Morb 2008

MANUAL OF REGULATIONS
FOR BANKS
ANKS
FOREWORD
The 2008 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
( to the 2008 edition)
The 2008 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 Director Alberto A. Reyes (Central Point of Contact

Department [CPCD] 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 (Examination Department [ED] III); Ms. Jocelyn L. Lobas, Manager II Integrated
Supervision Department I (ISD I); Atty. Ruben B. Parto, Acting Manager II (ED I); Ms. Ma.
Corazon T. Alva, Manager II (ED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of
Supervisory Policy Development [OSPD]); Atty. Lord Eileen S. Tagle, Legal Officer III,
(OGCLS); Ms. Maria Cynthia M. Sison, Bank Officer IV (OSPD); Mr. Armando M. Dizon, Bank
Officer III (CALG)); Atty. Florabelle S. Madrid, Bank Officer III (CPCD 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, Acting Manager

(CPCD II), Head; and Ms. Ma. Corazon B. Bilgera, Bank Officer II (OSPD); Ms. Ma. Cecilia
U. Contreras, Supervision & Examination Specialist I (CPCD II), members.
The Bangko Sentral ng Pilipinas
v
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.
vi
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.
vii
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.
viii
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 sudivided
into major topic headings which intorduce 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 Barrowing 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.
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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.
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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 (Reserved)
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
X102.3 Conversion of microfinance-oriented thrift banks/
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
X106.4 Prompt corrective action framework
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
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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 UnSD
X119.2 Prior BSP approval
X119.3 Pre-qualification requirements of issuing bank
X119.4 Public issuance of UnSD
X119.5 Private or negotiated issuance of UnSD
X119.6 Issuance overseas of UnSD
X119.7 Qualified investors/buyers
X119.8 Prohibitions on holdings of UnSD
X119.9 Accounting treatment
X119.10 - X119.12 (Reserved)
X119.13 Sanctions
SECTION X120 Interim Tier 1 Capital for Banks Under Rehabilitation
E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS
SECTION X121 Liberalized Entry and Scope of Operations of Foreign Banks

X121.1 Modes of entry of foreign banks
X121.2 Qualification requirements
X121.3 Guidelines for selection
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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 X127 (Reserved)
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
3127.4 Convertibility of preferred stock to common stock
3127.5 Equity investment by holding corporations
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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
SECTION X143 Disqualification of Directors and Officers

X143.1 Persons disqualified to become directors
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X143.2 Persons disqualified to become officers
X143.3 Effect of non-possession of qualifications 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 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
X151.3 Application for authority to establish branches
X151.4 Branching guidelines
X151.5 Branch processing fee
X151.6 Establishment of other banking offices
X151.7 Date of opening
X151.8 Requirements for opening a branch/other banking
office
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X151.9 Relocation of branches/other banking offices
X151.10 Voluntary closure/sale of branches/other banking
offices
X151.11 Relocation/transfer of branch licenses of closed banks
X151.12 Sanctions
SECTION X152 Relocation 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; banking
services during holidays
X156.2 Report of, and changes in, banking days and hours
X156.3 Posting of schedule of banking days and hours
J. RECORDS AND REPORTS
SECTION X161 Records

X161.1 Adoption of the Manual of Accounts
xvi
X161.2 Philippine Financial Reporting Standards/Philippine
Accounting Standards
X161.3 - X161.9 (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 balance sheet
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
X162.13 (Reserved)
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
X162.16 Financial Reporting Package
X162.17 - X162.20 (Reserved)
K. INTERNAL CONTROL
SECTION X163 Internal Control System

X163.1 Proper accounting records
X163.2 Independent balancing
X163.3 Division of duties and responsibilities
X163.4 Joint custody
X163.5 Signing authorities
X163.6 Dual control
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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
1169.2 (Reserved)
2169.2 Automated teller machine interconnection
(deleted by M-2008-030 dated 12 September 2008)
3169.2 Automated teller machine interconnection
(deleted by M-2008-030 dated 12 September 2008)
X169.3 Outsourcing of other banking functions
xviii
X169.4 Service providers
X169.5 Review of subsisting outsourcing contracts
X169.6 - X169.10 (Reserved)
X169.11 Other banking services for subsidiaries, affiliates and
related companies
X169.12 Other banking services to other entities
X169.13 - 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 Minimum security measures
X171.5 Reports
X171.6 Bangko Sentral inspection
X171.7 Common security service provision
X171.8 Sanctions
SECTION X173 Supervision by Risks
SECTION X174 Market Risk Management
SECTION X175 Liquidity Risk Management
SECTION X176 Technology Risk Management
SECTION X196 Voluntary Liquidation
xix
X196.2 Liquidation plan
X196.3 - X196.7 (Reserved)
X196.8 Final liquidation report
SECTION X198 Insolvency or Receivership of Banks

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

X201.1 Prerequisites to accept or create demand deposits
for thrift banks/rural banks/cooperative banks
X201.2 Requirements for accepting demand deposits
X201.3 Sanctions
SECTION X202 Temporary Overdrawings; Drawings Against Uncollected

Deposits
SECTION X203 Checks Without Sufficient Funds

SECTION X204 Current Accounts of Bank Officers and Employees
SECTION 2205 Check Clearing Rules for Thrift Banks Authorized to Accept
Demand Deposits
SECTION 3205 Check Clearing Rules for Rural Banks Who Are Members of the
Philippine Clearing House Corporation
SECTIONS X206 (Reserved)
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SECTION X207 Check Clearing Operations During Public Sector Holidays
B. SAVINGS DEPOSITS
SECTION X213 Servicing Deposits Outside Bank Premises
SECTION X214 Withdrawals
SECTION X215 Rental Deposits of Lessees
SECTION X221 Peso Savings Deposit Accounts of Embassy Officials
C. NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS
SECTION X223 Authority to Accept Negotiable Order of Withdrawal Accounts

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

X233.1 Prerequisites to issue NCTDs for thrift banks/rural
banks/cooperative banks
X233.2 Requirements for issuing NCTDs
xxi
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 deposits
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
X234.6 Sale, discounting, assignment or negotiation by banks
of their credit rights arising from claims against the
BSP
SECTION X235 Deposit Substitute Instruments

X235.1 Prohibition against use of acceptances, bills of
exchange and trust certificates
X235.2 Negotiation of promissory notes
X235.4 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

X237.2 Conditions required on accepted placements not
covered by prohibition
X237.3 Sanctions
xxii
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
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
xxiii
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
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
xxiv
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
SECTION X267 Automated Teller Machines
J. BORROWINGS FROM THE BANGKO SENTRAL
SECTION X268 Rediscounting Line

X268.1 Credit Information System
X268.2 Application procedures
X268.3 Approval/Renewal of the line
X268.4 Amount of line
X268.5 Term of the line
X268.6 - X268.9 (Reserved)
X268.10 Constitutional prohibition
SECTION X269 Rediscounting Availments

X269.1 Eligibility requirements at the time of availment
X269.2 Eligible papers and collaterals
X269.3 Loan availment procedures
X269.4 Loan value
X269.5 Maturities
X269.6 Rediscount/Lending rates and liquidated damages
X269.7 Release of proceeds
xxv
X269.8 Repayments/remittance of collections/arrearages
X269.9 Prohibited transactions
X269.10 Monitoring and credit examination of borrowing
banks
X269.11 Penalties/sanctions
X269.12 Interlocking directorship/officership
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 Allowable amount of emergency loan or advance
X272.4 Application procedures
X272.5 Other documentary requirements
X272.6 Acceptable collaterals and their corresponding loan
values
X272.7 Manner and conditions of release
X272.8 Interest rates, liquidated damages, and penalties
X272.9 General terms and conditions
X272.10 Maturity/Conditions for renewals
X272.11 Remittance of collections/repayments/arrearages
X272.12 Default
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) for Thrift Banks
SECTION 3274 Countryside Financial Institutions Enhancement Program for

Rural and Cooperative Banks
xxvi
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 Thrift Banks 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
SECTION X278 Enhanced Intraday Liquidity Facility (ILF)
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

xxvii
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
2301.1 (Reserved)
3301.1 (Reserved)
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
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
xxviii
X304.1 General guidelines
X304.2 Purpose of loans and other credit accommodations
X304.3 Prohibited use of loan proceeds
X304.4 Signatories
X304.5 – X304.8 (Reserved)
X304.9 Policies on loans to non-immigrants and embassy
officials
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
X306.7 Updating of information provided to credit
information bureaus
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
B. SECURED LOANS
SECTION X311 Loans Secured by Real Estate Mortgages

X311.1 Loans secured by junior mortgage on real estate
X311.2 (Reserved)
1311.2 (Reserved)
xxix
2311.2 (Reserved)
3311.2 Eligible real estate collaterals on rural/cooperative
bank loans
X311.3 Insurance on real estate improvements
X311.4 (Reserved)
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 Loans Against Personal Security

X319.1 General guidelines (deleted by Circular No. 622 dated
16 September 2008)
X319.2 Proof of financial capacity of borrower (deleted by
Circular No. 622 dated 16 September 2008)
X319.3 Signatories (deleted by Circular No. 622 dated
16 September 2008)
X319.4 - X319.6 (Reserved)
SECTION X320 Credit Card Operations; General Policy

X320.2 Risk management system
X320.3 Minimum requirements
X320.4 Information to be disclosed
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
xxx
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 ACCOMMODATIONS TO DIRECTORS,

OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS
SECTION X326 General Policy

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

X328.1 Applicability to credit card operations
X328.2 - X328.4 (Reserved)
X328.5 Loans, other credit accommodations and guarantees
granted to subsidiaries and/or affiliates
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
SECTION X332 Exclusions from Aggregate Ceiling
SECTION X333 Applicability to Branches and Subsidiaries of Foreign Banks
xxxi
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
X338.2 (Reserved)
1338.2 Funding by foreign banks
2338.2 (Reserved)
3338.2 (Reserved)
X338.3 Other conditions/limitations
SECTION X339 Transitory Provisions

X339.1 - X339.3 (Reserved)
X339.4 Reportorial requirements
SECTION X340 Applicability of DOSRI Rules and Regulations to Government

Borrowings in Govenment-Owned or -Controlled Banks
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
xxxii
SECTION X342 Mandatory Allocation of Credit Resources to Micro
Small and Medium Enterprises
X342.2 Period covered; prescribed portions of loan portfolio
to be allocated
X342.3 Eligible credit exposures
X342.4 Ineligible credit instruments
X342.5 Rights/remedies available to lending institutions not
qualified to acquire or hold lands of public domain
X342.6 Submission of reports
X342.7 Sanctions
X342.8 Disposition of penalties collected
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
xxxiii
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 Housing microfinance loan
X361.6 - X361.9 (Reserved)
X361.10 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
xxxiv
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
xxxv
X388.4 Reverse repurchase agreements with Bangko Sentral
X388.5 Investment in debt and readily marketable equity
securities
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 Regional loans to deposits ratio
X393.3 Computation of the regional loans to deposits ratio
X393.4 Lagged computation (Deleted by Circular No. 613
dated 18 June 2008)
X393.5 Real and other properties acquired as part of
compliance. (Deleted by Circular No. 613 dated 18
June 2008)
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
X394.11 - X394.14 (Reserved)
X394.15 Joint venture of banks with real estate development
companies
SECTION X395 Credit Policies of Government-Owned Corporations
SECTION X396 Parcellary Plans on Crop Loans
xxxvi
SECTION 1397 Limits on Real Estate Loans of Universal Banks/Commercial
Banks
SECTION X398 Debt Service Limit on Local Government Borrowings
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 2404 Grant of Authority to Engage in Limited Trust Business to Thrift

Banks
SECTION 3404 Grant of Authority to Engage in Limited Trust Business to Rural

Banks
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
xxxvii
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
X406.5 - X406.8 (Reserved)
X406.9 Outsourcing services in trust departments
SECTION X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management

Activities
SECTION X408 Unsafe and Unsound Practices

X408.1 – X408.8 (Reserved)
X408.9 Sanctions
SECTION X409 Trust and Other Fiduciary Business

X409.1 Minimum documentary requirements
X409.2 Lending and investment disposition
X409.3 Transactions requiring prior authority
X409.4 Ceilings on loans
X409.5 Funds awaiting investment or distribution
X409.6 Other applicable regulations on loans and
investments
X409.7 Operating and accounting methodology
X409.8 Tax-exempt individual trust accounts
X409.9 Living trust accounts
X409.10 - 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
X409.17 Trust fund of pre-need companies
SECTION X410 Unit Investment Trust Funds/Common Trust Funds

X410.1 Definitions
X410.2 Establishment of a unit investment trust fund
xxxviii
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
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
xxxix
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 X419 Conduct of Investment Management Activities
SECTION X420 Required Surplus
C. GENERAL PROVISIONS
SECTION X421 Books and Records
SECTION X422 Custody of Assets
SECTION X423 Fees and Commissions
SECTION X424 Taxes
SECTION X425 Reports Required

X425.1 To trustor, beneficiary, principal
X425.2 To the Bangko Sentral
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
xl
SECTION X429 Surrender of Trust or Investment Management License
SECTION X441 Securities Custodianship and Securities Registry Operations

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
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
xli
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
SECTION X532 Repurchase Agreements Involving Foreign Currency-

Denominated Government Securities
SECTION X564 Transfer of Undivided Profits/(Losses) from FCDU/EFCDU to RBU

Books
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
xlii
X601.4 - X601.5 (Reserved)
X601.6 BSP trading windows and services during public
sector holidays
SECTION X602 Derivatives

X602.1 Generally authorized derivatives activities
X602.2 Activities requiring additional derivatives authority
X602.3 Intra-group transactions
X602.4 Accounting guidelines
X602.5 Reporting requirements
X602.6 Sanctions
X602.7 - X602.13 (Reserved)
X602.14 Forward and swap transactions
X602.16 Documentation
X602.17 Tenor/maturity and settlement
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
SECTION 1602 Forward Contracts With Non-Residents
2602 (Reserved)
3602 (Reserved)
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
xliii
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 (deleted by Cir. 525 dated
04 April 2006)
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
SECTION X609 Collection of Fines and Other Charges from Banks

X609.1 Guidelines on the imposition of monetary penalties
X609.2 Payment of fines by banks
X609.3 Cost of checks and documentary stamps
X609.4 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
xliv
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
X621.13 Outsourcing
SECTION X624 Consumer Protection for Electronic Banking
SECTION 1631 Financial Products of Allied Undertakings or Investment House

Units of Banks
1631.1 Statement of principles
1631.2 Prior Monetary Board approval
1631.3 Minimum documentary requirements
1631.4 Financial ratios and other related requirements
1631.5 Promotional materials; stationeries and other
paraphernalia
1631.6 Contracts/Information to be disclosed
1631.7 Training
1631.8 Other requirements
1631.9 - 1631.10 (Reserved)
1631.11 Sanctions
xlv
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
1636.2 Scope
1636.3 Other conditions
1636.4 Capital treatment of EFCDUs
1636.6 Sanctions
xlvi
SECTION 1648 Investments in Securities Overlying Securitization Structures
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
xlvii
SECTION X654 Recognition and Derecognition of Domestic Credit Rating
Agencies for Bank Supervisory Purposes
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 Disclosure of Remittance Charges and Other Relevant

Information
SECTION X691 Anti-Money Laundering Regulations

X691.1 Minimum guidelines for fund transfers and
correspondent banking account opening and
customer identification
X691.2 - X691.4 (Reserved)
1691.4 Electronic monitoring systems for money laundering
2691.4 (Reserved)
3691.4 (Reserved)
X691.5 – X691.8 (Reserved)
X691.9 Sanctions and penalties
SECTION X695 Valid Identification (ID) Cards for Financial Transactions
xlviii
List of Appendices
08.12.31
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 (Reserved)
10 Format of Self Assessment and 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
Manual of Regulations for Banks Appendices Page 1

List of Appendices
08.12.31
No. SUBJECT MATTER
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
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 Enhanced Intraday Liquidity Facility
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 Sales and Marketing Guidelines for Derivatives
26a Sample Risk Disclosure Statement for Derivatives Activiies
27 Accounting Guidelines For Derivatives (Incorporated in X602.5)
28 Clearing Procedures
Appendices Page 2 Manual of Regulations for Banks

List of Appendices
08.12.31
No. SUBJECT MATTER
28a Clearing Operations Between Regional Clearing Center and the Manila
Clearing Center (Tarlac, Tarlac Used As Sample)
29 Procedures on Collection of Fines From Banks
30 Prescribed Format Memorandum of Understanding
31 Implementing Guidelines for Thrift Banks Authorized to Accept Demand

Deposits and Rural Banks who are Members of the Philippine Clearing
House Corporation
32 Illustrations when a Director, Officer and Stockholder (DOS) shall Waive

the Secrecy of Deposits
33 Classification, Accounting Procedures, Valuation and Sales and Transfers

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

Method Used to Mark-to-Market Debt and Marketable Equity Securities
34 Guidelines on the Use of Scripless (Ross) Securities as Security Deposit for

the Faithful Performance of Trust Duties
35 Pro-forma Payment Form
36 Suggested Gestation/Grace Periods for Agriculture and Fisheries Projects
37 Basic Guidelines in Establishing Banks
38 Revised Guidelines for the Establishment of Cooperative Banks

Annex A - Instructions for Directors and Officers of Proposed Cooperative
Banks
39 Settlement of Interbank Transactions vis-a-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

List of Appendices
08.12.31
No. SUBJECT MATTER
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
Annex A - Requirements for the Use of Internal Models to Measure Market
Risk
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)
46c Instructions for Accomplishing the Report on Computation of the Adjusted

Market 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

Market 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

List of Appendices
08.12.31
No. SUBJECT MATTER
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

Annex A - AMLC Resolution No. 292
Annex A-1 - AMLC Resolution No. 10
Annex B - Customer Due Diligence for Banks and Non-Bank
Financial Intermediaries Performing Quasi-Banking
Functions (NBQBs)
Annex B-1 - Geeral Identification Requirements
Annex C - General Guide to account Opening and Customer
Identification
Annex D - AMLC Resolution No. 02
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
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”
56b Significant Timelines Relative to the Implementation of R.A. No. 9182, also
known as "Special Purpose Vehicle Act", as Amended by R.A. No. 9343

List of Appendices
08.12.31
No. SUBJECT MATTER
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 Financial Audit Report

(FAR), Annual Audit Report (AAR) and Reports Required under Appendix 43
Annex A - Pro-Forma Comparative Analysis
62 Quarterly Investment Disclosure Statement
62a Risk 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
Annex A - Step-up Calculation
63b Risk-Based Capital Adequacy Framework for the Philippine Banking System
63b-1 Guidelines on the Capital Treatment of Banks' Holdings of ROP Global

Bonds Paired with Warrants
63b-2 Guidelines on the Use of the Standardized Approach in Computing the

Capital Charge for Operational Risks
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

List of Appendices
08.12.31
No. SUBJECT MATTER
66a Guidelines on the Accounting Treatment for Investments in Credit-Linked

Notes and Other Structured Products
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
Annex A - Aggravating and Mitigating Factors to be Considered in the
Imposition of Penalty
68 Implementation of the Delivery by the Seller of Securities to the Buyer or to

his Designated Third Party Custodian
Annex A - Template of Letter to Investor
68a Disposition of Compliance Issues on Appendix 68
68b Delivery of Government Securities to the Investor's Principal Securities

Account with the Registry of Scripless Securities
Annex A - MOA between BTr and GSED
Annex B - Revised Investor's Undertaking
69 Prompt Corrective Action Framework
70 Consumer Protection for Electronic Banking

Annex A - Automated Teller Machine (ATM) Safety Measures
Annex B - Internet and Wireless Banking Security Measures
Annex C - Electronic Banking Consumer Awareness Program
Annex D - Disclosure Requirements
71 Guidelines for the Change in the Mode of Compliance with the Liquidity
Reserve Requirement
Annex A - Debit/Credit Authority Format
72 Guidelines on Supervision by Risk
73 Guidelines on Market Risk Management
74 Guidelines on Liquidity Risk Management
75 Guidelines on the Technology Risk Management
76 Authorization Form for Querying the BSP Watchlist Files for Screening
Applicants and Confirming Appointments of Directors and Officials

List of Appendices
08.12.31
No. SUBJECT MATTER
77 Financial Reporting Package
78 Guidelines for Trust Departments' Placements in the SDA Facility of BSP

Annex 1 - Notice of Placement of funds in BSP's SDA facility
Annex 2 - Confirmation from the Treasury Services Groups
78a SDA Placements of Trust Departments/Entities as Agent for Tax-Exempt

Institutions (TEI) and Accounts
Annex 1 - Certification from the Trust Department
79 Guidelines in Determining Compliance with Ceilings on Equity Investments
80 Guidelines and Procedures Governing Currency Deposits and Withdrawal

of Banks for Credit to and Debit from their Demand Deposit Accounts with
the BSP
81 Appraisal and Loan Valuation Framework for Rights-Based Secure Tenure

Arrangements as Collateral Substitutes
82 Format Certification on Deposit/Cash Delivery Services
83 Basic Standards in the Administration of Trust, Other Fiduciary and

Investment Management Accounts
84 Guidelines for Days Declared as Public Sector Holidays
85 Illustrative Accounting Entries
86 Guidelines on the Availment of USD Denominated Repurchase Agreement

Facility with the BSP

§ 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 the same monetary and non-monetary
powers and activities under special penalties mentioned in Item “b” above shall
authorities not normally associated to the be imposed;
lower bank category into which it is d. That the bank shall submit the
converting: Provided, That a TB (previously pertinent amended Articles of Incorporation
authorized by the Monetary Board to and By-Laws duly registered with the SEC
accept demand deposits) may be allowed within six (6) months from date of receipt
to retain such authority when converting of notice of approval of its application;
into an RB but may clear checks only e. That the bank shall fully disclose its
through a correspondent bank and shall not new status in its signage, financial
be allowed to participate directly in the statements and stationeries; and
Philippine Clearing House Corporation f. That the bank shall start operation
(PCHC) and the BSP check clearing in the lower category into which it is
operations: Provided, further, That for converting after approval by the SEC of the
failure to comply with these requirements, bank’s amended Articles of Incorporation
the following monetary and non-monetary and By-Laws, its compliance with all the
penalties shall be imposed reckoned from conditions of approval of the conversion
the set deadline until the bank has fully and the issuance by the BSP of a certificate
complied with the 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 observed.
in derivatives activities (for a UB converting
into a KB); and § X102.1 Suspension of the grant of
(g) Suspension of authority to invest in new banking licenses on the establishment
allied undertakings. of new banks. Pending completion of a
c. That a bank which has not study, there shall be an indefinite
corrected as of date of application the major moratorium on the establishment of new
findings/violations noted in its latest banks, except in cities and municipalities
examination shall submit upon application where there are no existing banking offices.
a Memorandum of Understanding that it The moratorium shall apply to all
shall correct the same within a period of applications for establishment of new banks,
six (6) months from date of receipt of notice including pending ones received prior to
of approval of its application, otherwise, 16 August 1999.

§§ X102.1 - X102.2
08.12.31
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.
types of bank as has been or may be For this purpose, a microfinance-
declared by the Monetary Board. oriented bank is a bank that provides
b. The moratorium under Section 8 of financial services and caters primarily to the
R.A. No. 8791 shall cover all applications credit needs of the basic or disadvantaged
for issuance of new commercial banking sectors such as farmer-peasants, artisanal
licenses as well as upgrading or conversion fisherfolk, workers in the formal sector and
of old banking licenses into commercial migrant workers, workers in the informal
banking licenses, the organization and sectors, indigenous peoples and cultural
incorporation by foreign banks of new communities, women, differently-abled
commercial banking subsidiaries and any persons, senior citizens, victims of
and all other transactions that may result in calamities and disasters, youth and students,
the issuance of new commercial banking children, urban poor and low income
licenses. households for their microenterprises and
c. All such pending applications as of small businesses so as to enable them to
13 June 2000, including those which have raise their income levels and improve their
already been decided but with any incident living standards. Microfinance loans are
thereto still unresolved or are on granted on the basis of the borrower’s cash
reconsideration or appeal, shall not be flow and are typically unsecured.
further acted upon by the BSP and shall be The guidelines on the establishment
returned to the applicant banks without of a microfinance-oriented bank are as
prejudice to the resubmission or re-filing follows:
thereof upon expiration of the moratorium a. Microfinance-oriented banks may
at the option of the applicant banks. No be established on a very selective basis,
such application shall be considered as preferably in places not fully served by
automatically re-submitted or re-filed upon existing RBs or in areas not fully serviced
expiration of the moratorium. by microfinance-oriented banks, subject to

§§ X102.2 - X102.3
08.12.31
the following additional criteria (in addition (6) At least fifty percent (50%) of the
to standard licensing requirements): bank’s gross loan portfolio shall at all times
(1) That the microfinance-oriented consist of microfinance loans as defined in
bank to be established shall either be a TB Sec. X361.
or an RB; b. The requirement that the president,
(2) That the capital of the chief operating officer or general manager
microfinance-oriented banks to be of a TB or RB must have at least two (2)
established should be owned by private years experience in banking and/or finance
persons, multilateral entities or a may be substituted with microfinance
combination thereof; experience in cases of officers of a
(3) That in the case of an RB to be microfinance organization applying for
established as a microfinance bank, the authority to establish, or convert into a TB
minimum paid-in capital shall be P5.0 or RB: Provided, That the concerned officer
million or the applicable existing is a college graduate.
capitalization requirement for a new RB, c. Subject to the standard branching
whichever is higher. The capitalization requirements, microfinance-oriented banks
requirement under existing regulations are also exempted from the general
shall apply to TBs; moratorium on the establishment of bank
(4) That the organizers must have the branches, under Sec. X151. After one (1)
capacity to engage in microfinancing, year of profitable operations, a
which may be indicated by the following: microfinance-oriented bank may apply for
(a) At least twenty percent (20%) of the establishment of a branch but the Monetary
paid-in capital of the proposed bank must Board may require additional capital to be
be owned by persons or entities with track infused for every branch in addition to the
record in microfinancing. minimum capital of the TB/RB.
(b) Majority of the members of the d. Existing microfinance organizations
board of directors have experience in applying for authority to establish, or
microfinancing with at least one (1) member convert into a TB or RB may also be
having actual banking experience. allowed to convert their existing branches/
(c) The proposed bank must have as a offices into branches of the bank proposed
minimum, an adequate loan tracking to be established by simultaneously
system that allows daily monitoring of loan applying for authority for the purpose.
releases, collection and arrearages, and However, the standard requirements for the
any restructuring and refinancing. establishment of branches, particularly the
(5) In addition to the requirements for capitalization requirement, have to be
the establishment of banks in Appendix 37, complied with. Moreover, there must be a
the application for authority to establish a proof that the area is not fully served by
microfinance-oriented bank must be any existing RB.
accompanied by the following documents: (As amended by Circular No. 624 dated 13 October 2008)
(a) A vision and mission statement
with clear expression of the commitment § X102.3 Conversion of microfinance-
to reach low-income clients. oriented thrift banks/rural banks
(b) A written manual of operations, a. Microfinance-oriented TBs and RBs
which shall include the administrative and are disallowed from converting to regular
credit program systems and procedures. TBs and RBs.
The Manual must be consistent with the b. Microfinance-oriented branches of
core principles, characteristics and features regular TBs and RBs may convert into
of microfinance indicated in Sec. X361. regular branches, five (5) years after the start

§§ X102.3 - X106
08.12.31
of the branch’s operations, subject to the Likewise, the SEC shall not register the
submission of the following: by-laws of any bank, or any amendment
(1) Certification signed by the thereto, unless accompanied by a
president or officer of equivalent rank certificate of authority from the BSP.
that: (As amended by CL-2008-078 dated 15 December 2008)
(a) At least seventy percent (70%) of
deposits generated by the branch to be Secs. X104 - X105 (Reserved)
established shall be actually lent out to
microfinance borrowers; and B. CAPITALIZATION
(b) The microfinance loans of said
branch shall at all times be fifty percent Sec. X106 Bank Capital. The following
(50%) of its gross loan portfolio provisions shall govern the capital
are no longer feasible due to changes in requirements for banks.
market condition in the locality where it is The term capital shall be
located. The certification shall be supported synonymous to unimpaired capital and
by a market study citing, among others, surplus, combined capital accounts and
changes in demographic, social, and net worth and shall refer to the total of the
economic factors; and unimpaired paid-in capital, surplus and
(2) Certified true copy of the undivided profits, less:
resolution of the bank’s board of directors a. Unbooked valuation reserves and
authorizing the conversion of the other capital adjustments as may be
microfinance-oriented branch into a required by the BSP;
regular branch. b. Total outstanding unsecured credit
(CL-2008-075 dated 28 November 2008) accommodations, both direct and indirect,
to directors, officers, stockholders, and
Sec. X103 Certificate of Authority to their related interests (DOSRI) granted by
Register1. The SEC shall not register the the bank proper;
articles of incorporation of any bank, or any c. Unsecured loans, other credit
amendment thereto, unless accompanied accommodations and guarantees granted
by a certificate of authority issued by the to subsidiaries and affiliates;
Monetary Board, under its seal. The d. Deferred income tax;
certificate shall not be issued unless the e. Appraisal increment reserve
Monetary Board is satisfied from the (revaluation reserve) as a result of
evidence submitted that: appreciation or an increase in the book
a. All requirements of existing laws value of bank assets;
and regulations to engage in the business f. Equity investment of a bank in
for which the applicant is proposed to be another bank or enterprise, whether foreign
incorporated have been complied with; or domestic, if the other bank or enterprise
b. The public interest and economic has a reciprocal equity investment in the
conditions, both general and local, justify investing bank, in which case, the
the authorization; and investment of the bank or the reciprocal
c. The amount of capital, the investment of the other bank or enterprises,
financing, organization, direction and whichever is lower; and
administration, as well as the integrity and g. In the case of RBs/Coop Banks, the
responsibility of the organizers and government counterpart equity, except
administrators reasonably assure the safety those arising from conversion of arrearages
of deposits and the public interest. under the BSP rehabilitation program.
1
See SEC. Circular No. 3 dated 16 February 2006.

§§ X106 - X106.1
07.12.31
With respect to Item “b” hereof, the cities of Cebu and Davao, with minimum
provisions in Subsec. X326.1 shall apply capital requirements as follows:
except that in the definition of stockholders (a) In first, second and third class cities
in said Subsection, the qualification that his and in first class municipalities - P8.0
stockholdings, individually and/or together million each;
with his related interest in the lending bank (b) In fourth, fifth and sixth class cities
should at least amount to two percent (2%) and in second, third, and fourth class
or more of the total subscribed capital stock municipalities - P4.8 million each; and
of the bank shall not apply for the purpose (c) In fifth and sixth class municipalities
of this Item. - P3.2 million each.
(As amended by Circular No. 560 dated 31 January 2007) (2) Existing RBs within the excepted
cities and municipalities shall maintain
§ X106.1 Minimum capitalization. The the following minimum capital
minimum capital of banks shall be as requirements:
follows: (a) In the cities of Manila, Kalookan,
a. UBs - P5.4 billion each Quezon, Pasay, Mandaluyong, Makati,
b. KBs - P2.8 billion each Parañaque, Malabon, Navotas and San Juan
c. TBs - - P32.0 million each; and
(1) With head offices within Metro (b) In the cities of Cebu and Davao -
Manila - P400.0 million each; and P16 million each.
(2) With head offices outside Metro e. Coop Banks -
Manila - P64.0 million each. Coop Banks that may be established shall
d. RBs - have a minimum authorized capital of:
(1) An RB may be established in any (1) P200.0 million for national Coop
city or municipality, except in the cities of Banks divided into such number of shares
Manila, Kalookan, Quezon, Pasay, with a minimum par value of P1,000 per
Mandaluyong, Makati, Parañaque, share, with a private paid-in capital of at
Malabon, Navotas and San Juan; and in the least P20.0 million; and
(Next page is Part I - Page 9)
Manual of Regulations for Banks Part I - Page 8a

§§ 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 capital 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
- P400 million on or before 31 December 2000;* and
in capital for Coop Banks to be established
in other cities: Provided, however, That for (2) With head office outside Metro Manila:
- P52 million on or before 31 December 1999; and
the first Coop Bank organized in the - P64 million on or before 31 December 2000:*
province, although it will be located in a Provided, That for the P325.0 million,
city, the minimum private paid-in capital P400.0 million, P52.0 million and P64.0
shall be P1.25 million. million minimum capital, TBs shall submit
The foregoing minimum capital to the BSP a capital build-up program for
requirements for UBs, KBs, TBs, and RBs this purpose within three (3) months from
shall immediately apply to applications filed 12 March 1998.
after 12 March 1998. c. RBs which are existing, or which
are newly authorized but not yet operating,
§ X106.2 Capital build-up program or persons from whom completed
a. UBs and KBs which are existing, or applications to establish RBs have been
which are newly authorized but not yet received as of 12 March 1998 but pending
operating, or banks from which completed action by the BSP, are allowed the
applications to operate under an UB/KB following time frame within which to
authority have been received as of 12 meet the above minimum capital
March 1998 but pending action by the BSP, requirement:
are hereby allowed the following time (1) In the cities of Manila, Kalookan,
frame within which to meet the above Quezon, Pasay, Mandaluyong, Makati
minimum capital requirement: and Parañaque and in the municipalities
(1) P4.5 billion for UBs and P2.0 of Malabon, Navotas and San Juan:
billion for KBs on or before 24 December - 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
07.12.31
(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
07.12.31
- 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
07.12.31
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 activities
accept or handle govern- - Suspension of authority to 9 NA NA
ment deposits engage in derivatives
activities
(c) Up to sixty percent (60%) - - Suspension of FCDU/ 9 9 NA
- Suspension of authority to 9 NA NA EFCDU activities
invest in non-allied under- - Suspension of trust operations 9 9 NA
takings (for UBs only) - Suspension of international 9 NA NA
- Suspension of authority to 9 9 9 banking activities
invest in allied undertaking - Suspension of lending 9 9 9
- Suspension of securities 9 NA NA activities
and dealership functions - Suspension of issuance NA 9 NA
(for UBs only) of domestic L/Cs
- Suspension of branching 9 9 9
privileges (e) More than eighty percent (80%) -
- Suspension of declaration 9 9 9 - Suspension of clearing 9 9 9
of cash dividends privileges
- Restrictions on overall 9 9 9 - Suspension of granting 9 9 9
loan growth/investments of bonuses/profit-sharing
(new loans to the extent of not covered by existing
collections only) contracts or By-Laws
- Restrictions on lending to 9 9 NA - Cease and desist 9 9 9
affiliates (As amended by Circular No. 585 dated 15 October 2007)

§§ X106.4 - X111.2
06.12.31
§ X106.4 Prompt corrective action C. MERGER OR CONSOLIDATION

framework. A bank may be subject to OF BANKS
Prompt Corrective Action (PCA) whenever
any or all of the following conditions obtain: Sec. X111 Merger or Consolidation to
(1) When either of the Total Risk-Based Meet Minimum Capital. The merger or
Ratio [otherwise known as Capital consolidation of banks or of bank(s) and
Adequacy Ratio (CAR)], Tier 1 Risk-Based other financial intermediary(ies) to meet
Ratio, or Leverage Ratio (total capital/total minimum capital requirements shall be
assets) falls below ten percent (10%), six allowed subject to the following regulations.
percent (6%) and five percent (5%), For purposes of merger and
respectively, or such other minimum levels consolidation, the following definitions
that may be prescribed for the said ratios shall apply:
under relevant regulations, and/or the a. Merger - is the absorption of one (1)
combined capital account falls below the or more corporations by another existing
minimum capital requirement prescribed corporation, which retains its identity and
under Subsec. X106.1; takes over the rights, privileges, franchises,
(2) The Capital Adequacy, Asset and properties, and assumes all the
Quality, Management, Earnings, Liquidity liabilities and obligations of the absorbed
and Sensitivity to Market Risk (“CAMELS”) corporation(s) in the same manner as if it
composite rating is less than three “3” or a had itself incurred such liabilities or
Management component rating of less than obligations. The absorbing corporation
three “3”; and continues its existence while the life or lives
(3) A serious supervisory concern has of the other corporation(s) is/are terminated.
been identified that places a bank at more- b. Consolidation – is the union of two
than-normal risk of failure in the opinion (2) or more corporations into a single new
of the Director of the examination corporation, called the consolidated
department concerned, which opinion is corporation, all the constituent corporations
confirmed by the Monetary Board. Such thereby ceasing to exist as separate entities.
concerns could include, but are not limited, The consolidated corporation shall
to any one (1) or a combination of the thereupon and thereafter possess all the
following; rights, privileges, immunities, franchises and
(a) Finding of unsafe and unsound properties, and assume all the liabilities and
activities that could adversely affect the obligations of each of the constituent
interest of depositors and/or creditors; corporations in the same manner as if it had
(b) A finding of repeat violations of law itself incurred such liabilities or obligations.
or continuing failure to comply with
Monetary Board directives; and § X111.1 Requirement of Bangko
(c) Significant reporting errors that Sentral approval. Mergers and
materially misrepresent the bank’s financial consolidations including the terms and
condition. conditions thereof shall comply with the
The framework for the enforcement of provisions of applicable law and are subject
PCA on banks and other financial to approval by the BSP.
institutions under its jurisdiction is in
Appendix 69. § X111.2 Rules on exchange of shares
(Circular No. 523 dated 23 March 2006) As a general rule, the ratio of exchange of
shares between or among the participants
Secs. X107 - X110 (Reserved) in a bank merger or consolidation shall be

§§ X111.2 - X112
05.12.31
based on mutual agreement of the parties of the institution belonging to the lower
concerned. However, any appraisal category or categories.
increment reserve (revaluation reserve) (3) The appraisal increment resulting
arising from the revaluation of the fixed from the revaluation shall form part of
assets, as may be agreed upon by the parties capital for purposes of determining the
shall be limited to premises, improvement, single borrower’s limit and capital-to-risk
and equipment which are necessary for its assets ratio. The use of appraisal increment
immediate accommodation in the for cash dividend shall be governed by the
transaction of the bank’s business. Such provisions of the Corporation Code.
revaluation should be based on fair (4) The revaluation of premises,
valuation of the property which shall be improvements, and equipment of the
subject to review and approval by the BSP. institution as well as the recognition of
goodwill as an incentive to mergers or
Sec. X112 Merger or Consolidation consolidations as provided in item "e"
Incentives. In pursuance of the policy to hereof shall only be allowed if the following
promote mergers and consolidations among conditions are met:
banks and other financial intermediaries as (i) The surviving or consolidated entity
a means to develop larger and stronger FIs, will meet the existing capital requirements
constituent entities may, subject to BSP after all adjustments are taken up in the
approval, avail themselves of any or all of books of accounts of the merging or
the following incentives: consolidating entities but before
a. Revaluation of premises, improve- considering appraisal increments and
ments and equipment of the institutions: goodwill, or there will be infusion of fresh
Provided, That such revaluation shall be capital to meet said existing capital
based on fair valuation of the property requirements; and
conducted by a reputable appraisal (ii) The merger or consolidation will
company which shall be subject to review result in a more viable FI as a result of cost
and approval by the BSP. savings and improved competitive
The following rules shall govern the position.
revaluation of assets: In case of purchase or acquisition of the
(1) The revaluation of the premises, majority or all of the outstanding shares of
improvements and equipment shall be stocks of a bank, the same conditions must
allowed only to all institutions participating be satisfied.
in a merger or consolidation if all of them b. Unbooked valuation reserves based
belong to the same category, or at least two upon the BSP examination and other capital
(2) of them belong to the highest category adjustments resulting from the merger or
among the merging or consolidating consolidation may be booked on staggered
institutions; basis over a maximum period of five (5)
(2) In case the merging or consolidating years.
institutions do not belong to the same The following guidelines shall govern
category or only one (1) of them falls under the staggered booking of valuation reserves:
the highest category, all of them may be (1) The booking on staggered basis
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

§ X112
05.12.31
same category, or at least two (2) of them allowed to recognize in full the appraisal
belong to the highest category among the increment resulting from revaluation of
merging or consolidating institutions. assets and to book valuation reserves on a
(2) In case the merging or staggered basis, while in the case of the
consolidating institutions do not belong to acquiring bank/QB, the appraisal
the same category or only one (1) of them increment resulting from revaluation of
falls under the highest category, all of them assets and the privilege of staggered
may be allowed to book the required booking of valuation reserves shall each
valuation reserves based upon examination be limited to the amount of the total
by the BSP on a staggered basis over a resources of the bank/QB being acquired/
maximum of five (5) years: Provided, That rehabilitated.
the aggregate amount of the required The exemption from the ownership
valuation reserves shall be limited to the limits prescribed in Subsec. X126.1 on
amount of the total resources of the existing stockholdings of any Filipino
institution belonging to the lower category individual or domestic non-bank
or categories. corporation in a banking institution, as an
c. Exemption from the forty percent incentive to purchase or acquisition of
(40%) and sixty percent (60%) ownership majority or all of the outstanding shares of
limits prescribed in Subsec. X126.1 in the stock of bank/QB shall be allowed only if
new or surviving institution of any Filipino the bank being purchased or acquired is
individual or domestic non-bank distressed as may be determined by the
corporation: Provided, That this shall be Monetary Board and such merger is for the
allowed only if the bank that is being purpose of rehabilitating the bank/QB.
merged is distressed as may be determined d. If by reason of merger or
by the Monetary Board and such merger is consolidation, the resulting bank is unable
for the purpose of rehabilitating the bank: to comply fully with the prescribed net
Provided, further, That whenever any of worth-to-risk assets ratio, the Monetary
said stockholders exceed the prescribed Board may, at its discretion, temporarily
limits, his holdings shall not be increased, relieve the bank from full compliance with
but may be reduced and once reduced, this requirement under such conditions as
shall not thereafter be increased beyond it may prescribe;
such limits. The recognition of goodwill as an
In the case of purchase or acquisition incentive to mergers or consolidations shall
of majority or all of the outstanding shares only be allowed subject to the conditions
of a bank/QB by another bank/QB, the in Item "a (4)".
revaluation of the assets and the booking e. (Deleted by Circular 494 dated 20
of the required valuation reserves based September 2005);
upon examination by the BSP over a f. Conversion or upgrading of the
period of five (5) years shall be allowed existing head offices, branches and/or other
only if such purchase or acquisition is for offices of the merged or absorbed
the purpose of rehabilitating the former institutions into branches of the new or
bank/QB: Provided, That the revaluation surviving financial institutions;
of assets and staggered booking of g. Condonation of liquidated damages
valuation reserves shall be allowed in full and/or penalties on loan arrearages to the
only if both banks/QBs belong to the same BSP of RBs which are parties to the merger
category. Otherwise, only the bank/QB or consolidation: Provided, That loan
being acquired/rehabilitated shall be arrearages of RBs to the BSP are paid in

§§ X112 - X115
05.12.31
full or covered by a plan of payment equivalent to the total of the rediscounting

payable on an equal monthly amortization limit per application of each of the constituent
schedule over a period not exceeding ten banks before merger or consolidation;
(10) years; n. Subject to approval of the Monetary
h. Relocation of branches/offices may Board concurrent officerships between a
be allowed within one (1) year from date of merged or consolidated bank/financial
merger or consolidation in cases where the institution and another bank/financial
merger or consolidation resulted in institution may be allowed;
duplication of branches/offices in a service Likewise, with prior approval of the
area, or in such other cases/circumstances as Monetary Board, concurrent directorships
may be prescribed by the Monetary Board; may be allowed in cases where a bank
i. Outstanding penalties in legal acquires shares of stock of another bank
reserve deficiencies and interest on for the purpose of merging or consolidating
overdrafts with the BSP as of the date of the the two (2) banks regardless of whether
merger or consolidation may be paid in the banks belong to the same category or
installments over a period of one (1) year; both have quasi-banking functions;
j. Rediscount ceiling of 150% of o. Subject to other requirements on
adjusted capital accounts for a period of one the establishment of branches, the merged/
(1) year, reckoned from the date of merger consolidated RBs may be allowed to
or consolidation: Provided, That the establish a branch each in Cebu City and
merged/consolidated bank meets the Davao City if it has put up the minimum
required net worth-to-risk assets ratio and capital requirement for these places;
all of the other requirements for p. Grant of automatic extension of five
rediscounting; (5) years for retirement of government
k. UBs/KBs whose total outstanding preferred shares to be reckoned from the
real estate loans exceed twenty percent date of merger or consolidation;
(20%) of total loan portfolio may be given q. Training of officers and staff of the
a period of one (1) year within which to merging or consolidating RBs by the BSP; and
comply with the prescribed twenty percent r. Any right or privilege granted a
(20%) ratio reckoned from the date of merging bank under a rehabilitation
merger or consolidation; program previously approved by the
l. Restructuring/plan of payment of Monetary Board or under any special
past due obligations of the proponents with authority granted by the Monetary Board
the BSP as of the date of merger/ shall continue to be in effect.
consolidation over a period not exceeding The revaluation of assets and staggered
ten (10) years; booking of valuation reserves shall be
m. In the case of RBs, grant of access available for a period of two (2) years from
to the rediscounting window of the BSP for 19 February1999 while the rest of the
a period of two (2) years from the date of incentives enumerated under Sec. X112
merger or consolidation even if its past due shall be available for a period of three (3)
ratio exceeds twenty five percent (25%) of years from 31 August 1998.
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/QB.
years, its rediscounting limit per application
may also be increased to an amount Secs. X113 - X115 (Reserved)

§§ X116 - X116.2
08.12.31
D. RISK-BASED CAPITAL ADEQUACY Measurement and Capital Standards:

RATIO A Revised Framework”, are shown in
Appendix 63)
Sec. X116 Minimum Ratio. The guidelines (As amended by M-2008-015 dated 19 March 2008, Circular
implementing the revised risk-based Nos. 605 dated 05 March 2008, 588 dated 11 December 2007,
capital adequacy framework for the M-2007-019 dated 21 June 2007, Circular Nos. 560 dated
Philippine banking system to conform to 31 January 2007 and 538 dated 04 August 2006)
Basel II recommendations is provided in
Appendix 63b. These guidelines apply to § X116.1 Qualifying capital. The
all UBs and KBs, as well as their subsidiary composition of qualifying capital is shown
banks and QBs. in Appendix 63a.
TBs, RBs, as well as QBs that are not (As amended by Circular Nos. 560 dated 31 January 2007, 528
subsidiaries of UBs and KBs shall continue dated 03 May 2006 and Memorandum to All Banks dated
to be subject to the risk-based capital 23 March 2006)
adequacy framework, as provided below,
as well as Subsecs. X116.1 to X116.8. § X116.2 Risk-weighted assets. The
The risk-based capital ratio of a bank, risk-weighted assets shall be determined
expressed as a percentage of qualifying by assigning risk weights to amounts of
capital to risk-weighted assets, shall not be on-balance sheet assets and to credit
less than ten percent (10%) for both solo equivalent amounts of off-balance sheet
basis (head office plus branches) and items (inclusive of derivatives contracts):
consolidated basis (parent bank plus Provided, That the following shall be
subsidiary financial allied undertakings, but deducted from the total risk-weighted
excluding insurance companies). assets: (1) general loan loss provision
The ratio shall be maintained daily. (in excess of the amount permitted to be
(The BSP’s implementation plans for the included in upper Tier 2 capital) and
new international capital standards or unbooked valuation reserves; and (2) other
Basel 2 contained in the Basel Committee capital adjustments affecting asset accounts
on Banking Supervision document based on the latest report of examination
“International Convergence of Capital as approved by the Monetary Board.

§ X116.2
08.12.31
a. On-balance sheet assets. The risk- (b) Claims on or portions of claims

weighted amount shall be the product of guaranteed by or collateralized by securities
the book value of asset multiplied by the risk issued by non-central government public
weight associated with that asset, as follows: sector entities of foreign countries with the
(1) Zero percent (0%) risk weight – highest credit quality as defined in Subsec.
(a) Cash on hand; X116.3;
(b) Claims on or portions of claims (c) Claims on or portions of claims
guaranteed by or collateralized by guaranteed by Philippine incorporated
securities issued by - banks/QBs with the highest credit quality
i. Philippine National Government as defined in Subsec. X116.3;
and BSP; and (d) Claims on or portions of claims
ii. Central governments and central guaranteed by foreign incorporated banks
banks of foreign countries with the highest with the highest credit quality as defined in
credit quality as defined in Subsec. X116.3; Subsec. X116.3;
(c) Claims on or portions of claims (e) Claims on Philippine incorporated
guaranteed by or collateralized by private enterprises with the highest credit
securities issued by multilateral quality as defined in Subsec. X116.3;
development banks (MDBs); (f) Claims on foreign incorporated
(d) Loans to the extent covered by private enterprises with the highest credit
hold-out on, or assignment of, deposits/ quality as defined in Subsec. X116.3;
deposit substitutes maintained with the (g) Loans to exporters to the extent
lending bank; guaranteed by Small Business Guarantee
(e) Loans or acceptances under letters and Finance Corporation (SBGFC):
of credit to the extent covered by margin Provided, That loans to exporters to the
deposits; extent guaranteed by the Guarantee Fund
(f) Portions of special time deposit for Small and Medium Enterprises (GFSME)
loans covered by Industrial Guarantee and outstanding as of the date of the effectivity
Loan Fund (IGLF) guarantee; of the merger of the SBGFC and GFSME
(g) Real estate mortgage loans to the shall continue to have a zero percent (0%)
extent guaranteed by the Home Guaranty risk weight: Provided, further, That the zero
Corporation (HGC); percent (0%) risk weight shall not apply to
(h) Housing microfinance loans as loans renewed after the merger of the
provided under Subsec. X361.5 to the SBGFC and the GFSME; and
extent guaranteed by the HGC; (h) Foreign currency checks and other
(i) Loans to the extent guaranteed by cash items denominated in currencies
the Trade and Investment Development acceptable as international reserves.
Corporation of the Philippines (3) Fifty percent (50%) risk weight –
(TIDCORP); (a) Loans for housing purpose, fully
(j) 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
(k) Gold bullion held either in own classified as non-performing;
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
liabilities; of Internal Revenue Allotment of the LGU
(2) Twenty percent (20%) risk weight- and guaranteed by the LGU Guarantee
(a) Checks and other cash items (COCIs); Corporation; and

§ X116.2
08.12.31
(c) Housing microfinance loans under - Minimum applicable capital

Subsec. X361.5 other than those guaranteed adequacy ratio.
by the HGC. (b) Non-performing loans (NPLs) for
(4) Seventy five percent (75%) risk housing purpose, fully secured by first
weight mortgage on residential property that is
(a) Defined small and medium or will be occupied or leased out by the
enterprise (SME) and microfinance loan borrower; Provided, That risk weighting
portfolio that meets the following criteria: for such loans shall be increased to 100%
(i) For individual claims that may form in 2007;
part of the SME and microfinance loan (5) One hundred percent (100%) risk
portfolio weight –
(aa) Claim must be on a small or All other assets including, among
medium business enterprise as defined others, the following:
under existing BSP regulations; and (a) Claims on central governments and
(bb) Claims must be in the form of: central banks of foreign countries other than
- Direct loans; or those with the highest credit quality;
- Unavailed portion of committed (b) Claims on Philippine local
credit lines and other business facilities such government units;
as outstanding guarantees issued and (c) Claims on non-central government
unused letters of credit: Provided, That the public sector entities of foreign countries
credit equivalent amounts thereof shall be other than those with the highest credit
determined in accordance with Subsec. 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/QBs other than those with the highest
portfolio, i.e., it has at least 500 borrowers 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
“3” and management score of at least “3” on hand not acceptable as international
in its latest BSP examination; and reserves;

§ X116.2
08.12.31
(n) Gold bullion held in either own outside the Philippines, if any (for foreign
vaults, or in another’s vaults on an allocated bank branches); and
basis, that is not offset by gold bullion (p) Starting 2007, NPLs 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 (6) One hundred twenty five percent
are deducted from capital, as follows: (125%) risk weight –
(i) Unsecured credit accommodations, All NPLs (except NPLs for housing
both direct and indirect, to DOSRI; purpose, fully secured by first mortgage on
(ii) Unsecured loans, other credit residential property that is or will be occupied
accommodations and guarantees granted to or leased out by the borrower) and all
subsidiaries and affiliates. non-performing debt securities: Provided,
(iii) Deferred income tax; That risk weighting for such exposures shall
(iv) Goodwill; be increased to 150% in 2007.
(v) Sinking fund for redemption of NPLs, which are secured by eligible
limited life redeemable preferred stock with collaterals or guaranteed by eligible
the replacement requirement upon guarantors below, shall be assigned the risk
redemption; weight of the collateral or guarantor:
(vi) Sinking fund for redemption of Provided, That in cases of guarantees, the
limited life redeemable preferred stock bank is able to pursue the guarantor of any
without the replacement requirement upon monies outstanding within the period of time
redemption (limited to the balance of stipulated in the guarantee contract.
redeemable preferred stock after applying Otherwise, the loan in question shall be
the cumulative discount factor); assigned the risk weight applicable for NPLs.
(vii)Equity investments in unconsolidated (a) List of eligible collaterals
subsidiary banks and other financial allied (i) Securities issued by the Philippine
undertakings, but excluding insurance national government and BSP, and central
companies; governments and central banks of foreign
(viii) Investments in debt capital countries with the highest credit quality as
instruments of unconsolidated subsidiary defined in Subsec. X116.3;
banks; (ii) Securities issued by multilateral
(ix) Equity investments in subsidiary development banks listed under Sec. X116.3;
insurance companies and non-financial (iii) Cash in the form of hold out on or
allied undertakings; assignment of deposits/deposit substitutes
(x) Reciprocal investments in equity of maintained with the lending bank, and
other banks/enterprises; margin deposits for loans or acceptances
(xi) Reciprocal investments in under letters of credit; and
unsecured subordinated term debt (iv) Securities issued by non-central
instruments of other banks/QBs in excess government public sector entities of foreign
of the lower of: countries with the highest quality as defined
(aa) an aggregate ceiling of five percent in Subsec. X116.3.
(5%) of total Tier 1 capital of the bank; or (b) List of eligible guarantors
(bb) ten percent (10%) of the total (i) Philippine national government
outstanding unsecured subordinated term and BSP, and central governments and
debt issuance of the other bank/QB; and central banks of foreign countries with the
(xi) Net due “from” head office, highest credit quality as defined in
branches, subsidiaries and other offices Subsec. X116.3;

§ X116.2
08.12.31
(ii) Multilateral development banks forward forward deposits and partly-paid

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

§ X116.2
08.12.31
(4) Zero percent (0%) credit conversion Interest Exchange

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

§§ X116.2 - X116.3
08.12.31
exposure, except for derivatives contracts (7) Bills purchased;

for which determination is generally made (8) Customers’ liability on bills/drafts
in relation to credit equivalent amount. under LCs/TRs;
The capital treatment of investments in (9) Customers’ liability for this bank’s
credit-linked notes (CLNs) and similar credit acceptances outstanding;
derivative products such as credit-linked (10) Restructured loans;
deposits (CLDs) and credit-linked loans (CLLs) (11) Trading account securities – loans;
shall comply with the guidelines in Sec. 1633. (12) Underwriting accounts - debt
(As amended by M-2008-015 dated 19 March 2008 and securities (for UBs);
Circular No. 560 dated 31 January 2007) (13) Underwriting accounts - equity
securities (for UBs);
§ X116.3 Definitions (14) Trading account securities –
a. Amount due from the BSP. This investments;
refers to all deposits of the reporting bank (15) Trading account securities – equity
with the BSP. (for UBs);
b. Appraisal increment reserve. This (16) Available for sale securities;
shall form part of capital only if authorized (17) Investments in bonds and other
by the Monetary Board. debt instruments (IBODI); and
c. Bank premises, furniture, fixtures (18) Others, e.g., accounts receivable
and equipment net of depreciation. This and accrued interest receivable.
refers to the cost of land and improvements Accruals on a claim shall be classified
used as bank premises, and furniture, and risk weighted in the same way as the
fixtures and equipment owned by the bank. claim. Bills purchased shall be classified
d. Cash on hand. This refers to total as claims on the drawee banks.
cash held by the bank consisting of both g. Consolidated basis. This refers to
notes and coins in Philippine currency. combined statement of condition of parent
e. Central government of a foreign bank and subsidiary financial allied
country. This refers to the central undertakings, but excluding insurance
government which is regarded as such by a companies.
recognized banking supervisory authority h. Debt capital instruments. This
in that country. refers to unsecured subordinated term debt
f. Claims. This refer to loans or debt instruments qualifying as capital of banks.
obligations of the entity on whom the claim i. Equity investments. This refers to
is held, and shall include, but shall not be investments in capital stock of companies,
limited to, the following accounts, inclusive firms or enterprises, made for purposes of
of accumulated market gains/(losses) and control, affiliation or other continuing
accumulated bond discount/(premium business advantage.
amortization), and net of specific allowance j. Exchange rate contracts. This
for probable losses: includes cross-currency interest rate swaps,
(1) Due from BSP; forward foreign exchange contracts,
(2) Due from other banks; currency futures, currency options
(3) Interbank loans receivable; purchased and similar instruments.
(4) Loans and discounts; k. Financial allied undertakings. This
(5) Agrarian reform and other refers to enterprises or firms with homogenous
agricultural credit loans - P.D. 717; or similar activities/business/functions with
(6) Development incentive loans; the financial intermediary and may include

§ X116.3
05.12.31
but not limited to leasing companies, banks, companies engaged in foreign exchange
IHs, financing companies, credit card dealership/brokerage, holding companies
companies, FIs catering to small and (for UBs), and such other similar activities
medium scale industries (including venture as the Monetary Board may declare as
capital corporations), companies engaged appropriate from time to time, but excluding
in stock brokerage/securities dealership, insurance companies.
(Next Page is Part I-Page 23)

§ 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 (50%) of the outstanding voting stock of
approval of the BSP and, where the which is directly or indirectly owned,
conditions of the issuance specifically controlled or held with the power to vote
state, only if the shares redeemed or by a bank.
replaced with at least an equivalent ii. Treasury shares. This refers to
amount of newly paid-in shares so that the shares of the parent bank held by a
total paid-in capital stock is maintained at subsidiary financial allied undertaking in a
the same level immediately prior to consolidated statement of condition.
redemption: Provided, That redemption shall jj. Private enterprises. This refers to
not be earlier than five (5) years after the date all commercial companies whether
of issuance: Provided, further, That such organized in the form of a corporation,
redemption may not be made where the partnership, or sole proprietorship.
bank is insolvent or if such redemption will kk. Non-performing debt securities. This
cause insolvency, impairment of capital or refers to debt securities as described below:
inability of the bank to meet its debts as they (i) For zero-coupon debt securities,
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
least an equivalent amount of newly paid- considered non-performing when three (3)
in shares within one (1) year from 26 or more coupon payments are in arrears:
September 2003 (effectivity of Circular No. Provided, however, That when the total
397) upon prior BSP approval: Provided, amount of arrearages reaches twenty
That: (i) The redeemable preferred percent (20%) of the total outstanding
shareholders will give consent; (ii) The balance of the debt security, the total
bank meets the required minimum risk- outstanding balance of the debt security
based CAR and minimum capital level for shall be considered as non-performing.
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 department of the SES in the
with a commitment to repurchase the prescribed forms within the deadlines, i.e.,
asset after a certain time, or in the event fifteen (15) banking days and thirty (30)
to a certain contingency. banking days after the end of reference
gg. Solo basis. This refers to combined quarter, respectively. Only banks with
statement of condition of head office and subsidiary financial allied undertakings
branches. (excluding insurance companies) which
hh. Subsidiary. This refers to a under existing regulations are required to
corporation or firm more than fifty percent prepare consolidated statements of

§§ X116.4 - X119.1
06.12.31
condition on a line-by-line basis shall be until the minimum requirement has been
required to submit report on a consolidated met. The Monetary Board may restrict or
basis. The abovementioned reports shall prohibit the making of new investments
be classified as Category A-2 reports. of any sort by the bank, with the exception
of purchases of readily marketable
§ X116.5 (Reserved) evidences of indebtedness issued by the
Philippine National Government and BSP
§ 1116.5 Market risk capital included in Item “a(1)(b)i” of Subsec.
requirement. UBs/KBs shall also measure X116.2, until the minimum required
and apply capital charges for market risk, capital ratio has been restored.
in addition to the credit risk capital
requirement in this Section, in accordance § X116.7 Temporary relief. In case
with the Guidelines to Incorporate Market of a bank merger, or consolidation, or
Risk in the Risk-Based Capital Adequacy when a bank is under rehabilitation under
Framework in Appendix 46. a program approved by the BSP, the
The capital treatment of market risk Monetary Board may temporarily relieve
exposures arising from the holdings of the surviving bank, consolidated bank, or
Dollar-Linked Peso Notes (DLPNs) is constituent bank or corporations under
indicated in Appendix 46a. rehabilitation from full compliance with the
The instructions for accomplishing the required capital ratio for a maximum period
report on computation of the Adjusted Risk- of one (1) year.
Based Capital Adequacy Ratio covering
combined credit risk and market risk are § X116.8 Capital treatment of
shown in Appendices 46b (for UBs and KBs exposures/investments in certain
with expanded derivatives authority), 46c products. The guidelines on the capital
(for UBs and KBs with expanded treatment of bank’s exposures/investments
derivatives authority but without options in the following products are in Part VI:
transactions) and 46d (for UBs and KBs a. Credit-linked notes in Sec. 1633.
without expanded derivatives authority). b. Structured products in Subsec.
1635.4.
§ 2116.5 (Reserved) c. EFCDU investments in Subsec.
1636.4.
§ 3116.5 (Reserved) d. Investment in securities overlying
securitization structures in Subsec. 1648.4.
§ X116.6 Sanctions. Whenever the
capital accounts of a bank are deficient with Secs. X117 - X118 (Reserved)
respect to the prescribed risk-based capital
adequacy ratio (which for UBs/KBs shall Sec. X119 Issuance of Unsecured
pertain to adjusted capital adequacy ratio Subordinated Debt. The guidelines for the
covering combined credit risk and market issuance of unsecured subordinated debt
risk), the Monetary Board, after considering (UnSD) eligible as Hybrid Tier 1 (HT1) and
a report of the appropriate department of Tier 2 capital are as follows:
the SES on the state of solvency of the (As amended by Memorandum to All Banks dated 23 March 2006)
institution concerned, shall limit or prohibit
the distribution of the net profits and shall § X119.1 Minimum features of UnSD
require that part or all of net profits be used a. Form. A UnSD that will be publicly
to increase the capital accounts of the bank distributed may either be scripless in form

§§ X119.1 - X119.4
06.12.31
or evidenced by certificates such as: other creditors (for LT2); depositors, other
promissory note, debenture or other creditors and holders of LT2 capital
appropriate certificate of indebtedness. A instruments (for UT2); and depositors, other
UnSD in scripless form shall comply with creditors, holders of LT2 and UT2 capital
the provisions of R.A. No. 8792, otherwise instruments (for HT1); and
known as the “Electronic Commerce Act”, (4) The obligation is ineligible as
particularly on the existence of an collateral for a loan granted by (name of
assurance on the integrity, reliability and Bank), its subsidiaries and affiliates.
authenticity of the UnSD in electronic If the UnSD is scripless in form, the
form. An independent third party UnSD foregoing provisions/information shall be
Registry shall maintain unissued UnSD furnished every buyer/investor in a separate
certificates and the UnSD Registry Book, written instrument receipt of which must
which must be electronic if the UnSD is be duly acknowledged by him.
scripless in form. A UnSD that will be d. Term. The UnSD qualifying under
issued privately or on a negotiated basis HT1 capital shall be perpetual. The
shall be evidenced by certificates. minimum maturity of a UnSD qualifying
All UnSD shall be registered in the under UT2 and LT2 capital shall be ten (10)
name of individuals or entities and pre- years and five (5) years, respectively.
numbered serially. (As amended by Memorandum to All Banks dated 23 March 2006)
b. Denomination. The UnSD must be
issued in minimum denominations of § X119.2 Prior BSP approval. No
P500,000 or its equivalent if denominated UnSD shall be issued without the prior
in a foreign currency. approval of the BSP.
c. Mandatory provisions. If the UnSD
is not scripless in form, the following § X119.3 Pre-qualification requirements
provisions must appear in bolder prints on of issuing bank. A bank applying for
the face of every note, debenture or other authority to issue a UnSD shall comply with
certificate evidencing the same: the following requirements:
(1) This obligation is not a deposit and a. It has complied with the minimum
is not insured by the Philippine Deposit amount of capital required under Subsec.
Insurance Corporation (PDIC); X106.1 or its paid-in capital is at least equal
(2) This obligation is neither secured to the amount required therein.
nor covered by the guarantee of (name of b. It has established a risk
bank) or its subsidiaries and affiliates, or management system appropriate to its
other arrangement that legally or operations characterized by clear
economically enhances the priority of the delineation of responsibility for risk
claim of any holder of the UnSD as against management, adequate risk
depositors and other creditors (for LT2); measurement systems, appropriately
depositors, other creditors and holders of structured risk limits, effective internal
LT2 capital instruments (for UT2); and controls and complete, timely and
depositors, other creditors and holders efficient risk reporting system.
of LT2 and UT2 capital instruments (for c. It is a locally incorporated bank.
HT1);
(3) This obligation does not have a § X119.4 Public issuance of UnSD. Public
priority claim, in respect of principal and issuance of UnSD is an issuance offered to
coupon payments in the event of winding- the general public, which may or may not
up of the (name of bank), which is higher be qualified investors/buyers as hereinafter
than or equal with that of depositors and defined. The Issuing Bank must be rated by an

§ X119.4
06.12.31
independent credit rating agency recognized buyer/holder of the UnSD of the Issuing
by the BSP and a Public Trustee shall be Bank;
appointed for investor protection. (e) A written confirmation from the
a. Application for authority president or officer of equivalent rank of
(1) The application shall be signed by the Issuing Bank stating that the designated
the president or officer of equivalent rank Underwriter/Arranger, UnSD Registry,
of the applicant bank; Selling Agent(s) and Market Maker(s) were
(2) The application for authority on provided with a complete list of subsidiaries
each UnSD issue/issue program shall be and affiliates of the Issuing Bank including
filed with the appropriate department of their subsidiaries and affiliates;
the SES: Provided, That the period of an (f) A written undertaking from the
issue program of two (2) or more tranches president or officer of equivalent rank of
shall not exceed one (1) year from date of the Issuing Bank to update the above-
approval; and mentioned list within three (3) banking
(3) The application shall be days from the date of change in composition
accompanied by: thereof; and
(a) A certified true copy of the (g) Specimen of the UnSD.
resolution of the Issuing Bank’s board of (h) A written external legal opinion
directors authorizing the issuance of the that all the conditions for UnSD under Item
UnSD indicating, among others, the issue “a(2)(a)”, Item “b(1)(h)” or Item “b(2)(c)”, of
size, terms and conditions, offering period, Appendix 63a, including the subordination
purpose or intended use of proceeds (for HT1, UT2 and LT2) and loss absorption
thereof, the names of the Underwriter/ (for HT1 and UT2) features, have been
Arranger, UnSD Registry, Selling Agent(s) met.
and Market Maker(s), and Public Trustee; b. Additional requirements for the
(b) A certification by the corporate issuance of UnSD
secretary that the issuance of the UnSD After a bank’s application to issue a
has been approved by the stockholders UnSD has been approved, the applicant
owning or representing at least two-thirds shall submit the following additional
(2/3) of the outstanding capital stock of the requirements to the appropriate
Issuing Bank if the UnSD has convertibility department of the SES:
feature; (1) At least fifteen (15) banking days
(c) A written confirmation from the before the date of offering:
president or officer of equivalent rank of (a) A written confirmation from the
the Issuing Bank stating that all the president or officer of equivalent rank of
conditions for UnSD under Item “a(2)(a)”, the Issuing Bank stating that the bank has
Item “b(1)(h)” or Item “b(2)(c)”, of Appendix been rated by an independent credit rating
63a are complied with and that such agency duly recognized by the BSP;
conditions shall be contained in the UnSD (b) Information disclosure of the UnSD
Certificates if the UnSD is not in scripless issuance prepared by the Underwriter/
form, in the Information Disclosure and Arranger;
Purchase Advice. (c) Promotional materials;
(d) A written undertaking from the (d) Specimen of the proposed
president or officer of equivalent rank of Purchase Advice and Registry
the Issuing Bank not to support, directly or Confirmation; and
indirectly, by extending loans, issuing (e) Copy of the agreements between
payment guarantees or otherwise, the the Issuing Bank and the Underwriter/

§ X119.4
06.12.31
Arranger/UnSD Registry/Selling Agent(s)/ (i) Maintain certificates of unissued

Market Maker(s), and Public Trustee. UnSD and the Registry Book which must be
The BSP reserves the right to suspend electronic if the UnSD is in scripless form;
the date of offering, within the fifteen (15) (ii) Deliver transactions within the
banking day period from submission of the agreed trading period; and
above-mentioned requirements. (iii)Issue Registry Confirmations and
(2) Within ten (10) banking days after UnSD Certificates if they are not in
issuance of the initial and subsequent scripless form to buyers/holders of UnSD.
tranches: (e) It must have a CAMELS composite
(a) A written notice of the actual date rating of at least “3” in the last regular
of issuance/offering of each initial and examination, where applicable.
subsequent tranches. (3) Selling Agent
c. Requirements for other parties (a) It may be any financial institution
involved with dealership or brokering license and
(1) Underwriter/Arranger is under the supervision of the BSP.
(a) It is either a UB or an IH: Provided, (b) It must be a third party that has no
That if an offering is on a best effort basis, subsidiary/affiliate or any other relationship
the Arranger may also be a KB: Provided, with the Issuing Bank that would
further, That if an offering is denominated undermine its independence.
in foreign currency, the Underwriter/ (4) Market Maker
Arranger may also be any reputable (a) It must be a financial institution
international investment bank. with a dealership or brokering license and
(b) It must be an independent third is under the supervision of the BSP.
party that has no subsidiary/affiliate or any (b) It must be a third party that has no
other relationship with the Issuing Bank subsidiary/affiliate or any other relationship
that would undermine the objective with the Issuing Bank that would
conduct of due diligence. undermine its independence.
(c) If Underwriter, it must have (c) It must have adequate risk
adequate risk management and must be management and must be well capitalized
well capitalized, which for a local as evidenced by compliance with the risk
Underwriter, shall be evidenced by based CAR prescribed under Sec. X116 for the
compliance with the risk-based CAR past sixty (60) days immediately preceding the
prescribed under Sec. X116 for the past date of application where applicable.
sixty (60) days immediately preceding the There is no need for a Market Maker if
date of application where applicable. the UnSD is to be held on to maturity:
(2) UnSD 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
undermine its independence. and 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 UnSD. subsidiary/affiliate or any other relationship
(d) It must have adequate facilities with the Issuing Bank that would
and the organization to do the following: undermine its independence.

§ X119.4
06.12.31
(c) It must have adequate risk (2) UnSD Registry

management system and must be well (a) Keeps unissued UnSD certificates
capitalized as evidenced by compliance and maintains UnSD Registry book, which
with the risk-based CAR prescribed under must be electronic if UnSD is scripless in
Sec. X116 for the past sixty (60) days form;
immediately preceding the date of (b) Records initial issuance of the
application where applicable. The sixty UnSD and subsequent transfer of
(60)-day compliance period with the risk- ownership;
based CAR shall be waived in evaluating (c) Issues UnSD Certificates for
a bank’s eligibility to act as Public Trustee primary offerings if UnSD is not scripless
for another bank’s UnSD’s Tier 2 offering, in form;
if the former bank has instituted remedial (d) Issues Registry Confirmation to
measure to its CAR deficiency by issuing buyers/holders;
Tier 2 capital. (e) Functions as paying agent for
(d) It may also be the UnSD Registry. periodic interest and principal payments;
(e) A Public Trustee is mandatory if (f) Monitors compliance with the
UnSD shall be offered to the general public prohibitions on holdings of UnSD, as
and optional if offering will be limited to prescribed under Subsec. X119.8 hereof;
qualified investors/buyers. and
d. Functions/Responsibilities of other (g) Submits within ten (10) banking
parties involved days from end of reference month, an
The respective parties shall have, exception report on Subsec. X119.8 to the
among others, the following functions/ appropriate department of the SES. This
responsibilities: report shall be classified as a “Category B”
(1) Underwriter/Arranger report.
(a) Conducts due diligence on the (3) Selling Agent
Issuing Bank and determines the valuation/ (a) Verifies identity of each investor to
pricing of the primary issue; ascertain that Subsec. X119.8 is not
(b) Prepares the prospectus/ violated and applies appropriate standards
information disclosure, including updates to combat money laundering as required
for multi-tranche UnSD issues; under existing BSP regulations;
(c) Formulates the distribution/ (b) Determines the suitability of the
allocation plan for the initial offering and investor and ensures that he fully
ensures proper and orderly distribution of understands the features of the UnSD and
the primary offering of the UnSD; the risk involved therein; and
(d) Disseminates information to (c) Issues the Purchase Advice for the
prospective investors of UnSD on the primary offering of the UnSD to the buyer
terms and conditions of the issue (including and sends a copy thereof to the UnSD
information of non pre-termination at the Registry.
initiative of the holder and the liquidity The sale or distribution of UnSD may
mechanism in secondary trading) and the also be performed by the issuer through
rights and obligations of the holder, issuer, its head office and branches subject to the
Underwriter/Arranger, UnSD Registry, following conditions:
Selling Agent, Market Maker and Public (i) The in-house distribution shall not
Trustee; and exceed fifty percent (50%) of the total
(e) When selling to its clients, it must issue;
perform the functions/responsibilities of the (ii) The sale/distribution must be
Selling Agent under Item “d(3)” hereof. done under the supervision of an officer of

§ X119.4
06.12.31
the Issuing Bank who is capable of affect their interest and advise them of the
determining the suitability of the investor course of action they should take to protect
and ensuring that he fully understands the their interest; and
risk in UnSD; (d) Act on behalf of the UnSD holders
(iii)All personnel assigned to in case of bankruptcy of the Issuing Bank.
distribute/sell UnSD must be capable of e. Change of Underwriter/Arranger,
determining the suitability of the investor UnSD Registry, Selling Agent(s), Market
and ensuring that he fully understands the Maker(s). After an application for authority
risk in UnSD; and to issue a UnSD has been approved by
(iv)It must also perform the the BSP, the Issuing Bank cannot change
functions/ responsibilities of the Selling its Underwriter/Arranger, UnSD Registry,
Agent. Selling Agent(s), Market Maker(s) and
(4) Market Maker Public Trustee without prior BSP approval.
(a) Sets an independent pricing for the f. Agreements Between Issuing
secondary trading of UnSD; Bank and other parties involved. The
(b) Posts daily the bid and offer prices agreements between the Issuing Bank and
for the UnSD on the screen of at least one the UnSD Registry/Selling Agent(s)/Market
(1) of the information providers until the Maker(s)/Public Trustee shall comply with
operation of a fixed income exchange for the provisions of Sec. X169 on bank
UnSD; service contracts. The Issuing Bank shall
(c) Verifies identity of each investor to be liable to investors for any damages
ascertain that Subsec. X119.8 is not caused by actions of the UnSD Registry,
violated and applies appropriate standards Selling Agent(s) and Market Maker(s),
to combat money laundering as required which are contrary to the agreements
under existing BSP regulations; entered into.
(d) Determines the suitability of the g. Purchase Advice and Registry
buyer and ensures that he fully Confirmation. The Purchase Advice and
understands the risk involved in a UnSD; Registry Confirmation shall contain all the
(e) Issues the Purchase Advice for the terms and conditions on the issuance of
secondary trading of the UnSD to the UnSD and shall conspicuously state the
buyer and sends a copy thereof to the following caveat:
UnSD Registry; and (1) This UnSD is not a deposit and is
(f) Ensures secondary market not insured by the PDIC.
transfers and registration in coordination (2) This UnSD is neither secured nor
with the UnSD Registry. covered by a guarantee of the Issuer/
(5) Public Trustee Underwriter/Arranger or related party of
(a) Monitors compliance of the Issuing the Issuer/Underwriter/Arranger or other
Bank with the terms and conditions of the arrangement that legally or economically
UnSD; enhances the priority of the claim of any
(b) Monitors compliance of the other holder of the UnSD as against depositors
parties with their functions and and other creditors (for LT2); depositors,
responsibilities prescribed under this other creditors and holders of LT2 capital
Memorandum; instruments (for UT2); and depositors,
(c) Reports regularly to UnSD holders other creditors and holders of LT2 and UT2
non-compliance of the Issuing Bank with capital instruments (for HT1);
the terms and conditions of the UnSD and (3) This UnSD does not have a priority
such other developments that adversely claim, in respect of principal and coupon

§ X119.4
06.12.31
payments in the event of winding-up of the lower quality than the original issue, unless
Issuing Bank, which is higher than or equal the Issuing Bank’s capital adequacy ratio
with that of depositors and other creditors remains more than adequate after
(for LT2); depositors, other creditors and redemption; and
holders of LT2 capital instruments (for UT2); (b) Prior notice to holders on record.
and depositors, other creditors, holders of LT2 Negotiations/transfers from one (1)
and UT2 capital instruments (for HT1); holder to another do not constitute pre-
(4) This UnSD is ineligible as collateral termination.
for a loan granted by the Issuing Bank, its In case there is a feature allowing one-
subsidiaries or affiliates; time step-up in the coupon rate in
(5) This UnSD cannot be terminated conjunction with a call option, the step-up
by the holder nor by the Issuing Bank (for shall be after a minimum of ten (10) years
HT1). This UnSD cannot be terminated for HT1 and UT2 and five (5) years for LT2
by the holder nor by the Issuing Bank after the issue date, and shall not result in an
before (maturity date) (for UT2 and LT2). increase over the initial rate that is more than:
However, negotiations/transfers from (i) 100 basis points less the swap
one (1) holder to another do not constitute spread between the initial index basis and
pre-termination. the stepped-up index basis; or
(Item “g(5)” above shall apply if the (ii) Fifty percent (50%) of the initial
Issuing Bank commits no pre-termination credit spread less the swap spread
of the UnSD. Otherwise, it shall read as between the initial index basis and the
follows): stepped-up index basis.
This UnSD cannot be terminated by the The swap spread shall be fixed at the
holder (for HT1). This UnSD cannot be pricing date and reflect the differential in
terminated by the holder before (maturity pricing on that date between the initial
date) (for UT2 and LT2). reference security or rate and the stepped-
However, it may be pre-terminated at up reference security or rate;
the instance of the Issuing Bank upon: (6) The holders/owners of this UnSD
(a) Prior approval of the BSP subject cannot set off any amount they owe to the
to the following conditions: Issuing Bank against this UnSD.
(i) The repayment is in connection (7) All negotiations/transfers of this
with call option after a minimum of five UnSD prior to maturity must be coursed
(5) years from issue date, or even within through a Market Maker until the operation
the first five (5) years from issue date when: of a fixed income exchange.
(aa)The UnSD was issued for the (8) The payment of principal may be
purpose of a merger with or acquisition by accelerated on this UnSD only in the event
the Issuing Bank and the merger or of insolvency of the Issuing Bank.
acquisition is aborted; (9) The coupon rate, or the formulation
(bb)There is a change in tax status of for calculating coupon payments shall be
the UnSD due to changes in the tax laws fixed at the time of the issuance of the
and/or regulations; or UnSD and may not be linked to the credit
(cc)The UnSD does not qualify as standing of the Issuing Bank;
HT1, UT2 or LT2 capital, as the case may (10)The payment of principal and
be, as determined by the BSP; and coupon due on this UnSD shall not be made
(ii) The debt is simultaneously to the extent that such payment will cause
replaced with the issues of new capital the Issuing Bank to become insolvent (for
which is neither smaller in size nor of HT1 and UT2);

§ X119.4
06.12.31
(11)The holders of the UnSD shall be (14) The coupon to be paid on this UnSD
treated as if they were holders of a specified shall be paid only to the extent that the
class of share capital in any proceedings Issuing Bank has profit distributable
commenced for the winding-up of the determined in accordance with existing
Issuing Bank (for HT1 and UT2); BSP regulations (for HT1).
(Item “g(11)” above shall apply if such N.B.: The last five (5) items (i.e., 10,
is the manner by which the UnSD is to be 11, 12, 13 and 14) are applicable only to
treated in loss situation. Otherwise, it shall UnSD qualifying under HT1 and UT2
read as follows): capital, as the case may be. The foregoing
This UnSD shall be automatically information shall also be shown in the
converted into common shares or Prospectus/Information Disclosure.
perpetual and non-cumulative preferred h. Pre-termination by the Issuer
shares (for HT1) or into common shares or (1) The Issuing Bank may pre-
perpetual and non-cumulative preferred terminate the UnSD subject to the
shares or perpetual and cumulative following conditions:
preferred shares (for UT2) upon occurrence (a) The Information Disclosure,
of certain trigger events as follows: Purchase Advice and Registry Confirmation
(a) Breach of minimum capital ratio; shall include the information that the
(b) Commencement of proceedings Issuing Bank has the option to pre-
for winding-up of the Issuing Bank; or terminate the UnSD;
(c) Upon appointment of receiver for (b) Compliance with Items “a(2)(a)vii”,
the Issuing Bank. “b(1)(h)v” or “b(2)(c)iv” as may be
The rate of conversion shall be fixed applicable, of Appendix 63a;
at the time of the subscription of this UnSD. (c) Prior notification of thirty (30) banking
(12)The amount and timing of coupons days or more to holders of record; and
on this UnSD shall be discretionary on the (d) Notwithstanding any agreement to
Issuing Bank where the Issuing Bank has the contrary, the Issuer shall shoulder the
not paid or declared a dividend on its tax due, if any, on the interest income
common shares in the preceding financial already earned by the holders.
year, or determines that no dividend is to (2) Within ten (10) banking days after
be paid on such shares in the current the completion of the pre-termination
financial year; and the Issuing Bank shall transaction, the Issuing Bank must submit
have full control and access to waived a written notice to the appropriate
payments (for HT1). The coupon payment department of the SES of the following:
on this UnSD shall be deferred where the (a) Actual pre-termination date; and
Issuing Bank has not paid or declared a (b) New capital composition.
dividend on its common shares in the i. Primary offering/secondary trading
preceding financial year, or determines that (1) The primary offering of a UnSD
no dividend is to be paid on such shares in shall be executed through an Underwriter
the current financial year (for UT2); under a firm commitment or through an
(13) The coupon on this UnSD shall be Arranger on a best effort basis. Initial sale/
non-cumulative. In case there is a feature distribution of UnSD shall be made by a
allowing withheld cash coupon to be Selling Agent, the Underwriter/Arranger
payable in scrip or shares of stock, the or, to a limited extent, the Issuing Bank
shares of stock to be issued shall not be of itself. Subsequent negotiations in
lower quality capital than the UnSD (for secondary trading must be executed
HT1); and through authorized Market Maker(s) until

§§ X119.4 - X119.5
06.12.31
the operation of a fixed income directors authorizing the private/negotiated

exchange. issuance of UnSD indicating, among
The primary offering as well as the others, the amount, duration/maturity,
secondary trading of a UnSD must be interest rate, purpose or intended use of
supported by Purchase Advice to be issued proceeds of the UnSD;
by the Selling Agent or the Market Maker, (b) A Certification by the corporate
as the case may be, with the original given secretary that the issuance of the UnSD
to the buyer and a second copy to the has been approved by the stockholders
UnSD Registry. Upon presentation by the owning or representing at least two-thirds
buyer of the original copy of Purchase (2/3) of the outstanding capital stock of the
Advice, the UnSD Registry shall: Issuing Bank if the UnSD has convertibility
(a) record the primary issuance in the feature;
Registry Book and issue a Registry (c) A written confirmation from the
Confirmation and the corresponding UnSD president or officer of equivalent rank of
certificate to the buyer if it is not scripless the Issuing Bank stating that all the
in form; and conditions for UnSD under Item “a(2)(a)”
(b) register the transfer of ownership excluding Item “(xiii)” on underwriting
in the UnSD Registry Book and issue a provision or Item “b(1)(h)” excluding Item
Registry Confirmation to the buyer, in the “(xi)” on underwriting provision or Item
case of secondary trading. “b(2)(c)” excluding Item “(ix)” on
(As amended by Memorandum to All Banks dated 23 March underwriting provision of Appendix 63a
2006) are complied with and that such conditions
shall be contained in the UnSD Certificates,
§ X119.5 Private or negotiated Prospectus/Information Disclosure and
issuance of UnSD Debt Agreement/Contract.
a. Private or negotiated issuance of (d) An undertaking from the president
UnSD is the issuance of UnSD to qualified or officer of equivalent rank of the Issuing
investors/buyers, whether individuals or Bank that the UnSD shall be issued only
institutions as defined under Subsec. to qualified investors/buyers;
X119.7. There is no limit on the number (e) A certification from the president
of qualified investors/buyers and on the or officer of equivalent rank of the Issuing
sale or negotiation of the UnSD: Provided, Bank that the investor/buyer shall not be
That such sale or negotiation shall only be among those prohibited to hold UnSD
made to another qualified investor/buyer. under Subsec. X119.8 and that the Issuing
b. Application for authority of the Bank has applied appropriate standards to
Issuing Bank combat money laundering as required
(1) The application shall be signed by under existing BSP regulations;
the president or officer of equivalent rank (f) A written undertaking from the
of the Issuing Bank. president or officer of equivalent rank of
(2) The application for authority on the Issuing Bank not to support, directly
each negotiated UnSD issue shall be filed nor indirectly, by extending loans, issuing
with the appropriate department of the payment guarantees or otherwise, the
SES. buyer/holder of the UnSD of the Issuing
(3) The application shall be Bank; and
accompanied by: (g) Specimen of the proposed Debt
(a) A certified true copy of the Agreement/Contract containing the terms
resolution of the Issuing Bank’s board of and conditions of the UnSD issuance.

