90) calendar days. b. Past due ratio. Banks with past due
For this purpose, failure to account for ratio exceeding the industry average ratio
missing rediscounted PN and/or plus two percent (2%) as required under
underlying collateral shall constitute Subsec. X268.1f shall comply with the
unauthorized withdrawals of rediscounted requirement by 30 June 2007.
PNs and/or underlying collaterals.
If any of the required documents Sec. X270 Repurchase Agreements with
submitted by the bank is discovered to be the Bangko Sentral. Repurchase
false/fake/spurious, a fine of P5,000 per agreements with the BSP shall be governed
day from the date of the release of the loan, by Sec. X601 of the MOR.
up to the date of payment, shall be
imposed separately on the bank and on Sec. X271 Bangko Sentral Liquidity Window
the authorized/certifying responsible The following guidelines shall govern the
officers. grant by the BSP of credit accommodations
through a liquidity window to banks.
§ X269.11 Interlocking directorship/
officership. Banks owned or managed by X271.1 Nature of liquidity window
the same owners, stockholders, directors, The window shall meet the liquidity needs
officers or family/business group shall be of the financial system under normal
automatically suspended from availment conditions and shall be distinct from
of the rediscounting facility once the overdrafts and emergency advances.
rediscounting privilege of any of the banks
belonging to the same group is suspended, § X271.2 Terms of credit
until such time that the suspension of the a. Interest rate. The rate of interest
erring bank has been lifted. chargeable on availments under the
liquidity window shall be the rate
§ X269.12 Transitory provisions. The equivalent to the reference rate for ninety
following shall apply to those banks which (90) days determined and announced by
cannot comply with the required the BSP for floating rate loans, plus or
rediscount ceiling and past due ratio from minus a rate to be determined by the BSP on
04 October 2002: the basis of the prevailing monetary situation.

§§ X271.2 - X272.3
05.12.31
The additional or discount rate § X272.1 Nature of emergency loans

established for any given time shall be made or advances. An emergency loan or
public by the BSP and applied uniformly advance is a credit facility that is intended
to all borrowers during that period. to assist a bank experiencing serious
The additional rate to be imposed over liquidity problems arising from causes not
and above the reference rate shall not be attributable to, or beyond the control of,
less than two (2) percentage points, with the bank management. The grant of such
the applicable additional rate to be facility is discretionary upon the Monetary
determined by the BSP on the basis of the Board, and is intended only as temporary
prevailing monetary situation. remedial measure to help a bank overcome
b. Security. Any paper, irrespective liquidity problems. No emergency loan
of maturity, eligible under Section 82 of or advance may be granted except on a
R.A. No. 7653. fully secured basis.
c. Loan values. The loan values of the
paper offered as collateral should be eighty § X272.2 When an emergency loan
percent (80%) of the amount still due or advance may be availed of. An
outstanding on the paper offered as emergency loan or advance may be granted
collateral. only after the Monetary Board has
d. Repayment period. The term of the ascertained that the bank is not insolvent and
credit accommodation shall not exceed has the assets to fully secure the advances.
seven (7) days. a. During abnormal periods shall
refer to periods of national and/or local
§ X271.3 Limit. Availment by any bank emergency or of imminent financial panic
under this facility shall not exceed ten which directly threaten monetary and
percent (10%) of its net worth, as defined banking stability.
under Sec. X106 as of the end of the quarter b. During normal periods shall refer
preceding the date of application. In the to situations where a particular bank is in
case of branches of foreign banks, the quota a precarious financial condition or under
shall be ten percent (10%) of the assigned serious financial pressures brought about
capitalas of the date of application. by unforeseen events, or events which,
Additionally, a bank or a branch of a though foreseeable, could not be
foreign bank may avail itself of this facility prevented by the bank concerned.
to the extent equivalent to a further five
percent (5%) of its net worth, as defined § X272.3 Procedures. An application
under Sec. X106 or assigned capital, as the shall be filed with the DLC, copy
case may be, as of the end of the quarter simultaneously furnished the appropriate
preceding the date of availment. SED. An application during normal
Any availment of the liquidity window periods shall state the reasons and other
shall fall within the unavailed basic details showing the precarious financial
rediscount ceiling of the bank or the condition or the serious financial pressures
branch of a foreign bank as the case may be. being experienced by the bank, as well as
a listing of the collaterals offered. The
Sec. X272 Emergency Loans or Advances following shall be submitted together
to Banking Institutions. The following with the application:
guidelines shall govern the grant by the BSP a. A resolution of the board of
of emergency loans and advances to directors of the bank authorizing the
banking institutions. availment by the bank of an emergency

§§ X272.3 - X272.5
05.12.31
loan or advance from the BSP, signifying emergency loan or advance, whichever is
the bank’s commitment to comply with lower: Provided, That in no case shall
the guidelines set forth herein and the such maximum amount exceed the loan
terms and conditions that may be imposed values of the collaterals submitted, as
by the Monetary Board, and designating determined by the BSP.
the officers duly authorized to sign any and
all requisite documents for the emergency § X272.5 Manner and conditions of
loan or advance; release
b. The documents of title and/or a. The grant of any emergency loan
evidences of ownership of the collaterals or advance shall bear the concurrent vote
offered; and of at least five (5) members of the Monetary
c. A resolution of the board of Board.
directors authorizing the BSP to evaluate b. The proceeds of emergency loans
other assets of the applicant bank which or advances shall be released in two (2) or
are available for collateral purposes should more tranches as the need of the bank will
the release of subsequent tranches be arise. The release of a second and
applied for. The resolution shall be subsequent tranches must have the
accompanied by a certification of the bank’s authorization of the Monetary Board by a
external auditor that the said assets are good vote of at least five (5) of its members.
and available for collateral purposes. c. The amount of the first tranche shall
Prior to the release of the second and not exceed twenty-five percent (25%) of
subsequent tranches, the principal the total deposits and deposit substitutes
stockholders of the applicant bank shall of the bank and shall be released only after
submit: the required securities and collateral
(1) An acceptable undertaking to documents duly notarized have been
indemnify and hold harmless from suit a submitted. However, an amount greater
comptroller or conservator whose than twenty-five percent (25%) of the bank’s
appointment the Monetary Board may total deposits and deposit substitutes may
find necessary at any time; and be released upon request of the applicant
(2) The documents of title and/or bank if, as determined by the Monetary
evidences of ownership of the collaterals Board, the circumstances surrounding the
for the amount being applied for release emergency or financial predicament
and, where necessary, such other warrant the release of such greater amount
acceptable security which, in the judgment and the same is adequately secured by
of the Monetary Board, would be adequate applicable loan values of government
to supplement the assets tendered to securities and unencumbered first class
collateralize the subsequent tranche. collaterals approved by the Monetary
Board, and the principal stockholders of the
§ X272.4 Allowable amount of applicant bank furnish an acceptable
emergency loan or advance. The undertaking to indemnify and hold
maximum amount of an emergency loan harmless from suit a comptroller or
or advance shall be limited to the amount conservator of the bank who may be
needed by the applicant bank to overcome appointed by the Monetary Board.
the emergency or financial predicament or d. The release of a second and
the sum of fifty percent (50%) of the subsequent tranche(s) shall likewise be
applicant bank’s total deposits and deposit effected only after submission of the
substitutes as of date of application for required securities and duly accomplished

§§ X272.5 - X273.1
05.12.31
collateral documents, and upon (1) The bank shall not, without the prior
compliance with the other requirements authorization of the Monetary Board,
as stated in Subsec. X272.3. expand its outstanding loans or investments
as of the date of application for the loan,
§ X272.6 Types of acceptable except for investments in government
collaterals. The amount of the first tranche securities.
shall be secured by government securities (2) The bank shall not declare cash
to the extent of their applicable loan values dividends.
and/or unencumbered real estate and other (3) No new loans to DOSRI and/or
first-class collaterals. affiliates/subsidiaries shall be granted by the
For second and subsequent tranches, bank.
aside from the collaterals mentioned (4) The BSP may designate a
above, other assets previously certified by comptroller to be assisted by examiners to
the bank’s external auditor to be good and oversee the operations of the bank under
available for collateral purposes as provided terms of reference to be determined by the
in Subsec. X272.3 hereof, as evaluated by Governor.
the BSP, may be considered. b. Any collection received on loan
All collateralization expenses, such as accounts/proceeds from the sale of
registration fees, documentary stamps, properties assigned/mortgaged to BSP shall
etc., shall be borne by the applicant be held in trust for, and immediately remitted
bank. to, the BSP in payment of the bank’s
outstanding emergency loan or advance and
§ X272.7 Interest rate. The interest corresponding accrued interests.
rate that shall be charged on loans or c. Any other terms and conditions that
advances granted shall be the average may be imposed by the Monetary Board.
ninety-one (91)-day Treasury Bill rate as of Non-compliance with any of the above
the last auction immediately preceding the provisions shall automatically make the
release of the tranche. emergency loan or advance due and
demandable and shall be sufficient cause
§ X272.8 Term. The term of any for the BSP to stop further releases against
emergency loan or advance shall not the bank’s approved emergency loan or
exceed one (1) year. advance, without prejudice to any action
that the BSP may decide to take in
§ X272.9 Other documentary accordance with R.A. No. 7653.
requirements. Before release of any
tranche, the applicant bank shall comply, Sec. X273 Facility to Committed Credit
aside from the documentary requirements Line Issuers. The following guidelines shall
already mentioned above, with such other govern the grant by the BSP of special credit
requirements/ documentation as may be accommodations to banks which establish
required by the DLC, e.g., promissory note committed credit line in favor of
in favor of the BSP. corporations proposing to issue
commercial paper.
§ X272.10 General terms and
conditions § X273.1 Nature of special credit
a. A bank with an outstanding accommodations. The BSP may extend a
emergency loan or advance shall comply loan to any bank which on its own or as a
with the following conditions: member of a group of banks, provides a

§§ X273.1 - 1277
05.12.31
committed credit line facility to a Sec. 3274 Countryside Financial

corporation proposing to issue commercial Institutions Enhancement Program for
paper. Rural and Cooperative Banks. The CFIEP
shall be implemented under the terms of
§ X273.2 Conditions to access. A reference indicated in Appendix 16.
bank applying for a loan pursuant to the
provisions of this Section shall submit to Sec. X275 Recording and Reporting of
the BSP documents showing that it has Borrowings. The bank’s liability for papers
extended a committed credit line to a discounted and/or rediscounted “with
commercial paper issuer and that such recourse” with the BSP and/or other
issuer has availed itself of said credit line. financial institutions shall be recorded and
shown as “Bills Payable” in all reports
§ X273.3 Terms of credit submitted to the BSP.
a. Interest Rate. The rate of interest The loans and discounts, bills
chargeable on the availment of this credit purchased, acceptances and other accounts
facility shall be that which is equivalent to affected by such discounting and/or
eighty percent (80%) of the total of interest rediscounting transactions shall remain as
and fees received by the bank from the part of the bank’s loan portfolio. A footnote
issuer, net of provision for gross receipts tax in the financial statement shall indicate the
paid by the bank on such income. outstanding balances of the discounted and/
b. Security. The promissory note or rediscounted loans.
executed by the commercial paper issuer
in favor of the bank for the amount drawn Sec. X276 Rediscounting Window for
against the committed credit line shall be Low-Cost Housing as Defined by the
the security for this credit facility. Housing and Urban Development
c. Loan values. The loan value of paper Coordinating Council (HUDCC). The rules
offered as collateral shall be eighty percent and regulations governing the rediscounting
(80%) of the amount still due and outstanding of housing loan papers of qualified banks
on the paper offered as collateral. under the low-cost housing program of the
d. Repayment period. The term of HUDCC are shown in Appendix 40.
the credit accommodation may not
exceed ninety (90) days and shall be non- Sec. 1277 Rediscounting Window
renewable. Available to All Universal and Commercial
Banks for the Purpose of Providing
§ X273.4 Ceiling. If availment of this Liquidity Assistance to Investment Houses
credit facility is outside the other rediscount The following implementing guidelines
ceiling of the bank, it shall be limited to shall govern the new rediscount window
the extent of fifteen percent (15%) of the available to all UBs and KBs under Section
net worth of the bank. 82(c) of R.A. No. 7653, for the purpose of
providing liquidity assistance to IH:
Sec. 1274 (Reserved) a. Criteria for eligibility
(1) Eligible papers
Sec. 2274 Countryside Financial Promissory note of the UB/KB executed
Institutions Enhancement Program for in favor of the BSP and secured by a Deed
Thrift Banks (CFIEP). The CFIEP shall be of Pledge or Assignment of unencumbered/
implemented under the terms of reference unhypothecated commercial papers with a
indicated in Appendix 16. rating of triple "A" and double "A".

§§ 1277 - 3277.1
05.12.31
(2) Loan limit for the purpose of providing liquidity

Availments against this facility shall be assistance to support and promote
charged against the rediscount ceiling of the microfinance programs.
borrowing bank (100% of net worth) as of
the end of the quarter immediately § 3277.1 Eligibility requirements
preceding the date of application. a. Eligible borrowers . RBs and Coop
b. Terms and conditions Banks with at least one (1) year track record
(1) The loan shall be assessed an annual in microfinance and at least 500 active
interest rate equivalent to one percent (1%) borrowers, ratio of past due microfinance
below the weighted average of the ninety- loans to total outstanding microfinance
one (91)-day Treasury Bill rate for the last loans of not more than five percent (5%)
auction of the immediately preceding month. as of end of the month preceding loan
(2) The loan shall have a term of 180 application and collection ratio of not less
days from date of availment. than ninety-five percent (95%) based on
(3) The loan value shall be ninety ratio of total collections (excluding
percent (90%) of the face value of the prepayments) during the preceding twelve
commercial paper. (12)-month period to the sum of past due
(4) The BSP will automatically debit the microfinance loans at the beginning of said
demand deposit account of the UB/KB period and amount of matured loans
upon maturity of the rediscounting loan. including principal amortizations during
(5) The Chief Executive Officer of the the same twelve (12) - month period.
bank or his equivalent must certify that the b. Eligible papers. Promissory Note
rediscounted commercial paper is still (PN) of the RB or Coop Bank executed in
outstanding as of the time of assignment. favor of the BSP and secured by duly
(6) The UBs/KBs shall comply with the endorsed PN of microcredit borrowers.
documentary requirements of the DLC. c. Manual of operations. Written
c. Duration policies on microfinance operations must
Qualified UBs/KBs may avail of this be set forth and documented in a policy
facility until December 2000. manual duly approved by the bank’s board
of directors. The manual should include
Sec. 2277 Rediscounting Window Available the following minimum features:
to TBs for the Purpose of Providing Liquidity (1) Scope of microfinance activities
Assistance to Support and Promote and the types of services or products offered
Microfinance Programs. TBs availing of to clients;
rediscounting facility for purposes of (2) Authorities and responsibilities of:
providing liquidity assistance to support and (a) Board of directors;
promote microfinance programs shall comply (b) Management;
with the guidelines under Sec. 3277, except (c) Chief Executive Officer (CEO) or its
for the requirement of a custodian bank under equivalent;
Subsec. 3277.4a(6). (d) Credit officers; and
(e) Other officers involved in the
Sec. 3277 Rediscounting Window microfinance operations;
Available to Rural and Cooperative Banks (3) Policies and procedures covering
for the Purpose of Providing Liquidity microfinance program/project;
Assistance to Support and Promote (4) Client evaluation process which
Microfinance Programs. The following should involve at least: client orientation,
guidelines shall govern the rediscounting pre-application, credit investigation, and
facility available to RBs and Coop Banks loan application process;

§§ 3277.1 - 3277.3
05.12.31
(5) Loan processing, documentation (1) year from the date it is granted. The line
and release of proceeds; may be renewed for another year upon
(6) Accounts monitoring system; submission of an application at least two
(7) Accounts delinquency management; (2) months before expiry, subject to full
(8) Management Information System; compliance with the prescribed eligibility
(9) Accounting policies, systems and requirements and the credit review by the
procedures; and DLC.
(10) Internal controls and audit policies, b. Total availments against the facility,
systems and procedures. which shall be charged against the approved
d. A copy of System of Reviewing MCR line, shall form part of the total
Asset Accounts and Setting Up of Adequate authorized rediscount ceiling of the borrowing
Valuation Reserves submitted. bank. The rediscount ceiling for microfinance
e. Staff training and experience. Key shall be equivalent to one hundred percent
officers and staff responsible for microcredit (100%) of the bank’s net worth, net of
operations must have a minimum valuation reserves and other capital
experience of one (1) year and have adjustments as recommended by the DRB as
completed a training course in of the last regular examination of the bank.
microlending activities. c. The proceeds of availment or
f. Prescribed financial ratios and drawdown against the approved MCR line
regulations. Applicant bank must comply shall be credited to the account of the RB or
with the following financial ratios and Coop Bank maintained with the depository
regulations: bank or with BSP. The RB or Coop Bank
(1) Minimum capital prescribed under shall be notified in writing/electronically of
Subsec. X106.1; the credit of such account on the same
(2) Risk-based capital ratio of not less banking day that the proceeds are released.
than ten percent (10%);
(3) Reserves against deposit liabilities § 3277. 3 Terms and conditions
prescribed under existing regulations; a. The loan value shall be equivalent
(4) Ratio of past due direct and indirect to eighty percent (80%) of the outstanding
loans to DOSRI to the bank’s aggregate past balance of the microfinance borrower’s PN.
due loans of not more than ten percent (10%); b. The RB or Coop Bank’s loan from
(5) Loans-to-deposits ratio of at least the BSP shall have a term of not more than
seventy-five percent (75%); 360 days. The maturity date of the
(6) Reports required to be submitted to microfinance borrower’s PN shall in no
the various departments and/or offices of case be beyond the maturity date of the
the BSP; RB or Coop Bank’s PN.
(7) CAMELS rating of “3” or better; and c. The loan shall be assessed an
(8) Ratio of past due loans to total loan annual interest rate equivalent to the 91-
portfolio of not more than the industry day Treasury Bill rate for the last auction
average for RBs as of the preceding quarter. date of the preceding month.
d. The demand deposit account of the
§ 3277. 2 Microcredit (MCR) line RB or Coop Bank will be automatically
a. Application for MCR Line shall be debited at the maturity date of the BSP loan
filed with the DLC, BSP at its head office for the full amount due excluding collections
in Manila or the appropriate BSP Regional from microfinance borrowers which were
Loans and Credit Unit (BSPRLCU). The credited to the Special Savings Account of the
term of the MCR line shall not exceed one BSP with the borrowing bank.

§§ 3277.3 - 3277.5
05.12.31
e. Any responsible officer who is month immediately preceding the date of

holding a position that is not lower than application together with the
manager or equivalent rank must, upon corresponding Statement of Income and
approval by the bank’s Board, endorse the Expenses covering the results of operations
rediscounted PNs and certify that the same for the last three (3) years.
are still outstanding as of the time of (4) Report on required and available
application. reserves covering the past two (2)
f. Collections made on amortizations consecutive weeks immediately preceding
due and maturing PNs shall be remitted to the date of application.
the DLC not later than two (2) banking days (5) Rediscounting Line Agreement
following the date of receipt of collections executed by the CEO of the RB or Coop
by the Head Office/branches located within Bank.
Metro Manila and not later than four (4) (6) Notarized custodian agreement
banking days following the date of receipt executed among the CEO of the RB or
of collections by the Head Office/branches Coop Bank, the third party custodian and
located outside Metro Manila as provided the BSP.
under Subsec. 3277.5. b. Availment of MCR Line. For
g. A penalty of five percent (5%) per availment of MCR line, the RB or Coop Bank
annum shall be imposed on matured and shall submit the following documents:
unpaid bank PNs in favor of the BSP. (1) Application for MCR Line
Full compliance at all times with the Availment – original and one (1) copy in
eligibility requirements as prescribed under prescribed form duly accomplished and
Subsec. 3277.1. signed by the CEO of the applicant bank;
(2) Rediscount Schedule (RS); and
§ 3277.4 Documentary requirements (3) Notarized PNs in favor of the BSP–
a. Application for MCR Line. RBs or original and two (2) copies.
Coop Banks applying for an MCR line shall
submit a letter of application to DLC or the § 3277.5 Remittance of collections/
appropriate BSPRLCU accompanied by the payments/repayments. Collections made
following documents: on amortizations due and maturing PNs
(1) Certificate of the Secretary (original) shall be remitted to the DLC not later than
and copy of the resolution duly signed by two (2) banking days following the date of
the board of directors of the applicant bank, receipt of collections by the Head Office/
authorizing the bank to apply for an MCR branches located within Metro Manila and
line with the BSP and designating the not later than four (4) banking days
officer authorized under Subsec. 3277.3(e) following the date of receipt of collections
to endorse the PNs and sign all papers by the Head Office/branches located
pertaining to the rediscounting line in the outside Metro Manila. As an alternative,
prescribed format. collections may be deposited in a Special
(2) Certification of the applicant bank Savings Deposit Account (SSDA) which
that it has complied with the financial and shall be maintained by the BSP with the
regulatory ratios, conditions, and reportorial borrower-bank and remitted to DLC or the
requirements prescribed under the eligibility appropriate BSPRLCU on the last banking
requirements for rediscounting as provided day of every month. The SSDA shall earn
under Subsec. 3277.1. interest of one percent (1%) lower than the
(3) Consolidated Financial Statements. 91-day Treasury Bill rate for the last auction
Statement of Condition as of the end of the date of the preceding month.

§§ 3277.5 - X281.1
05.12.31
On due date of the PN, the RB or Coop (1) 1st Offense – a warning that a
Bank shall remit to the BSP the unpaid repetition of the same or similar offense
balance of such PN: Provided, That any shall subject the erring director/officer to
amount credited to the SSDA shall be monetary penalties and/or sanctions;
applied as payment of the PN in favor of (2) 2nd Offense – a fine of P500 per
BSP. The remittance shall be reported day for each violation from the time the
under DLC Form No. 5. The remittance violation was committed up to the time it
to BSP shall be in the form of cash, demand is corrected without prejudice, however,
draft, manager’s check or based on to the imposition of higher penalties; and
authority issued by the bank to debit its (3) 3rd and Subsequent Offenses – a
demand deposit account with BSP. Check fine of P5,000 per day from the time the
payments and demand drafts shall be given violation was committed up to the time it
value when cleared. is corrected without prejudice, however,
to the imposition of higher penalties.
§ 3277.6 Reports required. A If any of the documentary requirements
monthly report on microfinance submitted by the bank as required under
transactions shall be submitted to DLC or Subsec. 3277.4 is found to be false, a fine
the appropriate BSPRLCU within the of P5,000 per day, from the time the
deadline set in Appendix 6. certification was made up to the time the
certification was found to be false, shall be
§ 3277.7 Accounts verification. The imposed against the certifying officer.
microcredit accounts rediscounted shall be
subject to verification and confirmation by Secs. X278 - X280 (Reserved)
authorized DLC or the appropriate
BSPRLCU representatives to determine K. OTHER BORROWINGS
their eligibility and acceptability for
rediscounting. Sec. X281 Borrowings from the
Government. Except as may be authorized
§ 3277.8 Sanctions. Any mis- by existing statutes, no private bank shall,
representation and/or violation of the whether or not performing quasi-banking
provisions of this Section shall subject the RB functions, borrow any fund or money from
or Coop Bank and/or the erring directors/ the Government and government entities,
officers to any of the following sanctions: through the issuance or sale of its
a. Erring RB or Coop Bank acceptances, notes or other evidences of
(1) Fines in amounts as may be debt.
determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty § X281.1 Exemption from reserve
thousand pesos (P30,000) a day for each requirement. The following borrowings
violation; shall not be subject to the reserve
(2) Suspension of rediscounting requirements:
privileges or access to BSP credit facilities; a. Special time deposits (STDs) and
and/or deposit substitutes of specialized
(3) Reduction of rediscounting line. government banks and private banks arising
b. Erring Directors/Officers from their lending operations under the
For violation of any of the provisions of special financing programs of the
this Section the following shall be imposed Government and/or international financial
against the directors and officers of the bank: institutions; and

§§ X281.1 - X299
05.12.31
b. Funds held by participating regulations governing the issuance of said

financial institutions (PFIs) under the GSIS certificates is shown in Appendix 17.
Housing Loan Programs: Provided, That
the agreement between the GSIS and the Sec. 3283 (Reserved)
conduit banks specify that such funds may
be held by the conduit banks for a period Sec. 1284 (Reserved)
of not more than seven (7) calendar days
prior to their release to the borrower and Sec. 2284 (Reserved)
prior to the remittance by the conduit
banks of payments to the GSIS. Sec. 3284 Borrowings of Rural Banks/
c. Borrowings by accredited financial Cooperative Banks. RBs and Coop Banks
institutions under the Wholesale Lending may rediscount papers with any bank.
Program for small and medium enterprises The obligations of RBs arising from
(SMEs) of the Small Business Guarantee availments of rediscounting facilities and
and Finance Corporation (SBGFC). other borrowings from the BSP, will be
considered as deposit substitutes.
Sec. X282 Borrowings from Trust However, with the qualification in the Tax
Departments or Investment Houses Code of 1997 that the term “public” means
Funds borrowed by banks or non-bank borrowing from twenty (20) or more
financial intermediaries performing quasi- individual or corporate lenders at any one
banking functions from trust departments (1) time, it is clear that the obligations of
or managed funds of banks or IHs are not the RBs to BSP, which are entered in their
considered as interbank borrowings and books as “Bills Payable-BSP,” do not
therefore are subject to the: presently fall under the category of deposit
a. Reserve requirement on deposit substitutes.
substitutes;
b. Minimum fifteen (15)-day maturity Secs. X285 - X298 (Reserved)
period; and
c. Minimum trading lot rule. Sec. X299 General Provision on Sanctions
Any violation of the provisions of this Part
Sec. 1283 (Reserved) shall be subject to Sections 36 and 37 of
R.A. No. 7653.
Sec. 2283 Mortgage/Chattel Mortgage The guidelines for the imposition of
Certificates of Thrift Banks. With prior monetary penalty for violations/offenses
approval of the Monetary Board, TBs may with sanctions falling under Section 37 of
issue and deal in mortgage and chattel R.A. No. 7653 on banks, their directors
mortgage certificates. The rules and and/or officers are shown in Appendix 67.

§§ X301 - 1301.1
05.12.31
PART THREE
LOANS, INVESTMENTS AND SPECIAL CREDITS
Section X301 Lending Policies. It shall c. Minimum operational requirements

be the responsibility of the board of (1) A bank’s internal credit risk rating
directors of a bank to formulate written system must be duly approved by the board
policies on the extension of credit and risk of directors (or equivalent management
diversification and to set the guidelines for committee in the case of Philippine
evaluation of risk assets. Well-defined branches of foreign banks). The board
lending policies and sound lending practices should exercise appropriate oversight over
are essential if a bank is to perform its lending the system in a consistent manner.
function effectively and minimize the risk (2) A bank’s internal credit risk rating
inherent in any extension of credit. The system must be operationally integrated into
responsibility should be approached in a way its internal credit risk management process.
that will provide assurance to the public, the Its output should accordingly be an integral
stockholders and supervisory authorities that part of the process of evaluation and review
timely and adequate action will be taken to of prospective and existing exposures,
maintain the quality of the loan portfolio and respectively. Credit underwriting criteria
other risk assets. should become progressively more
conservative as credit rating declines. All
§ X301.1 (Reserved) credit decisions must be supported by a
written assessment. In the context of
§ 1301.1 Rules and regulations to govern ongoing review, provisioning standards
the development and implementation of must be rationally tied to the internal credit
banks’ internal credit risk rating systems rating system.
a. Statement of policy. It is the policy (3) Banks must have an independent
of the BSP to ensure that banks’ credit risk credit risk control function that is
management processes are sound and responsible for the design, implementation
effective. Towards this end, the following and performance of their credit risk rating
rules and regulations that shall govern the systems. The credit risk control function
use of banks’ internal credit risk rating must be independent from the business
systems are hereby prescribed. functions responsible for originating
b. Scope. UBs and KBs must have in exposures.
place a formal internal credit risk rating (4) Internal ratings must be an essential
system for the underwriting and ongoing part of annual or more frequent reporting
administration, initially, of corporate credit of banks’ changing portfolio quality over
exposures. The internal credit risk rating time to the board of directors (or equivalent
system must be appropriate to a bank’s management committee in the case of
nature, complexity and scale of activities. Philippine branches of foreign banks).
Initially and until such time that the Reporting must include portfolio
Monetary Board prescribes otherwise, breakdown by credit grade, major portfolio
corporate credit exposure shall be defined segments breakdown by credit grade, and
as exposures to companies with assets of analysis of realized default rates against
more than P15.0 million. expectations.
Manual of Regulations for Banks Part III - Page 1

§ 1301.1
05.12.31
(5) Internal and external audit must also exposures across grades with no excessive
review at least annually the bank’s internal concentrations on a single rating grade.
rating system and its operations, including the (5) The ratings output of banks’ internal
operations of the credit risk control function. credit risk rating systems must contain both
d. Minimum technical standards a borrower and a facility dimension. The
(1) Banks must fully document their borrower dimension should focus on factors
internal credit risk rating systems. The that affect the inherent credit quality of each
documentation must address topics such as borrower. The facility dimension, on the
coverage, rating criteria, responsibilities of other hand, should focus on security/
parties involved in the ratings process, collateral arrangements and other similar
definition of what constitutes a rating risk influencing factors of each transaction.
exception, parties that have authority to (6) In rating corporate borrowers with
approve exceptions, frequency of rating total assets of more than P15.0 million, only
reviews, and management oversight of the financial statements audited by SEC-
rating process. A bank must document the accredited external auditors shall be used
rationale for its choice of rating criteria and starting with the 2005 financial statements.
must be able to provide analyses e. Definition of default and loss. In
demonstrating that the rating criteria and connection with the data collection
procedures are likely to result in ratings that exercise prescribed under this Subsection,
meaningfully differentiate risk. banks shall be guided by the following
(2) The rating criteria should reflect an standard definitions of default and loss:
established blend of qualitative and (1) Definition of default
quantitative factors. Transparent ranges A default is considered to have
need to be set for the quantitative standards occurred in the following cases:
based on experience. The quantitative (a) If a credit obligation is considered
criteria must include leverage and cash flow non-performing under existing rules and
standards. regulations;
(3) Banks must maintain rating histories (b) If a borrower/obligor has sought or
on individual accounts, which shall include has been placed in bankruptcy, has been
the ratings of the account, the dates the found insolvent, or has ceased operations
ratings were assigned, the methodology and in the case of businesses;
key data used to derive the ratings and the (c) If the bank sells a credit obligation
analyst who gave the ratings. The identity at a material credit-related loss, i.e.,
of borrowers and facilities that default, and excluding gains and losses due to interest
the timing and circumstances of such rate movements. Banks’ board-approved
defaults, must be retained. Banks must also internal policies that govern the use of their
retain data on the realized default rates internal rating systems must specifically define
associated with rating grades and ratings when a material credit-related loss occurs; and
migration in order to eventually track the (d) If a credit obligation of a borrower/
predictive power of the risk rating system. obligor is considered to be in default, all
(4) A bank’s internal credit risk rating credit obligations of the borrower/obligor
system must have a minimum of 6 rating with the same bank shall also be considered
grades for unclassified accounts and 4 rating to be in default.
grades for classified accounts, which must (2) Definition of loss
be assigned in a consistent manner over Loss, for purposes of accumulating data
time. Moreover, the rating system must on loss in the event of default, refers to
result in a meaningful distribution of economic loss. It must therefore include
Part III - Page 2 Manual of Regulations for Banks

§§ 1301.1 - X301.6
05.12.31
discount effects, as well as direct and counterparties in specific geographical

indirect costs associated with collecting on locations, economic or industry sectors).
the credit obligation. Banks’ board- (3) Diversification of risk is essential in
approved internal policies that govern the banking. Many past bank failures have been
use of their internal rating systems must due to credit risk concentrations of some
include specific policies and procedures kind. It is essential for banks to prevent
that should be followed in the undue credit risk concentrations from
determination of economic loss. excessive exposures to particular
f. Timetable for implementation counterparties, industries, economic
(1) Banks must submit an sectors, regions or countries.
implementation plan to the appropriate SED (4) While concentration of credit risks
of the BSP no later than 31 July 2004. A are inherent in banking and cannot be
monetary penalty of P10,000 per banking totally eliminated, they can be limited and
day shall be imposed for delay until such reduced by adopting proper risk control and
plan is submitted. diversification strategies. Safeguarding
(2) A fully documented internal credit against credit risk concentrations should
risk rating system, duly approved by the form an important component of a bank’s
board of directors, must be submitted to the risk management system.
BSP not later than 31 December 2004. (5) The board of directors of a bank
Upon submission of the system, all shall be responsible for establishing and
prospective and existing corporate accounts monitoring compliance with policies
must immediately be evaluated and governing large exposures and credit risk
monitored according to such system. A concentrations of the bank. The board
monetary penalty of P10,000 per banking should review these policies regularly (at
day shall be imposed for delay until this least annually) to ensure that they remain
requirement is complied with. adequate and appropriate for the bank.
Subsequent changes to the established
§§ X301.2 – X301.5 (Reserved) policies must be approved by the board.
(6) The policy on large exposures and
§ X301.6 Large exposures and credit credit risk concentrations shall, at a
risk concentrations. The following minimum, cover the following:
guidelines shall govern managing large (a) Exposure limits that are reasonable
exposures and credit risk concentrations in in relation to capital and resources for –
line with the objective of strengthening risk (i) Various types of borrowers/
management in the banking system. counterparties (e.g. government, banks and
a. General principles other financial institutions, corporate and
(1) A bank can be exposed to various individual borrowers);
forms of credit risk concentration which if (ii) A group of related borrowers/
not properly managed may cause counterparties;
significant losses that could threaten its (iii) Individual industry sectors;
financial strength and undermine public (iv) Individual countries; and
confidence in the bank. (v) Various types of investments.
(2) Credit risk concentrations may arise (b) The circumstances in which the
from excessive exposures to individual above limits can be exceeded and the party
counterparties, groups of related authorized to approve such excesses, e.g. the
counterparties and groups of counterparties bank’s board of directors or credit committee
with similar characteristics (e.g. with delegated authority from the board.

§ X301.6
05.12.31
(c) The delegation of credit authority (2) Every bank should have adequate
within the bank for approving large exposures; management information and reporting
(d) The procedures for identifying, systems that enable management to identify
reviewing, managing and reporting large credit risk concentrations within the asset
exposures of the bank; portfolio of the bank or of the group
(e) The definition of exposure. Banks (including subsidiaries and overseas
should take into account the nature of their branches) on a timely basis. If a
business and the complexity of their concentration does exist, banks should
products. In any case, a bank’s exposures reduce it in accordance with their
to a counterparty should include its on and prescribed policies. Large exposures shall
off-balance sheet exposures and indirect be subject to more intensive monitoring.
exposures; and (3) Banks should ensure that their
(f) The criteria to be used for identifying internal or external auditors conduct at least
a group of related persons; an annual review of the quality of large
(7) The board and senior management exposures and controls to safeguard against
of a bank should ensure that: credit risk concentrations. Their review
(a) Adequate systems and controls are in should ascertain whether:
place to identify, measure, monitor and (a) The bank’s relevant policies, limits
report large exposures and credit risk and procedures are complied with; and
concentrations of the bank in a timely (b) The existing policies and controls
manner; and remain adequate and appropriate for the
(b) Large exposures of the bank are kept bank’s business.
under regular review. “Large exposures” shall (4) Management should take prompt
refer to exposures to a counterparty or a group corrective action to address concerns and
of related counterparties equal or greater than exceptions raised.
five percent (5%) of bank’s qualifying capital (5) There should also be an
as defined under Section X116. independent compliance function to ensure
(8) A bank should, where appropriate, that all relevant internal and prescribed
conduct stress testing and scenario analysis requirements and limits are complied with.
of its large exposures to assess the impact of Breaches of prescribed requirements and
changes in market conditions or key risk deviations from established policies and
factors (e.g. economic cycles, interest rate, limits should be reported to senior
liquidity conditions or other market management in a timely manner.
movements) on its profile and earnings. c. Unsafe and unsound practice
(9) It is expected that banks would Non-observance of the principles and
generally observe a lower internal single the requirements of Items “a” and “b” above
borrower’s limit than the prescribed limit of may be a ground for a finding of unsafe and
twenty-five percent (25%) as a matter of unsound practice under Section 56 of the
sound practice. General Banking Law of 2000 (Appendix
b. Monitoring of large exposures/credit 48) and may be subject to appropriate
risk concentrations sanction as may be determined by the
(1) Banks should have a central liability Monetary Board.
record (preferably based on automated d. Notification requirements
system) for each loan exposure. Banks A bank must inform BSP immediately
should be able to monitor such exposures when it has concerns that its large exposures
against prescribed and internal limits on a or credit risk concentrations have the
daily basis. potential to impact materially upon its

§ X301.6 - X302.2
05.12.31
capital adequacy, along with proposed determine the allowance for probable
measures to address these concerns. losses on loans, other credit
e. Reporting accommodations, advances and other assets
Bank’s records on monitoring of large consistent with the institutions’ stated
exposures shall be made available to the policies and procedures, generally
BSP examiners for verification at any given accepted accounting principles (GAAP),
time. When warranted, the BSP may impose the BSP rules and regulations and the safe
additional reporting requirements on bank and sound banking practices. The board
in relation to its large exposures and credit of directors, in fulfilling this responsibility,
risk concentrations. shall require management to develop and
f. Sanction maintain an appropriate, systematic and
Any failure or delay in complying with uniformly applied process consistent and in
the requirements under Items “d” and “e” compliance with existing BSP rules and
of this Subsection shall be subject to penalty regulations to determine the amount of
applicable to those involving major reports. reserves for bad debts or doubtful accounts
or other contingencies.
Sec. X302 Loan Portfolio and Other Risk The specific allowance for probable
Assets Review System. To ensure that timely losses for classified loans and other risk
and adequate management action is taken assets and the general loan loss provision
to maintain the quality of the loan portfolio as required in Appendix 18 shall be set up
and other risk assets and that adequate loss immediately.
reserves are set up and maintained at a level
sufficient to absorb the loss inherent in the § X302.2 Sanctions. Non-compliance
loan portfolio and other risk assets, each with the requirement to book valuation
bank shall establish a system of identifying reserves required under the preceding
and monitoring existing or potential Subsection shall be a ground for the
problem loans and other risk assets and of imposition of any or all of the following
evaluating credit policies vis-à-vis prevailing sanctions:
circumstances and emerging portfolio a. Denial of the request for authority
trends. Management must also recognize to establish new banking offices regardless
that loss reserve is a stabilizing factor and of type or category;
that failure to account appropriately for b. Denial of access to BSP credit
losses or make adequate provisions for facilities except as may be allowed under
estimated future losses may result in Section 84 of R. A. No. 7653; and
misrepresentation of the bank’s financial c. Fine of P10,000 a day for UBs and
condition. KBs, P5,000 for TBs and P500 for RBs/Coop
The system of identifying and Banks, counted as follows:
monitoring problem loans and other risk (1) from the date the bank has been
assets and setting up of allowances for informed that the recommendation of the
probable losses shall include, but is not appropriate SED has been confirmed by the
limited to, the guidelines mentioned in Monetary Board up to the date that said
Appendix 18. recommended valuation reserves had been
actually booked, in the case of allowance
§ X302.1 Provisions for losses; booking for probable losses for loans and other risk
The board of directors of banks are assets classified as substandard unsecured,
responsible for ensuring that their doubtful and loss as required by the BSP;
institutions have controls in place to and

§§ X302.2 - X303
05.12.31
(2) from the dates prescribed under this any other entity, the liabilities of said entities
Section up to the date of the actual booking to such bank; (3) in the case of a
in cases of the two percent (2%) general corporation, all liabilities to such bank of
provision for probable losses, the twenty- all subsidiaries in which such corporation
five percent (25%) allowance for probable owns or controls a majority interest; and
losses on secured loans classified as (4) in the case of a partnership, association
substandard, and the five percent (5%) or other entity, the liabilities of the members
allowance for probable losses on loans thereof to such bank.
especially mentioned. d. Even if a parent corporation,
partnership, association, entity or an
A. LOANS IN GENERAL individual who owns or controls a majority
interest in such entities has no liability to
Sec. X303 Credit Exposure Limits to a the bank, the liabilities of subsidiary
Single Borrower corporations or members of the partnership,
a. Consistent with national interest, the association, entity or such individual shall
total amount of loans, credit be combined under certain circumstances,
accommodations and guarantees that may including but not limited to any of the
be extended by a bank to any person, following situations: (1) the parent
partnership, association, corporation or corporation, partnership, association, entity
other entity shall at no time exceed twenty or individual guarantees the repayment of
five percent (25%) of the net worth of such the liabilities; (2) the liabilities were incurred
bank. The basis for determining compliance for the accommodation of the parent
with the single borrower’s limit (SBL) is the corporation or another subsidiary or of the
total credit commitment of the bank to or partnership or association or entity or such
on behalf of the borrower. individual; or (3) the subsidiaries though
b. The total amount of loans, credit separate entities operate merely as
accommodations and guarantees prescribed departments or divisions of a single entity.
in the first paragraph may be increased by e. For purposes of this Section, loans,
an additional ten percent (10%) of the net other credit accommodations and
worth of such bank: Provided, That the guarantees shall exclude: (1) loans and other
additional liabilities are adequately secured credit accommodations secured by
by trust receipts, shipping documents, obligations of the BSP or of the Philippine
warehouse receipts or other similar Government; (2) loans and other credit
documents transferring or securing title accommodations fully guaranteed by the
covering readily marketable, non- government as to the payment of principal
perishable goods which must be fully and interest; (3) loans and other credit
covered by insurance. accommodations secured by U.S. Treasury
c. The above prescribed ceilings shall Notes and other securities issued by central
include: (1) the direct liability of the maker governments and central banks of foreign
or acceptor of paper discounted with or sold countries with the highest credit quality
to such bank and the liability of a general given by any two (2) internationally
endorser, drawer or guarantor who obtains accepted rating agencies; (4) loans and other
a loan or other credit accommodation from credit accommodations to the extent
or discounts paper with or sells papers to covered by the hold-out on or assignment
such bank; (2) in the case of an individual of, deposits maintained in the lending bank
who owns or controls a majority interest in and held in the Philippines; (5) loans, credit
a corporation, partnership, association or accommodations and acceptances under

§§ X303 - X303.1
05.12.31
letters of credit to the extent covered by accept/create demand or current deposits,

margin deposits; and (6) other loans or to fund checks cleared through the said
credit accommodations which the private depository bank shall also be
Monetary Board may from time to time exempt from the SBL even if there is a
specify as non-risk items. government-owned or controlled financial
f. The wholesale lending activities of institution in the area.
government banks to participating financial
institutions for relending to end-user § X303.1 Definition of terms. For
borrowers shall at no time exceed a separate purposes of this Section, the following
limit of thirty-five percent (35%) of net definitions shall apply:
worth, subject to the following guidelines: a. Total credit commitment shall
(1) it shall apply only to loans granted to include outstanding loans and other credit
participating financial institutions (PFIs) on accommodations, deferred letters of credit
a wholesale basis for on-lending to end-user less margin deposits, and guarantees.
borrowers; (2) it shall apply only to loan Except as specifically provided, total credit
programs funded by multilateral, commitment shall be reckoned on credit
international or local development risk-weighted basis consistent with existing
agencies, organizations or institutions regulations.
especially designed for wholesale lending b. Loans shall refer to all the accounts
activities of government banks; (3) the end- under the loan portfolio of a bank as
user borrowers of the PFIs shall be subject enumerated in the Manual of Accounts for
to the twenty-five percent (25%) SBL, not Banks.
the increased ceiling of thirty-five percent c. Other credit accommodations shall
(35%); and (4) government banks shall refer to credit and specific market risk
observe appropriate criteria for accrediting exposures of banks arising from
PFIs and for the grant/renewal of credit lines accommodations other than loans such as
to accredited PFIs. receivables (sales contract receivables,
g. Loans and other credit accounts receivables and other receivables),
accommodations as well as deposits and debt securities booked as investments.
maintained with, and usual guarantees by d. Bank guarantee. A bank guarantee
a bank to any other bank or non-bank entity, is an irrevocable commitment of a bank
whether locally or abroad, shall be subject binding itself to pay a sum of money in the
to the limits as herein prescribed. event of non-performance of a contract by
Deposits of RBs/Coop Banks with a third party. The guarantee is a
government-owned or controlled financial commitment separate and distinct from the
institutions like the LBP and the DBP shall principal debt or contract.
not be covered by the SBL imposed under e. Net worth shall mean the total of the
R.A. No. 8791. unimpaired paid-in capital including paid-
In municipalities and cities where there in surplus, retained earnings and undivided
are no government banks, the deposits of profit, net of valuation reserves and other
RBs/Coop Banks in private banks in said areas adjustments as may be required by the BSP.
shall not be subject to the SBL. Deposits in f. Qualifying capital shall mean capital
private banks located in other municipalities/ under Sec. X116.
cities shall be covered by the SBL. g. The term “control of majority
The outstanding balance of the deposit interest” shall be synonymous to
in a private depository bank being used by “controlling interest” and exists when the
the TBs/RBs/Coop Banks with authority to parent owns directly or indirectly through

§ X303.1
05.12.31
subsidiaries more than one half of the whether drawn against goods for exports
voting power of an enterprise unless, in or against goods to be sold locally, which
exceptional circumstance, it can be clearly is discounted or purchased by a bank is a
demonstrated that such ownership does not bill drawn against existing values only
constitute control. Control of majority when it is accompanied by shipping
interest may also exist even when the documents, warehouse receipts or other
parent owns one-half or less of the voting papers, securing title to the goods sold.
power of an enterprise when there is: However, bills of exchange drawn in good
(1) Power over more than one-half of faith against actually existing values as
the voting rights by virtue of an agreement defined in this paragraph, which are past
with other investors; or due or the maturities of which have been
(2) Power to govern the financial and extended, shall be considered as
operating policies of the enterprise under additional loans authorized under the
a statute or an agreement; or second paragraph of this section and shall
(3) Power to appoint or remove the be subject to the ten percent (10%)
majority members of the board of directors limitation provided therein.
or equivalent governing body; or l. Commercial or business paper
(4) Power to cast the majority votes at actually owned by the person negotiating
meetings of the board of directors or the same shall mean a paper arising from
equivalent governing body; or an actual business transaction. A trade
(5) Any other arrangement similar to acceptance or promissory note actually
any of the above. owned by the person negotiating the same
h. Subsidiary shall refer to a is a commercial or a business paper.
corporation or firm more than fifty percent However, if a bill is drawn against an agent
(50%) of the outstanding voting stock of or fictitious drawee, or if a promissory note
which is directly or indirectly owned, is executed by an agent or fictitious
controlled or held with power to vote by drawee, neither is a commercial nor a
its parent corporation. business paper. Commercial or business
i. Credit risk transfer shall refer to any papers actually owned and discounted by
arrangement that allows the bank to transfer the person negotiating the same, which are
the credit risk associated with its loan or past due or the maturity of which have
other credit accommodation to a third been extended, shall be considered as
party. money borrowed and shall be subject to
j. Readily marketable goods shall the limitation of twenty-five percent (25%)
mean articles of commerce, agriculture or provided in the first paragraph of this
industry of such uses as to make them the Section: Provided, That commercial or
subject of constant dealings in ready business papers purchased by banks from
markets with such frequent quotations as SMEs which became past due or the
to make their prices easily and definitely maturities of which have been extended,
ascertainable, or which lend themselves shall be considered additional loan by the
easily to disposal by sale at any time to pay bank to the purchaser of goods or services
the obligations secured by the said goods. from the SME and shall be entitled to an
k. Bill of exchange drawn in good increased SBL equivalent to ten percent
faith against actually existing values shall (10%) of the net worth of the concerned
mean one (1) which is drawn by a seller on bank if the purchasers are companies with
the purchaser for the purchase price of credit ratings of at least “AA-” or equivalent
commodities sold. A bill of exchange, from a BSP-recognized rating agency.

§§ X303.2 - X303.5
05.12.31
§ X303.2 Rediscounted papers (4) The related bills of lading shall

included in loan limit. The liabilities to the specify in addition to the name of the
bank of borrowers whose papers were importer concerned, that the NFA shall be
rediscounted by banks with the BSP shall the consignee of the shipment;
not be deemed as having been c. The portion of loans and other
extinguished by the rediscount, but shall credit accommodations covered by the
be considered as still existing and shall be guarantee of Industrial Guarantee and Loan
included in determining the SBL until such Fund (IGLF);
papers are paid by the borrowers. d. The total liabilities of a commercial
paper issuer for commercial paper held by
§ X303.3 Credit risk transfer. Subject a UB as a firm underwriter shall not be
to prior approval of the BSP, loans and counted in determining compliance with
other credit accommodations covered by the SBL within a period of 180 days from
a legally effective credit risk transfer the acquisition of the commercial paper by
arrangement such as guarantee, letter of the UB: Provided, That in no case shall such
indemnity, standby letter of credit or credit liabilities exceed five percent (5%) of the
derivative, may be excluded from the total net worth of the UB beyond the normal
credit commitment of the bank to a applicable SBL;
borrower in reckoning compliance with the e. The portion of loans and other
SBL. credit accommodations covered by
guarantees of international/regional
§ X303.4 Exclusions from loan limit institutions/multi-lateral financial institutions
a. The discount of bills of exchange where the Philippine Government is a
drawn in good faith against actually existing member/shareholder, such as the
values, and the discount of commercial or International Finance Corporation and the
business paper which are actually owned Asian Development Bank;
by the person, company, corporation or f. Loans and other credit
association negotiating the same; accommodations or portion thereof,
b. Credit accommodations to finance specifically provided for with valuation
the importation of rice and corn to the reserves; Provided, That the bank has no
extent of 100% of the net worth of the bank unbooked valuation reserves; and
concerned shall be excluded in g. Loans and other credit
determining the SBL prescribed herein, accommodations as a result of an underwriting
subject to the following conditions: or sub-underwriting agreement of debt
(1) The importation shall be made in securities outstanding for a period not
pursuance of a national policy duly exceeding thirty (30) calendar days.
enunciated by the National Government;
(2) The importation shall have been § X303.5 Sanctions. Violations of the
approved by the National Economic provisions of this Section shall be subject
Development Authority (NEDA); to the following:
(3) The letter of credit shall specify that a. Monetary penalties - Fines of one-
importation shall be made with certification tenth of one percent (1/10 of 1%) of the
from the National Food Authority (NFA), or excess over the ceiling but not to exceed
the consular establishment of the Philippine P30,000.00 a day for each SBL violation
government at the source of any such shall be assessed on the bank to be
shipment to the effect that the commodity reckoned from the date the excess started
being imported is either rice or corn; and up to the date when such excess was

§§ X303.5 - X304.1
05.12.31
eliminated: Provided, That a maximum fine a. Government banks’ SBL of thirty-

of P500.00 a day for each violation shall five percent (35%) of unimpaired capital
be imposed against banks with total and surplus shall apply only to loans
resources of less than P50.0 million at the granted to PFIs on a wholesale basis for on-
time of granting of loan/credit lending to end-user borrowers;
accommodation. b. The thirty-five percent (35%) SBL
b. Other sanctions shall apply only to loan programs funded
First Offense – Reprimand for the by multilateral, international or local
directors/officers who approved the credit developmental agencies, organizations or
availment which resulted in the excess with institutions specially designed for wholesale
a warning that subsequent violations will lending activities of government banks;
be subject to more severe sanctions. c. The end-user borrowers of the PFIs
Subsequent offenses – shall be subject to the twenty-five percent
(1) Fine of P1,000.00 for directors/ (25%) SBL, not to the increased ceiling of
officers who approved the credit availment thirty-five percent (35%); and
which resulted in the excess. d. Government banks shall observe
(2) Suspension of the bank’s branching the minimum criteria for accrediting PFIs
privileges and access to BSP rediscounting and for the grant/renewal of credit lines to
facilities until the excess is eliminated. accredited PFIs as set forth in Appendix 41.
(3) Other penalties as the Monetary
Board may impose depending on the Sec. X304 Grant of Loans and Other
gravity of the offense. Credit Accommodations. The following
Transitory provision. Outstanding regulations shall be observed in the grant
credit commitments of a bank as of of loans and other credit accommodations.
02 May 2004 which are within the ceiling
prescribed under the regulations existing § X304.1 General guidelines
prior to said date but will exceed the Consistent with safe and sound banking
limitations prescribed in this Section shall practices, a bank shall grant loans or other
not be subject to penalty for a period of credit accommodations only in amounts
one (1) year or until said credit and for the periods of time essential for the
commitments become past due or are effective completion of the operation to be
extended, renewed or restructured financed.
whichever comes later. Said credit Before granting loans or other credit
commitments shall, however, be reported accommodations, a bank must ascertain
to the BSP within fifteen (15) banking days that the borrower, co-maker, endorser,
from 02 May 2004. surety and/or guarantor, if applicable, is
financially capable of fulfilling his/their
§§ X303.6 – X303.7 (Reserved) commitments to the bank. For this purpose,
a bank shall obtain adequate information
§ X303.8 Limit for wholesale lending on his/their credit standing and financial
activities of government banks. There shall capacities.
be a separate SBL of thirty-five percent In addition to the usual information
(35%) of unimpaired capital and surplus sheet about the borrower, a bank shall
for the wholesale lending activities of require from the credit applicant a
government banks to PFIs for relending to statement of his assets and liabilities and of
end-user borrowers, subject to the his income and expenses together with the
following guidelines: following:

§§ X304.1 - X305
05.12.31
a. A copy of the latest Income Tax loan or other credit accommodation may
Return (ITR) of the borrower and his co- be utilized by the borrower for a purpose(s)
maker, if applicable, duly stamped as other than that originally stated in the
received by the BIR; application and contract: Provided, That
b. Except as otherwise provided by law such other purpose(s) is/are among those
and in other regulations, if the borrower is for which the lending bank may grant loans
engaged in business, a copy of the and other credit accommodations under
borrower’s latest financial statements as existing laws and regulations: Provided,
submitted for taxation purposes to the BIR; further, That such utilization shall be with
and prior written approval of duly authorized
c. A waiver of confidentiality of client officer(s)/committee/board of directors of the
information and/or an authority of the bank lending bank and such written approval
to conduct random verification with the BIR shall form part of the contract between the
in order to establish authenticity of the ITR bank and the borrower.
and accompanying financial statements
submitted by the client. § X304.3 Prohibited use of loan
The consistency of the data/figures in proceeds. Banks are prohibited from
said ITR and statements shall also be requiring their borrowers to acquire shares
checked and considered in the evaluation of stock of the lending bank out of the loan
of the financial capacity and or other credit accommodation proceeds
creditworthiness of credit applicants. from the same bank.
Should the document(s) submitted
prove to be spurious or incorrect in material § X304.4 Signatories. A bank shall
detail, the bank may terminate any loan or require that loans and other credit
other credit accommodation granted on the accommodations be made under the
basis of said document(s) and shall have the signature of the principal borrower and in
right to demand immediate repayment or the case of unsecured loans and other credit
liquidation of the obligation. Moreover, the accommodations to an individual borrower,
bank may seek redress from the court for at least one (1) co-maker, except when the
any harm done by the borrower’s principal borrower has the financial
submission of spurious documents. capacity and a good track record of paying
his obligations.
§ X304.2 Purpose of loans and other The provisions of this Section and
credit accommodations. Before granting Subsec. X304.1 shall cover loans, other
a loan or other credit accommodation, credit accommodations and credit lines
banks shall ascertain the purpose of the loan granted, renewed or extended after 21
or other credit accommodation which shall February 2005, including any availment
be clearly stated in the application and in and/or re-availment against existing credit
the contract between the bank and line, except, consumer loans, as defined
borrower. The proceeds of a loan or other herein, which are supported by the
credit accommodation shall be utilized only documents enumerated in Subsec. X304.1
for the purpose(s) stated in the application at the time they were granted.
and contract; otherwise, the bank may
terminate the loan or other credit Sec. X305 Interest and Other Charges. The
accommodation and demand immediate rate of interest, including commissions,
repayment of the obligation. Notwithstanding premiums, fees and other charges, on any
the preceding sentence, the proceeds of a loan, or forbearance of any money, goods

§§ X305 - X305.4
05.12.31
or credits regardless of maturity and time deposits received by such banks, of

whether secured or unsecured shall not be P100,000 and over per transaction
subject to any regulatory ceiling. account, with maturities corresponding to
the interest periods for which such MRRs
§ X305.1 Rate of interest in the are being determined. Such rates and the
absence of stipulation. The rate of interest composition of the sample KBs shall be
for the loan or forbearance of any money, reviewed and determined at the
goods or credits and the rate allowed in beginning of every calendar semester on
judgments, in the absence of expressed the basis of the banks' combined levels
contract as to such rate of interest, shall be of outstanding deposit substitutes and
twelve percent (12%) per annum. time deposits as of 31 May or 30
November, as the case may be.
§ X305.2 Escalation clause; when The rate of interest on floating rate loans
allowable. Parties to an agreement existing and outstanding as of 23 December
pertaining to a loan or forbearance of 1995 shall continue to be determined on
money, goods or credits may stipulate that the basis of the MRRs obtained in
the rate of interest agreed upon may be accordance with the provisions of the rules
increased in the event that the applicable existing as of 01 January 1989: Provided,
maximum rate of interest is increased by the however, That the parties to such existing
Monetary Board: Provided, That such floating rate loan agreements are not
stipulation shall be valid only if there is also precluded from amending or modifying
a stipulation in the agreement that the rate their loan agreements by adopting a floating
of interest agreed upon shall be reduced in rate of interest determined on the basis of
the event that the applicable maximum rate the TBR or other market based reference
of interest is reduced by law or by the rates.
Monetary Board: Provided, further, That the Where the loan agreement provides for
adjustment in the rate of interest agreed a floating interest rate, the interest period,
upon shall take effect on or after the which shall be such period of time for which
effectivity of the increase or decrease in the the rate of interest is fixed, shall be such
maximum rate of interest. period as may be agreed upon by the
parties.
§ X305.3 Floating rates of interest. The For the purpose of computing the MRRs,
rate of interest on a floating rate loan during banks shall accomplish the report forms, RS
each interest period shall be stated on the Form 2D and Form 2E (BSP 5-17-34A).
basis of Manila Reference Rates (MRRs), T-
Bill Rates (TBRs) or other market based § X305.4 Accrual of interest earned on
reference rates plus a margin as may be loans. Banks are allowed to accrue interest
agreed upon by the parties. earned on loans, subject to the following
The MRRs for various interest periods guidelines and/or procedures.
shall be determined and announced by a. No accrual of interest income is
the BSP every week and shall be based allowed if a loan has become non-
on the weighted average of the interest performing as defined under Sec. X309.
rates paid during the immediately Likewise, interest income shall not be
preceding week by the ten (10) KBs with accrued for unmatured loans/receivables
the highest combined levels of with indications that collectibility thereof
outstanding deposit substitutes and time has become doubtful. These indications
deposits, on promissory notes issued and shall include declaration of bankruptcy,

§§ X305.4 - X306.1
05.12.31
insolvency, cessation of operations, or such g. For all purposes, the Allowance for
other conditions of financial difficulties or Uncollected Interest on Loans shall be
inability to meet financial obligations as they considered a valuation reserve/allowance
mature. Separate appropriate records shall against the Accrued Interest Receivable
be maintained for these non-accruing account.
unmatured loans.
Interest income on past due loans Sec. X306 Past Due Accounts. Past due
arising from discount amortization (and not accounts of a bank shall, as a general rule,
from the contractual interest of the accounts) refer to all accounts in its loan portfolio, all
shall be accrued as provided in PAS 39. receivable components of trading account
b. Interest earned on extended or securities and other receivables, as defined
renewed loans may be accrued: Provided, in the Manual of Accounts for Banks, which
That there is no previously accrued but are not paid at maturity.
uncollected interest thereon.
Interest income on restructured loans § X306.1 Accounts considered past
(principal plus capitalized interest thereon) due. The following shall be considered as
may be accrued: Provided, That these are: past due:
(1) In current status; and a. Loans or receivables payable on
(2) Fully secured by real estate with demand - If not paid on the date indicated
loan value of up to sixty percent (60%) of on the demand letter, or within three (3)
the appraised value of the real estate security months from date of grant, whichever
and the insured improvements thereon, and comes earlier;
such other first class collaterals as may be b. Bills discounted and time loans,
deemed appropriate by the Monetary Board. whether or not representing availments
c. Interest on non-performing loan against a credit line - If not paid on the
accounts shall be taken up as income only respective maturity dates of the promissory
when actual payments thereon are received. notes;
d. Accrued interest earned but not yet c. Customers' liability on drafts under
collected/received shall not be considered letters of credit/trust receipts:
as profits and/or earnings eligible for (1) Sight Bills - If dishonored upon
dividend declaration and/or profit sharing. presentment for payment or not paid within
e. A contra account to be designated thirty (30) days from date of original entry,
Allowance for Uncollected Interest on whichever comes earlier;
Loans shall be set up in accordance with (2) Usance Bills - If dishonored upon
Appendix 18 if accrued interest receivable presentment for acceptance or not paid on
on loans and loan installments is still due date, whichever comes earlier; and
uncollected after three (3) months from the (3) Trust receipts - If not paid on due date.
date such loans and loan installments have d. Bills and other negotiable
become non-performing. instruments purchased - If dishonored
f. The amount representing Allowance upon presentment for acceptance/
for Uncollected Interest on Loans may be payment or not paid on maturity date,
chargeable against the excess of outstanding whichever comes earlier: Provided,
valuation reserves for loans and other risk however, That an out-of-town check and
assets as appearing in the bank’s books, over a foreign check shall be considered as past
those recommended by the appropriate SED due if outstanding for thirty (30) days and
of the BSP. The balance thereof, if any, shall forty-five (45) days, respectively, unless
be chargeable against operations. earlier dishonored;

§§ X306.1 - X306.5
05.12.31
e. Loans/receivables payable in g. (Deleted by Circular No. 202

installments - The total outstanding balance dated 27 May 1999)
thereof shall be considered past due in h. Microfinance loans - If a payment
accordance with the following schedule: has fallen due and remained unpaid. Loan
Minimum No. payments are applied first to any interest
of Installments due, then to any installment of principal
Mode of Payment In Arrears that is due but unpaid, beginning with the
Monthly 3 earliest such installment. The number of
Quarterly 1
Semestral 1 days of lateness/delinquency is based on
Annual 1 the due date of the earliest loan installment
that has not been fully paid.
Provided, however, That when the total For the purpose of determining
amount of arrearages reaches twenty delinquency in the payment of obligations
percent (20%) of the total outstanding as defined in Subsec. X143.1e, any due
balance of the loan/receivable, the total and unpaid loan installment or portion
outstanding balance of the loan/receivable thereof, from the time the obligor defaults,
shall be considered as past due, regardless shall be considered past due.
of the number of installments in arrears:
Provided, further, That for modes of § X306.2 Demand loans. Banks shall,
payment other than those listed above (e.g., in case of non-payment of a demand loan,
daily, weekly or semi-monthly), the entire make a written demand within three (3)
outstanding balance of the loan/receivable months following the grant of such loan.
shall be considered as past due when the The demand shall indicate a period of
total amount of arrearages reaches ten payment which shall not be later than
percent (10%) of the total loan/receivable three (3) months from date of said demand.
balance;
For this purpose, the term "installments" § X306.3 Renewals/extensions. No
shall refer to principal and/or interest loan shall be renewed or its maturity date
amortizations that are due on several dates as extended unless the corresponding
indicated/specified in the loan documents. accrued interest receivable shall have been
f. Credit card receivables - If the paid.
minimum amount due or minimum
payment required is not paid within two (2) § X306.4 Restructured loans
cycle dates, the total amount due stated in Restructured loans whose terms of
the monthly billing statement: Provided, payment have not been complied with and
however, That the total outstanding balance which have become past due shall be
which includes amortization/s of any fixed governed by the provisions of Sec. X322.
monthly installment plan or deferred
payment scheme shall be considered and § X306.5 Write-off of loans as bad
reported past due when the number of debts
monthly installments in arrears is three (3) a. Approval by board of directors.
or more: Provided, further, That the bank Banks, upon approval by their board of
shall have the right to demand the directors may write-off loans, other credit
obligation in full in case of default in any accommodations, advances, and other
installment thereon if the contract between assets, regardless of amount, against
the bank and the cardholder contains an allowance for probable losses (valuation
“acceleration clause”; and reserves) or current operations as soon as

§§ X306.5 - X307
05.12.31
they are satisfied that such loans, other c. Reporting requirements. Notice of
credit accommodations, advances and write-off of loans, other credit
other assets are worthless as follows: accommodations, advances, and other
(1) In the case of secured loans, banks assets shall be submitted in the prescribed
may write-off loans, other credit form to the SED concerned within thirty (30)
accommodations and other assets in an days after every write-off with (i) a sworn
amount corresponding to the booked statement signed by the President of the
valuation reserves: Provided, That the bank or officer of equivalent rank that write-
balance of the secured loans, other credit off did not include transactions with DOSRI
accommodations, advances and other assets and (ii) a copy of board resolution approving
shall remain in the books. the write-off.
(2) In the case of unsecured loans, The income tax expense deferred
other credit accommodations, advances corresponding to the amount of loan, other
and other assets, banks shall write-off said credit accommodation, advances and other
loans, other credit accommodations, asset written-off considered deductible for
advances and other assets in full amount income tax purposes shall be recognized
outstanding. and reversed in bank’s books.
However, write-off of loans, other credit d. Verification of write-offs. Write-offs
accommodations, advances and other assets of loans shall be subject to verification
considered transactions with DOSRI shall be during examination.
with prior approval of the Monetary Board.
b. Definitions. For purposes of this § X306.6 Writing-off microfinance
Section, the following terms are hereby loans as bad debts. Microfinance loans,
defined as follows: regardless of amount that have become past
(1) Loans. The term loans shall refer to due in accordance with Subsec. X306.1h
all the accounts under the loan portfolio of may be written-off, in conformity with the
a bank as enumerated in the Manual of provisions of Subsec. X306.5: Provided,
Accounts for Banks. That the notice of write-off and attachments
(2) Other credit accommodations. The required under Item “c” of Subsec. X306.5
term other credit accommodations shall are filed within thirty (30) days after every
refer to exposures of banks other than loans write-off of loans.
such as sales contract receivables, accounts
receivables, accrued interest receivables, Sec. X307 "Truth in Lending Act"
lease receivables, and rental receivables. Disclosure Requirement. Banks are
(3) Advances. The term advances shall required to strictly adhere to the provisions
refer to any advance by means of an of R.A. No. 3765, otherwise known as the
incidental or temporary overdraft, cash "Truth in Lending Act", and shall make the
“vale”, any advance by means of DAUD true and effective cost of borrowing an
and any advances of unearned salary or integral part of every loan contract.
unearned compensation. The following regulations shall apply to
(4) Other assets. The term other assets all banks engaged in the following types of
shall refer to investments, placements, credit transactions:
ROPAs and all other asset accounts that will a. Any loan, mortgage, deed of trust,
not fall under loans and other credit advance and discount;
accommodations. b. Any conditional sales contract, any
(5) Bad debts. The term bad debts shall contract to sell, or sale or contract of sale of
refer to the definition under Subsec. X136.1. property or services, either for present or

§§ X307 - X307.1
05.12.31
future delivery, under which part or all of c. Down Payment represents the
the price is payable subsequent to the amount paid by the debtor at the time of
making of such sale or contract; the transaction in partial payment for the
c. Any rental-purchase contract; property or service purchased.
d. Any contract or arrangement for the d. Trade-in represents the value of an
hire, bailment, or leasing of property; asset agreed upon by the bank and debtor,
e. Any option, demand, lien, pledge, given at the time of the transaction in partial
or other claim against, or for delivery of, payment for the property or service
property or money; purchased.
f. Any purchase, or other acquisition e. Non-finance charges correspond to
of, or any credit upon security of any the amounts advanced by the bank for
obligation or claim arising out of any of the items normally associated with the
foregoing; and ownership of the property or of the
g. Any transaction or series of availment of the service purchased which
transactions having a similar purpose or are not incident to the extension of credit.
effect. For example, in the case of the purchase
The following categories of credit of an automobile on credit, the creditor
transactions are outside the scope of these may advance the insurance premium as
regulations: well as the registration fee for the account
(1) Credit transactions which do not of the debtor.
involve the payment of any finance charge f. Amounts to be financed consist of
by the debtor; and the cash price plus non-finance charges less
(2) Credit transactions in which the the amount of the down payment and value
debtor is the one specifying a definite and of the trade-in.
fixed set of credit terms such as bank deposits, g. Finance charge represents the
insurance contracts, sale of bonds, etc. amount to be paid by the debtor incident
to the extension of credit such as interest
§ X307.1 Definition of terms or discounts, collection fees, credit
a. Person means any individual, investigation fees, attorney’s fees and other
partnership, corporation, association or service charges. The total finance charge
other organized group of persons, or the represents the difference between (a) the
legal successor or representative of the aggregate consideration (downpayment
foregoing, and includes the Philippine plus install-ments) on the part of the debtor
Government or any agency thereof or any and (b) the sum of the cash price and non-
other government, or any of its political finance charges.
subdivisions, or any agency of the foregoing. h. Simple annual rate is the uniform
b. Cash price or delivered price, in percentage which represents the ratio, on an
case of trade transactions, is the amount of annual basis, between the finance charges
money which would constitute full payment and the amount to be financed.
upon delivery of property (except money) In the case of a single payment upon
or service purchased at the bank’s place of maturity, the simple annual rate (R) in percent
business. In the case of financial is determined by the following method:
transactions, cash price represents the
amount of money received by the debtor (finance charge) 12
upon consummation of the credit R = ---------------------- x ----------- x 100
(amount to be (maturity
transaction, net of finance charges collected financed) period in
at the time the credit is extended (if any). months)

§§ X307.1 - X307.4
05.12.31
In the case of the normal installment g. The percentage that the finance
type of credit of at least one (1) year in charge bears to the total amount to be
duration, where installment payments of financed expressed as a simple annual rate
equal amount are made in regular time on the outstanding unpaid balance of the
periods spaced not more than one (1) year obligation.
apart, the R in percent is computed by the The contract covering the credit
following method: transaction or any other document to be
(no. of payments acknowledged and signed by the debtor,
(finance charge) in a year) shall indicate the above seven (7) items of
R = 2 x ---------------------- x ------------------------- x 100 information. In addition, the contract or
(amount to be (total no. of document shall specify additional charges,
financed) payments
if any, which will be collected in case certain
plus one)
stipulations in the contract are not met by
the debtor.
In case where the credit matures in less
In case any of the seven (7) items of
than one (1) year (e.g., installment payments
information mentioned is not disclosed in
are required every month for six (6) months)
the contract covering the credit transaction,
the same formula will apply except that the
all of the seven (7) items, to the extent
number of payments in a year would refer to
applicable, shall be disclosed in another
the number of installment periods, as
document in a form (Appendix 19)
defined in the credit contract if the credit
prescribed by the Monetary Board, to be
matures in one (1) year. For example, the
signed by the debtor and appended to the
number of payments a year would be twelve
main contract. A copy of the disclosure
(12) for this purpose in case where six (6)
statement shall be furnished the borrower.
monthly installment payments are called for
in the credit transaction.1
§ X307.3 Inspection of contracts
covering credit transactions. Banks shall
§ X307.2 Information to be disclosed keep in their offices or places of business
Banks shall furnish each person to whom copies of contracts which involve the
credit is extended, prior to the extension of credit by the bank and the
consummation of the transaction, a clear payment of finance charges therefor. Such
statement in writing setting forth the copies shall be available for inspection or
following information: examination by the appropriate SED.
a. The cash price or delivered price of
the property or service to be acquired; § X307.4 Posters. Banks shall post in
b. The amounts, if any, to be credited conspicuous places in their principal place
as downpayment and/or trade-in; of business and branches, if any, the
c. The difference between the following:
amounts set forth under Items “a” and “b”; a. An abstract of the provisions of R.A.
d. The charges, individually itemized, No. 3765 in the form prescribed by the
which are paid or to be paid by such person Monetary Board (Appendix 20) which shall
in connection with the transaction but which be reproduced in a format sixty (60) cm.
are not incident to the extension of credit; wide and seventy-five (75) cm. long; and
e. The total amount to be financed; b. Information regarding interest and
f. The finance charges expressed in other charges on loans:
terms of pesos and centavos; and (1) Type of loan;
1
This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months between
installment payments.

§§ X307.4 - X309.1
05.12.31
(2) Simple annual rate of interest; shall apply to loans payable in lump sum
(3) Manner of interest payment; i.e. and loans payable in quarterly, semi-annual
whether collected in advance or otherwise; or annual installments, in which case, the
and total outstanding balance thereof shall be
(4) Other fees and charges imposed by considered non-performing.
the bank in connection with the loan. b. In the case of loans payable in
monthly installments, the total outstanding
Sec. X308 Amortization on Loans and balance thereof shall be considered non-
Other Credit Accommodations. The performing when three (3) or more
amortization schedule of bank loans and installments are in arrears.
other credit accommodations shall be c. In the case of loans payable in daily,
adapted to the nature of the operations to weekly or semi-monthly installments, the
be financed. total outstanding balance thereof shall be
In case of loans and other credit considered non-performing at the same
accommodations with maturities of more time that they become past due in
than five (5) years, provisions must be made accordance with Sec. X306, i.e., the entire
for periodic amortization payments, but outstanding balance of the loan/receivable
such payments must be made at least shall be considered as past due when the
annually: Provided, however, That when total amount of arrearages reaches ten percent
the borrowed funds are to be used for (10%) of the total loan/receivable balance.
purposes which do not initially produce d. Restructured loans shall be
revenues adequate for regular amortization considered non-performing in accordance
payments, the bank may permit the initial with Subsec. X322.1.
amortization payment to be deferred until e. All items in litigation as defined in
such time as said revenues are sufficient for the Manual of Accounts for Banks shall be
such purpose, but in no case shall the initial considered non-performing.
amortization date be later than five (5) years Only the following accounts are
from the date on which the loan or other qualified to be excluded from the non-
credit accommodation is granted: Provided, performing classification:
further, That in the case of agriculture and (1) Loans previously classified as “Loss”
fisheries projects with long gestation by the BSP fully covered by allowance for
periods, the initial amortization payment probable losses; and
may be deferred for a longer period based (2) Outstanding credit card receivables
on the economic life of the project as classified as “Loss” in the latest BSP
provided under Section 24 of R.A. No. 8435 examination plus credit card receivables
and implemented under Sec. X349. classified as “Loss” by the bank but not to
exceed the total amount classified as “Loss”
Sec. X309 Non-Performing Loans in the latest BSP examination: Provided,
That information on the outstanding credit
§ X309.1 Accounts considered non- card receivables classified as “Loss” as of
performing; definitions the reporting month shall be reported in a
a. Non-performing loans shall, as a separate item in the Additional Information
general rule, refer to loan accounts whose of the CSOC. Only banks with no
principal and/or interest is unpaid for thirty unbooked valuation reserves and capital
(30) days or more after due date or after adjustments, even if approved for booking
they have become past due in accordance on a staggered basis, are qualified to
with existing rules and regulations. This exclude loans classified as “Loss” by the

§§ X309.1 - X311.1
05.12.31
BSP from the non-performing classification: percent (70%) of the appraised value of
Provided, That interest on said loans shall insured improvements, and such loans shall
not be accrued and that such loans shall not be made unless title to the real estate is
also be deducted from total loan portfolio in the mortgagor.
for purposes of computation. In the case of UBs/KBs, the loan values
of real estate given as security for any loan
§ X309.2 Reporting requirement granted shall be reduced from seventy
Banks shall report the following data, at the percent (70%) to not more than sixty
end of each month, as additional percent (60%) of the appraised value of the
information (under Item 7) of the monthly real estate security and the insured
CSOC: improvements, except the following which
shall be allowed a maximum value of seventy
“7.Total Non-Performing Loans percent (70%) of the appraised value:
a. Non-performing regular loans xxx a. Any loan not exceeding P3.5 million
b. Non-Performing to finance the acquisition or improvement
Restructured Loans xxx
of residential units; and
“7a. Loans classified as “Loss” in
b. Housing loans extended or
the latest examination by the BSP guaranteed under the government’s
which are fully covered by National Shelter Program (NSP) such as the
Allowance for Probable Losses, Expanded Housing Loans Program (EHLP)
net of write-offs and recoveries xxx of the Home Development Mutual Fund
(HDMF or Pag-IBIG Fund) and the mortgage
“7b. Outstanding credit card and guaranty and credit insurance program
receivables classified as “Loss” in of the Home Insurance and Guaranty
the latest BSP examination, net Corporation (HIGC).
of write-offs, recoveries and
collections xxx
§ X311.1 Loans secured by junior
“7c. Credit card receivables mortgage on real estate. Banks may also
classified as “Loss” by the bank grant loans on the security of junior
as of this month xxx mortgages on real estate: Provided, That
for such loans to be considered as
Banks which are not qualified under adequately secured under Sections 37 and
Subsec. X309.1 to exclude loans classified 38 of R.A. No. 8791, the sum total of the
as “Loss” by the BSP from the non- loans to be granted and the outstanding
performing classification may opt not to fill balance of the loan granted on the senior
up Item “7a” of the Additional Information mortgage shall not, at any time, exceed the
of the monthly CSOC. loan value of subject real estate security
based on the appraisal of the real estate by
Sec. X310 (Reserved) the junior mortgagee.
A certified latest statement of account
B. SECURED LOANS showing the outstanding balance of the loan
including interest and arrearages, from the
Sec. X311 Loans Secured by Real Estate senior mortgagee shall be presented to the bank.
Mortgages. Loans against real estate In case several loans are granted on the
security shall not exceed seventy percent security of the same property, the total amount
(70%) of the appraised value of the of the loans shall not, at any time, exceed the
respective real estate security plus seventy total loan value of the said property.

§§ 1311.2 - 2311.4
05.12.31
§ 1311.2 (Reserved) applied for is to be used for further

development of the same or for other
§ 2311.2 (Reserved) productive economic activities: Provided,
finally, That the appraisal and verification
§ 3311.2 Eligible real estate of the status of a land is a full responsibility
collaterals on rural/cooperative bank of the RB/Coop Bank and any loan granted
loans. Loans may be granted by RBs/Coop on any land which shall be found later to
Banks on the security of lands without be within the forest zones shall be for the
Torrens Title where the owner of private sole account of the RB/Coop Bank.
property can show five (5) years or more of
peaceful, continuous and uninterrupted § X311.3 Insurance on real estate
possession in the concept of an owner; or improvements. The required insurance on
of portions of friar land estates or other lands improvements used as collateral for loan
administered by the Bureau of Lands that should be such as shall be sufficient to
are covered by sales contracts and the secure seventy percent (70%) of the
purchasers have paid at least five (5) years appraised value of such improvements or if
installment thereon, without the necessity inadequately insured, the loan value shall
of prior approval and consent by the correspond to the extent of insurance taken
Director of Lands, or of portions of other on such improvements.
estates under the administration of the
Department of Agrarian Reform (DAR) or § 1311.4 (Reserved)
other governmental agency which are
likewise covered by sales contracts and the § 2311.4 Foreclosure by thrift banks
purchasers have paid at least five (5) years The foreclosure of mortgages covering loans
installments thereon, without the necessity granted by TBs and executions of judgment
of prior approval and consent of the DAR or thereon involving real properties levied
corresponding governmental agency; or of upon by a sheriff shall be exempt from the
homesteads or free patent lands pending the publications in newspapers now required
issuance of titles but already approved, the by law where the total amount of loan,
provisions of any law or regulations to the excluding interests due and unpaid, does
contrary notwithstanding: Provided, That not exceed P100,000 or such amount as the
when the corresponding titles are issued, the Monetary Board may prescribe as may be
same shall be delivered to the Register of warranted by prevailing economic
Deeds of the province where such lands are conditions and by the nature of service of
situated for the annotation of the customers served by each category of the
encumbrance: Provided, further, That in TB. It shall be sufficient publication in such
the case of lands pending homestead or free cases if the notices of foreclosure and
patent titles, copies or notices for the execution of judgment are posted in the
presentation of the final proof shall also be conspicuous area of the TB’s premises,
furnished the creditor RB/Coop Bank and, municipal building, municipal public
if the borrower applicants fail to present the market, the barangay hall, and the barangay
final proof within thirty (30) days from date public market, if there be any, where the
of notice, the creditor RB/Coop Bank may land mortgaged is situated within a period
do so for them at their expense: Provided, of sixty (60) days immediately preceding the
furthermore, That the applicant for public auction of execution of judgment.
homestead or free patent has already made Proof of publication as required herein shall
improvements on the land and the loan be accomplished by an affidavit of the

§§ 2311.4 - X312
05.12.31
sheriff or officer conducting the foreclosure § X311.5 Redemption of foreclosed

sale or execution of judgment and shall be real estate mortgage. In the event of
attached with the records of the case. foreclosure, whether judicially or extra-
A TB shall be allowed to foreclose lands judicially, of any mortgage on real estate,
mortgaged to it: Provided, That said lands the mortgagor or debtor shall have the right
shall be covered under R.A. No. 6657. within one (1) year after the sale of the real
estate, to redeem the property by paying
§ 3311.4 Foreclosure by rural/ the amount due under the mortgage deed,
cooperative banks. The foreclosure of with interest thereon at the rate specified
mortgages covering loans granted by RBs/ in the mortgage, and all costs and expenses
Coop Banks and executions of judgment incurred by the bank or institution from the
thereon involving real properties levied sale and custody of said property less the
upon by a sheriff shall be exempt from the income derived therefrom. However, the
publications in newspapers now required purchaser at the auction sale concerned
by law where the total amount of loan, shall have the right to enter upon and take
excluding interests due and unpaid, does possession of such property immediately
not exceed P100,000 or such amount as the after the date of the confirmation of the
Monetary Board may prescribe as may be auction sale and administer the same in
warranted by prevailing economic accordance with the law.
conditions. It shall be sufficient publication Juridical persons whose property is
in such cases if the notices of foreclosure being sold pursuant to an extra-judicial
and execution of judgment are posted in foreclosure, shall have the right to redeem
the conspicuous area of the municipal the property in accordance with this
building, the municipal public market, the provision until, but not after, the
barangay hall, and the barangay public registration of the certificate of foreclosure
market, if any, where the land mortgaged sale with the applicable Register of Deeds
is situated during the period of sixty (60) which in no case shall be more than three
days immediately preceding the public (3) months after foreclosure, whichever is
auction of execution of judgment. Proof of earlier.
publication as required herein shall be
accomplished by an affidavit of the sheriff Sec. X312 Loans and Other Credit
or officer conducting the foreclosure sale Accommodations Secured By Chattels and
or execution of judgment and shall be Intangible Properties. Loans and other
attached with the records of the case: credit accommodations on the security of
Provided, That when a homestead or free chattels and intangible properties, such as,
patent is foreclosed, thehomesteader or free but not limited to, patents, trademarks,
patent holder, as well as his heirs shall have trade names, and copyrights shall not
the right toredeem the same within one (1) exceed seventy-five percent (75%) of the
year from the date of foreclosure in the case appraised value of the security, and such
of land not covered by a Torrens Title or loans and other credit accommodations
one (1) year from the date of the registration may be made to the title-holder of the
of the foreclosure in the case of land covered unencumbered chattels and intangible
by a Torrens Title. properties or his assignees: Provided, That
An RB/Coop Bank shall be allowed to in the case of intangible properties,
foreclose lands mortgaged to it: Provided, appraisal thereof shall be conducted by an
That said lands shall be covered under R.A. independent appraiser acceptable to the
No. 6657. BSP.

§§ X313 - X315
05.12.31
Sec. X313 Loans and Other Credit families against real estate security and
Accommodations Secured By Personal housing loans defined as loans granted for
Properties. Loans and other credit the purpose of constructing, improving or
accommodations may be secured by acquiring a residential property which is
unencumbered personal property which rented or is occupied or intended to be
may consist of: occupied by the borrower may be granted
a. Bonds and securities issued by the up to eighty percent (80%) of the appraised
Government. Such bonds and securities value of the real estate security: Provided,
may be given loan values equivalent to their That:
face value or cash value, as the case may be; a. Such loans shall not be made unless
b. Readily marketable bonds and other the title to the real estate security is in the
high-grade debt securities and “blue chip” name of the borrower or mortgagor; and
stocks, except those issued by the lending b. In case of subdivision/housing
entity or by its parent company, which owns project, the same or its plan has been
more than fifty percent (50%) of its approved by the proper authorities;
outstanding shares of stocks: Provided, That Provided, further, That the loans may
(1) the issuer corporation must be a listed be increased to ninety percent (90%) of the
corporation with a net worth of at least P1.0 appraised value of the real estate security if
billion and with annual net earnings during such loans are fully guaranteed by the
the immediately preceding five (5) years; appropriate government agency, in addition
and (2) the loan value shall be equivalent to the foregoing conditions.
to fifty percent (50%) of their market value.
c. Expected harvest from the project to Sec. X315 Loans Secured by Certificates
be financed or growing crops, up to forty of Time Deposit. The following rules shall
percent (40%) of the calculated market value govern the grant of loans secured by hold-
of the crop for which the loan or other credit out on and/or assignment of CTDs issued
accommodation is sought, based on by the lending bank, as well as its branches
previous production records or, in the or subsidiaries abroad:
absence thereof, on production in the a. The original copy of the CTDs
locality of similar plantations; subject to hold-out or assignment shall be
d. Quedans or warehouse receipts surrendered to the lending bank;
issued by bonded warehouses covering b. The depository bank, other than the
stock deposited in said warehouses up to lending bank, shall be furnished a copy of
eighty percent (80%) of the calculated the Deed of Assignment or hold-out
market value of the crop for which the loan agreement on the deposit used as collateral;
or other credit accommodation is sought; and c. If the term of the CTDs subject to
e. Any other personal property, up to hold-out or assignment is shorter than the
fifty percent (50%) of the fair market value. term of the loan, there shall be an
If the property is newly purchased and the agreement in writing that renewal of the
purchase price thereof appears in a bill of time deposit upon maturity shall be made
sale, then the above percentage shall be at least co-terminus with the term of the
based on the price of the said bill of sale. loan;
d. There shall be no pretermination of
Sec. X314 Increased Loan Values and the time deposit without the consent of the
Terms of Loans for Home-Building. Loans lending bank and unless an acceptable
for home-building and subdivision substitute collateral for the loan has been
development for low and middle-income made;

§§ X315 - X320
05.12.31
e. The lending bank shall keep a b. Except as otherwise provided in

complete record of all pertinent loan other regulations, if the borrower is engaged
documents, such as, but not limited to, the in business, a copy of the borrower’s latest
original copy of the CTDs subject to financial statements as submitted for taxation
assignment or hold-out agreement; deed purposes to the BIR.
of assignment or hold-out agreement; and Should the document(s) submitted prove
written waiver of the depositor required in to be spurious or incorrect in any material
Item "f" below, which shall be made detail, the bank may terminate any loan or
available for inspection and/or other credit accommodation granted on the
examination by the appropriate SED of the basis of said document(s) and shall have the
BSP; and right to demand immediate repayment or
f. The loan documents shall include liquidation of the obligation. Moreover, the
a waiver on the part of the depositor of his bank may seek redress from the court for any
rights under existing law to the harm done by the borrower’s submission of
confidentiality of his deposits. spurious documents.
Secs. X316 - X318 (Reserved) § X319.3 Signatories. Banks shall

require that loans and other credit
C. UNSECURED LOANS accommodations be made under the signature
of the principal borrower and in the case of
Sec. X319 Requirement for Grant of unsecured loans and other credit
Loans and Other Credit Accommodations. accommodations to an individual borrower,
The following regulations shall govern at least one (1) co-maker, except when the
loans and other credit accommodations, principal borrower has the financial capacity
except those granted to microfinance and and a good track record of paying his
small and medium enterprises. obligations.
§ X319.1 General guidelines. Before §§ X319.4 - X319.5 (Reserved)

granting a loan or other credit (Deleted by Cir. 389 dated 25 June 2003)
accommodation, a bank must ascertain that
the borrowers, co-makers, endorsers, § X319.6 Credit card receivables
sureties and/or guarantors are financially (Superseded by Cir. 398 dated 21 Aug. 2003)
capable of fulfilling their commitments to
the bank. For this purpose, banks shall Sec. X320 Credit Card Operations; General
obtain adequate information on their credit Policy. The BSP shall foster the development
standings and financial capacities. of consumer credit through innovative
products such as credit cards under
§ X319.2 Proof of financial capacity conditions of fair and sound consumer credit
of borrower. In addition to the usual practices. The BSP likewise encourages
information sheet about the borrower, competition and transparency to ensure
banks may require submission of a more efficient delivery of services and fair
statement of the borrower’s assets and dealings with customers.
liabilities. Banks shall, however, require Towards this end, the following rules
the following: and regulations shall govern the credit card
a. A copy of the latest ITR of the operations of banks and subsidiary/affiliate
borrower and his co-maker, if applicable, credit card companies, aligned with global
duly stamped as received by the BIR; and best practices.

§§ X320.1 - X320.2
05.12.31
§ X320.1 Definition of terms g. Affiliate refers to an entity linked

a. Credit card. Means any card, plate, directly or indirectly to a bank or other
coupon book or other credit device existing financial institution through any one or a
for the purpose of obtaining money, combination of any of the following:
property, labor or services on credit. (1) Ownership, control or power to
b. Credit card receivables. Represents vote, whether by permanent or temporary
the total outstanding balance of credit proxy or voting trust, or other similar
cardholders arising from purchases of goods contracts, by a bank or other financial
and services, cash advances, annual institution of at least ten percent (10%) or
membership/renewal fees as well as interest, more of the outstanding voting stock of the
penalties, insurance fees, processing/service entity, or vice-versa;
fees and other charges. (2) Interlocking directorship or
c. Minimum amount due or minimum officership, except in cases involving
payment required. Means the minimum independent directors as defined under
amount that the credit cardholder needs to existing regulations;
pay on or before the payment due date for (3) Common stockholders owning at
a particular billing period/cycle as defined least ten percent (10%) of the outstanding
under the terms and conditions or reminders voting stock of each financial institution and
stated in the statement of account/billing the entity; or
statement which may include: (1) total (4) Management contract or any
outstanding balance multiplied by the arrangement granting power to the bank or
required payment percentage or a fixed other financial institution to direct or cause
amount whichever is higher; (2) any amount the direction of management and policies
which is part of any fixed monthly of the entity, or vice-versa.
installment that is charged to the card; (3)
any amount in excess of the credit line; and § X320.2 Risk management system
(4) all past due amounts, if any. To safeguard their interests, banks and
d. Default or delinquency. Shall mean subsidiary/affiliate credit card companies
non-payment of, or payment of any amount are required to establish an appropriate
less than, the “Minimum Amount Due” or system for managing risk exposures from
“Minimum Payment Required” within two (2) credit card operations which shall be
cycle dates, in which case, the “Total Amount documented in a complete and concise
Due” for the particular billing period as manner. The risk management system shall
reflected in the monthly statement of account cover the organizational set-up, records and
may be considered in default or delinquent. reports, accounting, policies and
e. Acceleration clause. Shall mean any procedures and internal control.
provision in the contract between the bank Written policies, procedures and internal
and the cardholder that gives the bank the control guidelines shall be established on the
right to demand the obligation in full in case following aspects of credit card operations:
of default or non-payment of any amount a. Requirements for application;
due or for whatever valid reason. b. Solicitation and application
f. Subsidiary refers to a corporation or processing;
firm more than fifty percent (50%) of the c. Determination and approval of
outstanding voting stock of which is directly credit limits;
or indirectly owned, controlled or held with d. Pre-approved cards;
the power to vote by a bank or other e. Issuance, distribution and activation
financial institution. of cards;

§§ X320.2 - X320.4
05.12.31
f. Supplementary or extension cards; All credit card applications, especially

g. Cash advances; those solicited by third party representatives/
h. Billing and payments; agents, shall undergo a strict credit risk
i. Deferred payment program or assessment process and the information
special installment plans; stated thereon validated and verified by
j. Collection of past due accounts; persons other than those handling
k. Handling of accounts for write-off; marketing.
l. Suspension, cancellation and
withdrawal or termination of card; § X320.4 Information to be disclosed
m. Renewal of cards, upgrade or Banks or their subsidiary/affiliate credit card
downgrade of credit limit; companies shall disclose to each person to
n. Lost or stolen cards and their whom the credit card privilege is extended
replacement; in the agreement, contract or any equivalent
o. Accounts of DOSRI and document governing the issuance or use of
employees; the credit card or any amendment thereto
p. Disposition of errors and/or or in such other statement furnished the
questions about the billing statement/ cardholder from time to time, prior to the
statement of account and other customers’ imposition of the charges and to the extent
complaints; and applicable, the following information:
q. Dealings with marketing agents/ a. non-finance charges, individually
collection agents. itemized, which are paid or to be paid by
the cardholder in connection with the
§ X320.3 Minimum requirements transaction but which are not incident to the
Before issuing credit cards, banks and/or extension of credit;
their subsidiary/affiliate credit card b. the percentage that the interest bears
companies must exercise proper diligence to the total amount to be financed expressed
by ascertaining that applicants possess as a simple monthly or annual rate, as the
good credit standing and are financially case may be, on the outstanding balance of
capable of fulfilling their credit the obligation;
commitments. The net take home pay of c. the effective interest rate per annum;
applicants who are employed, the net d. for installment loans, the number of
monthly receipts of those engaged in trade installments, amount and due dates or
or business, or the net worth or cash flow periods of payment schedules to repay the
inferred from deposits of those who are indebtedness;
neither employed nor engaged in trade or e. the default, late payment/penalty
business or the credit behavior exhibited fees or similar delinquency-related charges
by the applicant from his other existing payable in the event of late payments;
credit cards, or other lifestyle indicators f. the conditions under which interest
such as, but not limited to, club may be imposed, including the time period,
memberships, ownership and location of within which any credit extended may be
residence and motor vehicle ownership repaid without interest;
shall be determined and used as basis for g. the method of determining the
setting credit limits. The gross monthly balance upon which interest and/or
income may also be used provided delinquency charges may be imposed;
reasonable deductions are estimated for h. the method of determining the
income taxes, premium contributions, loan amount of interest and/or delinquency
amortizations and other deductions. charges, including any minimum or fixed

§§ X320.4 - X320.9
05.12.31
amount imposed as interest and/or or more unpaid installments and the bank
delinquency charge; may collect a deferral charge which shall
i. where one (1) or more periodic rates not exceed the rate previously disclosed
may be used to compute interest, each such pursuant to the provisions on disclosure.
rate, the range of balances to which it is
applicable, and the corresponding simple § X320.8 Late payment/penalty fees
annual rate; No late payment or penalty fee shall be
j. other fees, such as membership/ collected from cardholders unless the
renewal fees, processing fees, collection collection thereof is fully disclosed in the
fees, credit investigation fees and attorney’s contract between the issuer and the
fees; and cardholder: Provided, That late payment or
k. for transactions made in foreign penalty fees shall be based on the unpaid
currencies and/or outside the Philippines, minimum amount due or a prescribed
for dual currency accounts (peso and dollar minimum fixed amount: Provided, further,
billings), as well as payments made by credit That said late payment or penalty fees may
cardholders in any currency other than the be based on the total outstanding balance
billing currency: the application of of the credit card obligation, including
payments; the manner of conversion from amounts payable under installment terms
the transaction currency and payment or deferred payment schemes, if the
currency to Philippine pesos or billing contract between the issuer and the
currency; definition or general description cardholder contains an “acceleration
of verifiable blended exchange/conversion clause” and the total outstanding balance
rates (e.g., MASTERCARD and/or VISA of the credit card is classified and reported
International rates on the day the item was as past due.
processed/posted to the billing statement,
plus mark-up, if any) including conversion § X320.9 Confidentiality of
commission; and/or other currency information. Banks and subsidiary/affiliate
conversion charges and costs arising from credit card companies shall keep strictly
the purchase by the card company of foreign confidential the data on the cardholder or
currency to settle the customer’s consumer, except under the following
transactions shall also be disclosed. circumstances:
a. disclosure of information is with the
§ X320.5 Interest accrual on past due consent of the cardholder or consumer;
loans. Interest income on past due loans b. release, submission or exchange of
arising from discount amortization (and not customer information with other financial
from the contractual interest of the accounts) institutions, credit information bureaus,
shall be accrued as provided in PAS 39. credit card issuers, their subsidiaries and
affiliates;
§ X320.6 Finance charges. The c. upon orders of court of competent
amount of finance charges in connection jurisdiction or any government office or
with any credit card transaction shall refer agency authorized by law, or under such
to interest charged to the cardholder. conditions as may be prescribed by the
Monetary Board;
§ X320.7 Deferral charges. The bank d. disclosure to collection agencies,
and the cardholder may, prior to the counsels and other agents of the bank or
consummation of the transaction, agree in card company to enforce its rights against
writing to a deferral of all or part of one (1) the cardholder;

§§ X320.9 - X320.14
05.12.31
e. disclosure to third party service and payable on his credit card which have
providers solely for the purpose of assisting not been paid in accordance with the terms
or rendering services to the bank or card of the agreement/contract.
company in the administration of its credit
card business; and § X320.13 Handling of complaints
f. disclosure to third parties such as Banks or subsidiary/affiliate credit card
insurance companies, solely for the purpose companies shall give cardholders at least
of insuring the bank from cardholder default twenty (20) calendar days from statement
or other credit loss, and the cardholder from date to examine charges posted in his/her
fraud or unauthorized charges. statement of account and inform the bank/
subsidiary credit card companies in writing
§ X320.10 Suspension, termination of of any billing error or discrepancy. Within
effectivity and reactivation. Banks or their ten (10) calendar days from receipt of such
subsidiary/affiliate credit card companies written notice, the bank/subsidiary credit
shall formulate criteria or parameters for card company shall send a written
suspension, revocation and reactivation of acknowledgment to the cardholder unless
the right to use the card and shall include the action required is taken within such ten
in their contract with cardholders a (10)-day period.
provision authorizing the issuer to suspend Not later than two (2) billing cycles or
or terminate its effectivity, if circumstances two (2) months which in no case shall
warrant. exceed ninety (90) days after receipt of the
notice and prior to taking any action to
§ X320.11 Inspection of records collect the contested amount, or any part
covering credit card transactions. Banks thereof, banks/subsidiary credit card
or their subsidiary/affiliate credit card companies shall make appropriate
companies shall make available for corrections in their records and/or send a
inspection or examination by the written explanation or clarification to the
appropriate SED of the BSP complete and cardholder after conducting an
accurate files on card applicant/cardholder investigation. Nothing in this Subsection
to support the consideration for approval shall be construed to prohibit any action by
of the application and determination of the the bank/subsidiary credit card company to
credit limit which shall be in accordance collect any amount which has not been
with the verified debt repayment ability and/ indicated by the cardholder to contain a
or net worth of the card applicant/ billing error or apply against the credit limit
cardholder. of the cardholder the amount indicated to
be in error.
§ X320.12 Offsets. For purposes of
transparency and adequate disclosure, the § X320.14 Unfair collection practices
credit card issuer shall inform/notify the Banks, subsidiary/affiliate credit card
credit cardholder in the agreement, contract companies, collection agencies, counsels
or any equivalent document governing the and other agents may resort to all reasonable
issuance or use of the credit card that, and legally permissible means to collect
pursuant to the provisions of Articles 1278 amounts due them under the credit card
to 1290 of the New Civil Code of the agreement: Provided, That in the exercise
Philippines, as amended, the use of his of their rights and performance of duties,
credit card will subject his deposit/s with they must observe good faith and reasonable
the bank to offset against any amount/s due conduct and refrain from engaging in

§§ X320.14 - X322.1
05.12.31
unscrupulous or untoward acts. Without Sec. X321 (Reserved)

limiting the general application of the
foregoing, the following conduct is a D. RESTRUCTURED LOANS
violation of this Subsection:
a. the use or threat of violence or other Sec. X322 Restructured Loans; General
criminal means to harm the physical person, Policy. Banks shall have full discretion in
reputation, or property of any person; the restructuring of loans in order to
b. the use of obscenities, insults, or provide flexibility in arranging the
profane language which amount to a repayment of such loans without impairing
criminal act or offense under applicable laws; or endangering the lending bank’s financial
c. disclosure of the names of credit interest, except in special cases approved
cardholders who allegedly refuse to pay by the Monetary Board such as loans
debts, except as allowed under Subsec. funded by foreign currency obligations.
X320.9; However, the restructuring of loans granted
d. threat to take any action that cannot to DOSRI should be upon terms not less
legally be taken; favorable to the bank than those offered to
e. communicating or threat to others. While agreements on loan
communicate to any person credit restructuring should be considered as
information which is known to be false, management tools to maintain or improve
including failure to communicate that a debt the soundness of the bank’s lending
is being disputed; operations, these should be drawn mainly
f. any false representation or to assist borrowers towards the settlement
deceptive means to collect or attempt to of their obligations, taking into account
collect any debt or to obtain information their capacity to pay.
concerning a cardholder; and
g. making contact at unreasonable/ § X322.1 Definition; when to consider
inconvenient times or hours which shall be performing/non-performing. Restructured
defined as contact before 6:00 A.M. or after loans are loans the principal terms and
10:00 P.M., unless the account is past due conditions of which have been modified
for more than sixty (60) days or the in accordance with a restructuring
cardholder has given express permission or agreement setting forth a new plan of
said times are the only reasonable or payment or a schedule of payment on a
convenient opportunities for contact. periodic basis. The modification may
include, but is not limited to, change in
§ X320.15 Sanctions. Violations of the maturity, interest rate, collateral or increase
provisions of this Section shall be subject in the face amount of the debt resulting
to any or all of the following sanctions from the capitalization of accrued interest/
depending upon their severity: accumulated charges. Items in litigation
a. Disqualification of the bank and loans subject of judicially approved
concerned from the credit facilities of the compromise, as well as those covered by
BSP except as may be allowed under petitions for suspension or for new plans
Section 84 of R.A. No. 7653; of payment approved by the court or the
b. Prohibition of the bank concerned SEC, shall not be classified as restructured
from the extension of additional credit loans.
accommodation against personal security; and A loan which is restructured shall be
c. Penalties and sanctions provided considered non-performing except when as
under Sections 36 and 37 of R.A. No. 7653. of restructuring date -

§§ X322.1 - X322.2
05.12.31
(1) with updated principal and interest (2) determination of the borrower’s
payments; and capacity to pay, such as viability of the
(2) fully secured by real estate with loan business; and
value of up to sixty percent (60%) of (3) the nature and extent of protection
the appraised value of the real estate of the bank’s exposure.
security and the insured improvements The authority to approve the
thereon, and such other first class collaterals restructuring of loans may be delegated by
as may be deemed appropriate by the the bank’s board of directors to a committee
Monetary Board: Provided, That a or officer(s): Provided, That there are board-
restructured loan, with or without prescribed guidelines specifically on
capitalized interest, must be yielding a rate restructuring of loans: Provided, further, That
of interest equal to or greater than the bank’s said guidelines shall be submitted to the
average cost of funds at the date of appropriate SED of the BSP within thirty (30)
restructuring, otherwise, it shall be days following the date of approval thereof.
considered non-performing. However, loans previously approved by the
The restoration to a performing loan executive committee as well as those
shall only be effective after a satisfactory granted to DOSRI shall be subject to
track record of payments of the required approval by the board as provided under
amortizations of principal and/or interest existing rules and regulations. Loans
has been established. restructured other than those approved by
For this purpose, a satisfactory track the board shall be reported to it for
record of payments of principal and/or confirmation.
interest shall mean three (3) consecutive b. A second restructuring of a loan
payments of the required amortizations of shall be allowed only if there are reasonable
principal and/or interest have been made. justifications: Provided, That it shall be
However, in the case of a restructured loan considered a non-performing loan and
with capitalized interest but not fully classified, at least, “Substandard”. The
secured by real estate with loan value of restoration to a performing loan status and/
up to sixty percent (60%) of the appraised or upgrading of loan classification, e.g., from
value of the real estate security and the “Substandard” to “Loans Especially
insured improvements thereon or other first Mentioned”, if circumstances warrant an
class collaterals, six (6) consecutive payments upgrading in accordance with the criteria
of the required amortizations of principal and/ under Appendix 18, shall only be allowed
or interest must have been made. after a satisfactory track record of at least six
A restructured loan which has been (6) consecutive payments of the required
restored to a performing loan status shall be amortization of principal and/or interest has
immediately considered non-performing in been established.
case of default of any principal or interest c. In the restructuring process, the bank
payment. shall encourage the borrower to improve the
quality of the loan either by strengthening
§ X322.2 Procedural requirements financial capacity or providing additional
a. A loan may be restructured, subject collateral.
to the approval of the bank’s board of The real estate security and/or other first
directors in a resolution which shall class collaterals offered shall be appraised
embody, among other things: at the time of restructuring to ensure that
(1) the basis of or justification for the current market values are being used. Real
approval; estate security shall be appraised by an

§§ X322.2 - X322.4
05.12.31
independent appraisal company acceptable (c) Hold-out on and/or assignment of

to the BSP and shall be reappraised every deposits/deposit substitutes maintained in
year thereafter. the lending institutions;
(1) For UBs/KBs – a loan benchmark is (d) “Blue chip” shares of stocks, except
set at P5.0 million, such that loans beyond those issued by the lending entity or by its
this amount will require an independent parent company which owns more than fifty
appraisal company: Provided, That the percent (50%) of its outstanding shares of
appraisal company contracted to do the stocks. For this purpose, the issuer
appraisal is not a subsidiary or an affiliate corporation must be a listed corporation
of the UB/KB. with a net worth of at least P1.0 billion and
(2) For TBs – a loan benchmark is set with annual net earnings during the
at P1.0 million such that loans beyond this immediately preceding five (5) years; and
amount will require an independent appraisal (e) Such other collaterals that the
company: Provided, That the appraisal Monetary Board may declare as first class
company contracted to do the appraisal is not collaterals from time to time.
a subsidiary or an affiliate of the TB. It is understood that the loan value to
A TB may be allowed to use a UB/KB be assigned the collateral shall be as
or another TB acceptable to the BSP to do prescribed under existing regulations.
the appraisal for it: Provided, That the TB
requesting the appraisal is not a subsidiary § X322.3 R e s t r u c t u r e d loans
or affiliate of the UB/KB/other TB contracted considered past due. Restructured loans
to do the appraisal. shall be considered past due in case of
(3) For RBs/Coop Banks – the bench- default of any principal or interest and shall
mark is set at P500 thousand such that loans be subject to classification in accordance
beyond this amount will require an with Sec. X322.4.
independent appraisal company: Provided,
That the appraisal company contracted to § X322.4 Classification. The classification
do the appraisal is not a subsidiary or an of a loan prior to restructuring, e.g.,
affiliate of the RB/Coop Bank. “Loans Especially Mentioned”, “Sub-
An RB/Coop Bank may be allowed to standard” or “Doubtful” shall be retained:
use a UB/KB or a TB acceptable to the BSP Provided, That a loan that is not classified
to do the appraisal for it: Provided, That but which is non-performing prior to
the RB requesting the appraisal is not a restructuring shall be classified, at least,
subsidiary or affiliate of the UB/KB/TB “Loans Especially Mentioned”: Provided,
contracted to do the appraisal. further, That restructured loans with
The term “first class collaterals” refers capitalized interest shall be classified, at
to assets and securities which have relatively least, “Substandard” and the required
stable and clearly definable value and/or valuation reserves shall be set up
greater liquidity and are free from lien/ accordingly: Provided, finally, That a more
encumbrance, such as: adverse classification may be given, i.e.,
(a) Real estate; "Substandard", "Doubtful" or "Loss", if the
(b) Evidences of indebtedness of the circumstances warrant it as provided under
Republic of the Philippines and of the BSP, Appendix 18.
and other evidences of indebtedness or The upgrading of loan classification,
obligations the servicing and repayment of e.g., from "Substandard" to "Loans
which are fully guaranteed by the Republic Especially Mentioned", if circumstances
of the Philippines; warrant an upgrading in accordance with

§§ X322.4 - X326.1
05.12.31
the criteria under Appendix 18, shall only trust or other similar contracts, whose
be effective after a satisfactory track record stockholdings in the lending bank,
of payments of the required amortizations individual and/or collectively with the
of principal and/or interest has been stockholdings of: (i) his spouse and/or
established. relative within the first degree by
For this purpose, a satisfactory track consanguinity or affinity or legal adoption;
record of payments of principal and/or (ii) a partnership in which the stockholder
interest shall mean three (3) consecutive and/or the spouse and/or any of the
payments of the required amortizations of aforementioned relatives is a general
principal and/or interest have been made. partner; and (iii) corporation, association or
However, in the case of a restructured loan firm of which the stockholder and/or his
with capitalized interest but not fully spouse and/or the aforementioned
secured by real estate with loan value of relatives own more than fifty percent
up to sixty percent (60%) of the appraised (50%) of the total subscribed capital
value of the real estate security and the stock of such corporation, association
insured improvements thereon or other first or firm, amount to one percent (1%) or
class collaterals, six (6) consecutive more of the total subscribed capital
payments of the required amortizations of stock of the bank.
principal and/or interest must have been d. Substantial stockholder shall mean
made. a person, or group of persons whether
natural or juridical, owning such number
Secs. X323 - X325 (Reserved) of shares that will allow such person or
group to elect at least one (1) member of
E. LOANS AND OTHER CREDIT the board of directors of a bank or who is
ACCOMODATIONS TO DIRECTORS, directly or indirectly the registered or
OFFICERS, STOCKHOLDERS AND beneficial owner of more than ten percent
THEIR RELATED INTERESTS (10%) of any class of its equity security.
e. Related interest shall refer to any
Sec. X326 General Policy. Dealings of a of the following:
bank with any of its DOSRI should be in (1) Spouse or relative within the first
the regular course of business and upon degree of consanguinity or affinity, or
terms not less favorable to the bank than relative by legal adoption, of a director,
those offered to others. officer or stockholder of the bank;
(2) Partnership of which a director,
§ X326.1 Definitions. For purposes of officer, or stockholder of a bank or his
these regulations, the following definitions spouse or relative within the first degree of
shall apply: consanguinity or affinity, or relative by legal
a. Directors shall refer to bank adoption, is a general partner;
directors as defined in Subsec. X141.1. (3) Co-owner with the director, officer,
b. Officers shall refer to bank officers stockholder or his spouse or relative within
as defined in Subsec. X142.1. the first degree of consanguinity or affinity,
c. Stockholder shall refer to any or relative by legal adoption, of the property
stockholder of record in the books of the or interest or right mortgaged, pledged or
bank, acting personally, or through an assigned to secure the loans or other credit
attorney-in-fact; or any other person duly accommodations, except when the
authorized by him or through a trustee mortgage, pledge or assignment covers only
designated pursuant to a proxy or voting said co-owner’s undivided interest;

§ X326.1
05.12.31
(4) Corporation, association, or firm of (8) Corporation, association or firm in

which a director or officer of the bank, or which the lending bank and/or its parent/
his spouse is also a director or officer of subsidiary holds or owns at least twenty
such corporation, association or firm, percent (20%) of the subscribed capital of
except (a) where the securities of such such corporation, or in the equity of such
corporation, association or firm are listed association or firm, or has an existing
and traded in the big board or commercial management contract or any similar
and industrial board of domestic stock arrangement with the lending bank or its
exchanges and less than fifty percent (50%) parent/subsidiary.
of the voting stock thereof is owned by any f. Subsidiary shall refer to a corporation
one (1) person or by persons related to each or firm more than fifty percent (50%) of the
other within the first degree of outstanding voting stock of which is directly
consanguinity or affinity; or (b) where the or indirectly owned, controlled or held with
director, officer or stockholder of the bank power to vote by its parent corporation.
sits as a representative of the bank in the g. Unencumbered deposits shall refer
board of directors of such corporation: to savings, time and demand deposits,
Provided, That the bank representative which are not subject to an assignment or
shall not have any equity interest in the hold-out agreement or any other
borrower corporation except for the encumbrance.
minimum shares required by law, rules and h. Book value of the paid-in capital
regulations, or by the by-laws of the contribution shall mean the proportional
corporation: Provided, further, That the amount of the bank’s total capital accounts
borrowing corporation is not among those (net of such unbooked valuation reserves
mentioned in Items “e(5)”, “e(6)”, “e(7)” and other capital adjustments as may be
and “e(8)” of this Section; required by the BSP) as the corresponding
(5) Corporation, association or firm of paid-in capital contribution of each of the
which any or a group of directors, officers, bank’s directors, officers, stockholders and
stockholders of the lending bank and/or their related interests bear to the total paid-
their spouses or relatives within the first in capital of the bank: Provided, That as a
degree of consanguinity or affinity, or basis for determining the individual ceiling
relative by legal adoption, hold or own at referred to in Sec. X330, the corresponding
least twenty percent (20%) of the book value of the shares of stock of said
subscribed capital of such corporation, or directors, officers, stockholders and their
of the equity of such association or firm; related interests which are the subject of
(6) Corporation, association or firm pledge, assignment or any other
wholly or majority-owned or controlled by encumbrance shall be deducted therefrom.
any related entity or a group of related i. Net worth shall mean the total of
entities mentioned in Items “e(2)”, “e(4)” the unimpaired paid-in capital including
and “e(5)” of this Section. paid-in surplus, retained earnings and
(7) Corporation, association or firm undivided profit, net of valuation reserves
which owns or controls directly or and other adjustments as may be required
indirectly whether singly or as part of a by the BSP.
group of related interest at least twenty j. Total loan portfolio shall refer to the
percent (20%) of the subscribed capital of sum of all loan accounts outstanding, gross
a substantial stockholder of the lending of valuation reserves, as reflected in the
bank or which controls majority interest bank’s consolidated statement of condition,
of the bank pursuant to Subsec. X303.1. excluding outstanding loans financed by

§§ X326.1 - X327
05.12.31
special/specific funds from the government l. Unsecured loan, borrowing or other

financial institutions. credit accommodation shall refer to any
k. Secured loan, borrowing or other loan, or other credit accommodation or
credit accommodation shall refer to any portion thereof referred in Sec. X327 which
loan, or credit accommodation or portion is not secured in accordance with Item “k”
thereof referred to in Sec. X327 which is above.
secured by:
(1) Real estate mortgage, chattel Sec. X327 Transactions Covered. The terms
mortgage on tangible assets, and pledge of loans, other credit accommodations and
jewelry, precious stones and other valuable guarantees as used herein shall refer to
articles; transactions of the bank which involve the
(2) Assignment of intangible assets such grant of any loan, advance or other credit
as patents, trademarks, trade names and accommodation in any form whatsoever,
copyrights; whether renewal, extension or increase, and
(3) Unconditional payment guarantees shall include:
such as standby letters of credit and letter a. Any advance by means of an
of indemnity issued by banks/multilateral incidental or temporary overdraft, cash item,
financial institutions; “vale”, etc.;
(4) Assignment of, or hold-out on, b. Any advance of unearned salary or
deposits or deposit substitutes maintained other unearned compensation for periods
in the lending bank; in excess of thirty (30) days;
(5) Cash margin deposits; or assignment c. Any advance by means of DAUDs;
or pledge of government securities or d. Outstanding availments under an
readily marketable bonds and other high- established credit line;
grade debt securities and “blue-chip” stocks, e. Drawings against an existing letter
except those issued by the lending entity, of credit;
or by its parent company which owns more f. The acquisition of any note, draft,
than fifty percent (50%) of its outstanding bill of exchange or other evidence of
shares of stocks, subject to the additional indebtedness upon which the bank’s
provision that the issuer corporation has a directors, officers, stockholders, and their
net worth of at least P1.0 billion and with related interests may be liable as makers,
annual net earnings during the immediately drawers, acceptors, endorsers, guarantors or
preceding five (5) years; sureties;
(6) Customer’s liability under import g. Indirect lending such as loans or
bills outstanding for not more than thirty other credit accommodations granted by
(30) days from date of original entry; another financial intermediary to said
(7) Sales contract receivables arising directors, officers, stockholders, and their
from sale of real property on credit where related interests from funds of the bank
title to the property is retained by the bank; invested in the other institution’s trust or
and other department when there is a clear
(8) Customer’s liability-import bills relationship between the transactions;
under trust receipts outstanding for not more h. The increase of an existing indebted-
than thirty (30) days from date of booking: ness, as well as additional availments under
Provided, That the booking under trust a credit line or additional drawings against
receipts shall have been made not later than a letter of credit;
the thirty-first day from the date of original i. The sale of assets, such as shares of
entry referred to in Item “(6)” above. stock, on credit; and

§§ X327 - X329
05.12.31
j. Any other transactions as a result of as herein provided in the event that its
which the bank’s directors, officers, contingent liability as guarantor becomes a
stockholders and their related interests real liability; and
become obligated or may become obligated e. Interbank call loan transactions.
to the lending bank, by any means
whatsoever to pay money or its equivalent. § X328.1 Applicability to credit card
operations. The credit card operations of
Sec. X328 Transactions Not Covered. The banks shall not be subject to these
terms loans, other credit accommodations regulations where the credit cardholders are
and guarantees as used herein shall not refer bank’s DOSRI : Provided, That (a) the
to the following: privilege of becoming a credit cardholder
a. Advances against accrued is open to all qualified persons on the basis
compensation, or for the purpose of of selective criteria which are applied by
providing payment of authorized travel, the bank to all applicants thereof; and (b)
legitimate expenses or other transactions for the bank’s directors, officers, stockholders
the account of the bank or for utilization of and their related interests reimburse/pay the
maternity and other leave credits; bank for the billed amount in full on or
b. The increase in the amount of before the payment due date in the billing
outstanding credit accommodations as a or statement of account, as set by the bank
result of additional charges or advances for all other qualified credit card holders on
made by the bank to protect its interest such availments made for the same period on
as taxes, insurance, etc.; their credit cards. However, the transaction
c. The discount of bills of exchange shall be subject to applicable DOSRI
drawn in good faith against actually existing regulations if the bank’s directors, officers,
values, and the discount of commercial or stockholders and their related interests:
business paper actually owned by the a. fail to reimburse/pay the bank
person negotiating the same, including, but within the period mentioned herein; or
not limited to, the acquisition by a domestic b. on the outset, opt for deferred
bank of export bills from any of its DOSRI payment scheme, and the availment is
which are drawn in accordance with the booked by the bank.
terms and conditions of the covering letters For purposes of this Section,
of credit: Provided, That the transaction stockholders and related interests refer to
shall automatically be subject to the ceilings individual credit card holders.
as herein provided once the DOSRI who is
a party to the transaction becomes directly Sec. X329 Direct or Indirect Borrowings
liable to the bank; Loans, other credit accommodations and
d. Transactions with a foreign bank guarantees to DOSRI shall be considered
which has stockholdings in the local bank direct or indirect borrowings in accordance
where the foreign bank acts as guarantor with the following criteria:
through the issuance of letters of credit or a. Direct borrowing. If the director,
assignment of a deposit in a currency officer or stockholder of the lending bank
eligible as part of the international reserves is a party to any of the transactions
and held in a bank in the Philippines to enumerated in Sec. X327 for himself, or as
secure other credit accommodations the representative or agent of others, or if
granted to another person or entity: he acts as a guarantor, endorser or surety
Provided, That the foreign bank stockholder for loans from the bank, or if the loan or
shall automatically be subject to the ceilings other credit accommodation to another

§§ X329 - X331
05.12.31
party is secured by a property interest or (3) Deposits maintained in the lending

right of the director, officer or stockholder. bank and held in the Philippines;
b. Indirect Borrowing. If in any of the (4) Debt securities issued by the U.S.
transactions in Sec. X327 the borrower, government;
guarantor, endorser or surety is a related (5) Debt securities issued by central
interest as defined in Item “e”, Subsec. governments, central banks of foreign
X326.1. countries and multilateral financial
Other cases of direct/indirect borrowing institutions such as International Finance
shall be resolved on a case-to-case basis. Corporation, Asian Development Bank and
It shall be the responsibility of the bank World Bank, with the highest credit quality
concerned to ascertain whether the given by any two (2) internationally
borrower, guarantor, endorser or surety is accepted rating agencies; and
related or connected with the bank or with (6) Such other assets considered as non-
any of the directors, officers or stockholders risk by the Monetary Board.
of the bank in any of the capacities b. Loans, other credit accommodations
mentioned in Item “e” of Subsec. X326.1. and advances to officers in the form of fringe
In determining indirect borrowings, as benefits granted in accordance with existing
enumerated above, only those cases involving regulations; and
living relatives shall be considered. c. Loans, other credit accommodations
and guarantees extended by a Coop Bank
Sec. X330 Individual Ceilings. The total to its cooperative shareholders.
outstanding loans, other credit
accommodations and guarantees to each Sec. X331 Aggregate Ceiling; Ceiling on
of the bank’s DOSRI shall be limited to an Unsecured Loans, Other Credit
amount equivalent to their respective Accommodations and Guarantees. Except
unencumbered deposits and book value of with the prior approval of the Monetary
their paid-in capital contribution in the Board, the total outstanding loans, other
bank: Provided, however, That unsecured credit accommodations and guarantees to
loans, other credit accommodations and DOSRI shall not exceed fifteen percent
guarantees to each of the bank’s DOSRI shall (15%) of the total loan portfolio of the bank
not exceed thirty percent (30%) of their or 100% of net worth whichever is lower:
respective total loans, other credit Provided, That in no case shall the total
accommodations and guarantees. unsecured loans, other credit
accommodations and guarantees to said
§ X330.1 Exclusions from individual DOSRI exceed thirty percent (30%) of the
ceiling. The following loans, other credit aggregate ceiling or the outstanding loans,
accommodations and guarantees shall be other credit accommodations and
excluded in determining compliance with guarantees, whichever is lower. For the
the individual ceiling. purpose of determining compliance with
a. Loans, other credit accommodations the ceiling on unsecured loans, other credit
and guarantees secured by assets considered accommodations and guarantees, banks
as non-risk by the Monetary Board; shall be allowed to average their ceiling on
Assets considered as non-risk shall refer unsecured loans, other credit accommodations
to the following: and guarantees every week.
(1) Cash; In evaluating requests for extension of
(2) Debt securities issued by the BSP or loans in excess of the aggregate ceiling, the
the Philippine government; BSP shall consider the credit standing of the

§§ X331 - X334
05.12.31
borrower, viability of the projects financed Sec. X334 Procedural Requirements. The
by such other credit accommodations in following provisions shall apply if the bank’s
relation to national objectives, collateral or DOSRI are parties to, or act as representatives
security and other pertinent considerations. or agents of others in, any of the transactions
enumerated under Sec. X327:
Sec. X332 Exclusions from Aggregate a. Approval of the board, when to
Ceiling. The following loans, other credit obtain. Except with prior written approval
accommodations and guarantees shall be of the majority of the directors, excluding
excluded in determining compliance with the director concerned, no loan, other credit
the aggregate ceiling: accommodation and guarantee shall be
a. Credit accommodations or portions granted nor shall any of the transactions
thereof to the extent secured by assets enumerated under Sec. X327 be entered into.
considered as non-risk by the Monetary Board; b. Approval by the board, how
b. Credit accommodations to a manifested. The approval shall be
corporate stockholder which meets all the manifested in a resolution passed by the
following conditions: board of directors during a meeting and
(1) The corporation is a non-financial made of record.
institution; c. Determination of majority of the
(2) Its shares are listed and traded in the directors. The determination of the majority
domestic stock exchanges; and of the directors, excluding the director
(3) No person or group of persons concerned, shall be based on the total
related within the first degree of number of directors of the bank as provided
consanguinity or affinity holds/owns more in its articles of incorporation and by-laws.
than twenty percent (20%) of the subscribed d. Contents of the resolution. The
capital of the corporation. resolution of the board of directors shall
c. Credit accommodations to contain the following information:
government-owned or controlled (1) Name of the director or officer
corporations, in cases where a director, concerned and his involvement as regards
officer or stockholder of the lending bank is the credit accommodation, such as principal,
a representative of the government in the endorser, spouse of borrower, etc.;
borrowing corporation and does not hold (2) Nature of the loan or other credit
any proprietary interest in such corporation: accommodation, purpose, amount, credit
Provided, That other rules on loans to basis for such loan or other credit
DOSRI, such as procedural and reportorial accommodation, security and appraisal
requirements under Sections X334 and thereof, maturity, interest rate, schedule of
X335 are followed. repayment and other terms of the loan or
d. Exclusions from individual ceiling other credit accommodation;
mentioned under Items “(b)” and “(c)” of (3) Date of resolution;
Subsec. X330.1. (4) Names of the directors who
participated in the deliberations of the
Sec. X333 Applicability to Branches and meeting; and
Subsidiaries of Foreign Banks. The (5) Names in print and signatures of the
individual and aggregate ceilings as well as directors approving the resolution:
ceilings on unsecured credit Provided, That in instances where a director
accommodations prescribed herein shall who participated in the board meeting and
also apply to branches and subsidiaries of who approved such resolution failed to sign,
foreign banks in the Philippines. the corporate secretary may issue a

§§ X334 - X337
05.12.31
certification to this effect indicating the provisions of this Section may be declared
reason for the failure of the said director to vacant and the director or officer shall be
sign the resolution. subject to the penal provisions of the New
e. Transmittal of copy of board Central Bank Act;
approval; contents thereof. A copy of the c. Application of (1) the borrowing
written approval of the board of directors, director’s or officer’s share in the bank’s
as herein required, shall be submitted to the profit sharing program; and (2) the share of
appropriate SED of the BSP within twenty the director voting for the approval of the
(20) banking days from the date of approval. loan or other credit accommodation, against
The copy may be a duplicate of the original, the excess of such loan or other credit
or a reproduction copy showing clearly the accommodation over any of the herein
signatures of the approving directors: prescribed ceilings; and
Provided, That if a reproduction copy is to d. For the duration of each violation,
be submitted, it shall contain on its face or imposition of a fine of one-tenth of one
reverse side a signed certification by the percent (1/10 of 1%) of the excess over the
secretary that it is a reproduction of the ceilings per day but not to exceed P30,000
original written approval: Provided, further, a day on the following:
That such written approval shall not be (1) The lending bank;
required for loans, other credit (2) The director, officer or stockholder
accommodations and advances granted to whose borrowing exceeds his individual
officers under a fringe benefit plan approved ceiling; and
by the BSP. (3) Each of the directors voting for the
approval of the loan or other credit
Sec. X335 Reportorial Requirements. Each accommodation in excess of any of the
bank shall maintain a record of loans, other ceilings prescribed in Secs. X330 and X331.
credit accommodations and guarantees The penalty for exceeding the individual
covered by these regulations in a manner ceiling, aggregate ceiling and ceiling on
and form that will facilitate verification of unsecured loans shall be computed on the
such transactions by BSP examiners. average amount of loans in excess of said
The appropriate SED may require banks ceilings during the same week.
to furnish such data or information as may
be necessary for purposes of implementing Sec. X337 Waiver of Secrecy of Deposit
the provisions of the foregoing rules. Any director, officer or stockholder who,
together with his related interest, contracts
Sec. X336 Sanctions. Any violation of the a loan or any form of financial
provisions of the foregoing rules shall be accommodation from:
subject to any or all of the following a. his bank; or
sanctions: b. from a bank
a. Restriction or prohibition on the (1) which is a subsidiary of a bank
bank from declaring dividends for non- holding company of which both his bank
compliance with the prescribed ceiling on and the lending bank are subsidiaries; or
DOSRI until the outstanding loans and other (2) in which a controlling proportion of
credit accommodations have been reduced the shares is owned by the same interest
to within the herein prescribed ceilings; that owns a controlling proportion of the
b. After due notice to the board of shares of his bank, in excess of five percent
directors of the bank, the office of any bank (5%) of the capital and surplus of the bank,
director or officer who violates the or in the maximum amount permitted by

§§ X337 - X338.1
05.12.31
law, whichever is lower, shall be required accommodation, installment sale, lease with
by the lending bank to waive the secrecy of option to purchase or lease-purchase
his deposits of whatever nature in all banks arrangement where the lessee is obliged to
in the Philippines. Any information purchase the real estate or equipment;
obtained from an examination of his d. The amount and maturity of
deposits shall be held strictly confidential financial assistance for each purpose shall
and may be used by the examiners only in be determined by the bank in consonance
connection with their supervisory and with the normal requirements thereof:
examination responsibility or by the BSP in Provided, That the maximum amount shall
an appropriate legal action it has initiated be stated as percentage or multiple of the
involving the deposit account. total monthly compensation of the officer
or employee and shall be within the paying
Sec. X338 Financial Assistance to Officers capacity of the borrowing officer or
and Employees. Banks may provide employee.
financial assistance to their officers and Total monthly compensation shall
employees, as part of their fringe benefits include the basic salary and all fixed and
program, to meet the housing, regular monthly allowances of the officer
transportation, household and personal or employee. Payments for sickness benefits
needs of their officers and employees. and other special emoluments which are not
Financing plans and amendments thereto, fixed or regular in nature, or the
shall be with prior approval of the BSP. commutation into cash of unused leave
credits shall not be included in the
§ X338.1 Mechanics. The mechanics of computation of total monthly compensation;
such financing plan shall have the following e. The amortization payment shall
minimum features: include amounts necessary to cover mortgage
a. Participation shall be limited to full- redemption insurance and fire insurance
time and permanent officers and employees premiums, taxes, special assessments, and
of the bank; other related fees and charges;
b. Financial assistance shall only be for f. Availment of the financing plan to
the following purposes: construct or acquire a residential house and
(1) The acquisition of a residential lot shall be allowed only once during the
house and lot, or the construction, officer’s or employee’s tenure with the bank,
renovation or repair of a residential house except where the right over the real estate
on a lot owned and to be occupied by the previously acquired or constructed under
officer or employee; the financing plan is absolutely transferred
(2) The acquisition of vehicles, or assigned to another officer or employee
household equipment and appliances for of the bank or to a third party: Provided,
the personal use of the officer or employee That the bank must be fully paid or
or his immediate family; or reimbursed for the outstanding availment
(3) To meet expenses for the medical, on the financing plan before the officer/
maternity, education, emergency and other employee is allowed to re-avail himself of
personal needs of the officer or employee the same financing plan.
or his immediate family; An officer or employee (or his spouse)
c. Financial assistance for purposes who already owns a residential house and
mentioned in Items “b(1)” and “b(2)” of this lot shall not be qualified to avail himself of
Subsection shall be granted in the form of a financial assistance for purposes of
loan, advance or other credit acquiring a residential house and/or lot.

§§ X338.1 - X338.3
05.12.31
These prohibitions notwithstanding, balance equivalent to the outstanding loans

financial assistance for the repair or to officers/employees financed under this
renovation of a residential house may be scheme; or
allowed subject to such limitation as may (2) Inward remittance; or
be prescribed by the bank pursuant to Item c. Through the local branch from
“d “ of this Subsection; local sources without earmarking an
g. Availment of the financing plan for equivalent amount of undivided profits:
the acquisition of a specific type of Provided, That the aggregate ceilings on
equipment or appliance shall be allowed such loans as provided under existing
not oftener than once every three (3) years: regulations shall apply.
Provided, That re-availment shall be Loans under Items “b(1)” and “b(2)” of
allowed only after previous obligations in this Subsection shall be treated in the
connection with the acquisition of the same branch books as loans granted by its head
type of equipment or appliances have been office. The documentation and collection
fully liquidated; and of such loans shall be handled by the
h. The bank shall adopt measures to branch for the account of the head office.
protect itself from losses such as by Loans financed under Items “a” and “b”
incorporating in the plan or contract shall be excluded from the computation of
provisions requiring co-makers or co-signor, the capital to risk assets ratio.
chattel, or real estate mortgages, fire
insurance, mortgage redemption insurance, § X338.3 Other conditions/limitations
assignment of money value of leave credits, a. The investment by a bank in
pension or retirement benefits. equipment and other chattels under its
fringe benefits program for officers and
§ 1338.2 Funding by foreign banks. In employees shall be included in
the case of local branches of foreign banks, determining the extent of the investment
financial assistance for their officers and of the bank in real estate and equipment
employees may be funded, through any of for purposes of Section 51 of R.A. No.
the following means: 8791.
a. Through a local affiliate by special b. The investment by a bank in
arrangement with the head office abroad in equipment and other chattels contemplated
any of the following forms: under these guidelines shall not be for the
(1) Inward remittance from the head purpose of profits in the course of business
office of the affiliate; for the bank.
(2) Assignment to the affiliate of c. The aggregate outstanding loans
equivalent amounts of profits otherwise and other credit accommodations granted
remittable abroad under existing under the bank’s fringe benefits program,
regulations; or inclusive of those granted to officers in the
(3) Direct loans by the foreign bank to nature of lease with option to purchase,
the affiliate; or shall not exceed five percent (5%) of the
b. Through the local branch itself by: bank’s total loan portfolio.
(1) Segregation or transfer of undivided Banks providing financial assistance to
profits normally remitted to the head office their officers/employees shall submit a
abroad equivalent to the loans to officers regular report on “availments of financial
and employees which shall be lodged under assistance to officers and employees” to the
“Other Liabilities-Head Office Accounts”. BSP within fifteen (15) banking days after
This account shall at all times have a end of reference semester.

§§ X338.3 - X341.1
05.12.31
The appropriate SED of the BSP may credit lines not considered DOSRI accounts
further require banks to submit such data or prior to 10 April 2004 but are allowed a
information as may be necessary to facilitate transition period as provided above.
verification of such transactions by BSP
examiners. §§ X339.1 - X339.3 (Reserved)
Sec. X339 Transitory Provisions § X339.4 Reportorial requirements

a. The sanctions contained under Sec. Financing plans and amendments thereto
X336 shall not apply to outstanding loans, shall be submitted to BSP within thirty (30)
other credit accommodations and calendar days from approval thereof by the
guarantees, as well as availments of bank's board of directors. The appropriate
previously approved loans and committed SED of the BSP may require the banks
credit lines not considered as DOSRI concerned to submit a regular report
accounts prior to 10 April 2004, for a period monitoring the various transactions under
of two (2) years from 10 April 2004 or until the bank's financing plans for officers/
said loans, other credit accommodations employees.
and guarantees become past due, or are All banks providing financial assistance
extended, renewed or restructured, to bank officers/employees shall submit a
whichever comes later. report on "Availments of Financial
b. Unsecured outstanding loans, other Assistance to Officers and Employees” to
credit accommodations and guarantees, as the BSP within fifteen (15) banking days after
well as availments of previously approved end of reference semester.
loans and committed credit lines not
considered as DOSRI accounts prior to Sec. X340 (Reserved)
10 April 2004, shall not be deducted from
capital accounts for a period of two (2) years F. MANDATORY CREDITS
from 10 April 2004 or until such time that
said loans, other credit accommodations Sec. X341 Agrarian Reform and
and guarantees become past due, or are Agricultural Credit. Pursuant to P.D. No.
extended, renewed or restructured, 717, the following guidelines shall govern
whichever comes later. the grant of agrarian reform credit and
c. Banks shall, however, disclose the agricultural credit by banks, government or
following information in their financial private.
statements, annual report and the reports
being submitted to BSP: § X341.1 Definition of terms. For
(1) DOSRI purposes of this Section, the following
(i) Loans, other credit accommodations definitions shall apply:
and guarantees classified as DOSRI a. Loanable funds shall refer to total
accounts under regulations existing prior funds generated after the effectivity of P.D.
to 10 April 2004; and No. 717, the computation of which is
(ii) New DOSRI loans, other credit described in Subsec. X341.4.
accommodations and guarantees granted b. Agrarian reform credit shall refer
starting 10 April 2004. to production and other types of loans
(2) Non-DOSRI prior to 10 April 2004 granted to beneficiaries of agrarian reform
Loans, other credit accommodations and for the following purposes: acquisition of
guarantees, as well as availments of work animals, farm equipment and
previously approved loans and committed machinery, seeds, fertilizers, poultry,

§§ X341.1 - X341.3
05.12.31
livestock, feeds and other similar items; corporations, entities, or private individuals
acquisition of lands authorized under engaged in agricultural production,
existing laws; construction and/or processing, storage, marketing, or
acquisition of facilities for production, exportation of agricultural products, and
processing, storage and marketing; and importation/manufacture/distribution of
efficient and effective merchandising of farm machineries and equipment, fertilizers,
agricultural commodities stored and/or etc. used for agricultural production.
processed by the facilities aforecited in
domestic and foreign commerce. § X341.3 Required allocation for
c. Agricultural credit in general shall agrarian reform and agricultural credit in
include all loans and/or advances granted general. Banks shall set aside an amount
to borrowers, whether beneficiaries of equivalent to at least twenty-five percent
agrarian reform or not, to finance activities (25%) of their loanable funds for agricultural
relating to agriculture, and for processing, credit in general, of which an amount
marketing, storage, and distribution of equivalent to at least ten percent (10%) of
products resulting from these activities. the loanable funds shall be made available
d. Agrarian reform beneficiaries shall for agrarian reform credit.
include tillers, tenant-farmers, a. Marketing credits considered as
settlers,agricultural lessees, amortizing agrarian reform credits.
owners, owner-cultivators, farmers’ (1) Agrarian reform beneficiaries as
cooperatives and compact farms, as defined by P.D. No. 717;
determined by the DAR. (2) Registered agricultural enterprises
The term shall likewise include duly endorsed by the nearest office of the
agricultural enterprises registered under DAR per P.D. No. 1159;
P.D. No. 1159 as well as projects (3) G.O. No. 47 corporations or agro-
undertaken pursuant to the Corporate service corporations employed by G.O. No.
Farming Program under General Order (G.O) 47 corporation which are certified by the
No. 47: Provided, That the borrower submits DAR as engaged in grains production
the following documents to the lending bank: through linkage arrangements with agrarian
(1) A certification from the Board of reform beneficiaries;
Investments to the effect that the borrower (4) Area marketing cooperatives or
is an agricultural enterprise duly registered Samahang Nayon duly registered with the
under P.D. No. 1159 ; and Cooperatives Development Authority (CDA);
(2) An endorsement of the DAR stating (5) Registered agrarian reform
that land reform beneficiaries shall benefit beneficiaries' associations/other farm groups
from the agricultural enterprises' projects. respectively endorsed as agrarian reform
beneficiaries by the nearest office of the
§ X341.2 Who may borrow; purposes DAR; CDA; or the Farm Systems
a. All beneficiaries of agrarian reform Development Corporation (FSDC), National
credit mentioned under P.D. No. 717 and Irrigation Administration (NIA); or
its implementing regulations which credit (6) NFA-registered warehousemen/
shall be used for agricultural production or millers/wholesalers whose grains inventory,
for other purposes mentioned therein shall subject to a chattel mortgage, trust receipts
be qualified borrowers under agrarian or pledged quedan, are duly sworn to under
reform credit. oath by grains businessmen-borrowers
b. Qualified borrowers under concurred by the President of the Agrarian
agricultural credit in general are Reform Beneficiaries Association in the area

§§ X341.3 - X341.5
05.12.31
as having been produced by agrarian reform agreements and availment of overdraft

beneficiaries; and facilities.
(7) The NFA: Provided, That it certifies (4) Total capital accounts.
that its palay procurements are obtained b. Total collections from the loan
through direct/indirect linkage arrangements portfolio outstanding as of 31 May 1975 to
with agrarian reform beneficiaries, subject date of the report; and
to such ceilings as may be imposed by the c. The sum of Items "a" and "b" above,
BSP/Department of Finance (DOF) on the less the net increase of the following:
loans/advances to the NFA by banks: (1) Bank premises, furniture and
Lendings to NFA are considered as equipment (net book value);
lending to the agricultural and agrarian (2) Real and other property owned or
sector: Provided, That such lendings shall acquired (representing properties acquired
be given credit only once for purposes of in satisfaction of debts);
determining compliance with the required (3) Other assets;
allocation of fund for agrarian reform and (4) Required reserves against:
agricultural credit in general. (a) deposit liabilities;
b. Development loan incentives. (b) deposit substitutes;
[Transferred to Subsec. X341.5, Item "c(1)"]. (c) others (excluding reserves for
c. Loans for high-value crops projects. margin deposits);
[Transferred to Subsec. X341.5, Item "c(2)"]. (5) Provisions for liquidity (fifteen
percent (15%) of total deposits and demand
§ X341.4 Computation of loanable liabilities); and
funds. Loanable funds shall be: (6) Loans to export-oriented small and
a. The net increase from 29 May 1975 medium-scale industries involving
to date of the report of the individual accounts not exceeding P1.0 million.
accounts which represent the following:
(1) The total deposits (demand, savings, § X341.5 Allowable alternative
time and NOW accounts) excluding foreign compliance. In the absence of qualified
currency deposits under Circular No. 1389 borrowers, the following shall apply:
and deposits of the BTr representing revenue a. Agrarian reform credit –
collections of the BIR and BOC; (1) Eligibility of government securities;
(2) Deposits of banks, net of due from conditions. The amount set aside for
other banks; agrarian reform credit not actually loaned
(3) Bills payable (including borrowings out may be invested temporarily in
from banks) net of : government securities expressly declared
(a) Repurchase agreement by eligible for the purpose by the BSP, subject
accredited government securities dealers if to the following conditions:
relent to banks; (a) Such securities shall be held to
(b) Interbank call loans with maturities maturity without prejudice to the right of
not exceeding fifteen (15) days; the holder bank to require the issuing
(c) Proceeds from special on-lending government entity to monetize, encash or
programs like the APEX; repurchase such securities whenever funds
(d) Proceeds from BSP rediscounting are needed by the bank for lending to the
(except special time deposits); and beneficiaries of agrarian reform;
(e) Proceeds from special BSP credit (b) Such securities shall not be
accommodations in the form of emergency hypothecated or encumbered in any way
advances, overnight repurchase or earmarked for any other purposes;

§ X341.5
05.12.31
(c) Such securities shall be marked “for subject to the conditions in Items “a(1)(b)”
agrarian reform credit” and shall be and “a(1)(d)”; Item “(2)(c)” to the conditions
segregated from the bank’s investment in Items “a(1)(b)” and “a(1)(d)(i)”.
portfolio; and b. Agricultural credit in general - The
(d) Only the buying/lending bank may amount set aside for agricultural credit in
use, during the holding period, eligible general not actually loaned out may be
government securities subject of a resale/ invested in commercial papers issued by
repurchase agreement between private entities engaged in agricultural production,
entities for purposes of compliance with this processing, storage, marketing, or
Subsection, subject to the following: exportation of agricultural products; and
(i) The resale/repurchase should be for importation, manufacture, distribution of
terms not less than thirty (30) days without farm machineries and equipment, fertilizers,
pretermination during the first successive etc. used for agricultural production:
thirty (30) days, which condition shall be Provided, That for purposes of compliance
embodied in the resale/repurchase with this Subsection, only the buying/
agreement; and lending bank may use commercial papers
(ii) The buying/lending bank, with the acquired in a resale/repurchase agreement
consent of the selling/borrowing entity, shall during the holding period thereof subject
register with the BSP its holdings of to the conditions in Item "a(1)(d)" of this
government securities under repurchase/ Subsection.
resale agreement. c. Alternative compliance for both
(2) Eligible securities/bonds agri-agra credit
(a) NDC Agri-Agra ERAP Bonds. (1) Development loans. Pursuant to
Investment by banks in NDC Agri-Agra Sections 8 and 9 of R.A. No. 7721 (An Act
ERAP Bonds as well as the firm Liberalizing the Entry and Scope of
underwriting of said bonds by banks or by Operations of Foreign Banks in the
the subsidiary IH of a UB. Philippines and for Other Purposes), loans
(b) Local Government Unit (LGU) extended by banks incorporated under the
Bonds. laws of the Philippines, whether Philippine
(c) Pag-IBIG P4.0 billion Bond issue or foreign-owned, to finance educational
(2000 Series). institutions, cooperatives, hospitals and
(d) Five (5)- and Ten (10)-year Special other medical services, socialized or low-
Purpose Treasury Bonds (SPTBs) to finance cost housing, and to local government units,
the Comprehensive Agrarian Reform Program without national government guarantee,
(CARP)-related expenditures, provided the shall be included for purposes of
proceeds of the bonds will be exclusively used determining compliance with the provisions
for the agrarian reform sector. of P.D. No. 717, as amended. This provision
(e) Zero Coupon Bond Issue by the shall, however, not apply to branches of
HGC of up to P7.0 billion 5-year regular foreign banks.
series and up to P3.0 billion 7-year special For this purpose, the following
series to finance its guaranty servicing of definitions shall apply:
socialized and low-cost housing projects (a) Educational institutions shall refer
only to the extent of the present value of to all educational establishments duly
the bond computed using the original yield authorized by or with permit to operate from
to maturity (as of auction/issue date). the Department of Education, Culture and
The eligibility of securities under Items Sports (DECS), or created by special laws
“(2)(a)”, “(2)(b)”, “(2)(d)” and “2(e)” shall be or charters.

§ X341.5
05.12.31
(b) Cooperatives shall refer to duly provisions of R.A. No. 7279 (Urban
registered associations of persons with a Development and Housing Act).
common bond of interest who have (f) Economic and socialized housing
voluntarily joined together to achieve a refers to housing units which are within the
lawful common social or economic end, affordability level of the average and low-
making equitable contributions to the income earners which is thirty percent
capital required and accepting a fair share (30%) of the gross family income as
of the risks and benefits of the undertaking determined by the National Economic
in accordance with universally accepted Development Authority (NEDA) from time
cooperative principles, as defined in R.A. to time. It also refers to the government-
No. 6938 (Cooperative Code of the initiated sites and services development and
Philippines). construction of economic and socialized
(c) Hospital shall refer to a place housing projects in depressed areas.
devoted primarily to the maintenance and Socialized housing packages shall refer
operation of facilities for the diagnosis, to housing loans not exceeding P225,000
treatment and care of individuals suffering and low-cost housing packages shall consist
from illness, disease, injury or deformity, or of Level 1 which shall refer to housing loans
in need of obstetrical or other medical and in excess of P225,000 but not more than
nursing care. P500,000 and Level 2 which shall refer to
It also refers to an institution, building housing loans in excess of P500,000 but
or place where there are installed beds, or not more than P2.0 million, as prescribed
cribs, or bassinets for twenty-four (24)-hour under existing guidelines of the Housing
use or longer by patients in the treatment and Urban Development Coordinating
of diseases, injuries, deformities or Council (HUDCC) for the implementation
abnormal physical and mental state, of various government housing programs,
maternity cases, and all institutions such as or in such other amounts which HUDCC
those for convalescence, sanitorial or may prescribe in the future for said housing
sanitarial care, infirmaries, nurseries, loans.
dispensaries and such other names by (g) Local government unit refers to
which they may be designated. provinces, cities, municipalities and any
(d) Medical services shall refer to other political subdivision created by law
various services like general treatment, enacted by Congress and to barangays
physical examination, consultation, created by ordinance passed by the
medication, dressing, suturing and surgical Sanggunian Panlalawigan or the
operation, all pertaining to or dealing with Sanggunian Panglunsod that are located
the healing art or the science of medicine, within its territorial jurisdiction, subject to
with license to operate from the Department such limitations and requirements
of Health (DOH). prescribed in R.A. No. 7160 (Local
(e) Socialized housing refers to housing Government Code of 1991).
programs and projects covering houses and (2) Loans for high-value crops projects.
lots or home lots only undertaken by the Pursuant to Section 8 of R.A. No. 7900, a
Government or the private sector for the bank participating in the High-Value Crops
underprivileged and homeless citizens Development Program that shall lend a
which shall include sites and services minimum of five percent (5%) of its loanable
development, long-term financing, funds, without alternative compliance
liberalized terms on interest payments, and directly to farmers’ associations or
such other benefits in accordance with the cooperatives for high-value crops projects

§§ X341.5 - X341.7
05.12.31
shall be exempted from, or shall be deemed (4) Ten (10)-Year Agrarian Reform
to have complied with the requirement of Bond issued by the Philippine Government
P.D. No. 717. thru the Land Bank of the Philippines,
For purposes of this item, high-value subject to the conditions prescribed in
crops shall refer to crops that can be Subsec. X341.5(a) above.
optimally and sustainably produced in key (5) Investments by banks in the
commercial crop production areas authorized capital stock of Quedan and Rural
identified by the Department of Agriculture Credit Guarantee Corporation (Quedancor);
(DA) and which can generate revenue (6) Loans extended by banks to farmers,
higher than that of traditional crops (which fishermen, cooperatives, rural workers and
refer to rice, corn, coconut and sugar). Such rural enterprises covered by the guarantees
high-value crops include, but are not of Quedancor; and
limited to: coffee and cacao, fruit crops (7) Rediscounting by secondary banks
(citrus, cashew, guyabano, papaya, mango, of originating banks’ loan receivables having
pineapple, strawberry, jackfruit, rambutan, the guarantee of Quedancor, subject to the
durian, mangosteen, guava, lanzones, and condition that the originating bank may not
watermelon), root crops (potato and ubi), use such loans as compliance with P.D. No.
vegetable crops (asparagus, broccoli, 717 and only the secondary (rediscounting)
cabbage, celery, carrots, cauliflower, radish, bank may claim such loans as compliance
tomato, bell pepper, patola) legume, pole with P.D. No. 717.
sitao (snap beans and garden pea), spices (8) Loans secured by the NFAs Palay
and condiments (black pepper, garlic, Negotiable Warehouse Receipts (PNWRs):
ginger and onion), and cutflower and Provided, That the PNWRs shall be printed
ornamental foliage plants (chrysanthemum, on security paper by the BSP.
gladiolus, anthuriums, orchids and statice). (9) All loans granted to Barangay Micro
Farmers’ associations/organizations Business Enterprises (BMBEs) as provided
shall refer to farmers’ cooperatives, under Subsec. X365.5.
associations or corporations duly registered
with appropriate government agencies and § X341.6 Syndicated type of agrarian
which are composed primarily of small reform credit/agricultural credit. Banks
agricultural producers, farmers, farm may grant a syndicated type of loan for
workers and other agrarian reform agrarian reform credit/agricultural credit in
beneficiaries who voluntarily join together general, either between or among
to form business enterprises which they themselves. The mechanics, including the
themselves, own, control and patronize. recording of such syndicated type of loan
A bank participating in the high-value transactions, shall follow existing practices and
crop development program shall refer to the regulations applicable both to the lead bank
Land Bank of the Philippines (LBP), the and other participating bank(s). Accordingly,
Development Bank of the Philippines (DBP) the booking of loans shall only be for the
and any qualified lending institution which amount of actual participation of each
has been accredited/selected as provided syndicate bank concerned. Memorandum
in the Implementing Rules and Regulations entries, references or notations shall be made
of R.A. No. 7900 (Joint Administrative Order for the other participating bank(s).
No. 1, series of 1996 of the DA dated 23
April l996). § X341.7 Interest and other charges
(3) (Transferred to Item "a(2)a" above Interest, service fees and other charges shall
by CL dated 22 June 2000). be governed by existing rules and regulations.

§§ X341.8 - X341.15
05.12.31
§ X341.8 Unused agri-agra funds to be form and shall be supported by the

utilized for socialized and low-cost housing individual reports of the bank and its
As a source of non-budgetary funding to subsidiaries duly signed by each bank’s
augment the Comprehensive and Integrated authorized signatory. The subsidiaries shall
Shelter and Urban Development Financing continue with their respective submission
Program under R.A. No. 7835, all unused of the subject report to their respective SEDs
agri-agra allocation funds of banks in the within the prescribed period;
preceding year shall be invested in b. Either the parent bank or the
socialized and low-cost housing if the subsidiary bank can exercise the right to
utilized portion of the agri-agra funds of said avail itself of/use the excess of its subsidiary
banks was solely devoted to agricultural and bank/parent bank for its own compliance; and
agrarian reform credits. c. In the event of a deficiency in
compliance of any parent or subsidiary or
§ X341.9 Submission of reports. A all of these banks, the members of the board
quarterly report on the following shall be of directors and its president and the other
submitted to the appropriate SED of the BSP officers of the parent bank shall be
within the period prescribed in Appendix 6. responsible for the group’s compliance.
a. Utilization of loanable funds set
aside for agrarian reform credit and §§ X341.13 - X341.14 (Reserved)
agricultural credit in general;
b. Any change in the composition of § X341.15 Sanctions. The following
government securities and commercial sanctions shall be applicable for any
papers held as temporary investments for violation of this Section:
agrarian reform credit and agricultural credit a. For non-compliance/undercompliance:
in general, respectively; and (1) Daily fine in proportion to degree
c. A certification under oath by the of compliance shall be imposed depending
duly designated officer of the bank of the on the total assets of the banks as of the
absence of qualified borrowers for agrarian reporting period:
reform credit or agricultural credit in general
shall be submitted to the appropriate SED Maximum Daily Fine
of the BSP together with the report as Total Assets Per Banking Day
P100.0 million and below P 100
required in this Subsection. Above P100.0 million to P200.0 million - 200
Above P200.0 million to P500.0 million - 300
§§ X341.10 - X341.11 (Reserved) Above P500.0 million to P1.0 billion - 500
Above P1.0 billion to P5.0 billion - 1,000
§ X341.12 Consolidated compliance Above P5.0 billion to P10.0 billion - 3,000
Above P10.0 billion to P25.0 billion - 5,000
The compliance with agri-agra mandatory Above P25.0 billion to P50.0 billion - 10,000
allocation of funds under P. D. No. 717 shall Above P50.0 billion to P100.0 billion - 15,000
be allowed on a groupwide basis (based on Over P100.0 billion - 30,000
consolidated financial statements of
investor-financial institution or parent bank Excess compliance in the ten percent
and its subsidiaries/affiliates): Provided, That (10%) agrarian reform credit may be used
the subsidiary banks are at least seventy five to offset a deficiency, if any, in the fifteen
percent (75%) owned/controlled by the parent percent (15%) agricultural credit in general,
bank, subject to the following conditions: but not vice versa. The daily fine shall be
a. The consolidated report shall be counted from the end of reference quarter
submitted by the bank in the prescribed until the date the bank has complied with

§§ X341.15 - X342.1
05.12.31
the credit allocation requirements and files § X342.1 Definition of terms. For
an amended report. In case of a violation purposes of this Section, the following
noted during examination or verification, definitions shall apply:
monetary penalty shall run from the date of a. Lending institutions shall refer to all
findings until the violation is corrected. banks, namely: UBs, KBs, local branches
(2) Non-monetary fines of foreign banks, specialized government
In addition to the above daily monetary banks, TBs and RBs/Coop Banks.
fines, any or all of the administrative b. Loan portfolio shall include all loans
sanctions as provided under Section 37 of and advances (net of valuation reserves) in
R.A. No. 7653, may be imposed upon any the Statement of Condition/Balance Sheet
bank for non-compliance/undercompliance, excluding the following: interbank loan
willful delay or refusal to submit reports receivables; agrarian reform/other
without prejudice to criminal sanctions agricultural credit loans under P.D. No. 717;
against culpable persons provided under loans granted under special financing
Sections 34, 35 and 36 of R. A. No. 7653, programs; foreign currency denominated
as follows: loans and advances; and loans from
(a) Suspension of rediscounting multilateral and bilateral sources which are
privileges or access to BSP facilities; relent by a bank on a wholesale basis to
(b) Suspension of lending or foreign conduit financial institutions.
exchange operations or authority to accept c. Small and medium enterprises shall
new deposits or make new investments; refer to any business activity or enterprises
(c) Suspension of interbank clearing engaged in industry, agribusiness and/or
privileges; and/or services, whether single proprietorship,
(d) Revocation of quasi-banking license. cooperative, partnership or corporation-
b. For non-submission and delayed/ (1) whose total assets, inclusive of those
amended reports - arising from loans but exclusive of the land
The following fines shall be imposed for on which the particular business entity’s
non-submission and delayed/amended office, plant and equipment are situated,
reports on compliance with the mandated must have a value falling under the
credit allocations for agri-agra credit under following categories:
P.D. No. 717, to be reckoned on the Micro : up to P3,000,000
following day after due date of submission or Small : P 3,000,001 - P15,000,000
until the proper report is filed with the BSP: Medium : P 15,000,001 - P100,000,000
(1) UBs/KBs/FXBs P 1,200 per banking day In generic sense, all enterprises with
(2) TBs 600 per banking day
total assets of more than P100 million shall
(3) RBs/Coop Banks 180 per banking day
be called large enterprises.
Non-submission or delayed submission (2) duly registered with the appropriate
of reports for two (2) or more times in any agencies as presently provided by law:
four (4)-quarter period shall be subject to Provided, That in the case of
twice the prescribed monetary penalty for microenterprises as defined herein,
willful delay or refusal to submit reports. registration with the office of the municipal
or city treasurer shall be deemed sufficient
Sec. X342 Mandatory Credit to Small compliance with this requirement;
Enterprises. The following rules shall (3) one hundred percent (100%) owned
govern the mandatory allocation of credit and capitalized by Filipino citizens if a single
resources to small enterprises. proprietorship or partnership. If the

§§ X342.1 - X342.3
05.12.31
enterprise is a corporation, at least sixty subsidiaries duly signed by each bank's

percent (60%) of its capital or outstanding authorized signatory. The subsidiaries
stocks must be owned by Filipino citizens; shall continue with their separate
(4) within the major sectors of the submission of the subject report to their
economy, namely: industry, services, respective SED within the prescribed
including the practice of one’s profession, period.
the operation of tourism-related (2) Only the parent bank can exercise
establishments, and agri-business, which for the right to avail/use the excess of its
this purpose refers to any business activity subsidiaries for its own compliance.
involving the manufacturing, processing, (3) In the event of a deficiency in
and/or production of agricultural produce, compliance of any parent or subsidiary or
excluding farm level agricultural/crop all of these banks, the members of the
production; and board of directors and its president and the
(5) not a branch, subsidiary or division other officers of the parent bank shall be
of a large scale enterprise nor its policies responsible for the group's compliance.
determined by a large scale enterprise or b. For purposes of determining
by persons who are not owners or compliance with the mandated allocation,
employees of the enterprise. loans to small enterprises and such
instruments mentioned in Item “c” of
§ X342.2 Mandatory allocation of Subsec. X342.3 below which have been
credit resources to small and medium rediscounted with or funded by the SBGFC
enterprises or the BSP shall be excluded.
a. All lending institutions, whether
public or private, shall set aside a portion of § X342.3 Eligible investments. Funds
their total loan portfolio based on their set aside in accordance with the foregoing
Statement of Condition/ Balance Sheet as requirement shall be made available for
of the end of the previous quarter, and make any of the following:
it available for small and medium enterprise a. Loans to small/medium
credit. The portion mandated to be set aside enterprises;
for a period of ten (10) years starting on 12 b. Committed credit lines: Provided,
August 1997 up to 09 August 2007 shall at That the credit line is evidenced/supported
least be six percent (6%) and two percent by a credit line agreement or its equivalent
(2%) for small and medium enterprises, executed between and signed by the bank
respectively, of the loan portfolio. and the borrower and is granted to an
Banks may, however, be allowed to eligible small/medium enterprise as
report compliance on a groupwide basis defined herein: Provided, further, That the
(based on consolidated financial statements use of unavailed portion of the committed
of investor-financial institution or parent credit line shall not exceed ten percent
bank and its subsidiaries/affiliates): Provided, (10%) of direct loans actually extended to
That the subsidiary banks are at least SMEs as indicated in the report for the
seventy-five percent (75%) owned/ period.
controlled by the parent bank, subject to the c. Instruments as may be offered by
following conditions: the SBGFC which do not pay market rates;
(1) The consolidated report shall be d. Purchase of small/medium
submitted by the bank in the prescribed form enterprises’ promissory notes from lending
and which shall be supported by the institutions and/or non-government
individual reports of the bank and its organizations (NGOs);

§§ X342.3 - X342.8
05.12.31
e. Loans granted to export traders, the SBGFC, subject to such rules and
including those not guaranteed by SBGFC regulations as may be issued by the SBGFC.
and to domestic traders and import traders,
subject to compliance with the total asset § X342.6 Submission of reports. Banks
size requirement: Provided, further, That shall submit reports to the appropriate SED
in case of import traders, the importation of of the BSP, copy furnished the Small and
raw materials form part of the raw material Medium Enterprise Development Council,
input to a finished product; showing compliance with the mandatory
f. Equity investments in venture allocation as indicated in Appendix 6.
capital corporations; TBs and RBs/Coop Banks which are
g. Equity investments by member banks electronically linked with BSP are
in, and loans by member banks to, the BAP encouraged to submit electronically or to
Credit Guaranty Corporation (BCGC) to the report in diskette form or via internet.
extent of the member bank's proportionate Lending institutions shall maintain
share to total outstanding loans granted by appropriate records/details of the reported
BCGC to small/medium enterprises; loans to small/medium enterprises and shall
h. Microfinance loans; and make these available to BSP bank examiners.
i. All loans granted to BMBEs as
provided under Subsec. X365.5. § X342.7 Lendings to medium
The funds set aside which have not been enterprises. Lending institutions are
invested in any of the above may be held encouraged to make available funds for
in the form of Cash on Hand and/or Due lending to medium enterprise with total assets
from BSP: Provided, That these are free, of more than P15.0 million but not more than
unencumbered, not hypothecated and not P100.0 million or as may be determined under
utilized or earmarked for other purposes. Section 3 of R.A. No. 6977.
The Accounting Department or, if the
Due From BSP is in foreign currency, the § X342.8 Sanctions. The following
Treasury Department, shall maintain a administrative sanctions shall be imposed
special account for amounts deposited with on banks:
the BSP for this purpose which deposits shall a. For non-compliance/undercompliance
not earn interest and shall not form part of with the prescribed ratio requirements [at
the banks' legal reserves. Deposits with the least six percent (6%) for small enterprises
Treasury Department shall be in acceptable and two percent (2%) for medium
foreign currency and shall be converted into enterprises] of the mandated credit
pesos anytime there is a need to fund small/ allocation to small and medium enterprises
medium enterprises/ loans. for each reporting period:
(1)For zero compliance - not less than P500,000;
§ X342.4 Ineligible instruments. The (2)For undercompliance -
purchase of government notes, securities (a) UBs/KBs/FXBs - P5,000 per day
and negotiable instruments other than the (b)TBs - 2,500 per day
(c) RBs/Coop Banks - 1,000 per day
instruments offered by SBGFC shall not be
deemed compliance with the foregoing The reckoning period of the imposition
requirement. of fines shall be from the end of the reference
quarter until the date the bank has fully
§ X342.5 Guarantee coverage. Loans complied with the credit allocation
granted in accordance with this Section requirements. The daily fines shall continue
shall be eligible for guarantee coverage by to run until the date of receipt by the

§§ X342.8 - X343.2
05.12.31
appropriate SED of the interim report transactions which are evidenced by

accurately showing the bank’s level of interbank loan advice or repayment transfer
compliance with both the prescribed six tickets and settled through the banks’
percent (6%) and two percent (2%) credit respective demand deposit accounts with
allocation requirements. Violations BSP shall be subject to the reserve
uncovered, if any, at any time other than requirement prescribed for IBCL in Subsec.
the quarter-end findings shall be subject to X253.1: Provided, further, That funds
herein fines. borrowed by banks from trust departments
(3) For willful making of a false or of banks or IHs shall be excluded from the
misleading statement to the BSP - not less herein definition of interbank loan
than P500,000. transactions.
The imposition of the fines in Items “(1)” Interbank loan transactions not
to “(3)” shall be without prejudice to the submitted to the BSP Comptrollership
other administrative sanctions. Department by means of interbank loan
b. For non-submission/delayed sub- advice or repayment transfer tickets shall
mission of reports on compliance with SME be reported to the BSP in the prescribed
credit per business day of delay in the form.
submission of report:
(1) UBs/KBs/FXBs - P1,000 per day § X343.1 Systems and procedures for
(2) TBs - 500 per day interbank call loan transactions. IBCL
(3) RBs/Coop Banks- 250 per day transactions of banks shall be governed by
the Agreement for an Interbank Call Loan
§§ X342.9 - X342.14 (Reserved) Funds Transfer System executed among the
BSP, the Bankers Association of the
§ X342.15 Accreditation guidelines for Philippines and the Philippine Clearing
rural and thrift banks under the SME House Corporation (Appendix 21) and any
Unified Lending Opportunities for National subsequent amendments thereto.
Growth (SULONG). Without prejudice to Banks shall generate hard copies of the
the refinements as may be suggested by DTI formats of the loan and repayment
and DOF, the Twelve (12)-Point instruction in the form presented in
Accreditation Guidelines for RBs and TBs, Annexes A, B, C and D of the aforesaid
and the lending features of short and long agreement to be kept as documentary
term loans for direct or retail lending by evidence of their matched and processed
participating government financial IBCL transactions.
institutions under the SME Unified Lending
Opportunities for National Growth § X343.2 Accounting procedures
(SULONG), are shown in Appendix 55. a. Both lending and borrowing banks
shall immediately pass the corresponding
G. SPECIAL TYPES OF LOANS entries in their books and, upon receipt of
a copy of the transfer instruction reported
Sec. X343 Interbank Loans. Interbank loan as matched in the Multi-Transaction
transactions shall include, among other Interbank Payment System (MIPS), the
things, (a) interbank call loan (IBCL) borrowing bank shall attach the same to the
transactions; (b) borrowings evidenced by corresponding ticket debiting its Due from
deposit substitute instruments; and (c) BSP account in its books and, in the case of
purchases of receivables with recourse: the lending bank, to the same ticket passed
Provided, however, That only IBCL in its books on the day payment is made.

§§ X343.2 - X346
05.12.31
b. IBCL transactions shall be recorded (3) It is not possible for the stockholders
by the borrowing bank as Bills Payable of the RB to increase the paid-up capital
Interbank Call Loans. thereof.
c. Banks shall reconcile their demand The appropriate department or office of
deposit accounts with the BSP against the BSP may prescribe and require the
monthly statements of account to be submission by the RB of papers and
furnished by the BSP Comptrollership documents necessary for such
Department. determination.
b. Qualifications for loan. In order to
§ X343.3 Settlement procedures for qualify for the financial assistance under said
interbank loan transactions. Interbank loan provision of law, the RB shall first meet the
transactions (call and term) among banks following requirements:
and NBQBs shall be settled gross with (1) Its capital-to-risk assets ratio during
finality subject to the availability of balances the last six (6) months immediately
in the deposit reserves maintained by banks preceding the loan application should be at
in the BSP in accordance with the least ten percent (10%);
procedures in Appendix 21a. (2) Its past due loans are not more than
twenty-five percent (25%);
Sec. X344 Loans to Thrift/Rural/ (3) It has no deficiency in allowance for
Cooperative Banks probable losses on loans and other risk assets;
(4) It must not have incurred deficiency
§ X344.1 Loans under Section 12 of in its reserves against deposit liabilities for
R.A. No. 7353, Section 10 of R.A. No. 7906 the last six (6) months preceding the filing
and Article 108, R.A. No. 6938. Banks may of the application;
rediscount papers of TBs/RBs/Coop Banks. (5) It must have been operating
Banks shall specify the nature of papers profitably for the last three (3) years;
acceptable for rediscounting as well as the (6) Its arrearages with the BSP or other
rediscount rate. government financial institutions, if any, are
being liquidated through an approved plan
§ X344.2 Loans under Section 14 of of payment, the conditions of which are
R.A. No. 7353. The following are the being complied with; and
guidelines in the grant by the LBP, DBP or (7) It is operating substantially in
any government-owned or controlled bank accordance with applicable laws and BSP
or financial institution of a loan to an RB rules and regulations.
under Section 14 of R.A. No. 7353. c. Extension of loan. The LBP, the DBP
a. Issuance of certification. Subject to or any government-owned or controlled
the qualifications of the RBs prescribed in bank or financial institution shall, within
Item "b" hereof, the Monetary Board shall sixty (60) days from issuance by the
issue the certification required under Monetary Board of the certification, and
Section 14 of R.A. No. 7353, which shall subject to their loan and investment policies,
be final, after the Monetary Board has extend to an RB a loan or loans from time
determined that: to time, repayable in ten (10) years, with
(1) The resources of the RB are concessional rates of interest, against
inadequate to meet the legitimate credit needs security/ies which the stockholder or
of the locality wherein the RB is established; stockholders of the RB may offer.
(2) There is dearth of private capital in
said locality; and Secs. X345 - X346 (Reserved)

§§ X347 - X348.1
05.12.31
Sec. X347 Standby Letters of Credit. The § X347.2 Ceiling. The total guarantees
following shall govern the issuance of or similar arrangements, the nature of which
standby letters of credit. requires the guarantor to assume the
liabilities/obligations of third parties in case
§ X347.1 Domestic standby letters of of their inability to pay, that may be issued
credit. Domestic standby letters of credit by a bank and outstanding at any given time,
may be issued or used in transactions other shall not exceed one hundred percent
than those involving movement of goods (100%) of the bank’s qualifying capital.
under the following guidelines: Transitory provision. This Subsection is
a. The bank's obligation to pay shall also covered by the last paragraph of
be either unconditional (as against Subsec. X303.5.
presentation of a clean draft) or conditional
only upon the presentation of documents § X347.3 Reports. Banks shall submit a
and not upon actual existence or non- monthly report of domestic standby letter
existence of facts, i.e., the bank must not be of credit opened and outstanding in the
called upon to determine disputed questions prescribed form within fifteen (15) banking
of facts or law; days after end of reference month to the
b. The bank's obligation shall be appropriate SED. The report shall contain
limited to a fixed maximum amount; the following minimum information:
c. The bank's obligation shall have an (1) Date the letter of credit was
expressed expiration date; opened;
d. The standby letters of credit (2) Amount, purpose and accountee
accommodation shall not violate any law or thereof;
existing BSP directives, rules and regulations, (3) Beneficiary;
such as the SBL and DOSRI ceilings; (4) Security and value of security;
e. The party who opened the (5) Expiry date of the letter of credit;
standby letters of credit or the ultimate and
borrower shall not have any past due (6) Certification as to the correctness of
obligation with the issuing bank for the the report by an authorized officer of the bank.
ninety (90)-day period preceding the date
of issuance of the letter of credit; Sec. X348 Committed Credit Line for
f. Drawings shall be honored only Commercial Paper Issues. The following
upon failure of the party who opened the guidelines shall govern committed credit
letter of credit (borrower or principal obligor) line agreements as a prerequisite for
to pay the amortization(s) due and upon corporations proposing to issue commercial
presentation of a written certificate to this paper, pursuant to the New Rules on the
effect; Registration of Short-Term Commercial
g. The party who opened the letter of Papers (Appendix 14).
credit (borrower or principal obligor) must
have an unqualified obligation to reimburse § X348.1 Who may grant line facility
the bank on the same condition as the bank A bank with a net worth of at least P1.0
has paid; and billion as defined in Sec. X106, may provide
h. Banks shall not issue standby letters a committed credit line facility to a
of credit in favor of another bank to secure commercial paper issuer.
the obligation of the latter's client or for the The bank shall exercise proper caution
faithful performance by the client of his in ascertaining that the party, in whose favor
obligation to said bank. the credit line shall be granted, is capable

§§ X348.1 - X348.5
05.12.31
of fulfilling his commitments to the bank the date of payment of obligation arising
under the credit line agreement. from outstanding commercial paper;
A bank or a group of banks may enter e. That the request to avail of the credit
into a committed credit line agreement with line agreement shall be addressed to the
any corporation proposing to issue bank or to the lead bank acting for a group
commercial paper. Where a group of banks of banks, which request shall be duly signed
is involved, a lead bank shall be designated by a member of the board of directors and a
from among themselves. senior ranking officer of the commercial
paper issuer duly authorized for the purpose
§ X348.2 Ceilings. The aggregate through an appropriate board resolution,
commitments under committed credit line which resolution shall also provide for the
agreements entered into by each bank designation of the alternate signatories who
pursuant to this Section shall not exceed an shall likewise be a member of the board of
amount equivalent to thirty percent (30%) directors and a senior financial officer of the
of its net worth, reckoned as of the date corporation;
of execution of the latest agreement: f. That the extent of the commitment
Provided, That in no case shall a bank of each participant in a group of banks under
extend commitments to a single issuer for a credit line agreement shall be stipulated
more than twenty-five percent (25%) of its in the agreement; and
net worth exclusive of other exposures to g. That the commitment of the bank
the said issuer. under the credit line agreement shall be a
net risk to the bank and the practice of
§ X348.3 Terms; conditions; requiring the commercial paper issuer to
restrictions. The committed credit line maintain a compensating deposit with the
agreement shall incorporate the following bank shall be prohibited.
terms, conditions and restrictions:
a. That the credit line agreement is § X348.4 Reports to the Bangko
executed pursuant to the provisions of this Sentral. The bank or the lead bank, as the
Section; case may be, shall report to the BSP:
b. That the bank or banks are a. All commitments entered into with
committed to make available to the issuer commercial paper issuers within ten (10)
funds equivalent to at least twenty percent banking days after the issuer shall have been
(20%) of the aggregate of the commercial authorized by the SEC; and
paper issued and outstanding at any time; b. Any availment under the committed
c. That the commitment of the bank credit line agreement within three (3) banking
or banks shall be firm and irrevocable and days from date of drawdown.
effective for as long as the issues under a
particular permit are outstanding, subject to § X348.5 Loan limit. The liabilities of
renewal by the bank; a commercial paper issuer to a bank arising
d. That availments pursuant to the from the availment by the issuer of the credit
credit line agreement shall be for the line agreement shall not be counted in
exclusive purpose of meeting obligations determining compliance by the bank with
arising from commercial paper issues in the SBL: Provided, That in no case shall they
accordance with the provisions of the Rules exceed five percent (5%) of the net worth of
on Registration of Commercial Papers, the bank beyond the normal applicable SBL
which availments shall be honored not for a period of 180 days from each availment
earlier than three (3) banking days prior to of the credit line.

§§ X349 - X361.1
05.12.31
Sec. X349 Agriculture and Fisheries § X349.5 Non-performing loans. The

Projects with Long Gestation Periods rule on non-performing loans under Sec.
Pursuant to Section 24 of R.A. No. 8435 X309 shall apply except that the reckoning
(Agriculture and Fisheries Modernization date shall be the grace period and not the
Act of 1997), agriculture and fisheries original maturity of the loan.
projects with long gestation periods shall
be entitled to longer grace periods in Secs. X350 - X360 (Reserved)
repaying the loan based on the economic
life of the project. For purposes of this Sec. X361 Microfinancing Loans
Section, the following definitions and Pursuant to Sections 40, 43 and 44 of R.A.
guidelines shall govern the grant of loans No. 8791 the following rules, regulations
for long-gestating agriculture and fisheries and standards shall govern microfinancing
projects. operations of banks.
In the implementation of this Section,
§ X349.1 Definition of terms banks should be guided by the Notes on
a. Gestation period shall refer to the Microfinance in Appendix 45.
span of time from the commencement of
the project to the time that it is economically § X361.1 Definition
productive and producing revenues; and a. Microfinancing loans are small
b. Grace period under this Section loans granted to the basic sectors, as defined
shall refer to the period that the initial in the Social Reform and Poverty Alleviation
amortization payment on the loan is Act of 1997 (R.A. No. 8425), and other loans
deferred. All payments, however, must be granted to the poor and low-income
made on or before the maturity of the loan. households for their microenterprises and
small businesses so as to enable them to raise
§ X349.2 Grace period. Banks are their income levels and improve their living
allowed to extend loans/guarantees with a standards. These loans are granted on the
grace period of up to seven (7) years to basis of the borrowers’ cash flow and are
viable long-gestating agriculture and typically unsecured.
fisheries projects. b. Portfolio-at-Risk (PAR) is the
Suggested gestation and grace periods outstanding principal amount of all loans
for some of the long-gestating projects are that have at least one (1) installment past
in Appendix 36. due for one (1) or more days. The amount
includes the unpaid principal balance but
§ X349.3 Responsibility of lending excludes accrued interest. Under PAR,
banks. Lending banks shall institute the loans are considered past due if a payment
necessary safeguards and precautions to has fallen due and remained unpaid. Loan
ascertain the viability of the projects payments are applied first to any interest
financed and the capability of the borrower due, then to any installment of principal that
in fulfilling his commitments. is due but unpaid, beginning with the earliest
installment. The number of days of lateness
§ X349.4 Past due loans. The rule on is based on the due date of the earliest loan
past due accounts under Sec. X306 shall installment that has not been fully paid.
apply except that the reckoning date shall c. Restructured loans are loans that
be the grace period and not the original have been renegotiated or modified to
maturity of the loan. either lengthen or postpone the original

§§ X361.1 - X361.4
05.12.31
scheduled installment payments or and operational costs incidental to this type

substantially alter the original terms of the of microfinance lending.
loans. Any increase in the face amount of d. Interest accrued and/or booked
the debt resulting from accrued interest and shall be reversed and no accrual of interest
accumulated charges which have been shall be allowed after the microfinance loan
capitalized or made part of the principal of has become past due as defined in Subsec.
restructured loans shall be recorded in the X306.1.h.
unearned income/deferred credit account
“Capitalized Interest and Other Charges - § X361.3 Credit information
Restructured Loans”. Upon receipt of exemption. In cases of microfinancing loans
payment, the realized portion shall be which meet the criteria in Subsec X361.2, a
amortized/credited to income. bank may not require from its credit
d. Refinanced loans are loans that applicants, a statement of assets and
have been disbursed to enable repayment liabilities, and of their income and
of prior loans that would not have been expenditures and such information as may
paid in accordance with the original be prescribed by law or by rules and
installment schedule. Loans granted within regulations of the Monetary Board to enable
a week or less from the date an original the bank to properly evaluate the credit
loan with more than thirty percent (30%) application which includes the corresponding
of the original principal still outstanding financial statements submitted for taxation
had been paid in advance shall be purposes to the BIR, as prescribed under
considered as refinanced loans. Section 40 of R.A. No. 8791.
Refinanced loans shall be classified and
reported as restructured loans. § X361.4 Exemptions from rules on
unsecured loans. In view of the unique
§ X361.2 Loan limit; amortization; characteristics of microfinance loans, i.e.,
interest small unsecured and based on cash flow of
a. The maximum principal amount of borrowers, these loans may be exempted
microfinance loans shall not exceed from rules and regulations which may be
P150,000. This is equivalent to the issued by the Monetary Board with respect
maximum capitalization of a to unsecured loans under Section 41 of the
microenterprise under R.A. No. 8425. General Banking Law of 2000: Provided,
b. The schedule of loan amortization That the bank has:
shall take into consideration the projected a. well-defined standards, credit
cash flow of the borrowers which is policies and procedures for microfinance
adopted into the terms and conditions loans which are in conformity with
formulated. Hence, microfinance loans microfinance international best practices;
may be amortized on a daily, weekly, bi- b. specific measures to be undertaken
monthly or monthly basis, depending on to ensure collection such as close supervision
the cash flow conditions of the borrowers. of borrowers’ projects and operations; and
c. Interest on such microfinancing c. Loan Portfolio and Other Risk
loans shall be reasonable and just as may Assets Review System required under Sec.
be determined by management to be X302 which would serve as:
consistent with its credit policies. The (1) An adequate loan tracking system
interest rate shall not be lower than the that allows daily monitoring of the status of
prevailing market rates to enable the loan releases, collection and arrearages, any
lending institution to recover the financial restructuring or refinancing; and

§§ X361.4 - X365.5
05.12.31
(2) A regular monitoring of past due such as cooperatives, non-government

loans and portfolio at risk. organizations (NGOs) and people’s
organizations engaged in granting credit, for
§ X361.5 Sanctions. Violations of the relending to BMBEs.
provisions of this Section shall be subject Private banking and other financial
to any or all of the following sanctions: institutions are encouraged to lend to
a. Disqualification of the bank BMBEs.
concerned from the credit facilities of the
BSP except as may be allowed under Section § X365.2 Interest on loans to BMBEs
84 of R.A. No. 7653; Interest on BMBE loans shall be just and
b. Prohibition of the bank concerned reasonable as may be determined by
from the extension of additional management of the concerned entity to be
microfinance loans; and consistent with its credit policies.
c. Penalties and sanctions provided
under Sections 36 and 37 of R.A. No. 7653. § X365.3 Amortization of loans to
BMBEs. The schedule of loan amortization
Secs. X362 - X364 (Reserved) shall take into consideration the projected
cash flow of the borrowers. Thus, loans
Sec. X365 Loans to Barangay Micro granted to BMBEs may, at the discretion of
Business Enterprises. The following are the the lender, be amortized daily, weekly,
rules and regulations to implement Section monthly or at such interval as the conditions
9 and the second paragraph of Section 13 of the business of the BMBEs may warrant.
of R.A. No. 9178, otherwise known as the
“Barangay Micro Business Enterprises § X365.4 Waiver of documentary
(BMBEs) Act of 2002”. requirements. Banks and other financial
institutions shall not require from duly
§ X365.1 Credit delivery. The Land registered BMBE borrowers the submission
Bank of the Philippines (LBP), the DBP, the of ITR as a condition to the grant of loans
SBGFC, and the Peoples Credit and Finance considering that BMBEs are exempted from
Corporation (PCFC) shall set up a special income tax for income arising from their
credit window that will service the financing operations. They may, at their discretion,
needs of duly registered BMBEs consistent also waive the requirement of submission
with BSP policies, rules and regulations. of financial statements from BMBEs:
Said special credit window shall service the Provided, That before granting any loan,
credit needs of BMBEs either through retail banks shall undertake reasonable measures
or wholesale lending, or both, as the to determine that the borrower is capable
concerned financial institutions may deem of fulfilling his/its commitments.
consistent with their corporate policies and
objectives. The GSIS and the SSS shall § X365.5 Incentives to participating
likewise set up special credit window that financial institutions. To encourage BMBE
will serve the financing needs of their lendings, the following incentives shall be
respective members who may wish to granted to banks and other financial
establish a BMBE. institutions as may be applicable:
Said financial institutions are a. All loans from whatever sources
encouraged to wholesale funds to granted to BMBEs under this Act shall be
accredited private financial institutions considered as part of alternative compliance
including community based organizations to P.D. No. 717 or to R.A. No. 6977. For

§§ X365.5 - X376.1
05.12.31
purposes of compliance with P.D. No. 717 § X365.8 Reports to congress. The
and R. A. No. 6977, loans granted to BMBEs LBP, DBP, PCFC, SBGFC, SSS, GSIS and
under R.A. No. 9178 shall be computed at Quedancor shall report annually to the
twice the amount of the outstanding balance appropriate Committees of both Houses of
of the loans: Provided, That loans used as Congress, the status of their implementation
alternative compliance with P.D. No. 717 of the provisions of Section 9 of R.A. No. 9178.
which were computed at twice their
outstanding balance shall no longer be § X365.9 Administrative sanctions
eligible as compliance with R.A. No. 6977 Any violation by the concerned government
during the same period and vice versa: financial institution of the provisions of
Provided, further, That said loans may be Section 9 of R.A. No. 9178 shall be subject
used as alternative compliance with P.D. to a fine of not less than P500 thousand to
No. 717 and R.A. No. 6977 at the same be imposed by the BSP and which shall be
time at the maximum amount of 100% of payable to the BMBE Development Fund.
their outstanding balance: Provided, finally, In case of a banking institution, the
That funds loaned by government financial foregoing fine shall be without prejudice to
institutions to accredited private banking the administrative sanctions provided for
and other financial institutions for relending under Section 37 of R.A. No. 7653.
to BMBEs shall be eligible as part of
alternative compliance to P.D. No. 717 or Secs. X366 - X375 (Reserved)
to R.A. No. 6977 at the maximum amount
of 100% of their outstanding balance. H. EQUITY INVESTMENTS
b. Any existing laws to the contrary
notwithstanding, interests, commissions and Sec. X376 Scope of Authority. The
discounts derived from the loans by the LBP, following rules shall govern the investment
DBP, PCFC, SBGFC granted to BMBEs as of banks in the equities of allied
well as loans extended by the GSIS and SSS undertakings, whether financial or non-
to their respective member-employees financial, and non-allied undertakings, as
under R.A. No. 9178 and this Section shall well as the establishment/acquisition of
be exempt from gross receipt tax (GRT). subsidiaries and affiliates abroad.
§ X365.6 Credit guarantee. The § X376.1 Conditions for investment in

SBGFC and the Quedan and Rural Credit equities. A bank shall not invest in the equity
Guarantee Corporation (Quedancor) under of any enterprise, if the investing bank is in
the Department of Agriculture, in case of any of the following situations:
agri-business activities, shall set up a special a. Its capital is impaired, whether by
guarantee window to provide credit actual losses or unbooked valuation reserves
guarantee to BMBEs under their respective required by the BSP;
guarantee programs. b. Its lending operations had been
suspended on account of reserve or capital
§ X365.7 Record. The LBP, DBP, deficiency, until such suspension shall have
PCFC and SBGFC shall maintain separate been lifted for at least one (1) year and
records of loans granted to BMBEs and the sufficient reserves or capital shall have been
GSIS and SSS shall maintain records of loans maintained;
extended to their respective members who c. It incurred losses from its operations
wish to establish BMBEs. during the preceding year;

§§ X376.1 - X376.5
05.12.31
d. It has not fully booked the valuation (3) Bank management shall provide for
reserves and other capital adjustments an efficient and effective “exit mechanism”
required by the BSP; or contingency plan in case the investee’s
e. It has exceeded the individual and operations fail or do not prosper.
aggregate ceilings as well as the ceiling on c. Prior BSP approval; information/
unsecured credit accommodations to documents required. Subject to prior
DOSRI; and approval of the BSP, banks may invest in
f. Its ratio of past due loans to total allied or non-allied undertakings, including
loan portfolio exceeds twenty percent corporate affiliations or structures. A bank
(20%). intending to make such investment shall
submit the following information/
§§ X376.2 - X376.4 (Reserved) documents to the appropriate SED of the
BSP for evaluation:
§ X376.5 Guidelines for major (1) Name of the company;
investments. The following are the (2) Type of business activities;
guidelines for major acquisitions or (3) Board of directors’ approval on such
investments by a bank including corporate investments;
affiliations or structures to implement (4) Certification from the bank’s board
Section 50 of R.A. No. 8791. of directors that the criteria enumerated in
a. Definition. Major investments are Item “b” are complied with;
those investments in allied or non-allied (5) Management contract;
undertakings including corporate affiliations (6) Financial information and other
or structures that give the bank significant information about financial strengths, e.g.,
interest and/or control, such as projected balance sheet and income
stockholdings sufficient to elect one (1) statements for the first three (3) years;
member to the acquired entity’s board of (7) Members of the board and senior
directors. management;
b. Criteria for major investments. Any (8) Interest to be held by the bank and
major investment by a bank should be the manner in which such interest will be
approved by the bank’s board of directors. held; and
In acting on such investments the Board (9) Conformity of the investee
shall consider the following: company for BSP to examine its books.
(1) Such investment must be in The BSP may impose conditions on any
accordance with the bank’s business plan approval, including conditions to address
and management objectives, taking into financial, managerial, safety and soundness,
consideration the economic developments compliance, or other concerns. Further, the
and future prospects. The interests of the BSP may disapprove a proposed investment
different stakeholders of the bank – if it finds that the proposal would constitute
shareholders, depositors and creditors – an unsafe and unsound practice, or would
should always be considered before any violate any law, regulation, Monetary Board
investment is made. directive, or any condition imposed by, or
(2) Such investments will complement/ written agreement with, the BSP.
support the main business of the banks. The BSP may prescribe other guidelines/
Extra caution should be taken when regulations as it may consider necessary to
investing in activities where the bank has ensure that banks’ major investments do not
no managerial or technical expertise, or expose the banks to undue risks or hinder
businesses/industries, which are high-risk. effective supervision.

§§ X376.5 - X378
05.12.31
Within six (6) months from 07 September h. Companies engaged in foreign

2001, banks shall provide the BSP reliable exchange dealership/brokerage.
information on companies in which they In addition, UBs may invest in the
have significant interest or control, such as following as financial allied undertakings:
but not limited to: (1) Insurance companies; and
(i) Name of the companies; (2) Holding company: Provided, That
(ii) Type of business activities; and the investments of such holding company
(iii) Interest held by the bank and the are confined to the equities of allied
manner in which such interest is held. undertakings and/or non-allied undertakings
d. Examination and inspection. of UBs allowed under BSP regulations.
Whenever deemed necessary, BSP shall The Monetary Board may declare such
have the authority to examine investee other activities as financial allied
companies or to verify information provided undertakings of banks.
by other supervisory authorities such as the The determination of whether the
SEC. corporation is engaged in a financial allied
The BSP shall have the authority to seek undertaking shall be based on its primary
corrective action, to issue orders to purpose as stated in its articles of
terminate activities with or divest an interest incorporation and the volume of its principal
in an investee company, if it believes that business.
such action is necessary to prevent or
redress unsafe or unsound practice by Sec. X378 Limits on Investment in the
such company that poses a material risk Equities of Financial Allied Undertakings
to the financial safety, soundness or The equity investment of a bank in a single
stability of a bank. financial allied undertaking shall be within
the following ratios in relation to the total
Sec. X377 Financial Allied Undertakings subscribed capital stock and to the total
With prior BSP approval, banks may invest voting stock of the allied undertaking:
in equities of the following financial allied
UB KB
undertakings, subject to the limits Publicly- Not Publicly- Not
prescribed under Sec. X378: listed listed listed listed
a. Leasing companies including Financial Allied
Undertaking
leasing of stalls and spaces in a UBs 100% 49% 100% 49%
commercial establishment: Provided, That KBs 100 49 100 49
bank investment in/acquisition of shares of TBs 100 100
RBs 100 100
such leasing company shall be limited/ Coop Banks NA NA
applicable only in cases of conversion of Insurance
outstanding loan obligations into equity; Companies 100 NA
VCCs 60 60
b. Banks; Others 100 40
c. Investment houses;
d. Financing companies; TB RB Coop Bank
Financial Allied
e. Credit card companies; Undertaking
f. Financial institutions catering to UBs 49% 49% 49%
small and medium scale industries KBs 49 49 49
TBs 49 49 49
including venture capital corporation RBs 49 49 100
(VCC), subject to the provisions of Sec. Coop Banks NA NA 40
X379 and its subsections; Insurance NA NA 49
Companies
g. Companies engaged in stock VCCs 60 49 49
brokerage/securities dealership; and Others 40 40 40

§§ X378 - X379.2
05.12.31
To promote competitive conditions, the which a bank owns equity shall be subject
Monetary Board may further limit the equity to prior approval of the Monetary Board;
investments in QBs of UBs and KBs to forty d. Loans which the investor-bank may
percent (40%). grant to a VCC shall be limited to such
A publicly-listed UB or KB may own up amounts as would enable the VCC to
to 100% of the voting stock of only one (1) promote equity financing to viable small
other UB or KB. Otherwise, it shall be limited and medium scale enterprise: Provided,
to a minority holding. however, That unless otherwise authorized
The existing investment of a bank in by the Monetary Board, the aggregate
another bank under R.A. No. 7721 shall be outstanding loans of such bank to a VCC
governed by Sec. X121 insofar as it is shall not exceed twice the amount of its
consistent with R.A. No. 8791. equity investment in the VCC: Provided,
further, That loans to the VCC, or the small
Sec. X379 Investments in Venture and medium-scale enterprises shall not be
Capital Corporations. The following rules subject to the ceilings on DOSRI, except
and regulations shall implement Presidential where bank DOSRI are likewise
Decree No. 1688 entitled “Authorizing stockholders in the VCC or in the small and
Banks to Invest in the Equity of Venture medium-scale enterprise;
Capital Corporations to Assist Small and e. The combined equity investments
Medium- Scale Enterprises”. in, and loans of, the bank to its VCC shall
For purposes of this Section, a venture not exceed fifteen percent (15%) of the
capital corporation (VCC) shall refer to an bank's net worth; and
entity organized jointly by private banks, the f. The aggregate investments in
National Development Corporation and the equities by a bank, including equity
Technology Livelihood and Resource investments in a VCC, shall not exceed the
Center and/or such other government prescribed ceiling of twenty-five percent
agency as may be authorized by the (25%) of the bank's net worth.
appropriate authority, the primary purpose
of which is to develop, promote and assist, § X379.2 Equity investments of venture
thru debt or equity financing or any other capital corporations. Equity investment of a
means, any small and medium-scale VCC in small and medium-scale enterprises
enterprise in the country. shall be subject to the following conditions:
a. Equity financing by a VCC may be
§ X379.1 Requirements for investors extended to a small and medium-scale
Banks may invest in a VCC organized to enterprise engaged in an industry certified
assist small and medium-scale enterprises, as desirable by the Department of Trade and
subject to the following conditions: Industry; and
a. The bank shall have a minimum b. The total assets of the enterprises
capital of P100.0 million as defined in Sec. X106; shall not exceed P4.0 million, including the
b. Two or more banks may own up to VCC's equity investment. Should the total
sixty percent (60%) of the total voting equity assets of the small and medium-scale
and of the total equity of a VCC. A bank enterprise subsequently exceed the
shall not be allowed to invest in the equity prescribed P4.0 million maximum, the VCC
of more than one VCC; equity investment therein made before the
c. The initial paid-in capital of VCC shall total assets of the enterprise exceeded P4.0
not exceed P5.0 million. Any subsequent million, may be maintained but shall not be
increase in paid-in capital of the VCC in increased.

§§ X379.3 - X380
05.12.31
§ X379.3 Business name of venture (5) Management corporations

capital corporations. A VCC shall be engaged or to be engaged in an activity
known by any name not otherwise similar to the management of mutual
appropriated: Provided, however, That the funds;
words "venture capital corporation” are (6) Companies engaged in providing
made a part thereof. computer services;
(7) Insurance agencies/brokerages;
§ X379.4 Reportorial requirements; (8) Companies engaged in home
examination by Bangko Sentral. A VCC in building and home development;
which a bank owns equity shall be subject (9) Companies providing drying and/
to BSP reportorial requirements prescribed or milling facilities for agricultural crops
for non-bank financial intermediaries and such as rice and corn;
may be subject to examination by the BSP. (10) Service bureaus, organized to
perform for and in behalf of banks and non-
§ X379.5 Interlocking directorships bank financial institutions the services
and/or officerships. Subject to prior allowed to be outsourced enumerated in
approval of the Monetary Board, a person Sec. X169: Provided, That data processing
may concurrently hold the position of a companies may be allowed to invest up
director or officer in a bank and a VCC. to forty percent (40%) in the equity of
service bureaus;
Sec. X380 Non-Financial Allied (11) Philippine Clearing House
Undertakings. A bank may acquire up to Corporation (PCHC), Philippine Central
100% of the equity of a non-financial allied Depository, Inc. and Fixed Income
undertaking: Provided, That the equity Exchange; and
investment of a TB/RB in any single (12) Such other similar activities as the
enterprise shall remain less than fifty percent Monetary Board may declare as non-
(50%) of the voting shares in that enterprise: financial allied undertakings of banks.
Provided, further, That prior Monetary UBs may further invest in health
Board approval is required if the investment maintenance organizations (HMOs).
is in excess of forty percent (40%) of the In addition, TBs may also invest in the
total voting stock of such allied undertaking. equities of companies enumerated in Item
The determination of whether the “b” of this Section.
corporation is engaged in a non-financial b. RBs/Coop Banks
allied undertaking shall be based on the RBs/Coop Banks may invest, as a non-
primary purpose as stated in its articles of financial allied undertaking, in the equities
incorporation and the volume of its principal of companies engaged in the following:
business. (1) Warehousing and other post-
a. UBs/KBs/TBs harvest facilities;
UBs/KBs and TBs may invest in equities (2) Fertilizer and agricultural
of the following non-financial allied chemical and pesticides distribution;
undertakings: (3) Farm equipment distribution;
(1) Warehousing companies; (4) Trucking and transportation of
(2) Storage companies; agricultural products;
(3) Safe deposit box companies; (5) Marketing of agricultural products;
(4) Companies primarily engaged in the (6) Leasing; and
management of mutual funds but not in the (7) Other undertakings as may be
mutual funds themselves; determined by the Monetary Board.

§§ 1381 - 1381.3
05.12.31
Sec. 1381 Investments in Non-Allied or § 1381.2 Limits on investments in non-

Non-Related Undertakings. Only UBs may allied enterprises
invest in the equity of an enterprise a. The equity investment of a UB, or
engaged in non-allied or non-related of its wholly or majority-owned
activities. subsidiaries, in a single non-allied
enterprise shall not exceed thirty-five
§ 1381.1 Non-allied undertakings percent (35%) of the total equity in that
eligible for investment by universal banks enterprise nor shall it exceed thirty-five
The broad category of non-allied percent (35%) of the voting stock in that
undertakings in which a UB may invest enterprise.
directly or through its subsidiary shall For the purpose of determining
require prior approval of the Monetary compliance with the ceiling prescribed in
Board: Provided, That individual equity the preceding paragraph, (i) the equity
investments in the following broad investment of the bank; and (ii) the equity
categories shall not require prior Monetary investment of the bank’s subsidiaries, shall
Board approval, except as may be required be combined.
in Subsec. X376.5: b. In no case shall the total equity
a. Enterprises engaged in physically investments in a single non-allied
productive activities in agriculture, mining enterprise of UBs, NBFIs performing QB
and quarrying, manufacturing, public functions and their subsidiaries, whether
utilities, construction, wholesale trade and or not the parent financial intermediaries
community and social services following have equity investments in the enterprise,
the industrial groupings in the Philippine amount to fifty percent (50%) or more of
Standard Industrial Classification (PSIC) as the voting stock of that enterprise:
enumerated in Appendix 22; Provided, however, That equity
b. Industrial park projects and/or investments in excess of the ceilings
industrial estate developments; prescribed herein as of 01 April 1980 may
c. Financial and commercial complex be maintained but may not be increased
projects (including land development and and if reduced, shall not be increased
buildings constructed thereon) arising from thereafter beyond the ceiling prescribed
or in connection with the Government's herein.
privatization program; and
d. Such other broad categories as the § 1381.3 Report on outstanding
Monetary Board may declare as equity investments in and outstanding
appropriate: Provided, further, That the loans to non-allied enterprises. UBs shall
bank shall submit within thirty (30) banking submit to the appropriate SED of the BSP
days after the investment, the following within fifteen (15) banking days, a report
information/documents to the appropriate as of June 30 and December 31 of each
SED of the BSP: year showing the following:
(1) The amount of investment; a. Their outstanding equity
(2) The name of investee company; investments in non-allied enterprises;
and b. Outstanding equity investments of
(3) The nature of business, their wholly or majority-owned
accompanied by such pertinent documents subsidiaries in non-allied enterprises;
as articles of incorporation, articles of c. Their outstanding loans to non-
partnership or registration certificate, allied enterprises in which they have equity
whichever may be applicable. investments;

§§ 1381.3 - X382.3
05.12.31
d. Outstanding loans of their wholly e. Certification signed by the president

or majority-owned subsidiaries to non- or the executive vice-president that the bank
allied enterprises in which these wholly or has complied with all the requirements
majority-owned subsidiaries have equity enumerated under Subsec. X382.2.
investments; and
e. Their outstanding loans to non- § X382.2 Requirements for establishing
allied enterprises in which their wholly or subsidiaries or affiliates abroad. In addition
majority- owned subsidiaries have equity to the standard pre-qualification
investments. requirements for the grant of banking
For purposes of this Subsection, a authorities in Appendix 5, the applicant
wholly- owned subsidiary is a corporation bank shall comply with the following:
100% of the voting stock of which is owned a. The citizenship, ownership ceilings
by the reporting bank while a majority- and other limitations on voting
owned subsidiary is a corporation more stockholdings in banks under existing law
than fifty percent (50%) but less than 100% and regulations; and
of the voting stock of which is owned by b. The experience and expertise in
the reporting bank. international banking operations with proof
to the effect that:
Sec. X382 Investments in Subsidiaries and (1) It must have conducted international
Affiliates Abroad. The establishment or banking for at least three (3) years prior to
acquisition of subsidiaries or affiliates abroad the date of application; and
shall require prior approval of the BSP. (2) Its international banking operations
must have contributed a substantial portion
§ X382.1 Application for authority to to its total earnings.
establish or acquire subsidiaries and affiliates
abroad. The application for such authority § X382.3 Conditions for approval of
shall be signed by the president of the bank application. The approval of the application
and shall be accompanied, as a minimum, to establish or acquire a subsidiary of an
by the following information/-documents: affiliate abroad shall be subject to the
a. Certified true copy of the resolution following conditions:
of the bank’s board of directors authorizing a. Without prejudice to the
the establishment or acquisition of a qualification requirements of the country
subsidiary or an affiliate abroad; where the subsidiary or the affiliate is to be
b. Economic justification for such established, the proposed officer(s), at the
establishment, indicating the services to be time of appointment, must be at least:
offered, the minimum outlay for furniture, (1) Twenty-five (25) years of age;
fixture and equipment, rental and other (2) A college graduate, preferably with
expenses; training and experience abroad;
c. A certification that an application (3) With three (3) years experience in
for such establishment has been filed with international banking; and
the appropriate government agency of the (4) Must not be disqualified as an officer
host country; under existing regulations.
d. Organizational set-up of the b. The applicant shall also comply with
proposed banking office showing the the licensing requirements of the host
proposed positions and the names, country and the necessary license to operate
qualifications and experience of the shall be secured from the appropriate
proposed manager and other officers; and government agency of the host country;

§§ X382.3 - X382.8
05.12.31
c. The outward investment should show profits in the first two (2) years
representing initial capital outlay and other of operations.
outlays shall be subject to existing c. The application for authority of a
regulations; bank subsidiary shall be accompanied by
d. All dividends earned shall be the following:
inwardly remitted to the Philippines within (1) Certified true copy of the resolution
reasonable period after the date of payment; authorizing the investment by the board of
e. The proposed subsidiary or affiliate directors of the parent bank and the bank
shall submit the reports required by the BSP; subsidiary;
f. The proposed subsidiary or affiliate (2) Feasibility studies on the proposed
shall not carry any of the business of a bank subsidiary indicating, among others, the
contemplated within the context of the economic justification, the type of industry
Philippine banking system; and organizational expenses to be incurred,
g. The proposed subsidiary or affiliate including the capital expenditures; and
shall not engage in stock trading activity; (3) Proposed organizational structures,
h. The applicant shall submit a including the proposed officers and their
certification from the host country that the qualifications.
duly authorized personnel/examiners of the d. The applicant parent subsidiary
BSP will be authorized to examine the shall comply with the licensing
proposed subsidiary or affiliate; and requirements of the host country and the
i. The applicant shall defray the necessary license to operate shall be
necessary cost and expenses to be incurred secured from the appropriate government
by the appropriate SED of the BSP in the agency of the host country;
examination of the foreign subsidiary. e. The proposed subsidiary may
invest in another subsidiary with prior
§§ X382.4 - X382.7 (Reserved) approval of the BSP;
f. Any outward investment
§ X382.8 Investment of a bank representing initial capital and other outlays
subsidiary in a foreign subsidiary. The shall be subject to existing regulations;
following guidelines shall govern the g. At least fifty percent (50%) of the
investment in a foreign subsidiary by a bank yearly net profits of the proposed subsidiary
subsidiary: shall be declared and paid as cash
a. The investment of a bank subsidiary dividends to the parent subsidiary;
in the equity of a subsidiary located abroad h. The proposed subsidiary shall be
shall be subject to prior BSP approval; subject to -
b. The bank subsidiary may invest in a (1) the applicable reportorial
subsidiary if it meets the following pre- requirements such as the submission of
qualification requirements: quarterly SOC and SIE; and
(1) It has complied with the minimum (2) the supervision and examination
capital requirement of the host country; by the BSP and the cost of such
(2) It has booked the required valuation examination shall be charged against the
reserves and other capital adjustments, if grandparent bank; and
any; and i. Any additional funding or advances
(3) Its operations in the preceding three of the parent bank in the Philippines to its
(3) years were profitable; otherwise, the subsidiaries abroad or the subsidiary will
feasibility study on the proposed subsidiary require prior BSP approval.

§§ X383 - X388.3
05.12.31
Sec. X383 Other Limitations and approved the investment per investment and
Restrictions. The following limitations and to be shouldered personally by the officer/
restrictions shall also apply regarding equity director: Provided, That if the subsequent
investments of banks. offense is an investment in a non-allied
a. In any single enterprise. The equity enterprise, the fine shall be P40,000.
investments of UBs and KBs in any single
enterprise shall not exceed at any time I. (RESERVED)
twenty-five percent (25%) of the net worth
of the investing banks as defined in Sec. Secs. X386 - X387 (Reserved)
X106 and Subsec. X121.5.
b. Aggregate limits. The total amount J . OTHER OPERATIONS
of investments in equities in all enterprises
shall not exceed the following ratios in Sec. X388 Purchase of Receivables and
relation to the net worth of the investing bank: Other Obligations. The following
UB KB TB RB Coop Bank regulations shall govern the purchase of
receivables and other obligations.
LIMIT: 50% 35% 25% 25% 25%
§ X388.1 Yield on purchase of
c. Exclusion of underwriting exposure receivables. The rate of yield, including
from ceiling. The exposure of a bank with commissions, premiums, fees and other
UB authority arising from the firm charges, from the purchase of receivables
underwriting of equity securities of and other obligations, regardless of maturity,
enterprises shall not be counted in that may be charged or received by banks
determining compliance with the ceilings shall not be subject to any regulatory ceiling.
prescribed in this Section and Subsec.
X381.2 for a period of two (2) years from § X388.2 Purchase of receivables on a
the acquisition of such equity securities. "without recourse" basis. The total
exposure of a bank to a maker of promissory
Sec. X384 (Reserved) notes resulting from the purchase of
receivables on a without recourse basis shall
Sec. X385 Sanctions. The following be subject to the SBL of the bank: Provided,
sanctions shall be imposed for equity That the bank shall evaluate the credit
investments made without prior Monetary worthiness of the maker of such promissory
Board approval: notes.
a. First Offense - If the investment is
not allowable under existing regulations, § X388.3 Purchase of commercial
divestment of the investment and reprimand paper. Before purchasing registered
on officer/director who recommended/ commercial paper, banks authorized to
approved the investment. engage in quasi-banking functions shall -
b. Subsequent Offense - a. Require the issuing entity to submit
On the Bank. If the investment is not a duly certified true copy of its Certificate of
allowable under existing regulations, Registration and Authority to Issue
divestment of the investment. Commercial Paper; and
On the Director/Officer. Fine of b. Ascertain that the registration
P20,000 for each investment to be imposed number and expiry date indicated in the
on the members of the board and the commercial paper are the same as those in
executive officers who recommended/ the certificate of registration submitted.

§§ X388.3 - 1389
05.12.31
Any violation or failure to comply with b. The classification, accounting

the provisions of this Subsection shall procedures, valuation and sales and
subject the erring bank to suspension or transfers of investments in all debt securities
revocation of its authority to engage in and marketable equity securities shall be
quasi-banking functions. in accordance with the guidelines in
Appendices 33 and 33a.
§ X388.4 Reverse repurchase c. Penalties and sanctions. The
agreements with Bangko Sentral. Reverse following penalties and sanctions shall be
repurchase agreements with the BSP shall imposed on financial institutions and
be governed by Subsec. X601.2. concerned officers found to violate the
provisions of these regulations:
§ X388.5 Investment in debt and (1) Fines to be imposed on financial
readily marketable equity securities. The institutions for each violation, reckoned
following rules and regulations shall govern from the date the violation was committed
investment in debt securities and up to the date it was corrected:
marketable equity securities. (i) P20,000/banking day for UBs;
a. Banks may invest in the following: (ii) P10,000/banking day for KBs;
(1) Readily marketable bonds and (iii) P2,000/banking day for TBs; and
other debt securities which are of such use (iv) P1,000/banking day for RBs/Coop
or demand as to make them the subject of Banks.
constant dealings in securities markets, with (2) Sanctions to be imposed on
such frequent quotations of price as to concerned officers:
make the price easily and definitely (i) First offense – reprimand the
ascertainable, and the security easy to officers responsible for the violation; and
realize upon sale at any time: Provided, (ii) Subsequent offenses – suspension
That the bonds and other debt securities of ninety (90) days without pay for officers
have complied with the new rules on responsible for the violation.
registration of commercial papers:
Provided, further, That in the case of RBs/ Sec. 1389 Guidelines on the Investment
Coop Banks, the bonds and other securities of UBs and KBs in Credit-Linked Notes,
have been approved by the BSP. Structured Products and Securities
TBs may invest in evidences of Overlying Securitization Structures. In line
indebtedness which are registered with the with the policy of encouraging banks to
SEC but are not readily marketable diversify their investment portfolios and to
securities: Provided, That these evidences foster the development of a market for new
of indebtedness shall be acquired with financial products, the BSP has issued
recourse against a bank or a quasi-bank. guidelines on the investment of UBs and
It shall be the responsibility of the KBs in (1) credit-linked notes and similar
investing bank to undertake the necessary products (Sec. 1633), (2) foreign currency
investigation to satisfy itself with regard to denominated structured products (Secs.
the particular security. 1560 and Sec. 1636) and (3) securities
(2) Evidences of indebtedness of the overlying securitization structures (Sec.
Republic of the Philippines or the BSP, and 1648).
any other evidences of indebtedness or No prior BSP approval is required to
obligations the servicing and repayment of enter into authorized transactions.
which are guaranteed by the Republic of However, it shall be the responsibility of
the Philippines. UBs/KBs to fully comply with appropriate

§§ 1389 - X393.5
05.12.31
risk management standards including, as a Loans granted by the head office and
minimum, those prescribed under relevant other offices in a geographical grouping
Sections. The regulatory requirements may be assigned and considered part of
enumerated in Appendix 66 shall be fully the loans of offices in another geographical
complied with by UBs/KBs investing in grouping, subject to the presentation of
products allowed under Secs./Subsecs. acceptable proof that the end-users of the
1633, 1560/X116.8 and X116.9: loan proceeds are located in the latter
grouping. Acceptable proof may include,
Sec. 2389 (Reserved) but need not be limited to: (a) ticket
showing that the loan proceeds were
Sec. 3389 (Reserved) released by an officer in that geographical
grouping, and (b) cable advice from the
Secs. X390 – X392 (Reserved) lending office to the office in the
geographical grouping where end-users
K. MISCELLANEOUS PROVISIONS are located relative to approval of loan and
release thereof.
Sec. X393 Loans-to-Deposits Ratio. The
following policies and guidelines shall § X393.3 Geographical groupings
govern the loans-to-deposits ratio of head For purposes of this policy, the
offices, branches and other banking offices geographical groupings shall be Luzon
of banks in regions outside the National (Regions I, II, III, IV and V), Visayas
Capital Region. (Regions VI, VII and VIII) and Mindanao
(Regions IX, X, XI and XII).
§ X393.1 Statement of policy. At least
seventy-five percent (75%) of total deposits, § X393.4 Lagged computation. For
net of required reserves against deposit purposes of determining compliance with
liabilities and total amount of cash in vault, the loans-to-deposits ratio, a six (6)-months
accumulated by branches and other lagged computation shall be adopted,
banking offices of banks in a particular i.e., the loans-to-deposits ratio as of
geographical grouping shall be invested reporting date shall be computed using
therein as a means to develop the area. levels of deposits as of two (2) previous
For purposes hereof, deposits shall quarter ends and loans as of the current
include "Time Certificates of Deposits- quarter end.
Special Financing", but shall exclude: (a)
government deposits subject to the liquidity § X393.5 Real and other properties
floor requirement, (b) FCDU deposits, and acquired as part of compliance. ROPA
(c) deposits of banks maintained for clearing shall be considered part of compliance
purposes in areas where there are no BSP with the required loans-to-deposits ratio
clearing units. Loans shall exclude FCDU loans. subject to the following conditions:
a. Only real and other properties
§ X393.2 Other methods of acquired (ROPA) by banks in settlement
compliance. The policy shall be deemed of loans shall be eligible; and
complied with, if, in a geographical b. The amount to be considered shall
grouping, the bank's lending for the be limited to the net book value of the
financing of agricultural and export ROPA, excluding capital gains tax,
industries constitutes sixty percent (60%) documentary stamp tax and such other
of its deposits. capitalized expenses.

§§ X394 - X394.2
05.12.31
Sec. X394 Acquired Assets in Settlement values, which allocated carrying amounts
of Loans. The following rules shall govern shall become their initial costs.
assets acquired in settlement of loans. c. Subsequently, ROPA shall be
accounted for as follows:
§ X394.1 Posting. Banks shall post at (1) Land and buildings shall be
all times in a conspicuous place in the accounted for using the cost model under
premises of their head office and each of PAS 40 “Investment Property”;
their branches and other banking offices a (2) Other non-financial assets shall be
list of acquired assets together with the accounted for using the cost model under
corresponding lowest price at which the PAS 16 “Property Plant and Equipment”;
bank is willing to sell such property. (3) Buildings and other non-financial
However, this requirement shall not relieve assets shall be depreciated over a period
the bank from the requirement under not exceeding ten years and three years,
Section 52 of R.A. No. 8791 to dispose of respectively.
such acquired assets. (4) Land, buildings and other non-
financial assets shall be subject to the
§ X394.2 Booking impairment provisions of PAS 36
a. ROPA in settlement of loans “Impairment”;
through foreclosure or dation in payment (5) Financial assets shall be initially
shall be booked initially at the carrying booked and classified according to
amount of the loan (i.e., outstanding loan intention (i.e., HFT, DFVPL, AFS, HTM,
balance adjusted for any unamortized INMES, Unquoted Debt Securities
premium or discount less allowance for Classified as Loans or Loans and
probable losses computed based on PAS 39 Receivable) and accounted for in
provisioning requirements) plus booked accordance with the provisions of PAS 39;
accrued interest less allowance for probable (6) ROPAs that comply with the
losses plus transaction costs incurred upon provisions of PFRS 5 “Non-Current Assets
acquisition (such as non-refundable capital Held for Sale” shall be reclassified and
gains tax and documentary stamp tax paid accounted for as such.
in connection with the foreclosure/purchase d. Claims arising from deficiency
of the acquired real estate property): judgments rendered in connection with the
Provided, That where the booked amount foreclosure of mortgaged properties shall
of ROPA exceeds the appraised value of the be lodged under the real account
acquired property, an allowance for “Deficiency Judgment Receivable”; while
probable losses equivalent to the excess of probable claims against the borrower
the amount booked over the appraised arising from the foreclosure of mortgaged
value shall be set up: Provided, further, That properties shall be lodged under the
if the carrying amount of ROPA exceeds contingent account “Deficiency Claims
P5.0 million, the appraisal of the foreclosed/ Receivable”.
purchased asset shall be conducted by an e. Appraisal of Properties. Before
independent appraiser acceptable to the foreclosing or acquiring any property in
BSP. settlement of loans, it must be properly
b. The carrying amount of ROPA shall appraised to determine its true economic
be allocated to land, building, other non- value. If the amount of ROPA to be booked
financial assets and financial assets (e.g., exceeds P5.0 million, the appraisal must be
receivables from third party or equity conducted by an independent appraiser
interest in an entity) based on their fair acceptable to the BSP. An in-house

§§ X394.2 - X394.9
05.12.31
appraisal of all ROPAs shall be made at least and (b) Subsec. X394.3 shall be
every other year: Provided, That immediate immediately adopted for all outstanding
re-appraisal shall be conducted on ROPAs Sales Contract Receivables entered into
which materially decline in value. before 01 January 2005: Provided, further,
f. Non-cash payment for interest. That all land, buildings and other non-financial
Financial institutions that accept non-cash assets acquired before 01 January 2005 shall
payments for interest on their borrowers’ continue to be provided with valuation
loans shall book the acquired assets as reserves in accordance with the schedule
ROPA. The amount to be booked as ROPA in Appendix 18.
shall be the booked accrued interest less b. Sales contract receivables which
allowance for probable losses: Provided, meet all the requirements/conditions
That where the booked amount of ROPA enumerated below are hereby considered
exceeds the appraised value of the acquired performing assets and therefore, not subject
property, an allowance for probable losses to classification:
equivalent to the excess of the amount (1) That there has been a down-
booked over the appraised value shall be payment of at least twenty percent (20%)
set up: Provided, further, That if the carrying of the agreed selling price or in the absence
amount of ROPA exceeds P5.0 million, the thereof, the installment payments on the
appraisal of the foreclosed/purchased asset principal had already amounted to at least
shall be conducted by an independent twenty percent (20%) of the agreed selling
appraiser acceptable to the BSP. The price;
carrying amount of ROPA shall be allocated (2) That payment of the principal must
in accordance with Item “b” and shall be be in equal installments or in diminishing
subsequently accounted for in accordance amounts and with maximum intervals of
with Item “c” of this Subsection. one (1) year;
(3) That any grace period in the
§ X394.3 Sales contract receivable payment of principal shall not be more than
a. Sales Contract Receivable (SCR) two (2) years; and
shall be recorded based on the present value (4) That there is no installment
of the installments receivables discounted payment in arrear either on principal or
at the imputed rate of interest. Discount shall interest. Provided, That a “Sales Contract
be accreted over the life of the SCR by Receivable” account shall be automatically
crediting interest income using the effective classified “Substandard” and considered
interest method. Any difference between non-performing in case of non-payment of
the present value of the SCR and the any amortization due: Provided, further,
derecognized assets shall be recognized in That a “Sales Contract Receivable” which
profit or loss at the date of sale in accordance has been classified “Substandard” and
with the provisions of PAS 18 “Revenue” considered non-performing due to non-
Provided, furthermore, That SCR shall be payment of any amortization due may only
subject to impairment provision of PAS 39. be upgraded/restored to unclassified and/
Transitory provisions. The provisions or performing status after a satisfactory track
of Subsection X394.2 shall be applied to record of at least three (3) consecutive
real and other properties acquired on payments of the required amortization of
01 January 2005 and thereafter: Provided, principal and/or interest has been
That (a) Item “c(5)” shall be immediately established.
adopted for all outstanding financial
assets acquired before 01 January 2005; §§ X394.4 - X394.9 (Reserved)

§§ X394.10 - X399
05.12.31
§ X394.10 Transfer/sale of non- Excluded from this ceiling are loans not
performing assets to a special purpose exceeding P3.5 million to finance the
vehicle or to an individual. The acquisition or improvement of residential
procedures governing the transfer/sale of units: Provided, however, That the
non-performing assets (NPAs) to a Special aggregate real estate loans (inclusive of
Purpose Vehicle (SPV) or to an individual loans not exceeding P3.5 million to finance
that involves a single family residential unit, the acquisition or improvement of
or transactions involving dacion en pago residential units) shall not exceed thirty
by the borrower or third party of a non- percent (30%) of the total loan portfolio.
performing loan (NPL), for the purpose of Housing loans extended or
obtaining the Certificate of Eligibility (COE) guaranteed under the government’s
which is required to avail of the incentives National Shelter Program and loans
provided under R.A. No. 9182 are considered non-risk assets under Section 22
presented in Appendix 56. of R.A. No. 337, as amended, and existing
The accounting guidelines on the sale regulations are exempt from the ceilings
of NPAs to SPVs and to qualified prescribed in the preceding paragraph.
individuals for housing under the SPV Act
of 2002 are presented in Appendix 56a. Sec. 2397 (Reserved)
Sec. X395 Credit Policies of Government- Sec. 3397 (Reserved)

Owned Corporations. Government-
owned corporations which perform Sec. X398 Debt Service Limit on Local
banking or credit functions shall coordinate Government Borrowings. To ensure the
their general credit policies with the effective implementation of the debt service
Schedule of Credit Priorities embodied in limit on local government borrowings as
Appendix 23. Within the provision of their stipulated in Section 324 (b) of the Local
respective charters, these corporations shall Government Code of 1991, all banks shall
limit their credits to the economic activities require each borrowing Local Government
falling under Priority II of said schedule to Unit (LGU) to present a certificate of its debt
fifty percent (50%) of their outstanding service and borrowing capacity, duly certified
loans at any time. by the Bureau of Local Government Finance –
Department of Finance (BLGF-DOF).
Sec. X396 Parcellary Plans on Crop Loans
Banks shall require the submission of Sec. X399 General Provision on Sanctions
parcellary plans a requisite for granting Any violation of the provisions of this Part
crop loans to sugarcane planters. shall be subject to Sections 36 and 37 of
R.A. No. 7653.
Sec. 1397 Limits on Real Estate Loans of The guidelines for the imposition of
Universal Banks/Commercial Banks. UBs/ monetary penalty for violations/offenses
KBs shall observe an aggregate limit on real with sanctions falling under Section 37 of
estate loans to not more than twenty R. A. No. 7653 on banks, their directors
percent (20%) of the total loan portfolio. and/or officers are shown in Appendix 67.

§§ X401 - X403
05.12.31
PART FOUR
TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT

MANAGEMENT ACTIVITIES
Section X401 Statement of Principles. The financial manager, or other similar capacity,
cardinal principle common to all trust and the following:
other fiduciary relationships is fidelity. a. Funds of local government units
Policies predicated upon this principle are (LGUs) which are expected to be available
directed towards confidentiality, scrupulous for investment purposes for a relatively long
care, safety and prudent management of period of time: Provided, further, That the
property including reasonable probability of amounts held in trust or otherwise managed/
income with proper accounting and advised for and in behalf of the LGUs shall
appropriate reporting thereon. Practices are be invested only in government securities,
designed to promote efficiency in specifically, evidences of indebtedness of the
administration and operation; to adhere and National Government, the BSP and other
conform with the terms of the instrument evidences of indebtedness or obligations of
or contract; and to maintain absolute government entities, the servicing and
separation of property free from any repayment of which are fully guaranteed by
intrusion of conflict of interest. the National Government; and
A bank authorized to engage in trust and b. Funds of government and
fiduciary business is under no obligation, government entities which are authorized by
either legal or moral, to accept any such special laws to be placed in trust.
business being offered nor has it the right to
accept if the same is contrary to law, rules, Sec. X402 Scope of Regulations. These
regulations, public order and public policy. regulations shall govern the grant of
It shall advertise its services in a dignified authority to and the management,
manner and enter such business only when administration and conduct of trust, other
demand for such service is evident, when fiduciary business and investment
specially equipped to render such service management activities (as these terms are
and upon full appreciation of the defined in Sec. X403) of banks.
responsibilities involved. It shall be ready The regulations are divided into three (3)
and willing to give full disclosure of the Sub-Parts where:
services being offered and shall conduct its A. Trust and Other Fiduciary Business
dealing with transparency. Harmonious shall apply to banks authorized to engage in
relationship shall likewise be pursued with trust and other fiduciary business including
other professions to achieve the common investment management activities;
goal of mutual service to the public and B. Investment Management Activities
protection of its interest. shall apply to banks without trust authority
Banks may not receive or hold as but with authority to engage in investment
trustee, agent, administrator, financial management activities; and
manager, or other similar capacity, any fund C. General Provisions shall apply to both.
or money from the Government and
government entities: Provided, however, Sec. X403 Definitions. For purposes of
That government-owned banks may receive regulating the operations of trust and other
or hold as trustee, agent, administrator, fiduciary business and investment
Manual of Regulations for Banks Part IV - Page 1

§ X403
05.12.31
management activities, unless the context funds and/or property of the trust or for the
clearly connotes otherwise, the following benefit of a beneficiary.
shall have the meaning indicated. e. Trust Agreement is an instrument in
a. Trust business shall refer to any writing covering the terms and conditions
activity resulting from a trustor-trustee of the trust.
relationship (trusteeship) involving the f. Trustee is any person who holds legal
appointment of a trustee by a trustor for title to the funds and/or property of a trust.
the administration, holding, management g. Trustor is any person who creates a
of funds and/or properties of the trustor trust.
by the trustee for the use, benefit or h. Beneficiary is any person for whose
advantage of the trustor or of others called benefit a trust is created.
beneficiaries. i. Fiduciary shall refer to any person
b. Other fiduciary business shall refer or entity engaged in any of the other
to any activity of a trust-licensed bank fiduciary business as herein defined where
resulting from a contract or agreement no trustor-trustee relation exists.
whereby the bank binds itself to render j. Agency shall refer to a contract
services or to act in a representative capacity whereby a person binds himself to render
such as in an agency, guardianship, some service or to do something in
administratorship of wills, properties and representation or on behalf of another, with
estates, executorship, receivership, and the consent or authority of the latter.
other similar services which do not create k. Principal shall refer to the person
or result in a trusteeship. It shall exclude who grants authority to another person called
collecting or paying agency arrangements an agent, under a contract to enter into
and similar fiduciary services which are transactions in his behalf.
inherent in the use of the facilities of the l. Agent shall refer to a person who
other operating departments of said bank. acts in representation or on behalf of another
Investment management activities, which are with the latter’s authority.
considered as among other fiduciary m. Trust Department shall refer to the
business, shall be separately defined in the department, office, unit, group, division or
succeeding item to highlight its being a major any aggrupation which carries out the trust
source of fiduciary business. and other fiduciary business of a bank.
c. Investment management activity n. Trust Officer shall refer to the
shall refer to any activity resulting from a designated head or officer-in-charge of the
contract or agreement primarily for financial trust department.
return whereby the bank (the investment o. Trust account shall refer to an
manager) binds itself to handle or manage account where transactions arising from a
investible funds or any investment portfolio trusteeship are kept and recorded.
in a representative capacity as financial or p. Common Trust Fund (CTF) shall
managing agent, adviser, consultant or refer to a fund maintained by a bank
administrator of financial or investment authorized to perform trust functions under
management, advisory, consultancy or any a written and formally established plan,
similar arrangement which does not create exclusively for the collective investment and
or result in a trusteeship. reinvestment of certain money representing
d. Trust is a relationship or an participation in the plan received by it in its
arrangement whereby a person called a capacity as the trustee.
trustee is appointed by a person called a q. Fiduciary account shall refer to an
trustor to administer, hold and manage account where transactions arising from any
Part IV - Page 2 Manual of Regulations for Banks

§§ X403 - X404.2
05.12.31
of the other fiduciary businesses are kept the choice of the trustor, beneficiary or client,
and recorded. as the case may be.
r. Investment Manager shall refer to any No bank shall advertise or represent
person or entity engaged in investment itself as being engaged in trust and other
management activities as herein defined. fiduciary business or in investment
s. Investment Management Department management activities or represent itself as
shall refer to the department, unit, group, trustee or investment manager or use words
division or any aggrupation which carries of similar import; and/or use in connection
out the investment management activities with its business title the words trust, trust
of a bank that does not have an authority corporation, trust company, trust plan or
to engage in trust and other fiduciary words of similar import, without having
business. obtained the required authority to do so.
t. Investment Management Officer
shall refer to the designated head or officer- § X404.1 Application for authority to
in-charge of the investment management perform trust and other fiduciary
department of a bank which does not have business. Banks desiring to perform trust
the authority to engage in trust and other and other fiduciary business shall file an
fiduciary business. application with the appropriate supervising
u. Investment management account and examining department. The application
shall refer to an account where transactions shall be signed by the bank’s president or
arising from investment management officer of equivalent rank and shall be
activities are kept and recorded. accompanied by the following documents:
a. Certified true copy of the resolution
A. TRUST AND OTHER of the institution’s board of directors
FIDUCIARY BUSINESS authorizing the application; and
b. A certification signed by the president
Sec. X404 Authority to Perform Trust and or the officer of equivalent rank that the
Other Fiduciary Business. With prior institution has complied with all conditions/
approval of the Monetary Board, banks may prerequisites for the grant of authority to
engage in trust and other fiduciary business perform trust and other fiduciary business.
under Chapter VII of R.A. No. 337, as
amended. § X404.2 Required capital. Banks
If a bank is found to engage in applying for authority to perform trust and
unauthorized trust and other fiduciary other fiduciary business must have minimum
business and/or investment management capital accounts as follows:
activities, whether as its primary, secondary UBs/KBs. The amount required under
or incidental business, the Monetary Board Sec. X106 or such amount as may be
may impose administrative sanctions against required by the Monetary Board in the future.
such bank or its principal officers and/or Branches of foreign banks. The amount
majority stockholders or proceed against required under Sec. X121 or such amount
them in accordance with law. as may be required by the Monetary Board
The Monetary Board may take such in the future.
action as it may deem proper such as, but TBs. P650.0 million or such amounts
may not be limited to, requiring the transfer as may be required by the Monetary Board
or turnover of any trust and other fiduciary in the future.
and/or investment management account to Banks authorized to perform and are
duly incorporated and licensed entities of actually performing trust and other fiduciary

§§ X404.2 - X404.3
05.12.31
business prior to 20 August 2002 whose week period immediately preceding the date
capital accounts are lower than the above- of application;
prescribed minimum capital accounts shall, g. It has generally complied with
before declaring any dividend, carry to banking laws, rules and regulations, orders
surplus at least fifty percent (50%) of their net or instructions of the Monetary Board and/
income from all operations since the last or BSP Management in the last two (2)
preceding dividend until such time that their preceding examinations prior to the date of
capital accounts meet the above requirement. application, particularly on the following:
(1) election of at least two (2)
§ X404.3 Prerequisites for engaging independent directors;
in trust and other fiduciary business (2) attendance by every member of the
Before it may engage in trust and other board of directors in a special seminar for
fiduciary business, a bank shall comply with board of directors conducted or accredited
the following requirements: by the BSP;
a. The applicant has been duly (3) the ceilings on credit
licensed or incorporated as a bank or created accommodations to DOSRI;
as such by special law or charter; (4) liquidity floor requirements for
b. The articles of incorporation or government deposits;
governing charter of the institution shall (5) single borrower’s limit; and
include among its powers or purposes, (6) investment in bank premises and
acting as trustee or administering any trust other fixed assets;
or holding property in trust or on deposit h. It maintains adequate provisions for
for the use, or in behalf of others; probable losses commensurate to the quality
c. The by-laws of the institution shall of its asset portfolio but not lower than the
include among other things, provisions on required valuation reserves as determined
the following; by the BSP;
(1) The organization plan or structure i. It does not have float items
of the department, office or unit which shall outstanding for more than sixty (60) calendar
conduct the trust and other fiduciary days in the “Due From/To Head Office/
business of the institution; Branches/Other Offices” accounts and the
(2) The creation of a trust committee, the “Due from Bangko Sentral” account
appointment of a trust officer and subordinate exceeding one percent (1%) of the total
officers of the trust department; and resources as of date of application;
(3) A clear definition of the duties and j. It has no past due obligations with
responsibilities as well as the line and staff the BSP or with any government financial
functional relationships of the various units, institution;
officers and staff within the organization; k. It has established a risk
d. The bank’s operation during the management system appropriate to its
preceding calendar year and for the period operations characterized by clear
immediately preceding the date of delineation of responsibility for risk
application has been profitable; management, adequate risk measurement
e. The bank is well capitalized whose systems, appropriately structured risk
risk-based capital adequacy ratio is not lower limits, effective internal controls and
than twelve percent (12%) at the time of complete, timely and efficient risk
filing the application; reporting system;
f. It has not incurred net weekly l. It has a CAMELS composite rating
reserve deficiencies during the eight (8)- of at least “3” in the last regular examination

§§ X404.3 - X405.2
05.12.31
with management rating of not lower than That at no time shall such deposit be less
“3”; and than P500,000.
m. It is a member of the PDIC in good Scripless securities under the Registry
standing. of Scripless Securities (RoSS) System of the
Compliance with the foregoing as well Bureau of Treasury (BTr) may be used as
as with other requirements under existing basic security deposit for trust and other
regulations shall be maintained up to the fiduciary duties using the Guidelines
time the trust license is granted. A bank enumerated in Appendix 34 of this
that fails in this respect shall be required to Manual.
show compliance for another test period of
the same duration. § X405.2 Eligible securities. Government
securities which shall be deposited in
§ X404.4 Pre-operating requirements compliance with the above basic security
A bank authorized to engage in trust and deposit shall consist of:
other fiduciary business shall, before a. Evidences of indebtedness of the
engaging in actual operations, submit to the Republic of the Philippines and of the BSP
BSP the following: and any other evidences of indebtedness or
a. Government securities acceptable obligations the servicing and repayment of
to the BSP amounting to P500,000 as which are fully guaranteed by the Republic
minimum basic security deposit for the of the Philippines; and such other kinds of
faithful performance of trust and other securities which may be declared eligible
fiduciary duties required under Subsec. by the Monetary Board: Provided, That such
X405.1; securities shall be free, unencumbered, and
b. Organization chart of the trust not utilized for any other purpose: Provided,
department which shall carry out the trust further, That such securities shall have
and other fiduciary business of the bank; and remaining maturity of not more than three
c. Names and positions of (3) years from the date of deposit with the
individuals designated as chairman and BSP; and
members of the trust committee, trust b. NDC Agri-Agra ERAP Bonds which
officer and other subordinate officers of are not being used as alternative compliance
the trust department with their respective with P.D. No. 717. The requirement that
bio-data and statement of duties and the securities used shall have a remaining
responsibilities. maturity of not more than three (3) years shall
not apply.
Sec. X405 Security for the Faithful c. Five (5)- and Ten (10)-year Special
Performance of Trust and Other Fiduciary Purpose Treasury Bonds (SPTBs) to finance
Business the CARP-related expenditures, provided
such bonds shall not be hypothecated in any
§ X405.1 Basic security deposit. A way or earmarked for any other purpose and
bank authorized to engage in trust and other they meet the three (3)-year remaining
fiduciary business shall deposit with the BSP maturity requirement toensure that such
eligible government securities as security for bonds are liquid.
the faithful performance of its trust and other d. Securities backed by the unreleased
fiduciary duties equivalent to at least one Internal Revenue Allotments (IRA) of local
percent (1%) of the book value of the total government units (issued by a Special
volume of trust, other fiduciary and Purpose Trust administered by the DBP
investment management assets: Provided, under the IRA Monetization Program of the

§§ X405.2 - X405.5
05.12.31
Union of Local Authorities of the increased or decreased by the corresponding

Philippines) the release of which IRA on discount or premium amortization.
scheduled date of payment has been The base amount for the basic security
certified by the DBM as not being subject deposit shall be the average of the month-
to any conditionalities: Provided, That such end balances of total trust, investment
securities shall be eligible only to the extent management and other fiduciary assets of
of the present value of the bond computed the immediately preceding calendar
using the original yield to maturity (as of quarter.
auction/issue date): Provided, further, That
for reserve for trust and other fiduciary § X405.4 Compliance period;
duties, the remaining maturities of the sanctions. The trustee or fiduciary shall have
securities shall not exceed three (3) years; thirty (30) banking days after the end of every
and calendar quarter within which to deposit
e. Zero Coupon Bond Issue by the with the BSP the securities required under
HGC of up to P7.0 billion five (5)-year this Section.
regular series and up to P3.0 billion seven The following sanctions shall be
(7)-year special series to finance its guaranty imposed for any deficiency in the basic
servicing of socialized and low-cost housing security deposit for the faithful performance
projects: Provided, That they meet the three of trust, investment management and other
(3)-year remaining maturity requirement to fiduciary activities:
ensure that such bonds are liquid: Provided, a. On the bank:
further, That such bonds shall qualify as (1) First offense - Penalty of P5,000 per
eligible reserve for trust and other fiduciary banking day to be reckoned from thirty (30)
duties only to the extent of the present value banking days after the end of the reference
of the bond computed using the original quarter; and
yield to maturity (as of auction/issue date). (2) Second and subsequent offenses -
f. Tobacco Excise Tax Receivable Suspension of trust license.
Monetization Program Investment b. On the Head of the Trust and Fund
Certificates (TEXTR Certificates) backed by Management Department:
receivables representing the unreleased (1) First offense - Reprimand with a
portion of the obligation of the National stern warning that subsequent violations will
Government to its LGUs for their share of be subjected to more severe sanctions; and
the Tobacco Excise Taxes under R.A. No. (2) Subsequent offenses - Suspension
7171 amounting to P1.85 billion and for ninety (90) days without pay.
covering the years 2001 and 2002: Provided, In case a bank fails to comply with the
That such securities shall be eligible only to basic security deposit, the Monetary Board
the extent of the present value of the may require the bank to desist from
securities computed using the original yield accepting new trust and other fiduciary
to maturity as of auction/issue date. accounts and from renewing expiring trust
and other fiduciary contracts.
§ X405.3 Valuation of securities and
basis of computation of the basic security § X405.5 Reserves against peso-
deposit requirement. For purposes of denominated Common Trust Funds and Trust
determining compliance with the basic and Other Fiduciary Accounts - Others
security deposit under this Section, the a. Reserves against peso-denominated
amount of securities so deposited shall be CTF s. In addition to the basic security
based on their book value, that is, cost as deposit, a bank authorized to engage in trust

§ X405.5
05.12.31
and other fiduciary business shall maintain The liquidity reserves may be held in the
reserves on: form of:
(1) peso-denominated CTF; and (i) Short-term market-yielding govern-
(2) such other managed peso funds ment securities purchased directly from the
which partake the nature of collective BSP-Treasury Department.
investment of a peso-denominated CTF as (ii) NDC Agri-Agra ERAP Bonds which
may be indicated by the presence of the are not being used as alternative compliance
following features: with P.D. No. 717. The requirement that
(a) The funds are composed of the securities used shall have a term of not
contributions from two (2) or more investors; more than one (1) year shall not apply.
(b) The funds are managed/administered (iii) Poverty Eradication and Alleviation
as a vehicle for collective investment and Certificates (PEACe) bonds only to the extent
reinvestment; of the original gross issue proceeds
(c) The trustee/administrator/agent has determined at the time of the auction, plus
the exclusive management and control over capitalized interest on the underlying zero-
the funds and the sole right at any time to coupon Treasury Notes as and when the
sell, convert, invest, exchange, transfer or corresponding interest is earned over the life
otherwise change or dispose of the assets of the bonds.
comprising the funds; and The reserves on peso-denominated CTFs
(d) Investments/contributions to, or and such other managed peso funds shall
withdrawals from, the funds are being be provided out of such funds.
allowed at anytime or as of a fixed date in b. Reserves against Trust and Other
the future, and/or the income, net of all Fiduciary Accounts (TOFA) - Others. In
expenses incurred in the management of addition to the basic security deposit, banks
the fund plus the fee of the trustee/ shall maintain reserves on TOFA-Others,
administrator/agent, are being distributed except accounts held under (1)
among the participants of the funds, Administratorship; (2) Bond Issues/Other
without the need to liquidate all assets of Obligations Under Deed of Trust or
the funds. Mortgage; (3) Custodianship and Safe-
The required reserves against peso- keeping; (4) Depository and Reorganization;
denominated CTFs and such other managed (5) Employee Benefit Plans Under Trust; (6)
peso funds which partake the nature of Escrow; (7) Personal Trust (testamentary or
collective investment of peso-denominated living trust); (8) Executorship; (9)
CTFs shall be as follows: Guardianship; (10) Life Insurance Trust; and
UBs/KBs - 10%1 (11) Pre-need Plans (institutional/individual).
TBs - 5%2 The required reserves against TOFA-
RBs - 4% Others shall be as follows:
In addition to the regular reserve UBs/KBs - 6%
requirement, the liquidity reserves against TBs - 5%
peso-denominated CTFs and such other RBs - 4%
peso funds which partake the nature of The liquidity reserve, which is in addition
collective investment of peso-denominated to the regular reserve, shall be as follows:
CTFs shall be as follows: UBs/KBs - 11%1
UBs/KBs - 11%1 TBs - 4%
TBs - 4%2 RBs - 0%
1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,
effective the reserve week starting 15 July 2005.
2 Under MAB dated 29 December 2004, regular reserve and liquidity reserve rates shall be 6% and 2%, respectively, effective
the reserve week starting 07 January 2005.

§§ X405.5 - X405.7
05.12.31
The liquidity reserve may be held in the average daily balance of said deposits to
form of: be credited quarterly.
(1) Short-term market-yielding government Effective 01 July 2003, published interest
securities purchased directly from the BSP- rates that will be applied on BSP’s Special
Treasury Department: Provided, That the Deposit Accounts of banks shall be inclusive
reserves on TOFA-Others shall be provided of the ten percent (10%) Value Added Tax
out of such funds. (VAT).
(2) NDC Agri-Agra ERAP Bonds which b. The required reserves which may
are not being used as alternative compliance be in the form of short-term market-yielding
with P.D. No. 717. The requirement that government securities shall be purchased
the securities used shall have a term of not directly from the BSP Treasury Department
more than one (1) year shall not apply. at one-half percent (½%) below the
(3) Poverty Eradication and Alleviation prevailing market rate for an equivalent term
Certificates (PEACe) bonds only to the extent and volume and subject to BSP ’s firm
of the original gross issue proceeds commitment to buy back at any time at
determined at the time of the auction, plus prevailing market rates. Such reserves in
capitalized interest on the underlying zero- the form of government securities shall be
coupon Treasury Notes as and when the in addition to other forms of eligible reserves
corresponding interest is earned over the life such as cash in vault or on deposit with
of the bonds. BSP.
All purchases of said government
§ X405.6 Composition of reserves securities shall be under the RoSS system of
a. The provisions of Sec. X254 shall the BTr. Transactions covering said
govern the composition of reserves against securities shall be recorded in accordance
peso-denominated CTFs and such other with the guidelines in Appendix 34.
managed peso funds, as well as TOFA-
Others, of banks authorized to engage in § X405.7 Computation of reserve
trust and other fiduciary business. position. A bank authorized to engage in
For purposes of this Subsection, a trust and other fiduciary business shall
special deposit account shall be maintained calculate daily the required and available
by banks with the BSP exclusively for trust reserves on the value per books of its peso-
reserves. Deposits maintained by banks denominated CTFs and such other managed
authorized to engage in trust and other peso funds, as well as on TOFA-Others,
fiduciary business with the BSP up to forty based on the seven-day week, starting Friday
percent (40%) of the required reserves and ending Thursday including Saturdays,
against peso-denominated CTFs (less the Sundays, holidays, non-banking days or days
percentage allowed to be maintained in when there is no clearing: Provided, That
the form of short-term market-yielding with reference to holidays, non-banking
government securities), as well as the days and days where there is no clearing,
required reserves on TOFA-Others (less the the reserve position at the close of banking
percentage allowed to be maintained in day immediately preceding such holidays,
the form of short-term market-yielding non-banking days or days where there is no
government securities), shall be paid clearing, shall apply. For the purpose of
interest at four and one-half percent computing reserve position, the principal
(4½%) (for UBs/KBs and TBs) and four office in the Philippines and all branches
percent (4%) (for RBs) per annum and agencies located therein shall be treated
effective 09 October 1998 based on the as a single unit.

§§ X405.7 - X406.1
05.12.31
The required reserves in the current other departments and/or businesses of the
period (reference reserve week) shall be institution.
computed based on the corresponding A bank which is also engaged in
levels of peso-denominated CTFs and such investment management activities, shall
other managed peso funds, as well as on conduct the same only through its trust
TOFA-Others of the prior week. department and the responsibilities of the
board of directors, trust committee and
§ X405.8 Reserve deficiencies; trust officer shall be construed to include
sanctions. The provisions of Sec. X257 shall the proper administration and
govern the computation of reserve management of investment management
deficiencies for peso-denominated CTFs and activities.
such other managed peso funds, as well as No bank shall undertake any of the
TOFA-Others, of banks authorized to engage trust and other fiduciary business and,
in trust and other fiduciary business, whenever applicable, investment
including the sanctions provided in said management activities outside the direct
Section. control, authority and management of the
trust department or through any
§ X405.9 Report of compliance department or office which is involved in
Every bank shall submit a report to the BSP the other businesses of the bank, such as
of its daily required and available reserves the Treasury, Funds Management or any
on peso-denominated CTFs and such other similar department, otherwise, any such
managed peso funds, as well as TOFA-Others, business shall be considered part of the
in such frequency and within the deadline bank’s real liabilities.
stated in Appendix 6. The bank proper and the trust
department may share the following
Sec. X406 Organization and Management activities: (1) electronic data processing;
(2) credit investigation; (3) collateral
§ X406.1 Organization. A bank appraisal; and (4) messengerial, janitorial
authorized to engage in trust and other and security services.
fiduciary business shall, pursuant to Subsec. b. The trust department, trust officer
X404.1, include in its by-laws, provisions on and other subordinate officers of the trust
the organization plan or structure of the department shall only be directly responsible
department, office or unit which shall to the bank’s trust committee which shall,
conduct such business. The by-laws shall in turn, be only directly responsible to the
also include provisions on the creation of a bank’s board of directors.
trust committee, the appointment of a trust No director, officer or employee taking
officer and other subordinate officers and a part in the management of trust and other
clear definition of their duties and fiduciary accounts shall perform duties in
responsibilities as well as their line and staff other departments or the audit committee
functional relationships within the of the bank and vice versa. However,
organization which shall be in accordance branch managers duly authorized by the
with the following guidelines. board of directors may, for or on behalf of
a. Trust and other fiduciary business of the trust officer, sign predrawn trust
a bank shall be carried out through a trust instruments such as CTFs.
department which shall be organizationally, c. The organization structure and
operationally, administratively and definition of duties and responsibilities of
functionally separate and distinct from the the trust committee, officers and employees

§§ X406.1 - X406.4
05.12.31
of the trust department shall reflect The board of directors shall duly note
adherence to the minimum internal control in the minutes the committee members and
standards prescribed by the BSP. designate the chairman who shall be one of
d. Provisions shall be made by the the directors referred to above.
bank to have legal assistance readily
available in the review of proposed and/or § X406.3 Qualifications of committee
existing trust and fiduciary agreements and members, officers and staff. The bank’s trust
documents and in the handling of legal and department shall be staffed by persons of
tax matters related thereto. competence, integrity and honesty.
Directors, committee members and officers
§ X406.2 Composition of trust charged with the administration of trust and
committee. The trust committee shall be other fiduciary activities shall, in addition
composed of at least five (5) members to meeting the qualification standards
including the president, the trust officer and prescribed for directors and officers of
directors who are appointed by the board banks, possess the necessary technical
of directors on a regular rotation basis and expertise in such business: Provided, That
who are not officers of the bank proper. No trust officers who shall be appointed shall
member of the audit committee, if the bank have at least two (2) years of actual
has any, shall be concurrently designated as experience or training in trust operations.
a member of the trust committee: Provided,
That in the case of a trust committee § X406.4 Responsibilities of administration
composed of more than five (5) members, a. Board of Directors. The board of
the appointment therein of an operating directors is responsible for the proper
officer may be allowed only if the required administration and management of trust and
balance in the membership of at least three other fiduciary business. Funds and
(3) members of the board for every operating properties held in trust or in any fiduciary
officer shall be maintained: Provided, further, capacity shall be administered with the skill,
That the Philippine branch of a foreign bank care, prudence and diligence necessary
may appoint its resident manager or chief under the circumstances then prevailing that
executive officer in lieu of the president a prudent man, acting in like capacity and
while the positions allotted for members of familiar with such matters, would exercise
the board may be filled up by the area in the conduct of an enterprise of like
manager and/or officers/representatives from character and with similar aims.
the Head Office who are not involved in The responsibilities of the board of
audit-related activities. directors shall include, but need not be
For purposes of this Subsection, the term limited to, the following:
officer shall include the president, executive (1) It shall determine and formulate
vice-president, general manager, corporate general policies and guidelines on the: (a)
secretary, treasurer and others mentioned as acceptance, termination, or closure of trust
officers of the bank, or those whose duties and other fiduciary accounts; (b) proper
as such are defined in the by-laws, or are administration and management of each
generally known to be officers of the bank trust and other fiduciary account; and (c)
(or any of its branches and offices other than investment, reinvestment and disposition of
the Head Office) either through funds or property held in its capacity as trustee
announcement, representation, publication or fiduciary;
or any kind of communication made by the (2) It shall direct and review the
bank. actions of the trust committee and all

§ X406.4
05.12.31
officers and employees designated to by the board of directors shall act within
manage the trust and other fiduciary the sphere of authority which may be
accounts, especially accounts without provided in the by-laws and/or as may be
specific agreements on investments or delegated by the board, such as, but not
discretionary accounts; limited to, the following:
(3) It shall approve or confirm the (1) The acceptance and closing of trust
acceptance, termination or closure of all and other fiduciary accounts;
trust and other fiduciary accounts and shall (2 The initial review of assets placed
record such in its minutes; under the trustee’s or fiduciary’s custody;
(4) Upon the acceptance of an account, (3) The investment, reinvestment and
it shall immediately review all non-cash disposition of funds or property;
assets received for management. Likewise, (4) The review and approval of
it shall make a review of the trust and/or transactions between trust and/or fiduciary
fiduciary assets at least once every twelve accounts; and
(12) months to determine the advisability of (5) The review of trust and other
retaining or disposing of such assets; fiduciary accounts at least once every
(5) It shall be responsible for taking twelve (12) months to determine the
appropriate action on the examination advisability of retaining or disposing of the
reports of supervisory agencies, internal trust or fiduciary assets, and/or whether the
and/or external auditors on the bank’s trust account is being managed in accordance
and other fiduciary business and recording with the instrument creating the trust or
such actions thereon in the minutes; other fiduciary relationship.
(6) It shall designate the members of the For this purpose, the trust committee
trust committee, the trust officer and shall meet whenever necessary and keep
subordinate officers of the trust department minutes of its actions and make periodic
and shall be responsible for requiring reports reports thereon to the board.
from said committee and officers and c. Trust Officer. The trust officer
recording its actions thereon in the minutes; designated by the board of directors as head
and of the Trust Department shall act and
(7) It shall establish an appropriate represent the bank in all trust and other
staffing pattern and adopt operating fiduciary matters within the sphere of his
budgets that shall enable the trust authority as may be provided in the by-laws
department to effectively carry out its or as may be delegated by the board. His
functions. It shall likewise be responsible responsibilities shall include, but need not
for providing the officers and staff of the be limited to, the following:
bank with appropriate training programs in (1) The administration of trust and
the administration and operation of all other fiduciary accounts;
phases of trust and other fiduciary business. (2) The implementation of policies and
The board of directors may, by action instructions of the board of directors and
duly entered in the minutes, delegate its the trust committee;
authority for the acceptance, termination, (3) The submission of reports on
closure or management of trust and other matters which require the attention of the
fiduciary accounts to the trust committee trust committee and the board of
or to the trust officer, subject to certain directors;
guidelines approved by the board. (4) The maintenance of adequate
b. Trust Committee. The trust books, records and files for each trust or
committee duly constituted and authorized other fiduciary account; and

§§ X406.4 - X407
05.12.31
(5) The maintenance of necessary d. Where there is a fixed rate or

controls and measures to protect assets under guaranty of interest, income or return in favor
his custody and held in trust or other of its client or beneficiary: Provided,
fiduciary capacity. however, That where funds are placed in
fixed income-generating investments, a
Sec. X407 Non-Trust, Non-Fiduciary and/ quotation of income expectation or like
or Non-Investment Management Activities terms, shall neither be considered as
The basic characteristic of trust, other arrangements with a fixed rate nor a
fiduciary and investment management guaranty of interest, income or return when
relationship is the absolute non-existence the agreement or indenture categorically
of a debtor-creditor relationship, thus, states in bold letters that the quoted income
there is no obligation on the part of the expectation or like terms is neither assured
trustee, fiduciary or investment manager nor guaranteed by the trustee or fiduciary
to guarantee returns on the funds or and it does not, therefore, entitle the client
properties regardless of the results of the to a fixed interest or return on his
investment. The trustee, fiduciary or investments: Provided, further, That any of
investment manager is entitled to fees/ the following practices or practices similar
commissions which shall be stipulated and and/or tantamount thereto shall be
fixed in the contract or indenture and the construed as fixing or guaranteeing the rate
trustor or principal is entitled to all the funds of interest, income or return:
or properties and earnings less fees/ (1) Issuance of certificates, side
commission, losses and other charges. Any agreements, letters of undertaking, or
agreement/arrangement that does not other similar documents providing for
conform to these shall not be considered as fixed rates or guaranteeing interest,
trust, other fiduciary and/or investment income or return;
management relationship. (2) Paying trust earnings based on
The following shall not constitute a trust, indicated or expected yield regardless of the
other fiduciary and/or investment actual investment results;
management relationship: (3) Increasing or reducing fees in order
a. When there is a preponderance of to meet a quoted or expected yield;
purpose or of intent that the arrangement (4) Entering into any arrangement,
creates or establishes a relationship other scheme or practice which results in the
than a trust, fiduciary and/or investment payment of fixed rates or yield on trust
management; investments or in the payment of the
b. When the agreement or contract is indicated or expected yield regardless of the
itself used as a certificate of indebtedness actual investment results; and
in exchange for money placement from e. Where the risk or responsibility is
clients and/or as the medium for exclusively with the trustee, fiduciary or
confirming placements and investment investment manager in case of loss in the
thereof; investment of trust, fiduciary or investment
c. When the agreement or contract management funds, when such loss is not
of an account is accepted under the due to the failure of the trustee or fiduciary
signature(s) of those other than the trust to exercise the skill, care, prudence and
officer or subordinate officer of the trust diligence required by law.
department or those authorized by the Trust, other fiduciary and investment
board of directors to represent the trust management activities involving any of the
officer; foregoing which are accepted, renewed

§§ X407 - X408.9
05.12.31
or extended after 16 October 1990 shall be d. The act or omission involves

reported as deposit substitutes and shall be entering into any contract or transaction
subject to the reserve requirement for deposit manifestly and grossly disadvantageous to
substitutes from the time of inception, the bank, whether or not the director or
without prejudice to the imposition of the officer profited or will profit thereby.
applicable sanctions provided for in Sections The list of activities which may be
36 and 37 of R.A. No. 7653. considered unsafe and unsound is shown
in Appendix 48.
Sec. X408 Unsafe and Unsound Practices In line with the statement of principles
Whether a particular activity may be governing trust and other fiduciary business
considered as conducting business in an under Sec. X401, the trustee, fiduciary or
unsafe or unsound manner all relevant investment manager shall desist from the
facts must be considered. An analysis of following unsound practices:
the impact thereof on the bank’s a. Entering in an arrangement
operations and financial conditions must whereby the client is at the same time the
be undertaken, including evaluation of borrower of his own fund placement, or
capital position, asset condition, whereby the trustor or principal is a
management, earnings posture and borrower of other trust, fiduciary or
liquidity position. investment management funds belonging
In determining whether a particular act to the same family or business group of
or omission, which is not otherwise such trustor or principal;
prohibited by any law, rule or regulation b. Granting loans or accommodations
affecting banks, may be deemed as to any trust committee member, officer
conducting business in an unsafe or and employee of the trust department
unsound manner, the Monetary Board, except where such loans are obtained by
upon report of the head of the supervising said persons as members of an employee
or examining department based on benefit fund of the trustee’s own
findings in an examination or a complaint, institution;
shall consider any of the following c. Borrowing from, or selling trust,
circumstances: other fiduciary and/or investment
a. The act or omission has resulted or management assets to, the bank proper to
may result in material loss or damage, or cover portfolio losses and/or to guarantee
abnormal risk or danger to the safety, the return of principal or income;
stability, liquidity or solvency of the bank; d. Granting new loans to any borrower
b. The act or omission has resulted or who has a past due and/or classified loan
may result in material loss or damage or account with the bank proper or the trust
abnormal risk to the bank’s depositors, department; and
creditors, investors, stockholders or to the e. Requiring clients to sign documents
BSP or to the public in general; in blank.
c. The act or omission has caused
any undue injury, or has given §§ X408.1 – X408.8 (Reserved)
unwarranted benefits, advantage or
preference to the bank or any party in the § X408.9 Sanctions. The Monetary
discharge by the director or officer of his Board may, at its discretion and based on
duties and responsibilities through the seriousness and materiality of the acts
manifest partiality, evident bad faith or or omissions, impose any or all of the
gross inexcusable negligence; or following sanctions provided under

§§ X408.9 - X409.1
05.12.31
Section 37 of R.A. No. 7653 and Section § X409.1 Minimum documentary

56 of R.A. No. 8791, whenever a bank requirements. Each trust or fiduciary
conducts business in an unsafe and account shall be covered by a written
unsound manner: document establishing such account, as
a. Issue an order requiring the bank to follows:
cease and desist from conducting a. In the case of accounts created by
businessin an unsafe and unsound manner an order of the court or other competent
and may further order that immediate action authority, the written order of said court or
be taken to correct the conditions resulting authority.
from such unsafe or unsound practice; b. In the case of accounts created by
b. Fines in amounts as may be corporations, business firms, organizations
determined by the Monetary Board to be or institutions, the voluntary written
appropriate, but in no case to exceed agreement or indenture entered into by the
P30,000 a day on a per transaction basis parties, accompanied by a copy of the board
taking into consideration the attendant resolution or other evidence authorizing the
circumstances, such as the gravity of the establishment of, and designating the
act or omission and the size of the bank, to signatories to, the trust or other fiduciary
be imposed on the bank, their directors and/ account.
or responsible officers; c. In the case of accounts created by
c. Suspension of interbank clearing individuals, the voluntary written agreement
privileges/immediate exclusion from clearing; or indenture entered into by the parties.
d. Suspension of rediscounting The voluntary written agreement or
privileges or access to BSP credit facilities; indenture shall include the following
e. Suspension of lending or foreign minimum provisions:
exchange operations or authority to accept (1) Title or nature of contractual
new deposits or make new investments; agreement in noticeable print;
f. Suspension of responsible directors (2) Legal capacities, in noticeable print,
and/or officers; of parties sought to be covered;
g. Revocation of quasi-banking (3) Purposes and objectives;
license; and/or (4) Funds and/or properties subject of
h. Receivership and liquidation under the arrangement;
Section 30 of R.A. No. 7653. (5) Distribution of the funds and/or
All other provisions of Sections 30 and properties;
37 of R.A. No. 7653, whenever appropriate, (6) Duties and powers of trustee or
shall also be applicable on the conduct fiduciary;
of business in an unsafe or unsound (7) Liabilities of the trustee or fiduciary;
manner. (8) Reports to the client;
The imposition of the above sanctions (9) Termination of contractual
is without prejudice to the filing of arrangement and, in appropriate cases,
appropriate criminal charges against provision for successor-trustee or fiduciary;
culpable persons as provided in Sections (10) The amount or rate of the
34, 35 and 36 of R.A. No. 7653. compensation of trustee or fiduciary;
(11) A statement in noticeable print to
Sec. X409 Trust and Other Fiduciary the effect that trust and other fiduciary
Business. The conduct of trust and other business are not covered by the PDIC and
fiduciary business shall be subject to the that losses, if any, shall be for the account
following regulations. of the client; and

§§ X409.1 - X409.3
05.12.31
(12) Disclosure requirements for (3) Amount involved; and

transactions requiring prior authority and/ (4) Collateral security(ies), if any.
or specific written investment directive from
the client, court of competent jurisdiction § X409.3 Transactions requiring prior
or other competent authority. authority. A trustee or fiduciary shall not
undertake any of the following transactions
§ X409.2 Lending and investment for the account of a client, unless prior to its
disposition. Assets received in trust or in execution, such transaction has been fully
other fiduciary capacity shall be disclosed and specifically authorized in
administered in accordance with the terms writing by the client, beneficiary, other party-
of the instrument creating the trust or other in-interest, court of competent jurisdiction
fiduciary relationship. or other competent authority:
When a trustee or fiduciary is granted a. Lend, sell, transfer or assign money
discretionary powers in the investment or property to any of the departments,
disposition of trust or other fiduciary funds directors, officers, stockholders or
and unless otherwise specifically employees of the trustee or fiduciary, or
enumerated in the agreement or indenture relatives within the first degree of
and directed in writing by the client, court consanguinity or affinity, or the related
of competent jurisdiction or other competent interest of such directors, officers and
authority, loans and investments of the fund stockholders; or to any corporation where
shall be limited to: the trustee or fiduciary owns at least fifty
a. Evidences of indebtedness of the percent (50%) of the subscribed capital or
Republic of the Philippines and of the BSP, voting stock in its own right and not as
and any other evidences of indebtedness or trustee nor in a representative capacity;
obligations the servicing and repayment of b. Purchase or acquire property or debt
which are fully guaranteed by the Republic instruments from any of the departments,
of the Philippines or loans against such directors, officers, stockholders, or
government securities; employees of the trustee or fiduciary, or
b. Loans fully guaranteed by the relatives within the first degree of
Republic of the Philippines as to the payment consanguinity or affinity, or the related
of principal and interest; interest of such directors, officers and
c. Loans fully secured by a hold-out stockholders; or from any corporation where
on, assignment or pledge of deposits the trustee or fiduciary owns at least fifty
maintained either with the bank proper or percent (50%) of the subscribed capital or
other banks, or of deposit substitutes of the voting stock in its own right and not as
bank, or of mortgage and chattel mortgage trustee nor in a representative capacity;
bonds issued by the trustee or fiduciary; and c. Invest in equities of, or in securities
d. Loans fully secured by real estate underwritten by, the trustee or fiduciary or
or chattels in accordance with Section 78 a corporation in which the trustee or
of R.A. No. 337, as amended, and subject fiduciary owns at least fifty percent (50%)
to the requirements of Sections 75, 76, and of the subscribed capital or voting stock in
77 of R.A. No. 337, as amended. its own right and not as trustee nor in a
The specific directives required under representative capacity; and
this Subsection shall consist of the following d. Sell, transfer, assign, or lend
information: money or property from one trust or
(1) The transaction to be entered into; fiduciary account to another trust or
(2) The borrower’s name; fiduciary account except where the

§§ X409.3 - X409.8
05.12.31
investment is in any of those enumerated a. Requirements of Sections 76 and 77

in Items a to d of Subsec. X409.2. of R.A. No. 337, as amended;
Directors, officers, stockholders, and b. Provisions of Section 4(e) of the New
their related interests covered by this Rules on Registration of Short-Term
Subsection shall be those considered as such Commercial Papers and Section 7(f) of the
under existing regulations on loans to DOSRI New Rules on Registration of Long-Term
in Part III - E of this Manual. The procedural Commercial Papers issued by the SEC
and reportorial requirements in said (Appendices 13 and 14).
regulations shall also apply. c. Criteria for past due accounts; and
The disclosure required under this d. Qualitative appraisal of loans,
Subsection shall consist of the following investments and other assets that may
minimum information: require provision for probable losses which
(1) The transactions to be entered into; shall be booked in accordance with the
(2) Identities of the parties involved in Manual of Accounts for Trust and Other
the transactions and their relationships (shall Fiduciary Business and Investment
not apply to Item "d" of this Subsection); Management Activities.
(3) Amount involved; and
(4) Collateral security(ies), if any. § X409.7 Operating and accounting
The above information shall be made methodology. Trust and other fiduciary
known to clients in a separate instrument or accounts shall be operated and accounted
in the very instrument creating the trust or for in accordance with the following:
fiduciary relationship. a. The trustee or fiduciary shall
administer, hold or manage the fund or
§ X409.4 Ceilings on loans. Loans property in accordance with the instrument
funded by trust accounts shall be subject to creating the trust or other fiduciary
the SBL and DOSRI ceilings imposed on banks relationship; and
under Secs. X303, X330 and X331. For b. Funds or property of each client
purposes of determining compliance with shall be accounted separately and distinctly
said ceilings, the total amount of said loans from those of other clients herein referred
granted by the trust department and the bank to as individual account accounting.
to the same person, firm or corporation shall
be combined. § X409.8 Tax-exempt individual trust
accounts. The following shall be the
§ X409.5 Funds awaiting investment or features/requirements of individual trust
distribution. Funds held by the trustee or accounts which may be exempted from the
fiduciary awaiting investment or distribution twenty percent (20%) final tax under Section
shall not be held uninvested or undistributed 24(B)(1) of R.A. No. 8424 (The Tax Reform
any longer than is reasonable for the proper Act of 1997):
management of the account. a. The tax exemption shall apply to
trust indentures/agreements contracted on
§ X409.6 Other applicable regulations or after 03 January 2000;
on loans and investments. The loans and b. The trust indenture/agreement shall
investments of trust and other fiduciary only be between individuals who are Filipino
accounts shall be subject to pertinent laws, citizens or resident aliens and banks acting
rules and regulations for banks that shall as trustee. The trust indenture/agreement
include but need not be limited to the shall be non-negotiable and non-
following: transferable;

§§ X409.8 - X409.16
05.12.31
c. The trust indenture/agreement shall §§ X409.9 - X409.15 (Reserved)

indicate that pursuant to Section 24(B)(1) of
R.A. No. 8424, interest income of the trust § X409.16 Qualification and
fund derived from investments in interest- accreditation of private banks acting as
bearing instruments (e.g., time deposits, trustee on any mortgage or bond issuance
government securities, loans and other debt by any municipality, government-owned or
instruments) which are otherwise subject to controlled corporation, or any body politic
the twenty percent (20%) final tax shall be a. Applicability. Private banks duly
exempt from said final tax provided the fund accredited by the BSP may act as trustee on
was held by the trustee-bank for at least five any mortgage or bond issued by any
(5) years. If said fund was held for a period municipality, government-owned or
less than five (5) years, interest income shall controlled corporation, or any body politic.
be subject to a final tax based on the b. Application for accreditation. A
following schedule – private bank desiring to act as trustee on
any mortgage or bond issued by any
Holding Period Rate of Tax municipality, government-owned or
Four (4) years to less than five (5) years 5% controlled corporation, or any body politic
Three (3) years to less than four (4) years 12% shall file an application for accreditation with
Less than three (3) years 20% the appropriate supervising and examining
department of SES. The application shall be
Necessarily, the trust indenture/ signed by the president or officer of
agreement shall clearly indicate the date equivalent rank of the bank and shall be
when the trustee-bank actually received the accompanied by the following documents:
trust funds which shall serve as basis for (1) certified true copy of the resolution
determining the holding period of the funds. of the institution’s board of directors
d. A trustee may accept additional authorizing the application;
funds for inclusion in trust accounts which (2) a certification signed by the
have been established as tax-exempt under president or officer of equivalent rank that
R.A. No. 8424. However, the receipt of the institution has complied with all the
additional funds shall be properly qualification requirements for accreditation.
documented by indicating that they are part c. Qualification requirements. A bank
of existing tax-exempt trust accounts and applying for accreditation to act as trustee
that the interest income of the additional on any mortgage or bond issued by any
funds derived from investments in interest- municipality, government-owned or
bearing instruments shall be exempt from controlled corporation, or any body politic
the twenty percent (20%) final tax under the must comply with the requirements in
same conditions mentioned in the preceding Appendix 5b.
item. The document shall also indicate the d. Independence of the trustee. A bank
date when the funds were received by the is prohibited from acting as trustee of a
trustee-bank to serve as basis for mortgage or bond issuance if any elective
determining the minimum five (5)-year or appointive official of the LGU,
holding period for tax exemption purposes government-owned or controlled
of the additional funds; and corporation, or body politic which issued
e. Tax-exempt individual trust said mortgage or bond and/or his related
accounts established under this Subsection interests own such number of shares of the
shall be subject to the provisions of Subsecs. bank that will allow him or his related
X409.1(c) and X409.2 up to X409.7. interests to elect at least one (1) member of

§ X409.16
05.12.31
the board of directors of such bank or is SES a waiver of the confidentiality of

directly or indirectly the registered or information under Sections 2 and 3 of R.A.
beneficial owner of more than ten percent No. 1405, as amended, duly executed by
(10%) of any class of its equity security. the issuer of the mortgage or bond in favor
e. Investment and management of the of the BSP.
funds. A domestic bank designated as g. Reportorial requirements. A bank
trustee of a mortgage or bond issuance may authorized by the BSP to act as trustee of
hold and manage, in accordance with the the proceeds of mortgage or bond issuance
provisions of the trust indenture or of a municipality, government-owned or
agreement, the proceeds of the mortgage or controlled corporation, or body politic shall
bond issuance and such assets and funds of comply with reportorial requirements that
the issuing municipality, corporation, or may be prescribed by the BSP.
body politic as may be required to be h. Applicability of the rules and
delivered to the trustee under the trust Regulations on Trust, Other Fiduciary
indenture/agreement, subject to the Business and Investment Management
following conditions/restrictions: Activities. The provisions of the Rules and
(1) Pending the utilization of such funds Regulations on Trust, Other Fiduciary
pursuant to the provisions of the trust Business and Investment Management
indenture/agreement, the same shall only be Activities not inconsistent with the
deposited in any bank, other than the trustee/ provisions of this Subsection shall form part
bank proper, its subsidiary or affiliate of these rules.
authorized to accept deposits from the i. Sanctions. Without prejudice to the
Government or government entities, or penal and administrative sanctions provided
invested in peso-denominated treasury bills for under Sections 36 and 37, respectively,
acquired/purchased from any securities of the R.A. No. 7653, violation of any
dealer/entity, other than the trustee or any provision of this Subsection shall be subject
of its unit/department, its subsidiary or affiliate. to the following sanctions/penalties
(2) Investments of funds constituting or depending on the gravity of the offense:
forming part of the sinking fund created as (1) First offense –
the primary source for the payment of the (a) Fine of up to P10,000 a day for the
principal and interests due the mortgage or institution for each violation reckoned from
bonds shall also be limited to deposits in the date the violation was committed up to
any bank, other than the trustee/bank proper, the date it was corrected; and
its subsidiary or affiliate, authorized to (b) Reprimand for the directors/officers
accept deposits from the Government or responsible for the violation.
government entities and investments in (2) Second offense –
government securities that are consistent (a) Fine of up to P20,000 a day for the
with such purpose which must be acquired/ institution for each violation reckoned from
purchased from any securities dealer/entity, the date the violation was committed up to
other than the trustee or any of its unit/ the date it was corrected;
department, its subsidiary or affiliate. (b) Suspension for ninety (90) days
f. Waiver of confidentiality. A bank without pay for directors/officers
designated as trustee of any mortgage or responsible for the violation; and
bond issued by any municipality, government- (c) Revocation of the authority to act as
owned or controlled corporation, or any body trustees on any mortgage or bond issuance
politic shall submit to the appropriate by any municipality, government-owned or -
supervising and examining department of controlled corporations, or body politic.

§§ X409.16 - X410.5
05.12.31
(3) Subsequent offense – § X410.2 Establishment of a Unit

(a) Fine of up to P30,000 a day for the Investment Trust Fund. Any trust entity
institution for each violation reckoned from authorized to perform trust functions may
the date the violation was committed up to establish, administer and maintain one (1)
the date it was corrected; or more UIT Funds subject to applicable
(b) Suspension or revocation of the trust provisions under this Section.
license;
(c) Suspension for one hundred twenty § X410.3 Administration of a Unit
(120) days without pay of the directors/ Investment Trust Fund. The trustee shall
officers responsible for the violation. have exclusive management and control of
each UIT Fund under its administration, and
Sec. X410 Unit Investment Trust Funds/ the sole right at any time to sell, convert,
Common Trust Funds.1 The following rules reinvest, exchange, transfer or otherwise
and regulations shall govern the creation, change or dispose of the assets comprising
administration and investment/s of Unit the fund: Provided, That no participant in a
Investment Trust (UIT) Funds. UIT Fund shall have or be deemed to have
The rules and regulations on Common any ownership or interest in any particular
Trust Funds (CTFs) are in Appendix 60. account or investment in the UIT Fund but
shall have only its proportionate beneficial
§ X410.1 Definitions interest in the fund as a whole.
a. Unit Investment Trust Funds. Unit
Investment Trust Funds are open-ended § X410.4 Relationship of trustee with
pooled trust funds denominated in pesos or Unit Investment Trust Fund. A trustee
any acceptable currency, which are operated administering a UIT Fund shall not have any
and administered by a trust entity and made other relationship with such fund other than
available by participation. The term Unit its capacity as trustee of the UIT Fund:
Investment Trust Funds is synonymous to Provided, however, That a trustee which
CTFs. As an open-ended fund, participation simultaneously administers other trust,
or redemption is allowed as often as stated fiduciary or investment management funds
in its plan rules. may invest such funds in the trustee’s UIT
UIT Funds shall not include long term Fund, if allowed under a policy approved
funds designed for the primary purpose of by the board of directors.
availing the tax incentives/exemption under
Section 24(B)(1) of R.A. No. 8424 (The Tax § X410.5 Operating and accounting
Reform Act of 1997). methodology. A UIT Fund shall be operated
b. Trust entity. Any bank, IH or a stock and accounted for in accordance with the
corporation duly authorized by the following:
Monetary Board to engage in trust, a. The total assets and accountabilities
investment management and fiduciary of each fund shall be accounted for as a
business. single account referred to as pooled-fund
c. Board of directors. For this purpose, accounting method.
the term shall include a trust entity’s duly b. Contributions to each fund by
constituted board of directors or its clients shall always be through
functional oversight equivalent which shall participation in units of the fund and each
include the country head in the case of unit shall have uniform rights or privileges,
foreign banks. as any other unit.
1
The regulations on common trust funds (CTFs) were relocated to Appendix 60. UIT Funds regulations took effect on
01 October 2004 (effectivity of Circular 447 dated 03 September 2004).

§§ X410.5 - X410.6
05.12.31
c. All such participations shall be d. The unitized NAVPu valuation

pooled and invested as one (1) account methodology as prescribed under Subsec.
(referred to as collective investments). X410.5.d shall be employed.
d. The beneficial interest of each e. Terms and conditions governing the
participation unit shall be determined under admission or redemption of units of
a unitized net asset value per unit (NAVPu) participation in the fund. If the frequency of
valuation methodology defined in the admission or redemption is other than daily;
written plan of the UIT Fund, and no that is, any business day, the same should
participation shall be admitted to, or be explicitly stated in the Plan rules:
redeemed from, the fund except on the basis Provided, That the admission and
of such valuation. To arrive at a fund’s redemption prices shall be based on the
NAVPu, the fund’s total Net Assets is prevailing market value of underlying
divided by the total outstanding units. Total investments at that time.
Net Assets is a summation of the market f. Aside from the regular audit
value of each investment less fees, taxes, requirement applicable to all trust accounts,
and other qualified expenses, as defined an external audit of each UIT Fund shall be
under the plan rules. conducted annually by an independent
auditor acceptable to the BSP and the results
§ X410.6 Plan rules. Each UIT Fund thereof made available to participants. The
shall be established, administered and external audit shall be conducted by the same
maintained in accordance with a written external auditor engaged for the audit of the
trust agreement drawn by the trustee, trust entity.
referred to as the “plan” which shall be g. Basis upon which the fund may be
approved by the board of directors of the terminated. The Plan shall state the rights of
trustee and a copy of which shall be participants in case of termination of the
submitted to the BSP for approval prior to fund. Termination of the fund shall be duly
its implementation. approved by the trustee’s board of directors
The Plan shall contain the following and a copy of the resolution submitted to
minimum elements: the appropriate department of the BSP.
a. Title of the plan. This shall h. Liability clause of the trustee. There
correspond to the product/brand name by must be clear and prominent statement
which the UIT Fund is proposed to be adjacent to where a client is required to sign
known and made available to its clients. that contract is not a deposit account but a
b. Manner in which the fund is to be trust agreement and that any loss/income is
operated. A statement of the fund’s for the account of the participant; that the
investment objectives and policies trustee is not liable for losses unless upon
including limitations, if any. willful default; and that the fund is not
c. Investment powers of the trustee insured by the PDIC;
with respect to the fund, including the i. Amount of fees/commission and
character and kind of investments, which other charges to be deducted from the fund.
may be purchased, by the fund. There must The amount of fees that shall be charged to
be an unequivocal statement of the full a fund shall cover the fund’s fair and
discretionary powers of the trustee as far equitable share of the routine administrative
as the fund’s investments are concerned. expenses of the trustee such as salaries and
These powers shall be limited only by the wages, stationery and supplies, credit
duly stated investment objective and investigation, collateral appraisal, security,
policies of the fund. messengerial and janitorial services, EDP

§§ X410.6 - X410.7
05.12.31
expenses, BSP supervision fees and internal investment outlets shall be made available
audit fees. However, the trustee may charge by the trustee for the review of all UIT Fund
a UIT Fund for special expenses if such is clients. Such disclosure shall be substantially
necessary to preserve or enhance the value of in the form as shown in Appendix 62. The
the Fund. Such special expense shall be list of investment outlets shall be updated
payable to a third party covered by a separate quarterly.
contract and disclosed to participants. No b. Distribution of investment units.
other fees shall be charged to the fund. The trustee may issue such conditions or
Marketing or other promotional related rules, as may affect the distribution of
expenses shall be for the account of the investment units subject to the minimum
trustee and shall be presumed covered by conditions enumerated hereunder.
the trust fee. (1) Marketing materials. All printed
j. Such other matters as may be marketing materials related to the sale of a
necessary or proper to define clearly the UIT Fund shall clearly state:
rights of participants in the UIT Fund. The (a) The designated name of the fund and
provisions of the plan shall govern the fund’s trustee.
participation in the fund including the rights (b) The participation is not a “deposit
and benefits of persons having interest in account” but a trust product; and that any
such participation, as beneficiaries or loss/income is for the account of the
otherwise. The Plan may be amended by a participant; that the bank is not liable for
resolution of the board of directors of the losses unless proven to be negligent.
trustee: Provided, however, That participants (c) The participation does not carry any
in the fund shall be immediately notified of guaranteed rate of return and it is not insured
such amendments and shall be allowed to by the PDIC.
withdraw their participations within a (d) Minimum information regarding:
reasonable time but in no case less than (i) The general investment policy and
thirty (30) calendar days after the applicable risk profile.
amendments are approved, if they are not (ii) Particulars or administrative and
in conformity with the amendments made marketing details like pricing and cut-off
thereto: Provided further, That amendments time.
to the plan shall be submitted to the BSP (iii) All charges made/to be made against
within ten (10) business days from approval the fund, including trust fees, other related
of the amendments by the board of charges.
directors. The amendments shall be deemed (iv) The availability of the plan rules
approved after thirty (30) business days from governing the Fund, upon the client’s
date of completion of requirements. request.
A copy of the Plan shall be available at (v) Customer and product suitability
the principal office of the trustee during standards.
regular office hours, for inspection by any (2) Evidence of participation. Every UIT
person having an interest in the fund or by Fund participant shall be given -
his authorized representative. Upon request, (a) A participating trust agreement.
a copy of the plan shall be furnished such Such agreement shall clearly indicate that
interested person. the trust product does not have any
guaranteed rate of return and it is not insured
§ X410.7 Minimum disclosure with the PDIC.
requirements (b) A confirmation of participation and
a. Disclosure of UIT Fund investments. redemption made to/from the Fund that shall
A list of prospective and outstanding contain the following information:

§§ X410.7 - X410.9
05.12.31
(i) NAVPu of the fund on day of minimum training program guidelines

purchase/redemption; provided by the Trust Officers Association
(ii) Number of units purchased/ of the Philippines (TOAP). Such training
redeemed; and program shall however be regularly
(iii) Absolute peso or foreign currency validated by TOAP.
value.
No indicative rates of return shall be § X410.8 Exposure limit to single
provided in the trust participating agreement. person/entity. The combined exposure of
Marketing materials may present relevant the UIT Fund to any entity and its related
historical performance purely for reference parties shall not exceed fifteen percent
and with clear indication that past results (15%) of the market value of the UIT Fund:
do not guarantee similar future results. Provided, That, this limitation shall not
(3) A participating trust agreement or apply to non-risk assets as defined by the
confirmation of contribution/re-demption BSP
need not be manually signed by the trustee In case the limit is breached due to the
or his authorized representative if the same marking-to-market of certain investment/s
is in the form of an electronic document that or any extraordinary circumstances, e.g.
conforms with the implementing rules and abnormal redemptions which are beyond
regulations of R.A. No. 8792, otherwise the control of the trustee, the trustee shall
known as the Electronic Commerce Act. be given thirty (30) days from the time the
c. Regular publication/computation/ limit is breached to correct the same.
availability of the fund’s NAVPu. Trust
entities managing a UIT Fund shall cause at § X410.9 Allowable investments and
least the weekly publication of the NAVPu valuation. UIT Fund investments shall be
of such fund in one (1) or more newspaper limited to bank deposits and the following
of national circulation: Provided, That a financial instruments:
pooled weekly publication of such NAVPu (a) Securities issued by or guaranteed
shall be considered as substantial by the Philippine government, or the BSP;
compliance with this requirement. The said (b) Tradable securities issued by the
publication, at the minimum, shall clearly government of a foreign country, any
state the name of the fund, its general political subdivision of a foreign country
classification, the fund’s NAVPu and the or any supranational entity;
moving return on investment (ROI) of the (c) Exchange-listed securities;
fund on a year-to-date (YTD) and year-on- (d) Marketable instruments that are
year (YOY) basis. traded in an organized exchange;
NAVPu shall be computed daily and (e) Loans traded in an organized
shall be made available to participants and market; and
prospective participants upon request. (f) Such other tradable investments
d. Marketing personnel. To ensure the outlets/categories as the BSP may allow:
competence and integrity of all duly Provided, That a financial instrument
designated UIT marketing personnel, all is regarded as tradable if quoted two-way
personnel involved in the sales of these funds prices are readily and regularly available
shall be required to undergo standardized from an exchange, dealer, broker, industry
training program in accordance with the group, pricing service or regulatory agency,
guidelines of this Subsection. This training and those prices represent actual and
program may be conducted by their respective regularly occurring market transactions on
trust entities in accordance with the an arm’s length basis.

§§ X410.9 - X410.14
05.12.31
The UIT Fund may avail itself of be done and all differences resolved
financial derivatives instruments solely for within the day.
the purpose of hedging risk exposures of the b. Custody of securities. Investments in
existing investments of the Fund, provided securities of a UIT Fund shall be held for
these are accounted for in accordance with safekeeping by BSP accredited third party
existing BSP hedging guidelines as well as custodians which shall perform independent
the trust entity’s risk management and marking-to-market of such securities.
hedging policies duly approved by the Trust
Committee and disclosed to participants. § X410.12 Counterparties
The use of hedging instruments shall a. Dealings with related interests/bank
also be disclosed in the “Plan” as provided proper/holding company/subsidiaries/
in Item “c” of Subsec. X410.6 and specified affiliates and related companies. A trustee
in the quarterly “list of investment outlets” of a UIT Fund shall be transparent at all
as provided in Item “a” of Subsec. X410.7. times and maintain an audit trail for all
transactions with related parties or entities.
§ X410.10 Other related guidelines on The trustee shall observe the principle of
valuation of allowable investments best execution and no purchase/sale shall
a. In pricing debt securities, be made with related counterparties without
interpolated yields shall be used for considering at least two (2) competitive
securities with odd or off-the-run tenors quotes from other sources.
using the straight-line basis and generally b. Accreditation of counterparties. The
accepted market convention. Fund shall only invest with approved
b. In case outstanding UIT Fund counterparties qualified in accordance with
investments may deteriorate in quality, i.e., the policy duly approved by the Trust
no longer tradable as defined under Subsec. Committee. Counterparties shall be subject
X410.9, the trustee shall immediately to appropriate limits in accordance with
provision to reflect fair value in accordance sound risk management principles.
with generally accepted accounting
principles or as may be prescribed by the § X410.13 Foreign currency-
BSP. If no fair value is available, the denominated Unit Investment Trust Funds
instrument shall be assumed to be of no UIT Fund denominated in any acceptable
market value. foreign currency provided under existing
BSP rules and regulations may be
§ X410.11 Unit Investment Trust Fund established. Such fund may only be invested
administration support in allowable investments denominated in
a. Backroom operations. Administrative pesos or any acceptable foreign currency as
rules on backroom under Sec. X421 shall expressly allowed under the fund’s plan rules
be applicable to UIT Fund. Adequate and properly disclosed to fund participants.
systems to support the daily marking-to-
market of the fund’s financial instruments § X410.14 Exemptions from statutory
shall be in place at all times. In this and liquidity reserves, single borrower's
respect, a daily reconcilement of the limit, DOSRI. The provisions on reserves,
fund’s resultant marked-to-market value single borrower’s limit and DOSRI ceilings
with the unrealized market losses and under Subsec. X405.5, and Secs. X303,
gains (respective contra asset balance) X330 and X331, respectively, applicable to
versus the book value of the fund for trust funds in general shall not be made
investments in financial instruments shall applicable to UIT Funds.

§§ X411 - X411.3
05.12.31
Sec. X411 Investment Management can fall as well as rise depending on

Activities. The conduct of investment prevailing market conditions; and
management activities shall be subject to the (c) The investment management
following regulations. agreement is not covered by the PDIC and
that losses, if any, shall be for the account
§ X411.1 Minimum documentary of the client;
requirements. An investment management (7) Duties and powers of the
account shall be covered by a written investment manager;
document establishing such account, as (8) Liabilities of the investment
follows: manager;
a. In the case of accounts created by (9) Reports to the client;
corporations, business firms, organizations (10) The amount or rate of the
or institutions, the voluntary written compensation of the investment manager;
agreement or indenture entered into by the (11) Terms and conditions governing
parties, accompanied by a copy of the board withdrawals from the account;
resolution or other evidence authorizing the (12) Termination of contractual
establishment of and designating the arrangement; and
signatories to, the investment management (13) Disclosure requirements for
account. transactions requiring prior authority and/
b. In the case of accounts created by or specific written investment directives
individuals, the voluntary written agreement from the client.
or indenture entered into by the parties. A sample investment management
The voluntary written agreement or agreement which conforms to the foregoing
contract shall include the following requirements is shown as Appendix 24.
minimum provisions:
(1) Pre-numbered contractual agreement § X411.2 Minimum size of each
form; investment management account. No
(2) Title or nature of contractual investment management account shall be
agreement in noticeable print; accepted or maintained for an amount less
(3) Legal capacities, in noticeable print, than P1.0 million. An investment
of parties sought to be covered; management account reduced to less than
(4) Purposes and objectives; P1.0 million due to investment losses shall
(5) The initial amount of funds and/or be exempt from this requirement.
value of securities subject of the arrangement
delivered to the investment manager; § X411.3 Commingling of funds. Two
(6) Statement in underlined noticeable (2) or more individual investment
print that: management accounts shall not be
(a) The agreement is an agency and not commingled except for the purpose of
a trust agreement. As such, the client shall investing in government securities or in duly
at all times retain legal title to funds and registered commercial papers: Provided,
properties subject of the arrangement; That the participation of each of the
(b) The arrangement does not guaranty aforementioned accounts in the commingled
a yield, return or income by the investment account shall not be less than P1.0 million:
manager. As such, past performance of the Provided, further, That such commingling
account is not a guaranty of future has been duly disclosed and specifically
performance and the income of investments agreed in writing by the clients.

§§ X411.4 - X411.5
05.12.31
§ X411.4 Lending and investment for the account of a client, unless prior to
disposition. Assets received in investment its execution, such transaction has been fully
management capacity shall be administered disclosed and specifically authorized in
in accordance with the terms of the writing by the client:
instrument creating the investment a. Lend, sell, transfer or assign money
management relationship. or property to any of the departments,
When an investment manager is granted directors, officers, stockholders, or employees
discretionary powers in the investment of the investment manager, or relatives
disposition of investment management within the first degree of consanguinity or
funds and unless otherwise specifically affinity, or the related interests of such
enumerated in the agreement or indenture directors, officers and stockholders; or to
and directed in writing by the client, loans any corporation where the investment
and investments of the fund shall be limited manager owns at least fifty percent (50%)
to: of the subscribed capital or voting stock in
a. Evidences of indebtedness of the its own right and not as trustee nor in a
Republic of the Philippines and of the BSP, representative capacity;
and any other evidences of indebtedness or b. Purchase or acquire property or debt
obligations the servicing and repayment of instruments from any of the departments,
which are fully guaranteed by the Republic directors, officers, stockholders, or
of the Philippines or loans against such employees of the investment manager, or
government securities; relatives within the first degree of
b. Loans fully guaranteed by the consanguinity or affinity, or the related
Republic of the Philippines as to the interests of such directors, officers and
payment of principal and interest; stockholders; or from any corporation
c. Loans fully secured by a hold-out where the investment manager owns at least
on, assignment or pledge of deposits fifty percent (50%) of the subscribed capital
maintained either with the bank proper or or voting stock in its own right and not as
other banks, or of deposit substitutes of the trustee nor in a representative capacity;
bank, or mortgage and chattel mortgage c. Invest in equities of, or in securities
bonds issued by the investment manager; underwritten by, the investment manager or
and a corporation in which the investment
d. Loans fully secured by real estate or manager owns at least fifty percent (50%)
chattels in accordance with Sections 37 and of the subscribed capital or voting stock in
38 of R.A. No. 8791, and subject to the its own right and not as trustee nor in a
requirements of Sections 39 and 40 of R.A. representative capacity; and
No. 8791. d. Sell, transfer, assign or lend money
The specific directives required under or property from one trust, fiduciary or
this Subsection shall consist of the following investment management account to another
information: trust, fiduciary or investment management
(1) The transaction to be entered into; account except where the investment is in
(2) Borrower’s name; any of those enumerated in Items "a" to "d"
(3) Amount involved; and of Subsec. X411.4.
(4) Collateral security(ies), if any. Directors, officers, stockholders, and
their related interests covered by this
§ X411.5 Transactions requiring prior Subsection shall be those considered as
authority. An investment manager shall not such under existing regulations on loans to
undertake any of the following transactions DOSRI in Part III-E of this Manual. The

§§ X411.5 - X411.9
05.12.31
procedural and reportorial requirements in b. Funds or property of each client

said regulations shall also apply. shall be accounted separately and distinctly
The disclosure required under this from those of other clients herein referred
Subsection shall consist of the following to as individual account accounting.
minimum information:
(1) The transaction to be entered into; § X411.9 Tax-exempt individual
(2) Identities of the parties involved in the investment management accounts. The
transaction and their relationships (shall not following shall be the features/requirements
apply to Item "d" of this Subsection); of investment management accounts of
(3) Amount involved; and individuals which may be exempted from
(4) Collateral security(ies), if any. the twenty percent (20%) final tax under
The above information shall be made Section 24(B)(1) of R.A. No. 8424 (The Tax
known to clients in a separate instrument or Reform Act of 1997):
in the very instrument creating the a. The tax exemption shall apply to
investment management relationship. investment management agreements
contracted on or after 03 January 2000;
§ X411.6 Title to securities and other b. The investment management
properties. Securities such as promissory agreement shall only be between individuals
notes, shares of stocks, bonds and other who are Filipino citizens or resident aliens and
properties of the portfolio shall be issued or investment manager-banks. The agreement
registered in the name of the principal or of shall be non-negotiable and non-transferable;
the investment manager: Provided, That in c. The minimum amount of investment
case of the latter, the instrument shall indicate for an investment management account shall
that the investment manager is acting in a be P1.0 million;
representative capacity and that the d. The investment management
principal’s name is disclosed thereat. agreement shall indicate that pursuant to
Section 24(B)(1) of R.A. No. 8424, interest
§ X411.7 Ceilings on loans. Loans income of the investment management funds
funded by investment management accounts derived from investments in interest-bearing
shall be subject to the DOSRI ceilings instruments (e.g., time deposits, government
imposed on banks and IHs under Secs. X330 securities, loans and other debt instruments)
and X331. For purposes of determining which are otherwise subject to the twenty
compliance with said ceilings, the total percent (20%) final tax, shall be exempt from
amount of said loans granted by the trust said final tax provided the funds are held
department and the bank proper to the same under investment management by the
person, firm or corporation shall be investment manager for at least five (5) years.
combined. If said funds are held by the investment
manager for a period less than five (5) years,
§ X411.8 Operating and accounting interest income shall be subject to a final tax
methodology. Investment management which shall be deducted and withheld from
accounts shall be operated and accounted the proceeds of the investment management
for in accordance with the following: account based on the following schedule–
a. The investment manager shall
administer, hold, or manage the fund or Holding Period Rate of Tax
property in accordance with the instrument Four (4) years to less than five (5) years 5%
creating the investment management Three (3) years to less than four (4) years 12%
relationship; and Less than three (3) years 20%

§§ X411.9 - X412.3
05.12.31
Necessarily, the investment management of the board of directors, the trust

agreement shall clearly indicate the date committee and the trust officer.
when the investment manager actually
received the funds which shall serve as basis § X412.2 Banks without trust
for determining the holding period of the authority. A bank not authorized to
funds; engage in the trust business under Section
e. The investment manager may accept 79 of R.A. No. 8791, which accepts FCDU/
additional funds for inclusion in investment EFCDU trust accounts under R.A. No. 6426,
management accounts which have been as amended, shall manage such trust
established as tax-exempt under R.A. No. accounts in its FCDU/EFCDU as an exception
8424. However, the receipt of additional to Item "a" of Subsec. X406.1. Pursuant to
funds shall be properly documented by the provisions of Subsec. X406.4, the board
indicating that they are part of existing tax- of directors shall be responsible for the
exempt investment management accounts proper administration and management of
and that the interest income of the additional FCDU/EFCDU trust accounts: Provided, That
funds derived from investments in interest- the board of directors may, by action duly
bearing instruments shall be exempt from the entered in the minutes, constitute an FCDU
twenty percent (20%) final tax under the same or EFCDU trust committee to which the
conditions mentioned in the preceding item. administration and management of such
The document shall also indicate the date accounts may be delegated.
when the additional funds were received by The FCDU or EFCDU trust committee
the investment manager-bank to serve as basis shall be composed of three (3) directors,
for determining the minimum five (5)-year who shall be appointed on a regular
holding period for tax exemption purposes rotation basis, one of whom shall be
of the additional funds; and designated as chairman. The three (3)
f. Tax-exempt individual investment directors shall meet the qualification
management accounts established under this requirements under Subsec. X406.3 and
Subsection shall be subject to the provisions shall not be operating officers or members
of Subsecs. X411.1(b) and X411.2 up to of the audit committee of the bank.
X411.8.
§ X412.3 Additional deposit for the
Sec. X412 FCDU/EFCDU Trust Accounts faithful performance of trust duties. A
Only a bank with authority to operate a bank authorized to engage in trust business
foreign currency deposit unit (FCDU) or an that accepts FCDU/EFCDU trust accounts
expanded foreign currency deposit unit shall deposit with the BSP additional eligible
(EFCDU) under R.A. No. 6426, as amended, government securities under Subsec .
may accept foreign currency-denominated X405.2 as security for the faithful
trust accounts. performance of trust duties equivalent to
at least one percent (1%) of the value of
§ X412.1 Banks with trust authority the FCDU/EFCDU trust assets based on the
A bank authorized to engage in trust average of the month-end balances of such
business under Section 79 of R.A. No. 8791, assets during the immediately preceding
which is also authorized to operate an FCDU quarter as converted in the local currency
or EFCDU under R.A. No. 6426, as amended, at the prevailing foreign exchange rate.
shall include FCDU/EFCDU trust accounts Such securities shall be deposited within
among those managed or administered by thirty (30) banking days after the end of
its trust department under the responsibility every calendar quarter.

§§ X412.4 - X414.1
05.12.31
§ X412.4 Liquidity requirement for and no part of such surplus shall at any time
FCDU/EFCDU Common Trust Funds. In be paid out in dividends but losses accruing
addition to the basic security deposit, each in the course of its business may be charged
FCDU/EFCDU CTF shall be required to set against surplus.
up at least ten percent (10%) of the book
value of the fund for liquidity purposes: B. INVESTMENT
Provided, That such liquidity requirement MANAGEMENT ACTIVITIES
shall be in any or a combination of the
following: (a) readily marketable foreign Sec. X414 Authority to Perform Investment
currency securities with maturity of not Management. Banks may be authorized by
more than three (3) years; and (b) foreign the Monetary Board to act as managing agent,
currency deposits with foreign banks: adviser, consultant or administrator of
Provided, further, That the liquidity investment management/advisory/consultancy
requirement of EFCDUs may, in addition to account under Section 53.4 of R.A. No. 8791.
the foregoing, also be in the form of foreign However, such authority shall not be construed
currency deposits with other EFCDUs or to include the authority to engage in trust and
resident offshore banking units. The base other fiduciary business under Chapter IX of
amount of the liquidity requirement shall R.A. No. 8791.
be the average of the month-end balances If a bank is found to engage in
of the CTFs within a given quarter. unauthorized investment management
activities, the Monetary Board may impose
§ X412.5 Applicability of rules and administrative sanctions against such bank or
regulations. Unless otherwise revised by its principal officers and/or majority
the provisions of this Section, the rules and stockholders or proceed against them in
regulations governing the administration of accordance with law.
trust accounts, including CTFs, shall be The Monetary Board may take such action
observed, whether the FCDU/EFCDU trust as it may deem proper such as, but may not
accounts are administered by the bank’s be limited to, requiring the transfer or turnover
trust department or by its FCDU/EFCDU. of any investment management account to
Also applicable are rules and regulations duly incorporated and licensed entities of the
on the operations of FCDUs/EFCDUs that choice of the client.
include, among other things, regulations on A bank not authorized to engage in
acceptable foreign currencies, eligible and investment management activities shall not
ineligible foreign currency sources; foreign advertise or represent itself as being engaged
currency cover requirements; and allowable in investment management activities or
loans and investments. represent itself as investment manager or use
words of similar import.
Sec. X413 Required Surplus. A bank
authorized to engage in trust and other § X414.1 Prerequisites for engaging in
fiduciary business shall, before the investment management activities. A bank
declaration of dividends, carry to surplus before it may engage in investment
at least ten percent (10%) of its net profits management activities shall comply with the
realized out of its trust, investment following requirements:
management and other fiduciary business a. The bank has been duly licensed by
since the last preceding dividend declaration the BSP or created by special law or charter.
until the surplus shall amount to twenty b. The articles of incorporation or
percent (20%) of its authorized capital stock charter of the bank shall include among its

§§ X414.1 - X415.3
05.12.31
powers or purposes the authority to engage a. Government securities acceptable to

in investment management activities. the BSP amounting to P500,000 as minimum
c. The by-laws of the bank shall basic security deposit for the faithful
include, among other things: performance of investment management
(1) The organization plan or structure duties required under Subsec. X415.1;
of the department, office or unit which shall b. Organization chart of the investment
conduct the investment management management department which shall carry
activities of the institution; out the investment management activities of
(2) The creation of an investment the bank; and
management committee, the appointment of c. Names and positions of individuals
an investment management officer and designated as chairman and members of the
subordinate officers of the investment investment management committee,
management department; and investment management officer and other
(3) A clear definition of the duties and subordinate officers of the investment
responsibilities as well as the line and staff management department.
functional relationships of the various units,
officers and staff within the organization. Sec. X415 Security for the Faithful
d. The applicant shall also meet the Performance of Investment Management
following additional requirements: Activities
(1) It has continuously complied with
its net worth-to-risk assets ratio, liquidity § X415.1 Basic security deposit. A
floor, and ceilings on DOSRI loans for the bank authorized to engage in investment
last sixty (60) days immediately preceding management activities shall deposit with the
the date of application; BSP eligible government securities as security
(2) It has not incurred net weekly reserve for the faithful performance of its investment
deficiency against deposit liabilities and management activities equivalent to at least
deposit substitutes during the last eight (8) one percent (1%) of the book value of the
weeks immediately preceding the date of total investment management assets:
application; and Provided, That at no time shall such deposit
(3) It has shown substantial compliance be less than P500,000.
with other pertinent laws, rules and Scripless securities under the RoSS system
regulations, policies and instructions of the of the BTr may be used as basic security
BSP; and has not been cited for serious deposit for the faithful performance of
violations or exceptions affecting its solvency, investment management activities using the
liquidity and profitability. guidelines enumerated in Appendix 34.
Compliance with the foregoing as well
as with other requirements under existing § X415.2 Eligible securities
regulations, shall be maintained up to the Securities enumerated in Subsec. X405.2
time the trust license is granted. A bank that shall be eligible as security deposit for
fails in this respect shall be required to show faithful performance of investment
compliance for another test period of the management activities.
same duration.
§ X415.3 Valuation of securities and
§ X414.2 Pre-operating requirements basis of computation of the basic
A bank authorized to engage in investment security deposit requirement. For
management activities shall, before engaging purposes of determining compliance with
in actual operations, submit to the BSP the the basic security deposit under this
following: Section, the amount of securities so

§§ X415.3 - X421
05.12.31
deposited shall be based on their book value, a. Investment management activities in

that is, cost as increased or decreased by lieu of trust and other fiduciary business;
the corresponding discount or premium b. Investment management accounts in
amortization. lieu of trust and other fiduciary accounts;
The base amount for the basic security c. Investment management committee
deposit shall be the average of the month- in lieu of trust committee;
end balances of the total assets of investment d. Investment management officer in
management funds of the immediately lieu of trust officer; and
preceding calendar quarter. e. Investment management depart-
ment in lieu of trust department.
§ X415.4 Compliance period; sanctions
The investment manager shall have thirty (30) Sec. X417 Non-Investment Management
banking days after the end of every calendar Activities. The provisions of Sec. X407 shall
quarter within which to deposit with the BSP apply in determining non-investment
securities required under this Section. management activities except that the terms
The following sanctions shall be trust, other fiduciary, trustee and fiduciary
imposed for any deficiency in the security shall be disregarded.
deposit for the faithful performance of
investment management activity: Sec. X418 Unsound Practices. The
a. On the bank: provisions of Sec. X408 shall govern the
(1) First offense - Penalty of P5,000 per unsound practices for investment
banking day to be reckoned from thirty (30) management accounts.
banking days after the end of the reference
quarter; and Sec. X419 Conduct of Investment
(2) Second and subsequent offenses - Management Activities. The provisions of
Suspension of investment management Sec. X411 shall govern the conduct of
license. investment management activities of a bank
b. On the Head of the Investment without a trust license.
Management Department:
(1) First offense - Reprimand with a stern Sec. X420 Required Surplus. A bank
warning that subsequent violations will be authorized to engage in investment
subjected to more severe sanctions; and management activities shall, before the
(2) Subsequent offenses - Suspension declaration of dividends, carry to surplus at
for ninety (90 ) days without pay. least ten percent (10%) of its net profits
In case a bank fails to comply with the realized out of its investment management
basic security deposit, said bank shall desist activities since the last preceding dividend
from accepting new investment management declaration until the surplus shall amount
accounts and from renewing expiring to twenty percent (20%) of its authorized
investment management contracts. capital stock and no part of such surplus
shall at any time be paid out in dividends,
Sec. X416 Organization and Management but losses accruing in the course of its
The provisions under Sec. X406 up to Subsec. business may be charged against surplus.
X406.4 shall govern the organization and
management of banks without trust license C. GENERAL PROVISIONS
which are engaged in investment
management activities only. The following Sec. X421 Books and Records. The bank’s
terms shall, however, be used: trust department or investment management

§§ X421 - X423
05.12.31
department shall keep books and records investment manager shall be kept physically
on trust, other fiduciary and investment separate and distinct from the assets of its
management accounts separate and distinct other businesses and shall be under the joint
from the books and records of its other custody of at least two (2) persons, one of
businesses and shall follow the Manual of whom shall be an officer of the trust or
Accounts for Trust and Other Fiduciary investment management department,
Business and Investment Management designated for that purpose by the board of
Activities prescribed by the BSP. directors.
Each trust, other fiduciary or investment The investment of each trust, other
management account shall have a record fiduciary or investment management account
separate from all other accounts except only shall be kept physically separated from those
in the case of CTFs where the trustee can of other trust, other fiduciary or investment
maintain common records utilizing pooled management accounts, and adequately
fund accounting method for each fund: identified as the assets or property of the
Provided, That the trustee shall clearly relevant account.
indicate in the records the trustors owning
participation in the CTF and the extent of Sec. X423 Fees and Commissions. A bank
the interest of such trustors. acting as trustee, fiduciary or investment
Books and records shall contain full manager shall be entitled to reasonable fees
information relative to each trust, other and commissions which shall be determined
fiduciary or investment management account on the basis of the cost of services rendered
and shall be supported by duplicate signed and the responsibilities assumed: Provided,
copies of related documents. Said records That where the trustee, fiduciary or
and duplicate signed copies of related investment manager is acting as such under
documents shall be compiled and kept as appointment by a court, the compensation
to allow inspection by BSP examiners and shall be that allowed or approved by the
submission of information or reports as may court: Provided, further, That in the case of
be required by competent authorities. CTFs, the fee which a trustee may charge
The bank’s trust department or each participant shall be fully disclosed by
investment management department shall the trustee in the CTF plan, prospectus, flyers,
maintain separate general ledger accounts posters and in all forms of advertising
and other relevant sub-accounts for tax- materials to market the funds and in the
exempt individual trust accounts, CTFs and documents given to clients as proof of
individual management accounts participation in the fund. In no case shall
established under Section 24(B)(1) of R.A. such fees and commissions be based on the
No. 8424 and Subsecs. X409.8, X411.9, and excess of the income of the trust, other
Item “8” of Appendix 60. The bank’s trust fiduciary or investment management funds
department or investment management over a certain amount or percentage.
department shall also adopt appropriate No trustee, fiduciary or investment
systems, internal control procedures and manager shall solicit or receive rebates on
audit trail mechanisms to ensure that the commissions, fees and other payments for
correct amount of final tax is withheld or the services rendered to the trust, other
exempted from such accounts. fiduciary or investment management account
or beneficiaries of the trust, other fiduciary
Sec. X422 Custody of Assets. All moneys, or investment management account by
properties or securities received by a bank stockbrokers, real estate brokers, insurance
in its capacity as trustee, fiduciary, or agents and similar persons or entities unless

§§ X423 - X425.1
05.12.31
the rebates, fees and other payments shall becomes due such as when funds are
accrue to the benefit of the trust, other withdrawn before the required five (5)-year
fiduciary or investment management holding period or when corporations
account or the beneficiaries thereof. happen to invest in the tax-exempt trust
Officers and employees of the trust instruments created within the purview of
department or investment management R.A. No. 8424.
department of banks, while serving as such,
shall be prohibited from retaining any Sec. X425 Reports Required
compensation for acting as co-trustee or
fiduciary in the administration of a trust, § X425.1 To trustor, beneficiary,
other fiduciary or investment management principal. A bank acting as trustee,
account. fiduciary or investment manager shall
render reports on the trust, other fiduciary
Sec. X424 Taxes. The terms and or investment management accounts to the
conditions of trust, other fiduciary or trustor, beneficiary, principal or other
investment management agreements party in interest or the court concerned
including CTF plans shall contain provisions or any party duly designated by the court
regarding the applicability of regulations order, as the case may be, under the
governing taxation on the income of trust, following guidelines:
other fiduciary or investment management a. The reports shall be in such forms
accounts. For this purpose, the trustee, as to apprise the party concerned of the
fiduciary or investment manager shall significant developments in the
maintain adequate records and shall include administration of the account and shall
information such as the amount of final consist of:
income tax withheld at source and the (1) A balance sheet;
amount withheld by the trustee, fiduciary (2) An income statement;
or investment manager in the periodic (3) A schedule of earning assets of the
reports submitted to trustors, beneficiaries, account; and
principals and other parties in interest. (4) An investment activity report.
With respect to tax-exempt CTFs, b. Items (3) and (4) above shall include
individual trust and investment at least the following:
management accounts established under (1) Name of issuer or borrower;
Section 24(B)(1) of R.A. No. 8424, the (2) Type of instrument;
bank’s trust department or investment (3) Collateral, if any;
management department shall be (4) Amount invested;
responsible for obtaining the tax-exemption (5) Earning rate or yield;
certifications which may be required by the (6) Amount of earnings;
BIR for the interest-bearing instruments (7) Transaction date; and
where the CTFs, individual trust funds and (8) Maturity date;
investment management funds will be c. The reports shall be prepared in
invested. Likewise, the banks shall ensure such frequency as required under the
that the correct amount of final tax on the agreement but shall not in any case be longer
interest income on the interest-bearing than once every quarter; and
instruments is withheld/deducted from the d. The reports shall be made available
proceeds from the CTF participation, trust to clients not later than twenty (20) calendar
or investment management account and days from the end of the reference date/
remitted to the BIR in the event said tax period in Item "c" above.

§§ X425.2 - X427
05.12.31
§ X425.2 To the Bangko Sentral. A included in the annual financial audit by

bank acting as trustee, fiduciary or independent external auditors required
investment manager shall submit periodic under Sec. X164.
reports prescribed by the appropriate The audit of the assets and
supervising and examining department of the accountabilities of the trust department/
BSP on the bank’s trust and other fiduciary investment management department of a
business and investment management bank authorized to engage in trust and other
activities within the deadlines indicated in fiduciary business, investment management
Appendix 6. activities, which shall cover at the minimum
a review of the trust/investment management
§ X425.3 Post-Bond Flotation Report operations, practices and policies, including
The Local Government Unit (LGU) or its audit and internal control system, shall be
representative or its trustee bank, as the case subject to auditing standards to the extent
may be, shall submit to the BSP the post- necessary to express an opinion on the
bond flotation report required in the Revised financial statements.
Guidelines on the Flotation of Bonds by The audit of the trust/investment
LGUs (Without National Government management department of a bank
Guarantee) (Appendix 57) that will indicate authorized to engage in trust and other
the actual amount of the issue as well as the fiduciary business/investment management
final terms and conditions of the issue within activities shall be covered by a separate
the deadline indicated in Appendix 6; and supplemental audit report to be submitted
such other reports as may be required by to the bank’s board of directors and to the
the BSP. BSP within the prescribed period containing,
among others things, the statements of
Sec. X426 Audits condition of trust funds and managed funds
and the related statements of earnings of both
§ X426.1 Internal audit. The bank’s funds presented separately.
internal auditor shall include among his
functions, the conduct of periodic audits of § X426.3 Board action. A report of the
the trust department or investment foregoing audits, together with the actions
management department at least once every thereon, shall be noted in the minutes of the
twelve (12) months. The board of directors, board of directors of the bank.
in a resolution entered in its minutes, may
also require the internal auditor to adopt a Sec. X427 Authority Resulting from Merger
suitable continuous audit system to or Consolidation. In merger of financial
supplement and/or to replace the periodic institutions, the authority to engage in trust
audit. In any case, the audit shall ascertain and other fiduciary business and in
whether the institution’s trust and other investment management activities shall
fiduciary business and investment continue to be in effect if the surviving
management activities have been institution has such authority and the same
administered in accordance with laws, BSP has not been withdrawn by the BSP. In case
rules and regulations, and sound trust or the surviving institution does not have
fiduciary principles. previous authority but desires to engage in
trust and other fiduciary business and in
§ X426.2 External audit. The trust and investment management activities, it shall
other fiduciary business and investment secure the prior approval of the Monetary
management activities of a bank shall be Board to engage in such business as part of

§§ X427 - X441.2
05.12.31
its application for merger to enable it to investment manager, and has provided for
incorporate such among its powers or the orderly closure or transfer of its trust,
purpose clause in its articles of fiduciary or investment management
incorporation, articles of merger, by-laws accounts, the Monetary Board, on the basis
and such other pertinent documents. of the recommendation of the examining
In the consolidation of financial department, shall order the withdrawal of
institutions where the resulting entity is an the bank’s authority to engage in trust and
entirely new one, it shall secure from the other fiduciary management activities.
Monetary Board an authority to engage in
trust and other fiduciary business or in Secs. X430 – X440 (Reserved)
investment management activities before it
may engage in such business. Sec. X441 Securities Custodianship and
Securities Registry Operations. The
Sec. X428 Receivership. Whenever a following rules and regulations shall govern
receiver is appointed by the Monetary Board securities custodianship and securities
for a bank which is authorized to engage in registry operations of banks.
trust and other fiduciary business or in
investment management activities, the § X441.1 Statement of policy. It is the
receiver shall, pursuant to the instructions policy of the BSP to promote the protection
of the Monetary Board, proceed to close the of investors in order to gain their confidence
trust, other fiduciary and investment and encourage their participation in the
management accounts promptly and/or development of the domestic capital market.
transfer all other accounts to substitute Therefore, the following rules and
trustees, fiduciaries or investment managers regulations are promulgated to enhance
acceptable to the trustors, beneficiaries, transparency of securities transactions with
principals or other parties in interest: the end in view of protecting investors.
Provided, That where the trustee, fiduciary
or investment manager is acting as such § X441.2 Applicability of this regulation
under appointment by a court, the receiver This regulation shall govern securities
shall proceed pursuant to the instructions custodianship and securities registry
of said court. operations of banks and NBFIs under BSP
supervision. It shall cover all their
Sec. X429 Surrender of Trust or Investment transactions in securities as defined in
Management License. Any bank which has Section 3 of the Securities Regulation Code
been authorized to engage in trust and other (SRC), whether exempt or required to be
fiduciary business or in investment registered with the SEC, that are sold,
management activities and which intends to borrowed, purchased, traded, held under
surrender said authority shall file with the custody or otherwise transacted in the
BSP a certified copy of the resolution of its Philippines where at least one (1) of the
board of directors manifesting such intention. parties is a bank or an NBFI under BSP
The appropriate supervising and examining supervision. However, this regulation
department of the BSP shall then conduct an shall not cover the operations of stock and
examination of the bank’s trust, other transfer agents duly registered with the
fiduciary business and investment SEC pursuant to the provisions of SRC
management activities. If the bank is found Rule 36-4.1 and whose only function is
to have satisfactorily discharged its duties to maintain the stock and transfer book
and responsibilities as trustee, fiduciary or for shares of stock.

§§ X441.3 - X441.5
05.12.31
§ X441.3 Prior Bangko Sentral to its operations characterized by a clear

approval. Banks may act as securities delineation of responsibility for risk
custodian and/or registry only upon prior management, adequate risk measurement
Monetary Board approval. systems, appropriately structured risk
limits, effective internal control and
§ X441.4 Application for authority complete, timely and efficient risk
A bank desiring to act as securities reporting systems. In this connection, a
custodian and/or registry shall file an manual of operations (which includes
application with the appropriate custody and/or registry operations) and
supervising and examining department of other related documents embodying the
the BSP. The application shall be signed risk management system must be
by the highest ranking officer of the bank submitted to the appropriate supervising
and shall be accompanied by a certified and examining department at the time of
true copy of the resolution of the bank’s application for authority and within thirty
board of directors authorizing the bank (30) days from updates;
to engage in securities custodianship and/ f. It must have adequate technological
or registry and, in the case of a branch of capabilities and the necessary technical
a foreign bank, approval by its highest expertise to ensure the protection, safety and
ranking regional officer with proof of integrity of client assets, such as:
delegated authority from the bank’s board (1) It can maintain an electronic registry
of directors. dedicated to recording of accountabilities to
its clients; and
§ X441.5 Pre-qualification requirements (2) It has an updated and
for a securities custodian/registry comprehensive computer security system
a. It must be a bank; covering system, network and
b. It must have complied with the telecommunication facilities that will:
minimum capital accounts required under (a) limit access only to authorized users;
existing regulations, as follows: (b) preserve data integrity; and
(1) Domestic banks. Its adjusted capital (c) provide for audit trail of transactions.
account is at least equal to the amount g. It has complied, during the period
required under Subsec. X106.1 or the immediately preceding the date of
amount required for TBs operating in Metro application, with the following:
Manila, whichever is higher. (1) ceilings on credit accommodation to
(2) Branches of foreign banks. The DOSRI; and
minimum capital required under Subsec. (2) single borrower’s limit.
X121.4. h. It has no reserve deficiencies during
c. Its risk-based capital adequacy ratio the eight (8) weeks immediately preceding
is not lower than twelve percent (12%) at the date of application;
the time of filing the application; i. It has set up the prescribed
d. It must have a CAMELS composite allowances for probable losses, both general
rating of at least “4” (as rounded off) in the and specific, as of date of application;
last regular examination; j. It has not been found engaging in
e. It must have in place a unsafe and unsound practices during the last
comprehensive risk management system six (6) months preceding the date of
approved by its board of directors (or application;
equivalent management committee in the k. It has generally complied with laws,
case of foreign bank branches) appropriate rules and regulations, orders or instructions

§§ X441.5 - X441.8
05.12.31
of the Monetary Board and/or BSP In addition to the above basic functions,
Management; it may perform the following value-added
l. It has submitted additional service to clients:
documents/information which may be i. Acts as a collecting and paying
requested by the appropriate supervision and agent: Provided, That the management of
examination department, such as, but not funds that may be collected shall be clearly
limited to: defined in the custody contract or in a
(1) Standard custody/registry agreement separate document or agreement attached
and other standard documents; thereto: Provided, further, That the
(2) Organizational structure of the custodian shall immediately make known
custody/registry business; to the securities owner all payments made
(3) Transaction flow; and and collections received with respect to the
(4) For those already in the custody or securities under custody; and
registry business, a historical background for j. Securities borrowing and lending
the past three (3) years; operations as agent.
m. It shall be conducted in a separate
unit headed by a qualified person with at § X441.7 Functions and responsibilities
least two (2) years experience in custody/ of a securities registry
registry operations; and a. Maintains an electronic registry book;
n. It can interface with the clearing b. Delivers confirmation of
and settlement system of any recognized transactions and other documents within
exchange in the country capable of agreed trading periods;
achieving a real time gross settlement of c. Issues registry confirmations for
trades. transfers of ownership as it occurs;
d. Prepares regular statement of
§ X441.6 Functions and responsibilities securities balances at such frequency as may
of a securities custodian. A securities be required by the owner on record but not
custodian shall have the following basic less frequent than every quarter; and
functions and responsibilities: e. Follows appropriate legal
a. Safekeeps the securities of the client; documentation to govern its relationship
b. Holds title to the securities in a with the Issuer.
nominee capacity;
c. Executes purchase, sale and other § X441.8 Protection of securities of the
instructions; customer. A custodian must incorporate the
d. Performs at least a monthly following procedures in the discharge of its
reconciliation to ensure that all positions are functions in order to protect the securities
properly recorded and accounted for; of the customer:
e. Confirms tax withheld; a. Accounting and recording for
f. Represents clients in corporate securities. Custodians must employ
actions in accordance with the direction accounting and safekeeping procedures
provided by the securities owner; that fully protect customer securities. It is
g. Conducts mark-to-market valuation essential that custodians segregate
and statement rendition; customer securities from one another and
h. Does earmarking of encumbrances from its proprietary holdings to protect the
or liens such as, but not limited to, Deeds same from the claims of its general
of Assignment and court orders; creditors.

§§ X441.8 - X441.10
05.12.31
All securities held under custodianship § X441.9 Independence of the

shall be recorded in the books of the custodian registry and custodian. A BSP-accredited
at the face value of said securities in a separate securities registry must be a third party
subsidiary ledger account “Securities Held with no subsidiary/affiliate relationship
Under Custodianship” if booked in the Bank with the issuer of securities while a BSP-
Proper or the subsidiary ledger account accredited custodian must be a third party
“Safekeeping and Custodianship – Securities with no subsidiary/affiliate relationship
Held Under Custodianship”, if booked in the with the issuer or seller of securities. A
Trust Department: Provided, That securities bank accredited by BSP as securities
held under custodianship where the custodian custodian may, however, continue holding
also performs securities borrowing and lending securities it sold under the following cases:
as agent shall be booked in the Trust a. where the purchaser is a related
Department. entity acting in its own behalf and not as
b. Documentation. The appropriate agent or representative of another;
documentation for custodianship shall be b. where the purchaser is a non-
made and it shall clearly define, among resident with existing global custody
others, the authority, role, responsibilities, agreement governed by foreign laws and
fees and provision for succession in the conventions wherein the bank is designated
event the custodian can no longer discharge as custodian or sub-custodian; and
its functions. It shall be accepted in writing c. upon approval by the BSP, where
by the counterparties. the purchaser is an insurance company
The governing custodianship agreement whose custody arrangement is either
shall be pre-numbered and this number shall governed by a global custody agreement
be referred to in all amendments and where the bank is designated as custodian
supplements thereto. or sub-custodian or by a direct custody
c. Confirmation of custody. The agreement with features at par with the
custodian shall issue a custody confirmation standards set under this Subsection drawn
to the purchaser or borrower of securities or prepared by the parent company owning
to evidence receipt or transfer of securities more than fifty percent (50%) of the capital
as they occur. It shall contain, as a stock of the purchaser and executed by the
minimum, the following information on the purchaser itself and its custodian.
securities under custody: Purchases by non-residents and
(1) Owner of securities; insurance companies that are exempted
(2) Issuer; from the independence requirement of this
(3) Securities type; Section shall, however, be subject to all
(4) Identification or serial numbers; other provisions of this Subsection.
(5) Quantity;
(6) Face value; and § X441.10 Registry of scripless
(7) Other information, which may be securities of the Bureau of the Treasury
requested by the parties. The Registry of Scripless Securities (RoSS),
d. Periodic reporting. The custodian operated by the Bureau of the Treasury,
shall prepare at least quarterly (or as frequent which is acting as a registry for government
as the owner of securities will require) securities is deemed to be automatically
securities statements delivered to the registered accredited for purposes of this Section and
owner’s address on record. Said statement is likewise exempted from the
shall present detailed information such as, but independence requirement under Subsec.
not limited to, inventory of securities, X441.9. However, securities registered
outstanding balances, and market values. under the RoSS shall only be considered

§§ X441.10 - X441.29
05.12.31
delivered if said securities were transferred § X441.13 Basic security deposit

by means of book entry to the appropriate Securities held under custodianship
securities account of the purchaser or his whether booked in the Trust Department
designated custodian. Book entry transfer to or carried in the regular books of the bank
a sub-account for clients under the primary shall be subject to a security deposit for
account of the seller shall not constitute faithful performance of duties at the rate
delivery for purposes of this Section and of of 1/25 of one percent (1%) of the total
Subsecs. X235.5 and X238.1. face value or P500,000 whichever is
higher.
§ X441.11 Confidentiality. A BSP- However, securities held under
accredited securities custodian/registry shall custodianship where the custodian also
not disclose to any unauthorized person any performs securities borrowing and lending
information relative to the securities under as agent shall be subject to a higher basic
its custodianship/registry. The Management security deposit of one percent (1%) of the
shall likewise ensure the confidentiality of total face value. For this purpose, the
client accounts of the custody or registry unit following subsidiary ledger account shall be
from other units within the same created in the Trust Department Books:
organization. “Safekeeping and Custodianship -
Securities Held Under Custodianship with
§ X441.12 Compliance with anti- Securities Borrowing and Lending As Agent”
money laundering laws/regulations. For Compliance shall be in the form of
purposes of compliance with the government securities deposited with the
requirements of R.A. No. 9160, otherwise BSP eligible pursuant to existing regulations
known as the “Anti-Money Laundering Act governing security for the faithful
of 2001,” as amended, particularly the performance of trust and other fiduciary
provisions regarding customer identification, business.
record keeping and reporting of suspicious
transactions, a BSP-accredited custodian may § X441.14 Reportorial requirements.
rely on referral by the seller/issuer of An accredited securities custodian shall
securities: Provided, That it maintains a comply with reportorial requirements that
record of such referral together with the may be prescribed by the BSP, which shall
minimum identification, information/ include as a minimum, the face and market
documents required under the law and its value of securities held under custodianship.
implementing rules and regulations.
A BSP accredited custodian must maintain §§ X441.15 – X441.28 (Reserved)
accounts only in the true and full name of
the owners of the security. However, said § X441.29 Sanctions. Without prejudice
securities owners may be identified by to the penal and administrative sanctions
number or code in reports and provided for under Sections 36 and 37,
correspondences to keep his identity respectively, of the R.A. No. 7653, violation
confidential. of any provision of this Section shall be
Securities subject of pledge and/or deed subject to the following sanctions/penalties:
of assignment as of 14 October 2004 (date a. First offense –
of Circular 457), may be held by a lending (1) Fine of up to P10,000 a day for the
bank up to the original maturity of the loan institution for each violation reckoned from
or full payment thereof, whichever comes the date the violation was committed up to
earlier. the date it was corrected; and

§§ X441.29 - X499
05.12.31
(2) Reprimand for the directors/officers Secs. X442 – X498 (Reserved)

responsible for the violation.
b. Second offense - Sec. X499 Sanctions. Any violation of
(1) Fine of up to P20,000 a day for the the provisions of this Part shall be subject
institution for each violation reckoned from to Sections 36 and 37 of R.A. No. 7653
the date the violation was committed up to without prejudice to the imposition of other
the date it was corrected; and sanctions as the Monetary Board may
(2) Suspension for ninety (90) days consider warranted under the
without pay of directors/officers responsible circumstances that may include the
for the violation. suspension or revocation of a bank’s
c. Subsequent offenses – authority to engage in trust and other
(1) Fine of up to P30,000 a day for the fiduciary business or in investment
institution for each violation from the date management activities, and such other
the violation was committed up to the date sanctions as may be provided by law.
it was corrected; The guidelines for the imposition
(2) Suspension or revocation of the of monetary penalty for violations/
authority to act as securities custodian and/ offenses with sanctions falling under
or registry; and Section 37 of R.A. No. 7653 on banks,
(3) Suspension for one hundred twenty their directors and/or officers are shown
(120) days without pay of the directors/ in Appendix 67.
officers responsible for the violation.

§§ X501 - X501.2
05.12.31
PART FIVE
FOREIGN CURRENCY DEPOSIT SYSTEM AND

OTHER OPERATIONS IN FOREIGN CURRENCY
Section X501 Foreign Currency Deposit b. TBs with net worth or combined
System. The foreign currency deposit capital accounts of at least P650.0 million
operations of banks under R.A. No. 6426, if located in Metro Manila or P150.0 million
as amended, shall be governed by the if located outside Metro Manila may,
following rules and regulations. subject to prior Monetary Board approval,
operate an FCDU. A TB desiring to operate
§ X501.1 Definition of terms. The an FCDU shall file an application with the
following terms and phrases shall mean as appropriate SED. The application shall be
follows: signed by the bank president or officer of
a. Foreign Currency Deposit Unit equivalent rank and shall be accompanied
(FCDU) and Expanded Foreign Currency by the following documents:
Deposit Unit (EFCDU) shall refer to a unit (1) Certified true copy of the resolution
of a local bank or of a local branch of a of the bank’s board of directors authorizing
foreign bank authorized by the BSP to the application.
engage in foreign currency-denominated (2) A certification signed by the
transactions, pursuant to the provisions of president or the officer of equivalent rank
R.A. No. 6426, as amended. that the bank has complied with all
b. Local bank shall refer to a KB, UB conditions/prerequisites for the grant of
or TB organized under the laws of the authority to operate an FCDU in Appendix
Republic of the Philippines. 5a.
c. Local branch of a foreign bank shall Transitory provisions. TBs authorized to
refer to a branch of a foreign bank doing operate and are actually operating an FCDU
business in the Philippines. are hereby given a period of two (2) years
d. Short-term loans and securities shall reckoned from 07 March 2002 within
refer to those with maturities of one (1) year which to comply with the minimum capital
or less. requirements for FCDU: Provided, That
e. Medium-term loans and securities this requirement may be substituted by a
shall refer to those with maturities of more capital build-up program for a period of
than one (1) year but not more than five (5) not more than five (5) years or only up to
years. 31 December 2007 and which must be
f. Long-term loans and securities shall approved by the Monetary Board: Provided,
refer to those with maturities of more than further, That annual cash infusion shall be
five (5) years. included in the capital build-up program
adopted for this purpose. The amount of
§ X501.2 Qualification requirements cash infusion shall be evenly distributed
a. KBs/UBs may be authorized to over the capital build-up program period.
operate an FCDU or EFCDU: Provided, Banks which failed to comply with the
That they meet the minimum capital required capitalization upon expiration of
requirements as prescribed under Sec. X106 said two (2)-year period given them or those
and Subsecs. X106.1 and X106.2, and in which failed to comply with approved
the case of branches of foreign banks, capital build-up program shall liquidate
Subsecs. X121.4 and X121.5. their FCDU business within one (1) year
Manual of Regulations for Banks Part V - Page 1

§§ X501.2 - X501.3
05.12.31
and shall surrender to the BSP their institutions and offshore banking units,
corresponding FCDU licenses. The license subject to the following conditions:
of TBs already authorized to operate FCDU (a) That the government securities
but not yet operating the same shall be purchased shall be limited to those issued
automatically revoked if they do not comply by central governments and/or central banks
with the above minimum capital of foreign countries with the highest credit
requirements as of 07 May 2002. quality given by any two (2) internationally
In addition, the standard pre-qualification accepted rating agencies (i.e., currently the
requirements prescribed under Appendix 5 equivalent of Standard and Poor’s AA- or
shall be complied with by a bank applying Moody’s Aa3 or better);
for an FCDU/EFCDU license. (b) That for TBs which are granted a
certificate of authority to operate an FCDU,
§ X501.3 Authorized transactions the maximum term of the resale agreements
a. Banks which are granted a certificate shall be one (1) year; and
of authority to operate an FCDU are (c) That such government securities
authorized to engage in the following purchased under resale agreements shall be
transactions in any acceptable foreign classified as “Trading Account Securities -
currency: Loans” and booked under the sub-account
(1) Accept deposits and trust accounts “Government Securities Purchased under
from residents and non-residents; Resale Agreements – EFCDU/FCDU”.
(2) Deposit, on short-term maturity, b. KBs/UBs which are authorized to
with foreign banks abroad, offshore banking operate under the expanded foreign
units (OBUs) and other FCDUs/EFCDUs; currency deposit system may engage in the
(3) Invest in foreign currency- following transactions in any acceptable
denominated debt instruments, which are foreign currency:
of short-term maturity and are readily (1) Accept deposits and trust accounts
marketable; from residents and non-residents;
(4) Grant short-term foreign currency (2) Deposit with foreign banks abroad,
loans as may be allowed by BSP regulations; OBUs and other FCDUs/EFCDUs;
(5) Borrow, on short-term maturity, (3) Invest in foreign currency-
from other FCDUs/EFCDUs and from denominated debt instruments;
foreign banks abroad and OBUs, subject to (4) Grant foreign currency loans as may
existing rules on foreign borrowings; be allowed by the BSP;
(6) Engage in foreign currency-foreign (5) Borrow from other FCDUs/
currency swap with the BSP, OBUs and EFCDUs and from non-residents and OBUs,
other FCDUs/EFCDUs; subject to existing rules on foreign
(7) Engage in securities lending activities borrowings;
as lender subject to the provisions in Sec. (6) Engage in foreign currency-foreign
X531; currency swap;
(8) Engage in repurchase agreements (7) Engage in foreign exchange trading
involving foreign currency denominated and, with prior BSP approval, engage in
government securities subject to the financial futures and options trading;
provisions in Sec. X532; and (8) On request/instructions of its foreign
(9) Purchase foreign currency correspondent bank:
denominated government securities under (a) issue letters of credit for a non-
resale agreements from other banks’ resident importer in favor of a non-resident
EFCDU/FCDU, non-resident financial exporter;
Part V - Page 2 Manual of Regulations for Banks

§ X501.3
05.12.31
(b) pay, accept or negotiate drafts/ bills (b) That such government securities
of exchange drawn under the letter of credit; purchased under resale agreements shall be
and classified as “Trading Account Securities -
(c) make payment to the order of the Loans” and booked under the sub-account
non-resident exporter: “Government Securities Purchased under
Provided, That the foreign correspondent Resale Agreements – EFCDU/FCDU”.
bank shall deposit sufficient foreign c. Excess FCDU/EFCDU funds of UBs
exchange with the EFCDU issuing the letter and KBs may be lent to Regular Banking Unit
of credit to cover all drawings; (RBU) to fund the latter’s on-balance sheet
(9) Engage in direct purchase of export foreign exchange trade transactions, subject
bills of resident exporters, subject to the to the following conditions –
following conditions: (1) FCDU/EFCDU may lend funds to
(a) Export transactions covered by RBU only after it has fully complied with
usance or sight letters of credit shall be the prescribed 100% asset cover/thirty
allowed to be purchased by EFCDUs; and percent (30%) liquidity cover on FCDU/
(b) Export bills negotiated/purchased EFCDU liabilities.
by the bank’s Regular Unit and outstanding (2) FCDU/EFCDU lending to RBU shall be-
in its books shall not be allowed to be (a) Capped at the lower of total
purchased by its EFCDUs. outstanding balance on RBU’s on-balance
(10) Engage in securities lending sheet foreign currency trade assets1 or thirty
activities as lender subject to the provisions percent (30%) of the level of FCDU/EFCDU
in Sec. X531; deposit liabilities, computed at the average
(11) Engage in repurchase agreements daily balance (using 2-month rolling data)
involving foreign currency denominated as of end of the second week prior to the
government securities subject to the reference week (refer to Appendix 51a for
provisions in Sec. X532; sample computation). Total outstanding
(12) Invest in foreign currency balance of FCDU/EFCDU lending to RBU
denominated structured products issued by shall, at all times, be within the prescribed
banks and special purpose vehicles (SPVs) cap. Any breach thereon shall be subject
of high credit quality subject to the to the imposition of a monetary penalty of
provisions in Sec. 1636; and P30,000 per day, commencing on the day
(13) Purchase foreign currency the cap was breached until the same is
denominated government securities under corrected.
resale agreements from other banks’ (b) Charged interest at prevailing market
EFCDU/FCDU, non-resident financial rates, computed monthly at the average daily
institutions and offshore banking units, balance of the receivable from RBU.
subject to the following conditions: (c) On short-term maturity, or for a
(a) That the government securities period of one (1) year or less. Balances shall
purchased shall be limited to those issued be settled, within a year from availment, by
by central governments and/or central way of actual transfer of foreign currency
banks of foreign countries with the highest assets from the RBU books to the FCDU/
credit quality given by any two (2) EFCDU books.
internationally accepted rating agencies (i.e., (3) The lending transaction shall be
currently the equivalent of Standard and booked as “Lending-RBU” in the FCDU/
Poor’s AA- or Moody’s Aa3 or better); and EFCDU books and “Borrowing-FCDU/
1
i.e., Customers’ Liability on Import Bills-Foreign, Customers’ Liability under Trust Receipts-Foreign, Customers’ Liability for
this Bank’s Acceptances Outstanding-Foreign, Export Bills Purchased and Foreign Bills Purchased-Documentary, excluding past
due accounts and Items in Litigation.

§§ X501.3 - X501.4
05.12.31
EFCDU” in the RBU books, which accounts authorized banks and all its branches
shall be added to the MOR. located therein shall be considered as a
(4) The “Lending-RBU” account single unit. The foreign currency cover shall
balance (net of transactions outstanding for consist of the following:
more than one (1) year) shall qualify as a. For banks authorized to operate an
eligible asset cover, but not as liquidity FCDU -
cover, for FCDU/EFCDU liabilities. (1) Foreign currency deposits with the
(5) Banks shall establish and maintain BSP;
systems to– (2) Foreign currency deposits of short-
(a) monitor the foreign currency funds term maturity with foreign banks abroad,
flow of RBU and the average daily balances OBUs and other FCDUs/EFCDUs;
of foreign currency trade assets, with (3) Short-term foreign currency loans
minimum database covering a two (2)- authorized by the BSP, except those
month rolling period; and classified by the BSP as bad or uncollectible
(b) account for the utilization of funds debts;
borrowed from FCDU/EFCDU. (4) Investments in foreign currency-
The systems as well as periodic reports denominated debt instruments, which are
generated therefrom shall be made available of short-term maturities and are readily
to the BSP examiners for verification. marketable;
(6) Banks shall submit to the appropriate (5) Foreign currency notes and coins
BSP supervising department, within five (5) on hand;
banking days from end of reference month, (6) Foreign currency-foreign currency
a certification under oath (prescribed format swaps;
attached as Appendix 51), signed by the (7) Foreign currency interests
Bank’s President or Country Manager, in receivables;
case of local branch/subsidiary of foreign (8) The government securities used as
banks, Compliance Officer and Head of collateral of the borrowing and any margin
Treasury, to the effect that, at any day of the (in the form of cash or securities) that the
reference month, the outstanding balance on lender will collect from the bank anytime
funds borrowed from FCDU/EFCDU did not the market value of the collateralized
exceed the prescribed cap (i.e., lower of total securities falls below the amount of the
outstanding balance on RBU’s on-balance loan. Any excess in the value of the securities
sheet foreign currency trade assets or thirty or cash used as collateral in a repurchase
percent (30%) of the level of FCDU/EFCDU arrangement cannot be used as cover for the
deposit liabilities) and were utilized by RBU other FCDU/EFCDU liabilities;
solely for foreign currency trade transactions. (9) Trading Account Securities – Loans
The foregoing rule shall be subject to (Government Securities Purchased under
quarterly review by BSP. Resale Agreements – EFCDU/FCDU); and
(10) Such other assets as may be
§ X501.4 Foreign currency cover determined by the Monetary Board as
requirements. Depository banks under the eligible cover.
foreign currency deposit and expanded b. For banks authorized to operate an
foreign currency deposit systems shall EFCDU - In addition to the above, the
maintain at all times a 100% cover for their following shall also be considered as
foreign currency liabilities. For purposes of eligible asset cover:
complying with this requirement, the (1) BSP-authorized foreign currency
principal offices in the Philippines of the loans maturing beyond one (1) year, except

§§ X501.4 - X501.6
05.12.31
those classified by the BSP as bad or (4) Readily marketable foreign currency
uncollectible debts. BSP-authorized foreign denominated instruments;
currency loans shall include those with (5) Foreign currency notes and coins on
specific approval by the BSP, as well as (a) hand;
loans of resident private sector borrowers (6) Foreign currency checks and other
from FCDUs/offshore sources, irrespective cash items;
of maturity, to be serviced using foreign (7) Due from BSP-EFCDU account with
exchange purchased from outside of the maturity of one (1) year or less regardless of
banking system; (b) loans of non-residents funding: Provided, That such deposit/
from EFCDUs, irrespective of maturity, placement is not encumbered or is not being
provided that - utilized for any other purposes;
(i) the loan shall be serviced using (8) All Interbank Term Loans Receivable-
foreign exchange purchased from outside BSP- FCDU/EFCDU with remaining
the banking system; and maturity of one (1) year or less; and
(ii) all applicable banking rules and (9) Trading Account Securities – Loans
regulations are complied with including (Government Securities Purchased under
Single Borrower's Limit which shall be Resale Agreements – EFCDU/FCDU) if the
defined to include lendings and guarantees term of the resale agreement is one (1) year
issued to companies, their subsidiaries, or less.
affiliates and major stockholders all over the The one hundred percent (100%) cover
world. and the thirty percent (30%) to be held in
(2) Investments in foreign currency - the form of liquid assets enumerated above,
denominated debt instruments, irrespective shall be unencumbered.
of maturity; d. The Due from Foreign Banks (DFFB)
(3) All outstanding Export Bills account representing cover for foreign
Purchased in the EFCDU books, except those currency liabilities of EFCDU shall be kept
classified as bad or uncollectible accounts; separate and distinct in correspondent banks
(4) Outstanding Interbank Term Loans abroad from the DFFB for the regular banking
Receivable-BSP FCDU/EFCDU with unit.
remaining maturity of more than one (1) year;
(5) Investments in foreign currency § X501.5 Foreign currency deposit
denominated structured products issued by with the Bangko Sentral. Foreign currency
banks and special purpose vehicles (SPVs) deposit with the BSP equivalent to at least
of high credit quality subject to the fifteen percent (15%) as a form of foreign
provisions in Sec. 1636. currency cover referred to in Section 4 of
For purposes of this Section, only real R.A. No. 6426 shall be optional on FCDUs
accounts shall qualify as eligible asset cover. of KBs/UBs and TBs. The BSP may pay
c. Further, at least thirty percent (30%) interest on the foreign currency deposit and if
of the cover requirement for foreign requested, shall exchange the foreign currency
currency liabilities in the EFCDU shall be notes and coins into foreign currency
in the form of liquid assets as follows: instruments drawn on its depository banks.
(1) Due from other banks;
(2) Interbank loans maturing within § X501.6 Currency composition of the
one (1) year; cover. FCDUs of TBs shall maintain the
(3) Unmatured export bills purchased foreign currency cover in the same currency
except those classified by BSP as bad or as that of the corresponding foreign currency
uncollectible; deposit liability.