§ X119.5
06.12.31
(h) A written external legal opinion (3) This UnSD does not have a priority
that all the conditions for UnSD under Item claim, in respect of principal and coupon
“a(2)(a)”, Item “b(1)(h)” or Item “b(2)(c)”, of payments in the event of winding-up of the
Appendix 63a including the subordination Issuing Bank, which is higher than or equal
(for HT1, UT2 and LT2) and loss absorption with that of depositors and other creditors
(for HT1 and UT2) features, have been (for LT2); depositors, other creditors and
met. holders of LT2 capital instruments (for
c. Additional Requirements for the UT2); and depositors, other creditors,
Private Issuance of UnSD. Within ten (10) holders of LT2 and UT2 capital instruments
banking days after issuance of the UnSD, (for HT1);
the Issuing Bank shall submit the following (4) This UnSD is ineligible as collateral
additional requirements to the appropriate for a loan made by the Issuing Bank, its
department of the SES: subsidiaries or affiliates.
(1) A written notice of the actual date (5) This UnSD cannot be terminated
of full receipt of proceeds, accompanied by the holder nor by the Issuing Bank (for
by a certification from the president or HT1). This UnSD cannot be terminated
officer of equivalent rank of the Issuing by the holder nor by the Issuing Bank
Bank stating that the pre-qualification before (maturity date) (for UT2 and LT2).
requirements under Subsec. X119.3 have Item “d(5)” above shall apply if the
been complied with up to the time of full Issuing Bank commits no pre-termination
receipt of proceeds; of the UnSD. Otherwise, it shall read as
(2) A copy of each of the duly signed follows:
Debt Agreements/Contracts between the This UnSD cannot be terminated by the
Issuing Bank and the investor/buyer as holder (for HT1). This UnSD cannot be
specified in the application for authority to terminated by the holder before (maturity
issue negotiated UnSD; and date) (for UT2 and LT2).
(3) A copy of the income tax return of However, it may be pre-terminated at
the investor/buyer in case of a natural the instance of the Issuing Bank upon:
person. (a) Prior approval of the BSP subject
d. Debt agreement/contract to the following conditions:
The Debt Agreement/Contract shall (i) The repayment is in connection
contain all the terms and conditions on the with call option after a minimum of five
issuance of UnSD and shall conspicuously (5) years from issue date, or even within
state the following caveat: the first five (5) years from issue date when:
(1) This UnSD is not a deposit and is (aa) The UnSD was issued for the
not insured by the PDIC. purpose of a merger with or acquisition by
(2) This UnSD is neither secured nor the Issuing Bank and the merger or
covered by a guarantee of the Issuer or acquisition is aborted;
related party of the Issuer or other (bb)There is a change in tax status of
arrangement that legally or economically the UnSD due to changes in the tax laws
enhances the priority of the claim of any and/or regulations; or
holder of the UnSD as against depositors (cc)The UnSD does not qualify as
and other creditors (for LT2); depositors, HT1, UT2 or LT2 capital, as the case may
other creditors and holders of LT2 capital be, as determined by the BSP; and
instruments (for UT2); and depositors, other (ii) The debt is simultaneously
creditors and holders of LT2 and UT2 replaced with the issues of new capital
capital instruments (for HT1). which is neither smaller in size nor of

§ X119.5
06.12.31
lower quality than the original issue, unless proceedings commenced for the winding-
the Issuing Bank’s capital adequacy ratio up of the Issuing Bank (for HT1 and UT2);
remains more than adequate after (Item “d(11)” above shall apply if such
redemption; and is the manner by which the UnSD is to be
(b) Prior notice to investors/buyers. treated in loss situation. Otherwise it shall
In case there is a feature allowing one- read as follows):
time step-up in the coupon rate in This UnSD shall be automatically
conjunction with a call option, the step-up converted into common shares or perpetual
shall be after a minimum of ten (10) years and non-cumulative preferred shares (for
(for HT1 and UT2) and five (5) years (for HT1), or into common shares or perpetual
LT2) after the issue date, and shall not result and non-cumulative preferred shares or
in an increase over the initial rate that is perpetual and cumulative preferred shares
more than: (for UT2) upon occurrence of certain trigger
(i) 100 basis points less the swap events as follows:
spread between the initial index basis and (a) Breach of minimum capital ratio;
the stepped-up index basis; or (b) Commencement of proceedings
(ii) Fifty percent (50%) of the initial for winding up of the Issuing Bank; or
credit spread less the swap spread between (c) Upon appointment of receiver for
the initial index basis and the stepped-up the Issuing Bank.
index basis. The rate of conversion shall be fixed at
The swap spread shall be fixed at the the time of the subscription of this UnSD.
pricing date and reflect the differential in (12) The amount and timing of coupons
pricing on that date between the initial on this UnSD shall be discretionary on the
reference security or rate and the stepped- Issuing Bank where the Issuing Bank has
up reference security or rate; not paid or declared a dividend on its
(6) This UnSD may only be sold, common shares in the preceding financial
transferred or negotiated to another year, or determines that no dividend is to
qualified investor/buyer; be paid on such shares in the current
(7) The holders/owners of this UnSD financial year; and the Issuing Bank shall
cannot set off any amount they owe to the have full control and access to waived
Issuing Bank against this UnSD. payments (for HT1). The coupon payment
(8) The payment of principal may be on this UnSD shall be deferred where the
accelerated on this UnSD only in the event Issuing Bank has not paid or declared a
of insolvency of the Issuing Bank. dividend on its common shares in the
(9) The coupon rate, or the formulation preceding financial year, or determines that
for calculating coupon payments shall be no dividend is to be paid on such shares in
fixed at the time of the issuance of the the current financial year (for UT2);
UnSD and may not be linked to the credit (13) The coupon on this UnSD shall be
standing of the Issuing Bank; non-cumulative. In case there is a feature
(10)The payment of principal and allowing withheld cash coupon to be
coupon due on this UnSD shall not be made payable in scrip or shares of stock, the
to the extent that such payment will cause shares of stock to be issued shall not be of
the Issuing Bank to become insolvent (for lower quality capital than the UnSD (for
HT1 and UT2); HT1); and
(11)The holders of the UnSD shall be (14)The coupon to be paid on this UnSD
treated as if they were holders of a shall be paid only to the extent that the
specified class of share capital in any Issuing Bank has profit distributable

§§ X119.5 - X119.6
06.12.31
determined in accordance with existing (4) Records initial issuance of UnSD

BSP regulations (for HT1). and subsequent transfer of ownership;
N.B.: The last five (5) items (i.e., 10, (5) Issues UnSD Certificates and
11 12, 13 and 14) are applicable only to Registry Confirmation to original
UnSD qualifying under HT1 and UT2 investors/buyers;
capital, as the case may be. (6) Issues Registry Confirmation to
e. Pre-termination by the Issuer subsequent buyers/holders where
(1) The Issuing Bank may pre- applicable;
terminate the negotiated UnSD subject to (7) Ensures compliance with X119.8
the following conditions: and applies appropriate standards to
(a) The Debt Agreement/Contract combat money laundering as required
shall include the information that the under existing BSP regulations; and
Issuing Bank has the option to pre- (8) Determines suitability of the
terminate the UnSD; investors/buyers (original or subsequent)
(b) Compliance with Item “a(2)(a)vii”, and assures that he fully understands the
Item “b(1)(h)v” or Item “b(2)(c)iv”, as may risk involved in a UnSD.
be applicable, of Appendix 63a; (As amended by Memorandum to All Banks dated 23 March 2006)
(c) Prior notification of thirty (30)
banking days or more to lender/investor; § X119.6 Issuance overseas of
and UnSD. The overseas issuance of UnSD
(d) Notwithstanding any agreement to shall also be subject to the provisions of
the contrary, the Issuer shall shoulder the Sec. X119 except for the following:
tax due, if any, on the interest income a. Overseas issuance of UnSD may
already earned by the holders. be allowed to be governed by the laws
(2) Within ten (10) banking days after and applicable rules and regulations of the
the completion of the pre-termination country where the UnSD is to be issued
transaction, the Issuing Bank must submit with respect to form, qualified investors/
a written notice to the appropriate buyers and subsequent sale or
department of the SES of the following: negotiation;
(a) Actual pre-termination date; and b. The requirements under Subsecs.
(b) New capital composition. X119.1 c(1), X119.4 g(1), and X119.5 d(1)
f. Functions/Responsibilities of the and d(6) may be allowed to be dispensed
Issuing Bank with in cases of overseas issuance of
(1) Prepares the Prospectus/ UnSD; and
Information Disclosure on the UnSD c. The subsequent sale/negotiation in
issues; the Philippines of the UnSDs originally
(2) Disseminates to prospective issued overseas shall not be allowed
investors/buyers information on the terms unless all the requirements for domestic
and conditions of the UnSD (including issuance are complied with.
information on no pre-termination at the It is however understood that the
initiative of the holder, and where applicant/issuer shall also secure the
applicable, the liquidity mechanism in approval of the International
secondary trading) and the rights and Department (ID) of the BSP for the
obligations of the holder and the issuer; overseas issuance of foreign currency
(3) Keeps unissued UnSD certificates denominated UnSD.
and maintains UnSD Register; (As amended by Memorandum to All Banks dated 23 March 2006)

§§ X119.7 - X119.9
06.12.31
§ X119.7 Qualified investors/buyers (1) That the fund owners give prior
Qualified buyers of, or suitable investors authority/instruction to the Trust
in, a UnSD can be any of the following: Department to purchase or invest in the
a. Banks; UnSD of the Issuing Bank; and
b. Investment house (IH); (2) That the authority/instruction of the
c. Insurance company; fund owner and his understanding of the
d. Pension or retirement fund of other risk involved in purchasing or investing in
entities which have no subsidiary/affiliate UnSD are fully documented.
or any other relationship with the Issuing For purposes of this Section, an affiliate
Bank; refers to a related entity linked by means
e. Investment company; of ownership of at least twenty percent
f. Funds managed by another bank (20%) to not more than fifty percent (50%)
or other entities duly authorized to engage of its outstanding voting stock.
in trust or other fiduciary business;
g. Domestic corporate or institutional X119.9 Accounting treatment
investors with total assets of at least P100.0 Obligations arising from the issuance of
million; UnSD (including the portion exceeding the
h. Foreign multilateral organizations allowable ceiling for purposes of determining
such as, the ADB and IFC; the qualifying capital as provided in
i. High net-worth individual investor/ Appendix 63a) shall be booked under the
buyer who is sophisticated enough to following General Ledger account titles:
understand and appreciate the significance a. “Other Equity Instruments –
of and the risk involved in UnSD as may Others” for HT1 capital which shall be
be indicated by his/her educational presented in the equity accounts section
background and/or employment/business of the Balance Sheet which shall be
experience; and accounted for in accordance with the
j. Stockholder, director or officer provisions of PAS 32; and
with the rank of at least a vice-president of b. “Unsecured Subordinated Debt”
the Issuing Bank. for UT2 and LT2 capital, which shall be
presented in the liability accounts section
§ X119.8 Prohibitions on holdings of of the balance sheet.
UnSD. The following persons and entities However, only the proceeds actually
are prohibited from purchasing/holding received from the UnSD issues, (i.e., net of
UnSD of the Issuing Bank: discounts, if any, and transaction costs) shall
a. Subsidiaries and affiliates of the be considered as HT1, UT2 or LT2 capital.
Issuing Bank including their subsidiaries The proceeds actually received from
and affiliates; and the UnSD issues, (i.e., net of discounts, if
b. Common trust funds (CTFs) any, and transaction costs) eligible as UT2
managed by the Trust Department of the or LT2 capital shall be considered in the
Issuing Bank, its subsidiaries and affiliates computation of loanable funds for purposes
or other related entities: Provided, That of determining compliance with the
other funds being managed by the Trust mandatory allocation of funds for agri-agra
Department of the Issuing Bank, its credit required under P.D. No. 717, as
subsidiaries and affiliates or other related amended.
entities are allowed to purchase or invest A UnSD eligible as HT1, UT2 or LT2
in UnSD of the Issuing Bank subject to the capital shall be accounted for in accordance
following conditions: with PAS 32 and PAS 39.
Part I - Page 36b Manual of Regulations for Banks

§§ X119.9 - X120
08.12.31
A UnSD denominated in foreign (2) Monetary penalty of P30,000 for

currency eligible as HT1, UT2 or LT2 may each violation.
be recorded in the regular banking unit (RBU) d. On the selling agent/market maker
or foreign currency deposit unit (FCDU/ (1) Disqualification from being
EFCDU) of the issuing bank: Provided, That appointed as selling agent or market
if booked in the FCDU/ EFCDU, the maker for three (3) years; and
following conditions shall be strictly observed: (2) Monetary penalty of P30,000 for
a. The issuing bank shall indicate in each violation.
its application that the UnSD shall be e. On the public trustee
booked in its FCDU/EFCDU; (1) Disqualification from being
b. The UnSD shall remain in the FCDU/ appointed as public trustee for three (3)
EFCDU books until full settlement; and years; and
c. The UnSD shall be issued only to (2) Monetary penalty of P30,000 for
non-residents and offshore banking units each violation.
(OBUs) in accordance with Section 72.2.e f. On the certifying officer - A fine
of CB Circular No. 1389, as amended. of P5,000 per day from the time of required
(As amended by Memorandum to All Banks dated 23 March 2006) disclosure up to the time disclosure was
made, or from the time misrepresentation
§§ X119.10 - X119.12 (Reserved) was made up to the time the information
was corrected, and a possible
§ X119.13 Sanctions. Without disqualification if warranted by the gravity
prejudice to the other sanctions prescribed of the offense committed.
under Section 37 of R.A. No. 7653 and the g. On the responsible officer - A fine
provisions of Section 16 of R.A. No. 8791, of P30,000 for participating in or tolerating
sanctions shall be imposed on the Issuing the non-disclosure or misrepresentation of
Bank, UnSD Registry and other parties information, and a possible disqualification
involved in the transaction for failure to if warranted by the gravity of the offense
perform their respective functions/ committed.
responsibilities and for non-disclosure or (As amended by Circular No. 585 dated 15 October 2007)
misrepresentation of information, as follows:
a. On the issuing bank Sec. X120 Interim Tier 1 Capital for Banks
(1) Suspension of its authority to issue Under Rehabilitation. The following are
remaining tranches, if any; the guidelines on the issuance of capital
(2) Disqualification from future notes that will qualify as interim Tier 1
issuance of UnSD; capital for banks under rehabilitation:
(3) Disqualification of all outstanding a. Banks under rehabilitation shall be
issues as eligible Tier 2 capital; and allowed, upon prior BSP approval, to issue
(4) Monetary penalty of P30,000 for capital notes that shall qualify as interim
each violation. Tier 1 capital: Provided, That the PDIC shall
b. On the underwriter/arranger be the holder of the said capital notes:
(1) Disqualification from being Provided, further, That any transter from
underwriter/arranger for three (3) years; and PDIC of said capital notes shall require
(2) Monetary penalty of P30,000 for prior BSP approval.
each violation. b. The interim Tier 1 capital notes
c. On the UnSD registry shall have the following minimum
(1) Disqualification from being features:
appointed as UnSD Registry for three (3) (1) It must be perpetual, unsecured
years; and and subordinated;
Manual of Regulations for Banks Part I - Page 36c

§ X120
08.12.31
(2) It must be issued and fully paid-up. except in the event of insolvency. The
Only the net proceeds received from the agreement governing its issuance must not
issuance shall be included as Tier 1 capital. contain any provision that mandates or
The proceeds of the issuance must be creates an incentive for the bank to repay
immediately available without limitation the outstanding principal of the interim
to the bank; Tier 1 capital notes, e.g., a cross-default or
(3) It must neither be secured nor negative pledge or a restrictive covenant,
covered by a guarantee of the issuer or other than a call option, which may be
related party or other arrangement that exercised by the bank;
legally or economically enhances the priority (6) The PDIC, as holder of the interim
of the claim of the PDIC as against Tier 1 capital notes, shall have the right to
depositors, other creditors of the bank and convert, upon prior notice to the BSP, the
holders of LT2 and UT2 capital instruments; interim Tier 1 capital notes into perpetual
(4) The PDIC, as holder of the interim and non-cumulative preferred shares
capital notes must not have a priority claim, convertible into common shares which
in respect of its principal and coupon may be sold to new investors: Provided,
payments of the interim Tier 1 capital notes That the rate of conversion shall be fixed at
in the event of winding up of the bank, the time of subscription of the interim Tier 1
which is higher than or equal with that of capital notes;
depositors, other creditors of the bank and (7) The coupons must be
holders of LT2 (e.g. limited life redeemable non-cumulative;
preferred stock) and UT2 (e.g. perpetual (8) The bank must have full discretion
and cumulative preferred stock) capital over the amount and timing of coupon
instruments. The PDIC must waive its payments and it must have full control and
right to set-off any amount it owes the bank access to waived payments;
against any subordinated amount owed to (9) Any coupon to be paid must be paid
it due to the interim Tier 1 capital notes; only to the extent that the bank has profits
(5) It must not be repayable without distributable determined in accordance
the prior approval of the BSP: Provided, with existing BSP regulations. The coupon
That repayment may be allowed only in rate, or the formulation for calculating
connection with a call option after a coupon payments must be fixed at the time
minimum of five (5) years from issue date: of issuance of the interim Tier 1 capital
Provided, however, That a call option may notes and must not be linked to the credit
be exercised within the first five (5) years standing of the bank;
from issue date upon entry of new (10)It must not have step-up provisions
investors: Provided, further, That such in the coupon rate in conjunction with the
repayment prior to maturity shall be call option;
approved by the BSP only if it is (11)All other transactions involving the
simultaneously replaced with issues of new capital notes shall require prior BSP approval.
capital which is neither smaller in size nor c. The bank must submit a written
of lower quality than the original issue, opinion from its external auditor that the
unless the bank’s capital ratio remains more features of the interim Tier 1 capital notes
than adequate after redemption. shall be accounted for as equity instruments
It must not contain any clause, which in accordance with PAS 32.
requires acceleration of payment of principal, (Circular No. 595 dated 11 January 2008)
Part I - Page 36d Manual of Regulations for Banks

§§ 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;

§§ X12.4 - X126.5
07.12.31
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
redeemable shares subject to the following Appendix 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
07.12.31
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 day of
issued in series or at one (1) time, a 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) days from the end of reference year, for each violation from the time the violation
submit a yearly report of issuances of was committed or up to the time the
preferred shares to the appropriate violation is corrected;
department of the SES indicating therein the ii. Second and subsequent offenses –
name/s of the subscriber/s, the date the A fine of P5,000 per day from the time the
shares were issued and the number/amount violation was committed up to the time the
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; (As amended by Circular No. 585 dated 15 October 2007)
ii. Prohibition against granting of new
unsecured loans to DOSRI; § X126.6 Stock options/warrants. A
iii. Prohibition against declaration of bank may grant options/warrants to subscribe
dividends; at par to its capital stock: 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 day until the bank with any of its stockholders and their
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 the

§ X126.10 - 2127.2
07.12.31
total subscribed capital of a domestic bank Any natural person or a family group,
must disclose all relevant information on all who, together, with any corporation
persons related to him within the fourth majority or all of the equity of which is
degree of consanguinity or affinity, whether owned by such person or family group,
legitimate, illegitimate or common law as owns more than forty percent (40%) of the
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
07.12.31
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) 100% asset cover.
c. In process of collection - A debt due e. Statutory and liquidity reserves
to a bank shall be considered in process of requirement;
collection when it is the subject of f. No past due loans or
continuing extrajudicial or judicial accommodations with the BSP or with any
proceedings aimed towards its full institution;
settlement or liquidation or otherwise to g. No net losses from operations in any
place it in current status. one (1) of the two (2) fiscal years
The extrajudicial proceedings, such as immediately preceding the date of dividend
the writing of collection or demand letters, declaration;
must have been initiated by the bank and/ h. Has not committed any of the
or its lawyers before the interest or following major violations:
installments or amortizations on the debt (1) Loans and other credit
have become past due and unpaid for a accommodations and guarantees granted in
period of six (6) months. excess of the single borrower’s limit;
The debt shall continue to be (2) Loans and other credit
considered in process of collection for a accommodations granted/extended in
period of six (6) months counted from date excess of the ceilings on accommodations
of the first collection or demand letter and to DOSRI;
if, within this period, the debtor fails to (3) Unsafe and unsound banking practice
make a payment of at least twenty percent as defined under existing BSP regulations;
(20%) of the outstanding balance of the (4) Equity investments in excess of the
principal on his account, plus all interest prescribed ceilings;
which may have accrued thereon, the same (5) Investments in real estate, bank
shall automatically be classified as bad debts premises and equipment in excess of
unless judicial proceedings are instituted. prescribed ceilings;
The debt shall continue to be (6) Major violations/exceptions cited in
considered in process of collection during the previous examination not duly acted
the pendency of the judicial proceedings. upon or not yet corrected;
When judgment against the debtor has (7) Transactions or activities without
been obtained, the bank must be active in prior approval or necessary license from the
enforcing the judgment for the debt to BSP such as, but not limited to, derivatives,
continue to be considered in process of trust and e-banking;
collection.

§§ X136.2 - X136.5
07.12.31
(8) Refusal to permit examination into included in the amount available for stock
the affairs of the institution or any willful dividends.
making of a false or misleading statement
to the Monetary Board or to the appropriate § X136.4 Reporting and verification
department of the SES; and Declaration of dividends shall be reported
(9) Failure to comply with the capital by the bank concerned to the appropriate
build-up program approved by the department of the SES in the prescribed
Monetary Board. form within the deadline indicated in
On the other hand, banks which have Appendix 6.
committed any of the major violations Pending verification of above-
under Item “h” above may only be allowed mentioned report by the appropriate
to declare dividends by the Monetary Board department of the SES, the bank concerned
upon recommendation of the appropriate shall not make any announcement or
department of the SES that the bank has communication on the declaration of
corrected the major violation/s that it has dividends nor shall any payment be made
committed. thereon.
(As amended by Circular No. 571 dated 21 June 2007) Banks, however, whose shares are
listed with any domestic stock exchange
§ X136.3 Net amount available for may declare dividends and give immediate
dividends. The net amount available for notice of such declaration to the SEC and
dividends shall be the amount of the stock exchanges, in compliance with
unrestricted or free earned surplus and pertinent rules of SEC: Provided, That no
undivided profits less: record date is fixed for such dividend pending
a. Bad debts against which valuation verification of the report on such declaration
reserves are not required by the BSP to be by the appropriate department of the SES.
set up; In any case, the declaration may be
b. Unbooked valuation reserves, and announced and the dividends paid, if after
other unbooked capital adjustments thirty (30) banking days from the date the
required by the BSP, whether or not allowed report required herein shall have been
to be set up on a staggered basis; received by the BSP, no advice against
c. Deferred income tax; such declaration has been received by the
d. Accumulated profits not yet bank concerned.
received but already recorded by a bank
representing its share in profits of its § X136.5 Recording of dividends. The
subsidiaries under the equity method of liability for dividends declared shall be
accounting; taken up in the books upon receipt of
e. Accrued interest as required to be BSP approval thereof, or if no such
excluded pursuant to Item “d” of Subsec. approval is received, after thirty (30)
X305.4, net of booked valuation reserves banking/business days from the date the
on accrued interest receivable or allowance required report on dividend declaration
for uncollectible interest on loans; and w a s received by the appropriate
f. Foreign exchange profit arising from department of the SES , whichever comes
revaluation of foreign exchange earlier. A memorandum entry may be
denominated accounts. made to record the dividend declaration on
For purposes of this Subsec., any the date of approval by the board of directors
balance of Paid-in Surplus account may be and for full disclosure purposes, the

§§ X136.5 - 3137
05.12.31
dividends declared may be disclosed in the cash dividends only if the amount of its
financial statements by means of a footnote reserve for retirement of government
which should include a statement to the preferred stock is at least equal to the
effect that the dividend declaration is amount which should have been
subject to review by the BSP. accumulated had the bank transferred
Dividends of all kinds, whether on annually to the reserve account from its
common or on preferred shares of stock, undivided profits an amount equal to at
should not be treated as interest expense, least an average of one-tenth (1/10) of the
considering that as a general policy, only total amount of preferred stock.
irredeemable stock may be issued by banks. In no case shall cash dividends be
declared whenever any of the following
§ X136.6 Issuance of fractional shares circumstances is present:
Whenever the declaration of stock dividend (i) Arrearages in its obligations with
results in the issuance of fractional shares, the BSP amount to P1.0 million or more
banks may observe the following unless covered by an approved plan of
guidelines: payment which is being fully complied with:
a. The amount corresponding to the Provided, however, That cash dividends
fraction should be given in the form of cash shall not exceed ten percent (10%) per
dividend; and annum; or
b. The certificate of stock issued (ii) Past due loans comprise twenty-five
should be in whole numbers, and the percent (25%) or more of the total loan
fractional shares shall be issued in the form portfolio at any time during the last six (6)
of scrip certificates. In no case shall the months prior to the dividend declaration.
certificate of stock be issued including such b. Coop Banks
fractional share. The scrip certificate is (1) Interest on share capital -
temporary in nature and should be (a) Interest on share capital shall be
redeemed in cash when the bank is in a declared only upon compliance with the
position to do so, or stockholders holding requirements prescribed under Item “a”
such scrip certificates may negotiate with above.
other stockholders for the purchase or sale (b) Government preferred shares shall
of such shares to convert them into full be entitled to interest as enumerated in
shares, subject to the limitations on Subsec. 3137.1: Provided, That no
stockholdings as provided by law. cumulative interest shall be allowed for any
kind or class of share issued by the Coop Bank.
Sec. X137 (Reserved) 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 and where:
(i) “X“ shall be a percentage to be
Cooperative Banks. The following rules
determined by the board of directors
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 declare 87 of R.A. No. 6938.

§§ 3137 - 3137.1
05.12.31
No allocation of interest on share capital (iv) If within any period of time specified
shall be made without the approval of the in the by-laws, any subscriber who has not
general assembly which may increase or fully paid his subscribed share capital or
decrease any or both. any non-member patron which has
(2) Patronage refund - accumulated the sum necessary for
(a) The amount allocated for patronage membership but does not request nor agree
refund shall not be less than thirty percent to become a member or fails to comply with
(30%) of the net surplus after deducting the the provision of the by-laws for admission
statutory reserves based on the principle of to membership, the amount so accumulated
equity; or credited to their account together with
(b) The rate of patronage refund shall any part of the general fund for non-
not be more than twice the rate of interest member patrons shall be credited to the
on share capital; reserve fund or to the education and
(c) The sum allocated for patronage training fund of the Coop Bank.
refunds shall be made available at the
same rate to all cooperative patrons of the § 3137.1 Dividends on government
Coop Bank in proportion to their shares
individual patronage: Provided, That - a. Held prior to 09 June 1992.
(i) In the case of a cooperative member Whenever dividends of not less than
patron with paid-up share capital fourteen percent (14%) are declared on
contribution, its proportionate amount of common stock, government preferred stock
patronage refund shall be paid unless it shall be entitled to a cash dividend not to
agrees to credit the amount to its account exceed two percent (2%) of total
as additional share capital contribution; outstanding preferred stock. Should the
(ii) In the case of a cooperative member dividends declared on common stock be
patron with unpaid share capital less than fourteen percent (14%), the
contribution, its proportionate amount of dividend on preferred stock shall be
patronage refund shall be credited to its proportionately reduced.
share capital contribution; b. Held on or after 09 June 1992.
(iii) In the case of a non-member patron, Shares held by the LBP, DBP, or by any
its proportionate amount of patronage government-owned or-controlled bank or
refund shall be set aside in a general fund FI shall share in dividend distributions from
for such patrons and shall be allocated to the date of issuance in the amount of four
non-member patrons only upon request and percent (4%) on the first and second years;
presentation of evidence of the amount of six percent (6%) on the third and fourth
its patronage. The amount so allocated shall years; eight percent (8%) on the fifth and
be credited to such patron toward payment sixth years; ten percent (10%) on the
of the minimum capital contribution for seventh and eighth years; and twelve
membership. When a sum equal to this percent (12%) on the ninth to the fifteenth
amount has accumulated at any time within years, which shall be cumulative: Provided,
a period specified in the by-laws, such That the RB and the government-owned
patron shall be deemed and become a or-controlled bank are not precluded from
member of the Coop Bank if it so agrees or entering into an agreement providing for
requests and complies with the provisions of rates of dividends other than those
the by-laws for admission to membership; and 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
07.12.31
Sec. X142 Definition and Qualifications That trust officers shall have at least two (2)
of Officers. For purposes of this Section, years of actual experience or training in trust
the following shall be the definition and operations or fund management or other
qualification of officers. related fields; and
c. He must be fit and proper for the
§ X142.1 Definition of officers position he is being proposed/appointed to.
Officers shall include the president, In determining whether a person is fit and
executive vice president, senior vice- proper for a particular position, the
president, vice president, general manager, following matters must be considered:
treasurer, secretary, trust officer and others integrity/probity, competence, education,
mentioned as officers of the bank, or those diligence and experience/training.
whose duties as such are defined in the by- The foregoing qualifications for
laws, or are generally known to be the officers shall be in addition to those
officers of the bank (or any of its branches required or prescribed under R.A. No.
and offices other than the head office) either 8791 and other existing applicable laws
through announcement, representation, and regulations.
publication or any kind of communication
made by the bank: Provided, That a person § X142.3 Appointment of officers
holding the position of chairman or vice- The appointment of officers of UBs/
chairman of the board or another position KBs/TBs with the rank of senior vice
in the board shall not be considered as an president (SVP) and above, whether
officer unless the duties of his position in incumbent or proposed, shall not be subject
the board include functions of management to Monetary Board approval but rather to
such as those ordinarily performed by Monetary Board confirmation. Appointment
regular officers: Provided, further, That of officers below the rank of SVP shall be
members of a group or committee, subject neither to Monetary Board approval
including sub-groups or sub-committees, nor Monetary Board confirmation.
whose duties include functions of The appointment of abovementioned
management such as those ordinarily officers shall be deemed to have been
performed by regular officers, and are not confirmed by the BSP, if after sixty (60)
purely recommendatory or advisory, shall banking days from receipt of the required
likewise be considered as officers. reports, no advice against said
(As amended by Circular No. 562 dated 13 March 2007) appointment has been received by the
bank concerned.
§ X142.2 Qualifications of an officer b. (As amended 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 following
department of the SES: Provided, however, are disqualified from becoming directors:

§ X143.1
07.12.31
a. Permanently disqualified b. Temporarily disqualified

Directors/officers/employees Directors/officers/employees
permanently disqualified by the Monetary disqualified by the Monetary Board from
Board from holding a director position: holding a director position for a specific/
(1) Persons who have been convicted indefinite period of time. Included are:
by final judgment of a court for offenses (1) Persons who refuse to fully
involving dishonesty or breach of trust such disclose the extent of their business interest
as, but not limited to, estafa, embezzlement, or any material information to the
extortion, forgery, malversation, swindling, appropriate department of the SES when
theft, robbery, falsification, bribery, required pursuant to a provision of law or of
violation of B.P. Blg. 22, violation of Anti- a circular, memorandum, rule or regulation
Graft and Corrupt Practices Act and of the BSP. This disqualification shall be in
prohibited acts and transactions under effect as long as the refusal persists;
Section 7 of R.A. No. 6713 (Code of (2) Directors who have been absent or
Conduct and Ethical Standards for Public who have not participated for whatever
Officials and Employees); reasons in more than fifty percent (50%)
(2) Persons who have been convicted of all meetings, both regular and special,
by final judgment of a court sentencing of the board of directors during their
them to serve a maximum term of incumbency, and directors who failed to
imprisonment of more than six (6) years; physically attend for whatever reasons in
(3) Persons who have been convicted at least twenty-five percent (25%) of all
by final judgment of the court for violation board meetings in any year, except that
of banking laws, rules and regulations; when a notarized certification executed by
(4) Persons who have been judicially the corporate secretary has been submitted
declared insolvent, spendthrift or attesting that said directors were given the
incapacitated to contract; agenda materials prior to the meeting and
(5) Directors, officers or employees of that their comments/decisions thereon
closed banks who were found to be were submitted for deliberation/discussion
culpable for such institution’s closure as and were taken up in the actual board
determined by the Monetary Board; meeting, said directors shall be considered
(6) Directors and officers of banks present in the board meeting. This
found by the Monetary Board as disqualification applies only for purposes
administratively liable for violation of of the immediately succeeding election;
banking laws, rules and regulations where (3) Persons who are delinquent in the
a penalty of removal from office is imposed, payment of their obligations as defined
and which finding of the Monetary Board hereunder:
has become final and executory; or (a) Delinquency in the payment of
(7) Directors and officers of banks or obligations means that an obligation of a
any person found by the Monetary Board person with a bank where he/she is a
to be unfit for the position of directors or director or officer, or at least two (2)
officers because they were found obligations with other banks/FIs, under
administratively liable by another different credit lines or loan contracts, are
government agency for violation of banking past due pursuant to Sec. X306;
laws, rules and regulations or any offense/ (b) Obligations shall include all
violation involving dishonesty or breach of borrowings from a bank obtained by:
trust, and which finding of said government (i) A director or officer for his own
agency has become final and executory. account or as the representative or agent

§ X143.1
07.12.31
of others or where he/she acts as a the appropriate department of the SES of

guarantor, endorser or surety for loans such directors’ election/reelection;
from such FIs; (7) Directors who failed to attend the
(ii) The spouse or child under the special seminar for board of directors
parental authority of the director or officer; required under Item “c” of Subsec. X141.2.
(iii)Any person whose borrowings or This disqualification applies until the director
loan proceeds were credited to the concerned had attended such seminar;
account of, or used for the benefit of a (8) Persons dismissed/terminated from
director or officer; employment for cause. This disqualification
(iv) A partnership of which a director shall be in effect until they have cleared
or officer, or his/her spouse is the themselves of involvement in the alleged
managing partner or a general partner irregularity or upon clearance, on their
owning a controlling interest in the request, from the Monetary Board after
partnership; and showing good and justifiable reasons, or
(v) A corporation, association or firm after the lapse of five (5) years from the time
wholly-owned or majority of the capital they were officially advised by the
of which is owned by any or a group of appropriate department of the SES of their
persons mentioned in the foregoing Items disqualification;
“(i)”, “(ii)” and “(iv)”; (9) Those under preventive suspension;
This disqualification shall be in effect (10) Persons with derogatory records as
as long as the delinquency persists. certified by, or on the official files of, the
(4) Persons who have been convicted judiciary, NBI, Philippine National Police
by a court for offenses involving (PNP), quasi-judicial bodies, other
dishonesty or breach of trust such as, but government agencies, international police,
not limited to, estafa, embezzlement, monetary authorities and similar agencies
extortion, forgery, malversation, swindling, or authorities of foreign countries for
theft, robbery, falsification, bribery, irregularities or violations of any law, rules
violation of B.P. Blg. 22, violation of Anti- and regulations that would adversely
Graft and Corrupt Practices Act and affect the integrity of the director/officer
prohibited acts and transactions under or the ability to effectively discharge his
Section 7 of R.A. No. 6713, violation of duties. This disqualification applies until
banking laws, rules and regulations or they have cleared themselves of the alleged
those sentenced to serve a maximum term irregularities/violations or after a lapse of
of imprisonment of more than six (6) years five (5) years from the time the complaint,
but whose conviction has not yet become which was the basis of the derogatory
final and executory; record, was initiated;
(5) Directors and officers of closed (11) Directors and officers of banks
banks pending their clearance by the found by the Monetary Board as
Monetary Board; administratively liable for violation of
(6) Directors disqualified for failure to banking laws, rules and regulations where
observe/discharge their duties and a penalty of removal from office is
responsibilities prescribed under existing imposed, and which finding of the
regulations. This disqualification applies Monetary Board is pending appeal before
until the lapse of the specific period of the appellate court, unless execution or
disqualification or upon approval by the enforcement thereof is restrained by the
Monetary Board on recommendation by court;

§§ X143.1 - X143.3
07.12.31
(12)Directors and officers of banks or consanguinity or affinity of any person

any person found by the Monetary Board holding the position of manager, cashier,
to be unfit for the position of director or or accountant of a branch or office of a bank
officer because they were found is disqualified from holding or being
administratively liable by another appointed to any of said positions in the
government agency for violation of banking same branch or office.
laws, rules and regulations or any offense/ c. In the case of UBs, KBs, and TBs,
violation involving dishonesty or breach of any appointive or elective official, whether
trust, and which finding of said government full time or part time, except in cases where
agency is pending appeal before the such service is incident to financial
appellate court, unless execution or assistance provided by the government or
enforcement thereof is restrained by the government-owned or -controlled
court; and corporations (GOCCs) or in cases allowed
(13)Directors and officers of banks under existing law.
found by the Monetary Board as d. In the case of Coop Banks, any
administratively liable for violation of officer or employee of CDA or any elective
banking laws, rules and regulations where public official, except a barangay official.
a penalty of suspension from office or fine e. Except as may otherwise be
is imposed, regardless whether the finding allowed under Commonwealth Act No.
of the Monetary Board is final and executory 108, otherwise known as “The Anti-
or pending appeal before the appellate Dummy Law”, as amended, foreigners
court, unless execution or enforcement cannot be officers or employees of banks.
thereof is restrained by the court. The
disqualification shall be in effect during the § X143.3 Effect of non-possession of
period of suspension or so long as the fine qualifications or possession of
is not fully paid. disqualifications. A director/officer elected
(As amended by Circular Nos.584 dated 28 September 2007 or appointed who does not possess all the
and 513 dated 10 February 2006) qualifications mentioned under Subsecs.
X141.2 and X142.2 and/or has any of the
§ X143.2 Persons disqualified to disqualifications mentioned under Subsecs.
become officers X143.1 and X143.2 shall not be confirmed
a. The disqualifications for directors by the confirming authority under Subsec.
mentioned in Subsec. X143.1 shall likewise X141.4 and shall be removed from office
apply to officers, except those stated in Items even if he/she assumed the position to
“b(2)” and “b(7)”. which he/she was elected or appointed. A
b. Except as may be authorized by the confirmed director/officer or officer not
Monetary Board or the Governor, the requiring confirmation possessing any of the
spouse or a relative within the second disqualifications, enumerated in the above-
degree of consanguinity or affinity of any mentioned subsections shall be subject to
person holding the position of chairman, the disqualification procedures provided
president, executive vice president or any under Subsec. X143.4. A director/officer,
position of equivalent rank, general prior to assuming the position to which he/
manager, treasurer, chief cashier or chief she was elected/appointed, must submit to
accountant is disqualified from holding or the appropriate department of the SES a
being elected or appointed to any of said verified statement that he/she has all the
positions in the same bank; and the spouse aforesaid qualifications and none of the
or relative within the second degree of disqualifications. The submission of

§§ X143.3 - X143.4
07.12.31
verified statement will apply to directors/ the SES shall proceed to evaluate the case.
officers elected/appointed after 14 March The director/officer concerned shall be
2006. afforded the opportunity to defend/clear
(As amended by Circular No. 513 dated 10 February 2006) himself/herself.
d. If no reply has been received from
§ X143.4 Disqualification procedures the director/officer concerned upon the
a. The board of directors and expiration of the period prescribed under
management of every institution shall be Item “b” above, said failure to reply shall
responsible for determining the existence be deemed a waiver and the appropriate
of the ground for disqualification of the department of the SES shall proceed to
institution’s director/officer or employee evaluate the case based on available
and for reporting the same to the BSP. records/evidence.
While the concerned institution may e. If the ground for disqualification is
conduct its own investigation and impose delinquency in the payment of obligation,
appropriate sanction/s as are allowable, this the concerned director or officer shall be
shall be without prejudice to the authority given a period of thirty (30) calendar days
of the Monetary Board to disqualify a within which to settle said obligation or,
director/officer/employee from being restore it to its current status or, to explain
elected/appointed as director/officer in any why he/she should not be disqualified and
FI under the supervision of the BSP. included in the watchlisted file, before the
Grounds for disqualification made known evaluation on his disqualification and
to the institution, shall be reported to the watchlisting is elevated to the Monetary
appropriate department of the SES within Board.
seventy-two (72) hours from knowledge f. For directors/officers of closed
thereof. banks, the concerned department of the SES
b. On the basis of knowledge and shall make appropriate recommendation to
evidence on the existence of any of the the Monetary Board clearing said directors/
grounds for disqualification mentioned in officers when there is no pending case/
Subsecs. X143.1 and X143.2, the director complaint or evidence against them. When
or officer concerned shall be notified in there is evidence that a director/officer has
writing either by personal service or through committed irregularity, the appropriate
registered mail with registry return receipt department of the SES shall make
card at his/her last known address by the recommendation to the Monetary Board that
appropriate department of the SES of the his/her case be referred to the Office of
existence of the ground for his/her Special Investigation (OSI) for further
disqualification and shall be allowed to investigation and that he/she be included
submit within fifteen (15) calendar days in the masterlist of temporarily disqualified
from receipt of such notice an explanation persons until the final resolution of his/her
on why he/she should not be disqualified case. Directors/officers with pending cases/
and included in the watchlisted file, complaints shall also be included in said
together with the evidence in support of his/ masterlist of temporarily disqualified persons
her position. The head of said department upon approval by the Monetary Board until
may allow an extension on meritorious the final resolution of their cases. If the
ground. director/officer is cleared from involvement
c. Upon receipt of the reply in any irregularity, the appropriate department
explanation of the director/officer of the SES shall recommend to the Monetary
concerned, the appropriate department of Board his/her delisting. On the other hand,

§§ X143.4 - X143.5
07.12.31
if the director/officer concerned is found to j. The board of directors of the

be responsible for the closure of the concerned institution shall be immediately
institution, the concerned department of the informed of cases of disqualification
SES shall recommend to the Monetary Board approved by the Monetary Board and shall
his/her delisting from the masterlist of be directed to act thereon not later than the
temporarily disqualified persons and his/her following board meeting. Within seventy-
inclusion in the masterlist of permanently two (72) hours thereafter, the corporate
disqualified persons. secretary shall report to the Governor of
g. If the disqualification is based on the BSP through the appropriate department
dismissal from employment for cause, the of the SES the action taken by the board on
appropriate department of the SES shall, as the director/officer involved.
much as practicable, endeavor to establish k. Persons who are elected or
the specific acts or omissions constituting appointed as director or officer in any of
the offense or the ultimate facts which the BSP-supervised institutions for the first
resulted in the dismissal to be able to time but are subject to any of the grounds
determine if the disqualification of the for disqualification provided for under
director/officer concerned is warranted or Subsecs. X143.1 and X143.2, shall be
not. The evaluation of the case shall be afforded the procedural due process
made for the purpose of determining if prescribed above.
disqualification would be appropriate and l. Whenever a director/officer is
not for the purpose of passing judgment on cleared in the process mentioned under
the findings and decision of the entity Item “c” above or, when the ground for
concerned. The appropriate department of disqualification ceases to exist, he/she
the SES may decide to recommend to the would be eligible to become director or
Monetary Board a penalty lower than officer of any bank, QB, trust entity or any
disqualification (e.g., reprimand, institution under the supervision of the BSP
suspension, etc.) if, in its judgment the act only upon prior approval by the Monetary
committed or omitted by the director/officer Board. It shall be the responsibility of the
concerned does not warrant disqualification. appropriate department of the SES to elevate
h. All other cases of disqualification, to the Monetary Board the lifting of the
whether permanent or temporary shall be disqualification of the concerned director/
elevated to the Monetary Board for officer and his/her delisting from the
approval and shall be subject to the masterlist of watchlisted persons.
procedures provided in Items “a”,”b”,”c” (As amended by Circular No. 584 dated 28 September 2007)
and “d” above.
i. Upon approval by the Monetary § X143.5 Watchlisting. To provide the
Board, the concerned director/officer shall BSP with a central information file to be
be informed by the appropriate department used as reference in passing upon and
of the SES in writing either by personal reviewing the qualifications of persons
service or through registered mail with elected or appointed as director or officer
registry return receipt card, at his/her last of a bank, QB or trust entity, the SES shall
known address of his/her disqualification maintain a watchlist of persons disqualified
from being elected/appointed as director/ to be a director or officer of such entities
officer in any FI under the supervision of under its supervision under the following
BSP and/or of his/her inclusion in the procedures:
masterlist of watchlisted persons so a. Watchlist categories. Watchlisting
disqualified. shall be categorized as follows:

§§ X143.5 - X144
07.12.31
(1) Disqualification File “A” (1) Watchlist – Disqualification File “B”

(Permanent) – Directors/officers/employees (Temporary) –
permanently disqualified by the Monetary (a) After the lapse of the specific period
Board from holding a director/officer position. of disqualification;
(2) Disqualification File “B” (b) When the conviction by the court
(Temporary) – Directors/officers/employees for crimes involving dishonesty, breach of
temporarily disqualified by the Monetary trust and/or violation of banking law
Board from holding a director/officer becomes final and executory, in which case
position. the director/officer/employee is relisted to
b. Inclusion of directors/officers/ Watchlist – Disqualification File “A”
employees in the watchlist. Directors/ (Permanent); and
officers/employees disqualified under (c) Upon favorable decision or
Subsec. X143.4 shall be included in the clearance by the appropriate body, i.e.,
watchlist disqualification files “A” or “B”. court, NBI, BSP, bank, QB, trust entity or
c. Confidentiality. Watchlist files shall such other agency/body where the
be for internal use only of the BSP and may concerned individual had derogatory
not be accessed or queried upon by outside record.
parties including banks, QBs and trust Directors/officers/employees delisted
entities except with the authority of the from the Watchlist – Disqualification File
person concerned and with the approval of “B” other than those upgraded to Watchlist
the Deputy Governor, SES or the Governor – Disqualification File “A” shall be eligible
of the Monetary Board. for re-employment with any bank, QB or
BSP will disclose information on its trust entity.
watchlist files only upon submission of a (As amended by CL-2007-001 dated 04 January 2007 and
duly accomplished and notarized CL-2006-046 dated 21 December 2006)
authorization from the concerned person
and approval of such request by the Deputy Sec. X144 Bio-data of Directors and
Governor, SES or the Governor or the Officers
Monetary Board. The prescribed a. Banks shall submit to the
authorization form to be submitted to the appropriate department of the SES a bio-data
concerned department of SES is in Appendix of their directors and officers after their
76. election or appointment, in a prescribed
Banks can gain access to information form and within the deadline indicated in
in the said watchlist for the sole purpose of Appendix 6.
screening their applicants for hiring and/or The bio-data shall be updated in any of
confirming their elected directors and the following instances:
appointed officers. Banks must obtain the (1) Change in educational attainment,
said authorization on an individual basis. experience or additional qualifications in
d. Delisting. All delistings shall be banking that will enhance the director’s or
approved by the Monetary Board upon officer’s competence or will qualify him to
recommendation of the operating his present position;
departments of SES except in cases of (2) Promotion; and
persons known to be dead where delisting (3) Transfer to other banks.
shall be automatic upon proof of death and The bio-data shall be submitted only
need not be elevated to the Monetary once. For purposes of updating, only the
Board. Delisting may be approved by the pertinent sections and pages shall be
Monetary Board in the following cases: submitted to the BSP.

§§ X144 - X145
07.12.31
b. Banks shall submit to the appropriate institution, any of its related companies or
department of the SES for evaluation, a list of any of its substantial shareholders, either
the incumbent members of the board of in his personal capacity or through his firm;
directors and officers (chief executive is independent of management and free
officers down the line) after the annual from any business or other relationship, has
election of the board of directors as not 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
that all the information thereby supplied are an 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
affiliates or related interests during the past against the excessive concentration of
three (3) years counted from the date of his economic power, unfair competitive
election; advantage or conflict of interest situations
(2) Is not a director or officer of the to the detriment of others through the
related companies of the institution’s exercise by the same person or group of
majority stockholder; persons of undue influence over the policy-
(3) Is not a majority stockholder of the making and/or management functions of
institution, any of its related companies, or similar FIs while at the same time allowing
of its majority shareholders; banks, QBs and non-bank financial
(4) Is not a relative within the fourth institutions (NBFIs) without quasi-banking
degree of consanguinity or affinity, functions to benefit from organizational
legitimate or common-law of any director, synergy or economies of scale and effective
officer or majority shareholder of the bank sharing of managerial and technical
or any of its related companies; expertise, the following regulations shall
(5) Is not acting as a nominee or govern interlocking directorships and/or
representative of any director or substantial officerships within the financial system
shareholder of the bank, any of its related consisting of banks, QBs and NBFIs.
companies or any of its substantial For purposes of this Section, QBs shall
shareholders; refer to investment houses, finance
(6) Is not retained as professional companies, trust entities and all other NBFIs
adviser, consultant, agent or counsel of the with quasi-banking functions while NBFIs

§ X145
07.12.31
shall refer to investment houses, finance interest resulting from the exercise of
companies, trust entities, insurance directorship coupled with the reinforcing
companies, securities dealers/brokers, influence of an officer’s decision-making
credit card companies, non-stock savings and implementing powers, the following
and loan associations (NSSLAs), holding rules shall be observed:
companies, investment companies, (1) Except as may be authorized by
government NBFIs, asset management the Monetary Board or as otherwise
companies, insurance agencies/brokers, provided hereunder, there shall be no
venture capital corporations, FX dealers, concurrent directorship and officership
money changers, lending investors, between banks or between a bank and a
pawnshops, fund managers, mutual QB or an NBFI; and
building and loan associations, remittance (2) Without the need for prior approval
agents and all other NBFIs without quasi- of the Monetary Board, concurrent
banking functions. directorship and officership between a bank
a. Interlocking directorships and one (1) or more of its subsidiary
While concurrent directorship may be bank/s, QB/s and NBFI/s, other than
the least prejudicial of the various investment house/s, shall be allowed.
relationship cited in this Section to the c. Interlocking officerships
interests of the FIs involved, certain A concurrent officership in different FIs
measures are still necessary to safeguard may present more serious problems of self-
against the disadvantages that could result dealing and conflict of interest. Multiple
from indiscriminate concurrent positions may result in poor governance or
directorship. unfair competitive advantage. Considering
(1) Except as may be authorized by the the full-time nature of officer positions, the
Monetary Board or as otherwise provided difficulties of serving two (2) offices at the
hereunder, there shall be no concurrent same time, and the need for effective and
directorships between banks or between a efficient management, the following rules
bank and a QB. shall be observed:
(2) Without the need for prior approval As a general rule, there shall be no
of the Monetary Board, concurrent concurrent officerships, including
directorships between entities not secondments, between banks or, between
involving an investment house shall be a bank and a QB or an NBFI. For this
allowed in the following cases: purpose, secondment shall refer to the
(a) Banks not belonging to the same transfer/detachment of a person from his
category: Provided, That not more than one regular organization for temporary
(1) Bank shall have quasi-banking functions; assignment elsewhere where the seconded
(b) A bank and an NBFI; employee remains the employee of the
(c) A bank without quasi-banking home employer although his salaries and
functions and a QB; and other remuneration may be borne by the
(d) A bank and one (1) or more of its host organization.
subsidiary bank/s, QB/s and NBFI/s. However, subject to prior approval of
For purposes of the foregoing, a the Monetary Board, concurrent officerships,
husband and his wife shall be considered including secondments, may be allowed in
as one (1) person. the following cases:
b. Interlocking directorships and (1) Between a bank and not more than
officerships two (2) of its subsidiary bank/s, QB/s, and
In order to prevent any conflict of NBFI/s, other than investment house/s; or

§§ X145 - X146
07.12.31
(2) Between a bank and not more than (20%) of the equity of each of the banks,
two (2) of its subsidiary QB/s and NBFI/s; or QBs and NBFIs is owned by a holding
(3) Between two (2) banks, or between company or by any of the banks/QBs within
a bank and a QB or an NBFI, other than an the group.
investment house: Provided, That at least For purposes of this Section, members
twenty percent (20%) of the equity of each of a group or committee, including sub-
of the banks, QBs or NBFIs is owned by a groups or sub-committees, whose duties
holding company or a bank/QB and the include functions of management such as
interlocking arrangement is necessary for the those ordinarily performed by regular officers,
holding company or the bank/QB to provide shall likewise be considered as officers.
technical expertise or managerial assistance It shall be the responsibility of the
to its subsidiaries/affiliates. Corporate Governance Committee to
Aforementioned concurrent officerships conduct an annual performance evaluation
may be allowed, subject to the following of the board of directors and senior
conditions: management. When a director or officer has
(a) that the positions do not involve multiple positions, the Committee should
any functional conflict of interests; determine whether or not said director or
(b) that any officer holding the positions officer is able to and has been adequately
of president, chief executive officer, chief carrying out his/her duties and, if necessary,
operating officer or chief financial officer recommend changes to the board based
or their equivalent may not be concurrently upon said performance/ review.
appointed to any of said positions or their (As amended by Circular No. 592 dated 28 December 2007)
equivalent;
(c) that the officer involved, or his § X145.1 Representatives of
spouse or any of his relatives within the first government. The provisions of this
degree of consanguinity or affinity or by Subsection shall apply to persons appointed
legal adoption, or a corporation, association to such positions as representatives of the
or firm wholly- or majority-owned or government or government-owned or
controlled by such officer or his relatives controlled entities unless otherwise
enumerated above, does not own in his/its provided under existing laws.
own capacity more than twenty percent (As amended by Circular No. 592 dated 28 December 2007)
(20%) of the subscribed capital stock of the
entities in which the bank has equity Sec. X146 Profit Sharing Programs. Profit
investments; and sharing programs adopted in favor of
(d) that where any of the positions directors, officers and employees shall be
involved is held on full-time basis, adequate reflected in the by-laws of the bank, subject
justification shall be submitted to the to the following guidelines:
Monetary Board; or a. The base in any profit sharing
(4) Concurrent officership positions in program shall be the net income for the year
the same capacity which do not involve of the bank as shown in its Consolidated
management functions, i.e., internal auditor, Statement of Income and Expenses for the
corporate secretary, assistant corporate year, net of the following:
secretary and security officer, between a (1) All cumulative dividends accruing
bank and one or more of its subsidiary to preferred stock to the extent not covered
QB/s and NBFI/s, or between bank/s, QB/s by earned surplus;
and NBFI/s, other than investment house/s: (2) Accrued interest receivable credited
Provided, That at least twenty percent to income but not yet collected, net of

§§ X146 - X147
05.12.31
reserves already set up for uncollected which has received financial assistance from
interest on loans; the BSP may implement its profit sharing
(3) Unbooked valuation reserves on program. Financial assistance shall refer to
loans or the amount required to update emergency loans and advances and such
valuation reserves in accordance with the other forms of credit accommodations
schedule approved by the Monetary Board, which are intended to provide banks with
as well as all amortizations due on deferred liquidity in times of need.
charges;
(4) Provisions for current year’s taxes; Sec. X147 Compensation and Other Benefits
(5) Income tax deferred for the year. of Directors and Officers. To protect the
Provided, however, That in case of reversal funds of depositors and creditors, the
of deferred income taxes which were Monetary Board may regulate/restrict the
deducted from net income in computing payment by the bank of compensation,
for profit sharing of previous years, the allowances, fees, bonuses, stock options,
deferred income tax reversed to expense profit sharing and fringe benefits to its
shall be added back to net income to arrive directors and officers in exceptional cases
at the base for profit sharing for the year and when the circumstances warrant, such
during which the reversal is made; as, but not limited to, the following:
(6) Accumulated profits not yet a. When the bank is under
received but already recorded by a bank controllership, conservatorship or when it
representing its share in profits of its has outstanding emergency loans and
subsidiaries under the equity method of advances and such other forms of credit
accounting; and accommodation from the BSP which are
b. The bank may provide in its by- intended to provide it with liquidity in times
laws for other priorities in the computation of need;
of net profits for purposes of profit b. When the institution is found by the
sharing: Provided, That in no case shall Monetary Board to be conducting business
profit sharing take precedence over any in an unsafe or unsound manner;
of the items in the preceding paragraph; c. When it is found by the Monetary
and Board to be in an unsatisfactory financial
c. Prior approval of the Monetary condition such as, but not limited to, the
Board shall be necessary before a bank 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 BSP/ determined by the Monetary Board.
PDIC which rehabilitation may include Directors, officers and other personnel
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
of the circumstances mentioned above, the by the BSP.
Monetary Board may impose the following
restrictions in the compensation and other Sec. X148 (Reserved)
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, the particular activity may be considered as
total amount of unbooked valuation conducting business in an unsafe or
reserves and deferred charges shall be unsound manner, all relevant facts must be
deducted from the net income. 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 In determining whether a particular act
be suspended. or omission, which is not otherwise
c. When the total compensation prohibited by any law, rule or regulation
package including salaries, allowances, fees affecting banks, may be deemed as
and bonuses of directors and officers are conducting business in an unsafe or
significantly excessive as compared with unsound manner, the Monetary Board,
peer group averages, the Monetary Board upon report of the head of the supervising
may order their reduction to reasonable or examining department based on
levels: Provided, That even if a bank is in findings in an examination or a complaint,
financial trouble, it may nevertheless be shall consider any of the following
allowed to grant relatively higher salary circumstances:
packages in order to attract competent a. The act or omission has resulted
officers and quality staff as part of its or may result in material loss or damage,
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
Sec. 2147 (Reserved) public in general;

§§ X149 - X151
08.12.31
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
director or officer of his duties and accept new deposits or make new
responsibilities through manifest partiality, investments;
evident bad faith or gross inexcusable f. Suspension of responsible directors
negligence; or and/or officers;
d. The act or omission involves g. Revocation of quasi-banking
entering into any contract or transaction license; and/or
manifestly and grossly disadvantageous to h. Receivership and liquidation under
the bank, whether or not the director or Section 30 of R.A. No. 7653.
officer profited or will profit thereby. All other provisions of Sections 30 and
The list of activities which may be 37 of R.A. No. 7653, whenever appropriate,
considered unsafe and unsound is shown shall also be applicable on the conduct of
in Appendix 48. business in an unsafe or 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 the
b. Fines in amounts as may be banking system and maximize the delivery
determined by the Monetary Board to be of efficient banking services especially in
appropriate, but in no case to exceed underserved areas. Toward this end, the
P30,000 a day on a per transaction basis following are the rules and regulations that
taking into consideration the attendant shall govern the establishment, relocation,
circumstances, such as the gravity of the voluntary closure and sale of local branches
act or omission and the size of the bank, to of domestic banks, including locally-
be imposed on the bank, their directors incorporated subsidiaries of foreign banks
and/or responsible officers; and the establishment of branches of
c. Suspension of interbank clearing foreign banks in the Philippines shall
privileges/immediate exclusion from continue to be governed by the provisions
clearing; of Secs. X121 and X153.

§§ X151 - X151.2
08.12.31
For purposes of this Section and its § X151.1 Prior Monetary Board
Subsections, the following definitions approval. No bank operating in the
shall apply: Philippines shall establish branches,
Branch shall refer to any permanent extension offices or other banking offices
office or place of business in the Philippines or transact business outside the premises
other than the head office where deposits of its duly authorized principal office or
are accepted and/or withdrawals are head office without the prior approval of
serviced by tellers or other authorized the Monetary Board.
personnel. It maintains a complete set of (As amended by Circular No. 624 dated 13 October 2008)
books of accounts.
Extension office shall refer to any § X151.2 Prerequisites for the grant
permanent office or place of business in the of authority to establish a branch. With
Philippines other than the head office or a prior approval of the Monetary Board,
branch, where deposits are accepted and/ banks may establish branches subject to the
or withdrawals are serviced by tellers or following pre-qualification requirements:
other authorized personnel. It does not a. The bank has complied with the
maintain a complete set of books of minimum capital requirement under
accounts as its transactions are taken-up Subsec. X106.1, but not lower than P10
directly in the books of the head office or a million, in the case of RBs and Local
branch to which it is attached. It shall be Cooperative (Coop) Banks.
treated as a branch for purposes of this b. The bank’s risk-based CAR at the
Section and its Subsections. time of filing the application is not lower
Other banking office shall refer to any than twelve percent (12%);
office or place of business in the Philippines c. The bank’s CAMELS composite
other than the head office, branch or rating in the latest examination is at least
extension office, which primarily engages “3”, with management component score
in banking activities other than the not lower than “3”;
acceptance of deposits and/or servicing of d. The bank has established a risk
withdrawals thru tellers or other authorized management system appropriate to its
personnel. It shall include loan collection operations, characterized by clear
and disbursement points (LCDPs) of delineation of responsibility for risk
microfinance-oriented banks and management, adequate risk measurement
microfinance/barangay micro business system, appropriately structured risk limits,
enterprise (BMBE)-oriented branches of effective internal control system and
banks which may accept deposits solely complete, timely and efficient risk reporting
from existing microfinance/BMBE system;
borrowers: Provided, That account e. T h e b a n k h a s n o m a j o r
openings and other banking transactions of supervisory concerns outstanding on
said microfinance/ BMBE borrowers shall safety and soundness as indicated by
be done only at the head office/branches/ the following during the period
extension offices or thru automated teller immediately preceding the date of
machines (ATMs), as may be applicable. application or as of the date of
(As amended by Circular No. 624 dated 13 October 2008) application:

§ X151.2
08.12.31
(1) No unbooked as of date of f. For purposes of evaluating branch

valuation reserves application applications, theoretical capital shall be
(2) No deficiency in 12 weeks assigned to each branch to be established,
regular and liquidity including approved but unopened
reserve requirements branches, as follows:
on deposits and deposit
substitutes
(In millions)
(3) No deficiency in 3 months
asset and liquid asset LOCATION/ UB/KB TB/ RB/
cover for EFCDU/ TYPE OF BANK NATIONAL LOCAL
FCDU liabilities COOP COOP
(4) Compliant with 12 weeks 1) NCR and the
ceilings on loans Cities of Cebu and P 50 P 15 P 5.0
to DOSRI Davao
(5) No deficiency in 3 months 2) 1st to 3rd class P 25 P 5.0 P 2.5
liquidity floor on cities
government deposits
3) 4th to 6th class P 25 P 5.0 P 1.5
(6) Compliant with as of date of cities
the single borrower’s application
loan limit and limit on 4) 1st to 3rd class P 20 P 5.0 P 1.0
total investment in real municipalities
estate and improvements
including bank equipment
5) 4th to 6th class P 15 P 2.5 P 0.5
(7) No past due obligation as of date of municipalities
with the BSP or with application
any FI
(8) No float items outstanding 3 months The assigned theoretical capital shall
in the “Due From/To Head be deducted from existing qualifying
Office/Branches/Offices” capital as defined under Subsec. X116.1
and “Due from BSP” for purposes of determining compliance
accounts exceeding
one percent (1%) of the with the ten percent (10%) risk-based CAR.
total resources as of end If the applicant bank’s risk-based CAR
of the month after deducting the assigned capital for
(9) No uncorrected findings as of date of the proposed branch from the existing
of unsafe and unsound application qualifying capital would be less than ten
banking practices percent (10%), its application shall not
be processed unless it infused such
(10) Has adequate accounting as of date of amount as may be necessary to
records, systems, application maintain its risk-based CAR to at least
procedures and internal ten percent (10%);
control
g. The bank has been operating
(11) Has generally complied as of date of profitably for the year immediately
with banking laws, rules application preceding the date of application, or in the
and regulations, orders
or instructions of the case of newly-established banks, the
Monetary Board and/or submitted projection showed that
BSP Management profitability will be attained on the third
year of operations, at the latest; and
(12) Member in good as of date of h. Additional requirements for the
standing of the PDIC application establishment of microfinance/BMBE-

§§ X151.2 - X151.4
08.12.31
oriented branches of banks which are not be offered; competition analysis to show that
microfinance/BMBE-oriented are as follows: its application will not lead to over banking
(1) The branch shall have a manual in the target market; and financial projections
of operations on microfinancing duly for the first three (3) years of operations
approved by the bank’s board of showing sustained viability, as may be
directors; required by the appropriate department of the
(2) The branch shall have an adequate SES: Provided, That normally operating UBs,
loan tracking system that allows daily KBs, and TBs with total resources of P1 billion
monitoring of loan releases, collections and or more shall be exempt from the foregoing
arrearages, and any restructuring and requirements, a bank is not considered
refinancing arrangements; normally operating if it is under PCA or is
(3) The proposed branch shall be non-compliant with supervisory directives
managed by a person with adequate duly confirmed by the Monetary Board. In the
experience or training in microfinancing evaluation of the business plan, due
activities; and consideration shall be given to banks that are
(4) At least seventy percent (70%) of the able or are committed to invest or deploy
deposits generated by the branch to be branch resources in their area of operations;
established shall be actually lent out to b. Certified true copy of the resolution
qualified microfinance/BMBE borrowers of the bank’s board of directors authorizing
and the microfinance/BMBE loans of said the establishment of the branch and
branch shall at all times be at least fifty indicating its proposed site;
percent (50%) of its gross loan portfolio. c. Organizational set up of the
A microfinance-oriented branch is a proposed branch showing the proposed
branch that provides financial services and staffing pattern; and
caters primarily to the credit needs of basic d. Certification/Undertaking signed by
or disadvantaged sectors such as those the president of the bank or officer of
specified under the second paragraph of equivalent rank that the bank has complied
Subsec. X102.2, so as to enable them to or will comply, as the case maybe, with the
raise their income levels and improve their prerequisites for the grant of authority to
living standards. Microfinance loans are establish a branch under Subsec. X151.2.
granted on the basis of the borrower’s cash (As amended by Circular No. 624 dated 13 October 2008)
flow and are typically unsecured.
A BMBE-oriented branch of a bank is § X151.4 Branching guidelines
a branch that caters primarily to the credit Branches may be established, subject to the
needs of BMBEs duly registered under following guidelines:
R.A. No. 9178. a. Only one (1) branch application
(As amended by Circular No. 624 dated 13 October 2008) may be submitted at any time except for
banks with at least P100.0 million
§ X151.3 Application for authority to combined capital accounts, as defined
establish branches. An application for under Sec. X106, which may be allowed a
authority to establish a branch shall be maximum of five (5) including approved but
signed by the president of the bank or officer unopened branch applications, at any time;
of equivalent rank and shall be b. Only applications submitted with
accompanied by the following information/ complete documentary requirements
documents: enumerated in Subsec. X151.3 shall be
a. Business plan detailing the primary accepted. Processing shall be on a first
banking activities/products and services to come, first-served basis;

§ X151.4
08.12.31
c. Industry/market notice of capital accounts of at least P500.0 million

application for authority to establish a may be allowed to establish one (1) branch
branch shall be posted at the BSP website anywhere in Metro Manila, including in
upon receipt thereof; the restricted areas, if it has no existing
d. As a general rule, banks shall be branch/es in Metro Manila.
allowed to establish branches anywhere in (3) A TB with combined capital
the Philippines, except in the cities of accounts of at least P325.0 million may
Makati, Mandaluyong, Manila, Parañaque, establish branches in Metro Manila, except
Pasay, Pasig, Quezon and San Juan in the restricted areas.
(restricted areas): Provided, however, That (4) Subject to the restrictions in Items
RBs/local Coop Banks shall not be allowed “5”, “6”, “7” and “8” hereof, an RB with
to establish branches in Metro Manila: combined capital accounts of at least P10.0
Provided, further, That – million, may establish branches in cities/
(1) Branches of microfinance-oriented municipalities of higher classification and
banks, microfinance/BMBE-oriented with corresponding higher capitalization
branches of banks which are not requirements, except in Metro Manila:
microfinance/BMBE-oriented may be Provided, That where the majority of the
established anywhere, subject to compliance RB’s total assets and/or majority of its
with, among other requirements, the total deposit liabilities are regularly
minimum capital requirement under Item “a” accounted for by branches located in
of Subsec. X151.2 and the following such cities/municipalities of higher
conditions: classification, the RB shall comply with
(a) A microfinance-oriented TB or RB the capitalization requirement of that
may be allowed to establish a branch in Metro city/municipality within one (1) year
Manila, including in the restricted areas, if it from the BSP finding.
has combined capital accounts of at least (5) An RB or a local Coop Bank shall
P325.0 million in case of a TB, or at least only be allowed to establish branch/es if
P100.0 million in case of an RB; and its combined capital accounts is at least
(b) A TB or RB/local Coop Bank may P10.0 million;
be allowed to establish a microfinance/ (6) An RB or local Coop Bank with
BMBE-oriented branch in Metro Manila, combined capital accounts of at least P10.0
including in the restricted areas, if it has million but less than P50.0 million may
combined capital accounts of at least establish branch/es anywhere within two
P325.0 million in case of a TB, or at least (2) - hour normal travel time by land/sea
P100.0 million in case of an RB/local public transport from the head office,
Coop Bank. except in Metro Manila; and
(2) Subject to the submission of the (7) An RB with combined capital
specific business purpose for establishing accounts of at least P50.0 million but less
the branch, among other justifications: than P100.0 million may establish branch/
(a) A TB or RB with head office located es in any island group (Luzon, Visayas or
outside the restricted areas with combined Mindanao) where the head office is
capital accounts of at least P500.0 million located, except in Metro Manila;
may be allowed to establish one (1) branch (8) An RB with at least P100.0 million
anywhere within the restricted areas if it capital accounts may establish branch/es
has no existing branch/es in said areas; and anywhere in the Philippines, except in
(b) An RB with head office located Metro Manila unless qualified under Items
outside Metro Manila with combined “d(1)” and “d(2)” above.