§§ X501.6 - X501.17
05.12.31
FCDUs/EFCDUs of KBs/UBs shall § X501.13 Taxes. All foreign currency

maintain not less than seventy percent (70%) deposits, including interest and all other
of the foreign currency cover in the same income or earnings of such deposits, are
currency as that of the liability and thirty exempt from any and all taxes whatsoever,
percent (30%) or less, at the option of the irrespective of whether or not these deposits
FCDU/EFCDU, may be denominated in are made by residents or non-residents, so
other acceptable foreign currencies. long as the deposits are eligible or allowed
under these rules, and in the case of non-
§ X501.7 Secrecy of deposits. All residents, irrespective of whether or not
foreign currency deposits are absolutely they are engaged in trade or business in
confidential. Except upon the written the Philippines.
permission of the depositor, in no instance
shall such foreign currency deposits be § X501.14 Exemption from court
examined, inquired or looked into by any order or process. Foreign currency
person, government official, bureau or office, deposits shall be exempt from attachment,
whether judicial, administrative or garnishment or any other order or process
legislative, or any other entity, whether of any court, legislative body, government
public or private. agency or any administrative body
whatsoever.
§ X501.8 Numbered accounts. FCDUs/
EFCDUs may adopt a numbered account § X501.15 Inapplicability of the
system. Usury Law. The provisions of R.A. No.
2655, as amended (Usury Law), shall not
§ X501.9 Withdrawability and apply to banks in respect to their foreign
transferability of deposits. There shall be currency transactions under this Section.
no restrictions on the withdrawal by the
depositor of his deposit or on the transfer of § X501.16 Accounting. The foreign
the same abroad, except those arising from currency deposits and their corresponding
the contract between the depositor and the cover shall be considered as funds separate
bank. and distinct from the regular assets and
liabilities of the authorized banks.
§ X501.10 Insurance coverage. Foreign Authorized banks shall maintain a separate
currency deposits shall be insured under the accounting for transactions covered by
provisions of R.A. No. 3591, as amended. these rules that will enable preparation of
Depositors are entitled to receive payment the Balance Sheet and Profit and Loss
in the same currency in which the insured Statement covering said funds.
deposits are denominated.
§ X501.17 Supervision. The Governor
§ X501.11 Rates of interest. Foreign and the head of the appropriate department
currency deposits shall not be subject to of the BSP, personally or by deputies, are
interest ceilings. authorized to verify the books of account
and transactions of each authorized bank,
§ X501.12 Eligibility as collateral to verify the eligible cover, as well as
Deposits under the Foreign Currency review all other requirements under these
Deposit System are eligible as collateral for regulations and the bank’s compliance
peso loans or for foreign currency loans to with the provisions of law and these
residents and non-residents. regulations.

§§ X501.18 - X502.2
05.12.31
§ X501.18 Sanctions § X502.1 Mobile foreign exchange

a. Any willful violation of R.A. No. booths. Without prior authority from the
6426, as amended, or any regulation duly BSP, banks may operate mobile FX booths,
promulgated by the Monetary Board subject to the following guidelines:
pursuant thereto, shall subject the offender a. The bank shall advise the BSP of the
upon conviction to an imprisonment of not number of mobile FX booths it will operate,
less than one (1) year nor more than five the date it will start operations, the areas of
(5) years or a fine of not less than P5,000 operation and the branch where the foreign
nor more than P25,000 or both such fine exchange acquisition will be turned over
and imprisonment, at the discretion of the and booked;
court. b. The services of the mobile FX booths
The BSP may revoke or suspend the shall be solely for changing foreign
authority of a bank to accept new foreign exchange currency into peso notes and
currency deposits for violation of R.A. No. coins, and not pesos to other foreign
6426 or these regulations, or if such bank currency;
ceases to possess the minimum c. The mobile FX booths shall not
qualifications required. accept deposit or perform other banking
b. Violation on the monthly functions other than purchase of foreign
reportorial requirement required under currencies;
Subsec. X501.3c shall be subject to: d. The internal control system of the
(1) Maximum monetary penalty of proposed mobile FX booths shall be
P30,000 per day (reckoned from due date submitted to the appropriate SED of the BSP,
until date corrected) for any false/erroneous as well as other security measures adopted
certification issued, without prejudice to the therein; and
imposition, on the erring bank and/or the e. The mobile FX booths shall be
concerned bank officers, of the penal covered by insurance to protect adequately
sanctions provided under Sections 35 and the bank against losses of whatever nature
36 of R.A. No. 7653. arising from its operations.
(2) Monetary penalty of P1,200 per day
for delayed and/or incomplete certifications. § X502.2 Off-site automatic multi-
c. Any deficiency in the 100% FCDU/ currency money changers. With prior
EFCDU cover and/or thirty percent (30%) approval of the BSP, banks which have
liquidity cover that may be incurred due to shown general compliance with banking
violation of the conditions in Subsec. laws, rules and regulations may install an
X501.3c shall be subject to the imposition OAMMC, subject to the following
of a monetary penalty of one-tenth of one conditions:
percent (1/10 of 1%) of the deficiency, a. The OAMMC shall be installed only
converted to its peso equivalent at the in centers of activities like shopping centers,
exchange rate prevailing on the date the supermarkets, hotels and airports: Provided,
deficiency was incurred but not to exceed That the site is within the area where the
P30,000 per deficiency, per day. applicant bank has a regular branch to
service the money changers;
Sec. X502 Other Transactions in Foreign b. The applicant bank shall maintain
Currency. The operation of mobile foreign adequate internal control and security
currency (FX) booths and off-site automatic measures, which shall include immediate
multi-currency money changers (OAMMC) rejection and detection of fake currencies
shall be governed by this Section. by the machines;

§§ X502.2 - X531
05.12.31
c. The transactions of the money Sec. X531 Securities Lending. Banks with
changers shall be booked in specific EFCDU/FCDU license may engage in
branches which must be identified at the securities lending activities as lender subject
time of application for the putting up of an to the following conditions:
OAMMC; and a. The securities to be lent shall be
d. The services of the OAMMC shall limited to securities lodged under the
be solely for changing foreign exchange account “Trading Account Securities (TAS)
currency into peso notes and coins, and not – Investments” (for UBs and KBs only) and
pesos to other foreign currencies. “Available for Sale Securities (ASS) – Foreign”.
The use of IBODI holdings shall also be
Sec. X503 Recognition of positions arising allowed in securities lending, subject to the
from banks’ foreign currency options in the following conditions:
computation of net open FX position. The (1) The lending bank had the positive
following are the guidelines for the intention and ability to maintain or recover
recognition of positions arising from banks’ control of the same or substantially similar
foreign currency (FX) options in the securities as those lent.
computation of the net open foreign (2) The counterparty’s failure to
exchange (FX) position: redeliver the securities lent at maturity or at
a. Scope. For purposes of complying the date agreed upon could not have been
with Circular No. 1327 dated 30 January reasonably anticipated by the lender at the
1992, as amended, UBs and KBs with time of the transaction.
expanded derivatives authority shall include (3) In case of failure or default of the
the net delta weighted positions of foreign counterparty to redeliver the securities lent,
currency options in their computation of the the same shall be immediately replaced by
net FX position. UBs and KBs without identical or substantially similar securities.
expanded derivatives authority shall include For this purpose, a replacement security
the notional amounts of purchased options may only be considered substantially similar
that are in or at the money and exclude those to the securities lent if all of the following
that are out of the money in their circumstances are present:
computation of the net FX position. (a) the security must have the same
b. Reporting. The USD equivalent of primary obligor and must have the same
the positions arising from foreign currency guarantor under the same terms and
options shall be reported as a manual conditions, if guaranteed;
adjustment to the net FX position amount (b) the security must be identical in
reported in the bank’s Consolidated Foreign form and type so as to give the same risks
Exchange Position Report (CFXPR). For and rights to the holder; and
banks with expanded derivatives authority, (c) the debt instrument must have the
the USD equivalent of the foreign currency same maturity and interest rate.
options position is equal to the sum of long Sanctions. Without prejudice to the
delta-weighted positions minus the sum of criminal and administrative sanctions
short delta-weighted positions arising from provided for under Sections 36 and 37,
FX options contracts. The breakdown of the respectively, of R. A. No. 7653, violation of
options positions by currency and a listing any provision of Item “a“ of this Section
of outstanding contracts shall be annexed shall be a ground for considering all IBODI
to the CFXPR. of the concerned entity as TAS subject to
mark-to-market requirements and shall
Secs. X504 – X530 (Reserved) disqualify said entity from carrying in its

§§ X531 - X532
05.12.31
books the account “Investment in Bonds and Collateral value shall initially be at least
Other Debt Instruments” for a period of two 102% of the current market value of the
(2) years reckoned from the date the violation loaned securities and maintained at 100%
was committed or discovered, whichever of the value of the loaned securities plus
comes later. accrued interest thereon during the course
b. The lending activity shall have prior of the loan;
approval of the bank’s board of directors and f. The lender shall do daily mark-to-
shall be governed by adequate written market on the loaned securities and on the
policies and procedures duly approved by securities where cash collateral is invested/
the board of directors; reinvested;
c. The securities lending shall be done g. The lender shall require from the
through reputable internationally recognized lending agent/intermediary timely and
and experienced third-party lending agent/ comprehensive reports on the lending
intermediary which must be a regulated activity;
entity in its country of operation; h. For proper identification and
d. The securities lending transaction monitoring, the outstanding book balance
shall be subject to a written legal agreement on the loaned securities shall be reclassified
between the lending bank and the lending to “Government Securities Lent under
agent which must clearly specify the – Securities Lending Agreements”;
(1) relationship as well as the respective i. The bank has in place a risk
duties and responsibilities of each counterparty; management system commensurate to the
(2) obligation of the borrower to nature, volume and complexity of its
redeliver a like quantity of the same issue operations and characterized by clear
or series as the loaned securities; delineation of responsibility for risk
(3) guidelines for selecting investments management, adequate risk measurement
for cash collateral, which shall include a systems, appropriately structured risk limits,
provision that cash collateral will not be effective internal controls and complete,
reinvested in liabilities of the lender, its timely and efficient risk reporting system:
subsidiaries or affiliates; Provided, That this requirement shall be
(4) lending fee or compensation; automatically considered complied with by
e. The loaned securities must be fully banks with derivatives license; and
secured by debt securities of countries or j. The bank’s CAMELS composite
entities with highest credit quality, cash in rating in the last BSP regular examination is
currencies acceptable as part of international at least “3”, with a minimum score of “3”
reserves, letters of credit and certificates of on management.
deposits issued by banks with highest credit
quality. For this purpose, a foreign country Sec. X532 Repurchase Agreements
and a bank with highest credit quality refer to Involving Foreign Currency-Denominated
a foreign country and a bank given the highest Government Securities. Banks may engage
credit rating by any two (2) of the following in repurchase agreements involving foreign
internationally accepted rating agencies: currency-denominated government
securities, subject to the following
Rating Agencies Highest Rating conditions:
• Moody’s “Aa3”
a. Such repurchase agreements shall
• Standard and Poors’s “AA”
• Fitch IBCA “AA” be limited to:
• Others as may be approved (1) Trading Account Securities (TAS)
by the Monetary Board held under the FCDU/EFCDU books. The

§ X532
05.12.31
government securities subject of repurchase Sanctions. Without prejudice to the

agreements are to be booked under the criminal and administrative sanctions
account “Government Securities Sold under provided for under Sections 36 and 37,
Repurchase Agreements-FCDU/EFCDU”. respectively, of R.A. No. 7653, violation of
(2) IBODI holdings, subject to the any provision of Item “a(2)“ of this Section
following conditions: shall be a ground for considering all IBODI
(a) The selling bank had the positive of the concerned entity as TAS subject to
intention and ability to maintain or recover mark-to-market requirements and shall
control of the same or substantially similar disqualify said entity from carrying in its
securities as those sold. books the account “Investment in Bonds and
(b) The counterparty’s failure to Other Debt Instruments” for a period of two
redeliver the securities sold at maturity or at (2) years reckoned from the date the violation
the date agreed upon could not have been was committed or discovered, whichever
reasonably anticipated by the seller at the comes later.
time of the transaction. b. The borrowings shall only be from
(c) In case of failure or default of the FCDUs/EFCDUs, non-resident financial
counterparty to redeliver the securities sold, institutions and offshore banking units;
the same shall be immediately replaced by c. For TBs which are granted a
identical or substantially similar securities. certificate of authority to operate an FCDU,
For this purpose, a replacement security may the maximum term of the repurchase
only be considered substantially similar to agreements shall be one (1) year;
the securities sold if all of the following d. The borrowings shall be booked
circumstances are present: under “Bills Payable” and included in the
(i) the security must have the same computation of the total FCDU/EFCDU
primary obligor and must have the same liabilities subject to the mandatory 100%
guarantor under the same terms and asset cover and thirty percent (30%) liquidity
conditions, if guaranteed; cover;
(ii) the security must be identical in form e. The government securities used as
and type so as to give the same risks and collateral of the borrowing and any margin
rights to the holder; and (in the form of cash or securities) that the
(iii) the debt instrument must have the lender will collect from the bank anytime
same maturity and interest rate. the market value of the collateralized
The provisions/requirements under Sec. securities falls below the amount of the loan
X531 which are not inconsistent with the shall be considered as eligible asset cover
foregoing shall be strictly observed by the for the 100% cover requirement of the said
bank concerned. borrowings. Any excess in the value of the
(3) Available for Sale Securities (AFS) securities or cash used as collateral in a
held under the FCDU/EFCDU books. Held repurchase arrangement cannot be used as
for Trading Securities (HFT) and Available cover for the other FCDU/EFCDU liabilities;
for Sale Securities (AFS) under the RBU of f. The government securities used as
UBs and KBs are also allowed to be used in collateral of the borrowings and any margin
repurchase agreements. (in the form of cash or securities) that the
(4) Securities booked as Held for Trading lender will collect from the bank anytime
Securities (HFT) and Available for Sale (AFS) the market value of the collateralized
Debt Securities under the Regular Banking securities falls below the amount of the loan
Unit (RBU) of UBs and KBs are also allowed shall not be eligible for the thirty percent
to be used in repurchase agreements. (30%) liquid asset cover requirement;

§§ X532 - X565
05.12.31
g. Banks shall, at all times, comply of the total amount of foreign currency-
with the 100% FCDU/EFCDU asset cover denominated loans being transferred to the
and thirty percent (30%) liquidity cover; and RBU using the prevailing foreign exchange/
h. Banks shall monitor and assess the conversion rate at the time of transfer;
risks inherent in these repurchase (3) the transfer and conversion of
transactions. foreign currency-denominated loans from
the FCDU/EFCDU books to the RBU books
Secs. X533 – X564 (Reserved) including the prevailing foreign exchange/
conversion rate to be used shall have the
Sec. X565 Conversion to Peso Loans/ prior approval of the bank’s board of
ROPA and Transfer to RBU of FCDU/ directors, or the Country Head, in case of
EFCDU Loans/ROPA. The following are the branches of foreign banks, and the prior
policy guidelines on the conversion and written consent of the borrower whose
transfer of foreign currency-denominated account will be transferred/converted,
loans, and ROPA in the books of the FCDU/ except for loans covered by credit/loan
EFCDU to peso loans and ROPA in the books agreement allowing the bank to unilaterally
of the RBU: convert and transfer the FCDU/EFCDU loan
a. FCDU/EFCDU loans may be in which case the prior written consent
transferred to the RBU without prior BSP requirement may be dispensed with;
approval, subject to the following (4) the converted/transferred FCDU/
conditions: EFCDU loans are properly documented/
(1) the FCDU/EFCDU loan to be covered by a written agreement/contract.
transferred must meet the following criteria: Provided, That if the original loan agreement
(a) current and performing; and (b) eligible allows the bank to unilaterally convert/
to be serviced by the banking system: transfer the FCDU/EFCDU loan to peso, the
Provided, That a past due FCDU/EFCDU said loan agreement should indicate the
loan may be transferred to the RBU if it general terms and conditions of the
meets the following criteria: (a) eligible to converted/transferred peso loan: Provided,
be serviced by the banking system; (b) fully further, That upon conversion/transfer, the
secured by real estate mortgage; (c) borrower must be informed in writing of
foreclosure of the collateral shall be effected the peso loan’s new terms and conditions:
within six (6) months from the date of Provided, finally, That once converted/
transfer to the RBU if the loan remains to be transferred to a peso loan, the same loan
past due; and (d) they are not eligible to be should not be converted back to an FCDU/
serviced by the banking system but loan is EFCDU loan;
already outstanding as of 27 October 2000: (5) no income shall be recognized by
Provided, further, That a past due partially the FCDU/EFCDU or RBU on the transfer
secured or unsecured FCDU/EFCDU loan of FCDU/EFCDU loans to RBU;
shall only be eligible for conversion/transfer (6) the status of the FCDU/EFCDU loan
to RBU if part of a multi-creditor prior to the transfer, i.e., current or past due,
rehabilitation or work-out plan acceptable performing or non-performing, and the loan
to all creditors where the said plan requires classification, i.e., especially mentioned,
the conversion of FCDU/EFCDU loans to substandard, doubtful or loss, shall be
peso; retained once the loan is transferred to the
(2) there shall be actual settlement in RBU books, which transfer shall also include
foreign currency, simultaneous with the the corresponding booked allowance for
transfer, by the RBU to the FCDU/EFCDU probable losses;

§§ X565 - X599
05.12.31
b. FCDU/EFCDU ROPAs may also be (if any) and date approved by bank’s board/
transferred to the RBU without prior BSP Country Head. A report is not required if
approval, subject to Items “2” to “6” above; no transfers were effected during the
c. Conversions and transfers of FCDU/ month.
EFCDU loans and ROPA to RBU books that The prescribed accounting entries on
do not meet the above guidelines shall be the conversion and transfer of FCDU/
subject to prior Monetary Board approval; EFCDU loans and ROPA to RBU books
and are shown in Appendix 59.
d. All foreign currency-denominated
loans and ROPA in the FCDU/EFCDU Secs. X566 – X598 (Reserved)
converted to peso and transferred to the
books of the RBU shall be reported monthly Sec. X599 General Provision on
to the appropriate SED of the BSP within Sanctions Any violation of the provisions
ten (10) banking days from end of reference of this Part shall be subject to Sections 36
month. The report, classified as Category B, and 37 of R.A. No. 7653.
shall include name of borrower, date The guidelines for the imposition of
transferred/converted, outstanding balance monetary penalty for violations/offenses
in foreign currency in the FCDU/EFCDU, with sanctions falling under Section 37
peso amount booked in the RBU, prevailing of R.A. No. 7653 on banks, their
foreign exchange rate used, status and directors and/or officers are shown in
classification on date of transfer, collateral Appendix 67.

§§ X601 - X601.1
05.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS not made within three (3) days from the date
of its disqualification, the BSP shall proceed
Section X601 Open Market Operations to collect said amount in accordance with
The following rules and regulations shall the preceding paragraph.
govern the buying and selling of d. Reverse R/P agreements covering
government securities in the open market, the sale of portion of the security holdings
pursuant to Section 91 of R.A. No. 7653. of the BSP portfolio may be made under the
a. The BSP may buy and sell in the terms provided for in Subsec. X601.2.
open market for its own account: e. The purchase and sale of
(1) Evidences of indebtedness issued government securities by the National
directly by the Government of the Treasury and government-owned or
Philippines or its political subdivisions; and controlled corporations shall be made only
(2) Evidences of indebtedness issued with (a) the BSP; (b) the DBP, the LBP, the
by government instrumentalities and fully SSS, the GSIS, the Al-Amanah Islamic
guaranteed by the Government. Investment Bank of the Philippines and banks
The above evidences of indebtedness that are wholly-owned or controlled by these
must be freely negotiable and regularly institutions; and (c) the Philippine Veterans
serviced. Purchases and sales in the open Bank. Transactions shall be done with the
market shall be made through banks, QBs bank proper and not through its trust
and accredited government securities department.
dealers.
b. Outright purchases and sales of § X601.1 Repurchase agreements with
government securities shall be effected at Bangko Sentral. R/P agreements may be
prevailing market prices. effected with the BSP subject to the
c. Repurchase (R/P) agreements shall following terms and conditions.
be open to banks (except RBs), QBs, and a. Rate. The rates on the R/P facility
accredited government securities dealers shall be set by the Treasury Department, with
and shall be made under the terms provided the concurrence of the Governor, taking into
for in Subsec. X601.1 and the following: account prevailing liquidity/market
(1) The R/P agreement may be paid at conditions.
any time before maturity, subject to mutual b. Term. At the option of the Treasury
agreement of both parties; Department, availments may be for a
(2) In the event the securities covered minimum of one (1) day (overnight) and a
by the R/P agreement are not repurchased maximum of ninety-one (91) days.
by the issuer of such agreement, the same c. Security. Only obligations of the
may be sold in the open market or transferred National Government and its instrumentalities
to the BSP portfolio; and and political subdivisions, which are fully
(3) Should an issuer of an R/P guaranteed by the Government, with a
agreement become no longer qualified as remaining maturity of not more than ten (10)
such, its outstanding repurchase agreement years and which are freely negotiable and
shall immediately become due and regularly serviced, shall be eligible as
payable. If settlement of the amount due is underlying instruments for R/P agreements
Manual of Regulations for Banks Part VI - Page 1

§§ X601.1 - X602.1
05.12.31
subject to the collateral requirement Effective 01 July 2003, published interest

prescribed by the BSP. rates that will be applied on BSP’s Reverse
d. Delivery. Delivery of the underlying R/Ps of banks shall be inclusive of the ten
instruments shall be made to the BSP at the percent (10%) Value Added Tax (VAT).
prescribed time. For overnight R/P
agreements, delivery of the underlying § X601.3 Settlement procedures on the
instruments shall be made not later than purchase and sale of government securities
12:00 noon of the date of transaction. under repurchase agreements with the
Government securities which are held Bangko Sentral. Purchase and sale of
by the issuer of the R/P agreement under the government securities under repurchase
book-entry system with the BSP may be agreements (GS/RP) between and among
used as underlying instruments only with banks and NBQBs and BSP in connection
the conformity of the BSP. with the latter’s open market operations shall
e. Upon termination of the R/P be settled in accordance with Appendix
agreement, the issuer of such agreement 21a.
shall claim and take delivery of the
underlying instruments at the Treasury Sec. X602 Derivatives. Any bank and/or
Department, BSP. Failure to claim and take its subsidiaries/affiliates may engage in
delivery of the underlying instruments financial derivatives activities upon prior
immediately upon such termination shall approval of the BSP.
relieve the BSP of any liability or
responsibility for the loss or misplacement § X602.1 Scope and pre-qualification
of said instruments. requirements. The following provisions
shall govern the scope and pre-qualification
§ X601.2 Reverse repurchase requirements for the grant of authority to
agreements with Bangko Sentral. Reverse engage in derivatives activities.
R/P agreements may be effected with the BSP a. For expanded derivatives authority
subject to the following terms and (1) Scope. Only UBs and KBs may
conditions: apply for an expanded derivatives license.
a. Rate. The rates shall be set by the The licensee may trade, sell, deal and take
Treasury Department, with the concurrence positions in currency swap and forward of
of the Governor, taking into account the any tenor as well as all other derivatives for
prevailing liquidity/market conditions. their own account or on behalf of customers.
b. Term. At the option of the Treasury (2) Pre-qualification requirements. A
Department, availments may be for a bank applying for expanded derivatives
minimum of one (1) day (overnight) and a activities may be granted license only upon
maximum of 364 days. determination by the BSP that the applicant
c. Security. The collateral shall consist possesses:
of obligations of the National Government (a) Comprehensive risk management
and other freely negotiable securities in the system approved by the bank’s board of
BSP portfolio valued at 100%. directors (or equivalent management
d. Delivery. No delivery of the committee in the case of foreign bank
collateral shall be made, but a custody branches) containing clear delineations of
receipt shall be issued instead. responsibility for risk management,
e. Reservation. Prepayment may be adequate risk measurement systems,
made by the BSP at its option anytime before appropriately structured risk limits, effective
maturity. internal controls, and efficient risk-reporting
Part VI - Page 2 Manual of Regulations for Banks

§ X602.1
05.12.31
system as determined by the BSP, which (b) Minimum applicable capital

should include a Board-approved Policy adequacy ratio;
Manual. (c) Minimum reserves against deposit
The Policy Manual shall have the liabilities, deposit substitutes, CTFs and
following minimum features: TOFA-Others;
(i) Scope of derivatives activities, types (d) Liquidity floor for government
of services and products offered to clients; deposits;
(ii) Authorities and responsibilities of (e) FCDU/EFCDU foreign currency
board of directors; management asset cover on FCDU/EFCDU foreign
committees; Chief Executive Officer; other currency liabilities; and
senior officers; department managers; and (f) Maximum allowable open foreign
trading or dealing officers/staff; exchange position.
(iii) Policies and procedures to govern b. For regular derivatives authority
trading and documentation; (1) Scope. Other financial institutions
(iv) Policies and procedures for (FIs) supervised by the BSP may apply for a
controlling and measuring risks including, regular derivatives license. A licensed FI
as a minimum: may sell derivatives products to its
(aa) Trading, exposure, counterparty, customers: Provided, That the FI shall
and gap limits; hedge such derivatives: Provided, further,
(bb) Earnings-or Capital-at-Risk and That the risk being hedged is already existing
Value-at-Risk assumptions, calculations, with the FI itself.
and limits; and (2) Pre-qualification requirements. An
(cc) Mark-to-Market policies and application to engage in a regular derivatives
procedures. activities may be granted upon determination
(v) Internal control system and audit by the BSP that the applicant possesses:
policies; (a) The ability to account for its currency
(vi) Policy review; exposures on a per currency basis through
(vii) System of financial and regulatory its Multi-Currency Subsidiary Ledger;
reporting; (b) The ability to account for swaps and
(viii) Job description of and minimum forwards either through the accrual or net
qualification standards for key positions; present value basis. Swaps and forwards
and designated as hedge only at inception may
(ix) Procedure for evaluating client be accounted for using the accrual method.
suitability. Forwards designated as trading shall be
(b) Electronic data processing marked-to-market daily using the net
capability commensurate to the volume and present value methodology;
complexity of the bank’s derivatives (c) The ability to manage and monitor
activities; and price risks for the whole derivatives portfolio
(c) Technical competence of key to ensure continuous assessment of the
officers/traders responsible for derivatives. effectiveness of the hedge. While the ideal
(3) Other requirements. BSP shall method of measuring these risks is through
evaluate bank’s financial soundness and “value-at-risk” methodology, alternative
track record of compliance with major systems are acceptable: Provided, That these
prudential requirements, such as, but not are:
limited to: (i) Capable of measuring and aggre-
(a) CAMELS composite rating of at gating risks across trading and non-trading
least “3” in the last regular examination; activities;

§ X602.1
05.12.31
(ii) Approved by the FI’s board of president or any officer of equivalent rank
directors; and function that the bank possesses:
(iii) Consistent with board-approved (a) The ability to account for its currency
risk appetite; exposures on a per currency basis through
(iv) Consistent with the level and their Multi-Currency Subsidiary Ledger;
complexity of the institution’s trading (b) The ability to account for swaps and
activities; and forwards either through the accrual or net
(v) Fully documented and independently present value basis. Swaps and forwards
validated. designated as hedge only at inception may
(d) The ability to monitor counterparty be accounted for using the accrual method.
risks on outstanding contracts through a Forwards designated as trading shall be
methodology that reflects changes in credit marked-to-market daily using the net
exposure as market rates change; present value methodology;
(e) The technical competence of key (c) The ability to manage and monitor
officers/traders responsible for the price risks for the whole derivatives portfolio
derivatives products; and to ensure continuous assessment of the
(f) The procedures for evaluating client effectiveness of the hedge. While the ideal
suitability. method of measuring these risks is through
(3) Other requirements. BSP shall “value-at-risk” methodology, alternative
evaluate bank’s and other BSP-supervised systems are acceptable: Provided, That
FI’s financial soundness and track record these are:
of compliance with major prudential (i) Capable of measuring and
requirements, such as, but not limited to: aggregating risks across trading and non-
(a) CAMELS composite rating of at least trading activities;
“3” in the last regular examination; (ii) Approved by the bank’s board of
(b) Minimum applicable capital directors;
adequacy ratio; (iii) Consistent with board-approved risk
(c) Minimum reserves against deposit appetite;
liabilities, deposit substitutes, CTFs, and (iv) Consistent with the level and
TOFA-Others; complexity of the institution’s trading
(d) FCDU/EFCDU foreign currency activities; and
asset cover on FCDU/EFCDU foreign (v) Fully documented and independently
currency liabilities; and validated.
(e) Maximum allowable open foreign (d) The ability to monitor counterparty
exchange position. risks on outstanding contracts through a
c. No license derivatives methodology that reflects changes in credit
(1) Scope. A UB/KB with no derivatives exposure as market rates change;
license may trade, sell, deal and take (e) The technical competence of key
positions for their own account or in behalf officers/traders responsible for the
of customers in currency swaps and derivatives products; and
forwards with tenor of one (1) year or less. (f) Procedures for evaluating client
The bank may also sell other derivatives suitability.
products of licensed entities to its d. For engaging in derivatives
customers: Provided, That the customer transactions as end-users
currently has a risk with the bank it wishes (1) Scope. Banks/other BSP-supervised
to hedge. FIs may engage in derivatives transactions
(2) Pre-qualification requirements. The purely as end-users and do not need a
bank shall submit a certification by its license for such activities.

§§ X602.1 - X602.4
05.12.31
(2) Requirements. The banks/other (2) For derivatives granted after 17

BSP- supervised FIs shall show proof of September 2001, the licenses are operative
approval by their board of directors to use for a period of one (1) year reckoned from
derivatives. Such approval must clearly the date of approval. The licenses therefore,
specify the following as a minimum shall be renewed on or before the end of
guidelines: the one (1)-year period; and
(a) Derivatives products to be used and (3) Banks shall submit a written request
the type of transactions to be hedged shall to renew their derivatives licenses at least
be specified; forty-five (45) calendar days before the
(b) Transactions shall be limited to expiration of the existing licenses. The
hedging purpose only; there shall be no banks will be notified of the BSP action on
speculative activity; their request. Until such notice is received,
(c) Dealings shall only be with banks can continue to enter into new
licensed/authorized counterparties; and derivatives contracts as allowed under their
(d) Transactions shall be reported previously approved licenses.
regularly to the board of directors. The bank shall be presumed to be not
renewing said licenses upon failure to
§ X602.2 Authorized transactions. Any submit said written request within the
bank and/or its subsidiaries/affiliates prescribed period.
authorized to engage in derivatives activities b. The license may be renewed subject
may enter into any derivatives contract, to compliance with the following:
whether as end-user or in the capacity of (1) BSP standard of financial soundness
dealer/trader or as agent/broker: Provided, and track record of compliance with major
That when such contract is entered as end- prudential regulations;
user or in the capacity of dealer/trader, either (2) Adequate risk management systems;
party to said contract enters into the same and
for hedging purposes: Provided, further, That (3) Adequate internal control system
in the case of commodity- or equity-based and procedures including record keeping for
contracts, the bank and/or its subsidiary derivatives activities.
affiliates shall not take an open position at
any time. § X602.4 Risk management guidelines
All derivatives transactions between banks Any bank and/or its subsidiaries/affiliates
and their subsidiaries/affiliates (e.g., Forex authorized to engage in derivatives activities
Corporation) shall be with prior BSP approval. shall adopt a policy manual that contains
the minimum features and principles
§ X602.3 Renewals. The license to embodied in the Risk Management
engage in derivatives activities shall be for a Guidelines for Derivatives (Appendix 25).
period of one (1) year. Risk disclosure statements, which
a. The following guidelines shall be should at least contain the disclosure
observed for the annual renewal of statements in Appendix 26, shall be provided
derivatives licenses of banks: to the clients/customers of a bank and/or its
(1) For derivatives granted before 17 subsidiaries/affiliates in order to advise the
September 2001, the licenses are operative former of the risks involved in derivatives
only until 17 September 2002. Said licenses activities.
shall be renewed on or before said date. A detailed statement on the position of
Subsequently, the licenses shall be renewed the clients/customers must be sent to them
on or before 17 September of each year; periodically.

§§ X602.5 - X602.15
05.12.31
§ X602.5 Accounting guidelines As a rule, banks and their subsidiaries/

Derivatives shall be accounted in affiliates duly authorized to engage in
accordance with the provisions of PAS 39 derivatives transactions under Subsec. X602.1
"Financial Instruments: Recognition and may only enter into derivatives contracts with
Measurement" which states that derivatives their customers where either party to the
shall be reported on balance sheet with any transaction is hedging eligible actual FX
gain or loss from fair value changes reported obligations or existing FX exposures.
in profit or loss. Derivatives and non- To ensure that such financial derivatives
derivatices financial assets and liabilities products are not used for activities that
qualifying for hedge accounting shall destabilize the FX market, the following
likewise conform with the guidelines of PAS guidelines as well as minimum
39. documentary requirements for FX forwards
and swaps shall be strictly adhered to.
§ X602.6 Reporting requirements
Aside from the daily/monthly FX position § X602.15 Definition of terms
reports, a monthly report on transaction/ a. Foreign exchange obligation shall
outstanding derivatives transaction shall also refer to an actual FX commitment to a non-
be required for banks which enter into resident or any Authorized Agent Bank
derivatives contracts as end-user. (AAB) where the amount, payment tenor
and party have been determined.
§ X602.7 Sanctions. Monetary penalties b. Foreign exchange exposure shall
prescribed under Sections 35, 36 and 37 of refer to an FX risk arising from an existing
R.A. No. 7653 and/or suspension of foreign commitment to or from a non-resident or
exchange operations, shall be imposed on AAB which leads to payment of an FX
any bank, its subsidiaries/affiliates (including obligation or receipt of an FX asset based
its directors or officers) that engage in on verifiable documents on deal date.
derivatives activities without prior BSP c. Resident shall refer to -
approval. (1) An individual citizen of the
If the bank submits an erroneous Philippines residing therein; or
written representation or certification, a (2) An individual who is not a citizen
cease and desist order shall be imposed, of the Philippines but is permanently
in addition to a monetary penalty of residing therein; or
P10,000 per transaction. Bank’s (3) A corporation or other juridical
derivatives operations may only be person organized under the laws of the
resumed after the appropriate SED has Philippines; or
made a thorough validation of the bank’s (4) A branch, subsidiary, affiliate,
compliance with requirements. extension office or any other unit of
corporations or juridical persons which are
§§ X602.8 - X602.13 (Reserved) organized under the laws of any country
and operating in the Philippines, except
§ X602.14 Forward and swap Offshore Banking Units (OBUs).
transactions. Banks and their customers d. Non-resident shall refer to an
may hedge through financial derivatives individual, a corporation or other juridical
products their foreign exchange obligations person not included in the definition of
and/or exposures eligible for servicing by the resident.
banking system under Circular No. 1389 e. Foreign exchange swap refers to a
dated 13 April 1993, as amended. transaction involving the actual exchange

§§ X602.15 - X602.18
05.12.31
of two (2) currencies (principal amount only) The tenor/maturity shall not be longer
on a specific date at a rate agreed on deal than: (i) the maturity of the underlying FX
date (the first leg), and a reverse exchange obligation; or (ii) the approximate due date
of the same two (2) currencies at a date or settlement of the FX exposure. However,
further in the future (the second leg) at a rate for foreign currency loans, the tenor of the
(different from the rate applied to the first deliverable FX forward shall be co-terminus
leg) agreed on deal date. with the maturity of the underlying
f. Foreign exchange forward refers to obligation. This shall not preclude
a transaction involving the exchange of two pretermination of the contract due to
(2) currencies at a rate agreed on deal date prepayment provided prior BSP approval is
for value or delivery (cash settlement) at obtained.
some time in the future (more than two (2) The FX proceeds of deliverable FX
business days later). forward contracts shall be immediately
g. Non-deliverable forward (NDF) remitted or paid to the non-resident supplier/
refers to the forward FX contract where only beneficiary or AAB except for foreign
the net difference between the contracted investments where said FX proceeds are
forward rate and the market rate shall be reconverted to Philippine pesos and re-
settled at maturity. invested in eligible peso instruments such
as those listed in Item A.2.2 of Appendix 58.
§ X602.16 Documentation. Minimum b. Swaps (purchase of FX at first leg
documentary requirements for FX forward and sale of FX at second leg)
and swap transactions in Appendix 58 shall The tenor/maturity of swap contracts
be presented on or before deal date to the shall not be less than thirty (30) calendar
banks, and their subsidiaries/affiliates. days but not longer than: (i) the maturity of
Unless otherwise indicated, documents the underlying FX obligation; or (ii) the
shall be stamped “deliverable/FX hedged” approximate due date of settlement of the
or “non-deliverable/FX hedged” upon FX exposure. In case of prepayments of
presentation/submission indicating the date foreign currency loans covered by swaps,
and amount hedged and signed by banks shall ensure that such prepayments
authorized officer of the banks and their are allowed under the covering loan
subsidiaries/affiliates. Copies of all duly agreement.
marked supporting documents shall be
retained by the banks and/or their § X602.18 Cancellations, roll-overs or
subsidiaries/affiliates and shall be made non-delivery of FX forward contracts. All
available to the BSP for verification. Said cancellations, roll-overs or non-delivery of
copies shall be marked “documents FX forward contracts, whether purchases or
presented as required” and signed by the sales, shall be subject to the following
servicing entity’s authorized signatory. guidelines to determine the validity thereof:
No double hedging shall be allowed a. Eligibility test. Forward contracts
covering the same underlying FX obligation/ must be supported by documents listed in
exposure. Appendix 58 hereof.
b. Frequency test. The reasonableness
§ X602.17 Tenor/maturity of FX of the cancellation, roll-over or non-delivery
forward or swap shall be based on the results of the
a. FX forwards (whether deliverable or evaluation of the justification/explanation
non-deliverable) and swaps (sale of FX at submitted by banks as evidenced by
first leg and purchase of FX at second leg) appropriate documents.

§§ X602.18 - X602.26
05.12.31
c. Counterparty test. The cancellation later than two (2) banking days after
or roll-over of forward contracts must be reference week as indicated in Appendix 6.
duly acknowledged by the counterparty to Above-cited reports shall be transmitted
the contract as shown in documents to e-mail address iod@bsp.gov.ph.
submitted by banks, e.g., there should be
conforme of counterparty as evidenced by §§ X602.22 - X602.25 (Reserved)
the counterparty signature on pertinent
documents. § X602.26 Sanctions. Violations of
d. Mark-to-market test. The booking or Subsecs. X602.14 to X602.21 shall be
recording in the books of accounts of the subject to the penalty provisions under R.A.
profit or loss on contracted forward No. 7653 and other existing banking laws
contracts and cash flows/settlement to and regulations.
counterparties must be fully supported by Failure to comply with Subsec.
appropriate documents such as X602.18 shall result in the exclusion of the
authenticated copy of debit/credit tickets, forward contracts in the computation of the
schedules showing among others, mark-to- bank’s consolidated daily position starting
market valuation computation, etc. from day one (1), i.e., when the individual
contracts were entered into. Violations of
§ X602.19 Non-deliverable forward the prescribed FX position limits shall be
contracts with non-residents. NDF subject to the following sanctions provided
contracts to sell FX to non-residents shall under Circular Letter dated 13 March 1998:
be covered by the provisions of Section
1602. a. Monetary Penalties
Per Calendar Month Daily Penalty
§ X602.20 Compliance with Anti- 1st banking day P10,000
Money Laundering rules. All transactions 2nd banking day 20,000
3rd banking day of violation, 30,000
under Subsecs. X602.14 to X602.21 shall
and onwards, or if the excess
comply with the regulations on anti-money FX position of the bank is
laundering under Sec. X691. thirty percent (30%) or
more of the allowable
§ X602.21 Reporting requirements limits in any banking day,
Banks and their subsidiaries/affiliates regardless of whether a bank
duly authorized to engage in derivatives is in the first, second, third or
transactions shall continue to be covered more days of violation
by the BSP’s existing reporting requirements b. In addition, the following non-
on financial derivatives. Cancellations, roll- monetary sanctions shall be imposed on the
overs or non-delivery of deliverable forward bank committing violations considered as:
contracts shall be reported electronically in (1) “chronic”, i.e., when the violation
excel format to the BSP not later than two continues beyond three (3) banking days
(2) banking days after reference week as within a calendar month, but the excess
indicated in Appendix 6. position is less than thirty percent (30%) of
Swap contracts with non-bank resident the allowable limit; and
counterparties involving purchase of FX at (2) “abusive”, i.e., when the violation
the initial leg by said banks and their continues beyond three (3) business days
subsidiaries/affiliates from non-bank within a calendar month and excess
counterparties shall likewise be reported position is thirty percent (30%) or more of
electronically in excel format to the BSP not the allowable limit.

§§ X602.26 - 1602
05.12.31
“Chronic” Suspension of the bank’s shall be submitted for prior clearance to

violation rediscounting privileges, the BSP.
cash dividend declaration
Applications for such clearance shall be
and branching privileges
coursed through the International
until the violation is
corrected but in no case Operations Department (IOD) and actual
shall such suspension be transactions duly reported to the appropriate
less than thirty (30) SED.
calendar days. Only banks with expanded derivatives
license may enter into transactions covered
“Abusive” Suspension of the bank’s by forward contracts within the purview of
violation rediscounting privileges, this Section, subject to the prior clearance
cash dividend declaration requirements.
and branching privileges
As an exception, banks are authorized
until the violation is
to roll over, without prior BSP approval,
corrected but in no case
shall such suspension be short-term deliverable forward contracts with
less than sixty (60) non-residents at every maturity during the
calendar days. tenor of the underlying long-term Philippine
c. The Monetary Board may impose government securities, subject to the
other non-monetary sanctions on a bank for following conditions:
violations determined by BSP as “chronic” a. The underlying transaction for each
or “abusive” on a case-to-case basis, short-term deliverable foreign exchange (FX)
pursuant to Sec. 37 of R.A. No. 7653. forward contract should be a BSP-registered
d. Banks shall be duly advised by the foreign investment in government securities
BSP of their violations and the corresponding for which a Bangko Sentral Registration
sanctions imposed for such violations. Document (BSRD) has been issued;
e. A monetary penalty imposed on a b. The actual delivery/settlement of the
bank shall be paid to the BSP Cash forward contract shall coincide with the date
Department, within three (3) banking days of the repatriation of the BSP-registered
from the bank’s receipt of advice of said investments;
penalty imposition. c. The value of the forward contract
Furthermore, reports required under shall not exceed the foreign currency
Subsec. X602.21 are considered as Category equivalent of the maturity value/net
A report for purposes of imposing sanctions proceeds of the BSP-registered investments
on delayed, erroneous or amendatory computed based on the agreed forward
reports as prescribed under Sec. X162. exchange rate;
Counterparties that habitually cancel d. The repatriation and remittance out
deliverable forwards without proper of the country of the BSP-registered
justification may be subject of a BSP watchlist. investments must comply with the
documentary requirements under existing
Sec. 1602 Forward Contracts With Non- BSP rules; and
Residents. In order to curb undue e. The Bank concerned shall submit to
speculations in the foreign exchange the appropriate SED, a weekly report of daily
markets, all forward contracts to sell executed forward contracts to sell FX to non-
foreign exchange to non-residents residents with no full delivery of principal,
(including offshore banking units) with no including cancellations, rollovers/renewals
full delivery of principal, including thereof, within two (2) banking days after
cancellations, roll-overs/renewals thereof end of reference week, using the prescribed

§§ 1602 - X604.3
05.12.31
form duly signed by the Head of Settlements/ § X604.3 Collection and reporting of
Treasury Operations or by an officer of customs duties and import processing fees
equivalent rank and countersigned by the Participating banks are authorized to accept
Compliance Officer. payment of customs duties, taxes and other
Delayed, incomplete or erroneous levies, and import processing fees under the
reports shall be subject to a fine of P1,200 a following procedures:
day for each day of violation until the correct a. The collecting bank shall acknowledge
report is submitted to the appropriate SED. receipt of payments of customs duties,
taxes and other levies, and import
Sec. X603 Clearing Operations. Banks processing fees by issuing Official
shall observe the clearing procedures Receipts (ORs) in forms to be requisitioned
outlined in Appendix 28 for the clearing of by the Head Office from the General
checks and settlement of interbank balances Services Division, Bureau of Customs,
through the clearing facilities. Manila;
b. The collecting bank shall book all
Sec. X604 Collection of Customs Duties/ such collections and credit the same to the
Taxes/Levies and Other Revenues. The special account "Due to BSP - Bureau of
following regulations shall govern the Customs";
collection and reporting of customs duties, c. The branch shall report by
taxes, levies and other revenues through the telephone, telex or other means to its Head
banking system. Office, at the end of each day, total
collections for the day and the inclusive
§ X604.1 Coverage. All presently serial numbers of ORs issued, to be used as
accredited agent banks with demand basis for the preparation by the Head Office
deposit accounts with the BSP and of the Consolidated Report of Daily
government banks are authorized to collect Collections of Customs Duties, Taxes and
(a) customs duties, taxes and other levies, Other Levies (RC 82-005);
(b) import processing fees, and (c) export/ d. The Head Office and its branches
premium duties: Provided, however, That shall accomplish the Abstract of Daily
the collection of taxes from government- Collections of Customs Duties, Taxes and
owned and -controlled corporations shall Other Levies (RC 82-006) and submit the
be made only through banking offices of same, duly supported with copies of Orders
government banks. Of Payment (OPs), ORs, Release
Certificates (RCs) and commercial invoices
§ X604.2 Collection and reporting of on the same day to the offices indicated in
internal revenue taxes. Banks which are the form; and
duly accredited by the BIR to accept e. The Head Office of the participating
payment of internal revenue taxes shall be banks shall consolidate all reports of
governed by the relevant BIR Revenue collections with those of its branches and
Regulations. submit the original of the Consolidated
Deposits of the BIR shall be limited to Report on Daily Collections of Customs
those arising from tax collection. Duties, Taxes and Other Levies (RC 82-005)
The Authorized Agent Banks (AABs) to the Comptrollership Department, BSP,
shall transfer the deposit collection to the Manila on the 10th calendar day following
account of the Treasurer of the Philippines the date of collection. Simultaneously, the
with the BSP on the sixth day from the day remaining copies shall be distributed to
of deposit of the BIR collections. the offices indicated in the form.

§§ X604.3 - X604.6
05.12.31
Deposits of the BOC shall be limited collection to the offices indicated in the
to those arising from customs collection. form.
The AABs shall transfer the deposit e. The Head Office of the collecting
collection to the account of the Treasurer bank shall:
of the Philippines with the BSP on the (1) Consolidate its report of collection
eleventh day from the day of deposit of the with those of its branches/extension offices/
BOC collections. agencies and submit to the Bureau of
Customs the Consolidated Report of Daily
§ X604.4 Collection and reporting of Collections of Export/Premium Duty
export/premium duties. Participating banks (RC 82-009) on the day following the date
are authorized to accept payment of export/ of collection; and
premium duties under the following pro- (2) Consolidate the Abstract of Daily
cedures: Collections of Export/Premium Duty (RC
a. The collecting bank shall deduct 82-010) with those received from branches
from the export proceeds the estimated /extension offices/agencies. The original of
amount of export/premium duties due from the Consolidated Abstract of Collection of
the export shipment upon negotiation of the Export/Premium Duty (RC 82-011) shall
shipping documents but shall collect the be submitted to the Comptrollership
exact and correct amount of such duties Department, BSP, Manila, on the 10th
upon presentation of the OP issued by the calendar day following the date of
Export Coordinating Division, Bureau of collection.
Customs (For Port of Manila) or the Simultaneously, the remaining copies,
Collector of Customs concerned; with the supporting OPs and ORs, shall be
b. The collecting bank shall issue the submitted to the Bureau of Customs.
corresponding ORs in forms to be
requisitioned by the Head Office from the § X604.5 Remittances thru debit/credit
General Services Division, Bureau of advices. The Comptrollership Department,
Customs, Manila; BSP, Manila, shall debit the demand
c. The collecting bank shall book all deposit accounts of the banks concerned
such collections and credit the same to the for the total daily collection, which is due
special account “Due to BSP-Export/ for remittance on the 10th calendar day
Premium Duty”; from the date of collection (based on
d. The branch/extension office/agency either forms RC 82-005, RC 82-007 or RC
shall: 82-011). Said Department shall also credit
(1) Report by telephone, telex or other on the same day the account of the
means to its Head Office, at the end of each Treasurer of the Philippines for all such
day, total collections for the day and the remittances of tax collections, duties, fees
inclusive serial numbers of ORs issued, to and other levies.
be used as basis for the preparation by the Copies of debit/credit advices to
Head Office of the Consolidated Report on Authorized Agent Banks (AABs) shall be
Daily Collections of Export/Premium Duty furnished by the Comptrollership
(RC 82-007); and Department, BSP.
(2) Accomplish the Abstract of Daily
Collections of Export/Premium Duty (RC § X604.6 Reconciliation of revenue
82-008 ) and submit the same, duly collections. The Bureau of Customs shall
supported with copies of OPs and ORs, report to the appropriate SED, BSP,
within ten (10) calendar days from date of Manila, any unreported collection or

§§ X604.6 - X604.10
05.12.31
other discrepancies discovered for proper (2) The default shall start to run on the
examination. The BSP shall take appropriate day following the last day required for
action, through the Comptrollership submission of the report or remittance, as
Department, either by debiting or crediting the case may be. However, should the last
the demand deposit account of the bank day of filing fall on a non-banking day in
concerned, upon advice by the appropriate the locality where the reporting bank is
SED on the results of the investigation. situated, the default shall start on the day
following the next banking day; and
§ X604.7 Penalty for willful delay on (3) The manner of payment or collection
the reporting of collections/remittances of fines enumerated under Subsec. X609.1
In the event the Bureau of Customs shall shall apply.
discover, in the course of its verification, any
willful delay in the reporting of collections and § X604.9 Liquidity floor requirement
remittances by banks, said Bureau shall advise on revenue collections. Revenue
the Comptrollership Department of the BSP collections of authorized agent banks shall
to debit the demand deposit account of the be subject to the liquidity floor requirement
bank concerned with the corresponding under Subsec. X240.6.
penalty therefor, in accordance with Subsec.
X604.8. § X604.10 Collection of import
duties at the time of opening of letters of
§ X604.8 Fines for delayed reports/ credit. The following rules and regulations
remittances of collections. Any bank shall govern the collection of import duties
authorized to collect customs duties, taxes at the time of opening of letters of credit
and other levies and export/premium duty, covering imports and for other purposes:
which shall willfully delay the submission a. Collection of deposits for import
of reports and remittance of its collection to duties. All financial institutions shall,
the BSP within the period prescribed upon opening of the letters of credit
thereon, shall pay fines in accordance with covering imports, collect from the
the following schedule: applicant/importer a deposit equivalent to
For delay in For delay in the full amount of import duties due on
submission remittance the importation covered by such letters
of report of collection
a. Per banking day P 60 plus 1/30 of 1% of credit. The deposit shall not be
of default for on the withdrawable and shall be utilized only
the first 5 amount of
banking days delayed
by crediting the same to the import duties
of default remittance due on the importation.
b. Amount of import duties. The
b. Per banking day P 90 plus 1/15 of 1%
of default for the on the import duties due shall be determined and
next 5 banking amount of declared by the applicant for the letter of
days of default delayed credit subject to the penalties prescribed
remittance
under the Tariff and Customs Code.
c. Per banking day P120 plus 1/10 of 1% c. Other payment arrangements. The
of default for the on the
succeeding amount of
requirement of a deposit shall likewise
banking days of delayed apply even if the importation is effected
default remittance under other types of payment arrangements
Provided, That: or on a deferred payment basis. The deposit
(1) Fines imposed above shall not be in should be made upon presentation of the
excess of P30,000 a day; import documents to the agent bank.

§§ X604.10 - X605.3
05.12.31
d. Validation of official receipt. Such custody of the banks, such funds shall not
deposits shall be validated by official earn interest.
receipts of the financial institutions The banks shall not collect from the SSS
concerned and shall be credited in the final any service charge for such agency.
computation of the import duties, taxes and The funds collected by banks shall be
other charges due on the importation, upon handled by the bank proper and not the trust
the filing of the corresponding import entry. department: Provided, however, That such
e. Collection of deficiency and refund deposits shall be subject to the reserve
of excess deposits. Any deficiency in the requirements and the liquidity floor
deposit made as against the actual import requirements on government deposits.
duties, taxes and other charges due on the
importation shall be collected by the Bureau § X605.2 Commercial banks as
of Customs from the importer prior to the depository of rediscounting proceeds
release or withdrawal of the shipment. Any Rediscounting proceeds for RBs situated
excess deposit shall be refunded by the outside the fifty (50)-kilometer radius from
Bureau of Customs to the importer. Manila shall be credited, for the account of
f. Remittance of collection. The BSP the RB concerned, to the clearing account
demand deposit account of the financial with the BSP of the depository KB to be
institutions concerned shall be debited for designated by the borrowing RB. The
the deposits collected, in accordance with contemplated depository relationship
Subsec. X604.5 arrangement must be manifested to the BSP
g. Violation. Violation of the provisions thru the submission by the RB of an
of this Section shall be penalized under the authenticated copy of the letter of
pertinent provisions of the Tariff and understanding between the RB and the KB
Customs Code and/or under Sections 36 showing such depository relationship.
and 37 of R.A. No. 7653.
§ X605.3 Collection agents of
Sec. X605 Miscellaneous Operations. The PhilHealth. Banks are authorized to act as
following rules and regulations shall apply collecting agents of the Philippine Health
to operations specified herein. Insurance Corporation (PhilHealth) under
which agency:
§ X605.1 Collection and paying agents a. PhilHealth members may pay their
of the Social Security System. Banks duly premium contributions to PhilHealth
accredited by the SSS are authorized to act through the said banks and the funds thus
as collecting and paying agents under which collected shall be remitted to PhilHealth in
agency, employer-members of the SSS may accordance with PhilHealth’s agreed
pay their premium contributions to the SSS remittance schedule which in no case shall
through the said banks and the funds thus exceed thirty (30) days from receipt thereof;
collected shall be remitted to the SSS within b. During the period that such
thirty (30) days from receipt thereof. premium contributions are in the custody
Such banks are also authorized to of banks, such funds shall not earn interest;
receive amortization payments by SSS and
members, individuals and entities on c. The banks shall not collect from
commercial, industrial, housing, salary and PhilHealth any service charge for such
educational loans granted by the SSS. agency.
During the thirty (30)-day period that The funds collected by the banks shall
such premium contributions are in the be handled by the operating departments

§§ X605.3 - X606.2
05.12.31
(cash departments) of the banks concerned Banks), owned and used by the bank in
and not their trust operations: Provided, the conduct of its business, including staff
however, That such funds shall be subject houses, recreational facilities and
to the reserve requirement on deposits and landscaping costs, net of accumulated
to the liquidity floor on government depreciation: Provided, however, That
deposits. appraisal increment on bank premises
shall not be included in the total
B. SUNDRY PROVISIONS investment in real estate and
improvements for purposes of these
Sec. X606 Bank Premises and Other Fixed guidelines; and
Assets. The following rules shall govern the (2) Real properties, equipment or other
premises and other fixed assets of banks. chattels purchased by the bank in its name
for the benefit of its officers and employees,
§ X606.1 Appreciation or increase in net of depreciation and in the case of land
book value. Bank premises, furniture, fixture or other non-depreciable property, net of
and equipment shall be accounted for using payments already made to the bank by the
the cost model under PAS 16 “Property, Plant officers and employees for whose benefits
and Equipment.” the property was bought, where such
Outstanding appraisal increment as of property has not yet been fully paid and
13 October 2005 arising from mergers and ownership has not yet been transferred to
consolidation shall be deemed part of the them.
cost of the assets. However, appraisal b. The following shall be included in
increment previously allowed to be booked the computation of a bank’s total investment
shall be reversed. in bank premises:
Accordingly, the booking of (1) (a) The cost of real estate leased in
appreciation or increase in the book value whole or in part by the bank from a
of bank premises and other fixed assets in corporation, other than a corporation
cases where the market value of the property primarily engaged in real estate in which
has greatly increased since the original the bank has equity, equivalent to the amount
purchase is no longer allowed. obtained by applying the percentage of the
equity of the bank in the lessor to the cost of
§ X606.2 Ceiling on total investments of that portion of the property being leased,
The total investment of a bank in real estate or
and improvements thereof, including bank (b) the amount of equity in the lessor,
equipment, shall not exceed fifty percent whichever is lower, plus the amount
(50%) of the bank’s net worth. In obtained by applying the percentage of the
determining compliance with such ceiling, equity of the bank in the lessor to any
the following rules shall apply: outstanding loans of the lessor with the
a. The investment shall include all real bank, the proceeds of which were used to
estate and equipment necessary for the purchase, construct or develop the real
bank’s immediate use in the transaction of estate used for the bank’s purposes.
its business, such as: (2) The lower of -
(1) Bank Premises - Land and (a) the cost of real estate leased in
Buildings, Buildings under Construction, whole or in part by the bank from a
Leasehold Rights and Improvements and corporation in which any or a group of
Furniture, Fixtures and Equipment (as stockholders owning ten percent (10%) or
defined in the Manual of Accounts for All more of the voting stock of the bank,

§§ X606.2 - X607
05.12.31
directors and/or officers of the bank, hold § X606.10 Batas Pambansa Blg. 344 –
or own more than fifteen percent (15%) An Act To Enhance The Mobility Of
of the subscribed capital stock of the Disabled Persons By Requiring Certain
lessor, equivalent to the amount obtained Buildings, Institutions, Establishments And
by applying the percentage of the equity Public Utilities To Install Facilities And
of said stockholders/directors/officers in Other Devices. In order to promote the
the lessor to the cost of that portion of the realization of the rights of disabled persons
property being leased by the bank, or to participate fully in the social life and the
(b) the amount obtained by applying development of the societies in which they
the percentage of the equity of the live and the enjoyment of the opportunities
stockholders/directors/officers in the available to other citizens, no license or
lessor to any outstanding loans of the permit for the construction, repair or
corporation with the bank, the proceeds renovation of public and private buildings
of which were used to purchase, construct for public use, educational institutions,
or develop the real estate used for the airports, sports and recreation centers and
bank’s purposes. complexes, shopping centers or
The equity investment of a bank in a establishments, public parking places,
corporation engaged primarily in real workplaces, public utilities, shall be granted
estate shall be included in the or issued unless the owner or operator
computation of the bank’s total investment thereof shall install and incorporate in
in real estate, unless otherwise provided such building, establishment or public
by the Monetary Board. utility, such architectural facilities or
structural features as shall reasonably
§ X606.3 Reclassification of real and enhance the mobility of disabled persons
other properties acquired as bank premises such as sidewalks, ramps, railings and the
Real and other properties acquired (ROPA) like. If feasible, all such existing buildings,
reclassified as bank premises shall be institutions, establishments, or public
booked at their ROPA balance, net of any utilities may be renovated or altered to
valuation reserves: Provided, That only such enable the disabled persons to have access
acquired asset or a portion thereof that will to them.
be immediately used or earmarked for future
use may be reclassified and booked as bank Sec. X607 Bank Advertisements. The
premises. following rules and regulations shall govern
Banks, prior to the reclassification of bank advertisements.
their ROPA accounts to bank premises, shall a. No bank shall publish, issue or
first secure prior BSP approval before distribute in any form, any advertisement that
effecting the reclassification and shall shall degrade, deprecate or otherwise
submit, in case of future use, justification prejudice other banking and financial
and plans for expansion/use. institutions.
b. No bank shall publish, issue or
§ X606.4 Lease of bank premises. No distribute in any form of advertisement (in
bank shall negotiate a contract to lease or newspapers, magazines, television, radio,
sublease to third persons any portion or billboards, brochures, prospectuses, or any
portions of its office premises without other medium) or allow itself to be used/
securing the prior approval of BSP. mentioned in any form of advertisement
unless such advertisement is in pursuance
§§ X606.5 - X606.9 (Reserved) of its business or investment.

§§ X607 - X608.1
05.12.31
c. No bank shall place or cause to on hand and amounts due from banks,
be placed any advertisement tending to including the BSP and banks abroad), plus
mislead a depositor into believing that he trust department accounts.
will get more in benefits than what the Average Assessable Assets (AAAs) shall be
bank is legally authorized to give. No bank the summation of the end-of-month total
advertisement shall contain any false claim assessable assets divided by the number of
or exaggerated representation as to its months in operation during the particular
liquidity, solvency, resources, deposits and assessment period.
banking services. The rates of annual fees for banks for
d. No bank advertisement shall give the assessable years 2000, 2001 and 2002
the impression that the bank is engaged in a shall be as follows:
business other than banking. a. UBs/KBs - 1/28 of 1%
e. Banks shall inform their depositors b. TBs - 1/28 of 1%
and other clients by advertisement or c. RBs/Coop banks - 1/40 of 1%
publication of the termination of benefits multiplied by their AAAs for 2000, 2001
previously advertised or publicized. and 2002: Provided, That the annual fees
f. Banks shall discontinue any chargeable to RBs/Coop Banks shall be the
advertisement whenever the same is lower of the amount computed based on
deemed unethical/unwarranted or violative the above rate or the cost of maintaining
of the provisions of these regulations. The the appropriate SED: Provided, further,
client banks and/or their advertising That beginning the fiscal year 1999, the
agencies shall incorporate in their contract/ annual banking fees of RBs/Coop Banks
agreement for time and space with media shall be computed based on average total
the condition that such contract/agreement assets based on the bank’s balance sheets
for time and space can be cancelled/ as of month-end for the months of March,
terminated immediately whenever the client June, September and December and
bank is directed by the BSP to desist or dividing by four (4) the sum of the end-of-
discontinue the particular advertisement in month balances. RBs and Coop Banks
question. shall compute and pay the supervisory
g. Responsibility for compliance with fees on or before 30 January of each year
the above rules and regulations rests with the starting 2003 and every year thereafter.
bank officers or directors who caused the The amount of the fee as computed by the
approval or placement of such advertisement. banks shall be subject to BSP review and
verification, and appropriate adjustment,
Sec. X608 Assessment Fees on Banks as the case may be. Non-payment of the
Banks shall contribute to the BSP an annual supervisory fee within the prescribed
fee to help defray the cost of maintaining period shall subject the concerned bank
the appropriate SED in accordance with the to the sanctions prescribed under Sections
following guidelines. 34, 35, 36 and 37 of R.A. No. 7653.
Annual fees to be collected from banks
§ X608.1 Annual fees on banks. For shall be debited from their respective
purposes of computing the annual fees deposits with the BSP by the BSP
chargeable against banks, the term "Total Comptrollership Department upon receipt
Assessable Assets" shall be the amount of the notice of the assessment from the
referred to as the total assets under Section appropriate SED.
28 of R.A. No. 7653 (end-of-month total Where the deposit account is insufficient
assets per balance sheet, after deducting cash to cover the assessment fee, the BSP

§§ X608.1 - X610
05.12.31
Comptrollership Department shall bill the corresponding demand deposit account

bank for the full amount of the annual fee or with the BSP. A debit advice showing
for the balance thereof not covered by its invoices paid shall be sent to the head office
deposit account, as the case may be. of the bank concerned.
Within thirty (30) calendar days from
receipt of the bill, the bank shall make the § X609.3 Check/demand draft
corresponding remittance to the BSP payments to the Bangko Sentral of thrift,
Comptrollership Department. Failure to pay cooperative and rural banks. TBs, Coop
the bill within the prescribed period shall Banks and RBs are required to make all
subject the institution to administrative check and demand draft payments for
sanctions. CB:IBRD, LC/STD, legal reserve,
supervisory fees, fines or penalties,
Sec. X609 Collection of Fines and Other redemption of preferred shares and cash
Charges from Banks. The following dividends for government held preferred
regulations shall govern the payment of fines shares, and collections or repayments of
and other charges by banks. notes used as collateral for loans payable
either to the Cash Department, Bangko
§ X609.1 Payment of fines by banks Sentral ng Pilipinas, Mabini St., Malate,
Banks shall pay the fines within fifteen Manila or directly to BSP Regional Cash
(15) calendar days from receipt of the Units. Such payments shall be accompanied
statement of account from the BSP. by appropriate payment form as shown in
For banks which maintain demand Appendix 35. Payments not accompanied
deposit account with the BSP, fines which by the required payment forms shall be
are unpaid after the lapse of the fifteen (15)- presumed to be additions to reserves and
day period shall be automatically debited shall be credited to the demand deposit
against the corresponding demand deposit account of the paying bank.
account of the bank concerned: Provided, Check payments shall be value dated
That if the balance of the bank’s account is when the check is cleared.
insufficient to cover the fines due, such fines However, all assessments for annual
shall be paid not later than the following supervisory fees, fines and penalties of TBs
banking day. For the purpose of this shall be debited from the respective demand
Subsection, banking day means a day on deposit accounts with BSP.
which the BSP head office and the head office
of the bank are open for business. Sec. X610 Philippine and Foreign
For uniform implementation of the above Currency Notes and Coins. The following
regulations, the procedural guidelines rules and regulations shall govern the
embodied in Appendix 29 shall be treatment and disposition of counterfeit
observed. Philippine and foreign currency notes and
coins, the reproduction and/or use of
§ X609.2 Cost of checks and facsimiles of legal tender Philippine
documentary stamps. Banks are given currency notes and coins, the replacement
fifteen (15) days from receipt of invoice to and redemption of legal tender Philippine
settle their accounts with the BSP Security currency notes and coins considered
Printing Plant for transactions representing mutilated or unfit for circulation, and the
the cost of printed checks and documentary treatment and disposition of Philippine
stamps. Accounts not settled within fifteen currency notes and coins called in for
(15) days will be debited against the bank’s replacement.

§§ X610.1 - X610.2
05.12.31
§ X610.1 Definition of terms. For the denomination, serial number of the note
purposes of this Section, the following terms or the coin series as the case may be. The
are defined. owner/holder shall be required to
a. Legal Tender Philippine Currency - countersign the receipt and in case of
Notes and coins issued and circulating refusal, the reasons thereof shall be stated
under the provisions of R.A No. 265 and/ in the receipt.
or R.A. No. 7653, which when offered for Any person or entity, public or private,
the payment of public or private debt must who receives, takes hold or has in his
be accepted. possession a note or a coin which is
b. Counterfeit Note - An imitation of counterfeit or whose genuineness is
a legal and genuine note intended to deceive questionable, whether Philippine or foreign
or to be taken for that which is original, currency, shall forward the same within five
legal and genuine. (5) working days from date of receipt/
c. Counterfeit Coin - An imitation or possession thereof, together with a copy of
forged design of a genuine legal and the temporary receipt required herein for
authorized coin intended to deceive or pass examination to:
for the genuine coin, regardless of its The Cash Department
intrinsic value. Bangko Sentral ng Pilipinas
d. Unauthorized Reproduction of A. Mabini St., Manila
Legal Tender Philippine Note - A In cases where personal delivery to the
reproduction of a facsimile or any Cash Department, BSP, Manila, is not
illustration or object bearing the likeness feasible, delivery of the afore-stated notes
or similitude of legal tender Philippine or coins may be made through any of the
currency note or any part thereof, without following agencies :
prior authority from the Governor of BSP (1) The BSP Regional Offices/ Units; or
or his duly authorized representative. (2) Any banking institution.
e. Unauthorized Reproduction of Any law enforcement agency which
Legal Tender Philippine Coin - A conducted any seizure of notes and coins,
reproduction of a facsimile or any object whether Philippine or foreign, which are
in metal form bearing the likeness or counterfeits or suspected to be counterfeit
similitude of legal tender Philippine currency, shall within five (5) working days
currency coin or any part thereof, without from date of seizure, advise in writing the
prior authority from the Governor of BSP Cash Department, BSP, Manila of said
or his duly authorized representative. seizure enclosing therewith a copy of the
receipt and inventory taken on the seized
§ X610.2 Treatment and disposition items. All seized notes or coins which
of counterfeit Philippine and foreign are not or no longer needed as evidence
currency notes and coins. Any person or in any investigation/legal proceedings
entity, public or private, who receives or shall be immediately turned over to the
takes hold of a note or coin which is Cash Department, BSP , for proper
counterfeit or whose genuineness is disposition.
questionable, whether Philippine or foreign The Cash Department, BSP , after
currency, shall issue a temporary receipt to examining all notes and coins submitted to
its owner/holder and must indicate therein it for examination and/or determination as
his name, address and community tax to its genuineness, shall:
certificate number or the passport number, (a) Issue a corresponding certification
in case of a foreigner, the date of receipt, for the currency examined, if needed;

§§ X610.2 - X610.5
05.12.31
(b) Stamp the word “COUNTERFEIT” newspapers, or other similar materials and
on both the face and the back of each note strictly for numismatic, educational,
found to be counterfeit; and historical, newsworthy or other purposes
(c) Return to the owner/holder, and/or which will maintain, promote or enhance
sender the Philippine or foreign currency the integrity and dignity of said note:
notes or coins found to be genuine in Provided, however, That any such facsimile
accordance with existing accounting and or illustration shall be of a size less than
auditing regulations. three-fifths (3/5) or more than one and one-
All notes and coins, whether Philippine half (1-1/2) times in size of the currency note
or foreign, determined by the BSP to be being illustrated and that there will be no
counterfeit currency, shall not be returned deviation from the purpose for which the
to the owner/holder, but shall be retained notes will be used.
and later disposed of in accordance with
such guidelines as may be adopted by the § X610.4 Reproduction and/or use of
BSP, except those which will be used as facsimiles of legal tender Philippine
evidence in an investigation or legal currency coins. No person or entity, public
proceedings, in which case, the same shall or private, shall design, engrave, make or
be retained and preserved by the BSP for execute in any other manner, or use, issue,
evidentiary purposes. or distribute any object whatsoever bearing
The BSP shall extend assistance as may the likeness or similitude as to design, color
be requested of it in the investigation, or the inscription thereon of any legal tender
apprehension and/or prosecution of Philippine currency coin or any part thereof,
person/s responsible for counterfeiting of in metal form, irrespective of size and
notes and coins, both Philippine or foreign. metallic composition, without prior authority
from the Governor, BSP or his duly
§ X610.3 Reproduction and/or use of authorized representative.
facsimiles of legal tender Philippine The reproduction and/or use of
currency notes. No person or entity, public facsimiles or of any object bearing the
or private, shall design, engrave, print, likeness or similitude of legal tender
make or execute in any other manner, or Philippine currency coins referred to in the
utter, issue, distribute, circulate or use any foregoing section may be authorized by the
handbill, advertisement, placard, circular, Governor, BSP or his duly authorized
card, or any other object whatsoever representative, strictly for numismatic,
bearing the facsimile, likeness or similitude educational, historical and other purposes
of any legal tender Philippine currency which will maintain, promote or enhance
note, or any part thereof, whether in black the integrity and dignity of said coins.
and white or any color or combination of
colors, without prior authority therefor § X610.5 Clean note policy. When
having been secured from the Governor, making cash deposits with the Cash
BSP or his duly authorized representative. Department or any of the Regional Offices/
The reproduction and/or use of Units of the BSP, banks and their branches
facsimiles or any illustration bearing the shall observe the following guidelines and
likeness or similitude of legal tender procedures.
Philippine currency notes may be a. Banks shall classify their cash
authorized by the Governor, BSP or his duly deposits into: (1) clean or fit notes and (2)
authorized representative, for printed dirty or unfit notes, in accordance with the
illustrations in articles, books, journals, Currency Guide for Bank Tellers, Money

§§ X610.5 - X610.6
05.12.31
Counters and Cash Custodians prepared by (1) It contains heavy creases which
Cash Department, BSP. The notes thus break the fiber of the paper and indicate that
classified shall be further sorted by series disintegration has begun: Provided,
and by denomination. however, that mere creasing or wrinkling
b. Banks shall provide securely which has not broken nor weakened the
sealed bags or containers separately for note does not render the note unfit for
the clean or fit notes and for the dirty or circulation; or
unfit notes accompanied by a deposit slip (2) It is badly soiled/contaminated and/
for each type/category. The deposit slip or with writings even if it has proper life or
for unfit currency notes shall be clearly sizing; or
labelled as unfit. (3) It presents a limp or raglike
c. To facilitate handling of deposits, appearance.
bank deposits shall be packed in sealed bags b. Mutilated currency note. A
or containers in standard quantity of twenty currency note shall be considered mutilated
(20) full bundle per denomination (each when:
bundle containing 1,000 notes in ten (10) (1) Torn parts of banknote are joined
equal straps, each strap containing 100 together with adhesive tape in a manner
notes). which tries to preserve as nearly as possible
d. Provincial branches of banks may the original design and size of the note; or
make direct deposits of currency notes duly (2) The original size of the note has been
identified and sorted, with the nearest BSP reduced/lost through wear and tear or has
Regional Office/Unit. In areas where there been otherwise torn, damaged, defaced or
are no BSP Regional Office/Unit, provincial perforated through action of insects,
branches of banks shall arrange with their chemicals or other causes; or
respective head offices the shipment of their (3) It is scorched or burned to such an
unfit or dirty notes for deposit with the BSP extent that although recognizable as such,
Cash Department in Manila. Cost of it has become frail and brittle as to render
shipment and other related expenses to be further handling thereof impossible without
incurred shall be solely for the account of disintegration or breaking; or
the bank concerned. (4) It is split edgewise; or
For purposes of this Subsection, the (5) It has lost all the signatures inscribed
Cash Department and the regional offices/ thereon.
units of BSP may refuse acceptance of cash c. Unfit currency coin. A currency
deposits that do not conform with these coin shall be considered unfit for
guidelines and procedures. circulation when:
(1) It is bent or twisted out of shape or
§ X610.6 Replacement and defaced, but its genuineness and/or
redemption of mutilated or unfit legal denomination can still be readily and clearly
tender Philippine currency notes and determined/identified; or
coins. The replacement and redemption (2) It has been considerably reduced in
of legal tender Philippine currency notes weight by natural abrasion/wear and tear.
and coins considered mutilated or unfit d. Mutilated currency coin. A currency
for circulation shall be governed by the coin shall be considered mutilated when:
following rules. (1) It shows signs of filing, clipping or
a. Unfit currency note. A currency perforation; or
note shall be considered unfit for circulation (2) It shows signs of having been
when: burned or has been so defaced, that its

§§ X610.6 - X621.1
05.12.31
genuineness and/or denomination cannot b. The BSP Cash Department or BSP

be readily and clearly identified. Regional Offices/Cash Units, within the
e. Currency notes and coins redemption period as may be determined
considered unfit for circulation shall not be by the Monetary Board.
re-circulated, but may be presented for The BSP Cash Department or the BSP
exchange to or deposited with any bank. Regional Cash Units shall exchange the
f. Currency notes and coins notes/coins called in for replacement if
considered mutilated shall not be represented to the BSP within the redemption
circulated nor deposited/exchanged, but period as determined by the Monetary
may be presented or forwarded for Board and subsequently dispose the same
determination of their redemption exchange in accordance with BSP procedures for
value to: disposal.
(1) The Cash Department
Bangko Sentral ng Pilipinas § X610.8 Sanctions. Any violation of
A. Mabini St., Manila; or the provisions of Subsecs. X610.3 and
(2) The nearest BSP Regional Office/ X610.4, shall subject the offender to
Unit. imprisonment of not less than five (5) years,
g. The BSP shall replace or redeem but not more than ten (10) years. In case
notes and coins considered unfit for the Revised Penal Code provides for a
circulation or mutilated except when such greater penalty, then that penalty shall be
notes and coins fall under any of the imposed.
following classifications:
(1) Notes and coins the identification Secs. X611 - X620 (Reserved)
of which is impossible;
(2) Coins which show signs of filing, Sec. X621 Electronic Banking Services. The
clipping or perforations; or following are the guidelines concerning
(3) Notes which have lost more than electronic banking activities.
two-fifths (2/5) of their surface or all of
the signatures inscribed thereon. § X621.1 Application. Banks wishing
Notes and coins falling under any of the to provide and/or enhance existing
classifications mentioned under Item "g" electronic banking services shall submit to
above shall be withdrawn from circulation the BSP an application describing the
and demonetized without compensation to services to be offered/enhanced and how it
the owner/bearer. fits the bank’s overall strategy. This shall
be accompanied by a certification signed
§ X610.7 Treatment of Philippine by its president or any officer of equivalent
currency notes and coins called in for rank and function to the effect that the bank
replacement. Any person or entity, public has complied with the following minimum
or private, who receives, takes, holds or has pre-conditions:
in his possession Philippine currency notes a. An adequate risk management
and coins called in for replacement shall process is in place to assess, control,
forward the same during the redemption monitor and respond to potential risks
period to: arising from the proposed electronic
a. Any authorized agent banks of the banking activities;
BSP when the notes are still considered b. A manual on corporate security
legal tender, within one (1) year from the policy and procedures exists that shall
date of call; or address all security issues affecting its

§§ X621.1 - X621.4
05.12.31
electronic banking system, particularly the prudential requirements such as, but not
following: limited to, the following:
(1) Authentication – establishes the (1) Minimum capital requirement and
identity of both the sender and the receiver; net worth to risk assets ratio;
uses trusted third parties that verify identities (2) Satisfactory solvency, liquidity and
in cyberspace; profitability positions;
(2) Non-repudiation – ensures that (3) CAMELS composite rating of at least
transactions can not be repudiated or presents 3, (this number, however can be flexible
undeniable proof of participation by both the depending on other circumstances
sender and the receiver in a transaction; prevailing), and with at least a moderate risk
(3) Authorization – establishes and assessment system (RAS) based on the latest
enforces the access rights of entities (both regular examination.
persons and/or devices) to specified (4) There are no uncorrected major
computing resources and application findings/exceptions noted in the latest BSP
functions; also locks out unauthorized examination.
entities from physical and logical access to
the secured systems; § X621.3 Approval in principle
(4) Integrity – assures that data have not a. Based on the recommendation of
been altered; and the Technical Working Group on Electronic
(5) Confidentiality – assures that no one Banking, the Deputy Governor, SES, shall
except the sender and the receiver of the approve in principle the application so that
data can actually understand the data. banks may immediately launch and/or
c. The system had been tested prior to enhance their existing electronic banking
its implementation and that the test results services.
are satisfactory. As a minimum standard, b. Banks shall be informed of the
appropriate systems testing and user conditional approval of the DG, SES and
acceptance testing should have been they shall in turn notify the BSP on the actual
conducted; and date of its launching/enhancement.
d. A business continuity planning
process and manuals have been adopted § X621.4 Documentary requirements
which should include a section on a. Within thirty (30) calendar days
electronic banking channels and systems. from such launching/enhancement, banks
shall submit to the BSP thru the SRSO for
§ X621.2 Pre-screening of applicants evaluation, the following documentary
a. The BSP, thru the Technical requirements:
Working Group on Electronic Banking, shall (1) A discussion on the banking services
pre-screen the overall financial condition as to be offered/enhanced, the business
well as the applicant-bank’s compliance objectives for such services and the
with BSP rules and regulations based on the corresponding procedures, both automated
latest available Bank Performance Rating and manual, offered through the electronic
(BPR) and Report of Examination (ROE) banking channels;
including CAMELS Rating. (2) A description or diagram of the
The Working Group shall ensure that configuration of the bank’s electronic
the applicant bank’s overall financial banking system and its capabilities showing
condition can adequately support its (i) how the electronic banking system is
electronic banking activities and that it shall linked to other host systems or the network
have complied with certain comprehensive infrastructure in the bank; (ii) how

§§ X621.4 - X621.5
05.12.31
transaction and data flow through the shall be made to the Monetary Board. The
network; (iii) what types of following shall be the standard conditions
telecommunications channels and remote for approval:
access capabilities (e.g., direct modem dial- a. Existence at all times of appropriate
in, internet access, or both) exist; and (iv) what top-level risk management oversight;
security controls/measures are installed; b. Operation of electronic banking
(3) A list of software and hardware system outsourced to a third party service
components indicating the purpose of the provider taking into consideration the
software and hardware in the electronic existence of adequate security controls and
banking infrastructure; the observance of confidentiality [as
(4) A description of the security policies required in R.A. No. 1405 (Bank Secrecy
and procedures manual containing (i) Law)] of customer information;
description of the bank’s security c. Adoption of measures to properly
organization, (ii) definition of responsibilities educate customers on safeguarding of user
for designing, implementing, and ID, PIN and/or password, use of bank’s
monitoring information security measures; products/services, actual fees/bank
and (iii) established procedures for charges thereon and problem/error
evaluating policy compliance, enforcing resolution procedures;
disciplinary measures and reporting d. Clear communication with its
security violations; customers in connection with the terms and
(5) A brief description of the condition which would highlight how any
contingency and disaster recovery plans for losses from security breaches, systems
electronic banking facilities and event failure or human error will be settled
scenario/problem management plan/ between the bank and its customers;
program to resolve or address problems, e. Customer’s acknowledgement in
such as complaints, errors and intrusions writing that they have understood the terms
and the availability of back-up facilities; and conditions and the corresponding risks
(6) Copy of contract with the that entail in availing electronic banking
communications carrier, arrangements for service;
any liability arising from breaches in the f. The bank’s oversight process shall
security of the system or from unauthorized/ ensure that business expansion shall not put
fraudulent transactions; undue strains on its systems and risk
(7) Copy of the maintenance management capability;
agreements with the software/hardware g. The establishment of procedures
provider/s; and for the regular review of the bank’s security
(8) Latest report on the periodic review arrangements to ensure that such
of the system, if applicable. arrangements remain appropriate having
b. If after the evaluation of the regard to the continuing developments in
submitted documents, the Working Group security technology;
has still some unresolved issues and grey h. Strict adherence to BSP regulations
areas, the bank may be required to make a on fund transfers in cases where clients use
presentation of its electronic banking the electronic banking services to transfer
transactions to BSP. funds;
i. The electronic banking service shall
§ X621.5 Conditions for Monetary not be used for money laundering or other
Board approval. Upon completion of illegal activities that will undermine the
evaluation, the appropriate recommendation confidence of the public; and

§§ X621.5 - 1631
05.12.31
j. The BSP shall be notified in writing Monetary penalties Amount

thirty (30) days in advance of any a. For responsible officer/s a one time
enhancements that may be made to the and/or director/s - penalty of
for failure to seek prior P200,000
online electronic banking service. BSP approval and/or for
non-submission/delayed
§ X621.6 Pending applications. The submission of required
same procedure and requirements stated in information/documents
b. On the bank - P30,000 per day
the foregoing shall apply to all banks with
for failure to seek prior starting from the
pending applications with the BSP, except BSP approval and/or day the offense
on the submission of the documents for non-submission/ was committed
enumerated in Item “e”, Subsec. X621.1, i.e., delayed submission of up to the time
banks which have already submitted all the required information/ the same was
documents corrected
required information/documents need not
comply with this requirement.
Secs. X622 - X630 (Reserved)
§ X621.7 Exemption. Electronic
Sec. X631 (Reserved)
banking services that are purely
informational in nature are exempted from
Sec. 1631 Financial Products of Allied
these regulations: Provided, however, That
Undertakings or Investment House Units of
should such services be upgraded to
Banks. The following guidelines shall
transactional service, then prior BSP
govern the use of the head office and/or any
approval shall be required.
or all branches of UBs and KBs as outlets
for the presentation and sale of financial
§ X621.8 Transitory provision. Banks
products of their allied undertakings
with existing electronic banking services but
(subsidiaries and affiliates as defined
do not qualify as a result of the pre-screening
hereafter) or of their investment house (IH)
process mentioned in Item "b", Subsec.
units. In case of sale of insurance products
X621.1, shall be given three (3) months from
of insurance company affiliates, said
21 December 2000, within which to show
affiliates must be accredited or pre-cleared
proof of improved overall financial condition
by the Insurance Commission (IC) to ensure
and/or substantial compliance with BSP’s
that only stable and reputable insurance
prudential requirements, otherwise, their
companies can sell their products through
electronic banking activities will be
banks.
temporarily suspended until such time that
a. Financial products covered by this
the same have been complied with.
Section are the following:
(1) Credit cards;
§§ X621.9 - X621.11 (Reserved)
(2) Insurance products limited to:
(a) Life insurance products;
§ X621.12 Sanctions. For failure to seek
(i) Term insurance (including mortgage
BSP approval before launching/enhancing/
redemption insurance);
implementing electronic banking services,
(ii) Whole life insurance;
and/or submit within the prescribed deadline
(iii) Endowment;
the required information/documents, the
(iv) Health and accident policies;
following monetary penalties and/or
(v) Variable life insurance contracts; and
suspension of electronic banking activities or
(vi) Life annuities.
both, shall be imposed on erring banks and/
(b) Non-life insurance;
or its officers:

§§ 1631 - 1631.3
05.12.31
(i) Fire insurance; branches only upon prior approval of the

(ii) Marine cargo policies; Monetary Board.
(iii) Homeowners’ policies; The bank’s proposal on said
(iv) Directors/officers liability insurance; presentation and sale shall provide
and information on the location of the office
(v) Motor vehicle insurance; where financial products will be sold.
(3) Such other products as may be Where possible, the office shall not be
authorized by the Monetary Board. located in the main lobby of the bank’s head
b. For purposes of this Section, a office and/or its branches and should be
“subsidiary” means a corporation more clearly distinguishable by the public as a
than fifty percent (50%) of the voting stock separate entity from the parent bank. The
of which is directly or indirectly owned, proposal shall likewise cover particulars on:
controlled or held with power to vote by a a) personnel who will be involved in the
bank while an “affiliate” means a corporation marketing of the financial products; and b)
at least five percent (5%) but not exceeding promotional matters including safeguards
fifty percent (50%) of the voting stock of that would ensure that the public will be
which is directly or indirectly owned, able to differentiate readily the bank products
controlled or held with the power to vote from the non-bank products. The public
by a bank. A domestic subsidiary or affiliate should also be able to distinguish personnel
is any subsidiary or affiliate domiciled in the marketing non-bank products from regular
Philippines and incorporated under the laws bank personnel. In case of sale of insurance
of the Philippines, while a foreign subsidiary products, the staff selling insurance policies
or affiliate is a subsidiary or affiliate must be duly licensed by the IC.
incorporated and organized under the laws
of the foreign country. § 1631.3 Minimum documentary
requirements. The following documents
§ 1631.1 Statement of principles. The shall be submitted as basis for the evaluation
use of a bank’s head office and/or any or all of a bank intending to sell financial products
of its branches in the presentation and sale of its allied undertakings or its IH units:
of financial products of allied undertakings a. Latest information on the allied
or IH units could give the banking public undertaking or IH unit:
the impression that these products are (1) Annual report;
covered by the deposit insurance system or (2) List of directors and senior officers;
guaranteed by the parent bank. To enable and
the public to understand fully the attendant (3) Income and expense statement for
risks involved in these transactions, a clear the last three (3) years;
and explicit distinction between financial b. Copy of the approval of the Board
products offered by a bank and those of its of Directors of both the parent bank and
allied undertakings or IH units must be made allied undertakings or IH units on the
in the presentation and sale of these presentation and sale of financial products;
products, whether through written or verbal c. Justification of the presentation and
communications. sale of financial products;
d. Detailed information on the financial
§ 1631.2 Prior Monetary Board products to be offered, including promotional
approval. The presentation and sale of materials which will be used;
financial products shall be made by the bank e. Outline of the content of the training
in its head office and/or any or all of its materials for bank’s staff and officers who

§§ 1631.3 - 1631.5
05.12.31
will be involved in the handling of the sale d. It maintains adequate provisions for
of financial products; probable losses commensurate to the quality
f. Sample contracts; and of its asset portfolio but not lower than the
g. Such other information that may be required valuation reserves as determined
required by the BSP. by the BSP; and
e. It has a CAMELS Composite Rating
§ 1631.4 Financial ratios and other of at least “3” in the last regular examination
related requirements. A bank intending to by the BSP.
use its head office and any/or all its branches
as outlets for the presentation and sale of § 1631.5 Promotional materials;
financial products of its allied undertakings stationeries and other paraphernalia
or IH units must comply with the following a. The promotional materials used in
requirements to ensure that only financially the sale of these financial products,
viable institutions complying with BSP rules especially posters displayed in bank
and regulations are allowed to undertake premises, shall contain the following:
cross-selling activities: (1) The logo of the allied undertaking
a. The bank during the last ninety (90) or IH unit promoting the financial product
days immediately preceding the date of accompanied by the words “A subsidiary
application has complied with the (or affiliate, as the case may be) of (name of
following: parent bank)"; and
(1) Ceilings on credit accommodations (2) The words “financial product/s of
to DOSRI; (name of allied undertaking/investment
(2) Liquidity floor on government house unit) is/are not insured by the
deposits; Philippine Deposit Insurance Corporation
(3) Minimum capitalization as defined and is/are not guaranteed by the (name of
under Sec. X106; parent bank)” shall be printed in capital
(4) Risk-based capital adequacy ratio letters, black letters against light background/
under Sec. X116 or as may be required by white letters against dark background with
the Monetary Board in the future; the following print size:
(5) Single borrower’s limit;
(6) Investment in bank premises and Size of Promotional
other fixed assets; Material Print Size*
(7) Open foreign exchange position; and Legal/letter size 12
(8) Foreign exchange asset cover on 15"X20" 24
19"X25" 36
FCDU/EFCDU foreign currency liabilities.
b. It does not have float items *For other measurements of promotional
outstanding for more than sixty (60) materials, use of print size closest to indicated size of
calendar days in the “Due from/to Head promotional material.
Office/Branches/Offices” accounts and the
“Due from Bangko Sentral” account b. Stationeries and other paraphernalia
exceeding one percent (1%) of the total used in the sale of aforementioned
resources as of end of preceding month; products shall bear the logo of the allied
c. It has no weekly reserve deficiency undertaking or IH unit promoting the
against deposit liabilities, deposit substitutes financial product and the words “a
and CTFs during the last twelve (12) weeks subsidiary (or affiliate, as the case may be)
immediately preceding the date of of (name of parent bank)” should appear
application; visibly under the logo.

§§ 1631.6 - 1633
05.12.31
§ 1631.6 Contracts/Information to be exceed P30,000 a day for each violation

disclosed from the time the violation was committed
a. The following paragraph shall be until it is corrected;
printed at the end of the contract in the print (2) Non-monetary penalties
size as the rest of the contract, or font size (a) Suspension of rediscounting privi-
12 whichever is bigger, in capital letters and leges or access to BSP credit facilities; and
in bold font: (b) Other sanctions as the Monetary
“This contract is between (name of client) Board may impose depending on the gravity
and (name of allied undertaking or investment of the offense.
house unit), a subsidiary (or affiliate, as the
case may be) of (name of parent bank). All Sec. 2631 (Reserved)
transactions arising out of or related to this
contract shall be binding only between these Sec. 3631 (Reserved)
two (2) contracting parties. It is understood
that this transaction is neither insured by the Sec. X632 Prohibition on the Sale of
Philippine Deposit Insurance Corporation Foreign-Based Mutual Funds by Banks
(PDIC) nor guaranteed by the parent bank.” Criminal and administrative sanctions
b. All other limitations that may affect prescribed under Sections 36 and 37,
the interest of the client shall also be respectively, of R.A. No. 7653 (The New
disclosed in the contract. Central Bank Act) shall be imposed on banks
marketing/selling foreign-based mutual funds
§ 1631.7 Training. The bank shall using any or all of their branches as outlets
conduct training for the officers and staff and/or selling such financial products
who will be involved in the handling of the without prior BSP approval.
sale of non-bank products to ensure that they
do not unwittingly guarantee or give the Sec. X633 (Reserved)
impression that the financial products being
offered are those of the parent bank. Sec. 1633 Credit-linked Notes and Similar
Credit Derivative Products. The following
§ 1631.8 Other requirements are the guidelines for the capital treatment
a. Record-keeping and accounting for of investments in credit-linked notes and
the financial products of the bank’s allied similar credit derivative products such as
undertaking or IH unit shall be separate from credit-linked deposits and credit-linked loans.
those of the parent bank. a. Definitions
b. The bank, in coordination with its (1) A credit-linked note (CLN) pertains
allied undertaking/IH unit, shall formulate to a pre-funded credit derivative instrument
the guidelines and establish clear procedures under which the note holder effectively
for evaluating client suitability. accepts the transfer of credit risk pertaining
to a reference asset or basket of assets issued
§§ 1631.9 - 1631.10 (Reserved) by a reference entity/ies. The repayment of
the principal to the note holder is contingent
§ 1631.11 Sanctions upon the occurrence of a defined credit event.
a. Violations of the provisions of this In consideration, the note holder receives
Section shall constitute grounds for the an economic return reflecting the underlying
imposition on the bank of the following: credit risk of the reference asset/s.
(1) Monetary fine – Any amount as may All references to CLNs in this Section
be authorized by the Monetary Board not to shall be taken to generically include similar

§ 1633
05.12.31
instruments, such as Credit-Linked Deposits collateral is constituted in a legally effective

(CLDs) and Credit-Linked Loans (CLLs). manner as to give priority to the note
(2) An SPV, for purposes of this holders’ interest in the event of bankruptcy
Section, refers to an entity specifically of the note issuer, the risk weight of the
established to issue CLNs of a single, note issuer is substituted with the risk
homogeneous risk class that are fully weight associated with the relevant
collateralized as to principal by high-grade security.
securities purchased out of the proceeds of When the CLN is referenced to a basket
the note issuance. Collateral shall be limited of reference entities and the contract
to securities with an assignable risk weight terminates and pays out on the first entity
of not more than twenty percent (20%) to default in the basket, capital should be
under existing regulations. held to consider the cumulative risk of all
b. Qualified banks the reference entities in the basket. This
In general, only banks with expanded means that the risk weights of all the
derivatives authority may invest in CLNs reference entities are added up and the sum
as defined above on the principle that such compared with the risk weight of the note
banks have already demonstrated a more issuer. If the sum of the risk weights of all
sophisticated ability to manage risks. the reference entities in the basket is higher
Subject to the provisions in Sec. 1648, they than the risk weight of the note issuer, then
may also invest in SPV-issued CLNs that this sum is adopted. The resultant risk-
co-exist with other CLNs of different weighted exposure to the basket is, however,
seniority of claims against the reference capped at ten (10) times the book value of
asset pool. As an exception to the general the note. Accordingly, the maximum capital
rule, a UB/KB without expanded derivatives charge is 100% of the book value of the
authority may invest in single name CLNs note. The multiplier ten (10) is the reciprocal
where the reference asset is a direct ROP of the BSP-required minimum capital
obligation or an obligation fully guaranteed adequacy ratio of ten percent (10%).
by the ROP. If, on the other hand, the risk weight of
c. Capital treatment of investments in the note issuer is still higher than the sum of
CLNs the risk weights of all the reference entities
(1) Banking book. Positions in CLNs in in the basket, then the risk weight of the note
the banking book shall be reported in the issuer is adopted.
computation of the risk-based capital When the contract terminates and pays
adequacy ratio covering credit risks under out on the nth (other than the first) entity to
Sec. X116. default in the basket, the treatment above
Through holding a CLN, a bank shall apply except that in aggregating the risk
acquires credit exposure on two (2) fronts - weights of reference entities, the risk weight/
to the reference entity of the note and also s of n–1 entity/ies is/are excluded from the
to the note issuer. The on-balance sheet computation. The bank may choose which
exposure arising from the CLN should be entity/ies to exclude.
weighted by the higher of the risk weight If a CLN that pays out on the nth entity
of the reference entity or the risk weight of to default is rated such that it meets the
the note issuer. The amount of exposure is criteria of a security with the “highest credit
the book value of the note. If the CLN quality” as defined under Appendix 46, only
principal is fully collateralized by securities the highest risk weight in the basket of
that are acceptable as credit risk mitigant reference entities is compared with the risk
under Sec. X116 and provided such weight of the note issuer.

§ 1633
05.12.31
If the CLN is issued by an SPV, the bank embedded credit default product creates a
is exposed to both the reference entity and notional position in the specific risk of the
the collateral held by the SPV. Thus, the risk reference obligation (with no additional
weight/s of the reference entity/ies should general market risk position created).
be compared with the risk weight of the Specific risk
riskiest eligible collateral for purposes of A CLN investment should be reported
computing the risk-weighted exposure of the as a long position on the reference obligation
note and the corresponding capital charge. and a long position on the note itself.
Subject to prior BSP clearance, a bank When a CLN is referenced to multiple
may disapply the additive rule when a obligations in a basket, the positions reported
very strong correlation among the shall depend on the structure of the contract.
reference entities in the basket can be When the contract terminates and pays out
demonstrated. on the first obligation to default in the basket,
A CLN which is referenced to entities the note should be reported as long positions
in the basket proportionately should be risk- in each of the reference obligations in the
weighted according to each reference entity’s basket, with the total capital charge for the
share of protection under the contract. Thus, product capped at the book value of the
if there are two (2) reference entities in a note.
P100.0 million contract, one (1) with a 100% When the contract terminates and pays
risk weight and a twenty percent (20%) out on the nth (other than the first) entity to
share and the other with a twenty percent default in the basket, the treatment above
(20%) risk weight and an eighty percent shall apply except that in aggregating the risk
(80%) share, the risk-weighted exposure is weights of the reference obligations, the risk
P36.0 million, i.e., P100.0 million x 20% x weight/s of n–1 obligations is/are excluded
100% + P100.0 million x 80% x 20%. The from the computation. The bank may choose
corresponding capital charge is P3.6 million which obligations to exclude.
(P36.0 million x 10%). Subject to prior BSP clearance, a bank
(2) Trading book. Positions in CLNs may disapply the additive rule when a very
taken up in the trading book should be strong correlation among the reference
reported in the computation of the adjusted obligations in the basket can be
risk-based capital adequacy ratio covering demonstrated.
combined credit risk and market risk under The additive treatment may also be
Appendix 46. disapplied when an nth-to-default CLN is
(a) Standardized approach rated such that it meets the criteria of a
The following describes the positions to security with the “highest credit quality” as
be reported for investments in CLNs for defined under Appendix 46. Positions in the
purposes of calculating specific risk and reference obligations can be reported as a
general market risk charges under the single long position in a debt security with
standardized approach. the “highest credit quality”. A long position
A CLN investment is treated as a on the note should also be reported whether
position in the note itself, with an embedded or not the CLN meets the criteria of a security
credit default product. The CLN is subject with the “highest credit quality”.
to the specific risk associated with the issuer When the CLN is referenced to multiple
or the collateral when the issuer is an SPV. obligations under a proportionate structure,
In addition, it is subject to general market positions in the reference obligations should
risk that is a function of the maturity and be reported according to their respective
coupon or interest rate of the note. The proportions in the contract.

§ 1633 - 1635.4
05.12.31
General market risk shall be fully complied with by UBs/KBs

A CLN investment creates a long investing in products allowed under this
position in the note itself. Section.
(b) Internal models approach
Banks may seek the BSP’s approval to Sec. 2633 (Reserved)
include CLNs in their recognized models for
calculating capital charges. The detailed Sec. 3633 (Reserved)
requirements relating to the use of internal
models are set out in Annex A of Appendix 46. Sec. X634 (Reserved)
While some banks may not be able to
run full internal models to calculate market Sec. 1635 Banks’ Exposures to Structured
risk capital charges, they may, with the Products. The following rules and
necessary expertise and systems, use regulations shall govern the capital treatment
preprocessing techniques to calculate capital of banks’ exposures to structured products.
charge for CLNs. Banks wishing to adopt
these techniques should seek BSP’s prior § 1635.1 Statement of policy. The BSP
consent. The preprocessing models are aims to foster the development of a market
subject to verification by the BSP. for new financial products in the country,
d. Risk management while at the same time ensure that banks
CLN structures are considered to be hold sufficient capital commensurate to the
exposed to greater risks than comparable risks inherent in these products.
investments in direct obligations. In
particular, investing banks should be aware § 1635.2 Definition. A structured
of the potential legal risk arising from an product refers to a financial instrument
unenforceable contract. They should consult where the return is a function of one (1) or
their legal advisors about these and related more underlying indices, such as interest
legal issues before engaging in such rates, equities and exchange rates. There
transactions. In addition, all investments in may also be embedded derivatives such as
CLNs must be duly approved by a bank’s swaps, forwards, options, caps, and floors
board of directors and subjected to that reshape the risk-return pattern. For
appropriate risk management procedures. purposes of this Subsection, structured
e. Transitional arrangements products do not include asset-backed
Banks which have outstanding securities, credit-linked notes and other
investments in CLNs, but which have not similar instruments.
been authorized under this Section to invest
in such, shall be given a period of ninety § 1635.3 Qualified banks. As a general
(90) calendar days from 25 February 2004 rule, only UBs and KBs with expanded
(effectivity of Circular No. 417) to divest derivatives license may obtain exposures in
themselves of such investments. structured products. Banks without expanded
f. BSP approval not required. No prior derivatives license may only invest in structured
BSP approval is required to invest in CLNs products duly approved by the BSP.
and similar products. However, it shall be
the responsibility of UBs/KBs to fully comply § 1635.4 Capital treatment of banks’
with appropriate risk management standards exposures to structured products
including, as a minimum, those prescribed a. Banking book
under this Section. The regulatory (1) Risk weights. Capital charge for
requirements enumerated in Appendix 66 structured products held in the banking book

§§ 1635.4 - 1636.3
05.12.31
shall depend on the rating of the issuing management standards including, as a

entity, or rating of the collateral in case of minimum, those prescribed under this
structured products issued by special Section. The regulatory requirements
purpose vehicles (SPVs), given by the enumerated in Appendix 66 shall be fully
following BSP-recognized international complied with by UBs/KBs investing in
credit rating agencies: products allowed under this Section.
(a) Moody’s
(b) Standard & Poor’s Sec. 2635 (Reserved)
(c) Fitch Ratings; and
(d) Such other international rating Sec. 3635 (Reserved)
agencies as may be approved by the
Monetary Board. Sec. 1636 EFCDUs Investments in Foreign
In cases where there are two (2) or more Currency Denominated Structured
types of collateral, capital charge shall Products. The following guidelines allow
depend on the lowest rated collateral. UBs and KBs without expanded derivatives
authority to invest in certain specified
The mapping of ratings to the structured products.
corresponding risk weights shall be as
follows: § 1636.1 Statement of policy. The BSP
encourages banks to diversify their EFCDU
Risk weight Moody’s Standard Fitch investment portfolios in order to stabilize
& Poor's Ratings
50% Aaa to Aa3 AAA to AA- AAA to AA- earnings, control maturity mismatches and
100% A1 to A3 A+ to A- A+ to A- minimize over concentration of exposures.
150% Baa1 to Baa3 BBB+ to BBB+ to
BBB- BBB-
Deduction § 1636.2 Scope. EFCDUs of UBs and
from total KBs without expanded derivatives authority
of Tier 1 and Below Baa3 Below BBB- Below BBB-
Tier 2 capital Unrated may invest, for their own account, in foreign
currency-denominated structured products
(2) Use of ratings. If an issuer of a issued by banks and SPVs of high credit
structured product has only one (1) rating quality: Provided, That the revenue streams
by any of the BSP-recognized international of such products may only be linked to
rating agencies, that rating shall be used to interest rate indices and/or foreign exchange
determine the risk weight of the product; rates other than those that involve the
in cases where there are two (2) or more Philippine Peso: Provided, further, That the
ratings which map into different risk minimum all-in return of such investments
weights, the higher of the lowest two (2) may not be lower than zero (0). For purposes
risk weights should be used. of this Section, structured products do not
b. Trading book. Capital charge for include asset-backed securities, credit-linked
structured products held in the trading book notes and other similar instruments.
shall be determined in accordance with
Appendix 46. § 1636.3 Other conditions
a. Maturity – The maximum
§ 1635.5 BSP approval not required contractual maturity of any investment in
No prior BSP approval is required to enter structured products shall be five (5) years.
into authorized transactions. However, it b. Credit quality of issuer – Acceptable
shall be the responsibility of UBs/KBs to issuers are banks and SPVs collateralized by
fully comply with appropriate risk securities rated at least “A” or its equivalent

§§ 1636.3 - 1648.1
05.12.31
by an international rating agency acceptable (5) Management should ensure that the
to the Monetary Board. risks of the investments are accurately
c. Booking – Investments in structured aggregated in risk reports on a timely basis.
products as herein defined shall be booked
under banking book accounts as follows: (1) § 1636.4 Capital treatment of EFCDUs
DFVPL, (2) AFS, (3) Held to Maturity (HTM); The capital treatment shall be in accordance
or (4) Unquoted Debt Securities Classified with existing rules and regulations as
as Loans, which shall be accounted for in modified for structured instruments.
accordance with Subsecs. X164.1, X388.5
and Appendix 33, but not under the HFT § 1636.5 BSP approval not required
category. No prior BSP approval is required to enter
d. Prudential limits – The total into authorized transactions. However, it
carrying value of all investments in shall be the responsibility of UBs/KBs to fully
structured products as defined herein at comply with appropriate risk management
any given point in time must not exceed standards including, as a minimum, those
twenty percent (20%) of the total prescribed under this Section. The regulatory
investment portfolio of the EFCDU requirements enumerated in Appendix 66
(combined amount of Trading Account shall be fully complied with by UBs/KBs
Securities (TAS), ASS and IBODI). investing in products allowed under this
e. Risk management – Investing banks Section.
must have established internal processes to
identify, evaluate, monitor and manage the § 1636.6 Sanctions. Non-compliance
risk exposures, e.g. credit risk, market risk, with the provisions of this Section shall subject
liquidity risk, operational risk, legal risk, the bank to a fine of one-tenth of one percent
compliance risk, created by their investments (1/10 of 1%) of the outstanding investment
in structured products. As a minimum: per day, but not to exceed P30,000 per day,
(1) Such investments must be to be reckoned from the day the bank is
specifically approved by the board of deemed in violation of regulations, until the
directors and be subject to appropriate day the bank has complied with the
internal limits and periodic reporting to the requirements. Banks may also be temporarily
Board. or permanently prohibited from such
(2) Banks must comply with generally investments as circumstances may warrant.
accepted accounting and disclosure
standards and/or rules and regulations Sec. 2636 (Reserved)
prescribed by the BSP.
(3) An independent risk management Sec. 3636 (Reserved)
function must be in place.
(4) Banks should have the ability to Secs. X637 - X647 (Reserved)
value their investments on a continuing and
consistent basis and to measure their Sec. 1648 Investments in Securities Overlying
sensitivity to market movements. This Securitization Structures. The following rules
should include performing, at regular shall govern banks’ investments in securities
intervals, stress tests that reflect extreme overlying securitization structures.
market conditions. As part of the valuation
exercise, banks should be able to obtain bid § 1648.1 Statement of policy. The BSP
prices from the issuers of the investment aims to foster the development of a market
instruments on a monthly basis. for new financial products in the country

§§ 1648.1 - 1648.5
05.12.31
and provide banks with expanded (ii) Standard & Poor’s

opportunities for investment diversification, (iii) Fitch IBCA
while at the same time ensure that they (iv) Other international rating agencies
hold sufficient capital commensurate to the as may be approved by the Monetary Board
risks inherent in these products. (b) Domestic rating agencies:
(i) PhilRatings
§ 1648.2 Definition. Securitization (ii) Other domestic rating agencies as
structures refer to: may be approved by the Monetary Board
a. structures where the cash flow The assignment of risk weights
from an underlying pool of exposures is corresponding to agency ratings shall be as
used to service at least two (2) different follows:
stratified risk positions or tranches Risk weight Moody’s Standard Fitch PhilRatings
reflecting different degrees of credit risk (also & Poor’s IBCA
20% Aaa to AAA to AAA to Aaa to Aa
known as traditional securitization); or Aa3 AA- AA-
b. structures with at least two (2) dif-
50% A1 to A3 A+ to A- A+ to A- A
ferent stratified risk positions or tranches
100% Baa1+ BBB+ BBB+ Baa
that reflect different degrees of credit risk, to Baa3 to BBB- toBBB-
where credit risk of an underlying pool of Deduction Below Below Below Below Baa
exposures is transferred, in whole or in from total Baa3 BBB- BBB-
part, through the use of credit derivatives of Tier 1 and
Tier 2 capital Unrated
or guarantees that serve to hedge the credit
risk of the portfolio (also known as syn- (2) Use of ratings. Ratings of BSP-
thetic securitization). recognized credit rating agencies shall be
used as follows:
§ 1648.3 Qualified banks. UBs/KBs (a) Securities overlying securitization
with expanded derivatives authority may structures created within the Philippines may
invest in securities overlying any tranches be rated by any BSP-recognized international
of securitization structures. UBs/KBs or domestic credit rating agency, while
without expanded derivatives authority securities overlying securitization structures
may also invest but only in securities created outside of the Philippines may only
overlying tranches of securitization be rated by any of the international credit rating
structures that are rated at least “A”, or its agencies that are recognized by the BSP; and
equivalent, by a BSP-recognized credit (b) In cases when overlying securities
rating agency. have split ratings which map into different risk
weights, the higher risk weight should be used.
§ 1648.4 Capital treatment of b. Market risk. Capital charge for
investments in securities overlying securities overlying securitization structures
securitization structures held in the trading book shall be determined
a. Credit risk in accordance with Appendix 46 and the use
(1) Risk weights. Capital charge for of agency ratings for such purpose shall be
investments in securitization structures consistent with the above principles.
held in the banking book shall be based
on the latest rating given by any of the § 1648.5 BSP approval not required. No
following BSP-recognized credit rating prior BSP approval is required to invest in
agencies: securities overlying securitization structures.
(a) International rating agencies: However, it shall be the responsibility of
(i) Moody’s UBs/KBs to fully comply with appropriate

§§ 1648.5 - X651.1
05.12.31
risk management standards including, as a originator prior to securitization. Such

minimum, those prescribed under this assets are generated in the ordinary course
Section. The regulatory requirements of business of the originator and may
enumerated in Appendix 66 shall be fully include mortgage loans, consumption
complied with by UBs/KBs investing in loans, trade receivables, lease receivables,
products allowed under this Section. credit card receivables and other similar
financial assets.
Sec. 2648 (Reserved) b. Asset-backed securities shall refer
to the certificates issued by a Special
Sec. 3648 (Reserved) Purpose Trust (SPT) representing undivided
ownership interest in the asset pool.
Sec. X649 (Reserved) c. Asset pool shall mean a group of
identified, self-amortizing assets that is
Sec. 1650 Offering in the Philippines of conveyed the SPT issuing the ABS and such
Products by Parent Bank and Branches other assets acquired as a consequence of
Abroad of the Parent Bank. Philippine the securitization.
branches and subsidiaries of foreign banks shall: d. Clean-up call shall refer to an option
a. Inform/notify the BSP if their parent granted to the seller to purchase the
bank and/or branches abroad of their parent remaining assets in the asset pool.
bank offer or market products in the e. Credit enhancement shall refer to
Philippines, either through electronic means any legally enforceable scheme that is
(website) or through its local desks (within intended to enhance the marketability of the
bank premises); and ABS and increase the probability that investors
b. In cases when there are products being receive payment of amounts due them.
offered, to submit to the appropriate SED f. Guarantor shall refer to an entity that
within ten (10) banking days from receipt of guarantees the repayment of principal and
Circular Letter dated 12 April 2005, the list of interest on loans or receivables included in
products offered/marketed, the corresponding the asset pool in the event of default by the
manuals containing the policies and procedures, borrower.
the flow chart of transaction and the risk g. Investible funds shall refer to the
management system for each particular product. proceeds of collection of loans or
receivables included in the asset pool which
Sec. 2650 (Reserved) are not yet due for distribution to investors.
h. Issuer shall refer to the SPT that
Sec. 3650 (Reserved) issues the ABS.
i. Originator shall refer to a bank and/
Sec. X651 Asset-Backed Securities. The or its subsidiary or affiliate engaged in allied
following regulations shall govern the activities that grants or purchases loans or
origination, issuance, sale, servicing and receivables and assembles them into a pool
administration of asset-backed securities for securitization.
(ABS) by any bank including its subsidiaries j. Residual certificates shall refer to
and affiliates engaged in allied activities, certificates issued representing claims on the
which are domiciled in the Philippines. remaining value of the asset pool after all
ABS holders are paid.
§ X651.1 Definition of terms k. Seller shall refer to the entity which
a. Assets shall mean loans or conveys to the SPT the assets that constitute
receivables existing in the books of the the asset pool.

§§ X651.1 - X651.5
05.12.31
l. Servicer shall refer to the entity (5) Description and amount of assets
designated by the Issuer primarily to collect comprising the asset pool;
and record payment received on the Assets, (6) Representations and warranties;
to remit such collections to the Issuer and (7) Credit enhancements;
perform such other services as may be (8) Distribution of funds;
specifically required by the issuer excluding (9) Authorized investment of investible
asset management or administration. funds;
m. Special Purpose Trust shall refer to (10) Rights of the investor;
a trust administered by a trustee and created (11) Reports to investors; and
solely for the purpose of issuing and (12) Termination and final settlement.
administering an ABS. The trust indenture shall include as annexes
n. Trustee shall refer to the entity the servicing agreement between the trustee
designated to administer the SPT. and the servicer and the underwriting
o. Underwriter shall refer to the entity agreement between the seller and the
engaged in the act or process of distributing underwriter.
and selling of the ABS either on guaranteed b. Prospectus. As a minimum
or best effort basis. requirement, it shall contain the following:
(1) Summary of the contents of the
§ X651.2 Authority. Any bank prospectus;
including its subsidiaries and affiliates (2) Description of each class of
engaged in allied activities, may securitize certificate, including such matters as
its assets upon prior approval of the BSP. probable yields, payment dates and priority
of payments;
§ X651.3 Management oversight. The (3) Description of the assets comprising
originator/seller shall have the securitization the Asset Pool as well as the representations
program approved by its board of directors. and warranties set forth by the originator
The originator/seller shall integrate such and/or seller;
securitization program into its corporate (4) Assumptions underlying the cash
strategic plan. The board of directors shall flow projections for each class of certificate;
ensure that the securitization of assets is (5) Description of any credit enhance-
consistent with such program. ments;
(6) Identity of the servicer; and
§ X651.4 Minimum documents (7) Disclosure statements as required
required. The application to securitize must under Subsec. X651.6.
be accompanied by the following c. Specimen of application to purchase
documents as a minimum requirement: ABS. It shall include the terms and
a. Trust indenture evidencing the conditions of the purchase and the
conveyance of the assets from the seller to disclosures required under Subsec. X651.6.
the Issuer or SPT, the features of which shall d. Specimen of certificate. It shall
include the following: indicate the features of the ABS and the
(1) Title or nature of the contract in disclosures required under Subsec. X651.6.
noticeable print;
(2) The parties involved, indicating in § X651.5 Minimum features of
noticeable print, their respective legal ABS.The ABS shall be pre-numbered and
capacities, responsibilities and functions; printed on security paper. The ABS shall be
(3) Features and amount of ABS; signed and authenticated by the trustee. They
(4) Purposes and objectives; are transferable by endorsement of the

§§ X651.5 - X651.8
05.12.31
certificate. The transfer shall be recorded in d. Securitized assets shall be

the books of the trustee, indicating the considered the subject to a true sale
names of the parties to the transaction, the between the seller and the SPT. Sold assets
date of the transfer and the number of the shall be taken off the books of the seller and
certificate transferred. shall be transferred to the books of the SPT.
The minimum denomination of any ABS
shall be P10,000. For accounting purposes, the transfer
shall only be considered a true sale if the
§ X651.6 Disclosures. The following following three (3) conditions have been
disclosures must be provided in a satisfied:
conspicuous manner in any document (1) the transferred assets have been iso-
inviting investment, application to purchase lated and put beyond the reach of the seller
ABS and the certificate itself: and its creditor;
a. The ABS do not represent deposits or (2) the SPT has the right to pledge or
liabilities of the originator, servicer or trustee exchange its interest in the assets; and
and that they are not insured with PDIC; (3) the seller does not effectively main-
b. The investor has an investment risk; tain control over the transferred assets by
c. The trustee does not guarantee the any concurrent agreement.
capital value of the ABS or the collectibility e. All expenses incidental to under-
of the asset pool; and writing, conveyance of the asset pool
d. The right of an investor. including expenses for credit enhancement
The investors shall be required to sign may be paid by the originator/seller:
an acknowledgment indicating that they have Provided, That no further expenses shall be
read and understood the disclosures. borne by the originator/seller after the asset
pool has been conveyed to the SPT.
§ X651.7 Conveyance of assets
a. The conveyance of the assets § X651.8 Representations and
comprising the asset pool shall be done within warranties
the context of a true sale and, for this purpose, a. Standard representations and
the seller may not retain in its books the ABS, warranties refer to an existing state of facts
except the residual certificate, if any. that the originator, seller or servicer can
b. The seller shall have no obligation either control or verify with reasonable due
to repurchase or substitute an asset or any diligence at the time the assets are sold. Any
part of the asset pool at any time, except in breach of representation or warranty may
cases of a breach of representation or give rise to legal recourse.
warranty, or under a revolving structure, to b. The representations or warranties
replace performing assets which have been shall be clear and explicit and, in particular,
paid out in part or full. shall not relate to the future creditworthiness
c. The seller shall be under no of the assets in the asset pool or the perfor-
obligation to provide additional assets to the mance of the SPT or the securities issued.
SPT to maintain a “coverage ratio” of c. Any agreement to pay damages as a
collateral to outstanding ABS. A breach of result of breach of warranties and
this requirement will be considered a credit representations shall hold only where:
enhancement and should be charged against (1) there is a well-documented
capital. However, this will not apply to an negotiation of the agreement in good faith;
asset pool conveyed under a revolving (2) the burden of proof for a breach of
structure such as the securitization of credit representation or warranty rests with the
card receivables. other party;

§§ X651.8 - X651.13
05.12.31
(3) damages are limited to the loss e. The trustee may invest the Investible
incurred as a result of the breach; and funds only in obligations issued and/or fully
(4) there is a written notice of claim guaranteed by the government of the
specifying the basis for the claim. Republic of the Philippines or by the BSP
The BSP shall be notified of any instance and such other high-grade readily marketable
where a bank or its subsidiaries/affiliates has debt securities as the BSP may approve.
agreed to pay damages arising out of any f. The trustee shall designate a
breach of representation or warranty. replacement of the servicer if the latter fails
to satisfactorily perform its duties and
§ X651.9 Third party review. A due responsibilities according to the terms and
diligence review by an independent entity conditions of the servicing agreement.
mutually agreed upon by the seller and the
Issuer shall be done before the assets are § X651.12 Servicer
sold. a. The servicer shall perform its duties
according to the terms and conditions of the
§ X651.10 Originator and seller servicing agreement and such other written
a. The seller may itself be the instructions as the trustee may issue on a
originator, and may likewise be designated case-by-case basis. Collections made by the
as the servicer. servicer shall be remitted promptly to the
b. The seller or originator shall deliver trustee or as may be agreed upon by the
to the trustee all original documents or parties in the servicing agreement, but in no
instruments with respect to each asset sold. case shall the remittance period be longer
than one (1) month.
§ X651.11 Trustee and issuer b. The servicer shall prepare periodic
a. The trustee shall be the trust reports as may be required by the trustee.
department of a bank licensed to do business c. The servicer shall report to the
in the Philippines. trustee within thirty (30) days, any
b. The trustee shall have the right to borrower which fails to pay its debt at
manage or administer the asset pool. The maturity date or any adverse development
trustee shall see to it that necessary measures that may affect the collectibility of any
are taken to protect the asset pool. loan account or receivable comprising the
c. The trustee shall undertake a Asset pool.
performance review of the asset pool at least d. The servicer shall have no authority
quarterly and shall prepare a report to to waive penalties and charges except with
investors indicating, among others, a written authority from the trustee.
collections, fees and other expenses as well
as defaults, which report shall be made § X651.13 Underwriter
available to the investors at anytime after a. A UB or IH shall have written
thirty (30) days from end of the reference policies and procedures on underwriting of
quarter. ABS.
d. The trustee shall initiate all civil b. The underwriter shall perform its
actions including foreclosure of mortgaged functions according to the terms and
properties to effect collection of receivables conditions of the underwriting agreement.
in the asset pool. The servicer or any other c. An underwriter may deal in ABS,
party may be designated by the trustee to except those administered by its trust
perform such function on a case-by-case department, the trust departments of its
basis. subsidiaries/affiliates, the trust department

§§ X651.13 - X651.16
05.12.31
of its parent bank or the trust department of subsidiary/affiliate, and trustee or its
its parent bank’s subsidiaries/affiliates. subsidiary/affiliate;
d. A UB/IH may act as underwriter, d. Overcollateralization provided by
on a firm basis, of ABS except those the originator/seller wherein the assets
administered by its trust department, the conveyed to the SPT exceed the amount of
trust departments of its subsidiaries/affiliates, securities to be issued.
the trust department of its parent bank or Losses arising from overcollateralization
the trust department of its parent bank’s shall be recognized by the originator/seller
subsidiaries/affiliates. upfront. Such losses shall be treated as
e. The underwriter may not extend capital charges.
credit for the purpose of purchasing the ABS e. Spread account wherein the income
which such UB/IH underwrites or that from the underlying pool of receivables is
which is underwritten by its subsidiaries/ made available to cover any shortfall in the
affiliates, its parent bank or its parent bank’s repayment of ABS. The spread account shall
subsidiaries/affiliates. be handled by the trustee which shall
account for it separately. If not needed, this
§ X651.14 Guarantor "spread" generally reverts to the holder of
a. Only an entity the regular business the residual certificate.
of which includes the issuance of guarantees f. Subordinated securities that are
or similar undertaking may act as guarantor. lower ranking, or junior to other obligations
b. The guarantor must have the and are paid after claims to holders of senior
financial capacity to perform its securities are satisfied.
responsibilities in accordance with the g. Other credit enhancements as may
terms and conditions of the guarantee be approved by the Monetary Board.
agreement. It shall submit to the trustee To be consistent with the concept of true
at least once in every six (6) months such sale, subordinated securities shall be sold to
financial reports as the trustee may third party investors other than originator’s/
require. seller’s parent company or its subsidiary/
c. The originator or seller may not issue affiliate and the trustee or its subsidiary/affiliate
a counter-guarantee in favor of the guarantor. or, if held by the seller, capital charges should
be booked upfront. Otherwise, the
§ X651.15 Credit enhancement. Credit subordinated securities shall be treated as
enhancement may be provided in any of the deposit substitute subject to legal reserves.
following manner:
a. Standby letter of credit issued by a § X651.16 Clean-up call. A clean-up
UB/KB other than the originator/seller or its call may be exercised by the seller once the
subsidiary/affiliate, its parent bank or the outstanding principal balance of the
parent bank’s subsidiary/affiliate, and trustee receivable component of the asset pool falls
or its subsidiary/affiliate; to ten percent (10%) or less of the original
b. Surety bond issued by any insurance principal balance of the asset pool. Where
company other than the originator’s/seller’s the asset pool includes foreclosed and other
subsidiary or affiliate, the subsidiary or assets, such assets shall be included in the
affiliate of the originator’s/seller’s parent clean-up call and the consideration thereof
bank and the trustee or its subsidiary/affiliate; shall be at current market value. Such a clean-
c. Guarantee issued by any entity other up call shall not be considered recourse or
than the originator/seller or its subsidiary/ in violation of Subsec. X651.7 on
affiliate, its parent bank or the parent bank’s conveyance of assets.

§§ X651.17 - X654.1
05.12.31
§ X651.17 Prohibited activities supervised by the BSP: Provided, That the

a. The seller may not, under any assets which are the subject of such
circumstance, designate its trust department, securitization are existing in the books of the
the trust department of its subsidiaries/ entity prior to securitization: Provided,
affiliates, the trust department of its parent further, That such entity acting as trustee or
bank or the trust department of its parent servicer is not a subsidiary/affiliate of the
bank’s subsidiaries/affiliates as trustee. originator/seller, its parent bank or the
b. Any director, officer or employee of parent bank’s subsidiaries/affiliates or vice
the originator, seller or servicer may not versa: Provided, finally, That such entity
serve as a member of the board of directors acting as trustee may not designate its
or trust committee of the trustee or vice versa subsidiaries/affiliates, its parent or the
for the duration of the securitization. parent’s subsidiaries/affiliates as servicer
c. The trust indenture shall not contain or vice versa.
any stipulation whereby the seller, its
subsidiaries/affiliates, its parent bank or the § X651.20 Report to BSP. The trustee
parent bank’s subsidiaries/affiliates shall bank shall submit a report of every
commit to extend any credit facility to the securitization scheme in formats to be
issuer and/or trustee. prescribed by the BSP. The report shall be
d. The ABS shall not be eligible as submitted to the appropriate SED of BSP,
collateral for a loan extended by a bank within fifteen (15) banking days after end of
which originated/sold the underlying assets every reference quarter. Such report shall
of such ABS. be considered a Category A report for
e. The trust department of a bank that purposes of implementing fines in the
has discretion in the management of any submission of required reports pursuant to
trust or investment management account existing regulations.
may not purchase for said trust/investment
management account ABS administered by Secs. X652 - X653 (Reserved)
the trust department of the same bank, the
trust department of such trustee’s Sec. X654 Recognition and Derecognition
subsidiaries/affiliates, the trust department of Domestic Credit Rating Agencies for
of such trustee’s parent bank and the trust Bank Supervisory Purposes. The following
department of the parent bank’s subsidiaries/ regulations shall govern the recognition and
affiliates. derecognition of domestic credit rating
f. The trustee may not designate its agencies (CRAs) for bank supervisory
subsidiary/affiliate, its parent or the parent’s purposes.
subsidiaries/affiliates as servicer or vice
versa. § X654.1 Statement of policy. The
introduction in the financial market of new
§ X651.18 Amendment. Any and innovative products create increasing
amendment to the trust indenture shall demand for and reliance on CRAs by the
require the prior approval of the BSP. industry players and regulators as well. As
a matter of policy, the BSP wants to ensure
§ X651.19 Miscellaneous provision that the reliance on credit ratings is not
Without prior approval of the BSP, a bank misplaced. The following rules and
or any entity supervised by the BSP may act regulations that shall govern the recognition/
as trustee or servicer in a securitization derecognition of domestic CRAs for bank
scheme originated by an entity not supervisory purposes.

§ X654.2
05.12.31
§ X654.2 Minimum eligibility criteria (f) The directors, officers, members of

Only ratings issued by CRAs the rating committee and professional
recognized by the BSP shall be considered analytical staff of the CRA are not currently
for BSP bank supervisory purposes. The involved as a defendant in any litigation
BSP, through the Monetary Board, may connected with violations of the Securities
officially recognize a credit rating agency Regulation Code nor included in the BSP
upon satisfaction of the following watchlist.
requirements: (2) Financial resources
a. Organizational structure (a) The CRA must have the financial
(1) A domestic CRA must be a duly capability to invest in the necessary
registered company under the Securities and technological infrastructure to ensure speedy
Exchange Commission (SEC); and acquisition and processing of data/
(2) A domestic CRA must have at least information and timely release of reliable
five (5) years track record in the issuance of and credible ratings; and
reliable and credible ratings. In the case of (b) The CRA must have financial
new entrants, a probationary status may be independence that will allow it to operate
granted: Provided, That the CRA employs free from economic and political pressures.
professional analytical staff with experience c. Objectivity
in the credit rating business. (1) The CRA must use a rigorous and
b. Resources systematic assessment methodology that has
(1) Human Resources been established for at least one (1) year;
(a) The size and quality of the CRA’s however, a three (3)-year period is
professional analytical staff must have the preferable;
capability to thoroughly and competently (2) The assessment methodology of the
evaluate the assessed/rated entity’s CRA must be based both on qualitative and
creditworthiness; quantitative approaches; and
(b) The size of the CRA’s professional (3) The CRA must use an assessment
analytical staff must be sufficient to allow methodology that is subject to on-going
substantial on-going contact with senior review and is responsive to changes in the
management and operational levels of operations of assessed/rated entities.
assessed/rated entities as a routine d. Independence
component of the surveillance process; (1) The CRA must be free from control
(c) The CRA shall establish a Rating of and undue influence by the entities it
Committee composed of adequately assesses/rates;
qualified and knowledgeable individuals in (2) The assessment process must be
the rating business, majority of whom must free from ownership pressures to allow
have at least five (5) years experience in credit management to exercise independent
rating business; professional judgement;
(d) The directors of the CRA must (3) Persons directly involved in the
possess a high degree of competency assessment process of the CRA are free from
equipped with the appropriate education and conflicts of interest with assessed/rated
relevant experience in the rating business; entities; and
(e) The directors, officers, members of (4) The CRA does not assess/rate an
the rating committee and professional associate entity.
analytical staff of the CRA have not at any e. Transparency
time been convicted of any offense involving (1) A general statement of the
moral turpitude or violation of the Securities assessment methodology used by the CRA
Regulation Code; and should be publicly available;

§ X654.2 - X654.3
05.12.31
(2) The CRA shall disseminate to the For purposes of this Section, a subsidiary
public thru a well-circularized publication, refers to a corporation, more than fifty
all assigned ratings disclosing whether the percent (50%) of the voting stock of which
rating issued is solicited or unsolicited; is owned or controlled directly or indirectly
(3) The rationale of ratings issued and by the CRA while an affiliate refers to a
risk factors considered in the assessment corporation, not more than fifty percent
should be made available to the public; (50%) but not less than ten percent (10%)
(4) The ratings issued by the CRA of the voting stock of which is owned or
should be available both to domestic and controlled directly or indirectly by the
foreign institutions with legitimate interest; CRA.
and “Control” exists when the parent owns
(5) Publication of changes in ratings directly or indirectly through subsidiaries
together with the basis for the change should more than one-half of the voting power of
be done on a timely basis. an enterprise unless, in exceptional
f. Disclosure requirements circumstance, it can be clearly demonstrated
(1) Qualitative disclosures that such ownership does not constitute
(a) Definition of ratings along with control. Control may also exist even when
corresponding symbols; ownership is one-half or less of the voting
(b) Definition of what constitutes a power of an enterprise when there is:
default, time horizon within which a default (a) power over more than one-half of
is considered and measure of loss given a the voting rights by virtue of an agreement
default; and with other stockholders;
(c) Material changes within the CRA (b) power to govern the financial and
(i.e., changes in management or operating policies of the enterprise under a
organizational structure, rating personnel, statute or an agreement;
modifications of rating practices, financial (c) power to appoint or remove the
deterioration) that may affect its ability to majority of the members of the board of
provide reliable and credible ratings. directors or equivalent governing body;
(2) Quantitative disclosures (d) power to cast the majority votes at
(a) Actual default rates experienced in meetings of the board of directors or
each rating category; and equivalent governing body; or
(b) Rating transitions of assessed/rated (e) any other arrangement similar to any
entities over time (i.e., likelihood of an AAA of the above.
credit rating transiting to AA etc. over time). h. Internal compliance procedures
g. Credibility (1) The CRA must have the necessary
(1) The CRA must have a general internal procedures to prevent misuse or
reputation of high standards of integrity unauthorized disclosure of confidential/ non-
and fairness in dealing with its clients and public information; and
conducts its business in an ethical (2) The CRA must have rules and
manner; regulations that prevent insider trading and
(2) The CRA is generally accepted by other conflict of interest situations.
predominant users in the market (i.e.,
issuers, investors, bankers, financial § X654.3 Pre-qualification requirements
institutions, securities traders); and The application of a domestic CRA for
(3) The CRA must carry out its rating BSP recognition shall be submitted to the
activities with due diligence to ensure appropriate SED of the BSP together with
ratings are fair and appropriate. the following information/documents:

§§ X654.3 - X654.6
05.12.31
a. An undertaking committee and professional analytical staff,

(1) That the CRA shall comply with if any.
regulations, directives and instructions
which the BSP or other regulatory agency/ § X654.4 Inclusion in BSP list. The
body may issue from time to time; and BSP will regularly circularize to all banks
(2) That the CRA shall notify the BSP and non-bank financial institutions an
in writing of any material changes within updated list of recognized CRAs. The BSP,
the organization (i.e., changes in however, shall not be liable for any damage
management or organizational structure, or loss that may arise from its recognition
rating personnel, modifications of its rating of CRAs to be engaged by users.
practices, financial deterioration) that may
affect its ability to provide reliable and § X654.5 Derecognition of credit rating
credible ratings. agencies
b. Other documents/information: a. Grounds for derecognition. Credit
(1) Brief history of the CRA, major rating rating agencies may be derecognized from
activities handled including information on the list of BSP recognized CRAs under the
the name of the client, type of instruments following circumstances:
rated, size and year of issue; (1) Failure to maintain compliance with
(2) Audited financial statements for the the requirements under Subsec. X654.2 or
past three (3) years and such other any willful misrepresentation in the
information as the Monetary Board may information/documents required under
consider necessary for selection purposes; Subsec. X654.3;
(3) For new entrants, employment of (2) Involvement in illegal activities such
professional analytical staff with experience as ratings blackmail; creation of a false
in the credit rating business; market or insider trading; divulging any
(4) List of major stockholders/partners confidential information about a client
(owning at least ten percent (10%) of the without prior consent to a third party
voting stocks of the CRA directly or along without legitimate interest; indulging in
with relatives within the 1 st degree of unfair competition (i.e., luring clients of
consanguinity or affinity); another rating agency by assuring higher
(5) List of directors, officers, members ratings etc.); and
of the rating committee and professional (3) Any violations of applicable laws,
analytical staff of the CRA; including their rules and regulations.
qualifications, experience related to rating b. Procedure for derecognition. A CRA
activities, directorship and shareholdings in shall only be derecognized upon prior notice
the CRA and in other companies, if any; and after being given the opportunity to
(6) List of subsidiaries and affiliates defend itself.
including their line of business and the nature
of interest of the CRA in these companies; § X654.6 Recognition of PhilRatings as
(7) Details of the denial of a previous domestic credit rating agency for bank
request for recognition, if any (i.e., supervisory purposes. Credit ratings
application date, date of denial, reason for assigned by Philippine Rating Services
denial etc.); and Corporation (PhilRatings) may be used,
(8) Details of all settled and pending among others, for determining appropriate risk
litigations connected with the securities weights in ascertaining compliance with
market against the CRA, its directors, officers, existing rules and regulations on risk-based
stockholders, members of the rating capital requirements.

§§ X655 - X690
05.12.31
Sec. X655 - X657 (Reserved) aspect of an institution’s operations, for the

purpose of overseeing that laws and
Sec. X658 Examination by the BSP. The regulations are complied with, inquiring into
term “examination” shall, henceforth, refer the solvency and liquidity of the institution,
to an investigation of an institution under enforcing prompt corrective action, or such
the supervisory authority of the BSP to other matters requiring immediate
determine compliance with laws and investigation: Provided, That - (i) specific
regulations. It shall include determination authorizations be issued by the Deputy
that the institution is conducting its business Governor, Supervision and Examination
on a safe and sound basis. Examination Sector, and (ii) periodic summary reports on
requires full and comprehensive looking into overseeings made be submitted to the
the operations and books of institutions, and Monetary Board.
shall include, but need not be limited to,
the following: Sec. X659 Internationally Accepted Credit
a. Determination of the bank’s Rating Agencies. Internationally accepted
solvency and liquidity position; Credit Rating Agencies (CRAs) are
b. Evaluation of asset quality as well recognized for bank supervisory purposes
as determination of sufficiency of valuation to undertake local and national ratings:
reserves on loans and other risk assets; Provided, That said CRAs shall have at least
c. Review of all aspects of bank a representative office in the Philippines.
operations; Accordingly, credit ratings assigned by said
d. Assessment of risk management CRAs may be used, among others, as basis
system, including the evaluation of the for determining appropriate risk weights in
effectiveness of the bank management’s ascertaining compliance with existing rules
oversight functions, policies, procedures, and regulations on risk-based capital
internal control and audit; requirements.
e. Appraisal of overall management of
the bank; §§ X659.1 – X659.5 (Reserved)
f. Review of compliance with
applicable laws, rules and regulations; and § X659.6 Recognition of FITCH
g. Any other activities relevant to the SINGAPORE PTE LTD as international
above. credit rating agency for bank supervisory
Regular or periodic examination shall purposes. The national or domestic credit
be done once a year, with an interval of ratings of FITCH SINGAPORE PTE LTD., a
twelve (12) months from the last date BSP-recognized international credit rating
thereof. Special examination may be agency with representative office in the
conducted earlier, or at a shorter interval, Philippines, is hereby recognized by the BSP
when authorized by the Monetary Board by for bank supervisory purposes. Accordingly,
an affirmative vote of five (5) members. national or domestic credit ratings assigned
In the full exercise of the supervisory by FITCH SINGAPORE PTE LTD. may be
powers of the BSP, examination by the BSP used, among others, as basis for determining
of institutions shall be complemented by appropriate risk weights in ascertaining
overseeing thereof. In this regard, the term compliance with existing rules and
“overseeing” shall refer to a limited regulations on risk-based capital
investigation of an institution, or any requirements.
investigation/s that is limited in scope,
conducted to inquire into a particular area/ Sec. X660 – X690 (Reserved)

§§ X691 - X691.9
05.12.31
Sec. X691 Anti-Money Laundering transactions” or “suspicious transactions” as

Regulations. Banks, offshore banking units defined under Rules 3.b and 3.b.1 of
(OBUs), quasi-banks (QBs), trust entities, Appendix 52, respectively, of R.A. No. 9160
non-stock savings and loan associations otherwise known as the Anti-Money
(NSSLAs), pawnshops, and all other Laundering Act of 2001, as amended.
institutions, including their subsidiaries and The system must have at least the
affiliates supervised and/or regulated by the following functionalities:
BSP, otherwise known as “covered a. Covered and suspicious transaction
institutions” shall comply with the provisions monitoring – performs statistical analysis
of R.A. No. 9160, otherwise known as the and profiling;
“Anti-Money Laundering Act of 2001” and b. Watch list monitoring – checks
its Implementing Rules and Regulations transfer parties (originator, beneficiary and
(IRRs) in Appendix 52 and those in Appendix narrative fields) and the existing customer
52a. database for any listed undesirable
individual or corporation;
§ X691.1 Minimum guidelines for fund c. Investigation - checks for given
transfers and correspondent banking names throughout the history of payment
account opening and customer stored in the system;
identification. Banks shall adopt the d. Can generate both the covered
minimum prescribed guidelines that contain transaction reporting (CTR) and the
the salient and relevant policies related to suspicious transaction reporting (STR);
electronic fund transfers in Appendix 52b and e. Must provide complete audit trail;
correspondent banking transactions in f. Capable of aggregating information
Appendix 52c. and statistics for reporting purposes; and
The prescribed minimum guidelines g. Has the capability to support the
should be incorporated as part of the investigation of alerts surfaced by the
standard operating procedures manual and system.
wider anti-money laundering program which The system must be in place within one
must be adhered to at all times. (1) year from 13 October 2005.
Enhancements may be introduced to these UBs and KBs with electronic system of
minimum guidelines to suit the particular flagging and monitoring transactions already
institution’s risk profile but taking into in place shall ensure that their existing
consideration the minimum requirements system is compliant and has similar
prescribed under existing anti-money functionalities as those enumerated
laundering rules and regulations of the BSP, above.
particularly in the area of “Know Your
Customer/Customer Due Diligence”. §§ X691.5 - X691.8 (Reserved)
§§ X691.2 - X691.3 (Reserved) § X691.9 Sanctions and penalties

a. Whenever a covered institution
§ 1691.4 Electronic monitoring systems violates the provisions of Section 9 of R.A.
for money laundering. UBs and KBs are No. 9160 or of this Section, the officer(s)
hereby required to adopt an electronic money or other persons responsible for such
laundering transaction monitoring system violation shall be punished by a fine of
which at the minimum shall detect and raise not less than P50,000 nor more than
to the bank’s attention, transactions and/or P200,000 or by imprisonment of not less
accounts that qualify either as “covered than two (2) years nor more than ten (10)

§§ X691.9 - X699
05.12.31
years, or both, at the discretion of the Secs. X692 - X698 (Reserved)

court pursuant to Section 36 of R.A. No.
7653, otherwise known as “The New Sec. X699 General Provision on Sanctions
Central Bank Act”. Except as otherwise prescribed in Subsec.
b. Without prejudice to the criminal X691.9, any violation of the provisions of
sanctions prescribed above against the this Part shall be subject to Sections 36 and
culpable persons, the Monetary Board may, 37 of R.A. No. 7653.
at its discretion, impose upon any covered The guidelines for the imposition of
institution, its directors and/or officers for monetary penalty for violations/offenses with
any violation of Section 9 of R.A. No. 9160, sanctions falling under Section 37 of R. A.
the administrative sanctions provided under No. 7653 on banks, their directors and/or
Section 37 of R.A. No. 7653. officers are shown in Appendix 67.

APP. 1
05.12.31
GUIDELINES FOR THE ISSUANCE OF A UNIVERSAL BANKING AUTHORITY

(Appendix to Subsec. X101.2)
I. QUALIFICATION REQUIREMENTS averages of the UB sector as of the end of

the quarter immediately preceding the date
A. Minimum Capital Required. A KB of application.
applying for a universal banking (UB) 3. Applicant bank shall show
authority shall have capital equivalent to at profitable operations for the past calendar
least the amount prescribed by the year immediately preceding the filing of
Monetary Board for UBs. The term capital application. Its ratio of net earnings to
shall have the same meaning as defined in average capital accounts should indicate
Sec. X106 prescribing the required satisfactory returns on stockholders’
minimum capitalization for each bank investments.
category. 4. Applicant bank has substantially
The merger or consolidation of banks, complied with banking laws or orders,
or that of a bank and an investment house instructions, or regulations issued by the
as a means of meeting the minimum Monetary Board or orders, instructions, or
capitalization requirement for a UB is rulings by the Governor. Major/important
encouraged. The revaluation of the exceptions and findings by BSP examiners
premises, improvements and equipment of have been corrected or satisfactorily
the institutions involved in a merger or explained.
consolidation may be allowed under Sec.
X112. C. Banking Facilities, Managerial
Capability, Competence, Experience and
B. Financial Resources, Past Performance Integrity of Directors, Principal Officers
and General Compliance with Banking and Key Personnel
Laws and Regulations 1. The applicant bank shall manifest
1. Applicant bank shall not have adequate banking facilities and managerial
incurred any deficiency in the minimum capability in commercial banking operations
capital to risk assets ratio prescribed as shown by, among other things, its branch
by the Monetary Board pursuant to network, subsidiaries and allied
Section 34 of R.A. No. 8791 for the year undertakings, FCDU/EFCDU and foreign
preceding the filing of application. It shall trade transactions, participation in
have sufficient valuation reserves to cover syndicated lending, trust services, etc.
estimated losses. 2. The applicant bank shall indicate in
2. Applicant bank shall not have the application those officers and key
incurred net deficiencies in its reserves personnel having the appropriate training
against deposit and deposit substitute and/or experience in investment banking
liabilities for the three (3)-month period and related functions are available/
immediately preceding the filing of obtainable by the bank.
application. In addition, applicant bank’s The application shall be supported by
liquidity ratios such as primary reserves to the updated bio-data of the bank’s directors
deposit liabilities and primary and and principal officers, including the officers
secondary reserves to deposit and demand and key personnel who will handle the
liabilities shall at least be equal to the investment banking and related functions.
Manual of Regulations for Banks Appendix 1 - Page 1

APP. 1
05.12.31
II. FEASIBILITY STUDY that will be responsible for the investment

banking functions, indicating the
The applicant bank shall submit a designation of officers and other key
feasibility study, which shall include, in positions and the names of persons
addition to the usual content of such study, proposed for appointment to those
the following information: positions.
A. Capitalization and Ownership C. Financial Capability and Previous

1. A schedule showing the computation Year’s Operation. A brief discussion of the
of the applicant bank’s capital accounts applicant bank’s general financial condition,
taking into consideration capital as defined operating performance, solvency and
under Sec. X106 and, if applicable, the liquidity position, supported by appropriate
merger or consolidation scheme to meet the financial ratios as seen from the latest
capitalization requirement as allowed under condensed balance sheet and income
Secs. X111 and X112. statement. The discussion shall include
2. A list of direct and indirect loans to major banking activities, exposure
DOSRI which are unsecured, indicating the concentrations (in terms of top borrowers
original amount, date granted, outstanding and major industries), equity and credit
balance and classification (i.e., whether exposures in subsidiaries and affiliates, and
current or past due) of each DOSRI loan. other significant information.
3. A summary of holdings of
stockholders classified as to citizenship and D. Corporate Strategy
family/business group indicating the number 1. The statement of corporate strategy
of shares subscribed in the applicant bank and of the proposed UB, its immediate and long-
the corresponding percentage of each term goals and objectives.
shareholding to total shareholdings. 2. The lending program and special
4. A list of individual stockholders policies lined up for the first five (5) years
grouped according to family/business including details on guidelines and
group, indicating the TIN, citizenship, type standards to be established on exposure
of shares held (whether voting or non-voting, limits, portfolio diversification, collateral
common or preferred), number of shares requirements, geographical expansion,
subscribed and percentage of holdings to assistance to pioneer and priority areas of
total of each shareholder. economic activities and relationship with
5. A list of individual stockholders clients.
in the applicant bank with equity 3. The investment policies and
investment in other financial institutions, programs to be implemented within the first
indicating the type and number of shares five (5) years of operation including broad
held in the other institution and the categories of undertakings in which the
corresponding percentage of holdings to proposed UB will invest, the portfolio mix
total of each shareholder. to be observed, the extent of control over
subscribed capital stock and voting stock
B. Organization and Management to be exercised in the financial allied
1. The names of the members of the undertakings, quasi-banks and non-financial
board of directors and principal officers of the allied undertakings.
applicant bank. 4. The fund generation program for the
2. The proposed organization chart of first five (5) years of operation to support
the department within the applicant bank the expansion in loans and investments.
Appendix 1 - Page 2 Manual of Regulations for Banks

APP. 1
05.12.31
5. The quarterly underwriting program 2. The offering bank shall accept offers
for one (1) year stating industry of issuer, to buy or invest in its publicly offered shares
the volume of underwriting business of stock from new investors or from existing
classified into equity and debt, public stockholders whose stockholdings, together
offering and private placement and other with those of their relatives within the fourth
information. degree of consanguinity or affinity or of firms,
partnerships, corporations or associations, at
E. Financial Projections least a majority of the voting stock of which
1. The detailed statement of are owned by such stockholders, constitute
underlying assumptions made in projecting less than twenty percent (20%) of the bank’s
the financial statements and ratios. subscribed capital stock. The bank’s articles
2. The detailed projected statement of of incorporation shall have an explicit
income and expenses for the first five (5) provision stating that existing stockholders
years of operation. who are disqualified under these rules shall
3. The projected operating ratios for waive their pre-emptive rights to the additional
the first five (5) years of operation. shares to be publicly offered unless the articles
4. The actual statement of condition of incorporation already provide that such
of applicant bank at month-end before filing stockholders do not have pre-emptive rights.
of application and the projected statement The waiver may be limited to three (3) months
of condition as of the first five (5) years-end after which period the disqualified
of operation. stockholders may purchase shares from the
5. The projected balance sheet ratios unsubscribed/unsold publicly offered shares.
as of the first five (5) years-end of operation. The publicly offered shares of stock shall
6. The projected funds flow for the first be sold to at least twenty-one (21) qualified
five (5) years of operation. buyers or group of buyers but the total shares
of stock which may be purchased by any
qualified buyer or group of buyers shall not
III. PUBLIC OFFERING AND LISTING exceed ten percent (10%) of the publicly
OF BANK SHARES offered shares of stock.
Buyers of publicly offered shares shall in
A domestic bank applying for a UB no case exceed the ownership ceilings under
authority shall cause the public offering and Sections 11, 12, and 13 of R.A. No. 8791
listing of its shares under the following and Section 2 of R.A. No. 7721.
terms and conditions: 3. The bank shall fix the price of the
1. The shares to be publicly offered shares of stock. In the case of subscribed
may be voting or non-voting shares and and fully paid-up shares which shareholders
may come from the bank’s existing are willing to divest, the price shall be set
authorized and unsubscribed stock or by agreement of the parties.
from an increase in its authorized capital 4. The offering bank shall submit to the
stock: Provided, That in the case of an appropriate supervising and examining
applicant bank whose authorized capital department for evaluation, a prospectus
has been fully subscribed and paid-up and containing the following minimum
that bank does not intend to increase its information:
authorized capital stock, the shares to be (a) Name and address of issuing bank;
publicly offered may come from existing (b) A brief history of the bank’s
stockholders who may be willing to operations and a description of its premises
divest themselves of such holdings. and facilities;

APP. 1
05.12.31
(c) The current authorized capital stock stock held by directors and principal
and the stock offered for subscription/sale officers to the authorized capital stock; the
to the public indicating the classes of stock ratio of the publicly offered shares of stock
and the amount for each class presented in to the authorized capital stock, the
tabular form; citizenship and family groupings of
(d) Features of the offer: stockholders with their corresponding
(i) The number and amount of each percentage of ownership.
class of stock offered; 5. The bank shall cause the
(ii) The per share and aggregate publication of the public offering in a
offering price of each class of stock and the newspaper of general circulation at least
per share and aggregate proceeds to be twice within a period of one (1) month
received by the bank; prior to the offering.
(iii) The proposed means of distribution; 6. The provisions of the guidelines on
(iv) Specific terms of the offer public offering shall be deemed
(minimum subscription, payment terms, substantially complied with if the bank
etc.); and causes its shares of stock to be publicly
(v) The expiry date of the offer. offered in the manner and under the
(e) Audited statements of condition conditions herein prescribed for a period
(format similar to published statement of of three (3) months. In cases where there
condition) and earnings and expenses for are no buyers willing and/or qualified to
the last three (3) calendar years; Provided, purchase or invest in the shares of stock
That banks in operation for less than three being publicly offered within said period,
(3) years shall disclose their audited financial the bank, after written notice to the
statements from the start of operations to appropriate supervising and examining
the year last ended; department of the BSP, may sell said shares
(f) Names and addresses of all to its existing stockholders, subject to the
directors and principal officers and their limitations on equity holdings prescribed
respective designations, and stock options by law and regulations.
and other similar plans for directors and The requirements of public offering
officers; and and listing shall be complied with by all
(g) A list of stockholders owning ten applicant banks including those that are
percent (10%) or more of the subscribed able to meet the prescribed minimum
capital stock, the number of shares held by capital requirement on their own or
each, whether voting or non-voting, and the through merger/consolidation with other
par value of such shares. The list shall banks or non-bank financial
likewise show the ratio of subscribed capital intermediaries.

APP. 2
05.12.31
PRESCRIBED APPLICATION FORMS FOR THE ENTRY OF

FOREIGN BANKS
A. Sample Application for Authority to Invest in an Existing Domestic Bank in the

Philippines
___________________________________
Name of Applicant
___________________________________
Address of Head Office
__________________________________
Cable Address
___________________________________
Telefax/Fax Number
Date
The Governor
Bangko Sentral ng Pilipinas
Manila, Philippines
Sir:
We hereby apply for authority to invest in _______ percent (___%) of the voting
stock of __________________________________, an existing domestic bank in the Philippines.
In support of this application, we submit the following documents:
1. A copy of the Memorandum of Understanding between the bank and the investee
domestic bank;
2. A copy of the Board Resolution authorizing the bank to invest in such domestic bank,
and designating the person who will represent the bank in connection therewith;
3. Historical background of the bank, as follows:

(a) Date and place of incorporation;
(b) Number of branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, parent (if any), subsidiaries and
affiliates, and their location and line of business (if different from banking);
(d) Range of banking services offered; and
(e) Financial and commercial relationship with the Philippine Government, local
banks, business entities and residents, past or present;

APP. 2
05.12.31
4. A copy each of the latest amended articles of incorporation and by-laws;
5. List of the bank’s directors and their citizenship;
6. List of principal officers of the head office;
7. Number of stockholders and list of stockholders owning more than fifteen percent
(15%) of the voting stock, if any;
8. A copy each of the bank’s audited financial statements (i.e., statement of condition
and statement of income and expenses) for the last two (2) years prior to the filing of
application;
9. A copy of the bank’s annual report to the stockholders for the year immediately
preceding the date of filing of application;
10. A certification from the bank’s home country supervisory authority that:
(a) The bank’s home country supervisory authority has no objection to the bank’s
investment in an existing domestic bank in the Philippines;
(b) Adequate information on the bank and its subsidiaries will be provided to the
Bangko Sentral ng Pilipinas to the extent allowed under existing laws; and
(c) The Philippine banks may likewise be allowed to establish subsidiaries and/or
branches in the bank’s home country, subject to compliance with the rules and
regulations governing admission which are applicable to all foreign banks;
11. If the investment will constitute majority ownership or give the investor bank control
of management, business plan supported by projected financial statements for one
(1) year, and how such business plan can accomplish the policy objectives of R.A.
No. 7721; and
12. Undertaking to fully share technology, e.g. services/products and facilities such as
computer hardware/software.
Should this application be approved, the following additional documents shall be

submitted:
1. Bio-data sheet for each of the new directors and new principal officers;
2. Evidence of citizenship for each of the new directors and new principal officers in
the investee domestic bank, such as:
(a) Passport;
(b) Birth certificate; or
(c) Naturalization certificate;
3. National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances
or similar police and tax clearances for each of the new directors and new principal
officers who are Filipino citizens or residents of the Philippines;

APP. 2
05.12.31
4. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to

obtain information from other sources in order to establish the authenticity of
information/representations submitted; and
5. Other relevant information as the Bangko Sentral ng Pilipinas may require.
Very truly yours,
__________________________
Signature of Authorized Officer
Over Printed Name
__________________________
Designation
Attachments
B. Sample Application for Authority to Establish a Subsidiary in the Philippines
____________________________
Name of Applicant
____________________________
____________________________
Cable Address
______________________________
Telex/Fax Number
__________________
Date
The Governor
Manila, Philippines
Sir:
We hereby apply for authority to establish a ________ percent ( ____ %)-owned
(Specify the type of bank) banking subsidiary in the Philippines.
In support of this application, we submit the following information/documents:
1. A copy of the board resolution authorizing the bank to establish such subsidiary,
and designating the person who will represent the bank in connection therewith;

APP. 2
05.12.31

(b) Number of domestic branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, subsidiaries and affiliates, and
their location and line of business (if different from banking);
(e) Financial and commercial relationship with the Philippine Government, local
banks, business entities and residents, past or present;
3. A copy each of the bank’s latest amended articles of incorporation and by-laws;
4. List of the bank’s directors and their citizenship;
6. A certification from the bank’s Corporate Secretary that the bank or its holding
company has at least fifty (50) stockholders and that no stockholder owns more than
fifteen percent (15%) of the capital stock of the bank or its holding company, or that
more than fifty percent (50%) of the capital stock of said bank or its holding company
is owned by the government;
7. A certification from the bank’s home country stock exchange authorized by the
government that the bank is listed therein;
8. A copy each of the audited financial statements (i.e., statement of condition and
statement of income and expenses) for the last two (2) years prior to the filing of
application of the applicant bank, and other corporate stockholders, if any, in the
proposed subsidiary;
9. Statement of Assets and Liabilities of each of the non-corporate subscribers/

stockholders* as of a date not earlier than ninety (90) days prior to the filing of
application, duly certified by a Certified Public Accountant or sworn to by the
subscriber/stockholder* himself, with supporting schedules;
10. A copy of the bank’s annual report to the stockholders for the year immediately
preceding the date of filing of application;
11. Certified photo copies of income tax returns of each of the subscribers/ stockholders*
for the last two (2) calendar/fiscal years;
12. A certification from the bank’s home country supervisory authority:

(a) That the bank’s home country supervisory authority has no objection to the bank’s
establishment of a subsidiary in the Philippines;
(b) That adequate information on the bank and its subsidiaries will be provided to
the Bangko Sentral ng Pilipinas to the extent allowed under existing laws;
* Owning at least 2% of the subscribed capital stock

APP. 2
05.12.31
(c) That the Philippine banks may likewise be allowed to establish subsidiaries and/
or branches in the bank’s home country, subject to compliance with the rules and
regulations governing admission which are applicable to all foreign banks;
(d) As to the ranking of the applicant bank in the home country on the basis of net
worth as well as on the basis of on-book total assets of the head office and all
branches, excluding subsidiaries and affiliates; and
(e) That the bank complies with the capital requirements as prescribed by the laws
and regulations of the home country;
13. Business plan supported by projected financial statements for one (1) year, and how
such business plan can accomplish the policy objectives of R.A. No. 7721;
or similar police or tax clearance for each of the non-corporate subscribers/
*
stockholders and proposed directors who are Filipino citizens or residents of the
Philippines;
computer hardware/software;
16. Agreement to Organize a (specify type of bank) Bank in the Philippines (See
prescribed format in Item C below); and
17. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to
obtain information from other sources in order to establish the authenticity of
information/representations submitted.
Should this application be approved, we shall submit the articles of incorporation of

the proposed subsidiary together with an application for authority to register the same with
the Securities and Exchange Commission (SEC) the Articles of Incorporation (See prescribed
format in Item D below).
Very truly yours,
___________________________
Over Printed Name
_________________________
Designation
Attachments
* Owning at least 2% of the subscribed capital stock

APP. 2
05.12.31
C. Sample Agreement to Organize a Subsidiary Bank
AGREEMENT TO ORGANIZE A (Specify type of Bank) BANK
An agreement, made this _____ day of _________________, 19__ by and among the
following:
Name Residence Citizenship
Whereas, the parties hereto are desirous of forming a corporation under the following
terms:
1. That a corporation to be known as _____________________ shall forthwith be

formed for the purpose of carrying on the business of a _____________________ bank as
provided for by law;
2. That the place where the principal office of the corporation is to be established or
located is in _________________________;
3. That the number of directors of the said corporation shall be _________________

and that the names, residences and citizenship of the proposed directors of the corporation
are, as follows:
Name Residence Citizenship
4. That the capital stock of said corporation is _______________________ pesos

(___________) Philippine Currency, and said capital shall be divided into (number) preferred
shares with a par value of ________________ each share:
(If there are preferred shares, their preferences should be described.)
5. That the amount of said capital stock which is proposed to be subscribed initially
by the stockholders is _____________________ pesos (P__________) and the amount proposed
to be paid thereof upon organization is ___________ _____________________ pesos
(P__________), as follows:

APP. 2
05.12.31
Name Residence Citizenship Amount to be

Subscribed Paid-In
Total
6. That ______________________, one of the organizers, is hereby authorized to

sign the application to the Bangko Sentral ng Pilipinas for the issuance of the certificate of
authority to establish a ___________________ bank.
IN WITNESS WHEREOF, we have hereunto set our hands this _______ day of
______________, 20___ in the ______________________________, Philippines.
SIGNATURES
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
_______________________________ __________________________________
SIGNED IN THE PRESENCE OF:
_________________________________ ___________________________________
Witness Witness
NOTARIAL ACKNOWLEDGMENT

APP. 2
05.12.31
D. Sample Letter to BSP Submitting Bank’s Articles of Incorporation for Issuance of the
Certificate of Authority for SEC Registration
__________________
Date
The Governor
Manila, Philippines
Sir:
I have the honor to submit herewith the Articles of Incorporation of
_______________________________.
By way of supporting documents, I am also submitting the following:
1. Names of the proposed principal officers with their proposed designations and duties;
2. Bio-data sheet for each of the incorporators, proposed directors and principal officers;
3. Evidence that at least 40% of the voting stock of the corporation is owned by citizens
of the Philippines;
4. Evidence of citizenship for each of the directors and principal officers in the banking
subsidiary, such as:
(a) Passport;
or similar police or tax clearance for each of the proposed principal officers who are
Filipino citizens or residents of the Philippines; and
6. Location and banking premises, as follows:

(a) Proposed location; and
(b) Bank premises (indicate if purchased, built, or leased).
If you find the Articles of Incorporation in order, we are requesting for the issuance of
the necessary certificate of authority for its registration with the Securities and Exchange
Commission.
Very truly yours,
_______________________________
Authorized Representative
of the Organizers
Attachments

APP. 2
05.12.31
E. Sample Application for Authority to Establish Branch/es in the Philippines
________________________________
Name of Applicant
________________________________
________________________________
Cable Address
________________________________
Telex/Fax Number
__________________
Date
The Governor
Manila, Philippines
Sir:
We hereby apply for authority to establish branch/es with full banking authority in
the Philippines.
In support of this application, we submit the following information/documents:
1. A copy of the board resolution authorizing the bank to establish such branch/es in the
Philippines, and designating the person who will represent the bank in connection
therewith;

(b) Number of branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, subsidiaries and affiliates,
and their location and line of business (if different from banking);
(e) Financial and commercial relationship with the Philippine Government,
local banks, business entities and residents, past or present;
3. A copy each of the latest amended articles of incorporation and by-laws;
4. List of directors and their citizenship;

APP. 2
05.12.31
6. A certification from the bank’s Corporate Secretary that the bank or its holding company
has at least fifty (50) stockholders and that no stockholder owns more than fifteen
percent (15%) of the capital stock of the bank or its holding company, or that more
than fifty percent (50%) of the capital stock of said bank or its holding company is
owned by the government;
7. A certification from the bank’s home country stock exchange authorized by the
government that the bank is listed therein;
8. A copy each of the bank’s audited financial statements (i.e., statement of condition and
statement of income and expenses) for the last two (2) years prior to the filing of
application;
9. A copy of the bank’s annual report to the stockholders for the year immediately preceding
the date of filing of application;
10. A certification from the bank’s home country supervisory authority;
11. Business plan supported by projected financial statements for one (1) year, and how
such business plan can accomplish the policy objectives of R.A. No. 7721;
computer hardware/software; and
13. Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to obtain
information from other sources in order to establish the authenticity of the information/
representations submitted.
Should this application be approved, we undertake to submit another application for the
issuance of the necessary certificate of authority to obtain license from the Securities and
Exchange Commission (SEC) to operate branch/es in the Philippines (See prescribed format
in Item F below).
Very truly yours,
_________________________
Over Printed Name
_________________________
Designation
Attachments

APP. 2
05.12.31
F. Sample Request for BSP Authority to Obtain License from SEC to Establish Branches
of Foreign Banks
________________
Date
The Governor
Manila, Philippines
S I r:
I have the honor to request for a certificate of authority to obtain license from the
Securities and Exchange Commission (SEC) for the establishment of branch/es in the
Philippines.
In support of this request, I am pleased to submit the following papers/documents

and other information:
1. Names of the proposed principal officers with their proposed designation and duties;
2. Bo-data sheet for each of the proposed principal officers;
3. Evidence of citizenship for each of the proposed principal officers, such as:
(a) Passport;
or similar police or tax clearances for each of the proposed principal officers who are
Filipino citizens or residents of the Philippines;
5. Location and banking premises, as follows:

(a) Proposed location; and
(b) Bank premises (indicate if purchased, built or leased); and
6. Head office guarantee (See suggested format in Item G below).
Very truly yours,

_________________________
Name of Bank
By:
_________________________
Over Printed Name
_________________________
Designation
Attachments

APP. 2
05.12.31
G. Sample Guarantee Undertaking to Establish Branches of Foreign Banks
GUARANTEE
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, under the provisions of Republic Acts No. 8791, as amended, and No.
7721 of the Republic of the Philippines, the licensing, supervision and regulation of banks,
both foreign and domestic, are vested with the Bangko Sentral ng Pilipinas;
WHEREAS, under said Republic Act No. 7721, entitled: “An Act Liberalizing the
Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes”,
Name of Bank (hereinafter called Guarantor) has been authorized to operate a branch or
branches in the Philippines.
WHEREAS, under the provisions of Republic Act No. 7721, banks organized under
laws other than those of the Republic of the Philippines shall guarantee the full payment of
all liabilities of its branch or branches in the Philippines for the purpose of providing effective
protection and security to the interests of the depositors and other creditors of said branch or
branches; and
WHEREAS, Guarantor is willing, desirous and ready at any time to give such full
guarantee as well as to comply with whatever conditions required in said Republic Act No.
7721.
NOW, THEREFORE, for the purpose above mentioned, Guarantor hereby agrees
that in the event any branch of Guarantor located in the territory of the Republic of the
Philippines should fail to promptly pay any lawful debt, claim or liability of any kind or
character, due and payable under the laws of the Republic of the Philippines and pursuant to
the terms of said debt, claim or liability, then Guarantor upon the demand of the Bangko
Sentral shall promptly pay said debt, claim or liability to the person or persons entitled
thereto under the laws of the Republic of the Philippines. Any such debt, claim or liability,
not so promptly paid, shall bear interest at a rate per annum as may be prescribed by the
Monetary Board. Said debts, claims or liabilities, interest thereon and any cost or expenses
incidental to the collection thereof, shall be paid in the currency in which the obligations are
expressed, or in which the costs or expenses were incurred.
The obligation of Guarantor upon default of any of its branches located in the territory
of the Republic of the Philippines is primary, direct and immediate and not contingent on
any remedy or recourse upon any asset, property or right which its branch or branches
within the territory of the Republic of the Philippines may have, in such a way that any
depositor or creditor of its branch or branches in the Philippines may take, at any time, any
action on this Guaranty whether or not said depositor or creditor has simultaneously taken
or will thereafter take, any direct or indirect action under the laws of the Philippines against
said branch or branches, or against any assets, property or rights thereof: Provided, however,
That Guarantor shall have the right to set-off should it have any claim or claims against any
depositor or creditor taking any action by virtue of the provisions of its Guarantee.

APP. 2
05.12.31
The right on this Guarantee is independent of and separate from whatever right, security
or action which any depositor or creditor of said branch or branches in the Philippines may
have, take or pursue to protect his interest, and whatever action or measure the Bangko
Sentral ng Pilipinas may adopt in the exercise of its supervisory and regulatory powers allowed
and provided for in said Republic Acts No. 8791, as amended, and No. 7721 of the Republic
of the Philippines, such as requiring Guarantor to assign to its Philippine Branch or Branches
an amount of capital sufficient to meet the minimum capital required in said Republic Act
No. 7721, or any measure it may be authorized to take under the provisions of said Republic
Act No. 8791, as amended, in the case of capital deficiencies; in such case or cases, the
liability created hereunder shall not in the least be minimized or affected, it being the purpose
of this undertaking that Guarantor shall at all times be responsible and obligated for any such
obligations or liabilities of its branch or branches in the Philippines, and to the extent that the
same has been fully paid or satisfied only will said Guarantor be relieved from its primary
obligations hereunder.
No technicality in the law or in the language of this Guarantee or in any contract,

agreement or security, held by or with said branch or branches in the Philippines, shall
defeat the nature and purpose of this Guarantee as a primary and direct obligation of Guarantor
to the end that the interest of the depositors and creditors of the said branch or branches in
the Philippines may be fully protected and satisfied in accordance with Section 5 of Republic
Act No. 7721. Guarantor hereby acknowledges having full knowledge of said Republic Act
No. 7721 in accordance with which this primary and principal obligation is given.
Guarantor hereby recognizes the jurisdiction of Philippine courts and hereby authorizes
its branch office and/or offices in the Philippines to accept summons, processes and notices
from the Philippine courts.
The Guarantee shall be governed by Philippine law.
IN WITNESS WHEREOF, this Guarantee has been executed by Guarantor acting by

and through its Officers thereunto duly authorized this _____ day of _____________, 19__.

APP. 3
05.12.31
GUIDELINES FOR THE ISSUANCE OF A UNIVERSAL

BANKING AUTHORITY FOR BRANCHES OF FOREIGN BANKS
I. QUALIFICATION AND The list of direct and indirect loans to

DOCUMENTATION REQUIREMENTS DOSRI which are unsecured, the original
amount of the loan and date granted and the
A. Minimum Capital Required. A branch outstanding balance classified into current
of a foreign bank applying for a universal and past due shall be submitted by the
banking (UB) authority shall have capital applicant banks to the BSP.
equivalent to at least the amount prescribed
for UB s under Subsecs. X106.1 and B. Financial Resources, Past Performance and
X106.2. General Compliance with Banking Laws and
The capital of a Philippine branch of a Regulations. Applicant bank shall not have
foreign bank which is authorized to operate incurred deficiency in the required capital-to-
as a UB shall consist of its permanently risk assets ratio (10%) under Section 34 of R.A.
assigned capital plus Net Due to account: No. 8791, as amended, and Subsecs. X121.5
Provided, That at no time shall the aggregate and X121.6, for the year preceding the filing
of said accounts fall below the amount of application. It shall have sufficient valuation
prescribed under Subsec. X106.1: Provided reserves to cover estimated losses.
further, That the amount of the Net Due to Applicant bank shall not have incurred
which may be added to permanently net deficiencies in its reserves against deposit
assigned capital shall not exceed the liabilities and/or deposit substitute liabilities
equivalent of three (3) times the amount of for the three (3)-month period immediately
the permanently assigned capital. preceding the filing of the application. In
The capital as described in the addition, such ratios as primary reserves to
immediately preceding paragraph shall be deposit liabilities and primary and secondary
net of (a) such unbooked valuation reserves reserves to deposit and demand liabilities
and other capital adjustments as may be shall show that applicant bank is in a liquid
required by the BSP; (b) total outstanding position.
unsecured credit accommodations, both Applicant bank has substantially complied
direct and indirect, to directors, officers, with banking laws or orders, instructions or
stockholders, and their related interests regulations issued by the Monetary Board or
(DOSRI); (c) deferred income tax; (d) equity orders, instructions or rulings by the Governor.
investment of a bank in another bank or Major/important exceptions and findings by
enterprise whether foreign or domestic, if BSP examiners have been corrected or
the other bank or enterprise has a reciprocal satisfactorily explained.
equity investment in the investing bank, in
which case, the investment of the bank or C. Knowledge, Competence, Experience and
the reciprocal investment of the other Integrity of Officers and Key Personnel. The
bank or enterprises, whichever is lower; applicant shall indicate in the application
and (e) appraisal increment reserves that officers and key personnel having the
(revaluation surplus) arising from an appropriate training and/or experience in
appreciation or an increase in the book investment banking and related functions are
value of bank assets. available/obtainable by the bank.

APP. 3
05.12.31
An updated bio-data shall be submitted the portfolio mix to be observed, the extent
by each of the officers and key personnel of control over subscribed capital stock and
who will handle investment banking and voting stock to be exercised in financial
related functions. allied undertakings, quasi-banks and non-
financial allied undertakings.
II. PROJECT FEASIBILITY STUDY 4. Local branches of foreign banks may
invest in the equity of financial as well as
The project feasibility study to be non-financial allied undertakings and non-
submitted by the applicant bank shall allied undertakings wherein locally
include, in addition to the regular content incorporated commercial banks with UB
of such study, the following information in authority are allowed to invest. However,
the format prescribed. the branches’ equity investments shall be
subject to equity ceilings set in pertinent
A. Organization and Management laws.
1. The proposed organization 5. Fund generation program for the first
(position) chart of department within the five (5) years of operation to support the
applicant bank which shall be responsible expansion in loans and investments.
for the investment banking functions, 6. Quarterly underwriting program for
indicating for each position the name of the one (1) year stating industry of issuer, the
personnel proposed for appointment. volume of underwriting business classified
2. Bio-data that should be prepared for into equity and debt, public offering and
each of the proposed key personnel in the private placement and other information.
investment banking department.
C. Financial Projections
B. Corporate Strategy 1. The detailed statements of the
1. The statement of corporate strategy underlying assumptions made in projecting
of the UB and the immediate and long-term the financial statements and ratios.
goals and objectives. 2. The detailed projected statement of
2. The lending program and special income and expenses for the first five (5)
policies lined up for the first five (5) years years of operation.
including details on guidelines and standards 3. The projected operating ratios for the
to be established on exposure limits, portfolio first five (5) years of operation.
diversification, collateral requirements, 4. The actual statement of condition of
geographical expansion, assistance to pioneer UB at month-end before filing of application
and priority areas of economic activities and and the projected statement of condition as
relationship with clients. of the first five (5) years-end of operation.
3. Investment policies and program to 5. The projected balance sheet ratios
be implemented within the first five (5) years as of the first five (5) years of operation.
of operation including the broad categories 6. The projected funds flow for the first
of undertakings in which the UB may invest, five (5) years of operation.

APP. 4
05.12.31
FORMAT OF AFFIDAVIT ON TRANSFER OF STOCKS

[Appendix to Subsec. X126.2b (3)]
REPUBLIC OF THE PHILIPPINES)

_____________________________) S.S.
AFFIDAVIT
I,_________________________________, also known as ________________________with

business address at ______________________, after having been duly sworn to in accordance with
law depose and state that:
1. I am the transferee of (state quantity) shares representing ____ percent of voting

stocks of (state name of bank), hereinafter to be referred to as “Bank”, by virtue of (state
instrument of transfer) dated _________________.
2. In acquiring equity in the Bank, I acted with full awareness and understanding
that the Bank is a duly organized domestic banking corporation, exercising and enjoying a
right, franchise and privilege to engage in _________ banking business, decreed by law to
be a nationalized industry, wherein at least __________ of the voting stock should be owned
by citizens of the Philippines and that there exist prohibitions under the law against the
holding by a corporation or any person of voting stocks in excess of _______ of the voting
stock of the Bank.
3. Consonant with the policy of the Government as provided for in Commonwealth

Act No. 108, as amended, otherwise known as the Anti-Dummy Law, and Republic Act No.
8791, otherwise known as the General Banking Law of 2000, I hereby declare as follows:
a. The (state instrument of transfer) was not simulated to evade the provisions of
the Constitution and Commonwealth Act. No. 108 or the provisions of Republic
Act No. 8791 particularly Sections 11, 12 and 13 imposing maximum equity
holdings by any natural or juridical persons;
b. That I acquired said shares of stocks for valuable consideration from my own
funds;
c. As such transferee, I have title over said shares of stock; and
d. That I undertake to dispose of the shares of stocks I may have acquired in excess
of the prescribed ceilings.
4. This Affidavit is executed for the purpose of stating under oath my bona fide title
over the shares of voting stocks of the Bank; that in acquiring title over said shares I gave
valuable consideration; and that I shall comply with the requirements of all laws, rules and
regulations with respect to my conduct as stockholder of the Bank.

APP. 4
05.12.31
IN WITNESS WHEREOF, I hereby affix my signature this _____________ day of

__________________, 20___ at _______________.
________________________
Affiant
SUBSCRIBED and sworn to before me this ______ day of _______ 20__, affiant
exhibiting to me his Community Tax Certificate No. _________, issued at ________ on
______________ 20__.
Notary Public
Doc. No.
Page No.
Book No.
Series of

APP. 5
05.12.31
STANDARD PRE-QUALIFICATION REQUIREMENTS

FOR THE GRANT OF BANKING AUTHORITIES
(Appendix to Subsecs. Indicated Below)
A. Banks Applying For Authority to –
1. Establish additional branches of foreign banks (Subsec. X153.2);

2. Establish offices abroad (Subsec. X154.2);
3. Accept or create demand deposits (Subsec. X201.1);
4. Accept NOW accounts (Subsec. X223.1); and
5. Issue NCTDs (Subsec. X233.1);
6. Accept government deposits (Subsec. X240.3);
7. Engage in quasi-banking operations (Subsec. X234.2);
8. Operate an EFCDU/FCDU (Subsec. X501.2); and
9. Engage in derivatives transactions (Subsec. X602.1).
B. Standard Pre-Qualification Banking Authorities

Requirements
• To establish offices
abroad;
• To establish additional • To accept demand, NOW,
branches of foreign banks NCTDs and
• To engage in quasi-
banking, EFCDU/FCDU and
derivatives transactions
1. The bank has complied, during the

period indicated immediately preceding
the date of application, with the
following:
a. Net worth to risk assets ratio; 90 days 60 days
b. Ceilings on credit accommodation 90 days continuing

to DOSRI
c. Loans-to-deposits ratio; and 2 quarters 1 quarter
d. Liquidity floor on government deposits; 90 days continuing

APP. 5
05.12.31
2. The bank has not incurred net weekly reserve

deficiencies during the period indicated immediately
preceding the date of application; 12 weeks 8 weeks
3. The applicant bank has generally complied with

banking laws, rules and regulations, orders or
instructions of the Monetary Board and/or BSP
Management; a a
4. The bank’s past due loans do not exceed twenty

percent (20%) of its total loan portfolio as of the
date of application; a a
5. The bank has corrected as of date of application

the major violations noted in its latest examination
particularly relating to –
a. single borrower’s loan limit; and a a
b. total investment in real estate and improvements

thereon, including bank equipment, does not
exceed fifty percent (50%) of net worth as of
6. The bank’s accounting records, systems, procedures

and internal control systems are satisfactorily
maintained; a a
7. The bank does not have float items outstanding

for more than sixty (60) calendar days in the “Due
From/To Head Office/Branches/Offices” accounts
and the “Due From Bangko Sentral” account exceeding
one percent (1%) of the total resources as of
end of preceding month; a a
8. The bank has no past due obligation with the

BSP or with any financial institution as of date of
application; a a
9. The bank’s facilities pertinent to the authority applied

for are adequate; a a
10. The officers who will be in-charge of the operation

relating to the authority applied for have actual
experience of at least two (2) years in another bank
as in-charge (or at least as assistant-in-charge) of the
same operation; a a

APP. 5
05.12.31
11. The bank personnel who will handle the operation

relating to the authority applied for, have attended
appropriate seminars, workshops or on-the-job
training or have experience of at least six (6) months; a a
12. The bank has complied with the mandatory allocation

of credit resources to small and medium enterprises
for two (2) quarters immediately preceding the
13. The bank has not been found engaging in unsafe

and unsound banking practices during the last six (6)
months immediately preceding the date of application
where applicable; a n/a
14. The bank has complied with the twenty percent

(20%) aggregate limit on real estate loans as of end
of preceding quarter (for UBs/KBs only); a n/a
15. The bank has set up the prescribed allowances for

probable losses, both general and specific, as of
date of application; a n/a
16. The bank is a member of the Philippine Deposit

Insurance Corporation in good standing as of date of
application (for TBs/RBs/Coop Banks only) a n/a
a - applicable
n/a - not applicable

APP. 5a
05.12.31
PREREQUISITES FOR THE GRANT OF

AUTHORITY TO OPERATE FCDU
(Appendix to Subsec. X501.2b)
A TB applying for authority to operate (4) liquidity floor requirements for

FCDU shall comply with the following government deposits;
requirements: (5) single borrower’s loan limit; and
(6) investment in bank premises and
a. The bank’s operation during the other fixed assets;
preceding calendar year and for the period
immediately preceding the date of f. The bank maintains adequate
application has been profitable; provisions for probable losses
commensurate to the quality of its asset
b. The bank is well capitalized with portfolio but not lower than the required
risk-based capital adequacy ratio not lower valuation reserves as determined by the BSP;
than twelve percent (12%) at the time of
filing the application; g. The bank has no float item
outstanding for more than sixty (60) calendar
c. The officer who will be in charge of days in the “Due From/To Head Office/
FCDU operations shall have at least one (1) Branches/Offices” accounts and the “Due
year of actual experience in another bank From Bangko Sentral” account exceeding one
as in-charge or assistant in-charge of the percent (1%) of the total resources as of date
same operations; of application;
d. The bank has not incurred net h. The bank has no past due obligation
weekly reserve deficiencies within eight (8) with the BSP or with any government
weeks immediately preceding the date of financial institution;
application;
i. The bank has established a risk
e. The bank has generally complied management system appropriate to its
with banking laws, rules and regulations, operations characterized by clear delineation
orders or instructions of the Monetary of responsibility for risk management,
Board and/or BSP Management in the last adequate risk measurement systems,
two (2) preceding examinations prior to appropriately structured risk limits, effective
the date of application, more particularly internal controls and complete, timely and
on: efficient risk reporting system;
independent directors; j. The bank has a CAMELS composite
(2) attendance by every member of the rating of at least “3” in the last regular
board of directors in a special seminar for examination with Management rating not
board of directors conducted or accredited lower than “3”; and
by the BSP;
(3) the ceilings on credit accommodations k. The bank is a member of the PDIC
to DOSRI; in good standing.
Manual of Regulations for Banks Appendix 5a - Page 1

APP. 5b
05.12.31
QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR

ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR
BOND ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR
-CONTROLLED CORPORATION, OR ANY BODY POLITIC
A bank/NBFI applying for accreditation f. The by-laws of the institution shall

to act as trustee on any mortgage or bond include among others, provisions on the
issued by any municipality, government- following:
owned or controlled corporation, or any (1) The organization plan or structure
body politic must comply with the of the department, office or unit which shall
following requirements: conduct the trust and other fiduciary
a. It must be a bank or NBFI under business of the institution;
BSP supervision; (2) The creation of a trust committee,
b. It must have a license to engage in the appointment of a trust officer and
trust and other fiduciary business; subordinate officers of the trust department;
c. It must have complied with the and
minimum capital accounts required under (3) A clear definition of the duties and
existing regulations, as follows: responsibilities as well as the line and staff
functional relationships of the various units,
UBs and KBs The amount required under officers and staff within the organization.
existing regulations or such g. The bank’s operation during the
amount as may be required by preceding calendar year and for the period
the Monetary Board in the immediately preceding the date of
future
application has been profitable;
Branches of The amount required under
h. It has not incurred net weekly
Foreign Banks existing regulations reserve deficiencies during the eight (8)
weeks period immediately preceding the
Thrift Banks P650.0 million or such amounts date of application;
as may be required by the Monetary i. It has generally complied with
Board in the future banking laws, rules and regulations,
orders or instructions of the Monetary
NBFIs Adjusted capital of at least Board and/or BSP Management in the last
P300.0 million or such amounts two (2) preceding examinations prior to
as may be required by the Monetary
the date of application, particularly on the
Board in the future.
following:
d. Its risk-based capital adequacy ratio
independent directors;
is not lower than twelve percent (12%) at
(2) attendance by every member of the
the time of filing the application;
board of directors in a special seminar for
e. The articles of incorporation or
board of directors conducted or accredited
governing charter of the institution shall
by the BSP;
include among its powers or purposes,
(3) the ceilings on credit accommodations
acting as trustee or administering any trust
to DOSRI;
or holding property in trust or on deposit
(4) liquidity floor requirements for
for the use, or in behalf of others;
government deposits;
Manual of Regulations for Banks Appendix 5b - Page 1

APP. 5b
05.12.31
(5) single borrower’s loan limit; and responsibility for risk management, adequate
(6) investment in bank premises and risk measurement systems, appropriately
other fixed assets. structured risk limits, effective internal
j. It maintains adequate provisions for controls and complete, timely and efficient
probable losses commensurate to the quality risk reporting system;
of its assets portfolio but not lower than the m. It has a CAMELS Composite Rating
required valuation reserves as determined of at least 3 in the last regular examination
by the BSP; with management rating of not lower than
k. It does not have float items 3; and
outstanding for more than sixty (60) calendar n. It is a member of the PDIC in good
days in the “Due From/To Head Office/ standing (for banks only);
Branches/Other Offices” accounts and the Compliance with the foregoing as well
“Due from BSP” account exceeding one as with other requirements under existing
percent (1%) of the total resources as of date regulations shall be maintained up to the
of application; time the trust license is granted. A bank
l. It has established a risk management that fails in this respect shall be required to
system appropriate to its operations show compliance for another test period of
characterized by clear delineation of the same duration.
Appendix 5b - Page 2 Manual of Regulations for Banks

REPORTS REQUIRED OF BANKS
Manual of Regulations for Banks

(Appendix to Sec. X162)
A. UBs/KBs
Submission Submission
Category Form No. MOR Ref. Report Title Frequency Deadline Procedure
A-1 DCB I/II Form 2B X162.9 Published Consolidated Statement of Condition (Head Quarterly Original and published Original and Published
(BSP-7-16-03) Office, branches and other banking offices, foreign or reports within twelve Reports - Appropriate
domestic or, a consolidated statement of all Philippine (12) and twenty (20) BSP Supervision and Ex-
branches/offices of foreign banks), showing other banking days, respec- amination Department
required disclosures prescribed in Subsec. X162.9 tively, after receipt of call- (SED)
letter Duplicate - BSP Supervi-
sory Data Center (SDC)
via CC:Mail
A-1 DCB I/II Form 2B.1 X162.9 Published Consolidated Statement of Condition (Bank Quarterly Same as in Form 2B Original and Published
(BSP-7-16-03) and Financial Subsidiaries) showing below the above Reports - Appropriate
statement, the names of the individual financial BSP SED
subsidiaries Duplicate - SDC
via CC:Mail
A-2 DCB I/II Form 1 X116.2 Consolidated Daily Report of Condition together with Weekly 3rd banking day after CC:Mail to SDC
(Revised June 2001) X121.5 the following schedules: end of reference week
Sch. 1 X258 Other Non-Risk Assets
Sch. 2 Selected Domestic Accounts and Control
Proofsheet
Annexes Weekly Inventory of GS Held
CARE Reports
Appendix 6 - Page 1
Reports on Required and Available Reserves on: Weekly Upon completion of (Note: CDRC-sourced
KAR 230KB (BSP-SES 1.03) - Deposit Substitutes/Interbank Loans; and processing by SDC reports generated by
KAR 240KB (BSP-SES 1.04) - Deposit Liabilities SDC are furnished to
KAR 250KB (BSP 7-16-07) Reports on Minimum Capital Required Under Section the respective operating
34 of R.A. No. 8791 divisions of appropriate
05.12.31
KAR 260KB (BSP 7-16-01.1-.3) Summary Utilization of Available Reserves; & Liquidity BSP SED weekly)
APP. 6
KUB 265DR Floor on Govt. Funds Held
Appendix 6 - Page 2
05.12.31
APP. 6
A-2 BSP 7-16-01A X258 Report of Changes in the Composition of Securities As changes 2nd banking day after Original - SDC; and
Held as Reserves for Deposit Liabilities occur date of change duplicate - Appropriate
BSP SED
A-2 Unnumbered X405.9 Report on Peso-Denominated Common Trust Fund Weekly 3rd banking day after In diskette format to SDC;
and Other Similarly Managed Funds end of reference week and a copy to each -
appropriate SED and DER
A-2 Unnumbered X405.9 Report on Trust and Other Fiduciary Accounts (TOFA) -do- -do- -do-
(Per CL dated - Others
8-20-98)
A-2 BSP-16-35 TR X162 Report on Trust and Other Fiduciary Business and Quarterly 10th banking day from Appropriate SED & SDC
X425.2 Investment Management Activities end of reference quarter
A-2 Unnumbered X116.4 Computation of the Adjusted Risk-Based Capital Quarterly Original copy to
(Revised Feb. 2005 1116.5 Adequacy Ratio Covering Combined Credit Risk and appropriate SED
per Cirs. 475 dated Market Risk
02.14.05 and 503
dated 12.22.05) a. For UBs/KBs with expanded derivatives
authority
b. For UBs/KBs with expanded derivatives

authority but without option transactions
c. For UBs/KBs without expanded derivatives

authority
- solo basis (Head Office and branches) 15th banking day after
end of reference quarter
- consolidated basis (parent bank plus subsidiary 30th banking day after
financial allied undertakings, but excluding end of reference quarter
insurance companies

A-2 Unnumbered X141.9 Acknowledgment receipt of copies of specific duties and Annually or 15th banking day after -
(no prescribed responsibilities of the board of directors and of a director as directors date of election
form) and certification that they fully understand the same are elected
A-2 DCB I/II Form 2A.1 X162 Consolidated Statement of Condition and Additional Monthly 15th banking day after CC:Mail to SDC
(Revised September Information (For UBs/KBs Without Overseas Offices), end of reference month
2003 per MAB with the following schedules together with Sworn Control
dated 10.27.03) Proof List duly signed by the President, EVP/SVP:
Note: Consolidated Report on Compliance with

EFCDU/FCDU Cover Requirement is incorporated in
CSOC format under MAB dated 10.27.03 (See Sch. 9)
Schedules:
1 - Due from Other Banks;
2 - Loan Portfolio and Other Accommodations
(Borrowings of LGUs) (Amended by CL dated
5.15.02);
2A - Loan Portfolio and Other Accommodations
(Gov't Corporation/ Subsidiaries) (Retitled);
2.1 - Loans Portfolio and Other Credit
Accommodations (Borrowings of LGUs) -
Amended by CL dated 5.15.02;
2.2 - Microfinance Loans (November 2003);
3 - Trading Account Securities -Investments,
Available for Sale Securities and Investments in
Bonds and Other Debt Instruments (IBODI)
(Amended by CL dated 5.15.02);
A-2 DCB I/II Form 2A.1 X162 3A - EFCDU/FCDU Trading Account Securities - Monthly 15th banking day after CC: Mail to SDC
(Revised September Investments, Available for Sale Securities and end of reference month
Appendix 6 - Page 3
2003 per MAB IBODI;

dated 10.27.03) 3B - Trading Account Securities Investments,
Available for Sale Securities and Investments in
Bonds and Other Debt Instruments (Government
Issue - Local Government Units);
05.12.31
APP. 6
Appendix 6 - Page 4
05.12.31
APP. 6
4 - Trading Account Securities - Equity and Equity

Investments in Allied and Non-Allied
Undertakings;
4A - Trading Account Securities - Equity and Equity
Investments and Outstanding Loans to Allied
and Non-Allied Undertakings;
5 - Deposit Liabilities;
5A - Domestic Time Certificates of Deposits (TCDs), .
Classified by Maturity and Interest Rate;
5B - EFCDU/FCDU TCDs Classified by Maturity and
by Interest;
5C - Consolidated Report of Deposit Liabilities by
Size of Account Excluding Deposits of Foreign
Office/Branches;
6 - Deposits of Banks and Due to Banks;
7 - Bills Payable (Amended to include in Item 4
the Lending Programs of GFIs exempt from
reserve & liquidity requirements);
7A - Bills Payable Other than to BSP;
8 - EFCDU/FCDU Other Assets and Other
Liabilities From/To Non-Residents;
8a - Report on Bank Liabilities to Non-Residents CC: Mail to IOD
(formerly Sch. 15)(CL dated 2.18.03);
X501.4 9 - Consolidated Report on EFCDU/FCDU Cover CC: Mail to SDC
Requirement (Revised September 2003 per

MAB dated 10.27.03);
10 - Selected EFCDU/FCDU Accounts, Classified by
Country;
10A - EFCDU/FCDU Bills Payable Other than to BSP;
A-2 DCB I/II Form 2A.1 X501.4 10B - Spot and Forward Exchange Transactions of Monthly 15th banking day after
(Revised September EFCDU/FCDU; end of reference month
2003 per MAB X347.3 11 - Domestic Standby Letters of Credit;
dated 10.27.03) 12 - Peso Deposits, Deposit Subsitutes and Bills
Payable to Selected Government Corporations
and their Subsidiaries;
X240.8 13 - Government Funds Held/Compliance with
Liquidity Floor Requirement;

X121.6 14 - Sworn Compliance with Section 4 of R.A. No.

7721, Re: 15% Remittance of "Net Due to"
account (for branches of foreign banks only);
14 - Report on Exposure to Real Estate Industry Quarterly 15th banking day after CC:Mail to SDC
(Bank Proper); end of reference month
(Revised May 2004 per MAB dated 7.8.04)
14A - Report on Exposure to Real Estate Industry -do- -do- -do-
(Trust Department)
A-2 [DCB2A]14S Report on Exposures to Real Estate Industry (Bank

Proper and Trust Department)
Schedules:
1 - Housing Loans Extended or Guaranteed -do- 10th banking day after -do-
Under the Government's National Shelter end of reference quarter
Program (NSP);
2 - Real Estate Loans Considered Non-Risk
Assets;
3 - Real Estate Loans with Original Amount of
P3.5M and Below to Finance Acquisitions
or Improvement of Residential Units;
4 - Trust Department Clients Directed IMA Real
Estate Loans (Trust Dept. only)
16 - Report on Exposures to Auto Loans and Monthly 15th banking day after CC:Mail to SDC
Credit Card Receivables (Revised September end of reference month
2003 per MAB dated 10.27.03);
A-2 [DCB2A]14S X121.6 17 - Breakdown of Due from and Due to Head -do- -do- -do-
Appendix 6 - Page 5
Office/Branch/Agencies Abroad - Foreign

Banks
A-2 DCB I/II Form 2A.2 X162 Consolidated Statement of Condition and Additional -do- -do- -do-
(SES I/VI Form 2A.2) Information (For UBs/KBs with Overseas Offices)
05.12.31
Same Schedules as in DCB I/II Form 2A.1 above
APP. 6
(Revised Sept. 2003
per MAB dated 10.27.03)
Appendix 6 - Page 6
05.12.31
APP. 6
A-2 Unnumbered X162 GL/SL Trust Template/Report on Trust and Other Quarterly 10th banking day after CC:Mail to SDC
(Amended by MAB X425.2 Fiduciary Business and Investment Management end of reference quarter
dated 3.1.02 and CLs Activities with prescribed schedules together with
dated 11.12.02 and notarized control prooflist to be faxed to SDC
2.5.02)
A-2 Unnumbered X162 GL/SL Trust Template/Report on Investment -do- -do- -do-
(Amended by MAB X425.2 Management Activities with prescribed schedules
dated 3.1.02) together with notarized control prooflist to be faxed to
SDC
A-2 Unnumbered X691.5 Covered Transaction Report (CTR) As 5th banking day from Original and duplicate to
(Revised May 2002) Transaction the occurrence of the Anti-Money Laundering
occurs transaction Council (AMLC)
A-2 Unnumbered X691.5 Suspicious Transaction Report (STR) -do- -do- -do-
(Revised May 2002)
A-2 Unnumbered X691.7 Certification on Compliance with Anti-Money Annually 20th banking day after Original and duplicate-
(Cir. 279 dtd 4.2.01) Laundering Regulations end of reference year Appropriate BSP SED
A-3 DCB I/II Form 2C X162 Statement of Condition (By Banking Unit) with the Quarterly 15th banking day after Original - SDC
(BSP-7-16-02-KB) prescribed schedules (including ROPA by banks), to end of reference quarter Duplicate - Appropriate
(Revised Nov.2003 per wit: BSP SED

MAB dated 12.30.03)
Schedules:
1 - Loans-to-Deposit Ratio Supplementary In-
formation;
2 - Aging of Loans and Selected Receivables
(Revised September 2003 per MAB dated
12.30.03);
X162.6 3 - Report on Reconciling Items of More than
Six (6) months in “Due From Head Office/
Branches/Agencies” accounts;

X162 4 - Breakdown of Due From/Due to Local Banks

and Domestic Deposit Liabilities (BSP-7-16-
02-KB.1);
X162 5 - Breakdown of Domestic Savings Deposits
(BSP-7-16-02-KB.2)
A-3 BSP-7-16-02-KB-A X162.11 Selected Financial Accounts for extension office, Part I- 15th banking day after Original and duplicate-
savings agency or sub-branch (in lieu of SED I/II Form Quarterly; end of reference quarter/ Appropriate BSP SED
2C) and Part II- semester
Semestrally
A-3 DCB I/II Form 3A X162 Consolidated Statement of Income, Expenses and Quarterly 15th banking day after CC:Mail transmission to
(BSP-7-16-04) Surplus (Free) with Sworn Control Prooflist as Required end of reference quarter appropriate BSP SED
(Revised November in Form 2A
2003 per MAB Schedule:
dated 12.30.03) 1 - Analysis of Undivided Profits and Surplus
(Free) Accounts
(NOTE: Covering the periods: for the 1st
Quarter, 1st Semester, Three Quarters and
for the Year, respectively.)
A-3 DCB I/II Form 3B X162 Statement of Income and Expenses (By Banking Unit) -do- -do- Original- - SDC
(BSP-7-16-04-A) (NOTE: Covering the periods: for the 1st Quarter, 1st Duplicate - Appropriate
(Revised November Semester, Three Quarters and for the Year, BSP SED
2003 per MAB respectively.)
dated 12.30.03)
A-3 DCB I/II Form 5 X331 Daily Report on Compliance with Aggregate Ceiling Weekly 4th banking day after Original and duplicate -
(BSP-7-16-07-A) X409.3 on Direct/Indirect Credit Accommodations to end of reference week Appropriate SED
Appendix 6 - Page 7
Directors/Officers/Stockholders/Related Interests
(DOSRI), secured and unsecured loans
A-3 DCB I/II Form 5A X330 Daily Report on Compliance with Ceiling on -do- -do- Original and duplicate -
(BSP-7-16-07-B) X409.3 Outstanding Unsecured Direct and Indirect Credit Appropriate SED, as
05.12.31
APP. 6
Accommodations to Directors/ Officers/ Stockholders combined report w/
(DOS) Form 5 above
Appendix 6 - Page 8
05.12.31
APP. 6
A-3 SES I/VI Form 5A.1 X330 Daily Report on Compliance with Individual Ceilings -do- -do- Original and duplicate -
(BSP-7-16-07B.1) X409.3 on Direct Credit Accommodations to DOS, secured and Appropriate SED, as
unsecured loans together with a Certification by supporting schedules to
authorized signatories that no one has exceeded the Form 5A above
prescribed individual ceilings
A-3 DCB I/II Form 5B X335 Consolidated Report on Compliance With Aggregate Semestral 15th banking day after Original and duplicate -
(BSP-7-16-13) X409.3 Ceiling on Credit Accommodations to DOSRI end of reference Appropriate SED
semester
A-3 DCB I/II Form 5C X335 Report on Stockholdings of Bank’s Directors, Officers, -do- -do- -do-
(BSP-7-16-13A) X409.3 Stockholders, Their Spouses/ Relatives in Borrowing
Firms
A-3 DCB I/II Form 5D X335 Report on Compliance with Section 36 of R.A. No. As loan to 20th banking day after -do-
(BSP-7-16-17) 8791 director or approval of direct or
officer is indirect loan granted
approved any director or officer
(DO)
A-3 DCB I/II Form 5E X162.5 Sworn Statement on Real Estate Transaction to DOS As 10th banking day after -do-
(BSP-7-16-31) transaction approval of the
is approved transaction
A-3 Unnumbered X602 Outstanding Derivatives Contracts Under the Regular Monthly 5th banking day after -do-
Banking Unit end of reference month
A-3 Unnumbered X602 Outstanding Derivatives Contracts Under the Foreign -do- -do- -do-
Currency Deposit Unit
A-3 Unnumbered X602 Reports on Trading Gains/Losses on Derivatives -do- -do- -do-
Transactions
A-3 Unnumbered X602 Outstanding Peso Derivatives Contracts -do- -do- -do-

A-3 DCB I/II Form 6 X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day after CC:Mail/e-Mail/Diskette -
(Revised per MAB Allocation Required by R.A. No. 6977 as amended by end of reference quarter Appropriate SED;
dated 4.28.03) R.A. No. 8289 Hard copy - SMED
Council
Control Prooflist (notarized) -do- Upon transmission/ Original - SDC (by fax, if
submission of main hard copy cannot be
report submitted on deadline)
Report on Loans Granted to Barangay Micro Business -do- -do- Attachment to the main
Enterprises (BMBEs) (Revised per MAB dated 4.28.03) report
A-3 DCB I/II Form 2D X162 Statement of Condition (For branches/ agencies/offices -do- 15th banking day after Original and duplicate-
abroad of domestic banks) with schedules, as follows: end of reference quarter Appropriate SED
1 - Analysis of Due to Head Office/Branches/ Semestral Attachment to Main

Agencies Account ; and Report
2 - Schedule of Selected Accounts - Classified -do- -do-
by Country
A-3 DCB I/II Form 2E X162.12 Statement of Condition (For subsidiaries/affiliates Quarterly 15th banking day after Original and duplicate-
abroad of domestic banks) with schedules, as follows: end of reference quarter Appropriate SED, and
Triplicate - IOD
1 - Analysis of Due to Parent Firm/Bank and/or Semestral Attachment to Main

Other Subsidiaries/ Affiliates; and Report
2 - Schedule of Selected Accounts - Classified -do- -do-

by Country
Appendix 6 - Page 9
A-3 DCB I/II Form 3C X162 Statement of Income and Expenses (For branches/ Quarterly/ 15th banking day after Original and duplicate -
agencies/offices abroad of domestic KBs) Annually end of calendar quarter/ Appropriate BSP SED
year
05.12.31
APP. 6
A-3 DCB I/II Form 3D X162.12 Statement of Income and Expenses (For subsidiaries/ -do- 15th banking day after -do-
affiliates abroad of domestic KBs) end of reference quarter
Appendix 6 - Page 10
05.12.31
APP. 6
A-3 BSP-7-16-27 X341.8 Consolidated Report on the Utilization of Loanable Quarterly 15th banking day after Original and duplicate -
(Revised December Funds Generated Which Were Set Aside for Agrarian end of calendar quarter/ SDC
2004 per MAB dated Reform/Other Agricultural Credits with prescribed year
9.8.04) schedules to wit:
A - Total Collections from Loan Portfolio as of

31 May 1975
B - Direct Loans to Farmers' Association or
Cooperatives for High Value Crop Projects
Under Sec. 8 of RA 7900
C - Utilization of the 10% Loanable Funds
Generated for Agrarian Reform Credit
D - Utilization of the 15% Loanable Funds
Generated for Agricultural Credit Loans
E - Development Loan Incentives Under Sec.
9, RA 7721
F - Report on Compliance with P.D. 717 Under
Sec. 11 of RA 7835
G - Report on Loans Granted to BMBEs (Revised
Control Prooflist (notarized) Upon transmission/ Original - SDC (by fax, if

submission of main report hard copy cannot be
submitted on deadline)
B DCB I/II Form 4 X162.7 Consolidated List of Stockholders and Their Annually/ 12th banking day after Original and duplicate -
(BSP 7-16-11) Stockholdings quarterly end of calendar year and Appropriate BSP SED
when any if there are changes,
change seven (7) banking days
occurs after end of quarter
B DCB I/II Form 6A 1162.5 Report on Outstanding Loans Secured by Shares of Semestral 10th banking day after Original and duplicate -
Stocks of Other Banks/NBQBs end of reference SDC
semester

B DCB I/II Form 6C X338.3 Availments of Financial Assistance to Officers and Semestral 15th banking day after Original and duplicate -
(BSP 7-16-20) X339.4 Employees Under an Approved Plan the end of reference Appropriate BSP SED
June 2005 per Cir. semester
487 dated 6.03.05)
Unnumbered X339.4 Approved Financing Plans/Report on Changes of As approved/ 30th day from BOD -do-
Approved Plans changes approval
occur
B DCB I/II Form 6D X136.4 Report on Dividends Declared On each 10th banking day after -do-
(BSP 7-16-12) declaration date of dividend
declaration
B DCB I/II Form 6E X156.2 Report on New Schedule of Banking Days/Hours As changes 7th banking day before -do-
(BSP 7-16-16) occur the intended effectivity
of the change
B DCB I/II Form 6F X144 Biographical Data of Directors/Officers After election 7th banking day as CC:Mail/Diskette: SDC
(BSP 7-16-18) If sent by electronic mail - Notarized first page of or appoint- changes occur or after Appropriate BSP SED
(CL dated Biographical Data or Notarized list of names of ment and as election/appointment
1.09.01) Directors/Officers whose Biographical Data were changes
submitted thru electronic mail to be faxed to SDC occur
If submitted in diskette form - Notarized first page of

each of the directors'/officers' bio-data saved in diskette
and control prooflist
B Unnumbered List of Members of the Board of Directors and Officers Annually 25th banking day after Original and duplicate -
annual election/ Appropriate BSP SED
appointment
B DCB I/II Form 6G X162.4 Report on Crimes/Losses As crimes or 5th banking day from knowl- Original - Appropriate
(BSP 7-16-20) (Note: In cases involving bank personnel, the incidents edge of crimes or incidents BSP SED
(Revised June 2005 prescribed submission deadline shall be five (5) occur Duplicate - SITD
05.12.31
APP. 6
per Cir. 486 dated banking days )
6.01.05)
05.12.31
APP. 6
B Unnumbered X143.4 Report on Disqualification of Director/Officer As Within 72 hours from Appropriate BSP SED
(no prescribed disqualification receipt of report by the
form) occurs BOD
B DCB I/II Form 6H X306.5c Notice/Application for Write-Off of Loans, Other Credit As write-off 25th banking day prior Original and duplicate -
(BSP-7-16-21) Accommodations, Advances and Other Assets occurs to the intended date of Appropriate BSP SED
write-off
B BSP-7-16-23-KB Report on Foreign Currency Counterpart Loans Each time a Within twelve (12) -do-
foreign banking days from date
equity of foreign equity
investment investment
is made
B BSP-7-16-32 A X162 Report on Credit and Equity Exposures to Individuals/ Quarterly 15th banking day after Electronic submission/dis-
(Revised August Companies/Groups aggregating P1 million and above end of reference quar- kette - SDC
2003) (Bank Proper and Trust Department) ter
B Unnumbered X380 Report on Equity Investments in Non-Allied After each 30th banking day from Original and duplicate -
Enterprises investment investment date Appropriate BSP SED
B Unnumbered X162.10 Report on Consolidated Financial Statements of Annually 120th calendar day after -do-
Banks and their Subsidiaries Engaged in Allied the end of reference year
Financial Undertakings together with audited or adopted fiscal period
financial reports of such subsidiaries
B Unnumbered X164.6 Annual Report of Management to Stockholders Annually 180th calendar Original and duplicate -
Covering Results of Operations for the Past Year day after the close of the Appropriate BSP SED
calendar/fiscal year
elected by the bank
Unnumbered Audit Engagement Contract As contract 15th calendar day from Copy to appropriate BSP
(no prescribed form) is signed date of signing of contract SED

B Unnumbered X164 Consolidated Audited Financial Statements (AFS) of Annually 90th calendar day after Original and duplicate -
the Regular Banking Unit and FCDU and AFS Report the start of the audit/30th Appropriate BSP SED
for FCDU books for the Past Year Prepared by the banking day after receipt
External Auditor and the corresponding Auditor’s of such LOC
Letter of Comments (LOC) on Bank’s Internal Control
B Unnumbered X426.2 Audited Financial Statements of Trust and Other -do- -do- -do-
Fiduciary Business and Fund Management Activities
for the Past Year, Prepared by the External Auditor
and the corresponding Auditor’s Letter of Comments
(LOC) on Trust/IMAs’ Internal Control
B Unnumbered X162.12 Audited Financial Statements of the foreign banking Annually 30th banking day from -do-
offices and subsidiaries date of submission/re-
lease of said reports to
the foreign banking of-
fices and subsidiaries of
Philippine banks
B Unnumbered X162.12 Examination Reports done by the foreign bank As -do- -do-
supervisory authority examination
occurs
B Unnumbered X162.6 Reconciliation Statement between Head Office and Annually Not later than the end of -do-
all its Branches January of the following year
B Unnumbered X162.3 Report on Change of Required Information on Bank‘s As changes 15th banking day from Original and duplicate -
Profiles, Organizational Structure and Operating occur such change/issuance Appropriate BSP SED
Policies
B Unnumbered X162.1 Report on Designation of Authorized Signatories of As designation 3rd banking day from -do-
Bank’s Reports Classified as Category A-1, A-2, A-3 by Bank’s date of designation/and
and B board of as changes occur
directors
05.12.31
APP. 6
occurs
05.12.31
APP. 6
B Unnumbered X343 Daily Report on Interbank Borrowings Not Effected As To be submitted only -do-
Through Clearing Account with BSP transaction when there are trans-
occurs actions covered, by
noon of banking day
immediately following
date of transaction
B Unnumbered X162 Certification Under Oath for ”No Transaction” Dates As incident To be submitted not later -do-
on Interbank Borrowings During a Calendar Quarter occurs than five (5) banking
days from end of
reference quarter
B Unnumbered X165.6 Certification on Compliance with the Rules and Annually To be submitted not later -do-
Regulation on Bank Protection than five (5) banking
days from end of
reference year
B Unnumbered X342.2c Report on Reconciliation Statement of Demand Monthly 7th banking day from -do-
Deposit Account with the BSP receipt of BSP statement
B Unnumbered X233.9 Registry Bank Report of Compliance with Prohibition Monthly 10th banking day after Original - Appropriate BSP
on Holdings of LTNCTDs end of reference month SED
B Unnumbered X262.3 Certification of Compliance with Section 55.4 of R.A. Semestral 7th banking days after Appropriate BSP SED
No. 8791 end of June and Dec.
B Unnumbered X162.2 Report on Daily Transactions on Investments in Dollar- Weekly 3rd banking day after Original and duplicate -
Linked Peso Notes end of reference week Appropriate BSP SED
B Unnumbered Non-deliverable Forward FX Sales Contract with Non- -do- 2nd banking day after -do-
Residents with Initial Delivarable Forward end of reference week
B Unnumbered X501.3 Certification on Funds Borrowed from FCDU/EFCDU Monthly 5th banking day after Appropriate BSP SED
(Revised January end of reference month
2003 per Cir. 366
dated 1.21.03)

B Unnumbered X565 Conversion/Transfer of FCDU loans to RBU* -do- 10th banking day from -do-
end of reference month
X409.16 Waiver of the Confidentiality of Information under As -do-

Sections 2 and 3 of R.A. No. 1405, as amended transaction
occurs
B Unnumbered X235.12 Report on Undocumented Repurchase Agreement As Within 72 hours from Appropriate BSP SED
(Cir 467 dated transaction knowledge of transaction.
1.10.05) occurs
Notarized Certification that the bank did not enter into Semestral 5th banking day after -do-
Repurchase Agreement covering Government end of reference
Securitites, commercial Papers and Other Non- semester.
negotiable securities or instruments that are not
documented.
B SEC Form General Information Sheet Annual 30 days from date of Drop box- SEC Central
(MAB dated Annual Stockholders' Receiving Section
9.2.05) meeting
DER Reports:
B RS Form 1A 1162.13 Report on the Amount and Weighted Average Interest Weekly Not later than 4:00 P.M. Original - DER
(BSP 5-17-30) Rates on Loans and Discounts Granted Thursday after end of
reference week
B RS Form 1A 1162.13 Report on Volume and Weighted Monthly Average Monthly Not later than 2:00 P.M. -do-
(BSP 5-17-33) Interest Rate on Savings Deposit on the following day
after end of reference
month
05.12.31
APP. 6
* A report is not required if no transfer were effected during the month.
05.12.31
APP. 6
B RS Form 1B 1162.13 Report on Interest Income and Weighted Average Monthly -do- -do-
(BSP 5-17-30) Interest Rate on Outstanding Loans
B RS Form 1B 1162.13 Daily Report on Volume of Money Market Daily Not later than 3:00 P.M. -do-
(BSP 5-17-27) Transactions on reference day
B RS Form 2A 1162.13 Report on the Volume of and Weighted Average Weekly Not later than 4:00 PM -do-
(BSP- 5-17-33) Interest Rates on Deposits Thursday after end of
reference week
B BSP-5-17-35.A 1162.13 Report on the volume of and interest rates on credit Monthly Not later than five (5) -do-
line availments under Short Term Prime Rates banking days after end
of reference month
B RS Form 2C Weekly Report on Quoted Rates of Dollar Savings Weekly Not later than 2:00 P.M. -do-
(BSP 5-17-36) and Time Deposits of every Thursday
B RS Form 2D Daily Report on the Volume of and Weighted Average Daily -do- -do-
(CBP 5-17-34A) Rates on Promissory Notes Issued
B RS Form 2E Daily Report on the Volume of and Weighted Average Daily 3:00 P.M. the following -do-
Rates on Time Deposits Received day of reference week
B CBP 5-17-01 Report of Outstanding Loans, Advances, Discounts Quarterly 10th banking day after -do-
and Trading Account Securities end of reference quarter

(for banks located within
Metro Manila area); and
15th banking days after
end of reference quarter
(for banks located
outside Metro Manila
area)
B Combined Report on Credits Granted and Outstanding - By Monthly 15th banking day after In Diskette-format to DER
BSP 5-17-02 and Banking Units end of reference month
BSP 5-17-31

Unnumbered X425.3 Post Bond Flotation Report As 30th day from date of DER
transaction bond flotation by Local
occurs Government Unit
RBU/FCDU Reports:
A-3 FX Form 1- Main Report Daily Consolidated Foreign Exchange (FX) Assets and Weekly 5th banking day after CC:Mail to Appropriate
(Formerly FED Form 1) Liabilities, with the following schedules: transaction date BSP SED/IOD and DER
Revised 2000 and hard copy to IOD
1 - Daily Summary of FX Acquisitions and Daily -do- -do-

Dispositions
2 - Details of Foreign Exchange Acquisitions: Weekly 5th banking day after -do-
Interbank Transactions and Availments of end of reference week
Bankers Acceptance by Reporting Bank
3 - Details of FX Acquisition from Loans -do- -do- -do-
4 - Details of FX Disposition for Loans -do- -do- -do-
5 - Other Current Accounts and Transfers -do- -do- -do-
Acquisitions/Dispositions (Revised as of
5.8.03)
6 - Investment Acquisition/Disposition -do- -do- -do-
7 - Other Foreign Exchange Acquisitions/ -do- -do- -do-
Dispositions
8 - Details of Spot and Forward Foreign Daily 2nd banking day after -do-
Exchange Transactions end of reference day
9 - Export Proceeds Weekly 5th banking day after -do-

end of reference week
10 - Import L/Cs opened and Records on Goods -do- -do- -do-

Imported (RGIs) under DA/OA
11 - Import Payments Weekly -do- CC:Mail to Appropriate
BSP SED/IOD and DER
05.12.31
APP. 6
and hard copy to IOD
05.12.31
APP. 6
12 - Spot and Financial Derivatives Acquisition/ -do- -do- -do-

Disposition
13 - Foreign Exchange Position Report Daily 2nd banking day after -do-
end of reference day
B Unnumbered Report on Cancellations, Roll-overs and Non-Delivery Weekly 2nd banking day from IOD @ e-mail address:
of Foreign Exchange Forwards Purchase - Sales end of reference week iod@bsp.gov.ph
Contracts (For banks with derivatives license)
A-3 Unnumbered X503 Consolidated Foreign Exchange Position Report of Daily 3rd banking day after CC:Mail to appropriate BSP
(Per CL dated 9/05/97) Bank's branches/offices, subsidiaries/affiliates, here end of reference bank- SED/DER/IOD & hard copy
(Rev. by Cir. 445 dated and abroad with Certification of its CEO and Treasurer ing day to IOD
8.20.04) at month-end
A-3 FX Form 1, Sch. 1 Consolidated Foreign Exchange Assets and Liabilities Monthly 15th calendar day after CC:Mail to appropriate
(Formerly FED in Original Currency - RBU & FCDU end of reference month BSP SED and a copy to
Form I, Sch. 16) DER/IOD
B Unnumbered FX Purchases and Sales of US $100,000 and Above, Daily 12:00 Noon of the Original - Appropriate
(Per CL dated 9/05/97) or its Equivalent Outside the Philippine Dealing System following banking day BSP SED
B IOD Form 1 Consolidated Daily Foreign Portfolio Investment Daily 2nd banking day from IOD @ e-mail address:
(Per CL dated 4.23.03) Registration and Outward Remittance Report transaction date iod-pid@bsp.gov.ph/
Hardcopy to IOD
- Annex 1a - Initial Registration 2nd banking day from

issuance of BSRD
- Annex 1b - Changes on Existing Registered 2nd banking day from

Investments settllement/completion
of required documents
- Annex 1c - Repatriation 2nd banking day from

remittance date (when
FX was actually remitted)

B IOS Form 4 Consolidated Report on Loans Granted By FCDUs/ Monthly 15th banking day after Original - Appropriate SED
(BSP 6-22-01) EFCDUs end of reference month Duplicate - IOD
B BSP 5-40-08 Report on Spot and Forward Foreign Exchange -do- -do- Original - SDC
Transaction of EFCDUs/FCDUs
B Unnumbered Report on EFCDU/FCDU Long-Term Investment in -do- -do- Original - SDC

Debt Instrument Duplicate - Appropriate
BSP SED
B Unnumbered Report on Option Transactions -do- 7th banking day after -do-
end of reference period
B Unnumbered Report on Financial Future Transactions Bi-monthly 15th banking day after Original - SDC
end of reference month Duplicate - Appropriate
BSP SED
B Unnumbered Report on Foreign Exchange Swaps with Non-Banks Weekly 2nd banking day after IOD @ e-mail address:
Where 1st Leg is a Purchase of Foreign Exchange end of reference week iod@bsp.gov.ph
Against Pesos (For banks with derivatives license)
B R-4 Report on Foreign Guarantees Securing Loans of Monthly 15th banking day after Original - IOD
Residents From Local Banks and Financial Institutions end of reference quarter
B R-1 Report on Guarantees Issued by Local Banks and Quarterly -do- -do-
Financial Institutions In Favor of Non-Residents
B BSP 6-40-04 Statement of Earnings and Expenses Semestral 15th banking day after -do-
end of reference
semester
Domestic Operation Sector Report
DOS Form I (DLC Form G) Report on Negotiation of Accounts Rediscounted with Monthly 15th banking day after Original - DLC
05.12.31
APP. 6
Bangko Sentral end of reference month
05.12.31
APP. 6
B. TBs
A-2 TB Form 1 X116.2 Consolidated Daily Report of Condition (CDRC) Weekly 6th banking day after By electronic mail to SDC
X121.5 end of week
X258
Control Prooflist on the contents of the data sent via -do- Immediately after the SDC
electronic mail, with certification and and signature of bank has received the
the authorized officer of the bank acknowledgment
receipt from the BSP
Control Prooflist, together with the cover page of the -do- 6th banking day after Appropriate SED
report end of week
A-2 TB Form 1 Weekly Inventory List of Govt. Securities Held - On a -do- 6th banking day after By electronic mail to SDC
Schedule Daily Basis end of reference week
A-2 Unnumbered Weekly Inventory List of Government Securities Held -do- Every Thursday By electronic mail to SDC
Set Aside for the Intra-Day Liquidity Facility from Week
starting Monday to Friday
A-2 TB Form 1 Schedule of Other Non-Risk Assets Monthly 6th banking day after Appropriate BSP SED &
Schedule 1B end of week wherein SDC
month-end falls
A-2 TB Form 2 X162 Consolidated Statement of Condition Monthly 15th banking day after CC:Mail or e-mail to SDC
(Revised December end of reference month
2003 per MAB Schedules:
dated 12.30.03)
2A - Due From Other Banks
2B - Loan Portfolio and Other Accommodations
Page 1 - Interbank Loans classified as to type of

borrowers, term and Loans and Other
Accommodations (Other than Interbank
Loans) classified as to term and economic
activity

Page 2 - Classified as to Security
Page 3 - Classified as to type of borrowers, interest

rate, size of firm
Page 4 - Borrowings of Local Government Units -

Classified as to Provincial, City, Municipal
Page 5 - Microfinance Program (Classified as to

type of client, business enterprise, interest
rate, size of loans, security) (Revised
December 2003 per MAB dated 12.30.03)
Page 6 - Microfinance Loans (Aging of accounts,

amount of loan releases, amount of
deposits generated, results of operation)
2C - Trading Account Securities -
Page 1 - Investments, Available for Sale

Securities
Page 2 - Investments in Bonds and Other Debt
Instruments
Page 3 - Investments and Investments in Bonds

and Other Debt Instruments
(Government Issue - Local Government
Units)
2D - Deposit Liabilities
Page 1 - Classified as to Source - Domestic or

Foreign
05.12.31
APP. 6
Page 2 - Time Deposits Classified by Maturity and
by Interest Rate - Domestic
05.12.31
APP. 6
Page 3 - Time Deposits Classified by Maturity and

by Interest Rate - FCDU
Page 4 - Consolidated Report of Deposit Liabilities

Classified by Size of Account
Page 5 - Deposit of Banks and Due to Banks
2E.1 - Schedule of Bills Payable
2E.2 - Bills Payable Other than to Bangko Sentral
2F - FCDU Other Assets and Other Liabilities

from/to Non- Residents
X240.8 2G - Government Funds Held/Compliance with

Liquidity Floor Requirement
2H - Currency Classification of FCDU Funds
2I Page 1- Classification of Interbank FCDU Funds by

Country
Page 2 - Classification of Non-Bank FCDU Funds by

Country
2J - FCDU Indebtedness among Philippine-

Based Participating Banks
2K - FCDU Loans and Advances
M07-TB 2L - Foreign Exchange Swapped/Sold for

Philippine Peso
2M - Report on Exposure to Real Estate Industry

(Bank Proper) (Rev. May 2004 per MAB
dated 7.8.04)

Page1 - Classified as to Purpose, Status and
Security of Loans
Page 2 - Regional Distribution, Issuer
Page 3 - Classified as to Investee Company, Type

of LC and Guarantee and Economic Sector
2M1 - Report on Exposures to Real Estate Industry

(Bank Proper and Trust Department)
1 - Housing Loans Extended or Guaranteed

under the Government's National Shelter
Programs (NSP)
2 - Real Estate Loans Considered Non-Risk

Assets under Section 22 of the General
Banking Act and Existing Regulations
3 - Real Estate Loans with Original Amounts of P3.5

Million and below to Finance Acquisition or
Improvement of Residential Units
4 - Trust Department Client Directed Investment

Managed Account (IMA) Real Estate Loans
2N - Report on Auto Loans and Credit Card

Receivables
2O - Equity Investments in Allied Undertakings
2P - Computation of Compliance with Aggregate

Ceiling on Direct/Indirect Credit
05.12.31
Accommodations to DOSRI and Report of
APP. 6
Unsecured Accommodations to Stockholders
(with less than 2% Stockholdings)
05.12.31
APP. 6
2Q - Report on Foreign Exchange Liabilities to

Non-Residents
Control Prooflist on the contents of the data sent via Monthly Upon transmission of Fax and copy to SDC
electronic mail or in diskette form, with certification report to BSP
and signature of the authorized officer of the bank
Control prooflist, together with the notarized affidavit/ -do- 15th banking day after Appropriate SED
cover page of the report end of reference month
A-1 Unnumbered X116 Computation of the Risk-Based Capital Adequacy ratio

(Revised Feb. 2005 covering Credit Risks
per Cirs. 475 dated - Solo basis (Head Office and branches) Quarterly 15th banking day after Original copy to appropri-
02.14.05 and 503 end of reference quarter ate BSP SED
dated 12.22.05)
- Consolidated basis (parent bank plus subsidiary -do- 30th banking day after -do-
financial allied undertakings, but excluding end of reference quarter
insurance companies)
A-2 Unnumbered X141.9 Acknowledgment receipt of copies of specific duties Annually or 15th banking day after -do-
(no prescribed and responsibilities of the board of directors and of a as directors date of election
form) director and certification that they fully understand are elected
the same
A-3 TB Form 3 X162 Statement of Condition (By Banking Unit) Quarterly 15th banking day after Appropriate BSP SED &
(Revised December end of reference quarter SDC
2003 per MAB Schedules:
dated 12.30.03) 3A - Breakdown of Due from/Due to Other Banks
and Deposit Liabilities - Banks
3B - Breakdown of Deposits (Other than Banks)
3C - Selected Financial Accounts (Only for

extension offices, savings agencies or money
shops not maintaining separate books; in lieu
of TB Form 3 and its other schedules)

3D - Aging of Loans and Selected Receivable
(Revised December 2003 per MAB dated
12.30.03)
3E - Loans-to-Deposits Ratio Supplementary

Information
A-1 TB Form 4 X162.9 Published Statement of Condition (Advance copy for 12th banking day from Original to appropriate
publication/posting) receipt of call BSP SED
Copy to SDC by electronic
mail or in diskette form or
hard copy
Control Prooflist, notarized (only when PSOC is 12th banking day from Original to appropriate
submitted electronically or in diskette form) receipt of call BSP SED
Upon transmission of Fax to SDC

PSOC template file
Statement of Condition (Published/Posted) Within 20 banking days Appropriate BSP SED

from receipt of call
Publishers' Certificate (for published SOC)/Affidavit of -do- -do-

posting executed by the president or officer of
equivalent rank (for posted SOC)
A-3 TB Form 5 X162 Consolidated Statement of Income/Expenses and Quarterly 15th banking day after Original -
(Revised December Surplus (Free) end of reference quarter AppropriateSED
2003 per MAB Duplicate - SDC
dated 12.30.03)
Analysis of Profits and Surplus (Free) Accounts
Control Prooflist on the contents of the data sent via -do- Upon transmission of Fax and copy to SDC
electronic mail, with certifcation and signature of the report to BSP
05.12.31
authorized officer of the bank
APP. 6
05.12.31
APP. 6
Control prooflist, together with the original notarized -do- 15th banking day after Appropriate SED
affidavit/cover page of the report end of reference quarter
A-3 TB Form 5A Consolidated Statement of Income and Expenses on -do- 15th banking day after By electronic mail or in
Microfinance Program end of reference quarter diskette form to SDC
A-3 TB Form 6 X162 Statement of Income and Expenses by Banking Unit -do- -do- Appropriate SED & SDC
(Revised December
2003 per MAB
dated 12.30.03)
B TB Form 7 X162.7 Consolidated List of Stockholders and their Annual 12th banking day after Appropriate SED
(A03-TB) Stockholdings - Complete List end of reference year
A-3 TB Form 8 X335 Changes in the List of Stockholders and their Quarterly 7th banking day after -do-
X409.3 Stockholdings end of reference quarter
A-3 TB Form 9 X335 Consolidated Report on Compliance with Individual Quarterly 7th banking day after Appropriate SED & SDC
Page 1 X409.3 Ceiling on Direct Credit Accommodations to Directors/ end of reference quarter
Officers/ Stockholders
Page 2 X338.3 Consolidated Report on Compliance with Aggregate Semestral 15th banking day after -do-
(Revised June X339.4 Ceiling on Credit Accommodations to Directors/ end of reference
2005 per Cir. Officers/ Stockholders/Related Interest semester
487 dated
06.03.05) Availments of Financial Assistance to Officers and -do- -do- -do-
Employees under Bangko Sentral Approved Plan
A-3 TB Form 9A X335 Stockholdings of Bank's Directors/Officers/ -do- 15th banking day after -do-
(S04-TB) X409.3 Stockholders/Their Spouses/Relatives in Borrowing end of reference
Firms semester
A-3 TB Form 11 X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day after By electronic mail to SDC
(Revised per MAB Allocation Required under R.A. 6977 (As Amended end of reference quarter
dated 4.28.03) by R.A. 8289)

Schedules:
A-3 1A - Control Prooflist, notarized and signed by the
1B - Details of Loan Portfolio and Loans to Small

and Medium Enterprises (Revised December
2003 per MAB dated 12.30.03)
1C - Loans Granted under Special Financing
2A - Loans to Small Enterprises which have

been Rediscounted
2B - Loans to Medium Enterprises which have been

Rediscounted
2C - SFBFC Instruments which have been

Rediscounted
3 - Loans Granted to Barangay Micro Business

Enterprises (BMBEs) (Revised per MAB dated
4.28.03)
A-3 TB Form 12 X341.8 Consolidated Report on the Utilization of Loanable

(Revised December Funds Generated Which Were Set Aside for Agrarian
2004 per MAB dated Reform/Other Agricultural Credit (Compliance with PD
9.8.04) 717)
-solo basis (head office and branches)
-on a groupwide basis (based on consolidated financial
statements of investor-financial institution or parent

bank and its subsidiaries/affiliates) to be supported by
the individual reports of the bank and its subsidiaries
duly signed by each bank's authorized signatory
(Compliance on a groupwide basis allowed by Cir.
05.12.31
APP. 6
252 dated 7-18-00)
05.12.31
APP. 6
A - Total Collections from Loan Portfolio as of 31

May 1975
B - Direct Loans to Farmers' Associations or

Cooperatives for High Value Crops Projects
under Sec. 8 of R.A. 7900
C - Utilization of 10% Loanable Funds Generated

for Agrarian Reform Credit
D - Utilization of 15% Loanable Funds Generated

for Other Agricultural Credit Loans
E - Development Loans Incentives under Section 9

of R.A. 7721
F - Report on Compliance with P.D. 717 under

Section 11 of R.A. 7835
G - Report on Loans Granted to BMBEs (Revised

Control Prooflist, notarized and signed by the

A-3 TB Form 13 X162 Report on Trust and Other Fiduciary Business and Quarterly 10th banking day after Appropriate SED & SDC
X425.2 Investment Management Activities end of reference quarter
A-3 TB Form 14 X162 Report on Investment Management Activities -do- 10th banking day after -do-
X425.2 end of reference quarter
B TB Form 15 X162 Report on Credit and Equity Exposures to Individuals/ -do- 15th banking day after -do-
(Revised August Groups/Companies Aggregating P1M and above end of reference quarter
2003 per CL dated
8.6.03)

B Control Prooflist, notarized and signed by the -do- -do- -do-
B Q06-TB X162.6 Report on Reconciling Items Outstanding for More -do- 30th banking day after Appropriate SED
(formerly TB than Six Months in the "Due from/Due to Head Office, end of reference quarter
Form 16) Branches and Agencies" accounts (by Banking Unit)
B A02-TB X162.6 Reconciliation Statement between Head Office and Annual 30th banking day after Appropriate BSP SED &
(formerly TB Branches (by Banking Unit) end of reference SDC
Form 16A) calendar year
B TB Form 17 X162 Report on Outstanding Loans Secured by Pledges/ Semestral 15th banking day after end Appropriate BSP SED
Assignment of Shares of Stocks of Other Banks/NBQBs of reference semester
B TB Form 18 X164.1 Consolidated Audited Financial Statements (AFS) of Annual 90th day after start of audit Appropriate BSP SED
the Regular Banking Unit and AFS report for FCDU
books for the Past Year Prepared by External Auditor,
showing additional disclosure requirements in the
notes to the audited financial statements required under
Subsec. X164.5
Board Resolution on Action Taken on Financial Audit Annual 30th banking day after Appropriate BSP SED
Report receipt of the audit report
Letter of Comments (LOC) submitted by the External Annual 30th banking day after -do-
Auditor and Board Resolution on Action taken on such receipt of the LOC
LOC
X164.6 Annual report which shall include, in addition to the Annual 180th calendar day after -do-
audited financial statements and other usual the close of the calendar
information contained therein, the additional or fiscal year
disclosure requirements under Subsec. X164.5 (For
TBs with at least P1 billion resources)
05.12.31
Unnumbered Audit Engagement Contract As contract 15th calendar day from Copy to appropriate BSP
APP. 6
(no prescribed is signed date of signing of contract SED
format)
05.12.31
APP. 6
A-2 TB Form 20A X405.9 Report on Peso-Denominated Common Trust Funds Weekly 3rd banking day after end Appropriate SED & SDC
and Other Similarly Managed Funds (for TBs engaged of reference week
in Trust and Other Fiduciary Business, and submitting
TB Form 1 in diskette form)
Control Prooflist Immediately after receipt Fax - SDC

of BSP acknowledgment
receipt
Control prooflist, together with the cover page of the Weekly 3rd banking day after end Appropriate SED
report of reference week
A-2 TB Form 20B Report on Trust and Other Fiduciary Accounts (TOFA) Weekly 3rd banking day after end Appropriate SED & SDC
- Others of reference week
Control Prooflist Immediately after receipt Fax - SDC

of BSP acknowlegment
receipt
Control prooflist, together with the cover page of the Weekly 3rd banking day after end Appropriate BSP SED
report of reference week
Unnumbered Capital Build-Up Program, with Schedules Monthly 15th day after cut-off -do-
month
Schedules:
1 - General Loan Loss Provisioning
2 - Specific Provisioning-Loans
3 - Specific Provisioning-Other Assets
A-2 Unnumbered Report on the Remedial Measures/Action Taken on Monthly 15th day after cut-off -do-
Double-Digit Non-Performing Loan Ratios, on month
Increasing Levels of ROPOA and Restructured Loans
and on Coverage Ratio of less than 25%

A-2 Unnumbered X691.5 Report on Suspicious Transactions As 5th day from the Original and duplicate -
(Revised May transaction occurrence of the Anti-Money Laundering
2002) occurs transaction Council (AMLC)
A-2 Unnumbered X691.5 Covered Transaction Report - do - - do - - do -

(Revised May 2002)
A-2 Unnumbered X691.7 Certificate on Compliance with Anti-Money Annually 20th banking day after Original and duplicate -
(Cir. 279 dated Laundering Regulations end of reference year Appropriate BSP SED
4.2.01)
B (Q01-TB) X162 Certification under oath for "No Transaction" dates Quarterly 5th banking day after Appropriate BSP SED &
on interbank borrowings during calendar quarter end of reference quarter SDC
B --- X165.5 Certification of Compliance with BSP Requirements Annual January 15 of the Appropriate BSP SED
on Bank Protection following year
Unnumbered X602.1 Report on Transaction/Outstanding Derivatives Monthly

Transaction (for banks which enter into derivatives
contracts as end-user)
B Unnumbered Report on Daily Transactions on Investments in Weekly 3rd banking day after end -do-
Weekly Dollar-Linked Peso Notes of reference week
B Unnumbered X162.12 Audited financial statements of foreign banking offices 30th banking day from
and subsidiaries and examination reports done by date of submission/re- -do-
foreign bank supervisory authority lease of report to the for-
eign banking office/sub-
sidiary
B Unnumbered X262.3 Certification of Compliance with Section 55.4 of R.A. Semestral 7th banking day after end -do-
No. 8791 of June and December
Unnumbered X501.3 Certification on Funds Borrowed from FCDU/EFCDU Monthly 5th banking day from -do-
05.12.31
(Revised September end of reference month
APP. 6
2003 per Cir. 403
dated 9.19.03)
05.12.31
APP. 6
BSP Form No. X502.4 Consolidated Report on Compliance with FCDU Monthly 15th banking day after Original - SDC
M09-TB (Revised Cover Requirement end of reference month Duplicate - Approrpiate
September 2003) SED
B Unnumbered Notarized Certification that the bank did not enter into Semestral 5th banking days after Appropriate BSP SED
(Cir. 467 dated Repurchase Agreement covering Government Secu-
01.10.05) rities, Commercial Papers and Other Non-negotiable
securitiesor instruments that are not documented.
B Unnumbered X235.12 Report on Undocumented Repurchase Agreements As transac- Within 72 hours from Appropriate SED
(Cir 467 dated tion occurs knowledge of
1.10.05) transaction
Notarized Certification that the bank did not enter into Semestral 5th banking day after Appropriate SED
Repurchase Agreement covering Government end of the reference
Securities, Commercial Papers and Other Negotiable semester
securities or intruments that are not documented.
B SEC Form General Information Sheet Annual 30 days from date of Drop box-SEC Central Re-
(MAB dated annual stockholders' ceiving Section
9.02.05) meeting
B TB Form 19 X347.3 Page 1 - Schedule of Domestic Standby Monthly, 15th banking day after Appropriate SED, SDC &
Letters of Credit whenever end of reference month DER
there is an
Page 2 - Computation of Allowable Ceiling on Domestic outstanding
Standby Letters of Credit/Guarantees balance
B SES II Form 10 X334 Transmittal of Board Resolution/Written Approval on As any direct 20th banking day from Appropriate SED
Credit Accommodations to Directors/Officers in or indirect date of approval
Compliance with Sec. 83, R.A. 337, as amended loan to any
bank director/
officer is
approved

B SES II Form 12 Sworn Statements on Real Estate/Chattel Transactions As Within 10 banking days -do-
(NP06-TB) to Directors, Officers and Stockholders transaction from approval of
is approved transaction
B SES II Form 13 X136.4 Report on Dividends Declared (with Schedule of Bad On every 10th banking day after -do-
Debts) dividend date of declaration
declaration
SES Form 13A Certification (of bank president as to bad debts)
B SES II Form 14 X156.2 New Schedule of Banking Days/Hours As changes 7th banking day prior to -do-
(NP04-TB) occur effectivity of the change
B SES II Form 15 X144 Biographical Data of Directors/Officers After election 7th banking day after Electronic mail or dis-
(NP08-TB) -If submitted in diskette form - Notarized first page of or appoint- election/appointment/ kette form to SDC
each of the directors'/officers' bio-data saved in diskette ment and as change or if hard copy
and control prooflist changes Original to appropriate
-If sent by electronic mail - Notarized first page of occur SED
Biographical Data or Notarized list of names of Directors/ Duplicate to SDC
Officers whose Biographical Data were submitted thru
electronic mail to be faxed to SDC
(CL dated 1.09.01)
B SES II Form 16 X162.4 Report on Crimes and Losses As crime/ 5th banking day from Appropriate SED & SITD
Revised June 2005 (Note: In cases involving bank personnel, the prescribed incident knowledge of crime
per Cir. 486 dated submission deadline shall be 5 banking days after initiation occurs
06.01.05 of judicial or extra-judicial action or after imposition of
administrative sanction, whichever is earlier.)
B Unnumbered X143.4 Report on Disqualification of Director/Officer As Within 72 hours from Appropriate SED
(no prescribed form) disqualification receipt of report by the BOD

occurs
B SES Form 6H X306.5 Notice/Application for Write-off of Loans, Other Credit As write-off 25th banking day prior Original and duplicate -
(CBP 7-16-21) Accommodations, Advances and Other Assets occurs to the intended write-off Appropriate SED
05.12.31
APP. 6
revised
05.12.31
APP. 6
B SES II Form 26 X162.3 Information/Documents Required under Appendices Only once; 15th banking day from Appropriate SED
7 & 8 (MOR) as change date of change
occurs
B SES III Form 27 X162.1 Specimen Signature of Authorized Signatories and As change 3rd banking day from Appropriate SED & SDC
Board Resolution designating Authorized Signatories occurs dat e of resolution
B Unnumbered X144 List of Members of the Board of Directors and Officers As election 12th banking day after Appropriate BSP SED &
(NP09-TB) occurs annual board election SDC
B X343 Daily Report on Interbank Borrowings not Effected As Noon of banking day Appropriate BSP SED
through Clearing Account with BSP transaction immediately following
occurs date of transaction
-do-
B X151.7 Notice of transfer of branches/voluntary closure of As transfer 5th banking day from
X151.8 branches occurs date of transfer
B X153.4 Notice of Actual Date of Opening a Branch As it occurs 10th banking day after -do-
opening
B X339 Financing Plans and Amendments Thereto As 30th calendar day after -do-
amendment board approval
occurs
B Unnumbered X565 Conversion/Transfer of FCDU Loans to RBU* Monthly 10th banking day from -do-
X409.16 Waiver of the Confidentiality of Information under As Within 72 hours from -do-
Sections 2 and 3 of R.A. No. 1405, as amended transaction knowledge of transactions
occur
DER Reports
B FX Form 1A X162.2 Consolidated Foreign Exchange Assets and Liabilities Monthly 10th banking day after DER
(Formerly FED end of reference month
Form 1)

Schedules:
1 - Monthly Summary of Foreign Exchange Monthly
Acquisitions/Dispositions
2 - Interbank Transactions
3 - FX Acquisition from Loans (Of Resident

Clients)
4 - FX Disposition for Loans (Of Resident

Clients)
5 - Other Current Accounts and Transfers

Acquisition and Disposition
6 - Investments Acquisition and Disposition
7 - Other Foreign Exchange Acquisitions/

Dispositions
8 - Export Proceeds (Directly Remitted to

Exporter)
B Unnumbered Reconciliation Statement of FX Form 1A with Monthly Following day after DER
Consolidated Statement of Condition submission of CSOC
B Unnumbered Certification as to the veracity and accuracy of the Monthly Next banking day follow- -do-
Consolidated Report on FX Assets and Liabilities and ing the prescribed date
all supporting schedules, to be signed by an officer of of submission of the re-
the bank with the rank of AVP or equivalent rank port and schedules
05.12.31
APP. 6
* A report is nor required in no transfers were effected during the month.
05.12.31
APP. 6
RS Form 1 (TB) Summary Report of Transactions on TB Loans by Monthly for 15th banking day after Appropriate BSP SED
Banking Unit loans end of reference period
granted;
quarterly for
loans
outstanding
RS Form 2A-TB Survey on the Volume and Weighted Average Interest Daily A daily survey report only -do-
Rates on Deposits for banks notified by DER
RS Form 1B (5-17-27) Report on Volume of Money Market Transactions As 2nd banking day after DER
DER (TR-D01-TB) transaction transaction date
occurs
M02-TB Loans, Peso Deposits, Deposit Substitutes and Bills Monthly, 15th banking day after -do-
Payable of Selected Government Corporations and whenever end of reference month
their Subsidiaries there is an
outstanding
balance
S03-TB Compliance with the Program of Withdrawal of Special Semestral, 10th banking day after -do-
Depository Privileges for banks end reference semester
with
outstanding
balances
Unnumbered X425.3 Post Bond Flotation Report As 30th day from date of the -do-
transaction bond flotation by the
occurs LGU
IOD Reports
A-2 M01-TB X501.4 Foreign Currency Cover Monthly 15th banking day after IOD
(For FCDUs) end of reference month
A-2 M03-TB Report on Bank Liabilities to Non-Residents [formerly, Monthly 15th banking day after -do-
Schedule of Foreign Exchange Liabilities to Non- end reference month
Residents (In Original Currency)] (CL dated 2.18.03)

B IOS Form 4 Consolidated Report on Loans Granted by FCDUs Monthly 15th banking day after IOD/Appropriate SED
B Unnumbered Report on Foreign Exchange Swaps with Non-Banks Weekly 2nd banking day after IOD @ e-mail address:
where 1st Leg is a Purchase of Foreign Exchange end of reference week iod@bsp.gov.ph
Against Pesos (For TBs with derivatives license)
C. RBs/Coop Banks
A-2 RB/COB X116.2 Consolidated Daily Report of Condition (CDRC) Weekly 4th banking day after cc:Mail/Diskette/
Form 1 end of reference week Harcopy: SDC
A-2 RB/COB X162 Consolidated Statement of Condition Monthly 15th banking day after cc:Mail to SDC/
Form 2A Schedules: end of reference month Appropriate SED
(Rev. 2004 1 - Due from/Due to Other Banks
per MAB 2 - Loan Portfolio and Other Accommodations
dated 5.21.04) 2.1 - Loans Portfolio and Other Accommodations
(Borrowings of Local Government Units)
2.2 - Schedule of Microfinance Loans
3 - Investments in Bonds and Other Debt Instru-
ments
3.1 - Investments in Bonds and Other Debt Instru-
ments (Government Issue - Local Government
Units)
3A - Equity Investments
4 - Fixed and Other Assets
5 - Deposit Liabilities
6 - Bills payable cc:Mail/Diskette/Hardcopy
Control Prooflist Original - Appropriate SED

Quarterly
A-2 Unnumbered Computation of the Risk-Based Capital Adequacy Ratio
(Revised Feb. 2005 covering Credit Risks
per Cirs. 475 dated
05.12.31
APP. 6
02.14.05 and 503 - solo basis (Head Office and branches) 15th banking day after
dated 12.22.05) end of reference quarter
05.12.31
APP. 6
- consolidated basis (parent bank plus subsidiary 30th banking day after -
financial allied undertakings, but excluding insurance end of reference quarter
companies)
A-2 Unnumbered X141.9 Acknowledgment receipt of copies of specific duties Annually or 15th banking day after
(no prescribed and responsibilities of the board of directors and of a as directors date of election
form) director and certification that they fully understand are elected
the same
A-3 RB/COB X162 Statement of Condition (by Banking Unit) - including Quarterly 15th banking day after Original - SDC
Form 2B ROPA by banks end of reference quarter Duplicate - Appropriate
(Rev. 2004 Schedule: SED
per MAB dated 1 - Loans-to-Deposit Ratio Supplementary
5.21.04) Information
A-3 RB/COB X162 Consolidated Statement of Income and Expenses -do- -do- cc:Mail/Diskette/Hard
Form 3A copy: SDC/SED IV/DER
(Rev. 2004
per MAB dated Control Prooflist cc:Mail/Diskette/Hardcopy
5.21.04)
A-3 RB/COB X162 Consolidated Statement of Income and Expenses on -do- -do- cc:Mail/Diskette/Hard
Form 3A.1 Microfinance Program copy: SDC/Appropriate
(Rev. 2002) SED
A-3 RB/COB X162 Statement of Income and Expenses (by Banking Unit) -do- -do- cc: Mail/Diskette/Hard
Form 3B copy: SDC
(Rev. 2004
per MAB dated
5.21.04)
A-3 RB/COB X335 Consolidated Report on Compliance with Individual -do- -do- Original - SED IV
Form 4A X409.3 Ceiling on Direct Credit Accommodations to Directors/
Officers/Stockholders/Related Interests (DOSRI)
Schedule:
1. Compliance with Individual Ceiling on Credit
Accommodations to DOSRI

A-3 RB/COB X335 Consolidated Report on Compliance with Aggregate -do- -do- -do-
Form 4B X409.3 Ceiling on Credit Accommodations to DOSRI
Schedule:
1. Secured and Unsecured DOSRI Loans
A-3 RB/COB X341.8 Consolidated Report on the Utilization of Loanable Quarterly 15th banking day after Electronic mail/Diskette/
Form 5A Funds Generated Which Were Set Aside for Agrarian end of reference quarter Hardcopy: SDC
(Rev. December Reform Credit/Other Agricultural Credit
2004 per MAB
dated 9.8.04) Schedules:
A - Total Collections from Loan Portfolio as of 31
May 1975
B - Direct Loans to Farmer's Assn. or Coop for High

Value Crop Projects
C - Utilization of 10% Loanable Funds Generated

for Agrarian Reform Credit
D - Utilization of 15% Loanable Funds Generated

for Agricultural Credit
E - Development Loan Incentives
F - Report of Compliance with PD 717
G - Report on Loans Granted to Barangay Micro

Business Enterprises (BMBEs)
(Revised per MAB dated 4.28.03)
Control Prooflist (notarized) Quarterly Upon transmission/ cc:Mail/Diskette/Hard

submission of main report copy: SDC (by fax, if hard
copy cannot be submitted
on deadline)
05.12.31
APP. 6
05.12.31
APP. 6
A-3 RB/COB X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day after Electronic mail/
Form 5B Allocation Required under RA 6977, as amended by end of reference quarter diskette: SDC
(Rev. per RA 8289
MAB dated
4.28.03) Schedules:
1. Details of Loan Portfolio and Loans to Small and Upon transmission/ Original - SDC (by fax, if
Medium Enterprises submission of main hard copy cannot be sub-
(Revised per MAB dated 5.21.04) report mitted on deadline)
1.a - Loans granted under Special Financing
2. Loans to Small Enterprises which have been

Rediscounted
3. Loans to Medium Enterprises which have been

Rediscounted
4. Report on Loans Granted to BMBEs (Revised per

MAB dated 4.28.03)
A-3 RB/COB Control Prooflist (notarized) Quarterly Upon transmission/ Original - SDC (by fax, if
Form 6 submission of main hard copy cannot be sub-
report mitted on deadline)
A-3 Unnumbered 3277.6 Summary of Loans Granted Annually 15th banking day after Original - SDC
end of reference year Duplicate - Appropriate
SED
A-2 RB/COB X254 Report on Microfinance Transactions Monthly 5th banking day after Original - DLC/BSPRLC
Form 7 end of reference month
A-2 RB/COB X254 Weekly Report on Required and Available Reserves Weekly 4th banking day after Electronic mail to SDC
Form 7A Against Deposit Liabilities (To be replaced with CDRC end of reference week
- Form 1)

A-2 RB/COB X240.8 Control Prooflist of WRRAR Against Deposit Liabilities Weekly 4th banking day after Electronic mail to SDC
Form 8 end of reference week
A-2 Unnumbered X691.5 Government Funds Held/Compliance with Liquidity Quarterly 15th banking day after Original-Appropriate SED
(Rev. May 2002) Floor Requirement end of reference quarter Duplicate - SDC
A-2 Unnumbered X691.5 Covered Transaction Report (CTR) As 5th banking day from the Original and duplicate -
(Rev. May 2002) transaction occurrence of the Anti-Money Laundering
occurs transaction Council (AMLC)
A-2 Unnumbered X691.7 Suspicious Transaction Report (STR) -do- -do- -do-
(Cir. 279 dated
4.2.01)
A-1 RB/COB X162.6 Certification of Compliance with Anti-Money Annually 20th banking day after Original and duplicate -
Form 9 Laundering Regulations end of reference year Appropriate SED
A-1 Condensed Statement of Condition (Posted) Quarterly 20th banking day after Original - Appropriate
Attachments: end of reference quarter SED
9-A Affidavit of RB President or the Manager of the
Posting of Quarterly Statement of Condition
9-B Affidavit of City/Municipal Mayor/Treasurer of the

Posting of Quarterly Statement of Condition
B RB/COB X162.6 Reconciling Items Outstanding for More than Six Semestral 15th banking day after -do-
Form 10 Months on the Due from/Due to Head Office/Branches end of reference
& Agencies Account (by Banking Unit) semester
B RB/COB X162 Status Report on Past Due Accounts and Valuation Quarterly 15th banking day after -do-
Form 11 Reserves end of reference quarter
(or as required by BSP)
B RB/COB X409.3 Stockholdings of Bank's Directors/Officers/ Semestral 15th banking day after -do-
05.12.31
APP. 6
Form 12 Stockholders/Their Spouses/Relatives in Borrowing end of reference
Firms semester
05.12.31
APP. 6
B RB/COB X338.3 Report on Availment of Financial Assistance to Officers Semestral 15th banking day after Original -Appropriate SED
Form 13 X339.4 and Employees under an Approved Plan end of reference
Revised June 2005 semester
(Cir 487 dated 6.3.05)
Financing Plans and Amendments Thereto (no specific Upon Within 30 days from -do-
format) adoption or approval of BOD
as change
occurs
B RB/COB X162.6 Reconciliation Statement between Head Office and Annually 30th banking day after
Form 14 Branches end of calendar year
B RB/COB Analysis of Undivided Profits and Surplus (Free) Quarterly 15 banking days after Original - Appropriate SED
Form 15 Accounts end of reference quarter Duplicate - SDC
B RB/COB X162.7 Consolidated List of Stockholders and Their Annually/ 30th banking day after Original-Appropriate SED
Form 16 Stockholdings and Changes Thereto Quarterly end of calendar year/7th
when banking day after end of
change quarter
occurs
B RB/COB X144 Plantilla of Organization Annually Every January 31 and 10th Original-Appropriate SED
Form 17 and as day after change occurs
change
occurs
B RB/COB X144 Biographical Data of Officers and Directors After 10th day after election/ cc:Mail/Diskette to SDC
Form 18 election or appointment/changes Original - SDC
appointment Duplicate-Appropriate
and as SED
change
occurs
(CL dated If sent by electronic mail - Notarized first page of As Upon transmission of the Fax to SDC
1.09.01) Biographical Data or Notarized list of names of necessary template file of bio-data
Directors/Officers whose Biographical Data were
submitted thru electronic mail

If submitted in diskette form - Notarized first page of As 7th banking day after Together with accom-
each of the directors'/officers' bio-data saved in diskette necessary election/appointment/ plished form saved in
and control prooflist change diskette to SDC
B RB/COB X156.2 New Schedule of Banking Days/Hours Upon 7th banking day prior to Original-Appropriate SED
Form 19 opening or effectivity of change
as change
occurs
B RB/COB X162.5 Sworn Statement of Real Estate Transactions As 10th banking day from Original-Appropriate SED
Form 20 transaction approval of transaction
occurs
B RB/COB X162.4 Report on Crimes and Losses As incident 5th banking day from Original-Appropriate SED
Form 21 occurs knowledge of crime or Duplicate - SITD
(Rev. per Cir. 486 incident
dated 6.1.05)
X162.4 Summary Report on Crimes and Losses Upon Not later than 15 Original-Appropriate SED
termination banking days from Duplicate - SITD
of investiga- termination of the
tion investigation
B Unnumbered X143.4 Report on Disqualification of Directors/Officers As disquali- Within 72 hours from Original-Appropriate SED
(no prescribed fication receipt of report by the
form) occurs BOD
B RB/COB Notification of Stolen/Destroyed/Loss of Stock As incident 5th banking day from Original-Appropriate SED
Form 22 Certificates occurs occurrence of inci-dent Duplicate - SITD
B RB/COB X306.5 Notice/Application for Write-off of Loans, Other Credit As write-off 25th banking day pror to Original-Appropriate SED
Form 23 Accommodations and Other Assets occurs the intended date of
(Rev. per Cir. 463 write-off
dated 12.29.04)
05.12.31
B RB/COB X136.4 Reports on Dividends Declared Every 10th banking day after Original-Appropriate SED
APP. 6
Form 24 Schedule A - Schedule of Bad Debts dividend approval by board of
declaration directors
05.12.31
APP. 6
B RB/COB X144 List of Members of the Board of Directors and Officers Annually 10th banking day after Original-Appropriate SED
Form 25 election or appointment
B RB/COB X334 Written Approvals of DOSRI Loans by Members of As 20th banking day from Original-Appropriate SED
Form 26 the Board of Directors transaction date of approval
occurs
B No Format Annual Report of Management to Stockholders Annually Within 60 days from Original-Appropriate SED
Covering Results of Operation for the Previous Year end of reference year
B No Format X164 Consolidated Audited Financial Statement (AFS) Report -do- -do- -do-
of Regular Banking Unit for the Previous Year (Prepared
by External Auditor)
Unnumbered Audit Engagement Contract As contract 15th calendar day from Copy to Appropriate
is signed date of signing of SED
contract
B Unnumbered X233.9 Registry Bank Report of Compliance with Prohibition Monthly 10th banking day after Original-Appropriate
on Holdings of LTNCTDs end of reference month SED
B Unnumbered X162.2 Report on the Designation of Authorized Signatories As Within 3 banking days -do-
of Bank's Reports Classified as Category A-1, A-2, A-3 designation from the date the
and B by bank's designation/change
board of occurs
directors
occurs
B Unnumbered X262.3 Certification of Compliance with Section 55.4 of R.A. Semestral Within 7 banking days -do-
No. 8791 after end of June and
December
Unnumbered X425.3 Post Bond Flotation Report As 30th day from date of the DER
transaction bond flotation by the
occurs LGU

X409.16 Waiver of the Confidentiality of Information under As Appropriate SED

Sections 2 and 3 of R.A. No. 1405, as amended transaction
occurs
B Unnumbered X235.12 Notarized Certification that the bank did not enter into Semestral Within 72 hours from Appropriate SED
(Cir. 467 dated Repurchase Agreement covering Government Securi- knowledge of transaction
01.10.05) ties, Commercial Papers and Other Non-negotiable
securitiesor instruments that are not documented.
B Unnumbered X235.12 Report on Undocumented Repurchase Agreements As transac- 5th banking day after Appropriate SED
(Cir 467 dated tion occurs end of the reference
1.10.05) semester
B SEC Form General Information Sheet Annual 30 days from date of Drop box-SEC Central
(MAB dated annual stockholders' Receiving Section
9.02.05) meeting
05.12.31
APP. 6
APP. 7
05.12.31
CERTAIN INFORMATION REQUIRED FROM BANKS

1. Name of bank c. For Executive Vice Presidents, state

2. Address the names of corporations where
3. P. O. Box Number they serve as Chairman of the Board
4. Cable address or cable code and names of other business
5. Board of Directors including Corporate enterprises of which they are
Secretary: proprietors or partners; and
a. Names of Chairman, Vice-Chairman d. For Vice-Presidents and other
and Directors; officers with non-descriptive titles,
b. Number of directors per by-laws; indicate area of responsibility, e.g.,
c. Number of vacancies in the Board; Vice-President for Operations or
d. Names of corporations where they Vice-President, International
serve as Chairman of the Board or Department.
as President and names of other 7. Branches, agencies and extension
business enterprises of which they offices:
are proprietors or partners; a. Name of branch, agency or
e. For the Corporate Secretary, indicate extension office, e.g., Quiapo
if he is also a Director; and Branch or Makati Agency;
f. Date of annual election of directors b. Address;
per by-laws. c. Names and telephone numbers of:
(1) Manager
6. President to Department Heads, (2) Cashier
including Auditor: (3) Accountant; and
a. Names and titles; d. For agencies and extension
b. Telephone number of each officer offices, indicate name of mother
(office); branch.

APP. 8
05.12.31
DOCUMENTS/INFORMATION ON ORGANIZATIONAL
STRUCTURE AND OPERATIONAL POLICIES
1. Chart of the firm’s organizational b) Procedure/flow of paper work; and

structure or any substitute therefor; c) Other matters;
2. Name of departments/units/offices with 5. Memoranda-Circulars or the like issued
their respective functions and covering organizational and operational
responsibilities; policies;
3. Designations of positions in each 6. Sample copies of each of the forms/
department/unit/office with the reports used by each office/unit/
respective duties and responsibilities; department other than those submitted
4. Manual of Instructions or the like to the BSP; and
embodying the operational policies/ 7. Such other documents/information that
procedures of each department/unit/ may be required from time to time by
office, covering such areas as: the supervisory/regulatory department
a) Signing/delegated authority; concerned.

APP. 9
05.12.31
GUIDELINES FOR CONSOLIDATION OF FINANCIAL STATEMENTS OF BANKS

AND THEIR SUBSIDIARIES ENGAGED IN FINANCIAL ALLIED
UNDERTAKINGS
(deleted by Cir. 494 dated 20 September 2005)

APP. 10
05.12.31
FORMAT CERTIFICATION ON COMPLIANCE WITH RULES AND

REGULATIONS ON BANK PROTECTION
I hereby certify to the best of my knowledge and belief that the security program that
this Bank has developed and is administering equals or exceeds the standards prescribed by
the Bangko Sentral rules and regulations and that such security program has been reduced in
writing, approved by this Bank’s Board of Directors in Resolution No. ______ dated __________
and retained by this Bank in such form as will readily permit determination of its adequacy
and effectiveness.
I hereby further certify that the Bank's Security Officer has provided for the installation,
maintenance and operation of appropriate security devices as prescribed by the aforementioned
rules and and regulations.
President
or
Authorized Officer
Date

APP. 11
05.12.31
PRO-FORMA ORDER OF WITHDRAWAL FOR "NOW" ACCOUNTS

The order of withdrawal form shall have a size of three (3) inches by seven (7)
inches, and shall be on security/check paper. It shall contain as a minimum the features
contained in the following pro-forma order of withdrawal:
FRONT
Acct. No. ______ No. _______
ORDER OF WITHDRAWAL
"NOW" ACCOUNTS
____________, 20 ___
Pay to ______________ the amount of PESOS ____________________ (P________)
NAME OF DRAWEE BANK

Address
Drawer/Depositor
BACK
Important
1. This order of withdrawal shall be payable only to a specific person, natural or juridical,
and not to bearer nor to the order of a specific person.
2. Only the payee can encash this order of withdrawal with the drawee bank, or deposit it in
his account with the drawee bank or with any other bank.

APP. 12
05.12.31
SAMPLES OF STANDARDIZED INSTRUMENTS EVIDENCING

DEPOSIT SUBSTITUTE LIABILITIES
Serial No. ________ Original
_______________________________________________________
(Name of Bank)
PROMISSORY NOTE
Issue Date : _________, 20 ______.

Maturity Date : _________, 20 ______.
FOR PESOS ___________________________________________ (P__________), RECEIVED.

(Present Value/Principal)
_____________________________ promises to pay _________________________________

(Name of Issuer/Maker) (Name/Account Number of Payee)
or order, the sum of PESOS ________________________________________ (P__________),

(Maturity Value/Principal & Interest)
subject to the terms and conditions on the reverse side hereof.
__________________________________
Duly Authorized Officer
NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

APP. 12
05.12.31
TERMS AND CONDITIONS OF A PROMISSORY NOTE
1. Computation of Yield
Interest is hereby stipulated/computed at ________% per annum, compounded

( ) monthly ( ) quarterly ( ) semi-annually ( ) Others.
2. No Pretermination
This promissory note shall not be honored or paid by the issuer/maker before the maturity
date indicated on the face hereof.
3. Liquidated Damages
In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated

damages of (amount or %), plus attorney’s fees of (amount or %) and costs of collection
in case of suit.
4. Renewal
( ) No automatic renewal.
( ) Automatic renewal under the following terms:
5. Collateral/Delivery
( ) No automatic renewal
( ) Collateralized/secured by (describe collateral)
( ) Physically delivered to payee
( ) Evidenced by Custodian Receipt No. ___________________________________
dated _______________________ issued by ______________________________.
( ) Collateralized/secured by (fraction or %) share of (describe collateral)
as evidenced by Custodian Receipt No. ___________ dated ______________
issued by ___________________________________.
6. Substitution of Securities
( ) Not acceptable to Payee

( ) Acceptable to payee, however, actual substitution shall be with prior written consent
of payee.
7. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of (describe document) dated
______________________, executed by (name of party/ies) and made an integral
part hereof.

APP. 12
05.12.31
Serial No. ___________________ Original
______________________________________
(Name of Bank)
REPURCHASE AGREEMENT
Issue Date : __________, 20 ______.

Repurchase Date : __________, 20 ______.
FOR AND IN CONSIDERATION OF PESOS _______________________________________
(P_________________) Vendor, _______________________________________, hereby sells,

(Name of Issuer/Vendor)
transfers and conveys in favor of Vendee,_________________________________________,
(Name of Vendee)
the security(ies) described below, it being mutually agreed upon that the same shall be
resold by Vendee and repurchased by Vendor on the repurchase date indicated above at the
price of PESOS ___________________________________________________ (P____________),
subject to the terms and conditions stated on the reverse side hereof.
(Description of Securities)
Principal Debtor/s Serial Number/s Maturity Date/s Face Value Interest/Yield

P P
TOTAL
CONFORME:
_________________________ _________________________
(Signature of Vendee) Duly Authorized Officer

APP. 12
05.12.31
TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT
1. Computation of Yield
Yield is hereby stipulated/computed at ____________ % per annum, compounded
( ) monthly ( ) quarterly ( ) semi-annually ( ) others
Vendor shall not repurchase subject security/ies before the repurchase date stipulated
on the face of this document.
In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated
damages of (amount or %), plus atttorney’s fees of (amount or %) and costs of collection
in case of suit.
4. Renewal
( ) No automatic renewal
( ) Automatic renewal under the following terms:
____________________________________________________________________
____________________________________________________________________
5. Delivery/Custody of Securities
( ) Physically delivered to payee
( ) Evidenced by Custodian Receipt No. _______________________________, dated
___________________________, Issued by _______________________________.
6. Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to payee, however, actual substitution shall be with prior written
consent of payee.
( ) This Agreement is subject to the terms and conditions of (describe document)
dated _______________________________, executed by (name of party/ies) and made
an integral part hereof.

APP. 12
05.12.31
Serial No. ________________ Original
_______________________________________
(Name of Bank)
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: _____________, 20 _____.
FOR AND IN CONSIDERATION OF PESOS _________________________________________
(P _____________), ____________________________ hereby assigns, conveys, and transfers

(Name of Assignor)
with recourse to____________________________ the debt of _________________________

(Name of Assignee) (Name of Principal Debtor)
to the Assignor, specifically described as follows:
(Description of Debt Securities)

P P
TOTAL P P
and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the
face value of, and the interest/yield on, said debt securites. This assignment shall be subject to
the terms and conditions on the reverse side hereof.
C O N F O R M E :
(Signature of Assignee) Duly Authorized Officer

APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (amount or %) plus attorney’s fees of (amount or %) and costs of collection in case of
suit.
( ) Physically delivered to Assignee

( ) Evidenced by Custodian Receipt No. _________________ dated __________________,
issued by ________________________,
( ) This Agreement is subject to the terms and conditions of _________________________

__________________, dated _______________ executed by name of party/ies and
made an integral part hereof.

APP. 12
05.12.31
_______________________________________
(Name of Bank)
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: _____________, 20 _______.
FOR AND IN CONSIDERATION OF PESOS _________________________________________
(P _________________), ___________________________________ hereby assigns, conveys,

(Name of Assignor)
and transfers with recourse to __________________________________________ the debt of
(Name of Assignee)
_______________________________ to the Assignor, specifically described as follows:

(Name of Principal Debtor)

P P
TOTAL P P
and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay the
face value of interest/yield on, said debt securities, subject to the terms and conditions on the
reverse side hereof.
C O N F O R M E :
____________________________ __________________________
(Signature of Assignee) Duly Authorized Officer

APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (amount or %) plus attorney’s fees of (amount or %) and costs of collection in case
of suit.
( ) Physically delivered to Assignee

( ) Evidenced by Custodian Receipt No. _________________ dated __________________,
issued by ________________________,
( ) This Agreement is subject to the terms and conditions of _________________________

__________________, dated ______________ executed by (name of party/ies) and

APP. 12
05.12.31
______________________________________
(Name of Bank)
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: ____________, 20 _____
FOR AND IN CONSIDERATION OF PESOS ______________________________________,
this certificate of participation is hereby issued to evidence the _______________________

(fraction or %)
share of ________________________________________________________________ in the
(Name of Participant)
loan/s of ___________________________________ granted by/assigned to the herein issuer,
specifically described as follows:
P P
TOTAL P P
The issuer shall pay, jointly and severally with the principal debtor, ______________________
(fraction or %)
share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms
and conditions on the reverse side hereof.
C O N F O R M E :
___________________________ ____________________________
(Signature of Participant) (Duly Authorized Officer)

APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issuer shall not pay nor repurchase the participation before the maturity date of subject
security(ies).
In case of default, the issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (amount or %) , plus attorney’s fees of (amount or %) and costs
of collection in case of suit.
( ) Physically delivered to Participant

( ) Evidenced by Custodian Receipt No. _________________ dated _____________,
issued by _________________________________.

__________________________________ dated ______________________ executed by
(name of party/ies) and made an integral part hereof.

APP. 12
05.12.31
______________________________________
(Name of Bank)
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: ____________, 20 ______
FOR AND IN CONSIDERATION OF PESOS ______________________________________,
this certificate of participation is hereby issued to evidence the _______________________

(fraction or %)
share of __________________________________________________________ in the loan/s
(Name of Participant)
of ________________________________ granted by/assigned to the herein issuer, specifically
described as follows:

P P
TOTAL P P
In case of default of the Principal Debtor, the issuer shall pay the ________________________
(fraction or %)
share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms
and conditions on the reverse side hereof.
C O N F O R M E :
__________________________ __________________________
(Signature of Participant) Duly Authorized Officer)

APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issuer shall not pay nor repurchase the participation before the maturity date of subject
security(ies).
In case of default, the issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (amount or %) , plus attorney’s fees of (amount or %) and costs
of collection in case of suit.
( ) Physically delivered to Participant

( ) Evidenced by Custodian Receipt No. __________________________ dated
___________________, issued by _________________________________.

__________________ dated _________________ executed by (name of party/ies) and

APP. 13
05.12.31
NEW RULES ON THE REGISTRATION

OF LONG-TERM COMMERCIAL PAPERS
(Appendix to Subsecs. X239.2 and X239.5)
Pursuant to Section 4(b) of the Revised for one or more trustors, an agent or fund
Securities Act and other existing manager for a principal under a fund
applicable laws, the Securities and management agreement, and does not
Exchange Commission (SEC) hereby include numbered accounts.
promulgates the following New Rules and h. Net worth shall refer to the excess
Regulations governing long-term of total assets over total liabilities, net of
commercial papers, in the interest of full appraisal surplus.
disclosure and protection of investors and i. Subsidiary shall refer to a company
lenders, in accordance with the monetary more than fifty percent (50%) of the
and credit policies of the BSP: outstanding voting stock of which is directly
or indirectly owned, controlled, or held with
Section 1. Scope. These Rules shall apply power to vote by another company.
to long-term commercial papers issued by j. Affiliates shall refer to a concern
corporations. linked, directly or indirectly, to another by
means of:
Sec. 2. Definitions. For purposes of these 1) Ownership, control and power to
Rules, the following definitions shall apply: vote of 10% but not more than 50% of the
a. Long-term commercial papers shall outstanding voting stock.
refer to evidence of indebtedness of any 2) Common major stockholders; i.e.,
corporation to any person or entity with owning 10% but not more than 50% of the
maturity period of more than 365 days. outstanding voting stock.
b. Interbank loan transactions shall 3) Management contract or any
refer to borrowings between and among arrangement granting power to direct or
banks and quasi-banks. cause the direction of management and
c. Issue shall refer to the creation of policies.
commercial paper and its actual or 4) Voting trustee holding 10% but not
constructive delivery to the payee. more than 50% of the outstanding voting
d. Appraised value shall refer to the stock.
value of chattle and real property as 5) Permanent proxy constituting 10%
established by a duly liscensed and but not more than 50% of the outstanding
independent appraiser. voting stock.
e. Current market value shall refer to k. Underwriting shall refer to the act
the value of the securities at current prices or process of distributing and selling of any
as quoted at the stock exchanges. kind of original issues of long-term
f. Recomputed debt-to-equity ratio commercial papers of a corporation other
shall refer to the proportion of total than those of the underwriter itself, either
outstanding liabilities, including the amount on guaranteed or best-effort basis.
of long-term commercial papers applied for, I. Trust accounts shall refer to those
and any unissued authorized commercial accounts with a financial institution
papers to net worth. authorized by the BSP to engage in trust
g. Specific person shall refer to a duly functions, wherein there is a trustor-
named juridical or natural person as an trustee relationship under a trust
investor for its or his own account, a trustee agreement.

APP. 13
05.12.31
Sec. 3. Conditions for Registration. Long- compliance with the registration

term commercial papers shall be registered requirements specified in Sec. 4 hereof.
under any of the following conditions: The conditions under which the
a. Collateral commercial papers of a registrant were
The amount of long-term commercial registered shall be stictly maintained during
papers applied for is covered by the the validity of the Certificate of
following collaterals which are not Registration.
encumbered, restricted or earmarked for
any other purpose and which shall be Sec. 4. Registration Requirements. Any
maintained at their respective values at corporation desiring to issue long-term
all times, indicated in relation to the face commercial papers shall apply for
value of the long-term commercial paper registration with, and submit to, the SEC
issue: the following:
1) Securities listed in the stock - Current market a. Sworn Registration Statement in
exchanges value of 200%
the form prescribed by the SEC;
2) Registered real estate - Appraised value b. Board resolution signed by a
mortgage of 150% majority of its members -
3) Registered chattel mortgage - Appraised value
1) authorizing the issue of long-term
on heavy equipment, of 200% commercial papers;
machinery, and similar 2) indicating the aggregate amount to
assets acceptable to the
Commission and registrable
be applied for;
with the appropriate 3) stating purpose or usage of
government agency proceeds thereof;
b. Financial Ratios 4) providing that the registration
A registrant who meets such standard,as statement shall be signed by any of the
may be prescribed by the SEC, based on following: the principal executive officer,
the following complementary financial the principal operating officer, the principal
ratios for each of the immediate past three financia officer, or persons performing
(3) fiscal years: similar functions; and
1) Ratio of (a) the total cash, 5) designating at least two (2) senior
marketable securities, current receivables to officers with a rank of vice-president, or
(b) the total of current liabilities; higher of their equivalent, to sign the
2) Debt-to-equity ratio, with debt commercial paper instruments to be issued.
referring to all kinds of indebtedness, c. The latest audited financial
including guarantees; statements and should the same be as of a
3) Ratio of (a) net income after taxes date more than three (3) months prior to
to (b) net worth. the filing of the registration statements, an
4) Net profits to sales ratio; and unaudited financial statement as of the end
5) Such other financial indicators, as of the immediately preceding month:
may be required by the SEC. Provided, however, That such unaudited
c. Debt-to-equity financial statement shall be certified under
The recomputed debt-to-equity ratio oath by the accountant and the senior
of the applicant based on the financial financial officer of the applicant duly
statements required under Sec. 4.c. hereof authorized for the purpose and substituted
shall not exceed 4:1: Provided, that the with an audited financial statement within
authorized short-term commercial papers do 105 days after the end of the applicant's
not exceed 300% of net worth and upon fiscal year;

APP. 13
05.12.31
d. Schedules A to L based on board of directors which, among others,

Subsection c above, in the form attached as shall contain the following:
Annex "A"; 1) A statement printed in red on the
e. Income statements for the left-hand margin of the front page, to wit:
immediate past three (3) fiscal years audited "A registration statement relating to
by an independent certified public these long-term commercial papers has been
accountant: Provided, That if the applicant filed with, but has not yet been approved
has been in operation for less than three (3) by, the SEC. Information contained herein
years, it shall submit income statements for is subject to completion or amendment.
such number of years that it has been in These long-term commercial papers may not
operation; be sold nor may offers to buy be accepted
f. An underwriting agreement for the prior to the approval of the registration
long-term commercial paper issues with an statement. This preliminary prospectus shall
expanded commercial bank or an not constitute an offer to buy nor shall there
investment house (IH), or any other financial be any sale of these long-term commercial
institution which may be qualified papers in the Philippines as such offer,
subsequently by the BSP with minimum solicitation or sale is prohibited prior to
condition, among others, that the registration under the Revised Securities
underwriter and the issuer shall be jointly Act".
responsible for complying with all 2) Aggregate maximum amount
reportorial requirements of the SEC and the applied for, stated on the front page of the
BSP in connection with the long-term prospectus;
commercial paper issue, it being understood 3) Description and nature of the
that the primary responsibility for the applicant's business;
submission of the report of these regulatory 4) Inteded use of proceeds;
agencies is upon the underwriter during the 5) Provisions in the underwriting
effectivity of the underwriting agreement agreement, naming the underwriter and its
and thereafter, the responsibility shall responsibilities in connection with, among
devolve upon the issuer: Provided, others, the reportorial requirements under
however, That if the issuer is unable to these Rules;
provide the information necessary to meet 6) Other obligations of the applicant
such reportorial requirements, the classified by maturities - maturing within six
underwriter shall, not later than two (2) (6) months; from six (6) months to be one
working days prior to the date when the (1) year; and one (1) year and past-due
report is due, notify the SEC of such inability amounts;
on the part of the issuer: Provided, further, 7) List of assets which are encumbered,
That if the underwriting agreement is with restricted or earmarked for any other
a group composed of universal banks and/ purposes;
or investment houses or any financial 8) List of directors, officers and
institutions which may be qualified stockholders owning two percent (2%) or
subsequently by the BSP, there shall be a more of the total outstanding voting stock of
syndicate manager acting and responsible the corporation, indicating any advance to said
for the group: Provided, finally, That the directors, officers and stockholders; and
underwriter may be changed subject to prior 9) List of entities where its owns more
approval by the SEC; than 33- 1/3% of the total outstanding voting
g. A typewritten copy of a preliminary stock, as well as borrowings from, and
prospectus approved by the applicant's advances to, said entities.

APP. 13
05.12.31
h. Projected annual cash flow reissued even if reacquired in any manner,

statement presented on a quarterly basis as pursuant to the terms and conditions of issue.
of the approximate date of issuance for a
period coterminus with the life time of the Sec. 7. Long-Term Commercial Papers
issue, indicating the basic assumptions Exempt Per Se. The following specific long-
hereto and supported by schedules on actual term debt instruments are exempt per se
maturity patterns of outstanding receivables from the provisions of these Rules:
and liabilities (under six (6) months, six (6) a. Evidence of indebtedness arising
months to one (1) year, over one (1) year, from interbank loan transactions;
and past-due accounts) and inventory b. Evidence of indebtedness issued by
turnover; and the national and local governments;
i. Data on financial indicators as may c. Evidence of indebtedness issued by
be prescribed by the SEC for each of the government instrumentalities, the
immediate past three (3) fiscal years, such repayment and servicing of which are fully
as on solvency, liquidity and profitability. guranteed by the National Government;
The SEC may, whenever it deems d. Evidence of indebtedness issued to
necessary, impose other requirements in the BSP under its open market and/or
addition to those enumerated above. rediscounting operations;
e. Evidence of indebtedness issued by
Sec. 5. Action on Application for Registration the BSP, Philippine National Bank (PNB),
a. Within sixty (60) days after receipt Development Bank of the Philippines (DBP)
of the complete application for registration, and Land Bank of the Philippines (LBP);
the SEC shall act upon the application and f. Evidence of indebtedness issued to
shall, in the appropriate case, grant the the following primary institutional lenders:
applicant a Certificate of Registration and banks including their trust accounts, trust
Authority to Issue Long-Term Commercial companies, quasi-banks, IHs including their
Papers valid for one (1) year, which may be trust accounts, financing companies,
renewed annually with respect to the investment companies, non-stock savings
unissued balance of the authorized amount and loan associations, venture capital
upon showing that the registrant has strictly corporations, special purpose corporations
coplied with the provisions of these Rules referred to in Central Bank Monetary Board
and the terms and conditions of the Resolution No. 1051 dated 19 June 1981,
Certificate of Registration. insurance companies, government financial
b. The SEC shall return any application institutions, pawnshops, pension and
for registration, in cases where the retirement funds approved by the Bureau
requirements of applicable laws and of Internal Revenue (BIR), educational
regulations governing the issuance of long- assistance funds established by the national
term commercial papers have not been government and other entities that may be
complied with, or for other reasons which classified as primary institutional lenders by
shall be so stated. the BSP, in consultant with the SEC:
Provided, That all such evidences of
Sec. 6. Close-end Registration. Registration indebtedness shall be held on to
of long-term commercial papers under these maturityand shall neither be negotiated nor
Rules shall be a close-end process whereby assigned to any one other than the BSP and
the portion of the authorized amount the DBP, with respect to private
already issued shall be deducted from the development banks in connection with their
authorized amount and may no longer be rediscounting privileges;

APP. 13
05.12.31
g. Evidence of indebtedness, the total to the payment of the exemption fee, as

outstanding amount of which does not prescribed under Sec. 14, and to the
exceed P15.0 million and issued to not reportorial requirements under Sec. 15 of
more than fifteen (15) primary lenders other these Rules:
than those mentioned in subsection (f) a. Long-term commercial papers
above, which evidence of indebtedness issued by a financial intermediary
shall be payable to specific persons, and authorized by the BSP to engage in quasi-
not to bearers, and shall neither be banking functions; and
negotiated nor assigned but held on to b. Long-term commercial papers fully
maturity: Provided, That the aggregate secured by debt instruments of the National
amount of P15.0 million shall include Government and the BSP and physically
outstanding short-term commercial papers: delivered to the trustee in the Trust
Provided, further, That in reckoning Indenture.
compliance with the number of primary
lenders under this section, holders of such Sec. 9. Prohibition
papers exempt under Sec. 4(f) of the Rules a. No long-term commercial papers
on Registration of Short-Term Commercial shall be issued or negotiated or assigned
Papers, as amended, shall be counted: unless the requirements of these Rules shall
Provided, furthermore, That such issuer have been complied with: Provided, That
shall: no registered long-term commercial paper
1) File a disclosure statement prior to issuer may issue long-term commercial
the issuance of any evidence of paper exempt per se under Sec. 7(g) hereof.
indebtedness; and a quarterly report on b. There shall be no pretermination of
such borrowings in the forms prescribed by long-term commercial papers either by the
the SEC; and issuer or the lender within 730 days from
2) Indicate in bold letters on the face issue date. Pretermination shall include
of the instrument the words "NON- optional redemption, partial installments, and
NEGOTIABLE, NON-ASSIGNABLE": amortization payments; however, installment
Provided, finally, That any issuer, in and amortization payments may be allowed,
accordance with the Rules on Registration if so stipulated in the loan agreement.
of Long-Term Commercial Papers and
Bonds dated 15 October 1976 and Sec. 10. Compliance with Bangko Sentral
withoutstanding long-term commercial Quasi-Banking Requirements. Nothing in
papers falling under this subsection as of these Rules shall be construed as an
the effectivity date hereof, shall likewise exemption from, or a waiver of, the
file the prescribed disclosure statement and applicable BSP rules and regulations
the quarterly report on such borrowings; governing the performance of quasi-
h. Evidence of indebtedness banking functions. Any violation of said BSP
denominated in foreign currencies; and rules and regulations shall be considered a
i. Evidence of indebtedness arising violation of these Rules.
from bona fide sale of goods or property.
Sec. 11. Conditions of the Authority to
Sec. 8. Other Long-Term Commercial Issue Long-Term Commercial Papers
Papers Exempt from Registration. The a. During the effectivity of the
following long-term commercial papers underwriting agreement, should the issuer
shall be exempt from registration under fail to pay in full any interest due on, or
Secs. 3 and 4 hereof, but shall be subject principal of long-term commercial paper

APP. 13
05.12.31
upon demand at stated maturity date, the b. A specimen of the proposed

Authority to Issue Long-Term Commercial commercial paper instrument shall be
Papers shall be automatically suspended. submitted to the SEC for approval of the
The underwriter shall, within the next text thereof.
working day, notify the SEC thereof, and c. The instrument approved by the
the SEC shall forthwith issue a formal SEC shall be printed by an entity authorized
Cease and Desist Order enjoining both by the SEC and shall be released by the
the issuer and the underwriter from SEC to the issuer.
further issuing or underwriting long-term
commercial papers. Sec. 13. Minimum Principal Amount. The
b. Upon the expiration of the minimum principal amount of each
underwriting agreement, it shall be the registered long-term commercial paper
responsibility of the issuer to notify the SEC instrument shall not be lower than the
that it failed to pay in full any interest due amounts indicated in the following
on, or principal of, long-term commercial schedule:
paper upon demand at stated maturity date a. Up to two years P100,000
and has accordingly automatically b. Over two years but less
suspended the issuance of its long-term than four years 50,000
commercial papers. Within the next c. Four years or more 20,000
working day, the SEC shall forthwith issue
a formal Cease and Desist Order enjoining Sec. 14. Fees. Every registrant shall pay the
the issuer from further issuing long-term following fees.
commercial papers. a. Upon application for registration, a
c. Whenever necessary to implement filing fee of 1/20 of 1% based on total
the monetary and credit policies commercial paper proposed to be issued,
promulgated from time to time by the but not to exceed P75,000.
Monetary Board of the BSP, the SEC may b. For issuers of commercial papers
suspend the Authority to Issue Long-Term exempt under Section 8 hereof, an annual
Commercial Papers, or reduce the exemption fee of P10,000.
authorized amount thereunder, or schedule
the maturities of the registered long-term Sec. 15.Periodic Reports
commercial paper to be issued. a. Issuers of registered long-term
commercial papers, through their
Sec. 12. Basic Features of Registered underwriters and those exempt under Sec.
Commercial Papers 8 hereof, shall submit the following reports
a. All registered commercial paper in the form prescribed by the SEC:
instruments shall have a standard format, 1) Mothly reports on long-term
serially pre-numbered, and denominated. commercial papers outstanding as at the
The instrument shall state, among others, end of each month to be submitted within
the debt ceiling of the registrant and a notice ten (10) working days following the end of
that information about the registrant the reference month;
submitted in connection with the 2) Quarterly reports on long-term
registration and other reportorial commercial paper transactions,
requirements from the issuer is available accompanied by an interim quarterly
at the SEC and open to public inspection financial statement to be submitted within
and that the issuer is not authorized by the thirty (30) calendar days following the end
BSP to perforrm quasi-banking functions. of the reference quarter; and

APP. 13
05.12.31
3) Actual quarterly cash flow statement party, issue a Cease and Desist Order ex
to be submitted within ten (10) working days parte, if the violation(s) mentioned in Sec.
following the end of the reference quarter. 16 hereof may cause great or irreparable
b. These periodic reports shall be injury to the investing public or will amount
signed under oath by the corporate officers to palpable fraud or violation of the
authorized, pursuant to a board resolution disclosure requirements of the Revised
previously filed with the SEC. Securities Act and of these Rules and
c. Issuers whose offices are located in Regulations.
the provinces may, through their b. The issuance of such Cease and
underwriters, submit their reports to the Desist Order automatically suspends the
nearest extension office of the SEC. Authority to Issue Long-Term Commercial
Papers.
Sec. 16. Administrative Sanctions. If the c. Such Cease and Desist Order shall
SEC finds that there is a violation of any of be confidential in nature until after the
these Rules and Regulations and imposition of the sanctions mentioned in
implementing circulars or that any issuer, Sec. 16 hereof shall have become final and
in a registration statement and its supporting executory.
papers, as well as in the periodic reports d. Immediately upon the issuance of
required to be filed with the SEC and the an ex parte Cease and Desist Order, the
BSP, has made any untrue statement of a SEC shall notify the parties involved, and
material fact or omitted to state any material schedule a hearing on whether to lift such
fact required to be stated therein or order, or to impose the administrative
necessary to make the statements therein sanctions provided for in Sec. 16 not later
not misleading, or refuses to permit any than fifteen (15) days after receipt of
lawful examination into its corporate affairs, notice.
the SEC shall, in its discretion, impose any
or all of the following sanctions: Sec. 18. Repealing Clause. The Rules and
a. Suspension or revocation, after Regulations supersede the Rules on
proper notice and hearing, of the certificate Registration of Long-Term Commercial
of Registration and Authority to Issue Papers and Bonds dated 15 October 1976
Commercial Papers; and all the amendments to said Rules except
b. A fine in accordance with the as provided in Sec. 19 hereof. All other rules,
guidelines that the SEC shall issue from time regulations, orders, memoranda circular of
to time: Provided, however, That such fine the SEC, which are inconsistent herewith
shall in no case be less than P200 nor more are likewise hereby repealed or modified
than P50,000 for each violation, plus not accordingly.
more than P500 for each day of continuing
violation. Annex "B" hereof shall initially Sec. 19. Transitory Provision
be the guidelines on the scale of fines; a. Any Authority to Issue or Certificate
c. Other penalties within the power of Exemption to Register Long-term
of the SEC under existing laws; and Commercial Papers, granted under the Rules
d. The filing of criminal charges against on Registration of Long-Term Commercial
the individuals responsible for the violation. Papers dated 15 October 1976, valid and
subsisting as of the date of the effectivity of
Sec. 17. Cease and Desist Order these Rules, shall remain valid with respect
a. The SEC may, on its own motion or only to all outstanding issues until such
upon verified complaint by an aggrieved issues are retired or redeemed.

APP. 13
05.12.31
b. The SEC may, at its discretion and APPROVED:

subject to such conditions it may impose,
authorize issuance of any unissued portion
of the issuer's approved long-term debt
ceiling solely for refinancing of maturing
long-term commercial paper issue for a (Sgd.) JOSE B. FERNANDEZ
period not beyond fifteen (15) months from Chairman
the effectivity date of these Rules. Monetary Board of the Central Bank
of the Philippines
Sec. 20. Effectivity. These Rules and
Regulations shall take effect fifteen (15)
days after publication in two newspapers
of general circulation in the Philippines.
Mandaluyong, Metro-Manila, Philippines, (Sgd.) CESAR E. A. VIRATA

17 May 1984. Minister
Ministry of Finance
(Sgd.) MANUEL G. ABELLO

Chairman (Ed. Note: Annexes "A" and "B" are not
Securities and Exchange Commission reproduced in this Appendix.)

APP. 14
05.12.31
NEW RULES ON REGISTRATION OF

SHORT-TERM COMMERCIAL PAPERS
(Appendix to Secs. X234.8/X348)
Pursuant to Presidential Decree No. the registration statement shall be signed

678, as amended by Presidential Decree by the principal executive officer, the
No. 1798, and other existing applicable principal operating officer, the principal
laws, the SEC hereby promulgates the financial officer, the comptroller, or
following new Rules and Regulations principal accounting officer, or persons
governing short-term commercial papers, performing similar functions, and (d)
in the interest of full disclosure and designating at least two senior officers with
protection of investors and lenders, in a rank of vice-president or higher, or their
accordance with the monetary and credit equivalent, to sign the commercial paper
policies of the BSP. instrument to be issued;
(3) The latest audited financial
Section 1. Scope. These Rules and statements; and should the same be as of
Regulations shall apply to short-term a date more than three (3) months prior
commercial papers issued by corporations. to the filing of the registration statement,
an audited financial statement as of the
Sec. 2. Definition. For the purpose of these end of the immediately preceding month:
Rules, the following definitions shall apply: Provided, however, That such unaudited
(a) Commercial paper is an evidence of financial statements shall be certified
indebtedness of any corporation to any under oath by the accountant and the
person or entity with a maturity of three senior financial officer of the applicant,
hundred sixty-five (365) days or less. duly authorized for the purpose, and
(b) Interbank loan transactions shall substituted with an audited financial
refer to borrowings between and among statement within 120 days after the end
banks and non-bank financial intermediaries of the applicant's fiscal year.
duly authorized to perform quasi-banking (4) Schedules, based on sub-section (3)
functions. above, in the form attached as Annex "A";
(c) Issue means creation of a (5) A committed credit line agreement
commercial paper and its actual or with a bank, or any financial institution
constructive delivery to the payee. which may be qualified subsequently by the
BSP, earmarked specifically for repayment of
Sec. 3. Registration of Commercial Papers aggregate outstanding commercial paper
Any corporation desiring to issue issues on a pro-rata basis, with the following
commercial papers shall apply for features:
registration with, and submit to, the SEC the (i) A firm, irrevocable commitment to
following: make available funds to cover at least 20%
(a) Ordinary Registration; of the aggregate commercial papers
(1) Sworn Registration Statement in the outstanding at any time: Provided, That if
prescribed form; the commitment is extended by a group,
(2) Board resolution signed by majority there shall be a lead bank or any financial
of its members (a) authorizing the issue of institution which may be qualified
commercial paper, (b) indicating the aggregate subsequently by the BSP acting for the
amount to be applied for, (c) providing that group;

APP. 14
05.12.31
(ii) The commitment shall be effective 2) Average solvency position shall be

for as long as the issues are outstanding and one whereby total assets must not be less
may be renewed by the bank or any than total liabilities;
financial institution which may be qualified 3) Average net profit margin shall be
subsequently by the BSP; at least 3% computed as follows:
(iii) The request for drawdown shall
be addressed to the bank or any financial Net income after income
institution which may be qualified tax, corporate development
subsequently by the BSP, which request taxes, and other non-cash
shall be duly signed by a member of the Acid-test ratio = charges
board of directors and a senior financial Net sales or revenues
officer of the commercial paper issuer,
duly authorized for the purpose by an OR
appropriate board resolution, which
shall also provide for the designation of Average annual return on equity shall
the alternate signatories (likewise a be at least 8% computed as follows:
member of the board of directors and a
senior financial officer); Net income after income
(iv) A provision that availments shall be tax, corporate development
allowed only for repayment of commercial taxes, and other non-cash
papers which are due and payable in Return on equity = charges
accordance with the terms of the Total stockholder's equity
commercial paper;
(v) Notwithstanding the foregoing 4) Average interest service coverage
requirements for a committed credit line ratio shall be at least 1.2:1 computed as
with a bank, or any financial institution follows:
which may be qualified subsequently by
Net income-before-interest
the BSP, any corporation desiring to issue
expense, income tax, corporate
commercial papers may be exempted
Interest service development taxes,
from compliance therewith by the SEC, coverage ratio = and other non-cash charges
should it meet all of the following Interest expense
financial ratios based on consolidated
audited financial statements for the 5) Debt-to-equity ratio shall not exceed
immediate past three (3) years: 2.5:1.
1) Average current ratio shall be at The SEC may, in its discretion, consult
least 1.2:1 computed as follows: with industry organization(s) such as
Investment Houses Association of the
Current Assets Philippines (IHAP) and Bankers Association
Current Ratio = ----------------------------
Current Liabilities of the Philippines (BAP) and/or the Credit
Information Bureau, Inc.
Average acid-test ratios shall be at least (6) A selling agreement for the
0.5:1 computed as follows: commercial paper issues with a universal
bank or an investment house, or any
Cash, receivables, and financial institution which may be
marketable securities
Acid-test ratio = ____________________ qualified subsequently by the BSP, with
Current Liabilities minimum conditions that the selling agent,
among others, shall be responsible for

APP. 14
05.12.31
ensuring that the issuer observes the statement is approved. This preliminary
provisions of these rules pertaining to the prospectus shall not constitute an offer to
use of proceeds of the committed credit line buy nor shall there be any sale of these
and, with the issuer, shall be jointly commercial papers in the Philippines as
responsible for complying with all such offer, solicitation, or sale is prohibited
reportorial requirements of the SEC and the prior to registration under the Securities Act,
BSP in connection with the commercial as amended by P.D. No. 678 and P.D. No.
paper issue, it being understood that the 1798."
primary responsibility for the submission of (ii) Aggregate maximum amount
the report to said regulatory agencies is upon applied for, stated on the front page of the
the selling agent: Provided, however, That prospectus;
if the commercial paper issuer is unable to (iii) Description and nature of the
provide the information necessary to meet applicant's business;
such reportorial requirements, the selling (iv) Intended use of proceeds;
agent shall, not later than two (2) working (v) The nature of the firm,
days prior to the date when the report is irrevocable, and committed credit line, the
due, notify the SEC of such inability on the amount of the line which shall be at least
part of the issuer: Provided, finally, That if 20% of the aggregate outstanding
the selling agreement is with a group, commercial paper issues, proceeds of
composed of universal banks and/or which shall be allocated on a pro-rata
investment houses or any financial basis to the aggregate outstanding
institutions which may be qualified commercial paper issue (regardless of the
subsequently by the BSP, there shall be a order of their maturities), and the manner of
syndicate manager acting and responsible availments, as stipulated in the credit line
for the group. agreement between the bank and the issuer;
(7) Income statements for the immediate (vi) The provision in the selling
past three (3) fiscal years audited by an agreement naming the selling agent and the
independent certified public accountant: responsibilities of the selling agent in, the
Provided, That if the applicant has been in issuer of the proceeds of the bank committed
operation for less than three years, it shall credit line and the reportorial requirements
submit income statements for such number under these rules;
of years that it has been in operation. (vii) Other obligations of the
(8) A printed copy of a preliminary commercial paper issuer classified by
prospectus approved by the applicant's maturities (maturing within six (6) months;
Board of Directors which, among others, from six (6) months to one (1) year; over one
shall contain the following: (1) year; and past-due amounts);
(i) A statement printed in red on the (viii) Encumbered assets;
left-hand margin of the front page of the (ix) Directors, officers, and
following tenor: stockholders owning 2% or more of the total
"A registration statement relating to subscribed stock of the corporation,
these short-term commercial papers has indicating any advance to said directors,
been filed with, but has not yet been officers and stockholders;
approved by, the SEC. Information contained (x) List of entities where it owns more
herein is subject to completion or than 33-1/3% of the total equity, as well as
amendment. These short-term commercial borrowings and advances to said entities;
papers may not be sold nor may offer to buy (xi) Financial statements for the
be accepted prior to the time the registration immediate past three (3) fiscal years audited

APP. 14
05.12.31
by an independent certified public (a) Evidence of indebtedness arising

accountant: Provided, That if the applicant has from interbank loan transactions;
been in operation for less than three (3) years, (b) Evidence of indebtedness issued by
it shall submit financial statements for such the national and local governments;
number of years that it has been in operation. (c) Evidence of indebtedness issued to
(b) Special Registration the BSP under its open market and/or
In the case of special registration rediscounting operations;
provided for under Section 10 hereof, the (d) Evidence of indebtedness issued by
following shall, in addition to the the BSP, PNB, DBP, LBP, GSIS, and the
immediately preceding requirements, be Social Security System (SSS);
prepared and submitted by the selling agent (e) Evidence of indebtedness issued to
on behalf of the applicant: the following primary institutional lenders:
(1) Projected annual cash flow banks, non-bank financial intermediaries
statement as of the date of filing, presented authorized to engaged in quasi-banking
on a quarterly basis, supported by schedules functions, IHs, financing companies,
on actual maturity patterns of existing investment companies, non-stock savings
receivables and liabilities (under six (6) and loan associations, building and loan
months, six (6) months to one (1) year, over associations, venture capital corporations,
one (1) year, and past-due amounts) and special purpose corporations referred to in
inventory turnover as of the end of the month Central Bank Monetary Board Res. No.
prior to the filing of the registration 1051 dated 19 June 1981, insurance
statement; and companies, government financial
(2) Complemetary financial ratios for institutions, and pawnshops; and other
each of the immediate past three (3) fiscal entities that may be classified as primary
years: institutional lenders by the BSP, in
(i) Ratio of (a) the total of cash on hand, consultation with the SEC: Provided, That
marketable securities, current receivables to all such evidences of indebtedness shall
(b) the total of current liabilities; be held on to maturity and shall neither
(ii) Debt-to-equity ratio, with debt be negotiated nor assigned to any one
referring to all kinds of indebtedness, other than the BSP and the DBP with
including guarantees; respect to private development banks in
(iii) Ratio of (a) net income after taxes to connection with their rediscounting
(b) net worth; privilege;
(iv) Net profits-to-sales ratio; and (f) Evidence of indebtedness the total
(v) Such other financial indicators as outstanding amount of which does not
may be prescribed by the SEC. These exceed P5.0 million and issued to not
additional data shall likewise be more than ten (10) primary lenders other
incorporated in the prospectus. than those mentioned in subsection (e)
(c) The SEC may, whenever it deems above, which evidence of indebtedness
necessary, impose other requirements in shall be payable to a specific person and
addition to those enumerated in subsections not to bearer and shall neither be
(a) and/or (b) above. negotiated nor assigned but held on to
maturity;
Sec. 4. Commercial Papers Exempt Per Se (g) Evidence of indebtedness
The following specific debt instruments are denominated in foreign currencies; and
exempt per se from the provisions of these (h) Evidence of indebtedness arising
Rules: from bona fide sale of goods or property.

APP. 14
05.12.31
Sec. 5. Other Commercial Papers Exempt outstanding liabilities of the applicant, does
from Registration. Commercial papers issued not exceed three hundred percent (300%)
by any financial intermediary authorized by of networth based on the financial statements
the BSP to engage in quasi-banking functions referred to under Section 3(a) (3), the
shall be exempt from registration under Sec. commercial papers shall be registered upon
3, but shall be subject to payment of the compliance with the requirements specified
exemption fee, as provided under Sec. 15, and in Section 3(a) hereof. The same principle
to the reportorial requirements under Sec. 17, shall apply in the case of renewal of the
all under these Rules. Authority to Issue Commercial Paper.
Sec. 6. Prohibition. No commercial paper, Sec. 10. Special Registration

except of a class exempt under Secs. 4 and If the value of commercial paper applied
5 herof, shall be issued unless such for exceeds 300% of networth, as
commercial paper shall have been registered contemplated in the preceding section, it
under these Rules: Provided, That no shall be subject to compliance with the
registered commercial paper issuer may issue requirement under Sec. 3(b) hereof.
commercial paper exempt per se under
Section 4 (f) hereof. Sec. 11. Validity Period of the Authority to
Issue Commercial Paper. The authority to
Sec. 7. Compliance with Bangko Sentral issue commercial papers shall be valid for a
Quasi-Banking Requirements. Nothing in period of 365 days which shall be indicated
these Rules shall be construed as an in the Authority to Issue Commercial Paper,
exemption from or a waiver of the applicable provided that renewal thereof, upon
BSP rules/regulations or circulars governing application filed at least forty five (45) days
the performance of quasi-banking functions prior to its expiry date, may be for a period
or financial intermediaries duly authorized shorter than 365 days.
to engage in quasi-banking activities. Any
violation of said BSP rules/regulations or Sec. 12. Conditions of the Authority to
circulars shall be considered a violation of Issue Commercial Paper
these rules and regulations. (a) In the event that the commercial
paper issuer fails to pay in full any
Sec. 8. Action on Application for Registration commercial paper upon demand at stated
(a) Within sixty (60) days after receipt maturity date, the Authority to Issue
of the complete application for registration, Commercial Paper is automatically
the SEC shall act upon the application and suspended. The selling agent shall, within
shall, in the appropriate case, grant the the next working day, notify the SEC thereof,
applicant a Certificate of Registration and and the SEC shall forthwith issue a formal
Authority to Issue Commercial Papers. Cease and Desist Order, enjoining both the
(b) The SEC shall return any application issuer and the selling agent from further
for registration, in cases where the issuing or selling Commercial papers.
requirement of applicable laws and (b) Whenever necessary to implement the
regulations governing the issuance of monetary and credit policies promulgated from
commercial papers have not been complied time to time by the Monetary Board of the BSP,
with, or for reasons which shall be so stated. the SEC may suspend the Authority to Issue
Commercial Paper, or reduce the authorized
Sec. 9. Ordinary Registration amount thereunder, or schedule the maturities
If the value of commercial papers of the registered commercial paper to be
applied for, when added to the total issued.

APP. 14
05.12.31
Sec. 13. Basic Features of Registered Sec. 17. Periodic Reports

Commercial Papers (a) Issuers of registered commercial
(a) All registered commercial paper papers and those exempt under Sec. 5 hereof
instruments shall have a standard format, shall submit to the SEC and the BSP the
serially pre-numbered, and denominated. following reports in the priscribed form:
The instrument shall state, among others, (1) Monthly reports on commercial
the debt ceiling of the registrant and a notice papers outstanding as at the end of each
that information about the registrant month, to be submitted within ten (10)
submitted in connection with the working days following the end of the
registration and other reportorial reference month;
requirements from the issuer is available at (2) Quarterly reports on commercial
the SEC and open to public inspection and paper transactions accompanied by an
that the issuer is not authorized by the BSP interim quarterly financial statement to be
to perform quasi-banking functions. submitted within thirty (30) calendar days
(b) A specimen of the proposed following the end of the reference quarter; and
commercial paper instrument shall be (3) For issuers whose application for
submitted to the SEC for approval of the text registration was under Sec. 10 hereof, the
thereof. projected quarterly cash flow statements with
(c) The approved instrument shall be the corresponding quarter's actual figure to
printed by the Bangko Sentral Security Print- be submitted within ten (10) working days
ing Plant pursuant to a prior authorization following the end of the reference quarter;
from the SEC, and shall be released by the (b) These periodic reports shall be
SEC to the issuer. signed under oath by the corporate officers
authorized pursuant to a board resolution
Sec. 14. Minimum Maturity Value. The previously filed with the SEC;
maturity value of each registered (c) Issuers whose offices are located in
commercial paper instrument shall not be the provinces may submit their reports to the
lower than P300,000. nearest extension offices of the SEC.
Sec. 15. Fees. Every registrant shall pay Sec. 18. Administrative Sanctions. If the
the following fees: SEC finds that there is a violation of any of
(a) Upon application for registration, these Rules and Regulations and implementing
and for renewals thereof, a filing fee of not circulars or that any issuer, in a registration
more than 1/50th of 1% based on the total statement and its supporting papers, as well
commercial paper proposed to be issued. as in the periodic reports required to be filed
(b) For issuers of commercial paper with the SEC and the BSP, has made any untrue
exempt under Sec. 5 hereof, an annual statement of a material fact, or omitted to state
exemption fee of P10,000. any material fact required to be stated therein
or necessary to make the statements therein
Sec. 16. Notice of availment. Whenever not misleading, or refuses to permit any lawful
the credit line is drawn upon, the selling examination into its corporate affairs, the SEC
agent and/or issuer shall, within two (2) shall, in its discretion, impose any or all of the
working days immediately following the following sanctions:
date of drawdown, notify the SEC of such (a) Suspension or revocation, after
event, indicating the amount availed of proper notice and hearing, of the Certificate
and the total availment as of that given of Registration and Authority to Issue
time. Commercial Paper;

APP. 14
05.12.31
(b) A fine in accordance with the Sec. 21. Transitory Provision. Any Authority
guidelines that the Commission shall issue to Issue Commercial Papers, valid and
from time to time: Provided, however, That subsisting as of the date of the effectivity of
such fine shall in no case be less than P200 these Rules and Regulations, shall remain
or more than P50,000 for each violation, valid and upon its expiration may, at the
plus not more than P500 for each day of discretion of the Commission and subject
continuing violation. Annex "B" hereof shall to such conditions as it may impose, be
initially be the guideline on the scale of fines; renewed on the basis of the Rules of
(c) Other penalties within the power of Registration of Commercial Papers dated
the Commission under existing laws; and 10 December 1975 for an aggregate period
(d) The filing of criminal charges against not exceeding fifteen (15) months from its
the individuals responsible for the violation. expiry date.
Sec. 19. Cease and Desist Order. T h e Sec. 22. Effectivity. These Rules and
Commission may, on its own motion or Regulations shall take effect on 11
upon verified complaint by an aggrieved December 1981.
party, issue a Cease and Desist Order ex Mandaluyong, Metro Manila,
parte if the violation(s) mentioned in Sec. Philippines 8 December 1981
18 may cause great or irreparable injury to
the investing public or may amount to
palpable fraud, or violation of the disclosure
requirements of the Securities Act and of
these Rules and Regulations.
The issuance of such Cease and Desist
Order automatically suspends the Authority (Sgd.) MANUEL G. ABELLO
to Issue Commercial Papers. Chairman
Such Cease and Desist Order shall be Securities and Exchange Commission
confidential in nature until after the imposition
of the sanctions mentioned in Sec. 18 shall
have become final and executory.
Immediately upon the issuance of an ex
parte Cease and Desist Order, the APPROVED:
Commission shall notify the parties involved,
and schedule a hearing on whether to lift
such order, or to impose the administrative
sanctions provided for in Sec. 18 not later
than fifteen (15) days after receipt of notice. (Sgd.) JAIME C. LAYA
Chairman
Sec. 20. Repealing Clause. These Rules Monetary Board of the Central Bank
and Regulations supersede the Rules on of the Philippines
Registration of Commercial Papers dated 10
December 1975, and all the amendments
to said Rules. All other rules, regulations,
orders, and memoranda circular of the
Commission which are inconsistent (Sgd.) ALFREDO PIO de RODA, JR.
herewith are likewise hereby repealed or Acting Minister
modified accordingly. Minister of Finance

APP. 15
05.12.31
LIST OF RESERVE - ELIGIBLE AND NON-ELIGIBLE SECURITIES

A. Government securities ELIGIBLE as annum, issued by government-owned or

reserves controlled corporations, political subdivisions
I. Direct obligations of the Government of and instrumentalities likewise eligible as
the Republic of the Philippines eligible as reserves against peso deposit liabilities and
reserve against peso deposit liabilities and deposit substitute liabilities:
deposit substitute liabilities: 1.1 4% NAWASA Bond s (1st to 9th &
a. 4% PWED Bonds all outstanding 13th Series)
series
b. 4% NPC Bonds (26th - 50th Series III. The following government securities
except 39th Ser. which bear 6% - obligation bearing more than four percent (4%) per
assumed by the National Government) annum interest, whether Bangko Sentral
c. (1) 4% Treasury Bonds (30th S; 57th supported or not, if BEING USED BY
S; 59th-71st S; 78th-93rd S) BANKS/NBQBs as reserve against deposit
(2) Treasury Bonds with less than substitute liabilities as of 17 January 1977
4% per annum interest shall continue to be eligible as such:
considered eligible by reason of Provided, That whenever said securities
expressed BSP limited support shall have matured, they shall be replaced
to original purchaser: by securities carrying the features/conditions
(3) 2% T/Bond L of 1973/2003 1st enumerated under Circular No. 630, dated
Series (1st & 2nd Rel.) 8 November 1978, as amended:
(4) 3% T/Bond L of 1978/2008 55th
Series (1st Release) 6% PWED Bonds - All outstanding issues
(5) 4% T/bond L of 1979/2009 55th 6% NPC Bond - -do-
7% NPC Bond - -do-
Series (2nd Release) 8-1/2% NPC Bonds - 13th - 22nd Series
(6) 3-1/4% T/Bond L of 1974/1999 7% MWS Capital Bonds - All outstanding issues
6th Series (1st. & 2nd Rel.) except 15th Series
(7) 3-1/4% T/Bond L of 1978/2003 6% NIA Bonds - -do-
4 1/2% Treasury Bonds - -do-
54th Series (1st-3rd Rel.) 4 7/10% Treasury Bonds - 7th Series
5% Treasury Bonds - 9th Series
d. 4% Treasury Notes L of 1980/1995 6% Treasury Bonds - 8th Series
115th Series 7% Treasury Bonds - all outstanding issues
e. Bonds made specifically eligible to except 15th Series
10-3/4% Treasury Notes - All outstanding issues
its holders only: 9% Treasury Notes - 60th and 65th Series
(1) 4% Treasury Capital Bonds - 10-1/2% Treasury Notes - 101st Series (1st &
DBP only 2nd Release)
(2) 2% Capital Treasury Bonds - 10-3/4% Treasury Notes - 56th and 61st Series
11-3/4% Treasury Notes - 59th Series
PNB only 6% NAWASA Bonds - 11th, 12th and 1st
Series
II. Bonds and other evidences of indebtedness 10% EPZA Bonds - 9th - 11th Series
bearing interest rate of four percent (4%) per 10-3/4% EPZA Bonds - 3rd - 8th Series

APP. 15
05.12.31
B. The following government securities are 3% T/Bond L of 1976/2001 26th, 27th, 31st -
NOT ELIGIBLE: whatsoever for reserve 34th 46th & 47th Series
purposes: 3% T/Bond L of 1977/2002 49th Series
3-1/4% T/Bond L of 1974/1999 6th Series
Negotiable Land Certificate (NLC) 3rd & 4th Release
Cultural Center of the Philippines (CCP) 3-1/4% T/Bond L of 1977/2002 6th Series
Bonds 5th Release
Philippine Charity Sweepstakes Office 3-1/4% T/Bond L of 1975/2000 21st Series
(PCSO) Bonds 1st Release
Public Estate Authority (PEA) Bonds 3-1/4% T/Bond L of 1977/2002 21st Series
National Development Company (NDC) 2nd Release
Bonds 3-1/4% T/Bond L of 1977/2002 51st Series
National Housing Authority (NHA) Bonds
National Food Authority (NFA) Bonds 1st & 2nd Release
NHMFC Bahayan Certificates 3-1/4% T/Bond L of 1978/2003 54th Series
Light Rail Transit Authority (LRTA) Notes CBCIS 1st & 34th Release
(Auctioned/discounted) - 24th -29thSeries 3-1/4% T/Bond L of 1980/2005 58th Series
CBCIs (Negotiated) A to D-1 Series and 5th 3-3/4% T/Bond L of 1973/2003 2nd Series
to 7th Series (18 months)
CBCIs 10-1/2% Special Series 1st - 32nd Treasury Notes
Series 2% T/Notes L of 1976/1991 79th Series
Central Bank Bills (Negotiated/discounted) 3% T/Notes L of 1982/1997 128th Series
Treasury Bills (Negotiated/discounted) 3% T/Notes L of 1981/1986 120th Series
Treasury Notes and Treasury Bonds bearing & 125th Series
less than four percent (4%) per annum, 3-1/2% T/Notes L of 1982/1997 Special Series
but not given BSP support as follows: 1st-24th Release
Treasury Bonds
2% T/Bond L of 1973/2003 4th Series
2-3/4% T/Bond L of 1974/1986 7-A & 7-B Series

APP. 16
05.12.31
IMPLEMENTING GUIDELINES OF THE COUNTRYSIDE

FINANCIAL INSTITUTIONS ENHANCEMENT PROGRAM
(Appendix to Sections 2274 and 3274)
Section 1. Statement of Policy Objectives financial institutions as of 31 December 2001

The CFIEP aims to: in the form of rediscounted loans, CB:IBRD
a. raise the capital base of the loans other supervised credit program and
countryside financial institutions by special liquidity loans.
encouraging existing and new investors to
infuse fresh equity into said institutions and Sec. 4. CFIEP Task Force
thereby accelerate the government's To effectively attain the objectives
economic development efforts; hereinabove cited, the Task Force
b. reduce the debt burden of eligible constituted under CBP Circular 1315
countryside financial institutions and the composed of the Governor of the BSP, the
corresponding financial strain on the President of the LBP, the President of the
government in continually assisting them; PDIC, shall continue coordinating all
and activities relating to, and oversee the
c. improve the long-term viability of implementation of the CFIEP.
the countryside financial institutions and
establish such institutions as an effective Sec. 5. Incentives under the Program
means to mobilize savings and credit. As the Task Force may allow,
participants to the Program are entitled to
Sec. 2. Qualified Participants the following incentives:
The Program shall be open to the a. Exemption from the forty percent
following: (40%) limitation on voting stockholdings of
a. All Countryside Financial any person or persons related to each other
Institutions (CFIs) that meet the eligibility within the third degree of consanguinity or
requirement set by the BSP except those with affinity, cooperatives, or corporations
unrectified/unaddressed serious irregularities participating in the program, from the
based on the examination findings of the application of prescribed equity ceiling, as
BSP. may be warranted, and for a period not to
The term CFIs shall refer to all rural exceed twenty (20) years; and
banks, cooperative banks and thrift banks, b. Waiver of penalties and other
which have their main operations in the charges due on arrearages that may be
countryside. redeemed under the Program.
b. Thrift banks as may be determined
by the Task Force which have their main Sec. 6. Definition of Terms
operations in the countryside. As used in these Guidelines:
c. Individuals, cooperatives and/or a. Investor – shall refer to individuals,
corporations as may be qualified to make group of individuals, cooperative and all CFIs
an investment in the rural bank or qualified that meet the eligibility requirements set by
thrift bank. the BSP except those CFIs with unrectified/
uncorrected serious irregularities based on
Sec. 3. Coverage of the Program the examination findings of the BSP.
All past due borrowings (principal and b. Arrearages – shall refer to the CFI’s
interests) with the BSP of the countryside arrearages with BSP as of 31 December 2001

APP. 16
05.12.31
which are eligible for buy-back such as operational details will be announced to the
past due rediscounted loans, special CFIs accordingly.
liquidity loans, CBP-IBRD loans and other c. Merger, Consolidation or Acquisition
supervised credit programs, including Incentives (Module III)
those other arrearages as the Task Force Eligible CFIs can avail of incentives
may determine. aimed at promoting mergers, consolidations
c. Converted Shares - shall refer to the or acquisitions among CFIs as a means to
arrearages converted into LBP equity in the develop larger and stronger CFIs which may
form of common and preferred shares pursuant include the following:
to BSP Circular Nos. 1143 and 1172. (1) Counterpart capital infusion by the
LBP by a ratio of more than one-to-one of
Sec. 7. Components of the Program the merged, consolidated or acquired CFI’s
The components of the Program are as total fresh equity;
follows: (2) PDIC financial assistance to
a. Purchase of CFI Arrearages (Module I) qualified merger, consolidation or
The investor/CFI stockholders’ equity acquisition applicants to augment the capital
infusion with the CFI shall be used to infusion required in absorbing the adverse
purchase negotiable promissory notes impact of asset write-downs and other costs
(NPNs) with the LBP valued at twice the as part of restructuring. The merger,
amount actually infused by the investor. The consolidation or acquisition must involve a
NPNs, in turn, will be used to redeem lead bank (with strong capital position and
arrearages with the BSP through the PDIC. good track record) acquiring a majority stock
The investor/CFI stockholders will then be of one (1) or more undercapitalized CFI. The
issued shares of stock in the CFI equivalent amount of financial assistance shall be an
to the actual amount invested and the amount that would generate income spread
difference between the amount actually to the surviving or consolidated CFI
infused and the value of the NPN issued equivalent to fifty percent (50%) of the
by the LBP shall be credited to the undercapitalized CFI’s eligible non-
investors which actually infused the performing loans and ROPA or unbooked
capital. valuation reserves as of 31 December 2001,
b. Land Bank Counterpart Capital whichever is higher, over a period of six (6)
(Module II) years as determined by the BSP;
An eligible CFI is provided access to (3) CFIs availing of the financial
LBP’s capital infusion program which assistance shall submit, among others, a
essentially involves the matching on a one- business plan supported by a six (6) -year
to-one basis of CFI’s fresh capital infusion. financial projections; and
The LBP’s matching equity shall be in (4) The term of the loan shall be for a
preferred shares redeemable within a period period of at least six (6) years.
of five (5) years for Business and Risk
Recovery Modules, and ten (10) years for Sec. 8. Qualification to the Program
the Developmental Module. The cumulative CFIs, except those with unrectified/
dividend shall be equal to the average 364- uncorrected serious irregularities based on
day T-Bill rate for the Developmental and the examination findings of the BSP, may
Risk Recovery Modules, and 364-day T-bill participate in the Program.
plus three percent (3%) for the Business a. Under Module I, CFIs with
Module. Other terms of LBP’s investment arrearages as defined in Sec. 6(b) hereof may
will be determined by its board and qualify.

APP. 16
05.12.31
b. To avail of equity matching program from LBP and to exchange the NPN for
of the LBP under Module II, the CFI must arrearages of the CFI;
meet the following minimum requirements: (c) other requirements as the Task Force
(1) A past due loans ratio of not more may deem necessary.
than twenty-five percent (25%); and (2) Simultaneously, the investor/CFI
(2) A loan portfolio at least sixty percent stockholder deposits cash with the LBP in
(60%) of which is in agriculture or rural- an amount equivalent to fifty percent (50%)
based production activities. of the arrearages to be redeemed, which
c. Under Module III, PDIC financial shall be placed in a special account pending
assistance shall be available to merging, approval of application by the Task Force.
consolidating or acquiring CFIs involving at (3) Upon approval of the application,
least one (1) or more undercapitalized banks. the CFI shall be duly notified by the Task Force
A separate memorandum shall be issued directly or through the LBP Regional Office.
on the guidelines for the LBP equity (4) The LBP shall issue a Negotiable
matching program and PDIC financial Promissory Note in favor of the CFI, with a
assistance. ten (10)-year term or such period where a
d. Investors/CFI stockholders will be maturity value will be equivalent to twice
evaluated based on the “fit and proper” rule the amount invested.
under Sec. X143 and other criteria that the (5) The CFI, through the PDIC as
Task Force may set. attorney-in-fact, shall exchange the NPN for
CFIs investing in undercapitalized CFIs the CFI arrearages equivalent to the amount
should have a minimum unimpaired capital of the NPN.
as defined under Secs. X106 and X116 and (6) The CFI shall issue stock certificates
a history of sustained profitability for a in favor of the investor/s equivalent to the
period of at least five (5) years. total fresh capital infusion. The difference
e. Fresh investments should at least between the amount actually infused and the
cover the additional capital to achieve the value of the NPN issued by the LBP shall be
required minimum risk-based capital credited as equity of the investor who
adequacy ratio of ten percent (10%) after actually infused the capital.
adequate provision for losses based on the (7) Applicants who do not qualify shall
latest examination findings of the be reimbursed for their deposits including
appropriate SED. accrued interest earned.
b. LBP Counterpart Capital under
Sec. 9. Application Procedures* Module II
a. Purchase of Arrearages under Module I Interested CFIs shall submit the
(1) Investor/CFI stockholder files requirements listed in CFIEP Form No. 2-B
application (CFIEP Form No. 1-A) with the to the LBP.
LBP together with the following c. Merger and Consolidation under
requirements: Module III
(a) a proposal for financial strengthening The merging/consolidating/acquiring
accompanied by a three (3)-year financial CFIs shall formulate a merger/consolidation/
projection and a subsequent two (2)-year acquisition plan which shall be an integral
business plan; component of the CFIEP application
(b) the designation of PDIC by the CFI documents to be submitted to the LBP
as the attorney-in-fact to receive the NPN Regional Office.
* Application deadline 31 March 1992

APP. 16
05.12.31
Sec. 10. Applicability of Relevant Laws 7353 (Rural Banks Act of 2000), and R.A.
Nothing herein shall be construed as No. 7906 (Thrift Banks Act) in the event
a waiver by the BSP from proceeding that circumstance shall exist as would
under Section 30 of R.A. No. 7653 or other warrant action under such provisions of
pertinent provisions in said Act, R.A. No. law.

APP. 17
05.12.31
RULES GOVERNING ISSUANCE OF MORTGAGE/

CHATTEL MORTGAGE CERTIFICATE BY THRIFT BANKS
(Appendix to Subsec. 2283)
A. With prior approval of the Monetary or amortizations on the mortgages and

Board, thrift banks, whether or not chattel mortgages constituting the pool.
authorized to engage in quasi-banking
functions, may issue and deal in mortgage F. If at any time, during the term of the
and chattel mortgage certificates exclusively certificates, the aggregate outstanding
for the purpose of financing the following amount thereof should exceed the ceiling as
loans: provided in Item C above on account of any
1. Equipment loans; deficiency or inadequacy of the mortgages
2. Mortgage loans for acquisition of or chattel mortgages resulting from
machinery and other fixed installations; prepayments by the mortgage or chattel
3. Loans for the conservation, mortgages becoming past due as determined
enlargement or improvement of productive by existing regulations, the issuing bank shall
properties; and provide additional mortgages or chattel
4. Real estate mortgage loans (a) for the mortgages as are current necessary to cover
construction, aquisition, expansion or the deficiency.
improvement of rural and urban properties;
(b) for the refinancing of similar loans and G. The issuing thrift bank shall enter into
mortgages; and (c) for such other purposes an agreement with another bank which shall
as may be authorized by the Monetary Board. constitute the latter as custodian of the
mortgages/chattel mortgages pooled for the
B. The certificates shall be issued at a purpose of the issue, as transfer agent of the
minimum denomination of P20,000 for a certificates, and as its paying and securing
term of at least four (4) years. agent, and in general shall specifically state
(a) the rights, obligations and liabilities of
C. The amount of certificates which a thrift the issuing bank and custodian banks; and
bank may issue shall not exceed an amount (b) the rights of the holders of the certificates;
equivalent to fifty percent (50%) of the total (c) the mortgages making up the pool; and
amortizations falling due during the (d) the aggregate value of the certificates that
projected term of the certificates on the may be issued.
mortgages/chattel mortgages pooled for the
purpose of the issue. H. The agreement shall be available for
inspection at reasonable hours during business
D. The maturity of the certificates shall in days to the holders of the certificates, or their
no case be later than any of the maturities duly authorized representatives.
of the mortgages/chattel mortgages
constituting the pool. Mortgages and chattel I. The certificates shall have the following
mortgages on “past due loans” as defined minimum features:
under existing regulations shall not be 1. The certificate shall be 13 inches in
eligible for the pool. length and 8.5 inches in width, and shall be
serially pre-numbered and printed on
E. All outstanding certificates shall security paper with safeguards against
constitute a prior preferred lien on payments alterations and/or falsifications;

APP. 17
05.12.31
2. The description of the certificate, i.e., chattel mortgage certificates. The Monetary
“Mortgage Certificate” or “Chattel Mortgage Board may change the required reserves as
Certificate”, shall be printed on the upper may be necessary.
center margin of the certificate;
3. The certificate shall indicate its date K. Any thrift bank desiring to apply for
of issuance, the amount or denomination authority to issue mortgage/chattel mortgage
thereof, the rate of interest expressed as a certificates may submit its application to the
percentage on an annual basis, and the term appropriate SED of the BSP duly
or maturity thereof; accompanied by the following documents:
4. The certificate shall contain a 1. Pro-forma copies of the mortgage/
conspicuous notice at the lower margin chattel mortgage certificates proposed to be
thereof that the same is not insured by the issued and the agreement referred to in Item
Philippine Deposit Insurance Corporation G thereof;
(PDIC); and 2. Statement setting forth the details or
5. The copy of the certificate to be particulars of the mortgages/chattel
issued to the investor shall be stamped or mortgages to be pooled for purposes of the
printed with the word “Original” and the issue and the purpose for which the
copies retained by the issuer as “Duplicate proceeds will be used; and
copy”, “File copy”, or words of similar import. 3. Other records or data as the
appropriate SED may deem necessary for
J. A five percent (5%) reserve shall be the proper evaluation of the bank’s
maintained against all issues of mortgage/ application.

APP. 18
05.12.31
GUIDELINES IN IDENTIFYING AND MONITORING

PROBLEM LOANS AND OTHER RISK ASSETS AND
SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES
I. Classification of loans. In addition to a. Loans with unregistered mortgage

classifying loans as either current or past instrument which is not in compliance with
due, the same should be qualitatively the loan approval;
appraised and grouped as Unclassified or b. Loans with improperly executed
Classified. supporting deed of assignment/pledge
agreement/chattel mortgage/real estate
A. Unclassified loans. These are loans mortgage;
that do not have a greater-than-normal risk c. Loans with unnotarized mortgage
and do not possess the characteristics of instruments/agreements;
classified loans as defined below. The d. Loans with collaterals not covered
borrower has the apparent ability to satisfy by appraisal reports or appraisal reports not
his obligations in full and therefore no loss updated;
in ultimate collection is anticipated. The e. Loan availments against expired
following loans, among others, shall not be credit line; availments in excess of credit
subject to classification: line; availments against credit line
1. Loans or portions thereof secured without prior approval by appropriate
by hold-outs on deposits/deposit substitutes authority;
maintained in the lending institution and f. Loans with collaterals not insured
margin deposits, or government-supported or with inadequate/expired insurance
securities; policies or the insurance policy is not
2. Loans with technical defects and endorsed in favor of the bank;
deficiencies in documentation and/or g. Loans granted beyond the limits of
collateral requirements. These deficiencies approving authority;
are isolated cases where the exceptions h. Loans granted without compliance
involved are not material nor is the with conditions stated in the approval; and
bank’s chance to be repaid or the i. Loans secured by property the title
borrower’s ability to liquidate the loan to which bears an uncancelled annotation
in an orderly manner undermined. These or lien or encumbrance.
exceptions should be brought to
management’s attention for corrective B. Classified loans. These are loans
action during the examination and those which possess the characteristics outlined
not corrected shall be included in the hereunder. Classified loans are subdivided
Report of Examination under into (1) loans especially mentioned; (2)
“Miscellaneous Exceptions – Loans”. substandard; (3) doubtful; and (4) loss.
Moreover, deficiencies which remained
uncorrected in the following examination 1. Loans especially mentioned.
shall be classified as “Loans Especially These are loans and advances that have
Mentioned”. potential weaknesses that deserve
The following are examples of loans to management’s close attention. These
be cited under “Miscellaneous Exceptions potential weaknesses, if left uncorrected,
– Loans”: may affect the repayment of the loan and

APP. 18
05.12.31
thus increase credit risk to the bank. 2. Substandard. These are loans or
Their basic characteristics are as follows: portions thereof which appear to involve a
a. Loans with unlocated collateral substantial and unreasonable degree of risk
folders and documents including, but not to the institution because of unfavorable
limited to, title papers, mortgage record or unsatisfactory characteristics.
instruments and promissory notes; There exists in such loans the
b. Loans to firms not supported by possibility of future loss to the institution
board resolutions authorizing the unless given closer supervision. Those
borrowings; classified as “Substandard” must have a
c. Loans without credit investigation well-defined weakness or weaknesses that
report/s; jeopardize their liquidation. Such well-
d. Loans with no latest Income Tax defined weaknesses may include adverse
Return (ITR) and/or latest Audited Financial trends or development of financial,
Statements (AFS), except consumer loans managerial, economic or political nature,
with original amount not exceeding P2.0 or a significant weakness in collateral. Their
million which are current, have not been basic characteristics are as follows:
restructured and are supported by latest ITR a. Secured loans
and/or AFS at the time they were granted (1) Past due and circumstances are such
and loans not required to be supported by that there is an imminent possibility of
ITR and AFS pursuant to existing law and foreclosure or acquisition of the collateral
regulations such as loans granted to duly because of failure of all collection efforts;
registered Barangay Micro Business (2) Past due loans to borrowers whose
Enterprises (BMBEs) and other microfinance properties securing the loan have declined
loans. in value materially or have been found with
For this purpose, consumer loans is defects as to ownership or other adverse
defined to include housing loans, loans for information; and
purchase of car, household appliance(s), (3) Current loans to borrowers whose
furniture and fixtures, loans for payment of audited financial statements show
educational and hospital bills, salary loans impaired/negative net worth except for
and loans for personal consumption. start-up firms which should be evaluated
e. Loans the repayment of which may on a case-to-case basis.
be endangered by economic or market Loans and advances possessing any of
conditions that in the future may affect the the above characteristics shall be classified
borrower’s ability to meet scheduled “Substandard” at the full amount except
repayments as evidenced by a declining portions thereof secured by hold-outs on
trend in operations, illiquidity, or increasing deposits, deposit substitutes, margin
leverage trend in the borrower’s financial deposits, or government-supported
statements; securities. The portions so secured are not
f. Loans to borrowers whose subject to classification.
properties securing the loan (previously b. Unsecured loans
well secured by collaterals) have declined (1) Renewed/extended loans of
in value or with other adverse information; borrowers with declining trend in
g. Loans past due for more than thirty operations, illiquidity, or increasing
(30) days up to ninety (90) days; and leverage trend in the borrower’s financial
h. Loans previously cited as statements without at least twenty percent
Miscellaneous Exceptions still uncorrected (20%) repayment of the principal before
in the current BSP examination. renewal or extension; and

APP. 18
05.12.31
(2) Current loans to borrowers with d. Loans wherein the possibility of

unfavorable results of operations for two (2) loss is extremely high but because of
consecutive years or with impaired/negative certain important and reasonably specific
net worth except for start-up firms which pending factors that may work to the
should be evaluated on a case-to-case basis. advantage and strengthening of the asset,
c. Loans under litigation; its classification as an estimated loss is
d. Loans past due for more than ninety deferred until a more exact status is
(90) days; determined.
e. Loans granted without requiring 4. Loss. These are loans or portions
submission of the latest audited financial thereof which are considered uncollectible
statements (AFS)/income tax returns and/or or worthless and of such little value that
statements of assets and liabilities to their continuance as bankable assets is not
determine paying capacity of the borrower; warranted although the loans may have
f. Loans with unsigned promissory some recovery or salvage value. The
notes or signed by unauthorized officers of amount of loss is difficult to measure and
the borrowing firm; and it is not practical or desirable to defer
g. Loans classified as “Loans Especially writing off these basically worthless assets
Mentioned” in the last BSP examination even though partial recovery may be
which remained uncorrected in the current obtained in the future. Their basic
examination. characteristics are as follows:
3. Doubtful. These are loans or a. Past due clean loans the interest of
portions thereof which have the weaknesses which is unpaid for a period of six (6)
inherent in those classified as months;
“Substandard", with the added b. Loans payable in installments
characteristics that existing facts, conditions, where amortization applicable to interest
and values make collection or liquidation is past due for a period of six (6) months,
in full highly improbable and in which unless well secured;
substantial loss is probable. Their basic c. When the borrower’s whereabouts
characteristics are as follows: is unknown, or he is insolvent, or his
a. Past due clean loans classified as earning power is permanently impaired
“Substandard” in the last BSP examination and his co-makers or guarantors are
without at least twenty percent (20%) insolvent or that their guaranty is not
repayment of principal during the financially supported;
succeeding twelve (12) months or with d. Where the collaterals securing the
current unfavorable credit information; loans are considered worthless and the
b. Past due loans secured by borrower and/or his co-makers are
collaterals which have declined in value insolvent;
materially such as, inventories, receivables, e. Loans considered as absolutely
equipment, and other chattels without the uncollectible; and
borrower offering additional collateral for f. Loans classified as “Doubtful” in
the loans and previously classified the last BSP examination and without any
“Substandard” in the last BSP examination; payment of interest or substantial
c. Past due loans secured by real reduction of principal during the
estate mortgage, the title to which is succeeding twelve (12) months or have
subject to an adverse claim rendering current unfavorable credit information
settlement of the loan through foreclosure which renders collection of the loan
doubtful; and highly improbable.

APP. 18
05.12.31
C. Credit card receivables. Credit card c. Sold subject to a firm purchase

receivables shall be classified in accordance commitment from a third party before the
with age as follows: close of the examination.
2. The basic characteristics of real
No. of days estate property acquired subject to "Loss"
past due Classification classification are as follows:
a. Foreclosure expenses and other
91 - 120 Substandard charges included in the book value of the
121 - 180 Doubtful property, excluding the amount of non-
181 or more Loss refundable capital gains tax and
documentary stamp tax paid in connection
The foregoing is the minimum with the foreclosure/purchase which meet
classification requirement. Management the criteria for inclusion in the book value
may therefore formulate additional specific of the acquired property.
guidelines. b. The excess of the book value over
the appraised value.
II. Investments and Other Risk Assets c. Property whose title is definitely lost
to a third party or is being contested in court.
A. Investment in debt securities and d. Property wherein the exercise of
marketable equity securities. The the right of usufruct is not practicable or
classification, accounting procedures, possible as when it is eroded by a river or
valuation and sales and transfers of is under any like circumstances.
investment in all debt securities and Real estate property acquired are not
marketable equity securities is in Appendix sound bank assets. Because of their
33. nature, that is, non-liquid and non-
productive, their immediate disposal
B. Equity investment in affiliates shall through sale is highly recommended. If
be booked at cost or book value whichever such is not possible, they should be
is lower on the date of acquisition. If cost charged-off by annually providing a
is greater than book value, the excess shall valuation reserve in accordance with the
be charged in full to operations or booked following schedule starting at the
as deferred charges and amortized as expiration of the statutory redemption
expense over a period not exceeding five period.
(5) years. Subsequent to acquisition, if there
is an impairment in the recorded value, the End of Year
impairment should adequately be provided After Expiry of
with allowance for probable losses. Redemption Annual
Period or Provision
C. Other property owned or acquired Perfection of to Cost of Accumulated
1. The basic characteristics of real Contract Acquisition Reserve
estate property acquired subject to
"Substandard " classification are as follows: 6th Year 10% 10%
a. Acquired for less than five (5) years 7th Year 10% 20%
unless worthless. 8th Year 10% 30%
b. Converted into a Sales Contract 9th Year 10% 40%
Receivable. 10th Year 10% 50%

APP. 18
05.12.31
D. Acquired or repossessed personal 2. All other accounts receivable should

property be classified in accordance with age as
1. All personal property owned or follows, unless there is good reason for non-
acquired held for three (3) years or less from classification:
date of acquisition shall be classified as
"Substandard " assets. No. of Days
2. The basic characteristics of Outstanding Classification
acquired or repossessed personal property
classified as "Loss" are as follows: 61 - 180 Substandard
a. Property not sold for more than 181 - 360 Doubtful
three (3) years from date of acquisition; 361 or more Loss
b. Property which is worthless or not
salable; The classification according to age
c. Property whose title is lost or is of accounts receivable should be used in
being contested in court; classifying other risk assets not covered
d. Foreclosure expenses and other above. However, their classification should
charges included in the book value of the be tempered by favorable information
property; and gathered in the review.
e. The excess of the book value of the
property over its appraised or realizable F. Accrued Interest Receivable
value. 1. Accrued interest receivable on loans
Valuation reserves shall also be or loan installments still uncollected after
provided for foreclosed personal property three (3) months from the date such loans
in accordance with the following schedule, or loan installments have matured or have
reckoned from the date of foreclosure or become non-performing shall be provided
from the perfection of the contract, if with a 100% allowance for uncollected
acquired through dation in payment. interest on loans.
2. All other accrued interest receivable
End of Year on loans or loan installments shall be classified
After Expiry of similar to the classification of their respective
Redemption Annual loan accounts.
Period or Provision
Perfection of to Cost of Accumulated III. Allowance for probable losses
Contract Acquisition Reserve An allowance for probable losses on the
loan accounts shall be set up as follows:
1st Year 50% 50%
2nd Year 30% 80% A. Specific allowance
3rd Year 20% 100%
Allowance
E. Accounts Receivable Classification (Percent)
1. Accounts receivable arising from 1. Unclassified 0.0
loan and investment accounts still 2. Loans Especially Mentioned 5.0
uncollected after six (6) months from the 3. Substandard
date such loans or loan installments have (a) Secured 10.0
matured or have become past due shall be (b) Unsecured 25.0
provided with a 100% allowance for 4. Doubtful 50.0
uncollected accounts receivable. 5. Loss 100.0

APP. 18
05.12.31
B. General allowance. In addition to For Restructured Loans

the specific allowance for probable losses Restructured Loans (Gross) P xxx
required under Item "A", a general provision Less: Classified Restructured Loans
for loan losses shall also be set up as follows: (based on latest BSP examination)
(1) Five percent (5%) of the outstanding Loans especially mentioned P xxx
Substandard
balance of unclassified restructured loans less
Secured xxx
the outstanding balance of restructured loans
Unsecured xxx
which are considered non-risk under existing Doubtful xxx
laws, rules and regulations: Provided, That Loss xxx xxx
loans restructured/rescheduled under the debt Unclassified Restructured Loans xxx
relief and rehabilitation program for Less: Rest. Loans considered non-
borrowers adversely affected by the super risk under existing regulations xxx
typhoon last 20 July 2003 in the Province of Restructured Loans, net of exclusions xxx
Isabela shall be treated as regular loans and General Loan Loss Provision
shall be subject to the general loan loss (5% of net restructured loans) P xxx
provision of one percent (1%) instead of five
percent (5%) applicable to restructured loans: The excess of the booked general loan
Provided, further, That the restructuring/ loss provisions over the amount required
rescheduling of said loans are effected not as a result of the reduction of the amount
later than 31 December 2003: Provided, required to be set up to one percent (1%)
finally, That the restructured/rescheduled shall first be applied to unbooked specific
loans are subsequently maintained in valuation reserves, whether authorized to
performing status or have complied with be booked on a staggered basis or not and
the terms of the restructuring agreement. only the remainder can be considered as
(2) One percent (1%) of the income.
outstanding balance of unclassified loans C. Allowance for probable losses -
other than restructured loans less loans microfinance loans
which are considered non-risk under Specific allowance for probable losses
existing laws, rules and regulations. on microfinance loans shall be set up
The general loan loss provision shall be immediately in accordance with the
computed as follows: portfolio-at-risk (PAR) number of days of
missed payment, as follows:
For Loans Not Restructured
Gross Loan Portfolio No. of days of Allowance for
(Excluding Restructured Loans) P xxx missed payment probable losses (%)
Less: Classified Loans
(based on latest BSP examination) PAR 1 - 30 2
Loans especially mentioned P xxx 31 - 60 and/or loans
Substandard restructured
Secured xxx once 20
Unsecured xxx
61 - 90 50
Doubtful xxx
Loss xxx xxx 91 - or more and/or
Unclassified Loans xxx loans restructured 100
Less: Loans considered non- twice
risk under existing regulations xxx
Loan Portfolio, net of exclusions xxx Provided, That a general provision for losses
General Loan Loss Provision for microfinance loans equivalent to one
(1% of net loan portfolio) P xxx percent (1%) of the outstanding balance of

APP. 18
05.12.31
microfinance loans not subject to the percent (10%) allowance shall be required
foregoing provisioning less microfinance for the portion thereof which are covered
loans which are considered non-risk under by the appraised value of the collateral:
existing laws/rules/regulations, if any, shall Provided, further, That said collateral is re-
also be set up. appraised at least annually.
The specific and general allowances Management is, however, encouraged
for probable losses shall be adjusted to provide additional allowance as it deems
accordingly for additional allowance prudent and to formulate additional
required by the BSP: Provided, That in specific guidelines within the context of
cases of partially secured loans, only ten the herein-described system.