§§ X151.4 - X151.7
08.12.31
e. A maximum of two (2) branches president of the bank or officer of equivalent

shall be allowed in each of the 4th, 5th or 6th rank and submitted to the appropriate
class municipalities; and department of the SES together with the
f. The Monetary Board may decide following documents:
to disapprove an otherwise qualified 1. Certified true copy of the resolution of
branch application if in its determination the bank’s board of directors authorizing
such branch application will lead to an the establishment of the other banking
overbanking situation in the specific office and indicating its proposed site;
market. 2. Purpose statement indicating the
(As amended by Circular No. 624 dated 13 October 2008)
bank’s objective or reason for establishing
the other banking office; and
§ X151.5 Branch processing fee 3. Undertaking signed by the
Branch processing fee shall be as follows: president of the bank or officer of equivalent
rank that said other banking office shall not
accept deposits and/or service withdrawals
a. UBs/KBs/
Affiliated TBs - P 200,000
thru tellers or other authorized personnel.
b. Non-affiliated TBs/ In the case of LCDPs of microfinance-
National Coop Banks - P 100,000 oriented banks and microfinance/
c. RBs/Local Coop Banks - P 25,000 BMBE-oriented branches of banks, the
d. Microfinance-oriented
undertaking shall state that the LCDP shall
banks or microfinance/
BMBE-oriented branches accept deposits thru tellers or other
of banks -P 5,000 authorized personnel solely from existing
microfinance/BMBE borrowers.
Provided, That branches of TBs, RBs Other banking offices may be
and local Coop Banks to be established established only in areas where the bank is
within the region where the head office is allowed to establish branches as provided
located shall be free from assessment. under Subsec. X151.4.
(As amended by Circular No. 624 dated 13 October 2008) Transitory provision. Other banking
offices existing as of 01 November 2008,
§ X151.6 Establishment of other which are manned by less than three (3)
banking offices. Other banking offices may officers/employees at any time, accepting
be established with prior Monetary Board deposits through tellers or other authorized
approval, and subject to compliance with personnel, and are located in areas where
the following: the banks concerned are allowed to
a. Minimum capital requirement establish branches under the guidelines
under Subsec. X106.1 but not lower than prescribed in this Section may apply for the
P10.0 million in the case of RBs and local conversion of these other banking offices
Coop Banks; to branches or extension offices subject to
b. Ten percent (10%) risk-based CAR; compliance with the guidelines on the
c. CAMELS composite rating not establishment of branches, otherwise, these
lower than “3”, with management other banking offices shall phase-out their
component score not lower than “3” in the deposit operations within one (1) year from
latest examination of the bank; and 01 November 2008.
d. Ceiling on total investments of a (As amended by Circular No. 624 dated 13 October 2008)
bank in real estate and improvements
thereon, including bank equipment. § X151.7 Date of opening. Approved
The application to establish other branches/other banking offices shall be
banking offices shall be signed by the opened within six (6) months from the date

§§ X151.7 - X151.9
08.12.31
of approval thereof: Provided, That an X151.6 as of the date of the intended

applicant bank may be given a final opening of the branch/other banking office
extension of another six (6) months by the shall refrain from opening the branch/other
Deputy Governor, SES, subject to the banking office on such date until it has
presentation of justification and valid reason complied with all of the requirements under
for the failure to open the branch/other Subsec. X151.2/ X151.6: Provided, That if
banking office within the original six (6) - the branch/other banking office, cannot
month period and proof that said branch/ open within six (6) months from the date of
other banking office can be opened within the original approval of the establishment
the succeeding six (6) - month period. of such branch/other banking office, the
(As amended by Circular No. 624 dated 13 October 2008) provisions of Subsec. X151.7 on the final
extension to open the branch/other banking
§ X151.8 Requirements for opening a office shall be observed.
branch/other banking office. After a bank’s (As amended by Circular No. 624 dated 13 October 2008)
application to establish a branch/other
banking office has been approved, it may § X151.9 Relocation of branches/other
open the same subject to its submission to banking offices. Relocation of existing/
the appropriate department of the SES of operating branches/other banking offices
the following: shall be allowed without prior Monetary
a. Within thirty (30) calendar days Board approval in accordance with the
prior to the intended date of opening, following procedures:
personal information sheet (bio-data) of the a. Notice of relocation shall be sent
proposed manager and other officers of the to depositors and other creditors, where
branch/other banking office; and applicable, by registered mail or proof of
b. Within ten (10) banking days prior delivery (POD) service of the Philippine
to the intended date of opening, a Postal Corporation (PhilPost) or other mail
certification signed by the head of the couriers and posters shall be displayed in
Branches Department with the rank of a vice conspicuous places in the premises of the
president, or its equivalent or by a higher branch/other banking office to be relocated
ranking officer that the installation of the at least three (3) months prior to the
required security devices under Item “b” of relocation: Provided, That said notification
Subsec. X171.4 has been complied with. period may be reduced to forty-five (45)
The bank shall likewise submit a written calendar days under any of the following
notice to the appropriate department of the circumstances:
SES of the actual date of opening of its (1) as an incentive to merger or
branch/other banking office not later than consolidation of banks;
five (5) banking days from such opening, (2) as an incentive to the purchase or
together with a certification signed by the acquisition of majority or all of the outstanding
head of the branches department with the shares of stock of a distressed bank for the
rank of a vice president, or its equivalent or purpose of rehabilitating the same; or
by a higher ranking officer that the (3) the proposed relocation site is
requirements enumerated under Subsec. within the same barangay of the branch/
X151.2/X151.6 have been complied with other banking office to be relocated.
as of the time of actual opening of the b. Within five (5) banking days from
branch/other banking office. the date of relocation, a notice of relocation
A bank that fails to comply with any one together with a certification signed by the
(1) of the requirements in Subsec.X151.2/ head of the Branches Department with the

§§ X151.9 - X151.10
08.12.31
rank of vice president or its equivalent rank authorizing the closure and stating the
or by a higher ranking officer that the justification/reasons therefor, shall be
notification requirement under Item “a” submitted to the appropriate department of
above has been complied with shall be the SES;
submitted to the appropriate department (2) Upon receipt of the notice of
of the SES. The certification shall be Monetary Board approval but at least three
accompanied by a certified true copy of (3) months prior to the closure, notice of
the resolution of the bank’s board of closure shall be sent to depositors and other
directors authorizing the relocation; creditors by registered mail or POD service
c. Branches located in the restricted of the PhilPost or other mail couriers and
areas may be relocated anywhere; posters shall be displayed in conspicuous
d. Branches located in other areas places in the premises of the branch/banking
may be relocated anywhere except in the office to be closed: Provided that said
restricted areas: Provided, That branches notification period may be reduced to forty
of TBs may be relocated in Metro Manila five (45) calendar days under any of the
but outside the restricted areas if they have following circumstances:
complied with the minimum capital (a) As an incentive to merger or
requirement for TBs with head offices in consolidation of banks;
Metro: Provided further, That branches of (b) As an incentive to the purchase or
RBs and local Coop Banks may be acquisition of majority or all of the
transferred only in areas where they are outstanding shares of stock of a distressed
allowed to establish branches: Provided bank for the purpose of rehabilitating the
finally, That existing branches of RBs and same; or
local Coop Banks in cities and (c) The proposed relocation site is
municipalities of Metro Manila other than within the same barangay of the branch/
in the restricted areas may be relocated other banking office to be relocated; and
anywhere, except in the restricted areas; and (3) Within five (5) banking days from
e. Other banking offices may be date of closure, a notice of closure, together
relocated only in areas where the bank’s with a certification signed by the president
branches are allowed to be relocated as of the bank or officer of equivalent rank,
indicated in Items “c” and “d” above. that the notification requirement in Item “2”
(As amended by Circular No. 624 dated 13 October 2008) above has been complied with, shall be
submitted to the appropriate department of
§ X151. 10 Voluntary closure/sale of the SES.
branches/other banking offices Temporary closure of branches/other
a. Voluntary closure of branches/ banking offices. Temporary closure of
other banking offices. Voluntary closure branches/ other banking offices for the
of branches/other banking offices may be purpose of undertaking renovations/major
effected only with prior approval of the repairs of branch/office premises/facilities
Monetary Board in accordance with the may be allowed for a period not exceeding
following procedures: six (6) months subject to the prior approval
(1) Request for Monetary Board of the Deputy Governor, SES, and
approval of the closure of branches/other compliance with the following conditions:
banking offices signed by the president of (1) Request for approval of the
the bank or officer of equivalent rank, temporary closure of the branch/other
together with a certified true copy of the banking office signed by the president of
resolution of the bank’s board of directors the bank or officer of equivalent rank shall

§ X151.10
08.12.31
be submitted to the appropriate department b. Sale of branches/other banking

of the SES, together with a certified true copy offices. Sale of branches/other banking
of the resolution of the bank’s board of offices may be allowed with prior approval
directors authorizing said closure stating the of the Monetary Board in accordance with
justifications/reasons therefor. The request the following procedures:
shall include information as to the timetable (1) In the case of sale of branches, the
for said closure and the branch/other selling and acquiring banks shall secure the
banking office that will handle the prior written consent of the PDIC in the
transactions of the branch/other banking transfer of assets and assumption of
office to be closed; liabilities as provided under Section 21 of
(2) Upon receipt of notice of approval the PDIC Charter (R.A. No. 3591), as
by the Deputy Governor, SES, but at least amended by R.A. No. 9302;
three (3) months prior to the intended date (2) Request for Monetary Board
of closure, notice of temporary closure shall approval to close the branches/other
be sent to depositors and other creditors, banking offices to be sold signed by the
where applicable, by registered mail or president of the bank or officer of equivalent
POD service of the Philpost or other mail rank, together with a certified true copy of
couriers, and posters shall be displayed in the resolution of the bank’s board of
conspicuous places in the premises of the directors authorizing the sale shall be
branch/other banking office to be closed. submitted by the selling bank to the
Information as to the duration of said closure appropriate department of the SES;
and the address of the branch/other banking (3) Upon receipt of the notice of
office that will handle the transactions of the Monetary Board approval but at least three
branch/other banking office to be closed (3) months prior to the closure, notice of
shall be indicated in the said notice/posters; sale shall be sent to depositors and other
(3) The transactions of the branch/other creditors, where applicable, by registered
banking office to be closed shall be handled mail or POD service of the Philpost or other
by the branch/other banking office nearest to mail couriers, and posters shall be displayed
the branch/other banking office to be closed; in conspicuous places in the premises of
(4) Within five (5) banking days after the branch/other banking office to be sold:
the date of closure, a notice of such closure Provided, That said notification period may
signed by the head of the branches be reduced to forty five (45) calendar days
department with the rank of a vice when there is no actual closure or
president, or its equivalent or by a higher disruption of operations. Depositors shall
ranking officer together with a certification likewise be informed of their option to
that the notification requirement under Item withdraw their deposits or to maintain the
“2” above has been complied with shall be same with the acquiring bank;
submitted to the appropriate department of (4) Within five (5) banking days from
the SES. the date of closure, a notice of such closure,
(5) Within five (5) banking days after together with a certification signed by the
re-opening of the branch/other banking president of the bank or officer of equivalent
office, notice of such re-opening signed by rank that the notification requirement under
the head of the branches department with Item “3” above has been complied with,
the rank of a vice president, or its equivalent shall be submitted to the appropriate
or by a higher ranking officer shall be department of the SES;
submitted to the appropriate department of (5) Request for Monetary Board
the SES. approval to acquire the branch/other

§§ X151.10 - X151.12
08.12.31
banking office signed by the president of the acquired branch/other banking office,
the bank or officer of equivalent rank, the personal information sheet (bio-data) of
together with a certified true copy of the the proposed manager and other officers of
resolution of the bank’s board of directors the branch/other banking office shall be
authorizing the acquisition shall be submitted by the acquiring bank to the
submitted by the acquiring bank to the appropriate department of the SES; and
appropriate department of the SES. The (8) Within five (5) banking days from the
acquiring bank shall likewise comply with date of opening of the acquired branch/other
the following: banking office, a written notice of such
(a) Minimum capital requirement opening signed by the head of branches
under Subsec. X106.1 but not lower than department with the rank of vice president or
ten (P10) million in the case of of RBs and its equivalent rank or by a higher ranking
local Coop Banks; officer shall be submitted by the acquiring
(b) Ten percent (10%) risk-based CAR; bank to the appropriate department of the SES.
(c) CAMELS composite rating not lower (As amended by Circular No. 624 dated 13 October 2008)
than “3” with management component
score not lower than “3” in the latest § X151.11 Relocation/Transfer of
examination of the bank; and branch licenses of closed banks. Buyers of
(d) Ceiling on total investments of a closed banks shall be allowed to relocate/
bank in real estate and improvements transfer acquired branches subject to the
thereon, including bank equipment. conditions stated under Items “c” and “d”
A UB, KB or TB may purchase/acquire of Subsec. X151.9.
branches/other banking offices anywhere, (As amended by Circular No. 624 dated 13 October 2008)
including in Metro Manila and in the
restricted areas: Provided, That a TB may § X151.12 Sanctions
purchase/acquire branches/other banking 1. Any violation of the provisions of
offices in Metro Manila, including in the this Section shall be a ground for the
restricted areas, if it has combined capital cancellation of the franchise and closure
accounts of at least P325 million: Provided, of any branch/other banking office
further, That an RB/local Coop Bank may established hereunder without prejudice
purchase/acquire branches/other banking to the imposition of the applicable
offices only in areas where it is allowed to criminal and administrative sanctions
establish branches/other banking offices as prescribed under Sections 36 and 37,
provided under Subsec. X151.4; respectively, of R.A. No. 7653; and
(6) The acquiring bank shall pay a 2. If any part of any certification
licensing fee per branch/other banking submitted by the bank as required in this
office acquired, as follows: Section is found to be false, the following
sanctions shall be imposed:
Location of Branch/Other Banking a. On the bank. Suspension for one (1)
Office to be Acquired year of the privilege to establish and/or open
approved branches/other banking offices,
Type of Within Outside
Acquiring Metro Manila Metro Manila and/or relocate branches/other banking
Bank offices.
UBs and KBs P 1.0 million P 0.5 million
TBs P 0.5 million P 0.25 million b. On the certifying officer. A fine of
P5,000 per day (P200 per day for RBs/Coop
(7) Within thirty (30) calendar days Banks) from the time the certification was
prior to the intended date of opening of made up to the time the certification was

§§ X151.12 - X153
08.12.31
found to be false for each branch/other (2) As an incentive to the purchase or

banking office opened, relocated, closed or acquisition of majority or all of the outstanding
sold without prejudice to the sanctions shares of stock of a distressed bank for the
under Section 35 of R.A. No. 7653. purpose of rehabilitating the same; or
(As amended by Circular No. 624 dated 13 October 2008) (3) The proposed relocation site is
within the same municipality/city of the
Sec. X152 Relocation of Head Offices head office to be relocated.
Relocation of a bank’s head office shall require c. Within five (5) banking days from
prior approval of the Monetary Board in the date of relocation, a notice of relocation,
accordance with the following procedures: together with a certification signed by the
a. Request for Monetary Board president of the bank or officer of equivalent
approval of the relocation of the bank’s head rank that the notification requirement under
office signed by the president of the bank Item “b” above has been complied with
or officer of equivalent rank shall be shall be submitted to the appropriate
submitted to the appropriate department of department of the SES.
the SES together with the following A bank’s head office may be relocated
documentary requirements: only in areas where the bank may be
(1) A certified true copy of the authorized to establish branches as provide
resolution of the bank’s board of directors in Subsec. X151.4.
authorizing the proposed relocation/transfer The executive offices of the bank shall
of the head office, and stating the not be separated from the head office, i.e.,
justification/reasons therefor; these shall be located where the bank’s
(2) A certified true copy of head office is located.
stockholders’ resolution authorizing the Relocation of any other department/unit
amendment of the articles of of the bank not performing front-office
incorporation of the bank; operation, i.e., not dealing with the banking
(3) Description of the building and/or public, shall not require prior Monetary
place of relocation, manner of occupancy, Board approval: Provided however, That
i.e., whether lease or purchase, estimate of within five (5) banking days from date of
the total costs to be incurred in connection relocation, a notice of relocation signed by
with the transfer, and the proposed timetable a vice president or officer of equivalent rank
for such relocation; and or by a higher ranking officer, together with
(4) Plan for the disposition of the a certified true copy of the resolution of the
original site. bank’s board of directors authorizing the
b. Upon receipt of the notice of relocation, shall be submitted to the
Monetary Board approval but at least three appropriate department of the SES.
(3) months prior to the relocation, notice of (As amended by Circular No. 624 dated 13 October 2008)
relocation shall be sent to depositors and
other creditors by registered mail or POD § X152.1 Sanctions. If any part of the
service of the Philpost or other mail couriers, certification submitted by the bank as required
and poster shall be displayed in conspicuous in this Section is found to be false, the sanctions
places in the premises of the head office to under Subsec. X151.12 shall be imposed.
be relocated: Provided, That said
notification period may be reduced to Sec. X153 Establishment of Additional
forty-five (45) calendar days under any of Branches of Foreign Banks. The following
the following circumstances: guidelines shall govern the establishment
(1) As an incentive to merger or of additional branches of foreign banks in
consolidation of banks; the Philippines pursuant to R.A. No. 7721.

§§ X153 - X153.4
05.12.31
For purposes of this Section, the term authorities in Appendix 5, the applicant
bank shall refer to the existing branches of bank shall comply with requirements
the applicant bank in the Philippines prescribed in Subsecs. X121.4 b and c, and
reckoned as a single unit. X121.6.
In the case of a foreign bank which has
more than one (1) branch and/or other § X153.3 Date of opening. The
office in the Philippines, all such branches/ opening of approved branches shall be
offices shall be treated as one (1) unit and subject to the provisions of Subsec.
all references to the Philippine branches/ X151.6.
offices of such foreign bank shall be held
to refer to such unit pursuant to Section 74 § X153.4 Requirements for opening
of the R.A. No. 8791. a branch. After a bank’s application to
establish a branch has been approved, it
§ X153.1 Application for authority to may open the same subject to the
establish additional branch. An application following conditions:
for authority to establish additional branch a. Submission by the applicant bank
or branches shall be signed by the Country of a written notice at least thirty (30) days
Manager or the highest ranking officer in prior to the intended date of opening,
the Philippines of the applicant foreign accompanied by the following:
bank, and shall be accompanied by the (1) Proof or evidence of inward
following information/documents: remittance needed to meet the
a. Certified true copy of the resolution requirements prescribed in Subsecs.
of the bank’s board of directors authorizing X121.4 b and c, and X121.6;
the establishment of the additional branch/ (2) List of principal and junior officers
es and indicating its proposed site/s and/or of the proposed branch/es and their
authority of the bank’s Country Manager respective designations and salaries;
or highest ranking officer in the Philippines (3) Personal information sheet
to apply for authority to establish additional (bio-data) for each of the officers to enable
branch/es and represent the bank in the BSP to evaluate their qualifications as
connection therewith; officers; and
b. Banking facilities and services to be (4) A certification signed by the
offered; bank’s Philippine Country Manager that
c. Organizational set up of the the requirements enumerated under
proposed branch showing the proposed Subsec. X153.2 has been complied with
staffing pattern; and up to the date of the aforementioned
d. Certification signed by the bank’s written notice.
Country Manager that the bank’s existing A bank that fails to continuously comply
branches in the Philippines reckoned as a single with the requirements under Subsec.
unit, have complied with all the requirements X153.2 shall be given an extension of time
enumerated under Subsec. X153.2. to open such branch after it has shown
compliance for another test period of the
§ X153.2 Requirements for same duration required of each requirement
establishment of additional branch. In in Subsec. X153.2: Provided, That the
addition to the standard pre-qualification provisions of Subsec. X153.3 shall be
requirement for the grant of banking observed if the branch cannot open within
(Next Page is Part I - Page 81)

§§ 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
08.12.31
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 Banks, including their branches and
requirements in Appendix 5 up to the offices, doing business in the Philippines,
date of the written notice within the shall observe for the conduct of their
period 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 false, otherwise authorized by the BSP in the
the sanctions under Subsec. X151.12 shall interest of the banking public. On these
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 a
subsidiary by a bank subsidiary. The banking week in excess of the five (5) days
establishment of a foreign subsidiary by a after reporting to the BSP the additional days
bank subsidiary are subject to the during which such banks or their branches
guidelines in Subsec. X382.8. or offices shall transact business for at least
three (3) hours each day.
Sec. X155 Tellering Booths. The following Without the need for prior approval of
rules shall govern the establishment of the BSP, and even in the absence of an
tellering booths in BIR offices: approved local holiday, banks and/or their
a. As a general policy, the branches or other offices are allowed to
establishment of tellering booths in BIR close on certain days in celebration of
offices are not authorized. However, in important historical and/or religious events
cases where tellering booths in offices in the locality where these banks operate:
are needed as determined by the BIR, Provided, That said closure has the prior
banks shall secure prior Monetary Board approval of the bankers’ association in the
approval; locality and in the case of bank branches,
b. A bank’s application shall be their respective head offices: Provided,
accompanied by a letter from the BIR further, That said closure will only be
Commissioner or Deputy Commissioner allowed in the municipality or city where
or other officer specifically authorized by the festivities are centered.
the Commissioner to sign such letter, Banks and/or their branches or other
stating that the BIR has agreed to allow the offices shall submit, either individually or
applicant bank to establish a tellering through their head offices, to the
booth in the specified BIR office; appropriate department of the SES a prior

§§ X156 - X156.2
08.12.31
notice of their intended closure on during any or all of their regular banking
account of a specific local festivity, days that were covered by holidays for the
together with a copy of the resolution of purpose of servicing deposits and
the local bankers association approving withdrawals: Provided, That a bank opting
said closure, at least two (2) working days to open its head office and/or branch/es and/
before the intended date of closure. or extension offices, shall submit to the
The required notice shall be supported appropriate department of the SES at least
by a certification that: two (2) working days before the intended
a. On the date of the temporary date of opening of the bank’s head office
closure, the bank and/or branch will and/or branches and/or extension offices, a
maintain a skeletal force to handle “out-of- notice signed by its president or officer of
town” clearing items in line with the equivalent rank, of its intention to open
provisions of Section X603; during the holidays, together with a copy
b. The notice of the bank’s closure and of the board resolution approving the same:
the reason thereof shall be posted Provided further, That the notice shall
conspicuously in the bank’s premises; and specify which office (head office and/or
c. For branches of banks, the closure branch/es and/or extension offices) will
has the prior approval of their respective open on what dates and their schedule of
head offices. banking hours.
(As amended by Circular Nos. 634 dated 05 December 2008 Subject to submission of a notice signed
and 624 dated 13 October 2008) by the bank president or officer of equivalent
rank, authorized agent banks of the BIR
§ X156.1 Banking hours beyond the (BIR-AABs), and/or its branch/es and/or
minimum; banking services during extension offices, are allowed to open for two
holidays. For purposes of servicing deposits (2) Saturdays prior to April 15 of every year,
and withdrawals, banks may, at their and daily from April 1 to income tax payment
discretion, remain open beyond the deadline, to extend banking hours from 3:00
minimum six (6) hours and for as long as PM to 5:00 PM to receive internal revenue
they find it necessary, even before 8:00 AM tax payments. The notice, which shall specify
or after 8:00 PM. Banks may, after prior which office (head office and/or branch/es
written notice to the approriate department and/or extension offices) will open or extend
of the SES, also remain open beyond the banking hours on what dates, shall be
minimum six (6) hours for banking services submitted to the appropriate department of
other than the servicing of deposits and the SES on or before the last banking day of
withdrawals but in no case shall such March of every year.
banking hours start earlier than 8:00 AM (As amended by Circular No. 634 dated 5 December 2008)
nor extend beyond 8:00 PM: Provided,
however, That branches of banks at any § X156.2 Report of, and changes in,
international airport or major fish port are banking days and hours. The banking days
allowed to operate on flexible banking and hours selected for each of the offices of
hours within a twenty-four (24)-hour period, banks shall be reported in writing to the
subject to the condition that the individual appropriate department of the SES. Banks
bank’s management will inform the BSP of may change the banking days and hours
the schedule of its banking hours which shall previously reported to the BSP by giving
in no case be less than six (6) hours a day. prior written notice: Provided, That changes
Banks and/or their branch/es and/or in banking days or hours shall not be made
extension offices may opt to remain open oftener than once every thirty (30) days,

§§ X156.2 - X161.2
07.12.31
except during emergencies. Emergency from office of any director or officer

shall mean (a) condition of an area or responsible therefor under Section 9-A of
locality proclaimed by the President of the R.A. No. 337, as amended. This is without
Philippines as in a state of emergency; or prejudice to their criminal liability under
(b) an event or occasion or a combination Sections 35 and 36 of R.A. No. 7653 and/
of circumstances equivalent to a public or the applicable provisions of the Revised
calamity resulting from fire, flood, or like Penal Code.
disaster, or through some unusual
occurrence or pressing necessity not § X161.1 Adoption of the Manual of
reasonably subject to anticipation calling Accounts. Banks shall strictly adopt the
for immediate action or remedy. Manual of Accounts prescribed by the BSP
The prior written notice to the BSP on for recording daily transactions including
changes in banking days and hours shall reportorial and publication requirements.
be given through the fastest means of Local branches of foreign banks may
communication, at least seven (7) banking continue using their parent bank’s general
days before the intended effectivity of the ledger accounts: Provided, That published
change in banking hours or days. In case statements and reports submitted to the
a bank, due to an emergency, has to open BSP follow the account definitions in the
outside, or close during, the banking BSP-prescribed Manual of Accounts:
hours or days reported to the BSP, a Provided, further, That the mathematical
written report submitted within twenty-four formulas for reconciling such published
(24) hours from opening or closing, as the statements and submitted reports with the
case may be, will suffice. The report shall general ledger accounts of the bank are
state the specific nature of the emergency submitted to the appropriate department
and the period the bank opened or closed of the SES: Provided, finally, That said
or shall open or close by reason of banks prepare for BSP use, reconciliations
emergency. of their ledger accounts with the BSP
prescribed Manual of Accounts during
§ X156.3 Posting of schedule of regular or special bank examinations.
banking days and hours. The schedule of Any bank which fails or refuses to
banking days and hours reported to the BSP adopt the prescribed Manual of Accounts,
shall be posted conspicuously at all times or any of the applicable accounts
in the bank’s premises. contained therein, or adopts any general
ledger account not specified in the said
Secs. X157 - X160 (Reserved) Manual of Accounts without prior written
approval of the Governor of the BSP, shall
J. RECORDS AND REPORTS be penalized by revocation or suspension
of its authority to engage in quasi-banking
Sec. X161 Records. Banks shall have a true function.
and accurate account, record or statement
of their daily transactions, particularly those § X161.2 Philippine Financial Reporting
referring to their deposit liabilities. The Standards/Philippine Accounting Standards
making of any false entry or the willful Statement of policy. It is the policy of
omission of entries relevant to any the BSP to promote fairness, transparency
transaction, is a ground for the imposition and accuracy in financial reporting. It is
of administrative sanctions under Section in this light that the BSP aims to adopt all
37 of R.A. No. 7653 and the disqualification Philippine Financial Reporting Standards

§§ X161.2 - 3161.9
07.12.31
(PFRS) and Philippine Accounting shall be measured upon initial recognition

Standards (PAS) issued by the Accounting at its fair value (i.e., the present value of
Standards Council (ASC) to the greatest the future cash flows of the financial
extent possible. instrument discounted using the market
Banks shall adopt the PFRS and PAS interest rate). The difference between the
which are in accordance with generally fair value and the net proceeds of the loan
accepted accounting principles in shall be recorded under “Unearned
recording transactions and in the Income-Others”, which shall be amortized
preparation of financial statements and over the term of the loan using the effective
reports to BSP. However, in cases where interest method.
there are differences between BSP The provisions on government grants
regulations and PFRS/PAS as when more shall be applied retroactively to all
than one (1) option are allowed or certain outstanding government grants received.
maximum or minimum limits are FIs that adopted an accounting treatment
prescribed by the PFRS/PAS, the option other than the foregoing shall consider the
or limit prescribed by BSP regulations adjustment as a change in accounting
shall be adopted by banks. policy, which shall be accounted for in
For purposes hereof, the PFRS/PAS accordance with PAS 8.
shall refer to issuances of the ASC and Notwithstanding the exceptions in
approved by the Professional Regulation Items “a”, “b” and “c”, the audited annual
Commission (PRC). financial statements required to be
Accounting treatment for prudential submitted to the BSP in accordance with
reporting. For prudential reporting, banks the provision of Subsec. X164.1 shall in
shall adopt in all respect the PFRS and PAS all respect be PFRS/PAS compliant:
except as follows: Provided, That FIs shall submit to the BSP
a. In preparing consolidated financial adjusting entries reconciling the balances
statements, only investments in financial in the financial statements for prudential
allied subsidiaries except insurance reporting with that in the audited annual
subsidiaries shall be consolidated on a financial statements.
line-by-line basis; while insurance and (As amended by Circular No. 572 dated 22 June 2007)
non-financial allied subsidiaries shall be
accounted for using the equity method. §§ X161.3 - X161.9 (Reserved)
Financial/non-financial allied/non-allied
associates shall be accounted for using the § 1161.9 (Reserved)
equity method in accordance with the
provisions of PAS 28 “Investments in § 2161.9 (Reserved)
Associates”.
b. For purposes of preparing separate § 3161.9 Retention and disposal of
financial statements, financial/non-financial records of rural/cooperative banks. To
allied/non-allied subsidiaries/associates, guide RBs/Coop Banks in the disposition
including insurance subsidiaries/associates, of their records and documents which no
shall also be accounted for using the equity longer need to be retained and in
method; and determining which of the records are of
c. Banks shall be required to meet the permanent value and therefore should be
BSP recommended valuation reserves. preserved, RBs/Coop Banks shall follow the
Government grants extended in the guidelines on retention and disposal of
form of loans bearing nil or low interest rates records in Appendix 50.

§§ X162 - X162.1
05.12.31
Sec. X162 Reports. Banks shall submit to data in the course of electronically
the appropriate department of the SES all transmitting reports to BSP. BSP
their statements and/or periodic reports recommends that sensitive or confidential
listed in Appendix 6 in such frequency and information be provided by ordinary post
deadlines indicated therein. In the or courier. The BSP will accept no
preparation of said statements/reports, responsibility for electronic messages/
banks shall use and strictly follow the forms reports/information that may be hacked or
prescribed by the BSP. cracked, intercepted, copied or disclosed
In line with the policy direction of R.A. outside BSP’s information system.
No. 8792 (E-Commerce Act), the BSP is
strongly encouraging banks to submit their § X162.1 Categories and signatories
regular reports to the BSP in electronic form. of bank reports
However, the BSP cannot presently a. Categories of reports. Reports
guarantee the security/confidentiality of required to be submitted to the BSP by

§§ X162.1 - X162.2
07.12.31
banks are grouped into Category A-1, The BSP Branch Operations shall be
Category A-2, Category A-3 and Category advised of any changes in authorized branch
B reports as indicated in Appendix 6. signatories, as well as authenticating Head
b. Authorized signatories Office Senior Officers.
(1) Category A-1 reports shall be c. Deadline for submission of reports
signed by the bank’s chief executive (1) Regular reports. Unless otherwise
officer or, in his absence, by the executive specified, the deadlines for submission of
vice president, and by the comptroller or, reports enumerated in Appendix 6, shall
in his absence, by the chief accountant, be reckoned on the basis of banking days.
or officers holding equivalent positions. For this purpose, banking days shall be
(2) Category A-2 reports shall be signed understood to mean Monday through
by the president, executive vice president, Friday or banking days of the BSP.
vice president or by an officer holding (2) Call Reports. The deadline of
equivalent position. submission of call reports shall be specified
(3) Category A-3 and Category B reports in the letter calling for the report.
shall be signed by officers or their alternates,
duly designated by the board of directors. § X162.2 Sanctions in case of willful
The designated signatories of delay in the submission of reports/refusal
Categories A-1, A-2, A-3 and B reports to permit examination. For willful delay in
including their specimen signatures shall the submission of reports, specific sanctions
be contained in a resolution approved by shall be imposed in accordance with the
the board of directors. A copy of the following rules.
board resolution covering the initial a. Definitions. For purposes of this
designation and subsequent change(s) in Subsection, the following definitions shall
signatories as well as specimen signatures apply.
of the signatories and alternates, shall be (1) Report shall refer to any report or
submitted to the appropriate department statement required to be submitted by a
of the SES in such frequency and within bank to the BSP.
the deadline indicated in Appendix 6. (2) Willful delay in the submission of
(4) Reports in computer media that are reports shall refer to the failure of any
submitted by banks shall be subject to the bank to submit on time the report defined
same requirements regarding authorized in Item “a(1)” above. Failure to submit a
signatories. report on time due to fortuitous events,
(5) Any report submitted to the BSP that such as fire and other natural calamities,
is signed by an officer who is not listed or and public disorders including strike or
included in any of the resolutions lockout affecting a bank as defined in the
mentioned above, shall be considered as Labor Code, or of a national emergency
not having been submitted at all. affecting operations of banks, shall not be
(6) All authorized agent banks shall considered as willful delay.
submit to the Director, Branch (3) Examination shall include, but
Operations, BSP, the updated specimen need not be limited to, the verification,
signatures of Senior Bank Officers in their review, audit, investigation and
respective Head Offices who are inspection of the books and records,
authorized to authenticate the signatures business affairs, administration and
of their provincial branch officers financial condition of any bank including
transacting business with the BSP the reproduction of banking records, as
Regional Offices/Branches. well as the taking possession of the books

§ X162.2
07.12.31
and records and keeping them under BSP’s per day of default until report is filed with
custody after giving proper receipts therefor. the BSP.
It shall also include the interview of the In the implementation of the foregoing
directors and personnel of any bank rules, delay or default shall start to run
including its Electronic Data Processing on the day following the last day required
(EDP) servicer. Books and records shall for the submission of reports. However,
include, but not limited to, data and should the last day of filing fall on a non-
information stored in magnetic tapes, discs, working day in the locality where the
diskettes printouts, logbooks and manuals reporting bank is situated, delay or default
kept and maintained by the bank or by the shall start on the day following the next
EDP servicer, that are necessary and banking day. The due date/deadline for
incidental to the use of EDP systems by the submission of reports to BSP as prescribed
bank. under Sec. X162 governing the frequency
(4) Refusal to permit examination shall and deadlines indicated in Appendix 6 shall
mean any act or omission which impedes, be automatically moved to the next banking
delays or obstructs the duly authorized day whenever a half-day suspension of
BSP officer/examiner/employee from business operations in government offices
conducting an examination, including the is declared due to an emergency such as
act of refusing to accept or honor a letter typhoon, floods, etc.
of authority to examine presented by any Delayed schedules/attachments and
officer/examiner/employee of the BSP. amendments shall be considered late
b. Fines for willful delay in the reporting subject to the above penalties.
submission of reports. (2) Manner of filing. For the purpose
(1) Amount of fine. Any bank which of establishing delay or default, the
shall incur willful delay in the submission submission of reports shall be effected by
of required reports shall pay a fine in filing them with the appropriate department
accordance with the following schedule: of the SES or with the BSP Regional Offices,
(a) For Category A-1, A-2 and A-3 or by sending them by registered mail or
reports by special delivery through a private
(1) UBs/KBs - P1,200 courier, unless otherwise specified in the
(2) TBs - 600 circular or memorandum of the BSP.
(3) RBs/Coop Banks - 180 In the first case, the date of
per day of default until the report is filed acknowledgment by the appropriate
with the BSP: Provided, That for the report department of the SES or the BSP Regional
on compliance with the mandatory credit Office appearing on the copies of such
allocation required under R.A. No. 6977 (as reports filed or submitted, and in the second
amended by R.A. No. 8289) the amount of case, the date of mailing postmarked on the
fines shall be: envelope or the date of the registry receipt
(i) UBs/KBs - P 1,000 or the date of special delivery receipt, shall
(ii) TBs - 500 be considered as the date of filing.
(iii) RBs/Coop Banks - 250 c. Fines for refusal to permit
per day of default until report is filed with examination.
the BSP; and (1) Amount of fine - A bank which
(b) For Category B reports shall willfully refuse to permit
(i) UBs/KBs - P 240 examination shall pay a fine of P3,000
(ii) TBs - 120 daily from the day of refusal and for as
(iii) RBs/Coop Banks - 60 long as such refusal lasts.

§§ X162.2 - X162.4
07.12.31
(2) Basis and effectivity of the structure and operational policies

imposition of fine. enumerated in Appendix 8. Any subsequent
(a) The BSP officer/examiner/ change/issuance should be furnished the
employee shall report the refusal of the department within fifteen (15) banking days
bank to permit examination to the head of from such change/issuance.
the appropriate department of the SES, who
shall forthwith make a written demand § X162.4 Report on crimes/losses
upon the bank concerned for such Banks shall report on the following matters
examination. If the bank continues to refuse to the appropriate department of the SES.
said examination without any satisfactory a. Crimes whether consummated,
explanation thereof, the BSP officer/examiner/ frustrated or attempted against property/
employee concerned shall submit a report to facilities (such as robbery, theft, swindling
that effect to the said department head. or estafa, forgery and other deceits) and
(b) The fine shall be imposed starting other crimes involving loss/destruction of
on the day following the receipt by the said bank property when the amount involved,
department of the written report submitted in each crime is P20,000 or more.
by the BSP officer/examiner/employee Crimes involving bank personnel,
concerned regarding the continued refusal regardless of whether or not such crimes
of the bank to permit the desired examination. involve the loss/destruction of bank
d. Manner of payment or collection property, even if the amount involved is less
of fines. The regulations embodied in than P20,000, shall likewise be reported to
Subsec. X609.1 shall be observed in the the BSP.
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 a
e. Other penalties. The imposition of 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. Definition of terms. For the purpose
administrative sanctions and to the filing of of this regulation, the following definitions
a criminal case as provided for in other shall apply:
provisions of law. (1) Estafa - a crime committed by a
f. Appeal to the Monetary Board. An person who defrauds another causing the
aggrieved bank may appeal to the Monetary latter to suffer damage by means of any of
Board any fine imposed by the BSP. the following:
(As amended by Circular 585 dated 15 October 2007) (a) unfaithfulness or abuse of confidence;
(b) false pretense; or
§ X162.3 Submission of certain (c) fraudulent acts/means, under
required information. Banks shall submit Articles 315 to 317 of the Revised Penal
to the appropriate department of the SES Code, as amended.
the information on bank’s profile required (2) Theft - a crime committed by a
in Appendix 7. Any change in any of the person who, with intent to gain but without
required information submitted, after the violence against or intimidation of persons
initial submission, shall be reported to the nor force upon things, shall take personal
said department immediately. property of another without the latter’s
Banks shall likewise submit to the said consent pursuant to Article 308 and other
department any or all of the documents/ pertinent provisions of Chapter III, Title X
information on bank’s organizational of the Revised Penal Code, as amended.

§ X162.4
07.12.31
(3) Robbery - a crime committed by a (8) Non-crime related loss – Incidents

person who, with intent to gain, shall take that may cause the bank to suffer a loss
any personal property belonging to another, arising from fortuitous events.
by means of violence against or intimidation (9) Insider – person involved include
of any person, or using force upon anything stockholders, directors, officers and
pursuant to Article 295 and other pertinent employees of the bank.
provisions of Chapter 1, Title X of the (10) Outsider – persons involved other
Revised Penal Code, as amended. than an insider.
(4) Falsification – a crime committed by (11) Perpetrator – a person, whether an
a person who falsifies a document by insider or outsider, who is responsible for
(a) Counterfeiting or imitating any the commission of crime either by direct
handwriting, signature or rubric; participation, inducement or cooperation,
(b) Causing it to appear that persons including accomplices and accessories as
have participated in any act or proceeding defined under Articles 18 and 19 of the
when they did not in fact so participate; Revised Penal Code, as amended.
(c) Attributing to persons who have (12) Victim – an insider or outsider other
participated in an act or proceeding than the perpetrator, who is the aggrieved
statements other than those in fact made by party to the crime and may as a result of the
them; incident, suffered the loss.
(d) Making untruthful statements in a (13) Attempted crime - a crime is
narration of facts; attempted when the perpetrator commences
(e) Altering true dates; the commission of the crime directly by
(f) Making any alteration or overt acts but does not perform all of the
intercalation in a genuine document which acts of execution which constitute the crime
changes its meaning; by reason of some cause or act other than
(g) Issuing in an authenticated form a his own voluntary desistance under Article
document purporting to be a copy of an 6 of the Revised Penal Code, as amended.
original document when no such original (14) Frustrated crime - a crime is
exists, or including in such a copy a classified as frustrated, when the perpetrator
statement contrary to, or different from, that performs all the acts of execution which
of the genuine original; or should produce the crime as a consequence
(h) Intercalating any instrument or note but which, nevertheless, do not produce it
relative to the issuance thereof in a protocol, by reason of causes independent of the will
registry, or official book and other acts falling of the perpetrator under Article 6 of the
under Articles 169, 171 and 172 of the Revised Penal Code, as amended.
Revised Penal Code, as amended. (15) Consummated crime – a crime is
(5) Credit-card related crimes – crimes consummated when all the acts of
arising through the use of credit cards. execution which constitute the crime was
(6) Other crimes that may cause loss to performed. As a result, the bank may have
the bank – crimes committed that cannot suffered a loss, the recoverable portion of
be appropriately classified under any of the which should be deducted to arrive at the
above classifications. probable loss incurred by the bank.
(7) Negligence - the failure to exercise (16) Termination of the investigation -
the care which an ordinarily prudent person an investigation is said to be terminated
would use under the circumstances in the when all the material facts/information
discharge of the duty then resting upon him which are sufficient to support a conclusion
(People v. Aguilar, 2899-R, 18 October 1949). relative to the matters involved have already

§§ X162.4 - X162.6
07.12.31
been gathered and a finding/conclusion mail or by the date received, if handcarried

may be made based on the gathered to the SDC and SITD.
information. (As amended by Circular No. 587 dated 26 October 2007)
d. The following guidelines shall be
observed in the preparation and § X162.5 Report on real estate/chattel
submission of the report: transactions. Banks shall within ten (10)
(1) The Branch or Head Office unit’s banking days from approval of the transaction:
Report on Crimes and Losses shall be a. Report to the appropriate
submitted to the BSP through the bank’s department of the SES, any real estate/
head office unit and shall be certified chattel transaction (such as, but not limited
correct by the compliance officer. The to, rentals or leases, purchases and sales,
report shall be assigned a prescribed of foreclosed assets) between the bank and
reference number by the bank using the its director(s), officer(s), employee(s), or
format mm-yyyy-xxx with mm and yyyy as between the bank and its stockholder(s) or
numeric code for the month and year of their related interest(s), as defined under
reporting respectively and xxx as Items “c” and “e”, respectively, of Subsec.
sequence no. (e.g. 01-2007-001) which X326.1; and
shall be a continuing series until the end b. Certify to the BSP that such
of the year. transaction has been thoroughly reviewed
The report shall be prepared using the and verified as having been entered into in
new format in two (2) copies and shall be the best interest of the bank.
submitted to the SDC and to the BSP (As amended by Circular No. 525 dated 04 April 2006)
Security Coordinator, thru the Director,
Security, Investigation and Transport § X162.6 Reconciliation of head office
Department (SITD) within ten (10) calendar and branch transactions. Banks shall
days from knowledge of the crime/ prepare reconciliation statements covering
incident; transactions between the head office and all
(2) Where a thorough investigation its branches within thirty (30) banking days
and evaluation of facts is necessary to after the end of each month.
complete the report, an initial report All items which are unresponded or
submitted within deadline may be outstanding in the reconciliation statement
accepted: Provided, That a complete report for more than (6) months as of reconciliation
is submitted not later than twenty (20) statement date shall be reported, with
calendar days from termination of explanations/reasons for their being
investigation. outstanding, to the appropriate department
Moreover, final reports on crimes and of the SES in such frequency and within the
losses with incomplete information as deadline set in Appendix 6.
required under SES Form 6G shall be The reconciliation statement shall be
considered erroneous reports and the made available to any authorized bank
concerned bank shall be required to submit examiner for inspection/examination
amended reports subject to penalties on without need of advance notice.
late reporting for Category B reports under A copy of the year-end reconciliation
Subsec. X162.2; and statement covering transactions between the
(3) Proof of submission of the bank’s head office and all its branches shall
report shall be determined by the be furnished the said department not later
date of postmark, if the report was sent by than the end of January of the following year.

§§ X162.7 - X162.9
07.12.31
§ X162.7 List of stockholders and § X162.9 Publication/Posting of

their stockholdings balance sheet
a. Banks shall submit to the a. UBs/KBs, TBs, RBs and Coop Banks
appropriate department of the SES with resources of P1.0 billion and above
annually a complete list of stockholders (1) Banks belonging to this category
and their stockholdings in the prescribed shall accomplish the prescribed form and
form within the deadline indicated in publish their quarterly Balance Sheet (BS)
Appendix 6. as of the cut-off date indicated in the call
b. Any change in the list shall also be letter issued by the SES.
reported to the said department in such The Consolidated Balance Sheet (CBS)
frequency and within the deadline of a bank and its subsidiaries and affiliates
indicated in Appendix 6, indicating the shall be published side by side with the BS of
name(s) and/or stockholdings involved its head office and its branches/other offices.
which is/are to be cancelled or replaced, (2) The CBS of the bank and its
and the new name(s) and/or stockholdings subsidiaries and affiliates shall be prepared
which shall be included for that quarter. in accordance with the rules of
In case no change occurred during a consolidation provided under the Financial
particular quarter, the report shall provide Reporting Package (FRP), in which case,
a notation, viz “no change(s) since last only financial allied subsidiaries, except
report submitted for quarter ended, subsidiary insurance companies, shall be
_________ _____, 20_ _”. consolidated on a line-by-line basis, while
non-financial allied subsidiaries including
§ X162.8 Bangko Sentral offices, subsidiary insurance companies shall be
where reports are submitted. Submission accounted for using the equity method.
of BSP periodic or call reports shall be as (3) Such BS, and CBS where applicable,
follows: shall be published in a newspaper of general
a. All banking offices shall submit circulation in the city/province where the
the required reports in accordance with principal office, in the case of a domestic
Appendix 6 to the BSP, Manila or to the bank, or the principal branch/office, in the
nearest BSP Regional Offices: Provided, case of a foreign bank, is located, but if no
That the head office of a bank may submit newspaper is published in the same
to the SDC in electronic form the batched province, then in a newspaper published in
copy of all its banking units’ Quarterly Metro Manila or in the nearest city/province.
Statement of Condition and Statement of (4) The names and position/
Income and Expenses by Banking Unit designation of the members of the board
in behalf of its branches and other of directors, president and executive vice
offices; presidents (senior vice presidents, if there
b. Where a particular report form calls are no executive vice presidents), shall be
for distribution of copies to other published and shown in the right side
departments of the BSP, the bank column of the published BS as of June of
concerned shall furnish said copies of the every year.
report direct to the respective departments (5) (a) Before publication, a soft copy
of the BSP; and of the BS shall be submitted to the SDC
c. As an exception to Item “a” above, within twelve (12) banking days from the
the duplicate copy of the bio-data for date of the call letter.
directors/officers shall be submitted to the Further, a hard copy of the control proof
SDC of the BSP. list for the said report shall likewise be

§ X162.9
07.12.31
submitted to the SDC within the said (1) Solo BS (Head Office and Branches/
deadline. Other Offices)
(b) Banks that are incapable of (a) Non-performing loans (NPLs)
submitting the BS in electronic form shall (b) Ratio of NPLs to total loan portfolio
submit the same in hard copy to the SDC (TLP)
within the said deadline. (c) Classified loans and other risk
(c) The published BS with the assets
publisher’s certificate shall be submitted (d) Specific provision for loan losses
within twenty (20) banking days after the (e) Return on equity (ROE)
date of said call letter to the SDC. (f) DOSRI loans and receivables
b. TBs/RBs/Coop Banks with resources (g) Ratio of DOSRI loans and
of less than P1 billion receivables to TLP
(1) A TB, RB and Coop Bank belonging (h) Past due DOSRI loans and
to this category shall either publish its receivables
quarterly BS as of the cut-off date indicated (i) Ratio of past due DOSRI loans and
in the call letter issued by the SES of the receivables to TLP
BSP, in a newspaper of general circulation (j) Percent compliance with Magna
as in Item “a(3)” above or post the same in Carta – 6% for Small Enterprise
the most conspicuous area of its premises, (k) Percent compliance with Magna
in the municipal building, municipal public Carta – 2% for Medium Enterprise
market, barangay hall and barangay public (l) CAR on Solo Basis under Appendix
market where the head office and all its 63b for UBs/KBs, TBs, and RBs that are
branches are located. The posting shall be subsidiaries of UBs/KBs. For stand-alone
printed on 12”x18” white paper, preferably TBs, RBs and Coop Banks, Sec. X116 shall
white buff paper (cartolina) and shall be apply.
made within twenty (20) banking days from (i) Total CAR
the end of the reference quarter and for a (ii) Tier 1 CAR
period of thirty (30) successive calendar (2) CBS (parent bank and financial
days. allied subsidiaries excluding subsidiary
(2) (a) A TB, RB and Coop Bank that insurance companies)
shall publish/post its quarterly BS shall (a) List of financial allied subsidiaries
submit a soft copy of the same to the SDC (excluding subsidiary insurance
within twenty (20) banking days after the companies)
end of the reference quarter. (b) List of subsidiary insurance
(b) Banks that are incapable of companies
submitting the BS in electronic form shall (c) CAR on consolidated basis
submit the same in hard copy to the SDC (i) Total CAR
within the said deadline. (ii) Tier 1 CAR
(c) In either case, an affidavit executed For purposes of additional information,
by the president, or in his absence, the vice- all amounts and ratios shall be as of the same
president or manager, as the case may be, call date. However, the basis for computing
shall likewise be submitted to the SDC the ROE shall be the latest quarter
within the said deadline. immediately preceding the call date using
c. Additional information required the following formula:
Banks shall disclose the following
Return on Average Equity (%) =
information in the quarterly published/ Net Income (or Loss) after Income Tax X 100
posted BS: Average Total Capital Accounts

§§ X162.9 - X162.12
07.12.31
Where net income/(loss) after tax and The consolidated financial statements
average total capital accounts shall be: and the supporting individual financial
Net Income Average Total Capital statements of their subsidiaries shall be
After Tax submitted to the appropriate department
Quarter (loss) (NIAT) Accounts
March Quarter end Sum of end-month capital
of the SES within the deadline indicated in
NIAT accounts (December - Appendix 6.
multiplied by 4. March) divided by 4.
June Semester end Sum of end-month capital
NIAT accounts (December -
§ X162.11 Reports of other banking
multiplied by 2. June) divided by 7. offices. Extension offices of banks which
Sept. Nine (9) mos. Sum of end-month capital maintain separate books of accounts shall
NIAT accounts (December -
be subject to all reporting requirements of
multiplied by September) divided by10.
1.33333. a regular branch.
Dec. Year end Sum of end-month capital An extension office whose record of
NIAT accounts (December - transactions/accounts is consolidated daily
December) divided by 13.
with its mother unit shall submit only the
Selected Financial Accounts form as listed
d. Deferment of publication requirement. in Appendix 6.
The abovementioned publication Convenience Banking Centers (CBCs)
requirement may be deferred by the are not required by BSP to submit
Monetary Board by at least five (5) Statement of Condition (SOC) and
affirmative votes upon application by the Statement of Income and Expenses (SIE).
bank concerned during periods of national A CBC is not considered as a branch but
and/or local emergency or of imminent as an extension office of a bank without
panic which directly threaten monetary and separate books of accounts which directly
banking stability. reports its transactions to its mother branch.
The amended prescribed form for the
published BS shall be used starting with the § X162.12 Reports required of foreign
quarter-end September 2007 reports. subsidiaries/affiliates/banking offices or
(As amended by Circular No. 576 dated 08 August 2007) non-bank entities of domestic banks. The
submission of periodic reports of a foreign
§ X162.10 Consolidated financial subsidiary/affiliate/banking offices or non-
statements of banks and their subsidiaries bank entities of domestic banks shall be
engaged in financial allied undertakings governed by the following rules:
Banks shall submit after the end of the a. For foreign subsidiaries/affiliates
calendar year or the end of the fiscal year of domestic banks, the local investor-
adopted by the bank their consolidated bank(s) concerned shall regularly submit
financial statements and supported by the to the appropriate department of the SES
individual annual financial statements of a quarterly statement of condition and
their subsidiaries engaged in financial allied quarterly/annual report of income and
undertakings. expenses concerning the operations of
For purposes of this Subsection, the the foreign subsidiaries/affiliates,
consolidated financial statements shall including such other periodic reports
conform to the guidelines of PAS 27 which may be required from time to time
“Consolidated and Separate Financial in the forms prescribed by the BSP for
Statements” except that for purposes of domestic financial intermediaries to the
consolidated financial statements, the extent that their operations are
provisions of Subsec. X161.2a shall apply. applicable;

§§ X162.12 - 1162.13
05.12.31
b. For foreign subsidiaries/affiliates of (5) Permanent proxy or voting trusts in

domestic banks, the appropriate department favor of the bank constituting ten percent
of the SES shall be furnished by said domestic (10%) or more of the outstanding voting
banks copies of the annual report prescribed stock of the entity, or vice-versa.
by any of the supervisory/regulatory For purposes of this Manual, the above
authorities in the country of operations; definition of affiliate shall be adopted except
c. When material changes noted in where the provision of the regulation
the annual financial statements warrant an expressly states otherwise.
interim comprehensive evaluation, the
foreign affiliate concerned shall be § X162.13 (Reserved)
requested to submit to the appropriate
department of the SES, through its domestic § 1162.13 Additional reports from
investor-bank, copies of its quarter/interim UBs/KBs
reports to stockholders or the call reports a. Volume and weighted average
in the case of U.S. banks; interest rates of deposits and loans. Data
d. Audited financial statements (AFS) on the volume of transactions and
of the foreign banking offices and weighted average interest rates of
subsidiaries; and certificates of time deposits and secured/
e. Examination reports done by the unsecured loans granted, classified by
foreign bank supervisory authority. maturity, and outstanding savings deposits
The submission of the documents in classified by interest rates, shall be
Items “d” and “e” to BSP shall not be later prepared daily (except data on savings
than thirty (30) banking days from date of deposits which shall be prepared weekly)
submission/release of said reports to the and submitted weekly by all head offices
foreign banking offices and subsidiaries of of UBs/KBs to the Department of
Philippine banks. Material findings, if any, Economic Research of the BSP not later
contained in said reports should be than 4:00 PM on Thursday after end of
highlighted. reference week.
f. For purposes of this Subsection, b. Short-term prime rates. All UBs
affiliate shall refer to an entity linked directly and KBs shall submit in the prescribed
or indirectly to a bank by means of: form a report on the volume and interest
(1) Ownership, control or power to rates on credit line availments under
vote, of ten percent (10%) or more of the short-term prime rates in such frequency
outstanding voting stock of the entity, or and within the deadline indicated in
vice-versa; Appendix 6.
(2) Interlocking directorship or c. (Deleted by Circular No. 405
officership, except in cases involving dated 28 August 2003).
independent directors as defined under d. Foreign Exchange Position Report
existing regulations; Banks may be allowed to submit on a
(3) Common stockholders owning ten weekly basis the notarized certification
percent (10%) or more of the outstanding signed by the bank’s president/CEO/country
voting stock of each financial intermediary manager and the treasurer to cover the daily
and the entity; hard copies of Schedule 13, FX Form I and
(4) Management contract or any CFXPR pertaining to each day of the week.
arrangement granting power to the bank to Delayed submission of the notarized
direct or cause the direction of management certification shall be subject to monetary
and policies of the entity, or vice-versa; and penalty, as follows:

§§ 1162.13 - X163
07.12.31
Daily Penalty Transactions not covered under the

1 banking day of P6,000.00 (equivalent
st bank’s fringe benefit plan shall still be
delay P1,200.00 per day for reported under the signatures of all the
five (5) report dates covered members of the bank’s board of
by the certification on the directors.
assumption that the five (5)
weekdays of the reference § X162.16 Financial Reporting Package
week are all banking days) In line with the adoption of the PFRS and
PAS effective the annual financial reporting
2nd banking day of P1,200.00/day
period beginning 01 January 2005, the
delay and onwards
Manual of Accounts and the BSP reportorial
§ 2162.13 (Reserved) requirements consisting of the CSOC,
Consolidated Statement of Income and
§ 3162.13 (Reserved) Expense (CSIE) and their supporting
schedules are amended through the
§ X162.14 Reports of strikes and issuance of the new FRP for banks.
lockouts. Banks through their president or The general features as well as the
chief executive officer shall immediately implementing guidelines of the FRP is
apprise the Deputy Governor of the SES provided in Appendix 77.
of the BSP on the status of strikes/lockouts (Circular 512 dated 03 February 2006 as amended by Circular
involving their banks, if unsettled after 568 dated 08 May 2007)
seven (7) calendar days. The bank shall
disclose the following pertinent §§ X162.17 – X162.20 (Reserved)
information on the strike/lockout:
a. Cause of the strike/lockout and bank K. INTERNAL CONTROL
management’s position on its legality; and
b. Bank operations affected. Sec. X163 Internal Control System. The
following provisions are the minimum
§ X162.15 Report on the Sworn internal control standards for banks to help
Statement on Real Estate/Chattel promote effective control system.
Transactions. The Report on the Sworn For this purpose, the following
Statement on Real Estate/Chattel Transactions records/data shall be compiled and made
submitted under BSP Form Nos. NP06-KB, available for the inspection of BSP
NP06-TB and RB/COB 20 need not be under examiners:
the signature of all the members of the bank’s a. Records showing compliance with
board of directors: Provided, That: independent balancing procedures. These
(a) transactions reported are being records should indicate the accounts and
availed of strictly in accordance with the the periodic balancing procedures
terms and conditions of a fringe benefit performed.
program approved by the bank’s board of b. Statements of actual duties of
directors and by the BSP; and persons assigned to handle cash and
(b) the signatory to the certification is securities.
an officer duly authorized by the bank’s c. All internal control audit reports or
board of directors. their equivalent.

§§ X163 - X163.3
05.12.31
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
connection with any firm, partnership or officer or by an officer not connected with
corporation organized for profits, of all the cash department.
bank directors, officers and major (3) Monthly reconciliation of due from
stockholders as defined under Subsec. banks, cash in bank accounts (domestic and
X326.1 should be maintained. foreign) and due from/to head office/
e. Information/data pertaining to the branches by someone other than the person
electronic data processing (EDP) handling the records or posting the general
department or EDP servicer of the bank ledger entries.
particularly on organization, input controls, (4) Periodic verification of securities
processing controls, output controls, and collaterals by someone other than their
software controls, program and custodian.
documentation standards, logs on the (5) Periodic verification of the accuracy
operation of mainframes and peripherals, of the interest credits to deposit liabilities
hardware controls and such other EDP accounts.
internal control standards prescribed by the
BSP in separate rules and regulations. § X163.3 Division of duties and
responsibilities
§ X163.1 Proper accounting records a. The duties of all the officers and
a. All banks shall maintain proper and employees shall be segregated, clearly
adequate accounting records. defined, understood, documented and
b. These records should be kept up- manualized. No individual shall have
to-date and shall contain sufficient detail so complete authority and responsibility for
that an audit trail is established. handling all phases of any transaction from
c. All tickets shall bear official beginning to end, without some check or
approval and should be initiated by the balance from some other part of the
person originating and another person by organization.
checking them. b. The physical handling of a
transaction shall be separated from its
§ X163.2 Independent balancing recording and supervision as follows:
a. Independent balancing shall mean (1) A person handling cash shall not be
that records posted by a person or cash held permitted to post the ledger records nor
by a teller or cashier shall be balanced or should posting the general ledger be
counted by another person. performed by an employee who posts the
b. The following minimum depositor’s subsidiary ledgers;
independent balancing procedures shall be (2) A lending officer shall never be
adopted. allowed to disburse proceeds of notes,
(1) Monthly reconciliation of general accept note payment nor post loan
ledger balances against respective subsidiary ledgers;
and supporting records and documentation (3) The functions of issuing, recording
by someone other than the bookkeeper or and signing of drafts/checks shall be
the person handling the records. separated;
(2) Irregular and unannounced count (4) Checks and other cash items shall
of teller’s cash and checks and other cash be maintained either by an employee not
items at least twice a month and vault handling cash or by the Rack/Distributing
cash including Automated Tellering Department provided that adequate control

§§ X163.3 - X163.4
05.12.31
as to custody and disposition of funds are (11)Dispatching and delivery of current

properly maintained; account statements shall be done by
(5) The receipt of statements from someone who is not involved in current
depository bank shall be assigned to an account operations.
employee other than the one connected c. Extensive background checking of
with the preparation, recording and signing persons intended to be assigned to handle
of bank drafts; cash and securities shall be conducted.
(6) Custodians of securities shall not be Frequent follow-up checking after their
allowed to handle security transactions; employment shall also be made.
(7) Collateral appraisal shall be done by
an employee/officer who does not approve § X163.4 Joint custody
loans; a. Joint custody shall mean the
(8) Incoming checks and other cash processing of transactions in the presence
items shall be recorded chronologically in of and under the direct observation of a
a register by an employee other than the second person. Both persons shall be equally
bookkeeper before they are forwarded for accountable for the physical protection of the
posting purposes; items and records involved.
(9) Credit reports shall be obtained by b. Physical protection shall be deemed
someone other than lending officers ; established through the use of two (2) locks
(10)Mailing of customers’ statements or combinations on a file chest or vault
and delinquent notices shall be done by an compartment.
employee other than the one who granted c. Two (2) or more persons shall be
the loan or the one handling the records; and 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 auditor-in-charge, senior auditor or audit

methodologies; 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; QB, trust entity or national coop bank as
f. Review of the system of assessing auditor-in-charge, senior auditor or audit
capital in relation to the estimate of 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 QBs, trust entities, national coop banks,
procedures; and 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 QBs, trust entities, RBs,
of a UB or a KB must be a Certified Public NSSLAs, local coop banks, subsidiaries
Accountant (CPA) and must have at least and affiliates engaged in allied activities,
five (5) years experience in the regular and other financial institutions under BSP
audit (internal or external) of a UB or KB 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,QB, trust /www.theiia.org.) and other supplemental
entity or national coop bank must be a CPA standards issued by regulatory authorities/
with at least five (5) years experience in government agencies. The Standards
the regular audit (internal or external) of a address independence and objectivity,
TB, QB, trust entity or national coop bank professional proficiency, scope of work,
as auditor-in-charge, senior auditor or audit performance of audit work, management
manager or, in lieu thereof, at least three of internal audit, quality assurance
(3) years experience in the regular audit reviews, communication and monitoring
(internal or external) of a UB or KB as of results.

§§ X165 - X166
06.12.31
L. MISCELLANEOUS PROVISIONS External auditors who meet the

requirements specified in this Section shall
Sec. X165 Selection, Appointment and be included in the list of BSP selected
Reporting Requirements for External external auditors. In case of partnership,
Auditors; Sanction; Effectivity. Under inclusion in the list of BSP selected external
Section 58, R.A. No. 8791, the Monetary auditors shall apply to the audit firm only
Board may require a bank to engage the and not to the individual signing partners
services of an independent auditor to be or auditors under its employment.
chosen by the bank concerned from a list The BSP will circularize to all banks,
of CPAs acceptable to the Monetary QBs, trust entities and NSSLAs the list of
Board. selected external auditors once a year. The
It is the policy of the BSP to promote BSP, however, shall not be liable for any
high ethical and professional standards in damage or loss that may arise from its
public accounting practice and to selection of the external auditors to be
encourage coordination and sharing of engaged by banks, QBs, trust entities or
information between external auditors and NSSLAs for regular audit or special
regulatory authorities of banks, QBs, trust engagements.
entities and/or NSSLAs to ensure effective a. Rules and regulations. The rules
audit and supervision of these institutions and regulations to govern the selection and
and to avoid unnecessary duplication of delisting by the BSP of external auditors of
efforts. In furtherance of this policy and to banks and their subsidiaries and affiliates
ensure that reliance by regulatory engaged in allied activities are shown in
authorities and the public on the opinion Appendix 43.
of external auditors is well placed, the BSP b. Sanctions. The applicable
hereby prescribes the rules and regulations sanctions/penalties prescribed under
that shall govern the selection, Sections 36 and 37 of R.A. No. 7653 to the
appointment, reporting requirements and extent applicable shall be imposed on the
delisting for external auditors of banks, bank, its audit committee and the directors
QBs, trust entities, NSSLAs, their approving the hiring of external auditors
subsidiaries and affiliates engaged in who are not in the BSP list of selected
allied activities and other FIs which auditors for banks, QBs, trust entities,
under special laws are subject to BSP NSSLAs or for hiring, and/or retaining the
supervision. services of the external auditor in violation
The selection of external auditors shall of any of the provisions of this Section and
be valid for a period of three (3) years. BSP for non-compliance with the Monetary
selected external auditors shall apply for Board directive under Item “l” in Appendix
the renewal of their selection every three 43. Erring external auditors may also be
(3) years. The provisions of Items “A” and reported by the BSP to the PRC for
“B” of Appendix 43 shall likewise apply for appropriate disciplinary action.
each application for renewal. (As amended by Circular No. 529 dated 11 May 2006
The SES shall make an annual
assessment of the performance of external Sec. X166 Audited Financial Statements
auditors and will recommend deletion of Banks. The following rules shall govern
from the list even prior to the three (3)-year the utilization and submission of AFS of
renewal period, if based on assessment, banks.
the external auditors’ report did not comply For purposes of this Section, AFS shall
with BSP requirements. include the balance sheets, income

§§ X166 - X166.1
06.12.31
statements, statements of changes in In addition, the external auditor shall

equity, statements of cash flows and notes be required by the bank to submit to the
to financial statements which shall include board of directors or country head, a LOC
among other information, disclosure of the indicating any material weakness or breach
volume of past due loans as well as loan- in the institution’s internal control and risk
loss provisions. On the other hand, management systems within thirty (30)
financial audit report shall refer to the AFS calendar days after submission of the
and the opinion of the auditor. The AFS of financial audit report. If no material
banks with subsidiaries shall be presented weakness or breach is noted to warrant the
side by side on a solo basis (parent) and on issuance of an LOC, a certification under
a consolidated basis (parent and oath stating that no material weakness or
subsidiaries). breach in the internal control and risk
(As amended by Circular No. 540 dated 09 August 2006) management systems was noted in the
course of the audit of the bank shall be
§ X166.1 Financial audit. Banks shall submitted in its stead, together with the
cause an annual financial audit by an financial audit report.
external auditor acceptable to the BSP not Material weakness shall be defined as
later than thirty (30) calendar days after the a significant control deficiency, or
close of the calendar year or the fiscal year combination of deficiencies, that results in
adopted by the bank. Report of such audit more than a remote likelihood that a
shall be submitted to the board of directors material misstatement of the financial
or country head, in the case of foreign bank statements will not be detected or prevented
branches, and the appropriate department by the entity’s internal control. A material
of the SES not later than 120 calendar days weakness does not mean that a material
after the close of the calendar year or the misstatement has occurred or will occur,
fiscal year adopted by the bank. The report but that it could occur. A control deficiency
to the BSP shall be accompanied by the: exists when the design or operation of a
(1) certification by the external auditor on control does not allow management or
the: (a) dates of start and termination of employees, in the normal course of
audit; (b) date of submission of the financial performing their assigned functions, to
audit report and certification under oath prevent or detect misstatements on a timely
stating that no material weakness or breach basis. A significant deficiency is a control
in the internal control and risk deficiency, or combination of control
management systems was noted in the deficiencies, that adversely affects the
course of the audit of the bank to the board entity’s ability to initiate, authorize, record,
of directors or country head; and (c) the process, or report financial data reliably in
absence of any direct or indirect financial accordance with generally accepted
interest and other circumstances that may accounting principles. The phrase more
impair the independence of the external than remote likelihood shall mean that
auditor; (2) Reconciliation Statement future events are likely to occur or are
between the AFS and the balance sheet reasonably possible to occur.
and income statement for bank proper The board of directors, in a regular or
(regular and FCDU) and trust department special meeting, shall consider and act on
submitted to the BSP including copies of the financial audit report and the
adjusting entries on the reconciling items; certification under oath submitted in lieu
and (3) other information that may be of the LOC and shall submit, within thirty
required by the BSP. (30) banking days after receipt of the

§ X166.1
06.12.31
reports, a copy of its resolution to the Provided, further, That when circumstances
appropriate department of the SES. The such as, but not limited to loans from
resolution shall show, among other things, multilateral financial institutions,
the actions(s) taken on the reports and the privatization, or public listing warrant, the
names of the directors present and absent. financial audit of the institution concerned
The board shall likewise consider and by an acceptable external auditor may also
act on the LOC and shall submit, within be allowed.
thirty (30) banking days after receipt thereof, Banks and other financial institutions
a copy of its resolution together with said under the concurrent jurisdiction of the BSP
LOC to the appropriate department of the and COA shall, however, submit a copy of
SES. The resolution shall show the action(s) the annual audit report (AAR) of the COA
taken on the findings and recommendations to the appropriate department of the SES
and, the names of the directors present and within thirty (30) banking days after receipt
absent, among other things. of the report by the board of directors. The
The country head of foreign banks with AAR shall be accompanied by the: (1)
branches in the Philippines shall submit a certification by the institution concerned
report on the action taken by management on the date of receipt of the AAR by the
(head office, regional, or country, as the board of directors; (2) reconciliation
case may be) on the financial audit report statement between the AFS in the AAR and
and the certification under oath submitted the balance sheet and income statement
in lieu of the LOC within thirty (30) banking of bank proper (regular and FCDU) and
days after receipt thereof. trust department submitted to the BSP,
The country head shall likewise submit including copies of adjusting entries on the
a report on the action taken by management reconciling items; and (3) other information
on the LOC within thirty (30) banking days that may be required by the BSP.
after receipt thereof. The board of directors of said
The LOC shall be accompanied by the institutions, in a regular or special meeting,
certification of the external auditor of the shall consider and act on the AAR, as well
date of its submission to the board of as on the comments and observations and
directors or country head, as the case may be. shall submit, within thirty (30) banking days
Government-owned or-controlled after receipt of the report, a copy of its
banks, including their subsidiaries and resolution to the appropriate department
affiliates, as well as other financial of the SES. The resolution shall show the
institutions under BSP supervision which action(s) taken on the report, including on
are under the concurrent jurisdiction of the the comments and observations and the
Commission on Audit (COA) shall be names of the directors present and absent,
exempt from the aforementioned annual among other things.
financial audit by an acceptable external The financial audit report required to
auditor: Provided, That when warranted by be submitted shall in all respect be PFRS/
supervisory concern such as material PAS compliant: Provided, That banks shall
weakness/breach in internal control and/or submit to the BSP adjusting entries
risk management systems, the Monetary reconciling the balances in the financial
Board may, upon recommendation of the statements for prudential reporting with that
appropriate department of the SES, require in the audited annual financial statements.
the financial audit to be conducted by an Banks as well as external auditors shall
external auditor acceptable to the BSP, at strictly observe the requirements in the
the expense of the institution concerned: submission of the financial audit report and

§§ X166.1 - X166.4
06.12.31
reports required to be submitted under of the adverse findings in order to preserve

Appendix 61. the concerns of the supervisory authority
The reports and certifications of and external auditors regarding the
institutions concerned, schedules and confidentiality of information.
attachments required under this Subsec. b. Sanction. The auditing firm(s)
shall be considered Category B shall be blacklisted by the Monetary
reports, delayed submission of which Board for a period as the Board may
shall be subject to the penalties under deem appropriate for their failure to
Subsec. X162.2b(1)b. perform their duty of reporting to the BSP
(As amended by Circular Nos. 554 dated 22 December 2006 any matter adversely affecting the
and 540 dated 09 August 2006) condition or soundness of the bank.
Banks shall not be allowed to engage
§ X166.2 Posting of audited financial the services of the blacklisted auditing
statements. Local banks shall post in firm.
conspicuous places in their head offices,
all their branches and other banking offices, § X166.4 Disclosure requirement in
as well as in their respective websites, the notes to the audited financial
their latest financial audit report. statements. Banks shall require their
The abovementioned documents shall external auditors to include the following
also be posted by foreign bank branches additional information in the notes to
in all their banking offices in the financial statements:
Philippines. a. Basic quantitative indicators of
(As amended by Circular No. 540 dated 9 August 2006) financial performance such as return on
average equity, return on average assets
§ X166.3 Disclosure of external and net interest margin;
auditor’s adverse findings to the Bangko For purposes of computing the
Sentral; sanction indicators, the following formulas shall be
a. Findings to be disclosed. Banks used:
shall require their external auditors to
(1) Return on Average Equity (%) =
report to the BSP any matter adversely Net Income (or Loss) after Income Tax x 100
affecting the condition or soundness of the Average Total Capital Accounts
bank, such as, but not limited to: Where:
(1) Any serious irregularity, including Average Total = Sum of Total Capital Accounts as of the 12
Capital month-ends in the calendar/fiscal year
those involving fraud or dishonesty, that
Accounts adopted by the Bank
may jeopardize the interest of depositors 12
and creditors;
(2) Return on Average Assets (%) =
(2) Losses incurred which substantially Net Income (or Loss) after Income Tax x 100
reduce the capital funds of the bank; and Average Total Assets
(3) Inability of the auditor to confirm Where:
that the claims of creditors are still covered Average = Sum of Total Assets as of the 12 month-ends in
by the bank’s assets. Total the calendar/fiscal year adopted by the Bank
Assets 12
The disclosure of information by the
external auditor to the BSP shall not be a (3) Net Interest = Net Interest Income x 100
ground for civil, criminal or disciplinary Margin (%) Average Interest Earning Assets
proceedings against the former. Where:

Net = Total Interest Income – Total Interest Expense
Bank management shall be present Interest
during discussions or at least be informed Income

§§ X166.4 - X166.6
06.12.31
Average = Sum of Total Interest Earning Assets as of the and losses on non-performing credits,
Interest 12 month-ends in the calendar/fiscal year
Earning adopted by the Bank income recognition, valuation policies and
Assets 12 accounting policies on securitizations,
b. Risk-based capital adequacy ratio foreign currency translations, loan fees,
under Section 34 of R.A. No. 8791/Sec. X116; premiums and discounts, repurchase
c. Concentration of credit as to agreements, premises/fixed assets, income
industry/economic sector where taxes and derivatives.
concentration is said to exist when total
loan exposures to a particular industry/ § X166.5 Disclosure requirements in
economic sector exceeds thirty percent the annual report. UBs, KBs, and TBs with
(30%) of total loan portfolio; at least P1.0 billion resources shall prepare
d. Breakdown of total loans as to an annual report which shall include, in
secured and unsecured and breakdown of addition to the audited financial statements
secured loans as to type of security; and other usual information contained
e. Total outstanding loans to bank’s therein, a discussion and/or analysis of the
DOSRI, percent of DOSRI loans to total following information:
loan portfolio, percent of unsecured a. Financial performance;
DOSRI loans to total DOSRI loans, percent b. Financial position and changes
of past due DOSRI loans to total DOSRI therein;
loans and percent of non-performing c. Overall risk management
DOSRI loans to total DOSRI loans; philosophy (i.e., a general statement of the
f. Nature and amount of risk management policy adopted by the
contingencies and commitments arising bank's board of directors which serves as
from off-balance sheet items [include the basis for the establishment of its risk
direct credit substitutes (e.g., export LCs management system), risk management
confirmed, underwritten accounts unsold), system and structure;
transaction-related contingencies (e.g., d. Qualitative and quantitative
performance bonds, bid bonds, standby information on risk exposures (credit,
LCs), short-term self-liquidating trade- market, liquidity, operational, legal and
related contingencies arising from the other risks); and
movement of goods (e.g., sight/usance e. Basic business management and
domestic LCs, sight/usance import LCs), corporate governance information such as
sale and repurchase agreements not the bank’s organizational structure, incentive
recognized in the balance sheet; interest structure including its remuneration policies,
and foreign exchange rate related items; nature and extent of transactions with
and other commitments; affiliates and related parties.
g. Provisions and allowances for
losses and how these are determined; § X166.6 Posting and submission of
h. Aggregate amount of secured annual report. A copy of the latest annual
liabilities and assets pledged as security; and report shall be posted by the bank in a
i. Accounting policies which shall conspicuous place in its head office, all its
include, but shall not be limited to, general branches and other offices.
accounting principles, changes in The deadline for the submission of the
accounting policies/practices, principles of annual report to the appropriate
consolidation, policies and methods for department of the SES is 180 calendar days
determining when assets are impaired, after the close of the calendar or fiscal year
recognizing income on impaired assets adopted by the bank.

§§ X167 - X169.1
08.12.31
Sec. X167 Business Name1 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
authority may represent itself to the public Functions. When outsourcing of banking
as such in connection with its business name. functions is allowed by law, banks shall:
b. TBs. TBs may be allowed to adopt a. Carry out the same in accordance
and use any name: Provided, That the with proper standards, ensuring the
words A Thrift Bank, A Savings Bank, A integrity of the data, systems and controls
Private Development Bank or A Stock of the banks and subject to the supervisory,
Savings and Loan Association, as the case regulatory and administrative authority of
may be, are affixed after its business name. the BSP over the banks and their directors/
c. RBs/Coop Banks. RBs/Coop Banks officers;
may adopt a corporate name or use a b. Be responsible for the performance
business name/style with the word Rural thereof in the same manner and to the
or Coop, as the case may be. Said banks same extent as it was before the
may also adopt a name without such words: outsourcing;
Provided, That the identifying phrase, A c. Comply with all laws and
Cooperative Bank or A Rural Bank, as the regulations governing the banking
case may be, is affixed after its business activities/services performed by the
name: Provided, further, That where the qualified service providers in its behalf
name of the bank is shown on letterheads, such as, but not limited to, keeping of
billboards and other advertising materials, records and preparation of reports, signing
the size of the letters of such phrase shall authorities, internal control and clearing
be at least one-half (½) the size of the regulations; and
business name. d. Manage, monitor and review on an
(As amended by CL Nos. 2008-053 dated 21 August 2008 and ongoing basis the performance by the
2008-007 dated 21 January 2008) qualified service providers of the
outsourced banking activities/services.
Sec. X168 Management Contracts
a. Management contracts of banks § X169.1 Prohibition against outsourcing
with management firms shall be limited certain banking functions. No bank or any
to consultancy and advisory services; director, officer, employee, or agent thereof
b. Only a natural person may be shall outsource inherent banking functions.
elected or appointed as an officer of a bank, For purposes of this Section,
without prejudice to such person being a outsourcing of inherent banking functions
nominee of a management corporation: shall refer to any contract between the bank
Provided, That the responsibility and/or and a service provider for the latter to
accountability of anyone elected or supply, or any act whereby the latter
appointed to an officer position shall be supplies, the manpower to service the
personal in nature and cannot be delegated deposit transactions of the former.
to a corporation; and Banks cannot outsource management
c. Any bank that enters into contracts functions except as may be authorized by
contrary to this policy shall be denied the the Monetary Board when circumstances
credit facilities of the BSP. justify.
1
See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated October 2000.

§ X169.2
08.12.31
§ X169.2 Outsourcing of information (f) Mandatory notification by the

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

§ X169.2
08.12.31
(r) Provision which requires the organizational chart, and a detailed

service provider to immediately take the description of the roles and responsibilities
necessary corrective measures to satisfy the of its members must be included in the
findings and recommendations of BSP minutes of the meeting or submitted as
examiners and those of the internal and/or attachments thereto;
external auditors of the bank and/or the (d) The creation, organization and
service provider; and membership of a help desk to resolve all
(s) Remedies for the bank in the event queries, problems and other concerns
of change of ownership, assignment, arising from the applications/operations
attachment of assets, insolvency, or rendered by the service provider; and
receivership of the service provider. (e) The systems and user acceptance
(2) Minutes of meetings of the board tests that will be conducted by the service
of directors of the bank concerned signed provider before full implementation of the
by majority thereof, certified by the outsourced systems/processes and the
secretary and attested by the president unsatisfactory results of which shall be valid
documenting their discussions on the ground to rescind the contract with the
following: service provider.
(a) The benefits and advantages of (3) Profile of the selected service
outsourcing with respect to, among others, provider or the non-bank partner, in case
its role and contribution to the of joint ventures and other similar
accomplishment of the strategic and arrangements, which should include:
business plans of the bank as well as the (a) Most recent and complete financial
economy, efficiency and quality of its and operational information;
over-all operations; (b) Track record;
(b) The careful and diligent evaluation, (c) List of clientele, particularly banks
prior to selecting the service provider with and the services provided thereto by the
which it is entering into an outsourcing service provider; and
contract, by the bank of various service (d) At the option of the service provider
providers and their proposals, including or non-bank partner, other documents
their reputation, financial condition, cost demonstrative of its competence and
for development, maintenance and support, reputation in the field of information
internal controls, recovery processes, technology as applied to banking operations.
service level agreements, availability of The following are considered as
competent, technically qualified and extension of the banks’ information
experienced personnel, strategic or technology processes and are outsourcing
convenient location of support services and activities that need prior Monetary Board
such similar other considerations; approval under this Subsection:
(c) The creation, organization and (1) Connection of the bank’s ATM host
membership of a senior management and/or CASA systems to an ATM consortium
oversight committee to handle and oversee or an Affiliate Switch Network (ASN).
the efficient implementation and However, no prior Monetary Board
monitoring of the applications/operations approval shall be required for a bank
of the service provider to ensure that the connected or seeking to connect with
same is in accordance with the existing Bancnet and/or Megalink or with ASN of
information technology initiatives, policies either ATM consortium: Provided, That it
and guidelines of the bank; the list of the passed/es the BSP-approved accreditation
members of such committee, its process of either Bancnet or Megalink.

§§ X169.2 - X169.3
08.12.31
(2) Sponsoring bank arrangement. A interconnection, internet and mobile

sponsoring bank arrangement is one where banking services, shall be subject to
a TB/RB or Coop Bank, which is not a periodic BSP review and examination.
member of any ATM network consortium, (As amended by M-2008-030 dated 12 September 2008)
but wishes to provide ATM services and
terminals is “sponsored” by a member-bank § 1169.2 (Reserved)
of any of the existing ATM consortium.
For purposes of these regulations, an § 2169.2 Automated teller machine
ATM network consortium is an entity that interconnection
operates and maintains an ATM switch (Deleted by M-2008-030 dated
network connecting member institutions 12 September 2008)
while an Affiliate Switch Network (ASN) is
an aggregator/service provider that connects § 3196.2 Automated teller machine
its ATM switch with BancNet and/or interconnection
Megalink and extends that connection to (Deleted by M-2008-030 dated
its subscribers and/ or members. ASN has 12 September 2008)
to pass its accreditation requirements of
BancNet and Megalink which includes § X169.3 Outsourcing of other
service level standards, BSP access, and banking functions
minimum paid-up capital of P300 million. a. Subject to prior approval of the
ASNs already interconnected with BancNet Monetary Board, banks may outsource the
and/or Megalink are required to comply following functions, services or activities:
with the minimum paid-up capital on (1) data imaging, storage, retrieval and
staggered basis of: P100 million by 31 other related systems;
December 2008; P200 million by 31 (2) clearing and processing of checks
December 2009; and P300 million by 31 not included in the Philippine Clearing
December 2010. House System;
A bank that intends to outsource its (3) printing of bank deposit
internet and/or mobile banking services to statements;
BancNet and/or Megalink shall no longer (4) credit card services;
require prior MB approval: Provided, That (5) credit investigation and collection;
the applicant bank had passed the BSP- (6) processing of export, import and
approved accreditation process for other trading transactions;
membership in BancNet and/or Megalink, (7) property appraisal;
which requires, among others, a “no (8) property management services;
objection” notice from the appropriate (9) internal audit, subject to the
department of the SES. Provided further, following conditions:
That banks which intend to provide (a) the board of directors and senior
electronic banking services via other management of the regulated entity remain
arrangements or service providers will still responsible for maintaining an effective
have to comply with the existing regulations system of internal control and for providing
on outsourcing in this Subsection and under active oversight of the outsourced internal
Sec. X621 on e-banking. audit activities/functions;
To ensure that it remains effective and (b) the external service provider shall
adaptive to the changing environment, the be an independent external auditor
accreditation process of BancNet and included in the list of BSP-selected external
Megalink for availment of the ATM auditors or a parent company which owns

§ X169.3
08.12.31
or controls more than fifty percent (50%) to the institution must be kept
of the subscribed capital stock of the confidential; 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
external auditor; other bank products and services, provided
(c) the contract/service agreement it does not involve the actual opening of
with the external service provider shall not deposit accounts;
be entered into for a period longer than five (11) general bookkeeping and
(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 (13) front/back office functions, i.e.,
or service agreement with the external trade support services and downstream
service 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 be the aforementioned functions shall certify
performed by the external service that the front office functions to be done by
provider; its parent/subsidiary (service provider) shall
(iii) state that the outsourced internal be limited to trade support services;
audit services are subject to regulatory (b) The bank shall remain a parent/
review and that BSP examiners shall be subsidiary of its subsidiary/parent (service
granted full and timely access to internal provider) and such service provider shall
audit reports and related working papers; service only entities belonging to its
(iv) state that the external service business group;
provider will not perform management (c) The bank shall certify that no
functions, make management decisions, or inherent banking functions involving
act or appear to act in a capacity equivalent deposit transactions shall be outsourced to
to that of a member of management or an its parent/subsidiary (service provider);
employee of the institution, and will (d) The bank shall submit a Service
comply with professional and regulatory Level Agreement duly signed by the
independence guidelines; concerned parties and any amendments
(v) specify that the external service thereto, detailing the functions to be
provider must maintain the audit reports outsourced, the respective responsibilities
and related working papers/files for at least of the bank and its parent/subsidiary
five (5) years; (service provider), and a confidentiality
(vi) state that internal audit reports clause; and
are the property of the institution, that the (e) Any breach in any of the above
institution will be provided with copies conditions shall subject the outsourcing of
of related working papers/files it deems the aforementioned banking functions to
necessary, and any information pertaining all the requirements of this Section;

§§ X169.3 - X169.5
08.12.31
(14) Back-up and data recovery (13) personnel training and

operations; development;
(15) Call center operations for credit (14) buildings, ground and other
card and bank services: Provided, That such facilities maintenance;
bank services do not involve inherent (15) legal services from local legal
banking functions; and counsel;
(16) Loans processing, credit (16) compliance risk assessment and
administration and documentation services testing;
in favor of subsidiaries, affiliates and other (17 tax compliance services:
companies related to it by at least five Provided, That the service provider is not
percent (5%) common ownership; also the external auditor of the bank; and
(17) Loan documentation services (18) ATM card plastice embossing
(such as mortgage registration); and service, subject to the following conditions:
(18) Such other activities as may be a. Only the ATM card number and
determined by the Monetary Board. the name of the depositor are printed/
The bank concerned must submit the indicated on the plastic card and stored in
same documentary requirements listed in the magstripe; and
Subsec. X169.2a, except where they b. Account/transaction validation is
exclusively pertain to information done at the host level,i.e., the bank’s
technology operations. computer, as the card number stored in the
b. Without need of prior Monetary magstripe is linked to the deposit account
Board approval, banks may outsource the number residing at the same host computer;
following functions, services or activities: (19) ATM incident management
(1) printing of bank loan statements service: Provided, That the messages
and other non-deposit records, bank forms transmitted by the ATM machines to the
and promotional materials; service provider’s monitoring system are
(2) transfer agent services for debt purely ATM statuses and in no way shall client
and equity securities; or transaction information be sent; and
(3) messenger, courier and postal (20) Such other activities as may be
services; determined by the Monetary Board.
(4) security guard services; (As amended by Circular Nos.623 dated 09 October 2008,
(5) vehicle service contracts; 621 dated 16 September 2008, 610 dated 26 May 2008, 596
(6) janitorial services; dated 11 January 2008, 548 dated 25 September 2006 and
(7) public relations services, 543 dated 08 September 2006)
procurement services, and temporary
staffing: Provided, That these activities do § X169.4 Service providers. When
not include servicing bank deposits or other allowed by law, banks may enter into
inherent banking functions; outsourcing contracts only with service
(8) sorting and bagging of notes and providers with demonstrable technical and
coins; financial capability commensurate to the
(9) maintenance of computer services to be rendered.
hardware, e.g., disk drives, printers,
monitors, UPS, network cabling systems; § X169.5 Review of subsisting
(10) payroll of bank employees; outsourcing contracts. Within six (6)
(11) telephone operator/receptionist months from 5 December 2000 –
services; a. Banks should submit a list of all
(12) sale/disposal of acquired assets their existing contracts with service
(ROPA); providers, detailing the:

§§ X169.5 - X169.12
08.12.31
(1) Services/activities being n. Procurement;

outsourced; o. Records coordination;
(2) Terms of the contracts; p. Mailroom and general services;
(3) Measures, if any, undertaken by the q. Internal audit services;
bank and/or service provider to ensure the r. Credit administration services, such
secrecy of bank deposits and confidentiality as, limit administration, loan documentation,
of all other data and information; and loan administration, and credit reporting,
(4) Such other information as may be compliance and control;
necessary to show compliance with the s. Legal and compliance services;
pertinent provisions of this Section or be t. Production of credit cards and
required by the Monetary Board; and preparation of statement of accounts; and
b. For outsourcing contracts not in u. Check writing services
accordance with this Section, the following subject to the condition that, as service
alternative courses of action are available provider, the following shall be upheld by
to the bank concerned: the bank:
(1) preterminate said contracts; (a) Confidentiality of bank deposits
(2) renegotiate or remedy the same and and investment in government bonds
submit the amendments thereto or new (R.A. No. 1405);
contracts to the BSP; or (b) Prohibition against outsourcing of
(3) submit a program of compliance inherent banking functions; and
to the BSP. (c) Prohibition on cross-selling except
as allowed under applicable regulations.
§§ X169.6 - X169.10 (Reserved) (As amended by Circular Nos. 606 dated 26 March 2008,
604 dated 03 March 2008, 597 dated 11 January 2008,
§ X169.11 Other banking services for 586 dated 16 October 2007, 569 dated 21 May 2007,
subsidiaries, affiliates and related 567 dated 04 May 2007 and 556 dated 12 January 2007)
companies. A bank may be authorized,
upon prior Monetary Board approval, to § X169.12 Other banking services to
render the following services in favor of other entities. A bank may render the
subsidiaries, affiliates and companies following services to other entities
related to it by at least five percent (5%) (including non-related companies):
common ownership: a. Collections and payments;
a. Credit card, bank and loans b. Safekeeping of securities;
reconciliation; c. Act as correspondent of other FIs;
b. Credit card billing; d. Payroll service;
c. Time deposit processing; e. Enter into a conduit clearing
d. Merchant settlement arrangement with indirect clearing
e. Collections which may involve participants;
legal action; f. ATM cash loading service to
f. Credit application processing; depositors;
g. Call center support; g. Enter into an arrangement with
h. Telemarketing of bank, credit card other banks to enable such other banks to
and insurance (life and non-life) products; avail the service of an ATM network
i. Human resource-related service; consortium, and
j. Finance/accounting functions; h. Subject to prior Monetary Board
k. Documentation; approval, such other services which are not
l. Cashiering; incompatible with banking business as may
m. Reports preparation; be determined by the Monetary Board:

§§ X169.12 - X170.1
08.12.31
Provided, That the bank shall perform said § X170.1 Compliance system. The
services as depositary or as an agent, subject compliance system shall have the following
to the following conditions: basic elements.
(1) The bank (or if the counterparty is a. A written compliance program
also a bank, both the bank providing the approved by the board of directors:
service and the outsourcing bank jointly) (1) The compliance program shall
shall inform the appropriate department enable the bank to identify the relevant
of the SES at least thirty (30) calendar days Philippine laws and regulations, analyze
prior to undertaking the abovementioned the corresponding risks of non-compliance,
services. The bank may undertake said and prioritize the compliance risks (e.g.,
activities if no objection has been low, medium, high).
received from said department within said (2) The program shall provide for
thirty (30)-calendar day period. periodic compliance testing with applicable
(2) The proposed contract or legal and regulatory requirements. Testing
Memorandum of Agreement (MOA) frequency shall be commensurate with
indicating, among others, the particular type identified risk levels (e.g., annual testing for
of service to be rendered (and if the low-risk, quarterly testing for medium-risk,
counterparty is also a bank, to be monthly testing for high-risk). It shall also
outsourced) by the bank/s shall be kept on provide for the reporting of compliance
file and be made available for inspection findings noted to appropriate levels of
during BSP examination; management.
(3) As a service provider, the following (3) The program shall establish the
shall be upheld by the bank: responsibilities and duties of the
(a) Confidentiality of bank deposits and compliance officer and other personnel
investment in government bonds (R.A. No. (if any) involved in the compliance
1405); function.
(b) Prohibition against outsourcing of (4) A copy of the compliance program
inherent banking functions; and and the written approval of the board of
(c) Prohibition on cross-selling except directors shall be submitted to the appropriate
as allowed under applicable regulations. department of the SES within twenty (20)
(Circular No. 606 dated 26 March 2008) banking days from date of approval.
(5) The program shall be updated at
§§ X169.13 - X169.18 (Reserved) least annually to incorporate changes in
laws and regulations. Any changes in the
§ X169.19 Penalties. Violation of this program shall likewise be approved by the
Section shall be subject to Sections 34, 35, bank’s board of directors and submitted to
36 and 37 of R.A. No. 7653, the New BSP within twenty (20) banking days from
Central Bank Act. If the offender is a director the date of approval.
or officer or a bank, the Monetary Board b. A constructive working relationship
may also suspend or remove such director with regulatory agencies.
or officer. The bank, through its compliance officer,
may consult the regulatory agencies for
Sec. X170 Compliance System; Compliance additional clarification on specific provisions
Officer. Banks shall develop and implement of laws and regulations and/or discuss
a compliance system and appoint/designate compliance findings with the regulatory
a compliance officer to oversee its authorities. A dialogue may also be initiated
implementation. with respect to borderline issues.

§§ X170.1 - X170.4
08.12.31
c. A clear and open communication rise to any conflict of interest situation and
process within the bank to educate and that the main function of the senior officer
address compliance matters. shall be that of a compliance officer.
Officers and staff shall be trained on the The internal auditor of a bank may also
regulatory requirements through regular be designated as its compliance officer
meetings, distribution of manuals and subject to the condition that his main function
dissemination of regulatory issuance. shall be that of a compliance officer.
d. Continuous monitoring and Transitory Provision. Compliance officers
assessment of the compliance program. concurrently holding the position of Head of
The program shall provide for the Internal Audit or Internal Auditor shall be
periodic review of the compliance function given one (1) year from 02 February 2008
to measure its effectiveness. The review within which to comply with this Subsection.
may be carried out by the internal audit (As amended by Circular No. 598 dated 11 January 2008)
department of the bank.
The compliance program may operate § X170.3 Compliance risk. Compliance
parallel to or as part of a bank’s internal risk is the risk of legal or regulatory
control and auditing program. sanctions, financial loss, or loss to
reputation a bank may suffer as a result of
§ X170.2 Compliance officer its failure to comply with all applicable
a. The principal function of the laws, regulations, codes of conduct and
compliance officer is to oversee and standards of good practice.
coordinate the implementation of the
compliance system. His responsibility shall § X170.4 Responsibilities of the board
include the identification, monitoring and of directors and senior management on
controlling of compliance risk. compliance. Aside from the duties and
b. The appointment/designation of a responsibilities of the board of directors
compliance officer shall require prior mentioned under Subsec. X141.3, the board
approval of the Monetary Board. The should oversee the implementation of the
bio-data of the proposed compliance officer compliance policy and ensure that
shall be submitted to the appropriate compliance issues are resolved expeditiously.
department of the SES. Senior management should be responsible for
c. The compliance officer shall have establishing a compliance policy, ensuring
the skills and expertise to provide that it is observed, reporting to the board of
appropriate guidance and direction to the directors on its ongoing implementation and
bank on the development, implementation assessing its effectiveness and
and maintenance of the compliance program. appropriateness. Senior management should,
d. All UBs/KBs, as well as TBs and at least once a year, report to the board of
RBs/Coop Banks with total resources of directors or a committee of the board on
P500 million and above, shall appoint an matters relevant to the compliance policy and
independent full-time compliance officer, its implementation, recommending any
who shall have the rank of at least a vice required changes to the policy. The report
president or its equivalent. should assist the board members in making
e. For TBs and RBs/Coop Banks with an informed assessment as to whether the
total resources of below P500 million, an institution is managing its compliance risk
incumbent senior officer may be designated effectively. However, any material breaches
concurrently as the bank’s compliance officer: of laws, rules and standards shall be reported
Provided, That such designation will not give promptly.

§§ X170.5 - X170.9
05.12.31
§ X170.5 Status. The compliance or files necessary to enable it to carry out

function should have a formal status within its duties and responsibilities.
the organization established by a charter or
other formal document approved by the § X170.7 Role and responsibilities of
board of directors that defines the the compliance function. The role and
compliance function’s standing, authority responsibilities of the compliance function
and independence, and addresses the should be clearly defined. If there is a
following issues: division of duties and responsibilities
(1) measures to ensure the between different functions such as legal,
independence of the compliance function compliance, internal audit or risk
from the business activities of the bank; management, the allocation of duties and
(2) its role and responsibilities; responsibilities to each function should be
(3) its relationship with other functions properly delineated. There should likewise
or units within the organization; be formal arrangements for cooperation
(4) its right to obtain access to between each function and for the
information necessary to carry out its exchange of relevant information.
responsibilities;
(5) its right to conduct investigations § X170.8 Cross-border issues. The
of possible breaches of the compliance compliance function for institutions that
policy; conduct business in other jurisdictions
(6) its formal reporting relationships to should be structured to ensure that local
senior management and the board of compliance concerns are satisfactorily
directors; and addressed within the framework of the
(7) its right of direct access to the board compliance policy for the organization as
of directors or an appropriate committee of a whole. As there are significant differences
the board. in legislative and regulatory frameworks
The compliance charter or other formal across countries or from jurisdiction to
document defining the status of the jurisdiction, compliance issues specific to
compliance function shall be each jurisdiction should be coordinated
communicated throughout the organization. within the structure of the institution’s
group-wide compliance policy. The
§ X170.6 Independence. The organization and structure of the
compliance function should be independent compliance function and its responsibilities
from the business activities of the institution. should be in accordance with local legal
It should be able to carry out its and regulatory requirements.
responsibilities on its own initiative in all
units or departments where compliance risk § X170.9 Outsourcing. Banks should
exists and must be provided with sufficient establish policies for managing the risks
resources to carry out its responsibilities associated with outsourcing activities.
effectively. It must be free to report to senior Outsourcing of services/activities can
management and the board or a committee reduce the institution’s risk profile by
of the board on any irregularities or breaches transferring activities to others with the
of laws, rules and standards discovered, necessary expertise to manage the risks
without fear of retaliation or disfavor from associated with specialized business
management or other affected parties. The activities. However, the use of third
compliance function should have access to parties does not diminish the
all operational areas as well as any records responsibility of the board of directors

§§ X170.9 - X171.2
08.12.31
and senior management to ensure that the § X171.2 Designation of security

outsourced activity is conducted in a safe officer. The board of directors of each
and sound manner and in compliance bank or the country head in the case of a
with applicable laws and regulations. foreign bank branch, shall appoint or
Compliance risk assessment and designate a qualified security officer who
testing may be outsourced, subject to shall hold office under the direct authority
appropriate oversight by the compliance and supervision of the president of the bank
officer: Provided, That a copy of the or the country head in the case of a foreign
outsourcing agreement stating the duties bank branch. Subject to prior BSP approval,
and responsibilities as well as rights and banks with limited security risk exposure
obligations of the contracting parties, due to the nature of their operations such
which agreement shall be approved by as single unit foreign bank branch operating
the board of directors of the institution in a highly secured environment or TBs or
concerned, must be submitted to the RBs/Coop Banks with total assets of less than
appropriate department of the SES at least P100 million may appoint one of their senior
thirty (30) days prior to its execution to officers as security officer in a concurrent
enable review of its compliance with capacity: Provided, That if the senior officer
existing regulations on outsourcing of so appointed does not possess the necessary
banking functions. qualifications, he shall be supported by a
The service level agreement shall competent consultant/adviser until such
ensure a clear allocation of responsibilities time that he acquires the necessary
between the external service providers and competency on security matters: Provided,
the bank. Furthermore, the outsourcing further, That such appointment shall not
bank should manage residual risks result to a conflict of interest situation.
associated with outsourcing arrangements, The security officer must be: (a) at least
including default, operational failures, and thirty (30) years of age; (b) be a college
possible disruption of services. graduate; (c) have at least five (5) years of
supervisory experience in the field of law
Sec. X171 Bank Protection. Each bank shall enforcement and/or security operations; and
adopt an adequate security program (d) possess all the qualifications and none
commensurate to its operations, taking into of the disqualifications provided for under
consideration its size, location, number of Sections X142 and X143.
offices and business operations. The security officer shall be
(As amended by Circular No. 620 dated 03 September 2008) responsible for:
a. The development and administration
§ X171.1 Objectives. These regulations of a security program acceptable to BSP;
are designed to: b. The conduct of continuing security
a. Promote maximum protection of awareness program among all bank
life and property against crimes (e.g. employees to highlight that security is a
robbery, hold-up, theft, etc.) and other common concern;
destructive causes; c. Investigation of bank robberies/
b. Prevent and discourage hold-ups, recommending the filing of
perpetration of crimes against bank; and appropriate charges in court as the evidence
c. Assist law enforcement agencies in may warrant and assisting in the prosecution
the identification, apprehension and of the perpetrator(s) thereof;
prosecution of the perpetrators of crimes d. The establishment of an effective
committed against banks. working relationship with the BSP, PNP,
(As amended by Circular No. 620 dated 03 September 2008) and other law enforcement agencies in the

§§ X171.2 - X171.4
08.12.31
prevention of bank crimes and other natural security program, including the proper use
and man-made hazards; and of security devices and proper employee
e. The conduct of continuing research conduct during and after an emergency
and studies on new techniques, methods situation;
and equipment to enhance bank protection vi. Contingency measures for security
measures. and rescue operations in emergency
For purposes of the foregoing, a situations;
security management team headed by the vii. Provision for the posting of
security officer may be constituted if adequate number of security personnel in
warranted. all vital and/or critical areas in the bank’s
(As amended by Circular No. 620 dated 03 September 2008) premises, and the minimum number of
hours when each personnel shall be on
§ X171.3 Security program. The duty; and
security program of each bank shall be in viii. Such other provisions/measures as
writing, duly approved by its board of the president of the bank or country head
directors or the country head in the case of in the case of a foreign bank branch may,
a foreign bank branch. In addition, the in consultation with its security officer,
security program shall define measures and deem appropriate.
procedures to detect and prevent the (As amended by Circular No. 620 dated 03 September 2008)
commission of bank crimes, as well as
provide contingency plans in case of § X171.4 Minimum security measures
calamities, terrorist attacks and other a. Guard system. All banking offices
emergency situations. The security program shall be manned by an adequate number
shall include the following: of security personnel to be determined by
i. Installation of the prescribed the bank, taking into consideration its size,
minimum security devices; location, costs and overall bank protection
ii. A schedule for the periodic requirement: Provided, That cash centers
inspection, testing and servicing of all security shall be manned by an adequate number
devices installed in each of the bank’s offices, of security guards as may be necessary
designation of an officer or employee during banking hours. For this purpose
responsible for ensuring that such devices are cash centers shall refer to branches which
inspected, tested, serviced and kept in good also handle the cash requirements of other
working order, and requiring record of such branches of the same bank.
inspections, testing and servicing; b. Security devices. Within 120
iii. Standard operating procedures for calendar days from 23 September 2008 in
the safekeeping of all currencies, the case of existing offices and before
negotiable securities and similar valuables opening for business in the case of offices
in vaults or safes; to be opened after 23 September 2008,
iv. Provision for other security banks shall effect the installation, operation
measures and procedures aimed at giving and maintenance, as individually
added protection to the bank, e.g., appropriate, of the following security
procedures for the transport of funds and devices in each banking office;
other cash items, and defining responsibility (1) A time delay device in the cash
for their implementation; vault/safe;
v. Provision for the training and (2) A lighting system for illuminating
periodic re-training of employees in their the area around the vault, if the vault is
respective areas of responsibility under the visible from outside the banking office;

§ X171.4
08.12.31
(3) Tamper-resistant locks on exteior a dual combination lock and time-delay

doors and windows; device, and provided with inner and outer
(4) A robbery alarm system or other grill doors: Provided, That all vaults
appropriate device for promptly notifying constructed after 23 September 2008 shall
the nearest law enforement office either be equipped with a breathing/ventilation
directly or through an intermediary of an device and emergency button capable of
attempted, ongoing or perpetrated robbery; giving audible and visible signal in case of
(5) Anti-burglary or intrusion system accidental lock-up.
capable of detecting promptly an attack on A vault record book shall be maintained
the outer doors, walls, floor or ceiling of the to record all activities relative to the opening
bank premises, including the vault(s); and and closing of the vault.
(6) Such other devices like the closed Safes should be sufficiently heavy or be
circuit television (CCTV) and video securely anchored to the premises where
recording system appropriate to deter the located. The door shall be equipped with a
commission of bank crimes and assist in combination lock with a time-delay device
the identification and apprehension of the if used for safekeeping cash and other
culprit/s: valuables. The body shall consist of steel
Provided, That the bank security officer with an ultimate tensile strength of 50,000
shall consider, among other things, the pounds per square inch or the equivalent
following: in metric system.
(i) The incidence of crimes against the Safe and vault combinations must be
particular banking office and other business changed whenever the custodian is
establishments in the area where the terminated or transferred to another place of
banking office is located; assignment. A record of the names of the
(ii) The amount of currency or other holder of the keys and combinations shall be
valuables exposed to robbery and other maintained for each lock, safe, vault and
man-made hazards; compartment. Changing of combinations
(iii) The distance of the banking office shall be documented to pinpoint responsibility
from the nearest law enforcement office and and to ensure confidentiality and proper
the time ordinarily required for observance of this requirement.
law-enforcement officers to arrive at the d. Security of the premises. For
banking office; emergency purposes and where applicable,
(iv) The cost of the security devices; each banking office shall be provided with a
(v) Other existing security measures in back door with a steel or grill door which shall
effect at the banking office; and be used as an alternative exit door for
(vi) The physical characteristics of the evacuation in case of fire, flood, bomb threats,
banking office structure and its surroundings. wind damage, explosion, civil disturbance,
Each bank shall install, operate and earthquake, or other emergency.
maintain security devices which are Steel grills, where applicable, shall
expected to give a general level of bank support exterior glass doors and windows
protection equivalent, at least, to the of all banking offices for protection against
standards prescribed herein. any forcible entry. Access to the back door
c. Vaults and safes. Vault walls, shall be limited to authorized bank
ceilings and floors, shall be made of personnel. Opening and closing thereof
steel-reinforced concrete or such other before and after banking hours shall be
equally safe materials/specifications. Vault recorded in a registry.
doors shall be made of steel or other drill Firearms and other deadly weapons shall
and torch resistant material, equipped with not be allowed inside bank premises except

§§ X171.4 - X171.8
08.12.31
when so authorized by the bank. A signage § X171.5 Reports. Banks shall conduct
for this purpose shall be conspicuously placed a review and self-assessment of their
near the main entrance door of the bank. security program to ensure their
Specific guidelines as to when to allow compliance with prescribed security
firearms and other deadly weapons inside requirements. Any substantive amendment
bank premises should be incorporated in the thereto shall be approved by the bank’s
security program. board of directors or country head in the
A bank shall maintain within its case of branches of foreign banks. The self-
premises a record of the addresses and assessment of compliance with prescribed
telephone numbers of the nearest law security requirements together with the
enforcement agencies, hospitals, rescue updated security program (if amended
agencies and fire departments. during the year) shall be submitted
The security officer of each bank shall annually to the appropriate department
conduct, at least annually, a security survey of the SES on or before 30 January of the
of bank premises and make available the following year in accordance with the
inspection report to BSP examiners during format shown in Appendix 10. The self-
regular examination. assessment together with the updated
The bank shall conduct fire, security program shall be considered
earthquake and bomb threat drill at least Category A-2 reports.
once a year. (As amended by Circular No. 620 dated 03 September 2008)
e. ATM. ATM sites shall be provided
with adequate security. Where there are § X171.6 Bangko Sentral inspection
no security personnel assigned to secure the During regular examination, the BSP
ATM, an anti-tampering device shall be reserves the right to perform a compliance
installed or the ATM and its immediate assessment of the adequacy of a bank’s
surroundings shall be regularly inspected security arrangements. The BSP, with
to promptly detect any attempt to rob or approval of the Governor, may also
destroy the same. conduct at any time a targeted inspection
f. Armored Car Operation. To ensure of the bank’s implementation of its security
the protection of crew members and program to determine compliance with
valuables, all armored vehicles shall be built regulations. For this purpose, the BSP may
with bullet-resistant materials capable of avail of the services of experts as resource
withstanding the firepower of high-powered persons.
firearms, e.g., M16 and M14 rifles. (As amended by Circular No. 620 dated 03 September 2008)
Moreover, armored vehicles shall be
equipped with a vault or safe or a partition § X171.7 Common security service
wall with a combination lock designed to provision. A bank, with prior BSP approval,
prevent retrieval of the cargo while in transit. may share the services of a security officer
When in use the armored vehicles shall be or a security management team with its
provided with at least two (2) armed guards related FIs.
and its operations must be supervised by at (As amended by Circular No. 620 dated 03 September 2008)
least two (2) officers of the bank.
All canvass bags that contain cash and § X171.8 Sanctions. Any violation of
other items of value shall be provided with the provisions of this Section, as well as
padlocks for security and control purposes. non-compliance with the minimum
Armored cars shall not be operated as standards set forth or any directive of the
mobile bank. Monetary Board issued pursuant hereof,
(As amended by Circular No. 620 dated 03 September 2008) shall be subject to the administrative

§§ X171.8 - X176
08.12.31
sanctions provided under Section 37 of the size, complexity and range of activities
R.A. No. 7653 and may, depending on the undertaken by individual banks.
materiality or seriousness of the violation, (Circular No. 544 dated 15 September 2006)
constitute a ground for considering the
same as an unsafe and unsound banking Sec. X175 Liquidity Risk Management
practice. The guidelines on liquidity risk
(As amended by Circular No. 620 dated 03 September 2008) management in Appendix 74 set forth the
expectations of the BSP with respect to the
Sec. X172 (Reserved) management of liquidity risk and are
intended to provide more consistency in
Sec. X173 Supervision by Risks. The how the risk-focused supervision function
guidelines on supervision by risk to provide is applied to this risk. Banks are expected
guidance on how banks should identify, to have an integrated approach to risk
measure, monitor and control risks are management to identify, measure, monitor
shown in Appendix 72. and control risks. Liquidity risk should be
The guidelines set forth the reviewed together with other risks to
expectations of the BSP with respect to determine overall risk profile.
the management of risks and are intended The guidelines are intended for general
to provide more consistency in how the application; specific application will
risk-focused supervision function is depend on the size and sophistication of a
applied to these risks. The BSP will review particular bank and the nature and
the risks to ensure that a bank’s internal complexity of its activities.
risk management processes are integrated (Circular No. 545 dated 15 September 2006)
and comprehensive. All banks should
follow the guidelines in their risk Sec. X176 Technology Risk Management
management efforts. The guidelines on technology risk
(Circular No. 510 dated 19 January 2006) management to ensure that banks have the
knowledge and skills necessary to
Sec. X174 Market Risk Management. The understand and effectively manage their
guidelines on market risk management in technology-related risks are in Appendix 75.
Appendix 73 set forth the expectations of The guidelines contain two (2) main
the BSP with respect to the management of parts. The first outlines the primary risk
market risk and are intended to provide related to the bank’s use of technology and
more consistency in how the risk-focused the second describes a risk management
supervision function is applied to this risk. process on how banks should manage these
Banks are expected to have an integrated risks. Key points include the following:
approach to risk management to identify, a. The use of technology-related
measure, monitor and control risks. Market products, services, delivery channels and
risk should be reviewed together with other processes exposes a bank to various risks,
risks to determine overall risk profile. particularly Operational, Reputation,
The BSP is aware of the increasing Compliance and Strategic risk.
diversity of financial products and that b. Banks are expected to have an
industry techniques for measuring and integrated approach to risk management to
managing market risk are continuously identify, measure, monitor, and control
evolving. As such, the guidelines are risks. Technology-related risks should be
intended for general application; specific reviewed together with other bank risks to
application will depend to some extent on determine the bank’s overall risk profile.

§§ X176 - X196.2
06.12.31
c. In using technology, bank undertaken in accordance with the

management should engage a rigorous liquidation plan previously approved by the
analytic process to identify and quantify Monetary Board.
risks, to the extent possible, and to establish
risk controls to manage risk exposures. § X196.2 Liquidation plan. The
d. Technology-related risk management minimum requirements to be set forth in a
process involves three (3) essential elements: liquidation plan are the following:
(1) Planning a. Inventory/Appraisal of assets and
(2) Implementing liabilities. Submission to the Monetary
(3) Measuring and monitoring performance Board within thirty (30) days from written
These elements are critical to an notice of liquidation, a schedule/inventory
effective technology-related risk and status/appraisal reports on assets and
management process of a well-managed liabilities of the bank.
bank, regardless of size. b. Notice to creditors requirement.
(Circular No. 511 dated 03 February 2006) Notice by registered mail to all recorded
claimants of the bank, and notice by
Secs. X177 – X195 (Reserved) publication in a newspaper of general
circulation at least once a week for two (2)
Sec. X196 Voluntary Liquidation. The consecutive weeks, to be made within thirty
following guidelines shall be observed (30) days from submission of aforesaid
when a bank decides to undertake voluntary inventory of assets and liabilities.
liquidation as a consequence of voluntary c. Conversion of assets into money.
dissolution, such as (i) by vote of the board Projected timetable in the conversion, manner
of directors and stockholders, where no of sale (public auction, sealed bidding, or
creditors are affected; (ii) judgment of the on negotiated basis), notice by publication
SEC after hearing the petition for voluntary requirement, and report on liquidation to
dissolution; (iii) amending the articles of be submitted to the Monetary Board.
incorporation to shorten the corporate term. d. Final notice to claimants/creditors.
Undertaking of the board of directors/
§ X196.1 Prior Monetary Board trustee/receiver to cause, within thirty (30)
approval. Upon voluntary dissolution of a days from conversion into money of all or
bank pursuant to the provisions of the substantially all of the assets of the bank,
Corporation Code, voluntary liquidation the publication in a newspaper of general
may be undertaken by the bank itself circulation at least once a week for two (2)
through its board of directors, by a trustee consecutive weeks of a notice giving
appointed by the bank, or by a receiver claimants/creditors fifteen (15) days within
appointed to the bank: Provided, however, which to file their claims.
That no voluntary dissolution shall be e. Inventory of remaining claims
undertaken by a bank without prior against the bank. Submission to the
approval of the Monetary Board: Provided, Monetary Board of a complete list of all
further, That requests for approval of a remaining claims against the bank, within
voluntary dissolution shall be accompanied thirty (30) days from the deadline given in
by a liquidation plan which lays down the the final notice to claimants/creditors.
procedure to be adopted by the bank in the f. Plan for distribution of proceeds of
event of liquidation: Provided, finally, That sales and distribution of liquidating
written notice shall be sent to the Monetary dividends. Submission to the Monetary
Board before actual liquidation is Board of a distribution plan of assets within

§§ X196.2 - X199
05.12.31
thirty (30) days from conversion of all or misappropriation and destruction of the
substantially all of the assets of the bank. bank’s assets;
d. receiving or permitting or causing
§§ X196.3 - X196.7 (Reserved) to be received in said bank any deposit,
collection of loans and/or receivables;
§ X196.8 Final liquidation report. The e. paying out or permitting or
board of directors/trustee/receiver shall causing to be paid out any funds of said
submit to the Monetary Board a final bank; and
liquidation report after winding up the f. transferring or permitting or causing
affairs of the bank. to be transferred any securities or property
of said bank.
Sec. X197 (Reserved)
§§ X198.3 - X198.8 (Reserved)
Sec. X198 Insolvency or Receivership of
Banks. The rules and regulations governing § X198.9 Penalties and sanctions. Any
insolvency and receivership are as follows: director or officer of a bank declared
insolvent or placed under receivership by
§ X198.1 Definition of term. A “bank the Monetary Board who commits any of
declared insolvent or placed under the foregoing acts shall be subject to the
receivership by the Monetary Board” shall sanctions under Sections 36 and 37 of R.A.
refer to a banking institution that has been No. 7653, in correlation with Section 66 of
forbidden from doing business in the R.A. No. 8791. Moreover, any such
Philippines by the Monetary Board under director or officer thereby sanctioned shall
the applicable grounds provided for under be included in the watchlist files of
Section 30 of R.A. No. 7653 and placed directors/officers disqualified by the
under receivership of the PDIC. Monetary Board from holding any
position in any bank or FI.
§ X198.2 Prohibited acts. Any director
or officer of a bank declared insolvent or Sec. X199 General Provision on
placed under receivership by the Sanctions. Except as otherwise provided,
Monetary Board shall not commit any of any violation of the provisions of this Part
the following acts: shall be subject to Sections 36 and 37 of
a. refusing to turn over the bank’s R.A. No. 7653.
records and assets to the designated The guidelines for the imposition of
receivers; monetary penalty for violations/offenses
b. tampering with bank records; with sanctions falling under Section 37
c. appropriating for himself or another of R.A. No. 7653 on banks, their directors
party, or destroying or causing 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’ demand deposit For out-of-town exchanges, a COCI so
account (DDA) is shown in Appendix 39.) dishonored shall be returned by the
(a) AM Returned COCI Clearing - The drawee bank to the negotiating bank within
AM returned COCI clearing in the 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 to the holder or the negotiating bank, as the
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
06.12.31
Sec. X204 Current Accounts of Bank accounts/savings accounts (CA/SA)

Officers and Employees. As a general system;
rule, officers and employees of banks, their (2) Monitoring of accounts. All
spouses and relatives within the second accounts maintained by officers,
degree of consanguinity and affinity, employees and said relatives including
including partnerships, associations or their business interests shall be monitored
corporations in which such officers and by a designated officer who shall be
employees, their spouses and relatives responsible for ensuring that accounts of
within the second degree of consanguinity officers and staff are properly maintained.
and affinity, individually or as a group, own Any irregularity in the account activity shall
be promptly investigated and reported to
or control at least a majority of the capital
the appropriate management level;
are prohibited from maintaining demand
(3) Access controls. Access to all data,
deposits or current accounts with the
application software, operating systems
banking office in which they are assigned.
and utilities must be restricted to authorized
However, officers and employees without persons through appropriate identification
direct access and involvement in the mechanisms and access codes and such
handling of transactions and/or records authentication and authorization controls
pertaining to demand deposit operations must be fully documented and auditable.
may be allowed to maintain demand No officer or employee, regardless of rank
deposits or current accounts in the banking or position, shall be allowed to process any
office where they are assigned subject to transaction from initiation to final
the following conditions: authorization;
a. It shall be the responsibility of the (4) Data capture. Operating
bank concerned to identify the officers, procedures for data capture, update and
employees, departments or units with retrieval must be strictly adhered to. The
direct involvement in its demand deposit operating system shall maintain a permanent
operations and/or deposit records; record of each authenticated user session
b. The opening of current accounts of including every user input; and
officers and employees shall be subject to (5) Audit trails. Detailed records and
approval of the head of the branches audit trails shall be maintained to substantiate
department or any designated higher the processing of all transactions. Audit trails
ranking officer; and must be reviewed periodically by a
c. The following minimum operating designated officer commensurate with the
control measures shall be implemented to risk level of the information system. The
ensure systems integrity and mitigate review process must ensure that the reviewer
technology-related risks: does not review his/her own activity.
(1) Tagging of accounts. Savings and (As amended by Circular No. 508 dated 24 January 2006)
demand deposits of officers and employees,
their spouses and relatives within the second Sec. X205 (Reserved)
degree of consanguinity and affinity,
including partnerships, associations or Sec. 1205 (Reserved)
corporations in which such officers and
employees, their spouses and relatives Sec. 2205 Check Clearing Rules for
within the second degree of consanguinity Thrift Banks Authorized to Accept
and affinity, individually or as a group, own Demand Deposits. The following are the
or control at least a majority of the capital check clearing rules for TBs authorized to
shall be tagged in the bank’s current accept demand deposits:

§ 2205
06.12.31
a. TBs authorized to accept demand Bill rate of the last auction immediately
deposits may participate in the clearing preceding the 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 only.
through either of the following modes: (3) The aggregate value of all inward
(i) maintenance of NOW accounts with items of all clearing centers, including On
KBs; (ii) conduit arrangements with KBs; Manila clearing demands presented to
and (iii) direct participation in clearing PCHC, shall be ranked from highest to
operations, at the option of the TB lowest. The unsettled net clearing losses
concerned. shall be eliminated by unwinding the
b. In conduit arrangements, caps inward items starting from the clearing
shall be set on the net clearing losses to centers, including PCHC, with highest
be passed on to the conduit KB by the aggregate value.
conduit TB. (4) In case the aggregate value of the
To address the settlement risks, the inward items for a given clearing center,
pro-forma conduit arrangement should except PCHC, exceeds the unsettled net
include provisions setting aforementioned clearing losses, the total inward items for
cap on the net clearing losses. The cap is that clearing center shall be the subject of
defined as the combined value of the unwinding.
following amounts: (5) In the case of checks cleared
(1) the TB's reserve deposit with through PCHC, the inward clearing items
BSP; and shall be unwound to the extent of the
(2) the value of collateralized unsettled net clearing loss. The selection
overdraft line that may be extended by the of the specific demand items to be
conduit KB to the conduit TB. covered by unwinding shall be based on
Parties to existing conduit PCHC rules.
arrangements shall have thirty (30) days (6) Checks which are the subject of
from 8 April 1998 to comply with the the unwound clearing transactions shall
above requirement. be returned to the presenting banks not
c. For TBs authorized to participate later than 9:00 A.M. of the following
in the PCHC and BSP check clearing clearing day.
operations, ceilings for clearing losses not d. TBs authorized to participate
covered by interbank borrowings shall be directly in the clearing in PCHC and BSP
established and unwinding of the clearing regional clearing centers shall be subject
transactions shall be authorized when the to the following measures to manage the
ceilings are breached. settlement risks:
(1) The proposed ceiling is defined as (1) Settlement of Outward items shall
the collateralized overnight clearing line be value dated on the day the checks are
that will be extended by BSP. Every TB cleared, net of returns. For this purpose,
authorized to participate directly in the the value date or settlement date referred
clearing operations of PCHC should apply to herein shall be defined uniformly as the
for this line with the appropriate next clearing day when dishonored checks
department of the SES. The availments are returned within the reglementary
against the approved loan line shall bear period, reckoned after the date of
interest at the ninety-one (91)-day Treasury presentation for local clearing in the

§§ 2205 - X213
08.12.31
integrated Manila Clearing area for PCHC Sec. X207 Check Clearing Operations
and in all BSP regional clearing centers. During Public Sector Holidays. The
For inter-regional clearing items, outward guidelines on check clearing operations
Manila clearing items and to Manila during public sector holidays are shown
clearing items, the value or settlement date in Appendix 84.
shall be defined in clearing circulars to be (M-2008-025 dated 13 August 2008)
issued by BSP.
(2) A ceiling shall be set on the Secs. X208 - X212 (Reserved)
amount of overdraft a TB authorized to
accept demand deposits may incur due B. SAVINGS DEPOSITS
to failure to cover clearing losses through
interbank borrowings. The ceiling is Sec. X213 Servicing Deposits Outside
defined as the collateralized overnight Bank Premises. Banks may be authorized
clearing line that will be extended by BSP by the BSP to solicit and accept deposits
DLC. The availments against the outside their bank premises, subject to the
approved loan line shall bear interest at following conditions:
the ninety-one (91)-day Treasury Bill a. Minimum capital requirement is met;
(T-Bill) rate of the last auction b. No major supervisory concerns
immediately preceding the availments. affecting safety and soundness;
(3) Should the overdraft exceed the c. The area of operations shall be
ceiling, the BSP Accounting Department within one (1)- hour normal travel time by
is authorized to instruct the PCHC and the land/sea from any head office or branch,
BSP regional clearing centers to unwind except in remote areas where more than
the clearing transactions following the one (1)- hour normal travel time may be
procedures defined in Item "c" of this allowed; and
Section. d. Applicant bank shall institute and
The operating guidelines implementing maintain the following minimum
Items "c" and "d" of this Section are in safeguards:
Appendix 31. (1) All deposit solicitors shall be
e. Any overdraft incurred under initially bonded for at least P1,000 subject
Section 102 of R.A. No. 7653 may be to the increase thereof to approximate their
converted into an emergency loan or daily collections;
advance provided it complies with the (2) Deposit solicitors shall be provided
guidelines governing the grant of with proper identification cards with
emergency loans under Subsec. X272.2. photograph and signature of each respective
(As amended by Circular No. 516 dated 06 March 2006) solicitor, certified to by the appropriate officer
of the bank. Said identification cards shall be
Sec. 3205 Check Clearing Rules for Rural worn by each solicitor at all times at the
Banks Who Are Members of the Philippine upper breast of his outer garment when
Clearing House Corporation. The provisions soliciting deposits; and
of Items "c" and "d" of Sec. 2205 and the (3) Adequate insurance coverage for
implementing operating guidelines in funds in transit (representing deposits
Appendix 31 shall also apply to RBs which collected outside banking premises) shall
are members of the PCHC. be secured by applicant bank from
(As amended by Circular No. 516 dated 06 March 2006) insurance companies not included in the
list of companies blacklisted by the
Sec. X206 (Reserved) Insurance Commissioner;

§§ X213 - X215
05.12.31
(4) Deposit slips shall be in booklet depositors not later than the following
form, prenumbered, in triplicate copies business day;
and in three (3) colors - the original to (8) At the end of each month,
be issued to the depositor, the second depositors shall be advised in writing of
copy to be used for posting reference, the balances of their deposits with the bank,
and the third copy to be retained in the the advise slips of which shall never be
booklet; handcarried by the solicitors themselves;
(5) All collections shall be turned over (9) Places of assignments of bank
to the cashier at the end of each day solicitors shall be rotated at least quarterly.
accompanied by a Collection Summary
Report to be accomplished in duplicate Sec. X214 Withdrawals. Banks are
which shall contain the following minimum prohibited from issuing/accepting
information: withdrawal slips or any other similar
(a) Date of the report instruments designed to effect withdrawals
(b) Names and addresses of the of savings deposits without requiring the
depositors depositors concerned to present their
(c) Deposit slip numbers passbooks and accomplishing the
(d) Amounts of deposit necessary withdrawal slips, except for
(e) Savings account and passbook banks authorized by the BSP to adopt the
numbers no passbook withdrawal system: Provided,
(f) Name and signature of solicitor That banks which are already adopting the
rendering the report no passbook withdrawal system shall be
(6) Depositors shall always be given six (6) months from effectivity of this
required to accomplish a Signature Card Manual to seek approval from the BSP.
when opening an account, which card The provisions of Sec. X202b shall also
shall be used always as reference in apply to withdrawals from savings deposits.
checking the genuineness/authenticity of
signatures affixed on withdrawal slips or Sec. X215 Rental Deposits of Lessees
authorizations for withdrawal; The following guidelines shall govern the
(7) Deposits/withdrawals shall be opening and handling by banks of deposits
recorded by the bookkeeper or any made by lessees under Section 5(b) of
ledger clerk, except any bank solicitor, Batas Pambansa Blg. 25, otherwise known
in the depositor’s ledger cards and as the Rent Control Law:
passbooks on the same day that such a. The deposit made by the lessee shall
deposits/withdrawals are accepted. only be accepted by the bank under a special
Passbooks shall be returned to the savings account in the name of the lessor;
(Next page is Part II- Page 7)
Manual of Regulations for Banks Part II - Page 6a

§§ X215 - X223.2
07.12.31
b. The bank shall require the lessee Sec. X222 (Reserved)

to submit a copy of the written notice sent
to the lessor for the deposit made, stating C. NEGOTIABLE ORDER OF
among other things, the date and amount WITHDRAWAL ACCOUNTS
of the deposit and the name and address
of the lessor; Sec. X223 Authority to Accept Negotiable
c. The bank, at its option, may require Order of Withdrawal Accounts
the lessee to submit any supporting Negotiable Order of Withdrawal (NOW)
document, such as the lease contract or accounts are interest-bearing deposit
official receipts of previous rentals paid, accounts that combine the payable on
which will show the specimen signature demand feature of checks and investment
of the lessor, or other papers to identify feature of savings accounts.
the lessor; A UB/KB may offer NOW accounts
d. The bank shall segregate from its without prior authority of the Monetary
regular savings deposit accounts and Board.
maintain a separate subsidiary control A TB/RB/Coop Bank may accept NOW
ledger for deposits made under Section 5(b) accounts upon prior approval of the
of Batas Pambansa Blg. 25; Monetary Board.
e. Any withdrawal against these
special savings deposit accounts may only § X223.1 Prerequisites to accept NOW
be allowed in favor of the lessee concerned accounts for thrift banks/rural banks/
before the amount deposited under cooperative banks. In addition to the
consignation has been accepted by the Standard Pre-qualification Requirements for
lessor, or when authorized by the lessor; the Grant of Banking Authorities
f. The expenses which may be enumerated in Appendix 5, a TB/RB/Coop
incurred by the bank with respect to such Bank applying for authority to accept NOW
rental deposits shall be charged against accounts shall also comply with the
the lessor; following requirements:
g. All the minimum internal control a. The applicant TB must have
standards applicable to savings deposit complied with the minimum capital required
accounts prescribed in Sec. X163 shall be under Subsecs. X106.1 and X106.2.
complied with; and In the case of RB/Coop Bank, it must
h. The acceptance of such rental have net assets of at least P5.0 million:
deposits, however, shall be optional or Provided, That RBs which have been
discretionary only upon the bank authorized to accept or create NOW
concerned. accounts prior to the approval of R.A. No.
7353 (Rural Banks Act of 1992) shall be
Secs. X216-X220 (Reserved) allowed to continue servicing such deposits.
The terms capital and net assets shall
Sec. X221 Peso Savings Deposit Accounts have the same meaning as in Sec. X106.
of Embassy Officials. Embassy officials are b. It must be a member of the PDIC in
allowed to open peso savings deposit good standing.
accounts with Philippine banks: Provided,
That they submit proof of conversion of § X223.2 Requirements for accepting
foreign currency to peso with Philippine NOW accounts. After a TB’s/RB’s/Coop
banks. Bank’s application to accept NOW account
(M-2007-021 dated 15 September 2007) has been approved, it may actually accept

§§ X223.2 - X231
05.12.31
the same subject to the following initialed by the teller receiving the deposit.
conditions: A copy of the deposit slip shall be furnished
a. Submission of a certification signed the depositor;
by the president/chairman of the board of d. NOW accounts shall be kept and
the bank stating that the requirements maintained separately from the regular
enumerated under Subsec. X223.1 have savings deposits;
been complied with up to the day before e. Blank NOW forms shall be
the NOW account services are actually prenumbered and shall be controlled as
offered/extended to the public; and in the case of unissued blank checks;
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; and
written notice to the appropriate department g. Banks must use the form prescribed
of the SES of the actual date when the NOW by present rules for NOW accounts.
account deposit service is offered to the Nothing herein shall be construed as
public not later than ten (10) banking days precluding a TB, RB or Coop Bank from
from such offering of the service. applying for authority to accept both
demand deposits and NOW accounts.
§ X223.3 Sanctions. If any part of the
certification submitted by the bank as Sec . X225 Minimum Features. The order
required in these guidelines is found to be of withdrawal form shall have a size of
false, the following sanctions shall be three (3) inches by seven (7) inches, and
imposed, without prejudice to the shall be printed on security/check paper.
sanctions under Section 35 of R.A. No. It shall contain, as a minimum, the features
7653: of the pro-forma order of withdrawal
a. On the bank shown in Appendix 11.
Suspension of its authority to accept or
create NOW accounts for one (1) year. Sec. X226 Clearing of NOW Accounts. Any
b. On the certifying officer NOW account which may be deposited
A fine of P5,000 per day from the time with a bank other than the drawee bank
the certification was made up to the time may be cleared through the PCHC in
the certification was found to be false. Manila and the Regional Clearing Units in
regional clearing centers designated by the
Sec. X224 Rules on Servicing NOW BSP in accordance with the clearing
Accounts. The following rules shall be procedures. Nothing in this Section
observed in servicing NOW accounts: shall prevent direct settlement between
a. Prior to or simultaneous with the the parties concerned.
opening of a NOW account, the bank shall The provision of Sec. X202 shall also
inform the depositor of its terms and apply for withdrawals on NOW accounts.
conditions;
b. The bank shall be responsible for Secs. X227 - X230 (Reserved)
the proper identification of its depositors; it
shall require, among other things, two (2) D. TIME DEPOSITS
specimen signatures and such other
pertinent information; Sec. X231 Term of Time Deposits. Time
c. Deposits shall be covered by deposits shall be issued for a specific
deposit slips in duplicate duly validated and period of term.

§§ X232 - X233.4
05.12.31
Sec. X232 Special Time Deposits. Authority a. Submission of a certification signed

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

§§ X233.4 - X233.9
07.12.31
“For purposes of deposit insurance by The application shall be signed by the

the PDIC, the holder shall have his name president/country manager (branch of a
registered in the books of the issuing bank.” foreign bank) of the bank. It shall be
accompanied by a certified true copy of
§ X233.5 Desistance from issuing new the resolution of the bank’s board of
NCTDs. Unless authorized by the BSP, directors authorizing the issuance of
TBs/RBs/Coop Banks with outstanding LTNCTD indicating, among others, the
NCTDs shall immediately desist from issue size, offering period, purpose or
issuing new NCTDs. intended use of proceeds thereof, registry
All outstanding NCTDs shall be valid bank, underwriter/arranger, selling
and negotiable up to their maturity dates agent(s) and 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 shall (a) It has complied with the following
be imposed, without prejudice to the capital adequacy requirements:
sanctions under Section 35 of R.A. No. (i) Minimum capitalization as defined
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,
§ X233.9 Long-term negotiable orders or instructions of the Monetary
certificates of time deposit. The following Board and/or BSP Management in the
guidelines shall govern the issuance of long- last two (2) preceding examinations prior
term negotiable certificates of time deposit to the date of application, more
(LTNCTD) with a minimum maturity of five particularly:
(5) years: (i) The ceilings on credit
a. Prior BSP approval. No LTNCTD accommodations to DOSRI;
shall be issued without the prior approval (ii) Liquidity floor requirements for
of the BSP. government deposits;
b. Application for authority of the (iii) Single borrower’s loan limit; and
issuing bank. An application for authority (iv) Investment in bank premises and
on each issue/issue program of LTNCTD other fixed assets;
shall be filed with the appropriate (d) It maintains adequate provisions for
department of the SES: Provided, That the probable losses commensurate to the
issue period of an issue program of two (2) quality of its asset portfolio but not lower
or more tranches shall not exceed one (1) than the required valuation reserves as
year from approval. determined by the BSP;

§ X233.9
07.12.31
(e) It does not have float items (b) It must be a third party, such that:
outstanding for more than sixty (60) (i) it has no subsidiary/affiliate
calendar days in the “Due From/To Head relationship with the issuing bank; and
Office/Branches/Offices” accounts and the (ii) it is not related in any manner that
“Due From Bangko Sentral“ account would undermine the objective conduct of
exceeding one percent (1%) of the total due diligence.
resources as of date of application; (c) Underwriters must be well-
(f) It has no past due obligations with capitalized and must have adequate risk
the BSP or with any government FI; management as evidenced by compliance
(g) It has established a risk with Items “c(1)(a), (d), (g) and (h)” as may
management system appropriate to its be applicable.
operations characterized by clear (4) Selling agent
delineation of responsibility for risk It may be any FI, with dealership or
management, adequate risk measurement brokering license, under the regulatory
systems, appropriately structured risk limits, supervision of the BSP.
effective internal controls and complete, (5) Market maker
timely and efficient risk reporting system; (a) It must not be the issuing bank;
(h) It has a CAMELS Composite Rating (b) It must be a third party which is
of at least “3” in the last regular not related to the issuing bank in any
examination; and manner that would undermine its
(i) It is a member of PDIC in good independence;
standing. (c) It must be a FI, with dealership or
(2) Registry bank brokering license, under the regulatory
(a) It may be a UB, a KB, or such other supervision of the BSP; and
specialized entity that may be qualified by (d) It must be well-capitalized and must
the Monetary Board; have adequate risk management as
(b) In the case of a UB or a KB: evidenced by compliance with Items “c(1)(a),
(i) It must be a third party: (d), (g) and (h)” as may be applicable.
(aa) with no subsidiary/affiliate d. Additional requirements for the
relationship with the issuing bank; and issuance of LTNCTD. After a bank’s
(bb) which is not related to the issuing application to issue an LTNCTD has been
bank in any manner that would undermine approved, it may issue the same, subject to
its independence. the submission of the following additional
(ii) It must have adequate facilities and requirements:
the organization to do the following: (1) At least fifteen (15) days before the
(aa) Maintain the Electronic Registry date of offering:
Book (ERB); (a) Written waiver of the secrecy of
(bb) Deliver transactions within the deposits on said LTNCTD by the issuing
agreed trading period; and bank, its subsidiaries, affiliates and wholly
(cc) Issue registry confirmations to or majority-owned or -controlled entities of
holders of LTNCTDs. such subsidiaries and affiliates;
(iii) It must have a CAMELS Composite (b) Information disclosure and the terms
Rating of at least “3” in the last regular and conditions of the LTNCTD issuance;
examination. (c) Promotional materials; and
(3) Underwriter/Arranger (d) Specimen of the proposed registry
(a) It is either a UB or an IH: Provided, confirmation and purchase advice from each
That if an offering is on a best-efforts basis, selling agent/market maker which will
such arranger may also be a KB; evidence sale of the LTNCTD.

§ X233.9
07.12.31
(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 and applies other standards to combat
department of the SES of the actual date of money laundering as required under Sec.
initial/tranche offering accompanied by a X691; and
certification by the president/country (b) Issues the purchase advice for the
manager that the pre-qualification primary offering of the LTNCTDs.
requirements under Item “c(1)” have been (4) Market maker
complied with up to the 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 and
(c) Issues and sends registry applies other standards to combat money
confirmation to holders; laundering as required under Sec. X691;
(d) Functions as paying agent for (d) Issues the purchase advice for the
periodic interest and principal payments; secondary sale of the LTNCTDs; and
and (e) Ensures secondary market transfers
(e) Monitors compliance with the and registration in coordination with the
prohibition on holdings of LTNCTD, as registry bank.
prescribed under Item “h” hereof. f. Change of Underwriter/Arranger,
(2) Underwriter/Arranger registry bank, selling agent(s)/market
(a) Conducts due diligence on the maker(s). After an application for
issuing bank and determines the valuation/ authority to issue LTNCTDs has been
pricing of the primary issue; approved by the BSP, the issuing bank
(b) Prepares the prospectus/information cannot change its underwriter/arranger,
disclosure/updates for multi-tranche issues; registry bank, selling agent(s) and market
(c) Formulates the distribution/ maker(s) without the prior approval of the
allocation plan for the initial offering and 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
07.12.31
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 (50%) negotiations/transfers from one (1) holder to
of the outstanding voting stock of which is, another do not constitute pretermination.”
owned by the issuing bank. The caveat shall apply if the issuing bank
i. Agreements between issuing bank commits no pretermination. Otherwise, it
and registry bank/selling agent(s)/market shall read as follows:
maker(s). The agreements between the “This LTNCTD cannot be terminated by
issuing bank and the registry bank/market the holder before (maturity date). However,
makers/selling agents shall comply with the it may be preterminated at the instance of
provisions of Sec. X169 on bank service the Issuing Bank upon prior notice to the
contracts. The issuing bank shall be liable holder on record. Negotiations/transfers
for any damages to investors/depositors from one (1) holder to another do not
caused by actions of said registry bank, constitute pretermination”; and
selling agent(s)/market maker(s) contrary to (b) “All negotiations/transfers of this
the agreements entered into. LTNCTD prior to maturity must be coursed
j. Minimum features through a Market Maker”.
(1) Form; denomination - An LTNCTD (2) The selling agent/market maker
shall be in scripless form with a third party shall issue a Purchase Advice to evidence
registry bank maintaining the ERB. To have initial purchase/secondary trading of
legal effect, it shall comply with the LTNCTD with the original copy given to the
provisions of R.A. No. 8792 (Electronic holder.
Commerce Act) particularly on the (3) The registry bank shall issue a
existence of an assurance on the integrity, Registry Confirmation to evidence
reliability and authenticity of the LTNCTD ownership of the LTNCTD, with the original
in electronic form. LTNCTDs shall be copy given to the holder.
registered in the name of individuals or l. Issue size and aggregate ceiling. An
corporations, negotiable and prenumbered issuing bank can issue LTNCTDs up to
serially. The minimum denomination shall 300% of its total capital accounts as defined
be at the discretion of the issuing bank. under Subsec. X106/X121.5: Provided, That
(2) Currency - Denomination shall be each issue/issue program size does not
in Philippine pesos. exceed P5.0 billion pesos. This ceiling shall
(3) Term - The minimum maturity of the be subject to a regular review by the BSP.
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 through n. Pretermination by the issuer.
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
07.12.31
(1) The Information Disclosure, (2) On the registry bank -

Purchase Advice and Registry Confirmation Disqualification to be a registry bank for
shall include the information that the one (1)-year and a monetary penalty of
LTNCTD may be preterminated by the P30,000 for each violation.
issuing bank; (3) On all authorized selling agents/
(2) Thirty (30)-day prior notification market makers – Disqualification to be
must be given to the appropriate department appointed as selling agent/market maker for
of the SES together with the justification for one (1) year and a monetary penalty of
the pretermination; P30,000 for each violation.
(3) Thirty (30)-day prior notification to (4) On the certifying officer - A fine of
holders of record; P5,000 per day from the time of required
(4) Notwithstanding any agreement to disclosure up to the time disclosure was
the contrary, the issuer shall shoulder the made; or from the time misrepresentation
tax due on the interest income already was made up to the time the information
earned by the holders; and was corrected.
(5) The issuing bank’s reserve positions (5) On the responsible officer – A fine
shall be recomputed retroactively based on of P30,000 for participating or confirming
the applicable reserve rate(s) for regular time in the non-disclosure or misrepresentation
deposits during the affected periods. of information.
If the recomputed amounts result in a (As amended by Circular No. 585 dated 15 October 2007)
reserve deficiency, the issuing bank shall
be fined with the corresponding monetary § X233.10 (Reserved)
penalties. The preceding monetary penalty,
however, shall not be imposed if § X233.11 Long-term non-negotiable
pretermination by the issuer is due to a change tax-exempt certificates of time deposit
in law or regulation that will increase the cost The issuance of long-term non-negotiable
of maintaining the 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; denomination - 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 LTNCTD. banks only in the name of individuals
p. Sanctions. Without prejudice to the with denominations in increments of
other sanctions prescribed under Section 37 P1,000.00.
of R.A. No. 7653 and the provisions of (2) Term - The minimum maturity of the
Section 16 of R.A. No. 8791, the following certificate shall be five (5) years.
sanctions will be imposed on any issuing (3) Manner of issuance - The certificate
bank, registry bank and other parties for shall be issued only upon receipt of funds
failure to perform their respective functions/ equivalent to their face value.
responsibilities and for non-disclosure or (4) Manner of printing - The certificate
misrepresentation of information: shall be printed on security paper.
(1) On the issuing bank – Suspension (5) Pre-termination - In case of pre-
of its authority to issue LTNCTDs, termination, the deposit shall be subject to
disqualification from future issuance of income tax as provided under Section
LTNCTDs and a monetary penalty of 24(B)(1) of the Tax Reform Act of 1997
P30,000 for each violation. 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 - X234.6
08.12.31
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 department
c. An information sheet; of the SES within three (3) months from
d. Bio-data signed under oath, of the 11 November 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 § X234.6 Sale, discounting,
investment program classified as to – assignment or negotiation by banks of
(a) maturity: short, medium and long- their credit rights arising from claims
term; against the BSP. Pursuant to the policy of
(b) interest rates; and the BSP to promote investor protection and
(c) domestic or foreign sources transparency in securities transactions as
whether institutional or personal. important components of capital markets
TBs authorized to engage and are development, credit rights in Special
actually performing quasi-banking Deposit Account (SDA) placements and
functions but do not meet the new capital reverse repo agreements with the BSP, shall
requirement are hereby given a period of not be subject of sale, discounting,
two (2) years reckoned from 11 November assignment or negotiation on a with or
2004 within which to comply with the without recourse basis.
minimum capital requirement in Subsec. Any violation of the provisions of this
X234.4 (a): Provided, That in case the TB Subsection shall be considered a less serious
has an approved capital build-up program offense and shall subject the bank and the
under Subsec. X501.2, for its FDCU director/s and/or officer/s concerned to the
license, the approved capital build-up sanctions provided under Section X299.
program, may be considered compliance (Circular No. 636 dated 17 December 2008)

§§ X235 - X235.3
05.12.31
Sec. X235 Deposit Substitute Instruments c. The payee may be identified by his
Any deposit substitute transaction by a bank trust account/deposit account number in
performing quasi-banking functions shall be both negotiable and non-negotiable
limited to its own promissory notes, repo instruments.
agreements, and certificates of assignment/ d. Securities which are the subject of
participation with recourse. a repo agreement or a certificate of
assignment/participation with recourse,
§ X235.1 Prohibition against use shall be particularly described on the face
of acceptances, bills of exchange and of said instruments or on a separate
trust certificates. Acceptances, bills of instrument attached and specifically
exchange, and trust certificates shall not referred to therein and made an integral
be used by banks as evidence of deposit part thereof as to the maker, value,
substitute liabilities in connection with maturity, serial number, and such other
their quasi-banking functions. This particulars as shall clearly identify the
prohibition shall not apply to the securities.
acceptance or negotiation of bills of e. The instrument shall provide for the
exchange in connection with trade payment of liquidated damages, in addition
transactions, or to the issuance of trust to stipulated interest, in case of default by
certificates creating trust relationships. the maker or issuer, as well as attorney’s
fees and costs of collection in case of suit.
§ 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
“demand”, if it is a demand instrument. non-bank financial intermediaries shall be

§ X235.3
05.12.31
exempted from the documentation Deposit substitute instruments shall

requirements prescribed in this Subsection: conform to the language prescribed by the
Provided, That the exemption from the BSP. Any substantial deviation therefrom
documentation requirements prescribed in or any additional stipulation therein shall
this Subsection shall not be construed or be referred to the BSP for prior approval.
interpreted as exempting said borrowings The size and appearance of these
from other regulations standardizing instruments, shall not be similar to the size
deposit substitute instruments and from and appearance of these instruments, shall
other BSP regulations on deposit not be similar to the size and appearance
substitutes. of checks. Rubber stamping, typewriting or
(Next Page is Part II - Page 19)

§§ X235.3 - X235.5
07.12.31
handwriting some provisions shall not be delivered to both the lender/purchaser and
considered compliance with said seller/borrower.
regulations. (Shown in Appendix 12 are the Sanctions. Violation of any provision
samples of standardized instruments as of Item “a” shall be subject to the following
evidence of deposit substitute liabilities.) sanctions/penalties:
(1) Monetary penalties
§ X235.4 Interbank loan transactions First Offense – Fine of P10,000 a day
Except for interbank loan transactions for each violation reckoned from the date
evidenced by interbank loan advice or the violation was committed up to the date
repayment transfer tickets settled thru the it was corrected.
DDAs with the BSP, all interbank loan Subsequent offenses – Fine of P20,000
transactions shall be evidenced by a a day for each violation reckoned from the
promissory note containing the minimum date the violation was committed up to the
features prescribed in Subsec. X235.3. date it was corrected.
(2) Other sanctions
§ X235.5 Delivery of securities 1 First offense – Reprimand for the
a. Securities, warehouse receipts, directors/officers responsible for the
quedans and other documents of title violation.
which are the subject of quasi-banking Subsequent offense –
functions, such as repurchase agreements, (a) Suspension for ninety (90) days
shall be physically delivered, if certificated, without pay of directors/officers
to a BSP accredited custodian that is responsible for the violation;
mutually acceptable to the lender/ (b) Suspension or revocation of the
purchaser and borrower/seller, or by means accreditation to perform custodianship
of book-entry transfer to the appropriate function;
securities account of the BSP accredited (c) Suspension or revocation of the
custodian in a registry for said securities, if authority to engage in quasi-banking
immobilized or dematerialized while the function; and/or
overlying principal borrowing instrument (d) Suspension or revocation of the
shall be physically delivered to the lender/ authority to engage in trust and other
purchaser. The custodian shall hold the fiduciary business.
securities in the name of the borrower/ b. The guidelines to implement the
seller, but shall keep said securities delivery by the seller of securities to the
segregated from the regular securities buyer or to his designated third party
account of the borrower/seller if the custodian are shown in Appendix 68.
borrower/seller has an existing securities The disposition of compliance issues of
account with the custodian: Provided, Appendix 68 is shown in Appendix 68a.
That a bank/other entity authorized by The guidelines on the delivery of
the BSP to perform custodianship government securities to the investor’s
function may not be allowed to be principal securities account with the
custodian of securities issued or owned Registry of Scripless Securities (RoSS) are
by said bank/entity, its subsidiaries or in Appendix 68b.
affiliates, or of securities in bearer form. Sanctions. Without prejudice to the
The delivery shall be effected upon penal and administrative sanctions
payment and shall be evidenced by a provided for under Sections 36 and 37,
securities delivery receipt duly signed by respectively of R.A. No. 7653 (The New
authorized officers of the custodian and Central Bank Act), violation of any provision
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.

§§ X235.5 - X235.12
07.12.31
of the guidelines in Appendix 68 shall be actual substitution shall be with the prior
subject to the following sanctions/penalties written consent of the payee.
depending on the gravity of the offense: c. Automatic renewal upon maturity
(a) First offense – of the instrument may be effected only
(1) Fine of up to P10,000 a day for under terms and conditions previously
the institution for each violation reckoned stipulated by the parties.
from the date the violation was committed d. Stipulations between the maker or
up to the date it was corrected; and issuer and the payee which are embodied
(2) Reprimand for the directors/officers in separate instruments shall be specifically
responsible for the violation. referred to in the deposit substitute
(b) Second offense - instruments and made an integral part
(1) Fine of up to P20,000 a day for the thereof.
institution for each violation reckoned from e. In the case of repurchase
the date the violation was committed up agreements and certificates of assignment/
to the date it was corrected; and participation with recourse, the stipulation
(2) Suspension for ninety (90) days shall clearly state either (1) that the
without pay of directors/officers responsible underlying securities are being delivered
for the violation. to the buyer or assignee as collaterals or
(c) Subsequent offenses– (2) that the ownership thereof is being
(1) Fine of up to P30,000 a day for the transferred to the buyer or assignee.
institution for each violation from the date
the violation was committed up to the date §§ X235.7 - X235.11 (Reserved)
it was corrected;
(2) Suspension or revocation of the § X235.12 Repurchase agreements
authority to act as securities custodian and/ covering government securities,
or registry; and commercial papers and other negotiable
(3) Suspension for 120 days without and non-negotiable securities or
pay of the directors/officers responsible for instruments. The following regulations
the violation. shall govern repurchase agreements
(As amended by M-2007-002 dated 23 January 2007, covering government securities,
M-2006-009 dated 06 July 2006, M-2006-002 dated 05 June commercial papers and other negotiable
2006 and Circular No. 524 dated 31 March 2006) and non-negotiable securities or
instruments of banks as well as sale on a
§ X235.6 Other rules and regulations without recourse basis of said securities by
governing the issuance and treatment of banks.
deposit substitute instruments a. Proper recording and
a. If there is any stipulation that documentation of repurchase agreements.
payment of the deposit substitute shall be Banks shall have a true and accurate
chargeable against a particular deposit account, record or statement of their daily
account, it shall further provide that the transactions. As such, repurchase
liability of the maker or issuer of the agreements covering government
instrument shall not be limited to the securities, commercial papers and other
outstanding balance of said account. negotiable and non-negotiable securities or
b. Any agreement allowing the issuer instruments must be properly recorded and
or maker to substitute the underlying documented in accordance with existing
securities shall further provide that the BSP regulations.

§ X235.12
05.12.31
The absence of proper documentation did not enter into any repurchase
for repurchase agreements is tantamount agreement covering government securities,
to willful omission of entries relevant to commercial papers and other negotiable
any transaction, which shall be a ground and non-negotiable securities or
for the imposition of administrative instruments that are not documented in
sanctions and the disqualification from accordance with existing BSP regulations
office of any director or officer responsible and that the bank has strictly complied with
therefor under existing laws and the pertinent rules of the SEC and the BSP
regulations. on the proper sale of securities to the public
b. Responsibilities of the chief and performed the necessary
executive officer (CEO) or officer of representations and disclosures on the
equivalent rank. securities particularly the following:
It shall be the responsibility of the CEO (a) Informed the clients that such
or the officer of equivalent rank in a bank to: securities are not deposits and as such, do
(1) Institute policies and procedures to not benefit from any insurance otherwise
prevent undocumented or improperly applicable to deposits such as, but not
documented repurchase agreements limited to, R.A. No. 3591, as amended,
covering government securities, otherwise known as the PDIC law;
commercial papers and other negotiable (b) Informed and explained to the
and non-negotiable securities or instruments; client all the basic features of the security
(2) Submit a notarized certification at being sold on a without recourse basis,
the end of every semester that the bank such as but not limited to:
(Next page is Part II- Page 21)

§ 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
07.12.31
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. QBs;
to the following sanctions/penalties: c. 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 a thereof or managed by a bank or other
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
acceptance/placement with a warning that basis of such factors as financial
subsequent violations will be subject to sophistication, net worth, knowledge, and
more severe sanctions. experience in financial and business matters,
Subsequent offenses - or amount of assets 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 Sec. X238 shall
authority to engage in quasi-banking be delivered physically to the purchaser, or
functions. to his designated custodian duly accredited
by the BSP, if certificated, or by means of
Sec. X238 Without Recourse Transactions book-entry transfer to the appropriate
No bank shall sell, discount, assign, or securities account of the purchaser or his
negotiate, in whole or in part, such as thru designated custodian in a registry for said
syndications, participations and other securities, if immobilized or dematerialized,
similar arrangements, any notes, while the confirmation of sale or document
receivables, loans, debt instruments and of conveyance by the seller shall be physically
any type of financial asset or claim, except delivered to the purchaser. The custodian shall
government securities, or be a party in any hold the securities in the name of the buyer:
capacity in any of the above transactions, Provided, That a bank/other entity authorized
on a without recourse basis unless such by the BSP to perform custodianship function
receivables, notes, loans, debt instruments may not be allowed to be custodian of
and financial assets or claims are registered securities issued or sold on a without
with the SEC. This prohibition includes recourse basis by said bank/entity, its
transactions between a bank and its trust subsidiaries or affiliates, or of securities in
department. bearer form.
1
Effective 01 January 2005 under Circular 460 dated 12 November 2004.