APP. 19
05.12.31
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 _________ (A)
( ) Simple ( ) Monthly
( ) Compound ( ) Quarterly
( ) Annual
( ) Semi-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 non-finance charges P ____________ P __________ (C)

APP. 19
05.12.31
4. TOTAL DEDUCTIONS FROM PROCEEDS OF LOAN (B plus C) P ________ (D)
5. NET PROCEEDS OF LOAN (A less D) ...................................... P ________
6. PERCENTAGE OF FINANCE CHARGES TO TOTAL AMOUNT

FINANCED (Computed in accordance with
Subsec. X301.1 ........................................................... ___________%
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. P ___________
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 CONSUM-

MATION 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.

APP. 20
05.12.31
ABSTRACT OF "TRUTH IN LENDING ACT"

(Republic Act No. 3765)
(Appendix to Sec. X307.4)
Section 1. This Act shall be known as the (4) the charges, individually itemized,
"Truth in Lending Act." which are paid or to be paid by such person
in connection with the transaction but which
Sec. 2. Declaration of Policy. It is hereby are not incident to the extension of credit;
declared to be the policy of the State to (5) the total amount to be financed;
protect its citizens from a lack of awareness (6) the finance charge expressed in terms
of the true cost of credit to the user by of pesos and centavos; and
assuring a full disclosure of such cost with (7) the percentage that the finance
a view of preventing the uninformed use of charge bears to the total amount to be
credit to the detriment of the national financed expressed as a simple annual rate
economy. on the outstanding unpaid balance of the
obligation.
xxx xxx xxx
xxx xxx xxx
Sec. 3. As used in this Act, the term
Sec. 6. (a) Any creditor who in connection
xxx xxx xxx with any credit transaction fails to disclose
to any person any information in violation
(3) "Finance charge" includes interest, of this Act or any regulation issued
fees, service charges, discounts, and such thereunder shall be liable to such person in
other charges incident to the extension of the amount of P100 or in an amount equal
credit as the Board may by regulation to twice the finance charge required by such
prescribe. creditor in connection with such
transaction, whichever is greater, except that
xxx xxx xxx such liability shall not exceed P2,000 on any
credit transaction.
Sec. 4. Any creditor shall furnish to each
person to whom credit is extended, prior xxx xxx xxx
to the consummation of the transaction, a
clear statement in writing stating forth, to the (c) Any person who willfully violates
extent applicable and in accordance with any provision of this Act or any regulation
rules and regulations prescribed by the issued thereunder shall be fined by not less
Board, the following information: than P1,000 nor more than P5,000 or
imprisonment for not less than 6 months,
(1) the cash price or delivered price of nor more than one year or both.
the property or service to be acquired;
(2) the amounts, if any, to be credited xxx xxx xxx
as down payment and/or trade-in;
(3) the difference between the amounts (e) Any final judgment hereafter
set forth under clauses (1) and (2); rendered in any criminal proceeding

APP. 20
05.12.31
under this Act to the effect that a defendant an estoppel as between the parties
has wilfully violated this Act shall be thereto.
prima facie evidence against such
defendant in an action or proceeding Sec. 7. This Act shall become effective
brought by any other party against such upon approval.
defendant under this Act as to all matters
respecting which said judgment would be Approved, 22 June 1963.

APP. 21
05.12.31
AGREEMENT FOR THE ENHANCED

INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM
This Agreement for an enhanced Interbank Call Loan Funds Transfer System (the “Agreement”)
entered into by and among the following:
The BANGKO SENTRAL NG PILIPINAS, a public corporation duly organized and existing
under the laws of the Republic of the Philippines, with principal address at the BSP Building,
Roxas Boulevard, Manila (hereinafter known as the “BSP”);
The BANKERS ASSOCIATION OF THE PHILIPPINES, an organization of duly licensed

universal/commercial banks in the Philippines, with principal offices at the 11th floor, Sagittarius
Building, H. V. dela Costa Street, Salcedo Village, Makati City (hereinafter referred to as the
“BAP”);
and
The PHILIPPINE CLEARING HOUSE CORPORATION, an organization duly incorporated

under the laws of the Republic of the Philippines, with principal offices at the Ground Floor,
5-Storey Building, Bangko Sentral ng Pilipinas, Manila (hereinafter referred to as the “PCHC”);
WITNESSETH THAT:
WHEREAS, presently, Interbank Call Loans (IBCLs) are transmitted to the BSP using the
Multitransaction Interbank Payment System (MIPS) under an arrangement governed by
the Memorandum of Agreement for Interbank Call Loan Funds Transfer System dated 4
October 1995;
WHEREAS, the BSP and the BAP would like to improve the efficiency of the system by allowing
a more direct interface to the BSP’s own computer and accounting systems and achieve
settlement finality through the gross settlement of IBCLs and thereby reduce systemic risk;
WHEREAS, the BSP and the BAP would like to set up the foundation for a Real Time Gross
Settlement (RTGS) system for the Philippine economy for all other high value payments; and
WHEREAS, the BSP, the BAP, and the PCHC would like to lay down the parameters and the
terms and conditions of a new and improved electronic funds transfer system;
NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC mutually agree
as follows:
1.0 APPOINTMENT – The PCHC is hereby designated as the exclusive service provider
for the front-end software, data communications facility, MIPS server system, and the

APP. 21
05.12.31
BSP gateway interface program for the new electronic IBCL Funds Transfer System (the
“System”) for all banks/financial institutions (the “Participants”) participating in the said
System.
The BSP is hereby designated as the settlement bank for the settlement of all IBCL
transactions transmitted through the System. Further, the BSP shall be the exclusive
systems provider and operator for the BSP Gateway Server and Financial Accounting
System (FAS) where the electronic settlement of IBCL transactions are processed,
computed, and stored for the System.
2.0 DESCRIPTION OF THE SYSTEM
2.1 The System shall be composed of the following components:
2.1.1 Front-end software – The front-end software shall be deployed at each Participant’s
offices. This software shall be developed and maintained by PCHC. The front-end
software shall allow each Participant to enter its IBCL transactions (the “Electronic
Transfer Instructions”) and transmit these electronically to the BSP through the PCHC
server in a secure manner.
2.1.2 The PCHC Server – The PCHC Server shall receive the Electronic Transfer Instructions
from the Participants through PCHC’s telecommunications network, validate and
authenticate each electronic transfer instruction, and immediately relay these to the
BSP’s FAS through the BSP Gateway.
2.1.3 The BSP Gateway Server – The BSP Gateway Server shall act as a transit point for the
Electronic Transfer Instructions and status files being transferred between the PCHC
Server and the BSP’s FAS.
2.1.4 The BSP’s FAS – The FAS of the BSP is the general ledger system of the BSP wherein all
accounting entries to the BSP’s books as well as the Participants’ Demand Deposit
Accounts (DDA’s) are recorded electronically. The FAS also generates the statements
of account for the DDA’s which are sent electronically through the BSP cc:Mail System
to the Participants on a regular basis.
2.1.5 The BSP’s cc:Mail System – The BSP’s cc:Mail system shall be used as the main delivery
facility for sending official DDA statements and for communicating messages to the
Participants.
2.2 The System shall have the following security features:
2.2.1 Log-in ID’s and passwords – To ensure that only authorized personnel are able to
enter and authorize transactions through the System;
2.2.2 Maker/Checker Functions – To ensure that at least two (2) authorized personnel of each
Participant are involved in the inputting, approval, and transmission of Electronic Transfer
Instructions into the System;

APP. 21
05.12.31
2.2.3 Test Keys Authentication against PCHC and BSP – To ensure that the Electronic Transfer
Instructions received are coming from authorized sources; and
2.2.4 Firewalls – To prevent unauthorized access to the BSP’s internal systems.
3.0 MARKET CONVENTIONS – The following market conventions shall be followed in

the IBCL market:
3.1 BCL Settlement Timeframe - Transactions shall be concluded by and among Participants
during the settlement timeframe prescribed by BSP Circular 266 series of 2000 dated 7
November 2000. The timelines for IBCL transactions shall be as follows:
7:30 A.M. - 7:45 A.M. AM Returned Cash and Other Clearing Items (COCI)
receiving window
7:46 A.M. - 8:45 A.M. PCHC processing window
8:46 A.M. - 9:00 A.M. PCHC sends results to BSP; results ready for
download by affected participants at 9:00 AM.
9:01 A.M. - 9:45 A.M. Morning IBCL window to cover returned COCI
items (back-valued to previous day i.e. the same
date as the date of original presentation of the
returned COCI)
9:46 A.M. - 10:00 A.M. BSP update of ledgers in FAS
10:01 A.M. - 4:00 P.M. Regular IBCL window for trading of same-day funds.
4:01 P.M. PCHC Peso Netting cutoff
System is temporarily closed to IBCL transactions
4:16 P.M. PCHC sends Peso Netting results to BSP
4:30 P.M. PCHC Electronic check clearing cutoff
5:00 P.M. PCHC sends check clearing to BSP
5:01 P.M. - 5:30 P.M. BSP update and transmission of DDA statements
which already includes all transactions for the day
5:31 P.M. - 6:30 P.M. System is reopened to allow same-day value IBCL
trading to cover funding/reserve short falls due to
clearing results
3.1.1 From 7:30 A.M. to 7:45 A.M., the morning returned COCI receiving window shall be
open for banks who are affected by returned COCI items where adjustments are made
to the DDA’s for value the previous day. In this case, it shall be necessary for the
affected banks to either borrow or lend funds for value the previous day in order for
their DDA’s to be in compliance with the necessary reserve levels. This backvalue
window shall be open from 9:01 A.M. and 9:45 A.M.
3.1.2 The regular trading window shall be from 10:01 A.M. to 4:00 P.M. for the trading and
settlement of same-day value IBCL transactions. There shall be a temporary closure of
the System at 4:01 P.M. to allow the BSP to post the results of the PCHC Peso Netting
and Electronic Check clearing operations to the respective DDA’s of individual
Participants. The regular window shall be then reopened from 5:31 P.M. to 6:30 P.M.
to allow IBCL trading for same-day funds to cover funding or reserve shortfalls resulting
from check clearing results.

APP. 21
05.12.31
3.2 Confirmation Process – The following procedures shall be used by Participants for
confirming IBCL transactions:
3.2.1 IBCL transactions concluded during any of the trading windows shall be confirmed by
telephone prior to settlement to ensure that all transaction details are in order.
Responsibility for initiating the phone confirmation shall lie with the borrowing party.
3.2.2 Written confirmations shall also be sent by both parties for proper control and
documentation. For SWIFT member institutions, it is strongly suggested that such
confirmations be sent electronically through the SWIFT network using the SWIFT MT
320 format.
3.2.3 Discrepancies, if any, shall be resolved by both parties on mutually acceptable basis.
Voice logs, if available, shall be resorted to in aid of resolution of the discrepancy. Any
discrepancies not resolved shall be subjected to the process in Section 8.0 below entitled
“Settlement of Disputes Among Participants”.
3.3 Settlement Instructions- Settlement instructions for IBCL transactions shall be initiated
as follows:
3.3.1 For new IBCL transactions, the Lender shall be responsible for sending the proper Electronic
Transfer Instructions on the given transaction date. The Electronic Transfer Instructions
shall be sent through the System and shall consist of an instruction to the BSP to debit the
Lender’s DDA account and credit the Borrower’s DDA account. For transactions in the
morning IBCL window that covers returned COCI items, the value date of the debit/credit
shall be for the previous day, as defined in section 3.1. For transactions during the regular
IBCL window, the value date shall be the same as the transaction date.
3.3.2 For maturing IBCL transactions, the Borrower shall be responsible for sending the proper
Electronic Transfer Instructions on the maturity date of the transaction. The Electronic
Transfer Instructions shall be sent through the System and shall consist of an instruction
to the BSP to debit the Borrower’s DDA account and to credit the Lender’s DDA account
for the maturity value of the transaction.
3.3.3 Transactions with the BSP – Participant’s transactions with the BSP shall be handled as
follows:
Reverse Repurchase Agreements (RRP’s) – For RRP’s, the lending Participant

shall be responsible for sending the proper Electronic Transfer Instructions on the
transaction date. The Electronic Transfer Instructions shall be sent through the System
and shall consist of an instruction to the BSP to debit the Lender’s DDA account
for the fund placement. On maturity date of the RRP, the BSP shall be responsible
for crediting the DDA of the lender during the first hour that the System is up.
Credit shall be performed using the BSP’s FAS.
Repurchase Agreements (RP’s) – For RP’s, the BSP shall be responsible for crediting
directly the borrower’s DDA using the BSP’s FAS. On maturity date, the BSP shall
debit the borrower’s DDA for principal plus interest using the BSP’s FAS.

APP. 21
05.12.31
Debits and credits to DDA of Participants resulting from RRP and RP transactions
with the BSP shall be part of the statements of account broadcast by the BSP on an
hourly basis under Section 3.6 below.
3.4 Transaction Status Verification – Participants shall be able to verify the status of their
Electronic Transfer Instructions as follows:
3.4.1 Using the front-end software, the BSP Update Status Report may be downloaded by
Participants to print the status of transactions. These transactions may have one of five (5) status:
(R) Rejected – Transaction has been rejected because it has failed BSP authentication;
(C) Cancelled – Transaction has been cancelled by the BSP because of insufficient
funds by cutoff time;
(P) Pending – Transaction has been received at the BSP but has not yet been settled,
temporarily queued;
(S) Settled – Transaction has been received at the BSP and corresponding debit and
credit entries have already been posted on the respective DDA’s.
Blank – Electronic Transfer Instruction has been sent to the BSP Gateway Server but has
not yet been transferred to the FAS for processing.
3.4.2 Both the sending and receiving parties can view the status of their transactions.
3.4.3 It is recommended that Participants view their transaction status on an hourly basis.
3.4.4 Final and official DDA settlement reports shall be available from the BSP’s cc:Mail
server on an hourly basis.
3.5 Settlement of IBCL transactions – The following rules shall govern the settlement of
IBCL transactions at the BSP.
3.5.1 Upon receipt of the Electronic Transfer Instructions through the System, settlement of
IBCL transactions shall be performed with finality (i.e. cannot be reversed) by the BSP
through the Participants’ respective DDA’s. These accounting entries shall be passed
using the BSP’s FAS.
3.5.2 Debit instructions shall be settled by the BSP on a gross, transaction-by-transaction,

First-In-First-Out basis. The FAS timestamp shall be used for FIFO processing and
settlement of the Electronic Transfer Instructions. The PCHC MIPS server timestamp
shall be used as the official time of receipt of the Electronic Transfer Instructions into
the System and shall be used to control the cut-off times.
3.5.3 It is understood that the BSP shall only post debit instructions if the sending Participant’s
DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be
held in queue.

APP. 21
05.12.31
3.5.4 If a transaction is held in queue due to inadequate DDA balances, other succeeding
transactions which are of lower value and which are within the available DDA balances
shall be posted ahead of the transaction which was held in queue.
3.5.5 Transactions held in queue shall remain there until adequate funds are received by the
DDA to allow posting.
3.5.6 Transactions that remain in queue until the IBCL window closes shall be cancelled
from the System. For the back-value IBCL window, the cut-off shall be 9:45 A.M. For
the regular same-day IBCL window, there shall be two cut-offs, one at 4:01 P.M. and
the final cutoff at 6:30 P.M.
3.5.7 The BSP reserves the right to withhold all or part of a Participant’s DDA balances from
settlement of IBCL transactions, subject to the Monetary Board’s instructions.
3.5.8 Where applicable, the BSP’s transactions with the Participants shall be posted in the
BSP’s FAS before the System opens for the regular IBCL window from 10:01 A.M. to
4:00 P.M. These transactions shall include tax payments, maturing rediscount loans,
maturing repurchase agreements, maturing reverse repurchase agreements, and other
transactions of Participants with the BSP.
3.5.9 Participants shall endeavor to transmit all repayment instructions for maturing IBCL
borrowings during the first hour of operation of the System in order to improve liquidity
in the System.
3.6 BSP Hourly Broadcast of DDA Statements:
3.6.1 BSP shall broadcast, on an hourly basis, each Participant’s running DDA transactions
and balances for the day using the cc:Mail system.
3.6.2 IBCL transactions reflected in the DDA statement retrieved from cc:Mail shall be
considered as final and irrevocable. No unwinding of transactions shall be allowed
except check clearing results which are reversed using the returned COCI window.
3.6.3 Participants shall be responsible for designating authorized personnel who shall have
access to their DDA balance information from the BSP. The BSP shall open cc:Mail
accounts for each of these designated personnel at the BSP’s mail server.
3.6.4 Participants shall be responsible for reconciling their transactions against the DDA
statements received from the BSP. Any discrepancies shall immediately be advised in
writing or through cc Mail message to the BSP for correction/rectification.
4.0 AVAILABILITY OF SERVICES – The services outlined in this Agreement shall be

available at the PCHC as well as the BSP at a fixed hour on all banking days, including
local holidays. For purposes of this Agreement, banking days refer to the days when
the BSP is open for business and settlement of transactions contemplated herein.

APP. 21
05.12.31
4.1 The PCHC and the BSP shall endeavor to develop, test, and communicate to all
Participants a Continuity of Business (COB) plan aimed at providing continuous operation
of the System. This COB plan shall incorporate various scenarios that may occur such
as but not limited to hardware failure, fire, power outage, telecommunications outage,
typhoon, earthquake, flood, civil disturbances, or other events at either the BSP site or
the PCHC site.
4.2 Each Participant shall be responsible for developing and testing its own COB plan and
ensuring that back-up machines, backup files, telephone lines, and other necessary
equipment are available at their site or back-up site to allow continuous operations
under the various scenarios above.
4.3 The PCHC shall also make available a desktop PC as an input facility for the use of any
Participant who is unable to enter data through its own facilities.
5.0 TRANSACTION FEES
5.1 PCHC shall charge the amount of P100.00 for each electronic funds transfer instruction
sent by the remitting Participant. The transaction fee shall be subject to regular review
by the PCHC for adjustment as may be deemed necessary.
5.2 BSP shall charge the amount of P20.00 for each Electronic Transfer Instruction received.
5.3 Both PCHC and BSP charges shall be debited from the Participants’ DDA’s on a monthly
basis, based on the PCHC’s monthly report of transactions.
5.4 The BSP shall not be subject to any fees or charges under this section.
6.0 PARTICIPATION AGREEMENT
6.1 Participating banks who are members of the BAP can avail themselves of the services
provided by the System by executing the Participation Agreement which is attached
hereto as Annex “A” and made an integral part hereof. Participating banks who formally
join the System shall be considered bound by the terms and conditions hereof, and any
amendments thereto, as if they had executed this Agreement.
6.2 Financial institutions who are non-BAP members may avail themselves of the services
of the System by filing a Participation Agreement addressed to the PCHC, the BAP, and
the BSP subject to the terms and conditions under the section Annex “A”. Such financial
institutions shall be considered bound by the terms and conditions herein after written
notification of the approval of the PCHC, the BAP, and the BSP, respectively.
Non-BAP members shall be required to pay an admission fee in such sum or sums as
the BAP and/or the PCHC shall impose before being formally admitted into the System.
Participating banks/financial institutions who were previously Participants in MIPS shall
be exempt from paying the admission fees.

APP. 21
05.12.31
7.0 RIGHTS AND OBLIGATIONS OF THE PARTIES AND PARTICIPATING BANKS/

FINANCIAL INSTITUTIONS:
7.1 The PCHC shall be responsible for the development, testing, and maintenance of the software
for both the Participants’ front-end software, the PCHC MIPS server, and the interface software
with the BSP’s FAS. The PCHC shall provide updates to the software as may be required by
the Participants and shall charge applicable one-time development fees accordingly.
7.2 The PCHC shall be responsible for providing, maintaining, and upgrading the PCHC
MIPS server, including the necessary data telecommunications facility to access the
server, and ensure that adequate COB plans are in place for uninterrupted operations.
7.3 The PCHC shall be responsible for exchanging authentication test keys with all
Participants and implementing regular changes thereto.
7.4 The BSP shall be responsible for ensuring that the BSP Gateway Server is operative and
that adequate backup facilities are made available to have continuous and efficient
operation of the System. The BSP shall also be responsible for ensuring the integrity
and continued operation of its FAS which is an integral part of the system.
7.5 The BSP shall be responsible for exchanging authentication test keys with all Participants
and implementing regular changes thereto.
7.6 The BSP shall be responsible for settlement of IBCL transactions sent through the System.
The settlement process involves receiving and authenticating the Electronic Transfer
Instructions from the remitting bank through the System, checking if the remitting bank
has sufficient DDA balances, and posting the debit entry in the remitting bank’s DDA
and the credit entry in the beneficiary bank’s DDA through the BSP’s FAS. For this
purpose, the Participant hereby authorizes the BSP to execute said debit and credit
instructions based on Electronic Transfer Instructions received through the System.
7.7 The BSP shall be responsible for providing all Participants hourly updates of their respective
DDA balances through account statements sent out via cc:Mail. In this connection, the
BSP shall be responsible for maintaining the cc:Mail server and in granting access to this
server to duly authorized personnel as identified by each participating institution.
7.8 Each Participant shall be solely responsible for ensuring the confidentiality, safety, and
security of its log-in IDs, passwords, and authentication keys for activating the system
and initiating IBCL transactions. If it has reason to believe that the confidentiality or
security of its log-in IDs, passwords, and authentication keys have been compromised,
the Participant shall take immediate steps to have these disabled and changed to new
passwords/keys.
7.9 Each Participant shall be legally bound by its Electronic Transfer Instructions which it
sent through the System without need of any other manually prepared confirmation,
paper, or instrument, provided that the same has been authenticated by the BSP and
provided further that they comply with the terms and conditions set forth herein.

APP. 21
05.12.31
7.10 Each Participant shall be responsible for promptly checking the correctness and
completeness of the debit/credit entries of the BSP under the System and to promptly
notify the BSP of any errors discovered.
7.11 Each Participant shall be responsible for reclaiming funds erroneously sent by it through
the System. The BSP and the PCHC shall not be responsible for undertaking the reclaim
of funds. Participants who are recipients of funds erroneously sent shall endeavor to
promptly return such funds upon notice by the sending institution and upon verification
that the funds were indeed erroneously sent. In cases where the recipient of funds was
not able to remit the funds back on the same value date as the erroneous remittance,
due compensation shall be paid by the recipient for the use of funds for the applicable
period. Interest rate applicable shall be the average interbank call loan rate for the
period as published.
Such erroneous receipt of funds shall in any case be subject to the provisions of Art. 22
of the Civil Code of the Philippines.
7.12 The BAP, being a mere negotiating and signing agent for participating banks, shall not
be made a party to any dispute nor be held answerable for any liability by any transacting
parties to IBCL transactions. Its role is to be a catalyst in framing and structuring this
Agreement which aims to improve the current electronic means of processing IBCL
transactions. The PCHC and all participating banks/financial institutions who formally
join the System and avail themselves of the services provided herein shall have no
cause of action or right of relief whatsoever against the BAP in connection with, arising
out of or in relation to, any transactions covered by the Agreement.
The PCHC shall not be held responsible for any loss, liability or damage caused by
errors and mistakes of Participants and shall be held free and harmless from claims,
suits, costs, and damages attributing thereto.
The BSP, as Settlement Bank, shall not be made a party to any dispute nor be held
answerable for any liability by any transacting party to IBCL transactions. The BSP,
when acting in accordance with the provisions of this Agreement, shall be kept free and
harmless by all participating banks and financial institutions for executing and/or effecting
settlement/payment instructions, or, as may be proper, making and implementing
reclaiming transactions under par. 7.11 above.
8.0 SETTLEMENT OF DISPUTES AMONG PARTICIPANTS
8.1 Due compensation for errors committed by one or both parties shall be as stipulated
in Section VII of the MART trading guidelines for Interbank Call Loan Transactions.
Unresolved disputes involving participating institutions shall be referred to
Voluntary Arbitration. Each party shall propose a Voluntary Arbitration Committee
by listing five (5) names of reputable persons well-versed in the issue in dispute.
Thereafter, the proponent to Voluntary Arbitration shall strike out one name and
the respondent another and so on until only three names are left who shall comprise
the Voluntary Arbitration Committee.

APP. 21
05.12.31
8.2 The decision of the Voluntary Arbitration Committee shall be final and executory in
accordance with law. There shall be no appeal unless the decision is tainted with
fraud and/or with apparent bias in favor of one party.
8.3 The Voluntary Arbitration Law shall apply in a suppletory character.
9.0 REVISIONS TO THE AGREEMENT
9.1 Terms and conditions contained in this Agreement shall be subject to the regulations of
the BSP and the provisions of existing laws of the Republic of the Philippines.
9.2 Procedures, forms, automation programs, hardware specifications, and deadlines referred
to herein may be changed or enhanced subject to mutual agreement in writing among
the BSP, the PCHC, and the BAP. Such changes and enhancements, when executed by
the BAP, shall be binding on all Participants whether BAP member banks or non-
member financial institutions.
9.3 Without prejudice to the immediate implementation of this Agreement, the parties
herein may establish such further rules and regulations that may be subsequently be
needed to augment, implement, interpret and govern this Agreement.
10.0 CONTRACTUAL EFFECTIVITY
This Agreement shall remain valid until terminated by mutual consent of the parties.
11.0 CONFIDENTIALITY – The PCHC and the BSP agree to maintain strict confidentiality
of all transactions, data, and/or information provided by, or pertaining to, each Participant
under the System. Violation thereof shall subject the person or persons responsible
therefor to the penalty provisions of Sec. 36 of RA 7653.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 5th day of July, 2001
at the City of Manila, Philippines.
BANGKO SENTRAL NG PILIPINAS BANKERS ASSOCIATION OF THE

PHILIPPINES
By: ____________________________ By: ___________________________
PHILIPPINE CLEARING HOUSE CORPORATION

By: _________________________________________
WITNESSES: ____________________ ____________________________

APP. 21
05.12.31
ACKNOWLEDGMENT

CITY OF MANILA ) S. S.
BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally
appeared:
Name Community Tax Cert. No. Date & Place Issued
_____________________ _______________________ __________________
known to me and to me known to be the same person who executed the foregoing Agreement
for the Enhanced Interbank Call Loan Funds Transfer System and who acknowledged to me
that the same is his free and voluntary act and deed and that of the institution he represents.
This instrument consists of ______( ) pages including this page whereon the
acknowledgment is written, is duly signed by the parties and their respective instrumental
witnesses on each and every page thereof.
WITNESS MY HAND AND SEAL this ___ day of ____________ in the City of
______________, Philippines.
NOTARY PUBLIC
Doc. No. _____;

Page No. _____;
Book No._____;
Series of 20___.

APP. 21
05.12.31
SUPPLEMENTAL AGREEMENT FOR THE

ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM
(Appendix to X343.1 and X601.3 )
This Supplemental Agreement entered into by and among the following:
The BANGKO SENTRAL NG PILIPINAS, a government corporation created under Republic

Act No. 7653, otherwise known as the New Central Bank Act, with principal address at the BSP
Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter known as the “BSP”);
The BANKERS ASSOCIATION OF THE PHILIPPINES, an industry association of duly licensed

universal and commercial banks in the Philippines, duly authorised by its member-banks to
represent and bind them in this Supplemental Agreement, with principal offices at the 11th
floor, Sagittarius Building, H. V. dela Costa Street, Salcedo Village, Makati, City (hereinafter
referred to as the “BAP”);
and
The PHILIPPINE CLEARING HOUSE CORPORATION, a corporation duly organised and

existing under the laws of the Republic of the Philippines, with principal offices at the Ground
Floor, 3-Storey Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter referred
to as the “PCHC”);
WITNESSETH THAT:
WHEREAS, presently, Interbank Call Loans (IBCL’s) are settled on a gross settlement basis at
the BSP through the Enhanced Multitransaction Interbank Payment System (hereinafter referred
to as “MIPS2”) under an arrangement governed by the Agreement for the Enhanced Interbank
Call Loan Funds Transfer System dated 05 July 2001 (the “MIPS2 Agreement”);
WHEREAS, the BSP and the BAP would like to utilize MIPS2 to effect other types of interbank
fund transfers such as settlement of FX transactions, settlement of securities transactions and
other interbank payments and thereby reduce systemic risk by providing a means of making
final and irrevocable payments among banks;
NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC have mutually
agreed to execute this Supplemental Agreement and add the following provisions as part of
the MIPS2 Agreement:
OPERATING HOURS AND SETTLEMENT CONVENTIONS
1. The MIPS2 System shall be open for operation from 10:00 A.M. to 4:00 P.M. for other
types of interbank fund transfer transactions. Remitting/Paying banks shall enter orders

APP. 21
05.12.31
through the Funds Transfer Screen of MIPS2. Each transaction shall be properly identified
as to the type of interbank transaction being settled (e.g. FX Settlement, Securities Settlement).
2. Upon receipt of the electronic transfer instructions through the System, these shall be
settled with finality by the BSP through the Participants’ (as the term is defined in the
MIPS2 Agreement) respective Demand Deposit Account (DDA). These accounting entries
shall be passed using the BSP’s Financial Accounting System (FAS).
3. Debit instructions shall be settled by the BSP on a gross, transaction by transaction, first-
in-first out basis. The FAS timestamp shall be used for FIFO processing and settlement of
the electronic transfer instructions. The PCHC MIPS server timestamp shall be used as
the official time of receipt of the Electronic Transfer Instructions into the System and shall
be used to control the cut-off times.
4. It is understood that the BSP shall only post debit instructions if the sending participant’s
DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be
held in queue.
5. If a transaction is held in queue due to inadequate DDA balances, other succeeding

transactions which are of lower value and which are within the available DDA balances
shall be posted ahead of the transaction which was held in queue.
6. Transactions held in queue shall remain there until adequate funds are received by the
DDA to allow posting.
7. All electronic fund transfer transactions that remain in queue until 4:00 P.M. shall be
automatically cancelled from the System.
8. In order to ensure that there is sufficient liquidity in the system and that system gridlock
does not occur, Participants shall submit their transactions at the early hours of operation
of the system and not deliberately hold back payments. For payment of FX transactions,
Participants shall transmit at least 70% of their obligations (based on total value) before
12 noon. For payment of securities transactions, Participants shall transmit at least 50%
of their obligations before 2:00 p.m.
9. The BAP shall monitor these transmission times and shall exert every effort to ensure that
these guidelines are complied with. In this regard, the PCHC shall provide to the BAP
daily reports on the performance of all banks with regards to these rules. Such statistics
shall show the proportion of payment orders (by value) sent in before the relevant times
(12 noon for FX settlements and 2 p.m. for securities settlements).
10. Compensation charges for errors in processing/settlement instructions resulting in delayed

payment/settlement of transactions shall be for the account of the party in error and shall
be based upon the existing schedule for computing compensation charges for GS and FX
settlements.
11. In the case of transactions with the BSP, for outright purchase/sale of government securities
whether for investment or liquidity reserves as well as purchase and sale of foreign

APP. 21
05.12.31
exchange, the BSP shall be responsible for crediting directly (in case of sale of securities/
foreign exchange to the BSP)/debiting directly (in case of purchase of securities/foreign exchange
from the BSP) the Participant’s demand deposit account (DDA) using the BSP’s FAS.
Debits and credits to DDA of Participants resulting from outright purchase and sale of securities/
foreign exchange transactions with the BSP shall be part of the statements of account broadcast
by the BSP on an hourly basis under Section 3.6 of the MIPS 2 Agreement.
All other terms and conditions of the MIPS2 Agreement (hereto attached as Annex) which
are not inconsistent with the provisions of this Supplemental Agreement and not otherwise
modified or superseded thereby shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 13th day of
November 2001 at the City of Manila, Philippines.
BANGKO SENTRAL NG PILIPINAS BANKERS ASSOCIATION OF THE

PHILIPPINES
By: _____________________________ By: ____________________________

By: __________________________________________
WITNESSES: ___________________ _____________________ _____________________
ACKNOWLEDGMENT

CITY OF MANILA ) S. S.
BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally appeared:
Name Community Tax Cert. No. Date & Place Issued

______________________ _______________________ __________________
known to me and to me known to be the same person who executed the foregoing
Supplemental Agreement and who acknowledged to me that the same is his free and voluntary
act and deed and that of the institution he represents.
This instrument consists of ______( ) pages including this page whereon the
acknowledgment is written, is duly signed by the parties and their respective instrumental
witnesses on each and every page thereof.
WITNESS MY HAND AND SEAL this ________day of ___________ in the City of
______________, Philippines.
NOTARY PUBLIC
Doc. No. _____;

Page No. _____;
Book No._____;
Series of 20____.

APP. 21
05.12.31
Annex 1
PARTICIPATION AGREEMENT - MIPS2 PLUS

(for BAP Members)
____________________
Bankers Association of the Philippines

11/F Sagittarius Building
H.V. de la Costa St.
Salcedo Village, Makati City
Gentlemen:
Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer
System (the "System") which is covered by the Agreement dated ________________, 20___
(the "Agreement) among yourselves, the BSP and the PCHC and its subsequent amendments
or revisions as may be agreed upon by the parties thereto from time to time.
We agree to be bound by all the terms and conditions of the Agreement and adopt it as an
integral part of this Participation Agreement, including the authority of the BSP to execute our
credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our
obligations as a participating bank as provided in the Agreement. Lastly, we agree to keep
yourselves, the BSP and the PCHC free and harmless form any claim or liability arising from,
or in connection with, our transactions transmitted through the System in accordance with
the provisions of the Agreement.
This participation will become effective upon our conformity hereto and your notification of
the same to us, to the PCHC and the BSP.
Very truly yours,
__________________________________
Participating Bank/Financial Institution
APPROVED:
By: ______________________________

APP. 21
05.12.31
Annex 2
PARTICIPATION AGREEMENT - MIPS2 PLUS

(for non-BAP Members)
____________________

11/F Sagittarius Building
H.V. de la Costa St.
Salcedo Village, Makati City
Philippine Clearing House Corporation

Ground Floor, 5 Storey Bldg.
Manila
Gentlemen:
Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer
System (the "System") which is covered by the Agreement dated ________________, 20___
(the "Agreement) among yourselves, the BSP and the PCHC and its subsequent amendments
or revisions as may be agreed upon by the parties thereto from time to time.
We agree to be bound by all the terms and conditions of the Agreement and adopt it as an
integral part of this Participation Agreement, including the authority of the BSP to execute our
credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our
obligations as a participating bank/financial institution as provided in the Agreement. Lastly,
we agree to keep yourselves, and the BSP free and harmless form any claim or liability arising
from, or in connection with, our transactions transmitted through the System in accordance
with the provisions of the Agreement.
This participation will become effective upon our conformity hereto and your notification of
the same to us, and the BSP.
Very truly yours,
__________________________________
Participating Bank/Financial Institution
APPROVED:
Bankers Association of the Philippines Philippine Clearing House Corporation
By: ______________________________ By: ________________________________

APP. 21a
05.12.31
SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND

PURCHASE AND SALE OF GOVERNMENT SECURITIES
UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL
Interbank loan transactions (call and From 9:00 AM to 9:45 AM

term) among banks and quasi-banks and Only lending/borrowing to cover
purchase and sale of government securities shortfall in deposit reserves with BSP arising
under repurchase agreements (GS/RP) from the results of the AM Returned COCIs
between and among banks and quasi-banks Clearing conducted under Sec. X203, valued
and BSP in connection with the latter's open on the same date as the date of the original
market operations shall be settled gross, presentation of the COCI to PCHC and BSP
on a trade-for-trade basis and with finality regional clearing centers (RCCs).
subject to the availability of balances in the
deposit reserves maintained by banks in the From 10:00 AM to 4:00 PM
BSP in accordance with the following All interbank loan transactions and GS/
procedures: RP transactions to be given value on the date
of the loan grant/repayment and GS
1. The lender, in the case of lending/ purchase/repurchase.
borrowing and purchaser in GS/RP
transaction, and the borrower, in the case From 5:30 PM to 6:30 PM
of collection/payment and repurchaser in Only lendings/borrowings to cover the
a GS/RP transaction, should transmit an shortfall in reserve deposits with BSP from
IBCL-MIPS (System) Fund Transfer losses arising from the regular afternoon
Instructions (Instruction) to the PCHC check clearing to be given value on the date
which shall forward the transaction of the loan grant/repayment and GS
electronically to BSP. Each transacting party purchase/repurchase.
shall use its confidential ID and password
to activate the System and initiate/authorize 3. BSP is not obliged to effect the transfer
its transaction. The electronic debit of funds in the deposit reserves maintained by
instruction shall undergo System banks and quasi-banks in the BSP if there is
authentication by the PCHC and BSP. no sufficient balance in said deposit reserves
Authentication confirms that the of the transacting party whose account shall
Instructions contain the proper approvals be debited in the BSP books.
from authorized officers of the originating
institution. To support the implementation of the
provisions of this Appendix, the cash-in-vault
2. BSP shall settle in the deposit (CIV) component of available reserves shall
reserves maintained by banks and quasi- be based on the actual CIV balance
banks in the BSP the individual interbank outstanding two (2) banking days ago, for
loan and GS/RP transaction within the purposes of computing the reserve position
following settlement time frame: of the current day.

APP. 21b
05.12.31
INTRADAY LIQUIDITY FACILITY FOR THE IMPLEMENTATION OF

SETTLEMENT PROCEDURES UNDER APPENDIX 21a THRU THE
IMPROVED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM
(MIPS 2)
The Intraday Liquidity Facility (ILF) shall be settled, the Financial Accounting System
be established to support the (FAS) of BSP shall automatically access the
implementation of the settlement of unutilized balance of ILF and move the funds
transactions involving interbank loans and to the Demand Deposit account (DDA) of
government securities (GS) under the bank/quasi-bank, up to the amount not
repurchase agreements (RPs) with the BSP exceeding its intraday bank limit.
in connection with its Open Market 3. Eligible interbank transactions –
Operations (OMO). Only the following interbank transactions
BSP recognizes that there are interbank shall be eligible for settlement thru ILF:
transactions, other than check clearing, that (a) Primary auction of GS
are still settled on net basis. These interbank (b) Secondary trading of GS
transactions include primary auction of (c) Peso netting from $-Peso swap
government securities, secondary trading of (d) Lendings/borrowings and their
GS, peso-netting arising from $-Peso swaps collections/repayments
and lendings/borrowings among banks. The 4. Intraday bank limit - Banks/Quasi-
ILF provides the smoothening mechanism banks shall set their individual ILF limits
in the settlement of these interbank based on the amount of GS to be delivered
transactions which are not covered by App. to the pool and to be pledged.
21a but could cause a failure of settlement 5. Eligible collateral - Similar to BSP’s
of transactions under MIPS2. The operations guidelines for RPs, peso-denominated issues
of the ILF are considered part of the BSP’s of the National Government, with
OMO. maturities of up to ten (10) years, are eligible.
The basic features of ILF are described As such, these GS shall be free or
below. The timeline and procedures are unencumbered and dedicated for this
shown in Annex "A". specific purpose. The government securities
1. Establishment of BSP ILF Sub- to be pledged should be part of “Investments
Account with BTR-RoSS - To establish the in Bonds and Other Debt Instruments”
ILF, each bank/quasi-bank shall instruct the (IBODI) in the bank’s books.
Bureau of Treasury (BTr) to move from their 6. Valuation of collateral - The GS shall
accounts with BTr-RoSS to the BSP ILF sub- be valued based on the 11:15 AM fixing rates
account the pool of peso-denominated GS on Friday of the week when pledged
to be pledged as collaterals covered by a documents are submitted to BSP Treasury
“Contract to Pledge/Sell under R/P”. This (from applicable Bloomberg’s MART pages).
sub-account is unique to ILF. 7. Margins - Margins shall be applied
2. Access to the facility - The ILF shall based on the remaining life of the security
be accessed only within the 10:00 AM to and on existing procedures of BSP Treasury.
4:00 PM trading window of App. 21a. 8. Changes in collateral - Banks/Quasi-
Whenever the reserve deposits of banks/ banks may increase or decrease their
quasi-banks are not sufficient to cover the intraday facility limit by adjusting the amount
amount of eligible interbank transaction to of GS delivered to the pool no later than

APP. 21b
05.12.31
10:00 AM each Thursday. BSP Treasury shall with BSP shall be converted automatically
value the securities on Fridays, for use the into an outright sale/purchase of the pledged
following week, i.e., starting Monday. collateral.
9. Transaction fee – In lieu of interest, e. Unsettled ILF utilization shall not be
BSP shall collect a transaction fee of P2,500 eligible for funding from the regular R/P
per ILF access to be debited to the DDA window of BSP.
account of banks/quasi-banks at the close of 11. System for earmarking/un-earmarking
the transaction date. collaterals – BSP Comptrollership shall
10. Repayments of intraday availments maintain an ILF collateral file which shall
a. The unsettled ILF utilization, after BSP function in tandem with the FAS system.
Accounting has settled the check clearing The ILF collateral file shall be maintained
results and the interbank lendings/borrowings for movement of collaterals from the ILF
among banks/quasi-banks at 6:15 PM, shall to O/N RPs and for un-earmarking of
be automatically converted into an overnight government securities which are
(O/N) RP at 600 basis points over the BSP’s transferred to the BSP main account with
overnight lending rate for the day. BTR-RoSS on account of an absolute sale
b. Collaterals for the O/N RP shall be evidenced by the issue of Confirmation
selected from the ILF pool based on the of Sale (COS) by the bank/quasi-bank and
following criteria: the Confirmation of Purchase (COP) by the
(i.) Shortest remaining life BSP Treasury.
(ii.) Value less than par and closest to par 12. Availability of the facility - The ILF
c. ILF utilizations that are converted shall be available in its fully automated form
into O/N RPs may be repaid the following after completion of the user acceptance
banking day through the unutilized balance testing by market participants, BSP and the
in the facility should there be a shortfall in BTr. Prior to full automation, there shall
the DDA balance. be physical delivery of pledge documents
d. Unsettled O/N RP arising from ILF to the BSP Treasury for GS to be utilized as
utilization due to insufficient DDA balance collaterals for the ILF.

APP. 21b
05.12.31
AGREEMENT TO PLEDGE/SELL GOVERNMENT SECURITIES

UNDER BANGKO SENTRAL NG PILIPINAS R/P WINDOW
______________________________
(Date)
TO: The BUREAU OF TREASURY
In consideration for the establishment by the Bangko Sentral ng Pilipinas (BSP) Treasury
Department of an Intraday Liquidity Facility in its favor, the _________________________
(Transferee) hereby assigns, conveys and transfers all its right, titles and interest in the
government securities registered in its account with the BTR-RoSS and described hereinbelow,
free from encumbrance and liens whatsoever, to the BSP to be credited to BSP’s ILF sub-
account with the BTR-RoSS. For this purpose, the Transferee hereby authorizes you to effect
such transfers from/to the accounts mentioned. It is mutually agreed upon that said securities
shall serve and constitute as collaterals for whatever availments obtained by the Transferee
from the Intraday Liquidity Facility and granted by the BSP Treasury Department subject to
the appropriate documentations covering the same.
DETAILS OF THE SECURITIES
DESCRIPTION FACE AMOUNT

___________________________ __________________________
Conforme:
Name(s) of Transferee’s Authorized Name(s) of BSP’s Authorized

Officer/Position Title Officer/Position Title
_____________________________ ____________________________
_____________________________ ____________________________
Terms and Conditions:

- CUSTODY OF SECURITIES
Held in custody by the Bureau of Treasury under the RoSS
- OTHER STIPULATIONS
a. Interest due or accruing on the aforesaid bonds/certificates of indebtedness is included in this
Agreement.
b. The transferee will pay the taxes relevant to the transfer and availments.
c. The transferee waives its right to the Secrecy of Deposits Law in regard to this transaction.
d. The transfer of securities and the availments of the Intraday Liquidity Facility are subject to the
provisions of App. 21, App 21a and its implementing guidelines as they exist and as may be
amended.

TIMELINE, POLICIES AND PROCEDURES FOR IMPLEMENTATION OF
Appendix 21b - Page 4
APP. 21b
05.12.31
INTRADAY LIQUIDITY FACILITY (ILF) TO SUPPORT MIPS 2
Date Time Participating Banks/FIs BSP Treasury Bureau of Treasury BSP Accounting
Establish collateral Pool -Including Subsequent Amendments
One week Not later Instructs BTr to move to BSP ILF Instructs BTr to open sub-account Implements instructions
before than sub-account to be pledged as for ILF of participating banks/
effectivity 10:00am collateral to a "Contract to 1. Unique to ILF NBQBs
each Pledge/Sell under RP" 2. Securities are FREE OR
Thursday UNENCUMBERED
3. Marked as non-tradeable
4. Remaining life not more
than ten (10) years
5. Booked as IBODI in Transmit Electronic file to
bank's books BSP Accounting
12:00 Using API of Bloomberg, Calls valuation program;

noon downloads latest prices and send Sets up Intraday Facility File
each extracted prices file to BSP for following week's
Friday Accounting; should show: settlement operations
1. Par value
2. Remaining Life Total collateral value -
3. Mark to Market value Individual bank/NBQB ILF
limit
Utilization of Intraday Liquidity

Day 1 10:00 am Transact ILF eligible interbank Settles interbank transactions
to 4:00 pm transactions other than check using available DDA funds.
clearing In case of NSF conditions,
1. Primary auction of GS move funds from ILF
2. Secondary trading of GS
Annex A
3. Peso netting form $-P swap Settles ILF cumulative
4. Lending/borrowing and availment thru DDA funds
collection repayments Prints transaction register remaining at close of 10 to
4 window

11:30 am Using API of Bloomberg,downloads
latest prices and send collateral file
to BSP Accounting; should show:
1. Par value
2. Remaining Life
3. Mark to Market value
4:01-4:30 pm Prints register of unsettled ILF

utilizations
4:45-5:00 pm Updates DDA for previous

hours' transactions of BSP
internal departments,
including regional clearing
results
5:00 pm Updates DDA for PCHC

clearing results
5:30-6:15 pm Updates DDA for IBCL

third trading window
Settles outstanding ILF
utilization thru DDA
6:15 pm Prints register of unsettled ILF
utilization Recognizes O/N RP using
the price fixed at 11:15am
Recognizes O/N RP Selects securities based on

following criteria and
updates collateral file

(mark)
Prints transaction register 1. shortest remaining life

2. value less than and
APP. 21b
05.12.31
closest to par
APP. 21b
05.12.31
Repayment of O/N RP
Day 2 10:00 am Sends maturing O/N RP to BSP Implements transfer from BSP Settles matured O/N RP
- 4:00 pm Accounting ILF sub-account to BSP main thru DDA balances at
account the start of day, if
sufficient
11:00 am Prints transactions register If DDA balance not

sufficient, and there is
an unutilized ILF, access
the amount required. If
settled, updates
collateral file (unmark)
If not settled, unmark

and delist from collat-
eral file
Prints list of unsettled O/

N RP
11:00 am - Converts unsettled O/N RP to Implements transfer from BSP Effects transfer from RP
12:00 nn absolute sale of GS using Confirma- ILF sub-account to BSP main to sale of GS at realiz-
tion of Sale (COS)/Confirmation of account able proceeds
Purchase (COP) provision in the
standby contract
APP. 22
05.12.31
LIST OF NON-ALLIED UNDERTAKING

WHERE UBs MAY INVEST IN EQUITIES1
PSIC
CODE DESCRIPTION
MAJOR GROUP GROUP
I. Agriculture (Major Division 1)
A. Agricultural crops production (Division 11)
111 Palay production

112 Corn production
113 Vegetable production, including root and tuber crops
114 Fruits and nuts (excluding coconut) production
115 Coconut production, including copra making in the farm
116 Sugarcane production, including muscovado sugar in
the farm
118 Fiber crops production
119 Other agricultural crops production
B. Production of livestock, poultry and other animals

(Division 12)
121 Livestock and livestock products

122 Poultry and poultry products
123 Raising of other animals, including their products
C. Agricultural services (Division 13)
130 Agricultural services
II. Fishery and Forestry (Major Division 2)
A. Fishery (Division 14)
141 Ocean (offshore) and coastal fishing

142 Inland fishing
143 Operation of fish farms
149 Other fishery activities
1
For purposes of identifying the classification of a certain enterprise or undertaking, the industrial groupings in the
1977 Philippine Standard Industrial Classification (PSIC) list shall be followed.

APP. 22
05.12.31
PSIC
CODE DESCRIPTION
MAJOR GROUP GROUP
B. Forestry (Division 15)
159 Other forestry activities (operation of forest tree

nurseries; planting, replanting and conservation of
forests; gathering of uncultivated forest materials;
establishments primarily engaged in providing forestry
services on a fee or contract basis)
III. Mining and Quarrying (Major Division 3)
A. Metallic ore mining (Division 21)
211 Gold ore mining

212 Other precious metal ore mining
213 Copper ore mining
214 Nickel ore mining
215 Chromite ore mining
216 Iron ore mining
217 Other base metal ore mining
B. Non-metallic mining and quarrying (Division 22)
221 Coal mining

222 Exploration and production of crude petroleum and
natural gas
223 Stone quarrying, clay and sand pits
229 Other non-metallic mining and quarrying
IV. Manufacturing (Major Division 4)
A. Manufacture of food (Division 31)
311-312 Food manufacturing
B. Textile, wearing apparel and leather industries

(Division 32)
321 Manufacture of textiles

322 Manufacture of wearing apparel, except footwear
Manufacture of leather and leather products, leather
substitutes, and fur, except footwear & wearing apparel
324 Manufacture of footwear, except rubber, plastic or wood
footwear

APP. 22
05.12.31
PSIC
CODE DESCRIPTION
MAJOR GROUP GROUP
C. Manufacture of paper and paper products; printing and

publishing (Division 34)
341 Manufacture of paper and paper products

342 Printing, publishing and allied industries
D. Manufacture of chemicals and chemical, petroleum, coal

rubber and plastic products (Division 35)
351 Manufacture of industrial chemicals

352 Manufacture of other chemical products
353 Petroleum refineries
354 Manufacture of miscellaneous products of petroleum and coal
355 Manufacture of rubber products
356 Manufacture of plastic products not elsewhere classified
E. Manufacture of non-metallic mineral products, except

products of petroleum and coal (Division 36)
361 Manufacture of pottery, china and earthenware

362 Manufacture of glass and glass products
363 Manufacture of cement
369 Manufacture of other non-metallic mineral products
F. Basic metal industries (Division 37)
371 Iron and steel basic industries

372 Non-ferrous metal basic industries
G. Manufacture of fabricated metal products, machinery and

equipment (Division 38)
381 Manufacture of fabricated metal products, except

machinery and equipment and furniture and fixtures
primarily of metal
382 Manufacture of machinery except electrical
383 Manufacture of electrical machinery apparatus,
appliances and supplies
384 Manufacture of transport equipment
385 Manufacture of professional and scientific and measuring
and controlling equipment not elsewhere classified, and of
photographic and optical instruments
386 Manufacture and repair of furniture and fixtures primarily
of metal

APP. 22
05.12.31
PSIC
CODE DESCRIPTION
MAJOR GROUP GROUP
H. Other manufacturing industries (Division 39)
390 Other manufacturing industries
V. Electricity, Gas and Water (Major Division 5)
A. Electricity (Division 41)
411 Generating and distributing electicity

412 Distributing electricity to consumers
B. Gas and steam (Division 42)
421 Gas manufacture and distribution through systems

422 Steam heat and power plants
C. Waterworks and supply (Division 43)
430 Waterworks and supply
VI. Construction (Major Division 6)
501 General building construction

502 General engineering construction
503 Special trade construction
VII. Wholesale Trade and Retail Trade Repair of MV

Motorcycles and Personal and Household Goods (Major
Division 7)
A. Wholesale trade (Division 61)
619 Wholesale trade not elsewhere classified

Merchandise brokers, general merchants, importers and
exporters
VIII. Transport, Storage and Communication (Major Division 8)
A. Transportation services (Division 71)
711 Railway transport

712 Road passenger and freight transport
713 Water transport

APP. 22
05.12.31
PSIC
CODE DESCRIPTION
MAJOR GROUP GROUP
714 Air transport

719 Services allied to transport
B. Communication (Division 73)
731 Mail and express services

732 Telephone services
733 Telegraph services
739 Communication services, non-essential commodities
IX. Financial Intermediation (Major Division 9)
X. Real Estate, Renting and Business Activities (Major

Division 10)
XI. Public Ad and Defense; Compulsory Social Security

(Major Division 11)
XII. Education (Major Division 12)
XIII. Health and Social Work (Major Division 13)
XIV. Other Community, Social, and Personal Service Activities

(Major Division 14)
A. Other social and related community services (Division 95)
951 Research and scientific institutions
XV. Private Households with Employed Persons

(Major Division 15)
XVI. Extra- Territorial Organizations and Bodies

(Major Division 16)
XVII. Restaurant and Hotels (Major Division 17)
981 Restaurants, cafes and other eating and drinking places

982 Hotel, motels and other lodging places, non-essential
commodities

APP. 23
05.12.31
CREDIT PRIORITY CLASSIFICATION

Priority I - Priority II -
a. Production of agricultural, a. Production and distribution of

including forestry and fishery, and goods and services which do not qualify
industrial goods which (1) possess growth under the Priority I category.
potential in competitive domestic and b. Real estate loans (construction,
world markets, (2) contribute most to the acquisition, development and refinancing of
development of the economy, (3) provide real estate) other than those specified under
for the satisfaction of basic wants of the Priority I.
population as a whole, and (4) require c. Consumption.
resources in addition to their self- d. Other non-productive and
financing capabilities. speculative activities.
b. Marketing export products,
primarily those goods that contain the ECONOMIC ACTIVITIES FALLING
maximum possible domestic processing and UNDER PRIORITY I
labor content.
c. Marketing in the international A. Economic activities eligible for credits
market of domestic products which fall under up to eighty percent (80%) of loan value of
Priority I and imported basic consumer goods credit instrument
by Filipino merchandisers.
d. Importation and marketing of capital 1. Agriculture, Fisheries and Forestry
equipment, raw materials and supplies for a. Agricultural
the production and distribution of Priority I (1) Abaca
products. (2) Cassava
e. Public utilities which are not (3) Cattle and dairy farms
overcrowded and are necessary to support (4) Coconut
the production and distribution of Priority I (5) Coffee and cocoa
goods or to satisfy basic wants. (6) Corn
f. Other services which are not (7) Palay or rice
overcrowded and which are necessary for (8) Piggery
(1) the development of desirable knowledge (9) Poultry
and skills, (2) the support of the production (10) Ramie
and distribution of Priority I products, and (11) Rubber plantation
(3) the promotion of tourism and cultural (12) Other fruits and vegetables
pursuits.
g. Construction of (1) infrastructure b. Fisheries
projects, (2) physical plants necessary for the (1) Fishponds and inland fishing
production and distribution of Priority I (2) Marine fishing
products and services, and (3) individual
low cost housing for the lower income c. Forestry
groups of the population. (1) Forest nurseries and reforestation
project

APP. 23
05.12.31
2. Mining and quarrying (a) Fish canning

a. Metal mining (2) Canning and preserving of
(1) Chromite fruits and vegetables
(2) Copper (a) Canning, drying, brining,
(3) Iron pickling or otherwise
(4) Lead preserving or preparing
(5) Manganese vegetables
(6) Mercury and quicksilver (b) Canning, drying or
(7) Nickel otherwise preparing and
(8) Zinc preserving fruits
(3) Slaughtering, preparation
b. Non-mettalic mining and preserving of meat
(1) Asbestos (4) Miscellaneous food
(2) Sulphur preparation
(3) Coal (a) Prepared feeds for animals
(4) Gypsum and fowls
3. Manufacturing f. Furniture and fixtures manufacture

a. Basic metal industries (1) Rattan and bamboo furniture
(1) Blast furnaces, steel works
g. Leather and leather products
and rolling mills
(1) Tanning and finishing
(2) Iron and steel basic
industries h. Lumber and wood products
(3) Iron and steel foundries (1) Veneer, plywood and
(4) Non-ferrous metal basic prefabricated products
industries
i. Machinery, equipment,
b. Chemical and chemical products accessories and parts
(1) Basic chemicals (1) Agricultural machinery
(2) Drugs (2) Engines and turbines
(3) Fertilizer (3) Industrial, construction
and mining machinery
c. Coconut products and their
preparation j. Non-metallic products
(1) Coconut oil, edible (1) Cement
(2) Coconut oil, inedible
(3) Copra meal and cake k. Paper and paper products
(1) Pulp, paper and paperboard
d. Electrical machinery,
apparatus and appliances I. Petroleum and coal products
(1) Transmissions and (1) Coke
distribution equipment
m. Textile, cordage and twines
e. Food manufacturing manufactures
(1) Canning and preserving of (1) Cordage, rope, twines and
fish and other sea foods nets

APP. 23
05.12.31
(2) Hemp milling, abaca B. Economic activities eligible for credits

stripping and baling up to sixty percent (60%) of the loan value
establishments of the credit instrument **
(3) Knitting mills
(4) Spinning, weaving and 1. Agriculture, fisheries and forestry
finishing of textiles a. Agricultural
(1) Citrus
n. Transportation equipment and (2) Cotton
parts (3) Salt farming
(1) Aircrafts and parts (4) Soybean
(2) Motor vehicles, equipment (5) Other root crops
and parts
(3) Motorcycles, bicycles and 2. Mining and quarrying
parts a. Metal mining
(4) Railroad equipment (1) Gold
(5) Ships and boats (2) Silver
b. Non-metallic mining
o. Miscellaneous manufacturing (1) Asphalt
industries (2) Marble
(1) Laboratory, engineering and
medical 3. Manufacturing
a. Chemical and chemical products
4. Construction (1) Dyeing and tanning
a. Contract materials
(1) Building construction (2) E x p l o s i v e s ( e x c l u d i n g
(a) Commercial and industrial firecrackers)
projects* b. Coconut products and their
preparations
5. Public Utilities (1) Dessicated coconut
a. Ice and ice refrigeration plants
b. Operation of wharves, dry c. Electrical machinery, apparatus
docks etc. and appliances
c. Warehousing (1) Communication equipment
d. Water supply and sanitary (2) Dry cells and storage
services batteries
(1) Irrigation systems
(2) Water supply systems d. Food manufacturing
(1) Canning and preserving of
6. Commerce fruits and vegetables
a. Export products* (a) Fruits and vegetables,
b. Importation of capital goods and sauces and seasoning
raw materials* (2) Dairy products
c. Domestic trade (Filipino only) (a) Milk processing
wholesales and retail (3) Miscellaneous food
* To follow rating of aconomic activities included in the list.

** For updated loans values, see Subsec X269.5

APP. 23
05.12.31
preparations projects*
(a) Coffee roasting, grinding (2) Highway and street
and/or processing construction (including road
building)
e. Furniture and fixture manufacture
(1) Wood furniture 5. Public utilities
a. Common carriers
f. Lumber and wood products (1) Airlines and other air
(1) Cork transportation
(2) Sashes and doors (2) Motor vehicles
(3) Sawn and planed lumber (3) Railroad and railway
(4) Wooden box companies
(5) Wood chips (4) Steamboats and steamship
lines
g. Machinery, equipment,
accessories and parts b. Communication
(1) Office and store machines (1) Telecommunication (cable,
and devices mail and express, telegraph,
telephone)
h. Metal industries
(1) Cutlery, handtools and c. Electricity, gas and steam
general products (1) Electric, light, heat and
(2) Fabricated structural and power
metal products
(3) Tin and aluminum ware d. Water supply and sanitary
services
i. Non-metallic products (1) Garbage, sewerage and
(1) Glass and glass products disposal system
(2) Structural clay products
6. Services
j. Textile, cordage and twines a. Business and professional
manufactures services
(1) Jute bags and sacks (1) Engineering and technical
services
k. Miscellaneous manufacturing
industries b. Educational services
(1) Cottage native handicraft (1) Private vocational and trade
industries schools
(2) Footwear (other than rubber) (2) Public universities and higher
(3) Photographic and optical educational institutions
goods (3) Public vocational and trade
schools
4. Construction
a. Contract c. Medical and other health services
(1) Building construction (1) Public health services
(a) Commercial and industrial
* To follow rating of economic activities included in the list.

APP. 23
05.12.31
d. Recreation services
(1) Theatrical production (i.e., all 2. Mining and quarrying
performing arts) a. Non-metallic mining
e. Research and scientific (1) Mineral salt
institutions (2) Silica
7. Financial 3. Manufacturing
a. Banks a. Apparel and other finished
(1) Private development banks products made from fabrics and
(2) Rural banks/Cooperative similar materials
banks (1) Embroidery shops
(2) Wearing apparel
8. Commerce
a. Export products* b. Chemicals and chemical
b. Importation of capital goods and products
raw materials* (1) Paints, varnishes and lacquers
c. Domestic trade (Filipino only) (2) Soaps and other cleansing
wholesale and retail* preparations
9. Other activities c. Coconut products and their

a. Loans for other dollar-earning preparations
purposes not elsewhere classified (1) Copra
(included in this category are the
construction, development and d. Electrical machinery, apparatus
operations of first-class hotels and appliances
which cater to the needs of the (1) Electric lamp
tourist industry). (2) Household appliances
(3) Radio, television, telephone
C. Economic activities eligible for credits receiving sets, electronic
up to sixty percent (60%) of the loan value tubes and components
of the credit instrument**
e. Food manufacturing
1. Agriculture, Fisheries and Forestry (1) Canning and preserving of
a. Agricultural fish and other sea foods
(1) Pineapple (a) Fish sauce (patis)
(2) Tobacco, native manufacture
(b) Shellfish curing, smoking,
b. Fisheries salting or pickling
(1) Fishery services (2) Cocoa and chocolate and
(2) Pearl fishing and culture, sugar confectionery
shell gathering and other (a) Cocoa and chocolate
marine products processing factories
(3) Grain mill products
c. Forestry (a) Corn mills
(1) Forest services (b) Rice mills
(2) Timber tracts (c) Tuber flour mills

** For updated loan values, please see Subsec. X269.

APP. 23
05.12.31
(d) Wheat flour b. Importation of capital goods

(4) Miscellaneous food and raw materials*
preparations
(a) Salt manufacture c. Domestic trade (Filipino only)
(b) Starch and its products whosale and retail*
(c) Vegetable lard and
margarine manufacture 9. Other activities
(d) Vermicelli and noodles a. Loans for other dollar-earning
manufacture purposes not elsewhere
classified (included in this
f. Lumber and wood products
category are the construction,
(1) Creosoting and other wood
development and operations of
treating
first-class hotels which cater to
g. Metal industries the needs of the tourist industry).
(1) Fabricated wire products
(2) Metal stamping, coating and C. Economic activities eligible for credits
engraving up to sixty percent (60%) of the loan value
of the credit instrument**
h. Non-metallic products
(1) Private vocational and trade 1. Agriculture, Fisheries and Forestry
schools a. Agricultural
(2) Public universities and higher (1) Pineapple
educational institutions (2) Tobacco, native
(3) Public vocational and trade
schools b. Fisheries
c. Medical and other health (1) Fishery services
services (2) Pearl fishing and culture,
(1) Public health services shell gathering and other
marine products
d. Recreation services
(1) Theatrical production (i.e., c. Forestry
all performing arts) (1) Forest services
(2) Timber tracts
e. Research and scientific
institutions 2. Mining and quarrying
a. Non-metallic mining
7. Financial (1) Mineral salt
a. Banks (2) Silica
(1) Private development banks
(2) Rural banks/Cooperative 3. Manufacturing
banks a. Apparel and other finished
products made from fabrics and
8. Commerce similar materials
a. Export products* (1) Embroidery shops

** For updated loans values, please see Subsec X269

APP. 23
05.12.31
(2) Wearing apparel g. Metal industries

(1) Fabricated wire products
b. Chemicals and chemical (2) Metal stamping, coating and
products engraving
(1) Paints, varnishes and h. Non-metallic products
lacquers (1) Plastic products
(2) Soaps and other cleansing (2) Pottery, china, earthenware
preparations (3) Concrete aggregates
(4) Concrete products
c. Coconut products and their (a) Cement products light
preparation weight aggregate
(1) Copra (b) Pre-mold concrete light
aggregate
d. Electrical machinery, apparatus
and appliances i. Paper and paper products
(1) Electric lamp (1) Coated and glazed paper
(2) Household appliances products
(3) Radio, television, telephone
receiving sets, electronic j. Printing, publishing and allied
tubes and components industries
(1) Book publishing and
e. Food manufacturing printing
(1) Canning and preserving of (2) Newspaper and periodical
fish and other sea foods publishing
(a) Fish sauce (patis)
manufacture k. Tobacco
(b) Shellfish curing, smoking, (1) Cigar and cigarette factories
salting or picking (native)
(2) Cocoa and chocolate and
sugar confectionary I. Miscellaneous manufacturing
(a) Cocoa and chocolate industries
processing factories (1) Oxygen, acetylene and
(3) Grain mill products similar products
(a) Corn mills (2) Silver and gold work
(b) Rice mills without precious stones
(c) Tuber flour mills (3) Musical instruments and parts
(d) Wheat flour (a) Blank recording discs
(4) Miscellaneous food (b) Metal stampers
preparations
(a) Salt manufacture 4. Construction
(b) Starch and its products a. Contract
(c) Vegetable lard and (1) Building construction
margarine manufacture (a) Government projects
(d) Vermicelli and noodles (b) Commercial and industrial
manufacture projects*
f. Lumber and wood products (2) Heavy construction
(1) Creosoting and other wood (including bridges and
treating irrigation projects)

APP. 23
05.12.31
b. Personal b. Recreation services

(1) Construction (1) Motion picture production
(2) Reconstruction
7. Financial
5. Public utilities a. Banks
a. Electricity, gas and steam (1) Commercial banks
(1) G a s m a n u f a c t u r e a n d (2) Savings and mortgage banks
distribution
(2) Steam heat and power 8. Commerce
a. Export products*
b. Water supply and sanitary
services b. Importation of capital goods
(1) Drainage system and raw materials*
6. Services c. Domestic trade (Filipino only)

a. Medical and other health services whosale and retail*
(1) Private health services

APP. 24
05.12.31
SAMPLE INVESTMENT MANAGEMENT AGREEMENT

IMA No. (prenumbered)
INVESTMENT MANAGEMENT AGREEMENT
This AGREEMENT, made and executed this ____ day of ___________ at __________,
Philippines, by and between:
_____________________________________
(Hereinafter referred to as the “PRINCIPAL”)
and
_________________________, a banking corporation authorized to

perform trust functions, organized and existing under and by virtue
of the laws of the Philippines, with principal office and place of
business at _________________, ________________________,
Philippines.
(Hereinafter referred to as the “INVESTMENT MANAGER”)
WITNESSETH: THAT -
WHEREAS, the Principal desires to avail of the services of the Investment Manager
relative to the management and investment of Principal’s investible funds;
WHEREAS, the Investment Manager is willing to render the services required by the
Principal relative to the management and investment of Principal’s investible funds, subject
to the terms and conditions hereinafter stipulated;
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to the
following terms and conditions:
INVESTMENT PORTFOLIO
1. Delivery of the Fund - Upon execution of this Agreement, the Principal shall
deliver to the Investment Manager the amount of PHILIPPINE PESOS:
_____________________________________________ (P_____________).

APP. 24
05.12.31
2. Composition - The cash which the Principal has delivered to the Investment
Manager as well as such securities in which said sums are invested, the proceeds, interest,
dividends and income or profits realized from the management, investment and reinvestment
thereof, shall constitute the managed funds and shall hereafter be designated and referred to
as the Portfolio. For purposes of this Agreement, the term securities shall be deemed to
include commercial papers, shares of stock and other financial instruments.
3. Delivery of Additional Funds - At any time hereafter and from time to time at
the discretion of the Principal, the latter may deliver additional funds to the Investment
Manager who shall form part of the Portfolio and shall be subject to the same terms and
conditions of this Agreement. No formalities other than a letter from the principal and physical
delivery to the Investment Manager of cash will be required for any addition to the Portfolio.
4. Nature of Agreement - THIS AGREEMENT IS AN AGENCY AND NOT A

TRUST AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE
TO FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION

OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD,
RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE
OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE
INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING
MARKET CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS

NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND
THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.
POWERS
5. Powers of the Investment Manager - The Investment Manager is hereby

conferred the following powers:
a. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the

Republic of the Philippines and of the Bangko Sentral ng Pilipinas, and any
other evidences of indebtedness or obligations the servicing and repayment
of which are fully guaranteed by the Republic of the Philippines or loans
against such government securities; (2) Loans fully guaranteed by the
government as to the payment of principal and interest; (3) Loans fully secured
by hold-out on, assignment or pledge of deposits or of deposit substitutes, or
mortgage and chattel mortgage bonds; (4) Loans fully secured by real estate
and chattels in accordance with Section 78 of R.A. No. 337, as amended, and
subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as
amended; and (5) Such other investments or loans as may be directed or
authorized by the Principal in a separate written instrument which shall form

APP. 24
05.12.31
part of this Agreement: Provided, That said written instrument shall contain
the following minimum information: (a) The transaction to be entered into;
(b) The amount involved; and (c) The name of the issuer, in case of securities
and/or the name of the borrower and nature of security, in the case of loans;
b. To endorse, sign or execute any and all securities, documents or contracts

necessary for or connected with the exercise of the powers hereby conferred
or the performance of the acts hereby authorized;
c. To cause any property of the Portfolio to be issued, held, or registered in the

name of the Principal or of the Investment Manager: Provided, That in case
of the latter, the instrument shall indicate that the Investment Manager is
acting in a representative capacity and that the Principal’s name is disclosed
thereat;
d. To open and maintain savings and/or checking accounts as may be considered

necessary from time to time in the performance of the agency and the authority
herein conferred upon the Investment Manager;
e. To collect and receive matured securities, dividends, profits, interest and all
other sums accruing to or due to the Portfolio;
f. To pay such taxes as may be due in respect of or on account of the Portfolio or

in respect of any profit, income or gains derived from the sale or disposition
of securities or other properties constituting part of the Portfolio;
g. To pay out of the Portfolio all costs, charges and expenses incurred in
connection with the investments or the administration and management of
the Portfolio including the compensation of the Investment Manager for its
services relative to the Portfolio; and
h. To perform such other acts or make, execute and deliver all instruments
necessary or proper for the exercise of any of the powers conferred herein, or
to accomplish any of the purposes hereof.
LIABILITY OF INVESTMENT MANAGER
6. Exemption from Liability - In the absence of fraud, bad faith, or gross or

willful negligence on the part of the Investment Manager or any person acting in its behalf,
the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out
of or in connection with any act done or performed or caused to be done or performed by
the Investment Manager pursuant to the terms and conditions herein agreed, to carry out the
powers, duties and purposes for which this Agreement is executed.
7. Advice of Counsel - The Investment Manager may seek the advice of lawyers.
Any action taken or suffered in good faith by the Investment Manager as a consequence of

APP. 24
05.12.31
the opinion of the said lawyers shall be conclusive and binding upon the Principal, and the
Investment Manager shall be fully protected from any liability suffered or caused to be
suffered by the Principal by virtue hereof.
ACCOUNTING AND REPORTING
8. The Investment Manager shall keep and maintain books of accounts and
other accounting records as required by law. The Principal or the authorized representative
of the Principal shall have access to and may inspect such books of accounts and all other
records related to the Portfolio, including the securities held in custody by the Investment
Manager for the Portfolio.
9. Reporting Requirements - The Investment Manager shall prepare and submit

to the Principal the following reports within ______________________________: (a) Balance
Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity Report;
and (e) (such other reports as may be required by the Principal).
INVESTMENT MANAGER’S FEE
10. Investment Fee - The Investment Manager, in addition to the reimbursement

of its expenses and disbursements in the administration and management of the Portfolio
including counsel fees, shall be entitled to receive as compensation for its services a
management fee of (Specify amount or rate) .
WITHDRAWALS FROM THE PORTFOLIO
11. Withdrawal of Income/Principal - Subject to availability of funds and the

non-diminution of the Portfolio below P1 million, the Principal may withdraw the income/
principal of the Portfolio or portion thereof upon written instruction or order given to the
Investment Manager. The Investment Manager shall not be required to see as to the
application of the income/principal so withdrawn from the Portfolio. Any income of the
Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for
further investment and reinvestment.
12. Non-alienation of Encumbrance of the Portfolio or Income - During the

effectivity of this Agreement, the Principal shall not assign or encumber the Portfolio or its
income or any portion thereof in any manner whatsoever to any person without the prior
written consent of the Investment Manager.

APP. 24
05.12.31
EFFECTIVITY AND TERMINATION
13. Term - This Agreement shall take effect from the date of signing hereof and
shall be in full force and effect until terminated by either party by giving written notice
thereof to the other at least _______(__) days prior to the termination date.
14. Powers upon Liquidation - The powers, duties and discretion conferred upon
the Investment Manager by virtue of this Agreement shall continue for the purpose of
liquidation and return of the Portfolio, after the notice of termination of this Agreement has
been served in writing, until final delivery of the Portfolio to the Principal.
15. Accounting of Transaction - Within _____ (__) days after the termination of
this Agreement, the Investment Manager shall submit to the Principal an accounting of all
transactions effected by it since the last report up to the date of termination. Upon the
expiration of the ________(__) days from the date of submission, the Investment Manager
shall forever be released and discharged from all liability and accountability to anyone with
respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting,
except with respect to those objected to in writing by the Principal within the __________(__)
day period.
16. Remittance of Net Assets of the Portfolio - Upon termination of the Agreement,
the Investment Manager shall turn over all assets of the Portfolio which may or may not be
in cash to the Principal less the payment of the fees provided in this Agreement in carrying
out its functions or in the exercise of its powers and authorities.
This Agreement or any specific amendments hereto constitute the entire agreement
between the parties, and the Investment Manager shall not be bound by any representation,
agreement, stipulation or promise, written or otherwise, not contained in this Agreement or
incorporated herein by reference, except pertinent laws, circulars or regulations approved
by the Government or its agencies. No amendment, novation, modification or supplement of
this Agreement shall be valid or binding unless in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and at
the place first above set forth.
__________________________ ___________________________
(PRINCIPAL) (INVESTMENT MANAGER)
By:
______________________________ ____________________________

APP. 25
05.12.31
RISK MANAGEMENT GUIDELINES FOR DERIVATIVES

I. Foreword futures and forwards or some combination

These guidelines, which are based on thereof. The use of these basic building
the "Risk Management Guidelines For blocks in structuring derivatives instruments
Derivatives" issued by the Basle Committee allows the transfer of various financial risk
on Banking Supervision in July 1994, are to parties who are more willing, or better
expected to facilitate the further suited, to take or manage them.
development of a prudent approach to the 2. Derivatives are used by banking
risk management of derivatives. organizations both as risk management tools
The BSP recognizes that sound internal and a source of revenue. From a risk
risk management is essential to the prudent management perspective, they allow
operations of financial institutions and that financial institutions and other participants
supervisory tools, such as capital to identity, isolate and manage separately
requirements, are not by themselves the market risks in financial instruments and
sufficient. Sound internal risk management commodities. When used prudently,
is also essential to promoting stability in the derivatives can offer managers efficient and
financial system as a whole. effective methods for reducing certain risks
While the precise applicability of these through hedging. Derivatives may also be
guidelines will depend on the size and used to reduce financing costs and to
complexity of an institution's derivatives increase the yield of certain assets. For a
activities, we believe that the application of growing number of banking
the basic principles embodied therein are organizations, derivatives activities are
relevant even for risks inherent in more becoming a direct source of revenue
traditional activities. through "market-making" functions, and
"position-taking".
II. Introduction and Basic Principles a) -"MARKET-MAKING" functions
1. Derivatives instruments have involve entering into derivatives activities
become increasingly important to the overall with customers and with other market-makers
risk profile and profitability of banking while maintaining a generally balanced
organizations throughtout the world. portfolio with the expectation of earning
Broadly defined, a derivatives instrument is fees generated by a bid/offer spread; and
a financial contract whose value depends b) - POSITION-TAKING, on the other
on the values of one or more underlying hand, represents efforts to profit by accepting
assets or indices. Derivatives activities the risk that stems from taking outright
include a wide assortment of financial positions in anticipation of price movements.
contracts, including forwards, futures, 3. Participants in the derivatives
swaps and options. In addition, other traded markets are generally grouped into two
instruments incorporate derivatives categories based primarily on their
characteristics, such as those with motivations for entering into derivatives
embedded options. While some derivatives contracts. End-users typically enter into
instruments may have very complex derivatives activities to achieve specified
structures, all of them can be divided into objectives related to hedging, financing or
the basic building blocks of options, swaps, position-taking on the normal course of their

APP. 25
05.12.31
business operations. A wide variety of a. appropriate oversight by Boards of

business enterprises are end-users. They Directors and/or Management Committee
include, but are not limited to, a broad range and Senior Management;
of financial institutions such as banks, b. adequate risk management process
securities firms and insurance companies; that integrates prudent risk limits, sound
funds and specialized investment measurement procedures and information
partnership; and corporations, local and systems, continuous risk monitoring and
state governments, government agencies and frequent management reporting; and
international agencies. c. comprehensive internal controls and
4. Intermediaries, which are sometimes audit procedures.
referred to as "Dealers", cater to the needs of
end-users by "making markets" in over-the- III. Oversight of the Risk Management
counter derivatives instruments. In doing so, Process. Written policies and procedures on
they expect to generate income from derivatives activities must be set forth and
transaction fees, bid/offer spreads and their documented in a policy manual duly
own trading positions. Important approved by its Board of Directors. The
intermediaries, or derivatives dealers include manual should include the following
major banks and securities firms. As minimum features:
intermediaries, banks have traditionally 1. Scope of derivatives activities and
offered foreign exchange and interest rate types of services and products offered to
risk management products to their customers clients;
and generally view derivatives products as a 2. Authorities and Responsibilities of:
financial risk management service. a. Boards of Directors
5. The basic risks associated with b. Management Committees
derivatives activities are not new to banking c. Chief Executive Officer
organizations. In general, these risks are d. Other Senior Officers
credit risks, market risk, liquidity risk, e. Department Managers
operations risk and legal risk. Because they f. Trading or Dealing Officers/Staff
facilitate the specific identification and 3. Policies and procedures to govern
management of these risks, derivatives have trading, including trading exposure and
the potential to enhance the safety and gap limits and documentation of transactions;
soundness of financial institutions and to 4. Policies and procedures for
produce a more efficient allocation of controlling and measuring risk;
financial risks. However, since derivatives 5. A c c o u n t i n g p o l i c i e s a n d
also have these basic risks in combinations procedures;
that can be quite complex, they can also 6. Internal control system;
threaten the safety and soundness of 7. Internal audit policies;
institutions if they are not clearly understood 8. Policy review;
and properly managed. 9. Reporting requirements;
6. Recognizing the importance of 10. Job description of key position and
sound risk management to the effective use minimum qualification standards; and
of derivatives instruments, the following 11. Client-oriented safety nets.
guidelines are intended to highlight the key
elements and basic principles of sound A. Oversight by Board of Directors and/or
management practice for both dealers and Management Committee
end-users of derivatives instruments. Three 1. The Board of Directors or
basic principles include: appropriate Management Committee should

APP. 25
05.12.31
approve all significant policies relating to and procedures. It shall directly report to the
the management of risks throughout the Board of Directors or to the appropriate
institution. These policies, which should management committee.
include those related to derivatives 2. The personnel performing
activities, should be consistent with the independent risk management functions
organization's broader business strategies, should have a complete understanding of the
capital strength, management expertise and risks associated with all of the bank's
overall willingness to take risk. derivatives activities. Accordingly,
2. The Board of Directors or compensation policies for these individuals
appropriate management committee shall should be adequate to attract and retain
structure a compensation package for risk personnel qualified to assess these risks.
management officers and staff in such a way
that the said package is sufficiently IV. The Risk Management Process
independent of the performance of trading 1. The primary components of a sound
activities. risk management process are comprehensive
risk measurement approach; detailed
B. Oversight by Senior Management structure of limits, guidelines and other
1. Senior management should be parameters used to govern risk-taking; and
responsible for ensuring that there are strong management information system for
adequate policies and procedures for controlling, monitoring and reporting risks.
conducting derivatives operations on both 2. To enable an institution to manage
a long-range and day-to-day basis. This its risk exposure more effectively, its risks
responsibility includes: (a) ensuring that management process for derivatives
there are clear delineations of lines of activities should be integrated into its overall
responsibility for managing risk, adequate risk management system using a conceptual
systems for measuring risk, appropriately framework common to its other activities.
structured limits on risk taking, effective 3. The risk exposures in derivatives
internal controls and a comprehensive risk- activities should be fully supported by an
performing process; and (b) ensuring that adequate capital position.
all appropriate approvals are obtained and
that adequate operational procedures and A. Risk Measurement
risk control systems are in place. 1. Risk should be measured and
2. Any significant changes in any aggregated across trading and non-trading
derivatives activities or any new derivatives activities on an institution-wide basis to the
activities should be approved by the Board fullest extent possible. In derivatives
of Directors or an appropriate level of senior activities, assessment of the following risks
management as designated by the Board of should be included: credit risk, market risk,
Directors. liquidity risk, operations risk and legal risk
3. Senior management should (Section VI of these Guidelines).
regularly evaluate the procedures in place 2. Risk measurement procedures
to manage risk to ensure that those should be understood by all relevant
procedures are appropriate and sound. personnel - from individual traders to the
Board of Directors.
C. Independent Risk Management Functions 3. Mark-to-Market valuation of
1. An independent body shall manage derivatives position is fundamental to
the measurement, monitoring and control measuring and reporting exposures
of risks consistent with established policies accurately and on a timely basis. A daily

APP. 25
05.12.31
report to management indicating the gain or environment may have created exposure
loss on derivatives activities should be that requires additional attention.
submitted. Monitoring of credit exposures, 2. The review should include
trading positions and market improvements assessment of the methodologies, models
should be done at least daily. and assumptions used in measuring risk.
4. Sound risk measurement practices Limit structures should be altered whenever
include analysis of stress situations and necessary to reflect the institution's past
identification of changes in market behavior performance and current position. These
that could have unfavorable effects on the reviews should be made at least annually,
institution and assessment of the ability of or as more often as market conditions
the institution to withstand them. dictate, to ensure that they are appropriate
and consistent.
B. Limiting Risks 3. Before being involved in new
1. A sound system of integrated products, all relevant personnel (including
institution-wide limits should set those in risk management, internal control,
boundaries for organization risk-taking legal, accounting and auditing) should
and should ensure that position which understand the product and should be able
exceeds pre-determined levels receive to integrate it into the institution's risk
prompt management attention. Such a measurement and control systems.
system should define, among others, the
following limits: V. Internal Controls and Audit
a. Earnings or capital-at-risk limits - 1. A sound system of internal controls
This defines the limit on potential loss which should promote effective and efficient
could be expressed as a percentage of operations, reliable financial and regulatory
projected earnings or capital; and reporting, and compliance with relevant
b. Exposure limits - This defines maximum laws, regulations and policies of the
exposure to the various derivatives products. institution. In determining whether internal
2. Should pre-determined limits be controls meet those objectives, the institution
exceeded, a report to senior management should consider the overall control
must be made for information and environment of the organization; the process
appropriate action. of identifying, analyzing and managing risk;
the adequacy of management information
C. Reporting systems; and adherence to control activities
An accurate, informative and timely such as approvals, confirmations and
reporting system to the appropriate level of reconciliations. Reconciliation control is
management is essential to the prudent particularly important where there are
operation of derivatives activities. Top differences in the valuation methodologies or
management should be provided with systems used by the front and back offices.
adequate and timely information, on a 2. Internal auditors should audit and
regular basis, to judge the changing nature test the risk management process and
of the institution's risk profile. internal controls on a periodic basis, with
the frequency based on a careful risk
D. Management Evaluation and Review assessment. The depth and frequency of
1. Risk management guidelines internal audits should be increased if
should be evaluated and reviewed weaknesses and significant issues are
regularly since any change in either the discovered, or if significant changes have
institution's activities or the market been made to product lines, modeling

APP. 25
05.12.31
methodologies, the risk oversight process, counsel. Banks with more active derivatives
internal controls or the overall risk profile businesses may consider establishing a
of the institution. To facilitate the separate documentation unit to control
development of adequate controls, internal financial derivatives contracts and
auditors should be brought into the product supporting documents. Such a unit may be
development process at the earliest possible a part of a broader documentation unit of
stage. the legal department.
3. The institution should develop
internal controls for key activities which VI. Sound Risk Management Practices for
should include the following features: Each Type of Risk
a. A chart of subsidiary accounts A. Credit Risk - is the risk that a
adequately describing each account and counterparty will fail to perform on an
designed to complement the Manual of obligation to the institution.
Accounts prescribed by the BSP; and Credit risk management should parallel
b. Written policies/procedures for the prudent controls expected in traditional
handling/recording confirmation, and lending activities. Policies and procedures
settlement of transactions; segregation of should be formalized to address concerns
duties between the front office and back such as significant counterparty exposures,
room personnel; revaluation of positions concentration of credit, risk ratings, non-
indicating sources of revaluation rates; performing contracts and allowance
documentation of review and approval of allocations.
limits and sub-limits; and evaluation and An institution should include in its credit
reporting to the Board of Directors/Senior risk policy, the credit exposures to an
Management of audit findings/exceptions; individual counterparty. Internal limits that
and such other key activities the institution are prudent in the light of its financial
is engaged in. condition and management expertise should
4. Internal auditors are expected to be established. Policies and procedures
continuously evaluate the independence and should reflect the Board of Directors' risk
overall effectiveness of the institution's risk tolerance for concentration of credit. Policies
management functions. They should be addressing credit management functions,
involved in the periodic review and such as risk ratings, non-performing
evaluation of all banks policies, limits, contracts and allowance allocations should
internal controls and procedures developed be consistent.
for the institution's key activities.
5. Bank management should ensure Credit Approval Function
that a mechanism exists whereby financial 1. Management should make sure
derivatives contract documentation is that credit authorizations are provided by
confirmed, maintained, and safeguarded. personnel independent of the trading unit
Documentation exceptions should be to ensure safe and sound management of
properly monitored and resolved. derivatives credit risk exposure. Credit
Controls must be in place to ensure that officers and approving officers should be:
the appropriate contract documentation is familiar with credit risk; able to analyze
timely and properly executed and the impact of proposed derivatives
maintained. The bank should establish a activities on the financial condition of the
process through which documentation customer; responsible for establishing and
exceptions are monitored and appropriately changing financial derivatives credit lines;
reviewed by senior management and legal and able to understand the applicability

APP. 25
05.12.31
of financial derivatives instruments to the expertise. Monitoring reports should

risks the bank customer is attempting to provide sufficient detail to identify credit
manage. risk arising from settlement versus pre-
2. Credit analysis should be settlement exposure.
documented and necessary information
should be provided to customer/s. Credit Risk Monitoring
1. Credit risk monitoring should be
Pre-settlement Risk independent of the units that create financial
1. The system to be used to quantify derivatives exposures. The risk monitoring
the pre-settlement credit risk exposure units should be responsible for producing
should: a) take into account current exposure and distributing timely and accurate
("mark-to-market") as well as potential credit information about credit exposures, such as
risk due to possible future changes in concentration of credit, credit quality, limit
applicable market rates or prices ("add-on"); exceptions and significant counterparty
b) use a reliable source for determining the exposures.
credit risk factor used to calculate the credit 2. This methodology adopted to
risk add-on; and c) produce a number measure and monitor credit risk should be
representing a reasonable approximation of controlled by personnel independent of the
loan equivalency, that is, the amount of trading unit.
credit exposure inherent in a comparable
extension of credit B. Market Risk - is the risk that adverse
The mark-to-market calculation should movements in the level or volatility of
incorporate the same controls as the mark- market prices will affect the institution's
to-market calculation used to identify financial condition.
profits and losses. Prices should be
obtained independently from qualified Dealers and Active Position-Takers
sources on a periodic basis. The traders 1. There should be a risk measurement
should not be used as the source of market system that can quantify risk exposures
valuations. arising from changes in market factors. This
2. The sophistication of credit risk system should be structured to enable
measurement system should be consistent management to initiate prompt remedial
with the level of activity and degree of risk action, facilitate stress testing, and assess
assumed in derivatives activities. An internal the potential impact of various changes in
control system to determine potential credit market factors on earnings and capital. At a
risk should be in place. minimum, all risk measurement applications
and models should be reviewed and
Settlement Risk validated annually, and management should
This is the risk that an institution faces maintain adequate documentation to
when it has performed its obligations under support the reliability of the validation
a contract, but has not yet received value process.
from its counterparty. Management should 2. Statistical analyses should be used
establish limits and monitoring procedures to characterize market scenarios and price
for settlement risk exposures. Settlement behavior. Before they are used, and
risk l i m i t s s h o u l d b e e s t a b l i s h e d whenever market conditions change
separately from pre-settlement credit limits significantly, the analyses should be
and should consider capital adequacy, validated by a source independent of the
operations effeciency and credit analysis trading desk or risk assumption unit.

APP. 25
05.12.31
Limited End-Users order to continue trading under a broad

The senior management should ensure range of scenarios.
that all significant risks arising from their 3. An institution that participates in
derivatives activities can be quantified, over-the-counter derivatives markets should
monitored and controlled. At a minimum, assess the potential liquidity risks associated
risk management systems should evaluate with the early termination of derivatives
the possible impact of derivatives activities contracts. Many forms of standardized
on earnings and capital which may result contracts for derivatives activities allow
from adverse changes in interest rates and counterparties to request collateral or to
other market conditions that are relevant to terminate their contracts early if the
risk exposure and the effectiveness of institution experiences an adverse credit
financial derivatives activities. event or a deterioration in its financial
condition. In addition, under conditions of
C. Liquidity Risk - is the risk that an market stress, customers may ask for the
institution will not be able to, or cannot early termination of some contracts within
easily, exit or unwind its position at a the context of the dealer's market making
desired market price (market/product activities. In such situations, an institution
liquidity risk); or to meet its cash flow that owes money on derivatives activities
obligations as they fall due or upon margin may be required to deliver collateral or settle
calls (cash flow/funding liquidity risk). a contract early and possibly at a time when
1. Management should evaluate these it may face other funding and liquidity
risks in the broader context of the pressures. Early terminations may also open
institution's overall liquidity because neither up additional, unintended, market positions.
type of liquidity risk is necessarily unique Management and directors should be aware
to derivatives activities. of these potential liquidity risks and should
2. In developing guidelines for address them in the institution liquidity plan
controlling liquidity risks, an institution and in the broader context of the
should consider the possibility that it could institution's liquidity management pocess.
lose access to one or more markets, either
because of concerns about the institution's D. Operations Risk - is the risk that an
own credit worthiness, the credit worthiness institution will suffer an unexpected loss due
of a major counterparty or because of to deficiencies in information systems or
generally stressful market conditions. At internal controls.
such times, the institution may have less 1. The Board of Directors/Management
flexibility in managing its market, credit and Committee and senior management should
liquidity risk exposures. An institution that ensure the proper dedication of resources
makes markets in over-the-counter to support operations and systems
derivatives or that dynamically hedges1 its development and maintenance. The
positions requires constant access to operation unit should report to an
financial markets and that need may increase independent unit and should be managed
in times of market stress. The institution's independently of the business unit. The
liquidity plan should reflect its ability to turn sophistication of the systems support and
to alternative markets, such as futures or operational capacity should be
cash markets, or to provide sufficient commensurate with the size and complexity
collateral or other credit enchancements in of the derivatives business activity.
1
Dynamic hedging refers generally to the continuous process of buying and selling of instruments to
offset open exposures as market conditions change (e.g. an option writer selling an underlying asset
as its price falls).

APP. 25
05.12.31
2. Systems support and operational appropriately reviewed by senior

capacity should be adequate to management and legal counsel. The
accommodate the types of derivatives institution should also have approved
activities in which the institution engages. policies that specify documentation
This includes the ability to efficiently process requirements for derivatives activities and
and settle the volume transacted through the formal procedures for savings and
business unit, to provide support for the safeguarding important documents that
complexity of the transactions booked and are consistent with legal requirements and
to provide accurate and timely input. internal policies.
Support systems and the systems
developed to interface with the official E. Legal Risk - is the risk that contracts are
databases should generate accurate not legally enforceable or correctly
information sufficient to allow business unit documented.
management and senior management to 1. Before engaging in derivatives
promptly monitor risk exposures. activities, an institution, in consultation with
3. Segregation of operational duties, its legal counsel, should be satisfied that its
exposure reporting and risk monitoring from counterparties have the legal authority to
the business unit is critical to proper internal engage in such activities.
control. 2. The terms of any contract governing
4. Management should ensure that a derivatives activities should be legally
mechanism exists whereby derivatives sound.
contract documentation is confirmed, 3. The institution should use the
maintained and safeguarded. An International Swap Dealers Association, Inc.
institution should establish a process (ISDA) Master Agreement insofar as the same
through which documentation exceptions is not inconsistent with existing laws, rules
are monitored and resolved and and regulations.

APP. 26
05.12.31
RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES

Similar to other financial transactions, derivatives activities may provide significant

benefits and involve a variety of significant risks.
Before entering into any derivatives activity, you should carefully consider whether
the transaction is appropriate for you in light of your objectives, experience, financial and
operational resources, and other relevant circumstances. You should ensure that you fully
understand the nature and extent of your exposure to risk of loss, which may significantly
exceed the amount of any initial payment by or to you.
In general, all derivatives activities involve risks, which include, among others, the
risk of adverse or unanticipated market, financial or political developments, risk of counterparty
or issuer default and other credit and enforcement risks, and risk of illiquidity and related
risks. In addition, you may be subject to operational risks in the event that you do not have
in place appropriate internal systems and controls to monitor the various risks, funding and
other requirements to which you may be subject by virtue of your activities in derivatives
and other financial markets.
As in any financial transaction, you should ensure that you understand the
requirements applicable to you that are established by your regulators or by your board of
directors or other governing body. You should also consider the legal, tax and accounting
implications of entering into any derivatives activity.
In entering into any derivatives activity with, or arranged by, us or any of our
subsidiaries/affiliates, you should also understand that ____________________ is acting solely
in the capacity of an arm’s length contractual counterparty and not in the capacity of your
financial adviser or fiduciary unless _____________________ has so agreed in writing and
then only to the extent so provided. Whether or not you and ________________ have
established a written financial advisory or fiduciary relationship, ___________________ may,
from time to time, have substantial long or short positions in, and may make a market in or
otherwise buy or sell instruments identical or economically related to, the derivatives activity
entered into with you; _______________________ may also have an investment banking,
corporate advisory, or other commercial relationship with the issuer of any security or financial
instrument underlying the derivatives activity entered into with you.
THIS BRIEF STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR
OTHER RELEVANT CONSIDERATIONS OF ENTERING INTO DERIVATIVES ACTIVITIES.
YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU
FULLY UNDERSTAND ALL SUCH RISKS AND HAVE INDEPENDENTLY DETERMINED
THAT THE ACTIVITY IS APPROPRIATE FOR YOU.

APP. 27
05.12.31
ACCOUNTING GUIDELINES FOR DERIVATIVES

Incorporated in X602.5

APP. 28
05.12.31
CLEARING PROCEDURES
a. Clearing regulations in general responsible for any flaw or defect in the

(1) Time and place of exchanges. The items or for any irregularity whatsoever in
clearing of checks, bills and other demand any of their features.
items herein contemplated shall be (4) Clearing procedures.
conducted in the BSP-designated clearing (a) Procedure for regular clearing. Each
centers. The hour for making such exchanges bank/branch through its representative/s,
shall be at 4:00 P.M. on each business day shall deliver their respective demands in
as well as on all local holidays in the sealed envelopes made out separately
clearing centers and/or at such other times against the other banks/branches,
as may be fixed by the BSP. institutions or entities allowed to clear:
(2) Settling clerks. The head office of Provided, That Negotiable Orders of
each bank, together with all its branches Withdrawal shall be contained in an
within the designated clearing areas, shall envelope exclusively for the purpose:
be considered as a unit and shall be Provided, further, That the BSP may, at its
represented by one (1) or more [but not discretion, verify the contents of sealed
exceeding six(6)] competent clerks/ envelopes. The total of each demand shall
representatives to deliver and receive the be listed in a certified adding machine tape
items to be exchanged. The facsimile attached to the sealed envelope. In the
signatures and NBI clearances of these acknowledgment of receipt of the demands
clerks/representatives shall be submitted to against the bank/branch, institution or entity
the Accounting Department. All settling he represents, the settling clerk concerned
clerks/representatives shall be issued their shall prepare and sign a Clearing Office
respective ID cards which shall be presented Statement (Clearing Form No. 4) in duplicate
for admission in the clearing office or for local clearing. The original and duplicate
regional units. of the statement shall be submitted to the
(3) Items for clearing. All checks and clearing office in Manila or the regional
documents payable on demand and drawn clearing centers. The original shall be
against a bank/branch allowed to clear may retained and shall be the basis for settlement
be exchanged through clearing centers of clearing balances in the respective
designated by the BSP. As evidence of the deposit accounts with the BSP. The
channel through which they were duplicate, duly authenticated by the Manila
negotiated, all items to be exchanged shall or the Regional Clearing Officer concerned,
be properly endorsed and guaranteed before shall be returned to the bank/branch,
being sent to the Clearing Office/Unit and institution or entity concerned through their
shall bear the name of the bank/branch, clearing representatives. The duplicate shall
institution or entity to which they belong. be the basis of each bank/branch, institution
Likewise, they shall be impressed by the or entity for taking up corresponding entries
sending bank/branch, institution or entity in their respective books of accounts on the
with a special stamp to the effect that they date of clearing.
have been cleared through the clearing For out-of-town clearing, the Clearing
facilities of the BSP. The Clearing Office/ Office Statement (Clearing Form No. 4-A)
Unit of the BSP shall in no way be shall be prepared in quadruplicate for

APP. 28
05.12.31
authentication by the Clearing Officer who (c) Procedure for returned items. Items
retains one copy. The third copy shall be which should be returned for any reason
returned to the sending bank/branch, whatsoever shall be presented not later than
institution or entity coursed through their the next regular clearing for local exchanges.
respective clearing representatives. The Out-of-town exchanges shall be returned
original and duplicate shall be shipped to, within the period specified in the
or retained in, the Manila Clearing Office as Memorandum to Authorized Agent Banks
the case may be. announcing the opening of clearing facilities
Out-of-town demands presented in a in each of the authorized regional clearing
clearing center against a bank without any centers. Items for return shall be sealed in
branch in that particular clearing area shall special red envelopes and shall be
be delivered to the Clearing Officer who considered and accounted for as debits to
shall prepare a debit advice (Clearing Form the demanding banks/branches, and credits
No. 4-B) for the Head Office of the drawee to the returning banks/branches. Nothing in
bank/branch concerned in the Manila this paragraph shall prevent direct settlement
clearing area. of returned items between the parties
In the acknowledgement of receipt of concerned.
out-of-town demands, the duplicate of the Mis-sorts or items misdirected through
Clearing Office Statement and/or the original clearing shall be returned at the next clearing
of the debit advice/s, the settling clerks of session in special yellow envelopes and
respective drawee banks/branches in each shall be accounted for as debits to the bank/
clearing center shall sign the shipping branch which had misdirected the items.
manifest. These clearing office statements and/ (d) Procedure for excluded member(s).
or the debit advice/s shall serve as bases for In case any bank/branch is excluded from
the Head Offices in the Manila clearing area clearing on any day on account of tardiness
to record the result of out-of-town exchanges or absence, value shall be given to the
in their books on the date of receipt. deliveries of the others present for credit to
Clearing operations between regional their accounts in accordance with normal
clearing centers and the Manila Clearing settling procedures. The total of said
Center is shown in Appendix 28a (Tarlac, deliveries shall be debited to the account of
Tarlac used as sample). the excluded bank/branch. The bank/branch
(b) Procedure for special clearing. excluded from clearing shall, as heretofore,
Demands may be presented directly to the send its representative to the Clearing Office
drawee banks/branches concerned at times /Unit to prepare the clearing statement and
other than that specified in Item a. For this accept deliveries on it. In case of failure to
purpose, the Special Clearing Receipt (Cash send its representative, the Clearing Office/
Form No. 10) shall be used. The original and Unit shall, in the meantime, receive such
duplicate copies of the receipt shall be deliveries which should be picked up by the
retained by the sending bank/branch, and excluded bank/branch not later than 5:30
the triplicate shall be delivered to the drawee p.m. on the same day.
bank/branch. At the following clearing In the event of a strike or force majeure
season, the original of the Special Clearing which prevents a bank/branch allowed to
Receipt shall be presented as a demand clear from having access to its representative
against the bank/branch, institution or entity records or otherwise ascertaining whether
concerned. Nothing in this section shall checks delivered to its representatives shall
prevent direct settlement between the parties be honored or returned, notice of such
concerned. circumstances shall immediately be given

APP. 28
05.12.31
to the BSP Clearing Office/Unit. In such afternoon of the same date the demands are
cases, items drawn against the bank/branch presented for clearing.
concerned shall not be presented for (3) Miscellaneous provisions. Checks
clearing. for inter-regional clearing shall be sealed in
(5) Loss of clearing items. Any loss or special brown envelope measuring 7" x 1"
damage arising from theft, pilferage, or other with the destination “To Cebu” or “To
causes affecting items in transit shall be for Zamboanga”, etc., as the case may be,
the account of the sending bank/branch properly stated in bold letters of not less than
concerned. one (1) inch. The left side of the envelope
shall bear one (1) inch stripe according to
b. Inter-regional clearing operations in the following color scheme:
Visayas and Mindanao. Inter-regional
clearing operations shall be conducted in Regional Clearing Unit Color
Visayas and Mindanao through the facilities Bacolod Green
of BSP Regional Clearing Units. Checks Cagayan de Oro White
received by banks/branches in one Cebu Blue
clearing area against banks/branches Davao Red
located in the other clearing areas may Iloilo Violet
be presented for clearing in accordance Tacloban Royal Blue
with these rules. Zamboanga Gray
(1) Items for clearing. Items for clearing
shall consist of demand items consisting of All participating banks shall keep photo
checks and/or other documents drawn copies/microfilms of checks presented for
against banks/branches located in each of clearing.
the clearing areas. Any loss or damage arising from theft,
The special brown envelope for pilferage, or other causes affecting items in
demands against banks located in the four transit shall be for the account of the sending
(4) regional clearing centers shall bear one bank/branch concerned.
(1) inch stripe on the left side according to (4) Guidelines for inter-regional clearing
the following color scheme: (a) For an orderly process of exchanges,
each bank/branch representative shall
Regional Clearing Unit Color deposit the demand envelopes against
Dumaguete Brown drawee banks/ branches located in other
General Santos Pink regional clearing areas in the respective
Ozamis Orange compartments assigned to each of the
Surigao Black participating banks/branches.
(b) The bank/branch representative
The color code of clearing envelopes for shall sort the demand envelope received
other regional clearing centers invoiced in according to destination. Amount of
inter-regional clearing as specified in demands shall be posted as Debits (Items
Circular Letter dated 20 September 1978, Received) in their respective Clearing
shall continue to be observed. Statements (Clearing Form 4-A) to be
(2) Settlement of clearing balances. prepared in four (4) copies for distribution
Clearing balances of participating banks/ as follows:
branches shall be debited or credited, as the
case may be, to the clearing accounts of their Original . . . . . . . Sending Clearing Unit
respective head offices in Manila in the Duplicate . . . . . . Sending Bank/Branch

APP. 28
05.12.31
Triplicate . . . . . . . Head Office of Drawee (1) The duplicate of the local and out-
Bank/Branch of-town ( Manila ) clearing statements;
Quadruplicate . . Drawee Bank/Branch (2) Triplicate of inter-regional clearing
statements;
(c) The Regional Clearing Officer shall (3) The original of the debit statements;
sort according to bank/branch and and
destination the demand envelopes delivered (4) The demand envelopes containing
for the account of banks without branches “on Manila” checks/returns.
in his clearing area. Corresponding Debit The Clearing Advice shall be the basis
Statement (Clearing Form 4-B) shall be for entries in the books of accounts of the
prepared in three (3) copies for distribution bank Head Offices concerned. The
as follows: duplicate of the Clearing Advice shall be
forwarded to the Drawee Bank/Branch
Original . . . . . . Head Office of Drawee while the third copy shall be retained as
Bank/Branch office file of the Regional Clearing Unit.
Duplicate. . . . . Drawee Bank/Branch (f) The daily results of both local, out-
Triplicate . . . . . Sending BSP Clearing Unit of-town (Manila) and inter-regional clearing
shall be summarized in the consolidated
(d) The quadruplicate of the Clearing clearing proof sheet. For purposes of
Statements and duplicate of the Debit transmission to the Head Office through the
Statements shall be attached to the demand DEX machine, the results of clearing as
envelopes for shipment to the Regional reflected in the consolidated proof sheet
Clearing Units concerned. In acknow- shall be condensed in Clearing Form 4-C (a).
ledgment of receipt of inter-regional Any exception or observation which required
demands, clearing representatives of immediate attention shall be explained in
respective bank/branch at destination shall the memorandum portion.
sign the covering manifest (in duplicate). The (g) All Regional Clearing Officers shall
original shall be returned to the sending acknowledge receipt of all incoming
clearing unit. pouches and/or shall give notice of delay/
(e) In the Regional Clearing Unit where non-arrival of pouch/es or other exception/
the demands are presented, a Clearing s to the sending clearing unit concerned on
Advice (Form 4-B(a)) shall be prepared for the Confirmation Slip not later than the
inter-regional as well as local and out-of- following business day. If for any reason,
town (Manila) clearing results reflected in clearing is suspended or there is no demand
clearing statements and debit statements. against any of the other clearing unit and as
After the 9:00 A.M. clearing session, the no pouch will be send to all or any of the
results of the inter-regional clearing clearing units, the Confirmation Slip, which
transactions shall be posted in the Clearing shall be placed in an envelope properly
Advice, striking a sub-total to determine that addressed to the clearing unit concerned
it is in balance. In the same Clearing Advice, and d u l y m a r k e d i n b o l d l e t t e r s
the results of local and "on Manila" clearing “CONFIRMATION SLIP FOR IMMEDIATE
shall be posted after the 4:00 p.m. session TRANSMITTAL TO ADDRESSEE”, shall be
to complete the transactions for the day. sent through the pouch to Manila. A
The original of the clearing advice duplicate of the Confirmation Slip for the
shall be sent to the Head Office of the file of the Clearing Operations Division,
Drawee Bank Division, Manila, bound Manila Office shall be stapled to the
together with: envelope.

APP. 28
05.12.31
(h) All shipments of pouches shall be packages, together with their respective run-
accompanied by a check and manifest up tapes. The outside of the envelopes must
which shall be properly acknowledged by clearly indicate the type of treasury warrants
the receiving clearing unit. A separate contained therein, the number of pieces, and
transmittal letter shall be prepared in the total amount per tape. When the pouch
duplicate for all communications addressed is received in Manila, these envelopes or
to other departments which are sent through packages shall be turned over by the BSP
the general-purpose pouch under the unopened to the representative of the
responsibility of the Administrative sending bank’s Manila office. The Manila
Department, Manila. The original shall be office of a bank shall gather all treasury
properly marked “for the Communications warrants it receives from its various branches
Center” while the duplicate shall be returned and agencies in a single day, and submit
to the sending Regional Clearing Unit with them to the Bureau of Treasury for special
the acknowledgment of the personnel in- clearing on the next day. The treasury
charge of opening the pouch in the warrants must be endorsed by the Manila
Communications Center. office, stating, among other things, the date
(i) All clearing pouches arriving late in of clearing and that they are being presented
the afternoon and in the evening may be for special clearing.
picked up from the airport in the morning These treasury warrants, as well as those
of the following day for delivery to the paid at the main offices and suburban
drawee bank at 9:00 A.M. clearing session. branches or agencies of banks shall be
For security reasons, those arriving on Friday presented to the Bureau of Treasury by the
night shall be picked up on Saturday banks concerned between the hours of 8:00
morning. A.M. and 10:00 A.M. during banking days,
supported by run-up tapes and the usual
c. Treasury warrants. Types “A” and “B” clearing receipt. The special clearing receipt
treasury warrants in Manila and in areas may be cleared on the same day through the
served by the BSP Regional Clearing Offices BSP Clearing House and shall be accounted
are governed by the following rules issued as debit against the demand of the National
by the National Treasurer: Treasurer.
(1) Effectivity. Types “A” and “B” (3) Period within which treasury
treasury warrants shall be accepted as warrants may be dishonored. The Bureau
clearing items for regional clearing in areas of Treasury may dishonor a Type “B”
served by the BSP Regional Clearing Offices. treasury warrant found defective within (2)
The branches or agencies of banks may working days, while Type “A” treasury
avail of this facility of the BSP by following warrants may be dishonored within sixty (60)
the procedures prescribed hereunder. These working days. In both cases, the period shall
treasury warrants shall be carried in the BSP be reckoned from the date the special
pouches from their regional offices to clearing receipt is coursed through the BSP.
Manila. The foregoing time limit will not apply
(2) Treatment of Types “A” and “B” to treasury warrants found to have been paid
treasury warrants. Types “A” and “B” to the wrong party, tampered, and otherwise
treasury warrants with circular holes already tainted with fraud.
punched at the designated field by the bank (4) Dishonored, miscleared and other
branches or agencies in accordance with returnable items. These items will be
Treasury Circular dated 7 July 1969 shall returned directly to the presenting bank. The
be placed in separate sealed envelopes or accepting bank shall issue the corresponding

APP. 28
05.12.31
credit ticket in favor of the Bureau of (1) The bank which accepted for
Treasury, which ticket shall be cleared by deposit/collection a check drawn against a
the Bureau of Treasury through the BSP. demand deposit maintained in an out-of-
If the bank to which a treasury warrant town bank must send the same for collection
is dishonored, refuses to accept or within twenty-four (24) hours (non-regular
recognise the action taken by the Bureau banking days excluded) counted from the
of Treasury for a valid reason, the bank time of its receipt. Sending the check for
may return the controversial items, or collection means sending it directly to the
evidences thereof, directly to the National drawee bank or thru the collecting bank’s
Treasurer, together with required run-up branch, agency or extension office/
tapes and a concise but comprehensive correspondent bank/ collecting, agent in or
statement of such reason. The return must near the locality to the drawee bank by
be made not later than 10:00 A.M. on the registered mail with return receipt or by
next banking day, otherwise the member other equivalent means. Checks drawn
bank shall be deemed to have accepted against drawee banks located in places
and recognized the validity of the returned where the BSP maintains clearing offices
item, and it is therefore, left without shall be cleared directly with the said
further recourse. The Bureau of Treasury clearing offices.
shall issue the corresponding credit ticket (2) Upon receipt of a check from the
for those returned items accepted , and collecting bank, the drawee bank carrying
the same shall be taken up in the manner the demand deposit against which the check
set forth above. is drawn (if cleared through means other
(5) Compliance. Banks participating in than the clearing facilities of the BSP), must
the Bureau of Treasury special clearing indicate the date and time of receipt of the
operations bind themselves to conform, check on the registered mail return receipt,
without reservation, to the regulations if the item is sent by registered mail, or on
promulgated herein, or which may the duplicate copy of the collecting bank’s
henceforth be promulgated relative to special letter of instruction, if the item is sent
clearing operations. Any bank has the option through means other than by registered mail.
to present their paid treasury warrants to the (3) The drawee bank should maintain
National Treasurer for collection. a register of all checks received for settlement
(6) Bangko Sentral responsibility. Any which should be separate and distinct from
treasury warrant lost or pilfered from the BSP the register of incoming mails or messages.
pouch shall be the responsibility of the This register must indicate in chronological
sending bank, and such responsibility ends order all checks received for settlement with
only after the National Treasurer has taken information such as, but not limited to, the
physical possession of the treasury warrants. date and time the check was received, the
Lost or pilfered treasury warrants must be name and address of the collecting bank,
reported to the National Treasurer in the current account number against which
accordance with Treasury Memorandum check is drawn, the date and amount of the
Circular No. 13-69 dated 01 October 1969. check and the date the proceeds thereof were
remitted or the date the check was returned,
d. Handling of checks drawn against out- as the case may be.
of-town accounts. The following regulations (4) The drawee bank or office carrying
shall govern the handling of checks drawn the demand deposit against which the check
against demand deposits maintained in out- is drawn must dispose of such item within
of-town banks: twenty-four (24) hours (non-regular banking

APP. 28
05.12.31
days of the drawee bank excluded) counted draft, or date or dispatch of telegraphic
from the time it received the check. transfer, if the check is honored, or by the
Disposing of such item means remitting the date of mailing of the return slip attached to
proceeds to the collecting bank if the check is the item, if it is dishonored.
honored, or returning the check with the (6) All checks received for payment but
reason for the return, in the event of dishonor. not acted upon at the end of the day must
(5) The date of disposition of the check be recorded by the drawee bank on the same
shall be determined by the date of mailing day as part of its contingent account Inward
of the instrument of payment, say demand Bills for Collection.

APP. 28a
05.12.31
CLEARING OPERATIONS BETWEEN REGIONAL CLEARING CENTER

AND THE MANILA CLEARING CENTER
(Tarlac, Tarlac Used as Sample)
(Appendix to Subsec. X603)
Exchanges of clearing items among If not returned on schedule, it is understood

branches of commercial and thrift banks in that “On Tarlac” and “On Manila” checks
Tarlac, Tarlac, will be conducted at 4:00 delivered to the Manila Clearing Office and
P.M. on each business day as well as on all Tarlac Regional Clearing Unit, respectively,
local holidays in the premises of the Tarlac will be considered “good” after 4:00 P.M.
Regional Clearing Unit in accordance with on the third business day following the date
the clearing regulations embodied in of delivery.
Appendix 28.
Simultaneously, “On Tarlac” checks and Items for Clearing
“On Manila” checks may be presented for Items for clearing shall consist of checks
clearing through the Manila Clearing Office and documents payable on demand and
and the Tarlac Regional Clearing Unit, drawn against banks in Manila and its suburbs
respectively. (Quezon City, Pasay City, Kalookan City, San
Juan City, Mandaluyong City, Makati City,
In Manila Parañaque City, Navotas City, Malabon City,
4:00 P.M. - Manila banks deliver “On Marikina City and Pasig City) on one hand
Tarlac” checks and and banks in Tarlac, Tarlac on the other.
dishonored “On Manila”
checks picked up at 4:00 P.M. Settlement of Balances
of the previous day. Clearing balances of participating banks
- Manila banks pick-up “On in Tarlac, Tarlac, shall be debited or credited,
Manila” checks and returned as the case may be, to the clearing accounts
“On Tarlac” checks delivered of their respective head offices with the
at 4:00 P.M. at Tarlac the Bangko Sentral in the afternoon of the date
previous day. of clearing.
In Tarlac
4:00 P.M. - Tarlac banks deliver “On Miscellaneous
Manila” checks and Out-of-town checks shall be sealed in
dishonored “On Tarlac” special brown envelope measuring 7” x 11”
checks picked up at 4:00 P.M. with the destination “To Tarlac” or “ To
of the previous day. Manila”, as the case may be, properly
- Tarlac banks pick up “On stamped in bold letters of not less than one
Tarlac” checks and returned (1) inch and three (3) orange stripes, 1/1”
“On Manila” checks wide on the right edge.
delivered at 4:00 P.M. at Banks shall microfilm all out-of-town
Manila the previous day. checks.

APP. 29
05.12.31
PROCEDURES ON COLLECTION OF FINES FROM BANKS

For uniform implementation of the the bank shall serve as basis for entries to
regulations on collection of fines from Accounts Receivable and debit against the
banks, the following procedures shall be bank’s demand deposit account after the
observed: lapse of fifteen (15) days.
1. The department or office imposing 3. If the fine is not paid voluntarily
the fine shall furnish the Comptrollership within the 15-day period, the
Department a copy of its notice to the bank Comptrollership Department shall debit the
for the fines imposed indicating therein the demand deposit account of the bank,
date said notice was received by the bank. provided, the balance of said demand
This shall serve as basis for entries to deposit account is sufficient to cover the
Accounts Receivable and debit against the fines due. Fines that cannot be debited
bank’s demand deposit account after the against the bank’s demand deposit account
lapse of fifteen (15) days. due to insufficiency of balance shall be
2. In the case of fines which the reported by the Comptrollership
department/office concerned requests the Department to the department/office
Comptrollership Department to bill the concerned which shall then recommend the
bank, the date the bill sent by the appropriate sanctions against the bank, its
Comptrollership Department is received by directors and/or officers.

APP. 30
05.12.31
PRESCRIBED FORMAT
MEMORANDUM OF UNDERSTANDING
(Name of Bank) and the Bangko Sentral ng Pilipinas (BSP) wish

to protect the interest of the depositors, creditors, shareholders and the public in general and
toward that end, wish the Bank to operate safely and soundly and in accordance with all
applicable banking laws, rules and regulations.
In consideration of the above premise, the BSP, through its authorized deputies, and
the Bank, by and through its duly elected Board of Directors (Board), do hereby agree
that the Bank shall at all times operate in compliance with the articles of this Memorandum
of Understanding.
ACTION PLAN
Within thirty (30) days, the Board shall adopt and implement a capital restoration plan
detailing the Board’s perception of what needs to be done to improve the Bank’s capital
position, specifying how the Board will implement the plan and setting forth a timetable for
the implementation of the plan.
Upon completion of the plan, the Bank shall submit the plan to the appropriate
supervising and examining department of the BSP for review. The Board shall establish
appropriate procedures for the implementation of the plan.
In the event the BSP recommends changes to the action plan, the Board shall
immediately incorporate those changes into the plan.
The plan shall be implemented pursuant to the time frames set forth within the plan
unless events dictate modifications to the plan are required. Where the Board considers
modifications appropriate, those modifications shall be submitted to the BSP for approval.
CAPITAL PROGRAM
The Bank shall achieve by (date) and thereafter maintain the following
capital levels:
a. At least equal to ten percent (10%) of its risk assets;
b. At least equal to the following amounts (in million pesos):
Existing Compliance Period

Requirements 12/24/98 12/31/99 12/31/2000
Expanded KBs 3,500 4,500 4,950 5,400

Non-Expanded KBs 1,625 2,000 2,400 2,800

APP. 30
05.12.31
Existing Compliance Period

Requirements 12/24/98 12/31/99 12/31/2000
Thrift Banks
Within Metro Manila 200 250 325 400
Outside Metro Manila 40 40 52 64
Rural Banks
Within Metro Manila 20 20 26 32
Cities of Cebu & Davao 10 10 13 16
1st/2nd/3rd class cities &
1st class municipalities 5 5 6.5 8
4th/5th/6th class cities & 2nd/
3rd/4th class municipalities 3 3 3.9 4.8
5th/6th class municipalities 2 2 2.6 3.2
Within thirty (30) days, the Board shall develop a three (3)-year capital build-up program.
The program shall include, as may be necessary:
(a) Specific plans for the maintenance of adequate capital that should not be less than
the requirements stated above;
(b) Projections for growth and capital requirements based upon a detailed analysis of
the Bank’s assets, liabilities, earnings, fixed assets and off-balance sheet activities;
(c) Projections of sources and timing of additional capital to meet the Bank’s current
and future needs;
(d) The primary source(s) from which the Bank will strengthen its capital structure to
meet the Bank’s needs; and
(e) Contingency plans that identify alternative methods should the primary source(s) be
not available.
COMPLIANCE/PROGRESS REPORTS
The Compliance Officer shall be responsible for monitoring and coordinating the Bank’s
adherence to the provisions of this Memorandum of Understanding. The Compliance Officer
shall submit a written progress report to the Board on a (Monthly/Quarterly) basis setting
forth in detail:
a. Actions taken to comply with each article of this Memorandum; and
b. The results of those actions
The Board shall submit (monthly/quarterly) progress reports to the appropriate
supervising and examining department of the BSP containing the abovementioned details.
FORMAL AGREEMENT
Although the Board has by this Memorandum of Understanding consented to submit

certain proposed actions and programs for the review and approval of the BSP, the
Board has the ultimate responsibility for proper and sound management of the Bank.
It is expressly and clearly understood that if, at any time, BSP deems it appropriate in
fulfilling the responsibilities placed upon it by laws of the Republic of the Philippines to

APP. 30
05.12.31
undertake any action affecting the Bank, nothing in this Memorandum of Understanding
shall in any way inhibit, estop, bar, or otherwise prevent it from so doing.
Any time requirements specified in this Memorandum of Understanding shall begin from
the effective date of this Memorandum. Such time requirements may be extended by the BSP
for good cause upon written application of the Board.
This Memorandum of Understanding shall be effective upon execution by the parties

hereto, and its provisions shall continue in full force and effect until such time as they shall
be amended by mutual consent of the parties to this Memorandum or excepted, waived,
terminated by BSP.
IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this_______
day of __________ at the City of _______________, Philippines.
BANGKO SENTRAL NG PILIPINAS
_________________________ ________________________
Authorized Deputy Deputy Governor-SES
BANK
__________________________ _________________________
President Chairman of the Board
_________________________ _________________________
( Witness ) ( Witness )

APP. 31
05.12.31
IMPLEMENTING GUIDELINES FOR THRIFT BANKS

AUTHORIZED TO ACCEPT DEMAND DEPOSITS
AND RURAL BANKS WHO ARE MEMBERS OF THE
(Appendix to Items "c" and "d" of Sections 2205 and 3205)
Section 1. Requirements for Thrift Banks authorized to negotiate and sign pertinent
Migrating from NOW and Conduit papers thereto. The Agreement must be fully
Arrangements and Rural Banks Who are registered and annotated on the collateral
Members of the Philippine Clearing Torrens Certificate of Title/Condominium
House Corporation: Certificate of Title.
a. TBs migrating from NOW and b. The loan line, once approved, can
conduit arrangements and RB members of be amended at the instance of the
the Philippine Clearing House Corporation applicant bank only once every twelve
(PCHC) shall secure a Bank Routing Symbol (12) months. The loan line shall be equal
Transit Number (BRSTN) with PCHC. to at least five percent (5%) of the bank’s
b. TBs and RB members shall secure deposit liabilities as at end of prior month.
prior authority to participate directly in the c. Considered eligible collaterals are:
PCHC and BSP clearing operations with the (1) Unencumbered real estate
Department of Thrift Banks and Non-Bank properties duly registered in the
Financial Institutions (DTBNBFI) and the name of the applicant bank or its
Department of Rural Banks (DRB), BSP, stockholder. The submitted
respectively. collaterals may be given a loan value
of seventy percent (70%) based on
Sec. 2. Requirements for Thrift Banks and the appraised value as determined
Rural Banks Who are Members of PCHC by reputable independent appraisers.
TBs/RBs participating directly in the (2) Foreclosed real properties still
clearing operations of PCHC and BSP within the redemption period. The
Regional Clearing Centers shall apply for loan value shall be eighty percent
collateralized overnight clearing line (80%) of the amount of the
under Items "c" and "d" of Sections 2205 Certificate of Sale as annotated on
and 3205 of the Manual. Said banks shall the Certificate of Title. If the property
enter into an agreement with the BSP is redeemed, the line will be reduced
conforming to these guidelines and they shall accordingly until the line can be
in turn enter into similar agreements with amended at its annual review.
their clients. (3) Current mortgage credits secured by
real estate mortgage (REM) with
Sec. 3. Application for Overnight Clearing remaining maturities of not less
Line than one (1) year from date of
a. The applicant-bank shall submit to assignment. The loan value shall
the Department of Loans and Credit (DLC) be eighty percent (80%) of the
a duly accomplished Agreement form on a outstanding balance of the loan at
continuing loan line, together with a the time of assignment to BSP.
resolution of the board of directors of the (4) Government securities for a loan
applicant bank authorizing the bank to apply value of eighty percent (80%) of
for such loan line and designating the officers the maturity value.

APP. 31
05.12.31
(5) Holdout on foreign currency settlement date for clearing items shall be
deposits with the BSP, if any. as stated in the following schedule:
d. The Bank shall be allowed the
flexibility of changing or substituting collateral, Session Value/Settlement Date
specially matured government securities. Returned Items On date of return
e. The availments against the Outward Items
approved loan line shall bear interest at the Local Clearing Next clearing day
ninety-one (91)-day Treasury Bill rate of the
last auction immediately preceding the Inter-Regional Clearing As defined in Clearing
availments. Circular Letter for
nationwide inter-regional
clearing
Sec. 4. Availments Against the Approved
Loan Line Out-of-town and Manila As defined in Clearing
a. The electronic notice of application Outward Regional Circular Letter fixing
of the loan line to settle net clearing losses Outward Regional t h e
from the BSP Accounting Department shall number of float days for
exchanges between
constitute availment. Upon receipt of the Manila and the BSP
electronic notice of availment, DLC shall Regional Clearing
immediately post the transaction to the Centers
bank’s loan ledger.
b. Each availment shall be fully paid Sec. 6. Procedures for Clearing and
through an automatic debit to the demand Settling Clearing Results
deposit account of the bank with BSP on a. Regular exchanges shall be
the next clearing day, without need of conducted daily for local, inter-regional and
demand. out-of-town and outward Manila on regular
c. Availments that remain unpaid on banking days and local holidays.
the next clearing day shall be subject to three b. Returned Items shall be contained
percent (3%) per month in liquidated in special red envelopes and presented
damages. separately in the clearing statements.
c. The net clearing demands of
Sec. 5. Definition of Value or Settlement banks shall be debited/credited to the
Date. Value or Settlement Date shall refer demand deposit accounts on value date
to date when the checks presented for as defined in Sec. 5 above.
clearing are given value. For local clearing, d. The participating banks in BSP
the Value or Settlement Date shall be the Regional Clearing Centers shall prepare
next clearing day when dishonored checks their electronic clearing statements
are returned within the reglementary following the procedures contained in the
period, reckoned after the date of BSP Clearing Operations User Manual for
presentation in the integrated Manila Participating Banks.
clearing area of PCHC and in all BSP regional e. Manila outward regional clearing
clearing centers. For inter-regional demands bound for BSP Regional
clearing items, outward Manila clearing Clearing Centers and On Manila outward
items and to Manila clearing items, the clearing demands shall be presented to
Value or Settlement Date will be defined in PCHC in accordance with the existing
clearing circulars to be issued by BSP. PCHC prescribed clearing rules.
Unless otherwise modified in f. BSP Regional Clearing Centers shall
subsequent clearing circulars, value or consolidate clearing statements and transmit

APP. 31
05.12.31
back electronically to the participating shall be eliminated by unwinding the inward

banks the consolidated clearing statement items starting from the clearing centers,
for each bank. The hard copy of the including PCHC, with highest aggregate
consolidated clearing statements signed value.
by responsible officials of the participating c. In case the aggregate value of the
banks shall be submitted to the BSP inward items for a given clearing center,
Regional Clearing Center on the next except PCHC, exceeds the unsettled net
clearing day. clearing losses, the total inward items for
g. Participating banks shall present that clearing center shall be the subject of
the demand items in sealed envelopes, unwinding.
segregating the demand items according d. In the case of checks cleared
to regional clearing centers. Each through PCHC, the inward clearing items
envelope shall show the number and the shall be unwound to the extent of the
total value of the checks presented. The unsettled net clearing loss. The selection
duly authorized settling representatives of of the specific demand items to be
the participating banks shall sign on the covered by unwinding shall be based on
BSP control copy of the consolidated PCHC rules.
clearing statements to document the e. Checks which are the subject of the
exchanges. unwound clearing transactions shall be
returned to the presenting banks not later
Sec. 7. Procedures for Settling Losses than 9:00 o’clock A.M. of the following
Clearing losses shall be settled to the clearing day.
extent of the combined amount of the
demand deposit balance and additional Sec. 9. Identification of Checks Issued
funds obtained from the following credit Under Sec. 2205/3205. Participating bank
sources of the participating bank: shall print or stamp on the face of the blank
a. Interbank borrowing through checks issued to current account depositors
IBCL - MIPS; the words “issued subject to Sec. 2205/3205
b. Interbank borrowing from BSP of the MOR”.
Treasury Department; and
c. Collateralized overnight clearing Sec. 10. Exemption from Liability. The
line granted by the BSP-DLC. participating bank and PCHC shall have
no cause of action or right of relief
Sec. 8. Procedures for Unwinding whatsoever against the BSP in connection
Clearing Transactions with or arising out of any transaction under
a. Procedures for unwinding this Agreement. Moreover, BSP shall not
clearing transactions shall apply to all be held responsible for any loss or
inward items, other than Returned Items, damage to the Bank, PCHC or any third
and to local exchanges only. party arising out of or by reason of this
b. The aggregate values of all inward Agreement.
items of all clearing centers, including On
Manila inward clearing demands presented Sec. 11. Effectivity Date
to PCHC, shall be ranked from highest to The clearing operation guidelines shall
lowest. The unsettled net clearing losses take effect on 15 September 1998.

APP. 32
05.12.31
ILLUSTRATIONS WHEN A DIRECTOR, OFFICER AND STOCKHOLDER (DOS)

SHALL WAIVE THE SECRECY OF DEPOSITS
(Appendix to Subsec. X338.1b)
A. When the loan is obtained from a bank that is a subsidiary of a holding company of
which both the borrower’s bank and the lending bank are subsidiaries.
X
Holding Company
Y Bank Z Bank
(Subsidiary) (Subsidiary)
Lending Bank Bank of DOS who

borrows from Y Bank
Thus, if Mr. A, who is a director of Z Bank borrows from Y Bank, he should waive the
secrecy of deposits of whatever nature in all banks in the Philippines since both Y Bank and
Z bank are subsidiaries of X Holding Company.

APP. 32
05.12.31
B. When the loan is from a bank in which a controlling proportion of the shares is owned
by the same interest that owns a controlling proportion of the shares of his bank.
Lending bank’s Equity Structure
B ank Y
O w n er B
49%
O w n er A
51%
Borrower’s bank Equity Structure
Bank Z
Owner B
49%
Owner A
51%
In illustration above, the controlling shares in both banks belong to the “same interest”,
Owner A.

APP. 33
05.12.31
CLASSIFICATION, ACCOUNTING PROCEDURES,

VALUATION AND SALES AND TRANSFERS OF INVESTMENTS
IN ALL DEBT SECURITIES AND
MARKETABLE EQUITY SECURITIES
Section 1. Statement of Policy. It is the shall be classified into one (1) of four (4)
policy of the BSP to promote full categories and accounted for as follows:1
transparency of the financial statements of a. Held to Maturity Securities (HTM)
banks and other supervised institutions in — These are debt securities with fixed or
order to strengthen market discipline, determinable payments and fixed maturity
encourage sound risk management that a financial institution has the positive
practices, and stimulate the domestic intention and ability to hold to maturity
capital market. Towards these ends, the other than:
BSP desires to align local financial (1) those that meet the definition of
accounting standards with international Securities at Fair Value Through Profit or
accounting standards as prescribed by the Loss; and
International Accounting Standards Board (2) those that the financial institution
(IASB) to the greatest extent possible. designates as Available-for-Sale Securities
(AFS).
Sec. 2. Scope. This Appendix covers A financial institution shall not classify
accounting for investments in debt and any debt security as HTM if the financial
equity securities except: institution has, during the current financial
a. those that are part of hedging year or during the two (2) preceding
relationship; financial years, sold or reclassified more
b. those that are hybrid financial than an insignificant amount of HTM
instruments; investments before maturity (more than
c. those financial liabilities that are insignificant in relation to the total amount
held for trading; of HTM investments) other than sales or
d. those financial assets and finan- reclassifications that:
cial liabilities which, upon initial recog- (a) are so close to maturity or the
nition, are designated by the financial in- security’s call date (i.e., less than three
stitutions as at fair value through profit (3) months before maturity) that changes
or loss; and in the market rate of interest would not
e. those that are classified as loans have a significant effect on the security’s
and receivables. fair value;
It also does not include accounting for (b) occur after the financial institution
derivatives and non-derivative financial has substantially collected all [i.e., at least
instruments other than debt and equity eighty-five percent (85%)] of the security’s
securities. The foregoing exceptions and original principal through scheduled
exclusions shall be covered by separate payments or prepayments; or
regulations. (c) are attributable to an isolated event
that is beyond the financial institution’s
Sec. 3. Investments in Debt and Equity control, is non-recurring and could not have
Securities. Depending on the intent, been reasonably anticipated by the
investments in debt and equity securities financial institution.
1
Reclassification allowed until 30 Nov. 2005 as per MAB dated 23 Nov. 2005

APP. 33
05.12.31
For this purpose, the phrase “more than by the financial institution) in response to
an insignificant amount” refers to sales or changes in market interest rates or risks,
reclassification of one percent (1%) or more liquidity needs, changes in the availability
of the outstanding balance of the HTM of and the yield on alternative investments,
portfolio: Provided, however, That sales or changes in financing sources and terms or
reclassifications of less than one percent changes in foreign currency risk; or
(1%) shall be evaluated on case to case (c) the issuer has a right to settle the
basis. security at an amount significantly below
Sales or reclassifications before maturity its amortized cost.
that do not meet any of the conditions Sales before maturity could satisfy the
prescribed in this Appendix shall require condition of HTM classification and
the entire HTM portfolio to be reclassified therefore need not raise a question about
to AFS. Further, the financial institution the financial institution’s intention to hold
shall be prohibited from using the HTM other HTM securities to maturity if they are
account during the reporting year of the date attributable to any of the following:
of sales or reclassifications and for the (i) A significant deterioration in the
succeeding two (2) full financial years. issuer’s creditworthiness; For example, a
Failure to reclassify the HTM portfolio to sale following a downgrade in a credit
AFS on the date of sales or reclassifications, rating by an external rating agency would
shall subject the financial institution and not necessarily raise a question about the
concerned officers to penalties and financial institution’s intention to hold other
sanctions provided under Section 7 of this investments to maturity if the downgrade
Appendix. This provision shall be applied provides evidence of a significant
prospectively, i.e. on prohibited sales or deterioration in the issuer’s
reclassifications occurring on 13 March 2005 creditworthiness judged by reference to the
(effectivity date of Cir. 476 dated 16 credit rating at initial recognition. Similarly,
February 2005) and thereafter. if a financial institution uses internal ratings
Securities held in compliance with BSP for assessing exposures, changes in those
regulations, e.g. securities held as liquidity internal ratings may help to identify issuers
reserves and for the faithful performance of for which there has been a significant
trust duties, may be classified either as deterioration in creditworthiness, provided
HTM, Securities Held-for-Trading (HFT) or the financial institution’s approach to
AFS: Provided, That the provision of Item assigning internal ratings and changes in
(4) of paragraph 2 of Section 3.a.1 shall not those ratings give a consistent, reliable and
apply to sales or reclassifications of the said objective measure of the credit quality of
securities booked under HTM. the issuers. If there is evidence that an
a.1. Positive intention and ability to instrument is impaired, the deterioration in
hold investments in HTM securities to creditworthiness is often regarded as
maturity – A financial institution does not significant.
have a positive intention to hold to maturity (ii) A change in tax law that eliminates
an HTM security if: or significantly reduces the tax-exempt
(a) the financial institution intends to status of interest on the HTM security (but
hold the security for an undefined period; not a change in tax law that revises the
(b) the financial institution stands marginal tax rates applicable to interest
ready to sell the security (other than if a income);
situation arises that is non-recurring and (iii) A major business combination or
could not have been reasonably anticipated major disposition (such as sale of a

APP. 33
05.12.31
segment) that necessitates the sale or and ability to hold other HTM investments
transfer of HTM securities to maintain the to maturity.
financial institution’s existing interest rate A financial institution assesses its
risk position or credit risk policy: Provided, intention and ability to hold its investment
That the sale or transfer of HTM security in HTM securities to maturity not only when
shall be done only once and within a those securities are initially recognized, but
period of six (6) months from the date of also at each time that the financial institution
the business combination or major prepares its financial statements.
disposition: Provided, further, That prior a.2. HTM securities shall be measured
BSP approval is required for sales or upon initial recognition at their fair value
transfers occurring after the prescribed six- plus transaction costs that are directly
month time frame. In this case, financial attributable to the acquisition of the
institutions shall submit to the appropriate securities.
supervision and examination department For this purpose, transactions costs
of the BSP, a plan stating the reason for the include fees and commissions paid to
extension and the proposed schedule for agents (including employees acting as
the disposition of the HTM security. selling agents), advisers, brokers and
(iv) A change in statutory or dealers, levies by regulatory agencies and
regulatory requirements significantly securities exchanges, and transfer taxes and
modifying either what constitutes a duties. Transaction costs do not include
permissible investment or the maximum debt premiums or discounts, financing costs
level of particular types of investments, or internal administrative or holding costs.
thereby causing a financial institution to After initial recognition, a financial
dispose of an HTM security; institution shall measure HTM securities at
(v) A significant increase in the their amortized cost using the effective
industry’s regulatory capital requirements interest method.
that causes the financial institution to For this purpose, the effective interest
downsize by selling HTM securities; or method is a method of calculating the
(vi) A significant increase in the risk amortized cost of a security (or group of
weights of HTM securities used for securities) and of allocating the interest
regulatory risk-based capital purposes. income over the relevant period using the
A financial institution does not have a effective interest rate. The effective interest
demonstrated ability to hold to maturity an rate shall refer to the rate that exactly
investment in HTM security if: discounts the estimated future cash receipts
(aa) it does not have the financial through the expected life of the security or
resources available to continue to finance when appropriate, a shorter period to the
the investment until maturity; or net carrying amount of the security. When
(bb) it is subject to an existing legal or calculating the effective interest rate, a
other constraint that could frustrate its financial institution shall estimate cash flows
intention to hold the security to maturity. considering all contractual terms of the
Sales before maturity due to events that security (for example, prepayment, call and
are non-recurring and could not have been similar options) but shall not consider future
reasonably anticipated by the financial credit losses. The calculation includes all
institution such as a run on a bank, likewise fees and points paid to the other party to
satisfy the condition of HTM classification the contract that are an integral part of the
and therefore need not raise a question effective interest rate, transaction costs, and
about the financial institution’s intention all other premiums or discounts. There is a

APP. 33
05.12.31
presumption that the cash flows and the characteristics and collectively assesses
expected life of a group of similar securities them for impairment. HTM securities that
can be estimated reliably. However, in are individually assessed for impairment
those rare cases when it is not possible to and for which an impairment loss is or
estimate reliably the cash flows or the continues to be recognized are not
expected life of a security (or group of included in a collective assessment of
securities), the financial institution shall use impairment.
the contractual cash flows over the full If, in a subsequent period, the amount
contractual terms of the security. of the impairment loss decreases and the
A gain or loss arising from the change decrease can be related objectively to an
in the fair value of the HTM security shall event occurring after the impairment was
be recognized in profit or loss when the recognized (such as an improvement in the
security is derecognized or impaired, and debtor’s credit rating), the previously
through the amortization process. recognized impairment loss shall be
A financial institution shall assess at reversed by adjusting the allowance
each time it prepares its financial statements account. The reversal shall not result in a
whether there is any objective evidence that carrying amount of the security that
an HTM security is impaired. exceeds what the amortized cost would
If there is objective evidence that an have been had the impairment not been
impairment loss on HTM securities has recognized at the date the impairment is
been incurred, the amount of the loss is reversed. The amount of the reversal shall
measured as the difference between the be recognized in profit or loss.
security’s carrying amount and the present b. Securities at Fair Value through
value of estimated future cash flows Profit or Loss – These consist initially of
(excluding future credit losses that have not HFT Securities. HFT are debt and equity
been incurred) discounted at the security’s securities that are:
original effective interest rate (i.e. the (1) acquired principally for the
effective interest rate computed at initial purpose of selling or repurchasing them in
recognition). The carrying amount of the the near term; or
security shall be reduced through the use (2) part of a portfolio of identified
of an allowance account. The amount of securities that are managed together and
the loss shall be recognized in profit or loss. for which there is evidence of a recent
As a practical expedient, a creditor may actual pattern of short-term profit-taking.
measure impairment of HTM securities on For this purpose, a financial institution
the basis of an instrument’s fair value using shall adopt its own definition of short-term
an observable market price. which shall be within a 12-month period.
A financial institution first assesses Said definition which shall be included in
whether objective evidence of impairment its manual of operations, shall be applied
exists individually for HTM securities that and used consistently.
are individually significant, and individually b.1 HFT securities shall be measured
or collectively for HTM securities that are upon initial recognition at their fair value.
not individually significant. If an entity Transaction costs incurred at the
determines that no objective evidence of acquisition of HFT securities shall be
impairment exists for an individually recognized directly in profit or loss. After
assessed HTM security, whether significant initial recognition, a financial institution
or not, it includes the asset in a group of shall measure HFT securities at their fair
HTM securities with similar credit risk values without any deduction for

APP. 33
05.12.31
transaction costs that it may incur on sale AFS security, exchange differences resulting
or other disposal. A gain or loss arising from changes in amortized cost are
from a change in the fair value of HFT recognized in profit or loss and other
securities shall be recognized in profit or changes in carrying amount are recognized
loss under the account “Trading Gain/ directly in equity. For AFS securities that
(Loss)”. are not monetary items (for example, equity
c. Available-for-Sale Securities (AFS). instruments), the gain or loss that is
— These are debt or equity securities that recognized directly in equity includes any
are designated as Available-for-Sale related foreign exchange component.
Securities (AFS) or are not classified/ A financial institution shall assess at each
designated as (a) HTM, (b) Securities at Fair time it prepares its financial statements
Value through Profit or Loss, or (d) whether there is any objective evidence that
Investment in Non-Marketable Equity an AFS security is impaired.
Securities (INMES). When a decline in the fair value of an
c.1 AFS securities shall be measured AFS security has been recognized directly
upon initial recognition at their fair value in equity and there is objective evidence
plus transaction costs that are directly that the asset is impaired, the cumulative
attributable to the acquisition of the loss that had been recognized directly in
securities. After initial recognition, a equity shall be removed from equity and
financial institution shall measure AFS recognized in profit or loss even though the
securities at their fair values, without any security has not been derecognized.
deduction for transaction costs it may incur The amount of the cumulative loss that
on sale or other disposal. A gain or loss is removed from equity and recognized in
arising from a change in the fair value of profit or loss shall be the difference between
an AFS security shall be recognized directly the acquisition cost (net of any principal
in equity under the account “Net repayment and amortization) and current fair
Unrealized Gains/(Losses) on Securities value, less any impairment loss on that security
Available for Sale” and reflected in the previously recognized in profit or loss.
statement of changes in equity, except for Impairment losses recognized in profit
impairment losses and foreign exchange or loss for an investment in an equity
gains and losses, until the security is instrument classified as AFS shall not be
derecognized, at which time the reversed through profit or loss.
cumulative gain or loss previously If, in a subsequent period, the fair value
recognized in equity shall be recognized of a debt instrument classified as AFS
in profit or loss. However, interest increases and the increase can be
calculated using the effective interest objectively related to an event occurring
method is recognized in profit or loss. after the impairment loss was recognized
Dividends on an AFS equity security are in profit or loss, the impairment loss shall
recognized in profit or loss when the be reversed, with the amount of the reversal
financial institution’s right to receive recognized in profit or loss.
payment is established. c.2. Underwriting Accounts (UA)
For the purpose of recognizing foreign shall be a sub-account under AFS. These
exchange gains and losses on a monetary are debt and equity securities purchased
AFS security that is denominated in a which have remained unsold/locked-in
foreign currency, it shall be treated as if it from underwriting ventures on a firm
were carried at amortized cost in the basis. UA account is applicable only to
foreign currency. Accordingly, for such an UBs and IHs.

APP. 33
05.12.31
d. Investments in Non-Marketable all purchases and sale of financial assets

Equity Securities (INMES) - These are equity that belong to the same category.
instruments that do not have a quoted
market price in an active market, and whose Sec. 4. Reclassifications
fair value cannot be reliably measured. a. A financial institution shall not
INMES shall be measured upon initial reclassify a security into or out of the Fair
recognition at its fair value plus transaction Value through Profit Loss category while it
costs that are directly attributable to the is held.
acquisition of the security. After initial b. If, as a result of a change in
recognition, a financial institution shall intention or ability, it is no longer
measure INMES at cost. A gain or loss appropriate to classify a debt security as
arising from the change in fair value of the HTM, it shall be reclassified as AFS and
INMES shall be recognized in profit or loss remeasured at fair value, and the difference
when the security is derecognized or between its carrying amount and fair value
impaired. shall be accounted for in accordance with
A financial institution shall assess each Section 3.c.1.
time it prepares its financial statements c. Whenever sales or
whether there is any objective evidence that reclassifications of more than an
an INMES is impaired. insignificant amount of HTM investments
If there is objective evidence that an do not meet any of the conditions in
impairment loss has been incurred on an Section 3.a, any remaining HTM
INMES, the amount of impairment loss is investments shall be reclassified as AFS.
measured as the difference between the On such reclassification, the difference
carrying amount of the security and the between the carrying amount and fair value
estimated future cash flows discounted at shall be accounted for in accordance with
the current market rate of return for a similar Section 3.c.1.
financial instrument. Such impairment loss d. If a reliable measure becomes
shall not be reversed. available for an INMES, it shall be
For Securities at Fair Value through reclassified as AFS and remeasured at fair
Profit or Loss and AFS, a financial institution value, and the difference between its
is required to book the mark-to-market carrying amount and the fair value shall
valuation on a daily basis. However, a be accounted for in accordance with
financial institution may opt to book the Section 3.c.1.
mark-to-market valuation every end of the e. If, as a result of a change in
month: Provided, That an adequate intention or ability, or because the two (2)
mechanism is in place to determine the daily preceding financial years’ referred to in
fair values of securities. Section 3.a have passed, it becomes
A financial institution shall recognize an appropriate to carry the debt security at
investment in debt or equity security on its amortized cost (i.e, HTM) rather than at fair
balance sheet when, and only when, the value (i.e, AFS), the fair value carrying
financial institution becomes a party to the amount of the security on that date
contractual provisions of the financial becomes its new amortized cost. Any
instrument. A regular way purchase or sale previous gain or loss on that debt security
of financial assets shall be recognized and that has been recognized directly in equity
derecognized, as applicable using trade date in accordance with Section 3.c.1 shall be
accounting or settlement date accounting. amortized to profit or loss over the
The method used is applied consistently for remaining life of the HTM using the

APP. 33
05.12.31
effective interest method. Any difference c. the financial institution, for

between the new amortized cost and economic or legal reasons relating to the
maturity amount shall also be amortized issuer’s financial difficulty, granting to the
over the remaining life of the security using issuer a concession that the financial
the effective interest method, similar to the institution would not otherwise consider;
amortization of a premium and a discount. d. it becoming probable that the issuer
If the security is subsequently impaired, any will enter bankruptcy or other financial
gain or loss that has been recognized reorganization;
directly in equity is recognized in profit or e. the disappearance of an active
loss in accordance with Section 3.c.1. market for that security because of financial
f. If, in the rare circumstance that a difficulties; or
reliable measure of fair value is no longer f. observable data indicating that there
available, it becomes appropriate to carry is a measurable decrease in the estimated
the equity security at cost (i.e, INMES) rather future cash flows from a portfolio of
than at fair value (i.e, AFS), the fair value securities since the initial recognition of
carrying amount of the security on that date those assets, although the decrease cannot
becomes its new cost. Any previous gain yet be identified with the individual
or loss on that equity security that has been securities in the portfolio, including:
recognized directly in equity in accordance (1) adverse change in the payment
with Section 3.c.1 shall remain in equity status of issuers in the portfolio; or
until the security is sold or otherwise (2) national or local economic
disposed of, when it shall be recognized in conditions that correlate with defaults on the
profit or loss. If the financial asset is securities in the portfolio.
subsequently impaired, any previous gain The disappearance of an active market
or loss that has been recognized directly in because a financial institution’s held
equity is recognized in profit or loss in securities are no longer publicly traded is
accordance with Section 3.c.1. not evidence of impairment. A downgrade
of an issuer’s credit rating is not, of itself,
Sec. 5. Impairment. A debt or equity evidence of impairment, although it may be
security is impaired and impairment losses evidence of impairment when considered
are incurred if, and only if, there is objective with other available information. A decline
evidence of impairment as a result of event in the fair value of a security below its cost
that occurred after the initial recognition of or amortized cost is not necessarily evidence
the security (a “loss event”) and that loss of impairment (for example, a decline in fair
event has impact on the estimated future value of an investment in debt security that
cash flows of the securities. Losses expected results from an increase in the risk free
as a result of future events, no matter how interest rate).
likely, are not recognized. Objective In addition to the types of events
evidence that the security is impaired enumerated in Items “a” to “f” in this
includes observable data that comes to Section, objective evidence of impairment
the attention of the holder of the security for an investment in an equity instrument
about the following loss events: includes information about significant
a. significant financial difficulty of the changes with an adverse effect that have
issuer or obligor; taken place in the technological, market,
b. a breach of contract, such as a economic or legal environment in which the
default or delinquency in interest or issuer operates and indicates that the cost
principal payments; of the investment in the equity instrument

APP. 33
05.12.31
may not be recovered. A significant or Sec. 6. Operations Manual. The financial

prolonged decline in the fair value of an institution shall maintain an operations
investment in an equity security below its manual for booking and valuation of HTM,
cost is also objective evidence of Securities at Fair Value through Profit or
impairment. Loss, AFS and INMES.

APP. 33a
05.12.31
ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND

COMPUTATION METHOD USED TO MARK-TO MARKET DEBT
AND MARKETABLE EQUITY SECURITIES
General Principle
As a general rule, to the extent a credible market pricing mechanism as determined by the
Bangko Sentral ng Pilipinas (BSP) exists for a given security, that market price shall be the
basis of mark-to-market. However, in the absence of a market price, a calculated price
shall be used as prescribed herein.
A financial institution may also be allowed, subject to the approval of the Deputy
Governor, Supervision and Examination Sector, BSP, to use its own system for marking-to-
market its securities holdings: Provided, That this can be shown to be sufficiently transparent,
objective, reliable and consistent. The system should be approved by the financial institution’s
board of directors (or equivalent management committee in the case of foreign bank branches).
The model should be vetted by the financial institution’s risk management group, internal
audit group and systems group, properly documented and such documentation available
for review by external auditors and the BSP.
Mark-to-Market Guidelines
To ensure consistency, the following shall be used as bases in marking-to-market debt

and equity securities:
Type of Security Market Price Basis
A. Equity Securities Listed in the Stock Exchange
1. Traded in the Philippines Same day closing price as quoted at the

Philippine Stock Exchange. In case of halt
trading/suspension or holidays, use the last
available closing price.
2. Traded Abroad Latest available closing price from the

exchange where the securities are traded.
B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems

(Bloomberg, Reuters, Bridge)
1. US Treasuries Price as of end of day, Manila time.

APP. 33a
05.12.31
2. US Agency papers such as Latest available price for the day, Manila
Fannie Maes, Freddie Macs, time. In the absence of a price, use average
Ginnie Maes, Municipal papers quotes of at least three (3) regular
brokers/market makers.*
3. Brady Bonds Same as B.2.
4. For all US$-denominated government Same as B.2.

and corporate securitites
5. Other foreign-currency securities Same as B.2.
C. Peso-Denominated Government Securities
1. Short – term Domestic Price as of end of day. Use the following

Government Securities sources as discount rate/yield to maturity:
a) Weighted average dealt rate for the day.
b) In the absence of a same day dealt rate,
use end of day indicative mid rate between
best bid and best offer.
c) In the absence of a same day indicative
mid rate, use end of day best bid rate.
2. Long-term Domestic Same as C.1.

Government Securities
D. Peso-Denominated Private Debt Securities
1. Short-term securities Prices computed using the corresponding

government security benchmark + short-
term risk premium
2. Long-term Fixed Rate Securities Prices computed using the corresponding

government security benchmark + long-
term risk premium
* Based on done rates if available. If done rates are not available, use the mid rate between bid and offer. If no mid rates are
available, use the bid rate.
Appendix 33a - Page 2 Manual of Regulations for Banks

APP. 33a
05.12.31
3. Long-Term Securities - Floaters Prices computed using the corresponding

government security benchmark based on
the reset period + risk premium. (Please refer
to Technical Annex for pricing formula.)
All the risk premia mentioned under Section D shall be recommended by a Risk
Assessment Committee (RAC) and updated regularly. The RAC shall be convened by the
Bankers Association of the Philippines (BAP) and composed of representatives from the
BAP, Investment House Association of the Philippines (IHAP), Money Market Association
of the Philippines (MART), rating agencies and the BSP.
Other Guidelines
In pricing debt securities, interpolated yields shall be used for securities with odd tenors.
The mark-to-market rules prescribed for securities from Sections A to C (Equity Securities
Listed in the Stock Exchange, Foreign Currency-Denominated Debt Securities Quoted in
Major Information Systems and Peso-Denominated Government Securities) shall take effect
on 01 April 2001. The effectivity date of the mark-to-market rules prescribed for securities
covered under Section D (Peso-Denominated Private Debt Securities) shall be announced
later.
Technical Annex:
Valuation of Floaters Formula:
n
Net price = C1 +Σ C + MV - MVxCpn x (1-Wht) x A
[1+Yld x (1-Wht) DSC/E n-2[1 + Yld x (1-Wht) n-1+DSC/E (1 +Yld x (1-Wht) N-1+DSC/E 360
F F F
Known Flow Unknown Flows Principal Accrued
Where:
C1 = MV x Cpn x (1-Wht) x E/360
E = No. of days in a coupon period
A = No. of accrued days
DSC = No. of days from valuation date to next coupon date (DSC=E-A)
F = No. of payments per year
N = No. of coupon periods between valuation date and maturity date
C = (Use the prevailing rate of the floating rate index + spread) x (1-Wht) x MV x E/360
MV = Par value
Cpn = Current Coupon Rate
Yld = Corresponding government security benchmark based on reset or repricing +
long-term risk premium (gross)
Wht = Withholding tax

APP. 34
05.12.31
GUIDELINES ON THE USE OF SCRIPLESS (RoSS) SECURITIES

AS SECURITY DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES
(Appendix to Sec. X405 and X415)
Definition of Terms and Acronyms Financial Institutions in the case of thrift

banks, supervised by BSP.
Scripless securities and RoSS securities
- refers to uncertificated securities issued A. Basic Requirements
by the Bureau of Treasury (BTr) that are 1. The BSP-SES shall file with BTr an
under the BTr’s Registry of Scripless application to open a RoSS Principal
Securities Securities Account where RoSS securities
of trust institutions used as security deposit
Trust institution - refers to a bank that for trust duties shall be held. BSP-SES shall
is authorized to engage in trust business use Annex 1 for this purpose.
2. Using Annex 1-A, BSP-SES shall
BTr - Bureau of Treasury also apply for a Client Securities Account
(sub-account) for each trust institution under
RoSS - Registry of Scripless Securities its RoSS Principal Securities Account to
enable BSP-SES to keep track of the
BSP - Bangko Sentral ng Pilipinas security deposit. BTr shall maintain Client
Securities Accounts for P1,000 each
BSP-SES - Supervision and Examination month per account.
Sector of BSP 3. A trust institution which has a DDA
with BSP-Comptrollership shall act as its
SRSO - Supervisory Reports and Studies own settlement bank.
Office of BSP-SES A trust institution which does not have
a DDA with the BSP-Comptrollership
BSP-Comptrollership - Accounting shall designate a settlement bank which
Department of BSP will act as conduit for transferring securities
for trust duties to the BSP-SES account and
GSED - Government Securities Eligible for paying interest, interest coupons and
Dealer of the BTr redemption proceeds. The trust institution
shall inform the appropriate SED of the BSP
DDA - refers to the regular demand of the designation of a settlement bank.
deposit account of a bank with BSP- 4. Each trust institution shall
Comptrollership accomplish an Autodebit/Autocredit
Authorization for its client securities
MOR - Manual of Regulations for Banks account under the BSP-SES RoSS account.
The document will authorize the BTr and
Appropriate supervising and examining the BSP to credit the DDA of the trust
department or responsible SED - refers to institution with BSP-Accounting for
the Department of Commercial Banks I in coupons/interest payments on securities in
the case of EKBs; or the Department of the BSP-SES RoSS accounts and to debit
Commercial Banks II in the case of non- the DDA for the monthly fees payable to
EKBs and branches of foreign banks; or the BTr for maintaining its client securities
Department of Thrift Banks and Non-Bank accounts with BSP-SES. It will also

APP. 34
05.12.31
authorize the BTR and BSP to credit the Trust institutions may be required to
deposit account of BSP-SES with BSP- reimburse BSP-SES for whatever expenses
Comptrollership for the redemption that may be incurred in connection with
proceeds of securities that mature while in the subscription.
the BSP-SES RoSS account. 8. Every trust institution must ensure
A trust institution with a DDA with BSP- that it has adequate security deposit for
Comptrollership shall use Annex 2-A trust duties pursuant to the provisions of
while a trust institution with a settlement Subsecs. X405.1, X405.2, X405.3 and
arrangement shall use Annex 2-B. X405.4 of the MOR.
5. BSP-SES shall open a deposit 9. BTr shall provide BSP-SES with
account with BSP-Comptrollership where the end-of-day transaction report whenever
the redemption value of securities shall be a transaction in any client securities
credited, in the event such securities account is made. BTr shall also provide
mature while lodged in the RoSS account BSP-SES a monthly report of balances of
of BSP-SES. each client securities account.
6. SRSO shall be responsible for 10. Every quarter, the responsible SED
keeping track of the deposit and of BSP-SES shall determine, based on the
withdrawal of securities held under the Report of Trust and Other Fiduciary
BSP-SES Principal Securities Account and Business and Investment Management
the Client Securities Accounts of the trust Activities (CBP 7-16-35TR) submitted by
institutions. SRSO shall instruct BTr to the trust institution, whether or not the trust
transfer securities out of the BSP-SES institution’s security deposit for trust
account and the corresponding client duties is sufficient pursuant to the provision
securities accounts of trust institutions only of the MOR mentioned above. In case of
after receiving authorization from the deficiency, the department shall
Director (or in his absence, the designated recommend the imposition of sanctions
alternate officer) of the appropriate SED of and/or any other appropriate action to
SES. higher authorities.
SRSO shall also be responsible for
keeping track of the BSP-SES deposit B. Procedures for Assigning RoSS
account with the BSP-Comptrollership Securities as Security Deposit for Trust
representing credits for the redemption Duties
value of security deposit of trust institutions 1. The trust institution shall advise the
that have matured while in the RoSS account appropriate BSP-SES department that it will
of BSP-SES. SRSO shall maintain sub- transfer RoSS securities to BSP-SES. The
accounts for each trust institution for the advise should be received by the BSP-SES
purpose. SRSO shall instruct BSP- at least two (2) banking days before the date
Comptrollership to transfer balances out of of transfer using the prescribed form
the deposit account and the corresponding (Annex 3) and checking Box “b” of said form.
sub-account of the trust institution only after (Box “a” shall be checked by a new trust
receiving authorization from the Director institution that is making an initial security
(or in his absence, the designated alternate deposit pursuant to Subsec. X404.2 of the
officer) of the appropriate SED of SES. MOR.) The advice should be sent by cc mail
7. BSP-SES shall subscribe to the or by fax to be followed by an official letter
Telerate electronic trading system which is duly signed by an authorized trust officer.
linked to BTr’s RoSS and cause the 2. The trust institution shall
installation of a Telerate terminal at SRSO. electronically instruct BTr to transfer

APP. 34
05.12.31
securities from its own RoSS accounts to securities from its own RoSS account to
the BSP-SES RoSS and its corresponding the BSP-SES RoSS accounts and its
Client Securities Account on the specified corresponding Client Securities Account on
date. In the case of a trust institution with a the specified date. In the case of a trust
settlement arrangement, the instruction institution with a settlement arrangement,
shall be coursed through the settlement the instruction shall be coursed through
bank and the securities shall come from the settlement bank and the securities shall
the RoSS account of the same bank. come from the RoSS account of the same
3. BTr shall effect the transfer upon bank.
verification of RoSS balances. At the end of 4. BTr shall effect the transfer upon
the day, BTr shall transmit a transaction verification of RoSS balances. At the end of
report to SRSO containing the transfer. the day, BTr shall transmit a transaction
4. SRSO shall provide the appropriate report to SRSO containing the transfer.
BSP-SES department a copy of the report. 5. SRSO shall immediately provide the
5. The BSP-SES department concerned appropriate BSP-SES department a copy
shall check from the report whether BTr of the report.
effected the transfer indicated in the advice 6. The BSP-SES department concerned
(Annex 3) sent earlier by the trust shall immediately check from the report
institution. whether the securities transferred to the
BSP-SES account are the same securities
C. Procedures for Replacing RoSS described in the advice (Annex 3) sent
Securities earlier. If in order, the Director (or in his
1. The trust institution shall advise the absence, the designated alternate officer)
appropriate SED of BSP-SES that it will of the department concerned shall
replace existing RoSS securities assigned authorize SRSO to instruct BTr to transfer
as security deposit. The advise should be the securities specified to be withdrawn
received by the BSP-SES at least two (2) from the BSP-SES account to the trust
banking days before the date of replacement institution’s (or the settlement bank’s) RoSS
using the prescribed form (Annex 3). The account. The Department concerned shall
trust institution shall check Box “c” of the use Annex 5 and check Boxes “a” and “d”.
form and indicate the details of the Should there be any discrepancy, the
securities to be withdrawn. The advice department shall inform the trust institution
should be sent by cc mail or by fax to be immediately. The authority to allow the
followed by an official letter duly signed withdrawal should be transmitted to SRSO
by an authorized trust officer. not later than the day after the replacement
2. The responsible BSP-SES department securities were transferred to the BSP-SES
shall verify whether the securities to be account.
replaced are in the RoSS account of BSP- The BSP-SES department concerned
SES and the sub-account of the trust shall also advise the trust institution that it
institution and whether the book value of has approved the replacement of security
the securities to be deposited is equal to or deposit by using Annex 6 and checking
greater than those to be withdrawn. The Boxes “a” and “d” and the appropriate box
department concerned shall immediately under “d” depending on whether or not the
communicate with the trust institution in trust institution has a settlement
case of a discrepancy. arrangement.
3. The trust institution shall 7. On the same day, SRSO shall
electronically instruct BTr to transfer instruct BTr to transfer the securities

APP. 34
05.12.31
specified to be withdrawn from the BSP-SES transmitted to SRSO not later than the date
account to the RoSS account of the trust of the withdrawal indicated in the advice
institution (or its settlement bank). (Annex 4) sent earlier by the trust institution.
8. BTr shall effect the transfer/ The BSP-SES department concerned
withdrawal. At the end of the day, BTr shall shall also advise the trust institution that it
send a report to SRSO containing the has approved the withdrawal of security
transfer/withdrawal. deposit by using Annex 6 and checking
9. SRSO shall provide the appropriate Boxes “b” and “d” and the appropriate box
BSP-SES department a copy of the report. under “d” depending on whether or not the
10. The responsible BSP-SES department trust institution has a settlement
shall check from the report whether BTr arrangement.
effected the transfer/withdrawal. 3. On the same date, SRSO shall
instruct BTr to transfer the securities
D. Procedures for Withdrawing RoSS specified to be withdrawn from the BSP-SES
Securities account to the RoSS account of the trust
1. The trust institution shall advise institution (or its settlement bank).
the appropriate BSP-SES department that it 4. BTr shall effect the transfer/
will withdraw existing RoSS securities withdrawal. At the end of the day, BTr shall
assigned as security deposit. The advice send to SRSO a report which contains the
should be received by the BSP-SES at least transfer/withdrawal.
two (2) banking days before the date of 5. SRSO shall provide the appropriate
withdrawal using the prescribed form BSP-SES department a copy of the report.
(Annex 4) and indicating therein details of 6. The BSP-SES department concerned
the securities to be withdrawn. The advice shall check from the report whether BTr
should be sent by cc mail or by fax to be effected the withdrawal stated in the
followed by an official letter duly signed by advice (Annex 4) sent earlier by the trust
an authorized trust officer. institution.
2. The responsible BSP-SES department
shall verify whether the securities to be E. Procedures for Crediting Interest
withdrawn are in the RoSS account of BSP- Coupon Payments
SES and the Client Securities Account of the On coupon or interest payment date,
trust institution. The department shall also BTr shall instruct BSP-Comptrollership to
determine whether the amount of remaining credit the DDA of trust institutions or their
security deposit will still be adequate in spite designated settlement banks for coupon/
of the proposed withdrawal. If in order, the interest payment of securities held under
Director (or in his absence, the designated the RoSS account of BSP-SES.
alternate officer) of the department
concerned shall authorize SRSO to instruct F. Procedures for Crediting and
BTr to transfer the securities specified to be Withdrawing the Redemption Value of
withdrawn from the BSP-SES account to the Matured Securities That are in the BSP-SES
trust institution’s own RoSS account (or its RoSS Account
settlement bank). The Department 1. On maturity date, BTr shall instruct
concerned shall use Annex 5 and check BSP-Comptrollership to credit the deposit
Boxes “b” and “d”. Should there be any account of BSP-SES with BSP-
discrepancy, the department shall inform the Comptrollership for the redemption value
trust institution immediately. The authority of securities that mature while held as security
to allow the withdrawal should be deposit in the RoSS account of BSP-SES.

APP. 34
05.12.31
2. BTr shall send to SRSO a copy of 8. SRSO shall provide the appropriate
the credit advice. BSP-SES department a copy of the report.
3. SRSO shall immediately provide the 9. The BSP-SES department concerned
appropriate BSP-SES department a copy of shall immediately check from the report
the credit advice. whether the securities transferred to the
4. The responsible BSP-SES department BSP-SES account are the same securities
shall immediately inform the trust described in the advice (Annex 3) sent earlier
institution concerned of the cash credit and by the trust institution. If in order, the
shall inquire whether the trust institution Director (or in his absence, the designated
intends to transfer securities to the RoSS alternate officer) of the Department shall
account of the BSP-SES to replace the direct the SRSO to instruct BSP-Accounting
matured securities. Department to debit the BSP-SES deposit
5. The trust institution shall advise the account and transfer the funds to the DDA
appropriate BSP-SES department that it will of the trust institution (or its designated
transfer RoSS securities to BSP-SES in place settlement bank). The Department
of the cash credited to the deposit account concerned shall use Annex 5 and check
of BSP-SES with BSP-Comptrollership for Boxes “c” and “e”.
matured securities. The trust institution shall The BSP-SES department concerned shall
check Box “d” of the prescribed form (Annex also advise the trust institution that it has
3). The concerned department shall approved the replacement of matured
determine if the book value of the securities securities by using Annex 6 and checking
to be transferred is equal to or greater than Boxes “c” and “e” and the appropriate box
the cash credit. under “e” depending on whether or not the
6. The trust institution shall trust institution has a settlement
electronically instruct BTr to transfer arrangement.
securities from its own RoSS accounts to 10. SRSO shall direct BSP-Accounting to
the BSP-SES RoSS account and its debit the BSP-SES deposit account and
corresponding Client Securities Account on credit the same amount to the DDA of the
the specified date. In the case of a trust trust institution (or its designated settlement
institution with a settlement arrangement, the bank) using Annex 7.
instruction shall be coursed through the 11. BSP-Accounting shall effect the
settlement bank and the securities shall come transaction and send a copy of the debit
from the RoSS account of the same bank. advice to SRSO and a copy of the credit
7. BTr shall effect the transfer upon advice to the trust institution (or the
verification of RoSS balances. At the end designated settlement bank).
of the day, BTr shall send a report to SRSO 12. SRSO shall send a copy of the debit
containing the transfer. advice to the SES department concerned.