§§ X238.1 - X238.3
07.12.31
The delivery shall be effected upon Section shall be subject to any or all of the
payment and shall be evidenced by a following sanctions:
securities delivery receipt duly signed by a. Suspension of quasi-banking
the authorized officer of the custodian and authority for a period of six (6) months;
delivered to the purchaser. and
Sanctions. Violation of any provisions b. Monetary penalty of P500 per day
of Item “a” shall be subject to the following per transaction for each officer of the bank
sanctions/penalties: involved in any capacity in any transaction
(1) Monetary penalties violative of these regulations.
First offense – Fine of P10,000 a day
for each violation reckoned from the date § X238.3 Securities custodianship
the violation was committed up to the date operations
it was corrected. a. Securities sold on a without
Subsequent offenses – Fine of P20,000 recourse basis shall be delivered to the
a day for each violation reckoned from the purchaser, or to his designated custodian
date the violation was committed up to the duly accredited by the BSP: Provided, That
date it was corrected. a bank/other entity authorized by the BSP
(2) Other sanctions to perform custodianship function may not
First offense – Reprimand for the be allowed to be custodian of securities
directors/officers responsible for the violation. issued or sold on a without recourse basis
Subsequent offense – by said bank/entity, its subsidiaries or
(a) Suspension for ninety (90) days affiliates, or of securities in bearer form.
without pay of directors/officers responsible Existing securities being held under
for the violation; custodianship by banks/other entities
(b) Suspension or revocation of the under BSP supervision, which are not in
accreditation to perform custodianship accordance with said regulation, must
function; therefore, be delivered to a BSP accredited
(c) Suspension or revocation of the third party custodian. However, banks and
authority to engage in quasi-banking other FIs under BSP supervision may
function; and/or maintain custody of existing securities of
(d) Suspension or revocation of the their clients who are unable or unwilling
authority to engage in trust and other to take delivery pursuant to the provisions
fiduciary business. of Subsec. X235.5 but who declined to
b. The guidelines to implement the deliver their existing securities to a BSP
delivery by the seller of securities to the accredited third party custodian subject to
buyer or to his designated third party the following conditions:
custodian are shown in Appendix 68. (1) the custody arrangements with
Sanctions. Violation of any provision clients have been in existence prior to 05
of the guidelines in Appendix 68 shall be November 2004 (effectivity of Circular 457
subject to the sanctions/penalties under dated 14 October 2004);
Item “b” of Subsec. X235.5. (2) the dealing bank/NBFI under BSP
(As amended by M-2007-002 dated 23 January 2007, M-2006- supervision had been informed in writing
009 dated 06 July 2006 and M-2006-002 dated 05 June 2006, by the client that he is not willing to have
Circular No. 524 dated 31 March 2006) his existing securities delivered to a third
party custodian;
§ X238.2 Sanctions. Unless specific (3) any BSP regulated institution shall
sanctions are prescribed under these rules, not enter into securities transactions with
any violation of the provisions of this a client who has outstanding securities not

§§ X238.3 - X239.4
06.12.31
delivered to a BSP accredited third party Sec. X239 Issuance of Bonds. The
custodian; and following guidelines shall govern the
(4) it shall be the responsibility of any issuance of bonds by banks with quasi-
BSP regulated institution to satisfy itself that banking authority.
the person purchasing securities from it has
no outstanding securities holdings which § X239.1 Definition of terms. For
were not delivered to a BSP accredited third purposes of this Section, unless the context
party custodian. clearly indicates otherwise, the following
Sanctions. Without prejudice to the shall have the meaning as indicated:
penal and administrative sanctions a. Government securities shall refer
provided for under Sections 36 and 37, to evidences of indebtedness of the
respectively, of the R.A. No. 7653, Republic of the Philippines or its
violation of any provision of this Subsection instrumentalities, or of the BSP, and must
shall be subject to the following sanctions/ be freely negotiable and regularly
penalties: serviced.
(1) First Offense – b. Net book value shall refer to the
(a) Fine of up to P10,000 a day for the acquisition cost of property or accounts
institution for each violation reckoned from plus additions and improvements thereon
the date the violation was committed up less valuation reserves, if any.
to the date it was corrected; and c. Current market value shall refer to
(b) Reprimand for the directors/officers the value of the property as established
responsible for the violation. by a duly licensed and independent
(2) Second Offense - appraiser.
(a) Fine of up to P20,000 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) Suspension for ninety (90) days quasi-banking authority issuing or
without pay of directors/officers intending to issue bonds shall comply with
responsible for the violation. the New Rules on Registration of Long-
(3) Subsequent Offenses – Term Commercial Papers promulgated by
(a) Fine of up to P30,000 a day for the the SEC (Appendix 13).
institution for each violation from the date
the violation was committed up to the date § X239.3 Notice to Bangko Sentral ng
it was corrected; Pilipinas. Within three (3) days from
(b) Suspension or revocation of the approval by SEC of its bond issue, the bank
authority to act as securities custodian and/ concerned shall notify the appropriate
or registry; and department of the SES of the approval
(c) Suspension for 120 days without attaching thereto the documents required
pay of the directors/officers responsible for by the SEC for the issuance and registration
the violation. of the bond issue.
b. Sec. X441 shall also govern the
securities custodianship and securities § X239.4 Minimum features. Bonds
registries of banks. issued by banks shall have the following
(As amended by M-2006-009 dated 06 July 2006, M-2006- minimum features:
002 dated 05 June 2006 and Circular No. 524 dated 31 a. Form; issue price; denomination
March 2006) The trust indenture and the name of the

§§ X239.4 - X240
05.12.31
indenture trustee shall be indicated on the shall be allowed: Provided, That in no case
face of the bond certificate. shall the collateral fall below the herein
The SEC-assigned bond registration required ratios.
number and expiry date, if any, shall The issuer may, at his option, provide
likewise be indicated, stamped on the face for the retirement at maturity of the bond
of each bond certificate issued. issue through the sinking fund to be
Bonds may be issued at face value, at a deposited with and managed by the
discount or at a premium. Minimum indenture trustee.
denomination shall be P20,000. e. Bond registry - The bonds shall be
b. Term - The minimum term of the fully registered as to principal and interest.
bonds shall be four (4) years. No optional The issuer, its trustee, agent or underwriter
redemption before the fourth year shall be must maintain a bond registry duly
allowed. approved by the SEC for recording initial
c. Interest; manner; form of payment and subsequent transfers the names of
The bonds shall not be subject to interest transferees, date of transfer, purchase price
rate ceilings prescribed by the Monetary and serial numbers of bonds transferred.
Board or Act No. 2655, as amended.
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
certificates of title and documents have 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 collaterals controlled corporations shall refer to

§§ X240 - X240.2
05.12.31
government-owned or -controlled name of their respective government units,

corporations which are created by special in private banks located in or nearest to
laws. It shall exclude government FIs such their respective areas of jurisdiction but the
as DBP, LBP and Al-Amanah Islamic depository bank(s) must also seek the prior
Investment Bank of the Philippines, approval of the BSP: Provided, That a TB/
corporations which are created under the RB/Coop Bank may only act as official
provisions of the Corporation Law (Act No. depository of government funds pursuant
1459, as amended) or the Corporation to R.A. Nos. 7906, 7353 and 6938, as
Code (BP Blg. 68) and private corporations follows:
which are taken over by government- (1) a TB may only act as official
owned or-controlled corporations. depository of national agencies, and of
b. Minimum working balances municipal, city or provincial funds in the
shall represent the minimum amounts municipality, city or province where the
necessary to enable the government TB is located;
instrumentality/political subdivision (2) an RB may only act as official
making the deposit to transact business depository of municipal, city or provincial
efficiently and effectively as determined by funds in the municipality, city or province
the Department of Finance. where the RB is located; and
(3) a Coop Bank may accept deposits
§ X240.1 Prior Monetary Board of all government departments, agencies
approval. No private bank shall, without and units of the national and local
prior approval of the Monetary Board, governments including government-
accept, as depository, any fund or money owned or-controlled corporations.
from the Government, its political c. Where there is no government
subdivisions and instrumentalities, and bank or BSP office in the province and the
government-owned or-controlled nearest government bank or BSP office is
corporations; nor shall a private bank borrow inaccessible by ordinary transportation, or
any fund or money there from, through the transporting/withdrawing the government
issuance or sale of its acceptances, notes deposits to and from the said office is
or other evidences of indebtedness. impractical or risky, the province, as well
as cities and municipalities located therein,
§ X240.2 Banks which may accept may seek approval of the Monetary Board
government funds to consider all their funds eligible for
a. Banks, the majority of the capital deposits with a qualified private depository
of which is owned by the Government, bank within the province, city or
may act as depository of funds of the municipality, as the case may be.
Government, its political subdivisions and d. Banks acting as official depository
instrumentalities, and government-owned of government funds may accept demand,
or-controlled corporations. savings or time deposits.
b. Private banks incorporated in the e. The authority of a bank to accept
Philippines may act as depository of government deposits does not obligate the
government funds only with the prior Government, its subdivisions and
approval of the BSP. Local government instrumentalities and government-owned
units may maintain depository accounts or-controlled corporations to deposit with
preferably in government banks and, in that bank. Thus, even if a TB or RB is
exceptional cases and with the prior authorized by the Monetary Board to
approval of the Monetary Board, in the accept government deposits, a

§§ X240.2 - X240.5
06.12.31
municipality is not obligated to deposit Banks authorized to accept

with that TB or RB. Similarly, a bank which government funds as depository shall
is authorized to accept deposits of the continuously comply with the conditions
Government or a government corporation enumerated under Subsec. X240.3 even
because of outstanding loans granted by after the authority to accept government
the bank cannot demand as a matter of right deposits has been granted and during the
that the Government or government period while the banks actually hold
corporation make deposits unless there is government deposits, otherwise, any
a stipulation in the loan agreement. violation may be a basis for the imposition
of sanctions against the bank, its directors
§ X240.3 Prerequisites for the grant and officers, or revocation of the authority
of authority to accept deposits from the to accept government deposits.
Government and government entities. In Deposits maintained by the
addition to the Standard Pre-qualification Government, its subdivisions and
Requirements for the Grant of Banking instrumentalities and government-owned
Authorities enumerated in Appendix 5, or-controlled corporations shall be
private banks applying for authority to supported by the following documents
accept deposits from the Government, its whenever applicable:
subdivisions and instrumentalities and a. A copy of the resolution of the
government-owned or-controlled barangay, municipal or city council
corporations and government banks (Sangguniang Bayan/Panglunsod) or the
applying for authority to accept provincial board (Sangguniang
government deposits in excess of Panlalawigan) authorizing the deposit of
minimum working balances shall also municipal, city or provincial funds;
comply with the following conditions: b. A copy of the resolution of the
a. The applicant bank must have board of directors of the government-
complied with the minimum capital owned or-controlled corporations
required under Subsecs. X106.1 and authorizing the deposit of funds of said
X106.2; and corporations; or
b. It must be a member of the PDIC c. In case of the National
in good standing. Government, its unincorporated branches,
c. The bank’s CAMELS composite agencies and instrumentalities, a written
rating in its latest examination is not lower authority to deposit government funds
than three (3) with Management signed by the duly authorized official of
component score of not lower than three the department, agency, office or unit
(3). making the deposit.
(As amended by Circular No. 526 dated 10 April 2006) The resolution or authority should state
the name and location of the depository
§ X240.4 Application for authority. An bank, type and terms of the deposit, and
application for authority to accept that the amount to be deposited represents
government deposits shall be signed by the working balances.
president of the bank and shall be filed with
the appropriate department of the SES. The § X240.5 Limits on funds of the
application shall be accompanied by a Government and government entities
certification by the bank president or that may be deposited with banks
executive vice-president that the bank has a. Funds of the Government, its
complied with all the requirements subdivisions and instrumentalities and
enumerated under Subsec. X240.3. government-owned or-controlled

§§ X240.5 - X240.6
07.12.31
corporation, deposited with banks borrowings from, and all other liabilities
authorized to receive deposits shall be to, the Government and government
limited to the minimum working balance entities, in the form of transferable
of the depositor. government securities which represent
With prior Monetary Board approval, direct obligations of the National
government or private banks may be Government.
authorized to accept amounts in excess Government securities representing
of minimum working balances if the direct obligations of the National
Government or government entity Government regardless of maturity, issued
making the deposit has outstanding loan pursuant to the provisions of R.A. No. 245,
obligations to the depository bank but as amended by P.D. No. 142, which are
such amounts shall not exceed the not otherwise earmarked or used as part of
amount of its outstanding loan obligations other reserve requirements of the BSP, shall
to the depository bank. The amount of be eligible as liquidity reserves.
non-transferable and non-negotiable Securities received pursuant to the
government securities with market or Domestic Debt Exchange Offer of the
below market interest rate at the time of Republic of the Philippines in exchange
issue, issued by the National Government for securities that are eligible reserves for
to the depository bank shall be considered liquidity floor requirement shall, likewise
as “outstanding loans” of the National be eligible as liquidity reserves.
Government to said bank within the Eligible securities being used as such
meaning of Section 113 of R.A. No. 7653. reserve shall not in any way be encumbered
b. The aggregate amount of or be subject to any transaction without
government funds which a private bank prior approval of the BSP.
can hold at any given time shall not exceed Also eligible for liquidity floor are the
200% of the bank’s net worth. following:
c. Where any director, officer or a. The free portion of the “Due from
stockholder of a private bank, as defined Bangko Sentral - Local Currency” after
under Subsec. X326.1, is also an elective satisfying the legal and other reserve
or appointive official of a municipality, city requirements; and
or province, said bank is prohibited from b. NDC Agri-Agra ERAP Bonds,
accepting deposits from said municipality, which are not being used as alternative
city or province unless it is the only bank compliance with PD 717. Such bonds shall
existing therein: Provided, That this not in any way be encumbered or be
provision shall not be construed as a grant subject to any transaction without prior
of authority to such elective or appointive approval of the BSP.
public official to act as director or officer c. Securities backed by the
of a private bank. unreleased Internal Revenue Allotments
(IRA) of local government units (issued by
§ X240.6 Liquidity floor. Unless a Special Purpose Trust administered by
otherwise prescribed by the Monetary the DBP under the IRA Monetization
Board, authorized government depository Program of the Union of Local Authorities
banks other than the BSP, and authorized of the Philippines) the release of which IRA
private banks shall, inclusive of the required on scheduled date of payment has been
reserves against deposits and/or deposit certified by the Department of Budget
substitutes, maintain a fifty percent (50%) Management (DBM) as not being subject
liquidity floor with respect to deposits of, to any conditionalities: Provided, That such

§§ X240.6 - X240.9
07.12.31
securities shall be eligible only to the extent c. Obligations to the BSP consisting
of the present value of the bond computed of emergency advances, overdraft
using the original yield to maturity (as of facilities, and those arising from peso swap
auction/issue date). differentials and supervision and
d. Tobacco Excise Tax Receivables examination fees;
Monetization Program Investment d. Marginal deposits on importations;
Certificates (TEXTR Certificates) backed by e. Due to the Treasurer of the
receivables representing the unreleased Philippines (unclaimed deposit balances);
portion of the obligation of the National f. Funds held by participating
Government to its LGU for their share of financial institutions (PFIs) under the GSIS
the Tobacco Excise Taxes under R.A. No. Housing Loan Programs: Provided, That the
7171 amounting to P1.85 billion and agreement between GSIS and the conduit
covering the years 2001 and 2002: banks specify that such funds may be held
Provided, That such securities shall be by the conduit banks for a period of not
eligible only to the extent of the present value more than seven (7) calendar days prior
of the securities computed using the original to their release to the borrower and prior
yield to maturity as of auction/issue date. to the remittance by the conduit banks of
e. Placement of banks in their SDA payment to the GSIS;
with the BSP, effective 10 May 2007. g. Deposits of the BIR and BOC; and
For purposes of computing the fifty h. Any other form of deposits,
percent (50%) liquidity floor requirement borrowings and/or liabilities specifically
on all government funds held by authorized authorized by law or exempted by the
banks, banks shall adopt a one (1)-week lag Monetary Board.
system, effective 04 May 2001.
Banks authorized to accept government § X240.8 Reports. Banks shall submit
deposits shall specify in the prescribed to the appropriate department of the SES a
reports submitted to the SDC of the BSP report of their government deposits from
the balance of government deposits all sources in the aggregate in the
subject to liquidity floor requirement and, prescribed form.
if any, the corresponding GS earmarked
for subject purpose. § X240.9 Sanctions. Any violation of
(As amended by Circular Nos. 566 dated 03 May 2007 and this Section shall be a ground for the
509 dated 01 February 2006) imposition of the following sanctions:
a. The deposit account with the BSP
§ X240.7 Exempt transactions. The of the bank concerned shall be debited
following deposits of, borrowings from and/ by the Accounting Department of the BSP
or liabilities to, the Government and in the amount of the unauthorized deposit
government entities shall be exempt from or borrowing upon receipt of a report or
the liquidity floor: notice from the appropriate department
a. Obligations to the BSP arising from of the SES and the deposit account of the
rediscounting facilities and sale of government institutions with the BSP shall
government securities under repo be credited for the same amount. A copy
agreements made in connection with the of said report or notice of the SES shall be
provisions of Sec. X269 and Subsec. X601.1; furnished each to the bank concerned and
b. Special time deposits (STDs) and the government institutions.
deposit substitutes under the special b. The withdrawal of previously
financing program of the Government granted authority to accept government
and/or international FIs; funds;

§ X240.9 - X242.2
05.12.31
c. Without prejudice to the sanctions regulations on government deposits and

under Section 35 of R.A. No. 7653, the shall not exceed the minimum working
following administrative sanctions shall be balance of the said government entities.
imposed if any part of the certification as These banks are required to notify the
required in this Section is found to be false appropriate department of the SES that
or misleading: supervises the bank, copy furnished the
On the bank - Cancellation of the Head of the Technical Working Group
authority to accept government deposits if on E-Banking, SDC, of the names of the
one has already been granted and/or government institutions that will interface
disqualification to act as a government with their systems and any changes that
depository for not more than one (1) year. may subsequently be made on the
On the certifying officer - A fine of arrangements.
P5,000 per day from the time the
certification was found to be false, for each Sec. X241 (Reserved)
application filed with the BSP.
d. Any bank with deficiency in the G. INTEREST
required liquidity floor against deposits of,
and/or borrowings from, the Government Sec. X242 Interest on Deposits/Deposit
and government entities or with excess Substitutes. Demand, savings, NOW
holdings of such deposits shall: (1) be accounts, time deposits and deposit
denied the credit facilities of the BSP; and substitutes shall not be subject to interest
(2) if the deficiency lasts for four (4) ceilings.
consecutive weeks, the bank shall be
prohibited from declaring cash dividends § X242.1 Time of payment of interest
and making new loans and investments, on time deposits/deposit substitutes
except investments in government Interest or yield on time deposit/deposit
securities. The prohibition shall be lifted substitute may be paid at maturity or upon
by the Governor of the BSP, upon withdrawal or in advance: Provided,
certification by the appropriate department however, That interest or yield paid in
of the SES that the bank has had no advance shall not exceed the interest for
deficiency in its liquidity floor and no one (1) year.
excess holdings of government deposits
for at least four (4) consecutive weeks. § X242.2 Treatment of matured time
deposits/deposit substitutes
§§ X240.10 - X240.14 (Reserved) a. A time deposit not withdrawn or
renewed on its due date shall be treated
§ X240.15 Acceptance by banks with as a savings deposit and shall earn interest
internet banking facility of payment of from maturity to the date of actual
fees for account of government entities withdrawal or renewal at a rate applicable
Domestic private banks with BSP-approved to savings deposits.
internet banking facility are allowed to accept b. A deposit substitute instrument
payment of fees/other charges of similar not withdrawn or renewed on its maturity
nature for the account of the date shall from said date become payable
departments, bureaus, offices and on demand and shall earn an interest or
agencies of the government as well as yield from maturity to actual withdrawal
all GOCCs: Provided, That the funds so or renewal at a rate applicable to a
accepted/collected shall be treated as deposit substitute with a maturity of
deposit liabilities subject to existing fifteen (15) days.

§§ X242.2 - X253.2
08.12.31
Banks performing quasi-banking govern the reserves against deposit and

functions shall continue to consider deposit substitute liabilities.
matured and unwithdrawn deposit
substitutes as such and subject to reserves. § X253.1 Regular reserves against
deposit and deposit substitute liabilities
Sec. X243 Disclosure of Effective Rates The rates of regular reserves against
of Interest. Banks are required to disclose deposit and deposit substitute liabilities in
to depositors the following information on local currency of banks shall be as follows:
interest computation and payments: RBs/
a. Type/kind of deposit; UBs/KBs TBs Coop Banks
b. Nominal rate of interest and period a. Demand
covered; Deposits 8%1 4% 4%
c. Manner of interest payment, i.e., b. NOW Accounts 8% 4% 4%
c. Savings
whether credited in advance or otherwise;
Deposits 8%1 4% 1%
d. Basis of interest payment, i.e., d. Time Deposits,
whether based on average daily balance Negotiable CTDs,
compounded quarterly or otherwise; Long-Term Non- 8%1 4% 1%
e. Effective rate of interest expressed Negotiable Tax-
as a simple annual rate, on the basis of the Exempt CTDs
information above given and indicating the Long-term NCTDs 2% 2% 2%
formula used to arrive at the effective rate e. Deposit
of interest; and Substitutes 8% 4% NA
f. Illustration of basis of computing f. IBCL 0% 0% 0%
(Sec. X343)
interest on a hypothetical deposit account.
g. Bonds 5% 5% NA
Copies of the abovementioned h. Mortgage/CHM cert. NA 5% NA
information shall be made available to
each and every depositor by attaching Provided, That deposit substitutes
these copies to savings deposit evidenced by repo agreements covering
passbooks and time deposit certificates. government securities up to the amount
Posters disclosing the above information equivalent to the adjusted Tier 1 capital
and aggregate deposit rates shall also be of the bank shall be subject to the
displayed conspicuously within the bank statutory reserve of two percent (2%)2:
premises. Provided, further, That such rate shall
apply only to repo agreements, the
Secs. X244 - X252 (Reserved) documentation of which conforms with,
and were delivered to a BSP accredited
H. RESERVES AGAINST DEPOSIT third party custodian as required under
AND DEPOSIT SUBSTITUTE existing BSP regulations.
LIABILITIES (As amended by Circular No. 632 dated 19 November 2008)
Sec. X253 Accounts Subject to § X253.2 Liquidity reserves. On top

Reserves; Amounts Required. The of the regular reserve requirements,
following rules and regulations shall liquidity reserves against peso demand,
1
Under Circular 632 dated 19 November 2008, the reduction in regular reserves shall be effective the reserve week
starting 14 November 2008.
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 repo agreements 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.

§§ X253.2 - X254
08.12.31
"NOW", savings, time deposit and b. Government securities and cash

deposit substitute liabilities shall be in vault. The remaining portion of the
maintained, as follows: required reserves may be held by all banks
Liquidity in the form of cash in vault and/or
Category of Banks Reserves government securities or evidences of
a. UBs/KBs 11%1 indebtedness of the Republic of the
b. TBs 2% Philippines.
c. RBs/Coop Banks 0% To support the implementation of the
provisions of Subsecs. X343.3 and X601.3,
The liquidity reserves for LTNCTDs the cash-in-vault (CIV) component of
shall be 0%. available reserves shall be based on the
The required liquidity reserves shall be actual CIV balance outstanding one (1)
maintained in the Reserve Deposit banking day lag, for purposes of computing
Account (RDA) with the BSP, or may be in the reserve position of the current day.
the form of the following: Provided, That it For purposes of this Section,
complies with the guidelines shown in government securities which may form
Appendix 71. part of the reserves against deposits/
a. Short-term market-yielding deposit substitute liabilities of banks shall
government securities purchased directly refer to bonds or other evidences of
from the BSP-Treasury Department; indebtedness representing direct
b. NDC Agri-Agra ERAP Bonds which obligations of the Government of the
are not being used as alternative Republic of the Philippines: Provided, That
compliance with P.D. No. 717. Such bonds such securities shall have the following
shall not in any way be encumbered or be minimum features/conditions:
subject to any transaction without prior (1) The securities must bear an interest
approval of the BSP; and rate of not more than four percent (4%)
c. Poverty Eradication and Alleviation per annum, must be non-negotiable and
Certificates (PEACe) bonds only to the shall carry BSP support; and
extent of the original gross issue proceeds (2) The amount, maturity date and rate
determined at the time of the auction, plus of interest must be definite and stated in
capitalized interest on the underlying the certificate itself.
zero-coupon Treasury Notes as and when Other government securities being
the corresponding interest is earned over used for reserve purposes shall continue
the life of the bonds. to be eligible as such: Provided, That
Any deficiency in the liquidity reserves whenever said securities shall have
shall continue to be in the forms or modes matured, they shall be replaced by
prescribed under existing regulations for securities carrying the above features.
the composition of required reserves. The securities held as reserves under
(As amended by Circular Nos. 632 dated 19 November 2008, Item "b" and last paragraph of Sec. X253
551 dated 17 November 2006 and 539 dated 09 August 2006) shall be valued at cost of acquisition and
the bank may freely alter its composition:
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
1
Under Circular 632 dated 19 November 2008, the reduction in liquidity reserves shall be effective the reserve week
starting 14 November 2008.

§§ X254 - X255
05.12.31
the change. Securities counted as reserves § X254.3 Interest income on reserve

may not be hypothecated or encumbered deposits. Deposits maintained by banks with
in any way or earmarked for any other the BSP up to forty percent (40%) of the
purpose without automatically losing their reserve requirement (excluding the liquidity
eligibility as reserves. reserve mentioned in Subsec. X253.2
Only the buying/lending bank in an against the combined deposit and deposit
agreement covering eligible government substitute liabilities of banks allowed to be
securities may use such securities as reserves maintained in the form of short-term
against deposits/deposit substitutes. market yielding government securities
Conversely, the selling/borrowing bank in a purchased directly from the BSP Treasury
resale agreement covering eligible Department) shall be paid interest at four
government securities may not use such percent (4%) per annum based on the
securities as reserves against deposits/deposit average daily balance of said deposits to
substitutes. be credited quarterly.
The list of reserve-eligible and The computation of quarterly interest
non-eligible securities may be found in payments credited to the DDAs of banks’
Appendix 15. legal reserve deposits with BSP are shown
The reserve eligibility of government in Appendix 54.
securities under the reverse repo operations Effective 01 July 2003, published interest
of the BSP shall be suspended during the term rates that will be applied on BSP’s Regular
of the reverse repo agreement. DDAs of banks shall be inclusive of the ten
The phrase non-reserve eligible shall be percent (10%) Value Added Tax (VAT).
stamped on the face of the custodian receipt
being issued by the BSP to buyer FIs. § X254.4 Book entry method for
reserve securities. In the implementation
§ X254.1 Allowable drawings against of the book entry system for transactions in
reserves. Deposit with the BSP to comply government securities eligible for reserves,
with reserve requirements are not regular transactions concerning reserve-eligible
current accounts. The use, therefore, of securities shall be entered in the respective
BSP checks for drawings against reserve securities account of each bank with the BSP
deposits shall be limited to (a) settlement and shall be evidenced by securities account
of obligations with the BSP, and debit or credit advices to be promptly
(b) withdrawals to meet cash requirements. furnished the institution/s concerned. No
certificate shall be issued for any purpose.
§ X254.2 Exclusion of uncleared Transactions with third parties other than the
checks and other cash items. COCIs BSP shall not be recognized.
which have not been cleared yet through
the Clearing Office should not be debited Sec. X255 Exemptions from Reserve
to the account Due from the BSP and Requirements. The following shall be
should not be considered as available exempt from reserve requirements:
reserves against deposit/deposit substitute a. All collections credited to the
liabilities. Such items shall be debited to special account “Due to BSP - Internal
the COCIs account. Revenue Account (Other Cities and
Only after the COCIs have been Municipalities)”;
cleared through the Clearing Office can the b. STDs from the Agrarian Reform
bank debit the Due from the BSP account Fund Commission and special savings
for said items. deposits from farmer-borrowers; and

§§ X255 - X256.5
08.12.31
c. Unclaimed balances of deposit The guidelines on the computation of

liabilities already reported to the Treasurer a banks' reserve position during public
of the Philippines in accordance with the sector holidays are shown in Appendix 84.
Unclaimed Balances Act (Act No. 3936, (As amended by M-2008-025 dated 13 August 2008)
as amended) and transferred/reclassified
from the deposit liability/other credit § X256.1 Measurement of reserve
accounts to the liability account "Due to requirement. The required reserves in the
the Treasurer of the Philippines". current period (reference reserve week)
Local banks may deduct from the shall be computed based on the
amount of their gross demand deposits, corresponding levels of deposit and deposit
the total of their Due from Local Banks - substitute liabilities of the prior week.
Demand and Due from PNB - Clearing
in an amount not exceeding the total of §§ X256.2 – X256.4 (Reserved)
their Demand Deposits-Banks and Due
to Local Banks. As used herein, the term § X256.5 Guidelines in calculating and
gross demand deposits shall mean the reporting to the BSP the required reserves
sum of all individual deposits, including on deposit substitutes evidenced by
deposits made by other local banks, the repurchase agreements covering
Philippine Government, its political government securities
subdivisions and instrumentalities, and a. The SDC shall determine the
GOCCs. maximum allowable amount of repo
agreements covering government
Sec. X256 Computation of Reserve securities that will qualify for the reduced
Position. The reserve position of any bank statutory reserve requirements of two
and the penalty on reserve deficiency shall percent (2%). It shall be based on the
be computed based on a seven (7)-day amount reported by banks in their weekly
week, starting Friday and ending Consolidated Daily Report of Condition.
Thursday, including Saturdays, Sundays, The adjusted Tier 1 capital reported daily
public special/legal holidays, non-banking should approximate the quarterly adjusted
days, unexpected declared non-banking Tier 1 capital as submitted by banks in
days or declared half-day holidays and days compliance with the provisions of
when there is no clearing: Provided, That Sec. X116.
with reference to public special/legal b. Any material differences that may
holidays, non-banking days, unexpected be noted by the SDC between the daily
declared non-banking days, declared and the quarterly report shall be considered
half-day holidays and days when there is as erroneous reporting and shall be subject
no clearing, the reserve position as to the penalties under existing
calculated at the close of the business day regulations. The SDC shall also make a
immediately preceding such public re-run of its computation of the bank’s
special/legal holidays, non-banking days reserve position and in the event that the
and unexpected declared non-banking reserve position resulted to a reserve
days and declared half-day holidays and deficiency/ies, the corresponding penalties
days when there is no clearing, shall apply on reserve deficiencies shall also apply.
thereon. For this purpose, the principal c. The lagged system in the
office in the Philippines and all other measurement of a bank’s reserve
banking offices located therein shall be requirement, as provided in Subsec.
treated as a single unit. X256.1, shall also be adopted in the

§§ X256.5 - X257.2
05.12.31
calculation of the two percent (2%) statutory § X257.1 Chronic reserve deficiency;
reserve requirements for repo agreements penalties. In cases where the bank has
covering government securities. chronic reserve deficiency in deposit/
d. Deposit substitutes evidenced by deposit substitute liabilities, the bank
repo agreements covering government shall be denied the credit facilities of
securities in excess of the adjusted Tier the BSP; and the Monetary Board may:
1 capital shall be treated as regular (a) limit or prohibit the making of new
deposit substitutes and shall be subject loans or investments by the bank; and
to the regular statutory and liquidity (b) prohibit the declaration of cash
reserve requirements under existing dividends. The board of directors of
regulations. said bank shall be notified of such
chronic reserve deficiency and the
Sec. X257 Reserve Deficiencies; penalties therefor, and be required to
Sanctions. Whenever the reserve position immediately correct the reserve position
of any bank computed in the manner of the bank.
specified in Sec. X256 is below the As used in this Subsection, “chronic
required minimum, it shall pay the BSP reserve deficiency” shall mean having
one-tenth of one percent (1/10 of 1%) net reserve deficiencies for two (2)
per day on the amount of the deficiency or consecutive weeks.
the prevailing ninety-one (91) day T-Bill rate
plus three (3) percentage points, whichever § X257.2 Failure to cover overdrawings
is higher: Provided, however, That a bank with the Bangko Sentral. Any bank which
shall be permitted to offset any reserve incurs an overdrawing in its deposit
deficiency occurring one (1) or more days account with the BSP shall fully cover said
of the week covered by the report overdraft not later than the next clearing
against excess reserves which it may hold day including interest thereon equivalent
on other days of the same week, and to one-tenth of one percent (1/10 of 1%)
shall be required to pay the penalty only per day or the prevailing ninety-one (91)
on the average daily net deficiency during day T-Bill plus three (3) percentage points,
the week. whichever is higher. In case a bank fails
In case of abuse, a bank shall to cover its overdrawings, it shall be
automatically lose the privilege of excluded from clearing on such day and
offsetting reserve deficiency in the it shall also be denied the credit facilities
aforesaid manner until such time that it of the BSP. Such exclusion from clearing
maintains its daily reserve position at the shall continue for as long as it has not
required minimum for at least two (2) maintained credit balances with the BSP
consecutive weeks. for at least five (5) consecutive banking
As used in this Section, “abuse”* in the days. If its clearing account is overdrawn
privilege of offsetting reserve deficiencies for five (5) consecutive banking days, it
against excess reserves shall mean having shall be prohibited from (a) making new
reserve deficiencies occurring four (4) or loans or investments, except investment
more times during any given week for in government securities with BSP
two (2) consecutive weeks, whether or not support; (b) declaring cash dividends until
resulting in net weekly deficiencies. it has maintained credit balances in its
* 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.

§§ X257.2 - X261.1
05.12.31
BSP clearing account for at least fifteen may limit or prohibit the making of new
(15) consecutive banking days; and loans or investments by the bank.
(c) establishing branches. The denial
from availment of credit facilities of the Sec. X258 Report on Compliance. Every
BSP shall continue for as long as the bank bank shall make a weekly report to the
maintained credit balances with the BSP BSP of its daily required and available
for at least fifteen (15) consecutive reserves on deposit/deposit substitute
banking days. liabilities in the prescribed forms.
For purposes of computing the total
available reserves against deposit/deposit Secs. X259 - X260 (Reserved)
substitute liabilities, the total amount
of overdrawing in the clearing account I. SUNDRY PROVISIONS
with the BSP shall be deducted from ON DEPOSIT OPERATIONS
available reserves after the required
reserves against deposit/deposit substitute Sec. X261 Booking of Deposits and
liabilities shall have been satisfied. Withdrawals. The following regulations
shall govern the booking of deposits and
§ X257.3 Payment of penalties on withdrawals of banks.
reserve deficiencies. Penalties if unpaid
within fifteen (15) days from receipt of § X261.1 Clearing cut-off time. As a
the assessment, shall be charged against general rule, all deposits and withdrawals
the demand deposits of banks with the during regular banking hours shall be
BSP: Provided, That where the bank’s credited or debited to deposit liability
credit balance is insufficient and it fails to accounts on the date of receipt or payment
settle the assessment, the Monetary Board thereof: Provided, however, That a bank
(Next page is Part II - Page 37)

§§ 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
08.12.31
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; liability/other credit accounts to the
(2) actual date of delivery/receipt; (3) name liability account, “Due to the Treasurer of
and address of sender/bank; and (4) name the Philippines,” until they are deposited
of recipient and relationship to the with or turned over to the Treasurer of
addressee/depositor. the Philippines upon order of the court
that the same have been escheated in favor
§ X263.1 Amendments to terms and of 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 deposit liabilities shall no longer be
and conditions for the imposition of service covered by reserves required of deposit
charges and/or maintenance fees, e.g., liabilities.
increase in the amount of such charges and
fees or increase in the required minimum Sec. X265 Acceptance, Encashment or
monthly average daily balance of deposits, Negotiation of Checks Drawn in Favor of
shall take effect only after due notice to Commissioner/Collector of Customs. All
the depositor: Provided, That information checks payable to the Commissioner/
by regular mail, statement of account Collector of Customs shall be accepted for
messages, electronic mail, courier delivery deposit only to the account of the
and/or other alternative modes of Commissioner/Collector of Customs.
communication on the depositor’s last Banks where the Commissioner/Collector
known address at least sixty (60) days prior of Customs has no account shall not encash,
to implementation shall be considered accept nor negotiate checks payable to the
sufficient notice: Provided, further, That Commissioner/Collector of Customs.
failure of the depositor to manifest or Any attempt to defraud the government
register his objection to the new service or the bank through the irregular or
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 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 Automated Time Machine at a. As a general rule, deposit pick-up/
least sixty (60) days 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
08.12.31
P300 thousand – for outside Metro Provided, That the non-armored

Manila and Metro Cebu clients/depositors vehicles are equipped with dual control
(2) To be serviced during regular safe and supported with adequate security
banking hours and days only, unless the back-up. Their movements may be
nature of the business and the volume of coordinated with law enforcement
the deposits/cash would warrant servicing authorities.
beyond regular banking hours and days, (3) The risk of loss involved in the
in which case justification therefore should pick-up of deposits/cash delivery shall be
be submitted to the satisfaction of the adequately covered by insurance, and the
appropriate department of the SES (Central armored car/non-armored car to be used
Point of Contact Department (CPCD) I, shall be provided, with at least two (2)
CPCD II, Integrated Supervision armed guards and supervised by at least
Department (ISD) I, and ISD II). two (2) officers of the bank;
b. Prior BSP authority is not (4) The deposit/cash delivery
required before banks can engage in transactions shall be booked in accordance
deposit pick-up/cash delivery services: with existing regulation;
Provided, That the following conditions (5) The strictest measure of safeguards,
are complied with: control and confidentiality will be adopted
(1) Pick-up of deposits/cash delivery in implementing the services;
shall be made with the use of armored cars, (6) A separate record/log book for
which shall not be operated as a mobile each armored car/non-armored car shall be
bank used in soliciting deposits from the maintained by the bank which shall contain
general public, or in any manner in the information on the deposit pick-up/
carrying out banking transactions/services cash delivery activities of the armored car/
other than to afford security of deposit/cash non-armored car to be supported by “trip
items in transit; tickets” signed by a responsible officer of
(2) Pick-up of deposits/cash delivery the bank; and
may be made with the use of non-armored (7) 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
(i) all armored vehicles have already department of the SES during on-site
been fielded and the request has to be examination;
served immediately; and c. If the use of the non-armored car
(ii) it is within a five (5) kilometer under Item “b(2)(a)” becomes regular,
radius of a servicing banking office. the bank shall engage an armored car to
(b) In rugged terrain/mountainous take its place. Regularity shall mean daily
roads or roads not suitable for heavy (i.e., regular banking days) or periodic
armored vehicles; (e.g., every 15 th or end of the month)
(c) In critical or rebel-infested areas servicing of a valued client within a three
where there are peace and order (3) month period.
problems as certified by the local police d. Pick-up of deposits/cash delivery
authorities; and services to be made on days other than
(d) In island provinces where the the bank’s regular banking days shall be
transport of cash to a branch or office may allowed without prior BSP authority:
be made only with the use of a ferry boat: Provided, That a notarized certification

§§ X266 - X267
08.12.31
(using the format shown in Appendix 82) (4) It has no past due obligations with
stating that the bank complies with all the the BSP or with any government FI;
conditions set forth in Sec. X266, jointly (5) It should have continuous profitable
signed by the bank’s executive vice operations; and
president or officer of equivalent rank and (6) It must show adherence to law, and
by the bank’s compliance officer, shall be BSP rules and regulations.
submitted to the appropriate department b. An RB/Coop Bank that meets the
of the SES (CPCD I, CPCD II, ISD I and above criteria shall submit for evaluation,
ISD II) at least five (5) banking days before the following justifications on the need for
bank’s intended starting date of its the RB/Coop Bank and its branches to
deposit pick-up/cash delivery services undertake such service which should
beyond regular banking hours and days contain, among other things, the following:
to clients. (1) the names of clients/companies to
e. If any of the above conditions is not be serviced, estimated daily average
met, the BSP may suspend the deposit deposit and distance/proximity of client
pick-up/cash delivery operations of the bank from applicant bank;
without prejudice to the imposition of (2) the names and number of banks,
sanctions under Section 37 of R.A. No. 7653. branches, if any, in the area where
(As amended by Circular No. 614 dated 14 July 2008) depositor is situated;
(3) the arrangement in writing
§ X266.1 Operation of armored cars between the bank and the client desiring
Except for Item “b(2)” of this Section, banks to avail of the service, which arrangement
shall use armored cars to afford security in shall define and specify the respective
collection and/or delivering cash or responsibilities of the parties; and
securities and other valuables from or to (4) such other information pertinent to
their clients, branch or extension offices the application.
or the BSP, provided such armored cars
are not operated as mobile banks. Sec. X267 Automated Teller Machines
a. Off-site ATMs. Banks may establish
Sec. 1266 (Reserved) off-site ATMs, subject to the following
conditions:
Sec. 2266 (Reserved) (1) Banks shall submit a report to the
appropriate department of the SES on
Sec. 3266 Qualifying Criteria Before a ATMs which they establish;
Rural/Cooperative Bank Engages in (2) The off-site ATMs shall be installed
Deposit Pick-up Services only in centers of activity like shopping
a. An RB/Coop Bank desiring to centers, supermarkets, hospitals,
undertake deposit pick-up service must university campuses: Provided, That
meet the following criteria: adequate internal control and security
(1) Its total resources should not be less measures shall be adopted and submitted
than P100.0 million and its net assets to the BSP; and
should be at least P10.0 million or the (3) Only banks which have shown
minimum capital required under Subsec. general compliance with laws, rules and
X106.1, whichever is higher; regulations shall be allowed to open off-
(2) It should not be deficient in its site ATMs.
networth-to-risk assets ratio; b. Mobile ATMs. Banks may also
(3) Its past due loan ratio should not establish mobile ATMs, subject to the
be more than fifteen percent (15%); following conditions:

§§ X267 - X268.3
08.12.31
(1) The mobile ATMs should be The CRIS guidelines shall be reviewed
allowed to visit only centers of activity as on a regular basis by a Credit Committee
mentioned in Item a(2) above and should created under MB Resolution No. 832 dated
confine their itinerary to Metro Manila until 02 July 2008, to maximize its effectiveness
further notice; in managing the credit risk of the BSP.
(2) The bank shall secure insurance (Circular No. 515 dated 06 March 2006 as amended by Circular
coverage or adopt a self-insurance scheme No. 630 dated 11 November 2008)
to protect itself against losses of
whatever nature in its mobile ATM § X268.2 Application procedures
operations; and Banks applying for a rediscounting line shall
(3) The bank shall notify the submit their application in the prescribed
appropriate department of the SES of the form (RL Form No. 1) to the DLC, BSP-
actual date a mobile ATM becomes Manila or the appropriate Regional Loans
operational and when no longer in and Credit Division (RLCD), BSP Regional
operation. Offices in Cebu, Davao and La Union,
together with the following documents:
J. BORROWINGS FROM THE a. Board resolution duly signed by the
BANGKO SENTRAL board of directors of the applicant bank,
authorizing the bank to apply for a
Sec. X268 Rediscounting Line. The rediscounting line with the BSP and
following guidelines shall govern the designating the officer/s of the bank to sign
operations of the BSP’s rediscounting line and endorse documents pertaining thereto,
by banking institutions. together with their specimen signature/s;
(Circular No. 515 dated 06 March 2006) b. Articles of incorporation (for new
applicants only) and amendments, if any;
§ X268.1 Credit Information System c. Organizational chart (for new
The rediscounting availments of all eligible applicants only);
banks shall be drawn against their d. List of board of directors and
rediscounting line which is based on their principal officers (top three (3) executive
total credit score under the Credit officers) and their education/training and
Information System (CRIS). The scoring work experience;
system under the CRIS shall consider the e. Annual report/AFS for the
following factors: immediately preceding year; and
a. Management and risk f. For banks applying for
management system; microfinance facility, a copy of the Manual
(1) Management; of Operations pertaining to microfinance
(2) Risk management system; operations.
b. Financial indicators; (Circular No. 515 dated 06 March 2006 as amended by Circular
(1) Capital adequacy; No. 630 dated 11 November 2008)
(2) Asset quality;
(3) Profitability; § X268.3 Approval/Renewal of the line
(4) Liquidity; The approval/renewal of the line shall be
c. Credit experience; subject to the bank’s full compliance with
(1) Compliance with the terms and the following requirements:
conditions of the loan and other BSP a. Minimum capital prescribed under
regulations; and Subsecs. X106.1 and X106.2 based on the
(2) Credit experience with other FIs. latest available report of the SDC;

§§ X268.3 - X268.4
08.12.31
b. CAR as required under Sec. X116 e. Officers and staff responsible for
based on the latest available report of microcredit operations shall have
the SDC except those with capital completed: (1) a training course on
build-up program approved by the microfinance; and (2) at least one (1) year
Monetary Board; experience in microlending activities.
c. Required reserves against deposit The approval, disapproval, extension,
liabilities/deposit substitutes for two (2) amendment, cancellation, suspension
consecutive weeks based on the latest and restoration of the rediscounting line
available report of the SDC; shall be delegated to a Credit Committee
d. NPL ratio lower or equal to the composed of the Assistant Governor/
industry average adjusted upward by two Managing Director (MD) of the Monetary
percent (2%) based on the latest available Operations Sub-Sector, MD of the
report of the SDC, or the allowable NPL Regional Monetary Affairs Sub-Sector,
ratio approved by the Monetary Board; and the Director of the DLC.
e. Positive DDA balance with the Banks with approved rediscounting
BSP as of date of application; line shall, thereafter, submit the
f. No past due obligations or following:
collateral deficiencies on account of a. Rediscounting line agreement
matured notes/unremitted collections/ (RL Form No. 3);
missing collaterals or ineligible papers b. Surety agreement executed by the
with the BSP as of date of application; controlling interest [single stockholder,
g. A CAMELS composite rating of “3” natural or juridical owning more than fifty
or higher based on the latest general percent (50%) of the voting stocks]
examination of the appropriate department obligating himself/itself jointly and
of the SES; and severally with the bank to pay promptly
h. The ratio of past due direct and on maturity, or when due, the BSP, its
indirect loans to DOSRI to the aggregate successors or assigns, the bank’s
past due loans should not be more than outstanding obligations with the BSP
five percent (5%) based on latest available (RL Form No. 4); and
report of the SDC. c. For new applicant RBs/Coop Banks
Banks applying for the microfinance with designated custodian bank, a
facility shall also comply with the following tripartite depository agreement (RLF
requirements based on the latest available Form No. 2) by and among the applicant
report of the SES: bank, designated depository bank (duly
a. At least one (1) year track record in concurred by its Head Office) and the
microfinance; DLC or RLCD.
b. At least 500 active microfinance (Circular No. 515 dated 06 March 2006 as amended by Circular
borrowers; No. 630 dated 11 November 2008)
c. A portfolio at risk ratio (PAR) of not
more than five percent (5%); § X268.4 Amount of line. The
d. The ratio of total collections amount of rediscounting line shall be based
(excluding prepayments) during the on the total credit score obtained by the
preceding twelve (12)-month period to total applicant bank computed under the CRIS
collectibles (past due microfinance loans guidelines which ranges from fifty percent
beginning, plus matured loans/principal (50%) to 200% of adjusted net worth.
amortizations due for the period) should not (Circular No. 515 dated 06 March 2006 as amended by Circular
be less than ninety-five percent (95%); and No. 630 dated 11 November 2008)

§§ X268.5 - X269.2
08.12.31
§ X268.5 Term of the line. The term stock of such bank. For the purpose of this
of the line shall be for one (1) year unless Subsection, the stockholdings of the
sooner cancelled, suspended, amended or spouse or minor child of the Official shall
extended by the Credit Committee. The be included in determining if he has such
line is renewable annually upon controlling interest.
submission of application one (1) month b. Certification required. A bank
before the expiry of said line. Should there applying for a loan or financial
be special circumstances or information accommodation with the BSP shall submit,
from the SES that may adversely affect the together with the application, a
credit worthiness of a bank in the certification under oath of the President of
intervening period, the rediscounting line the bank that the bank and/or any of its
of the bank concerned will be reviewed stockholders do not fall within the
immediately and acted upon accordingly. prohibition under Section 16, Article XI of
(Circular No. 515 dated 06 March 2006 as amended by Circular the Constitution.
No. 630 dated 11 November 2008)
Sec. X269 Rediscounting Availments
§§ X268.6 - X268.9 (Reserved) Banks shall enroll in the Electronic
Rediscounting System (eRS) by executing
§ X268.10 Constitutional prohibition and submitting to the DLC or the RLCD a
The following regulations shall govern the Notarized Electronic Rediscounting System
implementation of Section 16, Article XI Participation Agreement before availing of
of the Constitution, which reads as follows: the rediscounting facility of the BSP.
"Sec. 16. No loan, guaranty, or other (Circular No. 515 dated 06 March 2006 as amended by Circular
form of financial accommodation for any No. 630 dated 11 November 2008)
business purpose may be granted, directly
or indirectly, by any government-owned § X269.1 Eligibility requirements at
or controlled corporation or financial the time of availment. Banks availing of
institution to the President, the Vice- the BSP rediscounting facility must have
President, the Members of the Cabinet, the at the time of availment :
Congress, the Supreme Court, and the a. A positive DDA balance;
Constitutional Commissions, the b. No past due obligations; and
Ombudsman, or to any firm or entity in c. No collateral deficiencies on
which they have controlling interest, account of matured notes, unremitted
during their tenure." collections, missing collaterals or
a. Definition ineligible papers.
(1) The terms "loan", "guaranty" or (Circular No. 515 dated 06 March 2006 as amended by Circular
"other form of financial accommodation" No. 630 dated 11 November 2008)
as used in these regulations shall refer to
transactions which involve the grant, § X269.2 Eligible papers and
renewal or extension to a bank by the BSP collaterals. The BSP shall accept credit
of any loan, advance, discount, rediscount instruments covering all economic
or credit in any form whatsoever. activities except the following:
(2) Controlling interest in a bank. Any a. Interbank loans;
of the government officials mentioned in b. Extended/Restructured loans;
Section 16, Article XI of the Constitution c. Past due loans;
(the "Official") shall be deemed to have a d. Unsecured loans;
controlling interest in a bank if he owns e. Personal consumption loans;
more than fifty percent (50%) of the voting f. Loans to NBFIs; and

§ X269.2
08.12.31
g. Loans funded from other Type of Collateral Collateral Value

borrowings, e.g. government FIs or (5) Credit guarantees/ Shall equal or
multi-lateral agencies. sureties issued by exceed 80% of
the Credit Surety the outstanding
Credit instruments offered as collateral Fund (CSF) jointly balance of the PN
shall be subject to the eligibility established by
requirements provided under Section 82 of cooperatives and
local government
R.A. No. 7653. units
a. Commercial credits – Bills,
acceptances, promissory notes (PNs) and b. Production credits – Bills,
other credit instruments with maturities of acceptances, PNs and other credit
not more than 180 days from the date of their instruments having maturities of not more
rediscount, discount or acquisition by the BSP than 360 days from the date of their
and resulting from transactions related to: rediscount, discount or acquisition by the
(1) the importation, exportation, BSP and resulting from transactions
purchase or sale of readily saleable goods related to the production or processing of
and products, or their transportation within agricultural, animal, mineral, industrial
the Philippines; or and other products.
(2) the storing of non-perishable goods Credit instruments acquired under
and products which are duly insured and production credits shall be secured by a
deposited, under conditions assuring their duly registered mortgage on real property
preservation, in authorized bonded seventy percent (70%) of the appraised
warehouses or in other places approved value of which equals or exceeds the
by the Monetary Board. outstanding balance of the PN.
Credit instruments acquired under c. Other credits - Special credit
commercial credits shall be secured instruments not otherwise rediscountable
either by: under the immediately preceding Items
"a" and "b" such as, but not limited to,
Type of Collateral Collateral Value microfinance, housing, services,
(1) Duly notarized Shall equal or
assignment of export exceed the
agricultural loans with long gestation
or domestic letters of outstanding balance period and other eligible economic
credit confirmed of the credit activities with maturity of not more than
purchase order sales instrument
contract, quedans
10 years from date of their rediscount,
discount or acquisition of the BSP.
(2) Trust Receipts Shall equal or Credit instruments acquired under
exceed the
outstanding balance
other credits shall be secured by:
of the credit
instrument
Type of Collateral Collateral Value
(3) Duly registered 70% of the
mortgage on real appraised value (1) Duly registered 70% of the
property shall equal or mortgage on real appraised value
exceed the property shall equal or
outstanding exceed the
outstanding
balance of the PN
balance of the PN
(4) Credit guarantees/ Shall equal or (2) Duly notarized Shall equal or
sureties issued by exceed the assignment of exceed the
the lGLF the Small outstanding receivables from outstanding
Business Corporation balance of the PN service contract balance of the PN
(SBC) and the national
government

§§ X269.2 - X269.5
08.12.31
PNTRADA at a secured place within their

Type of Collateral Collateral Value
premises under the custody of the
(3) Credit guarantees/ Shall equal or
accountable officer.
sureties issued by the exceed the
IGLF the SBC and the outstanding c. Banks with custodianship
national government balance of the PN agreements shall deposit with their
(4) Credit guarantees Shall equal or
respective depositary/custodian bank the
sureties issued by the exceed 80% of rediscounted credit instruments, underlying
CSF jointly established the outstanding collaterals and the PNTRADA not later than
by cooperatives and balance of the PN
LGUs the next banking day from date of loan grant,
receipt of which shall be acknowledged by
the depositary bank in the List of
(5) Other collaterals Current market
acceptable to the BSP value shall equal Rediscounted Loans.
e.g., government or exceed the (Circular No. 515 dated 06 March 2006 as amended by Circular
securities outstanding
balance of the PN
§ X269.4 Loan value. The loan value

For housing loans, the lien or mortgage of all eligible papers shall be eighty percent
shall cover the property being financed. (80%) of the outstanding balance of the
Unsecured loans may be accepted borrower’s credit instrument.
for rediscounting provided they are: (Circular No. 515 dated 06 March 2006 as amended by Circular
a. Microfinance loans; or No. 630 dated 11 November 2008)
b. Loans secured by a duly registered
mortgage on real property of the bank, § X269.5 Maturities. The maturities
seventy percent (70%) of the appraised of BSP rediscounts are as follows:
value of which equals or exceeds the
outstanding balance of the unsecured PN Type of Credit Maturity Date
and other collaterals acceptable to the BSP, a. Commercial Credits
e.g., government securities. (1) Export Packing 180 days from date
(Circular No. 515 dated 06 March 2006 as amended by Circular (2) Trading of rediscount but
No. 630 dated 11 November 2008) (3) Transport shall not go beyond
(4) Quedan the maturity date of
§ X269.3 Loan availment procedure the credit instrument
Banks availing of the rediscounting facility (5) Export Bills (EBs)
shall submit their loan applications At sight fifteen (15) days
electronically to the BSP using their eRS from purchase date
registered computers. Usance EB term of draft but not to
Upon receipt of the confirmation of loan exceed sixty (60) days
approval: from shipment date

b. Production 360 days from date of
a. Banks shall execute the PNs with
Credits rediscount but shall
Trust Receipt Agreement and Deed of
not go beyond the
Assignment (PNTRADA) in favor of the BSP maturity date of the PN
(RL Form No. 7 for peso and RL Form No. 8 c. Other Credits maximum term of ten
for dollar and yen), signed by the authorized (10) years but shall not
officer/s of the bank. go beyond the maturity
b. Banks authorized to hold-in trust date of the credit
the rediscounted credit instruments and instrument
underlying collaterals shall segregate and (Circular No. 515 dated 06 March 2006 as amended by Circular
keep the same together with the No. 630 dated 11 November 2008)

§§ X269.6 - X269.8
08.12.31
§ X269.6 Rediscount/Lending rates and (2) Following banking day credit for
liquidated damages. The rediscount rates yen loan application submitted to the BSP
for peso, dollar and yen loans shall be as before 11:00 am, during banking days.
follows: (Circular No. 515 dated 06 March 2006 as amended by Circular
Based on the application T-Bill rates
from the last auction of the
§ X269.8 Repayments/Remittance of
preceding week as follows:
Loan Maturity Applicable
collections/arrearages. The following
T-Bill Rates shall govern repayments, remittance of
a. Peso 90 days or less 91 days collections, and arrearages:
Rediscount 91-180 days 182 days a. Repayments –
181-360 days 364 day
(1) Peso rediscounts
>360 days 364-day subject to
re-pricing every year
(a) The loan value of the rediscounted
b. Dollar/ Based on their respective London credit instruments or the amortization plus
Yen Inter-Bank Offered Rate (LIBOR) interest due thereon shall automatically be
Rediscounts for the last working day of the debited against the borrower bank’s DDA
immediately preceding month
with the BSP at maturity/amortization due date.
(b) For microfinance loans, the DDA
The lending rates of banks on their of the borrower bank shall automatically
rediscounted papers shall not be subject be debited on the amortization due date
to any ceiling but the spreads of the banks for the loan value of the amortization plus
on these papers shall be closely interest due thereon. For loans with daily,
monitored by the BSP to ensure that weekly or semi-monthly amortizations,
these are consistent with the prevailing the borrower bank’s DDA shall
market rates. automatically be debited on the last
Past due BSP loans and unpaid matured amortization due date of said month for the
notes shall be levied liquidated damages total loan value of the amortizations for the
equivalent to five percent (5%) per annum. month plus interest due thereon.
(Circular No. 515 dated 06 March 2006 as amended by Circular
No. 630 dated 11 November 2008) (c) The loan value of unremitted
collections and of the rediscounted credit
§ X269.7 Release of proceeds. The instruments and/or underlying collaterals
proceeds of the rediscounting availment found to be missing, ineligible or with
shall be released as follows: exceptions not corrected within fifteen (15)
a. Peso rediscounts - automatically days from receipt of notice plus interest due
credited to the borrowing bank’s DDA or thereon shall automatically be debited against
its depository bank’s DDA with the BSP the borrowers bank’s DDA with the BSP.
on the same day for loan application (2) Dollar/Yen rediscounts
submitted to the BSP before 4:30 pm Dollar and yen loans shall be repaid in
during banking days. the same currency under which they were
b. Dollar/Yen rediscounts - released released. For this purpose, the bank shall
through the Treasury Department, BSP, for submit online to the BSP its payment
credit to the designated foreign instruction one day before the payment
correspondent bank of the borrowing bank date or the maturity date of the loan
as follows: corresponding to the remittance instruction
(1) Same banking day credit for dollar to its designated correspondent bank. The
loan application submitted to the BSP before payment shall cover total collections or
11:00 am, during banking days; and payment of maturing loans plus interest

§§ X269.8 - X269.11
08.12.31
due thereon. In case of short payment, the (2) The bank shall ensure that
bank’s DDA with the BSP shall adequate records are maintained in its
automatically be debited for the peso Head Office on the collections made by
equivalent of the shortage. the branches.
If the foreign currency denominated c. Arrearages. The BSP shall
loans are not settled on maturity date, the undertake all necessary collection
borrowing bank’s DDA with the BSP measures allowed by law, such as
shall automatically be debited for the foreclosure proceedings against banks
peso equivalent of the matured with past due loans.
obligation plus accrued interest due (Circular No. 515 dated 06 March 2006 as amended by
thereon, using the applicable BSP selling Circular No. 630 dated 11 November 2008)
rate for dollar or yen at the date of debit.
b. Remittance of collections - § X269.9 Prohibited transactions
(1) Total collections received by the The following shall not be allowed
borrowing bank before the maturity date without prior approval of the BSP:
of the rediscounted credit instruments a. Substitution of rediscounted
shall be remitted not later than five (5) credit instruments and underlying
banking days following the date of collateral real properties on outstanding
receipt of collections to the following: loans with the BSP;
b. Renewal of rediscounted credit
Peso Rediscounts BSP instruments without remitting payment
while the loan released against the
Dollar Rediscounts Federal Reserve Bank of rediscounted credit instrument is still
New York for the outstanding with the BSP; and
account of BSP
c. Acceptance of properties as
Yen Rediscounts Bank of Tokyo for the
payment (dacion en pago).
account of BSP (Circular No. 515 dated 06 March 2006 as amended by
Circular No. 630 dated 11 November 2008)
(i) Total collections shall refer to the § X269.10 Monitoring and credit
loan value of the principal amount examination of borrowing banks. The
collected from rediscounted credit DLC and the RLCD shall conduct an
instruments plus accrued interest due on off-site analysis of the BSP’s credit
the outstanding balance of subject credit exposure to borrowing banks and a
instruments. risk-based on-site examination that
(ii) For banks with BSP loans under will focus primarily on determining
past due status, total collections shall whether there is a "high", "moderate"
include all collections on principal, or "low" probability of default on the
interest and penalty. settlement of the banks’ rediscounting
(iii) In the case of negotiated EBs, obligations with the BSP.
the receipt by the borrowing bank of (Circular No. 515 dated 06 March 2006 as amended by
payment from its correspondent bank Circular No. 630 dated 11 November 2008)
either through actual remittance or
credit advice; or through book entries § X269.11 Penalties/sanctions. The
made by the borrowing bank charging following penalties and sanctions shall
its correspondent bank before receipt be imposed on the erring bank
of advice shall constitute receipt of and/or the bank’s authorized/certifying
collection. officers.

§ X269.11
08.12.31
a. For serious offense

Aggregate Amount/ P50K or less Above P50K Above P100K Above P500K Above
Penalty Range to P 100K to P500K to P1M P1M
Minimum P83 P250 P1,000 P2,500 P5,000
Maximum 250 750 3,000 7,500 15,000
b. For less serious offense
Minimum P63 P188 P750 P1,875 P3,750
Maximum 188 563 2,250 5,625 11,250
c. Minor offense
Minimum P42 P125 P500 P1,250 P2,500
Maximum 125 375 1,500 3,750 7,500
The following definition of terms shall (d) Failure to remit to the BSP
apply: collections on principal of the rediscounted
(1) Offense shall refer to a violation that loans within the prescribed period of five
connotes infraction of the terms and (5) banking days from date of actual receipt
conditions of the loans granted by the BSP of collections except collections from
and of the applicable laws, rules and microfinance loans.
regulations, BSP credit policies and (3) Less serious offense – This refers
non-compliance with the BSP/Monetary to acts or omissions constituting
Board directives. violation of the terms and conditions of
(2) Serious offense – This refers to acts the loans granted to the bank and of the
or omissions constituting violation of the applicable laws, rules and regulations
terms and conditions of the loans granted t h a t c o n s t i t u t e unsafe and unsound
to the bank and of the applicable laws, rules banking practices but not falling under the
and regulations that constitute unsafe and serious offense category; however, the
unsound banking practices; and the deficiencies noted should be addressed
misrepresentation of facts and warranties immediately to mitigate the credit risk of
committed by the bank/individual(s) that the BSP.
influenced the approval and amount of the (4) Minor offense – This includes acts
rediscounting loan/line granted, such as: or omissions which are procedural in
(a) Rediscounting of ineligible papers, nature, not intentional, may not result in
fictitious borrowers/loans/titles or any loss or damage to or any significant
submission of spurious documents; increase in the risk of the creditor BSP and
(b) Absence of or failure to execute can be resolved immediately during the
vital loan documents; normal course of business. For purposes
(c) Failure or delay in the deposit of of classifying the nature of the offense, this
rediscounted loan documents with the includes all other acts or omissions which
custodian bank, except those caused by cannot be classified under serious or less
fortuitous events; and serious offenses.

§§ X269.11 - X271
08.12.31
(5) Aggregate amount - shall refer to aggravating circumstances outweigh the

the aggregate amount of the following mitigating factor(s), to wit:
under the current examination: (a) The act or omission carries with it
(a) Under serious offense: the intention to commit or cover up a
Total loan value of the following: violation or to defraud the BSP.
(i) Rediscounted ineligible papers with (b) Commission or omission of a
serious offense, fictitious loans or spurious specific offense corrected in the past but
loan documents as determined by the BSP found repeated in another transaction in
or OSI; subsequent examination.
(ii) Undeposited vital loan documents (c). Additional interest charges on
and underlying collaterals as of unpaid penalty.
examination date; and An additional interest of twelve
(iii) Collections on principal of percent (12%) per annum shall be assessed
rediscounted loans which were not on non-payment of the penalties, from
remitted to the BSP within the prescribed date of demand until full settlement
period of five banking days from date of thereof.
receipt of collections. The foregoing monetary penalties shall
(b) Under less serious offense: be without prejudice to the cancellation of
Total loan value of rediscounted the bank’s rediscounting line with the BSP
ineligible papers with less serious offense and/or administrative and criminal
as determined by the BSP. sanctions that may be charged against its
(c) Under minor offense: culpable officers.
Total loan value of rediscounted (Circular No. 515 dated 06 March 2006 as amended by Circular
ineligible papers with minor offense as No. 630 dated 11 November 2008)
determined by the BSP.
(6) Minimum penalty – refers to the § X269.12 Interlocking directorship/
range of penalties to be imposed if the officership. Banks owned or managed by
mitigating factor(s) outweigh the the same owners, stockholders, directors,
aggravating circumstances, to wit: officers or family/business group may also
(a) The act or omission is not be suspended from availment of the
intentional or the bank acted in “good faith” rediscounting facility by the Credit
when the error, deficiency, violation or the Committee once the rediscounting line of
absence/lack of the required action were any of the banks belonging to the same
committed. group is suspended, until such time that
(b) The bank is willing to take the suspension of the erring bank is lifted.
immediate action or has started to rectify (Circular No. 515 dated 06 March 2006 as amended by Circular
the deficiencies/violations noted or No. 630 dated 11 November 2008)
undertakes to correct the deficiencies
within fifteen (15) days from receipt of Sec. X270 Repurchase Agreements with
notice. the Bangko Sentral. Repo agreements with
(c) The bank has voluntary disclosed the BSP shall be governed by Sec. X601.
the offense/violation committed before it
is discovered by the BSP or has remitted Sec. X271 Bangko Sentral Liquidity
to the BSP the total amount due plus Window. The following guidelines shall
accrued interest. govern the grant by the BSP of credit
(7) Maximum penalty – refers to the accommodations through a liquidity
range of penalties to be imposed if the window to banks.

§§ X271.1 - X272.2
06.12.31
§ X271.1 Nature of liquidity window bank may avail itself of this facility to the
The window shall meet the liquidity needs extent equivalent to a further five percent
of the financial system under normal (5%) of its net worth, as defined under Sec.
conditions and shall be distinct from X106 or assigned capital, as the case may
overdrafts and emergency advances. be, as of the end of the quarter preceding
the date of availment. Any availment of the
§ X271.2 Terms of credit liquidity window shall fall within the
a. Interest rate. The rate of interest unavailed basic rediscount ceiling of the
chargeable on availments under the bank or the branch of a foreign bank as the
liquidity window shall be the rate case may be.
equivalent to the reference rate for ninety
(90) days determined and announced by Sec. X272 Emergency Loans or Advances
the BSP for floating rate loans, plus or to Banking Institutions. The emergency
minus a rate to be determined by the BSP loan or advance to banking institutions is
on the basis of the prevailing monetary governed by the provisions of Sections 84
situation. to 88 of R.A. No. 7653, otherwise known
The additional or discount rate as The New Central Bank Act. The
established for any given time shall be following guidelines shall govern the BSP’s
made public by the BSP and applied emergency loans and advances.
uniformly to all borrowers during that (Circular No. 517 dated 06 March 2006)
period.
The additional rate to be imposed over § X272.1 Nature of emergency loans or
and above the reference rate shall not be advances. An emergency loan or advance
less than two (2) percentage points, with is a credit facility that is intended to assist a
the applicable additional rate to be bank experiencing serious liquidity
determined by the BSP on the basis of problems arising from causes not
the prevailing monetary situation. attributable to, or beyond the control of, the
b. Security. Any paper, irrespective bank management. The grant of such
of maturity, eligible under Section 82 of facility is discretionary upon the Monetary
R.A. No. 7653. Board, and is intended only as a temporary
c. Loan values. The loan values of remedial measure to help a solvent bank
the paper offered as collateral should be overcome serious liquidity problems. As
eighty percent (80%) of the amount still due provided under Sections 84 to 88 of R.A.
outstanding on the paper offered as collateral. No. 7653, no emergency loan or advance
d. Repayment period. The term of may be granted except on a fully secured
the credit accommodation shall not exceed basis and the Monetary Board may
seven (7) days. prescribe additional conditions, which the
borrowing banks must satisfy in order to
§ X271.3 Limit. Availment by any bank have access to the credit facility of the BSP.
under this facility shall not exceed ten (Circular No. 517 dated 06 March 2006)
percent (10%) of its net worth, as defined
under Sec. X106 as of the end of the quarter § X272.2 When an emergency loan or
preceding the date of application. In the advance may be availed of. An emergency
case of branches of foreign banks, the quota loan or advance may be granted:
shall be ten percent (10%) of the assigned a. In periods of national and/or local
capital as of the date of application. emergency or of imminent financial panic
Additionally, a bank or a branch of a foreign which directly threaten monetary and

§§ X272.2 - X272.4
06.12.31
banking stability, i.e., situations involving as of the last banking day of the month
bank runs, massive movements by preceding the date of emergency loan
depositors of their funds from certain banks application: Provided, That, in no case shall
to other banks, bank holidays and voluntary such maximum amount exceed the loan
cessation of business, or when there are values of the collaterals submitted, as
movements which endanger the economy, determined by the BSP.
or when the international stability of the The amount approved by the Monetary
peso is threatened, or when there is an Board shall be released in tranches. The
exchange crisis. first tranche shall not exceed twenty-five
b. During normal periods for the percent (25%) of the total deposits and
purpose of assisting a bank in a precarious deposit substitutes of the bank as of the
financial condition or under serious last banking day of the month preceding
financial pressures brought about by the date of emergency loan application and
unforeseen events or events which though shall be released only after the submission
foreseeable, cannot be prevented by the of the collaterals and required documents
bank concerned. under Subsecs. X272.4 and X272.5:
Provided, That there is a concurrent vote Provided, however, That upon request of
of at least five (5) members of the Monetary the applicant bank, the Monetary Board
Board and the latter has ascertained that the may authorize a first tranche in an amount
bank is not insolvent: Provided, further, That greater than twenty-five percent (25%) of
banks with positive CAR of not more than the bank’s total deposits and deposit
six percent (6%) based on adjusted books of substitutes if the circumstances
accounts shall submit a Business surrounding the emergency or financial
Improvement Plan (BIP) acceptable to the predicament warrant the release of such
BSP within six (6) months from date of greater amount and the same is adequately
advice by the appropriate department of secured by first class collaterals.
the SES. For this purpose, the appropriate Except as provided in Subsec.
department of the SES shall warn the X272.7(d) hereof, the proceeds of the
concerned banks that failure to submit the emergency loan or advance shall be
required BIP in accordance with the criteria utilized exclusively to service net
of the appropriate department of the SES withdrawals of deposits and deposit
shall disqualify the bank from access to the substitutes, i.e., amount of the bank’s total
BSP’s emergency loan facility. Banks with withdrawals less total deposits.
zero to negative CAR should have an The principal amount of the emergency
existing BSP-approved rehabilitation plan loan or advance shall not exceed the
and on track with the Plan to be eligible to difference between the highest level of the
avail itself of emergency loan. bank’s deposit and deposit substitutes of
(Circular No. 517 dated 06 March 2006) the immediately preceding thirty (30)-day
period from date of emergency loan
§ X272.3 Allowable amount of application and the current level of deposits
emergency loan or advance. The and deposit substitutes as determined by
maximum amount of an emergency loan the appropriate department of the SES.
or advance shall be limited to the amount (Circular No. 517 dated 06 March 2006)
needed by the applicant bank to overcome
the emergency or financial predicament but § X272.4 Application procedures
not to exceed the sum of fifty percent (50%) Banks applying for an emergency loan or
of its total deposits and deposit substitutes advance shall submit an application
Part II - Page 50b Manual of Regulations for Banks

§ X272.4
06.12.31
(EL Form No. 1) with the appropriate a. Validation of the eligibility of

department of the SES, copy furnished the applicant bank.
DLC. During normal periods, the b. Financial condition of applicant bank.
applicant-bank shall state the reasons for c. Volume of deposits and expected
the proposed loan availment and other withdrawals of deposits.
details showing the precarious financial d. Amount and terms of the loan.
condition or the serious financial pressures e. Whenever applicable, circumstances
being experienced by the bank. that warrant the grant of the first tranche
The bank shall submit together with greater than twenty-five percent (25%) of
the application, the following documents: the total deposits and deposit substitutes
a. Certified Statement of Condition as provided by law.
(under oath) as of the last banking day of The applicant bank shall submit to the
the month preceding the date of DLC, prior to the release of the first tranche,
emergency loan application. the following documents together with the
b. A duly notarized secretary’s copy of the application:
certificate (EL Form No. 2) together with a a. Listing of assets that are good and
resolution of the board of directors of the available for collateral purposes as certified
bank: by the bank’s duly appointed external
(1) Authorizing the availment by the auditor (EL Form No. 3).
bank of an emergency loan or advance b. Listing of collaterals in the
from the BSP. prescribed formats (EL Form Nos. 4/4a/4b)
(2) Signifying the bank’s commitment as well as a 3.5” diskette containing the
to comply with the guidelines set forth database, (in MS Excel format), together
herein and the terms and conditions that with the documents of title and/or evidences
may be imposed by the Monetary Board. of ownership of the collaterals offered
(3) Designating the chairman and the including the following documents:
president or in their absence, any of the (1) Appraisal reports of not more than
next two (2) highest officers, as duly one (1) year conducted by an independent
authorized signatories for the emergency appraiser acceptable to the BSP in
loan or advance application, promissory accordance with BSP’s terms of reference.
notes, and all undertakings. Designated (2) Latest tax declarations.
authorized officers not lower than senior (3) Current tax receipts, tax clearances
vice president, or equivalent position, may and other documents needed for registration
be authorized to execute all accessory of mortgages and deeds of assignment.
documents for the emergency loan or (4) Current insurance policies
advance. covering improvements and official
(4) Authorizing the Bangko Sentral to receipts of premium payments.
evaluate other assets of the bank certified (5) Department of Agrarian Reform
by its auditors to be good and available for (DAR) certification that agricultural
collateral purposes should the grant of properties offered as collaterals are not
subsequent tranches be applied for. covered by the Comprehensive Agrarian
After determining the eligibility of the Reform Program (CARP).
applicant bank to avail of the emergency (6) Current original promissory notes
loan or advance under Subsec. X272.2, the of bank’s borrowers duly endorsed in favor
appropriate department of the SES shall of the BSP.
prepare a memorandum to the Monetary (7) Special power of attorney or
Board stating among others, the following: stockholder’s resolution, when appropriate.
Manual of Regulations for Banks Part II - Page 50c

§ X272.4
06.12.31
c. Notarized Deed of Undertaking at least one (1) director not to withdraw any
executed by the above-mentioned officers portion of their deposits and deposit
of the bank to: (1) register with the Registry substitutes as of date of release of the first
of Deeds all the covering legal documents tranche while the emergency loan remains
before loan release at the expense of the outstanding. In the event of a compelling
bank and that, in the event the BSP agrees reason to withdraw, payment of the
to release the proceeds of the loan before emergency loan or advance in an amount
said documents are registered, the same equivalent to the deposits to be withdrawn
shall be registered by the bank at its own shall be made (EL Form No. 7).
expense; and (2) submit the documents f. Notarized Surety Agreement
needed to complete the requirements of executed by the controlling stockholders
the tranche not later than fifteen (15) days and every person or group of persons
from release of the emergency loan or whose stockholdings are sufficient to elect
advance. (EL Form No. 5). at least one (1) director obligating
In case of failure by the bank to register themselves jointly and severally with the
the covering legal documents within bank to pay promptly on maturity, or when
fifteen (15) days from date of release of due, the Bangko Sentral, its successors or
loan proceeds, the BSP shall register said assigns, all promissory notes covering the
documents for the account of the applicant emergency loan or advance. (The
bank, and all costs and expenses shall, at Government, its subdivisions,
the option of BSP, be deducted from any instrumentalities and agencies, and
subsequent availments of the bank or from government entities are exempted from
its DDA or be added to its liability account this requirement.) (EL Form No. 8)
with the BSP. g. Notarized Deed of Negative
d. Notarized Joint and Several Pledge executed by the controlling
Undertaking executed by all the controlling stockholders and every person or group
stockholders [owning more than fifty percent of persons whose stockholdings are
(50%) of the voting stocks] of the bank and sufficient to elect at least one (1) director,
every person or a group of persons whose together with their respective certificates
stockholdings are sufficient to elect at least of stock. (The Government, its
one (1) director to indemnify and hold subdivisions, instrumentalities and
harmless from suit the BSP, its Monetary agencies, and government entities are
Board members, Governor, officers and exempted from this requirement.)
personnel, and the conservator whose (EL Form No. 9).
appointment the Monetary Board may find h. Certification under oath executed by
necessary at any time. The Department of the chairman and president of the bank that
Finance or stockholder of record will sign the the bank or any of its stockholders does not
joint and several undertaking if the fall within the prohibition under Section 16,
government is a stockholder (EL Form No. 6). Article XI of the Constitution (EL Form No. 10).
e. Notarized Deed of Undertaking Prior to the release of the subsequent
with waiver of secrecy of deposits and tranches, the bank shall submit to DLC the
commitment by the directors, principal documents of title and/or evidences of
officers with the equivalent rank of vice- ownership of the collaterals, together with
president and up, all the controlling the other documents referred to in Item
stockholders, and every person or group “b” of the immediately preceding
of persons and their respective spouses, paragraph of this Subsection for the amount
whose stockholdings are sufficient to elect being applied for release and, where
Part II - Page 50d Manual of Regulations for Banks

§§ X272.4 - X272.6
06.12.31
necessary, such other acceptable security 12a-Stockholder/Third Party Assets),

which, in the judgment of the Monetary Notarized Deed of Pledge (EL Form No.13-
Board, would be adequate to supplement the Individual/Corporation/13a-Stockholders’/
assets tendered to collateralize the Third Party Assets), Notarized Deed of
subsequent tranche. Assignment of Mortgages (EL Form No.
Banks availing of emergency loan or 14), Hold-out on Foreign Currency
advance may decline to submit either item Deposits with BSP (EL Form No. 15) and
"f" or "g" or both, but the loan values Joint Affidavit executed by the bank’s
specified in Items "b" and "d" of Subsec. chairman and president and the Individual
X272.6 shall be reduced. Mortgagor (EL Form No. 16- Individual) or
(Circular No. 517 dated 06 March 2006) the Corporate–Mortgagor’s chairman and
president (EL Form 16a- Corporation).
§ X272.5 Other documentary (Circular No. 517 dated 06 March 2006)
requirements. Before release of any
emergency loan or advance, the applicant § X272.6 Acceptable collaterals and
bank shall, aside from the documentary their corresponding loan values. All
requirements already mentioned above, availments of the emergency loan or
submit such other requirements/ advance shall be secured by first class
documentation as may be required by the collaterals, i.e., assets and securities which
DLC, e.g., duly Notarized Promissory have relatively stable and clearly definable
Note in Favor of the BSP (EL Form No. 11/ value and/or greater liquidity and free from
11a), Notarized Deed of Real Estate lien and encumbrances, to the extent of
Mortgage (EL Form No. 12-Bank Assets/ their applicable loan values, as follows:
ACCEPTABLE COLLATERALS With Surety With Surety With No Surety

Agreement Pledge Negative Agreement
and but no Pledge but and no
Negative Negative no Surety Negative
Pledge Pledge Agreement Pledge
a. Government securities - based on the current market 80% 80% 80% 80%
value of the securities
b. Unencumbered real estate properties in the name of
the bank
1. Initial rate - based on the appraised value (AV) of the
land and insured improvements 40% 35% 30% 25%
2. Final rate - based on the AV of the land and insured 70% 65% 60% 55%
improvements determined by a licensed and
independent appraiser acceptable to the BSP in
accordance with BSP's terms of reference
c. Hold-outs on foreign currency deposits with the BSP 80% 80% 80% 80%
- based on current market value
d. Mortgage credits (with remaining maturities of not
more than 360 days)
1. Initial rate - based on the AV of the property securing 40% of AV or 35% of AV or 30% of AV or 25% of AV or
the loan evidenced by negotiable instruments or the 50% of the 40% of the 40% of the 40% of the
outstanding balance of such loan whichever is lower outstanding outstanding outstanding outstanding
balance balance balance balance
2. Final rate - based on the AV of the property securing 70% of AV or 65% of AV or 60% of AV or 55% of AV or
the loan evidenced by negotiable instruments as 80% of the 75% of the 70% of the 65% of the
determined by a licensed and independent appraiser outstanding outstanding outstanding outstanding
acceptable to the BSP in accordance with BSP's terms balance balance balance balance
of reference or the outstanding balanceof such loan
whichever is lower.
e. Commercial papers ("AAA") 80% 80% 80% 80%
Manual of Regulations for Banks Part II - Page 50e

§§ X272.6 - X272.7
06.12.31
Assets of stockholders and of other third parties, the latter acceptable only in instances
provided under the last paragraph of Subsec. X272.8, are acceptable as collaterals for
emergency loan with corresponding loan values, as follows:
ACCEPTABLE COLLATERALS With Surety With Surety With No Surety

Agreement Pledge Negative Agreement
and but no Pledge but and no
Negative Negative no Surety Negative
Pledge Pledge Agreement Pledge
I. Asset of stockholders to secure new loan releases if the
bank has no available first class collaterals:
a. Unencumbered real estate
1. Initial rate - based on the AV of the land and insured 35% 30% 25% 20%
improvements
b. Government Securities 80% 80% 80% 80%
c. Commercial papers ("AAA") 80% 80% 80% 80%
II. Assets of other third parties to cover deficiency arising
from unpaid interest and liquidated damages, reduction
in loan value of existing colaterals and conversion of
overdrafts into emergency loan:
a. Unencumbered real estate
1. Initial rate - based on the AV of the land and 30% 25% 20% 15%
insured improvements
b. Government securities 80% 80% 80% 80%
c. Commercial papers ("AAA") 80% 80% 80% 80%
Other types of assets may be acceptable at least five (5) members of the Monetary
as collateral for emergency loan as the Board.
Monetary Board may approve. b. The emergency loan or advance shall
The initial valuation rate shall apply in have a ninety (90)-day availability period
case the appraisal reports of independent from date of Monetary Board approval,
appraiser acceptable to the BSP for real estate non-renewable, non-extensible. Request for
collaterals are not available or not in extension or renewal shall be treated as new
accordance with BSP’s terms of reference or loan application to be evaluated by the
the collaterals themselves are with rectifiable appropriate department of the SES if qualified
minor deficiencies as determined by DLC, under Subsec. X272.2.
but will be adjusted upon compliance with c. The amount approved by the
the foregoing requirements. Monetary Board may be disbursed in one
All collateralization expenses, such as (1) or more releases as dictated by the
registration fees, documentary stamps, etc., needs of the bank and availability of first
shall be borne by the applicant bank. class collateral.
(Circular No. 517 dated 06 March 2006) d. The proceeds of the emergency
loan or advance shall be applied first to
§ X272.7 Manner and conditions of the advance interest, and then to any
release. The manner and conditions of outstanding overdrawings that may have
release of emergency loan or advance shall been incurred by the bank in its demand
be as follows: deposit with the BSP.
a. The grant of emergency loan or e. The bank shall submit to the DLC
advance shall bear the concurrent vote of a board resolution confirming every receipt
Part II - Page 50f Manual of Regulations for Banks