APP. 34
05.12.31
Annex 1
SUPERVISION AND EXAMINATION SECTOR
(Date)
______________________
Treasurer of the Philippines
Bureau of Treasury
Palacio del Gobernador
Intramuros, Manila
Attention: Registry of Scripless Securities (RoSS)
Dear ________________________:
The Supervision and Examination Sector of the Bangko Sentral ng Pilipinas (BSP-
SES) hereby makes an application to open a Principal Securities Account in the Registry of
Scripless Securities (RoSS) for the purpose of holding the security deposit for the faithful
performance of trust duties of institutions engaged in trust business pursuant to Section 65
of R.A. No. 337, as amended.
We understand that the Bureau of Treasury shall maintain the Principal Securities
Account of BSP-SES for free.
Very truly yours,
______________________
Deputy Governor

APP. 34
05.12.31
Annex 1-A
SUPERVISION AND EXAMINATION SECTOR
(Date)
______________________
Treasurer of the Philippines
Bureau of Treasury
Palacio del Gobernador
Intramuros, Manila
Attention: Registry of Scripless Securities (RoSS)
Dear Ms. _________________________
In connection with the Principal Securities Account of BSP-SES in the Registry of

Scripless Securities (RoSS), please open Client Securities Account for the following trust
institutions so we can keep track of their security deposit for the faithful performance of trust
duties. Please note that the settlement bank of the institution, if it is required, is also indicated.
Name of Trust Institution Name of Settlement Bank, where required

1. ______________________________ _________________________________
2. ______________________________ _________________________________
3. _______________________________ _________________________________
We understand that the Bureau of Treasury will maintain the Client Securities Account
for P1,000 per month per account.
Very truly yours,
___________________________
Authorized Signatory

APP. 34
05.12.31
Annex 2-A
To be used by a trust institution with own demand deposit account with BSP-Comptrollership
Letterhead of Trust Institution
AUTODEBIT/AUTOCREDIT AUTHORIZATION
The (name of bank) hereby authorizes the Bureau of Treasury

(BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account
with BSP-Comptrollership for coupons/interest payment of our securities in the BSP-SES RoSS
accounts; and to settle the payment of monthly maintenance fees to BTr of our client securities
account under the BSP-SES RoSS account. We also authorize the BTr and the BSP to credit
the Account of BSP-SES with BSP-Comptrollership for the redemption proceeds of our securities
in the event such securities mature while in the RoSS account of BSP-SES.
This authorization will take effect on (indicate date) .
____________________________
(Authorized Signatory)

APP. 34
05.12.31
Annex 2-B
To be used by a trust institution with settlement arrangement with a bank
AUTO DEBIT/AUTOCREDIT AUTHORIZATION
The (name of settlement bank) for the account

of (name of trust institution) hereby authorizes the Bureau of Treasury (BTr) and the
Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-
Comptrollership for coupons/interest payment of securities of the trust institution in the BSP-
SES RoSS accounts; for maturing securities of the trust institution held in our RoSS Principal
Securities Account with BTr; and to settle the payment of monthly maintenance fees to BTr of
our client securities account under the BSP-SES RoSS account.
The (name of trust institution) also authorizes the BTr and the BSP to credit the
Account of BSP-SES with BSP-Comptrollership for the redemption proceeds of our securi-
ties in the event such securities mature while in the RoSS account of BSP-SES.
This authorization will take effect on (indicate date) .
___________________________________
(Authorized Signatory of Settlement Bank)
___________________________________
(Authorized Signatory of Trust Institution)

APP. 34
05.12.31
Annex 3
Date:
The Director
SED I/SED II/SED III/SED IV
A. Mabini St., Manila
Dear Sir:
We are transferring on (indicate date of transfer) the following securities to your Principal
Securities Account and our Client Securities Account (sub-account) as our security deposit
for the faithful performance of trust duties pursuant to Section 65 of R.A. No. 337, as amended.
Purchase Issue Due Remaining Face Purchase

Type ISIN Date Date Date Tenor a/ Amount Price
We are transferring the above securities:

a. As our initial deposit
b. As an additional security deposit
c. To replace the following securities which we deposited on (date) .

d. To replace matured securities the redemption value of which P ______________

is credited to the deposit account of BSP-SES with BSP-Comptrollership.
Very truly yours,
________________________________________
Name and Designation of Authorized Signatory
a/ Reckoned from actual date of transfer/withdrawal.

APP. 34
05.12.31
Annex 4
Date:
The Director
SED I/SED II/SED III/SED IV/SED V
A. Mabini St., Manila
Dear Sir:
We wish to withdraw on (indicate date of transfer) the following securities used as

security deposit for the faithful performance of trust duties from the Principal Securities
Account and from our corresponding Client Securities Account (sub-account).

Very truly yours,
________________________________________
Name and Designation of Authorized Signatory

APP. 34
05.12.31
Annex 5
MEMORANDUM
SED I/SED II/SED III/ SED IV
For : The Director

Supervisory Reports and Studies Office
From : The Director
Subject : Scripless Securities Used As Deposit for Trust Duties
Date :
In connection with the request of (indicate name of trust institution) dated _______ to:
a. Replace outstanding RoSS securities

b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities
you are hereby authorized to:
d. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES
RoSS accounts to the RoSS Principal Securities Account of (indicate name of trust
institution or, where applicable, the name of its settlement bank)

e. Instruct BSP-Comptrollership to debit the BSP-SES deposit account in the amount of

P_____________ and to transfer said amount to the demand deposit account of (indicate
name of trust institution or, where applicable, the name of its designated
settlement bank).
________________________

APP. 34
05.12.31
Annex 6
SED I/SED II/SED III/SED IV
(Date)
-----------------------------------
(Name of Trust Institution)

--------------------------------------------------
(Address)
--------------------------------------------------
Subject: Scripless Securities Used As Deposit for Trust Duties
Dear Mr. _______________:
We are pleased to inform you that we have approved your request dated ___________ to:
a. Replace outstanding RoSS securities

b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities.
Accordingly, we have authorized the Supervisory Reports and Studies Office to:
d. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES
RoSS accounts to -
the RoSS Principal Securities Account

your settlement bank’s RoSS Principal Securities Account, the securities
described in your request.
e. Instruct BSP-Comptrollership to debit the BSP-SES deposit account in the amount of

P_______ and to credit said amount to -
your demand deposit account with BSP-Comptrollership

your settlement bank’s demand deposit account with BSP-Comptrollership
Very truly yours,
________________________________

APP. 35
05.12.31
PROFORMA PAYMENT FORM

PAYMENT FORM - (Department Name)
Date _________________
The Director
Cash Department
Vito Cruz, Cor. Mabini, Manila
Sir:
Attached is _______________________________ _____________ _________
(Bank) (Check/DD/CC) Number
in the amount of P _____________ as payment for:
AMOUNT
1. LEGAL RESERVE ____________
2. CB:IBRD LOAN/LC:STD
BORROWER’S NAME PRINCIPAL INTEREST PENALTY
___________________ _________ ________ ________
___________________ _________ ________ ________
___________________ _________ ________ ________
___________________ _________ ________ ________
Total _________ ________ ________ ____________
Excess/deficiency will be credited/debited to the bank's Demand Deposit account with BSP.
3. CASH DIVIDENDS ON PREFERRED SHARES

YEAR AMOUNT
_________ __________
_________ __________ _____________
4. REDEMPTION OF PREFERRED SHARES AMOUNT

__________
__________ ______________
5. SUPERVISORY FEES YEAR AMOUNT

_________ __________
_________ __________ _____________
6. FINES/PENALTIES
NATURE PERIOD COVERED AMOUNT
a) Late reporting _______________ __________
b) Reserve deficiency _______________ __________
c) SBL _______________ __________
d) Others (Specify) _______________ __________ _____________
TOTAL _____________
_____________________________
Signature Over Printed Name
Position

APP. 36
05.12.31
SUGGESTED GESTATION/GRACE PERIODS FOR

AGRICULTURE AND FISHERIES PROJECTS
SUGGESTED
MAXIMUM
PROJECT GESTATION GRACE PERIOD
(Years) (Years)
A. Crops
Abaca 4-6 5
Blackpepper 3-4 4
Cacao 4-6 5
Calamansi 4-6 6
Cashew 5 5
Coconut 7-8 7
Coffee 3-4 4
Durian 5-7 7
Lanzones 6-8 7
Mango 5-7 7
Mangosteen 6-8 7
Pomelo 5-7 7
Rambutan 6-7 5
Rubber 5-7 7
Palm Oil 4-6 7
Pili 6-8 7
Jackfruit 5-7 7
Others a
B. Livestock will depend on the cash flow

C. Poultry or type of project, up to a
D. Fisheries maximum of seven (7) years
Note: Cash Flows/Cost and Return Analysis for these projects are available at the Agribusiness and
Marketing Assistance Service, Department of Agriculture.
a
Others - other crops/projects as may be determined by the Department of Agriculture through the Agricultural Credit Policy
Council which may include industrial tree crops planted in private lands and used for intercropping purposes.

APP. 37
05.12.31
BASIC GUIDELINES IN ESTABLISHING BANKS

A. GUIDING PRINCIPLE affidavit of two (2) disinterested/unrelated

The new banking organization must persons stating, among other things, the
have suitable shareholders, adequate date and place of the subject’s birth and
financial strength, a legal structure in line the names of his parents and their
with its operational structure, and a citizenship at the time of the subject’s birth;
management with sufficient expertise and or
integrity to operate the bank in a sound and (2) In case of a naturalized citizen of
prudent manner. Where the proposed the Philippines, the naturalization
owner or parent organization is a foreign certificate, certificate of registration thereof
bank, the prior consent of its home country with the civil registrar and other pertinent
supervisor should be obtained. papers; or
(3) In the absence of the above-
B. THE APPLICATION mentioned documents, a photocopy of the
1. The application for authority to establish passport (with original to be presented for
a bank shall be accomplished in triplicate. verification).
The original copy and duplicate copy shall d. Statement of assets and liabilities
be submitted to the Supervisory Reports as of a date not earlier than ninety (90) days
and Studies Office (SRSO), BSP. The third prior to the filing of application of each of
copy shall be retained by the organizers. the subscribers, sworn to by the subscriber
2. The required papers/documents and himself and duly notarized, or certified by
other information in support of the a Certified Public Accountant (CPA), with
application are, as follows: supporting schedules showing the
a. Agreement to organize a bank. following information:
b. Accomplished bio-data sheet of (1) In the case of cash in banks: (a)
each of the incorporators, proposed name of depository bank, (b) nature of
directors and officers, and subscribers. deposit, and (c) amount of deposit with
c. Evidence of Filipino citizenship of each bank as of balance sheet date;
each of the incorporators, proposed (2) In the case of securities: (a) name
directors and officers, and subscribers if he/ and address of issuing corporation/entity,
she claims to be a Filipino citizen: (b) number of shares owned as of balance
(1) In case of a natural-born Filipino sheet date, (c) par value, (d) date and cost
citizen, original or certified true copy of of acquisition, and (e) information as to
birth certificate from issuing office. In case whether the securities are actively traded
the birth certificate cannot be produced by in the stock market and, if so, their current
reason of destruction or otherwise, an market price;
affidavit to that effect by the civil registrar (3) In the case of land: (a) description
concerned should be submitted (agricultural, etc.), (b) area, (c) location, (d)
accompanied by an affidavit by the date and cost of acquisition, (e) transfer
incorporator, director, officer or subscriber certificate of title or tax declaration
himself stating, among other things, the number, (f) amount of encumbrance or
date and place of his birth and the names lien, if any, (g) assessed value, and (h)
of his parents and their citizenship at the current market value (state basis of
time of the affiant’s birth; and joint valuation);

APP. 37
05.12.31
(4) In the case of real estate (4) List of major stockholders,

improvements: (a) description of indicating the citizenship and the number,
improvement (residential house, etc.), (b) amount and percentage of the voting and
location, (c) date and cost of acquisition/- non-voting shares held by them;
construction, (d) assessed value, and (e) (5) A copy of the corporation’s audited
current market value (state basis of financial statements for the last two (2) years
valuation); prior to the filing of application;
(5) In the case of accounts receivable, (6) A copy of the corporation’s annual
state the name and address of each debtor report to the stockholders for the year
and the amount due from each; and immediately preceding the date of filing
(6) In the case of accounts payable or of application;
other liabilities, state the name and address (7) Certified photocopies of ITRs for
of each creditor and the amount owed to the last two (2) calendar years; and
each. (8) BIR clearance.
(Evidences of asset ownership such as i. For foreign bank subscribers:
bank certification/statement, savings (1) A copy of the board resolution
passbook, certificate of time deposit, bond authorizing the bank to invest in a bank in
or stock certificate, transfer certificate of the Philippines, and designating the person
title, tax declaration, etc. and waiver of who will represent the bank in connection
rights under R. A. No. 1405, as amended, therewith;
shall be submitted/presented for (2) Historical background of the bank,
verification). as follows:
e. Statement of income and expense for (a) Date and place of incorporation;
the last three (3) calendar years of each of (b) List of domestic branches,
the subscribers, sworn to by the subscriber agencies, other offices, subsidiaries
himself and duly notarized, or certified by a and affiliates and their line of
CPA. business (if different from banking)
f. Certified photocopies of Income in the home country;
Tax Returns (ITRs) for the last three (3) (c) List of foreign branches, agencies,
calendar years of each of the incorporators, other offices, subsidiaries and
proposed directors and officers, and affiliates, and their location and line
subscribers. of business (if different from
g. Clearances from the National banking);
Bureau of Investigation (NBI) and Bureau (d) Range of banking services offered;
of Internal Revenue (BIR) of each of the and
incorporators, proposed directors and (e) Financial and commercial
officers, and subscribers. relationship with the Philippine
h. For corporate subscribers: government, local banks, business
(1) Copy of the board resolution entities and residents, past or
authorizing the corporation to invest in present;
such bank; and designating the person who (3) A copy each of the bank’s latest
will represent the corporation in connection amended articles of incorporation and by-
therewith; laws;
(2) Copy of the latest articles of (4) List of the bank’s directors and their
incorporation and by-laws; citizenships;
(3) List of directors and principal (5) List of principal officers of the
officers; bank’s head office;

APP. 37
05.12.31
(6) List of major stockholders, 3. The application shall be considered

indicating the citizenship and the number, filed on a first-come, first-served basis:
amount and percentage of the voting and Provided, That all the required documents
non-voting shares held by them; are complete and properly accomplished.
(7) A copy of the bank’s audited 4. Pursuant to Section 26 of R. A. No.
financial statements for the last two (2) 7653, approval of application shall be
years prior to the filing of application; subject, among others, to the waiver of
(8) A copy of the bank’s annual report secrecy of deposits under Sec. X338.
to the stockholders for the year 5. Prescribed application form, together
immediately preceding the date of filing with other forms, is available at the Studies
of application; and and Chartering Group, SRSO.
(9) A certification from the bank’s
home country supervisory authority that C. CAPITAL REQUIREMENT/
the bank’s home country supervisory STOCKHOLDINGS
authority has no objection to the bank’s 1. Banks to be established shall comply
investment in a bank in the Philippines, with the required minimum capital
and that adequate information on the bank prescribed under Subsec. X106.1 or as
and its subsidiaries will be provided to the may be prescribed by the Monetary Board.
BSP to the extent allowed under existing 2. At least twenty-five percent (25%) of
laws. the total authorized capital stock shall be
j. Detailed plan of operation and subscribed by the subscribers of the
economic justification for establishing the proposed bank, and at least twenty-five
bank. (The plan of operation should percent (25%) of such subscription shall be
describe and analyze the market area paid-up: Provided, That in no case shall the
from which the bank expects to draw the paid-up capital be less than the minimum
majority of its business and establish a required capital stated in Item 1 above.
strategy for the bank’s ongoing operations. 3. Stockholdings of any person or persons
It should also describe how the bank will related to each other within the third (3rd)
be organized and controlled internally. degree of consanguinity or affinity, or one
The economic justification for establishing (1) or more corporations wholly-owned or
the bank should provide information on majority of the voting stock of which is
the economic profile of the region, e.g., owned by such person or persons shall not
population, agricultural/industrial/service exceed twenty percent (20%) of the voting
projects to be financed). stock of the bank; while stockholdings of
k. Projected monthly financial any other corporation, or two (2) or more
statements for the first twelve (12) months corporations wholly-owned or majority of
of operations, together with assumptions. the voting stock of which is owned by the
(The financial projections should be same group of persons shall not exceed
consistent and realistic in relation to the thirty percent (30%) of the voting stock of
bank’s proposed strategic plan, and should the bank. (Temporarily waived for a
show sufficient capital to support the period of 10 years from the effectivity of
bank’s strategy, specially in the light of R.A. No. 7906, i.e., 17 March 1995 for TBs;
start-up costs and possible operational and from the date of approval of R.A. No.
losses in the early stages.) 7353, i.e., 2 April 1992 for RBs).
l. Proposal by each of the 4. At least seventy percent (70%) of
subscribers on how they will raise the voting stock of any KB shall be owned by
amount to pay for their proposed paid-up Filipino citizens: Provided, That such
capitalization in the bank. percentage may be lowered to sixty

APP. 37
05.12.31
percent (60%) with approval of the directors of any TB shall be Filipino

President of the Philippines. For any TB, citizens; and all members of the board of
at least forty percent (40%) of its voting directors of an RB shall be Filipino
stock shall be owned by Filipino citizens. citizens.
Subject to Section 4 of R.A. No. 7353, all 6. No appointive or elective public
of the capital stock of any RB shall be fully official, whether full-time or part-time
owned and held, directly or indirectly, by shall at the same time serve as officer of a
Filipino citizens or corporations, KB or a TB except in cases where such
associations or cooperatives qualified under service is incident to financial assistance
Philippine laws to own and hold such provided by the government or a
capital stock. government-owned or -controlled
corporation to the bank.
D. INCORPORATORS/SUBSCRIBERS, 7. The proposed directors and officers of
DIRECTORS AND OFFICERS the bank shall be subject to qualifications
1. The incorporators/subscribers and and other requirements under Sections
proposed directors and officers must be X141, X142 and X143.
persons of integrity and of good credit a. Qualifications of a director. A
standing in the business community. The director shall have the minimum
subscribers must have adequate financial qualifications prescribed in Subsec.
strength to pay for their proposed X141.2. In addition, for TBs and RBs, at
subscriptions in the bank. least one (1) of the members of the Board
2. The incorporators/subscribers and of Directors must, in addition to the
proposed directors and officers must not have minimum qualifications, have at least one
been convicted of any crime involving moral (1) year experience in banking and/or
turpitude, and unless otherwise allowed finance: Provided, That this requirement
under the provisions of existing laws are not may be waived if the TB or RB is to be
officers or employees of a government established in a municipality or city where
agency, instrumentality, department or office there is no existing bank.
charged with the supervision of, or the b. Qualifications of an officer. An
granting of loans to banks. officer shall have the minimum
3. A bank may be organized with not less qualifications prescribed in Subsec.
than five (5) nor more than fifteen (15) X142.2. In addition, for KBs, the president
incorporators. In case there are more than must, in addition to the minimum
fifteen (15) persons initially interested in qualifications, have at least two (2) years
organizing and investing in the proposed experience in banking and/or finance. For
bank, the excess may be listed among the TBs and RBs, any one (1) of the president,
original subscribers in the Articles of chief operating officer or general manager
Incorporation. must, in addition to the minimum
4. The number of members of the board qualifications, have at least two (2) years
of directors of the bank shall not be less experience in banking and/or finance.
than five (5) nor more than fifteen (15) and c. Disqualifications of a director.
shall always be in odd numbers. The disqualifications prescribed under
5. At least two-thirds (2/3) of the Subsec. X143.1 shall apply.
members of the board of directors of any d. Disqualifications of an officer. The
KB shall be Filipino citizens; at least a disqualifications prescribed under Subsec.
majority of the members of the board of X143.2 shall apply.

APP. 37
05.12.31
E. REQUIREMENTS FOR THE (3) List of principal and junior officers

ISSUANCE OF AUTHORITY TO and their respective designations and
OPERATE salaries;
1. Within sixty (60) days from receipt of (4) Bio-data sheet, evidence of
advice of approval by the Monetary Board/ citizenship and NBI and BIR clearances
Governor of their application for authority of each of the officers (who have not had
to establish the bank, the organizers shall: the previous approval of the Monetary
a. Submit the articles of Board/Governor) which are needed for
incorporation, treasurer’s sworn statement the evaluation of their qualifications as
and by-laws in seven (7) copies; and officers;
b. Deposit with any KB (for KBs and (5) Chart of organization (The chart
TBs) and any bank (for RBs) the initial paid- should show the names of departments/
up capital of the proposed bank. units/offices with their respective functions
2. Within thirty (30) days after the articles and responsibilities, and the designations
of incorporation and by-laws had been of positions in each department/unit/office
passed upon by the Office of the General with their respective duties and
Counsel and the corresponding certificates responsibilities. The internal organization
of authority to register had been issued, should provide for a management
the organizers shall effect the filing and structure with clear accountability, a
registration of said documents with the board of directors with ability to provide
SEC. independent check on management, and
3. Within six (6) months (for KBs and TBs) independent audit and compliance
and eight (8) months (for RBs) from receipt functions, and should follow the “four
of advice of approval by the Monetary eyes” principle, e.g., segregation of
Board/Governor of their application for various functions, cross-checking, dual
authority to establish the bank, the control of assets, double signatures, etc.);
organizers shall: (6) Manual of operations embodying
a. Complete the construction and the policies and operating procedures of
furnishing of the bank building, which shall each department/unit/office, covering
be equipped with vault and appropriate such areas as signing/delegated
security devices such as lighting system, authorities, etc. (for KBs and TBs);
time delay device, tamper-resistant locks, (7) Plantilla showing the positions
alarm system, etc., and provided with with corresponding salaries, the total of
furniture, fixtures, equipment and bank which should more or less conform with
forms; the amount of salaries shown in the
b. Effect and complete the submitted projected statement of earnings
recruitment and hiring of officers and and expenses;
employees of the bank; (8) Two (2) sets of specimens of
c. Submit the following principal bank accounting and other forms;
documentary requirements at least thirty (9) Bond policy on officers and
(30) days before the scheduled start of custodial employees;
operations: (10) Insurance policy on bank
(1) Proof of registration of articles of properties required to be insured;
incorporation and by-laws; (11) Blueprint of floor layout of bank
(2) Certification of compliance with premises;
the conditions of approval duly signed by (12) Contract of lease on bank’s
the incorporators; premises, if the same are to be leased;

APP. 37
05.12.31
(13) Excerpts of the minutes of the and the respective deadlines for submission
organizational meetings confirming all to the BSP (for TBs); and
organizational and pre-opening transactions (18) Other documents/papers which
relative to activities undertaken to prepare may be required.
the bank to operate (such as appointment d. File with SRSO a request for
of officers, contract of lease, etc.); ocular inspection of the bank premises at
(14) An alphabetical list of stockholders least thirty (30) days before the scheduled
with the number and percentage of voting start of operation.
stocks owned by them;
(15) A separate list containing the F. INAUGURATION/OPENING OF
names of persons who own voting stocks THE BANK FOR BUSINESS AFTER THE
in banks and who are related to each other CERTIFICATE OF AUTHORITY TO
within the third (3 rd ) degree of OPERATE HAS BEEN ISSUED
consanguinity or affinity, with proper
indication of the combined percentage of G. REQUIREMENTS WITHIN THIRTY
voting stocks held by them in the particular (30) DAYS AFTER FIRST DAY OF
bank, as well as corporations which are OPERATIONS
wholly-owned or a majority of the stock of 1. Inform the BSP of the first day of
which is owned by any of such persons, operation and the banking hours and days;
including their wholly- or majority-owned and
subsidiaries; 2. Submit a statement of condition as of
(16) Certification by the President that no the first day of operation.
person who is the spouse or relative within
the second (2nd) degree of consanguinity H. REVOCATION OF AUTHORITY TO
or affinity of any person holding the position ESTABLISH A BANK
of Chairman, President, Executive Vice- The authority to establish a bank shall
President or any position of equivalent be automatically revoked if the bank is not
rank, General Manager, Treasurer, Chief organized and opened for business within
Cashier or Chief Accountant will be six (6) months (for KBs and TBs) and eight
appointed to any of said positions in the (8) months (for RBs) after receipt by the
bank; organizers of the notice of approval by the
(17) Appointment of an officer of the Monetary Board/Governor of their
proposed bank who shall have undergone application. Extension may be granted
orientation on the reportorial requirements upon presentation of justifiable reason
with the Department of Thrift Banks and for failure to open the bank within the
Non-Banks Financial Institutions (DTBNBFI), prescribed period, and proof that the
and a certification by the Manager that he is bank can be opened within the
fully aware of said reportorial requirements extension period.

APP. 38
05.12.31
GUIDELINES FOR THE ORGANIZATION OF

COOPERATIVE BANKS
Pursuant to Monetary Board Resolution BSP and upon approval shall be registered
No. 1155 dated 26 October 1990, and in with the CDA.
line with the provisions of the Cooperative
Code of the Philippines (R.A. No. 6938), Sec. 4. Application documents. Duly
the Rural Banks Act (R.A. No. 7353) and registered cooperatives applying for
other related laws, the following rules and authority to establish a Coop Bank shall
regulations governing the establishment of submit the following documents to SRSO:
Coop Banks are hereby promulgated: a. Certificate of registration or re-
registration of the various prospective
Section 1. Cooperative defined. A cooperative-members of the Coop Bank;
cooperative is a duly registered association b. Articles of cooperation and by-laws
of persons, with a common bond of interest, of the proposed Coop Bank in five (5) copies;
who have voluntarily joined together to c. Bio-data, accomplished in the
achieve a lawful common social or prescribed form under oath and in
economic end, making equitable triplicate, by each of the authorized
contributions to the capital required and representatives of the cooperative-members
accepting a fair share of the risks and and proposed officers of the Coop Bank;
benefits of the undertaking in accordance d. List of prospective Coop Bank
with universally accepted cooperative personnel (Manager, Cashier, Bookkeeper
principles. and Inspector) together with their bio-data,
For purposes of these regulations, all also under oath and in triplicate; and
cooperative organizations registered or re- e. Pertinent data and information to
registered with the Cooperative show that there is economic justification for
Development Authority (CDA) under R.A. the establishment of a Coop Bank in the
No. 6938 shall be considered province applied for.
cooperatives.
Sec. 5. Limitation on the establishment of
Sec. 2. Organizers of cooperative banks cooperative bank. Only one (1) Coop Bank
Only duly established cooperatives and shall be established in each province, which
federations of cooperatives which are must be located in a place accessible to the
registered or re-registered with the CDA public.
under R.A. No. 6938 may become
members/organizers of Coop Banks Sec. 6. Limitation on capital contribution of
organized in accordance with the cooperatives. Capital contributions in a Coop
provisions of these guidelines. At least Bank shall be as widely dispersed as possible.
fifteen (15) such cooperatives organized in No cooperative-member shall own or control
the province applied for may form and more than forty percent (40%) of the total
operate a Coop Bank. capital contributions of a Coop Bank. This
limitation shall also apply to cooperatives
Sec. 3. Registration requirements. A purchasing government-held preferred shares
prospective Coop Bank shall file its of Coop Banks which are converted into
application for licensing as a bank with the common stock.

APP. 38
05.12.31
Sec. 7. Capitalization. A local Coop Bank Within eight (8) months from receipt of
shall comply with the minimum paid-up advice of approval of the Monetary Board
capital prescribed under Subsec. X106.1e. of its application, the proposed Coop Bank
In addition, Land Bank of the Philippines shall:
shall invest at least P1.0 million as a. Complete the construction and
counterpart capital. furnishing of the bank building which shall
be equipped with facilities, furniture, forms
Sec. 8. Members of the board of directors and stationery, and vault of reinforced
The number of members of the board of concrete with a steel two (2)-hour fire
directors of a Coop Bank shall not be less resistant door in accordance with the
than five (5) nor more than fifteen (15) which specification of BSP with a time delay
shall at all times be in odd numbers. These device;
directors shall come from the ranks of the b. Effect and complete the training/
authorized representatives of the seminar of directors, officers and employees
cooperative-members. of the Coop Bank;
c. Submit the plantilla of organization
Sec. 9. Qualifications and disqualifications of and bonds of accountable officers; and
officers and directors. Officers, such as d. Inaugurate and open the Coop Bank
President, Vice-President, Manager, for business.
Treasurer, Cashier and Accountant and
directors of the Coop Bank must possess the Sec. 12. Training of personnel, directors
qualifications and none of the and officers. The following personnel of the
disqualifications prescribed under Sections Coop Bank as well as the directors and
X141, X142 and X143. officers are required to undergo training at
the BSP Institute.
Sec. 10. Limitation on officership/ a. The manager who must possess the
directorship. Any officer or employee of qualifications and none of the
the CDA shall be disqualified to be elected disqualifications prescribed under Subsecs.
or appointed to any position in a Coop Bank. X142.2 and X143.2.
Elective officials of the Government, except b. The cashier who must also possess
barangay officials, shall also be ineligible the qualifications and none of the
to become officers and directors of Coop disqualifications prescribed under Subsecs.
Banks. X142.2 and X143.2.
c. The bookkeeper who must be at least
Sec. 11. Pre-cooperative bank operation twenty-one (21) years old, a college degree
requirements. Before the application is holder, and must have at least eighteen (18)
submitted to the Monetary Board for action, units in accounting.
the proposed Coop Bank is required to d. The field inspector-appraiser who
submit the location plan and the cost must be at least twenty-one (21) years old,
estimates of the proposed bank building and at least a high school graduate, and must
proposed lease contract, if it is to be leased have knowledge/experience in farming,
and/or deed of sale of bank lot, if it is to be preferably an agriculture graduate.
purchased. In the case of leased premises,
a Coop Bank may initially hold its office in Sec. 13. Validity period of authority to
said leased premises on a five (5)-year term, operate the cooperative bank. The Coop
renewable for the same period at the option Bank shall be organized and opened for
of the bank. business within eight (8) months upon

APP. 38
05.12.31
receipt by the proposed Coop Bank of the Sec. 14. These rules and regulations
notice of approval of its application by the supersede the Guidelines for the
Monetary Board, otherwise, the authority to Organization of Rural Banks by
operate shall be deemed automatically Cooperatives, approved under MB
revoked. Resolution No. 612 dated 19 June 1987.

APP. 39
05.12.31
SETTLEMENT OF INTERBANK TRANSACTIONS VIS-À-VIS COVERING RESERVE

REQUIREMENT/DEFICIENCY OF BANKS’ DDA WITH BSP
ACTIVITIES
DAY 1
Philippine Clearing BSP Bangko Sentral ng Pilipinas
TIME House Corporation (PCHC) Regional Clearing Head Office Value Date
METRO MANILA Centers (BSP RCC) (BSP)
2:00 PM (Begin-of-day) Final

Banks’ DDA balance
Cut-off Time – T+O
Submission of
Financial Transactions
Affecting BSP
4:00 PM Clearing Results Available Update Banks’ DDA
(Regional Local and Balances for EFTIS
Inter-Regional) Transactions
6:00 PM Clearing Results Available Update Banks’ DDA
(Greater Manila and Manila- Balances
Regional Outward Clearing)
6:30 PM 1st Broadcast Banks’ T+O
DDA Balance
DAY 2
Interbank
Returned COCI Call Loan (IBCL) Returned
CLEARING Window COCI CLEARING
7:30 AM Returned COCI
8:00 AM Receiving Returned COCI
8:30 AM Window Receiving Window Update Banks’
DDA Balances
8:31 AM Returned COCI
9:29 AM Returned Exchange
9:30 AM COCI Returned COCI Clearing
Processing Results Available (BSP)
Returned COCI Receiving Update Banks’ DDA
Clearing Results Processing (Returned COCI Clearing T+O
10:00 AM Available (BSP) of Interbank Results)
11:00 AM Call Loan 2nd Broadcast Updated
Transactions Banks’ DDA T+O
11:30 AM Balance
IBCL Netting
Operation
12:30 PM IBCL Results
1:00 PM Available Update Banks’ DDA
(BSP) (IBCL Results)
2:00 PM (End-of-Day) Final Banks’ (T + O) DDA Balance “UNLESS”
BSP Decides to "UNWIND" IBCL Transactions T+O
Unwinding Operation Window
2:01 PM Selective Broadcast of Final
DDA Balances for T+O
"Unaffected Banks”
3:00 PM Unwinding Process
(Affected Banks Only)
4:00 PM Broadcast affected Banks’
Final DDA Balances T+O

APP. 40
05.12.31
GUIDELINES GOVERNING THE REDISCOUNTING

OF HOUSING LOAN PAPERS OF QUALIFIED BANKS
UNDER HUDCC PROGRAM
Section 1. Statement of Policy. The the terms and conditions discussed in

Bangko Sentral, consistent with its primary Section 3.
objective of maintaining price stability (3) Security. The subject property shall
under its charter (R.A. No. 7653), shall be covered by a duly registered Real Estate
comply with its mandate under Section Mortgage (REM) in favor of the
11(c) of R.A. No. 7835 (Comprehensive rediscounting bank.
and Integrated Shelter Financing Act) by
providing short-term rediscounting facility Sec. 3 Terms and Conditions of
to qualified banking institutions providing Rediscounting Availments
financing for socialized and low-cost a. Maximum Loan Value
housing. Banks can obtain additional availments
annually representing amortizations for the
Sec. 2 Criteria for Eligibility current year against the mortgaged
a. Eligible Banks property. However, total cumulative
KBs, TBs and RBs/Coop Banks which availments for a mortgaged property shall
are qualified to rediscount with the DLC, not exceed eighty percent (80%) of the
under existing rules and regulations, and collateral value.
with unused rediscounting ceiling at the b. Interest Rate
time of application for rediscounting can The loan availment shall be assessed
avail themselves of this rediscounting an interest rate equivalent to the prevailing
facility. rediscount rate at the date of rediscount:
b. Eligible Housing Loan Paper Provided, That the banks’ spread shall not
Housing loan papers for rediscounting exceed three percent (3%) per annum.
under this facility shall satisfy the following c. Maturity
requirements: Rediscounting availments shall be due
(1) Loan purpose and amount. The on demand but not beyond 360 days from
loan shall be used for the construction of a date of rediscount.
house/acquisition of a house and lot. The
amount of the loan shall not exceed Sec. 4 Sanctions. Non-remittance or
P180,000.00 for socialized housing and delayed remittance within the allowable
P375,000.00 for economic housing, as period of the corresponding loan value of
prescribed under existing guidelines of the collections on rediscounted notes shall be
HUDCC for the implementation of various considered as sufficient ground for
government housing programs, or in such suspension of banks’ rediscounting privilege
other amounts which HUDCC may prescribe as follows:
in the future for said housing loans.
(2) Loan limit. The amount of the loan First offense -one (1) month suspension
shall not exceed the amount of amortization Second offense -two (2) months suspension
covering principal payments due within one Third offense -three (3) months suspension
(1) year from date of rediscount, subject to Fourth offense -permanent suspension

APP. 41
05.12.31
MINIMUM CRITERIA FOR ACCREDITATION OF PARTICIPATING

FINANCIAL INSTITUTIONS (PFIs) IN GOVERNMENT BANKS
WHOLESALE LENDING PROGRAM
I. Accreditation Criteria profitably for three (3) consecutive years prior

For accreditation purposes, PFIs shall to the filing of application for accreditation.
initially be evaluated/appraised on the basis b. For PFIs operating for less than
of the following pre-qualifying criteria: three (3) years as of date of filing of the
application for accreditation - Operating
1. The PFI shall submit a certification on profitably for two (2) consecutive years prior
the following: to the filing of application for accreditation.
a. Compliance with the prescribed
minimum capital to risk assets ratio of ten 3. Capital
percent (10%), minimum capitalization, Compliance with minimum capital
legal and liquidity reserve requirements accounts of P400.0 million or BSP required
for deposit liabilities, deposit substitutes, minimum capitalization applicable to the category
common trust funds (CTFs) and Trust and where the PFI belongs, whichever is higher.
Other Fiduciary Accounts (TOFA)-Others,
liquidity floor requirement for government 4. Non-performing loans ratio for six (6)
funds held, and ceilings on credit consecutive months prior to the filing of
accommodations to directors, officers, application for accreditation shall not
stockholders and their related interests exceed the industry ratio which may be
(DOSRI), for six (6) consecutive months prior obtained from the SRSO of the BSP.
to the filing of application for accreditation.
b. As of application date, the PFI has 5. Ownership/Management
generally complied with the orders or For PFIs operating for less than three
instructions of the Monetary Board and/or (3) years as of date of filing of the application
BSP Management, more particularly: for accreditation –
(i) Set-up of the required general loan a. Domestic bank owned by reputable
loss and specific provisioning individuals/institutions and managed by
requirements.; and reputable and experienced bankers.
(ii) Correction of major violations and b. Philippine branch of a foreign bank
previous years’ exceptions noted in the carrying an international investment grade
latest BSP examination. rating acceptable to the government bank
c. The PFI has no past due obligations with foreign bank’s (Head Office/parent
with the BSP or with any government bank) unconditional and irrevocable
financial institution. guarantee on loan availments of Philippine
d. The PFI’s accounting records, branch or subsidiary.
systems, procedures and internal control
systems are satisfactorily maintained. II. Grant and Renewal of Credit Lines to
Accredited PFIs
2. Profitability 1. Government banks shall provide credit
a. For PFIs operating for more than lines for a specified term to each accredited
three (3) years as of date of filing of the PFI based on the results of the quantitative
application for accreditation - Operating and qualitative evaluation guidelines to be

APP. 41
05.12.31
formulated in accordance with credit policies accreditation criteria when applying for
and procedures approved by the bank’s Board renewal of credit lines.
of Directors and/or as prescribed by the
institutions, organizations or agencies which 3. Government banks may suspend the
provide the funds. release of funds to PFIs that failed to meet
any of the quantitative and qualitative
2. PFIs shall be subject to quantitative and evaluation guidelines and/or the accreditation
qualitative evaluation as well as the criteria.

APP. 42
05.12.31
DEED OF UNDERTAKING
FOR THE ISSUANCE OF REDEEMABLE PREFERRED SHARES
[Appendix to Subsec. X126.5a(3)(e)]
We, the majority of the members of the Board of Directors and key executive officers
of ________________________________________, a banking corporation duly registered and
organized under the laws of the Republic of the Philippines, with principal office and place
of business at ____________________________________, by these presents do hereby obligate
ourselves to undertake the following in the issuance of preferred stock:
1. That the issuance of preferred stock shall be in accordance with the terms and
conditions of approval by the Bangko Sentral ng Pilipinas (BSP) and pertinent rules and
regulations of the BSP and that of the Securities and Exchange Commission (SEC)/Cooperative
Development Auhority (CDA);
2. That any preferred shares so issued shall not be redeemed, retired, converted to
any other kind of stocks or securities or paid back in cash or property without the prior
approval of BSP in accordance with Subsections X126.5 and 3127.4 of the Manual of
Regulations for Banks, Section 8, R.A. 7353 and other applicable regulations and banking
laws;
3. That in no case shall the issuance of preferred shares be treated as similar to or as

a substitute of other form of temporary investments of clients and depositors such as time
deposits, savings deposits, money market placements or other form of investments subject to
withdrawal;
4. That outstanding preferred shares may be redeemed or retired only if the shares
redeemed or retired are replaced with at least an equivalent amount of newly paid-in shares
so that the total paid-in capital stock is maintained at the same level immediately prior to
redemption or retirement: Provided, That no outstanding preferred share shall be redeemed
within five (5) years from full payment of the subscription or issuance of stock certificate
therefor;
5. That we, the undersigned, shall ensure that the above undertakings are strictly
complied with and observed at all times by the management of the bank;
6. That non-compliance with this undertaking shall subject the directors/officers

involved liable to such administrative sanctions as the Monetary Board may impose and
such other sanctions as may be provided pursuant to Section 37 of R.A. 7653, without
prejudice to the criminal sanctions under Section 36 of the same Act.
IN WITNESS WHEREOF, we have hereunto affix our signature on this ______ day
of ____________________, 20__.

APP. 42
05.12.31
Directors: Officers:
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________

PROVINCE/CITY OF ) S.S.
BEFORE ME, a Notary Public, for and in the Province/City of ______________ this
_____ day of ______________, 200_, personally appeared the herein named persons with
their Community Tax Receipts, known to me to be the same persons who executed the
foregoing instrument and acknowledged before me that the same is their own free and voluntary
act and deed.
Comm.
Tax Cert.
Name No. Date of Issue Place of Issue
______________________ ________ ________________ __________________

______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date and place
above written.
Notary Public
Until December 31, 20___
PTR No. ______________
Issued at _________on __________
Doc. No. __________;
Page No. __________;
Book No. __________;
Series of __________.

APP. 43
05.12.31
GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF BANKS
A. GENERAL REQUIREMENTS accommodations (except credit card

obligations which are normally available to
Only external auditors included in the other credit card holders and fully secured
list of BSP selected external auditors shall auto loans and housing loans which are not
be engaged by banks, for regular audit or past due) with the bank, its subsidiaries and
special engagements. The external auditor affiliates at the time of signing the
to be hired shall also be in-charge of the engagement and during the engagement. In
audit of the entity’s subsidiaries and affiliates the case of partnership, this prohibition shall
engaged in allied activities: Provided, That apply to the partners and the auditor-in-
the external auditor shall be changed or the charge of the engagement;
lead and concurring partner shall be rotated 3. The external auditor must not be
every five (5) years or earlier: Provided, currently engaged nor was engaged during
further, That the rotation of the lead and the preceding year in providing the following
concurring partner shall have an interval of services to the bank, its subsidiaries and
at least two (2) years. affiliates:
Banks which have engaged their a. Internal audit functions;
respective external auditors for a b. Information systems design,
consecutive period of five (5) years or more implementation and assessment; and
as of 26 November 2003 (effectivity of c. Such other services which could
Circular No. 410) shall have a one (1) year affect his independence as may be
period from said date within which to either determined by the Monetary Board;
change their external auditors or rotate the 4. The external auditor, auditor-in-
lead and/or concurring partner. The charge and members of the audit team must
following are the selection requirements for adhere to the highest standards of
external auditors: professional conduct and shall carry out
1. No external auditor may be engaged services in accordance with relevant ethical
by a bank if he or any member of his and technical standards, such as the
immediate family has or has committed to Generally Accepted Auditing Standards
acquire any direct or indirect financial (GAAS) and the Code of Professional Ethics
interest in the bank, its subsidiaries and for CPAs;
affiliates, or if his independence is 5. The external auditor should have
considered impaired under the the following track record in conducting
circumstances specified in the Code of external audits:
Professional Ethics for Certified Public a. The external auditor for a UB or KB
Accountants (CPAs). In the case of a must have at least twenty (20) existing
partnership, this limitation shall apply to the corporate clients with resources of at least
partners, associates and the auditor-in- P50.0 million each and at least one (1)
charge of the engagement and members of existing client UB or KB in the regular audit
their immediate family; or in lieu thereof, the external auditor or
2. The external auditor and the the auditor-in-charge of the engagement
members of the audit team do not have/shall must have at least five (5) years experience
not have outstanding loans or any credit in the regular audit of UBs or KBs;

APP. 43
05.12.31
b. The external auditor for a TB and managing partner, in case of partnership and
national Coop Bank must have at least ten shall be submitted to the appropriate
(10) existing corporate clients with resources supervising and examining department of the
of at least P25.0 million each and at least BSP together with the following documents/
one (1) existing client TB, quasi-bank, trust information:
entity or national Coop Bank in the regular 1. An undertaking:
audit or in lieu thereof, the external auditor a. That the external auditor, partners,
or the auditor-in-charge of the engagement associates, auditor-in-charge of the
must have at least five (5) years experience engagement and the members of their
in the regular audit of TBs, quasi-banks, trust immediate family shall not acquire any direct
entities or national Coop Banks: Provided, or indirect financial interest with the bank,
That an external auditor who has been its subsidiaries and affiliates. Neither shall
selected by the BSP to audit a UB or KB is the external auditor, partners, associates and
automatically qualified to audit a TB or auditor-in-charge accept an audit
national Coop Bank; and engagement with a bank, its subsidiaries and
c. The external auditor for an RB or affiliates where they or any member of their
local Coop Bank must have at least three immediate family have any direct or indirect
(3) years track record in conducting external financial interest and that their
audit: Provided, That an external auditor independence is not considered impaired
who has been selected by the BSP to audit under the circumstances specified in the
a UB, KB, TB, quasi-bank, trust entity and Code of Professional Ethics for CPAs;
national Coop Bank is automatically b. That the external auditor, partners,
qualified to audit an RB, local Coop Bank; associates, auditor-in-charge and members
6. A bank shall not engage the services of the audit team do not have nor shall apply
of an external auditor whose partner or for loans or any credit accommodations
auditor-in-charge of audit engagement (except normal credit card obligations and
during the preceding year had been hired fully secured auto loans and housing loans)
or employed by the bank, its subsidiaries nor shall accept an audit engagement with
and affiliates as Chief Executive Officer, a bank, its subsidiaries and affiliates where
Chief Financial Officer, Controller, Chief they have outstanding loans or any credit
Accounting Officer or any position of accommodations (except normal credit card
equivalent rank; and obligations and fully secured auto loans and
7. The external auditor must undertake housing loans which are not past due);
to keep for at least five (5) years all audit or c. That the external auditor shall not
review working papers in sufficient detail accept an audit engagement with a bank, its
to support the conclusions in the audit subsidiaries and affiliates where he was
report which shall be made available to the engaged during the preceding year in
BSP upon request. Working papers shall providing the following services:
include, but shall not be limited to, pre-audit (1) Internal audit functions;
analysis, audit scope and detailed work (2) Information systems design,
program. implementation and assessment; and
(3) Such other services, which could
B. APPLICATION AND PRE- affect his independence as may be
QUALIFICATION REQUIREMENTS determined by the Monetary Board from
time to time.
The application for BSP selection shall This requirement shall not, however,
be signed by the external auditor or the affect audit engagement existing as of

APP. 43
05.12.31
26 November 2003 (effectivity of Circular b. If the external auditor for a UB or

No. 410). KB has no existing UB or KB client, and
d. That the external auditor and the external auditor for a TB and national
members of the audit team shall adhere to Coop Bank, has no existing client TB or
the highest standards of professional national Coop Bank, a notarized
conduct and shall carry out their services in certification that the external auditor or
accordance with relevant ethical and the auditor-in-charge of the engagement
technical standards of the accounting has at least five (5) years experience in
profession; the regular audit of banks of appropriate
e. That the lead or concurring partner category mentioning the banks they have
and auditor-in-charge shall not accept audited;
employment with the bank, its subsidiaries c. Updated Professional Regulation
and affiliates being audited during the Commission (PRC) license (for individual
engagement period and within a period of auditors) and business license for the
one (1) year after the audit engagement; partnership;
f. That the external auditor shall not d. Copy of the proposed engagement
accept an audit engagement with a bank, its contract between the bank and the external
subsidiaries and affiliates where an officer auditor where applicable; and
(i.e., Chief Executive Officer, Chief Financial e. Certification from PRC that the
Officer, Controller, Chief Accounting Officer external auditor, lead partner, concurring
or other senior officer of equivalent rank) partner, auditor-in-charge and members of
had been a partner of the external auditor the audit team have no derogatory
or had worked for the audit firm and had information, previous conviction or any
been the auditor-in-charge of the audit pending investigation. However, in the
engagement of said entities during the year event that the certification cannot be
immediately preceding the engagement; obtained because of the pendency of a case,
g. That the external auditor shall keep the BSP may dispense with this requirement
all audit or review working papers for at least upon determination by the Monetary Board
five (5) years in sufficient detail to support that the case involves purely legal question,
the conclusions in the audit report; and or does not, in any way, negate the auditor’s
h. That the audit work shall include adherence to the highest standards of
assessment of the audited institution’s professional conduct nor degrade his
compliance with BSP rules and regulations, integrity and objectivity.
such as, but not limited to the following:
(1) Capital adequacy ratio; and C. REQUIRED REPORTS
(2) Loans and other risk assets review
and classification. 1. To enable the BSP to take timely and
2. Other documents/information: appropriate remedial action, the external
a. List of existing corporate clients with auditor must report to the BSP within thirty
resources of at least P50.0 million each for (30) calendar days after discovery, the
external auditor of a UB or KB; for a TB and following cases:
national Coop Bank, list of existing corporate a. Any material finding involving fraud
clients with resources of at least P25.0 or dishonesty (including cases that were
million each; and list of existing clients and/ resolved during the period of audit); and
or details of three (3) years track record in b. Any potential losses the aggregate
external audit for external auditors of an RB of which amounts to at least one percent
and a local Coop Bank; (1%) of the capital.

APP. 43
05.12.31
2. The external auditor shall report half of the voting power of an enterprise
directly to the BSP within fifteen (15) calendar unless, in exceptional circumstance, it can
days the occurrence of the following: be clearly demonstrated that such
a. Termination or resignation as ownership does not constitute control.
external auditor and stating the reason Control may also exist even when
therefor; ownership is one half or less of the voting
b. Discovery of a material breach of power of an enterprise when there is:
laws or BSP rules and regulations such as, a. Power over more than one-half of
but not limited to: the voting rights by virtue of an agreement
(1) Capital adequacy ratio; and with other stockholders;
(2) Loans and other risk assets review b. Power to govern the financial and
and classification. operating policies of the enterprise under a
c. Findings on matters of corporate statute or an agreement;
governance that may require urgent action c. Power to appoint or remove the
by the BSP. majority of the members of the board of
The management of the bank, its directors or equivalent governing body;
subsidiaries and affiliates shall be informed d. Power to cast the majority votes at
of the adverse findings and the external meetings of the board of directors or
auditor’s report to the BSP shall include its equivalent governing body; or
explanation and/or corrective action. e. Any other arrangement similar to
The management of the bank, its any of the above.
subsidiaries and affiliates shall be given the 4. Associate. Any director, officer,
opportunity to be present in the discussions manager or any person occupying a similar
between the BSP and the external auditor status or performing similar functions in the
regarding the audit findings, except in audit firm including employees performing
circumstances where the external auditor supervisory role in the auditing process.
believes that the entity’s management is 5. Partner. All partners including those
involved in fraudulent conduct. not performing audit engagements.
6. Lead Partner. Also referred to as
D. DEFINITION OF TERMS the engagement partner/partner-in-charge/
managing partner who is responsible for
For purposes of these guidelines, the signing the audit report on the consolidated
following terms shall be defined as follows: financial statements of the audit client, and
1. Subsidiary. A corporation or firm where relevant, the individual audit report of
more than fifty percent (50%) of the any entity whose financial statements form
outstanding voting stock of which is directly part of the consolidated financial statements.
or indirectly owned, controlled or held with 7. Concurring Partner. The partner who
power to vote by a bank. is responsible for reviewing the audit report.
2. Affiliate. A corporation, not more 8. Auditor-in-charge. Refers to the team
than fifty percent (50%) but not less than ten leader of the audit engagement.
percent (10%) of the outstanding voting stock
of which is directly or indirectly owned, E. INCLUSION IN BSP LIST
controlled or held with power to vote by a
bank, and a juridical person that is under In case of partnership, inclusion in the
common control with the bank. list of BSP selected external auditors shall
3. Control. Exists when the parent apply to the audit firm only and not to the
owns directly or indirectly more than one individual signing partners or auditors under

APP. 43
05.12.31
its employment. The BSP will circularize 3. That both parties shall comply with
to all banks the list of selected external all of the requirements under these
auditors once a year. The BSP, however, guidelines.
shall not be liable for any damage or loss
that may arise from its selection of the H. DELISTING OF EXTERNAL AUDITORS
external auditors to be engaged by banks
for regular audit or special engagements. 1. Grounds for delisting
External auditors may be delisted from the
F. SPECIFIC REVIEW list of BSP selected external auditor for
the bank, for violation of, or non-
When warranted by supervisory compliance with any provision of these
concern, the Monetary Board may, at the guidelines or in case of dissolution of the
expense of the bank, its subsidiaries and audit firm except when said dissolution
affiliates require the external auditor to was solely for the purpose of admitting
undertake a specific review of a particular new partner/s and the new partner/s have
aspect of the operations of these institutions. complied with the requirements of these
The report shall be submitted to the BSP and guidelines.
the audited institution simultaneously, within 2. Procedure for delisting
thirty (30) calendar days after the conclusion An external auditor shall only be
of said review. delisted upon prior notice to him and after
giving him the opportunity to be heard and
G. AUDIT ENGAGEMENT CONTRACT defend himself by presenting witnesses/
evidence in his favor. Delisted external
Banks shall submit the audit engagement auditor may re-apply for BSP selection after
contract between them, their subsidiaries the period prescribed by the Monetary
and affiliates and the external auditor to the Board.
appropriate SED of the BSP within fifteen
(15) calendar days from signing thereof. Said I. AUDIT BY THE BOARD OF DIRECTORS
contract shall include the following
provisions: Pursuant to Section 58 of R.A. No. 8791,
1. That the bank shall be responsible otherwise known as “The General Banking
for keeping the auditor fully informed of Law of 2000” the Monetary Board may also
existing and subsequent changes to direct the board of directors of a bank or
prudential, regulatory and statutory the individual members thereof, to conduct,
requirements of the BSP and that both either personally or by a committee created
parties shall comply with said by the board, an annual balance sheet audit
requirements; of the bank to review the internal audit and
2. That disclosure of information by the the internal control system of the concerned
external auditor to the BSP as required under entity and to submit a report of such audit
Items "C" and "F" hereof, shall be allowed; to the Monetary Board within thirty (30)
and calendar days after the conclusion thereof.

APP. 44
05.12.31
IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC

ACT NO. 6848 (THE ISLAMIC BANK CHARTER)
Pursuant to Section 43 of R.A. No. Sec. 3. Shari’a Advisory Council

6848, otherwise known as “The Charter The Shari’a Advisory Council of the
of the Al-Amanah Islamic Investment Bank Islamic Bank shall be composed of at least
of the Philippines”, the Monetary Board, in three (3) but not more than five (5)
its Resolution Nos. 161 and 244 dated 14 members, selected from among Islamic
February and 6 March 1996, respectively, scholars and jurists of comparative law.
approved the following Implementing Rules The members shall be elected at a
and Regulations: general shareholders’ meeting of the Islamic
Bank every three (3) years from a list of
Section 1. Domicile and Place of Business nominees prepared by the Board of
The principal domicile and place of Directors of the Islamic Bank. The Board is
business of the Al-Amanah Islamic hereby authorized to select the members of
Investment Bank of the Philippines, the first Shari’a Advisory Council and to
hereinafter called the Islamic Bank, shall be determine their remunerations.
in Zamboanga City. It may establish
branches, agencies or other offices at such Sec. 4. Functions of the Shari’a Advisory
places in the Philippines or abroad subject Council
to applicable laws, rules and regulations of The functions of the Shari’a Advisory
the BSP. Council shall be to offer advice and
undertake reviews pertaining to the
Sec. 2. Purpose and Basis application of the principles and rulings of
The primary purpose of the Islamic the Islamic Shari’a to the Islamic Bank’s
Bank shall be to promote and accelerate the transactions, but it shall not directly involve
socio-economic development of the itself in the operations of the Bank.
Autonomous Region by performing Any member of the Shari’a Advisory Council
banking, financing and investment may be invited to sit in the regular or special
operations and to establish and participate meetings of the Board of Directors of the
in agricultural, commercial and industrial Islamic Bank to expound his views on
ventures based on the Islamic concept of matters of the Islamic Shari’a affecting a
banking. particular transaction but he shall not be
All business dealing sand activities of entitled to vote on the question presented
the Islamic Bank shall be subject to the basic before the board meetings.
principles and rulings of Islamic Shari’a
within the purview of the aforementioned Sec. 5. Islamic Bank’s Powers
declared policy. Any zakat or “tithe” paid The Al-Amanah Islamic Investment
by the Islamic Bank on behalf of its Bank of the Philippines, upon its organiza-
shareholders and depositors shall be tion, shall be a body corporate and shall
considered as part of compliance by the have the power:
Islamic bank with its obligation to 1. To prescribe its by-laws and its
appropriate said zakat fund and to disburse operating policies;
it in legitimate channels to be ascertained 2. To adopt, alter and use a corporate
first by the Shari’a Advisory Council. seal;

APP. 44
05.12.31
3. To make contracts, to sue and be h. Act as collection agent insofar as the

sued; payment orders, bills of exchange
4. To borrow money; to own real or or other commercial documents are
personal property and to introduce exclusive of riba or interest
improvements thereon, and to sell mortgage prohibitions;
or otherwise dispose of the same; i. Provide financing with or without
5. To employ such officers and collateral by way of Al-Ijarah
personnel, preferably from the qualified (leasing), Al-Bai ul Takjiri (sale and
Muslim sector, as may be necessary to carry leaseback), or Al-Murabahah (cost-
Islamic banking business; plus profit sales arrangement);
6. To establish branches, agencies and j. Handle storage operations for
correspondent offices in provinces and cities goods or commodity financing
in the Philippines, particularly where secured by warehouse receipts
Muslims are predominantly located, or in presented to the Bank;
other areas in the country or abroad as may k. Issue shares for the account of
be necessary to carry on its Islamic banking institutions and companies assisted
business, subject to the rules and by the Bank in meeting subscription
regulations of the BSP; calls or augmenting their capital
7. To perform the following banking and/or fund requirements as may be
services: allowed by law;
a. Open current or checking accounts; l. Undertake various investments in
b. Open savings accounts for all transactions allowed by the
safekeeping or custody with no Islamic Shari’a in such a way that
participation in profit and losses shall not permit the haram
unless otherwise authorized by (forbidden), nor forbid the halal
the account holders to be (permissible);
invested; 8. To act as an official depository of
c. Accept investment account the government or its branches,
placements and invest the same for subdivisions and instrumentalities and of
a term with the IB’s funds in government-owned or controlled
Islamically permissible transactions corporations, particularly those doing
on participation basis; business in the Autonomous Region;
d. Accept foreign currency deposits 9. To issue investment participation
from banks, companies, certificates, muquaradah (non-interest-
organizations and individuals, bearing bonds), debentures, collaterals
including foreign governments; and/or the renewal or refinancing of the
e. Buy and sell foreign exchange; same, with the approval of the Monetary
f. Act as correspondent of banks and Board of the BSP, to be used by the Bank
institutions to handle remittances or in its financing operations for projects
any fund transfers; that will promote the economic
g. Accept drafts and issue letters of development primarily of the
credit or letters of guarantee, Autonomous Region;
negotiable notes and bills of 10. To carry out financing and joint
exchange and other evidence of investment operations by way of mudarabah
indebtedness under the universally partnership, musharaka joint venture or by
accepted Islamic financial decreasing participation, murabaha
instruments; purchasing for others on a cost-plus

APP. 44
05.12.31
financing arrangement, and to invest funds Amanah Bank namely: the National
directly in various projects or through the Government, and such other
use of funds whose owners desire to invest financial entities as it may designate.
jointly with other resources available to the 2. Series “B” shares shall comprise
IB on a joint mudarabah basis; nine hundred thousand (900,000)
11. To invest in the equity of allied shares equivalent to P90.0 million
undertakings, financial or non-financial, as to be made available for
well as in the equity of enterprises engaged subscription by the Filipino
in non-allied activities, as the Monetary individuals and institutions.
Board has declared or may declare as 3. Series “C” shares shall comprise
appropriate from time to time, subject to 4.0 million shares equivalent to
the limitations and conditions provided for P400.0 million to be made available
under the Manual of Regulations for Banks for subscription by Filipino and
and Other Financial Intermediaries – Book foreign individuals and/or
I (MRBOFI); and institutions or entities:
12. To exercise the powers granted Any shareholders may exercise his pre-
under R.A. No. 6848 and such incidental emptive right to consolidate ownership of
powers as may be necessary to carry on the outstanding shares as hereinafter
its business, and to exercise further the increased: Provided, That the common
general powers mentioned in the shares of the Philippine Amanah Bank
Corporation Law and the General which have been issued and outstanding
Banking Act, insofar as they are not shall form part of the increased
inconsistent or incompatible with the capitalization of the IB, subject to the
provisions of R.A. No. 6848. concurrence of the existing shareholders of
the Philippine Amanah Bank.
Sec. 6. Authorized Capital Stock The IB is authorized to reacquire its
The authorized capital stock of the IB common shares that are held privately:
shall be P1.0 billion divided into 10.0 Provided, That it has sufficient surplus
million common shares with par value of and/or accumulated earnings for the
One hundred pesos (P100.00) each. All purpose.
shares are nominative and indivisible. The The IB may take the necessary steps to
subscription to and ownership of such have its Series “B” shares listed in any duly
shares, including the transfer thereof to registered stock exchange.
third parties, shall be limited to persons and
entities who subscribe to the concept of Sec. 8. Sale or Transfer of Shares
Islamic banking. The IB shall make a report to the BSP
whenever a change is about to take place in
Sec. 7. Classification of Shares relation to the ownership or control of the
The IB’s authorized capital stock shall Bank. The approval of the Monetary Board
have the following classifications and shall be required in the following changes.
features in relation to its Islamic banking 1. Any proposal for the sale or disposal
operations: of its share or business, or other matters
1. Series “A” shares shall comprise 5.1 related thereto, which will result in a change
million shares equivalent to P510.0 of the control of management of the IB in
million to be made available for the following cases:
subscription by the present a. Any sale or transfer of ownership
stockholders of the Philippine or control of more than twenty

APP. 44
05.12.31
percent (20%) of the voting stock of If the dispute is between the IB and
the Bank to any person whether any of the investors or the shareholders,
natural or juridical; and a Board of Arbitration shall settle such
b. Any sale or transfer or a series of dispute. In this case, the Board of
sales or transfers which will effect a Arbitration, consisting of three (3)
change in the majority ownership members shall be formed by two (2)
or control of the voting stock of the parties to the dispute within forty-five
Bank from one group of persons to (45) days from receipt of written notice
another group. by either party to the dispute. The three
2. Any scheme for reconstruction or for (3) members shall be selected as follows:
consolidation or merger, or otherwise, one (1) arbitrator from each party who
between the IB and any other company shall then select a casting arbitrator as
wherein the whole or any part of the the third member of the board. The three
undertaking of the property of the IB is to be (3) shall select one of them to preside over
transferred to another corporation. the Board of Arbitration. The selection
3. Acquisition by foreign banking by each party of its arbitrator shall be
institutions, including their wholly- or deemed as an acceptance of the
majority-owned subsidiaries and their arbitrator’s decision and of its finality.
holding companies having majority In the event that one of the two parties
holdings in such foreign banking shall fail to select its arbitrator or in the case
institutions. of nonagreement on the selection of the
casting arbitrator or the presiding member
Sec. 9. Privatization of the Board of Arbitration within the
The IB may privatize its ownership. For period specified in the preceding paragraph,
this purpose, any limitation on the transfer the matter shall be submitted to the Shari’a
of shares shall not be applicable with respect Advisory Council which shall select the
to the shareholdings of the National arbitrator, the casting arbitrator or the
Government, SSS, GSIS, PNB and presiding member, as the case may be.
DBP.Transactions affecting the shares of The Board of Arbitration shall meet at
stocks of the IB shall be subject to existing the IB’s principal office and shall set up the
rules and regulations governing transfer of procedure of arbitration which it shall
shares and ceilings on stockholdings, insofar follow in hearing and deciding the dispute.
as they are not in conflict with any The decision shall include the method of its
provisions of R.A. No. 6848 and other execution and the party that shall incur the
pertinent laws, rules and regulations. costs of arbitration. The final judgment shall
be deposited with the Office of the Corporate
Sec. 10. Board of Arbitration Secretary of the Bank and the SEC.
The Board of Directors of the IB, acting The Board of Arbitration’s decision
as an arbitrator, shall settle by the majority shall, in all cases, be final and executory.
decision of its members any dispute between It shall be valid for execution in the same
and among shareholders of the IB, whether manner as final judgments are effected
individuals or entities, where such dispute under R.A. No. 876 otherwise known as
arises from their relations as shareholders the Arbitration Law.
in the IB. The Board shall be bound in this
respect to the procedures of laws on civil Sec. 11. Incentives to Islamic Banking
and commercial pleadings, except in regard Subject to the provisions of Section 72
to the basic principles of due process. of the New Central Bank Act, the

APP. 44
05.12.31
provisions of the Omnibus Investment Any deposit received by the IB without

Code on the basic rights and guarantees of authorization to invest shall be treated as
investors are made applicable to the current account and savings account, as the
commercial operations of the IB in respect case may be, and may be withdrawn
to repatriation or remittance of profits from wholly or partly at any time, under the
investments, and to protection against principle of Al-Wadiah (Safe Custody). The
nationalization, sequestrations, or IB shall provide check books for its current
expropriation proceedings. Any proceedings account depositors and savings passbook
of judicial or administrative seizure may not for savings account depositors and other
be taken against the said property or usual services connected therewith.
investment except upon a final court The IB, at its absolute discretion, may
judgment. reward the customers for the use of their
funds. The Board of Directors shall formulate
Sec. 12. Grants and Donations rules and guidelines which should be
The IB shall accept grants, donations, consistent with the Shari’a principle, in the
endowments, and subsidies, or funds and/ giving of rewards to the customers.
or property offered by individuals and All deposits received with authorization
organization who may earmark such grants to invest for a given period of time shall
for a specific purpose or for such other form part of the general pool of placements
purposes beneficial to the Muslim allocated for the investment portfolios of the
communities, without prejudice to the IB and may be added to its working capital
general objectives of the IB. to be invested in any special projects or in
The financial statement and books of general areas of investments or commercial
accounts of such funds shall be maintained operations of the Bank. These deposits shall
separately but may be supplemented to the be called as “Investment Participation
IB’s balance sheet. Accounts” in which under the principle of
Under special circumstances in Al-Mudarabah, the IB acts as the
which the Board of Directors considers “entrepreneur” and the customers as the
it advisable to promote or facilitate “Provider of Capital”, and both shall agree
Islamic banking business and commercial through negotiation on the ratio of
operations, the IB may seek financing distribution of the profits generated from
from governments, organizations, the investment of the funds. In the event
individuals or banks always without of loss, the customers shall bear all the
prejudice to the provisions of Section 43 losses.
of R.A. No. 6848.
Sec. 14. Investment of Funds
Sec. 13. Non-Interest Bearing Placements The IB shall have the capacity of agent
The IB is authorized to accept deposits or attorney and shall act with full
from governments, banks, organizations or authority on behalf of the group of
other entities and individuals from within depositors in general in investing their
the Philippines or abroad which shall form commingled deposits without prejudice
under any of the following non-interest to the following sections and shall ensure
bearing placements: a degree of liquidity to be determined by
1. Savings accounts the Board of Directors to meet the current
2. Investment participation accounts obligations of the IB including drawings
3. Current accounts and other deposit from savings accounts and current
liabilities. accounts: Provided, That such degree of

APP. 44
05.12.31
liquidity shall be subject to the reserve related profits shall be remitted in the same
requirement as may be determined by the currency it was originally contributed or
BSP. The Board of Directors shall in one of the convertible currencies, as the
determine the period for an investment Board of Directors shall determine in
participation account. Investment of funds accordance with R.A. No. 6848.
shall be undertaken by the IB acting on
behalf of the group of depositors or investors Sec. 17. Authorized Banking Services
in selected areas of investment under such The IB shall exercise all the powers
terms and conditions as the Board of enumerated under Section 6 of R.A. No. 6848
Directors may determine by way of and perform all the services of a bank, except
mudarabah or other forms of joint as otherwise prohibited by R.A. No. 6848:
investment permitted by Islamic Shari’a Provided, That no transactions with any
principle. customer, company, corporation or firm shall
be permitted for discounts by the BSP.
Sec. 15. Return on Investment Funds
The depositors or investors in joint Sec. 18. Acceptance of Government
investment participation accounts shall be Funds
entitled to a portion of the return on Pursuant to Sec. 6 (8) of R.A. No. 6848,
investment according to the deposit the IB shall act as an official depository of the
balances and its period. The profits on government or its branches, subdivisions and
participation account with authorization to instrumentalities and of government-owned
invest in specific transaction shall be or controlled corporations, particularly
calculated on the same basis as on the those doing business in the autonomous
capital funds invested as determined by the region. Government funds placed with
Board of Directors pursuant to Section 35 the IB shall be limited to working
of R.A. No. 6848. balances. All government deposits in
excess of working balances shall be
Sec. 16. Allocation of Resources placed with the BSP.
The IB may allocate part of its own Once privatized, acceptance by the IB
investible funds or of the deposits on hand of government funds or deposits shall be
to finance investment projects and carry on subject to existing laws and regulations
its Islamic banking business directly or governing the acceptance of such funds by
indirectly under its own supervision. For private commercial banks which include
this purpose, it may create and finance prior Monetary Board approval.
investment companies or affiliates which The government deposits held by the
shall manage investment projects on behalf IB shall be subject to reserve and liquidity
of and under the supervision of the IB and floor requirements as the Monetary Board
for its own account. may prescribe.
The IB shall ascertain the viability and
soundness of investment projects which it Sec. 19. Authorized Commercial Operations
may directly supervise and those in which The IB may operate as an Investment
it may participate with part of its own funds, House pursuant to Presidential Decree no.
with the general pool of investors funds with 129, as amended, and as a Venture Capital
authorization. The IB shall have the right Corporation pursuant to Presidential
to inspect and supervise the projects which Decree No. 1688, and by virtue thereof,
it shall finance or in which it is the majority carry on the following types of commercial
shareholder. The original capital and operations:

APP. 44
05.12.31
1. The IB may have a direct interest as a separate and distinct department or

a shareholder, partner, owner or any other other similar unit in the bank: Provided,
capacity in any commercial, industrial, finally, That if the bank avails of the
agricultural, real estate or development option of exercising the powers of an
project under mudarabah form of investment house indirectly through its
partnership or musharaka joint venture subsidiary investment house, it may not
agreement or by decreasing participation, directly exercise the powers which are
or otherwise invest under any of the exclusively reserved to IHs.
various contemporary Islamic financing
techniques or modes of investment for Sec. 20. Employee Share Schemes
profit sharing. The Board of Directors may adopt an
2. The IB may carry on commercial employee profit sharing scheme under any
operations for the purpose of realizing its of the following ways:
investment banking objectives by 1. Any arrangement under which the
establishing enterprises or financing directors, officers and employees of the
existing enterprises, or otherwise by IB receive, in addition to their salaries and
participating in any way with other wages, a share, fixed beforehand, in the
companies, institutions or banks profits realized by the Bank or by its
performing activities similar to its own affiliate companies to which the profit
or which may help accomplish its sharing scheme relates; and
objectives in the Philippines or abroad, 2. Any arrangement under which the
under any of the contemporary Islamic IB facilitates the acquisition by its
financing techniques or modes of directors, officers and employees of
investment for profit sharing; and common shares of stock either as share-
3) The IB may perform all business incentives, share-bonus options, or any
ventures and transactions as may be other share-saving schemes as the Board
necessary to carry out the objectives of of Directors may determine.
its charter within the framework of the No scheme shall be approved by the
IB’s financial capabilities and technical Board of Directors under this section
considerations prescribed by law and unless it is satisfied that the participant
convention: Provided, That these shall in the profit sharing scheme is bound by
not involve any riba or other activities a contract with the IB by virtue of which
prohibited by the Islamic Shari’a an appropriation of shares has been made
principles. for the purpose. The shares so purchased
The IB may likewise perform the or appropriated shall be deposited in
functions of an investment house either escrow with the Bank.
directly or indirectly through a subsidiary The Board of Directors of the IB shall
investment house; in either case, the then constitute the trustee of the approved
underwriting of equity securities and scheme, whose functions with respect to
securities dealing shall be subject to the common shares held by them are
pertinent laws and rules and regulations regulated by Chapter VII of the General
of the SEC: Provided, That the IB cannot Banking Act and other pertinent laws.
perform such functions both directly and The terms of the approved scheme shall
indirectly through a subsidiary: Provided, be prescribed by the Board of Directors
further, That if the investment house and embodied in a deed of instrument.
functions are performed directly by the The adoption of and any change in
IB, such functions shall be undertaken by the employee profit sharing scheme shall

APP. 44
05.12.31
be reported to the appropriate supervising of the IB’s investment capacity. Investment

and examining department of the BSP capacity shall mean the total unimpaired
within thirty (30) calendar days from the capital and surplus plus deposits and
date of approval. borrowings minus the investment in bank
premises.
Sec. 21. Investment Ceilings; Business 3. The IB shall not grant unsecured
Limits loans except gardhasan (benevolent loans).
The IB shall observe the following Such outstanding unsecured loans or
investment ceilings and business limits in credit accommodations which the IB
its operations: may extend at any time without security
1. The aggregate credit facilities or any or in respect of any advance, loan or credit
other liabilities of any customer of the IB facility made with the security wholly or
shall not exceed at all times fifteen percent partly whenever at any time it exceeds the
(15%) of the unimpaired capital and surplus aggregate market value of the assets
of the Bank. constituting the security, shall be limited
For purposes of determining to fifty thousand pesos (P50,000.00) to any
compliance with this regulation, credit person, company, corporation or firm.
facilities shall refer to: 4. A credit facility granted to any
a. Interbank Receivable person for the purpose of financing the
b. Financing and Investment acquisition of shares in any company,
c. Trade Financing corporation or firm shall not exceed fifty
d. Agrarian Reform/Other Agricultural percent (50%) of the appraised value of the
Financing – P. D. No. 717 shares at the time the credit facility is
e. Bills Purchased granted. Appraised value, in the case of
f. Customer’s Liability on Bills/Drafts listed shares, shall mean the weighted
under Letters of Credit and/or Trust average price in the stock exchange. For
Receipts unlisted shares, the appraised value shall
g. Customer’s Liability for this Bank’s mean the book value of the shares.
Acceptances Outstanding
h. Trading Account Securities – Sec. 22. Loans and Credit Facilities to
Financing Directors, Officers, Employees and
i. Underwriting Accounts – Debt Stockholders
Securities 1. General Policy. Except as
j. Stand-by Letters of Credit otherwise provided in these regulations,
k. Such other facilities as may be the IB shall not directly or indirectly grant
determined by the Monetary Board an advance, loan or credit facility to any
Credit facilities granted by the IB to of its directors, officers, employees or
any other bank, as well as deposits stockholders, or to any other person for
maintained by it in any bank, shall whom any of them is a guarantor, or in
be subject to the credit facility limit any manner be an obligor for money
to any single borrower as herein granted by the IB.
prescribed. 2. Direct Loans to Officers,
2. The aggregate amount of investment Employees and Stockholders. Whenever
portfolios for any single industry (following the IB is satisfied that special circumstances
the major industry groupings in the 1977 exist, a loan not exceeding at any one time
Philippine Standard Industrial Classification) an amount equivalent to six months
shall at no time exceed thirty percent (30%) remuneration, may be granted to an officer

APP. 44
05.12.31
or employee on such terms and conditions adjustments as may be required by the

as the IB deems fit: Provided, however, BSP, whichever is lower.
That loans and advances to officers and 5. Procedural Requirements. The
employees in the form of fringe benefits following provisions shall apply to direct
granted in accordance with the rules and loans to officers and indirect credit facilities
regulations prescribed under Section to directors and auditors, allowed under
1337 of the MRBOFI shall not be subject these regulations.
to the preceding limitation, nor to the a. Approval of the Board; when to
ceiling on unsecured loans prescribed in obtain. Direct loans to officers shall
Section 21. require the prior written approval of
The IB may extend credit facilities to the majority of the directors.
stockholders owning two percent (2%) Indirect loans to directors and
or more of the subscribed capital stock auditors shall be allowed subject to
up to an amount equivalent to the the prior written approval, and by
outstanding deposits or the book value unanimous vote, of not less than
of his paid-in capital in the Bank, two-thirds (2/3) of all the members
whichever is higher. of the Board of Directors, excluding
3. Indirect Credit Facilities to the director concerned.
Directors and Auditors. No credit facility b. Approval by the Board; how
shall be granted by the IB to a company, manifested. The approval as
corporation, partnership or firm wherein required in item a above shall be
any member of the Board of Directors or manifested in a resolution passed by
auditors is a shareholder, partner, the Board of Directors duly
manager, agent or employee in any assembled during a regular or
manner, except with the written approval special meeting for that purpose and
of and by unanimous vote of not less made of record.
than two-thirds of all the members of the c. Determination of compliance with
Board of directors, excluding the director the required number of votes. The
concerned: Provided, That the total determination of the majority or
liabilities of such company, corporation, two-thirds (2/3) of the directors,
partnership or firm to the IB shall be excluding the directors concerned,
limited to the director’s or auditor’s shall be based on the total number
outstanding deposits or the book value of directors of the Bank as provided
of his paid-in capital in the Bank, in its Charter and By-Laws.
whichever is higher. d. Content of the resolution. The
4. Aggregate Ceiling. Except with resolution of the Board of Directors
the prior approval of the Monetary Board, shall contain the following
the total outstanding credit facilities of information:
directors, officers, auditors and (i) Name of the director, officer or
stockholders, whether direct or indirect, auditor concerned and his
shall not exceed fifteen percent (15%) of relationship as regards the credit
the total credit facilities of the Bank or facility, such as principal, indorser,
one hundred percent (100%) of guarantor, etc.;
combined capital accounts, net of (ii) Nature of the loan or credit facility,
deferred income tax and such unbooked purpose, amount, credit basis for
valuation reserves and other capital such loan or credit facility,

APP. 44
05.12.31
security and appraisal thereof, on the demand letter, or within six (6)
maturity, schedule of repayment, months from date of grant, whichever
and other terms of the loan or comes earlier;
credit facility; 2. Financing and investment
(iii) Date of the resolution; accounts not paid at maturity/ expiry date
(iv) Names of the directors who were or not paid in accordance with the terms
present and who participated in the of payment stipulated in the agreement/
deliberations of the meeting; contract;
(v) Names in print and signatures of 3. Customers’ liability on drafts under
the directors approving the LC/TR
resolution: Provided, That the a. Sight Bills – if dishonored upon
corporate secretary may sign, presentment for payment or not
under a power-of-attorney, in paid within thirty (30) days from date
behalf of a director who was of original entry, whichever comes
present in the board meeting and earlier;
who approved such resolution, b. Usance Bills – if dishonored upon
in instances where such signature presentment for acceptance or not
is necessary to indicate that such paid on due date, whichever comes
resolution was approved by a earlier; and
majority or two-thirds of the c. Trust Receipts – if not paid on due
directors; and date;
(vi) Such other information as may be 4. Bills and other negotiable
required by the appropriate instruments purchased – if dishonored
supervising and examining upon presentment for acceptance/
department of the BSP. payment or not paid on maturity date,
e. Transmittal of copy of board whichever comes earlier: Provided,
approval; contents thereof. A copy of however, That an out-of-town check and
the written approval of the Board of a foreign check shall be considered as
Directors, as herein required, shall be past due if outstanding for thirty (30) days
submitted to the appropriate supervising and forty-five (45) days respectively,
and examining department of the BSP unless earlier dishonored;
within twenty (20) banking days from the 5. Credit facilities or receivables
date of approval. The copy may be a payable in installments – the total
duplicate of the original, or a outstanding balance thereof shall be
reproduction copy showing clearly the considered past due in accordance with the
signatures of the approving directors: following schedule:
Provided, That if a reproduction copy is Minimum Number of
to be submitted, it shall contain on its Mode of Payment Installments in Arrears
face or reverse side a signed certification Monthly 6
by the Secretary that it is a reproduction Quarterly 2
of the original written approval. Semestrally 1
Annually 1
Sec. 23. Past Due Accounts Provided, however, That when the total
Accounts considered past due. The amount of arrearages reaches twenty
following shall be considered as past due: percent (20%) of the total outstanding
1. Loans or receivables payable on balance of the credit facility/receivable, the
demand – if not paid on the date indicated total outstanding balance of the credit

APP. 44
05.12.31
facility/receivable shall be considered as it is principally engaged in such

past due, notwithstanding the number of undertaking.
installments in arrears: Provided, further, The equity investment of the IB in a
That for modes of payment other than those single financial allied undertaking shall be,
listed above (e.g., daily, weekly or semi- in relation to the total subscribed capital
monthly), the entire outstanding balance of stock and in relation to the total voting stock
the loan/receivable shall be considered as of the allied undertaking, within the
past due when the total amount of following ratios:
arrearages reaches ten percent (10%) of the
total receivable balance; Allied Undertaking Limit
6. Credit card receivables – if the
KBs - Up to 49%
amount due is not paid within ten (10) days TBs and RBs - Up to 100%
from the deadline indicated in the billing Other financial allied - Up to 100% without
statement; and undertakings prejudice to the
7. All items in litigation as defined in limitations prescribed
in Subsec. 1378.1 (of
the IB’s Manual of Accounts.
the MRBOFI).
For the purpose of determining
delinquency in the payment of obligations Provided, That the equity investment in an
as a ground for disqualification of bank insurance company of the IB, any of its
directors and officers, any due and unpaid wholly or majority-owned subsidiaries, its
loan/financing installment or portion directors, officers and stockholders owning
thereof, from the time the obligor defaults, two percent (2%) or more of the bank’s
shall be considered as past due. subscribed capital stock, shall not exceed
fifty-one percent (51%) of the total
Sec. 24. Equity Investments subscribed capital stock and the total voting
1. Financial Allied Undertakings. stock of such insurance company.
With prior approval of the Monetary Board, The equity investment of the IB in a
the IB may invest in the equity of the bank pursuant to R.A. No. 7721 shall be
following financial allied undertakings: governed by the rules and regulations
a. Leasing companies; implementing said law.
b. Banks; 2. Non-Financial Allied Undertakings.
c. Investment houses; The IB may invest in the equity of the
d. Financing companies; following non-financial allied undertakings:
e. Credit card operations; a. Warehousing companies;
f. Financial institutions addressed/ b. Storage companies;
catering to small and medium-scale c. Safe deposit box companies;
industries; d. Companies engaged in the
g. Companies engaged in stock management of mutual funds but not in the
brokerage/security dealership/ mutual funds themselves;
brokerage; e. Management corporations
h. Foreign exchange dealers/brokers; engaged or to be engaged in activity
and similar to the management of mutual
i. Insurance companies funds;
Provided, That any such undertaking is f. Companies engaged in the
the primary purpose for which a provision of computer services;
particular enterprise was established and g. Insurance agencies: Provided,
the volume of its business indicates that That no director, officer or stockholder

APP. 44
05.12.31
of the bank and their related interests The IB may acquire up to one hundred
hold/own more than twenty percent (20%) percent (100%) of the equity of a non-
of the subscribed capital stock or equity financial allied undertaking. However, prior
of the insurance company for which the Monetary Board approval is required if the
affiliates insurance acts as agent; investment is in excess of forty percent (40%)
h. Companies engaged in home of the total subscribed capital stock or forty
building and home development; percent (40%) of the total voting stock of
i. Companies providing drying and/or such allied undertaking.
milling facilities for agricultural crops such 3. Investments in Non-Allied or Non-
as rice and corn; Related Enterprises. The broad category
j. Companies engaged in insurance of undertakings in which the IB may invest
brokerage: Provided, That no director, in directly or through its wholly or
officer, stockholder of the IB or its related majority-owned subsidiary shall be
interests shall have financial interests in the subject to prior approval of the Monetary
insurance company/companies for which Board. Investments shall be allowed in
the affiliate insurance brokerage company enterprises engaged in certain activities
acts as broker; in agriculture, mining and quarrying,
k. Bank service corporations all of the manufacturing, public utilities,
capital of which is owned by one or more construction, wholesale trade and
banks and organized to perform for and in community and social services following
behalf of banks the following services: the industrial groupings in the 1977
(i) data processing systems development Philippine Standard Industrial
and maintenance; Classification (PSIC) as enumerated in
(ii) deposit and withdrawal recording; Annex I of Subsection 1380.1 of the
(iii) computation and recording of MRBOFI, as amended. Individual equity
interests, service charges, penalties investment in undertakings within these
and other fees; enumerated activities shall not require
(iv) check-clearing processing, such as prior approval: Provided, however, That
the transmission and receipt of within thirty (30) days after the investment,
check-clearing items/tapes to and the Bank shall furnish the appropriate
from the BSP, collection and delivery supervising and examining department of
of checks not included in the the BSP such relevant information on the
Philippine Clearing House System, investments made as amount invested,
as well as the recording of the same; name of investee company, and nature of
and business, accompanied by such pertinent
(v) printing and delivery of bank documents as Articles of Incorporation,
statements. Articles of Partnership or Registration
l. Clearing house companies such as Certificate, whichever may be applicable,
the PCHC and the Philippine Central and such other information which may be
Depository, Inc. required: Provided, further, That said
Provided, further, That any such investment is within the limits and
undertaking is the primary purpose for restrictions set forth in the succeeding
which a particular enterprise was paragraphs of this Section.
established and the volume of its business The equity investment of the IB or of
indicates that it is principally engaged in its wholly or majority-owned subsidiary,
such undertaking. in any single non-allied enterprise shall

APP. 44
05.12.31
not exceed thirty-five percent (35%) of the For purposes hereof, the phrase “equity
total subscribed capital stock nor shall it investments in and/or credit facilities to” shall
exceed thirty-five percent (35%) of the include any accommodation that gives rise
voting stock in the enterprise. to a creditor/debtor relationship such as
For the purpose of determining deposits, money market placements, loans
compliance with the ceiling prescribed in or any advances or any amount of funds
the preceding paragraph, (i) the equity granted or remitted by the IB to its
investment of the Bank; (ii) the equity subsidiary/affiliate abroad including letters
investment of the Bank’s wholly or of comfort and deposits/placements abroad
majority-owned subsidiaries; and (iii) the of the Bank which are hypothecated.
equity investment of directors, officers 6. Exclusion of Underwriting Exposure
and stockholders owning two percent from Ceiling. The exposure of the IB arising
(2%) or more of the subscribed capital from the firm underwriting of equity
stock of the Bank or of the Bank’s wholly securities of enterprises shall not be counted
or majority-owned subsidiaries, shall be in determining compliance with the ceiling
combined. prescribed for equity investments for a
In no case shall the total equity period of two (2) years from the acquisition
investments in a single non-allied enterprise of such equity securities.
of the IB, together with the investments of
other expanded commercial banks, non- Sec. 25. Special Cash Account
bank financial intermediaries performing The IB shall open a special cash account
quasi-banking functions, or their wholly or with the BSP in which the liquid funds shall
majority-owned subsidiaries, whether or not be deposited. Any transfer of funds from
the parent financial intermediaries have this account to other accounts shall be made
equity investments in the enterprise, amount only upon prior consultation with the IB.
to fifty percent (50%) or more of the voting The Bank’s Board of Directors shall
stock of that enterprise. make such representations with the BSP as
4. Other Limitations and Restrictions may be necessary to facilitate the opening
on Equity Investments. The following of said account.
limitations and restrictions shall also
apply regarding equity investments of the Sec. 26. Capital Funds Requirements
IB: The IB shall maintain its combined
a. The total equity investments of IB capital accounts in proportion to its assets
in any single enterprise, whether as prescribed by the General Banking Act
allied or non-allied, shall not at any and subject to the Rules and Regulations of
time exceed fifteen percent (15%) the BSP.
of the Bank’s net worth.
b. The total amount of investment in Sec. 27. Investment Risk Fund
equities made by the IB in all 1. Creation. A reserve account, known
enterprises, whether allied or non- as the Investment Risk Fund, shall be
allied, shall not exceed fifty percent created in the books of the IB, by annually
(50%) of its net worth. setting aside an amount equal to ten percent
5. Investments Abroad. The ceiling (10%) of the profits realized during the
provided for in the preceding paragraph financial year from the investment of the
shall apply to equity investments in and/ customers’ deposits in the following
or credit facilities to any enterprise operations:
abroad. a. Financing & Investment

APP. 44
05.12.31
b. Foreign Exchange Transactions the IB shall carry out a comprehensive

c. Investment in Bonds & Other assessment to arrive at estimated profit
Islamic Financial Instruments and loss based on the market rates, from
d. Trading Account Securities operations which are financed by the
e. Investments in Stocks mudarabah funds and which have not
f. Equity Investments reached the stage of final settlement by
g. Placements with Treasury Department the end of the financial year.
h. Others 3. Utilization. The Investment Risk
Should the accumulated reserves Fund shall be invested for the benefit of
equal the authorized capital of the IB, the the IB in safe non-interest bearing
Board of Directors may reduce the amount transactions only, as authorized by the
of the annual deduction to a minimal Board of Directors.
percentage until the aggregate reserves The Board of Directors shall adopt
become double the amount of the capital, policies on the creation and utilization of
after which the herein authorized the Investment Risk Fund and determination
deduction shall cease to accrue to the of profits and losses, within one (1) year
reserve account. from date of this Circular.
2. Determination of Profits and
Losses. At the close of each financial year, Sec. 28. Periodic Reports
the IB shall determine the results of its The IB shall submit to the appropriate
operation. The Board of Directors shall, department/office of the BSP the periodic
after deducting the general and reports enumerated under Annex “A” and
administrative expenses including such other reports as may be prescribed
remunerations of the Board of Directors by the Monetary Board.
and Shari’a Advisory Council, determine
annually what part of the income shall be Sec. 29. Manual of Accounts
appropriated to reserves, investors and The IB shall adopt/implement the
shareholders. All accounts relating to Manual of Accounts for Al-Amanah
financing and joint investment operations Islamic Investment Bank of the
shall be kept separate from the accounts Philippines as approved by the Monetary
of the other banking activities and services Board in its Resolution No. 335 dated 15
offered by the IB. The same rule with March 1991.
respect to the accounts of specific
investments shall apply where such Sec. 30. Board of Directors
specific projects may have a separate The Board of Directors shall be
account. composed of nine (9) members duly elected
Losses incurred, if any, shall be by the shareholders. The Board of Directors
deducted from the total profits realized for shall choose from among themselves the
the financial year in which such losses are Chairman. The Board shall convene at the
incurred, but any excess of losses over the principal office once every three (3) months
profits which have been actually realized at the most upon due notice by the
during the year may be deducted from the Chairman or, whenever the need arises,
Investment Risk Fund opened for covering upon the request of three (3) members. The
the risks of investments: Provided, That Board may convene outside the IB’s
should the total profits realized in the year principal office as the members shall
be insufficient to cover the losses incurred, determine in the by-laws of the Bank.

APP. 44
05.12.31
Sec. 31. Power of the Board Bank. He must have experience and training
The Board of Directors shall have the in Islamic banking. All other officers and
broadest powers to manage the IB except employees of the IB shall, upon
such matters as are explicitly reserved for recommendation of the Chief Executive
the shareholders. The Board shall adopt Officer, be appointed and removed by the
policy guidelines necessary to carry out Board which shall not be subject to Civil
effectively the provisions of R.A. No. Service Law.
6848, as well as internal rules and The Chief Executive Officer of the IB
regulations necessary for the conduct of shall, among others, execute and
its Islamic banking business and all administer the policies, measures, orders
matters related to: and resolutions approved by the Board of
1. credit and investment; Directors. In particular, he shall have the
2. discretionary and delegated power and duty to execute all contracts
authorities in behalf of the IB, to enter into all
3. risk management; necessary obligations required or
4. investment risk fund; permitted under R.A. No. 6848, to report
5. qardhasan (benevolent loans); and weekly to the Board of Directors the main
6. personnel policies facts concerning the operations of the
The Board of Directors shall have the Bank during the preceding week, and to
power to appoint managers, authorized suggest changes in policy or policies
agents or legal representatives and shall which will serve the best interest of the
vest them with signing authority on behalf Bank.
of the Bank either severally or jointly in
accordance with the operational Sec. 33. Qualifications and Disqualifications
procedures of the Bank. of Directors and Officers
The Board shall cause the preparation The provisions (of the MRBOFI – Book I)
of the IB’s balance sheet for each financial regarding the qualifications and
year within three (3) months at the latest disqualifications of directors and officers
from the end of each accounting period as shall be applicable to the directors and
well as the profit and loss statement officers of the IB.
according to accounting rules established
and based on Islamic criteria. Copies of the Sec. 34. Business Development Office
audited annual balance sheet, profit and The IB shall have a Business
loss account, together with any note Development Office which shall be
thereon, and the report of the auditor and responsible for the following:
the directors own report shall be provided 1. To conduct periodic economic
to the shareholders before the date of the surveys and studies of the investment
general meeting. climate and opportunities in the IB’s sphere
The Board shall also cause the of operations and identify the viable projects
preparation of the annual revenue and which may be sponsored by the people of
expenditures budget as well as the annual the Autonomous Region;
business plan. 2. To offer technical consultancy
services in the preparation of project studies
Sec. 32. Chief Executive Officer; Other and in meeting other technical credit
Officers and Employees requirements of the IB, including the
The Chairman of the Board of the IB provision of the management consultants at
shall be the Chief Executive Officer of the rates to be determined by the Board of

APP. 44
05.12.31
Directors to projects financially assisted by Sec. 37. Ordinary and Extraordinary

the IB; and Sessions
3. To perform such other functions The general shareholders’ meeting shall
as may be directed by the Board of be presided over by the Chairman of the
Directors. Board of Directors. All resolutions adopted
by the general meeting in ordinary session
Sec. 35. General Shareholder’s Meeting assembled shall be taken by a vote of
The shareholders shall convene in a majority of the shareholders represented
general meeting annually at the latest therein and in case of votes being equal,
within six (6) months following the end the Chairman shall cast his vote to break
of the financial year of the Bank at the the tie. The resolutions of the general
place, date and time fixed in the notice. meeting adopted in accordance therewith
The attendance of shareholders shall be binding on all shareholders
representing at least sixty percent (60%) including those not in attendance or
of the capital of the IB shall constitute a opposing the resolution.
quorum to do business and voting shall An extraordinary general meeting
be by shares of stocks. shall be required to pass resolutions
For purposes of this section, “Capital” related to the increase or decrease of
shall refer to the Total Subscribed Capital, capital of the Bank, the extension of its
whether paid or unpaid. legal existence or matters affecting
No delinquent stock shall be voted for amendment of R.A. No. 6848.
or be entitled to vote or to representation Resolutions of the extraordinary general
at any stockholders’ meeting, nor shall the meeting shall be deemed adopted when
holder thereof be entitled to any of the a majority vote of at least sixty-six and
rights of a stockholder except the right to two-thirds plus one percent (66 & 2/3 +
dividends until and unless he pays the 1%) of the capital shares shall have been
amount due on his subscription, cast.
including the cost and expenses incurred In no case shall the general meeting
thereon, if any. resolve to modify the object of the Bank as
Holders of subscribed shares not fully an Islamic investment bank.
paid which are not delinquent shall have
all the rights of a stockholder. Sec. 38. Bank Auditor; Reports
Subject to the approval by the
Sec. 36. Purposes of General Meeting shareholders, the IB shall appoint an
The general shareholders’ meeting external auditor, whose qualifications and
shall be convened purposely to hear the remunerations shall be fixed by the Board
Board of Directors’ report on the activities of Directors. The external auditor shall
of the IB, its financial condition, the assume his functions from the date of his
auditor’s report and to approve the appointment until the date of the next
balance sheet for the financial year ended general shareholders’ meeting. In case a
and the profit and loss statement, to vacancy occurs at any time during the
determine the portion of dividends to be year for any reason, the Board of Directors
distributed to the shareholders and the shall immediately appoint a replacement
method of distribution, to appoint the who shall serve until the next general
auditors, and to elect the members of the shareholders’ meeting.
Board of Directors and the Shari’a The external auditor shall conduct an
Advisory Council. annual financial audit not later than thirty

APP. 44
05.12.31
(30) days after the close of the calendar Sec. 40. Accounting Period
year. Reports on such audit shall be The financial year of the IB shall be based
made and submitted to the Board of on the Gregorian calendar, but the
Directors and the appropriate supervising corresponding Islamic Hijra date shall be
and examining department of the BSP not mentioned on all correspondences,
later than ninety (90) days after the start contracts, printed materials, forms and
of the audit. records of the IB. The accounting period
For purpose hereof, an independent shall commence on the first day of January
external auditor who may be engaged by and close on the last day of December
the Bank shall refer to one who does not each year.
hold or own two percent (2%) or more of
equity in the Bank. Sec. 41. Sharing between the Bank and
The Board of Directors, in a regular or the Investors
special meeting, shall consider and act on Not later than the 31st day of January
the financial audit report and shall submit, of each financial year, the Board of
within thirty (30) days after receipt of the Directors shall determine and publish the
report, a copy of its resolution to the general percentages of profit to be
appropriate supervising and examining allocated to the total funds participating
department of the BSP. The resolution shall in joint investments of the IB.
show, among other things, the names of the The IB as a joint venturer (Mudarib)
directors present and absent, and the shall be entitled to certain percentage after
action(s) taken on the findings and deducting the amount allocated to
recommendations. investors. The Bank shall likewise be
In the exercise of his auditing functions, entitled to a share in the profits of joint
all books, accounts and documents of the Bank investments in proportion to its own
shall be made available to the auditor for invested funds.
inspection to ascertain its assets and liabilities. For the purpose of calculating funds
employed in financing operations, priority
Sec. 39. Confidential Information shall be given to joint investment accounts
Banking transactions of the IB relating and the holders of muquaradah (interest free)
to all deposits of whatever nature are bonds.
confidential and may not be examined, All zakat due in the shareholder’s
inquired or looked into by any person, capital and reserves represented by the
government official, bureau or office pecuniary value of shares and the zakat
except as provided in Sec. 38, or upon due on the investor’s funds or profits
written permission by the depositor, or accruing to every depositor shall be paid
in cases where the money deposited or to the zakat fund, subject to their
the transaction concerned is the subject of instructions.
a court order. The Board of Directors shall adopt a
It shall be unlawful for any official or policy on the sharing between the Bank and
employee of the IB or any person as may its investors which should be consistent with
be designated by the Board of Directors to the Shari’a principle.
examine or audit the books of the Bank to
disclose or reveal to any person any Sec. 42. Training of Technical Personnel
confidential information except under the The IB shall promote and sponsor the
circumstances mentioned in the preceding training of technical personnel in the field
paragraph. of Islamic banking, finance and insurance.

APP. 44
05.12.31
Towards this end, the IB may defray the context requires another meaning, a
costs of study, at home or abroad, of depositor corresponds to an investor in
outstanding employees of the IB, of joint investment of the IB.
promising university graduates or of any 6. Current account liabilities in
other qualified persons who shall be relation to Islamic banking services mean
determined by proper competitive the total deposits at the Bank which are
examinations. The Board of Directors shall repayable on demand.
prescribe rules and regulations to govern the 7. Savings account liabilities in
training program of the IB. relation to Islamic banking services mean
the total deposits at the IB which normally
Sec. 43. Definition of Terms require the presentation of passbooks or
For purposes of these Rules and such other legally acceptable documents
Regulations, the following definition of in lieu of passbooks as approved by the
term shall apply: BSP for the deposit or withdrawal of
1. Islamic banking business means money;
banking business whose aims and 8. Investment account liabilities in
operations do not involve interest (riba) relation to Islamic banking services mean
which is prohibited by the Islamic Shari’a the total deposit liabilities at the IB in
principles. respect of funds placed by a depositor with
2. Shari’a has the meaning assigned to the Bank for a fixed period of time under
it by Islamic law and jurisprudence as an agreement to share the profits and
expounded by authoritative sources; in the losses of that bank on the investment of
context of R.A. No. 6848, it is construed by such funds.
reference to pertinent Quranic ordinances 9. Other deposit liabilities in relation
and applicable rules in Islamic jurisprudence to an IB mean the deposit liabilities at the
on business transactions. Bank other than savings account, investment
3. Riba has the meaning assigned to it account, current account liabilities and
by Islamic law and jurisprudence as deposit liabilities from any IB or any other
expounded by authoritative sources; in the licensed bank.
context of banking activities, the term 10. Participation in relation to Islamic
includes the receipt and payment of interest banking and commercial operations
in the various types of lending and means any agreement or arrangement
borrowing and in the exchange of currencies under which the mode of joint
on forward basis. investments or specific transactions shall
4. Zakat has the meaning assigned to not involve the element of interest charge
it by Islamic law and jurisprudence as other than as percentage share in profits
expounded by authoritative sources; in the and losses of business.
context of R.A. No. 6848, it represents 11. Share means share in the capital
annual an “tithe” payable by the Bank on of the Bank or a corporation and
behalf of its shareholders and investors includes a stock, except where a
in compliance with Islamic Shari’a distinction between stock and share is
principles. expressed or implied.
5. Depositors means a person or 12. Muquaradah Bonds represent long
entity who has an account at an IB, term non-interest bearing bonds of
whether the account is a current account, definite denomination issued and floated
a savings account, an investment account by the bank on the basis of participation
or any other deposit account; unless the under the Mudarabah principle to be used

APP. 44
05.12.31
in financing projects for economic to issue Letters of Guarantee in respect of

development. the performance of a task, or the settlement
of a loan, etc. Where a security deposit
Sec. 44. Statement of Principles is required, it is taken under the principle
For purposes of implementing these of Al-Wadiah. This principle also enables
Rules and Regulations, the following Shari’a the IBs to take guarantees from others for
principles shall be observed: the credit facilities granted.
1. Al-Bai Bithaman Ajil (Deferred 5. Al-Mudarabah (Trust Financing) -
Payment Sale) - principle under which principle under which a fund-owner
one sells to another by passing the provides full financing to the fund-user
ownership and delivery immediately but who provides only entrepreneurship and
collects the payment later, usually by labor. The fund-owner is not involved in
installments. This principle is applied in the management of the funds at all. The
financing fixed asset acquisition, such as return to the fund-owner and the fund-user
buying of houses, properties, plant and is a share of profit at a rate or ratio agreed
machinery, etc. in advance. In case of a failure, the fund-
2. Al-Bai ul Takjiri (Leasing ending owner bears the financial losses. This
with ownership) - principle under which principle is applied by the IBs in both
the fund-owner may purchase the asset deposit taking and financing. It is mostly
required by the fund-user with the right applied to support the investment (fixed)
to use the services of the asset, but deposit accounts.
subsequently to own the asset. Thus, the 6. Al-Murabahah (Purchase and Sale
fund-owner first purchased the asset or Cost-plus) - principle under which the
required by the fund-user and fund-owner purchases the goods or assets
subsequently lease the asset to the fund- required by the fund-user and sells at an
user with the stipulation that at a point agreed mark-up to the fund-user. This
in time the fund-user will purchase from principle is applied in Bills Receivable
the fund-owner the asset concerned at an financing. If full financing is not to be
agreed price with all the lease rental given, the fund-user would be requested
previously paid constituting part of the to place a margin deposit which will be
purchase price. used to pay for a portion of the cost of the
3. Al-Ijarah (Leasing) - principle goods or assets.
under which the fund-owner purchases 7. Al-Musharaka (Partnership Profit
the asset required by the fund-user who Sharing) - principle under which a fund-
acquires the right to use the services of owner and an entrepreneur can jointly
said asset. The transaction is covered by contribute to the finance and the
a contract whereby the fund-owner first management of a business. Profits or
purchases the asset and subsequently losses from the joint venture are shared
leases the same to the beneficiary (fund- between them in the rate or ratio agreed
user) for a fixed, obligatory period, in advance. This principle is applicable
subject to lease rentals and other terms in both the areas of funding and financing.
and conditions as may be agreed by both It is mostly applied by IBs to raise capital,
parties. to finance projects on a joint venture
4. Al-Kafalah (Guarantee) - basis, and in Trust Receipt financing.
principle under which one can provide 8. Al-Qardhasan (Benevolent Loan)
guarantee to another on behalf of a third - principle under which one provides a
person. This principle is applied by IBs direct loan, free of any charges, to another

APP. 44
05.12.31
in need. Payment of dividend for the use Sec. 46. Supervision; Applicability of
of the loan is at the discretion of the user Banking Laws, Rules and Regulations
of the funds. Financing economic and The IB shall be under the supervision
business activities of the poor is of the BSP. The provisions of other
sometimes extended under this principle. banking laws, MRBOFI, as well as the
9. Al-Rahan (Security) - principle existing Rules and Regulations of the BSP,
under which security can be given and particularly those enumerated under
taken for an outstanding obligation. Annex “B”, and other pertinent laws
Although IBs extend financing through insofar as they are not in conflict with any
partnership and trading assets, security is provisions of R.A. No. 6848 and these
also taken as a precaution under this Rules and Regulations shall be applicable
principle. to the IB.
10. Al-Wadiah (Safe Custody) -
principle under which a trustee will Sec. 47. Transformation to Islamic
safeguard the funds entrusted without any Banking Business
obligation to pay any dividend to the The IB shall transform its investment
owners of the fund (depositors) as long as portfolios, accounts or assets for the
a guarantee is given to ensure the full conduct of full Islamic banking business
refund of the money upon request of within two (2) years from 24 April 1996.
withdrawal. The trustee can have full The Monetary Board may allow extension
discretion over the use of the funds. of the period as circumstances may
11. Al-Wakalah (Agency) - principle warrant. If for any reason, such portfolios,
under which one acts as an agent for accounts or assets granted under the
another for a fee. This principle is applied authority of the Philippine Amanah Bank
in the Letters of Credit (LCs) operations in Charter are not eligible for this purpose,
which the IBs issue LCs on behalf of their the same may be transferred, swapped,
importing costumers when only LC sold or otherwise disposed of in any
service is required. A 100% margin manner deemed feasible.
deposit is collected under the principle of The Board of Directors of the IB shall
Al-Wadiah. The deposit will be used formulate policies to transform the
ultimately to meet the full value of the business of the Bank into an Islamic
inward bills. concept, and shall submit the same to the
appropriate department of the BSP within
Sec. 45. Sanctions six (6) months from 24 April 1996.
Any director, officer, employee, During the transformation period, the
auditor or agent of the IB who violates or Bank may continue to perform
permits the violation of any provisions of conventional banking activities under
these Rules and Regulation shall be subject R.A. No. 337, as amended, insofar as they
to the criminal and administrative sanctions are not in conflict with R.A. No. 6848,
provided under Sections 36 and 37 of R.A. and the applicable rules and regulations
No. 7653 (The New Central Bank Act). of the BSP.

APP. 45
05.12.31
NOTES ON MICROFINANCE
A. Definition of Microfinance Lending Technology Prompt approval and

disbursement of micro loans
Microfinance is the provision of a Lack of extensive loan records
broad range of financial services, such as Collateral substitutes; group-
deposits, loans, payment services, money based guarantees
Conditional access to further
transfers and insurance products to the
micro-credits
poor and low-income households, for
Information-intensive
their microenterprises and small
character-based lending
businesses, to enable them to raise their linked to cash flow analysis
income levels and improve their living and group-based borrower
standards. selection
Loan Portfolio Highly volatile
B. Core Principles for Microfinance Risk heavily dependent on
portfolio management skills
1. The poor needs access to Organizational Remote from/non-dependent
appropriate financial services Ideologyon government
2. The poor has the capability to repay Cost recovery objective vs.
loans, pay the real cost of loans and generate profit maximizing
savings. Institutional Decentralized
3. Microfinance is an effective tool for Structure Insufficient external control
poverty alleviation and regulation
Capital base is quasi-equity
4. Microfinance institutions must aim
(grants, soft loans)
to provide financial services to an increasing
number of disadvantaged people
5. Microfinance can and should be D. Definition of Microfinance loans
undertaken on a sustainable basis
6. Microfinance non-governmental Microfinancing loans are small loans
organizations (NGOs) and programs must granted to the basic sectors, on the basis
develop performance standards that will of the borrower’s cash flow and other
help define and govern the microfinance loans granted to the poor and low-income
industry toward greater reach and households for their microenterprises and
sustainability small businesses to enable them to raise
their income levels and improve their
C. Characteristics and Features of living standards. These loans are typically
Microfinance unsecured but may also be secured as the
case may be.
Characteristics Distinguishing Features
Type of client Low income E. Level of Microfinance Loan
Employment in informal
sector; low wage bracket Average microfinance loan of an NGO
Lack of physical collateral microfinance institution or of a Coop Bank
Closely interlinked or credit union in the Philippine case is
household/business activities about P25,000 (from a low of P2,000 to

APP. 45
05.12.31
P5,000). To be realistic, the maximum This basis is consistent with financially

principal amount of a microfinance loan can sustainable rural finance and microfinance.
be pegged at P150,000. This is equivalent Invariably, the global experience continues
to the total resources of a microenterprise to validate the proposition that what
under R.A. 8425. matters most to the poor and undeserved
segments is access to financial services
F. Collateralization of Microfinance Loan rather than their interest-rate cost - most
especially because microenterprise and
A microfinance borrower is not likely small business borrowers will take a
to be able to borrow from a large microfinance loan whose repayment
commercial, thrift or rural bank but from period (monthly repayment) match the
an NGO microfinance institution or additional cash flows they hope to generate.
perhaps from a small rural or Coop Bank. Therefore, interest on such
Thus, microfinance loans are typically microfinancing loans shall be reasonable
unsecured, for relatively short periods of but shall not be lower than the prevailing
time (180 days) with monthly (or more market rates. This is to enable the lending
frequent) amortizations of interest and institution to recover the financial and
principal, and often featuring a joint and operational costs incidental to this type of
several guarantee of one (1) or more microfinance lending but also to realize
persons and, certainly, seldom with some bottom line gains.
tangible collateral. But in some cases
they can also be secured, depending on H. Segments of Demand for Micro-credit
the capacity of the borrower to offer
collaterals acceptable to the lending 1. The landless who are engaged in
institutions. agricultural work on a seasonal basis and
manual laborers in forestry, mining,
G. Interest on Microfinance Loans household industries, construction and
transport; requires credit for consumption
Great caution should be exercised in needs and also for acquiring small
drawing up regulations about interest rate productive assets, such as livestock.
ceilings on microfinance loans. 2. Small and marginal farmers, rural
The old (and by now highly artisans, weavers and those self-employed
discredited as ineffective) approach to in the urban informal sector as hawkers,
loans for low-income borrowers vendors, and workers in household micro-
emphasized subsidized interest rates. It enterprises: requires credit for working
did not recognize that subsidized below- capital, including a small part for
market interest rates do not necessarily consumption needs. This segment largely
result in opening up access to financial comprises the poor but not the poorest.
services for low-income households and 3. Medium farmers/small entrepreneurs
microenterprises. who have gone in for commercial crops
The new approach which has been and others engaged in dairy, poultry, etc.
demonstrated by global experience is Among non-farm activities, this segment
characterized by a market-based interest includes those in villages and slums
rate regime which permits the institution engaged in processing or manufacturing
providing microfinance services to cover activity. These persons live barely above
administrative costs, provisions for loan the poverty line and also suffer from
losses and intermediation/funding costs. inadequate access to formal credit.

APP. 46
05.12.31
GUIDELINES TO INCORPORATE MARKET RISK IN THE

RISK-BASED CAPITAL ADEQUACY FRAMEWORK
(Appendix to Subsec. 1116.5)
Introduction (a) The standardized approach shall be

1. These guidelines describe the used by all banks which are subject to
approach to be used by the BSP to determine market risk capital requirement, except by
the minimum level of capital to be held by those which may be allowed by BSP to use
a bank against its market risk. The guidelines the alternative method described in
are broadly consistent with the paragraph (b) below. The method of
recommendations of the Basel Committee measuring market risk under the
on Banking Supervision in a document standardized approach is set out in the
entitled “Amendment to the Capital Accord Instructions for Accomplishing the Report
to Incorporate Market Risks” issued in on Computation of the Adjusted Risk-Based
January 1996. Capital Adequacy Ratio Covering
2. Under these guidelines, banks shall Combined Credit Risk and Market Risk.
be required to measure and apply capital (b) The internal models approach
charges against their market risk, in addition allows banks with the necessary system to
to their credit risk. use their own internal risk management
3. Market risk is defined as the risk of models to calculate market risk. The use of
losses in on- and off-balance sheet positions this approach is subject to prior BSP
arising from movements in market prices. approval. Approval shall be based on
The risks addressed by these guidelines are: meeting certain qualitative and quantitative
- the risks pertaining to interest rate-related conditions relating to the models themselves
instruments and equities in the trading and the controls surrounding them, as set
book; and out in Annex “A”. Banks may on a
- Foreign exchange risk throughout the transitional basis be allowed to use a
bank. combination of the standardized approach
and the models approach to measure their
Coverage of capital requirement for market market risk, provided any such “partial”
risk model shall cover a complete risk category
4. The capital requirement for market (e.g., interest rate risk or foreign exchange
risk shall apply to all UBs and KBs. risk). The reporting under the internal
5. The minimum capital adequacy ratio models approach is contained in the
covering combined credit risk and market risk Instructions for Accomplishing the Report
shall apply to banks which are subject to on Computation of the Adjusted Risk-Based
market risk capital requirement on both solo Capital Adequacy Ratio Covering
basis (i.e., head office plus branches) and Combined Credit Risk and Market Risk.
consolidated basis (i.e., parent bank plus
subsidiary financial allied undertakings, but Calculation of the capital adequacy ratio
excluding insurance companies). (CAR)
7. The adjusted capital adequacy ratio
Methods of measuring market risk covering combined credit risk and market
6. There are two (2) alternative risk shall be calculated using the qualifying
methods recognized for the measurement capital expressed as a percentage of the total
of market risk, as follows: risk-weighted assets (including credit risk and

APP. 46
05.12.31
market risk-weighted assets). The book of a bank. This is set out in the
components of this calculation are as Instructions for Accomplishing the Report
follows: on Computation of the Adjusted Risk-
- Market risk-weighted assets are the sum Based Capital Adequacy Ratio Covering
of the capital charges for all market risk Combined Credit Risk and Market Risk.
categories calculated using either the Banks are expected to adopt a consistent
standardized approach or the internal approach to allocating transactions into
models approach [multiplied by 125% their trading and non-trading (i.e., banking
for those calculated using the book), and clear audit trail for this
standardized methodology to be purpose should be created at the time
consistent with the higher capital charge each transaction is entered into. The BSP
for credit risk, i.e., ten percent (10%) as shall monitor banks’ practices to ensure
opposed to BIS recommended eight that there is no abusive switching between
percent (8%)] multiplied by 10. (The different books to inappropriately reduce
multiplier 10 is the reciprocal of the BSP capital charges.
required minimum capital adequacy
ratio for credit risk of ten percent (10%). Required reports
The effect is to convert the sum of the 10. Banks shall submit quarterly reports
market risk capital charges into a risk- of their adjusted risk-based capital adequacy
weighted assets equivalent which can ratios covering combined credit risk and
then be directly added to the total credit market risk on solo basis and on
risk-weighted assets.); consolidated basis to the appropriate
- Credit risk–weighted assets is the total supervising and examining department of the
risk-weighted assets calculated in BSP in accordance with the prescribed
accordance with Subsec. X116.2, less forms within fifteen (15) banking days and
the part calculated for on-balance sheet thirty (30) banking days after the end of
debt securities and equities in the trading reference quarter for solo report and
book. (The credit risk-weighted assets consolidated report, respectively. These
for on-balance sheet debt securities and reports shall be in addition to the reports on
equities are deducted because they risk-based capital adequacy ratio covering
represent an element now covered by credit risk required to be submitted in
the market risk capital charge); and Subsec. X116.4.
- Qualifying capital is the same as that 11. One (1) of three (3) alternative
calculated in accordance with Subsec. report forms prescribed, shall be used
X116.1. depending on the complexity of the bank’s
8. Banks shall maintain a minimum operations, to wit:
adjusted risk-based capital adequacy ratio (a) For UBs/KBs with expanded
covering combined credit risk and market derivatives authority;
risk of ten percent (10%) calculated in this (b) For UBs/KBs with expanded
manner on solo basis and on consolidated derivatives authority but without option
basis. transactions; or
(c) For UBs/KBs without expanded
The trading book derivatives authority.
9. A key feature of the market risk 12. The abovementioned reports shall
framework is the definition of the trading be classified as Category A-2 Reports.

APP. 46
05.12.31
Annex A
REQUIREMENTS FOR THE USE OF INTERNAL

MODELS TO MEASURE MARKET RISK
I. General Criteria II. Qualitative Standards
1. The use of internal models shall be 5. Banks using internal models must have
conditional upon the explicit prior market risk management systems that
approval of the BSP. are conceptually sound and
implemented with integrity.
2. The BSP will only give approval if at a Accordingly, a number of qualitative
minimum: criteria that banks would have to meet
before they are permitted to use a
- It is satisfied that the bank’s risk model-based approach are specified in
management system is conceptually paragraph 6 below. The extent to which
sound and is implemented with banks meet the qualitative criteria may
integrity; influence the level at which the BSP will
set the multiplication factor referred to
- The bank has in the BSP’s view in Part IV, paragraph 8(j) below. Only
sufficient number of staff skilled in those banks whose models are in full
the use of sophisticated models not compliance with the qualitative criteria
only in the trading area but also in as listed in this section will be eligible
the risk control, audit and if for application of the minimum
necessary, back office areas; multiplication factor.
- The bank’s models have in the BSP’s 6. The qualitative criteria are:
judgment a proven track record of
reasonable accuracy in measuring (a) The bank should have an
risk; and independent risk control unit that
is responsible for the design and
- The bank regularly conducts stress implementation of the bank’s risk
tests along the lines discussed in Part management system. The unit
V below. should produce and analyze daily
reports on the output of the bank’s
3. The BSP may require a period of initial risk measurement model, including
monitoring and live testing of a bank’s an evaluation of the relationship
internal model before it is used for between measures of risk exposure
supervisory capital purposes. and trading limits. This unit must be
independent from business trading
4. In addition to these general criteria, units and should report directly to
banks using internal models for capital senior management of the bank.
purposes shall be subject to the
requirements detailed in Parts II to VII (b) The unit should conduct a regular
below. backtesting program, i.e. an ex-post

APP. 46
05.12.31
comparison of the risk measure a supplement to the risk analysis

generated by the model against based on day-to-day output of the
actual daily changes in portfolio bank’s risk measurement model.
value over longer periods of time, The results of stress testing exercises
as well as hypothetical changes should be reviewed periodically by
based on static positions. senior management and should be
reflected in the policies and limits
(c) The board of directors (or equivalent set by management and the board
management committee in the case of directors (or equivalent
of Philippine branches of foreign management committee in the case
banks) and senior management of Philippine branches of foreign
should be actively involved in the banks). Where stress tests reveal
risk control process and must regard particular vulnerability to a given set
risk control as an essential aspect of circumstances, prompt steps
of the business to which significant should be taken to manage those
resources need to be devoted. In risks appropriately (e.g., by hedging
this regard, the daily reports against that outcome or reducing
prepared by the independent risk the size of the bank’s exposures).
control unit must be reviewed by a
level of management with sufficient (g) Banks should have a routine in
seniority and authority to enforce place for ensuring compliance with
both reductions of positions taken a documented set of internal
by individual traders and reductions policies, controls and procedures
in the bank’s overall risk exposure. concerning the operation of the risk
measurement system. The bank’s
(d) The bank’s internal risk risk measurement system must be
measurement model must be well documented, for example,
closely integrated into the day-to- through a risk management manual
day risk management process of the that describes the basic principles
bank. Its output should accordingly of the risk management system and
be an integral part of the process of that provides an explanation of the
planning, monitoring and empirical techniques used to
controlling the bank’s market risk measure market risk.
profile.
(h) An independent review of the risk
(e) The risk measurement system measurement system should be
should be used in conjunction with carried out regularly in the bank’s
internal trading and exposure limits. own internal auditing process. This
In this regard, trading limits should review should include both the
be related to the bank’s risk activities of the business trading
measurement model in a manner units and of the independent risk
that is consistent over time and that control unit. A review of the overall
is well-understood by both traders risk management process should
and senior management. take place at regular intervals
(ideally not less than once a year)
(f) A routine and rigorous program of and should specifically address, at
stress testing should be in place as a minimum:

APP. 46
05.12.31
- the adequacy of the documentation backtesting as described in

of the risk management system and paragraph (b) above.
process;
III. Specification of Market Risk Factors
- the organization of the risk
control unit; 7. A bank’s internal market risk
measurement system must specify an
- the integration of market risk appropriate set of market risk factors,
measures into daily risk i.e., the market rates and prices that
management; affect the value of the bank’s trading
positions. The risk factors contained in
- the approval process for risk a market risk measurement system
pricing models and valuation should be sufficient to capture the
systems used by front and back- risks inherent in the bank’s portfolio
office personnel; of on-and off- balance sheet trading
positions. Although banks will have
- the validation of any significant some discretion in specifying the risk
change in the risk measurement factors for their internal models, the
process; following guidelines should be fulfilled:
- the scope of market risks (a) For interest rates, there must be a
captured by the risk measurement set of risk factors corresponding to
model; interest rates in each currency in
which the bank has interest rate-
- the integrity of the management sensitive on- or off-balance sheet
information system; positions.
- the accuracy and completeness - The risk measurement system

of position data; should model the yield curve
using one (1) of a number of
- the verification of the generally accepted approaches,
consistency, timeliness and for example, by estimating
reliability of data sources used forward rates of zero coupon
to run internal models, yields. The yield curve should
including the independence of be divided into various maturity
such data sources; segments in order to capture
variation in the volatility of rates
- the accuracy and appropriateness along the yield curve; there will
of volatility and correlation typically be one (1) risk factor
assumptions; corresponding to each maturity
segment. For material
- the accuracy of valuation and exposures to interest rate
risk transformation calculations; movements in the major
and currencies and markets, banks
must model the yield curve
- the verification of the model’s using a minimum of six (6) risk
accuracy through frequent factors. However, the number

APP. 46
05.12.31
of risk factors used should - A somewhat more detailed

ultimately be driven by the approach would be to have risk
nature of the bank’s trading factors corresponding to
strategies. For instance, a bank various sectors of the overall
with a portfolio of various types equity market (for instance,
of securities across many points industry sectors or cyclical and
of the yield curve and that non-cyclical sectors). As above,
engages in complex arbitrage positions in individual stocks
strategies would require a within each sector could be
greater number of risk factors to expressed in beta-equivalents
capture interest rate risk relative to the sector index; and
accurately; and
- The most extensive approach
- The risk measurement system would be to have risk factors
must incorporate separate risk corresponding to the volatility
factors to capture spread risk of individual equity issues.
(e.g., between bonds and
swaps). A variety of approaches The sophistication and nature of the
may be used to capture the modeling technique for a given
spread risk arising from less than market should correspond to the
perfectly correlated movements bank’s exposure to the overall
between government and other market as well as its concentration
fixed-income interest rates, such in individual equity issues in that
as specifying a completely market.
separate yield curve for non-
government fixed-income (c) For exchange rates, the risk
instruments (for instance, swaps measurement system should
or local government unit incorporate risk factors
securities) or estimating the corresponding to the individual
spread over government rates at foreign currencies in which the
various points along the yield bank’s positions are denominated.
curve. Since the value-at-risk (VaR) figure
calculated by the risk measurement
(b) For equity prices, there should be system will be expressed in
risk factors corresponding to each Philippine peso, any net position
of the equity markets in which the denominated in a foreign currency
bank holds significant positions. will introduce a foreign exchange
risk. Thus, there must be risk factors
- At a minimum, there should be corresponding to the exchange rate
a risk factor that is designed to between the Philippine peso and
capture market-wide movements each foreign currency in which the
in equity prices (e.g., a market bank has a significant exposure.
index). Positions in individual
securities or in sector indices IV. Quantitative Standards
could be expressed in “beta-
equivalents” relative to this 8. Banks will have flexibility in devising
market-wide index; the precise nature of their models, but

APP. 46
05.12.31
the following minimum standards shall (f) No particular type of model is

apply for the purpose of calculating their prescribed. So long as each model
capital charge: used captures all the material risks
run by the bank, as set out in Part
(a) “Value-at-risk” (VaR) must be III, banks will be free to use models
computed on a daily basis. based, for example on variance-
covariance matrices, historical
(b) In calculating VaR, a 99th percentile, simulations, or Monte Carlo
one-tailed confidence interval is to simulations.
be used.
(g) Banks will have discretion to
(c) In calculating VaR, an instantaneous recognize empirical correlations
price shock equivalent to a 10-day within broad risk categories (e.g.,
movement in prices is to be used, interest rates, exchange rates and
i.e., the minimum “holding period” equity prices, including related
will be ten (10) trading days. Banks options volatilities in each risk
may use VaR numbers calculated factor category). The BSP may
according to shorter holding periods also recognize empirical
scaled up to ten (10) days by the correlations across broad risk factor
square root of time. (For the categories, provided that the BSP is
treatment of options, also see satisfied that the bank’s system for
paragraph (h) below.) measuring correlations is sound and
implemented with integrity.
(d) The choice of historical observation
period (sample period) for (h) For banks with option transactions,
calculating VaR will be constrained banks’ models must accurately
to a minimum length of one (1) year. capture the unique risks associated
For banks that use a weighting with options within each of the
scheme or other methods for the broad risk categories. The following
historical observation period, the criteria apply to the measurement
“effective” observation period must of options risk:
be at least one (1) year (that is, the
weighted average time lag of the - Banks’ models must capture
individual observations cannot be the non-linear price
less than six (6) months). characteristics of options
positions;
(e) Banks should update their data sets
no less frequently than once every - Banks are expected to
three (3) months and should also ultimately move towards the
reassess them whenever market application of a full 10-day
prices are subject to material price shock to options
changes. The BSP may also require positions or positions that
a bank to calculate its VaR using a display option-like characteristics.
shorter observation period’ if in the In the interim, the BSP may require
BSP’s judgment, this is justified by a banks to adjust their capital
significant upsurge in price volatility. measure for options risk through

APP. 46
05.12.31
other methods, e.g., periodic measure) for the past 250 trading
simulations or stress testing; and days of the reference quarter-end as
set out in Table 5 of the Instructions
- Each bank’s risk measurement for Accomplishing the Report on
system must have a set of risk Computation of the Adjusted Risk-
factors that captures the Based Capital Adequacy Ratio
volatilities of the rates and Covering Combined Credit Risk and
prices underlying option Market Risk. (Table 3 for banks with
positions, i.e., vega risk. Banks expanded derivatives authority but
with relatively large and/or without option transactions, and
complex options portfolios banks without expanded derivatives
should have detailed authority.)
specifications of the relevant
volatilities. This means that (k) Banks using models will be subject
banks should measure the to a separate capital charge to cover
volatilities of options positions the specific risk of interest rate-
broken down by different related instruments and equity
maturities. securities as defined in the
standardized approach to the extent
(i) Each bank must meet, on a daily that this risk is not incorporated into
basis, a capital requirement their models. However, for banks
expressed as the higher of (i) last using models, the total specific risk
trading day’s VaR number or (ii) an charge applied to interest rate-
average of the daily VaR measures related instruments or to equities
on each of the preceding sixty (60) should in no case be less than half
trading days (both measured the specific risk charges calculated
according to the parameters according to the standardized
specified in this section) multiplied methodology.
by a multiplication factor.
V. Stress Testing
(j) The multiplication factor shall be set
by the BSP on the basis of its 9. Banks using internal models for
assessment of the quality of the measuring market risk capital
bank’s risk management system requirements must have in place a
subject to an absolute minimum of rigorous and comprehensive stress
three (3). Banks will be required to testing program. Stress testing to
add to this factor a “plus” directly identify events or influences that could
related to the ex-post performance greatly impact banks is a key component
of the model (to be determined on of a bank’s assessment of its capital
a quarterly basis), thereby position.
introducing a built-in positive
incentive to maintain the predictive 10. Banks’ stress scenarios should cover
quality of the model. The plus will a range of factors that can create
range from 0 to 1 based on the extraordinary losses or gains in trading
number of backtesting exceptions portfolios, or to make the control of
(i.e., the number of times that actual/ risks in those portfolios very difficult.
hypothetical loss exceeds the VaR These factors include low-probability

APP. 46
05.12.31
events in all major types of risks, to the level of capital that results
including the various components of from a bank’s internal measurement
market, credit, and operational risks. system. For example, it could
Stress scenarios should shed light on the provide BSP with a picture of how
impact of such events on positions that many days of peak day losses would
display both linear and non-linear price have been covered by a given VaR
characteristics (i.e., options and estimate.
instruments that have options-like
characteristics). (b) Scenarios requiring a simulation
by the bank. Banks should subject
11. Banks’ stress tests should be both of a their portfolios to a series of
qualitative and quantitative nature, simulated stress scenarios and
incorporating both market risk and provide BSP with the results.
liquidity aspects of market disturbances. These scenarios could include
Quantitative criteria should identify testing the current portfolio against
plausible stress scenarios to which past periods of significant
banks could be exposed. Qualitative disturbance, for example, the early
criteria should emphasize that two (2) 80’s banking crisis or the 1997
major goals of stress testing are to Asian financial crisis, incorporating
evaluate the capacity of the bank’s both the large price movements
capital to absorb potential large losses and the sharp reduction in
and to identify steps the bank can take liquidity associated with these
to reduce its risk and conserve capital. events. A second type of scenario
This assessment should be integral to would evaluate the sensitivity of the
setting and evaluating the bank’s bank’s market risk exposure to
management strategy and the results of changes in the assumptions about
stress testing should be regularly volatilities and correlations.
reported to senior management and, Applying this test would require an
periodically, to the board of directors evaluation of the historical range of
(or equivalent management committee variation for volatilities and
in the case of Philippine branches of correlations and evaluation of the
foreign banks). bank’s current positions against the
extreme values of the historical
12. Banks should combine the use of range. Due consideration should
supervisory stress scenarios with stress be given to the sharp variation that
tests developed by banks themselves to at times has occurred in a matter of
reflect their specific risk characteristics. days in periods of significant market
Specifically, the BSP may ask banks to disturbance.
provide information on stress testing in
the following three (3) broad areas: (c) Scenarios developed by the bank
itself to capture the specific
(a) Supervisory scenarios requiring no characteristics of its portfolio. A
simulation by the bank. Banks bank should also develop its own
should provide the BSP information stress test which it identifies as most
on the largest losses experienced adverse based on the characteristics
during the reference quarter. This of its portfolio. It should provide the
loss information could be compared BSP with a description of the

APP. 46
05.12.31
methodology used to identify and (d) Check the results of the bank’s
carry out the scenarios, as well as backtesting of its internal
with the description of the results measurement system (i.e., comparing
derived from these scenarios. VaR estimates with actual profits and
losses) to ensure that the model
The results should be reviewed provides a reliable measure of
periodically by senior management potential losses over time. This
and should be reflected in the means that banks should make the
policies and limits set by results, as well as the underlying
management and the board of inputs to their VaR calculation,
directors (or equivalent management available to the BSP and/or external
committee in the case of Philippine auditors on request; and
branches of foreign banks).
Moreover, if a bank’s testing reveals (e) Make sure that data flows and
particular vulnerability to a given set processes associated with the risk
of circumstances, the BSP would measurement system are
expect the bank to take prompt steps transparent and accessible. In
to manage those risks appropriately particular, it is necessary that
(e.g., by hedging against that auditors or the BSP is in a position
outcome or reducing the size of its to have easy access, whenever they
exposures). judge it necessary and under
appropriate procedures, to the
VI. External Validation models’ specifications and
parameters.
13. The validation of models’ accuracy by
external auditors and the BSP should VII. Combination of Internal Models and
at a minimum include the following the Standardized Methodology
steps:
14. Unless a bank’s exposure to a particular
(a) Verify that the internal validation risk factor is insignificant, the internal
processes described in Part II, models approach will require banks to
paragraph 6 (h) are operating in a have an integrated risk measurement
satisfactory manner; system that captures the broad risk
factor categories (i.e., interest rates,
(b) Ensure that the formulae used in the exchange rates and equity prices, with
calculation process, as well as for related option volatilities being
the pricing of options and other included in each risk factor category).
complex instruments, are validated A bank which has developed one or
by a qualified unit, which in all cases more models will no longer be able to
should be independent from the revert to measuring the risk measured
trading area; by those models according to the
standardized methodology (unless the
(c) Check that the structure of internal BSP withdraws approval for that model).
models is adequate with respect to
the bank’s activities and 15. The following conditions will apply to
geographical coverage; banks using such combinations:

APP. 46
05.12.31
(a) Each broad risk factor category justifying to the BSP that they have
must be assessed using a single a good reason for doing so;
approach (either internal models
or the standardized approach), (d) No element of market risk may
i.e., no combination of the two (2) escape measurement, i.e., the
methods will be permitted within exposure for all the various risk
a risk category or across banks’ factors, whether calculated
different entities for the same type according to the standardized
of risk; approach or internal models, would
have to be captured; and
(b) All the criteria laid down in this Annex
will apply to the models being used; (e) The capital charges assessed under
the standardized approach and
(c) Banks may not modify the under the models approach are to
combination of the two (2) be aggregated according to the
approaches they use without simple sum method.

APP. 46a
05.12.31
MARKET RISK CAPITAL TREATMENT FOR

DOLLAR-LINKED PESO NOTES
1. Treatment of interest rate risk. 2. Treatment of foreign exchange risk.

Dollar-linked Peso Notes (DLPNs) booked DLPNs booked under TAS, ASS or
under Trading Account Securities (TAS) or Investment in Bonds and other Debt
Available for Sale Securities (ASS) result in interest Instruments (IBODI) result in foreign
rate risk. These exposures shall be included exchange risk. These exposures shall be
in the report forms in the following manner: included in the report forms in the following
manner:
- Under the standardized approach. The
market value of the DLPN shall be - Under the standardized approach. The
reported in Part I.1, Item I.1, and Part market value of the DLPN shall be
I.2, US dollar ladder, under the coupon included in the computation of the net
and time band corresponding to the long/(short) position for US dollar to be
DLPN’s residual maturity; and reported in Part III; and
- Under the internal models approach. - Under the internal models approach.
DLPN exposures must be included in DLPN exposures must be included in
the computation of Value-at-Risk (VaR) the computation of VaR measure for
measure for interest rate risk. This VaR foreign exchange risk. This VaR
measure shall be reported in Part V, Item measure shall be reported in Part V, Item
1 (for banks with expanded derivatives 2 (for banks with expanded derivatives
authority), or Part IV, Item 1 (for banks authority), or Part IV, Item 2 (for banks
with expanded derivatives authority but with expanded derivatives authority but
without option transactions and for without option transactions, and for
banks without expanded derivatives banks without expanded derivatives
authority). authority).

APP. 46b
05.12.31
INSTRUCTIONS FOR ACCOMPLISHING THE REPORT ON COMPUTATION OF

THE ADJUSTED RISK-BASED CAPITAL ADEQUACY RATIO COVERING
COMBINED CREDIT RISK AND MARKET RISK
(For Universal Banks and Commercial Banks
With Expanded Derivatives Authority)
General Instructions The risks subject to this reporting

requirement are:
1. All universal banks and commercial (a) the risks pertaining to interest rate-
banks are required to complete this Report related instruments and equities in the
both on a solo basis (i.e., head office plus bank’s trading book; and
branches) and on a consolidated basis (i.e., (b) foreign exchange risk throughout
parent bank plus subsidiary financial allied the bank.
undertakings, but excluding insurance The Report should include the
companies). reporting bank’s positions in on-balance
sheet financial instruments and off-
2. The Report should be submitted as balance sheet derivatives, the latter being
follows: defined as financial contracts whose
(a) Solo report - within 15 banking days values depend on the values of one or
after the end of each reference quarter; and more underlying assets or indices.
(b) Consolidated report - within 30
banking days after the end of each reference 6. For the purpose of the Report, the
quarter. trading book of a bank shall consist of:
(a) its proprietary positions in financial
3. Current market value should be instruments which are taken on with the
used for reporting. For leveraged intention of short-term resale or benefiting
instruments where the apparent notional in the short term from actual or expected
amount differs from the effective notional differences between the buying and selling
amount, the bank should use the effective prices or from other price or interest rate
notional amount in calculating the market variations;
value for reporting, e.g., a swap contract (b) positions which arise from the
with a stated notional amount of PHP1.0 execution of trade orders from customers
million, the terms of which call for a and market making; and
quarterly settlement of the difference (c) positions taken in order to hedge
between 5% and PHIBOR multiplied by 10 other elements of the trading book.
has an effective notional amount of
PHP10.0 million. 7. The financial instruments referred to
in the preceding paragraph include:
4. Securities transactions are to be (a) (i) transferable securities;
reported on a “trade date” basis. (ii) units in collective investment
undertakings;
Definitions and Clarifications (b) certificates of deposit and other
similar capital market instruments;
5. Market risk is defined as the risk of (c) financial futures contracts;
losses in on- and off-balance sheet positions (d) forward contracts including forward
arising from movements in market prices. rate agreements;

APP. 46b
05.12.31
(e) swaps; and common shares of the issuer) which trade

(f) options. like debt securities. Debt related derivatives
include bond futures and bond options.
8. Banks are expected to have an Options are subject to special treatment
established policy for allocating transactions described in detail under Part IV of Specific
(including internal deals) to the trading or Instructions.
non-trading (i.e., banking) book, as well as
procedures to ensure compliance with such 11. Interest rate derivatives include all
policy. There must be a clear audit trail at derivatives contracts and off-balance sheet
the time each transaction is entered into and instruments which react to changes in
the BSP will examine the adequacy of such interest rates, e.g., interest rate futures, forward
policy and procedures and their consistent rate agreements (FRAs), interest rate and cross
implementation when it is considered currency swaps, interest rate options and
necessary. For this purpose, banks which forward foreign exchange positions. As noted
engage in trading activities should submit above, the treatment for options is described
to the BSP a policy statement covering: in Part IV of Specific Instructions.
(a) the definition of trading activities;
(b) the financial instruments which can 12. Detailed offsetting rules applicable
be traded or used for hedging the trading to the reporting of positions are set out in
book portfolio; and the relevant parts of Specific Instructions.
(c) the principles for transferring These offsetting rules can be applied on
positions between the trading and the both the solo and consolidated basis,
banking books. provided that in the latter case there are no
obstacles to the quick repatriation of profits
9. In general, the BSP will have regard from a foreign subsidiary to the Philippines
to the bank’s intention in entering into a and the bank performs daily management
particular transaction when determining of risks on a consolidated basis. For this
whether such transaction should fall into the purpose, offsetting means the exclusion of
trading book. Transactions will likely be matched positions of a bank from reporting
considered to carry a trading intent on the and hence exclusion of such positions from
part of the bank if: the calculation of the adjusted capital
(a) the positions arising from the adequacy ratio.
transactions are marked to market on a daily
basis as part of the internal risk management 13. For avoidance of doubt, items that are
process; deductible from the qualifying capital of the
(b) the positions are not (or not intended bank in the calculation of the risk-based
to be) held to maturity; and capital adequacy ratio pursuant to Subsections
(c) the positions satisfy other criteria the X116.1.a to X116.1.c of the Manual of
bank applies to its trading portfolio on a Regulations for Banks are excluded from
consistent basis. market risk capital requirement.
10. Debt securities include both fixed- 14. In general, banks are only required
rate and floating-rate instruments, negotiable to complete Parts I to IV and VI of the
certificates of deposit, non-convertible Report. Banks which have obtained the
preference shares, and also convertible BSP’s approval to adopt their internal value-
bonds (i.e., debt issues or preference shares at-risk (VaR) models to calculate their market
that are convertible, at a stated price, into risk capital charge (in all or individual risk

APP. 46b
05.12.31
categories) should complete Part V (in lieu of securities should be reported as long and
Parts I to IV). Where the internal model is used short positions, respectively.
to calculate only selected risk categories, the
capital charge for the risk categories 17. Foreign countries, foreign incorporated
measured under the internal models banks and Philippine incorporated banks/
approach should be reported in Part V quasi banks with the “highest credit quality”,
while that for the other risk categories as well as debt securities with the “highest
measured under the standardized credit quality” refer to ratees/debt securities
approach should be reported in the given the minimum credit ratings as
relevant sections of Parts I to IV. This indicated below by any two of the following
combination of the standardized internationally accepted rating agencies:
approach and the internal models
approach is allowed on a transitional Rating Agency Credit Rating
basis. Banks which adopt the internal (a) Moody’s “Aa3” and above
models approach will not be permitted, (b) Standard and Poor’s “AA-“ and above
save in exceptional circumstances, to (c) Fitch IBCA “AA-“ and above
revert to the standardized approach.
and such other recognized international
Specific Instructions rating agencies as may be approved by the
Monetary Board.
Part I Interest Rate Exposures The ratings of domestic rating agencies
may likewise be used for this purpose
1. Debt securities and debt related provided that such rating agencies meet the
derivatives – specific risk criteria to be prescribed by the Monetary
Board.
15. Report in this part the long and short
positions in debt securities and debt 18. Multilateral development banks
derivatives (e.g., bond futures and bond refer to the World Bank Group comprised
options) in the trading book by category of of the International Bank for Reconstruction
the issuer. Offsetting will be allowed and Development (IBRD) and the
between long and short positions in International Finance Corporation (IFC), the
identical issues (including positions in Asian Development Bank (ADB), the African
derivatives) with exactly the same issuer, Development Bank (AfDB), the European
coupon, currency and maturity. For items Bank for Reconstruction and Development
1.4 to 1.7 of the Report, positions should (EBRD), the Inter-American Development
be slotted into the appropriate time bands Bank (IADB), the European Investment Bank
according to the residual maturities of the (EIB); the Nordic Investment Bank (NIB); the
debt securities (or the underlying securities Caribbean Development Bank (CDB), the
in case of debt derivatives). (Refer to Council of Europe Development Bank
examples (1) and (2) in Annex A). (CEDB) and such others as may be
recognized by the BSP.
16. A security, which is the subject of a
repurchase agreement, will be treated as if 19. Non-central government public
it were still owned by the seller of the sector entities of a foreign country refer to
security, i.e., to be reported by the seller. entities which are regarded as such by a
This principle applies also in Part 1.2 of the recognized banking supervisory authority in
Report. Commitments to buy and sell the country in which they are incorporated.

APP. 46b
05.12.31
2. Debt securities, debt related maturity of 9 months and a short position

derivatives and interest rate derivatives – in a zero coupon government security with
general market risk a maturity of 6 months. (Refer to examples
(5) and (6) in Annex A). The market values
20. Report in this part the long and of the two positions should be reported. For
short trading book positions in debt forward foreign exchange positions in the
securities and debt derivatives described trading book, they should be treated as long
above, as well as interest rate derivatives. and as short positions in a zero coupon
Report also interest rate exposures arising government security of the 2 currencies
from futures contracts and forward positions with the same maturity as the forward
in equities. A Maturity Method is adopted contract. (Refer to example (8) in Annex
for the reporting of these positions as A).
detailed below. Banks that possess the
necessary capability to calculate the 23. For a bond future, where a range of
duration and price sensitivity of each deliverable instruments may be delivered
position separately and wish to adopt such to fulfill the contract, the bank has flexibility
a duration approach for reporting in this part to elect which deliverable security goes into
may seek approval from BSP. the maturity ladder but should take account
of any conversion factor defined by the
21. Positions should be reported exchange. A two-leg approach will be
separately for each currency, i.e., banks adopted similar to the above. A long bond
should use separate sheets (Part I.2 of the future will be taken as a long position in a
Report) to report positions of different deliverable bond and a short position in a
currencies. The unadjusted market risk zero coupon security maturing at the
capital charge is then calculated for each future’s delivery date. For example, a long
currency according to procedures set out futures contract on a 5 year fixed rate
in paragraphs 31 to 34 with no offsetting security with delivery 3 months from the
between different currencies. reporting date will be reported as a long
position in say, a 5.25 year security, i.e., a
22. Under the Maturity Method, specific security which is within the range
positions are slotted into the time bands of of deliverables under the futures contract
the maturity ladder (as shown in Part I.2 of (as opposed to a notional/theoretical
the Report) by remaining maturity if fixed security), and a short position in a 3 months
rate and by the period to the next repricing zero coupon security. (Refer to example
date if floating rate. (Refer to examples (1) (3) in Annex A).
and (2) in Annex A). Derivatives should be
treated as combinations of long and short The amount to be reported in the above
positions. The maturity of an interest rate example for both legs will be the contract
future or a forward rate agreement will be face value divided by the relevant
the period until delivery or exercise of the conversion factor and multiplied by the
contract, plus – where applicable – the life current cash price of the selected
of the underlying instrument. For example, deliverable bond. A forward bond
a long position in a June 3-month interest transaction (i.e., with a settlement period
rate future taken in December is to be longer than the market norm) will be treated
reported at end of December as a long similarly, i.e., a long bond forward will be
position in a zero coupon government reported as long position in the bond and a
security in that particular currency with a short position in a zero coupon security up

APP. 46b
05.12.31
to the forward delivery date. The current the bond. Similarly, if the bank has a short
market value (at spot price) of the bond position in a bond future and a long
should be reported. position in the underlying bond, such
positions can be offset. A long position
24. Swaps will be treated as two up to the future’s delivery date should,
positions in securities with the relevant however, be reported.
maturities. For example, an interest rate When the futures contract comprises a
swap under which a bank is receiving range of deliverable instruments, offsetting
floating rate interest and paying fixed will of positions in the futures contract and its
be treated as a long position in a floating underlying is only permissible in cases
rate instrument of maturity equivalent to the where there is a readily identifiable
period until the next interest fixing and a underlying security which is most profitable
short position in a fixed-rate instrument of for the trader with a short position to deliver,
maturity equivalent to the residual life of i.e., the “cheapest to deliver”. This means
the swap. The market values of the 2 that offsetting is only permitted between a
instruments should be reported. (Refer to short future and a long bond, not between
example (4) in Annex A). For swaps that pay a long future and a short bond; and the long
or receive a fixed or floating interest rate bond must be the one that is “cheapest to
against some other reference price, e.g., an deliver”. The amount to be reported for the
equity price, the interest rate component remaining long position up to the futures
should be slotted into the appropriate maturity contract’s delivery date will be the face
category, with the equity component being value of the contract divided by the relevant
included in the equity framework. The conversion factor and multiplied by the
separate legs of cross-currency swaps are to current spot price of the “cheapest to
be reported in the relevant maturity ladders deliver” bond.
for the currencies concerned. (Refer to
example (12) in Annex A). 26. Opposite positions in the same
category of derivatives instruments
25. As with the reporting under Part I.1 (including the delta-equivalent value of
of the Report, banks can offset long and options where the delta-plus approach for
short positions in identical instruments with options is adopted – see Part IV of the
exactly the same issuer, coupon, currency Report) can in certain circumstances be
and maturity for general market risk regarded as matched and allowed to offset
purposes. Similarly, a matched position in a fully. The separate legs of different swaps
futures or forward contract and its underlying may also be “matched” subject to the same
may be fully offset. However, the leg conditions. To qualify for this treatment,
representing the time to expiry of the futures the positions must relate to the same
or forward contract should be reported. underlying instruments, be of the same
For example, a bank has a long position nominal value and be denominated in the
in a particular bond and sells forward (i.e., same currency. In addition:
beyond the normal settlement period for the (a) for futures: offsetting positions in the
security) such a bond as at the reporting notional or underlying instruments to which
date. The long and short positions in the the futures contract relates must be for
bond can be offset but a long position in a identical products and mature within 7 days
(notional) zero coupon security with of each other;
maturity at the forward delivery date should (b) for swaps and forward rate
be reported, at the current market value of agreements (FRAs): the reference rate (for

APP. 46b
05.12.31
floating rate positions) must be identical and and systems may use alternative formulae
the coupon closely matched (i.e., within 15 (the so called “pre-processing” techniques)
basis points); and to calculate the positions to be included in
(c) for swaps, FRAs and forwards: the the maturity ladder. This applies to all
next interest fixing date or, for fixed coupon interest rate sensitive positions, arising from
positions or forwards, the residual maturity both physical and derivative instruments.
must correspond within the following limits: One method is to first convert the payments
- if either of the instruments for required under each transaction into their
offsetting has an interest fixing date or present values. For that purpose, each cash
residual maturity up to 1 month, the interest flow should be discounted using zero-
fixing date or residual maturity must be the coupon yields. A single net figure of all of
same for both instruments; the cash flows within each time band may be
- if either of the instruments for reported. Banks wishing to adopt this or other
offsetting has an interest fixing date or residual methods for reporting should seek the BSP’s
maturity greater than 1 month and up to 1 prior approval. The “pre-processing” models
year, those dates or residual maturities must would be subject to review by the BSP.
be within 7 days of each other; and
- if either of the instruments for Calculation of capital charges for interest
offsetting has an interest fixing date or rate exposures reported in Part I
residual maturity over 1 year, those dates
or residual maturities must be within 30 days 28. The unadjusted minimum capital
of each other. requirement is expressed in terms of two
For example, a bought and a sold FRA separately calculated charges, one applying
in the same currency with the same face to the “specific risk” of each trading book
value and settlement date as well as notional position in debt securities or debt
deposit maturity date can be offset against derivatives, whether it is a short or long
each other and excluded from reporting if position, and the other to the overall interest
the contract rates are within 15 basis points rate risk in the trading book portfolio
of each other. Similarly, opposite swap (termed “general market risk”) where long
positions in the same currency with the same and short positions in different securities or
face value and reference dates can be offset derivatives can be offset subject to certain
if, say, the floating rate in both cases is 6 “disallowances”.
months PHIBOR and the fixed rates are
within 15 basis points of each other. The Specific risk
positions can still be offset if the reference
dates (i. e., the next interest fixing date or 29. The unadjusted specific risk charge
remaining maturity) of the opposite positions is graduated into five broad categories by
are different but within the range as set out types of issuer, as follows:
in (c) above. Opposite bond futures can, Government and
for example, be offset against each other if multilateral
development banks* 0.00%
the deliverable bonds are of the same type Qualifying** 0.25% (residual maturity of 6
and mature within 7 days of each other. months or less)
1.00% (residual maturity of
27. Banks with the necessary expertise over 6 months to 24 months)
* “Government and multilateral development banks” refers to the issuers as described under items 1.1 and 1.3 in Part I.1
of the Report.
** “Qualifying” refers to the issuers/issues as described under items 1.4 to 1.7 in Part I.1 of the Report.

APP. 46b
05.12.31
1.60% (residual maturity of Over 3 months Over 3 months to 0.40%

over 24 months) to 6 months 6 months
LGU bonds*** 4.00% Over 6 months to Over 6 months to 0.70%
Others 8.00% 12 months 12 months
Over 1 year to Over 1.0 year to 1.25%
30. Interest rate and currency swaps, 2 years 1.9 years
FRAs, forward foreign exchange contracts Over 2 years to Over 1.9 years to 1.75%
and interest rate futures will not be subject 3 years 2.8 years
to a specific risk charge. In the case of Over 3 years to Over 2.8 years to 2.25%
futures contracts where the underlying is a 4 years 3.6 years
Over 4 years to Over 3.6 years to 2.75%
debt security, a specific risk charge will
5 years 4.3 years
apply according to the issuer (and the
remaining maturity) as set out in the above 7 years 5.7 years
paragraph. Over 7 years to Over 5.7 years to 3.75%
10 years 7.3 years
General market risk Over 10 years to Over 7.3 years to 4.50%
15 years 9.3 years
31. General market risk applies to Over 15 years to Over 9.3 years to 5.25%
positions in all debt securities, debt 20 years 10.6 years
Over 20 years Over 10.6 years to 6.00%
derivatives and interest rate derivatives,
12 years
subject only to an exemption for fully or
Over 12 years to 8.00%
very closely matched positions in identical 20 years
instruments as described in paragraphs 25 Over 20 years 12.50%
to 26 above. The unadjusted capital charge
is the sum of the following components:
33. The weighted longs and shorts in
(a) the net short or long weighted
each time band will be offset resulting in a
position in the whole trading book;
single short or long position for each band.
(b) a small proportion of the matched
A 10% capital charge (“vertical
positions in each time band (the “vertical
disallowance”) will be levied on the smaller
disallowance”); and
of the offsetting positions, be it long or short.
(c) a larger proportion of the matched
Thus, if the sum of the weighted longs in a
positions across different time-bands (the
time band is P100.0 million and the sum of
“horizontal disallowance”).
the weighted shorts is PHP90.0 million, the
vertical disallowance would be 10% of
32. In the maturity ladder, first calculate the
PHP90.0 million (i.e., PHP9.0 million).
weighted positions by multiplying the
positions reported in each time band by a
34. Two rounds of “horizontal
risk-factor according to the following table:
offsetting” will then be conducted, first
between the net positions in each of 3 zones
Table 1
(zero to 1 year, over 1 year to 4 years and
Maturity method: time bands and
over 4 years), and subsequently between the
weights
net positions in the 3 different zones. The
Coupon Coupon Risk offsetting will be subject to a scale of
3% or more less than 3% weight disallowances expressed as a fraction of the
1 month or less 1 month or less 0.00% matched positions, as set out in Table 2
Over 1 month to Over 1 month to 0.20% below. The weighted long and short
3 months 3 months positions in each of 3 zones may be offset,
*** ”LGU bonds” refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal Revenue
Allotment of the LGU and guaranteed by LGU Guarantee Corporation.

APP. 46b
05.12.31
subject to the matched portion attracting a common shares of the issuer) which trade
disallowance factor that is part of the capital like equities and commitments to buy or
charge. The residual net position in each sell equity securities. For non-convertible
zone may be carried over and offset against preference shares and those convertible
opposite positions in other zones, subject bonds which trade like debt securities,
to a second set of disallowance factors. they should be reported under Part I.
Equity derivatives include forwards,
futures and swaps on both individual
Table 2 equities and or stock indices. Options
Horizontal disallowances should be included subject to the specific
instructions set out in Part IV. Long and
Zones Time-band Within Between Between short positions in the same issue may be
the adjacent zones
zone zones 1and 3
reported on a net basis.
1 month or less
Over 1 month to 36. The positions are to be reported
3 months on a market-by-market basis, i.e., under
Zone 1Over 3 months to 40% separate columns to indicate the
6 months exchange where the reported equities are
Over 6 months to 40%
listed/traded. For foreign markets, banks
12 months
Over 1 year to should indicate the country where the
2 years market is located. (Refer to example (9)
Zone 2Over 2 years to 30% in Annex A) Equities with listing in more
3 years than one market should be reported as
Over 3 years to 100% positions in the market of their primary
4 years
listing.
Over 4 years to 40%
5 years
Over 5 years to 37. Equity derivatives are to be
7 years converted into positions in the relevant
Zone 3 Over 7 years to 30% underlying. Futures and forward contracts
10 years relating to an individual equity should be
Over 10 years to
reported at current market values. Futures
15 years
Over 15 years to relating to equity indices can be reported
20 years either as the current index value times the
Over 20 years monetary value of one index point set by
the exchange, i.e., the “tick” value, or the
Part II Equity Exposures marked-to-market value of the notional
underlying equity portfolio. (Refer to
35. Report in this part the long and short example (11) in Annex A).
positions in equities and equity derivatives
in the trading book, including instruments 38. Matched positions in each identical
that exhibit market behavior similar to equity or index (same delivery months) in
equities. The instruments covered each market may be fully offset, resulting
include common stock (whether voting or in a single net short or long position. A
non-voting), convertible bonds (i.e., debt future in a given equity may be offset
issues or preference shares that are against an opposite cash position in the
convertible, at a stated price, into same equity but the interest rate exposure

APP. 46b
05.12.31
arising out of the equity futures should position. Net long and short positions in
be reported in Part I. For example, a short different markets cannot be offset for the
futures contract on a specific stock with purpose of calculating general market risk
delivery 3 months from the reporting date charge.
can be offset against a long position in
the underlying stock. However, the Part III Foreign Exchange Exposures
interest rate exposure arising out of the
equity futures should be reported as a 41. Report in this part the amount in US
long position in the “1 to 3 months” time dollars (USD) of net long or net short
band of the stock denominated currency position in each currency. The net delta-
in Part I. The position should be reported based equivalent of foreign currency options
as the current market value of the stock. should also be reported for each currency,
subject to the specific instructions in Part
39. An equity swap obligates a bank to IV. In addition, structural positions taken
receive an amount based on the change in deliberately to hedge against the effects of
value of a particular equity or equity index exchange rate movements on the capital
and also to pay an amount based on the adequacy of the reporting bank may be
change in value of a different equity or excluded. This should be cleared with the
equity index. Accordingly, the receipt side BSP prior to reporting.
and the payment side of an equity swap
contract should be reported as a long and 42. Net long/(short) position shall refer
a short position, respectively. For an to FX assets (excluding FX items allowed
equity swap contract which involves a leg under existing regulations to be excluded
relating to a financial instrument other from FX assets in the computation of a
than equities or equity derivatives, for bank’s net FX position limits) less FX
example, receiving/paying a fixed or liabilities (excluding FX items allowed
floating interest rate, the exposure should under existing regulations to be excluded
be slotted into the appropriate maturity from FX liabilities in the computation of
band in Part I. Where equities are part of a bank’s net FX position limits), plus
a forward contract (equities to be received contingent FX assets less contingent FX
or to be delivered), any interest rate liabilities, including net delta weighted long/
exposure from the other leg of the (short) position of options (subject to a
contract should be reported in Part I. The separately calculated capital charge for
treatment is similar to that set out in gamma and vega described in Part IV.2).
paragraph 38. The same arrangement Alternatively, if the bank engages in
applies for index futures. (Refer to purchase of options only, the options shall
example (11) in Annex A). be carved out and reported under Part IV.1.
Delta-weighted long and short positions
40. As with interest rate exposures, refer to potential purchases and sales of the
the capital charge is levied to separately underlying, respectively. For example, a
cover both the specific risk and the short put option carries a potential purchase
general market risk. Calculation is done of the underlying, thus will be treated as a
on an individual market basis. The long delta-weighted position.
unadjusted capital charge for specific risk
will be 8% on the gross (i.e., long plus 43. Banks which base their normal
short) positions. The unadjusted general management accounting of forward
market risk charge will be 8% on the net currency positions on net present values

APP. 46b
05.12.31
shall use the net present values of each report the sum of the capital charges
position, discounted using current interest calculated.
rates, for measuring their positions.
Otherwise, forward currency positions shall Table 3
be measured based on notional amount. Simplified approach: capital charge for
purchased options only
44. The total USD amount of net long
or net short position in each currency should Short cash The capital charge will be the
then be converted at spot rates into and market value of the
Philippine peso. The overall net open Long call underlying of the option
position is the greater of the absolute value or multiplied by the sum of
Long cash specific and general market
of the sum of net long position or sum of
and risk charges for the underlying
net short position. less the amount the option is
Long put
in the money (if any), with the
45. The unadjusted capital charge will reduced capital charge
be 8% of the overall net open position. bounded at zero*.
(Refer to example (10) in
Part IV Options Annex A).
46. Report in this part the positions of The capital charge will be the
option contracts which are related to the risk lesser of:
Long call a. the market value of the
categories reported in Parts I to III, using
or underlying of the option
either the Simplified Approach or the Delta multiplied by the sum of
Long put
Plus Approach. specific and general
market risk charges for
1. For banks that purchase options only the underlying; and
– Simplified Approach b. the market value of the
option.**
47. Banks will be considered to be
engaging only in purchase of options if at 49. The market risk capital charges to
any time all their written option positions be applied for the purpose of the above
(if any) are hedged by perfectly matched paragraph are indicated in Table 4 below:
long positions in exactly the same options.
In this case such perfectly matched options Table 4
need not be reported and only the Underlying Specific General
outstanding long (purchased) options are risk market
covered by the following approach. charge risk charge
Debt instruments***: As per the risk weights
Government and multi- 0.00% in Table 1, according
48. Treatments for purchased options lateral development to the residual maturity
banks (fixed rate) or next
with and without related cash positions are Qualifying (with residual repricing (floating rate).
summarized in Table 3 below. The capital maturity)
charge should be calculated separately for 6 months or less 0.25%
Over 6 months to 1.00%
each individual option (together with the 24 months
related cash position). Banks should then Over 24 months 1.60%
* For options with a residual maturity of more than 6 months, the strike price should be compared with the forward, not
current, price. A bank unable to do this must take the in the money amount to be zero.
** Where the position does not fall within the trading book (i.e., options on certain foreign exchange position not belonging
to the trading book), it is acceptable to use the book value instead.
*** Issuer/issues classifications as per Part I.1 of the Report.

APP. 46b
05.12.31
LGU bonds 4.00% instruments will be adjusted by the delta ratios

Others 8.00%
Interest rate (non-debt 0.00%
of the relevant options for reporting under this
related) approach. For instance:
Equity 8.00% 8.00% (a) A bought call option on a June 3-
Foreign Exchange 0.00% 8.00% month interest-rate future will in March be
considered, on the basis of its delta-
50. In some cases such as foreign equivalent value, to be a long position with
exchange where it may be unclear which a maturity of 6 months and a short position
currency is the “underlying” of the option, with a maturity of 3 months. The written
this should be taken to be the asset which option will similarly be slotted as a long
would be received if the option is exercised. position with a maturity of 3 months and a
In addition, the nominal value should be short position with a maturity of 6 months.
used for items where the market value of (b) A 2-month purchased call option on
the underlying instrument could be zero, a bond future where delivery of the bond
e.g., caps and floors as well as swaptions. takes place in September would be
considered in March as being long the
2. For banks that write options – Delta deliverable bond and short a 6-month
Plus Approach government security in the same currency,
both positions being delta-weighted.
51. Banks that write options (apart from (c) Floating rate instruments with caps
those described in paragraph 47) should or floors will be treated as a combination of
report in Parts I to III the relevant delta- floating rate securities and a series of
weighted positions of all their outstanding European-style options, e.g., the holder of 2-
options, i.e., the market value of the year floating rate security indexed to 6 month
underlying of the option multiplied by the LIBOR with a cap of 8% will treat it as:
option delta. The relevant negative gamma (i) a debt security that reprices in 6
and vega sensitivities of these options months; and
should be reported in Parts IV.2(a) to IV.2(c) (ii) a series of 3 written call options on
of the Report in order to capture the delta a FRA with a reference rate of 8%, each with
sensitivity and volatility risk of these options. a negative sign at the time the underlying
Banks wishing to adopt alternate treatments FRA takes effect and a positive sign at the
for their options such as a scenario approach time the underlying FRA matures. (The rules
should seek prior approval from the BSP. applying to closely matched positions set
out in paragraph 26 will also apply in this
52. Delta-weighted option positions respect.) (Refer to example (7) in Annex A).
with debt securities or interest rates as the
underlying will be slotted into the interest 53. The reporting of options with
rate time bands, as set out in Part I.2 of the equities as the underlying will also be based
Report. A two-legged approach should be on the delta-weighted positions which will
used as for other derivatives, requiring one be incorporated in Part II of the Report. For
entry at the time the underlying contract takes purposes of this calculation, each national
effect and a second at the time the underlying market is to be treated as a separate
contract matures. In other words the reporting underlying. For options on foreign exchange
mechanism would be the same as those for position, the net delta-based equivalent of the
the positions in the underlying instruments foreign currency options will be incorporated
of the options as presented in Parts I to III, into the measurement of the exposure for the
except that the market value of the underlying respective currency position. These delta

APP. 46b
05.12.31
positions will be reported in Part III of the gamma impacts will be summed, resulting
Report. in a net gamma impact for each underlying
that is either positive or negative. Only
54. The net negative gamma positions those net gamma impacts that are negative
and vega positions of all outstanding options should be reported.
(purchased or written) should also be reported
in Part IV.2. This is in addition to the delta 56. The vega charge should be reported
positions being reported in Parts I to III. in the following way:
(a) The vega positions should represent
55. The net negative gamma positions the risk in a proportional shift in volatility
should be reported in the following way: of +25% for the underlying. For example,
(a) for each individual option, a an increase in volatility carries a risk of loss
“gamma impact” should be calculated by for a short option of which the assumed
the following formula: current (implied) volatility is 20%. With a
proportional shift of 25%, the vega position
Gamma impact = ½ x Gamma x VU2 has to be calculated on the basis of an
increase in volatility of 5 percentage points
where VU = Variation of the underlying from 20% to 25%. If the vega is calculated
of the option. as 1.68, i.e., a 1% increase in volatility
(b) VU will be calculated as follows: increases the value of the option by 1.68,
- for debt and interest rate options of then the above change in volatility of 5
which the delta-equivalent position is percentage points will increase the value
reported in Part I, the market value of the of the option by 8.4 (1.68 x 5) which
underlying or notional underlying represents the vega position to be reported.
multiplied by the risk weights for the (b) Each option on the same underlying
appropriate time bands set out in Table 1; will have a vega position that is either
- for options on equities and equity positive or negative. These individual vega
indices, the market value of the underlying positions will be summed, resulting in a net
multiplied by 8%; and vega position for each underlying that is
- for options on foreign exchange, the either positive or negative. The total vega
market value of the underlying multiplied charge will be the sum of the absolute
by 8%. values of the net vega positions obtained
(c) For the purpose of this calculation for each underlying.
the following positions should be treated as
the same underlying: Part V Internal Models Approach
- for interest rate instruments, each
time band as set out in Table 1; 57. Only those banks which have
- for equities and equity indices, each obtained the BSP’s approval to adopt their
national market; and internal value-at-risk (VaR) models to
- for foreign currencies, each calculate their market risk capital charges
currency pair. in lieu of the standardized methodology are
Banks with options relating to more required to report in this part.
underlyings than the space provided should
report their positions in additional sheets. 1. Value-at-risk results
(d) Each option on the same underlying
will have a gamma impact that is either 58. Report in this part the value-at-risk
positive or negative. These individual (VaR) results as at the last trading day of the

APP. 46b
05.12.31
reference quarter in column (a) and the Table 5

average VaR over the most recent 60 trading “Plus” factor based on the number of
days of the reference quarter in column (b), backtesting exceptions for the past 250
both for each individual market risk trading days
category using internal models approach,
i.e., item 1.1 to 1.3, and for the aggregate Zone Number of exceptions “Plus” factor
of these risk categories, i.e., item 1.4.
0 0.00
1 0.00
59. Provided that the BSP is satisfied Green zone 2 0.00
with the bank’s system for measuring 3 0.00
correlations, recognition of empirical 4 0.00
correlations across broad risk categories 5 0.40
6 0.50
(e.g., interest rates, equity prices and
Yellow zone 7 0.65
exchange rates, including related options 8 0.75
volatilities in each risk factor category) may 9 0.85
be allowed. The VaR for the aggregate of Red zone 10 or more 1.00
all risk categories will therefore not
necessarily be equal to an arithmetic sum 62. Capital charge for general market
of the VaR for the individual risk category. risk calculated by internal models reported
in item 1.6 is larger of:
60. Report also in this part the number (a) Item 1.4 column (a), i.e., VaR for the
of backtesting exceptions for the past 250 aggregate of all risk categories, as at the last
trading days (from the reference quarter-end trading day of the reference quarter; or
going backwards), based on: (b) Item 1.5, i.e., the average VaR for
- actual daily changes in portfolio the last 60 trading days of the reference
value, in item 1.4. column (c), and quarter (item 1.4 column (b)) times the
- hypothetical changes in portfolio multiplication factor (item 1.4 column (e))
value that would occur were end-of-day set out in paragraph 61 above.
positions to remain unchanged during the
1 day holding period, in item 1.4 column 2. Specific risk
(d),
for the aggregate of the broad risk 63. Capital charge for the specific risk
categories. of debt securities and other debt related
derivatives, and equities and equity
61. The multiplication factor to be derivatives is to be reported using either of
reported in item 1.4 column (e) is the the following two methods:
summation of the following 3 elements: (a) For banks which incorporate the
(a) the minimum multiplication factor specific risk into their models, report the
of 3; capital charge for the total specific risk
(b) the “plus” factor ranging from 0 to calculated by the models in item 1.7 of Part
1 based on the number of backtesting V.1; or
exceptions (i.e., the larger of item 1.4 (b) For banks which do not incorporate
column (c) or item 1.4 column (d)) for the the specific risk into their models, report the
past 250 trading days as set out in Table 5 specific risk of debt securities and other debt
below: and related derivatives in Part I.1 according to
(c) any additional “plus” factor as may the instructions in paragraphs 15-19 and 29-
be prescribed by the BSP. 30. For equities and equity derivatives,

APP. 46b
05.12.31
report the specific risk in Part II according credit risk, i.e., 10% as opposed to the BIS
to the instructions in paragraphs 35 to 40. recommended 8%.)
3. Largest daily losses over the quarter 66. The total market risk-weighted
exposure is computed by multiplying the
64. Report in this part in descending total market risk capital charges by 10. (The
order (i.e., the largest loss first) the 5 largest multiplier 10 is the reciprocal of the BSP
daily losses over the reference quarter and required minimum capital ratio for credit
their respective VaRs for the risk exposures risk of 10%.) The qualifying capital and total
which are measured by the internal models credit risk-weighted exposures are extracted
approach. If the number of daily losses from Part V.A and Part V.B, respectively, of
during the quarter is less than 5, report only the Report on the Computation of Risk-
all such daily losses. Based Capital Adequacy Ratio covering
credit risk.
Part VI Adjusted Capital Adequacy Ratio
67. For on-balance-sheet debt securities
65. The market risk capital charges and equities in the trading book included
should be aggregated and converted to a in Parts I, II and V of this Report, the credit
market risk-weighted exposure. The total risk-weighted exposures reported in Part II
market risk capital charges is the sum of of the Report on the Computation of the
the capital charges for individual market Risk-Based Capital Adequacy Ratio covering
risk categories computed using either (a) credit risk should be excluded in calculating
the standardized approach, or (b) the the adjusted ratio covering combined credit
internal models approach. The total risk and market risk. The market risk capital
capital charges for individual market risk charges for these positions calculated in this
categories using the standardized approach Report cover all the capital requirements for
should be multiplied by 125% (to be absorbing potential losses arising from
consistent with the higher capital charge for carrying such positions.