§§ X272.7 - X 272.10
06.12.31
of proceeds of emergency loan or § X272.9 General terms and

advance. Likewise, the bank shall submit conditions. A bank with an outstanding
a board resolution confirming the emergency loan or advance shall comply
undertakings executed by the officers with the following conditions:
under Subsec. X272.4. a. The bank shall not, without the
(Circular No. 517 dated 06 March 2006) prior authorization of the Monetary Board,
expand its outstanding loans or investments
§ X272.8 Interest rates, liquidated as of the date of application for emergency loan,
damages, and penalties. The interest rate except for investment in government securities.
that shall be charged on emergency loan b. The bank shall not declare cash
or advance shall be based on the BSP dividends.
lending rate plus two percent (2%) per c. The bank shall not grant new loans
annum. Interest shall be collected in to DOSRI or to affiliates and subsidiaries.
advance from the borrowing bank. d. The bank shall accept the BSP-
An additional five percent (5%) per designated Comptroller to be assisted by
annum shall be imposed as liquidated examiners recommended by the appropriate
damages on the past due emergency loan department of the SES and the DLC to
or advance. monitor the operations of the bank under the
A penalty of one-tenth of one percent Terms of Reference as determined by the
(1/10 th of 1%) per day of delay on Monetary Board.
unremitted/delayed remittance of e. The bank shall not be allowed to
collections received by the bank from avail of the BSP rediscounting facility.
promissory notes covering the assigned f. The bank shall comply with any
mortgage credits or the proceeds of sale other terms and conditions that may be
from assigned/mortgaged real estate imposed by the Monetary Board.
properties commencing on the day (Circular No. 517 dated 06 March 2006)
following the deadline prescribed in
Subsec. X272.11 shall be imposed on the § X272.10 Maturity/Conditions for
erring bank. renewals. The term of any emergency loan
Any shortfall in collateral due to unpaid or advance shall not exceed 180 days
accrued interest, liquidated damages, including renewals.
reduction in loan value of existing Any request for renewal of an emergency
collaterals and conversion of overdraft into loan or advance shall be treated as a new
emergency loan may be covered by third loan and shall be considered only upon the
party assets after the assets of the bank bank’s compliance with the following:
have been exhausted. a. All the requirements of the
A Joint Affidavit (EL Form No. 16/16a) previous tranche/s;
between the bank’s chairman and b. Remittance of collections/proceeds
president and the corporate-mortgagor’s of sales under Subsec. X272.11;
chairman and president or the individual c. Payment of advance interest;
mortgagor to be signed and notarized in d. Submission of a duly notarized
the BSP shall be submitted in support of promissory note in favor of the Bangko
the mortgage documents. The signing shall Sentral; and
be photographed as well as recorded in e. Other requirements that may be
video tape. imposed by the Monetary Board on the
(Circular No. 517 dated 06 March 2006) borrowing bank.
Manual of Regulations for Banks Part II - Page 50g

§§ X 272.10 - X272.12
06.12.31
The Director of the DLC shall approve of the net withdrawal of deposits, shall be
the renewal of an emergency loan or remitted to the BSP or debited against the
advance. bank’s demand deposit account in
(Circular No. 517 dated 06 March 2006) payment of the emergency loan or
advance, net of refund of interest.
§ X272.11 Remittance of collections/ d. The loan value of the collaterals of
repayments/arrearages. The following the emergency loan or advance, i.e.,
shall govern remittance of collections, sale mortgaged credits and properties,
proceeds, repayments and arrearages: discovered by the BSP falling short of its
a. Total collections received on loan criteria of first class collaterals, shall be
accounts assigned to the BSP shall be held debited against the bank’s DDA with the
in trust for, and remitted to the BSP not later BSP, net of refund of interest.
than five (5) banking days following the e. The BSP shall undertake all
date of receipt in payment of the bank’s necessary collection measures allowed by
outstanding emergency loan or advance, law, such as foreclosure proceedings
net of refund of interests, if any. against banks, whether operating or
b. Proceeds from the sale of properties closed, with past due loans.
assigned/mortgaged to the BSP shall be held In the event the bank fails to comply
in trust for, and remitted to the BSP not later with any of the foregoing, the DLC shall
than five (5) banking days following the date notify, copy furnished the bank, the
of receipt in payment of the bank’s borrowers of the assignment of their
outstanding emergency loan or advance, net outstanding loans to the BSP and advise
of refund of interests, if any. them to remit payment directly to the BSP
For banks with emergency loan or (EL Form 17).
advance under current status, “total (Circular No. 517 dated 06 March 2006)
collections” and “proceeds from the sale”
shall pertain to the loan value of the § X272.12 Default. The following shall
mortgaged credits and properties. constitute events of default which shall
For banks with emergency loan or render the emergency loan or advance due
advance under past due status: and demandable and shall be sufficient
(1) Total collections shall pertain to cause for the BSP to stop further releases
total collections from the mortgaged of funds, without prejudice to any action
credits, i.e. principal plus interest and the BSP may decide to take in accordance
penalty. with R.A. No. 7653:
(2) Proceeds from the sale shall pertain a. Insolvency or bankruptcy of the
to net proceeds from the sale of assigned/ bank.
mortgaged properties or the total BSP b. Appointment of a receiver for the
claims pertaining to the sold properties, bank.
i.e., loan value plus interest and penalty, c. The bank’s property and business
whichever is higher. is taken possession of or its business
The bank shall ensure that adequate suspended or closed by the lawfully
records on the collections and sale made authorized governmental agency or
by the branches are maintained in its Head authority.
Office. d. Violation of any of the terms and
c. Increases in the deposit level of the conditions of all loan and collateral
borrowing bank equivalent to the recovery documents.
Part II - Page 50h Manual of Regulations for Banks

§§ X272.12 - X273.1
06.12.31
e. Non-compliance with the accommodations to banks which establish

undertakings executed by the borrowing committed credit line in favor of corporations
bank. proposing to issue commercial paper.
(Circular No. 517 dated 06 March 2006)
§ X273.1 Nature of special credit
Sec. X273 Facility to Committed Credit Line accommodations. The BSP may extend a
Issuers. The following guidelines shall loan to any bank which on its own or as a
govern the grant by the BSP of special credit member of a group of banks, provides a
(Next page is Part II - Page 51)
Manual of Regulations for Banks Part II - Page 50i

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

proposing to issue commercial paper. Institutions Enhancement Program for
Rural and Cooperative Banks. The CFIEP
§ X273.2 Conditions to access. A shall be implemented under the terms of
bank applying for a loan pursuant to the reference indicated in Appendix 16.
provisions of this Section shall submit to
the BSP documents showing that it has Sec. X275 Recording and Reporting of
extended a committed credit line to a Borrowings. The bank’s liability for papers
commercial paper issuer and that such discounted and/or rediscounted “with
issuer has availed itself of said credit line. recourse” with the BSP and/or other
financial institutions shall be recorded and
§ X273.3 Terms of credit shown as “Bills Payable” in all reports
a. Interest Rate. The rate of interest submitted to the BSP.
chargeable on the availment of this credit The loans and discounts, bills
facility shall be that which is equivalent to purchased, acceptances and other accounts
eighty percent (80%) of the total of interest affected by such discounting and/or
and fees received by the bank from the rediscounting transactions shall remain as
issuer, net of provision for gross receipts tax part of the bank’s loan portfolio. A footnote
paid by the bank on such income. in the financial statement shall indicate the
b. Security. The promissory note outstanding balances of the discounted and/
executed by the commercial paper issuer or rediscounted loans.
in favor of the bank for the amount drawn
against the committed credit line shall be Sec. X276 Rediscounting Window for
the security for this credit facility. Low-Cost Housing as Defined by the
c. Loan values. The loan value of paper Housing and Urban Development
offered as collateral shall be eighty percent Coordinating Council (HUDCC). The rules
(80%) of the amount still due and outstanding and regulations governing the rediscounting
on the paper offered as collateral. of housing loan papers of qualified banks
d. Repayment period. The term of the under the low-cost housing program of the
credit accommodation may not exceed HUDCC are shown in Appendix 40.
ninety (90) days and shall be non-renewable.
Sec. X277 (Reserved)
§ X273.4 Ceiling. If availment of this
credit facility is outside the other rediscount Sec. 1277 Rediscounting Window
ceiling of the bank, it shall be limited to Available to All Universal and Commercial
the extent of fifteen percent (15%) of the Banks for the Purpose of Providing
net worth of the bank. Liquidity Assistance to Investment Houses
The following implementing guidelines
Sec. X274 (Reserved) shall govern the new rediscount window
available to all UBs and KBs under Section
Sec. 1274 (Reserved) 82(c) of R.A. No. 7653, for the purpose of
providing liquidity assistance to IH:
Sec. 2274 Countryside Financial a. Criteria for eligibility
Institutions Enhancement Program (CFIEP) (1) Eligible papers
for Thrift Banks. The CFIEP shall be Promissory note of the UB/KB executed
implemented under the terms of reference in favor of the BSP and secured by a Deed
indicated in Appendix 16. of Pledge or Assignment of unencumbered/

§§ 1277 - 3277.1
05.12.31
unhypothecated commercial papers with a facility available to RBs and Coop Banks
rating of triple "A" and double "A". for the purpose of providing liquidity
(2) Loan limit assistance to support and promote
Availments against this facility shall be microfinance programs.
charged against the rediscount ceiling of the
borrowing bank (100% of net worth) as of § 3277.1 Eligibility requirements
the end of the quarter immediately a. Eligible borrowers . RBs and Coop
preceding the date of application. Banks with at least one (1) year track record
b. Terms and conditions in microfinance and at least 500 active
(1) The loan shall be assessed an annual borrowers, ratio of past due microfinance
interest rate equivalent to one percent (1%) loans to total outstanding microfinance
below the weighted average of the ninety- loans of not more than five percent (5%)
one (91)-day Treasury Bill rate for the last as of end of the month preceding loan
auction of the immediately preceding month. application and collection ratio of not less
(2) The loan shall have a term of 180 than ninety-five percent (95%) based on
days from date of availment. ratio of total collections (excluding
(3) The loan value shall be ninety prepayments) during the preceding twelve
percent (90%) of the face value of the (12)-month period to the sum of past due
commercial paper. microfinance loans at the beginning of said
(4) The BSP will automatically debit the period and amount of matured loans
demand deposit account of the UB/KB including principal amortizations during
upon maturity of the rediscounting loan. the same twelve (12) - month period.
(5) The chief executive officer of the b. Eligible papers. Promissory Note
bank or his equivalent must certify that the (PN) of the RB or Coop Bank executed in
rediscounted commercial paper is still favor of the BSP and secured by duly
outstanding as of the time of assignment. endorsed PN of microcredit borrowers.
(6) The UBs/KBs shall comply with the c. Manual of operations. Written
documentary requirements of the DLC. policies on microfinance operations must
c. Duration be set forth and documented in a policy
Qualified UBs/KBs may avail of this manual duly approved by the bank’s board
facility until December 2000. of directors. The manual should include
the following minimum features:
Sec. 2277 Rediscounting Window Available (1) Scope of microfinance activities
to TBs for the Purpose of Providing Liquidity and the types of services or products offered
Assistance to Support and Promote to clients;
Microfinance Programs. TBs availing of (2) Authorities and responsibilities of:
rediscounting facility for purposes of (a) Board of directors;
providing liquidity assistance to support and (b) Management;
promote microfinance programs shall comply (c) Chief executive officer or its
with the guidelines under Sec. 3277, except equivalent;
for the requirement of a custodian bank under (d) Credit officers; and
Subsec. 3277.4a(6). (e) Other officers involved in the
microfinance operations;
Sec. 3277 Rediscounting Window (3) Policies and procedures covering
Available to Rural and Cooperative Banks microfinance program/project;
for the Purpose of Providing Liquidity (4) Client evaluation process which
Assistance to Support and Promote should involve at least: client orientation,
Microfinance Programs. The following pre-application, credit investigation, and
guidelines shall govern the rediscounting 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
08.12.31
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
to BSP shall be in the form of cash, demand it is corrected without prejudice,
draft, manager’s check or based on however, to the imposition of higher
authority issued by the bank to debit its penalties; and
demand deposit account with BSP. Check (3) 3rd and subsequent offenses - a
payments and demand drafts shall be given fine of P5,000 per day from the time the
value when cleared. violation was committed up to the time
it is corrected without prejudice,
§ 3277.6 Reports required. A however, to the imposition of higher
monthly report on microfinance penalties.
transactions shall be submitted to DLC or If any of the documentary
the appropriate BSPRLCU within the requirements submitted by the bank as
deadline set in Appendix 6. required under Subsec. 3277.4 is found
to be false, a fine of P5,000 per day, from
§ 3277.7 Accounts verification. The the time the certification was made up to
microcredit accounts rediscounted shall be the time the certification was found to
subject to verification and confirmation by be false, shall be imposed against the
authorized DLC or the appropriate certifying officer.
BSPRLCU representatives to determine
their eligibility and acceptability for Sec. X278 Enhanced Intraday Liquidity
rediscounting. Facility (ILF). The ILF is a smoothening
mechanism which is available to eligible
§ 3277.8 Sanctions. Any mis- participant banks in the Philippine Payments
representation and/or violation of the and Settlements System (PhilPaSS) to
provisions of this Section shall subject the RB support their liquidity requirements and
or Coop Bank and/or the erring directors/ avoid payment gridlocks in PhilPaSS. The
officers to any of the following sanctions: revised features of the enhanced intraday
a. Erring RB or Coop Bank liquidity facility are in Appendix 21-B.
(1) Fines in amounts as may be (As superseded by the MOA between the BSP, BTr, BAP and
determined by the Monetary Board to be Money Market Association of the Philippines dated 25 March 2008)
appropriate, but in no case to exceed Thirty
thousand pesos (P30,000) a day for each Secs. X279 - X280 (Reserved)
violation;
(2) Suspension of rediscounting K. OTHER BORROWINGS
privileges or access to BSP credit facilities;
and/or Sec. X281 Borrowings from the
(3) Reduction of rediscounting line. Government. Except as may be authorized
b. Erring directors/officers by existing statutes, no private bank shall,
For violation of any of the provisions of whether or not performing quasi-banking
this Section the following shall be imposed functions, borrow any fund or money
against the directors and officers of the bank: from the Government and government

§§ X281 - X299
05.12.31
entities, through the issuance or sale of Sec. 1283 (Reserved)

its acceptances, notes or other
evidences of debt. Sec. 2283 Mortgage/CHM Certificates of
TBs. With prior approval of the Monetary
§ X281.1 Exemption from reserve Board, TBs may issue and deal in
requirement. The following borrowings mortgage and CHM certificates. The rules
shall not be subject to the reserve and regulations governing the issuance of
requirements: said certificates is shown in Appendix 17.
a. STDs and deposit substitutes of
specialized government banks and Sec. 3283 (Reserved)
private banks arising from their lending
operations under the special financing Sec. X284 (Reserved)
programs of the Government and/or
international FIs; and Sec. 1284 (Reserved)
b. Funds held by participating
financial institutions (PFIs) under the Sec. 2284 (Reserved)
GSIS Housing Loan Programs:
Provided, That the agreement between Sec. 3284 Borrowings of RBs/Coop
the GSIS and the conduit banks specify Banks. RBs and Coop Banks may
that such funds may be held by the rediscount papers with any bank.
conduit banks for a period of not more The obligations of RBs arising from
than seven (7) calendar days prior to availments of rediscounting facilities and
their release to the borrower and prior other borrowings from the BSP, will be
to the remittance by the conduit banks considered as deposit substitutes.
of payments to the GSIS. However, with the qualification in the Tax
c. Borrowings by accredited FIs Code of 1997 that the term public means
under the Wholesale Lending Program for borrowing from twenty (20) or more
SMEs of the SBGFC. individual or corporate lenders at any one
(1) time, it is clear that the obligations of
Sec. X282 Borrowings from Trust the RBs to BSP, which are entered in their
Departments or Investment Houses books as “Bills Payable-BSP,” do not
Funds borrowed by banks or non-bank presently fall under the category of deposit
financial intermediaries performing substitutes.
quasi-banking functions from trust
departments or managed funds of banks Secs. X285 - X298 (Reserved)
or IHs are not considered as interbank
borrowings and therefore are subject to Sec. X299 General Provision on
the: Sanctions. Any violation of the provisions
a. Reserve requirement on deposit of this Part shall be subject to Sections 36
substitutes; and 37 of R.A. No. 7653.
b. Minimum fifteen (15)-day The guidelines for the imposition of
maturity period; and monetary penalty for violations/offenses
c. Minimum trading lot rule. with sanctions falling under Section 37 of
R.A. No. 7653 on banks, their directors
Sec. X283 (Reserved) and/or officers are shown in Appendix 67.

§§ X301 - 1301.1
07.12.31
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
07.12.31
(5) Internal and external audit must also (5) The ratings output of banks’ internal
review at least annually the bank’s internal credit risk rating systems must contain both
rating system and its operations, including the a borrower and a facility dimension. The
operations of the credit risk control function. borrower dimension should focus on
d. Minimum technical standards factors that affect the inherent credit quality
(1) Banks must fully document their of each borrower. The facility dimension,
internal credit risk rating systems. The on the other hand, should focus on security/
documentation must address topics such as collateral arrangements and other similar
coverage, rating criteria, responsibilities of risk influencing factors of each transaction.
parties involved in the ratings process, (6) In rating corporate borrowers with
definition of what constitutes a rating total assets of more than P15.0 million, only
exception, parties that have authority to financial statements audited by external
approve exceptions, frequency of rating auditors that are accredited/selected by the
reviews, and management oversight of the SEC, the BSP or the Insurance Commission
rating process. A bank must document the (IC) shall be used starting with the annual
rationale for its choice of rating criteria and financial statements ending 31 December
must be able to provide analyses 2006.
demonstrating that the rating criteria and e. Definition of default and loss. In
procedures are likely to result in ratings that connection with the data collection
meaningfully differentiate risk. exercise prescribed under this Subsection,
(2) The rating criteria should reflect an banks shall be guided by the following
established blend of qualitative and standard definitions of default and loss:
quantitative factors. Transparent ranges need (1) Definition of default
to be set for the quantitative standards based A default is considered to have
on experience. The quantitative criteria must occurred in the following cases:
include leverage and cash flow standards. (a) If a credit obligation is considered
(3) Banks must maintain rating histories non-performing under existing rules and
on individual accounts, which shall include regulations;
the ratings of the account, the dates the (b) If a borrower/obligor has sought or
ratings were assigned, the methodology and has been placed in bankruptcy, has been
key data used to derive the ratings and the found insolvent, or has ceased operations
analyst who gave the ratings. The identity in the case of businesses;
of borrowers and facilities that default, and (c) If the bank sells a credit obligation
the timing and circumstances of such at a material credit-related loss, i.e.,
defaults, must be retained. Banks must also excluding gains and losses due to interest
retain data on the realized default rates rate movements. Banks’ board-approved
associated with rating grades and ratings internal policies that govern the use of their
migration in order to eventually track the internal rating systems must specifically define
predictive power of the risk rating system. when a material credit-related loss occurs; and
(4) A bank’s internal credit risk rating (d) If a credit obligation of a borrower/
system must have a minimum of 6 rating obligor is considered to be in default, all
grades for unclassified accounts and 4 rating credit obligations of the borrower/obligor
grades for classified accounts, which must be with the same bank shall also be considered
assigned in a consistent manner over time. to be in default.
Moreover, the rating system must result in a (2) Definition of loss
meaningful distribution of exposures across Loss, for purposes of accumulating data
grades with no excessive concentrations on on loss in the event of default, refers to
a single rating grade. economic loss. It must therefore include
Part III - Page 2 Manual of Regulations for Banks

§§ 1301.1 - X301.6
07.12.31
discount effects, as well as direct and with similar characteristics (e.g.,

indirect costs associated with collecting on counterparties in specific geographical
the credit obligation. Banks’ board- locations, economic or industry sectors).
approved internal policies that govern the (3) Diversification of risk is essential in
use of their internal rating systems must banking. Many past bank failures have been
include specific policies and procedures due to credit risk concentrations of some
that should be followed in the kind. It is essential for banks to prevent
determination of economic loss. undue credit risk concentrations from
f. Timetable for implementation excessive exposures to particular
(1) Banks must submit an counterparties, industries, economic
implementation plan to the appropriate sectors, regions or countries.
department of the SES no later than 31 July (4) While concentration of credit risks
2004. A monetary penalty of P10,000 per are inherent in banking and cannot be
day shall be imposed for delay until such totally eliminated, they can be limited and
plan is submitted. reduced by adopting proper risk control and
(2) A fully documented internal credit diversification strategies. Safeguarding
risk rating system, duly approved by the against credit risk concentrations should
board of directors, must be submitted to the form an important component of a bank’s
BSP not later than 31 December 2004. risk management system.
Upon submission of the system, all (5) The board of directors of a bank
prospective and existing corporate accounts shall be responsible for establishing and
must immediately be evaluated and monitoring compliance with policies
monitored according to such system. A governing large exposures and credit risk
monetary penalty of P10,000 per day shall concentrations of the bank. The board
be imposed for delay until this requirement should review these policies regularly (at
is complied with. least annually) to ensure that they remain
(As amended by Circular No. 585 dated 15 October 2007 and adequate and appropriate for the bank.
531 dated 17 May 2006) Subsequent changes to the established
policies must be approved by the board.
§§ X301.2 – X301.5 (Reserved) (6) The policy on large exposures and
credit risk concentrations shall, at a
§ X301.6 Large exposures and credit minimum, cover the following:
risk concentrations. The following (a) Exposure limits that are reasonable
guidelines shall govern managing large in relation to capital and resources for –
exposures and credit risk concentrations in (i) Various types of borrowers/
line with the objective of strengthening risk counterparties (e.g., government, banks and
management in the banking system. other FIs, corporate and individual borrowers);
a. General principles (ii) A group of related borrowers/
(1) A bank can be exposed to various counterparties;
forms of credit risk concentration which if (iii) Individual industry sectors;
not properly managed may cause (iv) Individual countries; and
significant losses that could threaten its (v) Various types of investments.
financial strength and undermine public (b) The circumstances in which the
confidence in the bank. above limits can be exceeded and the party
(2) Credit risk concentrations may arise authorized to approve such excesses, e.g.,
from excessive exposures to individual the bank’s board of directors or credit
counterparties, groups of related committee with delegated authority from
counterparties and groups of counterparties the board.

§ X301.6
06.12.31
(c) The delegation of credit authority (2) Every bank should have adequate
within the bank for approving large management information and reporting
exposures; systems that enable management to identify
(d) The procedures for identifying, credit risk concentrations within the asset
reviewing, managing and reporting large portfolio of the bank or of the group
exposures of the bank; (including subsidiaries and overseas
(e) The definition of exposure. Banks branches) on a timely basis. If a
should take into account the nature of their concentration does exist, banks should
business and the complexity of their reduce it in accordance with their
products. In any case, a bank’s exposures prescribed policies. Large exposures
to a counterparty should include its on and shall be subject to more intensive
off-balance sheet exposures and indirect monitoring.
exposures; and (3) Banks should ensure that their
(f) The criteria to be used for internal or external auditors conduct at least
identifying 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 should ascertain whether:
in 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” (4) Management should take prompt
shall refer to exposures to a counterparty or corrective action to address concerns and
a group of related counterparties equal or exceptions raised.
greater than five percent (5%) of bank’s (5) There should also be an
qualifying capital as defined under Section independent compliance function to ensure
X116. that all relevant internal and prescribed
(8) A bank should, where appropriate, requirements and limits are complied
conduct stress testing and scenario analysis with. Breaches of prescribed
of its large exposures to assess the impact requirements and deviations from
of changes in market conditions or key risk established policies and limits should be
factors (e.g. economic cycles, interest rate, reported to senior management in a
liquidity conditions or other market 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 may be a ground for a finding of unsafe and
of 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
08.12.31
capital adequacy, along with proposed § X302.1 Provisions for losses; booking
measures to address these concerns. The board of directors of banks are
e. Reporting responsible for ensuring that their institutions
Bank’s records on monitoring of large have controls in place to determine the
exposures shall be made available to the allowance for probable losses on loans, other
BSP examiners for verification at any credit accommodations, advances and other
given time. When warranted, the BSP assets consistent with the institutions’
may impose additional reporting stated policies and procedures, generally
requirements on bank in relation to its accepted accounting principles (GAAP), the
large exposures and credit risk BSP rules and regulations and the safe and
concentrations. sound banking practices. The board of
f. Sanction directors, in fulfilling this responsibility,
Any failure or delay in complying with shall require management to develop and
the requirements under Items “d” and “e” maintain an appropriate, systematic and
of this Subsection shall be subject to uniformly applied process consistent and
penalty applicable to those involving in compliance with existing BSP rules and
major reports. regulations to determine the amount of
reserves for bad debts or doubtful accounts
Sec. X302 Loan Portfolio and Other Risk or other contingencies.
Assets Review System. To ensure that The specific allowance for probable
timely and adequate management action losses for classified loans and other risk
is taken to maintain the quality of the loan assets and the general loan loss provision
portfolio and other risk assets and that as required in Appendix 18 shall be set up
adequate loss reserves are set up and immediately.
maintained at a level sufficient to absorb
the loss inherent in the loan portfolio and § X302.2 Sanctions. Non-compliance
other risk assets, each bank shall establish with the requirement to book valuation
a system of identifying and monitoring reserves required under the preceding
existing or potential problem loans and Subsection shall be a ground for the
other risk assets and of evaluating credit imposition of any or all of the following
policies vis-à-vis prevailing circumstances sanctions:
and emerging portfolio trends. a. Denial of the request for authority
Management must also recognize that to establish new banking offices regardless
loss reserve is a stabilizing factor and that of type or category;
failure to account appropriately for losses b. Denial of access to BSP credit
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 department of the SES has been
limited to, the guidelines mentioned in confirmed by the Monetary Board up to the
Appendix 18. date that said recommended valuation
(As amended by Circular Nos. 622 dated 16 September 2008, reserves had been actually booked, in the
603 dated 03 March 2008 and 520 dated 20 March 2006) case of allowance for probable losses for

§§ X302.2 - X303
05.12.31
loans and other risk assets classified as who owns or controls a majority interest
substandard unsecured, doubtful and loss as in a corporation, partnership, association or
required by the BSP; and any other entity, the liabilities of said
(2) from the dates prescribed under this entities to such bank; (3) in the case of a
Section up to the date of the actual booking corporation, all liabilities to such bank of
in cases of the two percent (2%) general all subsidiaries in which such corporation
provision for probable losses, the twenty-five owns or controls a majority interest; and
percent (25%) allowance for probable losses (4) in the case of a partnership, association
on secured loans classified as substandard, or other entity, the liabilities of the
and the five percent (5%) allowance for members thereof to such bank.
probable losses on loans especially d. Even if a parent corporation,
mentioned. partnership, association, entity or an
individual who owns or controls a majority
A. LOANS IN GENERAL interest in such entities has no liability to
the bank, the liabilities of subsidiary
Sec. X303 Credit Exposure Limits to a corporations or members of the
Single Borrower partnership, association, entity or such
a. Consistent with national interest, the individual shall be combined under certain
total amount of loans, credit accommodations circumstances, including but not limited to
and guarantees that may be extended by a any of the following situations: (1) the
bank to any person, partnership, association, parent corporation, partnership,
corporation or other entity shall at no time association, entity or individual guarantees
exceed twenty five percent (25%) of the the repayment of the liabilities; (2) the
net worth of such bank. The basis for liabilities were incurred for the
determining compliance with the single accommodation of the parent corporation
borrower’s limit (SBL) is the total credit or another subsidiary or of the partnership
commitment of the bank to or on behalf of or association or entity or such individual;
the borrower. or (3) the subsidiaries though separate
b. The total amount of loans, credit entities operate merely as departments or
accommodations and guarantees divisions of a single entity.
prescribed in the first paragraph may be e. For purposes of this Section, loans,
increased by an additional ten percent other credit accommodations and
(10%) of the net worth of such bank: guarantees shall exclude: (1) loans and
Provided, That the additional liabilities are other credit accommodations secured by
adequately secured by trust receipts, obligations of the BSP or of the Philippine
shipping documents, warehouse receipts or Government; (2) loans and other credit
other similar documents transferring or accommodations fully guaranteed by the
securing title covering readily marketable, government as to the payment of principal
non-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
a loan or other credit accommodation from other 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

§ X303 - X303.1
05.12.31
and held in the Philippines; (5) loans, credit The outstanding balance of the deposit
accommodations and acceptances under in a private depository bank being used by
letters of credit to the extent covered by the TBs/RBs/Coop Banks with authority to
margin deposits; and (6) other loans or accept/create demand or current deposits,
credit accommodations which the to fund checks cleared through the said
Monetary Board may from time to time private depository bank shall also be
specify as non-risk items. exempt from the SBL even if there is a
f. The wholesale lending activities of government-owned or controlled financial
government banks to participating financial institution in the area.
institutions (PFIs) for relending to end-user
borrowers shall at no time exceed a § X303.1 Definition of terms. For
separate limit of thirty-five percent (35%) purposes of this Section, the following
of net worth, subject to the following definitions shall apply:
guidelines: (1) it shall apply only to loans a. Total credit commitment shall
granted to PFIs on a wholesale basis for include outstanding loans and other credit
on-lending to end-user borrowers; (2) it accommodations, deferred letters of credit
shall apply only to loan programs funded less margin deposits, and guarantees.
by multilateral, international or local Except as specifically provided, total credit
development agencies, organizations or commitment shall be reckoned on credit
institutions especially designed for risk-weighted basis consistent with existing
wholesale lending activities of government regulations.
banks; (3) the end-user borrowers of the b. Loans shall refer to all the accounts
PFIs shall be subject to the twenty-five under the loan portfolio of a bank as
percent (25%) SBL, not the increased enumerated in the Manual of Accounts for
ceiling of thirty-five percent (35%); and (4) Banks.
government banks shall observe c. Other credit accommodations shall
appropriate criteria for accrediting PFIs and refer to credit and specific market risk
for the grant/renewal of credit lines to exposures of banks arising from
accredited PFIs. accommodations other than loans such as
g. Loans and other credit receivables (sales contract receivables,
accommodations as well as deposits accounts receivables and other receivables),
maintained with, and usual guarantees by and debt securities booked as investments.
a bank to any other bank or non-bank entity, d. Bank guarantee. A bank guarantee
whether locally or abroad, shall be subject is an irrevocable commitment of a bank
to the limits as herein prescribed. binding itself to pay a sum of money in the
Deposits of RBs/Coop Banks with event of non-performance of a contract by
government-owned or controlled financial a third party. The guarantee is a
institutions like the LBP and the DBP shall commitment separate and distinct from the
not be covered by the SBL imposed under principal debt or contract.
R.A. No. 8791. e. Net worth shall mean the total of
In municipalities and cities where the unimpaired paid-in capital including
there are no government banks, the paid-in surplus, retained earnings and
deposits of RBs/Coop Banks in private undivided profit, net of unbooked valuation
banks in said areas shall not be subject to reserves and other adjustments as may be
the SBL. Deposits in private banks located required by the BSP.
in other municipalities/cities shall be f. Qualifying capital shall mean
covered by the SBL. capital under Sec. X116.

§ X303.1
05.12.31
g. The term “control of majority mean one (1) which is drawn by a seller
interest” shall be synonymous to on the purchaser for the purchase price of
“controlling interest” and exists when the commodities sold. A bill of exchange,
parent owns directly or indirectly through whether drawn against goods for exports
subsidiaries more than one half of the or against goods to be sold locally, which
voting power of an enterprise unless, in is discounted or purchased by a bank is a
exceptional circumstance, it can be clearly bill drawn against existing values only
demonstrated that such ownership does when it is accompanied by shipping
not constitute control. Control of majority documents, warehouse receipts or other
interest may also exist even when the papers, securing title to the goods sold.
parent owns one-half or less of the voting However, bills of exchange drawn in good
power of an enterprise when there is: faith against actually existing values as
(1) Power over more than one-half of defined in this paragraph, which are past
the voting rights by virtue of an agreement due or the maturities of which have been
with other investors; or extended, shall be considered as
(2) Power to govern the financial and additional loans authorized under the
operating policies of the enterprise under second paragraph of this section and shall
a statute or an agreement; or be subject to the ten percent (10%)
(3) Power to appoint or remove the limitation provided therein.
majority members of the board of directors l. Commercial or business paper
or equivalent governing body; or actually owned by the person negotiating
(4) Power to cast the majority votes at the same shall mean a paper arising from
meetings of the board of directors or an actual business transaction. A trade
equivalent governing body; or acceptance or promissory note actually
(5) Any other arrangement similar to owned by the person negotiating the same
any of the above. is a commercial or a business paper.
h. Subsidiary shall refer to a However, if a bill is drawn against an agent
corporation or firm more than fifty percent or fictitious drawee, or if a promissory note
(50%) of the outstanding voting stock of is executed by an agent or fictitious
which is directly or indirectly owned, drawee, neither is a commercial nor a
controlled or held with power to vote by business paper. Commercial or business
its parent corporation. papers actually owned and discounted by
i. Credit risk transfer shall refer to any the person negotiating the same, which are
arrangement that allows the bank to transfer past due or the maturity of which have been
the credit risk associated with its loan or extended, shall be considered as money
other credit accommodation to a third party. borrowed and shall be subject to the
j. Readily marketable goods shall 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

§§ X303.1 - X303.4
07.12.31
bank if the purchasers are companies with the consular establishment of the Philippine
credit ratings of at least “AA-” or equivalent government at the source of any
from a BSP-recognized rating agency. suchestablishment of the Philippine
government at the source of any such
§ X303.2 Rediscounted papers shipment to the effect that the commodity
included in loan limit. The liabilities to the being imported is either rice or corn; and
bank of borrowers whose papers were (4) The related bills of lading shall
rediscounted by banks with the BSP shall specify in addition to the name of the
not be deemed as having been importer concerned, that the NFA shall be
extinguished by the rediscount, but shall the consignee of the shipment;
be considered as still existing and shall be c. The portion of loans and other
included in determining the SBL until such credit accommodations covered by the
papers are paid by the borrowers. guarantee of IGLF;
d. The total liabilities of a commercial
§ X303.3 Credit risk transfer. Subject paper issuer for commercial paper held by
to prior approval of the BSP, loans and a UB as a firm underwriter shall not be
other credit accommodations covered by counted in determining compliance with
a legally effective credit risk transfer the SBL within a period of 180 days from
arrangement such as guarantee, letter of the acquisition of the commercial paper by
indemnity, standby letter of credit or credit the UB: Provided, That in no case shall such
derivative, may be excluded from the total liabilities exceed five percent (5%) of the
credit commitment of the bank to a net worth of the UB beyond the normal
borrower in reckoning compliance with applicable SBL;
the SBL. e. The portion of loans and other
credit accommodations covered by
§ X303.4 Exclusions from loan limit guarantees of international/regional
a. The discount of bills of exchange institutions/multi-lateral FIs where the
drawn in good faith against actually existing Philippine Government is a member/
values, and the discount of commercial or shareholder, such as the IFC and the ADB;
business paper which are actually owned f. Loans and other credit
by the person, company, corporation or accommodations or portion thereof,
association negotiating the same; specifically provided for with valuation
b. Credit accommodations to finance reserve: Provided, That the bank has no
the importation of rice and corn to the unbooked valuation reserves;
extent of 100% of the net worth of the bank g. Loans and other credit
concerned shall be excluded in accommodations as a result of an
determining the SBL prescribed herein, underwriting or sub-underwriting agreement
subject to the following conditions: of debt securities outstanding for a period not
(1) The importation shall be made in exceeding thirty (30) calendar days;
pursuance of a national policy duly h. Loans granted to foreign
enunciated by the National Government; embassies. These loans are considered as
(2) The importation shall have been loans to their respective central
approved by the National Economic governments and as such shall be
Development Authority (NEDA); considered non-risk; and
(3) The letter of credit shall specify that i. Foreign securities lending under
importation shall be made with certification Sec. X531 and other domestic securities
from the National Food Authority (NFA), or lending programs duly recognized by the

§§ X303.4 - X304.1
08.12.31
BSP containing safeguards consistent with become past due or are extended, renewed
best international practices, to protect or restructured whichever comes later. Said
securities lenders’ risk exposures. credit commitments shall, however, be
(As amended by Circular Nos. 578 dated 17 August 2007 and reported to the BSP within fifteen (15)
550 dated 17 November 2006) banking days from 02 May 2004.
§ X303.5 Sanctions. Violations of the §§ X303.6 – X303.7 (Reserved)

provisions of this Section shall be subject
to the following: § X303.8 Limit for wholesale lending
a. Monetary penalties - Fines of one- activities of government banks. There
tenth of one percent (1/10 of 1%) of the shall be a separate SBL of thirty-five percent
excess over the ceiling but not to exceed (35%) of unimpaired capital and surplus for
P30,000.00 a day for each SBL violation the wholesale lending activities of
shall be assessed on the bank to be government banks to PFIs for relending to
reckoned from the date the excess started end-user borrowers, subject to the
up to the date when such excess was following guidelines:
eliminated: Provided, That a maximum a. Government banks’ SBL of thirty-five
fine of P500.00 a day for each violation percent (35%) of unimpaired capital and
shall be imposed against banks with total surplus shall apply only to loans granted
resources of less than P50.0 million at the to PFIs on a wholesale basis for on-lending
time of granting of loan/credit 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 institutions specially designed for
with a warning that subsequent violations wholesale lending activities of government
will be subject to more severe sanctions. banks;
Subsequent offenses – c. The end-user borrowers of the PFIs
(1) Fine of P1,000.00 for directors/officers shall be subject to the twenty-five percent
who approved the credit availment which (25%) SBL, not to the increased ceiling of
resulted in the excess. thirty-five percent (35%); and
(2) Suspension of the bank’s d. Government banks shall observe
branching privileges and access to BSP the minimum criteria for accrediting PFIs
rediscounting facilities until the excess and for the grant/renewal of credit lines to
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 02 May of loans and other credit accommodations.
2004 which are within the ceiling
prescribed under the regulations existing § X304.1 General guidelines. Consistent
prior to said date but will exceed the with safe and sound banking practices, a
limitations prescribed in this Section shall bank shall grant loans or other credit
not be subject to penalty for a period of one accommodations only in amounts and for
(1) year or until said credit commitments the periods of time essential for the

§ X304.1
08.12.31
effective completion of the operation to be granted on the basis of said document(s)

financed. and shall have the right to demand
Before granting loans or other credit immediate repayment or liquidation of the
accommodations, a bank must ascertain obligation. Moreover, the bank may seek
that the borrower, co-maker, endorser, surety redress from the court for any harm done
and/or guarantor, if applicable, is/are by the borrower’s submission of spurious
financially capable of fulfilling his/their documents.
commitments to the bank. For this purpose, The required submission of additional
a bank shall obtain adequate information documents shall cover loans, other credit
on his/their credit standing and financial accommodations, and credit lines granted,
capacities. restructured, renewed or extended after
In addition to the usual information sheet 02 November 2006 including any
about the borrower, a bank shall require from availment and/or re-availment against
the credit applicant the following: existing credit lines, except:
a. A copy of the latest ITR of the (1) Microfinance loans. This represents
borrower and his co-maker, if applicable, small loans granted to the basic sectors such
duly stamped as received by the BIR; as farmer-peasant, artisanal fisherfolk,
b. Except as otherwise provided by law workers in the formal and informal sector,
and in other regulations, if the borrower is migrant workers, indigenous peoples and
engaged in business, a copy of the borrower’s cultural communities, women, differently-
latest financial statements as submitted for abled persons, senior citizens, victims of
taxation purposes to the BIR; and calamities and disasters, youth and students,
c. A waiver of confidentiality of client children, and urban poor, as defined in the
information and/or an authority of the bank Social Reform and Poverty Alleviation Act
to conduct random verification with the BIR of 1997 (R.A. No. 8425), and other loans
in order to establish authenticity of the ITR granted to poor and low-income households
and accompanying financial statements for their microenterprises and small
submitted by the client. businesses. The maximum principal amount
The documents under Items “a” and of microfinance loans shall not exceed
”b” above shall be required to be submitted P150,000 and may be amortized on a
annually for as long as the loan and/or daily, weekly, semi-monthly or monthly
credit accommodation is outstanding. The basis, depending on the cash flow
consistency of the data/figures in said ITRs conditions of the borrowers. Said loans are
and financial statements shall also be usually unsecured, for relatively short
checked and considered in the evaluation periods of time (180 days) and often
of the financial capacity and featuring joint and several guarantees of
creditworthiness of credit applicants. The one (1) or more persons;
waiver of confidentiality of client (2) Loans to registered Barangay
information and/or an authority of the bank Micro-Business Enterprises (BMBEs);
to conduct random verification with the (3) Interbank loans;
BIR need not be submitted annually since (4) Loans secured by hold-outs on or
once submitted these documents remain assignment of deposits or other assets
valid unless revoked. considered non-risk by the Monetary
Should the document(s) submitted Board;
prove to be spurious or incorrect in any (5) Loans to individuals who are not
material detail, the bank may terminate any required to file ITRs under BIR regulations,
loan or other credit accommodation as follows:

§§ X304.1 - X304.2
08.12.31
(a) Individuals whose gross application, and financial statements

compensation income does not exceed submitted for taxation purposes to the BIR,
their total personal and additional as may be applicable, at the time the loans
exemptions, or whose compensation were granted, restructured, renewed, or
income derived from one (1) employer extended.
does not exceed P60,000 and the income For purposes of this Subsection, the
tax on which has been correctly withheld; following definitions shall apply:
(b) Those whose income has been 1. Micro and small enterprises shall
subjected to final withholding tax; be defined as any business activity or
(c) Senior citizens not required to file enterprise engaged in industry,
a return pursuant to R.A. No. 7432, as agribusiness and/or services whether single
amended by R.A. No. 9257, in relation to proprietorship, cooperative, partnership or
the provisions of the National Internal corporation whose total assets, inclusive of
Revenue Code (NIRC) or the Tax Reform those arising from loans but exclusive of
Act of 1997; and the land on which the particular business
(d) An individual who is exempt from entity’s office, plant and equipment are
income tax pursuant to the provisions of situated, must have a value of up to P3.0
the NIRC and other laws, general or special; million and P15.0 million, respectively, or
and as may be defined by the SMED Council
(6) Loans to borrowers, whose only or other competent government agency.
source of income is compensation and the 2. Consumer loans is defined to
corresponding taxes on which has been include housing loans, loans for purchase
withheld at source: Provided, That the of car, household appliance(s), furniture
borrowers submitted, in lieu of the ITR, a and fixtures, loans for payment of
copy of their Employer’s Certificate of educational and hospital bills, salary loans
Compensation Payment/Tax Withheld (BIR and loans for personal consumption,
Form 2316) or their payslips for at least including credit card loans.
three (3) months immediately preceding (As amended by Circular Nos. 622 dated 16 September 2008
the date of loan application. and 549 dated 09 October 2006)
Loans to micro and small enterprises
which are not specifically exempted from § X304.2 Purpose of loans and other
the additional documentary requirements credit accommodations. Before granting
specified under the third paragraph of this a loan or other credit accommodation,
Subsection shall be exempted from said banks shall ascertain the purpose of the loan
additional documentary requirement up to or other credit accommodation which shall
31 December 2011. be clearly stated in the application and in
Consumer loans, with original amounts the contract between the bank and
not exceeding P2.0 million, are exempted borrower. The proceeds of a loan or other
from updating requirements or the required credit accommodation shall be utilized only
annual submission of the same requirements for the purpose(s) stated in the application
forwarded during the initial submission and contract; otherwise, the bank may
under this Subsection but not in their terminate the loan or other credit
restructuring, renewal, or extensions or accommodation and demand immediate
availment/re-availment against existing repayment of the obligation. Notwithstanding
credit lines: Provided, That these loans are the preceding sentence, the proceeds of a
supported by ITRs or by BIR Form 2316 or loan or other credit accommodation may
payslips for at least three (3) months be utilized by the borrower for a purpose(s)
immediately preceding the date of loan other than that originally stated in the

§§ X304.2 - X305.2
08.12.31
application and contract: Provided, That requiring the submission of a Comfort Letter
such other purpose(s) is/are among those from the visa holder’s employer, limiting the
for which the lending bank may grant loans term of the loan to the period of the visa’s
and other credit accommodations under validity, submission of SIRV identification
existing laws and regulations: Provided, card, as well as subjecting the visa holder to
further, That such utilization shall be with the usual credit processes/requirements; and
prior written approval of duly authorized b. Embassy officials [foreign
officer(s)/committee/board of directors of diplomats and career consular officials and
the lending bank and such written approval employees who are physically residing in
shall form part of the contract between the the Philippines for a term of one (1) year
bank and the borrower. or more]: Provided, That such loans shall
be limited to consumer loans, including
§ X304.3 Prohibited use of loan credit cards, auto loans, appliance loans and
proceeds. Banks are prohibited from others that may henceforth be allowed by
requiring their borrowers to acquire shares the Monetary Board: Provided, further, That
of stock of the lending bank out of the loan the lending bank institutes measures to
or other credit accommodation proceeds mitigate credit risk such as requiring the
from the same bank. submission of a Comfort Letter from the
Embassy employing said officials.
§ X304.4 Signatories. Banks shall (M-2007-021 dated 15 August 2007)
require that loans and other credit
accommodations be made under the signature Sec. X305 Interest and Other Charges The
of the principal borrower and, in the case of rate of interest, including commissions,
unsecured loans and other credit premiums, fees and other charges, on any
accommodations to an individual borrower, at loan, or forbearance of any money, goods
least one (1) co-maker, except that a co-maker or credits regardless of maturity and
is not required when the principal borrower whether secured or unsecured shall not be
has the financial capacity and a good track subject to any regulatory ceiling.
record of paying his obligations.
(As amended by Circular No. 622 dated 16 September 2008) § X305.1 Rate of interest in the
absence of stipulation. The rate of interest
§ X304.5-X304.8 (Reserved) for the loan or forbearance of any money,
goods or credits and the rate allowed in
§ X304.9 Policies on loans to non- judgments, in the absence of expressed
immigrants and embassy officials. Banks contract as to such rate of interest, shall be
are allowed to extend peso loans to the twelve percent (12%) per annum.
following:
a. Non-immigrants holding visas § X305.2 Escalation clause; when
issued under Secs. 9(d) and 9(g) of the allowable. Parties to an agreement pertaining
Immigration Act of 1940, Special Investor’s to a loan or forbearance of money, goods or
Resident Visa (SIRV) and visas issued by the credits may stipulate that the rate of interest
Philippine Economic Zone Authority: agreed upon may be increased in the event
Provided, That such loans shall be limited to that the applicable maximum rate of interest
peso consumer loans including credit cards, is increased by the Monetary Board:
auto loans and appliance loans, but excluding Provided, That such stipulation shall be valid
real estate or housing loans: Provided, only if there is also a stipulation in the
further, That the lending bank institutes agreement that the rate of interest agreed
measures to mitigate credit risk such as upon shall be reduced in the event that the
Manual of Regulations for Banks Part III - Page 12a

§§ X305.2 - X305.4
05.12.31
applicable maximum rate of interest is The rate of interest on floating rate loans
reduced by law or by the Monetary Board: existing and outstanding as of 23 December
Provided, further, That the adjustment in the 1995 shall continue to be determined on the
rate of interest agreed upon shall take effect basis of the MRRs obtained in accordance
on or after the effectivity of the increase or with the provisions of the rules existing as of
decrease in the maximum rate of interest. 01 January 1989: Provided, however, That
the parties to such existing floating rate
§ X305.3 Floating rates of interest. The loan agreements are not precluded from
rate of interest on a floating rate loan during amending or modifying their loan
each interest period shall be stated on the agreements by adopting a floating rate of
basis of Manila Reference Rates (MRRs), interest determined on the basis of the TBR
T-Bill Rates or other market based or other market based reference rates.
reference rates plus a margin as may be Where the loan agreement provides
agreed upon by the parties. for a floating interest rate, the interest
The MRRs for various interest periods period, which shall be such period of time
shall be determined and announced by the for which the rate of interest is fixed, shall
BSP every week and shall be based on the be such period as may be agreed upon by
weighted average of the interest rates paid the parties.
during the immediately preceding week For the purpose of computing the MRRs,
by the ten (10) KBs with the highest banks shall accomplish the report forms, RS
combined levels of outstanding deposit Form 2D and Form 2E (BSP 5-17-34A).
substitutes and time deposits, on promissory
notes issued and time deposits received § X305.4 Accrual of interest earned
by such banks, of P100,000 and over per on loans. Banks are allowed to accrue
transaction account, with maturities interest earned on loans, subject to the
corresponding to the interest periods for following guidelines and/or procedures.
which such MRRs are being determined. a. No accrual of interest income is
Such rates and the composition of the allowed if a loan has become
sample KBs shall be reviewed and non-performing as defined under Sec. X309.
determined at the beginning of every Likewise, interest income shall not be
calendar semester on the basis of the banks’ accrued for unmatured loans/receivables
combined levels of outstanding deposit with indications that collectibility thereof
substitutes and time deposits as of 31 May or has become doubtful. These indications
30 November, as the case may be. shall include declaration of bankruptcy,
(Next page is Part III - Page 13)
Part III - Page 12b Manual of Regulations for Banks

§§ 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 - X306.7
07.12.31
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 appropriate department of SES
accommodations and other assets in an concerned within thirty (30) days after every
amount corresponding to the booked write-off with (i) a sworn statement signed
valuation reserves: Provided, That the by the President of the bank or officer of
balance of the secured loans, other credit equivalent rank that write-off did not include
accommodations, advances and other transactions with DOSRI and (ii) a copy of
assets shall remain in the books. board resolution approving 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 due in accordance with Subsec. X306.1h
to all the accounts under the loan portfolio may be written-off, in conformity with the
of 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, § X306.7 Updating of information
lease receivables, and rental receivables. provided to credit information bureaus
(3) Advances. The term advances shall Banks which have provided adverse
refer to any advance by means of an information, such as the past due or
incidental or temporary overdraft, cash litigation status of loan accounts, to credit
“vale”, any advance by means of DAUD information bureaus, or any organization
and any advances of unearned salary or performing similar functions, shall submit
unearned compensation. monthly reports to these bureaus or
(4) Other assets. The term other assets organizations on the full payment or
shall refer to investments, placements, settlement of the previously reported
ROPAs and all other asset accounts that will accounts within five (5) banking days from
not fall under loans and other credit the end of the month when such full
accommodations. payment was received. For this purpose, it
(5) Bad debts. The term bad debts shall shall be the responsibility of the reporting
refer to the definition under Subsec. X136.1. banks to ensure that their disclosure of any

§§ X306.7 - X307.1
07.12.31
information about their borrowers/clients § X307.1 Definition of terms

is with the consent of borrowers/clients a. Person means any individual,
concerned. partnership, corporation, association or
(Circular No. 589 dated 18 December 2007) other organized group of persons, or the
legal successor or representative of the
Sec. X307 "Truth in Lending Act" foregoing, and includes the Philippine
Disclosure Requirement. Banks are Government or any agency thereof or any
required to strictly adhere to the provisions other government, or any of its political
of R.A. No. 3765, otherwise known as the subdivisions, or any agency of the
"Truth in Lending Act", and shall make the foregoing.
true and effective cost of borrowing an b. Cash price or delivered price, in
integral part of every loan contract. case of trade transactions, is the amount of
The following regulations shall apply to money which would constitute full payment
all banks engaged in the following types of upon delivery of property (except money)
credit transactions: or service purchased at the bank’s place of
a. Any loan, mortgage, deed of trust, business. In the case of financial
advance and discount; transactions, cash price represents the
b. Any conditional sales contract, any amount of money received by the debtor
contract to sell, or sale or contract of sale of upon consummation of the credit
property or services, either for present or transaction, net of finance charges collected
future delivery, under which part or all of at the time the credit is extended (if any).
the price is payable subsequent to the c. Down Payment represents the
making of such sale or contract; amount paid by the debtor at the time of
c. Any rental-purchase contract; the transaction in partial payment for the
d. Any contract or arrangement for the property or service purchased.
hire, bailment, or leasing of property; d. Trade-in represents the value of an
e. Any option, demand, lien, pledge, asset agreed upon by the bank and debtor,
or other claim against, or for delivery of, given at the time of the transaction in partial
property or money; payment for the property or service
f. Any purchase, or other acquisition purchased.
of, or any credit upon security of any e. Non-finance charges correspond to
obligation or claim arising out of any of the the amounts advanced by the bank for items
foregoing; and normally associated with the ownership of
g. Any transaction or series of the property or of the availment of the
transactions having a similar purpose or service purchased which are not incident
effect. to the extension of credit. For example, in
The following categories of credit the case of the purchase of an automobile
transactions are outside the scope of these on credit, the creditor may advance the
regulations: insurance premium as well as the
(1) Credit transactions which do not registration fee for the account 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 g. Finance charge represents the amount
deposits, insurance contracts, sale of bonds, to be paid by the debtor incident to the
etc. extension of credit such as interest or

§ X307.1
05.12.31
discounts, collection fees, credit annual basis, between the finance charges
investigation fees, attorney’s fees and other and the amount to be financed.
service charges. The total finance charge In the case of a single payment upon
represents the difference between (a) the maturity, the simple annual rate (R) in percent
aggregate consideration (downpayment is determined by the following method:
plus installments) on the part of the debtor
(finance charge) 12
and (b) the sum of the cash price and non- R= X X 100
finance charges. (amount to be (maturity
h. Simple annual rate is the uniform financed) period in
percentage which represents the ratio, on an 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 - X311.2
05.12.31
BSP from the non-performing classification: insured improvements, and such loans shall
Provided, That interest on said loans shall not be made unless title to the real estate is
not be accrued and that such loans shall in the mortgagor.
also be deducted from total loan portfolio In the case of UBs/KBs, the loan values
for purposes of computation. of real estate given as security for any loan
granted shall be reduced from seventy
§ X309.2 Reporting requirement percent (70%) to not more than sixty
Banks shall report the following data, at the percent (60%) of the appraised value of the
end of each month, as additional real estate security and the insured
information (under Item 7) of the monthly improvements, except the following which
CSOC: shall be allowed a maximum value of seventy
percent (70%) of the appraised value:
“7. Total Non-Performing Loans a. Any loan not exceeding P3.5 million
a. Non-performing regular loans xxx to finance the acquisition or improvement
b. Non-Performing of residential units; and
Restructured Loans xxx b. Housing loans extended or
“7a. Loans classified as “Loss” in
guaranteed under the government’s
the latest examination by the BSP National Shelter Program (NSP) such as the
which are fully covered by Expanded Housing Loans Program (EHLP)
Allowance for Probable Losses, of the Home Development Mutual Fund
net of write-offs and recoveries xxx (HDMF or Pag-IBIG Fund) and the mortgage
and guaranty and credit insurance program
“7b. Outstanding credit card of the Home Insurance and Guaranty
receivables classified as “Loss” in Corporation (HIGC).
the latest BSP examination, net
of write-offs, recoveries and
collections xxx
§ X311.1 Loans secured by junior
mortgage on real estate. Banks may also
“7c. Credit card receivables grant loans on the security of junior
classified as “Loss” by the bank mortgages on real estate: Provided, That
as of this month xxx for such loans to be considered as
adequately secured under Sections 37 and
Banks which are not qualified under 38 of R.A. No. 8791, the sum total of the
Subsec. X309.1 to exclude loans classified loans to be granted and the outstanding
as “Loss” by the BSP from the non- balance of the loan granted on the senior
performing classification may opt not to fill mortgage shall not, at any time, exceed the
up Item “7a” of the Additional Information loan value of subject real estate security
of the monthly CSOC. based on the appraisal of the real estate by
the junior mortgagee.
Sec. X310 (Reserved) A certified latest statement of account
showing the outstanding balance of the loan
B. SECURED LOANS including interest and arrearages, from the
senior mortgagee shall be presented to the bank.
Sec. X311 Loans Secured by Real Estate In case several loans are granted on the
Mortgages. Loans against real estate security of the same property, the total amount
security shall not exceed seventy percent of the loans shall not, at any time, exceed the
(70%) of the appraised value of the total loan value of the said property.
respective real estate security plus seventy
percent (70%) of the appraised value of § X311.2 (Reserved)

§§ 1311.2 - 2311.4
05.12.31
§ 1311.2 (Reserved) development of the same or for other

productive economic activities: Provided,
§ 2311.2 (Reserved) finally, That the appraisal and verification
of the status of a land is a full responsibility
§ 3311.2 Eligible real estate of the RB/Coop Bank and any loan granted
collaterals on rural/cooperative bank on any land which shall be found later to
loans. Loans may be granted by RBs/Coop be within the forest zones shall be for the
Banks on the security of lands without sole account of the RB/Coop Bank.
Torrens Title where the owner of private
property can show five (5) years or more of § X311.3 Insurance on real estate
peaceful, continuous and uninterrupted improvements. The required insurance on
possession in the concept of an owner; or improvements used as collateral for loan
of portions of friar land estates or other lands should be such as shall be sufficient to
administered by the Bureau of Lands that secure seventy percent (70%) of the
are covered by sales contracts and the appraised value of such improvements or if
purchasers have paid at least five (5) years inadequately insured, the loan value shall
installment thereon, without the necessity correspond to the extent of insurance taken
of prior approval and consent by the on such improvements.
Director of Lands, or of portions of other
estates under the administration of the § X311.4 (Reserved)
Department of Agrarian Reform (DAR) or
other governmental agency which are § 1311.4 (Reserved)
likewise covered by sales contracts and the
purchasers have paid at least five (5) years § 2311.4 Foreclosure by thrift banks
installments thereon, without the necessity The foreclosure of mortgages covering loans
of prior approval and consent of the DAR or granted by TBs and executions of judgment
corresponding governmental agency; or of thereon involving real properties levied
homesteads or free patent lands pending the upon by a sheriff shall be exempt from the
issuance of titles but already approved, the publications in newspapers now required
provisions of any law or regulations to the by law where the total amount of loan,
contrary notwithstanding: Provided, That excluding interests due and unpaid, does
when the corresponding titles are issued, the not exceed P100,000 or such amount as the
same shall be delivered to the Register of Monetary Board may prescribe as may be
Deeds of the province where such lands are warranted by prevailing economic
situated for the annotation of the conditions and by the nature of service of
encumbrance: Provided, further, That in customers served by each category of the
the case of lands pending homestead or free TB. It shall be sufficient publication in such
patent titles, copies or notices for the cases if the notices of foreclosure and
presentation of the final proof shall also be execution of judgment are posted in the
furnished the creditor RB/Coop Bank and, conspicuous area of the TB’s premises,
if the borrower applicants fail to present the municipal building, municipal public
final proof within thirty (30) days from date market, the barangay hall, and the barangay
of notice, the creditor RB/Coop Bank may public market, if there be any, where the
do so for them at their expense: Provided, land mortgaged is situated within a period
furthermore, That the applicant for of sixty (60) days immediately preceding the
homestead or free patent has already made public auction of execution of judgment.
improvements on the land and the loan Proof of publication as required herein
applied for is to be used for further shall 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 - X320.1
08.12.31
e. The lending bank shall keep a Sec. X320 Credit Card Operations;
complete record of all pertinent loan General Policy. The BSP shall foster the
documents, such as, but not limited to, development of consumer credit through
the original copy of the CTDs subject to innovative products such as credit cards
assignment or hold-out agreement; deed under conditions of fair and sound consumer
of assignment or hold-out agreement; credit practices. The BSP likewise encourages
and written waiver of the depositor competition and transparency to ensure more
required in Item "f" below, which shall efficient delivery of services and fair dealings
be made available for inspection and/or with customers.
examination by the appropriate Towards this end, the following rules
department of the SES; and and regulations shall govern the credit card
f. The loan documents shall include operations of banks and subsidiary/affiliate
a waiver on the part of the depositor of his credit card companies, aligned with global
rights under existing law to the best practices.
confidentiality of his deposits.
§ X320.1 Definition of terms
Secs. X316 - X318 (Reserved) a. Credit card. Means any card, plate,
coupon book or other credit device existing
C. UNSECURED LOANS for the purpose of obtaining money,
property, labor or services on credit.
Sec. X319 Loans Against Personal b. Credit card receivables. Represents
Security. The grant, renewal, restructuring the total outstanding balance of credit
or extension of unsecured loans shall, in cardholders arising from purchases of goods
addition to the requirements of Sec. X304, and services, cash advances, annual
be made under the signature of the membership/renewal fees as well as interest,
principal borrower and at least one (1) penalties, insurance fees, processing/service
co-maker, except that a co-maker is not fees and other charges.
required when the principal borrower has c. Minimum amount due or minimum
the financial capacity and a good track payment required. Means the minimum
record of paying his obligations. amount that the credit cardholder needs to
(As amended by Circular No. 622 dated 16 September 2008) pay on or before the payment due date for
a particular billing period/cycle as defined
§ X319.1 General guidelines under the terms and conditions or
(Deleted by Circular No. 622 dated reminders stated in the statement of
16 September 2008) account/billing statement which may
include: (1) total outstanding balance
§ X319.2 Proof of financial capacity multiplied by the required payment
of borrower percentage or a fixed amount whichever is
(Deleted by Circular No. 622 dated higher; (2) any amount which is part of any
16 September 2008) fixed monthly installment that is charged to
the card; (3) any amount in excess of the credit
§ X319.3 Signatories line; and (4) all past due amounts, if any.
(Deleted by Circular No. 622 dated d. Default or delinquency. Shall
16 September 2008) mean non-payment of, or payment of any
amount less than, the “Minimum Amount
§§ X319.4 - X319.6 (Reserved) Due” or “Minimum Payment Required”

§§ X320.1 - X320.2
05.12.31
within two (2) cycle dates, in which case, (3) Common stockholders owning at
the “Total Amount Due” for the particular least ten percent (10%) of the outstanding
billing period as reflected in the monthly voting stock of each FI and the entity; or
statement of account may be considered in (4) Management contract or any
default or delinquent. arrangement granting power to the bank or
e. Acceleration clause. Shall mean other FI to direct or cause the direction of
any provision in the contract between management and policies of the entity, or
the bank and the cardholder that gives vice-versa.
t h e bank the right to demand the
obligation in full in case of default or § X320.2 Risk management system
non-payment of any amount due or for To safeguard their interests, banks and
whatever valid reason. subsidiary/affiliate credit card companies
f. Subsidiary refers to a corporation or are required to establish an appropriate
firm more than fifty percent (50%) of the system for managing risk exposures from
outstanding voting stock of which is directly credit card operations which shall be
or indirectly owned, controlled or held with documented in a complete and concise
the power to vote by a bank or other FI. manner. The risk management system
g. Affiliate refers to an entity linked shall cover the organizational set-up, records
directly or indirectly to a bank or other FI and reports, accounting, policies and
through any one or a combination of any procedures and internal control.
of the following: Written policies, procedures and
(1) Ownership, control or power to internal control guidelines shall be
vote, whether by permanent or temporary established on the following aspects of
proxy or voting trust, or other similar credit card operations:
contracts, by a bank or other financial a. Requirements for application;
institution of at least ten percent (10%) or b. Solicitation and application
more of the outstanding voting stock of the processing;
entity, or vice-versa; c. Determination and approval of
(2) Interlocking directorship or credit limits;
officership, except in cases involving d. Pre-approved cards;
independent directors as defined under e. Issuance, distribution and activation
existing regulations; 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
07.12.31
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
ACCOMMODATIONS 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
designated pursuant to a proxy or voting only said co-owner’s undivided interest;

§ X326.1
07.12.31
(4) Corporation, association, or firm of (8) Corporation, association or firm

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

§§ X326.1 - X327
07.12.31
loan, or credit accommodation or portion or portion thereof referred in Sec. X327

thereof referred to in Sec. X327 which is which is not secured in accordance with
secured by: Item “k” above.
(1) Real estate mortgage, chattel (As amended by Circular No. 560 dated 31 January 2007)
mortgage on tangible assets, and pledge of
jewelry, precious stones and other valuable Sec. X327 Transactions Covered. The
articles; terms loans, other credit accommodations
(2) Assignment of intangible assets and guarantees as used herein shall refer
such as patents, trademarks, trade names to transactions of the bank which involve
and copyrights; the grant of any loan, advance or other
(3) Unconditional payment guarantees credit accommodation in any form
such as standby letters of credit and letter whatsoever, whether renewal, extension or
of indemnity issued by banks/multilateral increase, and shall include:
FIs; a. Any advance by means of an
(4) Assignment of, or hold-out on, incidental or temporary overdraft, cash
deposits or deposit substitutes maintained item, “vale”, etc.;
in the lending bank; b. Any advance of unearned salary or
(5) Cash margin deposits; or other unearned compensation for periods
assignment or pledge of government in excess of thirty (30) days;
securities or readily marketable bonds and c. Any advance by means of DAUDs;
other high-grade debt securities and “blue- d. Outstanding availments under an
chip” stocks, except those issued by the established credit line;
lending entity, or by its parent company e. Drawings against an existing letter
which owns more than fifty percent (50%) of credit;
of its outstanding shares of stocks, subject f. The acquisition of any note, draft,
to the additional provision that the issuer bill of exchange or other evidence of
corporation has a net worth of at least P1.0 indebtedness upon which the bank’s
billion and with annual net earnings during DOSRIs may be liable as makers, drawers,
the immediately preceding five (5) years; acceptors, endorsers, guarantors or 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 DOSRIs from funds of the bank invested in
from sale of real property on credit where the other institution’s trust or other
title to the property is retained by the bank; department when there is a clear
and relationship between the transactions;
(8) Customer’s liability-import bills h. The increase of an existing
under trust receipts outstanding for not indebtedness, as well as additional
more than thirty (30) days from date of availments under a credit line or additional
booking: Provided, That the booking under drawings against a letter of credit;
trust receipts shall have been made not later i. The sale of assets, such as shares of
than the thirty-first day from the date of stock, on credit; and
original entry referred to in Item “(6)” j. Any other transactions as a result of
above. which the bank’s DOSRIs become
l. Unsecured loan, borrowing or obligated or may become obligated to the
other credit accommodation shall refer to lending bank, by any means whatsoever to
any loan, or other credit accommodation pay money or its equivalent.

§§ X328 - X328.5
07.12.31
Sec. X328 Transactions Not Covered. The regulations where the credit cardholders are
terms loans, other credit accommodations bank’s DOSRI: Provided, That (a) the
and guarantees as used herein shall not refer privilege of becoming a credit cardholder
to the following: is open to all qualified persons on the basis
a. Advances against accrued of selective criteria which are applied by
compensation, or for the purpose of the bank to all applicants thereof; and (b)
providing payment of authorized travel, the bank’s DOSRIs reimburse/pay the bank
legitimate expenses or other transactions for for the billed amount in full on or before
the account of the bank or for utilization of the payment due date in the billing or
maternity and other leave credits; statement of account, as set by the bank for
b. The increase in the amount of all other qualified credit card holders on
outstanding credit accommodations as a availments made for the same period on
result of additional charges or advances their credit cards. However, the transaction
made by the bank to protect its interest such shall be subject to applicable DOSRI
as taxes, insurance, etc.; regulations if the bank’s DOSRIs:
c. The discount of bills of exchange a. fail to reimburse/pay the bank
drawn in good faith against actually existing within the period mentioned herein; or
values, and the discount of commercial or b. on the outset, opt for deferred
business paper actually owned by the payment scheme, and the availment is
person negotiating the same, including, but booked by the bank.
not limited to, the acquisition by a domestic For purposes of this Section,
bank of export bills from any of its DOSRI stockholders and related interests refer to
which are drawn in accordance with the individual credit card holders.
terms and conditions of the covering letters
of credit: Provided, That the transaction § X328.2-X328.4 (Reserved)
shall automatically be subject to the ceilings
as herein provided once the DOSRI who is § X328.5 Loans, other credit
a party to the transaction becomes directly accommodations and guarantees granted
liable to the bank; to subsidiaries and/or affiliates
d. Transactions with a foreign bank a. Statement of policy. Dealings of a
which has stockholdings in the local bank bank with its subsidiaries and/or affiliates
where the foreign bank acts as guarantor shall be in the regular course of business
through the issuance of letters of credit or and upon terms not less favorable to the
assignment of a deposit in a currency bank than those offered to others.
eligible as part of the international reserves b. Ceilings. The total outstanding
and held in a bank in the Philippines to loans, other credit accommodations and
secure other credit accommodations guarantees to each of the bank’s subsidiaries
granted to another person or entity: and affiliates shall not exceed ten percent
Provided, That the foreign bank stockholder (10%) of the net worth of the lending bank:
shall automatically be subject to the ceilings Provided, That the unsecured loans, other
as herein provided in the event that its credit accommodations and guarantees to
contingent liability as guarantor becomes a each of said subsidiaries and affiliates shall
real liability; and not exceed five percent (5%) of such net
e. Interbank call loan transactions. worth: Provided, further, That the total
outstanding loans, other credit
§ X328.1 Applicability to credit card accommodations and guarantees to all
operations. The credit card operations of subsidiaries and affiliates shall not exceed
banks shall not be subject to these twenty percent (20%) of the net worth of

§ X328.5
07.12.31
the lending bank: Provided, finally, That security and appraisal thereof, maturity,
these subsidiaries and affiliates are not interest rate, schedule of repayment and
related interest of any of the director, other terms;
officer, and/or stockholder of the lending (c) Date of resolution;
bank, except where such director, officer (d) Names of the directors who
or stockholder sits in the board of directors participated in the deliberation of the
or is appointed officer of such corporation meeting; and
as representative of the bank. (e) Names in print and signatures of the
c. Exclusions from the ceilings. Loans, directors approving the resolution:
other credit accommodations and Provided, That in instances where a director
guarantees secured by assets considered as who participated in the board meeting and
non-risk under existing BSP regulations as who approved such resolution failed to sign,
well as interbank call loans shall be the corporate secretary may issue a
excluded in determining compliance with certification to this effect indicating the
the ceilings prescribed under Item “b” reason for the failure of the said director to
above. sign the resolution.
d. Procedural requirements. The (5) Transmittal of copy of board
following provisions shall apply if a bank approval; contents thereof. A copy of the
grants a loan, other credit accommodation written approval of the board of directors,
or guarantee to any of its subsidiaries and as herein required, shall be submitted to the
affiliates. appropriate department of the SES within
(1) Approval of the board, when to twenty (20) banking days from the date of
obtain. Except with prior written approval approval. The copy may be a duplicate of
of the majority of all the members of the the original, or a reproduction copy
board of directors, no loan, other credit showing clearly the signatures of the
accommodation and guarantee shall be approving directors: Provided, That if a
granted to a subsidiary or affiliate. reproduction copy is to be submitted, it shall
(2) Approval by the board, how be duly certified by the corporate secretary
manifested. The approval shall be that it is a reproduction of the original
manifested in a resolution passed by the written approval.
board of directors during a meeting and e. Reportorial requirements. Each
made of record. bank shall maintain a record of loans, other
(3) Determination of majority of all the credit accommodations and guarantees
members of the board of directors. The covered by these regulations in a manner
determination of the majority of all the and form that will facilitate verification of
members of the board of directors shall be such transactions by BSP examiners.
based on the total number of directors of The appropriate department of the SES
the bank as provided in its articles of may require banks to furnish such data or
incorporation and by-laws. information as may be necessary for
(4) Contents of the resolution. The purposes of implementing the provisions of
resolution of the board of directors shall the foregoing rules.
contain the following information: f. Sanctions. Without prejudice to the
(a) Name of the subsidiary or affiliate; criminal sanctions under Sec. 36 of R.A. No.
(b) Nature of the loan or other credit 7653 (The New Central Bank Act), any
accommodation or guarantee, purpose, violation of the provisions of the foregoing
amount, credit basis for such loan or other rules shall be subject to any or all of the
credit accommodation or guarantee, following sanctions:

§§ X328.5 - X329
07.12.31
(1) Restriction or prohibition on the exceed the ceilings mentioned above shall
bank from declaring dividends for non- not be subject to penalty until 9 April 2007
compliance with the herein prescribed or until said accommodations become past
ceilings until the outstanding loans, other due, or are extended, renewed or
credit accommodations and guarantees restructured, whichever comes later.
have been reduced to within the herein (Circular No. 560 dated 31 January 2007)
prescribed ceilings;
(2) For the duration of each violation, Sec. X329 Direct or Indirect Borrowings
imposition of a fine of one tenth (1/10) of Loans, other credit accommodations and
one percent (1%) of the excess over the guarantees to DOSRI shall be considered
ceilings per day but not to exceed P30,000 direct or indirect borrowings in accordance
a day on the following: with the following criteria:
(a) The lending bank; a. Direct borrowing. If the director,
(b) Each of the directors voting for the officer or stockholder of the lending bank
approval of the loan, other credit is a party to any of the transactions
accommodation or guarantee in excess of enumerated in Sec. X327 for himself, or as
any of the ceilings prescribed above. the representative or agent of others, or if
g. Transitory provisions. Outstanding he acts as a guarantor, endorser or surety
loans, other credit accommodation and for loans from the bank, or if the loan or
guarantees to subsidiaries/affiliates that will 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, and employees which shall be lodged

financial assistance for the repair or under “Other Liabilities-Head Office
renovation of a residential house may be Accounts”. This account shall at all times
allowed subject to such limitation as may have a balance equivalent to the
be prescribed by the bank pursuant to Item outstanding loans to officers/employees
“d “ of this Subsection; financed under this scheme; or
g. Availment of the financing plan for (2) Inward remittance; or
the acquisition of a specific type of c. Through the local branch from local
equipment or appliance shall be allowed sources without earmarking an equivalent
not oftener than once every three (3) years: amount of undivided profits: Provided, That
Provided, That re-availment shall be the aggregate ceilings on such loans as
allowed only after previous obligations in provided under existing regulations shall
connection with the acquisition of the same apply.
type of equipment or appliances have been Loans under Items “b(1)” and “b(2)” of
fully liquidated; and this Subsection shall be treated in the
h. The bank shall adopt measures to branch books as loans granted by its head
protect itself from losses such as by office. The documentation and collection
incorporating in the plan or contract of such loans shall be handled by the
provisions requiring co-makers or branch for the account of the head office.
co-signor, chattel, or real estate mortgages, Loans financed under Items “a” and “b”
fire insurance, mortgage redemption shall be excluded from the computation of
insurance, assignment of money value of the capital to risk assets ratio.
leave credits, pension or retirement
benefits. § X338.3 Other conditions/limitations
a. The investment by a bank in
§ X338.2 (Reserved) 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. 8791.
the following means: b. The investment by a bank in
a. Through a local affiliate by special equipment and other chattels contemplated
arrangement with the head office abroad under these guidelines shall not be for the
in any of the following forms: purpose of profits in the course of business
(1) Inward remittance from the head for the bank.
office of the affiliate; c. The aggregate outstanding loans
(2) Assignment to the affiliate of and other credit accommodations granted
equivalent amounts of profits otherwise under the bank’s fringe benefits program,
remittable abroad under existing inclusive of those granted to officers in the
regulations; or nature of lease with option to purchase,
(3) Direct loans by the foreign bank to shall not exceed five percent (5%) of the
the affiliate; or bank’s total loan portfolio.
b. Through the local branch itself by: Banks providing financial assistance to
(1) Segregation or transfer of undivided their officers/employees shall submit a
profits normally remitted to the head office regular report on “availments of financial
abroad equivalent to the loans to officers assistance to officers and employees” to the

§§ X338.3 - X340
08.12.31
BSP within fifteen (15) banking days after guarantees, as well as availments of
end of reference semester. previously approved loans and committed
The appropriate department of the SES credit lines not considered DOSRI accounts
may further require banks to submit such prior to 10 April 2004 but are allowed a
data or information as may be necessary transition period as provided above.
to facilitate verification of such transactions (As amended by Circular No. 532 dated 19 May 2006)
by BSP examiners.
§§ X339.1 - X339.3 (Reserved)
Sec. X339 Transitory Provisions
a. The sanctions contained under § X339.4 Reportorial requirements
Sec. X336 shall not apply to outstanding Financing plans and amendments thereto
loans, other credit accommodations and shall be submitted to BSP within thirty (30)
guarantees, as well as availments of calendar days from approval thereof by the
previously approved loans and committed bank’s board of directors. The appropriate
credit lines not considered as DOSRI department of the SES may require the
accounts prior to 10 April 2004, for a period banks concerned to submit a regular report
of up to 09 April 2007 or until said loans, monitoring the various transactions under
other credit accommodations and the bank’s financing plans for officers/
guarantees become past due, or are employees.
extended, renewed or restructured, All banks providing financial assistance
whichever comes later. to bank officers/employees shall submit a
b. Unsecured outstanding loans, other report on “Availments of Financial
credit accommodations and guarantees, as Assistance to Officers and Employees” to
well as availments of previously approved the BSP within fifteen (15) banking days
loans and committed credit lines not after end of reference semester.
considered as DOSRI accounts prior to 10
April 2004, shall not be deducted from Sec. X340 Applicability of DOSRI Rules
capital accounts for a period of up to 9 April and Regulations to Government Borrowings
2007 or until such time that said loans, other in Government-Owned or - Controlled
credit accommodations and guarantees Banks. The provisions of Secs. X326 to
become past due, or are extended, X337 shall also apply to loans, other credit
renewed or restructured, whichever accommodations, and/or guarantees
comes later. granted to the National Government or
c. Banks shall, however, disclose the Republic of the Philippines, its political
following information in their financial subdivisions and instrumentalities as well
statements, annual report and the reports as GOCCs, subject to the following
being submitted to BSP: clarifications:
(1) DOSRI; a. Loans, other credit accommodations,
(i) Loans, other credit accommodations and/or guarantees to the Republic of the
and guarantees classified as DOSRI Philippines and/or its agencies/departments/
accounts under regulations existing prior bureaus shall be considered: (1) non-risk; and
to 10 April 2004; and (2) not subject to any ceiling;
(ii) New DOSRI loans, other credit b. Loans, other credit accommodations,
accommodations and guarantees granted and/or guarantees to: (1) GOCCs; and
starting 10 April 2004. (2) corporations where the Republic of the
(2) Non-DOSRI prior to 10 April 2004 Philippines, its agencies/departments/
Loans, other credit accommodations and bureaus, and/or GOCCs own at least

§ X340
08.12.31
twenty percent (20%) of the subscribed an independent entity, hence, not a related
capital stock shall be considered indirect interest of the Republic of the Philippines
borrowings of the Republic of the and/or its agencies/departments/bureaus.
Philippines and shall form part of the Loans, other credit accommodations and
individual ceiling as well as the aggregate guarantees of the BSP shall be considered:
ceiling: Provided, That the following loans, (1) non-risk; and (2) not subject to any
other credit accommodations, and/or ceiling;
guarantees to GOCCs and corporations e. LGUs shall be considered separate
where the Republic of the Philippines, its from the Republic of the Philippines, other
agencies/departments/bureaus, and/ or government entities, and from one another
GOCCs own at least twenty percent (20%) due to the full autonomy in the exercise of
of the subscribed capital stock, shall be their proprietary functions and in the
excluded from the thirty percent (30%) management of their economic enterprises
ceiling on unsecured loans under granted to them under the Local
Secs. X330 and X331: Government Code of the Philippines,
(1) Loans, other credit accommodations, subject to certain limitations provided by
and/or guarantees for the purpose of law, hence, not a related interest of the
undertaking priority infrastructure projects Republic of the Philippines and/or its
consistent with the Medium-Term agencies/departments/bureaus;
Development Plan/Medium-Term Public f. Local Water Districts (LWDs),
Investment Program of the National although GOCCs, shall be considered
Government, duly certified as such by the separate from the Republic of the
Secretary of Socio-Economic Planning; Philippines, other government entities,
(2) Loans, other credit accommodations, and from one another due to their fiscal
and/or guarantees granted to PFIs in the independence from the national
lending programs of the government government, hence, not a related
wherein the funds borrowed are intended interest of the Republic of the Philippines
for relending to other PFIs or end-user and/or its agencies/department/bureaus,
borrowers; and for purposes of these regulations;
(3) Loans, other credit accommodations, g. A director who acts as a
and/or guarantees granted for the purpose government representative in the lending
of providing (i) wholesale and retail loans institution shall not be excluded in the
to the agricultural sector and micro, small deliberation as well as in the determination
and medium enterprises (MSMEs); and/or of majority of the directors in cases of loans,
(ii) rediscounting and guarantee facilities other credit accommodations, and
for loans granted to the said sector or guarantees to the Republic of the
enterprises; Philippines and/or its agencies/
c. Loans, other credit accommodations, departments/bureaus; and
and/or guarantees granted to state h. A director of the lending institution
universities and colleges (SUCs) shall be shall be excluded in the deliberation as
excluded from the thirty percent (30%) well as in the determination of majority of
ceiling on unsecured loans under Secs. X330 the directors in cases of loans, other credit
and X331. accommodations, and guarantees to the
d. In view of the fiscal autonomy borrowing government entity other than
granted under R.A. No. 7653 and the the Republic of the Philippines, its
independence prescribed under the agencies, departments or bureaus where
Constitution, the BSP shall be considered said director is also a director, officer or

§§ X340 - X341.3
08.12.31
stockholder under existing DOSRI owner-cultivators, farmers’ cooperatives

regulations. and compact farms, as determined by the
(Circular No. 514 dated 06 March 2006 as amended by Circular DAR.
Nos. 635 dated 10 November 2008, 616 dated 30 July 2008, 580 The term shall likewise include
dated 09 September 2007, and 547 dated 21 September 2006) agricultural enterprises registered under
P.D. No. 1159 as well as projects
F. MANDATORY CREDITS undertaken pursuant to the Corporate
Farming Program under General Order
Sec. X341 Agrarian Reform and (G.O) No. 47: Provided, That the borrower
Agricultural Credit. Pursuant to P.D. No. submits the following documents to the
717, the following guidelines shall govern lending bank:
the grant of agrarian reform credit and (1) A certification from the Board of
agricultural credit by banks, government Investments to the effect that the borrower
or private. is an agricultural enterprise duly registered
under P.D. No. 1159 ; and
§ X341.1 Definition of terms. For (2) An endorsement of the DAR stating
purposes of this Section, the following that land reform beneficiaries shall benefit
definitions shall apply: from the agricultural enterprises' projects.
a. Loanable funds shall refer to total
funds generated after the effectivity of P.D. § X341.2 Who may borrow; purposes
No. 717, the computation of which is a. All beneficiaries of agrarian reform
described in Subsec. X341.4. credit mentioned under P.D. No. 717 and
b. Agrarian reform credit shall refer its implementing regulations which credit
to production and other types of loans shall be used for agricultural production or
granted to beneficiaries of agrarian for other purposes mentioned therein shall
reform for the following purposes: be qualified borrowers under agrarian
acquisition of work animals, farm equipment reform credit.
and machinery, seeds, fertilizers, poultry, b. Qualified borrowers under
livestock, feeds and other similar items; agricultural credit in general are
acquisition of lands authorized under corporations, entities, or private individuals
existing laws; construction and/or engaged in agricultural production,
acquisition of facilities for production, processing, storage, marketing, or
processing, storage and marketing; and exportation of agricultural products, and
efficient and effective merchandising of importation/manufacture/distribution of
agricultural commodities stored and/or farm machineries and equipment,
processed by the facilities aforecited in fertilizers, etc. used for agricultural
domestic and foreign commerce. production.
c. Agricultural credit in general shall
include all loans and/or advances granted § X341.3 Required allocation for
to borrowers, whether beneficiaries of agrarian reform and agricultural credit
agrarian reform or not, to finance activities in general. Banks shall set aside an
relating to agriculture, and for processing, amount equivalent to at least twenty-five
marketing, storage, and distribution of percent (25%) of their loanable funds for
products resulting from these activities. agricultural credit in general, of which an
d. Agrarian reform beneficiaries shall amount equivalent to at least ten percent
include tillers, tenant-farmers, settlers, (10%) of the loanable funds shall be made
agricultural lessees, amortizing owners, available for agrarian reform credit.