APP. 46b
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC Bank Corporation has the following trading book
positions:
(1) Long position in US Treasury Bond (9) Long 1000 shares of a US listed
(7.5% annual coupon) with face value company with current market price of
equivalent to PHP507.000MM and residual PHP715.000MM equivalent.
maturity of 8 years. Market value based on (10) Long 50,000 shares of a Philippine
quoted price: PHP518.914MM equivalent listed company hedged by a long position
(2) Long position in an unrated floating in 25 put option contracts (each contract
rate note (6.25% current annual coupon) represents 1,000 shares) for the same share.
issued by a US corporate with face value The current market price for the share is
equivalent of PHP260.000MM and next PHP195.00 and the exercise price of all the
repricing 9 months after. Market value option contracts is PHP214.50.
based on quoted price: PHP264.758MM (11) Short one Hang Seng Index Futures
equivalent for delivery 3 months after, current index at
(3) Long 10 futures contracts involving 10,000.
5-year US Treasury Note (face value (12) Currency swap with residual
USD0.100MM per contract) for delivery 3 maturity of 6 months. Bank receives
months after. Selected deliverable: US USD19.500MM at 9.5% per annum and
Treasury Note (coupon 6.375%) maturing pays PHP975.000MM at 11% per annum.
5.25 years, current price at 100.0625,
conversion factor 0.9423. Treatments:
(4) Single currency interest rate swap
with face value PHP975.000MM and (1) Report market value (PHP518.914MM)
residual maturity of 2.5 years, bank receives of the long position in Part I.1, item I.2 and
annual floating rate interest and pays fixed Part I.2, USD ladder, 7 to 10 years time
at 8% per annum. The current floating rate band.
is fixed at 5.5% with next repricing after 6 (2) Report market value (PHP264.758MM)
months. of the long position in Part I.1, item 1.9‘ and
(5) Long 10 futures contracts involving Part I.2, USD ladder, 6 to 12 months time
3-month LIBOR interest rate (face value band.
GBP6.500MM per contract) for delivery 6 (3) Report selected Treasury Note (long
months after. position) in Part I.1, item I.2 and Part I.2,
(6) An FRA sold on 6-month PHIBOR USD ladder, 5 to 7 year time band. Report
with nominal amount PHP130.000MM and the same amount in short position, 1 to 3
settlement date 9 months after. months time band.
(7) A GBP2.000MM 2 year cap written
on GBP 6 month LIBOR at cap rate 8%, Assume spot exchange rate PHP50.00
next repricing after 6 months and remaining
maturity 2 years (i.e., the cap is written on Amount to be reported:
the reporting date).
(8) Forward foreign exchange position USD0.100MM x 10 x 100.0625%/0.9423
of EUR5.000MM (long) against = USD1.062MM
PHP250.000MM equivalent maturing in 3
months. = P53.095MM

APP. 46b
05.12.31
(4) Report the fixed rate leg as a short PV of the floating leg (i.e. receive side)
2.5-year bond in Part I.2, Peso ladder, 2 to
3 years time band. Report the floating rate 1.055
= PHP975.000MM x ---------------------------
leg as a long 6 months security in the 3 to 6 (1+0.0581 x 0.5)
months time band.
Assume the Peso zero coupon yields are = PHP999.587MM
as follows:
(5) Report a long 9 months zero
Period Zero Coupon (ZC) coupon security in Part I.2, GBP ladder, 6
1M 5.31 to 12 months time band and a short 6
3M 5.63 months zero coupon security in 3 to 6
6M 5.81 months time band.
1Y 6.16 Assume the GBP 6 months zero-coupon
2Y 6.69 yield is 6.74% while the interpolated 9
3Y 7.07 months zero-coupon yield is 6.87%.
Assume spot exchange rate is PHP75.00.
(Zero coupon yields within 1 year can be
taken as cash rates, i.e., PHIBOR, zero Amount to be reported:
coupon yields beyond 1 year can be
constructed from, say, swap rates.) 9 months= GBP65.000MM/(1+0.0687 x 0.75)
= GBP65.000MM x 0.951
Cash flows of Peso swap: 2 legs = PHP4,636.124MM equivalent
6 months= GBP65.000MM/(1+0.0674 x 0.5)

Pay – fixed rate bond
= GBP65.000MM x 0.9674
8% of PHP975.000MM in 6 months
= PHP4,716.069MM equivalent
(6) Report a long 15 months zero
Receive – floating rate paper
coupon security in Part I.2, Peso ladder, 1.0
105.5% of PHP975.000MM in 6 months
to 1.9 years time band and a short 9 months
zero coupon security in 6 to 12 months time
Zero-coupon rates at 18 months can be
band.
obtained from the linear interpolation
Calculations similar to (4) above,
between the 1Y and 2Y zero coupon rates. ZC(15 months) = 6.16%+(6.69%-6.16%)x 0.25
= 6.2925%
ZC(18 months) = (6.16% + 6.69%)/2 =
6.425% 15 months = PHP130.000MM(1+0.062925)1.25
= PHP121.000MM
Similarly,
9 months = PHP130.000MM x 0.957
= PHP124.410MM
ZC(30 months) = (6.69% + 7.07%)/2 = 6.88%
(7) Report the cap as 3 written call
PV of the fixed leg (i.e., pay side)
= PHP975.000MM 0.08 0.08 + 1.08
options on 6-month FRA, i.e., 6 against 12,
x ------------------------- + ------------------------
(1+0.0581x0.5) (1+0.06425)1.5 12 against 18 and 18 against 24.
1.08
+ ---------------------- (The rate for the first 6 months is already
(1+0.0688)2.5
set on the reporting date, i.e., the option
= PHP1,038.479MM already expires.)

APP. 46b
05.12.31
Assume the delta ratios of the options are: (For simplicity, gamma and vega
6 against 12 0.055 positions are not presented in this example.)
12 against 18 0.17
18 against 24 0.225 (8) Report a long 3 months zero coupon
security in Part I.2, EUR ladder, 1 to 3
Assume the discounting factors are: months time band and a short 3 months zero
6 month 0.9674 coupon security in the Peso ladder, 1 to 3
12 month 0.9346 months time band.
18 month 0.9009
24 month 0.8673 Calculations similar to (4) above and
assume 3 months EUR cash rate at 3.25%
Assume spot exchange rate is PHP75.00 and spot exchange rate is PHP46.00.
Report in Part I.2 GBP ladder: EUR = EUR5.000MM/(1 + 0.0325 x 0.25)

= PHP228.146MM equivalent
For the first option –
A long position in the 6 to 12 months PHP = PHP250.000MM/(1+ 0.0563 x 0.25)
time band = PHP246.530MM
= GBP2.000MM x 0.055 x 0.9346
= PHP7.710MM equivalent (For simplicity, Part III of the report is not
presented in this example.)
A short position in the 3 to 6 months
time band (9) Report market value in Part II, item
= GBP2.000MM x 0.055 x 0.9674 1 (US column).
= PHP7.981MM equivalent
(10) Report as a long position the market
For the second option – value for 25,000 shares (PHP4.875MM) in
A long position in the 1.0 to 1.9 years Part II, Item 1 (Philippine column).
time band
= GBP2.000MM x 0.17 x 0.9009 Report 25,000 shares covered by put option
= PHP22.973MM equivalent in Part IV.1 (a), item 2
A short position in the 6 to 12 months Amount to be reported

time band = (25,000 x PHP195.00 x 16%) –
= GBP2.000MM x 0.17 x 0.9346 {25,000 x (PHP214.50 – PHP195.00)]
= PHP23.832MM equivalent = PHP0.293MM
For the third option – (11)Report as a short position the market

A long position in the 1.9 to 2.8 years value for futures (HKD50.00 per index point)
time band in Part II, item 5 (HKD column) and as a
= GBP2.000MM x 0.225 x 0.8673 long position in Part I.2, HKD ladder, 1 to 3
= PHP29.271MM equivalent months time band. Assume HKD to PHP
exchange rate is PHP6.50.
A short position in the 1.0 to 1.9 years
time band (12)Report the USD leg as a long 6-
= GBP2.000MM x 0.225 x 0.9009 month zero coupon security in Part I.2, USD
= PHP30.405MM equivalent ladder, 3 to 6 months time band. Report

APP. 46b
05.12.31
the PHP leg as a short 6-month zero coupon PV of PHP leg

security in Part I.2, PHP ladder, 3 to 6 = PHP975.000MM x (1.11)
months time band. (1 + 0.0581 x 0.5)
Assume the 6-month Peso and Dollar = PHP1,051.700MM
zero coupon yields are 5.81% and 4%,
respectively, and the spot exchange rate is Receive – USD
PHP50.00. 109.5% of USD19.500MM in 6 months
Cash flows of currency swap: two legs PV of USD leg

= USD19.500MM x (1.095)
Pay – PHP (1 + 0.04 x 0.5)
111% of PHP975.000MM in 6 months = PHP1,046.700MM equivalent

APP. 46c
05.12.31

(For Universal Banks and Commercial Banks with Expanded Derivatives Authority
But Without Options Transactions)
General Instructions arising from movements in market prices.

The risks subject to this reporting
1. All universal banks and commercial requirement are:
banks are required to complete this Report (a) the risks pertaining to interest rate-
both on a solo basis (i.e., head office plus related instruments and equities in the bank’s
branches) and on a consolidated basis (i.e., trading book; and
parent bank plus subsidiary financial allied (b) foreign exchange risk throughout the
undertakings, but excluding insurance bank.
companies). The Report should include the reporting
bank’s positions in on-balance sheet financial
2. The Report should be submitted as instruments and off-balance sheet
follows: derivatives, the latter being defined as
(a) Solo report - within 15 banking days financial contracts whose values depend on
after the end of each reference quarter; and the values of one or more underlying assets
(b) Consolidated report - within 30 or indices.
banking days after the end of each reference
quarter. 6. For the purpose of the Report, the trading
book of a bank shall consist of:
3. Current market value should be used (a) its proprietary positions in financial
for reporting. For leveraged instruments instruments which are taken on with the
where the apparent notional amount intention of short-term resale or benefiting
differs from the effective notional amount, in the short term from actual or expected
the bank should use the effective notional differences between the buying and selling
amount in calculating the market value prices or from other price or interest rate
for reporting, e.g., a swap contract with variations;
a stated notional amount of PHP1.0 (b) positions which arise from the
million, the terms of which call for a execution of trade orders from customers and
quarterly settlement of the difference market making; and
between 5% and PHIBOR multiplied by (c) positions taken in order to hedge
10 has an effective notional amount of other elements of the trading book.
PHP10.0 million.
7. The financial instruments referred to in
4. Securities transactions are to be reported the preceding paragraph include:
on a “trade date” basis. (a) (i) transferable securities;
(ii) units in collective investment
Definitions and Clarifications undertakings;
(b) certificates of deposit and other
5. Market risk is defined as the risk of similar capital market instruments;
losses in on- and off-balance sheet positions (c) financial futures contracts;
Manual of Regulations for Banks Appendix 46c - Page 1

APP. 46c
05.12.31
(d) forward contracts including forward that are convertible, at a stated price, into
rate agreements; and common shares of the issuer) which trade
(e) swaps like debt securities. Debt related derivatives
include bond futures.
8. Banks are expected to have an
established policy for allocating transactions 11. Interest rate derivatives include all
(including internal deals) to the trading or derivatives contracts and off-balance sheet
non-trading (i.e., banking) book, as well as instruments which react to changes in
procedures to ensure compliance with such interest rates, e.g., interest rate futures,
policy. There must be a clear audit trail at forward rate agreements (FRAs), interest rate
the time each transaction is entered into and and cross currency swaps, and forward
the BSP will examine the adequacy of such foreign exchange positions.
policy and procedures and their consistent
implementation when it is considered 12. Detailed offsetting rules applicable to the
necessary. For this purpose, banks which reporting of positions are set out in the
engage in trading activities should submit relevant parts of Specific Instructions. These
to the BSP a policy statement covering: offsetting rules can be applied on both the
(a) the definition of trading activities; solo and consolidated basis, provided that
(b) the financial instruments which can in the latter case there are no obstacles to
be traded or used for hedging the trading the quick repatriation of profits from a foreign
book portfolio; and subsidiary to the Philippines and the bank
(c) the principles for transferring performs daily management of risks on a
positions between the trading and the consolidated basis. For this purpose,
banking books. offsetting means the exclusion of matched
positions of a bank from reporting and hence
9. In general, the BSP will have regard to exclusion of such positions from the
the bank’s intention in entering into a calculation of the adjusted capital adequacy
particular transaction when determining ratio.
whether such transaction should fall into the
trading book. Transactions will likely be 13. For avoidance of doubt, items that are
considered to carry a trading intent on the deductible from the qualifying capital of the
part of the bank if: bank in the calculation of the risk-based
(a) the positions arising from the capital adequacy ratio pursuant to
transactions are marked to market on a daily Subsections X116.1.a to X116.1.c of the
basis as part of the internal risk management Manual of Regulations for Banks are
process; excluded from market risk capital
(b) the positions are not (or not intended requirement.
to be) held to maturity; and
(c) the positions satisfy other criteria the 14. In general, banks are only required to
bank applies to its trading portfolio on a complete Parts I to III and V of the Report.
consistent basis. Banks which have obtained the BSP’s
approval to adopt their internal value-at-risk
10. Debt securities include both fixed-rate (VaR) models to calculate their market risk
and floating-rate instruments, negotiable capital charge (in all or individual risk
certificates of deposit, non-convertible categories) should complete Part IV (in lieu
preference shares, and also convertible of Parts I to III). Where the internal model is
bonds (i.e., debt issues or preference shares used to calculate only selected risk
Appendix 46c - Page 2 Manual of Regulations for Banks

APP. 46c
05.12.31
categories, the capital charge for the risk 17. Foreign countries, foreign incorporated
categories measured under the internal banks and Philippine incorporated banks/
models approach should be reported in quasi banks with the “highest credit
Part IV while that for the other risk quality”, as well as debt securities with the
categories measured under the “highest credit quality” refer to ratees/debt
standardized approach should be reported securities given the minimum credit ratings
in the relevant sections of Parts I to III. This as indicated below by any two of the
combination of the standardized approach following internationally accepted rating
and the internal models approach is agencies:
allowed on a transitional basis. Banks
which adopt the internal models approach Rating Agency Credit Rating
will not be permitted, save in exceptional (a) Moody’s “Aa3” and above
circumstances, to revert to the standardized (b) Standard and Poor’s “AA-“ and above
approach. (c) Fitch IBCA “AA-“ and above
Specific Instructions and such other recognized international

rating agencies as may be approved by the
Part I Interest Rate Exposures Monetary Board.
1. Debt securities and debt related The ratings of domestic rating agencies
derivatives – specific risk may likewise be used for this purpose
provided that such rating agencies meet the
15. Report in this part the long and short criteria to be prescribed by the Monetary
positions in debt securities and debt Board.
derivatives (e.g., bond futures) in the trading
book by category of the issuer. Offsetting 18. Multilateral development banks refer to
will be allowed between long and short the World Bank Group comprised of the
positions in identical issues (including International Bank for Reconstruction and
positions in derivatives) with exactly the Development (IBRD) and the International
same issuer, coupon, currency and Finance Corporation (IFC), the Asian
maturity. For items 1.4 to 1.7 of the Report, Development Bank (ADB), the African
positions should be slotted into the Development Bank (AfDB), the European
appropriate time bands according to the Bank for Reconstruction and Development
residual maturities of the debt securities (or (EBRD), the Inter-American Development
the underlying securities in case of debt Bank (IADB), the European Investment
derivatives). (Refer to examples (1) and (2) Bank (EIB); the Nordic Investment Bank
in Annex A). (NIB); the Caribbean Development Bank
(CDB), the Council of Europe Development
16. A security, which is the subject of a Bank (CEDB) and such others as may be
repurchase agreement, will be treated as if recognized by the BSP.
it were still owned by the seller of the
security, i.e., to be reported by the seller. 19. Non-central government public sector
This principle applies also in Part 1.2 of entities of a foreign country refer to entities
the Report. Commitments to buy and sell which are regarded as such by a recognized
securities should be reported as long and banking supervisory authority in the
short positions, respectively. country in which they are incorporated.

APP. 46c
05.12.31
2. Debt securities, debt related coupon government security with a maturity

derivatives and interest rate derivatives – of 6 months. (Refer to examples (5) and (6)
general market risk in Annex A). The market values of the two
positions should be reported. For forward
20. Report in this part the long and short foreign exchange positions in the trading
trading book positions in debt securities and book, they should be treated as long and as
debt derivatives described above, as well as short positions in a zero coupon government
interest rate derivatives. Report also interest security of the 2 currencies with the same
rate exposures arising from futures contracts maturity as the forward contract. (Refer to
and forward positions in equities. A example (7) in Annex A).
Maturity Method is adopted for the reporting
of these positions as detailed below. Banks 23. For a bond future, where a range of
that possess the necessary capability to deliverable instruments may be delivered to
calculate the duration and price sensitivity fulfill the contract, the bank has flexibility
of each position separately and wish to to elect which deliverable security goes into
adopt such a duration approach for reporting the maturity ladder but should take account
in this part may seek approval from BSP. of any conversion factor defined by the
exchange. A two-leg approach will be
21. Positions should be reported separately adopted similar to the above. A long bond
for each currency, i.e., banks should use future will be taken as a long position in a
separate sheets (Part I.2 of the Report) to deliverable bond and a short position in a
report positions of different currencies. The zero coupon security maturing at the future’s
unadjusted market risk capital charge is then delivery date. For example, a long futures
calculated for each currency according to contract on a 5 year fixed rate security with
procedures set out in paragraphs 31 to 34 delivery 3 months from the reporting date
with no offsetting between different will be reported as a long position in say,
currencies. a 5.25 year security, i.e., a specific security
which is within the range of deliverables
22. Under the Maturity Method, positions under the futures contract (as opposed to
are slotted into the time bands of the maturity a notional/theoretical security), and a
ladder (as shown in Part I.2 of the Report) short position in a 3 months zero coupon
by remaining maturity if fixed rate and by security. (Refer to example (3) in Annex
the period to the next repricing date if A).
floating rate. (Refer to examples (1) and (2) The amount to be reported in the above
in Annex A). Derivatives should be treated example for both legs will be the contract
as combinations of long and short positions. face value divided by the relevant
The maturity of an interest rate future or a conversion factor and multiplied by the
forward rate agreement will be the period current cash price of the selected
until delivery or exercise of the contract, plus deliverable bond. A forward bond
– where applicable – the life of the transaction (i.e., with a settlement period
underlying instrument. For example, a long longer than the market norm) will be
position in a June 3-month interest rate future treated similarly, i.e., a long bond forward
taken in December is to be reported at end will be reported as long position in the
of December as a long position in a zero bond and a short position in a zero coupon
coupon government security in that security up to the forward delivery date.
particular currency with a maturity of 9 The current market value (at spot price) of
months and a short position in a zero the bond should be reported.

APP. 46c
05.12.31
24. Swaps will be treated as two positions be offset. A long position up to the future’s
in securities with the relevant maturities. For delivery date should, however, be reported.
example, an interest rate swap under which When the futures contract comprises a
a bank is receiving floating rate interest and range of deliverable instruments, offsetting
paying fixed will be treated as a long position of positions in the futures contract and its
in a floating rate instrument of maturity underlying is only permissible in cases where
equivalent to the period until the next interest there is a readily identifiable underlying
fixing and a short position in a fixed-rate security which is most profitable for the
instrument of maturity equivalent to the trader with a short position to deliver, i.e.,
residual life of the swap. The market values the “cheapest to deliver”. This means that
of the 2 instruments should be reported. offsetting is only permitted between a short
(Refer to example (4) in Annex A). For swaps future and a long bond, not between a long
that pay or receive a fixed or floating interest future and a short bond; and the long bond
rate against some other reference price, e.g., must be the one that is “cheapest to deliver”.
an equity price, the interest rate component The amount to be reported for the remaining
should be slotted into the appropriate long position up to the futures contract’s
maturity category, with the equity delivery date will be the face value of the
component being included in the equity contract divided by the relevant conversion
framework. The separate legs of cross- factor and multiplied by the current spot
currency swaps are to be reported in the price of the “cheapest to deliver” bond.
relevant maturity ladders for the currencies
concerned. (Refer to example (10) in Annex 26. Opposite positions in the same category
A). of derivatives instruments can in certain
circumstances be regarded as matched and
25. As with the reporting under Part I.1 of allowed to offset fully. The separate legs of
the Report, banks can offset long and short different swaps may also be “matched”
positions in identical instruments with subject to the same conditions. To qualify
exactly the same issuer, coupon, currency for this treatment, the positions must relate
and maturity for general market risk to the same underlying instruments, be of
purposes. Similarly, a matched position in the same nominal value and be denominated
a futures or forward contract and its in the same currency. In addition:
underlying may be fully offset. However, (a) for futures: offsetting positions in the
the leg representing the time to expiry of the notional or underlying instruments to which
futures or forward contract should be the futures contract relates must be for
reported. identical products and mature within 7 days
For example, a bank has a long position of each other;
in a particular bond and sells forward (i.e., (b) for swaps and forward rate
beyond the normal settlement period for the agreements (FRAs): the reference rate (for
security) such a bond as at the reporting floating rate positions) must be identical and
date. The long and short positions in the the coupon closely matched (i.e., within 15
bond can be offset but a long position in a basis points); and
(notional) zero coupon security with (c) for swaps, FRAs and forwards: the
maturity at the forward delivery date should next interest fixing date or, for fixed coupon
be reported, at the current market value of positions or forwards, the residual maturity
the bond. Similarly, if the bank has a short must correspond within the following limits:
position in a bond future and a long position - if either of the instruments for
in the underlying bond, such positions can offsetting has an interest fixing date or

APP. 46c
05.12.31
residual maturity up to 1 month, the interest method is to first convert the payments
fixing date or residual maturity must be the required under each transaction into their
same for both instruments; present values. For that purpose, each cash
- if either of the instruments for flow should be discounted using zero-
offsetting has an interest fixing date or coupon yields. A single net figure of all of
residual maturity greater than 1 month and the cash flows within each time band may
up to 1 year, those dates or residual be reported. Banks wishing to adopt this or
maturities must be within 7 days of each other methods for reporting should seek the
other; and BSP’s prior approval. The “pre-processing”
- if either of the instruments for models would be subject to review by the BSP.
offsetting has an interest fixing date or
residual maturity over 1 year, those dates or Calculation of capital charges for interest
residual maturities must be within 30 days rate exposures reported in Part I
of each other.
28. The unadjusted minimum capital
For example, a bought and a sold FRA requirement is expressed in terms of two
in the same currency with the same face separately calculated charges, one applying
value and settlement date as well as notional to the “specific risk” of each trading book
deposit maturity date can be offset against position in debt securities or debt derivatives,
each other and excluded from reporting if whether it is a short or long position, and
the contract rates are within 15 basis points the other to the overall interest rate risk in
of each other. Similarly, opposite swap the trading book portfolio (termed “general
positions in the same currency with the market risk”) where long and short positions
same face value and reference dates can be in different securities or derivatives can be
offset if, say, the floating rate in both cases offset subject to certain “disallowances”.
is 6 months PHIBOR and the fixed rates are
within 15 basis points of each other. The Specific risk
positions can still be offset if the reference
dates (i. e., the next interest fixing date or 29. The unadjusted specific risk charge is
remaining maturity) of the opposite positions graduated into five broad categories by types
are different but within the range as set out of issuer, as follows:
in (c) above. Opposite bond futures can,
Government
for example, be offset against each other if
and
the deliverable bonds are of the same type multilateral
and mature within 7 days of each other. development
banks* 0.00%
27. Banks with the necessary expertise and Qualifying** 0.25% (residual maturity of 6 months
or less)
systems may use alternative formulae (the 1.00% (residual maturity of over 6
so called “pre-processing” techniques) to months to 24 months)
calculate the positions to be included in the 1.60% (residual maturity of over 24
maturity ladder. This applies to all interest months)
LGU bonds*** 4.00%
rate sensitive positions, arising from both
Others 8.00%
physical and derivative instruments. One
* “Government and multilateral development banks” refers to the issuers as described under items 1.1 and 1.3 in Part
I.1 of the Report.
*** ”LGU bonds” refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal
Revenue Allotment of the LGU and guaranteed by LGU Guarantee Corporation.

APP. 46c
05.12.31
30. Interest rate and currency swaps, Over 2 years to 3 Over 1.9 years to 1.75%
FRAs, forward foreign exchange contracts years 2.8 years
Over 3 years to 4 Over 2.8 years to 2.25%
and interest rate futures will not be years 3.6 years
subject to a specific risk charge. In the Over 4 years to 5 Over 3.6 years to 2.75%
case of futures contracts where the years 4.3 years
underlying is a debt security, a specific Over 5 years to 7 Over 4.3 years to 3.25%
years 5.7 years
risk charge will apply according to the Over 7 years to 10 Over 5.7 years to 3.75%
issuer (and the remaining maturity) as set years 7.3 years
out in the above paragraph. Over 10 years to Over 7.3 years to 4.50%
15 years 9.3 years
20 years 10.6 years
Over 20 years Over 10.6 years to 6.00%
31. General market risk applies to positions 12 years
in all debt securities, debt derivatives and Over 12 years to 20 8.00%
interest rate derivatives, subject only to an years
Over 20 years 12.50%
exemption for fully or very closely matched
positions in identical instruments as
described in paragraphs 25 to 26 above. 33. The weighted longs and shorts in each
The unadjusted capital charge is the sum of time band will be offset resulting in a single
the following components: short or long position for each band. A 10%
(a) the net short or long weighted capital charge (“vertical disallowance”) will
position in the whole trading book; be levied on the smaller of the offsetting
(b) a small proportion of the matched positions, be it long or short. Thus, if the
positions in each time band (the “vertical sum of the weighted longs in a time band is
disallowance”); and P100.0 million and the sum of the weighted
(c) a larger proportion of the matched shorts is P90.0 million, the vertical
positions across different time-bands (the disallowance would be 10% of P90.0
“horizontal disallowance”). million (i.e., P9.0 million).
32. In the maturity ladder, first calculate the 34. Two rounds of “horizontal offsetting”
weighted positions by multiplying the will then be conducted, first between the
positions reported in each time band by a net positions in each of 3 zones (zero to 1
risk-factor according to the following table: year, over 1 year to 4 years and over 4
years), and subsequently between the net
Table 1 positions in the 3 different zones. The
Maturity method: time bands and weights offsetting will be subject to a scale of
disallowances expressed as a fraction of the
Coupon Coupon Risk matched positions, as set out in Table 2
3% or more less than 3% Weight below. The weighted long and short
1 month or less 1 month or less 0.00%
positions in each of 3 zones may be offset,
Over 1 month to Over 1 month to 0.20% subject to the matched portion attracting
3 months 3 months a disallowance factor that is part of the
Over 3 months to Over 3 months to 0.40% capital charge. The residual net position
6 months 6 months in each zone may be carried over and
Over 6 months to Over 6 months to 0.70%
12 months 12 months offset against opposite positions in other
Over 1 year to 2 Over 1.0 year to 1.25% zones, subject to a second set of
years 1.9 years disallowance factors.

APP. 46c
05.12.31
Table 2 stock indices. Long and short positions in

the same issue may be reported on a net
Horizontal disallowance
basis.
Zones Time-band Within Between Between
the adjacent zones 1 36. The positions are to be reported on a
zone zones and 3 market-by-market basis, i.e., under
1 month or less
Zone 1 Over 1 month to separate columns to indicate the exchange
3 months where the reported equities are listed/
Over 3 months to 40% traded. For foreign markets, banks should
6 months indicate the country where the market is
Over 6 months to 40%
located. (Refer to example (8) in Annex
12 months
Over 1 year to 2 A) Equities with listing in more than one
years market should be reported as positions in
Zone 2 Over 2 years to 3 30% the market of their primary listing.
years
Over 3 years to 4 100%
years
37. Equity derivatives are to be converted
Over 4 years to 5 40% into positions in the relevant underlying.
years Futures and forward contracts relating to
Over 5 years to 7 an individual equity should be reported
years
at current market values. Futures relating
Zone 3 Over 7 years to 10
years to equity indices can be reported either
Over 10 years 30% as the current index value times the
to15 years monetary value of one index point set by
Over 15 years to the exchange, i.e., the “tick” value, or the
20 years
Over 20 years
marked-to-market value of the notional
underlying equity portfolio. (Refer to
example (9) in Annex A).
Part II Equity Exposures
38. Matched positions in each identical
35. Report in this part the long and short equity or index (same delivery months)
positions in equities and equity in each market may be fully offset,
derivatives in the trading book, including resulting in a single net short or long
instruments that exhibit market behavior position. A future in a given equity may
similar to equities. The instruments be offset against an opposite cash
covered include common stock (whether position in the same equity but the
voting or non-voting), convertible bonds interest rate exposure arising out of the
(i.e., debt issues or preference shares that equity futures should be reported in Part
are convertible, at a stated price, into I. For example, a short futures contract
common shares of the issuer) which trade on a specific stock with delivery 3
like equities and commitments to buy or months from the reporting date can be
sell equity securities. For non-convertible offset against a long position in the
preference shares and those convertible underlying stock. However, the interest
bonds which trade like debt securities, they rate exposure arising out of the equity
should be reported under Part I. Equity futures should be reported as a long
derivatives include forwards, futures and position in the “1 to 3 months” time band
swaps on both individual equities and or of the stock denominated currency in Part

APP. 46c
05.12.31
I. The position should be reported as the position in each currency. In addition,

current market value of the stock. structural positions taken deliberately to
hedge against the effects of exchange rate
39. An equity swap obligates a bank to movements on the capital adequacy of the
receive an amount based on the change in reporting bank may be excluded. This
value of a particular equity or equity should be cleared with the BSP prior to
index and also to pay an amount based reporting.
on the change in value of a different
equity or equity index. Accordingly, the 42. Net long/(short) position shall refer
receipt side and the payment side of an to FX assets (excluding FX items allowed
equity swap contract should be reported under existing regulations to be
as a long and a short position, excluded from FX assets in the
respectively. For an equity swap contract computation of a bank’s net FX position
which involves a leg relating to a limits) less FX liabilities (excluding FX
financial instrument other than equities items allowed under existing regulations
or equity derivatives, for example, to be excluded from FX liabilities in the
receiving/paying a fixed or floating computation of a bank’s net FX position
interest rate, the exposure should be limits), plus contingent FX assets less
slotted into the appropriate maturity contingent FX liabilities.
band in Part I. Where equities are part
of a forward contract (equities to be 43. Banks which base their normal
received or to be delivered), any interest management accounting of forward
rate exposure from the other leg of the currency positions on net present values
contract should be reported in Part I. The shall use the net present values of each
treatment is similar to that set out in position, discounted using current
paragraph 38. The same arrangement interest rates, for measuring their
applies for index futures. (Refer to positions. Otherwise, forward currency
example (9) in Annex A). positions shall be measured based on
notional amount.
40. As with interest rate exposures, the
capital charge is levied to separately cover 44. The total USD amount of net long or
both the specific risk and the general net short position in each currency should
market risk. Calculation is done on an then be converted at spot rates into
individual market basis. The unadjusted Philippine peso. The overall net open
capital charge for specific risk will be 8% position is the greater of the absolute value
on the gross (i.e., long plus short) positions. of the sum of net long position or sum of
The unadjusted general market risk charge net short position.
will be 8% on the net position. Net long
and short positions in different markets 45. The unadjusted capital charge will be
cannot be offset for the purpose of 8% of the overall net open position.
calculating general market risk charge.
Part IV Internal Models Approach
Part III Foreign Exchange Exposures
46. Only those banks which have
41. Report in this part the amount in US obtained the BSP’s approval to adopt their
dollars (USD) of net long or net short internal value-at-risk (VaR) models to

APP. 46c
05.12.31
calculate their market risk capital charges 1.4 column (d)) for the past 250 trading days
in lieu of the standardized methodology as set out in Table 3 below: and
are required to report in this part. (c) any additional “plus” factor as may
be prescribed by the BSP.
1. Value-at-risk results
Table 3
47. Report in this part the value-at-risk (VaR) “Plus” factor based on the number of
results as at the last trading day of the backtesting exceptions for the past 250 trading
reference quarter in column (a) and the days
average VaR over the most recent 60 trading Zone Number of exceptions “Plus” factor
days of the reference quarter in column (b),
0 0.00
both for each individual market risk category 1 0.00
using internal models approach, i.e., item Green zone 2 0.00
1.1 to 1.3, and for the aggregate of these risk 3 0.00
categories, i.e., item 1.4. 4 0.00
Yellow zone 5 0.40
6 0.50
48. Provided that the BSP is satisfied with 7 0.65
the bank’s system for measuring 8 0.75
correlations, recognition of empirical 9 0.85
correlations across broad risk categories Red zone 10 or more 1.00
(e.g., interest rates, equity prices and
exchange rates) may be allowed. The VaR 51. Capital charge for general market risk
for the aggregate of all risk categories will calculated by internal models reported in
therefore not necessarily be equal to an item 1.6 is larger of:
arithmetic sum of the VaR for the (a) Item 1.4 column (a), i.e., VaR for the
individual risk category. aggregate of all risk categories, as at the last
trading day of the reference quarter; or
49. Report also in this part the number of (b) Item 1.5, i.e., the average VaR for
backtesting exceptions for the past 250 the last 60 trading days of the reference
trading days (from the reference quarter-end quarter (item 1.4 column (b)) times the
going backwards), based on: multiplication factor (item 1.4 column (e))
- actual daily changes in portfolio value, set out in paragraph 50 above.
in item 1.4. column (c), and
- hypothetical changes in portfolio value 2. Specific risk
that would occur were end-of-day
positions to remain unchanged during the 52. Capital charge for the specific risk of
1 day holding period, in item 1.4 column debt securities and other debt related
(d), for the aggregate of the broad risk derivatives, and equities and equity
categories. derivatives is to be reported using either of
the following two methods:
50. The multiplication factor to be reported (a) For banks which incorporate the
in item 1.4 column (e) is the summation of specific risk into their models, report the
the following 3 elements: capital charge for the total specific risk
(a) the minimum multiplication factor calculated by the models in item 1.7 of Part
of 3; IV.1; or
(b) the “plus” factor ranging from 0 to 1 (b) For banks which do not incorporate
based on the number of backtesting exceptions the specific risk into their models, report
(i.e., the larger of item 1.4 column (c) or item the specific risk of debt securities and other

APP. 46c
05.12.31
debt related derivatives in Part I.1 standardized approach should be multiplied

according to the instructions in paragraphs by 125% (to be consistent with the higher
15-19 and 29-30. For equities and equity capital charge for credit risk, i.e., 10% as
derivatives, report the specific risk in Part opposed to the BIS recommended 8%.)
II according to the instructions in
paragraphs 35 to 40. 55. The total market risk-weighted exposures
is computed by multiplying the total market
3. Largest daily losses over the quarter risk capital charges by 10. (The multiplier
10 is the reciprocal of the BSP required
53. Report in this part in descending order minimum capital ratio for credit risk of
(i.e., the largest loss first) the 5 largest daily 10%.) The qualifying capital and total credit
losses over the reference quarter and their risk weighted exposures are extracted from
respective VaRs for the risk exposures which Part V.A and Part V.B, respectively, of the
are measured by the internal models Report on the Computation of Risk-Based
approach. If the number of daily losses Capital Adequacy Ratio covering credit risk.
during the quarter is less than 5, report only
all such daily losses. 56. For on-balance-sheet debt securities and
equities in the trading book included in Parts
Part V Adjusted Capital Adequacy Ratio I, II and IV of this Report, the credit risk-
weighted exposures reported in Part II of the
54. The market risk capital charges should Report on the Computation of the Risk-Based
be aggregated and converted to a market Capital Adequacy Ratio covering credit risk
risk-weighted exposure. The total market should be excluded in calculating the
risk capital charges is the sum of the capital adjusted ratio covering combined credit risk
charges for individual market risk categories and market risk. The market risk capital
computed using either (a) the standardized charges for these positions calculated in this
approach, or (b) the internal models Report cover all the capital requirements for
approach. The total capital charges for absorbing potential losses arising from
individual market risk categories using the carrying such positions.

APP. 46c
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC PHP250.000MM equivalent maturing in 3

Bank Corporation has the following trading months.
book positions:
(8) Long 1000 shares of a US listed
(1) Long position in US Treasury Bond company with current market price of
(7.5% annual coupon) with face value PHP715.000MM equivalent.
equivalent to PHP507.000MM and residual
maturity of 8 years. (9) Short one Hang Seng Index Futures for
Market value based on quoted price: delivery 3 months after, current index at
PHP518.914MM equivalent 10,000.
(2) Long position in an unrated floating rate (10) Currency swap with residual maturity
note (6.25% current annual coupon) issued of 6 months. Bank receives
by a US corporate with face value USD19.500MM at 9.5% per annum and
equivalent of PHP260.000MM and next pays PHP975.000MM at 11% per annum.
repricing 9 months after.
Market value based on quoted price: Treatments:
PHP264.758MM equivalent
(1) Report market value (PHP518.914MM)
(3) Long 10 futures contracts involving 5- of the long position in Part I.1, item I.2 and
year US Treasury Note (face value Part I.2, USD ladder, 7 to 10 years time
USD0.100MM per contract) for delivery 3 band.
months after.
Selected deliverable: US Treasury Note (2) Report market value (PHP264.758MM)
(coupon 6.375%) maturing 5.25 years, current of the long position in Part I.1, item 1.9‘
price at 100.0625, conversion factor 0.9423. and Part I.2, USD ladder, 6 to 12 months
time band.
(4) Single currency interest rate swap with
face value PHP975.000MM and residual (3) Report selected Treasury Note (long
maturity of 2.5 years, bank receives annual position) in Part I.1, item I.2 and Part I.2,
floating rate interest and pays fixed at 8% USD ladder, 5 to 7 year time band. Report
per annum. The current floating rate is fixed the same amount in short position, 1 to 3
at 5.5% with next repricing after 6 months. months time band.
(5) Long 10 futures contracts involving 3- Assume spot exchange rate PHP50.00
month LIBOR interest rate (face value
GBP6.500MM per contract) for delivery 6 Amount to be reported:
months after.
USD0.100MM x 10 x 100.0625%/0.9423
(6) An FRA sold on 6-month PHIBOR with = USD1.062MM
nominal amount PHP130.000MM and
settlement date 9 months after. =P53.095MM
(7) Forward foreign exchange position of (4) Report the fixed rate leg as a short 2.5-
EUR5.000MM (long) against year bond in Part I.2, Peso ladder, 2 to 3

APP. 46c
05.12.31
years time band. Report the floating rate PV of the floating leg (i.e. receive side)
leg as a long 6 months security in the 3 to
6 months time band. 1.055
= PhP975.000MM x
(1+0.0581 x 0.5)
Assume the Peso zero coupon yields are as
follows: = PHP999.587MM
Period Zero Coupon (ZC) (5) Report a long 9 months zero coupon
1M 5.31 security in Part I.2, GBP ladder, 6 to 12
3M 5.63 months time band and a short 6 months
6M 5.81 zero coupon security in 3 to 6 months time
1Y 6.16 band.
2Y 6.69
3Y 7.07 Assume the GBP 6 months zero-coupon
yield is 6.74% while the interpolated 9
(Zero coupon yields within 1 year can be months zero-coupon yield is 6.87%.
taken as cash rates, i.e., PHIBOR, zero Assume spot exchange rate is PHP75.00.
coupon yields beyond 1 year can be
constructed from, say, swap rates.) Amount to be reported:
9 months = GBP65.000MM/(1+0.0687 x 0.75)

Cash flows of Peso swap: 2 legs
= GBP65.000MM x 0.951
= PHP4,636.124MM equivalent
Pay – fixed rate bond
8% of PHP975.000MM in 6 months 6 months = GBP65.000MM/(1+0.0674 x 0.5)
8% of PHP975.000MM in 18 months = GBP65.000MM x 0.9674
108% of PHP975.000MM in 30 months = PHP4,716.069MM equivalent
Receive – floating rate paper
105.5% of PHP975.000MM in 6 months (6) Report a long 15 months zero coupon
security in Part I.2, Peso ladder, 1.0 to
Zero-coupon rates at 18 months can be 1.9 years time band and a short 9 months
obtained from the linear interpolation zero coupon security in 6 to 12 months
between the 1Y and 2Y zero coupon rates. time band.
ZC(18 months) = (6.16% + 6.69%)/2 = 6.425% Calculations similar to (4) above, ZC(15 months)
= 6.16%+(6.69% - 6.16%) x 0.25 = 6.2925%
Similarly,
15 months = PHP130.000MM/(1+0.062925)1.25
ZC(30 months) = (6.69% + 7.07%)/2 = 6.88% = PHP121.000MM
PV of the fixed leg (i.e., pay side) 9 months = PHP130.000MM x 0.957

= PHP124.410MM
0.08
= PhP975.000MM x ------------------------ 0.08
+ -----------------------
(1+0.0581x0.5) (1+0.06425)1.5 (7) Report a long 3 months zero coupon
security in Part I.2, EUR ladder, 1 to 3
1.08
+ ---------------------
(1+0.0688)2.5 months time band and a short 3 months
zero coupon security in the Peso ladder, 1
= PHP1,038.479MM to 3 months time band.

APP. 46c
05.12.31
Calculations similar to (4) above and Assume the 6-month Peso and Dollar zero
assume 3 months EUR cash rate at 3.25% coupon yields are 5.81% and 4%,
and spot exchange rate is PHP46.00. respectively, and the spot exchange rate is
PHP50.00.
EUR = EUR5.000MM/(1 + 0.0325 x 0.25)
= PHP228.146MM equivalent Cash flows of currency swap: two legs
PhP = PHP250.000MM/(1+ 0.0563 x 0.25)
= PHP246.530MM Pay – PHP
(For simplicity, Part III of the report is not
presented in this example.) PV of PHP leg
(8) Report market value in Part II, item 1 PHP975.000MM x (1.11)
(US column). =
(1 + 0.0581 x 0.5)
(9) Report as a short position the market = PHP1,051.700MM

value for futures (HKD50.00 per index
point) in Part II, item 5 (HKD column) and Receive – USD
as a long position in Part I.2, HKD ladder,1 109.5% of USD19.500MM in 6 months
to 3 months time band. Assume HKD to
PHP exchange rate is PHP6.50. PV of USD leg
USD19.500MM x (1.095)
(10)Report the USD leg as a long 6-month
= (1 + 0.04 x 0.5)
zero coupon security in Part I.2, USD
ladder, 3 to 6 months time band. Report = PHP1,046.700MM equivalent
the PHP leg as a short 6-month zero
coupon security in Part I.2, PHP ladder, 3 (For simplicity, Part III of the report is not
to 6 months time band. presented in this example.)

APP. 46d
05.12.31

(For Universal Banks and Commercial Banks
Without Expanded Derivatives Authority)
General Instructions The risks subject to this reporting

requirement are:
1. All universal banks and commercial (a) the risks pertaining to interest rate-
banks are required to complete this Report related instruments and equities in the
both on a solo basis (i.e., head office plus bank’s trading book; and
branches) and on a consolidated basis (i.e., (b) foreign exchange risk throughout the
parent bank plus subsidiary financial allied bank.
undertakings, but excluding insurance The Report should include the reporting
companies). bank’s positions in on-balance sheet
financial instruments and off-balance sheet
2. The Report should be submitted as derivatives, the latter being defined as
follows: financial contracts whose values depend on
(a) Solo report - within 15 banking days the values of one or more underlying assets
after the end of each reference quarter; and or indices.
(b) Consolidated report - within 30
banking days after the end of each reference 6. For the purpose of the Report, the trading
quarter. book of a bank shall consist of:
(a) its proprietary positions in financial
3. Current market value should be used for instruments which are taken on with the
reporting. For leveraged instruments where intention of short-term resale or benefiting
the apparent notional amount differs from in the short term from actual or expected
the effective notional amount, the bank differences between the buying and selling
should use the effective notional amount in prices or from other price or interest rate
calculating the market value for reporting, variations;
e.g., a swap contract with a stated notional (b) positions which arise from the
amount of PhP1.0 million, the terms of execution of trade orders from customers
which call for a quarterly settlement of the and market making; and
difference between 5% and PHIBOR (c) positions taken in order to hedge
multiplied by 10 has an effective notional other elements of the trading book.
amount of PhP10.0 million.
7. The financial instruments referred to in
4. Securities transactions are to be reported the preceding paragraph include:
on a “trade date” basis. (a) (i) transferable securities;
(ii) units in collective investment
Definitions and Clarifications undertakings;
(b) certificates of deposit and other
5. Market risk is defined as the risk of similar capital market instruments;
losses in on- and off-balance sheet positions (c) currency forwards with tenor of one
arising from movements in market prices. (1) year or less; and
Manual of Regulations for Banks Appendix 46d - Page 1

APP. 46d
05.12.31
(d) currency swaps with tenor of one (1) bonds (i.e., debt issues or preference shares
year or less and which for this purpose refer that are convertible, at a stated price, into
to the simultaneous buying and selling of a common shares of the issuer) which trade
currency in approximately equal amounts for like debt securities.
different maturity dates with the same party.
11. Detailed offsetting rules applicable to the
8. Banks are expected to have an reporting of positions are set out in the
established policy for allocating transactions relevant parts of Specific Instructions. These
(including internal deals) to the trading or offsetting rules can be applied on both the
non-trading (i.e., banking) book, as well as solo and consolidated basis, provided that
procedures to ensure compliance with such in the latter case there are no obstacles to the
policy. There must be a clear audit trail at quick repatriation of profits from a foreign
the time each transaction is entered into and subsidiary to the Philippines and the bank
the BSP will examine the adequacy of such performs daily management of risks on a
policy and procedures and their consistent consolidated basis. For this purpose, offsetting
implementation when it is considered means the exclusion of matched positions of
necessary. For this purpose, banks which a bank from reporting and hence exclusion of
engage in trading activities should submit such positions from the calculation of the
to the BSP a policy statement covering: adjusted capital adequacy ratio.
(a) the definition of trading activities;
(b) the financial instruments which can 12. For avoidance of doubt, items that are
be traded or used for hedging the trading deductible from the qualifying capital of the
book portfolio; and bank in the calculation of the risk-based
(c) the principles for transferring capital adequacy ratio pursuant to Subsections
positions between the trading and the X116.1.a to X116.1.c of the Manual of
banking books. Regulations for Banks are excluded from
market risk capital requirement.
9. In general, the BSP will have regard to the
bank’s intention in entering into a particular 13. In general, banks are only required to
transaction when determining whether such complete Parts I to III and V of the Report.
transaction should fall into the trading book. Banks which have obtained the BSP’s
Transactions will likely be considered to carry approval to adopt their internal value-at-risk
a trading intent on the part of the bank if: (VaR) models to calculate their market risk
(a) the positions arising from the capital charge (in all or individual risk
transactions are marked to market on a daily categories) should complete Part IV (in lieu
basis as part of the internal risk management of Parts I to III). Where the internal model is
process; used to calculate only selected risk
(b) the positions are not (or not intended categories, the capital charge for the risk
to be) held to maturity; and categories measured under the internal
(c) the positions satisfy other criteria the models approach should be reported in Part
bank applies to its trading portfolio on a IV while that for the other risk categories
consistent basis. measured under the standardized approach
should be reported in the relevant sections
10. Debt securities include both fixed-rate of Parts I to III. This combination of the
and floating-rate instruments, negotiable standardized approach and the internal
certificates of deposit, non-convertible models approach is allowed on a transitional
preference shares, and also convertible basis. Banks which adopt the internal
Appendix 46d - Page 2 Manual of Regulations for Banks

APP. 46d
05.12.31
models approach will not be permitted, save that such rating agencies meet the criteria to
in exceptional circumstances, to revert to be prescribed by the Monetary Board.
the standardized approach.
17. Multilateral development banks refer to
Specific Instructions the World Bank Group comprised of the
International Bank for Reconstruction and
Part I Interest Rate Exposures Development (IBRD) and the International
Finance Corporation (IFC), the Asian
1. Debt securities – specific risk Development Bank (ADB), the African
Development Bank (AfDB), the European
14. Report in this part the long and short Bank for Reconstruction and Development
positions in debt securities in the trading book (EBRD), the Inter-American Development
by category of the issuer. Offsetting will be Bank (IADB), the European Investment Bank
allowed between long and short positions in (EIB); the Nordic Investment Bank (NIB); the
identical issues with exactly the same issuer, Caribbean Development Bank (CDB), the
coupon, currency and maturity. For items 1.4 Council of Europe Development Bank
to 1.7 of the Report, positions should be slotted (CEDB) and such others as may be
into the appropriate time bands according to recognized by the BSP.
the residual maturities of the debt securities.
(Refer to examples (1) and (2) in Annex A). 18. Non-central government public sector
entities of a foreign country refer to entities
15. A security, which is the subject of a which are regarded as such by a recognized
repurchase agreement, will be treated as if it banking supervisory authority in the country
were still owned by the seller of the security, in which they are incorporated.
i.e., to be reported by the seller. This principle
applies also in Part 1.2 of the Report. 2. Debt securities – general market risk
16. Foreign countries, foreign incorporated 19. Report in this part the long and short
banks and Philippine incorporated banks/ trading book positions in debt securities and
quasi banks with the “highest credit quality”, forward foreign exchange positions. A
as well as debt securities with the “highest Maturity Method is adopted for the reporting
credit quality” refer to ratees/debt securities of these positions as detailed below. Banks
given the minimum credit ratings as that possess the necessary capability to
indicated below by any two of the following calculate the duration and price sensitivity
internationally accepted rating agencies: of each position separately and wish to
adopt such a duration approach for reporting
Rating Agency Credit Rating in this part may seek approval from BSP.
(a) Moody’s “Aa3” and above 20. Positions should be reported separately
(b) Standard and Poor's “AA-“ and above for each currency, i.e., banks should use
(b) Fitch IBCA “AA-“ and above separate sheets (Part I.2 of the Report) to
report positions of different currencies. The
and such other recognized international unadjusted market risk capital charge is then
rating agencies as may be approved by the calculated for each currency according to
Monetary Board. procedures set out in paragraphs 28 to 31
The ratings of domestic rating agencies may with no offsetting between different
likewise be used for this purpose provided currencies.

APP. 46d
05.12.31
21. Under the Maturity Method, positions are instruments and currency forwards and
slotted into the time bands of the maturity swaps. One method is to first convert the
ladder (as shown in Part I.2 of the Report) by payments required under each transaction
remaining maturity if fixed rate and by the into their present values. For that purpose,
period to the next repricing date if floating rate. each cash flow should be discounted using
(Refer to examples (1) and (2) in Annex A). zero-coupon yields. A single net figure of all
For forward foreign exchange positions in the of the cash flows within each time band may
trading book, they should be treated as long be reported. Banks wishing to adopt this or
and as short positions in a zero coupon other methods for reporting should seek the
government security of the 2 currencies with BSP’s prior approval. The “pre-processing”
the same maturity as the forward contract. models would be subject to review by the BSP.
(Refer to example (3) in Annex A).
Calculation of capital charges for interest
22. As with the reporting under Part I.1 of rate exposures reported in Part I
the Report, banks can offset long and short
positions in identical instruments with exactly 25. The unadjusted minimum capital
the same issuer, coupon, currency and maturity requirement is expressed in terms of two
for general market risk purposes. separately calculated charges, one applying
to the “specific risk” of each trading book
23. Opposite forward foreign exchange position in debt securities, whether it is a short
positions can in certain circumstances be or long position, and the other to the overall
regarded as matched and allowed to offset interest rate risk in the trading book portfolio
fully. The separate legs of different currency (termed “general market risk”) where long and
swaps may also be “matched” subject to the short positions in different securities and
same conditions. To qualify for this treatment, currency forwards and swaps can be offset
the positions must relate to the same underlying subject to certain “disallowances”.
currency and be of the same nominal value.
In addition, the residual maturity must Specific risk
correspond within the following limits:
- if either of the instruments for offsetting 26. The unadjusted specific risk charge is
has a residual maturity up to 1 month, the graduated into five broad categories by types
residual maturity must be the same for both of issuer, as follows:
instruments; and
- if either of the instruments for offsetting Government and
has a residual maturity greater than 1 month multilateral
and up to 1 year, those residual maturities development 0.00%
must be within 7 days of each other. banks* 0.25% (residual maturity of 6
Qualifying** months or less)
1.00% (residual maturity of over
24. Banks with the necessary expertise and 6 months to 24 months)
systems may use alternative formulae (the 1.60% (residual maturity of over
so called “pre-processing” techniques) to 24 months)
4.00%
calculate the positions to be included in the
LGU bonds*** 8.00%
maturity ladder. This applies to all interest Others
rate sensitive positions, arising from physical
* “Government and multilateral development banks” refers to the issuers as described under items 1.1 and 1.3 in Part I.1
of the Report.
*** ”LGU bonds” refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal
Revenue Allotment of the LGU and guaranteed by LGU Guarantee Corporation.

APP. 46d
05.12.31
27. Currency swaps and forward foreign Over 3 years to Over 2.8 years to 2.25%
exchange contracts will not be subject to 4 years 3.6 years
a specific risk charge. Over 4 years to Over 3.6 years to 2.75%
5 years 4.3 years
7 years 5.7 years
28. General market risk applies to
10 years 7.3 years
positions in all debt securities and Over 10 years Over 7.3 years to 4.50%
currency forwards and swaps subject only to 15 years 9.3 years
to an exemption for fully or very closely Over 15 years Over 9.3 years to 5.25%
matched positions in identical to 20 years 10.6 years
Over 10.6 years to 6.00%
instruments as described in paragraphs 22 12 years
to 23 above. The unadjusted capital Over 12 years to 8.00%
charge is the sum of the following 20 years
components: Over 20 years 12.50%
(a) the net short or long weighted
position in the whole trading book; 30. The weighted longs and shorts in each
(b) a small proportion of the matched time band will be offset resulting in a single
positions in each time band (the “vertical short or long position for each band. A 10%
disallowance”); and capital charge (“vertical disallowance”) will
(c) a larger proportion of the matched be levied on the smaller of the offsetting
positions across different time-bands (the positions, be it long or short. Thus, if the
“horizontal disallowance”). sum of the weighted longs in a time band is
P100.0 million and the sum of the weighted
29. In the maturity ladder, first calculate shorts is PhP90.0 million, the vertical
the weighted positions by multiplying the disallowance would be 10% of PhP90.0
positions reported in each time band by a million (i.e., PhP9.0 million).
risk-factor according to the following
table: 31. Two rounds of “horizontal offsetting”
will then be conducted, first between the
Table 1
net positions in each of 3 zones (zero to 1
Maturity method: time bands and weights year, over 1 year to 4 years and over 4
years), and subsequently between the net
Coupon Coupon Risk positions in the 3 different zones. The
3% or more less than 3% weight offsetting will be subject to a scale of
1 month or less 1 month or less 0.00% disallowances expressed as a fraction of the
Over 1 month to Over 1 month to 0.20% matched positions, as set out in Table 2
3 months 3 months below. The weighted long and short
Over 3 months to Over 3 months to 0.40% positions in each of 3 zones may be offset,
6 months 6 months
Over 6 months to 0.70%
subject to the matched portion attracting
Over 6 months to
12 months 12 months a disallowance factor that is part of the
capital charge. The residual net position
Over 1 year to 2 Over 1.0 year to 1.25% in each zone may be carried over and
years 1.9 years offset against opposite positions in other
Over 2 years to 3 Over 1.9 years to 1.75%
years 2.8 years zones, subject to a second set of
disallowance factors.

APP. 46d
05.12.31
Table 2 securities, they should be reported under

Part I. Long and short positions in the
Horizontal disallowances
same issue may be reported on a net
Within Between Between basis.
the adjacent zones 1
Zones Time-band zone zones and 3 33. The positions are to be reported on a
1 month or
market-by-market basis, i.e., under
less
Over 1 separate columns to indicate the
Zone 1 month to 3 exchange where the reported equities are
months listed/traded. For foreign markets, banks
Over 3 40% should indicate the country where the
months to 6
months
market is located. (Refer to example (4)
Over 6 40% in Annex A) Equities with listing in more
months to 12 than one market should be reported as
months positions in the market of their primary
Over 1 year
Zone 2 to 2 years
listing.
Over 2 years 30%
to 3 years 34. Matched positions in each identical
Over 3 years equity in each market may be fully offset,
to 4 years 100% resulting in a single net short or long
Over 4 years 40%
to 5 years
position.
Over 5 years
to 7 years 35. As with interest rate exposures, the
Over 7 years capital charge is levied to separately
to 10 years
Zone 3 Over 10
cover both the specific risk and the
30%
years to 15 general market risk. Calculation is done
years on an individual market basis. The
Over 15 unadjusted capital charge for specific risk
years to 20 will be 8% on the gross (i.e., long plus
years
Over 20
short) positions. The unadjusted general
years market risk charge will be 8% on the net
position. Net long and short positions
Part II Equity Exposures in different markets cannot be offset for
the purpose of calculating general market
32. Report in this part the long and short risk charge.
positions in equities in the trading book,
including instruments that exhibit market Part III Foreign Exchange Exposures
behavior similar to equities. The
instruments covered include common 36. Report in this part the amount in US
stock (whether voting or non-voting), and dollars (USD) of net long or net short
convertible bonds (i.e., debt issues or position in each currency. In addition,
preference shares that are convertible, at structural positions taken deliberately to
a stated price, into common shares of the hedge against the effects of exchange rate
issuer) which trade like equities. For non- movements on the capital adequacy of the
convertible preference shares and those reporting bank may be excluded. This should
convertible bonds which trade like debt be cleared with the BSP prior to reporting.

APP. 46d
05.12.31
37. Net long/(short) position shall refer to reference quarter in column (a) and the
FX assets (excluding FX items allowed average VaR over the most recent 60
under existing regulations to be excluded trading days of the reference quarter in
from FX assets in the computation of a column (b), both for each individual
bank’s net FX position limits) less FX market risk category using internal models
liabilities (excluding FX items allowed approach, i.e., items 1.1 to 1.3, and for
under existing regulations to be excluded the aggregate of these risk categories, i.e.,
from FX liabilities in the computation of a item 1.4.
bank’s net FX position limits), plus
contingent FX assets less contingent FX 43. Provided that the BSP is satisfied with
liabilities. the bank’s system for measuring
correlations, recognition of empirical
38. Banks which base their normal correlations across broad risk categories
management accounting of forward (e.g., interest rates, equity prices and
currency positions on net present values exchange rates) may be allowed. The VaR
shall use the net present values of each for the aggregate of all risk categories will
position, discounted using current interest therefore not necessarily be equal to an
rates, for measuring their positions. arithmetic sum of the VaR for the
Otherwise, forward currency positions individual risk category.
shall be measured based on notional
amount. 44. Report also in this part the number of
backtesting exceptions for the past 250
39. The total USD amount of net long or trading days (from the reference quarter-end
net short position in each currency should going backwards), based on:
then be converted at spot rates into - actual daily changes in portfolio value,
Philippine peso. The overall net open in item 1.4. column (c), and
position is the greater of the absolute value - hypothetical changes in portfolio value
of the sum of net long position or sum of that would occur were end-of-day
net short position. positions to remain unchanged during the
1 day holding period, in item 1.4 column
40. The unadjusted capital charge will be (d), for the aggregate of the broad risk
8% of the overall net open position. categories.
Part IV Internal Models Approach 45. The multiplication factor to be reported

in item 1.4 column (e) is the summation of
41. Only those banks which have obtained the following 3 elements:
the BSP’s approval to adopt their internal (a) the minimum multiplication factor
value-at-risk (VaR) models to calculate their of 3;
market risk capital charges in lieu of the (b) the “plus” factor ranging from 0 to 1
standardized methodology are required to based on the number of backtesting
report in this part. exceptions (i.e., the larger of item 1.4 column
(c) or item 1.4 column (d)) for the past 250
1. Value-at-risk results trading days as set out in Table 3 below:
and
42. Report in this part the value-at-risk (VaR) (c) any additional “plus” factor as may
results as at the last trading day of the be prescribed by the BSP.

APP. 46d
05.12.31
Table 3 specific risk in Part II according to the

instructions in paragraphs 32 to 35.
“Plus” factor based on the number of
backtesting exceptions for the past 250 trading 3. Largest daily losses over the quarter
days
48. Report in this part in descending order
Zone Number of exceptions “Plus” factor (i.e., the largest loss first) the 5 largest daily
Green zone 0 0.00 losses over the reference quarter and their
1 0.00 respective VaRs for the risk exposures which
2 0.00 are measured by the internal models
3 0.00 approach. If the number of daily losses
4 0.00 during the quarter is less than 5, report only
Yellow zone 5 0.40 all such daily losses.
6 0.50
7 0.65 Part V Adjusted Capital Adequacy Ratio
8 0.75
9 0.85
49. The market risk capital charges should
Red zone 10 or more 1.00
be aggregated and converted to a market
46. Capital charge for general market risk risk-weighted exposure. The total market
calculated by internal models reported in risk capital charge is the sum of the capital
item 1.6 is larger of: charges for individual market risk
(a) Item 1.4 column (a), i.e., VaR for the categories computed using either (a) the
aggregate of all risk categories, as at the last standardized approach, or (b) the internal
trading day of the reference quarter; or models approach. The total capital
(b) Item 1.5, i.e., the average VaR for charges for individual market risk
the last 60 trading days of the reference categories using the standardized
quarter (item 1.4 column (b)) times the approach should be multiplied by 125%
multiplication factor (item 1.4 column (e)) (to be consistent with the higher capital
set out in paragraph 45 above. charge for credit risk, i.e., 10% as opposed
to the BIS recommended 8%.)
2. Specific risk
50. The total market risk-weighted
47. Capital charge for the specific risk of exposures is computed by multiplying the
debt securities and equities is to be total market risk capital charges by 10.
reported using either of the following two (The multiplier 10 is the reciprocal of the
methods: BSP required minimum capital ratio for
(a) For banks which incorporate the credit risk of 10%.) The qualifying capital
specific risk into their models, report the and total credit risk weighted exposures
capital charge for the total specific risk are extracted from Part V.A and Part V.B,
calculated by the models in item 1.7 of Part respectively, of the Report on the
IV.1; or Computation of Risk-Based Capital
(b) For banks which do not incorporate Adequacy Ratio covering credit risk.
the specific risk into their models, report the
specific risk of debt securities in Part I.1 51. For on-balance-sheet debt securities
according to the instructions in paragraphs and equities in the trading book included
14-18 and 26-27. For equities, report the in Parts I, II and IV of this Report, the credit

APP. 46d
05.12.31
risk-weighted exposures reported in Part II risk and market risk. The market risk capital
of the Report on the Computation of the charges for these positions calculated in this
Risk-Based Capital Adequacy Ratio covering Report cover all the capital requirements for
credit risk should be excluded in calculating absorbing potential losses arising from
the adjusted ratio covering combined credit carrying such positions.

APP. 46d
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC Part I.2, USD ladder, 7 to 10 years time band.
Bank Corporation has the following
trading book positions: (2) Report market value (PHP264.758MM)
of the long position in Part I.1, item 1.9 and
(1) Long position in US Treasury Bond Part I.2, USD ladder, 6 to 12 months time
(7.5% annual coupon) with face value band.
equivalent to PHP507.000MM and residual
maturity of 8 years. (3) Report a long 3 months zero coupon
Market value based on quoted price: security in Part I.2, EUR ladder, 1 to 3
PHP518.914MM equivalent months time band and a short 3 months
zero coupon security in the Peso ladder, 1
(2) Long position in an unrated floating rate to 3 months time band.
note (6.25% current annual coupon) issued
by a US corporate with face value Assume 3 months EUR cash rate at 3.25%,
equivalent of PHP260.000MM and next 3-month Peso zero-coupon yield at 5.63%
repricing 9 months after. and spot exchange rate is 46.
Market value based on quoted price:
PHP264.758MM equivalent PV of the EUR leg (i.e. receive side)
(3) Forward foreign exchange position of EUR = EUR5.000MM/(1 + 0.0325 x 0.25)

EUR5.000MM (long) against = P228.146MM equivalent
PHP250.000MM equivalent maturing in 3
months. PV of the PHP leg (i.e. pay side)
(4) Long 1000 shares of a US listed PHP = P250.000MM/(1+ 0.0563 x 0.25)

company with current market price of = P246.530MM
PHP715.000MM equivalent.
(For simplicity Part III of the report is not
Treatments: presented in this example.)
(1) Report market value (PHP518.914MM) (4) Report market value in Part II, item 1
of the long position in Part I.1, item I.2 and (US column).

APP. 46e
05.12.31
PROCEDURES TO BE OBSERVED BY UNIVERSAL AND

COMMERCIAL BANKS APPLYING FOR BSP RECOGNITION OF
THEIR OWN INTERNAL MODELS FOR CALCULATING
MARKET RISK CAPITAL
A. Bank’s own self-assessment The bank should also provide

A bank intending to use its own internal information on the number of staff within
Value-at-Risk (VaR) models, in lieu of the the risk control unit1 , their internal reporting
standardized approach, for calculating structure, responsibilities, qualifications and
market risk capital charge should conduct experience.
a self-assessment of its compliance with the 5. Full technical description of the model,
requirements for the use of such models as indicating, among others, the following:
prescribed in Appendix 46, using the a. the type of VaR model used (e.g.,
attached questionnaire in Annex A. variance-covariance matrix, historical
simulation or Monte Carlo simulation);
B. Offsite assessment by BSP b. the parameters which are integral to
If a bank believes that it is in compliance the VaR calculations, including assumptions
with the abovementioned requirements for regarding:
the use of internal models, it should submit (1) confidence interval;
a written application to the appropriate (2) holding period;
supervision and examination department of (3) length of historical data used to
the BSP, together with the following: calculate volatility parameters;
1. Accomplished questionnaire; (4) scaling factors applied to VaR
2. A listing of the products to be included numbers to convert shorter holding periods
in the risk models; to longer holding periods;
3. Details as of end of the preceding (5) weighting scheme applied to
quarter, by each product listed above, of: historical data (e.g., giving recent
a. The size of positions in terms of observations more weight than less recent
market value; and observations);
b. The currencies in which it is traded, (6) probability distribution functions of
4. Organizational structure and personnel; input variables to the Monte Carlo
The bank should submit latest simulation model;
organizational chart showing the names, (7) the frequency of input data
reporting lines, and responsibilities of key updates (e.g., how often are historical data
personnel in-charge of trading, and of series updated, when are variance-
functions supporting the trading operations covariance matrices revised, etc.);
such as risk control, back office, internal audit, (8) the other models which are used as
etc., and those at board level to whom they inputs to the VaR model (e.g., option pricing
report. For those responsible for trading, the models, interest rate sensitivity models, etc.)
bank should provide details of their relevant and how they interface with the model; and
qualifications and experience in the area of (9) the frequency of VaR calculation;
trading. For those responsible for risk control, c. an outline of the VaR risk
the bank should provide details of their measurement calculation and processes,
relevant qualifications and experience, including, where necessary, mathematical
particularly on the use of bank’s models. formulae. This should also include:
1
Referring generally to the risk management group functions in the BAP Financial Markets Risk Reference Manual.
Manual of Regulations for Banks Appendix 46e - Page 1

APP. 46e
05.12.31
(1) the manner in which non-linear 9. Validation reports of external auditor.

products, like options, are incorporated in the The bank should stand ready to make a
model; presentation to the BSP on its compliance with
(2) the extent to which correlation is the abovementioned requirements for the use
allowed both within and across risk categories of internal models.
(i.e., interest rates, equity prices, exchange
rates); and C. On-site assessment by BSP
(3) the means by which specific risk is The BSP shall conduct an on-site
addressed within the VaR framework, if assessment of the models to review both the
appropriate, and the explanation of the technical details of the models and the risk
techniques by which this is achieved. management practices that govern their use.
6. Policies and procedures for backtesting; During the on-site assessment, the bank
The bank should describe the methods should give a brief demonstration of how
of backtesting employed, including the its models work. The demonstration should
treatment of intra-day trading profits and loss cover the following:
and fee income within the daily profit and 1. how model inputs are fed into the
loss figures. While the formal implementation system including extent of manual inputs;
of the BSP prescribed backtesting program 2. how VaR numbers are calculated;
should begin on the quarter following the date 3. how results are generated and interpreted;
of BSP’s recognition of the bank’s internal 4. accuracy in terms of back testing results;
model and thus implies that the formal 5. stress testing capability;
accounting of exceptions under the BSP 6. use of model outputs in risk
prescribed backtesting program would be a management; and
year later, the bank should, at initial 7. limitations of the model.
assessment, submit at least the latest The onsite assessment shall also include
backtesting result based on its own interview with the concerned officers and
backtesting program, including the personnel of the bank.
confidence level used in calculating the VaR
numbers. The confidence level used shall D. Assessment on an ongoing basis by the
dictate the number of daily observations on BSP. After initial recognition of the models
which the backtesting will be applied (e.g., by the BSP, the bank should inform the BSP
250 number of observations for a ninety-nine of any material change to the models,
percent (99%) confidence level, and a higher including change in the methodology or
number of observations for a confidence level scope to cover new products and
higher than ninety-nine percent (99%), instruments. The BSP shall determine
subject to a minimum of 250 observations. whether the models remain acceptable for
7. Policies and procedures for stress testing; calculating the market risk capital charge.
8. Internal validation reports which should The BSP shall likewise conduct a
include the following: periodic assessment of the models and the
a. the latest review of the overall risk controls surrounding the models at least
management process by the applicant bank’s annually to ensure that they remain
internal auditors; and compliant with the minimum qualitative
b. the latest validation of the formulae and quantitative requirements prescribed
used in the calculation process, as well as under Appendix 46 on an ongoing basis.
for the pricing of options and other com- Non-compliance with the minimum
plex instruments by a qualified unit which requirements shall be ground for
is independent from the trading area; and disallowing the use of such models.
Appendix 46e - Page 2 Manual of Regulations for Banks

APP. 46e
05.12.31
Annex A
(Name of Bank)
COMPLIANCE WITH THE REQUIREMENTS FOR THE USE OF INTERNAL MODELS
Bank's
Criteria Yes No Explanations1
I. General Criteria
1. Is the bank’s risk management system

conceptually sound and implemented with
integrity?
2. Does the bank have sufficient number of staff

skilled in the use of sophisticated models not
only in the trading area but also in the risk
control, audit, and if necessary, back office
area?
3. Do the bank’s models have a proven track

record of reasonable accuracy in measuring
risk?
4. Does the bank conduct stress tests along the

lines discussed in Item V below?
II. Qualitative Standards
1. Does the bank have an independent risk

control unit that is responsible for the design
and implementation of the bank’s risk
management system?
· Does the unit produce and analyze daily (Cite examples of

reports on the output of the bank’s risk reports produced by
measurement model, including an evaluation the unit and indicate
of the relationship between measures of risk what time of day
exposure and trading limits? these reports are
calculated.)
· Is the unit independent from business trading

units?
1
The questions in this checklist may already be addressed by other materials submitted by the Bank. In such cases, please
indicate in this column the appropriate reference document.

APP. 46e
05.12.31
Bank's
Criteria Yes No
Explanations1
· Does the unit report directly to senior

management of the bank?
2. Does the risk control unit conduct a regular

backtesting program, i.e., an expost
comparison of the risk measure generated by
the model against actual daily changes in
portfolio value over longer periods of time, as
well as hypothetical changes based on static
positions?
3. Are the board of directors (or equivalent

management committee in the case of
Philippine branches of foreign banks) and
senior management actively involved in the
risk control process?
· Do the board of directors (or equivalent

Philippine branches of foreign banks) and
senior management regard risk control as an
essential aspect of the business to which
significant resources need to be devoted?
· Are daily reports prepared by the independent

risk control unit reviewed by a level of
management with sufficient seniority and
authority to enforce both reductions of
positions taken by individual traders and
reductions in the bank’s overall risk exposure?
4. Is the bank’s internal risk measurement model

closely integrated into the day-to-day risk
management process of the bank?
· Is the output of the internal risk measurement

model accordingly an integral part of the
process of planning, monitoring and
controlling the bank’s market risk profile?
1

APP. 46e
05.12.31
Bank's
5. Is the risk measurement system used in

conjunction with internal trading and
exposure limits?
· Are trading limits related to the bank’s risk

measurement model in a manner that is
consistent over time and that is well-
understood by both traders and senior
management?
6. Is a routine and rigorous program of stress

testing in place as a supplement to the risk
analysis based on day-to-day output of the
bank’s risk measurement model?
· Are the results of stress testing exercises

reviewed periodically by senior management
and reflected in the policies and limits set by
management and the board of directors (or
equivalent management committee in the case
of Philippine branches of foreign banks)?
· Where stress tests reveal particular

vulnerability to a given set of circumstances,
are prompt steps taken to manage those risks
appropriately (e.g., by hedging against that
outcome or reducing the size of the bank’s
exposures)?
7. Does the bank have a routine in place for

ensuring compliance with a documented set
of internal policies, controls and procedures
concerning the operation of the risk
measurement system?
· Is the bank’s risk measurement system well

documented, i.e. through a risk management
manual that describes the basic principles of
the risk management system and that provides
an explanation of the empirical techniques
used to measure market risk?
1

APP. 46e
05.12.31
Bank's
8. Is an independent review of the risk

measurement system carried out regularly in
the bank’s own internal auditing process?
· Does this review include both the activities of

the business trading units and of the
independent risk control unit?
· Does the review of the overall risk management

process take place at regular intervals (ideally
not less than once a year)?
· Does the review address the following:
- the adequacy of the documentation of the risk

management system and process?
- the organization of the risk control unit?
- the integration of market risk measures into

daily risk management?
- the approval process for risk pricing models

and valuation systems used by front and back-
office personnel?
- the validation of any significant change in the

risk measurement process?
- the scope of market risks captured by the risk

measurement model?
- the integrity of the management information

system?
- the accuracy and completeness of position

data?
- the verification of the consistency, timeliness

and reliability of data sources used to run
internal models, including the independence
of such data sources?
1

APP. 46e
05.12.31
Bank's
- the accuracy and appropriateness of

volatility and correlation assumptions?
- the accuracy of valuation and risk

transformation calculations?
- the verification of the model’s accuracy

through frequent backtesting as discussed In
Item II.2 above?
III. Specification of Market Risk Factors
A. Interest Rates
Is there a set of risk factors corresponding to

interest rates in each currency in which the bank
has interest rate-sensitive on- or off- balance sheet
positions?
· Does the risk measurement system model the

yield curve using one (1) of a number of
generally accepted approaches, e.g., by
estimating forward rates of zero coupon
yields?
· Is the yield curve divided into various maturity

segments in order to capture variation in the
volatility of rates along the yield curve, with
one (1) risk factor corresponding to each
maturity segment?
· For material exposures to interest rate

movements in the major currencies and
markets, does the bank model the yield curve
using a minimum of six (6) risk factors?
· Does the risk measurement system

incorporate separate risk factors to capture
spread risk (e.g., between bonds and swaps)?
1

APP. 46e
05.12.31
Bank's
B. Equity Prices
1. Are there risk factors corresponding to each

of the equity markets in which the bank holds
significant positions?
· Is there, at a minimum, a risk factor that is

designed to capture market-wide movements
in equity prices (e.g., a market index)?
2. Does the sophistication and nature of the

modeling technique for a given market
correspond to the bank’s exposure to the
overall market as well as its concentration in
individual equity issues in that market?
C. Exchange Rates
Does the risk measurement system incorporate risk

factors corresponding to the individual foreign
currencies in which the bank’s positions are
denominated, i.e., are there risk factors
corresponding to the exchange rate between the
Philippine peso and each foreign currency in
which the bank has a significant exposure?
IV. Quantitative Standards
1. Is “Value-at-risk” (VaR) computed on a daily

basis?
2. Is a 99th percentile, one-tailed confidence

interval used?
3. Is an instantaneous price shock equivalent to

a ten (10) day movement in prices used, i.e.,
is the minimum “holding period” ten (10)
trading days?
· If VaR numbers are calculated according to a

shorter holding period, is this scaled up to ten
(10) days by the square root of time?
1

APP. 46e
05.12.31
Bank's
4. Is the historical observation period (sample

period) at least one (1) year?
· If a weighting scheme or other methods for

the historical observation period are used, is
the “effective” observation period at least one
(1) year (that is, the weighted average time lag
of the individual observations is not less than
six (6) months)?
5. Are data sets updated no less frequently than

once every three (3) months?
· Are data sets reassessed whenever market

prices are subject to material changes?
6. For banks with option transactions
· Does the bank’s model capture the non-linear

price characteristics of options positions?
· Is a ten (10)-day price shock applied to options

positions or positions that display option-like
characteristics?
· Does the bank’s risk measurement system have

a set of risk factors that captures the volatilities
of the rates and prices underlying option
positions, i.e., vega risk?
· For banks with relatively large and/or complex

options portfolios, does the bank have detailed
specifications of the relevant options
volatilities, i.e., does the bank measure the
volatilities of options positions broken down
by different maturities?
V. Stress Testing
1. Does the bank have a rigorous and

comprehensive stress-testing program in place?
1
The questions in this checklist may already be addressed by other materials submitted by the Bank. In such cases,
please indicate in this column the appropriate reference document.

APP. 46e
05.12.31
Bank's
2. Do the bank’s stress scenarios cover a range of

factors that can create extraordinary losses or
gains in trading portfolios, or to make the
control of risks in those portfolios very difficult,
e.g., low-probability events in all major types
of risks, including the various components of
market, credit, and operational risks?
· Do the stress scenarios shed light on the impact

of such events on positions that display both
linear and non-linear price characteristics (i.e.
options and instruments that have options-like
characteristics)?
3. Are the bank’s stress tests both of a qualitative

and quantitative nature, incorporating both
market risk and liquidity aspect of market
disturbances?
· Do quantitative criteria identify plausible stress

scenarios to which banks could be exposed?
4. Are the results of stress testing reviewed

periodically by senior management?
· Are the results of stress testing reflected in the

policies and limits set out by management and
the board of directors (or equivalent
Philippine branches of foreign banks)?
· If the bank’s testing reveals particular

vulnerability to a given set of circumstances,
does the bank take prompt steps to manage
those risks appropriately (e.g., by hedging
against the outcome or reducing the size of its
exposures)?
1

APP. 46e
05.12.31
Bank's
VI. External Validation
Is the model accuracy validated by external

auditor?
· If yes, does the validation include -
- Verification of the internal auditors’

report on their review of the bank’s
overall risk management process?
- Ensuring that the formula used in the

calculation process, as well as for
pricing of options and other complex
instruments, are validated by a
qualified unit, which is independent
from the trading area?
- Checking the adequacy of the

structure of the internal models with
respect to the bank’s activities?
- Checking the results of the

backtesting to ensure that the internal
model provides a reliable measure of
potential loss over time?
- Ensuring the transparency and

accessibility of the data flows and
processes associated with the risk
measurement system?
1

APP. 47
05.12.31
GUIDELINES FOR THE ESTABLISHMENT AND ADMINISTRATION/

MANAGEMENT OF SINKING FUND FOR THE REDEMPTION OF
REDEEMABLE PRIVATE PREFERRED SHARES
Sinking fund shall refer to a fund set c. Deposits with private and/or
aside in order to accumulate the amount government banks to the extent covered by
necessary for the redemption of redeemable deposit insurance; and
preferred shares. d. Such other securities as the
Monetary Board may designate from time
A. Establishment and Composition to time.
1. Documentation Banks shall refrain from investing sinking
a. A resolution by the bank’s board of fund resources in highly volatile, high-risk
directors authorizing the Chief Executive commercial instruments.
Officer/President of the bank to establish a
sinking fund equal to the reserve for B. Operation
retirement of preferred shares for the sole 1. Amount of Annual Investment
purpose of redemption of redeemable The annual contribution to the sinking
preferred shares at their maturity dates. fund shall be equal to the reserve for retirement
b. Investment Plan. The plan shall be set up for the year, equivalent to the amount
approved by the board of directors and of redeemable shares issued divided by their
should indicate the types/classes of respective terms, i.e., number of years from
investments for the sinking fund. The date of issue to date of maturity.
amount of initial/periodic contributions set
forth in the Investment Plan shall be in 2. Accounting Entries - please refer to
accordance with Section B par. 1 below. A Annex “A”.
copy of the Plan shall be submitted to the
BSP within thirty (30) calendar days from 3. Administration
approval thereof by the bank’s board of a. Responsible Officer. The sinking fund
directors. shall be administered by the Chief Executive
Officer or his duly authorized representative,
2. Eligible Securities and Investments who shall be an employee of the bank with a
The sinking fund may be invested in the rank not lower than manager or its equivalent,
following: preferably with experience in treasury
a. Evidence of indebtedness of the operations. The administrator shall be
Republic of the Philippines and/or the BSP, responsible for investment decisions and the
or any other evidence of indebtedness or maintenance of records of the sinking fund.
obligations the servicing and repayment of He shall be responsible for the execution of
which are fully guaranteed by the Republic the Investment Plan, and may deviate from
of the Philippines; the Plan only upon the approval of the board
b. Evidence of indebtedness or of directors.
obligation of the central monetary authority In the case of RBs/Coop Banks, the bank
of a foreign country, denominated in the president or the general manager or the
national currency of the issuing country, the officer-in-charge shall be designated as the
servicing and repayment of which are fully administrator of the sinking fund.
guaranteed by the government of such b. Sinking Fund Manager. The board
country; of directors shall delegate the management

APP. 47
05.12.31
of the fund to an independent fund manager, has been placed, and the administrator’s/
e.g., trust company, where the amount of fund manager’s recommendations or
the fund is equivalent to five percent (5%) proposals regarding the fund. In its
or more of the authorized redeemable evaluation of the report the Board shall
private preferred shares, in case of UBs and ascertain the degree of risk that the sinking
KBs, or when such fund amounts to P1.0 fund is exposed to and prescribe the
million or more in the case of TBs and RBs/ appropriate corrective actions.
Coop Banks: Provided, That the sinking The report of the administrator/fund
fund manager shall invest only in such manager shall be under oath and made
securities as are prescribed in these available for examination by the BSP.
guidelines: Provided, further, That a bank/ d. Review of the Investment Plan.
financial institution acting as sinking fund The Board shall conduct an annual
manager may not designate the owner of evaluation of the Investment Plan and the
the fund it manages as the sinking fund performance of the administrator/fund
manager of its own sinking fund established manager, and may introduce amendments
for the same purpose. to or revisions of the Plan, a copy of which
c. Reports. The administrator shall shall be submitted to the BSP.
submit to the Board a quarterly report on
the status of the Fund. The report shall 4. Sanctions. Failure to comply with the
include the to-date balance of the fund, its guidelines shall subject the bank and its
composition, income earned for the period, directors and officers to the sanctions
a reasonable forecast for the various prescribed in Item “c” of Subsec. X126.5
financial instruments into which the fund and Sections 36 and 37 of R.A. No. 7653.

APP. 47
05.12.31
Annex A
Summary of Pro-Forma Journal Entries to Record Sinking Fund Transactions
a. Setting up the sinking fund. The initial contribution to the sinking fund shall be recorded
as follows:
1. To set up Reserve for Retirement of Preferred Stock

Undivided Profits/Surplus Free xxx
Other Surplus Reserves – Reserve for Retirement of Preferred Stock xxx
To transfer from free to restricted Surplus the amount set up as reserve for redemption
of preferred shares.
2. To set up the subsidiary account – Sinking Fund (classified as Other Non-Current Assets)
IBODI/Others – Sinking Fund for Redemption of Preferred Shares xxx
Cash/Due from Banks xxx
To set up the Sinking Fund for the Redemption of Preferred Shares.
b. Contributions to the sinking fund

1. To set up the periodic Reserve for Retirement
Other Surplus Reserves –Reserve for Retirement of Preferred Stock xxx
To transfer from free to restricted Surplus reserve for redemption of preferred shares.
c. Income/loss from the sinking fund. The recognition of income/loss from the investments
shall follow the existing accounting treatment/procedures prescribed in the Manual of
Accounts for Banks
1. To record receipt or accrual of income due to the sinking fund
Cash/Due from Banks/ Accrued Other Income Receivable xxx

Other Income/Accrued Other Income xxx
To record income earned from sinking fund assets.

APP. 47
05.12.31
d. Redemption
1. Liquidation of sinking fund. Any gain or loss realized/incurred from liquidation of
the sinking fund investments shall be credited/charged to operations.
Undivided Profits/ Surplus Free
Cash xxx
Other Income – Gain on Sale of Sinking Fund Securities xxx
To record the liquidation of sinking fund assets and recognize income therefrom.
or:
Cash xxx
Loss from Sale of Sinking Fund Securities xxx
To record the liquidation of sinking fund assets and loss incurred therefrom.
2. Transfer to Undivided Profits/Surplus Free of the balance of the Restricted Surplus account
Other Surplus Reserves – Reserve for Retirement of Preferred Stock xxx
Undivided Profits/ Surplus Free xxx
To close the restricted surplus account ‘Other Surplus Reserves – Retirement of Preferred
Stock’ and to revert the balance of the same to Undivided Profits/Surplus Free.
3. Redemption of preferred shares, declaration of stock dividend equal to amount of

preferred shares redeemed and payment of such dividend through the issuance of
new shares of stock
(a)
Capital Stock – Preferred Shares xxx
Cash/Due from Banks xxx
To record the redemption of redeemable preferred shares.
(b)
Dividends Distributable xxx
(c)
Dividends Distributable xxx
Capital Stock – Common Stock/Preferred Stock xxx
To record payment of stock dividend (common stock).
e. Treatment of changes in the market of the sinking fund portfolio. Gains and losses arising
from changes in market values of component securities shall be deferred (not recognized)
until the securities are liquidated.

APP. 48
05.12.31
ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE

AND UNSOUND BANKING PRACTICES
(Appendix to Secs. X149 and X408)
The following activities are considered l. Failure to limit, control and

only as guidelines and are not irrebutably document contingent liabilities.
presumed to be unsafe or unsound. m. Engaging in hazardous lending and
Conversely, not all practices which might lax collection policies and practices, as
under the circumstances be termed unsafe evidenced by:
or unsound are mentioned here. The (1) An excessive volume of loans
Monetary Board may consider any other subject to adverse classification;
acts/omissions as unsafe or unsound (2) An excessive volume of loans
practices. without adequate documentation,
a. Operating with management including credit information;
whose policies and practices are (3) Excessive net loan losses;
detrimental to the bank and jeopardize the (4) An excessive volume of loans in
safety of its deposits. relation to the total assets and deposits of
b. Operating with total adjusted the bank;
capital and reserves that are inadequate in (5) An excessive volume of weak and
relation to the kind and quality of the assets self-serving loans to persons connected with
of the bank. the bank, especially if a significant portion
c. Operating in a way that produces of these loans are adversely classified;
a deficit in net operating income. (6) Excessive concentrations of credit,
d. Operating with a serious lack of especially if a substantial portion of this
liquidity, especially in view of the asset and credit is adversely classified;
deposit/liability structure of the bank. (7) Indiscriminate participation in weak
e. Engaging in speculative and and undocumented loans originated by
hazardous investment policies. other institutions;
f. Paying excessive cash dividends in (8) Failing to adopt written loan
relation to the capital position, earnings policies;
capacity and asset quality of the bank. (9) An excessive volume of past due
g. Excessive reliance on large, high- or non-performing loans;
interest or volatile deposits/borrowings. (10) Failure to diversify the loan
h. Excessive reliance on letters of portfolio/asset mix of the institution; and
credit either issued by the bank or accepted (11) Failure to make provision for an
as collateral to loans advanced. adequate reserve for possible loan losses.
i. Excessive amounts of loan n. Permitting officers to engage in
participations sold. lending practices beyond the scope of their
j. Paying interest on participations positions.
without advising participating institution o. Operating the bank with inadequate
that the source of interest was not from the internal controls.
borrower. p. Failure to keep accurate and
k. Selling participations without updated books and records.
disclosing to the purchasers of those q. Operating the institution with
participations material, non-public excessive volume of out-of-territory
information known to the bank. loans.

APP. 48
05.12.31
r. Excessive volume of non-earning otherwise seriously prejudice the interest

assets. of its depositors/investors/clients.
s. Failure to heed warnings and v. Non-observance of the principles
admonitions of the supervisory authorities and the requirements for managing and
of the institution. monitoring large exposures and credit risk
t. Continued and flagrant violation of concentrations under Subsec. X301.6a and
any law, rule, regulation or written agreement 6b.
between the institution and the BSP. w. Improper or non-documentation of
u. Any action likely to cause repurchase agreements covering
insolvency or substantial dissipation of government securities and commercial
assets or earnings of the institution or likely papers and other negotiable and non-
to seriously weaken its condition or negotiable securities or instruments.

APP. 49
05.12.31
CERTIFICATION OF COMPLIANCE WITH

SECTION 55.4 OF REPUBLIC ACT NO. 8791
Name of Bank
Telefax/Fax Number
The Deputy Governor

Supervision and Examination Sector
Manila, Philippines
Sir:
This is to certify that this bank, in the conduct of its business involving bank deposits,
does not have in its employ any casual/non-regular personnel or employees/personnel, who
are working after the probationary period of six (6) months, are still not being considered
regular/permanent employees, personnel of the bank.
This certification is being submitted in compliance with the requirements of Circular

No. 336 dated 02 July 2002 and Circular Letter dated 11 November 2003 implementing
Section 55.4 of the General Banking Law of 2000.
Very truly yours,
--------------------
Authorized Officer’s Signature
Over Printed Name
Designation

APP. 50
05.12.31
GUIDELINES ON RETENTION AND DISPOSAL OF

RECORDS OF RURAL AND COOPERATIVE BANKS
The following guidelines shall govern the retention and disposal of records of RBs/Coop
Banks.
A. Classification of Records and Documents Retention Period
1. Accounting Records
(a) Books of accounts, audited financial/annual reports Permanent
(b) Tickets and supporting papers 10 years
(c) Official receipts (2nd or 3rd copy) 10 years
2. Organization papers for the establishment of RBs/ 10 years

Coop Banks, branches/offices (organizational file),
special license/authority granted by BSP (e.g. authority
to accept D/Ds, government deposits,fringe benefit plan)
3. Manual of operations, including compliance system, Permanent

policies on personnel, security and other related matters
4. Stock and transfer book and related records and documents Permanent
5. Minutes of meeting
(a) Stockholders/general assembly, board of directors Permanent
(b) Other committees 10 years
6. Human resource files

(a) Documents pertaining to members of the board of Permanent
directors and stockholders
(b) Bank officers and staff 10 years from
resignation/separation
retirement
(c) Officers and staff with derogatory information Permanent
7. Correspondence (to and from)

(a) BSP on examination findings/exceptions and directives; Permanent
rediscounting, loans and advances
(b) Other government regulatory/supervisory authorities, Permanent
e.g. PDIC, BIR, DOLE, SSS
(c) All other correspondence 6 years
8. Reports to BSP 6 years

(Financial and non-financial reports)

APP. 50
05.12.31
9. Reports to other government and non-government Minimum of 6 years or

institutions as prescribed by the
institution concerned
10. Records and documents on court cases/complaints Permanent
11. Documents, certificates of ownership/titles on Permanent

bank assets
12. All other records/documents of all transactions, 10 years from dates

e.g. loans and investments, disposal of assets, when accounts were
deposit liabilities and borrowings, expenditures closed/disposed/settle
and income, disbursements, disposal of assets
Notwithstanding the retention periods herein, RBs/Coop Banks may preserve for a longer
period those records/documents they deem necessary.
B. Procedural requirements on disposal of banks records and documents
1. No RBs/Coop Banks shall dispose of any records without the prior approval of its board
of directors.
2. Notice for disposal of records and documents in the prescribed form (Annex A) which
shall include the proposed date of disposal and list of the records and documents to be
disposed of in accordance with the above guidelines shall be submitted to the appropriate
supervising and examining department within ten (10) banking days from date of approval of
the board of directors. A copy of the afore-cited board resolution duly certified by the bank’s
corporate/cooperative secretary should likewise be attached to the notice. The bank may
proceed to dispose of the records and documents in the submitted list if after thirty (30)
banking days from date the notice required herein shall have been received by the appropriate
supervising and examining department, no advice against such notice has been received by
the bank concerned.
3. All records and documents for disposal must be burned or shredded in the presence of a
director of the bank duly designated by the board of directors, the Chief Operating Officer or
equivalent rank and the Compliance Officer.
4. The designated director, the Chief Operating Officer (or its equivalent) and the Compliance
Officer shall execute a joint affidavit (Annex B) attesting to the burning/ shredding of the
records/documents. The original and triplicate copies shall be kept permanently by the
Treasurer or Cashier and the duplicate copy shall be submitted to the appropriate
supervising and examining department within ten (10) banking days from date of actual
disposal.

APP. 50
05.12.31
Annex A
______________________________
Name of Rural/Cooperative Bank
______________________________
Address
NOTICE OF DISPOSAL OF RECORDS/DOCUMENTS
__________________
Date
The Director
Department of Rural Banks
Manila
The Board of Directors of the __________________________________________ under

(Name of Rural/Cooperative Bank)
Board Resolution No.__________ dated _________________ (copy of the resolution attached)
approved the disposal of the following records/documents:
Dates of Transactions/Records/Documents
Classification of Records and Documents From To
1. Accounting Records:
a. Tickets and supporting papers _________________ _________________
b. Official Receipts _________________ _________________
2. Correspondence: _________________ _________________
3. Reports to BSP _________________ _________________
4. Other reports to government and
non-government institutions _________________ _________________
5. Other records/documents: (specify)
______________________________ _________________ _________________
______________________________ _________________ _________________
The above-stated records/documents are to be disposed of thru

_______________________________ in my presence and of _________________ Director, and
(manner of disposal: shredding or burning)
_____________________, Compliance Officer, on _____________ at _______________________.
(date) (time and place)
____________________________________________________
Signature over printed name of Chief
Operating Officer (COO) or its equivalent

APP. 50
05.12.31
Annex B
REPUBLIC OF THE PHILIPPINES )

CITY/MUNICIPALITY OF __________ ) S.S
PROVINCE OF ___________________ )
JOINT AFFIDAVIT
We, namely: ________________________, Director; ________________, Chief Operating

Officer (or Manager/equivalent rank); and ________________, Compliance Officer, all of
legal ages, representing the Rural/Cooperative Bank of ______________, Inc. after having
been sworn to in accordance with law do hereby depose and say:
1. That we are the bank officials of the Rural/Cooperative Bank of __________, Inc.,
duly designated under Board Resolution No. ____ dated ____________, to ensure
and witness the proper disposal of certain records, described in the attached Notice
of Disposal of Bank Records/Documents dated _______ (“Annex A”).
2. That we have witnessed the burning/shredding of those records/documents described

in the Notice of Disposal of Bank Records/Documents dated ____________that took
place on ________________ 20__ at _____________ am/pm at the premises of the
Rural/Cooperative Bank of _______________.
3. That we have executed this Affidavit to attest to the truthfulness of the foregoing and
in accordance with the rules prescribed by the Bangko Sentral ng Pilipinas (BSP) set
forth under Circular-Letter No. ___ dated _________, 20__.
IN WITNESS WHEREOF, we have set our hands this _____ day of _______20__ at
______________________, Philippines.
___________________________ ___________________________________________________
SUBSCRIBED AND SWORN TO BEFORE ME, this ______ day of ________ 20__ at
______________, the foregoing Affiants, exhibiting their respective Community Tax Certificates
(CTC), to wit:
Name CTC No. Date Issued Place Issued
NOTARY PUBLIC
My Commission expires on December 31, 20___
PTR No. _____ issued on ________ 20__ at _______
Doc. No. _____

Book No. _____
Page No. _____
Series of 20___.

APP. 51
05.12.31
FORMAT CERTIFICATION ON FCDU LENDING TO RBU

(Appendix to Subsec. X501.3c)
_____________________________________________________________
(Name of Bank)
CERTIFICATION
Pursuant to Subsec. X501.3c of the Manual of Regulations for Banks, we hereby

certify that on all banking days of the month ended _____________, 200 __ :
1
a) There were no foreign currency borrowings by the Regular Banking Unit (RBU)
from the Foreign Currency Deposit Unit (FCDU)/Expanded FCDU (EFCDU)
b) RBU had foreign currency borrowings from FCDU/EFCDU and –
1. Total outstanding balance of such foreign currency borrowings did not exceed
the prescribed cap (i.e., lower of total outstanding balance on RBU’s on-balance
sheet foreign currency trade assets or thirty percent (30%) of the level of FCDU/
EFCDU deposit liabilities), and
2. The borrowed foreign currency funds were utilized by RBU solely for its
foreign currency trade transactions.
We further certify that, to the best of our knowledge, the foregoing statements are
true and correct.
President or Country Compliance Officer Head of

Manager (for FX Banks) Treasury Department
TIN: TIN: TIN:
Com. Tax Cert No.: Com. Tax Cert No.: Com. Tax Cert No.:
Issued on: Issued on: Issued on:
Issued at: Issued at: Issued at:
Subscribed and sworn to before me, this _______ day of ___________, 200___,
affiants exhibiting their respective Community Tax Certificates as indicated above.
_________________________
Person administering oath
1
Check appropriate box.

APP. 51a
05.12.31
Sample Computation on FCDU Lending to RBU

(Appendix to Subsec. X501.3c)
FCDU LENDING to RBU

SAMPLE COMPUTATION - 30% CAP
(Amounts in Million USD)
Average On-
Average FCDU/EFCDU Balance Sheet Cap for
Deposit Liabilities1/ Forex Trade the “Borrowing-FCDU/EFCDU” Account
Amount 30% Asset2/ Week Debit Credit Balance
August 2 140 42 30
9 120 36 45
12 30 10 10
13 5 15
14 5 20
15 8 28
16 110 33 36 2 30
19 36 1 31
20 2 33
21 3 36
22 36
23 200 60 42 36
26 33 3 2/ 33
27 33
28 33
29 33
30 170 51 27 33
Sept 2 42 6 39
3 2 41
4 4 37
5 3 40
6 250 75 66 2 42
9 27 15 27
10 4 23
11 4 27
12
1/
Computed using 2-month rolling data (i.e., for week ended 02 August, average of daily data from 03 June to 02 August;
week ended 09 August, average of daily data from 10 June to 09 August, etc.).
Average daily balance for each observation period = Sum of daily balances/Total banking days
2/
RBU should pay off to reduce outstanding balance to within prescribed limit.

APP. 52
05.12.31
REVISED IMPLEMENTING RULES AND REGULATIONS

R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194
RULE 1 TITLE (a) A subsidiary means an entity more

than fifty percent (50%) of the outstanding
Rule 1.a. Title. - These Rules shall be known voting stock of which is owned by a bank,
and cited as the “Revised Rules and quasi-bank, trust entity or any other
Regulations Implementing R.A. No. 9160”, institution supervised or regulated by the
(the Anti-Money Laundering Act of 2001 BSP.
[AMLA]), as amended by R.A. No. 9194. (b) An affiliate means an entity at least
twenty percent (20%) but not exceeding fifty
Rule 1.b. Purpose. - These Rules are percent (50%) of the voting stock of which
promulgated to prescribe the procedures is owned by a bank, quasi-bank, trust entity,
and guidelines for the implementation of or any other institution supervised and/or
the AMLA, as amended by R.A. No. 9194. regulated by the BSP.
RULE 2 DECLARATION OF POLICY Rule 3.a.2. Insurance companies,

insurance agents, insurance brokers,
Rule 2. Declaration of Policy. - It is hereby professional reinsurers, reinsurance brokers,
declared the policy of the State to protect holding companies, holding company
the integrity and confidentiality of bank systems and all other persons and entities
accounts and to ensure that the supervised and/or regulated by the
Philippines shall not be used as a money- Insurance Commission (IC).
laundering site for the proceeds of any (a) An insurance company includes
unlawful activity. Consistent with its those entities authorized to transact
foreign policy, the Philippines shall insurance business in the Philippines,
extend cooperation in transnational whether life or non-life and whether
investigations and prosecutions of persons domestic, domestically incorporated or
involved in money laundering activities branch of a foreign entity. A contract of
wherever committed. insurance is an agreement whereby one
undertakes for a consideration to indemnify
RULE 3 DEFINITIONS another against loss, damage or liability
arising from an unknown or contingent
Rule 3. Definitions. – For purposes of this event. Transacting insurance business
Act, the following terms are hereby defined includes making or proposing to make, as
as follows: insurer, any insurance contract, or as surety,
any contract of suretyship as a vocation and
Rule 3.a. Covered Institution refers to: not as merely incidental to any other
legitimate business or activity of the surety,
Rule 3.a.1. Banks, offshore banking doing any kind of business specifically
units, quasi-banks, trust entities, non-stock recognized as constituting the doing of an
savings and loan associations, pawnshops, insurance business within the meaning of
and all other institutions, including their Presidential Decree (P.D.) No. 612, as
subsidiaries and affiliates supervised and/ amended, including a reinsurance
or regulated by the BSP. business and doing or proposing to do any

APP. 52
05.12.31
business in substance equivalent to any consultants, trading advisors, and other

of the foregoing in a manner designed to entities managing securities or rendering
evade the provisions of P.D. No. 612, as similar services, (ii) mutual funds or open-
amended. end investment companies, close-end
(b) An insurance agent includes any investment companies, common trust funds,
person who solicits or obtains insurance on pre-need companies or issuers and other
behalf of any insurance company or similar entities; (iii) foreign exchange
transmits for a person other than himself an corporations, money changers, money
application for a policy or contract of payment, remittance, and transfer companies
insurance to or from such company or offers and other similar entities, and (iv) other
or assumes to act in the negotiation of such entities administering or otherwise dealing
insurance. in currency, commodities or financial
(c) An insurance broker includes any derivatives based thereon, valuable objects,
person who acts or aids in any manner in cash substitutes and other similar monetary
soliciting, negotiating or procuring the instruments or property supervised and/or
making of any insurance contract or in regulated by the Securities and Exchange
placing risk or taking out insurance, on Commission (SEC).
behalf of an insured other than himself. (a) A securities broker includes a
(d) A professional reinsurer includes person engaged in the business of buying
any person, partnership, association or and selling securities for the account of
corporation that transacts solely and others.
exclusively reinsurance business in the (b) A securities dealer includes any
Philippines, whether domestic, person who buys and sells securities for his/
domestically incorporated or a branch of a her account in the ordinary course of
foreign entity. A contract of reinsurance is business.
one by which an insurer procures a third (c) A securities salesman includes a
person to insure him against loss or liability natural person, employed as such or as an
by reason of such original insurance. agent, by a dealer, issuer or broker to buy
(e) A reinsurance broker includes any and sell securities.
person who, not being a duly authorized (d) An associated person of a broker
agent, employee or officer of an insurer or dealer includes an employee thereof who
in which any reinsurance is effected, acts directly exercises control or supervisory
or aids in any manner in negotiating authority, but does not include a salesman,
contracts of reinsurance or placing risks or an agent or a person whose functions
of effecting reinsurance, for any insurance are solely clerical or ministerial.
company authorized to do business in the (e) An investment house includes an
Philippines. enterprise which engages or purports to
(f) A holding company includes any engage, whether regularly or on an isolated
person who directly or indirectly controls basis, in the underwriting of securities of
any authorized insurer. A holding company another person or enterprise, including
system includes a holding company securities of the Government and its
together with its controlled insurers and instrumentalities.
controlled persons. (f) A mutual fund or an open-end
investment company includes an
Rule 3.a.3. (i) Securities dealers, brokers, investment company which is offering for
salesmen, associated persons of brokers or sale or has outstanding, any redeemable
dealers, IHs, investment agents and security of which it is the issuer.

APP. 52
05.12.31
(g) A closed-end investment company (2) who for compensation and as part
includes an investment company other than of a regular business, issues or promulgates,
open-end investment company. analyzes reports concerning the capital
(h) A common trust fund includes a market, except:
fund maintained by an entity authorized (a) any bank or trust company;
to perform trust functions under a written (b) any journalist, reporter, columnist,
and formally established plan, exclusively editor, lawyer, accountant, teacher;
for the collective investment and (c) the publisher of any bonafide
reinvestment of certain money newspaper, news, business or
representing participation in the plan financial publication of general and
received by it in its capacity as trustee, regular circulation, including their
for the purpose of administration, holding employees;
or management of such funds and/or (d) any contract market;
properties for the use, benefit or (e) such other person not within the
advantage of the trustor or of others intent of this definition, provided
known as beneficiaries. that the furnishing of such service
(i) A pre-need company or issuer by the foregoing persons is solely
includes any corporation supervised and/ incidental to the conduct of their
or regulated by the SEC and is authorized business or profession.
or licensed to sell or offer for sale pre-need (3) any person who undertakes the
plans. Pre-need plans are contracts which management of portfolio securities of investment
provide for the performance of future companies, including the arrangement of
service(s) or payment of future monetary purchases, sales or exchanges of securities.
consideration at the time of actual need, (l) A moneychanger includes any
payable either in cash or installment by the person in the business of buying or selling
planholder at prices stated in the contract foreign currency notes.
with or without interest or insurance (m) A money payment, remittance and
coverage and includes life, pension, transfer company includes any person
education, internment and other plans, offering to pay, remit or transfer or transmit
which the Commission may, from time to money on behalf of any person to another
time, approve. person.
(j) A foreign exchange corporation (n) “Customer” refers to any person or
includes any enterprise which engages or entity that keeps an account, or otherwise
purports to engage, whether regularly or on transacts business, with a covered institution
an isolated basis, in the sale and purchase and any person or entity on whose behalf
of foreign currency notes and such other an account is maintained or a transaction is
foreign-currency denominated non-bank conducted, as well as the beneficiary of said
deposit transactions as may be authorized transactions. A customer also includes the
under its articles of incorporation. beneficiary of a trust, an investment fund, a
(k) Investment Advisor/Agent/Consultant pension fund or a company or person
shall refer to any person: whose assets are managed by an asset
(1) who for an advisory fee is engaged manager, or a grantor of a trust. It includes
in the business of advising others, either any insurance policy holder, whether actual
directly or through circulars, reports, or prospective.
publications or writings, as to the value of (o) “Property” includes any thing or
any security and as to the advisability of item of value, real or personal, tangible or
trading in any security; or intangible, or any interest therein or any

APP. 52
05.12.31
benefit, privilege, claim or right with respect confirmations of sale or investments and
thereto. money market instruments;
(4) Contracts or policies of insurance,
Rule 3.b. Covered Transaction is a life or non-life, and contracts of suretyship;
transaction in cash or other equivalent and
monetary instrument involving a total (5) Other similar instruments where
amount in excess of PhP500,000.00 within title thereto passes to another by
one (1) banking day. endorsement, assignment or delivery.
Rule 3.b.1. Suspicious transactions are Rule 3.d. Offender refers to any person
transactions, regardless of amount, where who commits a money laundering offense.
any of the following circumstances exists:
(1) There is no underlying legal or trade Rule 3.e. Person refers to any natural or
obligation, purpose or economic juridical person.
justification;
(2) The client is not properly identified; Rule 3.f. Proceeds refers to an amount
(3) The amount involved is not derived or realized from an unlawful
commensurate with the business or activity. It includes:
financial capacity of the client; (1) All material results, profits, effects
(4) Taking into account all known and any amount realized from any unlawful
circumstances, it may be perceived that the activity;
client’s transaction is structured in order to (2) All monetary, financial or economic
avoid being the subject of reporting means, devices, documents, papers or
requirements under the act; things used in or having any relation to any
(5) Any circumstance relating to the unlawful activity; and
transaction which is observed to deviate (3) All moneys, expenditures,
from the profile of the client and/or the payments, disbursements, costs, outlays,
client’s past transactions with the covered charges, accounts, refunds and other similar
institution; items for the financing, operations, and
(6) The transaction is in any way related maintenance of any unlawful activity.
to an unlawful activity or any money
laundering activity or offense under this act Rule 3.g. Supervising Authority refers to
that is about to be, is being or has been the BSP, the SEC and the IC. Where the BSP,
committed; or SEC or IC supervision applies only to the
(7) Any transaction that is similar, registration of the covered institution, the
analogous or identical to any of the BSP, the SEC or the IC, within the limits of
foregoing. the AMLA, shall have the authority to require
and ask assistance from the government
Rule 3.c. Monetary Instrument refers to: agency having regulatory power and/or
(1) Coins or currency of legal tender of licensing authority over said covered
the Philippines, or of any other country; institution for the implementation and
(2) Drafts, checks and notes; enforcement of the AMLA and these Rules.
(3) Securities or negotiable instruments,
bonds, commercial papers, deposit Rule 3.h. Transaction refers to any act
certificates, trust certificates, custodial establishing any right or obligation or giving
receipts or deposit substitute instruments, rise to any contractual or legal relationship
trading orders, transaction tickets and between the parties thereto. It also includes

APP. 52
05.12.31
any movement of funds by any means with or for another, from any person for whom
a covered institution. the public officer, in any manner or
capacity, has secured or obtained, or will
Rule 3.i. Unlawful activity refers to any act secure or obtain, any government permit
or omission or series or combination thereof or license, in consideration for the help
involving or having relation, to the given or to be given, without prejudice to
following: Section 13 of R.A. 3019;
(A) Kidnapping for ransom under Article (16)Causing any undue injury to any
267 of Act No. 3815, otherwise known as party, including the government, or giving
the Revised Penal Code, as amended; any private party any unwarranted benefits,
(1) Kidnapping for ransom advantage or preference in the discharge of
his official, administrative or judicial
(B) Sections 4, 5, 6, 8, 9, 10, 12, 13, functions through manifest partiality,
14, 15 and 16 of R.A. No. 9165, otherwise evident bad faith or gross inexcusable
known as the Comprehensive Dangerous negligence;
Drugs Act of 2002; (17)Entering, on behalf of the
(2) Importation of prohibited drugs; government, into any contract or transaction
(3) Sale of prohibited drugs; manifestly and grossly disadvantageous to
(4) Administration of prohibited drugs; the same, whether or not the public officer
(5) Delivery of prohibited drugs profited or will profit thereby;
(6) Distribution of prohibited drugs (18)Directly or indirectly having
(7) Transportation of prohibited drugs financial or pecuniary interest in any
(8) Maintenance of a Den, Dive or business contract or transaction in
Resort for prohibited users connection with which he intervenes or
(9) Manufacture of prohibited drugs takes part in his official capacity, or in which
(10) Possession of prohibited drugs he is prohibited by the Constitution or by
(11) Use of prohibited drugs any law from having any interest;
(12) Cultivation of plants which are (19)Directly or indirectly becoming
sources of prohibited drugs interested, for personal gain, or having
(13) Culture of plants which are sources material interest in any transaction or act
of prohibited drugs requiring the approval of a board, panel or
group of which he is a member, and which
(C) Section 3 paragraphs b, c, e, g, h exercise of discretion in such approval, even
and i of R.A. No. 3019, as amended, if he votes against the same or he does not
otherwise known as the Anti-Graft and participate in the action of the board,
Corrupt Practices Act; committee, panel or group.
(14) Directly or indirectly requesting or
receiving any gift, present, share, (D) Plunder under R.A. No. 7080, as
percentage or benefit for himself or for any amended;
other person in connection with any (20) Plunder through misappropriation,
contract or transaction between the conversion, misuse or malversation of
Government and any party, wherein the public funds or raids upon the public
public officer in his official capacity has to treasury;
intervene under the law; (21) Plunder by receiving, directly or
(15) Directly or indirectly requesting or indirectly, any commission, gift, share,
receiving any gift, present or other percentage, kickbacks or any other form of
pecuniary or material benefit, for himself pecuniary benefit from any person and/or

APP. 52
05.12.31
entity in connection with any government (G) Piracy on the high seas under the
contract or project or by reason of the office Revised Penal Code, as amended and
or position of the public officer concerned; Presidential Decree No. 532;
(22) Plunder by the illegal or fraudulent (31) Piracy on the high seas;
conveyance or disposition of assets (32) Piracy in inland Philippine waters;
belonging to the National Government or (33) Aiding and abetting pirates and
any of its subdivisions, agencies, brigands.
instrumentalities or government-owned or
controlled corporations or their subsidiaries; (H) Qualified theft under Article 310
(23) Plunder by obtaining, receiving or of the Revised Penal Code, as amended;
accepting, directly or indirectly, any shares (34) Qualified theft.
of stock, equity or any other form of interest
or participation including the promise of (I) Swindling under Article 315 of the
future employment in any business Revised Penal Code, as amended;
enterprise or undertaking; (35) Estafa with unfaithfulness or abuse
(24) Plunder by establishing agricultural, of confidence by altering the substance,
industrial or commercial monopolies or other quality or quantity of anything of value
combinations and/or implementation of which the offender shall deliver by virtue
decrees and orders intended to benefit of an obligation to do so, even though such
particular persons or special interests; obligation be based on an immoral or illegal
(25) Plunder by taking undue consideration;
advantage of official position, authority, (36) Estafa with unfaithfulness or abuse
relationship, connection or influence to of confidence by misappropriating or
unjustly enrich himself or themselves at the converting, to the prejudice of another,
expense and to the damage and prejudice money, goods or any other personal
of the Filipino people and the Republic of property received by the offender in trust
the Philippines. or on commission, or for administration, or
under any other obligation involving the
(E) Robbery and extortion under duty to make delivery or to return the same,
Articles 294, 295, 296, 299, 300, 301 and even though such obligation be totally or
302 of the Revised Penal Code, as partially guaranteed by a bond; or by
amended; denying having received such money,
(26) Robbery with violence or goods, or other property;
intimidation of persons; (37) Estafa with unfaithfulness or abuse
(27) Robbery with physical injuries, of confidence by taking undue advantage
committed in an uninhabited place and by of the signature of the offended party in
a band, or with use of firearms on a street, blank, and by writing any document above
road or alley; such signature in blank, to the prejudice of
(28) Robbery in an uninhabited house the offended party or any third person;
or public building or edifice devoted to (38) Estafa by using a fictitious name,
worship. or falsely pretending to possess power,
influence, qualifications, property, credit,
(F) Jueteng and Masiao punished as agency, business or imaginary transactions,
illegal gambling under Presidential Decree or by means of other similar deceits;
No. 1602; (39) Estafa by altering the quality,
(29) Jueteng; fineness or weight of anything pertaining
(30) Masiao. to his art or business;

APP. 52
05.12.31
(40) Estafa by pretending to have bribed (56) any access in order to corrupt,
any government employee; alter, steal, or destroy using a computer
(41) Estafa by postdating a check, or or other similar information and
issuing a check in payment of an obligation communication devices, without the
when the offender has no funds in the bank, knowledge and consent of the owner of the
or his funds deposited therein were not computer or information and communications
sufficient to cover the amount of the check; system, including
(42) Estafa by inducing another, by (57) the introduction of computer
means of deceit, to sign any document; viruses and the like, resulting in the
(43) Estafa by resorting to some corruption, destruction, alteration, theft or
fraudulent practice to ensure success in a loss of electronic data messages or
gambling game; electronic document;
(44) Estafa by removing, concealing or
destroying, in whole or in part, any court K.2. Piracy, which refers to:
record, office files, document or any other (58) the unauthorized copying,
papers. reproduction,
(59) the unauthorized dissemination,
(J) Smuggling under R.A. Nos. 455 distribution,
and 1937; (60) the unauthorized importation,
(45) Fraudulent importation of any (61) the unauthorized use, removal,
vehicle; alteration, substitution, modification,
(46) Fraudulent exportation of any (62) the unauthorized storage,
vehicle; uploading, downloading, communication,
(47) Assisting in any fraudulent making available to the public, or
importation; (63) the unauthorized broadcasting, of
(48) Assisting in any fraudulent protected material, electronic signature or
exportation; copyrighted works including legally
(49) Receiving smuggled article after protected sound recordings or phonograms
fraudulent importation; or information material on protected works,
(50) Concealing smuggled article after through the use of telecommunication
fraudulent importation; networks, such as, but not limited to, the
(51) Buying smuggled article after internet, in a manner that infringes
fraudulent importation; intellectual property rights;
(52) Selling smuggled article after
fraudulent importation; K.3. Violations of the Consumer Act or
(53) Transportation of smuggled article R.A. No. 7394 and other relevant or
after fraudulent importation; pertinent laws through transactions covered
(54) Fraudulent practices against by or using electronic data messages or
customs revenue. electronic documents:
(64) Sale of any consumer product that
(K) Violations under R.A. No. 8792, is not in conformity with standards under
otherwise known as the Electronic the Consumer Act;
Commerce Act of 2000; (65) Sale of any product that has been
K.1. Hacking or cracking, which refers to: banned by a rule under the Consumer Act;
(55) unauthorized access into or (66) Sale of any adulterated or
interference in a computer system/server or mislabeled product using electronic
information and communication system; or documents;

APP. 52
05.12.31
(67) Adulteration or misbranding of any murder perpetrated by terrorists against non-

consumer product; combatant persons and similar targets;
(68) Forging, counterfeiting or
simulating any mark, stamp, tag, label or (M) Fraudulent practices and other
other identification device; violations under R.A. No. 8799, otherwise
(69) Revealing trade secrets; known as the Securities Regulation Code
(70) Alteration or removal of the of 2000;
labeling of any drug or device held for sale; (89) Sale, offer or distribution of
(71) Sale of any drug or device not securities within the Philippines without a
registered in accordance with the provisions registration statement duly filed with and
of the E-Commerce Act; approved by the SEC;
(72) Sale of any drug or device by any (90) Sale or offer to the public of any
person not licensed in accordance with the pre-need plan not in accordance with the
provisions of the E-Commerce Act; rules and regulations which the SEC shall
(73) Sale of any drug or device beyond prescribe;
its expiration date; (91) Violation of reportorial
(74) Introduction into commerce of any requirements imposed upon issuers of
mislabeled or banned hazardous substance; securities;
(75) Alteration or removal of the (92) Manipulation of security prices by
labeling of a hazardous substance; creating a false or misleading appearance
(76) Deceptive sales acts and practices; of active trading in any listed security traded
(77) Unfair or unconscionable sales acts in an Exchange or any other trading market;
and practices; (93) Manipulation of security prices by
(78) Fraudulent practices relative to effecting, alone or with others, a series of
weights and measures; transactions in securities that raises their
(79) False representations in prices to induce the purchase of a security,
advertisements as the existence of a whether of the same or different class, of
warranty or guarantee; the same issuer or of a controlling,
(80) Violation of price tag requirements; controlled or commonly controlled
(81) Mislabeling consumer products; company by others;
(82) False, deceptive or misleading (94) Manipulation of security prices by
advertisements; effecting, alone or with others, a series of
(83) Violation of required disclosures transactions in securities that depresses their
on consumer loans; price to induce the sale of a security,
(84) Other violations of the provisions whether of the same or different class, of
of the E-Commerce Act; the same issuer or of a controlling,
controlled or commonly controlled
(L) Hijacking and other violations company by others;
under R.A. No. 6235; destructive arson (95) Manipulation of security prices by
and murder, as defined under the Revised effecting, alone or with others, a series of
Penal Code, as amended, including those transactions in securities that creates active
perpetrated by terrorists against non- trading to induce such a purchase or sale
combatant persons and similar targets; though manipulative devices such as
(85) Hijacking; marking the close, painting the tape,
(86) Destructive arson; squeezing the float, hype and dump, boiler
(87) Murder; room operations and such other similar
(88) Hijacking, destructive arson or devices;

APP. 52
05.12.31
(96) Manipulation of security prices (103) Engaging in any act, transaction,

by circulating or disseminating information practice or course of action in the sale and
that the price of any security listed in an purchase of any security which operates or
Exchange will or is likely to rise or fall would operate as a fraud or deceit upon any
because of manipulative market operations person;
of any one or more persons conducted for (104) Insider trading;
the purpose of raising or depressing the (105) Engaging in the business of buying
price of the security for the purpose of and selling securities in the Philippines as a
inducing the purchase or sale of such broker or dealer, or acting as a salesman, or
security; an associated person of any broker or dealer
(97) Manipulation of security prices without any registration from the Commission;
by making false or misleading statements (106) Employment by a broker or
with respect to any material fact, which he dealer of any salesman or associated person
knew or had reasonable ground to believe or by an issuer of any salesman, not
was so false and misleading, for the purpose registered with the SEC;
of inducing the purchase or sale of any (107) Effecting any transaction in any
security listed or traded in an Exchange; security, or reporting such transaction, in
(98) Manipulation of security prices an Exchange or using the facility of an
by effecting, alone or with others, any series Exchange which is not registered with the SEC;
of transactions for the purchase and/or sale (108) Making use of the facility of a
of any security traded in an Exchange for clearing agency which is not registered with
the purpose of pegging, fixing or stabilizing the SEC;
the price of such security, unless otherwise (109) Violations of margin
allowed by the Securities Regulation Code requirements;
or by the rules of the SEC; (110) Violations on the restrictions on
(99) Sale or purchase of any security borrowings by members, brokers and
using any manipulative deceptive device dealers;
or contrivance; (111) Aiding and Abetting in any
(100) Execution of short sales or stop- violations of the Securities Regulation Code;
loss order in connection with the purchase (112) Hindering, obstructing or
or sale of any security not in accordance delaying the filing of any document required
with such rules and regulations as the SEC under the Securities Regulation Code or the
may prescribe as necessary and appropriate rules and regulations of the SEC;
in the public interest or the protection of (113) Violations of any of the provisions
the investors; of the implementing rules and regulations
(101) Employment of any device, of the SEC;
scheme or artifice to defraud in (114) Any other violations of any of the
connection with the purchase and sale of provisions of the Securities Regulation Code.
any securities;
(102) Obtaining money or property in (N) Felonies or offenses of a similar
connection with the purchase and sale of nature to the afore-mentioned unlawful
any security by means of any untrue activities that are punishable under the
statement of a material fact or any omission penal laws of other countries.
to state a material fact necessary in order to In determining whether or not a felony
make the statements made, in the light of or offense punishable under the penal laws
the circumstances under which they were of other countries, is “of a similar nature”,
made, not misleading; as to constitute the same as an unlawful

APP. 52
05.12.31
activity under the AMLA, the nomenclature Rule 5.2. Investigation of Money
of said felony or offense need not be Laundering Offenses. - The AMLC shall
identical to any of the predicate crimes listed investigate:
under Rule 3.i. (a) Suspicious transactions;
(b) Covered transactions deemed sus-
RULE 4 MONEY LAUNDERING picious after an investigation conducted by
OFFENSE the AMLC;
(c) Money laundering activities; and
Rule 4.1. Money Laundering Offense. - (d) Other violations of this act.
Money laundering is a crime whereby the
proceeds of an unlawful activity as herein Rule 5.3. Attempts at Transactions. -
defined are transacted, thereby making Section 4 (a) and (b) of the AMLA provides
them appear to have originated from that any person who attempts to transact
legitimate sources. It is committed by the any monetary instrument or property
following: representing, involving or relating to the
(a) Any person knowing that any proceeds of any unlawful activity shall be
monetary instrument or property represents, prosecuted for a money laundering offense.
involves, or relates to, the proceeds of any Accordingly, the reports required under
unlawful activity, transacts or attempts to Rule 9.3 (a) and (b) of these Rules shall
transact said monetary instrument or include those pertaining to any attempt by
property. any person to transact any monetary
(b) Any person knowing that any instrument or property representing,
monetary instrument or property involves involving or relating to the proceeds of any
the proceeds of any unlawful activity, unlawful activity.
performs or fails to perform any act as a
result of which he facilitates the offense of RULE 6 PROSECUTION OF MONEY
money laundering referred to in paragraph LAUNDERING
(a) above.
(c) Any person knowing that any Rule 6.1. Prosecution of Money
monetary instrument or property is required Laundering. -
under this Act to be disclosed and filed with (a) Any person may be charged with
the Anti-Money Laundering Council and convicted of both the offense of
(AMLC), fails to do so. money laundering and the unlawful
activity as defined under Rule 3 (i) of the
RULE 5 JURISDICTION OF MONEY AMLA.
LAUNDERING CASES AND MONEY (b) Any proceeding relating to the
LAUNDERING INVESTIGATION unlawful activity shall be given precedence
PROCEDURES over the prosecution of any offense or
violation under the AMLA without
Rule 5.1. Jurisdiction of Money Laundering prejudice to the application Ex-Parte by the
Cases. - The Regional Trial Courts shall have AMLC to the Court of Appeals for a Freeze
the jurisdiction to try all cases on money Order with respect to the monetary
laundering. Those committed by public instrument or property involved therein and
officers and private persons who are in resort to other remedies provided under the
conspiracy with such public officers shall be AMLA, the rules of court and other pertinent
under the jurisdiction of the Sandiganbayan. laws and rules.

APP. 52
05.12.31
Rule 6.2. When the AMLC finds, after commission of the unlawful activity need
investigation, that there is probable cause be established by proof beyond reasonable
to charge any person with a money doubt. The elements of the offense of money
laundering offense under Section 4 of the laundering are separate and distinct from
AMLA, it shall cause a complaint to be the elements of the felony or offense
filed, pursuant to Section 7 (4) of the constituting the unlawful activity.
AMLA, before the Department of Justice
or the Ombudsman, which shall then RULE 7 CREATION OF ANTI-MONEY
conduct the preliminary investigation of LAUNDERING COUNCIL (AMLC)
the case.
Rule 7.1.a. Composition. - The Anti-Money
Rule 6.3. After due notice and hearing in Laundering Council is hereby created and shall
the preliminary investigation proceedings be composed of the Governor of the BSP as
before the Department of Justice, or the Chairman, the Commissioner of the Insurance
Ombudsman, as the case may be, and the Commission and the Chairman of the Securities
latter should find probable cause of a and Exchange Commission as members.
money laundering offense, it shall file the
necessary information before the Regional Rule 7.1.b. Unanimous Decision. - The
Trial Courts or the Sandiganbayan. AMLC shall act unanimously in discharging
its functions as defined in the AMLA and in
Rule 6.4. Trial for the money laundering these Rules. However, in the case of the
offense shall proceed in accordance with incapacity, absence or disability of any
the Code of Criminal Procedure or the Rules member to discharge his functions, the
of Procedure of the Sandiganbayan, as the officer duly designated or authorized to
case may be. discharge the functions of the Governor of
the BSP, the Chairman of the SEC or the
Rule 6.5. Knowledge of the offender that Insurance Commissioner, as the case may
any monetary instrument or property be, shall act in his stead in the AMLC.
represents, involves, or relates to the
proceeds of an unlawful activity or that any Rule 7.2. Functions. - The functions of the
monetary instrument or property is required AMLC are defined hereunder:
under the AMLA to be disclosed and filed (1) to require and receive covered or
with the AMLC, may be established by suspicious transaction reports from covered
direct evidence or inferred from the institutions;
attendant circumstances. (2) to issue orders addressed to the
appropriate Supervising Authority or the
Rule 6.6. All the elements of every money covered institution to determine the true
laundering offense under Section 4 of the identity of the owner of any monetary
AMLA must be proved by evidence beyond instrument or property subject of a covered
reasonable doubt, including the element of or suspicious transaction report, or request
knowledge that the monetary instrument or for assistance from a foreign State, or
property represents, involves or relates to believed by the Council, on the basis of
the proceeds of any unlawful activity. substantial evidence, to be, in whole or in
part, wherever located, representing,
Rule 6.7. No element of the unlawful involving, or related to, directly or
activity, however, including the identity of indirectly, in any manner or by any means,
the perpetrators and the details of the actual the proceeds of an unlawful activity;

APP. 52
05.12.31
(3) to institute civil forfeiture member. However, the AMLC may refuse
proceedings and all other remedial to comply with any such request,
proceedings through the Office of the convention, resolution or directive
Solicitor General; where the action sought therein
(4) to cause the filing of complaints contravenes the provisions of the
with the Department of Justice or the Constitution, or the execution thereof is
Ombudsman for the prosecution of money likely to prejudice the national interest
laundering offenses; of the Philippines.
(5) to investigate suspicious (9) to develop educational programs
transactions and covered transactions on the pernicious effects of money
deemed suspicious after an investigation by laundering, the methods and techniques
the AMLC, money laundering activities and used in money laundering, the viable
other violations of this Act; means of preventing money laundering
(6) to apply before the Court of and the effective ways of prosecuting and
Appeals, Ex-Parte, for the freezing of any punishing offenders.
monetary instrument or property alleged to (10) to enlist the assistance of any
be proceeds of any unlawful activity as branch, department, bureau, office, agency
defined under Section 3(i) hereof; or instrumentality of the government,
(7) to implement such measures as may including government-owned and -
be inherent, necessary, implied, incidental controlled corporations, in undertaking
and justified under the AMLA to counteract any and all anti-money laundering
money laundering. Subject to such operations, which may include the use of
limitations as provided for by law, the its personnel, facilities and resources for
AMLC is authorized under Rule 7 (7) of the the more resolute prevention, detection
AMLA to establish an information sharing and investigation of money laundering
system that will enable the AMLC to store, offenses and prosecution of offenders. The
track and analyze money laundering AMLC may require the intelligence units
transactions for the resolute prevention, of the Armed Forces of the Philippines, the
detection and investigation of money Philippine National Police, the
laundering offenses. For this purpose, the Department of Finance, the Department of
AMLC shall install a computerized system Justice, as well as their attached agencies,
that will be used in the creation and and other domestic or transnational
maintenance of an information database; governmental or non-governmental
(8) to receive and take action in respect organizations or groups to divulge to the
of any request from foreign states for AMLC all information that may, in any
assistance in their own anti-money way, facilitate the resolute prevention,
laundering operations as provided in the investigation and prosecution of money
AMLA. The AMLC is authorized under laundering offenses and other violations of
Sections 7 (8) and 13 (b) and (d) of the AMLA the AMLA.
to receive and take action in respect of any (11) To impose administrative
request of foreign states for assistance in sanctions for the violation of laws, rules,
their own anti-money laundering regulations and orders and resolutions
operations, in respect of conventions, issued pursuant thereto.
resolutions and other directives of the
United Nations (UN), the UN Security Rule 7.3. Meetings. - The AMLC shall meet
Council, and other international every first Monday of the month, or as often as
organizations of which the Philippines is a may be necessary at the call of the Chairman.

APP. 52
05.12.31
RULE 8 CREATION OF A SECRETARIAT salaries, benefits and emoluments from

their respective mother units. Seconded
Rule 8.1. The Executive Director. - The personnel shall receive, in lieu of their
Secretariat shall be headed by an respective compensation packages from
Executive Director who shall be their respective mother units, the salaries,
appointed by the AMLC for a term of five emoluments and all other benefits to
(5) years. He must be a member of the which their AMLC Secretariat positions
Philippine Bar, at least thirty-five (35) are entitled to.
years of age, must have served at least
five (5) years either at the BSP, the SEC or Rule 8.4. Confidentiality Provisions. - The
the IC and of good moral character, members of the AMLC, the Executive
unquestionable integrity and known Director, and all the members of the
probity. He shall be considered a regular Secretariat, whether permanent, on detail
employee of the BSP with the rank of or on secondment, shall not reveal, in any
Assistant Governor, and shall be entitled manner, any information known to them
to such benefits and subject to such rules by reason of their office. This prohibition
and regulations, as well as prohibitions, shall apply even after their separation
as are applicable to officers of similar from the AMLA. In case of violation of this
rank. provision, the person shall be punished
in accordance with the pertinent
Rule 8.2. Composition. - In organizing the provisions of the Central Bank Act.
Secretariat, the AMLC may choose from
those who have served, continuously or RULE 9 PREVENTION OF MONEY
cumulatively, for at least five (5) years in LAUNDERING; CUSTOMER
the BSP, the SEC or the IC. All members IDENTIFICATION REQUIREMENTS AND
of the Secretariat shall be considered RECORD KEEPING
regular employees of the BSP and shall
be entitled to such benefits and subject Rule 9.1. Customer Identification
to such rules and regulations as are Requirements
applicable to BSP employees of similar
rank. Rule 9.1.a. Customer Identification. -
Covered institutions shall establish and
Rule 8.3. Detail and Secondment. - The record the true identity of its clients based
AMLC is authorized under Section 7 (10) on official documents. They shall
of the AMLA to enlist the assistance of maintain a system of verifying the true
the BSP, the SEC or the IC, or any other identity of their clients and, in case of
branch, department, bureau, office, corporate clients, require a system of
agency or instrumentality of the verifying their legal existence and
government, including government- organizational structure, as well as the
owned and controlled corporations, in authority and identification of all persons
undertaking any and all anti-money purporting to act on their behalf. Covered
laundering operations. This includes the institutions shall establish appropriate
use of any member of their personnel who systems and methods based on
may be detailed or seconded to the internationally compliant standards and
AMLC, subject to existing laws and Civil adequate internal controls for verifying
Service Rules and Regulations. Detailed and recording the true and full identity of
personnel shall continue to receive their their customers.

APP. 52
05.12.31
Rule 9.1.b. Trustee, Nominee and Agent Rule 9.1.d. Minimum Information/
Accounts. - When dealing with customers Documents Required for Corporate and
who are acting as trustee, nominee, agent Juridical Entities. - Before establishing
or in any capacity for and on behalf of business relationships, covered
another, covered institutions shall verify institutions shall endeavor to ensure that
and record the true and full identity of the the customer is a corporate or juridical
person(s) on whose behalf a transaction entity which has not been or is not in
is being conducted. Covered institutions the process of being, dissolved, wound
shall also establish and record the true and up or voided, or that its business or
full identity of such trustees, nominees, operations has not been or is not in the
agents and other persons and the nature process of being, closed, shut down,
of their capacity and duties. In case a phased out, or terminated. Dealings with
covered institution has doubts as to shell companies and corporations, being
whether such persons are being used as legal entities which have no business
dummies in circumvention of existing substance in their own right but through
laws, it shall immediately make the which financial transactions may be
necessary inquiries to verify the status of conducted, should be undertaken with
the business relationship between the extreme caution. The following
parties. minimum information/documents shall
be obtained from customers that are
Rule 9.1.c. Minimum Information/ corporate or juridical entities, including
Documents Required for Individual shell companies and corporations:
Customers. - Covered institutions shall (1) Articles of Incorporation/
require customers to produce original Partnership;
documents of identity issued by an official (2) By-laws;
authority, bearing a photograph of the (3) Official address or principal
customer. Examples of such documents are business address;
identity cards and passports. The following (4) List of directors/partners;
minimum information/documents shall be (5) List of principal stockholders
obtained from individual customers: owning at least two percent (2%) of the
(1) Name; capital stock;
(2) Present address; (6) Contact numbers;
(3) Permanent address; (7) Beneficial owners, if any; and
(4) Date and place of birth; (8) Verification of the authority and
(5) Nationality; identification of the person purporting to
(6) Nature of work and name of act on behalf of the client.
employer or nature of self-employment/
business; Rule 9.1.e. Prohibition Against
(7) Contact numbers; Certain Accounts. Covered institutions
(8) Tax identification number, Social shall maintain accounts only in the true
Security System number or Government and full name of the account owner or
Service and Insurance System number; holder. The provisions of existing laws
(9) Specimen signature; to the contrary notwithstanding,
(10) Source of fund(s); and anonymous accounts, accounts under
(11) Names of beneficiaries in case of fictitious names, and all other similar
insurance contracts and whenever accounts shall be absolutely
applicable. prohibited.

APP. 52
05.12.31
Rule 9.1.f. Prohibition Against Opening of identification requirements, on their

Accounts Without Face-to-face Contact. - customer accounts, relationships and
No new accounts shall be opened and transactions such that any account,
created without face-to-face contact and full relationship or transaction can be so
compliance with the requirements under reconstructed as to enable the AMLC, and/
Rule 9.1.c of these Rules. or the courts to establish an audit trail for
money laundering.
Rule 9.1.g. Numbered Accounts. - Peso and
foreign currency non-checking numbered Rule 9.2.b. Existing and New Accounts and
accounts shall be allowed: Provided, That the New Transactions. - All records of existing
true identity of the customers of all peso and and new accounts and of new transactions
foreign currency non-checking numbered shall be maintained and safely stored for five
accounts are satisfactorily established based (5) years from 17 October 2001 or from the
on official and other reliable documents and dates of the accounts or transactions,
records, and that the information and whichever is later.
documents required under the provisions of
these Rules are obtained and recorded by the Rule 9.2.c. Closed Accounts. - With respect
covered institution. No peso and foreign to closed accounts, the records on customer
currency non-checking accounts shall be identification, account files and business
allowed without the establishment of such correspondence shall be preserved and
identity and in the manner herein provided. safely stored for at least five (5) years from
The BSP may conduct annual testing for the the dates when they were closed.
purpose of determining the existence and true
identity of the owners of such accounts. The Rule 9.2.d. Retention of Records in Case a
SEC and the IC may conduct similar testing Money Laundering Case has been Filed in
more often than once a year and covering Court. – If a money laundering case based
such other related purposes as may be on any record kept by the covered institution
allowed under their respective charters. concerned has been filed in court, said file
must be retained beyond the period stipulated
Rule 9.2. Record Keeping Requirements in the three (3) immediately preceding sub-
Rules, as the case may be, until it is confirmed
Rule 9.2.a. Record Keeping: Kinds of that the case has been finally resolved or
Records and Period for Retention. – All terminated by the court.
records of all transactions of covered
institutions shall be maintained and safely Rule 9.2.e. Form of Records. – Records
stored for five (5) years from the dates of shall be retained as originals in such forms
transactions. Said records and files shall as are admissible in court pursuant to
contain the full and true identity of the existing laws and the applicable rules
owners or holders of the accounts involved promulgated by the Supreme Court.
in the covered transactions and all other
customer identification documents. Rule 9.3. Reporting of Covered
Covered institutions shall undertake the Transactions. -
necessary adequate security measures to
ensure the confidentiality of such file. Rule 9.3.a. Period of Reporting Covered
Covered institutions shall prepare and Transactions and SuspiciousTransactions.
maintain documentation, in accordance - Covered institutions shall report to the
with the aforementioned client AMLC all covered transactions and

APP. 52
05.12.31
suspicious transactions within five (5) suspicious transactions to the AMLC,

working days from occurrence thereof, covered institutions and their officers and
unless the supervising authority concerned employees, shall not be deemed to have
prescribes a longer period not exceeding violated R.A. No. 1405, as amended, R.A.
ten (10) working days. No. 6426, as amended, R.A. No. 8791 and
Should a transaction be determined to other similar laws, but are prohibited from
be both a covered and a suspicious communicating, directly or indirectly, in
transaction, the covered institution shall any manner or by any means, to any person
report the same as a suspicious the fact that a covered or suspicious
transaction. transaction report was made, the contents
The reporting of covered transactions thereof, or any other information in relation
by covered institutions shall be deferred thereto. In case of violation thereof, the
for a period of sixty (60) days after the concerned officer and employee of the
effectivity of R.A. No. 9194, or as may be covered institution, shall be criminally
determined by the AMLC, in order to liable.
allow the covered institutions to configure
their respective computer systems; Rule 9.3.d. Confidentiality Provisions. –
provided that, all covered transactions When reporting covered transactions or
during said deferment period shall be suspicious transactions to the AMLC,
submitted thereafter. covered institutions and their officers,
employees, representatives, agents,
Rule 9.3.b. Covered and Suspicious advisors, consultants or associates are
Transaction Report Forms. - The Covered prohibited from communicating, directly or
Transaction Report (CTR) and the Suspicious indirectly, in any manner or by any means,
Transaction Report (STR) shall be in the to any person, entity, or the media, the fact
forms prescribed by the AMLC. that a covered transaction report was made,
the contents thereof, or any other
Rule 9.3.b.1. Covered institutions shall information in relation thereto. Neither may
use the existing forms for Covered such reporting be published or aired in any
Transaction Reports and Suspicious manner or form by the mass media,
Transaction Reports, until such time as the electronic mail, or other similar devices. In
AMLC has issued new sets of forms. case of violation hereof, the concerned
officer, employee, representative, agent,
Rule 9.3.b.2. Covered Transaction advisor, consultant or associate of the
Reports and Suspicious Transaction covered institution, or media shall be held
Reports shall be submitted in a secured criminally liable.
manner to the AMLC in electronic form,
either via diskettes, leased lines, or Rule 9.3.e. Safe Harbor Provisions. – No
through internet facilities, with the administrative, criminal or civil
corresponding hard copy for suspicious proceedings, shall lie against any person
transactions. The final flow and for having made a covered transaction
procedures for such reporting shall be report or a suspicious transaction report
mapped out in the manual of operations in the regular performance of his duties
to be issued by the AMLC. and in good faith, whether or not such
reporting results in any criminal
Rule 9.3.c. Exemption from Bank Secrecy prosecution under this Act or any other
Laws. – When reporting covered or Philippine law.

APP. 52
05.12.31
RULE 10 APPLICATION FOR FREEZE and/or a money laundering offense is about

ORDERS to be, is being or has been committed and
that the account or any monetary instrument
Rule 10.1. When the AMLC May Apply or property subject thereof sought to be
for the Freezing of Any Monetary frozen is in any way related to said unlawful
Instrument or Property. - activity and/or money laundering offense.
(a) After an investigation conducted by
the AMLC and upon determination that Rule 10.3. Duty of Covered Institution
probable cause exists that a monetary Upon Receipt Thereof. –
instrument or property is in any way related
to any unlawful activity as defined under Rule 10.3.a. Upon receipt of the notice of
Section 3 (i), the AMLC may file an Ex-Parte the freeze order, the covered institution
application before the Court of Appeals for concerned shall immediately freeze the
the issuance of a freeze order on any monetary instrument or property and related
monetary instrument or property subject web of accounts subject thereof.
thereof prior to the institution or in the
course of, the criminal proceedings Rule 10.3.b. The covered institution shall
involving the unlawful activity to which said likewise immediately furnish a copy of the
monetary instrument or property is any way notice of the freeze order upon the owner
related. or holder of the monetary instrument or
(b) Considering the intricate and property or related web of accounts subject
diverse web of related and interlocking thereof.
accounts pertaining to the monetary
instrument(s) or property(ies) that any Rule 10.3.c. Within twenty-four (24) hours
person may create in the different covered from receipt of the freeze order, the
institutions, their branches and/or other covered institution concerned shall
units, the AMLC may apply to the Court of submit to the Court of Appeals and the
Appeals for the freezing, not only of the AMLC, by personal delivery, a detailed
monetary instruments or properties in the written return on the freeze order,
names of the reported owner(s)/holder(s), specifying all the pertinent and relevant
and monetary instruments or properties information which shall include the
named in the application of the AMLC but following:
also all other related web of accounts 1. The account number(s);
pertaining to other monetary instruments 2. The name(s) of the account owner(s)
and properties, the funds and sources of or holder(s);
which originated from or are related to the 3. The amount of the monetary
monetary instrument(s) or property(ies) instrument, property or related web of
subject of the freeze order(s). accounts as of the time they were frozen;
(c) The freeze order shall be effective for 4. All relevant information as to the
twenty (20) days unless extended by the Court nature of the monetary instrument or
of Appeals upon application by the AMLC. property;
5. Any information on the related web
Rule 10.2. Definition of Probable Cause. of accounts pertaining to the monetary
- Probable cause includes such facts and instrument or property subject of the freeze
circumstances which would lead a order; and
reasonably discreet, prudent or cautious 6. The time when the freeze thereon
man to believe that an unlawful activity took effect.

APP. 52
05.12.31
Rule 10.4. Definition of Related Web of RULE 11 AUTHORITY TO INQUIRE

Accounts. - INTO BANK DEPOSITS
Related Web of Accounts pertaining
to the money instrument or property Rule 11.1. Authority to Inquire into Bank
subject of the freeze order is defined as Deposits with Court Order. -
those accounts, the funds and sources of Notwithstanding the provisions of R.A. No.
which originated from and/or are 1405, as amended; R.A. No. 6426, as
materially linked to the monetary amended; R.A. No. 8791, and other laws, the
instrument(s) or property(ies) subject of AMLC may inquire into or examine any
the freeze order(s). particular deposit or investment with any
Upon receipt of the freeze order banking institution or non-bank financial
issued by the court of appeals and upon institution and their subsidiaries and affiliates
verification by the covered institution upon order of any competent court in cases
that the related web of accounts of violation of this Act, when it has been
originated from and/or are materially established that there is probable cause that
linked to the monetary instrument or the deposits or investments involved are
property subject of the freeze order, the related to an unlawful activity as defined in
covered institution shall freeze these Section 3 (i) hereof or a money laundering
related web of accounts wherever these offense under Section 4 hereof; except in
funds may be found. cases as provided under Rule 11.2.
The return of the covered institution
as required under rule 10.3.c shall include Rule 11.2. Authority to Inquire into Bank
the fact of such freezing and an explanation Deposits Without Court Order. - The
as to the grounds for the identification of AMLC may inquire into or examine deposit
the related web of accounts. and investments with any banking
institution or non-bank financial institution
Rule 10.5. Extension of the Freeze Order. and their subsidiaries and affiliates without
- Before the twenty (20) day period of the a Court Order where any of the following
freeze order issued by the court of appeals unlawful activities are involved:
expires, the AMLC may apply in the same (a) Kidnapping for ransom under Article
court for an extension of said period. Upon 267 of Act No. 3815, otherwise known as
the timely filing of such application and the Revised Penal Code, as amended;
pending the decision of the Court of (b) Sections 4,5,6, 8, 9, 10, 12, 13, 14,
Appeals to extend the period, said period 15 and 16 of R.A. No. 9165, otherwise
shall be deemed suspended and the freeze known as the Comprehensive Dangerous
order shall remain effective. Drugs Act of 2002;
However, the covered institution shall (c) Hijacking and other violations under
not lift the effects of the freeze order R.A. No. 6235; destructive arson and
without securing official confirmation from murder, as defined under the Revised Penal
the AMLC. Code, as amended, including those
perpetrated by terrorists against
Rule 10.6. Prohibition Against Issuance of noncombatant persons and similar targets.
Freeze Orders Against Candidates for an
Electoral Office During Election Period. - Rule 11.2.a. Procedure For Examination
No assets shall be frozen to the prejudice Without A Court Order. - Where any of
of a candidate for an electoral office during the unlawful activities enumerated under
an election period. the immediately preceding Rule 11.2 are

APP. 52
05.12.31
involved, and there is probable cause that RULE 12 FORFEITURE PROVISIONS

the deposits or investments with any
banking or non-banking financial Rule 12.1. Authority to Institute Civil
institution and their subsidiaries and Forfeiture Proceedings. – The AMLC is
affiliates are in anyway related to these authorized under Section 7 (3) of the AMLA
unlawful activities the AMLC shall issue a to institute civil forfeiture proceedings and
resolution authorizing the inquiry into or all other remedial proceedings through the
examination of any deposit or investment Office of the Solicitor General.
with such banking or non-banking
financial institution and their subsidiaries Rule 12.2. When Civil Forfeiture May be
and affiliates concerned. Applied. – When there is a Suspicious
Transaction Report or a Covered
Rule 11.2.b. Duty of the banking Transaction Report deemed suspicious after
institution or non- banking institution investigation by the AMLC, and the court
upon receipt of the AMLC Resolution. - has, in a petition filed for the purpose,
The banking institution or the non-banking ordered the seizure of any monetary
financial institution and their subsidiaries instrument or property, in whole or in part,
and affiliates shall, immediately upon directly or indirectly, related to said report,
receipt of the AMLC Resolution, allow the the Revised Rules of Court on civil forfeiture
AMLC and/or its authorized shall apply.
representative(s) full access to all records
pertaining to the deposit or investment Rule 12.3. Claim on Forfeited Assets. -
account. Where the court has issued an order of
forfeiture of the monetary instrument or
Rule 11.3. - BSP Authority to Examine property in a criminal prosecution for any
deposits and investments; Additional money laundering offense under Section 4
Exception to the Bank Secrecy Act. - To of the AMLA, the offender or any other
ensure compliance with this act, the BSP person claiming an interest therein may
may inquire into or examine any particular apply, by verified petition, for a declaration
deposit or investment with any banking that the same legitimately belongs to him,
institution or non-bank financial institution and for segregation or exclusion of the
and their subsidiaries and affiliates when monetary instrument or property
the examination is made in the course of a corresponding thereto. The verified petition
periodic or special examination, in shall be filed with the court which rendered
accordance with the rules of examination the judgment of conviction and order of
of the BSP. forfeiture within fifteen (15) days from the
date of the order of forfeiture, in default of
Rule 11.3.a. BSP Rules of Examination. - which the said order shall become final and
The BSP shall promulgate its rules of executory. This provision shall apply in both
examination for ensuring compliance by civil and criminal forfeiture.
banks and non-bank financial institutions
and their subsidiaries and affiliates with the Rule 12.4. Payment in Lieu of Forfeiture. -
AMLA and these rules. Where the court has issued an order of
Any findings of the BSP which may forfeiture of the monetary instrument or
constitute a violation of any provision of property subject of a money laundering
this act shall be transmitted to the AMLC offense under Section 4 of the AMLA, and
for appropriate action. said order cannot be enforced because any

APP. 52
05.12.31
particular monetary instrument or property unlawful activity under the procedures laid
cannot, with due diligence, be located, or down in the AMLA and in these Rules; (2)
it has been substantially altered, destroyed, giving information needed by the foreign
diminished in value or otherwise rendered state within the procedures laid down in
worthless by any act or omission, directly the AMLA and in these Rules; and (3)
or indirectly, attributable to the offender, applying for an order of forfeiture of any
or it has been concealed, removed, monetary instrument or property in the
converted or otherwise transferred to court: Provided, That the court shall not
prevent the same from being found or to issue such an order unless the application
avoid forfeiture thereof, or it is located is accompanied by an authenticated copy
outside the Philippines or has been placed of the order of a court in the requesting state
or brought outside the jurisdiction of the ordering the forfeiture of said monetary
court, or it has been commingled with other instrument or property of a person who has
monetary instruments or property belonging been convicted of a money laundering
to either the offender himself or a third offense in the requesting state, and a
person or entity, thereby rendering the same certification or an affidavit of a competent
difficult to identify or be segregated for officer of the requesting state stating that
purposes of forfeiture, the court may, instead the conviction and the order of forfeiture
of enforcing the order of forfeiture of the are final and that no further appeal lies in
monetary instrument or property or part respect of either.
thereof or interest therein, accordingly order
the convicted offender to pay an amount Rule 13.3. Obtaining Assistance from
equal to the value of said monetary Foreign States. - The AMLC may make a
instrument or property. This provision shall request to any foreign state for assistance
apply in both civil and criminal forfeiture. in (1) tracking down, freezing, restraining
and seizing assets alleged to be proceeds
RULE 13 MUTUAL ASSISTANCE of any unlawful activity; (2) obtaining
AMONG STATES information that it needs relating to any
covered transaction, money laundering
Rule 13.1. Request for Assistance from a offense or any other matter directly or
Foreign State. - Where a foreign state makes indirectly related thereto; (3) to the extent
a request for assistance in the investigation allowed by the law of the foreign state,
or prosecution of a money laundering applying with the proper court therein for
offense, the AMLC may execute the request an order to enter any premises belonging
or refuse to execute the same and inform to or in the possession or control of, any or
the foreign state of any valid reason for not all of the persons named in said request,
executing the request or for delaying the and/or search any or all such persons
execution thereof. The principles of named therein and/or remove any
mutuality and reciprocity shall, for this document, material or object named in said
purpose, be at all times recognized. request: Provided, That the documents
accompanying the request in support of the
Rule 13.2. Powers of the AMLC to Act on application have been duly authenticated
a Request for Assistance from a Foreign in accordance with the applicable law or
State. - The AMLC may execute a request regulation of the foreign state; and (4)
for assistance from a foreign state by: (1) applying for an order of forfeiture of any
tracking down, freezing, restraining and monetary instrument or property in the
seizing assets alleged to be proceeds of any proper court in the foreign state: Provided,

APP. 52
05.12.31
That the request is accompanied by an document, material or object obtained

authenticated copy of the order of the pursuant to said request, is to be
Regional Trial Court ordering the produced; (7) give all the particulars
forfeiture of said monetary instrument or necessary for the issuance by the court in
property of a convicted offender and an the requested state of the writs, orders or
affidavit of the clerk of court stating that processes needed by the requesting state;
the conviction and the order of forfeiture and (8) contain such other information as
are final and that no further appeal lies in may assist in the execution of the request.
respect of either.
Rule 13.6. Authentication of Documents.
Rule 13.4. Limitations on Requests for - For purposes of Section 13 (f) of the AMLA
Mutual Assistance. - The AMLC may refuse and Section 7 of the AMLA, a document is
to comply with any request for assistance authenticated if the same is signed or
where the action sought by the request certified by a judge, magistrate or equivalent
contravenes any provision of the officer in or of, the requesting state, and
Constitution or the execution of a request authenticated by the oath or affirmation of
is likely to prejudice the national interest a witness or sealed with an official or public
of the Philippines, unless there is a treaty seal of a minister, secretary of state, or officer
between the Philippines and the in or of, the government of the requesting
requesting state relating to the provision state, or of the person administering the
of assistance in relation to money government or a department of the
laundering offenses. requesting territory, protectorate or colony.
The certificate of authentication may also
Rule 13.5. Requirements for Requests for be made by a secretary of the embassy or
Mutual Assistance from Foreign States. - legation, consul general, consul, vice
A request for mutual assistance from a consul, consular agent or any officer in the
foreign state must (1) confirm that an foreign service of the Philippines stationed
investigation or prosecution is being in the foreign state in which the record is
conducted in respect of a money kept, and authenticated by the seal of his
launderer named therein or that he has office.
been convicted of any money laundering
offense; (2) state the grounds on which Rule 13.7. Suppletory Application of the
any person is being investigated or Revised Rules of Court. –
prosecuted for money laundering or the
details of his conviction; (3) give sufficient Rule 13.7.1. For attachment of Philippine
particulars as to the identity of said properties in the name of persons
person; (4) give particulars sufficient to convicted of any unlawful activity as
identify any covered institution believed defined in Section 3 (i) of the AMLA,
to have any information, document, execution and satisfaction of final
material or object which may be of judgments of forfeiture, application for
assistance to the investigation or examination of witnesses, procuring
prosecution; (5) ask from the covered search warrants, production of bank
institution concerned any information, documents and other materials and all
document, material or object which may other actions not specified in the AMLA
be of assistance to the investigation or and these Rules, and assistance for any of
prosecution; (6) specify the manner in the aforementioned actions, which is
which and to whom said information, subject of a request by a foreign state,

APP. 52
05.12.31
resort may be had to the proceedings RULE 14 PENAL PROVISIONS

pertinent thereto under the Revised Rules
of Court. Rule 14.1. Penalties for the Crime of
Money Laundering.
Rule 13.7.2. Authority to Assist the United
Nations and other International Rule 14.1.a. Penalties under Section 4 (a)
Organizations and Foreign States. – The of the AMLA. - The penalty of imprisonment
AMLC is authorized under Section 7 (8) ranging from seven (7) to fourteen (14) years
and 13 (b) and (d) of the AMLA to receive and a fine of not less than Php3.0 Million
and take action in respect of any request but not more than twice the value of the
of foreign states for assistance in their own monetary instrument or property involved
anti-money laundering operations. It is in the offense, shall be imposed upon a
also authorized under Section 7 (7) of the person convicted under Section 4 (a) of the
AMLA to cooperate with the National AMLA.
Government and/or take appropriate
action in respect of conventions, Rule 14.1.b. Penalties under Section 4 (b)
resolutions and other directives of the of the AMLA. - The penalty of imprisonment
United Nations (UN), the UN Security from four (4) to seven (7) years and a fine
Council, and other international of not less than Php1.5 Million but not more
organizations of which the Philippines is than Php3.0 Million, shall be imposed upon
a member. However, the AMLC may a person convicted under Section 4 (b) of
refuse to comply with any such request, the AMLA.
convention, resolution or directive where
the action sought therein contravenes the Rule 14.1.c. Penalties under Section 4 (c)
provision of the Constitution or the of the AMLA. - The penalty of imprisonment
execution thereof is likely to prejudice the from six (6) months to four (4) years or a
national interest of the Philippines. fine of not less than Php100,000.00 but not
more than Php500,000.00, or both, shall
Rule 13.8. Extradition. – The Philippines be imposed on a person convicted under
shall negotiate for the inclusion of money Section 4(c) of the AMLA.
laundering offenses as defined under
Section 4 of the AMLA among the Rule 14.1.d. Administrative Sanctions. - (1)
extraditable offenses in all future treaties. After due notice and hearing, the AMLC shall,
With respect, however, to the state parties at its discretion, impose fines upon any
that are signatories to the United Nations covered institution, its officers and employees,
Convention Against Transnational or any person who violates any of the
Organized Crime that was ratified by the provisions of R.A. No. 9160, as amended by
Philippine Senate on 22 October 2001, R.A. No. 9194 and rules, regulations, orders
money laundering is deemed to be and resolutions issued pursuant thereto. The
included as an extraditable offense in any fines shall be in amounts as may be
extradition treaty existing between said determined by the council, taking into
state parties, and the Philippines shall consideration all the attendant circumstances,
include money laundering as an such as the nature and gravity of the violation
extraditable offense in every extradition or irregularity, but in no case shall such fines
treaty that may be concluded between the be less than Php100,000.00 but not to exceed
Philippines and any of said state parties Php500,000.00. The imposition of the
in the future. administrative sanctions shall be without

APP. 52
05.12.31
prejudice to the filing of criminal charges or employee who is called upon to testify
against the persons responsible for the and refuses to do the same or purposely fails
violations. to testify shall suffer the same penalties
prescribed herein.
Rule 14.2. Penalties for Failure to Keep
Records - The penalty of imprisonment Rule 14.6. Penalties for Breach of
from six (6) months to one (1) year or a fine Confidentiality. – The punishment of
of not less than Php100,000.00 but not imprisonment ranging from three (3) to
more than Php500,000.00, or both, shall eight (8) years and a fine of not less than
be imposed on a person convicted under Php500,000.00 but not more than Php1.0
Section 9 (b) of the AMLA. Million, shall be imposed on a person
convicted for a violation under Section
Rule 14.3. Penalties for Malicious 9(c). In case of a breach of confidentiality
Reporting. - Any person who, with malice, that is published or reported by media,
or in bad faith, reports or files a completely the responsible reporter, writer, president,
unwarranted or false information relative publisher, manager and editor-in-chief
to money laundering transaction against shall be liable under this act.
any person shall be subject to a penalty of
six (6) months to four (4) years RULE 15 PROHIBITIONS AGAINST
imprisonment and a fine of not less than POLITICAL HARASSMENT
Php100,000.00 but not more than
Php500,000.00, at the discretion of the Rule 15.1. Prohibition against Political
court: Provided, That the offender is not Persecution. - The AMLA and these Rules
entitled to avail the benefits of the Probation shall not be used for political persecution
Law. or harassment or as an instrument to
hamper competition in trade and
Rule 14.4. Where Offender is a Juridical commerce. No case for money laundering
Person. - If the offender is a corporation, may be filed to the prejudice of a
association, partnership or any juridical candidate for an electoral office during an
person, the penalty shall be imposed upon election period.
the responsible officers, as the case may be,
who participated in, or allowed by their Rule 15.2. Provisional Remedies
gross negligence the commission of the Application; Exception. –
crime. If the offender is a juridical person,
the court may suspend or revoke its license. Rule 15.2.a. - The AMLC may apply, in
If the offender is an alien, he shall, in the course of the criminal proceedings,
addition to the penalties herein prescribed, for provisional remedies to prevent the
be deported without further proceedings monetary instrument or property subject
after serving the penalties herein prescribed. thereof from being removed, concealed,
If the offender is a public official or converted, commingled with other
employee, he shall, in addition to the property or otherwise to prevent its being
penalties prescribed herein, suffer perpetual found or taken by the applicant or
or temporary absolute disqualification from otherwise placed or taken beyond the
office, as the case may be. jurisdiction of the court. However, no
assets shall be attached to the prejudice
Rule 14.5. Refusal by a Public Official or of a candidate for an electoral office
Employee to Testify. - Any public official during an election period.

APP. 52
05.12.31
Rule 15.2.b. - Where there is conviction for accordance with Section 9 and other
money laundering under Section 4 of the pertinent provisions of the AMLA and these
AMLA, the court shall issue a judgment of Rules, including, but not limited to,
forfeiture in favor of the Government of the information dissemination on money
Philippines with respect to the monetary laundering activities and their prevention,
instrument or property found to be proceeds detection and reporting, and the training
of one or more unlawful activities. of responsible officers and personnel of
However, no assets shall be forfeited to the covered institutions, subject to such
prejudice of a candidate for an electoral guidelines as may be prescribed by their
office during an election period. respective supervising authority. Every
covered institution shall submit its own
RULE 16 RESTITUTION money laundering program to the
supervising authority concerned within
Rule 16. Restitution. - Restitution for any the non-extendible period that the
aggrieved party shall be governed by the supervising authority has imposed in the
provisions of the New Civil Code. exercise of its regulatory powers under
its own charter.
RULE 17 IMPLEMENTING RULES AND
REGULATIONS AND MONEY Rule 17.2.b. Every money laundering
LAUNDERING PREVENTION program shall establish detailed procedures
PROGRAMS implementing a comprehensive, institution-
wide “know-your-client” policy, set-up an
Rule 17.1. Implementing Rules and effective dissemination of information on
Regulations. – money laundering activities and their
(a) Within thirty (30) days from the prevention, detection and reporting, adopt
effectivity of R.A. No. 9160, as amended internal policies, procedures and controls,
by R.A. No. 9194, the BSP, the Insurance designate compliance officers at
Commission and the Securities and management level, institute adequate
Exchange Commission shall promulgate the screening and recruitment procedures, and
Implementing Rules and Regulations of the set-up an audit function to test the system.
AMLA, which shall be submitted to the
Congressional Oversight Committee for Rule 17.2.c. Covered institutions shall adopt,
approval. as part of their money laundering programs,
(b) The Supervising Authorities, the BSP, a system of flagging and monitoring
the SEC and the IC shall, under their own transactions that qualify as suspicious
respective charters and regulatory authority, transactions, regardless of amount or covered
issue their Guidelines and Circulars on anti- transactions involving amounts below the
money laundering to effectively implement threshold to facilitate the process of
the provisions of R.A. No. 9160, as aggregating them for purposes of future
amended by R.A. No. 9194. reporting of such transactions to the AMLC
when their aggregated amounts breach the
Rule 17.2. Money Laundering Prevention threshold. All covered institutions, including
Programs. – banks insofar as non-deposit and non-
government bond investment transactions are
Rule 17.2.a. Covered institutions shall concerned, shall incorporate in their money
formulate their respective money laundering programs the provisions of these
laundering prevention programs in Rules and such other guidelines for reporting

APP. 52
05.12.31
to the AMLC of all transactions that engender the Anti-Money Laundering Council within
the reasonable belief that a money laundering thirty (30) days from the promulgation of
offense is about to be, is being, or has been the said rules.
committed.
Rule 17.3. Training of Personnel. - Covered RULE 19 APPROPRIATIONS FOR AND

institutions shall provide all their responsible BUDGET OF THE AMLC
officers and personnel with efficient and
effective training and continuing education Rule 19.1. Budget. – The budget of Php25.0
programs to enable them to fully comply with million appropriated by Congress under the
all their obligations under the AMLA and AMLA shall be used to defray the initial
these Rules. operational expenses of the AMLC.
Appropriations for succeeding years shall
Rule 17.4. Amendments. - These Rules or be included in the General Appropriations
any portion thereof may be amended by Act. The BSP shall advance the funds
unanimous vote of the members of the necessary to defray the capital outlay,
AMLC and submitted to the Congressional maintenance and other operating expenses
Oversight Committee as provided for under and personnel services of the AMLC subject
Section 19 of R.A. No. 9160, as amended to reimbursement from the budget of the
by R.A. No. 9194. AMLC as appropriated under the AMLA and
subsequent appropriations.
RULE 18 CONGRESSIONAL
OVERSIGHT COMMITTEE Rule 19.2. Costs and Expenses. - The budget
shall answer for indemnification for legal costs
Rule 18.1. Composition of Congressional and expenses reasonably incurred for the
Oversight Committee. - There is hereby services of external counsel in connection
created a Congressional Oversight Committee with any civil, criminal or administrative
composed of seven (7) members from the action, suit or proceedings to which members
Senate and seven (7) members from the of the AMLC and the Executive Director and
House of Representatives. The members from other members of the Secretariat may be made
the Senate shall be appointed by the Senate a party by reason of the performance of their
President based on the proportional functions or duties. The costs and expenses
representation of the parties or coalitions incurred in defending the aforementioned
therein with at least two (2) Senators action, suit or proceeding may be paid by the
representing the minority. The members from AMLC in advance of the final disposition of
the House of Representatives shall be such action, suit or proceeding upon receipt
appointed by the Speaker also based on of an undertaking by or on behalf of the
proportional representation of the parties or member to repay the amount advanced
coalitions therein with at least two (2) should it be ultimately determined that said
members representing the minority. member is not entitled to such
indemnification.
Rule 18.2. Powers of the Congressional
Oversight Committee. - The Oversight RULE 20 SEPARABILITY CLAUSE
Committee shall have the power to
promulgate its own rules, to oversee the Rule 20. Separability Clause. – If any
implementation of this Act, and to review provision of these Rules or the application
or revise the implementing rules issued by thereof to any person or circumstance is

APP. 52
05.12.31
held to be invalid, the other provisions of these Committee and fifteen (15) days after its complete
Rules, and the application of such provision publication in the Official Gazette or in a
or Rule to other persons or circumstances, newspaper of general circulation.
shall not be affected thereby.
RULE 23 TRANSITORY PROVISIONS
RULE 21 REPEALING CLAUSE
Rule 23.1. - Transitory Provisions. -
Rule 21. Repealing Clause. – All laws, Existing freeze orders issued by the
decrees, executive orders, rules and AMLC shall remain in force for a
regulations or parts thereof, including the period of thirty (30) days after
relevant provisions of R.A. No. 1405, as effectivity of this act, unless extended
amended; R.A. No. 6426, as amended; R.A. by the Court of Appeals.
No. 8791, as amended, and other similar laws,
as are inconsistent with the AMLA, are hereby Rule 23.2. - Effect of R.A. No. 9194
repealed, amended or modified accordingly. on Cases for Extension of Freeze
Orders Resolved by the Court of
RULE 22 EFFECTIVITY OF THE RULES Appeals. - All existing freeze orders
which the Court of Appeals has
Rule 22. Effectivity. – These Rules shall take effect extended shall remain effective, unless
after its approval by the Congressional Oversight otherwise dissolved by the same court.

APP. 52a
05.12.31
ANTI-MONEY LAUNDERING REGULATIONS

Banks, quasi-banks, trust entities and a. In cases of corporate and other

all other institutions, and their subsidiaries legal entities, the following measures
and affiliates supervised or regulated by the should be taken, when necessary:
BSP (covered institutions) shall strictly (1) Verification of the legal existence
comply with the provisions of Section 9 of and structure of the client from the
R.A. No. 9160 and the following rules and appropriate agency or from the client itself
regulations on anti-money laundering. or both, proof of incorporation, including
information concerning the customer’s
1. Customer identification. Covered name, legal form, address, directors,
institutions shall establish and record the principal officers and provisions regulating
true identity of its clients based on official the power behind the entity.
documents. They shall maintain a system (2) Verification of the authority and
of verifying the true identity of their clients identification of the person purporting to
and, in case of corporate clients, require a act on behalf of the client.
system of verifying their legal existence and b. In case of doubt as to whether their
organizational structure, as well as the purported clients or customers are acting
authority and identification of all persons for themselves or for another, reasonable
purporting to act on their behalf. measures should be taken to obtain the true
The guidelines on Customer Due identity of the persons on whose behalf an
Diligence for banks issued by the BASEL account is opened or a transaction
Committee on Banking Supervision which conducted.
highlights the Know-Your-Customer (KYC) c. The provisions of existing laws to
standards to be observed in the design of the contrary notwithstanding, anonymous
KYC programs are shown in Annex B. accounts, accounts under fictitious names,
The guidelines on the Account and all other similar accounts shall be
Opening and Customer Identification absolutely prohibited. In case where
issued by the BASEL Committee on numbered accounts is allowed (i.e. peso
Banking Supervision represent the starting and foreign currency non-checking
point, which can be used by banks in the numbered accounts), bank should ensure
area of customer identification are shown that the client is identified in an official or
in Annex C. other identifying documents.
When establishing business relations The BSP may conduct annual testing
or conducting transactions (particularly solely limited to the determination of the
opening of deposit accounts, accepting existence and the identity of the owners of
deposit substitutes, entering into trust and such accounts.
other fiduciary transactions, renting of Banks shall phase out within a period
safety deposit boxes, performing of one (1) year from 02 April 2001 or upon
remittances and other large cash their maturity, whichever is earlier,
transactions) banks should take reasonable anonymous accounts or accounts under
measures to establish and record the true fictitious names as well as numbered
identity of their clients. Said client accounts being kept or managed by them,
identification may be based on official or which are not expressly allowed under
other reliable documents and records. existing law.