§§ X341.3 - X341.4
05.12.31
a. Marketing credits considered as b. Development loan incentives.

agrarian reform credits. [Transferred to Subsec. X341.5, Item "c(1)"].
(1) Agrarian reform beneficiaries as c. Loans for high-value crops projects.
defined by P.D. No. 717; [Transferred to Subsec. X341.5, Item "c(2)"].
(2) Registered agricultural enterprises
duly endorsed by the nearest office of the § X341.4 Computation of loanable
DAR per P.D. No. 1159; funds. Loanable funds shall be:
(3) G.O. No. 47 corporations or a. The net increase from 29 May 1975
agro-service corporations employed by to date of the report of the individual
G.O. No. 47 corporation which are certified accounts which represent the following:
by the DAR as engaged in grains (1) The total deposits (demand,
production through linkage arrangements savings, time and NOW accounts)
with agrarian reform beneficiaries; excluding foreign currency deposits under
(4) Area marketing cooperatives or Circular No. 1389 and deposits of the BTr
Samahang Nayon duly registered with the representing revenue collections of the BIR
Cooperatives Development Authority and BOC;
(CDA); (2) Deposits of banks, net of due from
(5) Registered agrarian reform other banks;
beneficiaries' associations/other farm (3) Bills payable (including borrowings
groups respectively endorsed as agrarian from banks) net of :
reform beneficiaries by the nearest office (a) Repo agreement by accredited
of the DAR; CDA; or the Farm Systems government securities dealers if relent to
Development Corporation (FSDC), banks;
National Irrigation Administration (NIA); or (b) Interbank call loans with maturities
(6) NFA-registered warehousemen/ not exceeding fifteen (15) days;
millers/wholesalers whose grains inventory, (c) Proceeds from special on-lending
subject to a chattel mortgage, trust receipts programs like the APEX;
or pledged quedan, are duly sworn to under (d) Proceeds from BSP rediscounting
oath by grains businessmen-borrowers (except special time deposits); and
concurred by the President of the Agrarian (e) Proceeds from special BSP credit
Reform Beneficiaries Association in the area accommodations in the form of emergency
as having been produced by agrarian reform advances, overnight repo agreements and
beneficiaries; and availment of overdraft 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;

§§ X341.4 - X341.5
08.12.31
(b) deposit substitutes; (ii) The buying/lending bank, with the

(c) others (excluding reserves for consent of the selling/borrowing entity,
margin deposits); shall register with the BSP its holdings of
(5) Provisions for liquidity (fifteen government securities under repo/resale
percent (15%) of total deposits and demand agreement.
liabilities); and (2) Eligible securities/bonds
(6) Loans to export-oriented small and (a) NDC Agri-Agra ERAP Bonds.
medium-scale industries involving Investment by banks in NDC Agri-Agra
accounts not exceeding P1.0 million. ERAP Bonds as well as the firm
underwriting of said bonds by banks or by
§ X341.5 Allowable alternative the subsidiary IH of a UB.
compliance. In the absence of qualified (b) LGU Bonds.
borrowers, the following shall apply: (c) Pag-IBIG P4.0 billion Bond issue
a. Agrarian reform credit – (2000 Series).
(1) Eligibility of government securities; (d) Five (5)- and Ten (10)-year Special
conditions. The amount set aside for agrarian Purpose Treasury Bonds (SPTBs) to finance
reform credit not actually loaned out may the CARP-related expenditures, provided
be invested temporarily in government the proceeds of the bonds will be
securities expressly declared eligible for exclusively used for the agrarian reform
the purpose by the BSP, subject to the sector.
following conditions: (e) Zero Coupon Bond Issue by the
(a) Such securities shall be held to HGC of up to P7.0 billion 5-year regular
maturity without prejudice to the right of series and up to P3.0 billion 7-year special
the holder bank to require the issuing series to finance its guaranty servicing of
government entity to monetize, encash or socialized and low-cost housing projects
repurchase such securities whenever funds only to the extent of the present value of
are needed by the bank for lending to the the bond computed using the original yield
beneficiaries of agrarian reform; to maturity (as of auction/issue date).
(b) Such securities shall not be The eligibility of securities under Items
hypothecated or encumbered in any way “(2)(a)”, “(2)(b)”, “(2)(d)” and “2(e)” shall be
or earmarked for any other purposes; subject to the conditions in Items “a(1)(b)”
(c) Such securities shall be marked and “a(1)(d)”; Item “(2)(c)” to the conditions
“for agrarian reform credit” and shall be in Items “a(1)(b)” and “a(1)(d)(i)”.
segregated from the bank’s investment b. Agricultural credit in general - The
portfolio; and amount set aside for agricultural credit in
(d) Only the buying/lending bank may general not actually loaned out may be
use, during the holding period, eligible invested in commercial papers issued by
government securities subject of a resale/ entities engaged in agricultural production,
repo agreement between private entities processing, storage, marketing, or
for purposes of compliance with this exportation of agricultural products; and
Subsection, subject to the following: importation, manufacture, distribution of
(i) The resale/repurchase should be farm machineries and equipment,
for terms not less than thirty (30) days fertilizers, etc. used for agricultural
without pretermination during the first production: Provided, That for purposes of
successive thirty (30) days, which compliance with this Subsection, only the
condition shall be embodied in the buying/lending bank may use commercial
resale/repo agreement; and papers acquired in a resale/repo

§ X341.5
08.12.31
agreement during the holding period It also refers to an institution, building

thereof subject to the conditions in Item or place where there are installed beds, or
"a(1)(d)" of this Subsection. cribs, or bassinets for twenty-four (24)-hour
c. Alternative compliance for both use or longer by patients in the treatment
agri-agra credit of diseases, injuries, deformities or
(1) Development loans. Pursuant to abnormal physical and mental state,
Sections 8 and 9 of R.A. No. 7721 (An Act maternity cases, and all institutions such
Liberalizing the Entry and Scope of as those for convalescence, sanitorial or
Operations of Foreign Banks in the sanitarial care, infirmaries, nurseries,
Philippines and for Other Purposes), loans dispensaries and such other names by
extended by banks incorporated under the which they may be designated.
laws of the Philippines, whether Philippine (d) Medical services shall refer to
or foreign-owned, to finance educational various services like general treatment,
institutions, cooperatives, hospitals and physical examination, consultation,
other medical services, socialized or low- medication, dressing, suturing and surgical
cost housing, and to local government operation, all pertaining to or dealing with
units, without national government the healing art or the science of medicine,
guarantee, shall be included for purposes with license to operate from the
of determining compliance with the Department of Health (DOH).
provisions of P.D. No. 717, as amended. (e) Socialized housing refers to
This provision shall, however, not apply housing programs and projects covering
to branches of foreign banks. houses and lots or home lots only
For this purpose, the following undertaken by the Government or the
definitions shall apply: private sector for the underprivileged and
(a) Educational institutions shall refer homeless citizens which shall include sites
to all educational establishments duly and services development, long-term
authorized by or with permit to operate financing, liberalized terms on interest
from the Department of Education, Culture payments, and such other benefits in
and Sports (DECS), or created by special accordance with the provisions of
laws or charters. R.A. No. 7279 (Urban Development and
(b) Cooperatives shall refer to duly Housing Act).
registered associations of persons with a (f) Economic and socialized housing
common bond of interest who have refers to housing units which are within the
voluntarily joined together to achieve a affordability level of the average and
lawful common social or economic end, low-income earners which is thirty percent
making equitable contributions to the capital (30%) of the gross family income as
required and accepting a fair share of the determined by the NEDA from time to
risks and benefits of the undertaking in time. It also refers to the government-
accordance with universally accepted initiated sites and services development
cooperative principles, as defined in R.A. No. and construction of economic and
6938 (Cooperative Code of the Philippines). socialized housing projects in depressed
(c) Hospital shall refer to a place 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, of Level 1 which shall refer to housing
or in need of obstetrical or other medical loans in excess of P225,000 but not more
and nursing care. than P500,000 and Level 2 which shall

§ X341.5
08.12.31
refer to housing loans in excess of pea), spices and condiments (black

P500,000 but not more than P2.0 million, pepper, garlic, ginger and onion), and
as prescribed under existing guidelines of cutflower and ornamental foliage plants
the HUDCC for the implementation of (chrysanthemum, gladiolus, anthuriums,
various government housing programs, or orchids and statice).
in such other amounts which HUDCC may Farmers’ associations/organizations
prescribe in the future for said housing shall refer to farmers’ cooperatives,
loans. associations or corporations duly registered
(g) LGU refers to provinces, cities, with appropriate government agencies and
municipalities and any other political which are composed primarily of small
subdivision created by law enacted by agricultural producers, farmers, farm
Congress and to barangays created by workers and other agrarian reform
ordinance passed by the Sanggunian beneficiaries who voluntarily join together
Panlalawigan or the Sanggunian to form business enterprises which they
Panglunsod that are located within its themselves, own, control and patronize.
territorial jurisdiction, subject to such A bank participating in the high-value
limitations and requirements prescribed in crop development program shall refer to
R.A. No. 7160 (Local Government Code the LBP, the DBP and any qualified lending
of 1991). institution which has been accredited/
(2) Loans for high-value crops projects. selected as provided in the Implementing
Pursuant to Section 8 of R.A. No. 7900, a bank Rules and Regulations of R.A. No. 7900
participating in the High-Value Crops (Joint Administrative Order No. 1, series
Development Program that shall lend a of 1996 of the DA dated 23 April l996).
minimum of five percent (5%) of its loanable (3) (Transferred to Item "a(2)a" above
funds, without alternative compliance by CL dated 22 June 2000).
directly to farmers’ associations or (4) Ten (10)-Year Agrarian Reform Bond
cooperatives for high-value crops projects issued by the Philippine Government thru
shall be exempted from, or shall be deemed the LBP, subject to the conditions
to have complied with the requirement of prescribed in Subsec. X341.5(a) above;
P.D. No. 717. (5) Investments by banks in the
For purposes of this item, high-value authorized capital stock of Quedan and Rural
crops shall refer to crops that can be Credit Guarantee Corporation (Quedancor);
optimally and sustainably produced in key (6) Loans extended by banks to
commercial crop production areas farmers, fishermen, cooperatives, rural
identified by the Department of Agriculture workers and rural enterprises covered by
(DA) and which can generate revenue the guarantees of Quedancor;
higher than that of traditional crops (which (7) Rediscounting by secondary banks
refer to rice, corn, coconut and sugar). Such of originating banks’ loan receivables having
high-value crops include, but are not the guarantee of Quedancor, subject to the
limited to: coffee and cacao, fruit crops condition that the originating bank may not
(citrus, cashew, guyabano, papaya, mango, use such loans as compliance with P.D. No.
pineapple, strawberry, jackfruit, rambutan, 717 and only the secondary (rediscounting)
durian, mangosteen, guava, lanzones, and bank may claim such loans as compliance
watermelon), root crops (potato and ubi), with P.D. No. 717;
vegetable crops (asparagus, broccoli, (8) Loans secured by the NFAs Palay
cabbage, celery, carrots, cauliflower, Negotiable Warehouse Receipts (PNWRs):
radish, tomato, bell pepper, patola) Provided, That the PNWRs shall be printed
legume, pole sitao (snap beans and garden on security paper by the BSP;

§§ X341.5 - X341.12
08.12.31
(9) All loans granted to Barangay § X341.9 Submission of reports. A

Micro Business Enterprises (BMBEs) as quarterly report on the following shall be
provided under Subsec. X365.5; submitted to the appropriate department
(10) Housing microfinance loans, as of the SES within the period prescribed in
provided under Subsec. X361.5; and Appendix 6.
(11) Business transactions of larger a. Utilization of loanable funds set
banks (i.e., securitization, outright aside for agrarian reform credit and
purchases, etc.) involving housing agricultural credit in general;
microfinance loans, as provided under b. Any change in the composition of
Subsec. X361.5: Provided, That the volume government securities and commercial
of these banks’ housing microfinance loans papers held as temporary investments for
have already achieved a desirable level. agrarian reform credit and agricultural
(As amended by M-2008-015 dated 19 March 2008) credit in general, respectively; and
c. A certification under oath by the
§ X341.6 Syndicated type of agrarian duly designated officer of the bank of the
reform credit/agricultural credit. Banks absence of qualified borrowers for agrarian
may grant a syndicated type of loan for reform credit or agricultural credit in
agrarian reform credit/agricultural credit in general shall be submitted to the
general, either between or among appropriate department of the SES together
themselves. The mechanics, including the with the report as required in this
recording of such syndicated type of loan Subsection.
transactions, shall follow existing practices
and regulations applicable both to the lead §§ X341.10 - X341.11 (Reserved)
bank and other participating bank(s).
Accordingly, the booking of loans shall § X341.12 Consolidated compliance
only be for the amount of actual The compliance with agri-agra mandatory
participation of each syndicate bank allocation of funds under P. D. No. 717 shall
concerned. Memorandum entries, be allowed on a groupwide basis (based
references or notations shall be made for on consolidated financial statements of
the other participating bank(s). investor-FI or parent bank and its
subsidiaries/affiliates): Provided, That the
§ X341.7 Interest and other charges subsidiary banks are at least seventy five
Interest, service fees and other charges percent (75%) owned/controlled by the
shall be governed by existing rules and parent bank, subject to the following
regulations. conditions:
a. The consolidated report shall be
§ X341.8 Unused agri-agra funds to be submitted by the bank in the prescribed
utilized for socialized and low-cost housing form and shall be supported by the
As a source of non-budgetary funding to individual reports of the bank and its
augment the Comprehensive and subsidiaries duly signed by each bank’s
Integrated Shelter and Urban Development authorized signatory. The subsidiaries
Financing Program under R.A. No. 7835, shall continue with their respective
all unused agri-agra allocation funds of submission of the subject report to the
banks in the preceding year shall be appropriate department of the SES within
invested in socialized and low-cost housing the prescribed period;
if the utilized portion of the agri-agra funds b. Either the parent bank or the
of said banks was solely devoted to subsidiary bank can exercise the right to
agricultural and agrarian reform credits. avail itself of/use the excess of its

§§ X341.12 - X342
08.12.31
subsidiary bank/parent bank for its own (2) Non-monetary fines

compliance; and In addition to the above daily monetary
c. In the event of a deficiency in fines, any or all of the administrative
compliance of any parent or subsidiary sanctions as provided under Section 37 of
or all of these banks, the members of the R.A. No. 7653, may be imposed upon any
board of directors and its president and bank for non-compliance/undercompliance,
the other officers of the parent bank shall willful delay or refusal to submit reports
be responsible for the group’s without prejudice to criminal sanctions
compliance. against culpable persons provided under
Sections 34, 35 and 36 of R. A. No. 7653,
§§ X341.13 - X341.14 (Reserved) as follows:
(a) Suspension of rediscounting
§ X341.15 Sanctions. The following privileges or access to BSP facilities;
sanctions shall be applicable for any (b) Suspension of lending or FX
violation of this Section: operations or authority to accept new
a. For non-compliance/undercompliance deposits or make new investments;
(1) Daily fine in proportion to degree (c) Suspension of interbank clearing
of compliance shall be imposed depending privileges; and/or
on the total assets of the banks as of the (d) Revocation of QB license.
reporting period: b. For non-submission and delayed/
Maximum amended reports
Daily The following fines shall be imposed
Total Assets Fine for non-submission and delayed/
P100.0 million and below P 100 amended reports on compliance with the
Above P100.0 million to P200.0 million - 200 mandated credit allocations for agri-agra
Above P200.0 million to P500.0 million - 300 credit under P.D. No. 717, to be
Above P500.0 million to P1.0 billion - 500 reckoned on the following day after due
Above P1.0 billion to P5.0 billion - 1,000 date of submission or until the proper
Above P5.0 billion to P10.0 billion - 3,000 report is filed with the BSP:
Above P10.0 billion to P25.0 billion - 5,000
Above P25.0 billion to P50.0 billion - 10,000 (1) UBs/KBs/FXBs P1,200 per day
(2) TBs 600 per day
Above P50.0 billion to P100.0 billion - 15,000
(3) RBs/Coop Banks 180 per day
Over P100.0 billion - 30,000
Non-submission or delayed
Excess compliance in the ten percent submission of reports for two (2) or more
(10%) agrarian reform credit may be times in any four (4)-quarter period shall
used to offset a deficiency, if any, in the be subject to twice the prescribed
fifteen percent (15%) agricultural credit monetary penalty for willful delay or
in general, but not vice versa. The daily refusal to submit reports.
fine shall be counted from the end of (As amended by Circular No. 585 dated 15 October 2007)
reference quarter until the date the bank
has complied with the credit allocation Sec. X342 Mandatory Allocation of Credit
requirements and files an amended report. Resources to Micro, Small and Medium
In case of a violation noted during Enterprises. The following rules shall
examination or verification, monetary govern the mandatory allocation of credit
penalty shall run from the date of findings resources to MSMEs.
until the violation is corrected; and (As amended by Circular No. 625 dated 14 October 2008)

§§ X342.1 - X342.2
08.12.31
§ X342.1 Definition of terms. For economy, namely: industry, trade,

purposes of this Section, the following services, including the practice of one’s
definitions shall apply: profession, the operation of tourism-related
a. Lending institutions shall refer to all establishments, and agri-business, which
banks, namely: UBs, KBs, TBs and RBs/ for this purpose refers to any business
Coop Banks, including government-owned activity involving the manufacturing,
banks. processing, and/or production of
b. Total loan portfolio shall include all agricultural produce, whether single
loans and receivables, other than those proprietorship, cooperative, partnership or
booked in the FCDU/EFCDU as defined corporation:
in the Manual of Accounts Section of the (1) whose total assets, inclusive of those
FRP under Subsec. X162.16, as amended arising from loans but exclusive of the land
(gross of allowance for credit losses) on which the particular business entity’s
excluding the following: office, plant and equipment are situated, must
(1) Interbank loans receivable, other have a value falling under the following
than (a) wholesale lending of a bank to categories:
conduit banks/QBs for on-lending to
MSMEs, and (b) rediscounting facility Micro : not more than P 3,000,000
granted to another bank for loans to MSMEs; Small : more than P 3,000,000 to P 15,000,000
(2) Wholesale lending of a bank to Medium : more than P 15,000,000 to P 100,000,000
conduit non-bank FIs without quasi-banking
authority, other than those for on-lending and
to MSMEs;
(3) Loans granted under special (2) duly registered with the appropriate
financing programs, other than those for agencies as presently provided by law except
MSMEs; in the case of microenterprises as defined
(4) Loans granted to MSMEs, other than above.
to BMBEs, to the extent funded by (As amended by Circular No. 625 dated 14 October 2008)
wholesale lending of, or rediscounted with,
another bank; § X342.2 Period covered; prescribed
(5) Agrarian reform credits/other portions of loan portfolio to be allocated
agricultural loans granted under P.D. No. Banks shall for a period of ten (10) years
717, other than those eligible for from 17 June 2008 to 16 June 2018, allocate
compliance with the mandatory allocation at least eight percent (8%) for micro and
of credit for MSMEs, as well as small enterprises (MSEs) and at least two
development loans incentives under R.A. percent (2%) for medium enterprises (MEs)
No. 7721 granted by banks other than of their total loan portfolio based on their
branches of foreign banks; and balance sheet as of the end of previous
(6) Loans and receivables arising from quarter, and make it available for MSME
repo agreements, certificates of credit.
assignment/participation with recourse and Banks may be allowed to report compliance
securities lending and borrowing on a groupwide (i.e., consolidation of parent
transactions. and subsidiary bank/s) basis so that excess
c. MSMEs shall refer to any business compliance of any bank in the group can
activity within the major sectors of the be used as compliance for any deficient

§§ X342.2 - X342.3
08.12.31
bank in the group: Provided, That the (4) Purchase/discount on a “with or

subsidiary bank/s is/are at least majority without recourse” basis of MSE receivables,
owned by the parent bank: Provided, other than BMBE receivables which are
further, That the parent bank shall be held covered in Item “c(3)” hereof; or
responsible for the compliance of the (5) Wholesale lending or rediscounting
group. facility granted to PFIs for on-lending to
The consolidated report shall be MSEs, other than to BMBEs which are
submitted by the parent bank in the covered in Item “c(3)” hereof; or
prescribed form and shall be supported by (6) Wholesale lending or rediscounting
the individual reports of the bank and its facility granted to PFIs for on-lending to
subsidiaries duly signed by each bank’s export, import, and domestic micro and small
authorized signatory. scale traders, other than to BMBEs which are
For purposes of determining covered in Item “c(3)” hereof; or
compliance with the mandated allocation (7) Commercial letters of credit
of credit resources to MSMEs, only eligible outstanding, net of margin deposits, issued
credit exposures as enumerated in Subsec. for the account of MSEs.
X342.3, other than those booked in the b. For MEs
FCDU/EFCDU shall be considered. (1) Actual extension of loans to eligible
(As amended by Circular No. 625 dated 14 October 2008) MEs: Provided, however, That loans granted
to MEs to the extent funded by wholesale
§ X342.3 Eligible credit exposures lending of, or rediscounted with, another
Funds set aside in accordance with the bank shall not be eligible as compliance with
foregoing requirement shall be made the mandatory credit allocation; or
available for any of the following: (2) Loans granted to export, import,
a. For MSEs and domestic medium scale traders:
(1) Actual extension of loans to eligible Provided, however, That loans granted to
MSEs, other than to BMBEs which are MEs to the extent funded by wholesale
covered in Item “c(3)” hereof: Provided, lending of, or rediscounted with, another
however, That loans granted to MSEs other bank shall not be eligible as compliance
than BMBEs, to the extent funded by with the mandatory credit allocation; or
wholesale lending of, or rediscounted with, (3) Purchase of eligible ME loans
another bank shall not be eligible as listed in Items “(1)” and “(2)” above on a
compliance with the mandatory credit “without recourse” basis from other
allocation; or banks and FIs; or
(2) Loans granted to export, import, (4) Purchase/discount on a “with or
and domestic micro and small scale traders, without recourse” basis of ME
other than to BMBEs which are covered in receivables; or
Item “c(3)” hereof: Provided, however, (5) Wholesale lending or
That loans granted to MSEs other than rediscounting facility granted to PFIs for
BMBEs, to the extent funded by wholesale on-lending to MEs; or
lending of, or rediscounted with another (6) Wholesale lending or rediscounting
bank shall not be eligible as compliance facility granted to PFIs for on-lending to
with the mandatory credit allocation; or export, import, and domestic medium
(3) Purchase of eligible MSE loans scale traders; or
listed in Items “(1)” and “(2)” above on a (7) Commercial letters of credit
“without recourse” basis from other banks outstanding, net of margin deposits, issued
and FIs; or for the account of MEs.

§§ X342.3 - X342.7
08.12.31
c. Alternative compliance for either or § X342.6 Submission of reports. Banks

both MSEs or/and MEs shall submit reports on compliance with the
(1) Paid subscription/purchase of mandatory credit allocation on a quarterly
liability instruments as may be offered by basis within fifteen (15) banking days from
the SB Corporation; or the end of reference quarter to SDC of the
(2) Paid subscription of preferred BSP. Said report shall be considered
shares of stock of the SB Corporation; or Category A-3 report. It shall become
(3) Loans from whatever sources effective starting with the reporting period
granted to BMBEs as provided under ending 31 December 2008.
Subsec. X365.5. Banks shall maintain appropriate records/
(As amended by Circular Nos. 625 dated 14 October 2008 and details of the reported loans to MSMEs and
570 dated 24 May 2007) shall make these available to BSP.
§ X342.4 Ineligible credit instruments
The purchase of government notes, § X342.7 Sanctions. The following
securities and negotiable instruments other administrative sanctions shall be imposed
than the instruments offered by SB on banks:
Corporation, and the granting of loans to a. For non-compliance/under compliance
MSMEs, other than to BMBEs, to the extent with the prescribed portions of loan
funded by wholesale lending of, or portfolio to be allocated to MSEs and MEs:
rediscounted with, another bank shall not (1) For zero compliance for both MSEs
be deemed compliance with the foregoing and MEs – P500,000;
requirement. (2) For under compliance:
(As amended by Circular No. 625 dated 14 October 2008) (a) For MSEs – percentage of under-
compliance multiplied by P400,000
§ X342.5 Rights/remedies available (b) For MEs – percentage of under-
to lending institutions not qualified to compliance multiplied by P100,000
acquire or hold lands of public domain to be computed as of end of each quarter.
Lending institutions which are not qualified (3) For willful making of a false or
to acquire or hold lands of the public misleading statement to the BSP - P500,000
domain in the Philippines shall be per quarter-end report without prejudice to the
permitted to bid and take part in sales of sanctions under Section 35 of R.A. No. 7653.
mortgaged real property in case of judicial The imposition of the fines in Items
or extra-judicial foreclosure, as well as “(1)” to “(2)” shall be without prejudice to
avail of receivership, enforcement and the other administrative sanctions under
other proceedings, solely upon default Section 37 of R.A. No. 7653.
of a borrower, and for a period not (b) For non-submission/delayed
exceeding five (5) years from actual submission of reports on compliance with
possession: Provided, That in no event both the prescribed portions of loan
shall title to the property be transferred portfolio to be allocated to MSEs and MEs,
to such lending institution. If the lending respectively:
institution is the winning bidder, it may, (1) UBs/KBs - P1,200
during said five (5) year period, transfer (2) TBs - 600
its rights to a qualified Philippine national, (3) RBs/Coop Banks - 180
without prejudice to a borrower’s rights per calendar day of delay.
under applicable laws. (As amended by Circular No. 625 dated 14 October 2008 and 585
(As amended by Circular No. 625 dated 14 October 2008) dated 15 October 2007)

§§ X342.8 - X343.2
08.12.31
§ X342.8 Disposition of penalties be subject to the reserve requirement

collected. Ninety percent (90%) of prescribed for IBCL in Subsec. X253.1:
penalties collected under Subsec. X342.7 Provided, further, That funds borrowed
above shall be remitted by the BSP to the by banks from trust departments of banks
MSME Development Council Fund, or IHs shall be excluded from the herein
while the remaining ten percent (10%) definition of interbank loan transactions.
shall be retained by the BSP to cover its Interbank loan transactions not
administrative expenses. submitted to the BSP Comptrollership
(Circular No. 625 dated 14 October 2008) Department by means of interbank loan
advice or repayment transfer tickets shall be
§§ X342.9 - X342.14 (Reserved) reported to the BSP in the prescribed form.
§ X342.15 Accreditation guidelines for § X343.1 Systems and procedures for

Rural and Thrift Banks under the SME interbank call loan transactions. IBCL
Unified Lending Opportunities for transactions of banks shall be governed by
National Growth (SULONG). Without the Agreement for the PhilPaSS executed
prejudice to the refinements as may be on 12 December 2002 between the BSP
suggested by DTI and DOF, the Twelve and the Bankers Association of the
(12)-Point Accreditation Guidelines for RBs Philippines (BAP) /Chamber of Thrift Banks
and TBs, and the lending features of short (CTB)/Rural Bankers Association of the
and long term loans for direct or retail Philippines (RBAP) and any subsequent
lending by participating government FIs amendments thereto.
under the SULONG, are shown in (As superseded by the agreement between the BSP and BAP/
Appendix 55. CTB/RBAP dated 12 December 2002)
G. SPECIAL TYPES OF LOANS § X343.2 Accounting procedures

a. Both lending and borrowing banks
Sec. X343 Interbank Loans. Interbank shall immediately pass the corresponding
loan transactions shall include, among entries in their books and, upon receipt of
other things, (a) interbank call loan (IBCL) a copy of the transfer instruction reported
transactions; (b) borrowings evidenced by as matched in the Multi-Transaction
deposit substitute instruments; and Interbank Payment System (MIPS), the
(c) purchases of receivables with recourse: borrowing bank shall attach the same to
Provided, however, That only IBCL the corresponding ticket debiting its Due
transactions which are evidenced by from BSP account in its books and, in the
interbank loan advice or repayment case of the lending bank, to the same
transfer tickets and settled through the ticket passed in its books on the day
banks’ respective DDAs with BSP shall payment is made.

§§ X343.2 - X344.2
08.12.31
b. IBCL transactions shall be (1) The resources of the RB are

recorded by the borrowing bank as Bills inadequate to meet the legitimate credit
Payable Interbank Call Loans. needs of the locality wherein the RB is
c. Banks shall reconcile their established;
demand deposit accounts with the BSP (2) There is dearth of private capital in
against monthly statements of account to said locality; and
be furnished by the BSP Comptrollership (3) It is not possible for the
Department. stockholders of the RB to increase the
paid-up capital thereof.
§ X343.3 Settlement procedures for The appropriate department or office
interbank loan transactions. Interbank loan of the BSP may prescribe and require the
transactions (call and term) among banks submission by the RB of papers and
shall be settled gross with finality subject to documents necessary for such
the availability of balances in the deposit determination.
reserves maintained by banks in the BSP b. Qualifications for loan. In order to
in accordance with the provisions of the qualify for the financial assistance under
Agreement for the PhilPaSS executed on said provision of law, the RB shall first meet
12 December 2002 between the BSP and the following requirements:
the BAP/CTB/RBAP and any subsequent (1) Its capital-to-risk assets ratio during
amendments thereto. the last six (6) months immediately
(As superseded by the agreement between the BSP and the preceding the loan application should be
BAP/CTB/RBAP dated 12 December 2002) at least ten percent (10%);
(2) Its past due loans are not more than
Sec. X344 Loans to Thrift/Rural/ twenty-five percent (25%);
Cooperative Banks (3) It has no deficiency in allowance for
probable losses on loans and other risk assets;
§ X344.1 Loans under Section 12 of (4) It must not have incurred
R.A. No. 7353, Section 10 of R.A. No. deficiency in its reserves against deposit
7906 and Article 108, R.A. No. 6938 liabilities for the last six (6) months
Banks may rediscount papers of TBs/RBs/ preceding the filing of the application;
Coop Banks. Banks shall specify the nature (5) It must have been operating
of papers acceptable for rediscounting as profitably for the last three (3) years;
well as the rediscount rate. (6) Its arrearages with the BSP or other
government FIs, if any, are being liquidated
§ X344.2 Loans under Section 14 of through an approved plan of payment, the
R.A. No. 7353. The following are the conditions of which are being complied
guidelines in the grant by the LBP, DBP with; and
or any government-owned or controlled (7) It is operating substantially in
bank or FI of a loan to an RB under accordance with applicable laws and BSP
Section 14 of R.A. No. 7353. rules and regulations.
a. Issuance of certification. Subject to c. Extension of loan. The LBP, the DBP
the qualifications of the RBs prescribed in or any government-owned or controlled
Item “b” hereof, the Monetary Board shall bank or FI shall, within sixty (60) days from
issue the certification required under issuance by the Monetary Board of the
Section 14 of R.A. No. 7353, which shall certification, and subject to their loan and
be final, after the Monetary Board has investment policies, extend to an RB a loan
determined that: or loans from time to time, repayable in ten

§§ X344.2 - X348.1
06.12.31
(10) years, with concessional rates of interest, which requires the guarantor to assume the
against security/ies which the stockholder or liabilities/obligations of third parties in case
stockholders of the RB may offer. of their inability to pay, that may be issued
by a bank and outstanding at any given
Secs. X345 - X346 (Reserved) time, shall not exceed one hundred
percent (100%) of the bank’s qualifying
Sec. X347 Standby Letters of Credit. The capital.
following shall govern the issuance of Transitory provision. This Subsection
standby letters of credit. is also covered by the last paragraph of
Subsec. X303.5.
§ X347.1 Domestic standby letters of
credit. Domestic standby letters of credit § X347.3 Reports. Banks shall submit
may be issued or used in transactions other a monthly report of domestic standby letter
than those involving movement of goods of credit opened and outstanding in the
under the following guidelines: prescribed form within fifteen (15) banking
a. The bank’s obligation to pay shall days after end of reference month to the
be either unconditional (as against appropriate department of the SES. The
presentation of a clean draft) or conditional report shall contain the following
only upon the presentation of documents minimum information:
and not upon actual existence or non- (1) Date the letter of credit was opened;
existence of facts, i.e., the bank must not (2) Amount, purpose and accountee
be called upon to determine disputed thereof;
questions of facts or law; (3) Beneficiary;
b. The bank’s obligation shall be (4) Security and value of security;
limited to a fixed maximum amount; (5) Expiry date of the letter of credit;
c. The bank’s obligation shall have an and
expressed expiration date; (6) Certification as to the correctness
d. The standby letters of credit of the report by an authorized officer of
accommodation shall not violate any law the bank.
or existing BSP directives, rules and
regulations, such as the SBL and DOSRI Sec. X348 Committed Credit Line for
ceilings; Commercial Paper Issues. The following
e. The party who opened the standby guidelines shall govern committed credit
letters of credit or the ultimate borrower line agreements as a prerequisite for
shall not have any past due obligation with corporations proposing to issue
the issuing bank for the ninety (90)-day commercial paper, pursuant to the New
period preceding the date of issuance of Rules on the Registration of Short-Term
the letter of credit; and Commercial Papers (Appendix 14).
f. The party who opened the letter of
credit (borrower or principal obligor) must § X348.1 Who may grant line facility
have an unqualified obligation to A bank with a net worth of at least P1.0
reimburse the bank on the same condition billion as defined in Sec. X106, may
as the bank has paid. provide a committed credit line facility to
(As amended by Circular No. 536 dated 18 July 2006) a commercial paper issuer.
The bank shall exercise proper caution
§ X347.2 Ceiling. The total guarantees in ascertaining that the party, in whose favor
or similar arrangements, the nature of 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 lending institution to recover the financial

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

§§ X361.4 - X361.5
08.12.31
loan releases, collection and arrearages, any Subject Particulars

restructuring or refinancing; and Payment ·Frequent amortization
(2) A regular monitoring of past due ·With savings component
loans and portfolio at risk. ·Loan payments should not
exceed 60% of clients income
§ X361.5 Housing microfinance loan as determined by cash flow
The following provisions govern the grant analysis
of housing microfinance loans: Terms ·Up to 10 years for house
a. Banks that intend to provide the construction and house and/or
housing microfinance loans must first be lot acquisition
accredited by the HUDCC in accordance ·Up to 5 years for home
with the accreditation criteria and improvement/repairs
conditions provided under the MOA
between the BSP and the HUDCC. The (2) The loan shares the characteristics
loans must likewise be provided pursuant of the microfinance loan except for the
to the terms of the Housing Microfinance following:
Product Manual jointly approved by the BSP (a) The maximum loan amount is
and HUDCC. P 300,000 (microfinance loans have a
The approved product has the following maximum of P150,000)
salient features: (b) The loans have longer terms with a
(1) It has the following basic maximum of five (5) years for home
characteristics: improvement/repairs and ten (10) years for
house construction and house/lot
acquisition.
Subject Particulars (c) While most clients for housing
Purpose ·House construction microfinance loans are existing microfinance
·House and/or lot acquisition clients who have demonstrated a good track
·Home improvement/repairs record with the bank, new clients may also
Eligibility ·Existing microfinance clients be accepted subject to certain requirements.
·New clients without access to (d) For house construction and house/
formal housing finance lot acquisition loans, secure tenure
institutions (but with verifiable instruments will be used as collateral.
proof of income) (3) Due to the features that are different
Loan Amount ·Up to P300,000 for house from the typical microfinance loan, the
construction and/or lot following additional risk management
acquisition (must show features are embedded in the product:
tenure security) (a) Clients’ ability to repay based on
·Up to P150,000 for home cash flow analysis and affordability (loan
improvement/repairs payment < 60% of income) especially the
Loan Value ·Up to ninety percent (90%) of the new clients. In addition, new clients have
appraised value in case of REM to demonstrate that they cannot access any
·Acceptable valuation in cases other formal housing finance facility;
of usufruct, leases, etc. (b) Savings typically a requirement;
·Capacity to pay based on (c) Secure tenure instruments as
cash flow analysis collateral/collateral substitutes;

§§ X361.5 - X365.1
08.12.31
(d) Additional risk cover may be (g) Recording of portfolio at risk (PAR)
availed from HGC cash flow guarantee and the provisioning requirement for
program; microfinance loans under Appendix 18 for
(e) Adequate loan monitoring, home improvement/repair loans. Provisioning
collection, control, provisioning; for house construction and house/lot
(f) Accreditation from the HUDCC acquisition shall follow those of regular
with standards approved by the BSP and loans under Appendix 18.
formalized by a MOA between HUDCC Banks which will grant housing
and BSP; and microfinance loans must:
(g) Mortgage redemption insurance (1) include the loan in the bank’s
provided in case of death and permanent microfinance manual as one of the types of
disability. services or products offered to prospective
b. Banks intending to provide housing clients; and
microfinance loans not under Item “a” (2) maintain a sub-control ledger for
hereof shall present the relevant product the loan.
manual for BSP consideration and approval. (M-2008-015 dated 19 March 2008)
The following are the incentives for
housing microfinance loans in addition to §§ X361.6-X361.9 (Reserved)
existing incentives available for
microfinance: § X361.10 Sanctions. Violations of the
(a) Housing microfinance loans shall provisions of this Section shall be subject
be eligible as alternative compliance to the to any or all of the following sanctions:
mandatory credit allocation requirement to a. Disqualification of the bank
agrarian reform and other agricultural credit. concerned from the credit facilities of the
(b) The loans shall have an assigned BSP except as may be allowed under
risk-weight of fifty percent (50%) when not Section 84 of R.A. No. 7653;
guaranteed and zero percent (0%) when b. Prohibition of the bank concerned
guaranteed by the HGC. from the extension of additional
(c) When the volume of large banks’ microfinance loans; and
housing microfinance loans have reached c. Penalties and sanctions provided
a desirable level, their business transactions under Sections 36 and 37 of R.A. No. 7653.
(i.e. securitization, outright purchase, etc.)
shall be considered as an alternative Secs. X362 - X364 (Reserved)
compliance with the mandatory credit
allocation requirement to agrarian reform Sec. X365 Loans to Barangay Micro
and other agricultural credit; Business Enterprises. The following are the
(d) If secured by REM, a ninety percent rules and regulations to implement Section
(90%) loan valuation may be allowed 9 and the second paragraph of Section 13
considering the guarantee component. of R.A. No. 9178, otherwise known as the
(e) Secure tenure instruments such as “Barangay Micro Business Enterprises
freehold, usufruct, leasehold and right to (BMBEs) Act of 2002”.
occupy and/or build shall be recognized as
collateral/collateral substitute subject to § X365.1 Credit delivery. The LBP,
approved loan valuations (Appendix 81). the DBP, the SBGFC, and the Peoples Credit
(f) Housing microfinance loans shall and Finance Corporation (PCFC) shall set
not exceed thirty percent (30%) of the total up a special credit window that will service
loan portfolio. the financing needs of duly registered

§§ X365.1 - X365.5
08.12.31
BMBEs consistent with BSP policies, rules determine that the borrower is capable of
and regulations. Said special credit window fulfilling his/its commitments.
shall service the credit needs of BMBEs
either through retail or wholesale lending, § X365.5 Incentives to participating
or both, as the concerned FIs may deem financial institutions. To encourage BMBE
consistent with their corporate policies and lendings, the following incentives shall be
objectives. The GSIS and the SSS shall granted to banks and other FIs as may be
likewise set up special credit window that applicable:
will serve the financing needs of their a. All loans from whatever sources
respective members who may wish to granted to BMBEs under R.A. No. 9178
establish a BMBE. (BMBEs Act) shall be considered as part of
Said FIs are encouraged to wholesale alternative compliance to P.D. No. 717 or
funds to accredited private FIs including to R.A. No. 6977, as amended. For
community based organizations such as purposes of compliance with P.D. No. 717
cooperatives, NGOs and people’s and R. A. No. 6977, as amended, loans
organizations engaged in granting credit, granted to BMBEs under the BMBEs Act
for relending to BMBEs. shall be computed at twice the amount of
Private banking and other FIs are the outstanding balance of the loans:
encouraged to lend to BMBEs. Provided, That loans used as alternative
compliance with P.D. No. 717 which were
§ X365.2 Interest on loans to BMBEs computed at twice their outstanding
Interest on BMBE loans shall be just and balance shall no longer be eligible as
reasonable as may be determined by compliance with R.A. No. 6977, as
management of the concerned entity to be amended during the same period and vice
consistent with its credit policies. versa: Provided, further, That said loans
may be used as alternative compliance with
§ X365.3 Amortization of loans to both P.D. No. 717 and R.A. No. 6977, as
BMBEs. The schedule of loan amortization amended at the same time at the maximum
shall take into consideration the projected amount of 100% of their outstanding
cash flow of the borrowers. Thus, loans balance each: Provided, furthermore, That
granted to BMBEs may, at the discretion of funds loaned by or rediscounted with
the lender, be amortized daily, weekly, government-owned banks and other
monthly or at such interval as the conditions government FIs to accredited private
of the business of the BMBEs may warrant. banking and other FIs for on-lending to
BMBEs shall be eligible as part of alternative
§ X365.4 Waiver of documentary compliance for P.D. No. 717 or for R.A.
requirements. Banks and other FIs shall No. 6977, as amended, of the government-
not require from duly registered BMBE owned banks and the accredited private
borrowers the submission of ITR as a banks at the maximum amount of 100% of
condition to the grant of loans considering their outstanding balance each: Provided,
that BMBEs are exempted from income tax finally, That loans used as alternative
for income arising from their operations. compliance with R.A. No. 6977, as
They may, at their discretion, also waive amended, computed at either twice their
the requirement of submission of financial outstanding balance or their maximum
statements from BMBEs: Provided, That amount of 100% may be used as alternative
before granting any loan, banks shall compliance for either or both the prescribed
undertake reasonable measures to portions of loan portfolio to be allocated to

§§ X365.5 - X376.5
08.12.31
MSEs and MEs, respectively, as long as the Secs. X366 - X375 (Reserved)
aggregate amount used does not exceed twice
their outstanding balance or their maximum H. EQUITY INVESTMENTS
amount of 100%, as the case may be.
b. Any existing laws to the contrary Sec. X376 Scope of Authority. The
notwithstanding, interests, commissions and following rules shall govern the investment
discounts derived from the loans by the LBP, of banks in the equities of allied
DBP, PCFC, SBGFC granted to BMBEs as well undertakings, whether financial or non-
as loans extended by the GSIS and SSS to their financial, and non-allied undertakings,as
respective member-employees under BMBEs well as the establishment/acquisition of
Act and this Section shall be exempt from subsidiaries and affiliates abroad.
gross receipt tax (GRT).
(As amended by Circular No. 625 dated 14 October 2008) § X376.1 Conditions for investment in
equities. A bank shall not invest in the
§ X365.6 Credit guarantee. The equity of any enterprise, if the investing
SBGFC and the Quedancor under the DA, bank is in any of the following situations:
in case of agri-business activities, shall set a. Its capital is impaired, whether by
up a special guarantee window to provide actual losses or unbooked valuation
credit guarantee to BMBEs under their reserves required by the BSP;
respective 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 maintained;
loans extended to their respective members c. It incurred losses from its operations
who wish to establish BMBEs. during the preceding year;
d. It has not fully booked the valuation
§ X365.8 Reports to Congress. The reserves and other capital adjustments
LBP, DBP, PCFC, SBGFC, SSS, GSIS and required by the BSP;
Quedancor shall report annually to the e. It has exceeded the individual and
appropriate Committees of both Houses aggregate ceilings as well as the ceiling on
of Congress, the status of their unsecured credit accommodations to
implementation of the provisions of DOSRI; and
Section 9 of R.A. No. 9178. f. Its ratio of past due loans to total loan
portfolio exceeds twenty percent (20%).
§ X365.9 Administrative sanctions
Any violation by the concerned §§ X376.2 - X376.4 (Reserved)
government FI of the provisions of Section
9 of R.A. No. 9178 shall be subject to a § X376.5 Guidelines for major
fine of not less than P500 thousand to be investments. The following are the
imposed by the BSP and which shall be guidelines for major acquisitions or
payable to the BMBE Development Fund. investments by a bank including corporate
In case of a banking institution, the affiliations or structures to implement
foregoing fine shall be without prejudice Section 50 of R.A. No. 8791.
to the administrative sanctions provided for a. Definition. Major investments are
under Section 37 of R.A. No. 7653. those investments in allied or non-allied

§ X376.5
05.12.31
undertakings including corporate affiliations documents to the appropriate department

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

§§ X376.5 - X378
07.12.31
Within six (6) months from 07 h. Companies engaged in foreign

September 2001, banks shall provide the exchange dealership/brokerage.
BSP reliable information on companies in In addition, UBs may invest in the
which they have significant interest or following as financial allied undertakings:
control, such as 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 are confined to the equities of allied
the manner in which such interest is undertakings and/or non-allied undertakings
held. of UBs allowed under BSP regulations.
d. Examination and inspection. The Monetary Board may declare such
Whenever deemed necessary, BSP shall other activities as financial allied
have the authority to examine investee undertakings of banks.
companies or to verify information The determination of whether the
provided by other supervisory authorities corporation is engaged in a financial allied
such as the SEC. undertaking shall be based on its primary
The BSP shall have the authority to purpose as stated in its articles of incorporation
seek corrective action, to issue orders to and the volume of its principal business.
terminate activities with or divest an
interest in an investee company, if it Sec. X378 Limits on Investment in the
believes that such action is necessary to Equities of Financial Allied Undertakings
prevent or redress unsafe or unsound The equity investment of a bank in a single
practice by such company that poses a financial allied undertaking shall be within
material risk to the financial safety, the following ratios in relation to the total
soundness or stability of a bank. subscribed capital stock and to the total
voting stock of the allied undertaking:
Sec. X377 Financial Allied Undertakings
With prior BSP approval, banks may invest ACTIVITIES INVESTOR
in equities of the following financial allied UB KB
Publicly- Not Publicly- Not
undertakings, subject to the limits listed listed listed listed
prescribed under Sec. X378: Allied Enterprises
a. Leasing companies including Financial Allied
Undertaking
leasing of stalls and spaces in a commercial UBs 100% 49% 100% 49%
establishment: Provided, That bank KBs 100 49 100 49
investment in/acquisition of shares of such TBs 100 100
RBs 100 100
leasing company shall be limited/ Coop Banks NA NA
applicable only in cases of conversion of Insurance
Companies 100 NA
outstanding loan obligations into equity; VCCs 60 60
b. Banks; Others 100 49
c. IHs;
d. Financing companies; TB RB Coop Banks
Financial Allied
e. Credit card companies; Undertaking
f. FIs catering to small and medium UBs 49% 49% 49%
KBs 49 49 49
scale industries including venture capital TBs 49 49 49
corporation (VCC), subject to the RBs 49 49 100
provisions of Sec. X379 and its Coop Banks NA NA 30
Insurance NA NA NA
subsections;
Companies
g. Companies engaged in stock VCCs 60 49 49
brokerage/securities dealership; and Others 40 40 40

§§ X378 - X379.2
07.12.31
To promote competitive conditions, the equity and of the total equity of a VCC. A
Monetary Board may further limit the equity bank shall not be allowed to invest in the
investments in QBs of UBs and KBs to forty equity of more than one VCC;
percent (40%). c. The initial paid-in capital of VCC
A publicly-listed UB or KB may own shall not exceed P5.0 million. Any
up to 100% of the voting stock of only one subsequent increase in paid-in capital of
(1) other UB or KB. Otherwise, it shall be the VCC in which a bank owns equity shall
limited to a minority holding. be subject to prior approval of the
The existing investment of a bank in Monetary Board;
another bank under R.A. No. 7721 shall d. Loans which the investor-bank may
be governed by Sec. X121 insofar as it is grant to a VCC shall be limited to such
consistent with R.A. No. 8791. amounts as would enable the VCC to
The guidelines in determining promote equity financing to viable small
compliance with ceilings on equity and medium scale enterprise: Provided,
investments in financial allied undertakings however, That unless otherwise authorized
are shown in Appendix 79. by the Monetary Board, the aggregate
(As amended by Circular Nos. 581 dated 14 September 2007; outstanding loans of such bank to a VCC
530 dated 19 May 2006) shall not exceed twice the amount of its
equity investment in the VCC: Provided,
Sec. X379 Investments in Venture Capital further, That loans to the VCC, or the small
Corporations. The following rules and and medium-scale enterprises shall not be
regulations shall implement Presidential subject to the ceilings on DOSRI, except
Decree No. 1688 entitled “Authorizing where bank DOSRI are likewise
Banks to Invest in the Equity of Venture stockholders in the VCC or in the small
Capital Corporations to Assist Small and and medium-scale enterprise;
Medium- Scale Enterprises”. e. The combined equity investments
For purposes of this Section, a VCC in, and loans of, the bank to its VCC shall
shall refer to an entity organized jointly not exceed fifteen percent (15%) of the
by private banks, the National bank’s net worth; and
Development Corporation and the f. The aggregate investments in
Technology Livelihood and Resource equities by a bank, including equity
Center and/or such other government investments in a VCC, shall not exceed the
agency as may be authorized by the prescribed ceilings under Sec. X383 on
appropriate authority, the primary other limitations and restrictions.
purpose of which is to develop, promote The guidelines in determining
and assist, thru debt or equity financing compliance with ceilings on equity
or any other means, any small and investments in a VCC are shown in
medium-scale enterprise in the country. Appendix 79.
(As amended by Circular No. 581 dated 14 September 2007)
§ X379.1 Requirements for investors
Banks may invest in a VCC organized to § X379.2 Equity investments of
assist small and medium-scale enterprises, venture capital corporations. Equity
subject to the following conditions: investment of a VCC in small and medium-
a. The bank shall have a minimum scale enterprises shall be subject to the
capital of P100.0 million as defined in Sec. following conditions:
X106; a. Equity financing by a VCC may be
b. Two (2) or more banks may own extended to a small and medium-scale
up to sixty percent (60%) of the total voting enterprise engaged in an industry certified

§§ X379.2 - X380
07.12.31
as desirable by the Department of Trade The determination of whether the

and Industry; and corporation is engaged in a non-financial
b. The total assets of the enterprises allied undertaking shall be based on the
shall not exceed P4.0 million, including primary purpose as stated in its articles of
the VCC’s equity investment. Should the incorporation and the volume of its
total assets of the small and medium-scale principal business.
enterprise subsequently exceed the a. UBs/KBs/TBs
prescribed P4.0 million maximum, the UBs/KBs and TBs may invest in equities
VCC equity investment therein made of the following non-financial allied
before the total assets of the enterprise undertakings:
exceeded P4.0 million, may be maintained (1) Warehousing companies;
but shall not be increased. (2) Storage companies;
(3) Safe deposit box companies;
§ X379.3 Business name of venture (4) Companies primarily engaged in
capital corporations. A VCC shall be the management of mutual funds but not
known by any name not otherwise in the mutual funds themselves;
appropriated: Provided, however, That the (5) Management corporations
words "venture capital corporation” are engaged or to be engaged in an activity
made a part thereof. similar to the management of mutual funds;
(6) Companies engaged in providing
§ X379.4 Reportorial requirements; computer services;
examination by Bangko Sentral. A VCC (7) Insurance agencies/brokerages;
in which a bank owns equity shall be (8) Companies engaged in home
subject to BSP reportorial requirements building and home development;
prescribed for non-bank financial (9) Companies providing drying and/
intermediaries and may be subject to or milling facilities for agricultural crops
examination by the BSP. such as rice and corn;
(10) Service bureaus, organized to
§ X379.5 Interlocking directorships perform for and in behalf of banks and
and/or officerships. Subject to prior NBFIs the services allowed to be
approval of the Monetary Board, a person outsourced enumerated in Sec. X169:
may concurrently hold the position of a Provided, That data processing companies
director or officer in a bank and a VCC. may be allowed to invest up 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 Monetary Board may declare as non-
percent (50%) of the voting shares in that financial allied undertakings of banks.
enterprise: Provided, further, That prior UBs may further invest in health
Monetary Board approval is required if the maintenance organizations (HMOs).
investment is in excess of forty percent In addition, TBs may also invest in the
(40%) of the total voting stock of such equities of companies enumerated in Item
allied undertaking. “b” of this Section.

§§ X380 - 1381.2
07.12.31
b. RBs/Coop Banks a. Enterprises engaged in physically

RBs/Coop Banks may invest, as a non- productive activities in agriculture, mining
financial undertaking, in the equities of and quarrying, manufacturing, public
companies engaged in the following: utilities, construction, wholesale trade and
(1) Warehousing and other post- community and social services following
harvest facilities; the industrial groupings in the Philippine
(2) Fertilizer and agricultural chemical Standard Industrial Classification (PSIC) as
and pesticides distribution; enumerated in Appendix 22;
(3) Farm equipment distribution; b. Industrial park projects and/or
(4) Trucking and transportation of industrial estate developments;
agricultural products; c. Financial and commercial
(5) Marketing of agricultural products; complex projects (including land
(6) Leasing; development and buildings constructed
(7) Automated Teller Machine (ATM) thereon) arising from or in connection with
networks; and the Government's privatization program;
(8) Other undertakings as may be and
determined by the Monetary Board. d. Such other broad categories as the
The guidelines in determining Monetary Board may declare as
compliance with ceilings on equity appropriate: Provided, further, That the
investments in non-financial allied bank shall submit within thirty (30)
undertakings are shown in Appendix 79. banking days after the investment, the
(As amended by Circular Nos.581 dated 14 September 2007 following information/documents to the
and 563 dated 16 March 2007) appropriate department of the SES:
(1) The amount of investment;
Sec. X381 (Reserved) (2) The name of investee company; and
(3) The nature of business,
Sec. 1381 Investments in Non-Allied or accompanied by such pertinent
Non-Related Undertakings. Only UBs may documents as articles of incorporation,
invest in the equity of an enterprise engaged articles of partnership or registration
in non-allied or non-related activities. certificate, whichever may be applicable.
The guidelines in determining
compliance with ceilings on equity § 1381.2 Limits on investments in
investments in non-allied or non-related non-allied enterprises
undertakings are shown in Appendix 79. a. The equity investment of a UB, or
(As amended by Circular No. 581 dated 14 September 2007) of its wholly or majority-owned
subsidiaries, in a single non-allied
§ 1381.1 Non-allied undertakings enterprise shall not exceed thirty-five
eligible for investment by universal banks percent (35%) of the total equity in that
The broad category of non-allied enterprise nor shall it exceed thirty-five
undertakings in which a UB may invest percent (35%) of the voting stock in that
directly or through its subsidiary shall enterprise.
require prior approval of the Monetary For the purpose of determining
Board: Provided, That individual equity compliance with the ceiling prescribed in
investments in the following broad the preceding paragraph, (i) the equity
categories shall not require prior Monetary investment of the bank; and (ii) the equity
Board approval, except as may be required investment of the bank’s subsidiaries, shall
in Subsec. X376.5: be combined.

§§ 1381.2 - 1381.3
05.12.31
b. In no case shall the total equity § 1381.3 Report on outstanding

investments in a single non-allied equity investments in and outstanding
enterprise of UBs, NBFIs performing QB loans to non-allied enterprises. UBs shall
functions and their subsidiaries, whether submit to the appropriate department of the
or not the parent financial intermediaries SES within fifteen (15) banking days, a
have equity investments in the enterprise, report as of June 30 and December 31 of
amount to fifty percent (50%) or more of each year showing the following:
the voting stock of that enterprise: a. Their outstanding equity
Provided, however, That equity investments in non-allied enterprises;
investments in excess of the ceilings b. Outstanding equity investments of
prescribed herein as of 01 April 1980 may their wholly or majority-owned
be maintained but may not be increased subsidiaries in non-allied enterprises;
and if reduced, shall not be increased c. Their outstanding loans to non-
thereafter beyond the ceiling prescribed allied enterprises in which they have equity
herein. 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
07.12.31
Sec. X383 Other Limitations and On the Director/Officer. Fine of P20,000

Restrictions. The following limitations and for each investment to be imposed on the
restrictions shall also apply regarding members of the board and the executive
equity investments of banks. officers who recommended/approved the
a. In any single enterprise. The equity investment per investment and to be
investments of UBs and KBs in any single shouldered personally by the officer/
enterprise shall not exceed at any time director: Provided, That if the subsequent
twenty-five percent (25%) of the net worth offense is an investment in a non-allied
of the investing banks as defined in Sec. enterprise, the fine shall be P40,000.
X106 and Subsec. X121.5.
b. Aggregate limits. The total amount I. (RESERVED)
of investments in equities in all enterprises
shall not exceed the following ratios in Secs. X386 - X387 (Reserved)
relation to the net worth of the investing bank:
J . OTHER OPERATIONS
UB KB TB RB Coop Bank
LIMIT: 50% 35% 25% 25% 25% Sec. X388 Purchase of Receivables and
Other Obligations. The following
c. Exclusion of underwriting exposure regulations shall govern the purchase of
from ceiling. The exposure of a bank with receivables and other obligations.
UB authority arising from the firm
underwriting of equity securities of § X388.1 Yield on purchase of
enterprises shall not be counted in receivables. The rate of yield, including
determining compliance with the ceilings commissions, premiums, fees and other
prescribed in this Section and Subsec. charges, from the purchase of receivables
X381.2 for a period of two (2) years from and other obligations, regardless of
the acquisition of such equity securities. maturity, that may be charged or received
d. The guidelines in determining by banks shall not be subject to any
compliance with the other limitations and regulatory ceiling.
restrictions on equity investments of banks
are shown in Appendix 79. § X388.2 Purchase of receivables on
(As amended by Circular No. 581 dated 14 September 2007) a "without recourse" basis. The total
exposure of a bank to a maker of
Sec. X384 (Reserved) promissory notes resulting from the
purchase of receivables on a without
Sec. X385 Sanctions. The following recourse basis shall be subject to the SBL
sanctions shall be imposed for equity of the bank: Provided, That the bank shall
investments made without prior Monetary evaluate the credit worthiness of the maker
Board approval: of such promissory notes.
a. First Offense - If the investment is
not allowable under existing regulations, § X388.3 Purchase of commercial
divestment of the investment and paper. Before purchasing registered
reprimand on officer/director who commercial paper, banks authorized to
recommended/approved the investment. engage in quasi-banking functions shall -
b. Subsequent Offense - a. Require the issuing entity to
On the Bank. If the investment is not submit a duly certified true copy of its
allowable under existing regulations, Certificate of Registration and Authority to
divestment of the investment. Issue Commercial Paper; and

§§ X388.3 - 1389
08.12.31
b. Ascertain that the registration any other evidences of indebtedness or

number and expiry date indicated in the obligations the servicing and repayment
commercial paper are the same as those of which are guaranteed by the Republic
in the certificate of registration submitted. of the Philippines.
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
revocation of its authority to engage in securities and marketable equity securities
quasi-banking functions. shall be in accordance with the guidelines
in Appendices 33 and 33a.
§ X388.4 Reverse repurchase c. Penalties and sanctions. The
agreements with Bangko Sentral following penalties and sanctions shall be
Reverse repo agreements with the BSP imposed on FIs and concerned officers found
shall be governed by Subsec. X601.2. to violate the provisions of these regulations:
(1) Fines to be imposed on FIs for each
§ X388.5 Investment in debt and violation, reckoned from the date the
readily marketable equity securities. The violation was committed up to the date it was
following rules and regulations shall corrected:
govern investment in debt securities and (i) P20,000/day for UBs;
marketable equity securities. (ii) P10,000/day for KBs;
a. Banks may invest in the following: (iii) P2,000/day for TBs; and
(1) Readily marketable bonds and (iv) P1,000/day for RBs/Coop Banks.
other debt securities which are of such use (2) Sanctions to be imposed on
or demand as to make them the subject of concerned officers:
constant dealings in securities markets, (i) First offense – reprimand the
with such frequent quotations of price as officers responsible for the violation; and
to make the price easily and definitely (ii) Subsequent offenses – suspension
ascertainable, and the security easy to of ninety (90) days without pay for officers
realize upon sale at any time: Provided, responsible for the violation.
That the bonds and other debt securities (As amended by Circular Nos. 628 dated 31 October 2008,
have complied with the new rules on 626 dated 23 October 2008 and 585 dated 15 October 2007,
registration of commercial papers: M-2007-006 dated 28 February 2007; Circular Nos. 558 dated
Provided, further, That in the case of RBs/ 22 January 2007, 546 dated 17 November 2006 and 509
Coop Banks, the bonds and other securities dated 01 February 2006)
have been approved by the BSP.
TBs may invest in evidences of Sec. X389 (Reserved)
indebtedness which are registered with the
SEC but are not readily marketable Sec. 1389 Guidelines on the Investment
securities: Provided, That these evidences of UBs and KBs in Credit-Linked Notes,
of indebtedness shall be acquired with Structured Products and Securities
recourse against a bank or a QB. Overlying Securitization Structures. In
It shall be the responsibility of the line with the policy of encouraging banks
investing bank to undertake the necessary to diversify their investment portfolios and
investigation to satisfy itself with regard to to foster the development of a market for
the particular security. new financial products, the BSP has issued
(2) Evidences of indebtedness of the guidelines on the investment of UBs and KBs
Republic of the Philippines or the BSP, and in (1) CLNs and similar products (Sec. 1633),

§§ 1389 - X394.1
08.12.31
(2) foreign currency denominated LDR for the banking system is an indicator
structured products (Secs. 1560 and 1636) of the level of bank deposits which have
and (3) securities overlying securitization been transformed into investments in a
structures (Sec. 1648). region. The latter may be used by banks
No prior BSP approval is required to as a benchmark in assessing their regional
enter into authorized transactions. lending and deposit operations as against
However, it shall be the responsibility of that of the industry and their peer group.
UBs/KBs to fully comply with appropriate (As amended by Circular No. 613 dated 18 June 2008)
risk management standards including, as
a minimum, those prescribed under § X393.3 Computation of the regional
relevant Sections. The regulatory loans-to-deposits ratio. The individual
requirements enumerated in Appendix 66 bank’s regional LDR shall be computed by
shall be fully complied with by UBs/KBs dividing a bank’s aggregate loans by its
investing in products allowed under Secs./ aggregate deposit liabilities on a per region
Subsecs. 1633, 1560/X116.8 and X116.9. basis as of the same reporting cut-off date. A
The guidelines on the accounting for bank, in computing its regional LDR, shall
investments in CLNs and other SPs, in be guided by the following:
addition to those prescribed under PAS 39, a. Loans shall be reported by a bank in the
is provided in Appendix 66a. region where the loan proceeds were utilized
(As amended by M-2008-010 dated 07 March 2008) or channeled to, i.e., location of the end-users.
b. Deposits, on the other hand, shall be
Sec. 2389 (Reserved) reported by a bank in the region wherein
these were generated.
Sec. 3389 (Reserved) For purposes of this Section, loans shall
refer to the amortized cost of a bank’s total
Secs. X390 - X392 (Reserved) loan portfolio, excluding “Loans to BSP”,
“Interbank Loans Receivable” and loans
K. MISCELLANEOUS PROVISIONS granted by a bank’s FCDU/EFCDU.
Deposits, on the other hand, shall refer to
Sec. X393 Loans-to-Deposits Ratio. The a bank’s total deposit liabilities, excluding
following policies and guidelines shall FCDU/EFCDU deposits.
govern the loans-to-deposits ratio (LDR) of (As amended by Circular No. 613 dated 18 June 2008)
head offices and branches.
(As amended by Circular No. 613 dated 18 June 2008) § X393.4 Lagged computation. (Deleted
by Circular No. 613 dated 18 June 2008)
§ X393.1 Statement of policy. It is the
policy of the BSP to promote healthy § X393.5 Real and other properties
competition within the banking system as acquired as part of compliance. (Deleted by
well as provide enhanced banking statistics Circular No. 613 dated 18 June 2008)
necessary for informed decision-making.
(As amended by Circular No. 613 dated 18 June 2008) Sec. X394 Acquired Assets in Settlement
of Loans. The following rules shall govern
§ X393.2 Regional loans-to-deposits assets acquired in settlement of loans.
ratio. An individual bank’s regional LDR
is a measure of the extent of its lending § X394.1 Posting. Banks shall post at
activity vis-à-vis deposits generated in a all times in a conspicuous place in the
region. On an aggregate basis, the regional premises of their head office and each of

§§ X394.1 - X394.2
07.12.31
their branches and other banking offices a values, which allocated carrying amounts
list of acquired assets together with the shall become their initial costs.
corresponding lowest price at which the c. The non-financial assets portion of
bank is willing to sell such property. ROPA shall remain in ROPA and shall be
However, this requirement shall not accounted for as follows:
relieve the bank from the requirement (1) Land and buildings shall be
under Section 52 of R.A. No. 8791 to accounted for using the cost model under
dispose of such acquired assets. PAS 40 “Investment Property”;
(2) Other non-financial assets shall be
§ X394.2 Booking accounted for using the cost model under
a. ROPA in settlement of loans PAS 16 “Property Plant and Equipment”;
through foreclosure or dation in payment (3) Buildings and other non-financial
shall be booked under the ROPA account assets shall be depreciated over the
as follows: remaining useful life of the assets, which
(1) Upon entry of judgment in case of shall not exceed ten (10) years and three
judicial foreclosure; (3) years from the date of acquisition,
(2) Upon execution of the Sheriff’s respectively; and
Certificate of Sale in case of extrajudicial (4) Land, buildings and other
foreclosure; and non-financial assets shall be subject to the
(3) Upon notarization of the Deed of impairment provisions of PAS 36
Dacion in case of dation in payment “Impairment”.
(dacion en pago). d. Financial assets, shall be
ROPA shall be booked initially at the reclassified and booked according to
carrying amount of the loan (i.e., intention under HFT, DFVPL, AFS, HTM,
outstanding loan balance adjusted for any INMES, Unquoted Debt Securities
unamortized premium or discount less Classified as Loans or Loans and
allowance for credit losses computed Receivable and accounted for in
based on PAS 39 provisioning accordance with the provisions of PAS 39,
requirements, which take into account the except interests in subsidiaries, associates
fair value of the collateral) plus booked and joint ventures, which shall be booked
accrued interest less allowance for credit under Equity Investments in Subsidiaries,
losses (computed based on PAS 39 Associates and Joint Ventures and accounted
provisioning requirements) plus transaction for in accordance with the provisions of PAS
costs incurred upon acquisition (such as 27, 28 and 31, respectively.
non-refundable capital gains tax and e. ROPAs that comply with the
documentary stamp tax paid in connection provisions of PFRS 5 “Non-Current Assets
with the foreclosure/purchase of the Held for Sale” shall be reclassified and
acquired real estate property): Provided, accounted for as such.
That if the carrying amount of ROPA f. Claims arising from deficiency
exceeds P5.0 million, the appraisal of the judgments rendered in connection with
foreclosed/purchased asset shall be the foreclosure of mortgaged properties
conducted by an independent appraiser shall be lodged under the real account
acceptable to the BSP. “Deficiency Judgment Receivable”; while
b. The carrying amount of ROPA shall probable claims against the borrower
be allocated to land, building, other arising from the foreclosure of mortgaged
non-financial assets and financial assets properties shall be lodged under the
(e.g., receivables from third party or equity contingent account “Deficiency Claims
interest in an entity) based on their fair Receivable”.

§§ X394.2 - X394.3
07.12.31
g. Appraisal of properties. Before the SCR by crediting interest income using

foreclosing or acquiring any property in the effective interest method. Any
settlement of loans, it must be properly difference between the present value of
appraised to determine its true economic the SCR and the derecognized assets shall
value. If the amount of ROPA to be booked be recognized in profit or loss at the date
exceeds P5.0 million, the appraisal must of sale in accordance with the provisions
be conducted by an independent appraiser of PAS 18 “Revenue”: Provided,
acceptable to the BSP. An in-house furthermore, That SCR shall be subject to
appraisal of all ROPAs shall be made at impairment provision of PAS 39.
least every other year: Provided, That The provisions of this Subsection shall
immediate re-appraisal shall be conducted be applied retroactively to all outstanding
on ROPAs which materially decline in value. ROPAs and SCRs: Provided: That for
h. Non-cash payment for interest. FIs properties acquired before 1 January 2005,
that accept non-cash payments for interest the carrying amount of the acquired
on their borrowers’ loans shall book the properties when initially booked under
acquired assets as ROPA. The amount to ROPA shall be the cost subject to
be booked as ROPA shall be the booked depreciation and impairment testing,
accrued interest less allowance for credit which shall be reckoned from the time of
losses (computed based on PAS 39 acquisition.
provisioning requirements): Provided, That b. SCRs which meet all the
if the carrying amount of ROPA exceeds requirements/conditions enumerated
P5.0 million, the appraisal of the below are hereby considered performing
foreclosed/purchased asset shall be assets and therefore, not subject to
conducted by an independent appraiser classification:
acceptable to the BSP. The carrying (1) That there has been a down-
amount of ROPA shall be allocated in payment of at least twenty percent (20%)
accordance with Item “b” and shall be of the agreed selling price or in the
subsequently accounted for in accordance absence thereof, the installment
with Item “c” of this Subsection. payments on the principal had already
The provisions of this Subsection shall amounted to at least twenty percent
be applied retroactively to all outstanding (20%) of the agreed selling price;
ROPAs and sales contract receivables: (2) That payment of the principal must
Provided: That for properties acquired be in equal installments or in diminishing
before 1 January 2005, the carrying amount amounts and with maximum intervals of
of the acquired properties when initially one (1) year;
booked under ROPA shall be the cost (3) That any grace period in the
subject to depreciation and impairment payment of principal shall not be more than
testing, which shall be reckoned from the two (2) years; and
time of acquisition. (4) That there is no installment payment
(As amended by Circular Nos. 555 dated 12 January 2007 and in arrear either on principal or interest:
520 dated 20 March 2006) Provided, That an SCR account shall be
automatically classified “Substandard” and
§ X394.3 Sales contract receivable considered non-performing in case of
a. Sales Contract Receivable (SCR) non-payment of any amortization due:
shall be recorded based on the present Provided, further, That an SCR which has
value of the installments receivables been classified “Substandard” and considered
discounted at the imputed rate of interest. non-performing due to non-payment of any
Discount shall be accreted over the life of amortization due may only be upgraded/

§§ X394.3 - X394.15
08.12.31
restored to unclassified and/or performing merger/consolidation which are no longer

status after a satisfactory track record of at necessary for their banking operations.
least three (3) consecutive payments of the Towards this end, banks are hereby
required amortization of principal and/or authorized to enter into Joint Venture
interest has been established. Agreements (JVA) with real estate
(As amended by Circular No. 520 dated 20 March 2006) development companies for the
development of said properties, subject to
§§ X394.4 - X394.9 (Reserved) the requirements prescribed under this
Subsection.
§ X394.10 Transfer/sale of b. For purposes of this Subsection,
non-performing assets to a special joint venture shall refer to a contractual
purpose vehicle or to an individual. The arrangement/undertaking between a bank
procedures governing the transfer/sale of and a duly registered real estate
non-performing assets (NPAs) to a Special development company (developer) for the
Purpose Vehicle (SPV) or to an individual purpose of developing the
that involves a single family residential abovementioned properties of the bank.
unit, or transactions involving dacion en The bank contributes said properties to the
pago by the borrower or third party of an undertaking while the developer
NPL, for the purpose of obtaining the contributes all the development funds,
Certificate of Eligibility (COE) which is resources, technical expertise, equipment,
required to avail of the incentives provided personnel and all other requirements
under R.A. No. 9182 are presented in desired or needed for the implementation
Appendix 56. and completion of the undertaking
The accounting guidelines on the sale including marketing, where applicable.
of NPAs to SPVs and to qualified The bank and the developer shall be bound
individuals for housing under the SPV Act by the contract that establishes joint control
of 2002 are presented in Appendix 56a. of the undertaking. Although the
The significant timelines related to the developer may be designated as operator
implementation of R.A. No. 9182, also or manager of the undertaking, it does not,
known as the "Special Purpose Vehicle however, absolutely control the
Act" as amended by R.A. No. 9343 are undertaking but only acts in accordance
presented in Appendix 56b. with the authorities granted to him under
(As amended by M-2008-014 dated 17 March 2008, M-2008-005 the JVA.
dated 04 February 2008, M-2007-013 dated 11 May 2007 and c. Forms of a joint venture. A bank
M-2006-001 dated 11 May 2006) and a developer may undertake a joint
venture under the following forms:
§§ X394.11 - X394.14 (Reserved) (1) A jointly-controlled operation/
undertaking, which does not involve the
§§ X394.15 Joint venture of banks establishment of a corporation, partnership
with real estate development companies or other entity, or a financial structure that
a. Statement of policy. It is the policy is separate from the bank and the
of the BSP to encourage banks to dispose developer themselves. Under this form
of their ROPAs in settlement of loans and of joint venture, the rights and obligations
other advances either through foreclosure of the bank and the developer shall be
or dacion en pago as well as other governed primarily by their contract that
properties acquired as a consequence of a must clearly specify the following:

§ X394.15
06.12.31
(a) authority of the developer to (5) The JVA or contractual

develop/subdivide the property and arrangement shall clearly stipulate the
subsequently, to sell the individual lots rights and obligations of the bank and the
under a special power of attorney; developer.
(b) sharing in the sales proceeds of the (6) The bank shall secure prior
developed ROPAs or in the developed Monetary Board approval of the JVA.
lots; e. Application for authority to enter
(c) sharing in taxes; into JVA. A bank desiring to enter into a
(d) sharing in the assets of the joint JVA with a developer for the purpose of
venture particularly in the developed/ developing its ROPAs and other
subdivided lots should there still be unsold properties acquired as a consequence of
lots at the time of termination of the joint its merger/consolidation with another
venture; and bank/FI shall secure prior Monetary Board
(e) name under which the subdivided approval of said agreement. For that
lots shall be registered pending their sale. purpose, the concerned bank shall submit
(2) A jointly-controlled entity, which an application for Monetary Board
involves the establishment of a new approval to the appropriate department of
juridical entity, preferably a corporation the SES. The application shall be signed
that is separate and distinct from the bank by the bank’s president or officer of
and the developer. A jointly controlled equivalent rank and shall be accompanied
corporation may be established either for by the following documents/information:
the purpose of developing properties of (1) The name of the developer;
banks for immediate sale or converting (2) Name of the principal
them into earning assets such as hotels and stockholders and officers as well as
shopping malls. members of the board of directors of said
d. Requirements and limitations in a company;
joint venture. A bank desiring to enter into (3) Relationship of the bank with the
a JVA with a developer for the purpose of developer, if any;
developing its ROPAs and/or other (4) List and brief description of the
properties acquired as a consequence of properties to be contributed by the bank
merger/consolidation shall comply with the including their market values, book
following: values and the valuation agreed upon
(1) The JVA shall be approved by the under the proposed JVA;
board of directors of the bank. (5) Certification by the bank’s
(2) The bank’s contribution to the joint president or officer of equivalent rank that
venture, in whatever form undertaken, the JVA is strictly in compliance or will
shall be limited to ROPAs and properties strictly comply with the requirements of
acquired as a consequence of the bank’s this Subsection; and
merger/consolidation with another bank/ (6) Such other documents/
financial institution. information that the concerned
(3) The bank shall not recognize department of the SES may require.
income out of its contribution to the joint f. Non-financial allied undertaking.
venture, regardless of the agreed valuation All types of banks are hereby authorized
of said properties. to invest in the equities of companies
(4) The bank shall not provide funds engaged in real estate development as a
to the joint venture either as a loan or non-financial allied undertaking, subject
capital contribution. to the following conditions:

§§ X394.15 - X395
06.12.31
(1) Investments shall be limited to (3) Properties invested in equities of

ROPAs and other properties acquired as a developers shall be booked in accordance
consequence of a bank’s merger/ with the PAS: Provided, That the bank
consolidation with another bank/FI; shall not recognize income out of the
(2) Investments shall be subject to properties invested if there is already an
existing BSP requirements applicable to existing subsidiary or affiliate relationship
investments in non-financial allied between the bank and the investee
undertakings; and corporation prior to the investment,
(3) If there is already an existing regardless of the agreed valuation of said
subsidiary or affiliate relationship between properties. The excess of the agreed
the bank and the investee corporation prior valuation of said properties over their
to the investment, the bank shall not book value shall be booked as “Deferred
recognize income out of its invested Credits”.
properties. The excess of the value of the h. Coverage. The provisions of this
capital stock received by the bank over the Subsection shall apply to ROPAs existing,
book value of its invested properties shall as well as those which may be acquired
be booked as “Deferred Credits”. by banks in settlement of non-performing
g. Accounting treatment. Accounting or past due loans and advances
treatment of the properties contributed by outstanding, as of 09 March 2006 and to
a bank to a joint venture or invested in the properties acquired as a consequence of
equities of developers. merger or consolidation which are
(1) In a joint venture in the form of a outstanding in the books of banks as of
jointly controlled operations/undertaking, said date.
which does not involve the establishment i. Sanctions. Any violation of the
of a corporation or other entity, the bank provisions of this Subsection and/or any
shall continue to recognize in its books the misrepresentation in the certification and
properties contributed to the undertaking. information required to be submitted to
However, the regular provisioning against the BSP under this Subsection shall subject
probable losses required under existing the bank and the officer or officers
regulations may be discontinued upon responsible therefore, to the penalties
execution and implementation of the JVA. provided under Sections 35, 36 and 37 of
(2) In a joint venture in which a R. A. No. 7653.
corporation is created, the bank shall book (Circular No. 518 dated 09 March 2006)
the properties contributed to the undertaking
as investment pursuant to the provisions of Sec. X395 Credit Policies of
PAS 31. It shall also recognize its interest Government-Owned Corporations
in the corporation using the proportionate Government-owned corporations which
consolidation method or the equity method perform banking or credit functions shall
as long as it continues to have joint control coordinate their general credit policies
over the corporation: Provided, That the with the Schedule of Credit Priorities
bank shall not recognize income out of its embodied in Appendix 23. Within the
contribution to the joint venture. The provision of their respective charters,
excess of the value of the capital stock these corporations shall limit their credits
received by the bank over the book value to the economic activities falling under
of the contributed properties shall be Priority II of said schedule to fifty percent
credited to the account “Deferred Credits”. (50%) of their outstanding loans at any time.