APP. 52a
05.12.31
d. The identity of existing clients or 2. Issuance of cashier's, manager's or

beneficial owners of deposits and other certified checks. Banks may issue cashier’s,
funds held or being managed by the bank manager’s or certified checks or other
should be renewed/updated at least every similar instruments in blank or payable to
other year. cash, bearer or numbered account subject
e. All records of all transactions of to the following conditions:
covered institutions shall be maintained a. The amount of each check shall not
and safely stored for five (5) years from the exceed P10,000;
dates of transactions. With respect to b. The buyer of the check is properly
closed accounts, the records on customer identified as required under this Section;
identification, account files and business c. A register of said checks shall be
correspondence, shall be preserved and maintained with the following minimum
safely stored for at least five (5) years from information:
the dates when they were closed. (1) Date issued;
Such records must be sufficient to (2) Amount;
permit reconstruction of individual (3) Name of buyer;
transactions so as to provide, if necessary, (4) Date paid; and
evidence for prosecution of criminal (5) If the aggregate instruments pur-
behaviour. chased by the same person within any thirty
f. Special attention should be given (30) day period amounts to at least P50,000,
to all complex, unusual large transactions, the purpose of the buyer should be stated.
and all unusual patterns of transactions, d. Banks which issue as well as those
which have no apparent or visible lawful which accept as deposits, said cashier’s,
purpose. The background and purpose of manager’s or certified checks or other
such transactions should, as far as possible, similar instruments issued in blank or
be examined, the findings established in payable to cash, bearer or numbered
writing, and be available to help account shall take such measure(s) as may
supervisors, auditors and law enforcement be necessary to ensure that said instruments
agencies. are not being used/resorted to by the buyer
g. Banks should not, or should at least or depositor in furtherance of a money
avoid, transacting business with criminals. laundering activity;
Reasonable measures should be adopted e. The deposit of said instruments shall
to prevent the use of their facilities for be subject to the same requirements/
laundering of proceeds of crime and other scrutiny applicable to cash deposits; and
illegal activities. f. Transactions involving said
h. Banks are enjoined to require their instruments should be accordingly reported
clients FDXs/MCs and RAs to submit a copy to the BSP if there is reasonable ground to
of their certificate of registration issued by suspect that said transactions are being used
the BSP. This requirement shall be to launder funds of illegitimate origin.
considered as part of KYC compliance
procedures. 3. Programs against money
The certificates can be confirmed or laundering. Programs against money
verified with the BSP Supervision and laundering should be developed. These
Examination Department III. The programs, should include, as a minimum:
registration of FXDs/MCs and the RAs with a. The development of internal
the BSP is provided for under Sec. 4511N, policies, procedures and controls, including
MORNBs.

APP. 52a
05.12.31
the designation of compliance officers at (6) Funds being managed or held as

management level, and adequate screening deposit substitutes if there is reasonable
procedures to ensure high standards when ground to believe that the same are
hiring employees; proceeds of criminal and other illegal
b. An ongoing employee training activities; and
program; and (7) Suspicious Transaction Indicators or
c. An audit function to test the system. “red Flags” as a guide in the submission to
the AMLC of reports of suspicious
4. Submission of plans of action transactions relating to potential or actual
Banks shall submit a plan of action on how financing of terrorism.
to comply with the requirements of (a) Wire transfers between accounts,
Appendix 52a Items "1", "3" and "5" within without visible economic or business
thirty (30) days from 31 July 2000 or from purpose, especially if the wire transfers are
opening of the bank. effected through countries which are
identified or connected with terrorist
5. Required reporting of certain activities.
transactions. If there is reasonable ground (b) Sources and/or beneficiaries of wire
to believe that the funds are proceeds of an transfers are citizens of countries which are
unlawful activity as defined under R.A. No. identified or connected with terrorist
9160 and/or its IRRs, the transactions activities.
involving such funds or attempts to transact (c) Repetitive deposits or withdrawals
the same, should be reported to the Anti- that cannot be explained or do not make
Money Laundering Council (AMLC) in sense.
accordance with Rules 5.2 and 5.3 of the (d) Value of the transaction is over and
AMLA IRRs. above what the client is capable of earning.
a. Report on covered and suspicious (e) Client is conducting a transaction
transactions.1 Banks shall report covered that is out of the ordinary for his known
transactions and suspicious transactions, as business interest.
defined in Rules 5.2 and 5.3 of the AMLA (f) Deposits being made by individuals
IRRs, to the AMLC using the forms who have no known connection or relation
prescribed by the AMLC. Reportable with the account holder.
transactions shall include the following: (g) An individual receiving remittances,
(1) Outward remittances without but has no family members working in
visible lawful purpose; the country from which the remittance is
(2) Inward remittances without visible made.
lawful purpose or without underlying trade (h) Client was reported and/or
transactions; mentioned in the news to be involved in
(3) Unusual purchases of foreign terrorist activities.
exchange without visible lawful purpose; (i) Client is under investigation by law
(4) Unusual sales of foreign exchange enforcement agencies for possible
whose sources are not satisfactorily involvement in terrorist activities.
established; (j) Transactions of individuals,
(5) Complex, unusual large transactions, companies or non-governmental
and all unusual patterns of transactions, organizations (NGOs) that are affiliated or
which have no apparent or visible lawful related to people suspected of being
purpose; connected to a terrorist group or a group
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex A).

APP. 52a
05.12.31
that advocates violent overthrow of a are prohibited from communicating,

government. directly or indirectly, in any manner or by
(k) Transactions of individuals, any means, to any person the fact that a
companies or NGOs that are suspected as covered transaction report was made, the
being used to pay or receive funds from contents thereof, or any other information
revolutionary taxes. in relation thereto. In case of violation
(l) The NGO does not appear to have thereof, the concerned officer, employee,
expenses normally related to relief or representative, agent, advisor, consultant
humanitarian effort. or associate of the covered institution,
(m) The absence of contributions from shall be criminally liable. However, no
donors located within the country of origin administrative, criminal or civil proceedings,
of the NGO. shall lie against any person for having made
(n) A mismatch between the pattern a covered transaction report in the regular
and size of financial transactions on the one performance of his duties and in good faith,
hand and the stated purpose and activity of whether or not such reporting results in any
the NGO on the other. criminal prosecution under R.A. No. 9160
(o) Incongruities between apparent or any other Philippine law.
sources and amount of funds raised or c. Prohibition from disclosure of the
moved by the NGO. covered transaction report. When reporting
(p) Any other transaction that is similar, covered transactions to the AMLC, covered
identical or analogous to any of the institutions and their officers, employees,
foregoing. representatives, agents, advisors, consultants
(8) All other suspicious transactions/ or associates are prohibited from
activities which can be reported without communicating, directly or indirectly, in
violating any law. any manner or by any means, to any person,
The report on suspicious transactions entity, the media, the fact that a covered
shall provide the following minimum transaction report was made, the contents
information: therof, or any other information in relation
(a) Name or names of the parties thereto. Neither may such reporting be
involved. published or aired in any manner or form
(b) A brief description of the by the mass media, electronic mail, or other
transaction or transactions. similar devices. In case of violation thereof,
(c) Date or date the transaction(s) the concerned officer, employee,
occurred. representative, agent, advisor, consultant
(d) Amount(s) involved in every or associate of the covered institution, or
transaction. media shall be held criminally liable.
(e) Such other relevant information
which can be of help to the authorities 6. Certification of compliance with
should there be an investigation. anti-money laundering regulations. Banks
b. Exemption from Bank Secrecy Law. shall submit annually to the BSP thru the
When reporting covered transactions to the appropriate supervising and examining
AMLC, covered institutions and their department a certification (Appendix 53)
officers, employees, representatives, agents, signed by bank president or officer of
advisors, consultants or associates shall not equivalent rank and by their compliance
be deemed to have violated R.A. No. 1405, officer to the effect that they have
as amended; R.A. No. 6426, as amended; monitored compliance with existing anti-
R.A. No. 8791 and other similar laws, but money laundering regulations.

APP. 52a
05.12.31
The certification shall be submitted in after establishing that the nature of the
accordance with Appendix 6 and shall be business of said client justifies, or at least,
considered a Category A-2 report. makes practical the deposit of second-
endorsed checks. In case of isolated
7. Acceptance of second-endorsed transactions involving deposits of second-
checks. Banks shall adopt stricter policy endorsed checks by clients who are not
guidelines in the acceptance of second- engaged in trade or business, the identity of
endorsed checks to ensure that they are not the first endorser should be established and
being used as instruments for money the record of the identification shall also be
laundering or other illegal activities. kept for five (5) years. It is also understood
For this purpose, banks shall limit the that banks shall at all times follow the Know-
acceptance of second-endorsed checks Your-Customer (KYC) rules whenever they
from properly identified clients and only handle or transact second-endorsed checks.

APP. 52a
05.12.31
Annex A
AMLC Resolution No. 292
RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS*
1. All covered institutions are required their respective transaction amounts, said
to file Suspicious Transaction Reports (STRs) covered institutions shall be required to file
on transactions involving all kinds of CTRs on its clients whose transactions
monetary instruments or property. exceed P500,000 and are included in the
2. Banks shall file covered transaction bulk transactions.
reports (CTRs) on transactions involving all 5. With respect to insurance
kinds of monetary instruments or property, companies, when the total amount of the
i.e., in cash or non-cash, whether in premiums for the entire year, regardless of
domestic or foreign currency. the mode of payment (monthly, quarterly,
3. Covered institutions, other than semi-annually or annually), exceeds
banks, shall file CTRs on transactions in P500,000, such amount shall be reported
cash or foreign currency or other monetary as a covered transaction, even if the
instruments (other than checks) or amounts of the amortizations are less than
properties. Due to the nature of the the threshold amount. The CTR shall be
transactions in the stock exchange, only the filed upon payment of the first premium
brokers-dealers shall be required to file amount, regardless of the mode of payment.
CTRs and STRs. The PSE, PCD, SCCP and Under this rule, the insurance company
transfer agents are exempt from filing CTRs. shall file the CTR only once every year until
They, are however, required to file STRs the policy matures or rescinded, whichever
when the transactions that pass through comes first.
them are deemed to be suspicious. 6. The submission of CTRs is deferred
4. Where the covered institution until the AMLC directs otherwise.
engages in bulk transactions with a bank, Submission of STRs, however, are not
i.e., deposits of premium payments in bulk deferred and covered institutions are
or settlements of trade, and the bulk mandated to submit such STRs when the
transactions do not distinguish clients and circumstances so require.
*a. The Anti-Money Laundering Council (AMLC), in the exercise of its authority under Sections 7(1) and 9 of Republic
Act No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001”, as amended, and its Revised Implementing
Rules and Regulations, resolved to:
(1) Defer reporting by covered institutions to AMLC of the following “non-cash, no/low risk covered transactions:
· Transactions between banks and the BSP;
· Transactions between banks operating in the Philippines;
· Internal operating expenses of the banks;
· Transactions between banks and government agencies;
· Transactions involving transfer of funds from one deposit account to another deposit account of the same person
within the same bank;
· Roll-overs of placements of time deposits; and
· Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank.
(2) Request the BSP-supervised institutions, through the Association of Bank Compliance Officers (ABCOMP), to determine
and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on “non-cash,
no/low risk” covered transactions.
b. All covered institutions should:
(1) Submit corresponding electronic copy versions, in the required format, of those STRs previously submitted in hard
copy or the hard copy version of those submitted only in electronic form, as the case may be, retroactive to 05 January 2004;
and
Re-submit in required electronic form, those CTRs that have been submitted previously in hard copy or in diskette not in
the required format, retroactive to 23 March 2003.

APP. 52a
05.12.31
Annex B
CUSTOMER DUE DILIGENCE FOR BANKS AND NON-BANK FINANCIAL

INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS (NBQBs)
1. Customer acceptance policy pension fund or a company whose assets

Banks should develop clear customer are managed by an asset manager, or the
acceptance policies and procedures, grantor of a trust.
including a description of the types of Banks should establish a systematic
customer that are unacceptable to bank procedure for verifying the identity of new
management. In preparing such policies, customers and should never enter a
factors such as customers’ background, business relationship until the identity of a
country of origin, public or high profile new customer is satisfactorily established.
position, business activities or other risk Banks should “document and enforce
indicators should be considered. Banks policies for identification of customers and
should develop graduated customer those acting on their behalf”.1 The best
acceptance policies and procedures that documents for verifying the identity of
require more extensive due diligence for customers are those most difficult to obtain
high risk customers. For example, the illicitly and to counterfeit, such as passport,
policies may require the most basic driver’s license or alien certificate of
account-opening requirements for a registration. Special attention should be
working individual with a small account exercised in the case of non-resident
balance, whereas quite extensive due customers and in no case should a bank short-
diligence may be deemed essential for an circuit identity procedures just because the
individual with a high net worth whose new customer is unable to present himself
source of funds is unclear. Decisions to for interview. The bank should always ask
enter into business relationships with high itself why the customer has chosen to open
risk customers, such as individuals holding an account in a foreign jurisdiction.
important/prominent positions, public or The customer identification process
private (see below), should be taken applies naturally at the outset of the
exclusively at senior management level. relationship, but there is also a need to
apply KYC standards to existing customer
2. Customer identification accounts. Where such standards have been
Customer identification is an essential introduced only recently and do not as yet
element of KYC standards. A customer is apply fully to existing customers, a risk
defined as any person or entity that keeps assessment exercise can be undertaken and
an account with a bank and any person or priority given to obtaining necessary
entity on whose behalf an account is information, where it is deficient, in respect
maintained, as well as the beneficiaries of of the higher risk cases. An appropriate time
transactions conducted by professional to review the information available on
financial intermediaries. Specifically, a existing customers is when a transaction of
customer should include an account holder significance takes place, or when there is a
and the beneficial owner of an account. A material change in the way that the account
customer should also include the is operated. However, if a bank is aware
beneficiary of a trust, an investment fund, a that it lacks sufficient information about an
1
Core Principles Methodology, Essential Criterion 2.

APP. 52a
05.12.31
existing high-risk customer, it should take customer and the purpose and intended
steps to ensure that all relevant information nature of the business relationship. The
is obtained as quickly as possible. In extent and nature of the information
addition, the supervisor needs to set an depends on the type of applicant (personal,
appropriate target date for completion of a corporate, etc.) and the expected size of
KYC review and regularization of all the account. National supervisors are
existing accounts. In any event, a bank encouraged to provide guidance to assist
should undertake regular reviews of its banks in their designing their own
customer base to establish that it has up- identification procedures. Examples of the
to-date information and a proper type of information that would be
understanding of its account holders’ appropriate are set out in Annex B-1.
identity and of their business. Banks should apply their full KYC
Banks that offer private banking services procedures to applicants that plan to
are particularly exposed to reputational risk. transfer an opening balance from another
Private banking by nature involves a large financial institution, bearing in mind that
measure of confidentiality. Private banking the previous account manager may have
accounts can be opened in the name of an asked for the account to be removed
individual, a commercial business, a trust, because of a concern about dubious
an intermediary or a personalized activities.
investment company. In each case Banks should never agree to open an
reputational risk may arise if the bank does account or conduct ongoing business with
not diligently follow established KYC a customer who insists on anonymity or
procedures. In no circumstances should “bearer” status or who gives a fictitious
private banking operations function name. Nor should confidential numbered2
autonomously, or as a “bank within a accounts function as anonymous accounts
bank”1 , and no part of the bank should ever but they should be subject to exactly the
escape the required procedures. This same KYC procedures as all other customer
means that all new clients and new accounts, even if the test is carried out by
accounts should be approved by at least selected staff. Whereas a numbered
one person other than the private banking account can offer additional protection for
relationship manager. If particular the identity of the account-holder, the
safeguards are put in place internally to identity must be known to a sufficient
protect confidentiality of private banking number of staff to operate proper due
customers and their business, banks must diligence. Such accounts should in no
still ensure that at least equivalent scrutiny circumstances be used to hide the customer
and monitoring of these customers and their identity from a bank’s compliance function
business can be conducted, e.g. they must or from the supervisors.
be open to review by compliance officers
and auditors. Banks need to be vigilant in preventing
corporate business entities from being used
2.1 General identification requirements by natural persons as a method of operating
Banks need to obtain all information anonymous accounts. Personal asset
necessary to establish to their full holding vehicles, such as international
satisfaction the identity of each new business companies (IBCs), may make
1
Some banks insulate their private banking functions or create Chinese walls as a means of providing additional
protection for customer confidentiality.
2
In a numbered account, the name of the beneficial owner is known to the bank but is substituted by an account
number or code name in subsequent documentation.

APP. 52a
05.12.31
proper identification of customers or ultimate beneficial owners. In each case,

beneficial owners difficult. A bank should the identity of the customer that is subject
take all steps necessary to satisfy itself that to due diligence should be clearly
it knows the true identity of the ultimate established. The beneficial owners should
owner of all such entities. be verified where possible. Where not, the
banks should perform due diligence on the
2.2 Specific identification issues intermediary and establish to its complete
There are a number of more detailed satisfaction that the intermediary has a
issues relating to customer identification sound due diligence process for each of its
which need to be addressed. Particular clients.
comments are invited on the issues Special care needs to be exercised in
mentioned in this section. Several of these initiating business transactions with
are currently under consideration by the companies that have nominee shareholders
FATF as part of a general review of its forty or shares in bearer form. Satisfactory
recommendations, and the Working Group evidence of the identity of beneficial
recognizes the need to be consistent with owners of all companies needs to be
the FATF. obtained.
The above procedures may prove
2.2.1 Trust, nominee and fiduciary difficult for banks in some countries to
accounts or client accounts opened by follow. In the case of professional
professional intermediaries intermediaries such as lawyers, there might
Trust, nominee and fiduciary accounts exist professional codes of conduct
can be used to avoid customer identification preventing the dissemination of
procedures. While it may be legitimate information concerning their clients. The
under certain circumstances to provide an FATF is currently engaged in a review of
extra layer of security to protect the KYC procedures governing accounts
confidentiality of legitimate private banking opened by lawyers on behalf of clients.
customers, it is essential that the true The Working Group has therefore not taken
relationship is understood. Banks should a definitive position on this issue.
establish whether the customer is acting on
behalf of another person as trustee, nominee 2.2.2 Introduced business
or professional intermediary (e.g. a lawyer The performance of identification
or an accountant). If so, a necessary procedures can be time consuming and
precondition is receipt of satisfactory there is a natural desire to limit any
evidence of the identity of any intermediaries inconvenience for new customers. In some
and of the persons upon whose behalf they countries, it has therefore become
are acting, as well as details of the nature of customary for banks to rely on the
the trust or other arrangements in place. procedures undertaken by other banks or
Banks may hold “pooled’ accounts (e.g. introducers when business is being
client accounts managed by law firms) or referred. In doing so, banks risk placing
accounts opened on behalf of pooled excessive reliance on the due diligence
entities, such as mutual funds and money procedures that they expect the introducers
managers. In such cases, banks have to to have performed. Relying on due
decide, given the circumstances, whether diligence conducted by an introducer,
the customer is the intermediary, or however reputable, does not in any way
whether it would be more appropriate to remove the ultimate responsibility of the
look through the intermediary to the recipient bank to know its customers and

APP. 52a
05.12.31
their business. In particular, banks should 3. On-going monitoring of high risk

not rely on introducers that are subject to accounts
weaker standards than those governing the On-going monitoring of accounts and
banks’ own KYC procedures or that are transactions is an essential aspect of
unwilling to share copies of due diligence effective KYC procedures. Banks can only
documentation. effectively control and reduce their risk if
The FATF is currently engaged in a they have an understanding of normal and
review of the appropriateness of eligible reasonable account activity of their
introducers, i.e. whether they should be customers. Without such knowledge, they
confined to reputable banks only or should are likely to fail in their duty to report
extend to other regulated institutions, suspicious transactions to the appropriate
whether a bank should establish a authorities in cases where they are required
contractual relationship with its introducers to do so. The on-going monitoring process
and whether it is appropriate to rely on a includes the following:
third party introducer at all. The Working • Banks should develop “clear
Group is still developing its thinking on this standards on what records must be kept on
topic. customer identification and individual
transactions and the retention period”.4 As
2.2.3 Reputational risk the starting point and natural follow-up of
Business relationship with individuals the identification process, banks should
holding important/ prominent positions, obtain and keep up to date customer
public or private, and with persons or identification papers and retain them for at
companies clearly related to them may least five years after an account is closed.
expose a bank to significant reputational They should also retain all financial
and/or legal risks. transaction records for at least five years
Accepting and managing funds from after the transaction has taken place.
such persons could put at risk the bank’s • Banks should ensure that they have
own reputation and can undermine public adequate management information systems
confidence in the ethical standards of an to provide managers and compliance
entire financial centre, since such cases officers with timely information needed to
usually receive extensive media attention and identify, analyse and effectively monitor
strong political reaction, even if the illegal higher risk customer accounts. The types
origin of the assets is often difficult to prove. of reports that may be needed include
In addition, the bank may be subject to costly reports of missing account opening
information requests and seizure orders documentation, transactions made through
from law enforcement or judicial authorities a customer account that are unusual, and
(including international mutual assistance aggregations of a customer’s total
procedures in criminal matters) and could relationship with the bank.
be liable to actions for damages by the state • Senior management of a bank in
concerned or the victims of a regime. charge of private banking business
Under certain circumstances, the bank and/ should know the personal circumstances
or its officers and employees themselves of the bank’s large/important customers
can be exposed to charges of money and be alert to sources of third party
laundering, if they know or should have information. Every bank should draw its
known that the funds stemmed from own distinction between large/important
corruption or other serious crimes. customers and others, and set threshold
4
Core Principles Methodology, Essential Criterion 2.

APP. 52a
05.12.31
indicators for them accordingly, taking into fully committed to an effective KYC
account the country of origin and other risk programme by establishing appropriate
factors. Significant transactions by high- procedures and ensuring their
risk customers should be approved by a effectiveness. Banks should appoint a
senior manager. senior officer with explicit responsibility for
• Banks should have systems in ensuring that the bank’s policies and
place to detect unusual or suspicious procedures are, at a minimum, in
patterns of activity. This can be done by accordance with local supervisory practice.
establishing limits for a particular class or Banks should have clear written
category of accounts. Particular attention procedures, communicated to all
should be paid to transactions that exceed personnel, for staff to report suspicious
these limits. Certain types of transactions transactions to a specified senior manager.
should alert banks to the possibility that That manager must then assess whether the
the customer is conducting undesirable bank’s statutory obligations under
activities. They may include transactions recognized suspicious activity reporting
that do not make economic or commercial regimes require the transaction to be
sense, or that involve large amounts of cash reported to the appropriate law
deposits that are not consistent with the enforcement and supervisory authorities.
normal and expected transactions of the All banks must have an ongoing
customer. Very high account turnover, employee-training programme so that bank
inconsistent with the size of the balance, staff is adequately trained in KYC
may indicate that funds are being “washed” procedures. The timing and content of
through the account. A list of suspicious training for various sectors of staff will need
activities drawn up by supervisors can be to be adapted by the bank for its own
very helpful to banks. needs. Training requirements should have
• Bank should develop a clear policy a different focus for new staff, front-line
and internal guidelines, procedures and staff, compliance staff or staff dealing with
controls and remain especially vigilant new customers. New staff should be
regarding business relationships with educated in the importance of KYC policies
individuals holding important/prominent and the basic requirements at the bank.
positions, public or private, and high Front-line staff members who deal directly
profile individuals or with persons and with the public should be trained to verify
companies that are clearly related to or the customer identity for new customers,
associated with them.1 to exercise due diligence in handling
accounts of existing customers on an
4. Risk Management ongoing basis and to detect patterns of
Effective KYC procedures embrace suspicious activity. Regular refresher
routines for proper management oversight, training should be provided to ensure that
systems and controls, segregation of duties, staff is reminded of their responsibilities
training and other related policies. The and is kept informed of new developments.
board of directors of the bank should be It is crucial that all relevant staff fully
1
It is unrealistic to expect the bank to know or investigate every distant family, political or business connection of a foreign
customer. The need to pursue suspicions will depend on the size of the assets or turnover, pattern of transactions,
economic background, reputation of the country, plausibility of the customer’s explanations etc. It should however be
noted that individuals holding important/prominent positions, public or private (or rather their family members and friends)
would not necessarily present themselves in that capacity, but rather as ordinary (albeit wealthy) business people, masking
the fact they owe their high position in a legitimate business corporation only to their privileged relation with the holder
of the public office.

APP. 52a
05.12.31
understand the need for and implement it believes management is failing to

KYC policies consistently. A culture within address KYC procedures in a responsible
banks that promotes such understanding is manner.
the key to successful implementation. Internal audit plays an important role
Banks’ internal audit and compliance in independently evaluating the risk
functions have important responsibilities in management and controls, discharging its
evaluating and ensuring adherence to KYC responsibility to the Audit Committee of the
policies and procedures. As a general rule, Board of Directors or a similar oversight
the compliance function provides an body through periodic evaluations of the
independent evaluation of the bank’s effectiveness of compliance with KYC
own policies and procedures, including policies and procedures. Management
legal and regulatory requirements. Its should ensure that audit functions are
responsibilities should include ongoing staffed adequately with individuals who are
monitoring of staff performance through well-versed in such policies and procedures.
sample testing of compliance and review In addition, internal auditors should be
of exception reports to alert senior proactive in following-up their findings and
management or the Board of Directors if criticisms.

APP. 52a
05.12.31
Annex B-1
GENERAL IDENTIFICATION REQUIREMENTS
This annex presents a suggested list of or driving licenses, some flexibility may be
identification requirements for personal required. However, particular care should
customers and corporates. National be taken in accepting documents that are
supervisors are encouraged to provide easily forged or which can be easily
guidance to assist banks in designing their obtained in false identities. Where there is
own identification procedures. face to face contact, the appearance should
be verified against an official document
Personal customers bearing a photograph. Any subsequent
changes to the above information should
For personal customers, banks need to also be recorded and verified.
obtain the following information:
1. Name and/or names used; Corporate and other business customers
2. Permanent residential address;
3. Date and place of birth; For corporate and other business
4. Name of employer or nature of self- customers, banks should obtain evidence
employment/business; of their legal status, such as an incorporation
5. Specimen signature; and document, partnership agreement,
6. Source of funds. association documents or a business licence.
For large corporate accounts, a financial
Additional information would relate to statement of the business or a description
nationality or country of origin, public or of the customer’s principal line of business
high profile position, etc. Banks should should also be obtained. In addition, if
verify the information against original significant changes to the company structure
documents of identity issued by an official or ownership occur subsequently, further
authority (examples including identity checks should be made. In all cases, banks
cards and passports). Such documents need to verify that the corporation or
should be those that are most difficult to business entity exists and engages in its
obtain illicitly. In countries where new stated business. The original documents or
customers do not possess the prime identity certified copies of certificates should be
documents, e.g., identity cards, passports produced for verification.

APP. 52a
05.12.31
Annex C
General Guide to Account Opening and

Customer Identification
1. The Basel Committee on Banking 4. These guidelines may be adapted

Supervision in its paper on Customer Due for use by national supervisors who are
Diligence for Banks published in October seeking to develop or enhance customer
2001 referred to the intention of the identification programmes. However,
Working Group on Cross-border Banking1 supervisors should recognize that any
to develop guidance on customer customer identification programme should
identification. Customer identification is reflect the different types of customers
an essential element of an effective (individual vs. institution) and the different
customer due diligence programme which levels of risk resulting from a customer’s
banks need to put in place to guard against relationship with a bank. Higher risk
reputational, operational, legal and transactions and relationships, such as
concentration risks. It is also necessary in those with politically exposed persons or
order to comply with anti-money organizations, will clearly require greater
laundering legal requirements and a scrutiny than lower risk transactions and
prerequisite for the identification of bank accounts.
accounts related to terrorism. 5. Guidelines and best practices
2. What follows is account opening created by national supervisors should
and customer identification guidelines and also reflect the various types of
a general guide to good practice based on transactions that are most prevalent in the
the principles of the Basel Committee’s national banking system. For example,
Customer due diligence for banks paper. non-face-to-face opening of accounts may
This document, which has been developed be more prevalent in one country than
by the Working Group on Cross-border another. For this reason the customer
Banking, does not cover every eventuality, identification procedures may differ
but instead focuses on some of the between countries.
mechanisms that banks can use in 6. Some identification documents are
developing an effective customer more vulnerable to fraud than others. For
identification programme. those that are most susceptible to fraud,
3. These guidelines represent a or where there is uncertainty concerning
starting point for supervisors and banks in the validity of the document(s) presented,
the area of customer identification. This the bank should verify the information
document does not address the other provided by the customer through
elements of the Customer Due Diligence additional inquiries or other sources of
for banks paper, such as the ongoing information.
monitoring of accounts. However, these 7. Customer identification documents
elements should be considered in the should be retained for at least five years
development of effective customer due after an account is closed. All financial
diligence, anti-money laundering and transaction records should be retained for
combating the financing of terrorism at least five years after the transaction has
procedures. taken place.
1
The Working Group on Cross-border Banking is a joint group consisting of members of the Basel Committee and of the
Offshore Group of Banking Supervisors.

APP. 52a
05.12.31
8. These guidelines are divided into • confirming the date of birth from an
two sections covering different aspects of official document (e.g. birth certificate,
customer identification. Section A passport, identity card, social security
describes what types of information should records);
be collected and verified for natural • confirming the permanent address
persons seeking to open accounts or (e.g. utility bill, tax assessment, bank
perform transactions. Section B describes statement, a letter from a public authority);
what types of information should be • contacting the customer by
collected and verified for institutions and telephone, by letter or by e-mail to confirm
is in two parts, the first relating to corporate the information supplied after an account
vehicles and the second to other types of has been opened (e.g. a disconnected
institutions. phone, returned mail, or incorrect e-mail
9. All the terms used in these address should warrant further
guidelines have the same meaning as in investigation);
the Customer due diligence for banks • confirming the validity of the official
paper. documentation provided through
certification by an authorised person (e.g.
A. Natural Persons embassy official, notary public).
12. The examples quoted above are not
10. For natural persons the following the only possibilities. In particular
information should be obtained, where jurisdictions there may be other documents
applicable: of an equivalent nature which may be
• legal name and any other names produced as satisfactory evidence of
used (such as maiden name); customer’s identity.
• correct permanent address (the full 13. Financial institutions should apply
address should be obtained; a Post Office equally effective customer identification
box number is not sufficient); procedures for non-face-to-face customers
• telephone number, fax number, as for those available for interview.
and e-mail address; 14. From the information provided in
• date and place of birth; paragraph 10, financial institutions should
• nationality; be able to make an initial assessment of a
• occupation, public position held customer’s risk profile. Particular attention
and/or name of employer; needs to be focused on those customers
• an official person identification identified thereby as having a higher risk
number or other unique identifier profile and additional inquiries made or
contained in an unexpired official information obtained in respect of those
document (e.g. passport, identification customers to include the following:
card, residence permit, social security • evidence of an individual’s
records, driving license) that bears a permanent address sought through a credit
photograph of the customer; referenceagency search, or through
• type of account and nature of the independent verification by home visits;
banking relationship; • personal reference (i.e. by an
• signature. existing customer of the same institution);
11. The bank should verify this • prior bank reference and contact
information by at least one of the following with the bank regarding the customer;
methods: • source of wealth;

APP. 52a
05.12.31
• verification of employment, public • the resolution of the Board of

position held (where appropriate). Directors to open an account and
15. For one-off or occasional identification of those who have
transactions where the amount of the authority to operate the account;
transaction or series of linked transactions • nature and purpose of business and
does not exceed an established minimum its legitimacy.
monetary value, it might be sufficient to 20. The bank should verify this
require and record only name and address. information by at least one of the following
16. It is important that the customer methods:
acceptance policy is not so restrictive that • for established corporate entities -
it results in a denial of access by the general reviewing a copy of the latest report and
public to banking services, especially for accounts (audited if available);
people who are financially or socially • conducting an enquiry by a
disadvantaged.] business information service, or an
undertaking from a reputable and known
B. Institutions firm of lawyers or accountants confirming
17. The underlying principles of the documents submitted;
customer identification for natural persons • undertaking a company search and/
have equal application to customer or other commercial enquiries to see that
identification for all institutions. Where in the institution has not been, or is not in the
the following the identification and process of being, dissolved, struck off,
verification of natural persons is involved, wound up or terminated;
the foregoing guidance in respect of such • utilising an independent
persons should have equal application. information verification process, such as by
18. The term institution includes any accessingpublic and private databases;
entity that is not a natural person. In • obtaining prior bank references;
considering the customer identification • visiting the corporate entity, where
guidance for the different types of practical;
institutions, particular attention should be • contacting the corporate entity by
given to the different levels of risk involved. telephone, mail or e-mail.
21. The bank should also take
I. Corporate Entities reasonable steps to verify the identity and
19. For corporate entities (i.e. reputation of any agent that opens an
corporations and partnerships), the account on behalf of a corporate customer,
following information should be obtained: if that agent is not an officer of the corporate
• name of institution; customer.
• principal place of institution’s
business operations; Corporations/Partnerships
• mailing address of institution; 22. For corporations/partnerships, the
• contact telephone and fax principal guidance is to look behind the
numbers; institution to identify those who have
• some form of official identification control over the business and the
number, if available (e.g. tax identification company’s/partnership’s assets, including
number); those who have ultimate control. For
• the original or certified copy of the corporations, particular attention should be
Certificate of Incorporation and paid to shareholders, signatories, or others
Memorandum and Articles of Association; who inject a significant proportion of the

APP. 52a
05.12.31
capital or financial support or otherwise legal existence of the account holder (e.g.
exercise control. Where the owner is register of charities).
another corporate entity or trust, the 25. The bank should verify this information
objective is to undertake reasonable by at least one of the following:
measures to look behind that company or • obtaining an independent undertaking
entity and to verify the identity of the from a reputable and known firm of lawyers
principals. What constitutes control for this or accountants confirming the documents
purpose will depend on the nature of a submitted;
company, and may rest in those who are • obtaining prior bank references;
mandated to manage funds, accounts or • accessing public and private databases
investments without requiring further or official sources.
authorisation, and who would be in a
position to override internal procedures and Retirement Benefit Programmes
control mechanisms. For partnerships, each 26. Where an occupational pension
partner should be identified and it is also programme, employee benefit trust or share
important to identify immediate family option plan is an applicant for an account
members that have ownership control. the trustee and any other person who has
23. Where a company is listed on a control over the relationship (e.g.
recognised stock exchange or is a subsidiary administrator, programme manager, and
of such a company then the company itself account signatories) should be considered
may be considered to be the principal to as principals and the bank should take steps
be identified. However, consideration to verify their identities.
should be given to whether there is effective
control of a listed company by an Mutuals/Friendly Societies, Cooperatives
individual, small group of individuals or and Provident Societies
another corporate entity or trust. If this is 27. Where these entities are an applicant
the case then those controllers should also for an account, the principals to be
be considered to be principals and identified should be considered to be those
identified accordingly. persons exercising control or significant
influence over the organisation’s assets.
II. Other Types of Institution This will often include board members plus
24. For the account categories referred to executives and account signatories.
paragraphs 26 to 34, the following
information should be obtained in addition Charities, Clubs and Associations
to that required to verify the identity of the 28. In the case of accounts to be opened
principals: for charities, clubs, and societies, the bank
• name of account; should take reasonable steps to identify and
• mailing address; verify at least two signatories along with
• contact telephone and fax numbers; the institution itself. The principals who
• some form of official identification should be identified should be considered
number, if available (e.g. tax identification to be those persons exercising control or
number); significant influence over the organisation’s
• description of the purpose/activities of assets. This will often include members of
the account holder (e.g. in a formal a governing body or committee, the
constitution); President, any board members, the
• copy of documentation confirming the treasurer, and all signatories.

APP. 52a
05.12.31
29. In all cases independent verification not need to look beyond the intermediary
should be obtained that the persons (e.g. when the intermediary is subject to
involved are true representatives of the the same due diligence standards in respect
institution. Independent confirmation of its client base as the bank).
should also be obtained of the purpose of 32. Where such circumstances apply
the institution. and an account is opened for an open or
closed ended investment company, unit
Trusts and Foundations trust or limited partnership which is also
30. When opening an account for a subject to the same diligence standards in
trust, the bank should take reasonable steps respect of its client base as the bank, the
to verify the trustee(s), the settler(s) of the following should be considered as
trust (including any persons settling assets principals and the bank should take steps
into the trust) any protector(s), to identify:
beneficiary(ies), and signatories. • the fund itself;
Beneficiaries should be identified when • its directors or any controlling
they are defined. In the case of a foundation, board where it is a company;
steps should be taken to verify the founder, • its trustee where it is a unit trust;
the managers/directors and the • its managing (general) partner
beneficiaries. where it is a limited partnership;
• account signatories;
Professional Intermediaries • any other person who has control
31. When a professional intermediary over the relationship e.g. fund
opens a client account on behalf of a single administrator or manager.
client that client must be identified. 33. Where other investment vehicles
Professional intermediaries will often open are involved, the same steps should be taken
“pooled” accounts on behalf of a number as in paragraph 32 where it is appropriate to
of entities. Where funds held by the do so. In addition all reasonable steps
intermediary are not co-mingled but where should be taken to verify the identity of
there are “sub-accounts” which can be the beneficial owners of the funds and of
attributable to each beneficial owner, all those who have control of the funds.
beneficial owners of the account held by 34. Intermediaries should be treated as
the intermediary should be identified. individual customers of the bank and the
Where the funds are co-mingled, the bank standing of the intermediary should be
should look through to the beneficial separately verified by obtaining the
owners; however, there may be appropriate information drawn from the
circumstances which should be set out in itemised lists included in paragraphs 19-
supervisory guidance where the bank may 20 above.

APP. 52a
05.12.31
Annex D
AMLC Resolution No. 02
Series of 2005
Pursuant to Section 9-c of the Anti- 3. Local holidays, except for officially
Money Laundering Act, as amended, declared local holidays in the locality where
covered institutions (CIs) shall report to the the AMLC Secretariat Office is located, are
AMLC all covered transactions and treated as working days even for CIs located
suspicious transactions within five (5) in such locality declared as on holiday, and
working days from occurrence thereof, hence, included in the counting of the
subject to the circumstances described in prescribed reporting period. However, the
Resolution No. 292 dated 24 October 2003 CIs affected may file a deviation request
which remains in full force and effect. with the AMLC Secretariat.
• CI’s request for deviation shall be
WHEREFORE, the Council, resolves as subject to approval of the Executive Director
it hereby resolved, to approve the following of the AMLC Secretariat (or the Officer-in-
policies and guidelines in reckoning CIs’ charge) upon recommendation of the
compliance with the prescribed reporting Deputy Director of IMAS AMLC Secretariat.
period: It shall be the basis of manually recomputing
whatever penalties that would be
1. The following non-working days are automatically computed by TMAS.
excluded from the counting of the
prescribed reporting period: 4. Officially-declared non-working days in
• weekend (Saturday and Sunday) localities or regions affected by natural
• official regular national holiday calamities such as flood, typhoon,
• officially declared national holiday earthquake, etc. may be excluded from the
(special non-working day nationwide) counting of the prescribed reporting period
• officially declared local holiday in for CIs located in affected localities or
the locality where AMLC Secretariat Office regions subject to submission of deviation
is located request by the CI.
• CI’s request for deviation shall be
2. A “non-reporting day” may be declared subject to approval of the Executive Director
by the AMLC Secretariat when the File of the AMLC Secretariat (or the Officer-in-
Transfer and Reporting Facility (FTRF), used charge) upon recommendation of the
by the CIs in transmitting their electronic Deputy Director of IMAS AMLC Secretariat.
reports to AMLC, is unavailable to all CIs It shall be the basis of manually recomputing
for at least five (5) consecutive hours during whatever penalties that would be
the day automatically computed by TMAS.
• AMLC-declared “non-reporting
day” is excluded from the counting of the WHEREFORE, the Council, resolves as
prescribed reporting period. it hereby resolved, to consider and include
• The Executive Director of the the foregoing policies and guidelines in the
AMLC Secretariat (or the Officer-in-charge) ongoing development and implementation
is authorized to declare such day as a “non- of AMLC’s Transaction Monitoring and
reporting” day upon notification and Analysis System (TMAS) and specifically, for
justification by the Deputy Director of IMAS the computation of the penalty for delayed
AMLC Secretariat. reporting by the CIs.

APP. 52b
05.12.31
MINIMUM GUIDELINES FOR FUND TRANSFERS

1. Nature of fund transfers d. The financial institution shall allow

Fund transfers are remittances of funds electronic wire transfer (internet transfer)
from one (1) bank to another, either locally only upon its prior approval.
or internationally, in local or foreign
currencies. It is used for moving the 3. Risk-based due diligence
proceeds of loans, reimbursing letters of a. The bank should maintain a policies
credit, payment of collections, foreign and procedures manual for fund transfers
exchange transactions, etc. This may also that is reasonably designed to prevent the
include the movement of money between financial institution from being used to
customers or between accounts of the same facilitate money laundering and the
customer, or from a customer to a third financing of terrorist activities. At a
party who is not a customer of the bank. minimum, the manual must incorporate
Transfers can be effected by policies, procedures and internal controls
teletransmission, draft, manager’s check, or to:
certified check depending on the request Verify customer information (KYC);
of the applicant. The term also includes Verify transactions that show
Automated Clearing House transfers, indicators of suspicious transactions,
transfers made at automated teller particularly those instance stated under
machines (ATMs) and point-of-sale Rule 3.b.1 of the Revised Implementing
terminals. Rules and Regulations (R.A. No. 9160, as
amended by R.A. No. 9194);
2. Responsibility and oversight File reports (including covered
a. The financial institutions should be transaction/suspicious transactions reports);
governed by a Manually Initiated Fund Respond to regulators/law
Transfers (MIFT) Policies and Procedures enforcement requests;
for fund transfer requests that are manually Provide education and/or training
initiated (via fax, telephone, messenger, of personnel; and
electronic mail, file transfers, and other Provide security procedures.
similar manual origination means) b. The bank should not accept fund
externally from clients or internally from transfer instructions from and/or pay-out
within the banking group/entities. fund transfers to non-customers, unless in
b. The policies and procedures cases where the initiating party is an au-
should specify personnel that will be thenticated primary customer of a sending
responsible for ensuring compliance with group or unit of the bank.
the guidelines on fund transfer c. If the fund sender/remitter is not a
transactions. bank or coming from non-FATF member
c. The policies and procedures shall or non-compliant countries on AML, the
also provide for independent review by receiving bank must do the due diligence
appropriate personnel to monitor and on the beneficiary of the fund.
ensure continued compliance with the d. Whenever possible, manually
institution’s policies, procedures and initiated fund transfer instructions should
guidelines on fund transfers. not be the primary delivery method. Every

APP. 52b
05.12.31
effort should be made to provide the client including customer agreement to accept
with an electronic banking solution. responsibility for fraudulent or erroneous
instructions provided the bank has
4. Validation complied with the stated security
a. For written and faxed transaction procedures.
initiations ii. It is mandatory that written MIFT
The term validation applies to various instructions are signature verified. In
methods used by both sending and addition, one (1) of the following primary
receiving parties to verify the identity of the security procedures must be applied: a
sender of a message. Some validation recorded callback to the customer to
methods also verify elements in the confirm the transaction instructions, or
message including but not limited to testword arrangement/verification. The
amount, value date and currency. callback or testword requirement may be
Validation must be performed by all bank substituted by any of the following validity
units. Some specific validation methods checks: use of a controlled PIN or other
are: pre-established code; sequential
Test key: An algorithmic computation numbering control of messages; pre-
method using a fixed set of factors known established verifiable forms; same as prior
only to the sender and receiver, used to transmissions; standing/pre-defined
verify the sender and, in some cases, other instructions; or value for value transactions.
elements of the message. iii. It is mandatory that faxed MIFT
Authentication: A cryptographic instructions are signature verified and the
process used to verify the sender and, in fax machine be located in a secured
some cases, the full text of a message. environment with limited and controlled
Signature verification: A matching of staff access which permits visual
signature or other representation from a monitoring. If monitoring is not possible,
source document request to a document the equipment must be secured or
pre-signed by a bank customer and held on programmed to receive messages into a
file by the bank, or other documents held password protected memory.
by the customer (e.g. bank approved Faxed MIFT transactions below a
acceptable identification), used to verify certain threshold (approved by the
the sender. President/Country Manager (for branches
Telephone callback: A procedure used of foreign banks) or Business Risk
to verify the authenticity of a message Manager) may be processed with the
received by telephone. The bank places a mandatory procedure described above and
return phone call to the customer using a an enhanced security procedure such as
pre-determined telephone number on file (a) a recorded callback to the customer to
within the bank. confirm the transaction instructions and/or
(b) testword arrangement/verification, and/
Validation procedures or (c) utilization of secured forms that
i. Prior to the bank accepting from a incorporate verifiable security procedures
customer a manually initiated funds transfer such as watermarks or codes, and/or (d)
request, the customer must execute and transmission encryption.
sign an agreement which preferably is part iv. Telephone callback numbers and
of the account opening documentation, contacts must be securely controlled. The
wherein are outlined the manual instruction confirmation callback is to be recorded and
procedures with related security procedures made to the signatory/(ies) of the customer’s

APP. 52b
05.12.31
individual account(s). For commercial and an exception processing standard because

company accounts the callback will be of unique business circumstances. The
made to the signatory/(ies) of the account reason for creating the exception must be
or, if so authorized, another person clearly documented including the
designated by the customer in the MIFT identification of the applied compensating
agreement. The party called is to be controls.
documented on the instructions. The
callback must be made by someone other 6. Control and administration
than (a) the person receiving the original policies for incoming fund/wire transfers
instructions and (b) effecting the signature This section deals with teletransmission
verification. payment orders received from Head office,
b. Over-the-counter initiated branches and banks requesting payment
transactions. Over-the-counter initiated funds or credit to be made to a specified
transfers by the customers themselves require beneficiary.
positive identification of the customer and a. Cash payments to beneficiaries
verification of his/her signature. For should only be made against proper receipt
transactions over a threshold set by the and identification.
President/Country Manager (for branches of b. Payment orders with incomplete or
foreign banks) or Business Risk Manager insufficient details should be referred
these transactions shall also require a immediately to the remitter bank for
recorded telephone callback confirmation or clarification. If no response is received
another appropriate additional security within a reasonable time, the matter should
procedure. be referred to the Compliance or Operations
Officer or his/her designated officer for
5. Exception processing appropriate action as to whether to further
On rare occasions, exceptions investigate or return funds.
processing may be necessary. When an
established control standard temporarily 7. Integration with anti-money
cannot be met, a senior officer preferably laundering program
Vice President or above, designated in These guidelines shall form part of the
writing by the President/Country Manager institution’s wider anti-money laundering
(for branches of foreign banks) may approve program.

APP. 52c
05.12.31
MINIMUM GUIDELINES FOR CORRESPONDENT BANKING ACCOUNT

OPENING AND CUSTOMER IDENTIFICATION
1. Nature of correspondent banking 3. Risk–based due diligence

activities. Correspondent banking refers a. Correspondent Banking Clients
to activities of a bank having direct (CBC) presenting greater risk should be
connection or friendly service relations subjected to a higher level of due diligence.
with another bank. b. The financial institution should
consider the type of risk indicators in
2. Responsibility and oversight initiating the correspondent banking
Financial institutions should, in relation relationship, and on a continuing basis, to
to cross-border correspondent banking and ascertain what reasonable due diligence or
other similar relationships, in addition to enhanced due diligence it will undertake.
performing normal due diligence c. The risk indicators to be considered
measures: are as follows:
a. Gather sufficient information about (1) The Correspondent Banking
a respondent institution to understand fully Client’s (CBC) domicile:
the nature of the respondent’s business and (a) Jurisdiction where the CBC is
to determine from publicly available based and/or where its ultimate parent is
information the reputation of the institution headquartered. Certain jurisdictions are
and the quality of supervision, including internationally recognized as having
whether it has been subject to money inadequate anti-money laundering
laundering or terrorist financing standards, insufficient regulatory
investigation or regulatory action. supervision or presenting greater risk for
b. Assess the respondent institution’s crime, corruption or terrorist financing. On
anti-money laundering and terrorist the other hand, other jurisdictions such as
financing controls. members of the Financial Action Task force
c. Obtain approval from senior (FATF) have more robust regulatory
management before establishing new environments representing lowers risks.
correspondent relationships. (b) Institutions should review
d. Document the respective pronouncements from regulatory agencies
responsibilities of each institution. and international bodies, such as the FATF,
e. With respect to “payable-through to evaluate the degree of risk presented
accounts”, be satisfied that the respondent by the jurisdiction in which the CBC is
bank has verified the identity of and based and/or in which its ultimate parent
performed on-going due diligence on the is headquartered.
customers having direct access accounts (2) The Correspondent Banking
of the correspondent and that it is able to Client’s Ownership and Management
provide relevant customer identification Structures:
data upon request to the correspondent (a) location of owners;
bank. (b) their corporate legal form;

APP. 52c
05.12.31
(c) transparency or ownership structure; The criteria that should be met are as
(d) location and experience of follows:
management; and (1) A financial institution relying upon
(e) involvement of politically exposed a third party should immediately obtain the
persons (PEPs) in the management or necessary information concerning the
ownership. elements of the CDD process. Financial
(3) The Correspondent Banking institutions should take adequate steps to
Client’s Business and Customer Base: satisfy themselves that copies of
(a) type of businesses the CBC engages identification data and other relevant
in; documentation relating to the CDD
(b) type of markets the CBC serves; requirements will be made available
(c) involvement in certain business from the third party upon request without
segments internationally recognized as cre- delay.
ating particular vulnerability to money laun- (2) The financial institution should
dering, corruption or terrorist financing; and satisfy itself that the third party is regulated
(d) substantial part of business income and supervised for, and has measures in
derived from higher risk clients (i.e., clients place to comply with CDD requirements.
of a CBC that may be involved in activities d. The institution should consider the
or are connected to jurisdictions that are following elements –
identified by credible sources as activities (1) CBC domicile and organization
or countries being especially susceptible to (a) jurisdiction where the CBC’s
money laundering). ultimate parent is incorporated and/or
d. The institution may give the headquartered;
appropriate weight to each risk factor as it (b) particular operating unit wishing to
deems necessary. maintain relationship; and
(c) corporate legal form of CBC.
4. Due diligence standards (2) CBC ownership
a. All CBC should be subjected to (a) publicly held
appropriate due diligence that will seek to (3) Shares traded on an exchange in a
assure that an institution is comfortable jurisdiction with an adequately recognized
conducting business with a particular client regulatory scheme; and
given the client’s risk profile. (4) Identity of any significant
b. The institution may rely on controlling interests.
publicly available information obtained (a) or privately owned
either from the CBC or reliable third parties (5) CBC executive management
(e.g., regulators, exchanges) to satisfy its due (a) structure and experience; and
diligence requirements. (b) existence of PEP.
c. Countries may permit financial (6) CBC’s Business
institutions to rely on intermediaries or (a) types of financial products and
other third parties to perform the Customer services; and
Due Diligence (CDD) process or to (b) geographic markets reached.
introduce business, provided that the (7) Products and Services Offered
criteria set out below are met. Where such (a) business purpose for the
reliance is permitted, the ultimate relationship with the CBC; and
responsibility for customer identification (b) products and services offered to the
and verification remains with the financial CBC.
institution relying on the third party. (8) Regulatory status and history

APP. 52c
05.12.31
(a) primary regulatory body supervising (3) Take reasonable measures to

CBC; and establish the source of wealth and source
(b) based on publicly available of funds.
materials, any criminal or adverse (4) Conduct enhanced ongoing
regulatory action in the recent past. monitoring of the business relationship.
(9) CBC anti-money laundering c. CBC anti-money laundering controls
controls (1) Quality of anti-money laundering
(a) nature and extent of application. and client identification controls
(10) No business arrangements with (2) Recognition by CBC senior
shell banks management of the importance of controls
(a) the institution should confirm that d. Downstream correspondent clearing
CBC will not use the institution’s products (1) Downstream correspondent clearer
and services to engage in business with is a CBC who receives correspondent
shell banks. banking services from an institution and
(11) CBC visit itself provides corresponding banking
(a) The institution should visit CBC services to other financial institutions in the
premises prior to or within a reasonable same currency as the account it maintains
period of time; and with the institution.
(b) The institution confirms that CBC (2) If CBC is also downstream
is not a shell bank. corresponding clearer, the institution
should (1) take steps to understand the
5. Enhanced due diligence types of financial institutions to whom the
The enhanced due diligence process CBC offers the downstream banking
will involve further consideration of the services, and (2) consider the degree to
following elements designed to assure the which the CBC examines the anti-money
institution has secured a greater level of laundering controls of the financial
understanding: institutions to whom it offers those services.
a. Ownership and management
(1) Significant controlling interests, 6. Shell Banks
owner’s sources of wealth and background, a. A shell bank is a bank that (a) does
reputation in the market place, and recent not conduct business at a fixed address in
material ownership changes. a jurisdiction in which the shell bank is
(2) Detailed data on the experience of authorized to engage in banking activities;
each member of executive management (b) does not employ one or more
and recent material changes in the individuals on a full time business at this
executive management structure. fixed address; (c) does not maintain
b. Politically Exposed Person (PEP) operating records at this address, and (d) is
involvement. not subject to inspection by the banking
Financial institutions should, in relation authority that licensed it to conduct banking
to PEP, in addition to performing normal activities.
due diligence measures: b. Financial institutions should refuse
(1) Have appropriate risk manage- to enter into, or continue, a correspondent
ment systems to determine whether the banking relationship with shell banks.
customer is a PEP. Financial institutions should also guard
(2) Obtain senior management approval against establishing relations with respondent
for establishing business relationships with foreign financial institutions that permit their
such customers. accounts to be used by shell banks.

APP. 52c
05.12.31
7. Branches, subsidiaries and affiliates or when a material change in the risk

a. In situations involving branches, profile of the CBC occurs.
subsidiaries or affiliates, the institution
should consider the parent of the CBC in 9. Monitoring and reporting of
determining the extent of required due suspicious activities
diligence. The institution’s policies and
b. If CBC is an affiliate not procedures on the monitoring and
substantively and effectively controlled by reporting of suspicious activities should
the parent, the institution should review include correspondent banking activity.
both the parent and the CBC.
10. Integration with anti-money
8. Updating Client Files laundering program
The institution’s policies and procedures These guidelines shall form part of the
should require that the CBC information is institution’s wider anti-money laundering
reviewed and updated on a periodic basis program.

APP. 53
05.12.31
CERTIFICATION OF COMPLIANCE WITH

ANTI-MONEY LAUNDERING REGULATIONS
CERTIFICATION
Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 02 April 2001, we
hereby certify:
1. That we have monitored (Name of Bank)’s compliance with R.A. No. 9160 (Anti-
Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259
and 302;
2. That the Bank is complying with the required customer identification, documentation
of all new clients, and continued monitoring of customer’s activities;
3. That the Bank is also complying with the requirement to record all transactions and
to maintain such records including the record of customer identification for at least
five (5) years;
4. That the Bank does not maintain anonymous or fictitious accounts; and
5. That we conduct regular anti-money laundering training sessions for all bank officers
and selected staff members holding sensitive positions.
(Name of President or officer of equivalent rank) (Name of Compliance Officer)
SUBSCRIBED AND SWORN to before me, this _____day of _____________, affiants

exhibiting to me their Residence Certificates as follows:
Community Date/Place
Name Tax Cert. No Issued
Doc. No. _________; Notary Public

Page No. _________;
Book No. _________;
Series of 20___.

APP. 54
05.12.31
DETAILS ON THE COMPUTATION OF QUARTERLY INTEREST PAYMENTS

CREDITED TO THE DEMAND DEPOSIT ACCOUNTS OF BANKS'
LEGAL RESERVE DEPOSITS WITH BSP
The following are the pertinent sent by mail (for non-PhilPaSS

information on the computation of quarterly participants).
interest payments credited to the demand 3. The data on reserve requirements
deposit accounts (DDAs) of banks’ legal are based on the institutions’ Consolidated
reserve deposits with BSP. Daily Report of Condition (CDRC)
1. BSP Circular No. 262, as amended, (CBP7.16.01) submitted to the SRSO on a
(for regular DDA) and Memorandum to All weekly basis that includes Schedule of
Banks and Other Financial Intermediaries Required and Available Reserves on
Performing Trust, Other Fiduciary Business Deposits and Deposit Substitutes
and Investment Management Activities (for Liabilities. Unless SRSO furnishes an
CTF and TOFA), as amended, both dated amended data, the bank’s computation in
18 October 2000 state that computation of the Schedule is used in determining the
quarterly interest payments due on banks/ forty percent (40%) of the reserve
non-banks’ legal reserve deposits with the requirement that shall be compared with
BSP is based on the lower of their the outstanding daily balance, in arriving
outstanding daily DDA balance and forty at the amount of interest credit.
percent (40%) of the reserve requirement 4. The interest credit to each DDA is
(excluding liquidity reserve). Interest rate supported by a credit advice which
is at four percent (4%) per annum and indicates the period covered by the
interest base at 365 days. payment. For PhilPaSS participants, the
2. The daily DDA balance used in credit advices are released through their
the computation of interest may be authorized bank representatives together
obtained from the semi-monthly demand with the cancelled checks drawn against
deposit statements of account balances the institutions’ DDA with the BSP while
that are available electronically to banks for non-PhilPaSS participants, the credit
through EFTIS (for PhilPaSS participants) advices are sent by mail together with their
or monthly through the DDA statements DDA Statement of Accounts.

APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH (SULONG)

BANK ACCREDITATION APPLICATION FOR RURAL AND THRIFT BANKS
ELIGIBILITY AND DOCUMENTARY REQUIREMENTS
Requirements Documents to be submitted
1. CAMELS rating should be at least “3.0” Latest report of BSP bank examination
2. Compliance with the ten percent (10%) Copy of quarterly report submitted to BSP
maximum ratio of DOSRI past due loans
3. No loan with LBP and BSP, Quedancor, Credit investigation report by GFI credit and
PBSP, SBGFC, PhilExim, DBP, and SSS in appraisal management unit or department
arrears. Rediscounting privileges with BSP
and LBP not suspended
4. Past due loans and items in litigation is not Copy of the Consolidated Statement of Condition
in excess of the industry average plus two and Income & Expense as submitted to BSP
percent (2%) but not to exceed twenty five
percent (25%) (based on latest quarterly report
of BSP)
5. Not deficient in loan loss provisions/reserves Certification from BSP
6. Ratio of acquired assets to total assets is not Copy of the latest computation of the risk-based
more than industry average plus two percent capital adequacy ratio cover for credit risk under
(2%) but not to exceed fifteen percent (15%) Sec. X116
7. Positive results of operations in the last Copy of latest interim financial statements as
preceding calendar year. If such is negative, submitted to BSP
the average income of the past two (2) or
three (3) years should at least be positive
8. Not deficient in bank reserves for the last Copy of weekly report submitted to BSP or BSP
six (6) months preceding the filing of certification
application
9. Ratio of accrued interest receivables to Copy of latest interim financial statements as

surplus (free) plus undivided profits is less submitted to BSP
than 100%
10. The bank is owned and managed by the same Applicant’s records
persons (key officers) at least for the last two
(2) years
11. No derogatory information gathered on the GFI Credit and Appraisal Management Unit or
officers and directors of the bank Department
12. Compliance with corporate governance Applicant’s reply to questionnaire on comparison

of BSP mandated practices with actual practices

APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH

(SULONG)
LENDING FEATURES OF SHORT-TERM LOANS
Loan Purpose Export Financing Credit Line

(Export Packing Credit) (Temporary Working Capital)
Target Industries All industries except trading of All industries except trading of
imported goods, of liquor and imported goods, of liquor and
cigarettes, extractive industries cigarettes, in extractive industries
Eligible At least sixty percent (60%) At least sixty percent (60%) Filipino-
Enterprises Filipino-owned whose assets are owned whose assets are not more
not more than P100 million, than P100 million, excluding the
excluding the value of the land value of the land
Maximum Seventy percent (70%) of the Seventy percent (70%) of working
Financing value of LC/PO; maximum of P5.0 capital requirement; maximum of
million P5.0 million
Interest Rate** Nine percent (9.00%) Nine percent (9.00%)

Repayment Term Maximum of one (1) year Maximum of one (1) year
Collateral* Post dated check Post dated check
Registered/Unregistered REM/ Registered/Unregistered REM/CHM
CHM Assignment of life insurance
Assignment of LC or PO Guarantee cover
Assignment of life insurance Corporate Guarantee (if franchisee)
Guarantee cover Assignment of lease rights (if
franchisee)
Evaluation and P2,000 for every P1 million P2,000 for every P1 million
Service Fees Plus front-end fee of one-half of Plus front-end fee of one-half of one
one percent (½ of 1%) of approved percent (½ of 1%) of approved loan
loan
Financial Profile of the Borrower:
Debt-Equity Ratio At most 80:20 after the loan At most 80:20 after the loan
At most 70:30 (if franchisee)
Profitability Positive income for last year. (If Positive income for last year. (If past
past year’s income is negative, the year’s income is negative, the
average income of past two (2) or average income of past two (2) or
three (3) years should be positive) three (3) years should be positive)
Other Ratios Based on industry standards Based on industry standards
* The Program will not decline a loan only on the basis of inadequate collateral. However, the borrower must
be willing to mortgage all available business and personal collateral, including assets to be acquired from
the loan to secure the borrowing.
** Applicable to all loan applications with complete requirements received up to 30 June 2003. A GFI committee
shall be set up to review the pricing thereafter on a quarterly basis.

APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH

(SULONG)
LENDING FEATURES OF LONG-TERM LOANS
Loan Purpose a) Purchase of equipment

b) Building construction
c) Purchase of lot
d) Purchase of inventories – permanent
working capital
Target Industries All industries except trading of imported

goods, of liquor and cigarettes, in extrac-
tive industries and in housing projects
Eligible Enterprises At least sixty percent (60%) Filipino-owned

whose assets are not more than P100.0
million, excluding the value of the land
Maximum Financing Eighty percent (80%) of the incremental

project cost; maximum of P5.0 million
Interest Rate 3-year T-Bond rate + 2% (3-year loan)*

5-year T-Bond rate + 2% (5-year loan)*
Repayment Term Maximum of five (5) years, inclusive of

maximum one (1) year grace period on
principal monthly amortization
Collateral** Post dated check

Registered/Unregistered REM/CHM
Assignment of life insurance
Corporate guarantee (if franchisee)
Assignment of lease rights (if franchisee)
Evaluation and Service Fees P2,000 for every P1.0 million

Plus front-end fee of ½ of 1% of approved
loan and commitment fee of 125% of
unavailed balance
* Based on yield of bonds with three (3) or five (5) year remaining loan tenor as per MART 1 of Bloomberg. As
of 22 January 2003, MART 1-Bloomberg, 3-year term loan has a yield of 9.25% and 5 year term loan has a
yield of 10.75%. With a premium of 2%, the 3-year rate will be set at 11.25% and the 5-year rate at 12.75%.
** The Program will not decline a loan only on the basis of inadequate collateral. However, the borrower must
be willing to mortgage all available business and personal collateral, including assets to be acquired from the
loan to secure the borrowing.

APP. 55
05.12.31
Financial Profile of the Borrower:
Debt-Equity Ratio At most 80:20 after the loan

At most 70:30 (if franchisee)
Profitability Positive income for last year. (If past year’s

income is negative, the average income
of past two (2) or three (3) years should be
positive)
Other Ratios Based on industry standards

APP. 56
05.12.31
TRANSFER/SALE OF NON-PERFORMING ASSETS TO A

SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL
The following procedures shall govern soft copy (by electronic mail or diskette) in
the transfer/sale of non-performing assets excel format using the prescribed data
(NPAs) to a Special Purpose Vehicle (SPV) structure/format for NPLs and ROPAs to the
or to an individual that involves a single appropriate SED of the applicant bank at the
family residential unit, or transactions following addresses:
involving dacion en pago by the borrower
or third party of a non-performing loan SEDI-SPV@bsp.gov.ph
(NPL), for the purpose of obtaining the SEDII-SPV@bsp.gov.ph
Certificate of Eligibility (COE) which is SEDIII-SPV@bsp.gov.ph
required to avail of the incentives provided SEDIV-SPV@bsp.gov.ph
under R.A. No. 9182.
a. Prior to the filing of any application For applications involving ten (10) NPA
for transfer/sale of NPAs, a bank shall accounts or less, it is preferable that the list
coordinate with the BSP through the SRSO be submitted also in soft copy. The
and the appropriate supervising and applicant may opt to submit the list in hard
examining department (SED) to develop a copy, provided all the necessary information
reconciled and finalized master list of its shown in the prescribed data structure that
eligible NPAs. are relevant to each NPL or ROPA to be
For this purpose, banks were requested transferred/sold will be indicated. The list
to submit a complete inventory of their to be submitted in hard copy would be ideal
NPAs in the format prescribed under for the sale/transfer of NPAs that involve one
Circular Letter dated 07 January 2003. Only (1) promissory note and/or one (1) asset item
NPAs included in the master list that meet per account.
the definition of NPA, NPL and ROPA d. The application shall be
under R.A. No. 9182 may qualify for the accompanied by a written certification
COE. The banks shall be provided a copy signed by a senior officer with a rank of at
of their reconciled and finalized master list least Senior Vice President or equivalent,
for their guidance. who is authorized by the board of directors,
b. An application for eligibility of or by the country head, in the case of foreign
specific NPAs shall be filed in writing (hard banks, that:
copy) by the selling bank with the BSP (1) the assets to be sold/transferred are
through the appropriate SED for each NPAs as defined under the SPV Act of 2002;
proposed transfer of asset/s. Although no (2) the proposed sale/transfer of said
specific form is prescribed, the applicant NPAs is under a true sale;
shall describe in sufficient detail its (3) the notification requirement to the
proposed transaction, identifying its borrowers has been complied with; and
counterparty/ies and disclosing the terms, (4) the maximum ninety (90)-day period
conditions and all material commitments for renegotiation and restructuring has been
related to the transaction. complied with.
c. For applications involving more Items (3) and (4) above shall not apply if
than ten (10) NPA accounts, the list of NPAs the NPL has become a ROPA after 30 June
to be transferred/sold shall be submitted in 2002.

APP. 56
05.12.31
e. In the case of dacion en pago by the shall be charged/collected by BSP upon

borrower or a third party to a bank, the issuance of the COE.
application for COE on the NPL being settled h. An SPV that intends to transfer/sell
shall be accompanied by a Deed of Dacion to a third party an NPA that is covered by a
executed by the borrower, the third party, the COE previously issued by the BSP shall file
registered owner of the property and the bank. an application for such transfer/sale with
f. The appropriate SED may conduct the SEC which shall issue the corresponding
an on-site review of the NPLs and ROPAs COE based on the data base of COEs
proposed to be transferred/sold. After the maintained at the BSP.
on-site review, the application for transfer/ An individual who intends to transfer/
sale shall be submitted to the Deputy sell an NPA that involves a single family
Governor, Supervision and Examination residential unit he had acquired that is
Sector (SES) for approval and for the issuance covered by a COE shall file an application
of the corresponding COE. for another COE with the BSP through the
g. A processing fee for each COE bank from which the NPA was acquired.
issued shall be charged equivalent to 1/100 The individual shall indicate in his
of one percent (1%) of the transfer price but application the previous COE issued for the
not below P10,000 if the transfer is made to NPA he had acquired and the name, address
an SPV, or P3,000 if the transfer is made to and Taxpayer’s Identification Number (TIN)
an individual or in the case of a dacion en of the transferee/buyer of the NPA. A
pago arrangement by an individual or processing fee of P3,000 shall be collected
corporate borrower. The processing fee by BSP upon issuance of the COE.

APP. 56a
05.12.31
ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETS TO

SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALS FOR
HOUSING UNDER “THE SPECIAL PURPOSE VEHICLE (SPV) ACT OF 2002”
General Principles Section 13 of the SPV Law and its

Implementing Rules and Regulations.
These guidelines set out alternative
regulatory accounting treatment of the sale I. Derecognition of NPAs Sold and Initial
of non-performing assets (NPAs) by banks Recognition of Financial Instruments
and other financial institutions (FIs) under Received
BSP supervision to Special Purpose Vehicles
(SPVs) and to qualified individuals for A bank/FI should derecognize an NPA
housing under R.A. No. 9182, otherwise in accordance with the provisions of PAS
known as “The Special Purpose Vehicle 39 (for financial assets such as loans and
(SPV) Act of 2002”. securities) and PASs 16 and 40 (for non-
The guidelines recognize that banks/FIs financial assets such as land, building and
may need temporary regulatory relief, in equipment).
addition to tax relief under the SPV Law, A sale of NPA qualifying as a true sale
particularly in the timing of recognition of pursuant to Section 13 of the SPV Law and
losses, so that they may be encouraged to its Implementing Rules and Regulations but
maximize the sale of their NPAs even at not qualifying for dercognition under PASs
substantial discounts: Provided, however, 39, 16 and 40 may nonetheless, be
That in the interest of upholding full derecognized. Provided: That the bank/FI
transparency and sustaining market shall disclose such fact, in addition to al
discipline, banks/FIs that avail of such other disclosures provided in this
regulatory relief shall fully disclose its Memorandum.
impact in all relevant financial reports. On derecognition, any excess of the
The guidelines cover the following carrying amount of the NPA (i.e., net of
areas: specific allowance for probable loss after
(1) Derecognition of NPAs sold/ booking the BSP recommended valuation
transferred to an SPV and initial recognition reserve) over the proceeds received in the
of financial instruments issued by the SPV form of cash and/or financial instruments
to the selling bank/FI as partial or full issued by the SPV represents an actual loss
settlement of the NPAs sold/transferred to that should be charged to current period’s
the SPV; operations.
(2) Subsequent measurement of the However, a bank/FI may use any existing
carrying amount of financial instruments specific allowance for probable losses on
issued by the SPV to the selling bank/FI; NPA sold:
(3) Capital adequacy ratio (CAR) (1) to cover any unbooked (specific/
calculation; and general) allowance for probable losses; and
(4) Disclosure requirement on the (2) to apply the excess, if any, as
selling bank/FI. additional (specific/general) allowance for
The sale/transfer of NPAs to SPV probable losses,
referred to in these guidelines shall be in on remaining assets, in which case the
the nature of a “true sale” pursuant to carrying amount of the NPA (which is

APP. 56a
05.12.31
compared with the proceeds received for "Investments in Non-Marketable Equity

purposes of determining the actual loss) shall Securities (INMES)" for equity instruments.
be the gross amount of the NPA: Provided, Consolidation of SPV with Bank/FI
That the use of such existing specific Even if the sale of NPAs to SPV qualifies for
allowance for probable losses on the NPA derecognition, a bank/FI shall consolidate
sold as provisions against remaining assets the SPV in the audited consolidated
shall be properly disclosed financial statements when the relationship
The loss may, moreover, be booked between the bank/FI and the SPV indicates
under “Deferred Charges” account which that the SPV is controlled by the bank/FI in
should be written down over the next ten accordance with the provisions of SIC
(10) years based on the following schedule: (Standing Interpretations Committee) -12
Consolidation - Special Purpose Entities."
End of Period From Cumulative Write-down
Date of Transaction of Deferred Charges II. Subsequent Measurement of Financial
Year 1 5% Instruments Received
Year 2 10%
Year 3 15% (a) A bank/FI should assess at end of
Year 4 25% each fiscal year or more frequently whether
Year 5 35% there is any objective evidence or indication
Year 6 45% based on analysis of expected net cash
Year 7 55% inflows that the carrying amount of
Year 8 70% financial instruments issued by an SPV may
Year 9 85% be impaired. A financial instrument is
Year 10 100% impaired if its carrying amount (i.e., net of
specific allowance for probable loss) is
Provided, That the staggered booking of greater than its estimated recoverable
actual loss on sale/transfer of the NPA shall amount. The estimated recoverable amount
be properly disclosed. is determined based on the net present value
In case the face amounts of the financial of expected future cash flows discounted
instruments exceed the excess of the at the current market rate of interest for a
carrying amount of the NPA over the cash similar financial instrument.
proceeds, the same shall be adjusted by In applying discounted cash flow
setting up specific allowance for probable analysis, a bank/FI should use the discount
losses so that no gain shall be recognized rate(s) equal to the prevailing rate of return for
from the transaction. financial instruments having substantially the
The carrying amount of the NPA shall same terms and characteristics, including the
be initianlly assumed to be the NPA's fair creditworthiness of the issuer.
value. The excess of the carrying amount (b) Alternatively, the estimated
of the NPA over the cash proceeds or the recoverable amount of the financial
face amounts of the financial instruments, instruments may be determined based on
whichever is lower, shall then be the an updated estimate of residual net present
initial cost of financial instruments value (NPV) of the issuing SPV.
received. The estimated recoverable amount of
Banks/FIs shall book such financial the financial instrument shall be the present
instruments under the general ledger value of the excess of expected cash inflows
account "Unquoted Debt Securities (e.g., proceeds from the sale of collaterals
Classified as Loans" for debt instruments or and/or ROPAs, which in no case shall

APP. 56a
05.12.31
exceed the contract price of the NPAs sold/ Year 2 10%

transferred, interest on the reinvestment of Year 3 15%
proceeds) over expected cash outflows (e.g., Year 4 25%
direct costs to sell, administrative expenses, Year 5 35%
principal and interest payments on senior Year 6 45%
obligations, interest payments on the Year 7 55%
financial instruments). Year 8 70%
The fair market value of the collateral Year 9 85%
and/or ROPAs should under this method Year 10 100%
be considered only under the following
conditions: Provided, That the staggered booking of
(1) The appraisal was performed by an impairment, if any, upon remeasurement of
independent appraiser acceptable to the financial instruments at end of the fiscal year
BSP; and the sale/transfer of the NPA occurred shall
(2) The valuation of the independent be properly disclosed.
appraiser is based on current market After initially recognizing an impairment
valuation of similar assets in the same loss, the bank/FI should review the financial
locality as underlying collateral rather than instruments for future impairment in
other valuation methods such as subsequent financial reporting date.
replacement cost, etc. If in a subsequent period, the estimated
The assumptions regarding the timing recoverable amount of the financial
of sale, the direct cost to sell, administrative instrument decreases, the bank/FI should
expenses, reinvestments rate and current immediately book additional allowance for
market rate should be disclosed in sufficient probable losses corresponding to the
detail in the audited financial statements. decrease. However, a bank/FI may stagger
The applicable discount rate should be the booking of such additional allowance
based on the implied stripped yield of the for probable losses in such a way that it
Treasury note or bond for the tenor plus an catches up and keeps pace with the original
appropriate risk premium. deferral schedule (e.g., if the impairment
(c) In case of impairment, the carrying occurred in Year 8, a bank/FI should
amount of the financial instrument should be immediately book seventy percent (70%) at
reduced to its estimated recoverable amount, end of Year 8, and thereafter, additional
through the use of specific allowance for fifteen percent (15%) each at end of Year 9
probable losses account that should be and Year 10, respectively): Provided, That
charged to current period’s operations. the staggered booking of impairment, if any,
However, at the end of the fiscal year the sale/ upon remeasurement of financial
transfer of NPA occurred, such setting up of instruments shall be properly disclosed.
specific allowance for probable losses account If in a subsequent period, the
may be booked on a staggered basis over the estimated recoverable amount of the
next ten (10) years based on the following financial instrument increases exceeding
schedule: its carrying amount, and the increase can
be objectively related to an event
End of Period From Cumulative Booking of occurring after the write-down, the write-
Date of Transaction Allowance for down of the financial instruments should
Probable Losses be reversed by adjusting the specific
allowance for probable losses account.
Year 1 5% The reversal should not result in a carrying

APP. 56a
05.12.31
amount of the financial instrument that exceeds The financial instruments received by
what the cost would have been had the the selling bank/FI shall be risk weighted in
impairment not been recognized at the date accordance with Sec. X116.
the write-down of the financial instrument is A bank/FI may declare cash dividend on
reversed. The amount of the reversal should common and/or preferred stock
be included in the profit for the period. notwithstanding deferred recognition of loss
Illustrative accounting entries for duly authorized by the BSP.
derecognition of NPAs, initial recognition of
financial instruments issued by the SPV, and IV. Disclosure
subsequent measurement of the carrying
amount of the financial instrument are in Banks/FIs should disclose as
Annex A. ”Additional Information” in periodic
reports submitted to the BSP, as well as
III. Capital Adequacy Ratio (CAR) in published reports and audited financial
Calculation statements and all relevant financial
reports the specific allowance for
Banks/FIs may, for purposes of probable losses on NPAs sold used as
calculating capital adequacy ratio (CAR), provisions against remaining assets, the
likewise stagger over a period of seven (7) staggered recognition of actual loss on
years the recognition of: sale/transfer of NPAs” and/or impairment,
(1) actual loss on sale/transfer of NPAs; if any, on the remeasurement of financial
and instruments.
(2) impairment, if any, upon re- In addition, banks/FIs which receive
measurement of financial instruments, in financial instruments issued by the SPVs
accordance with the following schedule: as partial or full settlement of the NPAs
transferred to the SPVs should disclose
End of Period From Cumulative Recognition in the audited financial statements the
Date of Transaction of Losses/Impairment method used and the significant
assumptions applied in estimating the
Year 1 5% recoverable amount of the financial
Year 2 10% instruments, including the timing of the
Year 3 15% sale, the direct cost to sell, administrative
Year 4 25% expenses, reinvestment rate, current
Year 5 35% market rate, etc. (The pro-forma
Year 6 45% disclosure requirements on the staggered
Year 7 55% recognition of actual loss on sale/transfer
Year 8 70% of NPAs and/or impairment, if any, on the
Year 9 85% remeasurement of financial instruments
Year 10 100% are shown in Annex B.)

ILLUSTRATIVE ACCOUNTING ENTRIES TO RECORD SALE OF NPAs TO SPV UNDER THE SPV LAW OF 2002
UNDER DEFERRED RECOGNITION OF LOSS/IMPAIRMENT OF FINANCIAL INSTRUMENTS
Mode of Payment
(Cash, Financial Instruments)
Cash Only Financial Part Cash, Part Part Cash, Part Part Cash, Part
Instruments Financial Financial Financial

(30, 0) Only Instruments 1 Instruments2 Instruments
(0, 120) (30,100) (30, 90) (30, 70)
Assumptions:
Loans/ROPAs, gross 120 120 120 120 120

Allowance for probable
losses 20 20 20 20 20
Loans/ROPAs, net 100 100 100 100 100
Cash payment received 30 0 30 30 30
Financial instruments
received 0 120 100 90 70
Unbooked valuation
reserves on remain-
ing assets 15 15 15 15 15
1
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the cash proceeds.
Annex A
APP. 56a
05.12.31
Appendix 56a - Page 5

APP. 56a
05.12.31
Part Cash, Part Cash, Part Cash,

Financial Part Part Part
Cash Only Instruments Financial Financial Financial
Only Instruments 1 Instruments 2 Instruments
Accounting Entries (30, 0) (0, 120) (30, 100) (30, 70) (30, 90)
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
1 Allowance for Probable Losses –
NPAs sold 20 20 20 20 20
Allowance For Probable Losses-
Remaining Assets
(For unbooked provisions) 15 15 15 15 15
(As additional provisions) 5 5 5 5 5
To record the reclassification of

existing specific allowance for
credit losses on NPAs sold as
provisions against remaining
assets.
2 Cash 30 0 30 30 30
Unquoted Debt Securities
Classified as Loans/INMES 0 120 100 90 70
Deferred Charges 90 0 0 0 20
Loans/ROPAs 120 120 120 120 120
Allowance for Credit Losses -
Classified as Loans/INMES 0 0 10 0 0
To record the sale of NPAs,

receipt of cash and/or financial
instruments, and deferred
recognition of loss, if any.
3 Amortization – Deferred Charges xxx 0 0 0 xxx

Deferred Charges xxx 0 0 0 xxx
To record annual write down of

deferred charges based on
schedule of staggered booking of
losses.
1
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the
cash proceeds.

APP. 56a
05.12.31
Part Cash, Part Cash, Part Cash,

Financial Part Part Part
Cash Only Instruments Financial Financial Financial
Only Instruments 1 Instruments 2 Instruments
Accounting Entries (30, 0) (0, 120) (30, 100) (30, 70) (30, 90)
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
4 Provision for Credit Losses

Classified as Loans/INMES 0 xxx xxx xxx xxx
Allowance for Credit Losses –
Classified as Loans/INMES 0 xxx xxx xxx xxx
To record annual build up of

allowance for credit losses on
financial instruments based on
schedule of staggered booking of
allowance for credit losses.
1
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the
cash proceeds.

APP. 56a
05.12.31
Annex B
PRO-FORMA DISCLOSURE REQUIREMENT
A. Statement of Condition
Amount
Particulars Qualified for Not Qualified for
Derecognition Derecognition Total
Under PFRS/PAS Under PFRS/PAS
Additional Information:
NPAs sold, gross xxx xxx xxx
Allowance for credit losses (specific) on NPAs xxx xxx xxx
sold
Allowance for credit losses (specific) on NPAs

sold applied to:
Unbooked allowance for credit losses:
Specific xxx xxx xxx
General xxx xxx xxx
Additional allowance for credit losses
Specific xxx xxx xxx
General xxx xxx xxx
Cash received
Financial instruments received, gross xxx xxx xxx

Less: Allowance for credit losses (specific) xxx xxx xxx
Carrying amount of financial instruments received xxx xxx xxx
Less: Unbooked allowance for credit losses xxx xxx xxx
(specific)
Adj. carrying amount of financial instruments xxx xxx xxx
received
Deferred charges, gross xxx xxx xxx

Less: Deferred charges written down xxx xxx xxx
Carrying amount of deferred charges xxx xxx xxx
B. Statement of Income and Expenses
Amount
Particulars Qualified for Not Qualified for
Derecognition Derecognition Total
Under PFRS/PAS Under PFRS/PAS
Additional Information:
Net income after income tax
(with regulatory relief) xxx
Less: Deferred charges not yet written down xxx xxx xxx
Unbooked allowance for credit losses
(specific) on financial instruments received xxx xxx xxx
Total deduction xxx xxx xxx
less: Deferred tax liability, if applicable xxx xxx xxx
Net deductions xxx xxx xxx
Net income/loss after income tax

(without regulatory relief)

APP. 57
05.12.31
Circular No. 402
REVISED GUIDELINES ON THE FLOTATION OF BONDS BY

LOCAL GOVERNMENT UNITS (LGUS) [WITHOUT
NATIONAL GOVERNMENT GUARANTEE]
Pursuant to Monetary Board Resolution the Government, through the Secretary of

No. 1151 dated 14 August 2003, the following Finance, shall request the opinion, in
guidelines shall govern the flotation of bonds writing, of the Monetary Board on the
by local government units (LGUs) under R.A. monetary implications of the contemplated
No. 7160 (Local Government Code of 1991) action. Such opinions must similarly be
and R.A. No. 7653 (New Central Bank Act) requested by all political subdivisions and
dated 03 July 1993. instrumentalities of the Government before
any credit operation abroad is undertaken
I. Legal Basis by them.
The opinion of the Monetary Board shall
A. UNDER THE LOCAL GOVERNMENT be based on the gold and foreign exchange
CODE OF 1991 (R.A. No. 7160) resources and obligations of the nation and
Sec. 299. Bonds and Other Long-Term on the effects of the proposed operation on
Securities. Subject to the rules and the balance of payments and on monetary
regulations of the Central Bank and the aggregates.
Securities and Exchange Commission, Whenever the Government, or any of
provinces, cities, and municipalities, are its political subdivisions or instrumentalities,
hereby authorized to issue bonds, contemplates borrowing within the
debentures, securities, collaterals, notes Philippines, the prior opinion of the
and other obligations to finance self- Monetary Board shall likewise be requested
liquidating, income-producing development in order that the Board may render an
or livelihood projects pursuant to the opinion on the probable effects of the
priorities established in the approved local proposed operation on monetary aggregates,
development plan or the public the price level, and the balance of payments.
investment program. The Sanggunian
concerned shall, through an ordinance II. Coverage
approved by a majority of all its members,
declare and state the terms and conditions This Circular shall govern the issuance
of the bonds and the purpose for which of bonds by provinces, cities, and
the proposed indebtedness is to be municipalities which do not carry the
incurred. guarantee of the National Government. The
LGUs concerned are advised to observe the
B. UNDER THE NEW CENTRAL BANK existing rules and regulations of other
ACT (R.A. No. 7653) government agencies (Department of
Section 123. Financial Advice on Finance, Securities and Exchange
Official Credit Operations. – Before Commission) relating to LGU bond
undertaking any credit operation abroad, flotation.

APP. 57
05.12.31
III. Procedures and Documentary investments, loans and other transactions of

Requirements the concerned LGU (including the history
or status of the LGU’s dealings with said
A. Manner of Request banks and financial institutions); the waiver
An LGU proposal to issue bonds shall letter should be duly executed by the mayor
be submitted to the BSP, through the or governor as the case may be.
Secretary of Finance with a formal request 4. A Department of Finance (DOF)
for the Monetary Board’s opinion on the certification that the debt service and
probable effects of the proposed operation borrowing capacity of the proponent LGU
on monetary aggregates, the price level, and satisfies the legal requirements for a bond
the balance of payments. issue.
B. Documentary Requirements C. Monetary Board Opinion

The proposal shall be accompanied by 1. Upon submission of all the above
the following documents: requirements, including other additional
1. An original copy (or a certified true data or information it may deem necessary
copy) of the ordinance duly signed by the in the issuance of its opinion, and if the same
appropriate officers pursuant to the Local are found to be in order, the Monetary
Government Code. In accordance with the Board shall, within a reasonable period of
Local Government Code, the ordinance time, render an opinion on the probable
authorizing the bond flotation should: effects of the proposed indebtedness on
a) state the specific purpose/project(s) monetary aggregates, the price level, and
for which the proposed the balance of payments.
indebtedness is to be incurred; 2. The opinion of the Monetary Board
b) certify that the project(s) to be shall be forwarded to the concerned LGU
financed by the bond flotation is/are through the DOF.
a self liquidating, income-producing 3. The opinion of the Monetary Board
development or livelihood project/s does not constitute an endorsement by the
pursuant to the priorities established BSP of the project since it is limited to the
in the approved local development assessment of the monetary implications of
program or the public investment the bond flotation. The said opinion is based
program; and on: (a) the information contained in the
c) state the terms and conditions of the documents submitted by the LGU; and (b)
bond flotation, including sinking the assumption that the proceeds of the
fund or other funding arrangements. bond flotation will actually be used for the
2. A copy of the resolution designating intended projects described in the
the LGU representative, including the documents submitted. Hence, investors
specific acts/services that the representative shall be responsible for assessing the quality
has been authorized to perform. of the bonds in terms of risks and returns.
3. A waiver letter on the confidentiality
of information (Annex 1) under Sections 2 D. Post-Issuance Reports
and 3 of R.A. No. 1405, as amended, The LGU or its representative or its
authorizing all banks and financial trustee bank, as the case may be, shall
institutions under the supervision of the BSP submit to the BSP a post flotation report
and which have transactions with the (Annex 2) that will indicate the actual
concerned LGU to disclose to the BSP all amount of the issue as well as the final terms
information pertaining to the deposits, and conditions of the issue within 30 days

APP. 57
05.12.31
from the date of the flotation; and such other 29 August 1994, are hereby repealed and
reports as may be required by the BSP. superseded accordingly.
IV. Sanctions VI. Effectivity
Any violation of this Circular shall This Circular shall take effect fifteen
be subject to the sanctions provided under (15) days after its publication in two (2)
Sections 36 and 37 of R.A. No. 7653. newspapers of general circulation.
V. Repealing Clause
_____________________________
All BSP regulations or issuances or Governor
any provision thereof that may be
inconsistent with the provisions of this 4 September 2003
Circular, including Circular No. 41, dated

APP. 57
05.12.31
Annex 1
(Name of Local Government Unit)

(Address)
Hon. ______________________
Governor
Dear Gov. __________________:
This has reference to our request for the opinion of the Monetary Board (MB) on the
probable effects on monetary aggregates, price level and balance of payments of the proposed
bond flotation amounting to _______________________ by the Province/City/Municipality
of __________________.
Pursuant to the provisions of Sections 2 and 3 of Republic Act No. 1405 and other laws
relating to the secrecy of bank deposits, Resolution No. ___ dated _____________ (certified
true copy attached) was passed by the Province/City/Municipality of ____________ waiving
our rights to confidentiality of information by authorizing ____________________, our trustee
bank and all banks or financial institutions with which we have transactions to disclose to
the Bangko Sentral ng Pilipinas all information pertaining to the deposits, investments, loans
or other transactions including the history or status of our dealings with said banks or financial
institutions and for the BSP to make all inquiries as may be necessary regarding the same.
The BSP is likewise authorized to disclose and share any such information furnished or
obtained from said banks or financial institutions to the Department of Finance in relation to
the performance by said Department of its functions.
Thank you.
Very truly yours,
__________________
Mayor/Governor
__________ 20___

APP. 57
05.12.31
Annex 2
POST-BOND FLOTATION REPORT
Final Terms and Conditions of the Issue

Issuer
Bond Name/Label
Amount of Proposed Bond Flotation
Amount of Bonds Actually Sold
Purpose of Bonds
Issue Price
Interest Rate (Actual)
Date of Flotation
Term
Maturity Date
Grace Period
Denomination
Medium of Sale
Interest/Coupon Rate
Interest Payment Dates
Principal Payment Date
Collateral Guarantee/Security
Trustee Bank
Fiscal Agent
Trustee Fee
Underwriter
Underwriting Fee
Guanrantor
Guarantee Fee
Financial Advisor, if any
Financial Advisor Fee
List of Investors/Amount Purchased
Settlement Mode

APP. 58
05.12.31
GUIDELINES AND MINIMUM DOCUMENTARY REQUIREMENTS FOR

FOREIGN EXCHANGE (FX) FORWARD AND SWAP TRANSACTIONS
(Appendix to Subsecs. X602.16 – X602.18)
The following is a list of minimum (ii.) No double hedging has been

documentary requirements for FX forward obtained by the client for the covered
and swap transactions to cover FX transactions.
obligations and exposures. Unless 1.1.3 Direct Remittance
otherwise indicated, original documents* Original shipping documents indicated
shall be presented on or before deal date in Item II.a of Circular Letter dated 24
to banks, non-banks with quasi-banking January 2002.
functions (NBQBs) and their subsidiaries/
affiliates authorized to engage in financial 2. NON-TRADE TRANSACTIONS
derivatives activities. Only non-trade transactions with
specific due dates shall be eligible for
A. FORWARD SALE OF FX TO COVER forward contracts, subject to the same
OBLIGATIONS – DELIVERABLE AND documentation requirements under Circular
NON-DELIVERABLE No. 388 dated 26 May 2003 on the sale of
FX for non-trade purposes.
1. FORWARD SALE OF FX – TRADE 2.1 Foreign Currency Loans owed to non-
(includes trades with banks other than the residents or AABs
issuing booking bank) 2.1.1 Deliverable Forwards
1.1 Trade Transactions The maturing portion of the outstanding
1.1.1 Under Letters of Credit eligible obligation, i.e., those that are
a. Copy of LC opened; and registered by the BSP, including interest and
b. Accepted draft, or commercial fees thereon as indicated in the BSP
invoice/Bill of Lading registration letter, may be covered by a
1.1.2 Under Documents against Acceptances deliverable forward subject to the
(DA)/Open Account (OA) Arrangements documentary requirements under Circular
a. BSP registration letter or copy of No. 388 dated 26 May 2003, except that
Records of Goods Imported (RGI) received the creditor’s billing statement shall be
and acknowledged by the BSP; submitted only on or before the maturity
b. Copy of commercial invoice; and date of the contract.
c. Copy of Bill of lading, or Shipping 2.1.2 NDFs
guarantee. The outstanding eligible obligation, i.e.,
In addition to the above requirements, those that are registered by the BSP,
the bank/quasi-bank and their subsidiaries/ including interests and fees thereon as
affiliates shall require the purchaser to indicated in the BSP registration letter may
submit a notarized Letter of Undertaking be covered by a non-deliverable forward
that: subject to the documentary requirements
(i.) At maturity date of the forward under Circular No. 388 dated 26 May 2003
contract, it shall comply with the except the creditor’s billing statement which
documentation requirements on sale of FX need not be submitted.
for trade transactions under Circular-Letter The amount of the forward contract shall
dated 24 January 2002, as amended; and not exceed the outstanding amount of the
* If copy is indicated, it shall mean photocopy, electronic copy or facsimile of original.

APP. 58
05.12.31
underlying obligation during the term of the a. Sales Contract

contract. b. Confirmed Purchase Order
2.2 Inward Foreign Investments c. Accepted Proforma Invoice
The outstanding amount of sales/ d. Shipment/Import Advice of the
maturity proceeds due for repatriation to Supplier
non-resident investors pertaining to BSP - In addition to the above requirements,
registered investments in: the bank/quasi-bank and their subsidiaries/
a. PSE-listed shares of stock; affiliates shall require the purchaser to
b. Government securities; submit a notarized Letter of Undertaking
c. Money market instruments; and that:
d. Peso time deposits with a minimum (i.) At maturity of the forward
tenor of 90 days may be covered by forward contract, it shall comply with the
FX contracts subject to the presentation of documentation requirements on the sale of
the original BSRD on or before deal date, FX for trade transactions under Circular-
except that for Item 2.2.a above, the original Letter dated 24 January 2002, as amended;
BSRD or BSRD Letter-Advice together with and
the local broker’s sales invoice shall be (ii.) No double hedging has been
presented on or before maturity date of the obtained by the client for the covered
FX forward contract which coincides with transactions.
the settlement date of the PSE sale
transaction. 2. NON-TRADE (NON-DELIVERABLE)
Sales proceeds of BSP-registered BSP-registered foreign investments
investments in shares of stock that are not without specific due dates are considered
listed in the PSE may be covered by a FX exposures. As such, the outstanding
deliverable forward contract only if balance of this investment, appearing in
determined to be outstanding and payable the covering BSRD may only be covered
on a specific future date as indicated in the by an NDF contract, based on its market/
Contract To Sell/Deed of Absolute Sale and book value on deal date, subject to prior
subject to the same documentary BSP approval under Circular No. 135
requirements under Circular No. 388 dated dated 22 July 1997 and presentation of
26 May 2003. the covering BSRD and the proof that the
investment still exists (e.g. stock
B. FORWARD SALE OF FX TO COVER certificate, or broker’s buy invoice, or
EXPOSURES – DELIVERABLE AND NON- confirmation of sale, or certificate of
DELIVERABLE investment in money market instruments,
or certificate of peso time deposits).
1. TRADE (includes trades with banks Hedging for permanently assigned capital
other than the issuing/booking bank) required for Philippine branches of
1.1 Under LC foreign banks/firms is not allowed.
a. Copy of LC opened; and
b. Proforma Invoice, or C. FORWARD PURCHASE OF FX
Sales Contract / Purchase Order
1.2 Under DA/OA, Documents Against FX forward contracts shall be subject
Payment (DP) or Direct Remittance (DR) to the institution’s “Know Your Customer”
Any of the following where delivery policy of the institution and the AMLA
or shipment shall be made not later than guidelines of the BSP. In addition,
one (1) year from deal date: counterparties must be limited to those

APP. 58
05.12.31
which are manifestly eligible to engage in policy and the AMLA guidelines of the BSP
FX forwards as part of the normal course of and will require the conversion of foreign
their operations and which satisfy the currency to pesos. The second leg of the
institution’s suitability and eligibility rules swap transaction will be subject to the
for such transactions. swap contract between the counterparties.
Banks/quasi-banks and their
D. FX SWAP TRANSACTIONS subsidiaries/affiliates shall: (a) retain
copies of supporting documents
1. FX SALE (first leg)/FORWARD FX pertaining to the underlying transaction
PURCHASE (second leg) (with nonblank (e.g., BSP approval or registration [for
counterparties) – BSP-approved/registered foreign
The same minimum documentary currency loans and investments],
requirements for sale of FX under BSP promissory note, loan agreement, stock
Circular No. 388 dated 26 May 2003 for certificate, certificate of time deposit,
non-trade transactions, and Circular-Letter proof of FCDU deposit, shipping
dated 24 January 2002 for trade documents) which shall be made
transactions, as amended, shall be presented available to the BSP for verification; and
on or before deal date. (b) submit copies of the covering swap
contracts to the BSP-Treasury
2. FX PURCHASE (first leg)/FORWARD FX Department within three (3) days from
SALE (second leg) (with nonblank the execution of the swap contract.
counterparties) - Swap contracts of this type with non-
The first leg of the swap will be subject residents shall, however, require prior
to the institution’s “Know Your Customer” BSP approval.

CONVERSION/TRANSFER OF FCDU LOANS TO RBU:

Amount of FCDU Loans to be transferred: US $ 1 MM

Prevailing exchange rate: US $ 1: PhP 53.00
FCDU Books RBU Books

US $ PhP US$
Dr Cr Dr Cr Dr Cr
Transfer of a current FCDU Loan:
Due from RBU 1,013,333.33

FCDU Loan 1,000,000.00
Accrued Interest Receivable 13,333.33
Peso Loan 53,000,000.00

Due to FCDU 1,013,333.33
Purchase of Foreign Exchange:
Due from Foreign Banks 1,013,333.33

Cash (or any mode of payment) 53,706,666.50
Settlement:

Due from RBU 1,013,333.33
Due to FCDU 1,013,333.33

05.12.31
APP. 59
05.12.31
APP. 59
US $ PhP US$
Dr Cr Dr Cr Dr Cr
Transfer of a past due FCDU Loan:
Due from RBU 763,333.33

Allowance for Probable Loss 250,000.00
FCDU Loan 1,000,000.00
Peso Loan 53,000,000.00

Due to FCDU 763,333.33
Allowance for Probable Loss 13,250,000.00
Due from Foreign Banks 763,333.33

Cash (or any mode of 40,456,666.50
payment)
Settlement:

Cash (or any mode of payment) 763,333.33

Transfer of ROPOA:

Allowance for Probable Loss 250,000.00
ROPOA 1,000,000.00

US $ PhP US$
Dr Cr Dr Cr Dr Cr
ROPA 53,000,000.00
Allowance for Probable Loss 13,250,000.00

Cash (or any mode of payment) 39,750,000.00
Settlement:


05.12.31
APP. 59
APP. 60
05.12.31
RULES AND REGULATIONS ON COMMON TRUST FUNDS1

1. The administration of CTFs shall be d. Allocation, apportionment, distribution

subject to the provisions of Subsecs. X409.1 dates of income, profit and losses;
up to X409.6 and to the following e. Terms and conditions governing the
regulations. admission or withdrawal as well as
As an alternative compliance with the expansion or contraction of participation in
required prior authority and disclosure the plan including the minimum initial
under Subsecs. X409.2 and X409.3, a list placement and account balance to be
which shall be updated quarterly of maintained by the trustor;
prospective and/or outstanding f. Auditing and settlement of accounts
investment outlets may be made available of the trustee with respect to the plan;
by the trustee for the review of all CTF g. Detailed information on the basis,
clients. (Sec. X410). frequency, and method of valuing and
accounting of CTF assets and each
2. Establishment of common trust participation in the fund;
funds. A bank authorized to engage in h. Basis upon which the plan may be
trust business may establish, administer terminated;
and maintain one (1) or more CTFs. i. Liability clause of the trustee;
(Subsec. X410.1). j. Schedule of fees and commissions
which shall be uniformly applied to all
3. Minimum documentary requirements participants in a fund and which shall not
for common trust funds. In addition be changed between valuation dates; and
to the trust agreement or indenture k. Such other matters as may be
required under Subsec. X409.1, each CTF necessary or proper to define clearly the
shall be established, administered and rights of participants under the plan.
maintained in accordance with a written The legal capacity of the bank
declaration of trust referred to as the plan, administering a CTF shall be indicated in
which shall be approved by the board of the plan and other related agreements or
directors of the trustee and a copy contracts as trustee of the fund and not in
submitted to the appropriate supervising any other capacity such as fund manager,
and examining department of the BSP financial manager, or like terms.
within thirty (30) banking days prior to The provisions of the plan shall control
its implementation. all participations in the fund and the rights
The plan shall make provisions on the and benefits of all parties in interest.
following matters: The plan may be amended by resolution
a. Title of the plan; of the board of directors of the trustee:
b. Manner in which the plan is to be Provided, however, That participants in the
operated; fund shall be immediately notified of such
c. Investment powers of the trustee amendments and shall be allowed to
with respect to the plan, including the withdraw their participation if they are not
character and kind of investments which in conformity with the amendments made:
may be purchased; Provided, further, That amendments to the
1
The rules and regulations on common trust funds (CTFs) were previously under Sec. X410 and the Subsections enclosed in
parentheses. The UIT Funds regulations which are now in said section/subsections took effect on 01 October 2004 (effectivity
of Circular 447 dated 03 September 2004).

APP. 60
05.12.31
plan shall be submitted to the appropriate than that of the trustee, the trustee may
supervising and examining department of invest such funds in its own CTF only on a
the BSP within ten (10) banking days from temporary basis in accordance with
approval of the amendments by the board Subsec. X409.5. (Subsec. X410.4)
of directors.
A copy of the plan shall be available at 6. Exposure limit of common trust
the principal office of the trustee during fund to a single person or entity. No
regular office hours for inspection by any investment for a CTF shall be made in
person having an interest in a trust whose stocks, bonds, bank deposits or other
funds are invested in the plan or by his obligations of any one (1) person, firm or
authorized representative. Upon request, corporation, if as a result of such
a copy of the plan shall be furnished such investment the total amount invested in
person. (Subsec. X410.2) stocks, bonds, bank deposits or other
obligations issued or guaranteed by such
4. Management of common trust person, firm or corporation shall aggregate
funds. The trustee shall have the exclusive to an amount in excess of fifteen percent
management and control of each CTF (15%) of the market value of the CTF:
administered by it, and the sole right at any Provided, That this limitation shall not
time to sell, convert, reinvest, exchange, apply to investments in government
transfer or otherwise change or dispose of securities or other evidences of
the assets comprising the fund. indebtedness of the Republic of the
The trustee shall designate clearly in its Philippines and of the BSP, and any other
records the trust accounts owning evidences of indebtedness or obligations
participation in the CTF and the extent of the servicing and repayment of which are
the interests of such account. The trustee fully guaranteed by the Republic of the
shall not negotiate nor assign the trustor’s Philippines. (Subsec. X410.5)
beneficial interest in the CTF without prior
written consent of the trustor or beneficiary. 7. Operating and accounting
No trust account holding a participation in methodology. By its inherent nature, a CTF
a CTF shall have or be deemed to have any shall be operated and accounted for in
ownership or interest in any particular asset accordance with the following:
or investment in the CTF but shall have only a. The trustee shall have exclusive
its proportionate beneficial interest in the management and control of each CTF
fund as a whole. (Subsec. X410.3) administered by it and the sole right at any
time to sell, convert, reinvest, exchange,
5. Trustee as participant in common transfer or otherwise change or dispose of
trust funds. A trustee administering a CTF the assets comprising the fund;
shall not have any interest in such fund other b. The total assets and accountabilities
than in its capacity as trustee of the CTF nor of each fund shall be accounted for as a
grant any loan on the security of a single account referred to as pooled-fund
participation in such fund: That a trustee accounting;
which administers funds representing c. Contributions to each fund by
employee benefit plans under trust or clients shall always be through
investment management may invest funds participation in the fund;
in the CTF: Provided, further, That in the d. All such participations shall be
case of employee benefit plans under trust pooled and invested as one (1) account
belonging to employees of entities other (referred to as collective investments); and

APP. 60
05.12.31
e. The interest of each participant be exempt from said final tax provided
shall be determined by a formal method of participation in the CTF is for a period of at
participation valuation established in the least five (5) years. If participation is for a
written plan of the CTF, and no period less than five (5) years, interest
participation shall be admitted to, or income shall be subject to a final tax which
withdrawn from, the fund except on the shall be deducted and withheld based on
basis of such valuation. (Subsec. X410.6) the following schedule –
Rate
8. Tax-exempt common trust funds. Participation Period of Tax
The following shall be the features/ Four (4) years to less than five
requirements of CTFs which may qualify (5) years 5%
for exemption from the twenty percent Three (3) years to less than four
(20%) final tax under Section 24(B)(1) of (4) years 12%
Less than three (3) years 20%
R.A. No. 8424 (The Tax Reform Act of
1997): Necessarily, the date of contribution
a. The tax exemption shall apply to shall be clearly indicated in the evidence of
CTFs established on or after January 3, participation which shall serve as basis for
2000; determining the participation period of each
b. The CTF indenture or plan as well participant; and
as evidences of participation shall clearly e. Tax-exempt CTFs established under
indicate that the participants shall be limited this Subsection shall be subject to the
to individual trustors/investors who are provisions of Subsecs. X409.1(c), X409.2 up
Filipino citizens or resident aliens and that to X409.7, and Items “2 to 7” of this
participation is non-negotiable and non- Appendix.
transferable; Regarding the required prior authority
c. The date of contributions to the CTF and disclosure under Subsecs. X409.2 and
shall be clearly indicated in the evidence X409.3, a list of prospective and/or
of participation to serve as basis for the outstanding investment outlets that is made
trustee-bank to determine the period of available by the trustee for the review of all
participation for tax exemption purposes; CTF clients may serve as an alternative
d. The CTF indenture/plan as well as compliance, which list shall be updated
the evidence of participation shall indicate quarterly. (Subsec. X410.7)
that pursuant to Section 24(B)(1) of R.A. No.
8424, interest income of the CTF derived 9. Custody of securities. Investments
from investments in interest-bearing in securities of all existing CTFs shall be
instruments (e.g., time deposits, government delivered to a BSP-accredited third party
securities, loans and other debt custodian not later than 31 October 2004.
instruments) which are otherwise subject
to the twenty percent (20%) final tax, shall

APP. 61
05.12.31
Checklist of BSP Requirements in the Submission of

Audited Financial Statements and Annual Report
The external independent auditor (Included in the List of BSP Selected External Auditors)
shall start the audit not later than thirty (30) calendar days after the close of the calendar/
fiscal year adopted by the bank and quasi-bank. Audited financial statements (AFS) of banks/
quasi-banks with subsidiaries shall be presented side by side on a solo basis and on a
consolidated basis (banks/quasi-banks and subsidiaries). The AFS shall be submitted to the
appropriate supervising and examining department of the BSP not later than ninety (90)
calendar days after start of audit, together with the following:
Information/Data required Deadline for submission
1. Certification on the following: For submission together with the AFS. (Not
later than ninety (90) calendar days after start
a. The dates of commencement and of audit)
termination of audit.
b. The date when the audit report was

submitted to the bank’s/institution’s
board of directors/executive officer or
country head.
c. That the external auditor, partners,

associates, auditor-in-charge of the
engagement and the members of their
immediate family do not have any direct
or indirect financial interest with a bank,
quasi-bank, trust entity, NSSLA, its
subsidiaries and affiliates where they or
any member of their immediate family
member have any direct or indirect
financial interest and their
independence is not considered
impaired under the circumstances
specified in the Code of Professional
Ethics for Certified Public Accountants.
2. Reconciliation for the differences in For submission together with the AFS. (Not
amounts between the audited financial later than ninety (90) calendar days after start
statements and the submitted of audit)
Consolidated Statement of Condition
(CSOC) and Consolidated Statement of
Income and Expenses (CSIE) for bank
proper (regular and FCDU) and trust
department, including copies of

APP. 61
05.12.31
adjusting entries effected by the external

auditor.
Note: Please see pro-forma comparative

analysis (Annex 1).
3. Letter of Comments (LOC) by the Within thirty (30) banking days after the
external auditor and Certification of the receipt of the LOC by the Board of Directors/
external auditor on the Date when the Chief Executive Officer or Country Head.
Letter of Comments was submitted to the
bank/institution’s board of directors.
Note: The LOC embodies the external

auditor’s findings and comments on the
bank’s material weakness on the internal
control systems and other aspects of
operations.
In case no material weakness is noted

to warrant the issuance of an LOC, a
formal statement issued by the external
auditor confirming said fact shall be
submitted by the bank/quasi-bank.
4. Copies of the board resolutions showing Within thirty (30) banking days after the
the: receipt of the audit report (AFS) by the Board
of Directors/Chief Executive Officer or
a. Action taken on the financial audit Country Head. (AFS to be submitted within
report and among other things, the Ninety (90) days after start of audit)
names of the directors present and
absent.
b. Action taken on the findings and Within thirty (30) banking days after the
recommendations in the LOC and receipt of the LOC by the Board of Directors/
among other things, the names of the Chief Executive Officer or Country Head.
directors present and absent.
Note: Foreign banks with branch in the

Philippines having no board of directors
in the country may submit a certification
from the authorized officers that the
management had acted on the AFS and
LOC in lieu of the board resolution.

APP. 61
05.12.31
5. All the required disclosures in the (Information is an integral part of the AFS)
audited financial statements provided
under Subsecs. X164.4.
6. Annual report of management to stock- Within one hundred eighty (180) calendar
holders days after the close of the calendar year or
fiscal year adopted by the bank.
i. For UBs, KBs and TBs with at least
P1.0 billion resources.
ii. For Quasi-Banks
7. All the required disclosures in the (Information is an integral part of the Annual
annual report provided under Subsec. Report)
X164.5.
8. Reports required to be submitted: Within thirty (30) calendar days after

discovery.
a. To enable the BSP to take timely and
appropriate remedial action, the
external auditor must report to the BSP,
the following cases:
1. Any material finding involving fraud

or dishonesty (including cases that
were resolved during the period of
audit); and
2. Any potential losses the aggregate

of which amounts to at least one
percent (1%) of the capital.
b. The external auditor shall report directly Within fifteen (15) calendar days after the
to the BSP the following: occurrence/discovery.
1. Termination or resignation as
external auditor and starting the
reason therefor;
2. Discovery of a material breach of

laws or BSP rules and regulations
such as, but not limited to:
a. Capital adequacy ratio; and
b. Loans and other risk assets

review and classification.

APP. 61
05.12.31
3. Findings on matters of corporate

governance that may require urgent
action by the BSP.
Note: In case there are no matters For submission together with the audited
to report (e.g. fraud, dishonesty, financial statements (AFS).
breach of laws, etc.), the external
auditor shall submit a notarized
certification that there is none to
report with regard to the items
enumerated under Item “C” of
Appendix 43.

APP. 61
05.12.31
Annex 1
Name of Bank
Comparison of Audited Financial Statements and
Submitted Consolidated Statement of Condition and Income and Expenses
As of (end of calendar or fiscal year)
(In Thousand Pesos)
Audited Submitted Reasons for

FS Report Discrepancy Discrepancy
Cash and Other Cash Items

Due from BSP
Due from Other Banks
IBODI
Loans and Discounts, net
Interbank Loans Receivable
Equity Investments
Property and Equipment, net
ROPOA, net
Other Assets
Total Assets
Deposit Liabilities
Bills Payable
Accrued Interest, Taxes and
Other Expenses
Other Liabilities
Total Liabilities
Total Capital Accounts
Total Liabilities and Capital
Contingent Accounts
Total Income
Total Expenses
Net Income before Income Tax

APP. 62
05.12.31
QUARTERLY INVESTMENT DISCLOSURE STATEMENT

Name of Unit Investment Trust Fund:

For the Quarter ended:
Net Asset Value, end of quarter:
Net Asset Value Per Unit (NAVPu):
Short Description:
(e.g., The Fund is a peso denominated fixed-income fund. The investment objective of the
Fund is to generate a steady stream of income by investing in a diversified portfolio of high-
grade marketable securities)
Administrative Details:
Trust Fee:
Minimum Investment:
Holding Period:
Participation/Redemption Conditions:
Special Reimbursable Expenses, if any:
Outstanding Investments:
The Fund has investments in the following:
(may be in graph format showing weightings per investment type or class of security)
Prospective Investments:
The following names/securities are among the fund’s approved investment outlets where
the Trustee intends to invest in depending on its availability or other market driven
circumstances:

APP. 63
05.12.31
IMPLEMENTATION PLANS UNDER THE NEW INTERNATIONAL CAPITAL

STANDARDS AS CONTAINED IN THE BASEL COMMITTEE ON BANKING
SUPERVISION (BCBS) DOCUMENT INTERNATIONAL CONVERGENCE OF
CAPITAL MEASUREMENT AND CAPITAL STANDARDS
A. General approach (4) Implementing a standard computa-

UBs/KBs are expected to comply with tion of liquidity risk and interest rate risk in
the standardized approach for credit risk, the banking book; and
and the basic indicator or standardized (5) Issuing broad guidelines on
approaches for operational risk by 2007. By operational risk management.
2010, these banks may move to the The rest of the provisions of Basel 2
foundation internal ratings based (IRB) or standardized approach for credit risk, and
advanced IRB approaches for credit risk, and basic indicator and standardized approaches
advanced measurement approaches for for operational risk will be implemented by
operational risk. 2007. Under the standardized approach for
TBs, on the other hand, are classified credit risk, risk weights would mainly
into two (2). TBs are generally expected to depend on the external rating of the
be subject to an enhanced Basel 1-type counterparty. Under the basic indicator
approach by 2007. However, TBs affiliated approach for operational risk, capital charge
with UBs/KBs should use the same is fifteen percent (15%) of the 3-year average
approach used by the UBs/KBs. of a bank’s gross income. Under the
RBs/Coop banks, meanwhile, are standardized approach for operational risk,
expected to be subject to an enhanced Basel on the other hand, banks will compute
1-type approach also by 2007. capital charge separately for each business
An enhanced Basel 1-type approach is line. Business line operational risk charge is
basically the same as the current framework a fraction (between 12%-18%) of the 3-year
(Sec. X116) but with certain elements of average of a business line’s gross income.
Basel 2 already incorporated such as higher Total operational risk charge is the sum of
risk weight for past due accounts, and the operational risk charges for all business
expanded disclosures. lines.
The expanded disclosure requirements
B. Timetable prescribed under Basel 2, as may be
Between 2004 and 2007, certain appropriate, will also be implemented by
provisions of Basel 2 will be gradually 2007.
incorporated into the current risk-based The draft implementation guidelines
capital adequacy framework. These would containing all these provisions will be
include: exposed for comment by the BSP in the first
(1) Giving lower risk weights for quarter of 2005. The final implementation
highly-rated corporate exposures; guidelines are expected to be issued by end-
(2) Giving higher risk weights for past December 2005.
due claims (net of specific provisions); By 2010, banks may already be allowed
(3) Adopting the standardized approach to use the advanced approaches prescribed
for investments in securitization structures under Basel 2. For credit risk, banks may
(i.e., risk weights would depend on external use the internal ratings based (IRB) approach,
ratings); where the credit risk capital charge would

APP. 63
05.12.31
depend on banks’ internal rating of the its preparations especially those involving
counterparty, including estimates of the eventual implementation of the
probability of default, loss given default, and advanced approaches by 2010. The BSP
other risk parameters. For operational risk, likewise strongly encourages banks to assess
banks may use statistical modeling and other the likely impact of this shift in risk-based
advanced measurement tools in determining capital framework on their capital adequacy
the capital charge. ratio. Banks needing assistance in
To facilitate a successful implementation performing this self-analysis may contact the
of Basel 2, the BSP will continue to engage Office of the Assistant Governor, Supervision
the banking community, particularly through and Examination Sector at email address
the BAP’s Risk Management Committee, in srso@bsp.gov.ph.

APP. 63a
05.12.31
QUALIFYING CAPITAL UNDER THE RISK BASED CAPITAL ADEQUACY

FRAMEWORK
Qualifying Capital. The qualifying to directors, officers, stockholders and their

capital shall be the sum of : related interests (DOSRI);
a. Tier 1 capital - (vi) Deferred income tax; and
(1) Core Tier 1 capital (vii) Goodwill; and
(a) Paid-up common stock; (2) Hybrid Tier 1 (HT1)
(b) Paid-up perpetual and non- (a) With prior BSP approval, perpetual
cumulative preferred stock; preferred stock and perpetual unsecured
(c) Common stock dividends subordinated debt, subject to the following
distributable; conditions:
(d) Perpetual and non-cumulative (i) The HT1 must be issued and fully
preferred stock dividends distributable; paid-up. Only the net proceeds received
(e) Surplus; from the issuance of HT1 shall be included
(f) Surplus reserves; as capital;
(g) Undivided profits (for domestic (ii) The dividends/coupons on the
banks only); and HT1 must be non-cumulative. It is
(h) Minority interest in the equity of acceptable to pay dividends/coupons in
subsidiary financial allied undertakings scrip or shares of stock if a cash dividend/
which are less than wholly-owned: coupon is withheld: Provided, That this
Provided, That a bank shall not use does not result on issuing lower quality
minority interests in the equity accounts of capital: Provided, further, That where such
consolidated subsidiaries as avenue for dividend/coupon stock settlement feature
introducing into its capital structure is included, the bank should ensure that it
elements that might not otherwise qualify has an appropriate buffer of authorized
as Tier 1 capital or that would, in effect, capital stock and appropriate stockholders
result in an excessive reliance on preferred and board authorization, if necessary, to
stock within Tier 1: fulfill their potential obligations under such
Provided, further, that the following issues;
items shall be deducted from the total of (iii) The HT1 must be available to
Tier 1 capital: absorb losses of the bank without it being
(i) Common stock treasury shares; obliged to cease carrying on business. The
(ii) Perpetual and non-cumulative agreement governing the issuance of the
preferred stock treasury shares; HT1 should specifically provide for the
(iii) Net unrealized losses on dividend/coupon and principal to absorb
underwritten listed equity securities losses where the bank would otherwise be
purchased (for domestic banks and insolvent, or for the holders of the HT1 to
Philippine branches of foreign banks); be treated as if they were holders of a
(iv) Unbooked valuation reserves and specified class of share capital in any
other capital adjustments based on the proceedings commenced for the winding
latest report of examination as approved up of the bank. Issue documentation must
by the Monetary Board; disclose to prospective investors the
(v) Total outstanding unsecured credit manner by which the instrument is to be
accommodations, both direct and indirect, treated in loss situation.

APP. 63a
05.12.31
Alternatively, the agreement governing (aa) The HT1 was issued for the
the issuance of the HT1 can provide for purpose of a merger with or acquisition
automatic conversion into common shares by the bank and the merger or acquisition
or perpetual and non-cumulative preferred is aborted;
shares upon occurrence of certain trigger (bb) There is a change in tax status of
events, as follows: the HT1 due to changes in the tax laws
(aa) Breach of minimum capital ratio; and/or regulations; or
(bb) Commencement of proceedings (cc) The HT1 does not qualify as
for winding up of the bank or Hybrid Tier 1 capital as determined by the
(cc) Upon appointment of receiver for BSP:
the bank. Provided, further, That such
The rate of conversion must be fixed at repayment prior to maturity shall be
the time of subscription to the instrument. approved by the BSP only if the preferred
The bank must also ensure that it has share/debt is simultaneously replaced with
appropriate buffer of authorized capital issues of new capital which is neither
stock and appropriate stockholders and smaller in size nor of lower quality than
board authorization for conversion/issue to the original issue, unless the bank’s capital
take place anytime; ratio remains more than adequate after
(iv) The holders of the HT1 must not redemption.
have a priority claim, in respect of principal It must not contain any clause which
and dividend/coupon payments of the HT1 requires acceleration of payment of
in the event of winding up of the bank, principal, except in the event of
which is higher than or equal with that of insolvency. The agreement governing the
depositors, other creditors of the bank and issuance of the HT1 must not contain any
holders of LT2 and UT2 capital instruments. provision that mandates or creates an
The holder of the HT1 must waive his right incentive for the bank to repay the
to set-off any amount he owes the bank outstanding principal of the instrument,
against any subordinated amount owed to e.g., a cross-default or negative pledge or
him due to the HT1; a restrictive covenant, other than a call
(v) The HT1 must be perpetual; option which may be exercised by the
(vi) The HT1 must neither be secured bank;
nor covered by a guarantee of the issuer or (viii)The main features of the HT1 must
related party or other arrangement that be publicly disclosed by annotating the
legally or economically enhances the same on the instrument and in a manner
priority of the claim of any holder of the that is easily understood by the investor;
HT1 as against depositors, other creditors (ix) The proceeds of the HT1 must be
of the bank and holders of LT2 and UT2 immediately available without limitation
capital instruments; to the bank;
(vii) The HT1 must not be redeemable (x) The bank must have full
at the initiative of the holder. It must not discretion over the amount and timing of
be repayable prior to maturity without the dividends/coupons under the HT1 where
prior approval of the BSP: Provided, That the bank –
repayment may be allowed only in (aa) Has not paid or declared a
connection with call option after a dividend on its common shares in the
minimum of five (5) years from issue date: preceding financial year; or
Provided, however, That a call option may (bb) Determines that no dividend is to
be exercised within the first five (5) years be paid on such shares in the current
from issue date when – financial year.

APP. 63a
05.12.31
The bank must have full control and subordination and loss absorption features,
access to waived payments; have been met:
(xi) Any dividend/coupon to be paid Provided, That for purposes of reserve
under the HT1 must be paid only to the requirement regulation, the HT1 shall not
extent that the bank has profits distributable be treated as time deposit liability, deposit
determined in accordance with existing BSP substitute liability or other forms of
regulations. The dividend/coupon rate, or borrowings: Provided, further, That the
the formulation for calculating dividend/ total amount HT1 that may be included in
coupon payments must be fixed at the time the Tier 1 capital shall be limited to a
of issuance of the HT1 and must not be maximum of fifteen percent (15%) of total
linked to the credit standing of the bank; Tier 1 capital (net of deductions therefrom).
(xii) The HT1 may allow only one (1) To determine the allowable amount of HT1,
moderate step-up in the dividend/coupon the amount of total Tier 1 capital (net of
rate in conjunction with a call option, only deductions therefrom) excluding the HT1
if the step-up occurs at a minimum of ten should be multiplied by 17.65%, the
(10) years after the issue date and if it results number derived from the proportion of
in an increase over the initial rate that is fifteen percent (15%) to eighty five percent
not more than – (85%) (i.e., 15%/85% = 17.65%);
(aa) 100 basis points less the swap b. Tier 2 (supplementary) capital
spread between the initial index basis and which shall be the sum of –
the stepped-up index basis; or (1) Upper Tier 2 capital -
(bb) Fifty percent (50%) of the initial (a) Paid-up perpetual and cumulative
credit spread less the swap spread between preferred stock;
the initial index basis and the stepped-up (b) Paid-up limited life redeemable
index basis. preferred stock issued with the condition
The swap spread should be fixed as of that redemption thereof shall be allowed
the pricing date and reflect the differential only if the shares redeemed are replaced
in pricing on that date between the initial with at least an equivalent amount of newly
reference security or rate and the stepped- paid-in shares so that the total paid-in capital
up reference security or rate (Refer to Annex stock is maintained at the same level prior
A for computation of dividend/coupon rate to redemption;
step-up); (c) Perpetual and cumulative preferred
(xiii)The HT1 must be underwritten or stock dividends distributable;
purchased by a third party not related to (d) Limited life redeemable preferred
the issuer bank nor acting in reciprocity for stock with the replacement requirement
and in behalf of the issuer bank; upon redemption dividends distributable;
(xiv)The HT1 must be issued in (e) Appraisal increment reserve - bank
minimum denominations of at least premises, as authorized by the Monetary
P500,000.00 or its equivalent; Board;
(xv) The HT1 must clearly state on its (f) Net unrealized gains on
face that it is not a deposit and is not insured underwritten listed equity securities
by the Philippine Deposit Insurance purchased: Provided, That the amount
Corporation (PDIC); and thereof that may be included in upper Tier
(xvi)The bank must submit a written 2 capital shall be subject to a fifty five
external legal opinion that the above percent (55%) discount (for domestic banks
mentioned requirements, including the and Philippine branches of foreign banks);

APP. 63a
05.12.31
(g) General loan loss provision: The bank must also ensure that it has
Provided, That the amount thereof that may appropriate buffer of authorized capital
be included in upper Tier 2 capital shall be stock and appropriate stockholders and
limited to a maximum of one and one- board authorization for conversion/issue to
fourth percent (1-1/4%) of gross risk- take place anytime;
weighted assets, and any amount in excess (iii) The holders of the UT2 must not
thereof shall be deducted from the total risk- have a priority claim, in respect of principal
weighted assets in computing the and coupon payments of the UT2 in the
denominator of the risk-based capital ratio; event of winding up of the bank, which is
(h) With prior BSP approval, higher than or equal with that of depositors,
unsecured subordinated debt with a other creditors of the bank, and holders of
minimum original maturity of at least ten LT2 capital instruments. The holder of the
(10) years, hereinafter referred to as “UT2”, UT2 must waive his right to set-off any
subject to the following conditions: amount he owes the bank against any
(i) The UT2 must be issued and fully subordinated amount owed to him due to
paid-up. Only the net proceeds received the UT2;
from the issuance of UT2 shall be included (iv) The UT2 must neither be secured
as capital; nor covered by a guarantee of the issuer or
(ii) The UT2 must be available to related party or other arrangement that
absorb losses of the bank without it being legally or economically enhances the
obliged to cease carrying on business. The priority of the claim of any holder of the
agreement governing the issuance of the UT2 as against depositors, other creditors
UT2 should specifically provide for the of the bank and holders of LT2 capital
coupon and principal to absorb losses instruments;
where the bank would otherwise be (v) The UT2 must not be redeemable
insolvent, or for the holders of the UT2 to at the initiative of the holder. It must not
be treated as if they were holder of a be repayable prior to maturity without the
specified class of share capital in any prior approval of the BSP: Provided, That
proceedings commenced for the winding repayment may be allowed only in
up of the bank. Issue documentation must connection with call option after a
disclose to prospective investors the minimum of five (5) years from issue date:
manner by which the instrument is to be Provided, however, That a call option may
treated in loss situation. be exercised within the first five (5) years
Alternatively, the agreement governing from issue date when –
the issuance of the UT2 can provide for (aa) The UT2 was issued for the
automatic conversion into common shares purpose of a merger with or acquisition by
or perpetual and non-cumulative shares or the bank and the merger or acquisition is
perpetual and cumulative preferred shares aborted;
upon occurrence of certain trigger events, (bb) There is a change in tax status of
as follows: the UT2 due to changes in the tax laws and/
(aa) Breach of minimum capital ratio; or regulations; or
(bb) Commencement of proceedings (cc) The UT2 does not qualify as Upper
for winding up of the bank or Tier 2 capital as determined by the BSP:
(cc) Upon appointment of receiver for Provided, further, That such repayment
the bank. prior to maturity shall be approved by the
The rate of conversion must be fixed at BSP only if the debt is simultaneously
the time of subscription to the instrument. replaced with issues of new capital which

APP. 63a
05.12.31
is neither smaller in size nor of lower (aa) 100 basis points less the swap
quality than the original issue, unless the spread between the initial index basis and
bank’s capital ratio remains more than the stepped-up index basis; or
adequate after redemption, (bb) fifty percent (50%) of the initial
It must not contain any clause which credit spread less the swap spread between
requires acceleration of payment of the initial index basis and the stepped-up
principal, except in the event of insolvency. index basis.
The agreement governing the issuance of The swap spread should be fixed as of
the UT2 must not contain any provision the pricing date and reflect the differential
that mandates or creates an incentive for in pricing on that date between the initial
the bank to repay the outstanding principal reference security or rate and the stepped-
of the instrument, e.g., a cross-default or up reference or rate (Refer to Annex A for
negative pledge or a restrictive covenant, computation of coupon rate step-up);
other than a call option which may be (xi) The UT2 must be underwritten or
exercised by the bank; purchased by a third party not related to
(vi) The main features of the UT2 must the issuer bank nor acting in reciprocity for
be publicly disclosed by annotating the and in behalf of the issuer bank;
same on the instrument and in a manner (xii) The UT2 must be issued in
that is easily understood by the investor; minimum denominations of at least
(vii) The proceeds of the UT2 must be P500,000.00 or its equivalent;
immediately available without limitation to (xiii) The UT2 must clearly state on its
the bank; face that it is not a deposit and is not insured
(viii) The bank must have the option to by the PDIC; and
defer any coupon payment on the UT2 (xiv) The bank must submit a written
where the bank – external legal opinion that the
(aa) Has not paid or declared a abovementioned requirements, including
dividend on its common shares in the the subordination and loss absorption
preceding financial year; or features, have been met:
(bb) Determines that no dividend is to Provided, That the UT2 shall be subject
be paid on such shares in the current to a cumulative discount factor of twenty
financial year; percent (20%) per year during the last five
It is acceptable for the deferred coupon (5) years to maturity (i.e., twenty percent
to bear interest but the interest rate payable (20%) if the remaining life is four (4) years
must not exceed market rates; to less than five (5) years, fourty percent
(ix) The coupon rate, or the (40%) if the remaining life is three (3) years
formulation for calculating coupon to less than four (4) years, etc.): Provided,
payments must be fixed at the time of further, That where it is denominated in a
issuance of the UT2 and must not be linked foreign currency, it shall be revalued in
to the credit standing of the bank; accordance with PAS 21: Provided,
(x) The UT2 may allow only one (1) furthermore, That for purposes of sreserve
moderate step-up in the coupon rate in requirement regulation, it shall not be
conjunction with a call option, only if the treated as time deposit liability, deposit
step-up occurs at a minimum of ten (10) substitute liability or other forms of
years after the issue date and if it results in borrowings;
an increase over the initial rate that is not (i) Deposit for common stock
more than– subscription; and

APP. 63a
05.12.31
(j) Deposit for perpetual and non- (iii) The LT2 must neither be secured
cumulative preferred stock subscription: nor covered by a guarantee of the issuer
Provided, That the following items shall or related party or other arrangement that
be deducted from the total of Upper Tier 2 legally or economically enhances the
capital: priority of the claim of any holder of the
1. Perpetual and cumulative preferred LT2 as against depositors and other
stock treasury shares; creditors of the bank;
2. Limited life redeemable preferred (iv) The LT2 must not be redeemable
stock treasury shares with the replacement at the initiative of the holder. It must not
requirement upon redemption; and be repayable prior to maturity without the
3. Sinking fund for redemption of prior approval of the BSP: Provided, That
limited life redeemable preferred stock with repayment may be allowed only in
the replacement requirement upon connection with call option after a
redemption; and minimum of five (5) years from issue date:
(2) Lower Tier 2 capital – Provided, however, That a call option may
(a) Paid-up limited life redeemable be exercised within the first five (5) years
preferred stock without the replacement from issue date when –
requirement upon redemption: Provided, (aa) The LT2 was issued for the
That it shall be subject to a cumulative purpose of a merger with or acquisition
discount factor of twenty percent (20%) per by the bank and the merger or acquisition
year during the last five (5) years to maturity is aborted;
(i.e., twenty percent (20%) if the remaining (bb) There is a change in tax status of
life is four (4) years to less than five (5) years, the LT2 due to changes in the tax laws and/
fourty percent (40%) if the remaining life is or regulations; or
three (3) years to less than four (4) years, (cc) The LT2 does not qualify as Lower
etc.); Tier 2 capital as determined by the BSP:
(b) Limited life redeemable preferred Provided, further, That such repayment
stock without the replacement requirement prior to maturity shall be approved by the
upon redemption dividends distributable; BSP only if the debt is simultaneously
(c) Unsecured subordinated debt with replaced with issues of new capital which
a minimum original maturity of at least five is neither smaller in size nor of lower
(5) years, hereinafter referred to as “LT2”, quality than the original issue, unless the
subject to the following conditions: bank’s capital ratio remains more than
(i) The LT2 must be issued and fully adequate after redemption.
paid-up. Only the net proceeds received It must not contain any clause which
from the issuance of LT2 shall be included requires acceleration of payment of
as capital; principal, except in the event of
(ii) The holders of the LT2 must not insolvency. The agreement governing the
have a priority claim, in respect of principal issuance of the LT2 must not contain any
and coupon payments of the LT2 in the provision that mandates or creates an
event of winding up of the bank, which is incentive for the bank to repay the
higher than or equal with that of depositors outstanding principal of the instrument,
and other creditors of the bank. The holder e.g., a cross-default or negative pledge or a
of the LT2 must waive his right to set-off restrictive covenant other than a call option
any amount he owes the bank against any which may be exercised by the bank;
subordinated amount owed to him due to (v) The main features of the LT2 must
the LT2; be publicly disclosed by annotating the

APP. 63a
05.12.31
same on the instrument and in a manner (5) years to maturity (i.e., twenty percent
that is easily understood by the investor; (20%) if the remaining life is four (4) years
(vi) The proceeds of the LT2 must be to less than five (5) years, forty percent
immediately available without limitation to (40%) if the remaining life is three (3) years
the bank; to less than four (4) years, etc.): Provided,
(vii) The coupon rate, or the further, That where it is denominated in a
formulation for calculating coupon foreign currency, it shall be revalued in
payments must be fixed at the time of accordance with PAS 21: Provided,
issuance of the LT2 and must not be linked furthermore, That, for purposes of reserve
to the credit standing of the bank; requirement regulation, it shall not be
(viii) The LT2 may allow only one (1) treated as time deposit liability, deposit
moderate step-up in the coupon rate in substitute liability or other forms of
conjunction with a call option, only if the borrowings;
step-up occurs at a minimum of five (5) (d) Deposit for perpetual and
years after the issue date and if it results in cumulative preferred stock subscription;
an increase over the initial rate that is not and
more than- (e) Deposit for limited life redeemable
(aa) 100 basis points less the swap preferred stock subscription with the
spread between the initial index basis and replacement requirement upon redemption:
the stepped-up index basis; or Provided, That the following items shall
(bb) fifty percent (50%) of the initial be deducted from the total of Lower Tier 2
credit spread less the swap spread between capital:
the initial index basis and the stepped-up (i) Limited life redeemable preferred
index basis; stock treasury shares without the
The swap spread should be fixed as of replacement requirement upon
the pricing date and reflect the differential redemption;
in pricing on that date between the initial (ii) Sinking fund for redemption of
reference security or rate and the stepped- limited life redeemable preferred stock
up reference security or rate (Refer to Annex without the replacement requirement upon
A for computation of coupon rate step-up); redemption: Provided, That the amount to
(ix) The LT2 must be underwritten or be deducted shall be limited to the balance
purchased by a third party not related to of redeemable preferred stock after
the issuer bank nor acting in reciprocity for applying the cumulative discount factor:
and in behalf of the issuer bank; Provided, That the total amount of
(x) The LT2 must be issued in Lower Tier 2 capital that may be included
minimum denominations of at least in the Tier 2 capital shall be limited to a
P500,000.00 or its equivalent; maximum of fifty percent (50%) of total Tier
(xi) The LT2 must clearly state on its 1 capital (net of deductions therefrom):
face that it is not a deposit and is not insured Provided, further, That the total amount of
by the PDIC; and Upper and Lower Tier 2 capital that may
(xii) The bank must submit a written be included in the qualifying capital shall
external legal opinion that the be limited to a maximum of 100% of total
abovementioned requirements, including Tier 1 capital (net of deductions therefrom);
the subordination feature have been met: c. Less deductions from the total of
Provided, That the LT2 shall be subject Tier 1 and Tier 2 capital, as follows:
to a cumulative discount factor of twenty (1) Investments in equity of
percent (20%) per year during the last five unconsolidated subsidiary banks and other

APP. 63a
05.12.31
financial allied undertakings, but excluding shall not be included in the risk-weighted
insurance companies; assets in computing the denominator of the
(2) Investments in debt capital ratio.
instruments of unconsolidated subsidiary For foreign bank branches, Tier 1
banks; capital elements shall consist of -
(3) Investments in equity of subsidiary 1. Assigned capital; and
insurance companies and non-financial 2. Net due “to” head office, branches,
allied undertakings; and subsidiaries and other offices outside the
(4) Reciprocal investments in equity of Philippines as defined under Subsec.
other banks/enterprises: X121.5.d (inclusive of earnings not
(5) Reciprocal investments in remitted to head office per Subsec.
unsecured subordinated term debt X121.5.c): Provided, That the amount of
instruments of other banks/quasi-banks “Net due to account” shall be limited to
qualifying as Hybrid Tier 1, Upper Tier 2 an amount prescribed under Subsec.
and Lower Tier 2, in excess of the lower of X121.6: Provided, further, That should there
(i) an aggregate ceiling of five percent (5%) be any “Net due from account”, the same
of total Tier 1 capital of the bank excluding shall be deducted from the Tier 1 capital.
Hybrid Tier 1; or (ii) ten percent (10%) of All outstanding issues of unsecured
the total outstanding unsecured subordinated term debt instruments
subordinated term debt issuance of the qualifying as UT2 and LT2 capital shall
other bank/quasi-banks. continue to be governed by the provisions
Provided, That any asset deducted from of regulations existing at the time of their
the qualifying capital in computing the issuance, except that premiums thereon
numerator of the risk-based capital ratio may now be counted as part of capital.

APP. 63a
05.12.31
Annex A
Step-up Calculation
Case I. Change in Index Basis

(e.g., from 10-year US Treasury Notes to 10-year US Swap Rate)
Step 1. Determining the swap spread
A. Breakdown of Coupon Rate Based on Initial Index
Index basis (10-year US Treasury Notes) 4.49%

Credit spread 5.00%
Coupon rate 9.49%
Swap
spread of
B. Breakdown of Coupon Rate Based on Stepped-up Index 0.56%
Index basis (10-year US swap rate at issuance) 5.05%
Adjusted credit spread to achieve initial coupon
rate of 9.49% 4.44%
Coupon rate 9.49%
Step 2. Calculating Stepped-Up Coupon Rate
A. Assuming a ceiling of not more than 100 b.p., less the swap spread between
the initial index basis and the stepped-up index basis
Index basis (10-year US swap rate) 5.05%

Initial credit spread 5.00%
Total before step-up 10.05%
Step-up (100 b.p) 1.00%
Total after step-up but before swap spread 11.05%
Less: Swap spread -0.56%
Stepped-up coupon rate 10.49%
B. Assuming a ceiling of not more than 50% of the initial credit spread, less the
swap spread between the initial index basis and the stepped-up index basis
Index basis (10-year US swap rate) 5.05%

Initial Credit spread 5.00%
Total before step-up 10.05%
Step-up (50% of the initial credit spread) 2.50%
Total after step-up but before swap spread 12.55%
Less: Swap spread -0.56%
Stepped-up coupon rate 11.99%

APP. 64
05.12.31
BSP RULES OF PROCEDURE ON ADMINISTRATIVE CASES INVOLVING

DIRECTORS AND OFFICERS OF BANKS
RULE I – GENERAL PROVISIONS Sec. 2. Where to file. The complaint shall

be filed with or referred to the OSI.
Section 1. Title. These rules shall be
known as the BSP Rules of Procedure on Sec. 3. Contents of the complaint. The
Administrative Cases Involving Directors complaint shall contain the ultimate facts
and Officers of Banks. of the case and shall include:
a. full name and address of the
Sec. 2. Applicability. These rules shall complaint;
apply to administrative cases filed with or b. full name and address of the
referred to the Office of Special person complained of;
Investigation (OSI), BSP, involving directors c. specification of the charges;
and officers of banks pursuant to Section d. statement of the material facts;
37 of Republic Act No. 7653 (The New e. statement as to whether or not a
Central Bank Act) and Sections 16 and 66 similar complaint has been filed with the
of Republic Act No. 8791 (The General BSP or any other public office.
Banking Law of 2000). The complaint shall include copies of
The disqualification of directors and documents and affidavits of witnesses, if
officers under Section 16 of R.A. No. 8791 any, in support of the complaint.
shall continue to be covered by existing
BSP rules and regulations. RULE III – DETERMINATION OF
PRIMA FACIE CASE
Sec. 3. Nature of proceedings. The AND PROSECUTION OF THE CASE
proceedings under these rules shall be
summary in nature and shall be conducted Sec. 1. Action on complaint. Upon
without necessarily adhering to the determination that the complaint is
technical rules of procedure and evidence sufficient in form and substance, the OSI
applicable to judicial trials. Proceedings shall furnish the respondent with a copy
under these rules shall be confidential and thereof and require respondent to file
shall not be subject to disclosure to third within ten (10) days from receipt thereof,
parties, except as may be provided under a sworn answer, together with copies of
existing laws. documents and affidavits of witnesses, if
any, copy furnished the complainant.
RULE II – COMPLAINT Failure of the respondent to file an
answer within the prescribed period shall
Sec. 1. Complaint. The complaint shall be considered a waiver and the case shall
be in writing and subscribed and sworn to be deemed submitted for resolution.
by the complainant. However, in cases
initiated by the appropriate department of Sec. 2. Preliminary investigation. Upon
the BSP, the complaint need not be under receipt of the sworn answer of the
oath. No anonymous complaint shall be respondent, the OSI shall determine
entertained. whether there is a prima facie case against

APP. 64
05.12.31
the respondent. If a prima facie is supporting documents relevant thereto,

established during the preliminary and shall require him to submit, within ten
investigation, the OSI shall file the formal (10) days from receipt thereof, a sworn
charge with the Supervised Banks answer, copy of which shall be furnished
Complaints Evaluation Group (SBCEG), the prosecution.
BSP. However, in the absence of a prima The respondent, in his answer, shall
facie case, the OSI shall dismiss the specifically admit or deny all the charges
complaint without prejudice or take specified in the formal charge, including
appropriate action as may be warranted. the attachments. Failure of the respondent
to comment, under oath, on the
Sec. 3. Formal charge. The formal charge documents attached thereto shall be
shall contain the name of the respondent, a deemed an admission of the genuineness
brief statement of material or relevant facts, and due execution of said documents.
the specific charge, and the pertinent
provisions of banking laws, rules or Sec. 4. Waiver. In the event that the
regulations violated. respondent, despite due notice, fails to
submit an answer within the prescribed
Sec. 4. Prosecution. The OSI shall period, he shall be deemed to have waived
prosecute the case. The complainant may his right to present evidence. The hearing
be assisted or represented by counsel, who panel or hearing officer shall issue an order
may be deputized for such purpose, under to that effect and direct the prosecution to
the direction and control of the OSI. present evidence ex parte. Thereafter, the
hearing panel or hearing officer shall
RULE IV – PROCEEDING BEFORE submit a report on the basis of available
THE HEARING PANEL OR HEARING evidence.
OFFICER
Sec. 5. Preliminary conference. Upon
Sec. 1. Filing of the formal charge. The receipt of the answer of respondent, the
OSI shall file the formal charge before the hearing panel or hearing officer shall set
SBCEG. It shall also furnish the SBCEG with the case for preliminary conference for the
supporting documents relevant to the formal parties to consider and agree on the
charge. admission or stipulation of facts and of
documents, simplification of issues,
Sec. 2. Hearing officer and composition identification and marking of evidence and
of the hearing panel. The case shall be such other matters as may aid in the
heard either by a hearing officer or a hearing prompt and just resolution of the case. Any
panel, which shall be composed of a evidence not presented and identified
chairman and two (2) members, all of whom during the preliminary conference shall not
shall be designated by the SBCEG. The be admitted in subsequent proceedings.
SBCEG shall determine whether the case
shall be heard either by a hearing panel or Sec. 6. Submission of position papers
a hearing officer. After the preliminary conference, the
hearing panel or hearing officer shall issue
Sec. 3. Answer. The hearing panel or an order stating therein the matters taken
hearing officer shall furnish the respondent up, admissions made by the parties and
with a copy of the formal charge, with issues for resolution. The order shall also

APP. 64
05.12.31
direct the parties to simultaneously submit, cause true copies of its resolution to be
within ten (10) days from the receipt of served upon the parties.
said order, their respective position papers
which shall be limited to a discussion of Sec. 3. Finality of the resolution. The
the issues as defined in the order. resolution of the Monetary Board shall
become final after the expiration of fifteen
Sec. 7. Hearing. After the submission by (15) days from receipt thereof by the parties,
the parties of their position papers, the unless a motion for reconsideration shall
hearing panel or hearing officer shall have been timely filed.
determine whether or not there is a need
for a hearing for the purpose of cross- Sec. 4. Motion for reconsideration. A
examination of the affiant(s). If the hearing motion for reconsideration may only be
panel or hearing officer finds no necessity entertained if filed within fifteen (15) days
for conducting a hearing, he shall issue an from receipt of the resolution by the parties.
order to the effect. No second motion for reconsideration shall
In cases where the Hearing Panel or be allowed.
Hearing Officer deems it necessary to
allow the parties to conduct cross- RULE VII – APPEAL
examination, the case shall be set for
hearing. The affidavits of the parties and Sec. 1. Appeal. An appeal from the
their witnesses shall take the place of their Resolution of the Monetary Board may be
direct testimony. taken to the Court of Appeals within the
period and in the manner provided under
RULE V – PROHIBITED MOTIONS Rule 43 of the Revised Rules of Court.
Sec. 1. Prohibited Motions. No motion RULE VIII – EXECUTION OF

to dismiss or quash, motion for bill of RESOLUTION
particulars and such other dilatory motions
shall be allowed in the cases covered by Sec. 1. Resolution becoming executory
these rules. The resolution of the Monetary Board shall
become executory upon the lapse of fifteen
RULE VI – RESOLUTION OF THE CASE (15) days from receipt thereof by the parties
or from the receipt of the denial of the
Sec. 1. Contents and period for motion for reconsideration.
submission of report. Within sixty (60)
days after the hearing panel or hearing Sec. 2. Effect of appeal. The appeal shall
officer has issued an order declaring that not stay the resolution sought to be
the case is submitted for resolution, a reviewed unless the Court of Appeals shall
report shall be submitted to the Monetary direct otherwise upon such terms as it may
Board. The report of the hearing panel or deem just.
hearing officer shall contain clearly and
distinctly the findings of facts and Sec. 3. Enforcement of resolution. When
conclusions of law on which it is based. the resolution orders the imposition of
fines, suspension or removal from office of
Sec. 2. Rendition and notice of resolution respondent, the enforcement thereof shall
After consideration of the report, the be referred to the appropriate department
Monetary Board shall act thereon and of the BSP.

APP. 64
05.12.31
RULE IX - MISCELLANEOUS Sec. 2. Separability Clause. If any part of

PROVISIONS these rules is declared unconstitutional or
illegal, the other parts or provisions shall
Sec. 1. Repeal. All existing rules, regulations, remain valid.
orders or circulars or any part thereof
inconsistent with these rules are hereby
repealed, amended or modified accordingly.

APP. 65
05.12.31
FORMAT CERTIFICATION
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec. X235.12, I hereby certify that on all banking
days of the semester ended _____ that the ____________________ (bank) did not enter into
any repurchase agreement covering government securities, commercial papers and other
negotiable and non-negotiable securities or instruments that are not documented in
accordance with existing BSP regulations and that it has strictly complied with the pertinent
rules of the SEC and the BSP on the proper sale of securities to the public and performed the
necessary representations and disclosures on the securities particularly the following:
1. Informed and explained to the client all the basic features of the security being sold
on a without recourse basis, such as, but not limited to:
a. Issuer and its financial condition;

b. Term and maturity date;
c. Applicable interest rate and its computation;
d. Tax features (whether taxable, tax paid or tax-exempt);
e. Risk factors and investment considerations;
f. Liquidity feature of the instrument:
(1) Procedures for selling the security in the secondary market (e.g., OTC or
exchange);
(2) Authorized selling agents; and
(3) Minimum selling lots.
g. Disposition of the security
(1) Registry (address and contact numbers)
(2) Functions of the registry
(3) Pertinent registry rules and procedures
h. Collecting and Paying Agent of the principal and interest
i. Other pertinent terms and conditions of the security and if possible, a copy of
the prospectus or information sheet of the security.
2. Informed the client that pursuant to BSP Circular No. 392 dated 23 July 2003 –
a. Securities sold under repurchase agreements shall be physically delivered, if

certificated, to a BSP accredited custodian that is mutually acceptable to the
client and the bank, or by means of book-entry transfer to the appropriate securities
account of the BSP accredited custodian in a registry for said securities, if
immobilized or dematerialized, and
b. Securities sold on a without recourse basis are required to be delivered physically
to the purchaser, or to his designated custodian duly accredited by the BSP, if

APP. 65
05.12.31
certificated, or by means of book-entry transfer to the appropriate securities

account of the purchaser or his designated custodian in a registry for said securities
if immobilized or dematerialized
3. Clearly stated to the client that:
a. The bank does not guarantee the payment of the security sold on a “without
recourse basis” and in the event of default by the issuer, the sole credit risk shall
be borne by the client; and
b. The bank is not performing any advisory or fiduciary function.
_________________
Name of Officer
Position
Date _____________
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibiting
his Community Tax Certificate as indicated below:
Name Community Tax Date/Place

Cert. No. Issued
Notary Public

APP. 65
05.12.31
Annex A
FORMAT CERTIFICATION
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec. X235.12_______ dated _____, I hereby

certify that as of 31 January 2005, the ____________________ (name of bank) does not have
any outstanding repurchase agreements covering government securities, commercial papers
and other negotiable and non-negotiable securities or instruments that are not documented
in accordance with existing BSP regulations.
____________________
Name of Officer
Position
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibiting
his Community Tax Certificate as indicated below:
Name Community Tax Date/Place

Cert. No. Issued
Notary Public

APP. 66
05.12.31
REGULATORY REQUIREMENTS IN INVESTING IN CREDIT-LINKED NOTES,

STRUCTURED PRODUCTS AND SECURITIES OVERLYING SECURITIZATION
STRUCTURES BY UBs AND KBs
(Appendix to Secs. 1633, 1635, 1636 and 1648)
a. Banks shall: submit the following (e) Relevant accounting guidelines,

documents to the appropriate supervising including pro-forma accounting entries;
and examining department of the BSP (f) Relevant tax treatment;
within five (5) banking days after the date (g) Analysis of any legal/regulatory
of its initial investment in credit-linked restrictions and whether the investment is
notes, structured products and/or securities permissible for the institution; and
overlying securitization structures - (h) Process flow chart, from deal
(1) A notarized certification in the initiation to risk reporting, indicating the
prescribed formats (Annexes “A” and “B”) departments and personnel involved in the
duly signed by the President/Chief identified processes.
Executive Officer or its equivalent, the UBs/KBs failing to submit the required
Treasurer and Compliance Officer, stating certification within the prescribed deadline
that the bank’s investments are in shall be subject to monetary penalties
compliance with relevant BSP rules and applicable for delayed reporting under
regulations, and that the bank has an existing regulations. For purposes of
adequate risk management system in imposing monetary penalties, the required
place; and certification shall be classified as a Category
(2) Terms and conditions and/or A-1 report. Further, failure to comply with
product manuals on the credit- linked the above requirements shall subject the
notes, structured products and/or erring bank to the imposition of
securities overlying securitization administrative sanctions under Section 37
structures, which as a minimum should of R.A. 7653.
cover the following: The certification and the terms and
(a) Description of the relevant conditions and/or product manual need not
financial product; be submitted for a bank’s subsequent
(b) Analysis of the proposed investments in the same issue of credit-
investments’ – linked note or structured product, or
i. reasonableness vis-à-vis the securities overlying the same tranche of a
institution’s overall financial condition and securitization structure.
capital levels; and b. The certification shall be subject to
ii. consistency with the institution’s post-verification by the appropriate
business strategies and objectives; supervision and examination department
(c) Analysis of the risks that may arise of the BSP.
from the investments and the Should the BSP subsequently determine
corresponding impact on the bank’s risk that the investments do not fully comply with
profile; the provisions of Secs. 1633, 1635, 1636 and
(d) Procedures/methodologies that 1648, as applicable, and other relevant BSP
the bank will implement to measure, regulations, the UB/KB shall be considered
monitor and control the risks inherent in to have submitted a false certification, subject
the financial products; to the sanctions prescribed under –

APP. 66
05.12.31
(1) Sec. 1636 for investments in linked notes and similar products and in
structured products by UBs and KBs securities overlying securitization
without expanded derivatives authority, structures by all UBs and KBs.
or Monetary penalties shall be reckoned
(2) Section 37 of R.A. No. 7653 for from the date of the investment until the
investments in structured products by UBs date that the erring bank shall have fully
and KBs with expanded derivatives complied with the requirements under
authority, and for investments in credit- Secs. 1633, 1635, 1636 and 1648.

APP. 66
05.12.31
Annex A
For investments in (1) structured products by UBs and KBs with expanded derivatives authority and (2) credit-linked notes
and securities overlying securitization structures by all UBs and KBs
(Name of Bank)
CERTIFICATION
We certify, in relation to (Name of Bank) ’s investment

in (name of financial product) on (date), that –
1. The bank is allowed to invest in the product cited above under existing rules and
regulations of the Bangko Sentral ng Pilipinas and the investment was approved by the
Board of Directors in its Resolution No. _____ dated _______________; and
2. The bank has an adequate risk management system, which includes, among others, the
following:
a. Written policies and procedures that provide for adequate identification,

measurement, monitoring and control of all risks in the investment;
b. Pertinent risk measurement system/methodologies that effectively measure

on a timely basis all risks inherent in the investment;
c. Limit structure that addresses all risk factors and is consistent with the board-
approved risk appetite and business strategy;
d. Internal controls; and
e. Management information system that efficiently provides accurate and timely

monitoring and reporting of risk exposures and limit compliance.
President/CEO Treasurer Compliance Officer
SUBSCRIBED AND SWORN to before me this ________ day of __________________ at

__________________, with affiants exhibiting to me the following Community Tax Certificate Nos. –
Name Date Issued Place Issued

President/CEO
Treasurer
Compliance Officer
NOTARY PUBLIC
Not. Reg. No.

Doc. No.
Page No.
Series of

APP. 66
05.12.31
Annex B
For investments in structured products by UBs and KBs without expanded derivatives authority
(Name of Bank)
CERTIFICATION
We certify, in relation to (Name of Bank ’s investment

in (name of financial product) on (date) , that –
1. The bank is allowed to invest in the product cited above under existing rules
and regulations of the Bangko Sentral ng Pilipinas;
2. The bank’s investment is in compliance with the conditions set out in Circular
No. 466 dated 05 January 2005, as follows:
a. The revenue stream of the structured product is linked only to interest

rate indices and/or foreign exchange rates other than those that involve
the Philippine Peso, and that the minimum all-in return of such
investments is not lower than zero.
b. The contractual maturity of the instrument does not exceed 5 years.
c. The product is issued by a bank or special purpose vehicle (SPV)

collateralized by securities rated at least “A” or its equivalent by an
international rating agency acceptable to the Monetary Board.
d. The investment is booked in the “Held to Maturity” (HTM) Securities”

account, or for instruments with put options, in the “Available for Sale
(AFS) Securities” account.
e. The total carrying value of all the bank’s investments in structured products
does not exceed 20% of the total investment portfolio of its EFCDU.
f. The bank has established internal processes to identify, evaluate, monitor

and manage the risk exposures (e.g. credit risk, market risk, liquidity risk,
operational risk, legal risk, compliance risk), created by its investment in
the above-cited product. Further to this:
(i) The investment was specifically approved by the Board of

Directors in its Resolution No. _____ dated _______________,
and is subject to appropriate internal limits and periodic reporting
to the Board.

APP. 66
05.12.31
(ii) The bank complies with generally accepted accounting and

disclosure standards and/or rules and regulations prescribed by
the BSP.
(iii) An independent risk management function is in place.
(iv) The bank has the ability to value the investments on a continuing
and consistent basis and to measure its sensitivity to market
movements.
(v) The risks of the investments can be accurately aggregated in risk

reports on a timely basis.
Further, we undertake to –
(i) Perform, at regular intervals, stress tests that reflect extreme market
conditions; and
(ii) Obtain, on a monthly basis, bid prices from the issuer(s) of the
investment instruments, to supplement the valuation exercise in
Item 2.f.iv above.
President/CEO Treasurer Compliance Officer
SUBSCRIBED AND SWORN to before me this __________ day of

_____________________ at ____________________, with affiants exhibiting to me the
following Community Tax Certificate Nos. –
Name Date Issued Place Issued

President/CEO
Treasurer
Compliance Officer
NOTARY PUBLIC
Not. Reg. No. ____________________

Doc. No. ____________________
Page No. ____________________
Series of ____________________

APP. 67
05.12.31
THE GUIDELINES FOR THE IMPOSITION OF MONETARY PENALTY FOR

VIOLATIONS/OFFENSES WITH SANCTIONS FALLING UNDER SECTION 37 OF
R.A. NO. 7653 ON BANKS, DIRECTORS AND/OR OFFICERS
(Appendix to Secs. X199, X299, X399, X499, X599, X699)
The schedule of penalty, categorized based on: (1) the nature of offenses such as minor,
less serious, and/or serious, and (2) the asset size of the bank, shall be as follows:
A. For Serious Offense

Asset Size Up to Above P200.0 Above P500.0 Above P1.0 Billion Above P10.0 Above
Penalty P200.0 million but million but but not Billion but P50.0
Range million not exceeding not exceeding exceeding not exceeding Billion
P500.0 million P1.0 Billion P10.0 Billion P50.0 Billion
Minimum P 500 P 1,000 P 3,000 P 10,000 P 18,000 P 25,000
Medium 750 1,500 5,000 12,500 20,000 27,500
Maximum 1,000 2,000 7,000 15,000 22,000 30,000
B. For Less Serious Offense

Minimum P 300 P 600 P 1,000 P 3,000 P 7,000 P 15,000
Medium 350 700 1,250 4,000 8,500 17,500
Maximum 400 800 1,500 5,000 10,000 20,000
C. For Minor Offense

Minimum P 150 P 300 P 600 P 1,000 P 3,000 P 6,000
Medium 200 400 700 1,500 4,000 8,000
Maximum 250 500 800 2,000 5,000 10,000
For purposes of this Regulation, the (a) In determining the acts or

following definition of terms shall mean: omissions included under the unsafe or
unsound banking practice, an analysis of
1. Serious Offense - This refers to the impact thereof on the banks/quasi-
unsafe or unsound banking practice. An banks/trust entities’ operations and financial
unsafe or unsound practice is one (1) in condition must be undertaken, including
which there has been some conduct, evaluation of capital position, asset
whether act or omission, which is contrary condition, management, earnings posture
to accepted standards of prudent banking and liquidity position. The following
operation and may result to the exposure circumstances shall be considered:
of the bank and its shareholders to (b) The act or omission has resulted or
abnormal risk or loss. may result in material loss or damage, or

APP. 67
05.12.31
abnormal risk or danger to the safety, nature, can be corrected immediately and
stability, liquidity or solvency of the do not have material impact on the
institution; solvency, liquidity and profitability of the
(c) The act or omission has resulted or Bank. All other acts or omissions that
may result in material loss or damage or cannot be classified under the major
abnormal risk to the institution’s depositors, offenses/violations will be classified under
creditors, investors, stockholders or to the this category.
Bangko Sentral or to the public in general;
(d) The act or omission has caused any 4. Minimum refers to the range of
undue injury, or has given unwarranted penalties to be imposed if the mitigating
benefits, advantage or preference to the factor(s) outweigh the aggravating
bank or any party in the discharge by the circumstances.
director or officer of his duties and
responsibilities through manifest partiality, 5. Medium refers to the penalty to be
evident bad faith or gross inexcusable imposed in the absence of any mitigating
negligence; or and aggravating circumstances or if the
(e) The act or omission involves mitigating factor(s) offset the aggravating
entering into any contract or transaction factor(s).
manifestly and grossly disadvantageous to
the bank, quasi-bank or trust entity, 6. Maximum refers to the penalty to
whether or not the director or officer be imposed if the aggravating
profited or will profit thereby. circumstances outweigh the mitigating
Certain acts or omissions as falling factor(s).
under this classification maybe determined In determining the amount of penalty,
based on the guidelines provided under a two-stage assessment shall be conducted
Appendix 48. as follows:
Step 1: Determine the nature of
2. Less Serious Offense - These offense whether it is: (a) Serious; (b) Less
include major acts or omissions defined Serious; or (c) Minor Offense; and
as bank/individual’s failure to comply Step 2: Determine whether there are
with the requirements of banking laws, aggravating and/or mitigating factors (as
rules and regulations, provisions of listed and defined in Annex A).
Manual of Regulations (MOR)/Circulars/ Both the aggravating and mitigating
Memorandum as well as Monetary Board factors shall be considered for initial
directives/instructions having material1/ penalty imposition and subsequent
impact on Bank’s solvency, liquidity or requests for reconsideration thereto.
profitability and/or those violations The foregoing monetary penalties shall
classified as major offenses under the be without prejudice to the imposition of
Report of Examination, except those non-monetary sanctions, if and when
classified under unsafe or unsound deemed applicable by the Monetary
banking practice. Board. Violations of banking laws and
Bangko Sentral regulations with specific
3. Minor Offense - These include acts penal clause are not covered by this
or omissions which are procedural in Regulation.
1/
SFAS/IAS defines materiality as any information, which if omitted or misstated, could influence the economic deci-
sions of users taken on the basis of the financial statements. Per Financial Accounting Standard Board (FASB), it is defined as
the magnitude of an omission or misstatement of accounting information xxx.

APP. 67
05.12.31
Annex A
Aggravating and Mitigating Factors to corrected and/or remedied. The corrective

be Considered in the Imposition of Penalty action shall be reckoned with from the date
of notification.
1. Aggravating Factors (d) Concealment. This factor pertains
(a) Frequency of the commission of to the cover up of a violation. In evaluating
specific violation. This pertains to this factor, one shall consider the intention
commission or omission of a specific of the party(ies) involved and whether
offense involving either the same or pecuniary benefit may accrue accordingly.
different transaction. This will also refer to Intention precedes concealment. The
a violation which may have been corrected act of concealing an offense or omission
in the past but found repeated in another carries with it the intention to defraud
transaction/account in the subsequent regulators. Moreover, the amount of
examination. pecuniary benefit, which may or may not
In determining frequency, the number accrue from the offense or omission, shall
of times of commission or omission of a also be considered under this factor.
specific offense during the preceding three Concealment may be apparent in cases
(3) - year period shall also be considered. when bank officers purposely complicates
The word offense pertains to a violation the transaction to make it difficult to
that connotes infraction of existing BSP rules uncover or refuse to provide information/
and regulations as well as non-compliance documents that would support the
with BSP/MB directives. violation/offense committed.
(b) Duration of violations prior to Inasmuch as concealment and intention
notification. This pertains to the length of are speculative matters and may be difficult
time prior to the latest notification on the to establish, appropriate support of facts or
violation. Violations that have been existing circumstantial evidence in this factor shall
for a long time before it was revealed/ be considered.
discovered in the regular examination or (e) Loss or risk of loss to bank. In
are under evaluation for a long time due to assessing this factor, potential loss refers to
pending requests or correspondences from any time at which the bank was in danger
banks on whether a violation has actually of sustaining a loss.
occurred shall be dealt with through this Substantial actual loss. The Bank has
criterion. Violations outstanding for more been exposed to a significant loss of
than one (1) year prior to notification, at earnings and capital. The volume of
the minimum, will qualify as violations accounts involved in the loss is substantial/
outstanding for a long time. significant in relation to the institution’s
(c) Continuation of offense or assets and capital. The bank/individual may
omission after notification. This pertains have substantial/serious violations that
to the persistence of an act or offense after could impact the reputation and earnings
the latest notification on the existence of of the bank.
the violation, either from the appropriate Minimal actual loss or substantial risk
SED or from the Monetary Board and/or of loss. The Bank has incurred minimal
Deputy Governor, in cases where the loss or will be exposed to substantial risk
violation has been elevated accordingly. of loss of earnings or capital although both
This covers the period after the final do not materially impact financial
notification of the existence of the violation condition. The volume of accounts
until such time that the violation has been involved for minimal loss or substantial risk

APP. 67
05.12.31
of loss is reasonable and manageable. While Substantial impact on banking industry

a loss was incurred, the bank could absorb or on public perception of banking
the loss in the normal course of business. industry. This is a worst-case scenario. The
Substantial risk of loss includes any potential violations/irregular activities of the bank
losses the aggregate of which amounts to may totally erode the trust and confidence
at least one percent (1%) of the capital of of the banking public resulting to a
the bank1. nationwide bank run. Pessimistic
Minimal risk of loss. The risk exposure perception of the banking public on the
on earnings or capital is minimal. Bank is banking industry is highly observed.
not vulnerable to significant loss. The 2. Mitigating Factors
volume of accounts involved for potential (a) Good faith. Good faith is the absence
loss/risk is minimal/negligible. The risk of of intention of the of the erring individual/
loss would have little impact on the bank entity in the commission of a violation.
or its financial condition. The risk of loss Full cooperation. This is determined by
aggregating to less than one percent (1%) the actions of the individual and/or bank
of the capital of the bank will fall under this towards the regulators after or even before
classification. notification of the offense and/or omission.
(f) Impact to bank/banking industry. In Assitance rendered by the Bank during the
assessing this factor, it is appropriate to investigation and/or examination
consider any possible negative impact or harm conducted relative to the cited offense and/
to the bank. (e.g. A violation of law involving or omission may be viewed favorably when
insider abuse may result in adverse publicity computing the amount of penalty to be
for the institution, possibly causing a run on imposed on the Bank/individual.
deposits and affecting the bank’s liquidity). With positive measures/action
Resulting effect on the banking industry on undertaken although not corrected
the violation/offenses committed by the bank, immediately. The bank is willing to remedy/
if any, will also be considered. Sources of data correct the violation but is being restrained
may come from news reports. of its capacity to take immediate action thus,
Substantial impact on bank. No impact will undertake a Memorandum of
on banking industry. This may involve Undertaking/Commitment for a specified
reputational risk of the bank as a result of period as a sign of good faith. The bank has
negative publicity generated for example, started to rectify the infraction by instituting
by involvement of bank’s director/officer in reforms in their operations or systems.
activities not acceptable to the regulatory Voluntay disclosure of offense. Voluntary
bodies, e.g. pyramiding, investment scams disclosure of the bank of the offense
etc. This may also involve insider abuse of committed before it is discovered by BSP
authority/power. However, the banking examiners in the regular/special examination
industry is not affected for this isolated case. or in the supervisory work (e.g. submission
Moderate impact on banking industry of reports to the BSP disclosing the violation
or on public perception of banking committed by the bank based on the internal
industry. This may involve poor corporate auditor's findings) may be considered as the
governance and mismanagement of bank highest level of mitigation under this factor.
that may result to erosion of public The burden of proof, however, falls on
confidence leading to bank run in various the bank/individual to support its/his/her claim
branches. This may also trigger a bank run of good faith and may be used as basis to mitigate
in other subsidiaries. the amount of penalty that may be imposed.
1
Circular 410 dated 29 October 2003 provides that external auditors of banks must report to BSP, among others, any
potential losses the aggregate of which amounts to at least one percent (1%) of the capital to enable the BSP to take timely and
appropriate remedial action.

Manual of Regulations For Banks

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Manual of Regulations For Banks

Uploaded by

Copyright:

Available Formats

MANUAL OF REGULATIONS

The 2005 Manual of Regulations for Banks (MORB) is an updated compilation of

AMANDO M. TETANGCO, JR.

A multi-departmental Committee on the Updating of the Manual of Regulations for

The Committee is composed of Deputy Director Alberto A. Reyes (Central Point of

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst. Manager

The Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas

Main caption on “Records”

Part One on “Organization, Management and Administration"

Manual of Regulations for Banks (Common provision)

Main caption on “Records”

Part One on “Organization, Management and Administration"

Manual of Regulations for Banks (Unique provision for KBs)

PART ONE - ORGANIZATION, MANAGEMENT AND

SECTION X101 Classifications, Powers and Scope of Authorities of Banks

SECTION X102 Basic Guidelines in Establishing Banks

SECTION X103 Certificate of Authority to Register

SECTIONS X104 - X105 (Reserved)

SECTION X106 Bank Capital

SECTIONS X107 - X110 (Reserved)

C. MERGER OR CONSOLIDATION OF BANKS

SECTION X111 Merger or Consolidation to Meet Minimum Capital

SECTIONS X113 - X115 (Reserved)

D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTION X116 Minimum Ratio

SECTIONS X117 - X118 (Reserved)

SECTION X119 Issuance of Unsecured Subordinated Debt

SECTION X120 Issuance of Hybrid Tier 1 Capital Instruments

E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN

SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks

SECTIONS X122 - X125 (Reserved)

F. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION X126 Shares of Stock of Banks

SECTION 1127 Shares of Stock of Universal/Commercial Banks

SECTION 2127 Shares of Stock of Thrift Banks

SECTION 3127 Shares of Stock of Rural Banks and Cooperative Banks

SECTIONS X128 - X135 (Reserved)

SECTION X136 Dividends

SECTION 1137 (Reserved)

SECTION 2137 (Reserved)

SECTION 3137 Limitations/Amount Available on Dividends Declared by Rural

SECTIONS X138 - X140 (Reserved)

G. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION X141 Definition and Qualifications of Directors; Responsibilities and

SECTION X142 Definition and Qualifications of Officers

SECTION X144 Bio-data of Directors and Officers

SECTION X145 Interlocking Directorships and/or Officerships

SECTION X146 Profit Sharing Programs

SECTION X147 Compensation and Other Benefits of Directors and Officers

SECTION 1147 (Reserved)

SECTION 2147 (Reserved)

SECTION 3147 Bonding/Training of Directors, Officers and Employees

SECTION X148 (Reserved)

SECTION X149 Conducting Business in an Unsafe/Unsound Manner

SECTION X150 Rules of Procedure on Administrative Cases Involving Directors

SECTION X151 Establishment/Relocation/Voluntary Closure/Sale of Branches

SECTION X152 Relocation/Transfer of Head Offices

SECTION X153 Establishment of Additional Branches of Foreign Banks

SECTION X154 Establishment of Offices Abroad

SECTION X155 Tellering Booths

I. BANKING DAYS AND HOURS

SECTION X156 Banking Days and Hours