§§ X396 - 1397
08.12.31
Sec. X396 Parcellary Plans on Crop (2) land developers/construction

Loans. Banks shall require the submission companies and other borrowers for the
of parcellary plans a requisite for granting acquisition and development of land
crop loans to sugarcane planters. and/or construction of buildings and
structures, including housing units for
Sec. X397 (Reserved) sale/lease and/or for use in retail/
wholesale, manufacturing or other
Sec. 1397 Limits on Real Estate Loans of income-generating purposes, including
UBs/KBs. Total real estate loans of UB/ loans for the land development and
KBs, excluding: construction of residential properties.
a. Loans extended to individual It shall not include loans for
households for purposes of financing the construction of highways, streets, bridges,
acquisition, construction, and/or tunnels, railways, and other infrastructure
improvement of housing units and for public use.
acquisition of any associated land that is Purchase by banks of receivables
or will be occupied by the borrower, under Contract to Sell (CTS) executed
regardless of amount; between the real estate developers and
b. Loans extended to land home buyers on a with recourse basis shall
developers/construction companies for be considered loans to real estate
the purpose of development and/or developers and shall be classified as
construction of socialized and low-cost commercial real estate loans.
residential properties as defined under Trust departments of UBs/KBs shall be
existing guidelines of the HUDCC for the exempted from the prescribed limit on real
implementation of government housing estate loans.
programs, which are intended for sale to Under existing HUDCC guidelines,
individual households; socialized and low-cost housing loans are
c. Loans to the extent guaranteed by defined as follows:
the HGC; and
d. Loans to the extent collateralized
by non-risk assets under existing regulations
Housing Loan Ceiling
shall not exceed twenty percent (20%) of Package
the total loan portfolio, net of interbank
loans. Low-cost
For this purpose, real estate loans shall Level 1-A
refer to loans granted to: (Socialized) P300,000 and below
(1) individual households for the
Level 1-B Above P300,000
acquisition, construction and/or to P500,000
improvement of housing units and
acquisition of any associated land that is or Level 2 Above P500,000
will be occupied by the borrower, including to P1,250,000
loans granted to bank officers and
employees for the same purpose which Level 3 Above P1,250,000 to
P3,000,000
are covered by bank’s fringe benefit plan
and which plan was approved by the
Monetary Board; and (As amended by Circular No. 600 dated 04 February 2008)

§§ 2397 - X399
05.12.31
Sec. 2397 (Reserved) the Bureau of Local Government Finance

– Department of Finance (BLGF-DOF).
Sec. 3397 (Reserved)
Sec. X399 General Provision on
Sec. X398 Debt Service Limit on Local Sanctions. Any violation of the provisions
Government Borrowings. To ensure the of this Part shall be subject to Sections 36
effective implementation of the debt and 37 of R.A. No. 7653.
service limit on local government The guidelines for the imposition of
borrowings as stipulated in Section 324 (b) monetary penalty for violations/offenses
of the Local Government Code of 1991, with sanctions falling under Section 37
all banks shall require each borrowing LGU of R. A. No. 7653 on banks, their
to present a certificate of its debt service directors and/or officers are shown in
and borrowing capacity, duly certified by Appendix 67.

§§ X401 - X403
08.12.31
PART FOUR
TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT

MANAGEMENT ACTIVITIES
Section X401 Statement of Principles administrator, financial manager, or other

The cardinal principle common to all trust similar capacity, the following:
and 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 in accordance with the basic specifically, evidences of indebtedness of the
standards for trust, other fiduciary and investment National Government, the BSP and other
management accounts in Appendix 83 to evidences of indebtedness or obligations of
promote efficiency in administration and government entities, the servicing and
operation; to adhere and conform to the terms repayment of which are fully guaranteed by
of the instrument or contract; and to maintain the National Government; and
absolute separation of property free from any b. Funds of government and government
intrusion of conflict of interest. entities which are authorized by special laws
A bank authorized to engage in trust and to be placed in trust.
fiduciary business is under no obligation, (As amended by Circular No. 618 dated 20 August 2008)
either legal or moral, to accept any such
business being offered nor has it the right to Sec. X402 Scope of Regulations. These
accept if the same is contrary to law, rules, regulations shall govern the grant of authority
regulations, public order and public policy. to and the management, administration and
It shall advertise its services in a dignified conduct of trust, other fiduciary business and
manner and enter such business only when investment management activities (as these
demand for such service is evident, when terms are defined in Sec. X403) of banks.
specially equipped to render such service The regulations are divided into three
and upon full appreciation of the (3) Sub-Parts where:
responsibilities involved. It shall be ready and A. Trust and Other Fiduciary Business
willing to give full disclosure of the services shall apply to banks authorized to engage in
being offered and shall conduct its dealing trust and other fiduciary business including
with transparency. Harmonious relationship investment management activities;
shall likewise be pursued with other B. Investment Management Activities
professions to achieve the common goal of shall apply to banks without trust authority
mutual service to the public and protection but with authority to engage in investment
of its interest. management activities; and
Banks may not receive or hold as trustee, C. General Provisions shall apply to both.
agent, administrator, financial manager, or
other similar capacity, any fund or money Sec. X403 Definitions. For purposes of
from the Government and government entities: regulating the operations of trust and other
Provided, however, That government-owned fiduciary business and investment management
banks may receive or hold as trustee, agent, activities, unless the context clearly connotes
Manual of Regulations for Banks Part IV - Page 1

§ X403
05.12.31
otherwise, the following shall have the funds and/or property of the trust or for the
meaning indicated. benefit of a beneficiary.
a. Trust business shall refer to any e. Trust agreement is an instrument
activity resulting from a trustor-trustee in writing covering the terms and
relationship (trusteeship) involving the conditions of the trust.
appointment of a trustee by a trustor for f. Trustee is any person who holds legal
the administration, holding, management title to the funds and/or property of a trust.
of funds and/or properties of the trustor g. Trustor is any person who creates a trust.
by the trustee for the use, benefit or h. Beneficiary is any person for
advantage of the trustor or of others whose benefit a trust is created.
called 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 other the consent or authority of the latter.
similar services which do not create or result k. Principal shall refer to the person
in a trusteeship. It shall exclude collecting who grants authority to another person called
or paying agency arrangements and similar an agent, under a contract to enter into
fiduciary services which are inherent in the transactions in his behalf.
use of the facilities of the other operating l. Agent shall refer to a person who
departments of said bank. Investment acts in representation or on behalf of another
management activities, which are with the latter’s authority.
considered as among other fiduciary m. Trust department shall refer to
business, shall be separately defined in the the department, office, unit, group,
succeeding item to highlight its being a major division or any aggrupation which carries
source of fiduciary business. out the trust and other fiduciary business
c. Investment management activity of a bank.
shall refer to any activity resulting from a n. Trust officer shall refer to the
contract or agreement primarily for designated head or officer-in-charge of the
financial return whereby the bank (the trust department.
investment manager) binds itself to handle o. Trust account shall refer to an
or manage investible funds or any account where transactions arising from a
investment portfolio in a representative trusteeship are kept and recorded.
capacity as financial or managing agent, p. Common trust fund (CTF) shall refer
adviser, consultant or administrator of to a fund maintained by a bank authorized
financial or investment management, to perform trust functions under a written
advisory, consultancy or any similar and formally established plan, exclusively
arrangement which does not create or for the collective investment and
result in a trusteeship. reinvestment of certain money
d. Trust is a relationship or an representing participation in the plan
arrangement whereby a person called a received by it in its 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 - 2404
07.12.31
with management rating of not lower than b. Scope of limited trust business
“3”; and Limited trust business shall be confined to:
m. It is a member of the PDIC in good (1) court trusts or trusts under orders
standing. of court of competent jurisdiction, such as
Compliance with the foregoing as well acting as:
as with other requirements under existing (a) executor or administrator of a will;
regulations shall be maintained up to the and
time the trust license is granted. A bank (b) guardian of the estate of a minor or
that fails in this respect shall be required to incompetent; and
show compliance for another test period of (2) administration of properties.
the same duration. c. Application for authority to engage
in limited trust business. A TB desiring to
§ X404.4 Pre-operating requirements engage in a limited trust business shall file
A bank authorized to engage in trust and an application with the Centralized
other fiduciary business shall, before Application and Licensing Group (CALG)
engaging in actual operations, submit to the of the SES. The application shall be signed
BSP the following: by the bank president or officer of
a. Government securities acceptable equivalent rank and shall be accompanied
to the BSP amounting to P500,000 as by the following documents:
minimum basic security deposit for the (1) Certified true copy of the resolution
faithful performance of trust and other of the bank’s board of directors authorizing
fiduciary duties required under Subsec. the application; and
X405.1; (2) Certification signed by the bank
b. Organization chart of the trust president or officer of equivalent rank that
department which shall carry out the trust and the bank has complied with all the conditions/
other fiduciary business of the bank; and pre-requisites for the grant of authority to
c. Names and positions of engage in a limited trust business.
individuals designated as chairman and d. Required capital. A TB applying for
members of the trust committee, trust authority to engage in limited trust business
officer and other subordinate officers of must have minimum capital accounts
the trust department with their respective under existing regulations or P100.0
bio-data and statement of duties and million, whichever is higher, or such
responsibilities. amounts as may be required by the
Monetary Board in the future.
Sec. 1404 (Reserved) e. Pre-requisites for the grant of
authority to engage in limited trust
Sec. 2404 Grant of Authority to Engage business. A TB applying for authority to
in Limited Trust Business to Thrift Banks engage in limited trust business must
a. Statement of policy. It is hereby comply with the following requirements:
declared the policy of the BSP to promote (1) The bank’s operation during the
healthy competition in order to improve preceding calendar year and for the period
the delivery of banking services especially immediately preceding the date of
in the countryside. Towards this end, application has been profitable;
authority to engage in limited trust business (2) The bank is well capitalized whose
shall be granted to qualified TBs which risk-based CAR is not lower than twelve
meet the minimum capital required for the percent (12%) at the time of filing the
grant of such authority, among others. application;

§ 2404
07.12.31
(3) It has not incurred net weekly examination with Management rating not
reserve deficiencies within eight (8) weeks lower than “3”; and
immediately preceding the date of (10) It is a member of the PDIC in good
application; standing;
(4) It has generally complied with f. Requirements for engaging in
banking laws, rules and regulations, orders limited trust business. A TB authorized to
or instructions of the Monetary Board and/ engage in limited trust business shall
or BSP Management in the last two (2) comply with the following requirements:
preceding examinations prior to the date (1) The articles of incorporation of the
of application, more particularly: bank shall include among its powers or
(a) election of at least two (2) purposes, acting as trustee or administering
independent directors; trust or holding property in trust or on
(b) attendance by every member of the deposit for the use, or in behalf of others;
board of directors in a special seminar for (2) The by-laws of the bank shall
board of directors conducted or accredited include among others, provisions on the
by the BSP; following:
(c) the ceilings on credit (a) The organization plan or structure
accommodations to DOSRI; of the department, office or unit which shall
(d) liquidity floor requirements for conduct the trust and other fiduciary
government deposits; business of the bank;
(e) SBL; and (b) The creation of a trust committee,
(f) investment in bank premises and to be composed of at least three (3)
other fixed assets; members who are all members of the
(5) It maintains adequate provisions board of directors and who are not
for probable losses commensurate to the operating officers of the bank, and at least
quality of its asset portfolio but not lower two (2) of whom are independent directors:
than the required valuation reserves as Provided, That if the bank decides to have
determined by the BSP; a trust committee composed of at least five
(6) It does not have float items (5) members, the provisions of Subsec.
outstanding for more than sixty (60) X406.2 shall apply;
calendar days in the “Due From/To Head (c) The appointment of a trust officer
Office/Branches/Offices” accounts and the and subordinate officers of the trust
“Due From Bangko Sentral” account department, office or unit: Provided, That
exceeding one percent (1%) of the total the trust officer shall have the following:
resources as of date of application; (i) At least two (2) years of actual
(7) It has no past due obligations with experience in trust operations; or
the BSP or with any government FI; (ii) At least one (1) year of actual
(8) It has established a risk experience in trust operations and
management system appropriate to its completion of a training program in trust
operations characterized by clear operations acceptable to the BSP; or
delineation of responsibility for risk (iii) At least two (2) years of actual
management, adequate risk measurement experience as officer of a bank and
systems, appropriately structured risk completion of a training program in trust
limits, effective internal controls and operations acceptable to the BSP; and
complete, timely and efficient risk (d) A clear definition of the duties and
reporting system; responsibilities as well as the line and staff
(9) It has a CAMELS composite rating functional relationships of the various units,
of at least “3” in the last regular officers and staff within the organization.

§§ 2404 - 3404
07.12.31
g. Administration of properties held to engage in a limited trust business shall

in trust. The properties held in trust or other file an application with the CALG of the
fiduciary capacity shall be administered in SES. The application shall be signed by the
accordance with the terms of the bank president or officer of equivalent rank
instrument creating the trust and/or order and shall be accompanied by the following
of the court. Unless otherwise directed in documents:
writing by the court, investments of (1) Certified true copy of the resolution
fiduciary funds shall be limited to: of the bank’s board of directors authorizing
(1) Bank deposits; and the application; and
(2) Evidences of indebtedness of the (2) Certification signed by the bank
Republic of the Philippines or of the BSP, president or officer of equivalent rank that
and any other evidences of indebtedness the bank has complied with all the conditions/
or obligations the servicing and repayment pre-requisites for the grant of authority to
of which are fully guaranteed by the engage in a limited trust business.
Republic of the Philippines; d. Required capital. An RB applying
h. Applicability of the rules and for authority to engage in limited trust
regulations on trust, other fiduciary business must have minimum capital
business and investment management accounts of P100.0 million, or such
activities. The provision of this Part which amounts as may be required by the
are not inconsistent with the provisions of Monetary Board in the future.
this Section shall apply to TBs authorized e. Pre-requisites for the grant of
to engage in limited trust business. authority to engage in limited trust
(Circular No. 583 dated 24 September 2007) business. An RB applying for authority to
engage in limited trust business must
Sec. 3404 Grant of Authority to Engage comply with the following requirements;
in Limited Trust Business to Rural Banks (1) The bank’s operation during the
a. Statement of policy. It is hereby preceding calendar year and for the period
declared the policy of the BSP to promote immediately preceding the date of
healthy competition in order to improve application has been profitable;
the delivery of banking services especially (2) The bank is well capitalized whose
in the countryside. Towards this end, risk-based CAR is not lower than twelve
authority to engage in limited trust percent (12%) at the time of filing the
business shall be granted to qualified RBs application;
which meet the minimum capital required (3) It has not incurred net weekly
for the grant of such authority, among others. reserve deficiencies within eight (8) weeks
b. Scope of limited trust business immediately preceding the date of
Limited trust business shall be confined to: application;
(1) court trusts or trusts under orders (4) It has generally complied with
of court of competent jurisdiction, such as banking laws, rules and regulations, orders
acting as: or instructions of the Monetary Board and/
(a) executor or administrator of a will; or BSP Management in the last two (2)
and preceding examinations prior to the date
(b) guardian of the estate of a minor or of application, more particularly;
incompetent; and (a) election of at least two (2)
(2) administration of properties. independent directors;
c. Application for authority to engage (b) attendance by every member of the
in limited trust business. An RB desiring board of directors in a special seminar for
Manual of Regulations for Banks Part IV - Page 6a

§ 3404
07.12.31
board of directors conducted or accredited (2) The by-laws of the bank shall
by the BSP; include among others, provisions on the
(c) the ceilings on credit following:
accommodations to DOSRI; (a) The organization plan or structure
(d) liquidity floor requirements for of the department, office or unit which shall
government deposits; conduct the trust and other fiduciary
(e) SBL; and business of the bank;
(f) investment in bank premises and (b) The creation of a trust committee,
other fixed assets; to be composed of at least three (3)
(5) It maintains adequate provisions for members who are all members of the
probable losses commensurate to the board of directors and who are not
quality of its asset portfolio but not lower operating officers of the bank, and at least
than the required valuation reserves as two (2) of whom are independent
determined by the BSP; directors: Provided, That if the bank
(6) It does not have float items decides to have a trust committee
outstanding for more than sixty (60) composed of at least five (5) members,
calendar days in the “Due From/To Head the provisions of Subsec. X406.2 shall
Office/Branches/Offices” accounts and the apply;
“Due From Bangko Sentral” account (c) The appointment of a trust officer
exceeding one percent (1%) of the total and subordinate officers of the trust
resources as of date of application; department, office or unit: Provided, That
(7) It has no past due obligations with the trust officer shall have the following:
the BSP or with any government FI; (i) At least two (2) years of actual
(8) It has established a risk experience in trust operations; or
management system appropriate to its (ii) At least one (1) year of actual
operations characterized by clear experience in trust operations and
delineation of responsibility for risk completion of a training program in trust
management, adequate risk measurement operations acceptable to the BSP; or
systems, appropriately structured risk (iii) At least two (2) years of actual
limits, effective internal controls and experience as officer of a bank and
complete, timely and efficient risk completion of a training program in trust
reporting system; operations acceptable to the BSP; and
(9) It has a CAMELS composite rating of (d) A clear definition of the duties and
at least “3” in the last regular examination responsibilities as well as the line and staff
with Management rating not lower than “3”; functional relationships of the various units,
and officers and staff within the organization.
(10)It is a member of the PDIC in good g. Administration of properties held
standing. in trust. The properties held in trust or other
f. Requirements for engaging in fiduciary capacity shall be administered in
limited trust business. An RB authorized accordance with the terms of the
to engage in limited trust business shall instrument creating the trust and/or order
comply with the following requirements: of the court. Unless otherwise directed in
(1) The articles of incorporation of writing by the court, investments of
the bank shall include among its powers fiduciary funds shall be limited to:
or purposes, acting as trustee or (1) Bank deposits; and
administering trust or holding property (2) Evidences of indebtedness of the
in trust or on deposit for the use, or in Republic of the Philippines or of the BSP,
behalf of others; and any other evidences of indebtedness
Part IV - Page 6b Manual of Regulations for Banks

§§ 3404 - X405.2
07.12.31
or obligations the servicing and repayment such securities shall be free, unencumbered,
of which are fully guaranteed by the and not utilized for any other purpose:
Republic of the Philippines; Provided, further, That such securities shall
h. Applicability of the rules and have remaining maturity of not more than
regulations on trust, other fiduciary business three (3) years from the date of deposit with
and investment management activities. The the BSP; and
provision of this Part which are not b. NDC Agri-Agra ERAP Bonds which
inconsistent with the provision of this Section are not being used as alternative
shall apply to RBs authorized to engage in compliance with P.D. No. 717. The
limited trust business. requirement that the securities used shall
(Circular No. 583 dated 24 September 2007) have a remaining maturity of not more than
three (3) years shall not apply.
Sec. X405 Security for the Faithful c. Five (5)- and Ten (10)-year SPTBs
Performance of Trust and Other to finance the CARP-related expenditures,
Fiduciary Business provided such bonds shall not be
hypothecated in any way or earmarked for
§ X405.1 Basic security deposit. A any other purpose and they meet the three
bank authorized to engage in trust and other (3)-year remaining maturity requirement to
fiduciary business shall deposit with the ensure that such bonds are liquid.
BSP eligible government securities as d. Securities backed by the unreleased
security for the faithful performance of its IRAs of LGUs (issued by a Special Purpose
trust and other fiduciary duties equivalent Trust administered by the DBP under the IRA
to at least one percent (1%) of the book Monetization Program of the Union of Local
value of the total volume of trust, other Authorities of the Philippines) the release of
fiduciary and investment management which IRA on scheduled date of payment
assets: Provided, That at no time shall such has been certified by the DBM as not being
deposit be less than P500,000. subject to any conditionalities: Provided,
Scripless securities under the That such securities shall be eligible only to
Registry of Scripless Securities (RoSS) the extent of the present value of the bond
System of the Bureau of Treasury (BTr) computed using the original yield to maturity
may be used as basic security deposit for (as of auction/issue date): Provided, further,
trust and other fiduciary duties using the That for reserve for trust and other fiduciary
Guidelines enumerated in Appendix 34 of duties, the remaining maturities of the
this Manual. securities shall not exceed three (3) years; and
e. Zero Coupon Bond Issue by the HGC
§ X405.2 Eligible securities. Government of up to P7.0 billion five (5)-year regular series
securities which shall be deposited in and up to P3.0 billion seven (7)-year special
compliance with the above basic security series to finance its guaranty servicing of
deposit shall consist of: socialized and low-cost housing projects:
a. Evidences of indebtedness of the Provided, That they meet the three (3)-year
Republic of the Philippines and of the BSP remaining maturity requirement to ensure
and any other evidences of indebtedness or that such bonds are liquid: Provided, further,
obligations the servicing and repayment of That such bonds shall qualify as eligible
which are fully guaranteed by the Republic reserve for trust and other fiduciary duties
of the Philippines; and such other kinds of only to the extent of the present value of
securities which may be declared eligible the bond computed using the original yield
by the Monetary Board: Provided, That to maturity (as of auction/issue date).
Manual of Regulations for Banks Part IV - Page 6c

§§ X405.2 - X405.4
08.12.31
f. Tobacco Excise Tax Receivable The following sanctions shall be

Monetization Program Investment imposed for any deficiency in the basic
Certificates (TEXTR Certificates) backed by security deposit for the faithful
receivables representing the unreleased performance of trust, investment
portion of the obligation of the National management and other fiduciary duties:
Government to its LGUs for their share of a. On the bank:
the Tobacco Excise Taxes under R.A. No. i. Monetary penalty/ies:
7171 amounting to P1.85 billion and
covering the years 2001 and 2002: Provided, Offense Third and
That such securities shall be eligible only to Trust First Second subsequent
the extent of the present value of the securities Asset Size offense(s)
computed using the original yield to maturity TBs/RBs with
as of auction/issue date. Limited Trust P300.00 P400.00 P500.00
g. Securities received, pursuant to the Authority
Domestic Debt Exchange Offer of the Republic Up to
of the Philippines, in exchange for securities P500 P600.00 P700.00 P800.00
that are eligible reserves for trust duties.
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
million
(As amended by Circular No. 509 dated 01 February 2006) Above
Penalty per Calendar Day
P500
§ X405.3 Valuation of securities and million P1,000.00 P1,250.00 P1,500.00
basis of computation of the basic security but not
deposit requirement. For purposes of exceeding
determining compliance with the basic P1 billion
security deposit under this Section, the Above
amount of securities so deposited shall be P1 billion
based on their book value, that is, cost as but not P2,000.00 P3,000.00 P4,000.00
increased or decreased by the exceeding
corresponding discount or premium P10 billion
amortization. Above
The base amount for the basic security P10 billion
deposit shall be the average of the but not P5,000.00 P6,000.00 P7,000.00
month-end balances of total trust, exceeding
investment management and other P50 billion
fiduciary assets of the immediately Above
preceding calendar quarter. P50 billion P8,000.00 P9,000.00 P10,000.00
§ X405.4 Compliance period; sanctions ii. Non-monetary penalty beginning

The trustee or fiduciary shall have thirty with the third offense (all banks) - Prohibition
(30) calendar days after the end of every against the acceptance of new trust and other
calendar quarter within which to deposit fiduciary accounts, and from renewing
with the BSP the securities required under expiring trust and other fiduciary contracts
this Section. up to the time the violation is corrected.
Part IV - Page 6d Manual of Regulations for Banks

§X405.4
08.12.31
b. On the trust officer and/or other quarters will be reviewed: Provided, That for
officer(s) responsible for the deficiency/ purposes of determining appropriate penalty
non-compliance: on the trust officer and/or other responsible
(1) First offense – warning that officer(s), any offense committed outside the
subsequent violations shall be dealt with preceding three (3) year or twelve (12)
more severely; quarter- period shall be considered as the first
(2) Second offense – written offense: Provided, further, That in the case of
reprimand with a stern warning that trust officer, all offenses committed by him
subsequent violations shall be subject to in the past as trust officer of other institution(s)
suspension; shall also be considered: Provided, finally,
(3) Third offense – thirty (30) calendar That if the offense cannot be attributed to any
day-suspension without pay; and other officer of the bank, the trust officer shall
(4) Subsequent offense(s) – sixty (60) be automatically held responsible since the
calendar day-suspension without pay. ultimate responsibility for ensuring
For purposes of determining the compliance with the regulation rests upon
frequency of the violation, the bank’s him, as evidence may warrant.
compliance profile for the immediately (As amended by Circular Nos. 617 dated 30 July 2008 and
preceding three (3) years or twelve (12) 585 dated 15 October 2007)
(Next Page is Part IV- Page 7)
Manual of Regulations for Banks Part IV - Page 6e

§ X405.5
06.12.31
§ X405.5 Reserves against peso- In addition to the regular reserve

denominated Common Trust Funds and requirement, the liquidity reserves against
Trust and Other Fiduciary Accounts - peso-denominated CTFs and such other
Others peso funds which partake the nature of
a. Reserves against peso- collective investment of peso-denominated
denominated CTFs. In addition to the basic CTFs shall be as follows:
security deposit, a bank authorized to UBs/KBs - 11%1
engage in trust and other fiduciary business TBs - 4%2
shall maintain reserves on: The liquidity reserve shall be maintained
(1) peso-denominated CTF; and in the Reserve Deposit Account (RDA) with
(2) such other managed peso funds the BSP, or may be in the form of the
which partake the nature of collective following: Provided, That it complies with
investment of a peso-denominated CTF as the guidelines shown in Appendix 71.
may be indicated by the presence of the (i) Short-term market-yielding
following features: government securities purchased directly
(a) The funds are composed of from the BSP-Treasury Department (TD);
contributions from two (2) or more (ii) NDC Agri-Agra ERAP Bonds
investors; which are not being used as alternative
(b) The funds are managed/ compliance with P.D. No. 717. The
administered as a vehicle for collective requirement that the securities used shall
investment and reinvestment; have a term of not more than one (1) year
(c) The trustee/administrator/agent has shall not apply; and
the exclusive management and control (iii) PEACe bonds only to the extent
over the funds and the sole right at any time of the original gross issue proceeds
to sell, convert, invest, exchange, transfer determined at the time of the auction, plus
or otherwise change or dispose of the capitalized interest on the underlying zero-
assets comprising the funds; and coupon Treasury Notes as and when the
(d) Investments/contributions to, or corresponding interest is earned over the
withdrawals from, the funds are being life of the bonds;
allowed at anytime or as of a fixed date Any deficiency in the liquidity reserves
in the future, and/or the income, net of shall continue to be in the forms or modes
all expenses incurred in the management prescribed under existing regulations for the
of the fund plus the fee of the trustee/ composition of required reserves.
administrator/agent, are being distributed The reserves on peso-denominated
among the participants of the funds, CTFs and such other managed peso funds
without the need to liquidate all assets shall be provided out of such funds.
of the funds. b. Reserves against TOFA - Others. In
The required reserves against peso- addition to the basic security deposit, banks
denominated CTFs and such other shall maintain reserves on TOFA-Others,
managed peso funds which partake the except accounts held under (1)
nature of collective investment of peso- Administratorship; (2) Bond Issues/Other
denominated CTFs shall be as follows: Obligations Under Deed of Trust or
UBs/KBs - 10%1 Mortgage; (3) Custodianship and Safe-
TBs - 5%2 keeping; (4) Depository and Reorganization;
RBs - 4% (5) Employee Benefit Plans Under Trust; (6)
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 - X405.6
06.12.31
Escrow; (7) Personal Trust (testamentary § X405.6 Composition of reserves

or living trust); (8) Executorship; (9) a. The provisions of Sec. X254 shall
Guardianship; (10) Life Insurance Trust; govern the composition of reserves against
and (11) Pre-need Plans (institutional/ peso-denominated CTFs and such other
individual). managed peso funds, as well as TOFA-
The required reserves against TOFA- Others, of banks authorized to engage in
Others shall be as follows: trust and other fiduciary business.
UBs/KBs - 6% For purposes of this Subsection, a
TBs - 5% special deposit account shall be maintained
RBs - 4% by banks with the BSP exclusively for trust
The liquidity reserve, which is in reserves. Deposits maintained by banks
addition to the regular reserve, shall be as authorized to engage in trust and other
follows: fiduciary business with the BSP up to forty
UBs/KBs - 11%1 percent (40%) of the required reserves
TBs - 4% against peso-denominated CTFs (less the
RBs - 0% percentage allowed to be maintained in
The liquidity reserve shall be the form of short-term market-yielding
maintained in the RDA with the BSP, or government securities), as well as the
may be in the form of the following: required reserves on TOFA-Others (less the
Provided, That it complies with the percentage allowed to be maintained in
guidelines shown in Appendix 71. the form of short-term market-yielding
(1) Short-term market-yielding government securities), shall be paid
government securities purchased directly interest at four and one-half percent
from the BSP-TD: Provided, That the (4½%) (for UBs/KBs and TBs) and four
reserves on TOFA-Others shall be provided percent (4%) (for RBs) per annum
out of such funds; effective 09 October 1998 based on the
(2) NDC Agri-Agra ERAP Bonds which average daily balance of said deposits to
are not being used as alternative be credited quarterly.
compliance with P.D. No. 717. The Effective 01 July 2003, published
requirement that the securities used shall interest rates that will be applied on BSP’s
have a term of not more than one (1) year SDAs of banks shall be inclusive of the ten
shall not apply; and percent (10%) VAT.
(3) PEACe bonds only to the extent of b. The required reserves which may
the original gross issue proceeds be in the form of short-term market-
determined at the time of the auction, plus yielding government securities shall be
capitalized interest on the underlying zero- purchased directly from the BSP Treasury
coupon Treasury Notes as and when the Department at one-half percent (½%)
corresponding interest is earned over the below the prevailing market rate for an
life of the bonds. equivalent term and volume and subject
Any deficiency in the liquidity reserves to BSP’s firm commitment to buy back at
shall continue to be in the forms or modes any time at prevailing market rates. Such
prescribed under existing regulations for reserves in the form of government
the composition of required reserves. securities shall be in addition to other forms
The reserves on TOFA-Others shall be of eligible reserves such as cash in vault
provided by the institution out of said funds. or on deposit with BSP.
(As amended by Circular Nos. 551 dated 17 November 2006 and All purchases of said government
539 dated 09 August 2006) securities shall be under the RoSS system
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.

§§ X405.6 - X406.1
06.12.31
of the BTr. Transactions covering said such other managed peso funds, as well as
securities shall be recorded in accordance TOFA-Others, of banks authorized to engage
with the guidelines in Appendix 34. in trust and other fiduciary business, including
the sanctions provided in said Section.
§ X405.7 Computation of reserve
position. A bank authorized to engage in § X405.9 Report of compliance
trust and other fiduciary business shall Every bank shall submit a report to the BSP
calculate daily the required and available of its daily required and available reserves
reserves on the value per books of its peso- on peso-denominated CTFs and such other
denominated CTF s and such other managed peso funds, as well as TOFA-
managed peso funds, as well as on TOFA- Others, in such frequency and within the
Others, based on the seven-day week, deadline stated in Appendix 6.
starting Friday and ending Thursday
including Saturdays, Sundays, holidays, Sec. X406 Organization and Management
non-banking days or days when there is
no clearing: Provided, That with reference § X406.1 Organization. A bank
to holidays, non-banking days and days authorized to engage in trust and other
where there is no clearing, the reserve fiduciary business shall, pursuant to Subsec.
position at the close of banking day X404.1, include in its by-laws, provisions on
immediately preceding such holidays, the organization plan or structure of the
non-banking days or days where there is department, office or unit which shall
no clearing, shall apply. For the purpose conduct such business. The by-laws shall
of computing reserve position, the also include provisions on the creation of a
principal office in the Philippines and all trust committee, the appointment of a trust
branches and agencies located therein officer and other subordinate officers and
shall be treated as a single unit. a clear definition of their duties and
The required reserves in the current responsibilities as well as their line and staff
period (reference reserve week) shall be functional relationships within the
computed based on the corresponding organization which shall be in accordance
levels of peso-denominated CTFs and with the following guidelines.
such other managed peso funds, as well a. Trust and other fiduciary business of
as on TOFA-Others of the prior week. a bank shall be carried out through a trust
For purposes of computing the required department which shall be organizationally,
and available statutory and liquidity operationally, administratively and
reserves for peso-denominated CTFs and functionally separate and distinct from the
such other managed peso funds, as well as other departments and/or businesses of the
TOFA - Others, the term value per books institution.
shall refer to the total volume of CTFs, other A bank which is also engaged in
managed peso funds, as well as TOFA- investment management activities, shall
Others less booked “Allowance for conduct the same only through its trust
Probable Losses”. department and the responsibilities of the
(As amended by Circular No. 535 dated 04 July 2006) board of directors, trust committee and
trust officer shall be construed to include
§ X405.8 Reserve deficiencies; the proper administration and management
sanctions. The provisions of Sec. X257 shall of investment management activities.
govern the computation of reserve No bank shall undertake any of the
deficiencies for peso-denominated CTFs and trust and other fiduciary business and,

§§ X406.1 - X406.3
05.12.31
whenever applicable, investment including the president, the trust officer and
management activities outside the direct directors who are appointed by the board
control, authority and management of the of directors on a regular rotation basis and
trust department or through any who are not officers of the bank proper.
department or office which is involved No member of the audit committee, if the
in the other businesses of the bank, such bank has any, shall be concurrently
as the Treasury, Funds Management or designated as a member of the trust
any similar department, otherwise, any committee: Provided, That in the case of a
such business shall be considered part trust committee composed of more than
of the bank’s real liabilities. five (5) members, the appointment therein
The bank proper and the trust of an operating officer may be allowed only
department may share the following if the required balance in the membership
activities: (1) electronic data processing; of at least three (3) members of the board
(2) credit investigation; (3) collateral for every operating officer shall be
appraisal; and (4) messengerial, janitorial maintained: Provided, further, That the
and security services. Philippine branch of a foreign bank may
b. The trust department, trust officer appoint its resident manager or chief
and other subordinate officers of the trust executive officer in lieu of the president
department shall only be directly while the positions allotted for members
responsible to the bank’s trust committee of the board may be filled up by the area
which shall, in turn, be only directly manager and/or officers/representatives
responsible to the bank’s board of from the Head Office who are not involved
directors. in audit-related activities.
No director, officer or employee taking For purposes of this Subsection, the
part in the management of trust and other term officer shall include the president,
fiduciary accounts shall perform duties in executive vice-president, general
other departments or the audit committee manager, corporate secretary, treasurer and
of the bank and vice versa. However, others mentioned as officers of the bank,
branch managers duly authorized by the or those whose duties as such are defined
board of directors may, for or on behalf of in the by-laws, or are generally known to
the trust officer, sign predrawn trust be officers of the bank (or any of its
instruments such as CTFs. branches and offices other than the Head
c. The organization structure and Office) either through announcement,
definition of duties and responsibilities of representation, publication or any kind of
the trust committee, officers and employees communication made by the bank.
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
standards prescribed by the BSP. and designate the chairman who shall be
d. Provisions shall be made by the one of 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
documents and in the handling of legal and trust department shall be staffed by persons
tax matters related thereto. of competence, integrity and honesty.
Directors, committee members and
§ X406.2 Composition of trust officers charged with the administration of
committee. The trust committee shall be trust and other fiduciary activities shall, in
composed of at least five (5) members addition to meeting the qualification

§§ X406.3 - X406.4
05.12.31
standards prescribed for directors and that a prudent man, acting in like capacity
officers of banks, possess the necessary and familiar with such matters, would
technical expertise in such business: exercise in the conduct of an enterprise of
Provided, That trust officers who shall be like character and with similar aims.
appointed shall have at least two (2) years The responsibilities of the board of
of actual experience or training in trust directors shall include, but need not be
operations. limited to, the following:
(1) It shall determine and formulate
§ X406.4 Responsibilities of general policies and guidelines on the: (a)
administration acceptance, termination, or closure of trust
a. Board of Directors. The board of and other fiduciary accounts; (b) proper
directors is responsible for the proper administration and management of each
administration and management of trust trust and other fiduciary account; and (c)
and other fiduciary business. Funds and investment, reinvestment and disposition
properties held in trust or in any fiduciary of funds or property held in its capacity as
capacity shall be administered with the skill, trustee or fiduciary;
care, prudence and diligence necessary (2) It shall direct and review the
under the circumstances then prevailing actions of the trust committee and all
(Next page is Part IV - Page 11)

§ X406.4
05.12.31
officers and employees designated to b. Trust Committee. The trust

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

§§ X406.4 - X407
07.12.31
(4) The maintenance of adequate books, than a trust, fiduciary and/or investment
records and files for each trust or other management;
fiduciary account; and b. When the agreement or contract is
(5) The maintenance of necessary itself used as a certificate of indebtedness
controls and measures to protect assets in exchange for money placement from
under his custody and held in trust or other clients and/or as the medium for confirming
fiduciary capacity. placements and investment thereof;
c. When the agreement or contract
§ X406.5 – X406.8 (Reserved) of an account is accepted under the
signature(s) of those other than the trust
§ X406.9 Outsourcing services in trust officer or subordinate officer of the trust
departments. Trust departments of banks department or those authorized by the
performing trust and other fiduciary business board of directors to represent the trust
and investment management activities are officer;
covered by the requirement of prior BSP d. Where there is a fixed rate or
approval for outsourcing services under guaranty of interest, income or return in
Subsec. X169.3. favor of its client or beneficiary: Provided,
(M-2007-009 dated 22 March 2007) 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 terms, shall neither be considered as
Activities The basic characteristic of trust, arrangements with a fixed rate nor a
other fiduciary and investment guaranty of interest, income or return when
management relationship is the absolute the agreement or indenture categorically
non-existence of a debtor-creditor states in bold letters that the quoted income
relationship, thus, there is no obligation on expectation or like terms is neither assured
the part of the trustee, fiduciary or nor guaranteed by the trustee or fiduciary
investment manager to guarantee returns and it does not, therefore, entitle the client
on the funds or properties regardless of the to a fixed interest or return on his
results of the investment. The trustee, investments: Provided, further, That any
fiduciary or investment manager is entitled of the following practices or practices
to fees/commissions which shall be similar and/or tantamount thereto shall be
stipulated and fixed in the contract or construed as fixing or guaranteeing the rate
indenture and the trustor or principal is of interest, income or return:
entitled to all the funds or properties and (1) Issuance of certificates, side
earnings less fees/commissions, losses and agreements, letters of undertaking or other
other charges. Any agreement/ similar documents providing for fixed
arrangement that does not conform to these rates or guaranteeing interest, income or
shall not be considered as trust, other return;
fiduciary and/or investment management (2) Paying trust earnings based on
relationship. indicated or expected yield regardless of
The following shall not constitute a trust, the actual investment results;
other fiduciary and/or investment (3) Increasing or reducing fees in
management relationship: order to meet a quoted or expected yield;
a. When there is a preponderance of (4) Entering into any arrangement,
purpose or of intent that the arrangement scheme or practice which results in the
creates or establishes a relationship other payment of fixed rates or yield on trust

§ X407
05.12.31
investments or in the payment of the management funds, when such loss is not
indicated or expected yield regardless of due to the failure of the trustee or fiduciary
the actual investment results; and to exercise the skill, care, prudence and
e. Where the risk or responsibility is diligence required by law.
exclusively with the trustee, fiduciary or Trust, other fiduciary and investment
investment manager in case of loss in the management activities involving any of the
investment of trust, fiduciary or investment 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
07.12.31
(12) Disclosure requirements for (1) The transaction to be entered into;

transactions requiring prior authority and/ (2) The borrower’s name;
or specific written investment directive from (3) Amount involved; and
the client, court of competent jurisdiction (4) Collateral security(ies), if any.
or other competent authority. (As amended by M-2007-038 dated 29 November 2007 and
M-2007-011 dated 08 May 2007)
§ X409.2 Lending and investment
disposition. Assets received in trust or in § X409.3 Transactions requiring prior
other fiduciary capacity shall be authority. A trustee or fiduciary shall not
administered in accordance with the terms undertake any of the following transactions
of the instrument creating the trust or other for the account of a client, unless prior to its
fiduciary relationship. execution, such transaction has been fully
When a trustee or fiduciary is granted disclosed and specifically authorized in
discretionary powers in the investment writing by the client, beneficiary, other party-
disposition of trust or other fiduciary funds in-interest, court of competent jurisdiction
and unless otherwise specifically or other competent authority:
enumerated in the agreement or indenture a. Lend, sell, transfer or assign money
and directed in writing by the client, court or property to any of the departments,
of competent jurisdiction or other competent directors, officers, stockholders or
authority, loans and investments of the fund employees of the trustee or fiduciary, or
shall be limited to: relatives within the first degree of
a. Evidences of indebtedness of the consanguinity or affinity, or the related
Republic of the Philippines and of the BSP, interest of such directors, officers and
and any other evidences of indebtedness or stockholders; or to any corporation where
obligations the servicing and repayment of the trustee or fiduciary owns at least fifty
which are fully guaranteed by the Republic percent (50%) of the subscribed capital or
of the Philippines or loans against such voting stock in its own right and not as
government securities; trustee nor in a representative capacity;
b. Loans fully guaranteed by the b. Purchase or acquire property or debt
Republic of the Philippines as to the payment instruments from any of the departments,
of principal and interest; directors, officers, stockholders, or employees
c. Loans fully secured by a hold-out of the trustee or fiduciary, or relatives within
on, assignment or pledge of deposits the first degree of consanguinity or affinity, or
maintained either with the bank proper or the related interest of such directors, officers
other banks, or of deposit substitutes of the and stockholders; or from any corporation
bank, or of mortgage and chattel mortgage where the trustee or fiduciary owns at least
bonds issued by the trustee or fiduciary; fifty percent (50%) of the subscribed capital
d. Loans fully secured by real estate or voting stock in its own right and not as
or chattels in accordance with Section 78 trustee nor in a representative capacity;
of R.A. No. 337, as amended, and subject c. Invest in equities of, or in securities
to the requirements of Sections 75, 76, and underwritten by, the trustee or fiduciary or
77 of R.A. No. 337, as amended; and a corporation in which the trustee or
e. Investment in the BSP special deposit fiduciary owns at least fifty percent (50%)
account (SDA) facility made in accordance of the subscribed capital or voting stock in
with the guidelines in Appendix 78. 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 money
information: or property from one trust or fiduciary

§§ X409.3 - X409.8
05.12.31
account to another trust or fiduciary account a. Requirements of Sections 76 and

except where the investment is in any of 77 of R.A. No. 337, as amended;
those enumerated in Items "a" to "d" of b. Provisions of Section 4(e) of the
Subsec. X409.2. New Rules on Registration of Short-Term
DOSRIs covered by this Subsection shall Commercial Papers and Section 7(f) of the
be those considered as such under existing New Rules on Registration of Long-Term
regulations on loans to DOSRI in Part III - E Commercial Papers issued by the SEC
of this Manual. The procedural and (Appendices 13 and 14).
reportorial requirements in said regulations c. Criteria for past due accounts; and
shall also apply. d. Qualitative appraisal of loans,
The disclosure required under this investments and other assets that may
Subsection shall consist of the following require provision for probable losses
minimum information: which shall be booked in accordance with
(1) The transactions to be entered into; the Manual of Accounts for Trust and Other
(2) Identities of the parties involved in Fiduciary Business and Investment
the transactions and their relationships (shall Management Activities.
not apply to Item "d" of this Subsection);
(3) Amount involved; and § X409.7 Operating and accounting
(4) Collateral security(ies), if any. methodology. Trust and other fiduciary
The above information shall be made accounts shall be operated and
known to clients in a separate instrument or accounted for in accordance with the
in the very instrument creating the trust or following:
fiduciary relationship. a. The trustee or fiduciary shall
administer, hold or manage the fund or
§ X409.4 Ceilings on loans. Loans funded property in accordance with the instrument
by trust accounts shall be subject to the SBL creating the trust or other fiduciary
and DOSRI ceilings imposed on banks under relationship; and
Secs. X303, X330 and X331. For purposes b. Funds or property of each client
of determining compliance with said shall be accounted separately and distinctly
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
shall not be held uninvested or undistributed Section 24(B)(1) of R.A. No. 8424 (The Tax
any longer than is reasonable for the proper Reform 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
accounts shall be subject to pertinent laws, Filipino citizens or resident aliens and
rules and regulations for banks that shall banks acting as trustee. The trust indenture/
include but need not be limited to the agreement shall be non-negotiable and
following: non-transferable;

§§ X409.8 - X409.9
06.12.31
c. The trust indenture/agreement shall shall be subject to the provisions of Subsecs.

indicate that pursuant to Section 24(B)(1) X409.1(c) and X409.2 up to X409.7.
of R.A. No. 8424, interest income of the
trust fund derived from investments in § X409.9 Living trust accounts. The
interest-bearing instruments (e.g., time guidelines on living trust accounts are as
deposits, government securities, loans and follows:
other debt instruments) which are a. Definition. Living trust is defined
otherwise subject to the twenty percent under the Manual of Accounts for Trust, as
(20%) final tax shall be exempt from said a personal trust created by agreement. It
final tax provided the fund was held by the becomes operational during the lifetime of
trustee-bank for at least five (5) years. If the trustor as soon as the agreement is
said fund was held for a period less than accomplished.
five (5) years, interest income shall be Under a living trust, the trustor (also
subject to a final tax based on the following known as settlor) conveys property or a
schedule – sum of money to be managed by the
trustee, as the agreement dictates, for the
Holding Period Rate of Tax benefit of the trustor and third person(s) or
third person(s) only. However, the trustor/s
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) years 12% cannot create a trust with himself/
Less than three (3) years 20% themselves as the sole beneficiary/(ies).
The functions and authorities of the trustee
Necessarily, the trust indenture/ as defined in the agreement shall include:
agreement shall clearly indicate the date (1) the purpose or intention of the trust;
when the trustee-bank actually received (2) the nature and value of the property
the trust funds which shall serve as basis or sum of money that comprise the trust;
for determining the holding period of the (3) the trustee’s investment powers;
funds. (4) the name(s) of the beneficiaries; and
d. A trustee may accept additional (5) the terms and conditions under
funds for inclusion in trust accounts which which the income and/or principal of the
have been established as tax-exempt under trust is to be paid or to be disposed of during
R.A. No. 8424. However, the receipt of the lifetime and ultimately, upon the death
additional funds shall be properly of the trustor or upon the occurrence of a
documented by indicating that they are part specified event(s).
of existing tax-exempt trust accounts and A living trust may either be revocable
that the interest income of the additional or irrevocable.
funds derived from investments in interest- b. Minimum criteria. In line with
bearing instruments shall be exempt from such definition, transactions considered as
the twenty percent (20%) final tax under living trust accounts should meet the
the same conditions mentioned in the following minimum criteria:
preceding item. The document shall also (1) Minimum entry amount and
indicate the date when the funds were maintaining balance shall at least be
received by the trustee-bank to serve as P100,000: Provided, That living trust
basis for determining the minimum five (5)- accounts with balances of up to P500,000
year holding period for tax exemption shall only be invested in deposits and
purposes of the additional funds; and government securities;
e. Tax-exempt individual trust (2) Living trust accounts shall be
accounts established under this Subsection maintained for a minimum period of six

§ X409.9
06.12.31
(6) months. The termination of the living administration and distribution pursuant to
trust agreement, for any cause, within the a court decree or by agreement.
minimum holding period shall render the The dispositive provision should clearly
trustor ineligible from opening a new living and specifically define the terms and
trust account within a period of one (1) year conditions under which the principal and/
from termination date; or income shall be distributed in order to
(3) Reversion of any part of the accomplish such purpose/(s), by taking into
principal to the trustor, except in cases consideration the frequency of redemption;
provided under the dispositive portion, shall the respective interests of each beneficiary;
be allowed only upon termination of the and to whom the proceeds shall be payable.
living trust agreement: Provided, That in Redemption of funds shall strictly be in
no case can there be a complete or accordance with the said terms and
substantial reversion of the principal conditions; and
pursuant to the dispositive portion within (6) A living trust account may be
the minimum holding period nor can the opened jointly under one (1) living trust
principal fall below P100,000; agreement by related individuals up to the
(4) Any living trust account that does second degree of consanguinity or affinity;
not meet the requirement on the minimum Provided, That the requirements under Item
entry and minimum maintaining balance “5” above are fully complied with.
or is not invested in qualified outlets shall Unrelated individuals or those beyond the
be considered as other fiduciary accounts second degree of consanguinity or affinity
subject to applicable reserve and other may likewise open a joint living trust
requirements; account under one (1) living trust
(5) Pre-printed living trust agreements agreement: Provided, That the minimum
may be allowed for expediency: Provided, contribution of each individual is at least
That the sections for the trust purpose and P100,000: Provided further, That the trust
the dispositive provision are left blank and is for a common purpose and: Provided
shall only be filled-up upon the client’s signing finally, That the requirements under Item
thereof. The purpose shall categorically state “5” are fully complied with.
the real intention of the trustor, which may c. Marketing. Officers and personnel
include, but need not be limited to: of the bank proper, including branch
(a) providing his/her and beneficiary/ managers, shall not be allowed to market
(ies) present and/or future financial support; living trust products and sign pre-printed
(b) protecting his/her beneficiary/(ies) living trust agreements. However, branch
against his/her inexperience in business managers/officers may be allowed to refer
matters; clients to the Trust Department and give
(c) preventing him/her from making short introduction on the living trust
imprudent expenditures; products to prospective clients.
(d) prevent the beneficiary/(ies) from d. Transitory provision. Outstanding
living beyond their means in case of living trust accounts that do not meet the
outright disposition of assets in their favor; foregoing additional requirements shall be
(e) protecting the beneficiary/(ies) given twelve (12)1 months from 11 April
against unforeseen contingencies such as 2006 to comply with the aforestated
incompetency, incapacity, physical requirements; otherwise, such accounts
disability or similar misfortune; and shall be considered as Other Fiduciary
(f) setting aside and segregating Accounts subject to applicable reserve
particular assets, proceeds or payments for requirements.
1 Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553.

§§ X409.9 - X409.16
06.12.31
e. Sanctions. Any violation of the a mortgage or bond issuance if any elective

provisions of this Subsection shall be subject or appointive official of the LGU, GOCC,
to the sanctions provided under Section 37 or body politic which issued said mortgage
of R.A. No. 7653 (The New Central Bank or bond and/or his related interests own
Act). such number of shares of the bank that will
(Circular Nos. 553 dated 22 December 2006 and 521 dated 21 allow him or his related interests to elect
March 2006) at least one (1) member of the board of
directors of such bank or is directly or
§§ X409.10 - X409.15 (Reserved) indirectly the registered or beneficial
owner of more than ten percent (10%) of
§ X409.16 Qualification and any class of its equity security.
accreditation of private banks acting as e. Investment and management of
trustee on any mortgage or bond issuance the funds. A domestic bank designated as
by any municipality, government-owned trustee of a mortgage or bond issuance
or controlled corporation, or any body may hold and manage, in accordance with
politic the provisions of the trust indenture or
a. Applicability. Private banks duly agreement, the proceeds of the mortgage
accredited by the BSP may act as trustee or bond issuance and such assets and funds
on any mortgage or bond issued by any of the issuing municipality, corporation, or
municipality, GOCC, or any body politic. body politic as may be required to be
b. Application for accreditation. A delivered to the trustee under the trust
private bank desiring to act as trustee on indenture/agreement, subject to the
any mortgage or bond issued by any following conditions/restrictions:
municipality, GOCC, or any body politic (1) Pending the utilization of such
shall file an application for accreditation funds pursuant to the provisions of the trust
with the appropriate supervising and indenture/agreement, the same shall only
examining department of SES. The be deposited in any bank, other than the
application shall be signed by the president trustee/bank proper, its subsidiary or
or officer of equivalent rank of the bank affiliate authorized to accept deposits from
and shall be accompanied by the following the Government or government entities,
documents: or invested in peso-denominated treasury
(1) certified true copy of the resolution bills acquired/purchased from any
of the institution’s board of directors securities dealer/entity, other than the
authorizing the application; trustee or any of its unit/department, its
(2) a certification signed by the subsidiary or affiliate.
president or officer of equivalent rank that (2) Investments of funds constituting or
the institution has complied with all the forming part of the sinking fund created as
qualification requirements for accreditation. the primary source for the payment of the
c. Qualification requirements. A principal and interests due the mortgage
bank applying for accreditation to act as or bonds shall also be limited to deposits
trustee on any mortgage or bond issued in any bank, other than the trustee/bank
by any municipality, government-owned proper, its subsidiary or affiliate, authorized
or controlled corporation, or any body to accept deposits from the Government
politic must comply with the requirements or government entities and investments in
in Appendix 5b. government securities that are consistent
d. Independence of the trustee. A with such purpose which must be acquired/
bank is prohibited from acting as trustee of purchased from any securities dealer/

§§ X409.16 - X409.17
06.12.31
entity, other than the trustee or any of the date the violation was committed up
its unit/department, its subsidiary or to the date it was corrected;
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, GOCC, (c) Revocation of the authority to act
or any body politic shall submit to the as trustees on any mortgage or bond
appropriate supervising and examining issuance by any municipality, GOCCs, or
department of SES a waiver of the body politic.
confidentiality of information under (3) Subsequent offense –
Sections 2 and 3 of R.A. No. 1405, as (a) Fine of up to P30,000 a day for the
amended, duly executed by the issuer of institution for each violation reckoned from
the mortgage or bond in favor of the BSP. the date the violation was committed up
g. Reportorial requirements. A bank to the date it was corrected;
authorized by the BSP to act as trustee of (b) Suspension or revocation of the
the proceeds of mortgage or bond trust license;
issuance of a municipality, GOCC or (c) Suspension for one hundred twenty
controlled corporation, or body politic shall (120) days without pay of the directors/
comply with reportorial requirements that officers responsible for the violation.
may be prescribed by the BSP.
h. Applicability of the rules and § X409.17 Trust fund of pre-need
Regulations on Trust, Other Fiduciary companies. The following rules and
Business and Investment Management regulations shall govern the acceptance,
Activities. The provisions of the Rules and management and administration of the
Regulations on Trust, Other Fiduciary trust funds of pre-need companies by banks
Business and Investment Management and other entities authorized to perform
Activities not inconsistent with the trust and other fiduciary functions.
provisions of this Subsection shall form part a. Administration of trust fund. In line
of these rules. with the policy of providing greater
i. Sanctions. Without prejudice to protection to pre-need planholders,
the penal and administrative sanctions prudential measures are hereby laid out
provided for under Sections 36 and 37, in the administration of trust funds of pre-
respectively, of the R.A. No. 7653, need companies. The trust fund, inclusive
violation of any provision of this of earnings, shall be administered and
Subsection shall be subject to the managed by the trustee with the skill, care,
following sanctions/penalties depending prudence and diligence necessary under
on the gravity of the offense: the circumstances then prevailing that a
(1) First offense – prudent man, acting in the same capacity
(a) Fine of up to P10,000 a day for the and familiar with such matters, would
institution for each violation reckoned from exercise in the conduct of an enterprise of
the date the violation was committed up a like character and similar aims.
to the date it was corrected; and The trustee shall have exclusive
(b) Reprimand for the directors/ management and control over the trust
officers responsible for the violation. fund and the right at any time to sell,
(2) Second offense – convert, invest, change, transfer or
(a) Fine of up to P20,000 a day for the otherwise dispose of the assets comprising
institution for each violation reckoned from the funds.

§ X409.17
06.12.31
b. Trustee. No trust entity shall act as (5) Loans fully secured by real estate
a trustee or administer or hold a trust fund in accordance with Section 37 and subject
established by a pre-need company, which to the requirements of Sections 39 and 40
is a subsidiary or affiliate, as defined under of R.A. No. 8791 and their implementing
existing BSP regulations, of such trust regulations; and
entity. Trust entities currently holding or (6) Loans fully secured by
administering trust funds of an affiliate pre- unconditional payment guarantees (such
need company may continue to act as as standby letters of credit and letter of
trustee of such funds after the transition indemnity) issued by banks/multilateral
period provided under Item “g” only upon financial institutions.
prior approval of the Monetary Board on d. Transactions with DOSRI. The
the basis of a clear showing that no potential trustee shall not, for the account of the
conflict of interest will arise. An absence trustor or the beneficiary of the trust,
of any exception or finding on conflicts of purchase or acquire property from, or sell,
interest during an examination of the trust transfer, assign or lend money or property
entity shall be deemed as prima facie to, or purchase debt instruments of, any
evidence that no potential conflict of of the departments, directors, officers,
interest will arise. stockholders, employees, subsidiaries and
c. Investment of the trust fund. affiliates of the trustee and/or the trustor,
Unless otherwise allowed under existing and relatives within the first degree of
laws or regulations issued by the agency consanguinity or affinity, or the related
having jurisdiction and supervision over interests, of such directors, officers and
pre-need companies, or with prior written stockholders, without prejudice to any rule
approval by said agency, loans and that may be issued by the agency having
investments of the trust funds shall be jurisdiction and supervision over such pre-
limited to: need company allowing such transaction
(1) Evidences of indebtedness of the with the prior written approval of such
Republic of the Philippines and of the BSP, agency. Such written approval shall
and any other evidences of indebtedness clearly specify the amount of the loan and/
or obligations wherein the servicing and or investment including the name of the
repayment of which are fully guaranteed concerned director, officer, stockholder
by the Republic of the Philippines or loans and their related interests.
against such government securities; e. Applicability of the Rules and
(2) Commercial papers duly Regulations on Trust, Other Fiduciary
registered with the SEC with a credit rating Business and Investment Management
of one (1) for short term and “AAA” for Activities (Trust Rules). The provisions of
long-term or their equivalent; the Trust Rules consistent with the
(3) Loans fully guaranteed by the provisions of this Subsection shall
Republic of the Philippines, as to the supplementarily apply to trust funds of pre-
payment of principal and interest; need companies.
(4) Loans fully secured by a hold-out f. Penalties and sanctions. Any
on, assignment or pledge of deposits violation of the provisions of this
maintained either with the bank proper or Subsection shall be a ground for
other banks, and/or of deposit substitutes prohibiting the concerned entity from
or of mortgage and chattel mortgage bonds accepting, managing and administering
issued by the trustee/fiduciary or by other trust funds of pre-need companies without
banks; prejudice to the imposition of the

§§ X409.17 - X410.5
06.12.31
applicable sanctions prescribed or allowed § X410.2 Establishment of a Unit

under the Trust Rules. Investment Trust Fund. Any trust entity
g. Transitory provisions. Banks which authorized to perform trust functions may
are presently administering and managing establish, administer and maintain one (1)
trust funds of pre-need companies are or more UIT Funds subject to applicable
hereby given a period of one (1) year from provisions under this Section.
25 April 2006 to comply with the
requirements hereof. § X410.3 Administration of a Unit
(Memorandum to All Banks and NBFIs dated 28 March 2006) Investment Trust Fund. The trustee shall
have exclusive management and control
Sec. X410 Unit Investment Trust Funds/ of each UIT Fund under its administration,
Common Trust Funds.1 The following rules and the sole right at any time to sell,
and regulations shall govern the creation, convert, reinvest, exchange, transfer or
administration and investment/s of Unit otherwise change or dispose of the assets
Investment Trust (UIT) Funds. comprising the fund: Provided, That no
The rules and regulations on Common participant in a UIT Fund shall have or be
Trust Funds (CTFs) are in Appendix 60. deemed to have any ownership or interest
in any particular account or investment in
§ X410.1 Definitions the UIT Fund but shall have only its
a. Unit Investment Trust Funds. Unit proportionate beneficial interest in the fund
Investment Trust Funds are open-ended as a whole.
pooled trust funds denominated in pesos
or any acceptable currency, which are § X410.4 Relationship of trustee with
operated and administered by a trust entity Unit Investment Trust Fund. A trustee
and made available by participation. The administering a UIT Fund shall not have
term Unit Investment Trust Funds is any other relationship with such fund other
synonymous to CTFs. As an open-ended than its capacity as trustee of the UIT Fund:
fund, participation or redemption is Provided, however, That a trustee which
allowed as often as stated in its plan simultaneously administers other trust,
rules. fiduciary or investment management funds
UIT Funds shall not include long term may invest such funds in the trustee’s UIT
funds designed for the primary purpose of Fund, if allowed under a policy approved
availing the tax incentives/exemption by the board of directors.
under Section 24(B)(1) of R.A. No. 8424
(The Tax Reform Act of 1997). § X410.5 Operating and accounting
b. Trust entity. Any bank, IH or a stock methodology. A UIT Fund shall be
corporation duly authorized by the operated and accounted for in accordance
Monetary Board to engage in trust, with the following:
investment management and fiduciary a. The total assets and accountabilities
business. of each fund shall be accounted for as a
c. Board of directors. For this purpose, single account referred to as pooled-fund
the term shall include a trust entity’s duly accounting method.
constituted board of directors or its b. Contributions to each fund by
functional oversight equivalent which shall clients shall always be through participation
include the country head in the case of in units of the fund and each unit shall have
foreign banks. uniform rights or privileges, 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).
Part IV - Page 20b Manual of Regulations for Banks

§§ X410.5 - X410.6
08.12.31
c. All such participations shall be d. Investment powers of the trustee

pooled and invested as one (1) account with respect to the fund, including the
(referred to as collective investments). character and kind of investments, which
d. The beneficial interest of each may be purchased, by the fund. There must
participation unit shall be determined under be an unequivocal statement of the full
a unitized net asset value per unit (NAVPu) discretionary powers of the trustee as far
valuation methodology defined in the as the fund’s investments are concerned.
written plan of the UIT Fund, and no These powers shall be limited only by the
participation shall be admitted to, or duly stated investment objective and
redeemed from, the fund except on the policies of the fund.
basis of such valuation. To arrive at a fund’s e. The unitized NAVPu valuation
NAVPu, the fund’s total Net Assets is methodology as prescribed under Subsec.
divided by the total outstanding units. Total X410.5.d shall be employed.
Net Assets is a summation of the market f. Terms and conditions governing
value of each investment less fees, taxes, the admission or redemption of units of
and other qualified expenses, as defined participation in the fund. The Plan rules shall
under the plan rules. state that the trustee, prior to admission of
a client’s initial participation in the UIT
§ X410.6 Plan rules. Each UIT Fund Fund, shall conduct a client suitability
shall be established, administered and assessment to profile the risk-return
maintained in accordance with a written orientation and suitability of the client to
trust agreement drawn by the trustee, the specific type of fund. If the frequency
referred to as the “Plan” which shall be of admission or redemption is other than
approved by the board of directors of the daily; that is, any business day, the same
trustee and a copy of which shall be should be explicitly stated in the Plan rules:
submitted to the BSP for processing and Provided, That the admission and redemption
approval prior to its implementation. Each prices shall be based on the end of day
new UIT Fund Plan filed for approval shall NAVPu of the fund computed after the cut-
be charged a processing fee of off time for fund participation and redemption
P10,000.00. for that reference day, in accordance with
The Plan shall contain the following existing BSP regulations on mark to market
minimum elements: valuation of investment securities.
a. Title of the Plan. This shall g. Aside from the regular audit
correspond to the product/brand name by requirement applicable to all trust
which the UIT Fund is proposed to be accounts, an external audit of each UIT Fund
known and made available to its clients. shall be conducted annually by an
The Plan rules shall state the classification independent auditor acceptable to the BSP
of the UIT Fund (e. g., money market fund, and the results thereof made available to
bond fund, balanced fund and equity fund). participants. The external audit shall be
b. Manner by which the fund is to be conducted by the same external auditor
operated. A statement of the fund’s engaged for the audit of the trust entity.
investment objectives and policies h. Basis upon which the fund may be
including limitations, if any. terminated. The Plan rules shall state the
c. Risk disclosure. The Plan rules rights of participants in case of termination
shall state both the general risks and risks of the fund. Termination of the fund shall
specific to the type of fund. be duly approved by the trustee’s board of
(Next Page is Part IV - Page 21)
Manual of Regulations for Banks Part IV - Page 20c

§ X410.6
08.12.31
directors and a copy of the resolution participants. The trustee shall secure prior
submitted to the appropriate department BSP approval for outsourcing services
of the BSP. provided under existing regulations. No
i. Liability clause of the trustee. There other fees shall be charged to the fund.
must be a clear and prominent statement Marketing or other promotional related
adjacent to where a client is required to expenses shall be for the account of the
sign the participating trust agreement that trustee and shall be presumed covered by
(1) the UIT Fund is a trust product and not the trust fee.
a deposit account or an obligation of, or k. Such other matters as may be
guaranteed, or insured by the trust entity necessary or proper to define clearly the
or its affiliates or subsidiaries; (2) the UIT rights of participants in the UIT Fund. The
Fund is not insured or governed by the provisions of the Plan shall govern
PDIC; (3) due to the nature of the participation in the fund including the rights
investment, yields and potential yields and benefits of persons having interest in
cannot be guaranteed; (4) any loss/income such participation, as beneficiaries or
arising from market fluctuations and price otherwise. The Plan may be amended by
volatility of the securities held by the UIT a resolution of the board of directors of the
Fund, even if invested in government trustee: Provided, however, That
securities, is for the account of the client/ participants in the fund shall be
participant; (5) as such, the units of immediately notified of such amendments
participation of the investor in the UIT and shall be allowed to withdraw their
Fund, when redeemed, may be worth participations within a reasonable time but
more or be worth less than his/her initial in no case less than thirty (30) calendar
investment/contributions; (6) historical days after the amendments are approved,
performance, when presented, is purely if they are not in conformity with the
for reference purposes and is not a amendments made thereto: Provided
guarantee of similar future result; and further, That amendments to the Plan shall
(7) the trustee is not liable for losses be submitted to the BSP within ten (10)
unless upon willful default, bad faith or business days from approval of the
gross negligence. amendments by the board of directors. For
j. Amount of fees/commission and purposes of imposing monetary penalties
other charges to be deducted from the fund. provided under Subsec. X162.2 for delayed
The amount of fees that shall be charged to submission of reports, the amendments to
a fund shall cover the fund’s fair and the Plan shall be considered as “Category
equitable share of the routine administrative A-3” report. The amendments shall be
expenses of the trustee such as salaries and deemed approved after thirty (30) business
wages, stationery and supplies, credit days from date of completion of
investigation, collateral appraisal, security, requirements.
messengerial and janitorial services, EDP A copy of the Plan shall be available at
expenses, BSP supervision fees and the principal office of the trustee during
internal audit fees. However, the trustee may regular office hours, for inspection by any
charge a UIT Fund for special expenses in person having an interest in the fund or by
case such expenses are (1) necessary to his authorized representative. Upon
preserve or enhance the value of the fund, request, a copy of the Plan shall be
(2) payable to a third party covered by a furnished such interested person.
separate contract, and (3) disclosed to (As amended by Circular No. 593 dated 08 January 2008)

§ X410.7
08.12.31
§ X410.7 Minimum disclosure The profiling process shall, at the minimum,

requirements require the trustee to obtain client
a. Disclosure of UIT Fund investments. information through the Client Suitability
A list of prospective and outstanding Assessment (CSA) form, classify the client
investment outlets shall be made available according to his financial sophistication and
by the trustee for the review of all UIT Fund communicate the CSA results to the
clients. Such disclosure shall be substantially subject client. The general principles on
in the form as shown in Appendix 62. The CSA shall also require the trustee to adopt
list of investment outlets shall be updated a notice mechanism whereby clients are
quarterly. advised and/or reminded of the explicit
b. Distribution of investment units. requirement to notify the trustee or its UIT
The trustee may issue such conditions or Fund marketing personnel of any change in
rules, as may affect the distribution of their characteristics, preferences or
investment units subject to the minimum circumstances to enable the trustee to update
conditions enumerated hereunder. client’s profile at least every three (3) years.
(1) Marketing materials. All printed (c) The participation is not a “deposit
marketing materials related to the sale of account” but a trust product; and that any
a UIT Fund shall clearly state: loss/income is for the account of the
(a) The designated name and participant; that the trustee is not liable for
classification of the fund and the fund’s losses unless upon willful default, bad faith
trustee. or gross negligence.
(b) Minimum information regarding: (d) A balanced assessment of the
(i) The general investment policy and possible gains and losses of the UIT Fund
applicable risk profile. There shall be a clear and that the participation does not carry any
description/explanation of the general risks guaranteed rate of return, and is not insured
attendant with investing in a UIT Fund, by the PDIC.
including risk specific to a type of fund. (e) An advisory that the investor must
Technical terms should likewise be read the complete details of the fund in the
defined in laymen’s terms1. Plan Rules, make his/her own risk
(ii) Particulars or administrative and assessment, and when necessary, he/she
marketing details like pricing and cut-off must seek independent/professional
time. opinion, before making an investment.
(iii) All charges made/to be made (2) Evidence of participation. Every
against the fund, including trust fees, other UIT Fund participant shall be given -
related charges. (a) A participating trust agreement.
(iv) The availability of the Plan Rules Such agreement shall clearly indicate that
governing the fund, upon the client’s (1) the UIT Fund is a trust product and not
request. a deposit account or an obligation of, or
(v) Client and Product Suitability guaranteed, or insured by the trust entity
Standards. Prior to admission, the trustee or its affiliates or subsidiaries; (2) the UIT
shall perform a client profiling process for Fund is not insured or governed by the
all UIT Fund participants under the general PDIC; (3) due to the nature of the
principles on client suitability assessment investment, yields and potential yields
to guide the client in choosing investment cannot be guaranteed; (4) any loss/income
outlets that are best suited to his objectives, arising from market fluctuations and price
risk tolerance, preferences and experience. volatility of the securities held by the UIT
1
Example: "Fixed income securities" does not really mean a guarantee of fixed earnings on the investor's participation;
"Risk-free" government securities which may be sovereign "risk-free" but not interest rate "risk-free"

§ X410.7
08.12.31
Fund, even if invested in government No indicative rates of return shall be

securities, is for the account of the client/ provided in the trust participating agreement.
participant; (5) as such, the units of Marketing materials may present relevant
participation of the investor in the UIT Fund, historical performance purely for reference
when redeemed, may be worth more or be and with clear indication that past results do
worth less than his/her initial investment/ not guarantee similar future results.
contributions; (6) historical performance, (3) A participating trust agreement or
when presented, is purely for reference confirmation of contribution/redemption
purposes and is not a guarantee of similar need not be manually signed by the trustee
future result; and (7) the trustee is not liable or his authorized representative if the
for losses unless upon willful default, bad faith same is in the form of an electronic
or gross negligence. document that conforms with the
In addition to the agreement, every UIT implementing rules and regulations of
Fund participant shall be provided with - R.A. No. 8792, otherwise known as the
(1) CSA form to be accomplished during E- Commerce Act.
the profiling process required under the c. Regular publication/computation/
general principles on CSA. This is designed availability of the fund’s NAVPu. Trust
to ensure that based on relevant information entities managing a UIT Fund shall cause at
about the client, his investment profile is least the weekly publication of the NAVPu
matched against the investment parameters of such fund in one (1) or more newspaper of
of the UIT Fund. At the minimum, client national circulation: Provided, That a pooled
information shall include personal or weekly publication of such NAVPu shall be
institutional data, investment objective, considered as substantial compliance with
investment horizon, investment experience, this requirement. The said publication, at the
and risk tolerance; and minimum, shall clearly state the name of the
(2) Risk disclosure statement, which in fund, its general classification, the fund’s
reference to Subsec. X410.6c, shall NAVPu and the moving return on investment
describe the attendant general and specific (ROI) of the fund on a year-to-date (YTD) and
risks that may arise from investing in the year-on-year (YOY) basis.
UIT Fund. Such statement shall be NAVPu shall be computed daily and
substantially similar to the form in Annex shall be made available to participants and
A of Appendix 62. prospective participants upon request.
Both documents shall be signed by the d. Marketing personnel. To ensure
client/participant and the UIT marketing the competence and integrity of all duly
personnel who assessed and explained to designated UIT marketing personnel, all
the concerned client his/her ability to bear personnel involved in the sales of these
the risks and potential losses. funds shall be required to undergo
(b) A confirmation of participation standardized training program in
and redemption made to/from the fund accordance with the guidelines of this
that shall contain the following Subsection. This training program may be
information: conducted by their respective trust entities
(i) NAVPu of the fund on day of in accordance with the minimum training
purchase/redemption; program guidelines provided by the Trust
(ii) Number of units purchased/ Officers Association of the Philippines
redeemed; and (TOAP). Such training program shall
(iii) Absolute peso or foreign currency however be regularly validated by TOAP.
value. (As amended by Circular No. 593 dated 08 January 2008)
Part IV - Page 22a Manual of Regulations for Banks

§§ X410.8 - X410.9
07.12.31
§ X410.8 Exposure limit to single § X410.9 Allowable investments and

person/entity. The combined exposure of valuation. UIT Fund investments shall be
the UIT Fund to any entity and its related limited to bank deposits and the following
parties shall not exceed fifteen percent financial instruments:
(15%) of the market value of the UIT Fund: (a) Securities issued by or guaranteed
Provided, That, a UIT Fund invested, by the Philippine government, or the
partially or substantially, in exchange traded BSP;
equity securities shall be subject to the (b) Tradable securities issued by the
fifteen percent (15%) exposure limit to a government of a foreign country, any
single entity/issuer: Provided, further, That, political subdivision of a foreign country
in the case of an exchange traded equity or any supranational entity;
security which is included in an index and (c) Exchange-listed securities;
tracked by the UIT Fund, the exposure of the (d) Marketable instruments that are
UIT Fund to a single entity shall be the actual traded in an organized exchange;
benchmark weighting of the issuer or fifteen (e) Loans traded in an organized
percent (15%), whichever is higher. market; and
This limitation shall not apply to non- (f) Such other tradable investments
risk assets as defined by the BSP. outlets/categories as the BSP may allow:
In case the limit is breached due to the Provided, That a financial instrument
marking-to-market of certain investment/s is regarded as tradable if quoted two-way
or any extraordinary circumstances, e.g., prices are readily and regularly available
abnormal redemptions which are beyond from an exchange, dealer, broker, industry
the control of the trustee, the trustee shall group, pricing service or regulatory
be given thirty (30) days from the time the agency, and those prices represent
limit is breached to correct the same. actual and regularly occurring market
(As amended by Circular No. 577 dated 17 August 2007). transactions on an arm’s length basis.
Manual of Regulations for Banks Part IV - Page 22b

§§ 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

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

§§ X415.3 - X415.4
08.12.31
based on their book value, that is, cost as ii. Non-monetary penalty beginning
increased or decreased by the corresponding with the third offense (all banks) - Prohibition
discount or premium amortization. against the acceptance of new investment
The base amount for the basic security management accounts and from renewing
deposit shall be the average of the month-end expiring investment management
balances of the total assets of investment contracts up to the time the violation is
management funds of the immediately corrected.
preceding calendar quarter. b. On the Head of the Investment
Management Department and/or other
§ X415.4 Compliance period; sanctions officers responsible for the deficiency/
The investment manager shall have thirty (30) non-compliance:
calendar days after the end of every calendar (1) First offense – warning that
quarter within which to deposit with the BSP subsequent violations shall be dealt with
securities required under this Section. more severely;
The following sanctions shall be (2) Second offense – written reprimand
imposed for any deficiency in the basic with a stern warning that subsequent
security deposit for the faithful performance violations shall be subject to suspension;
of investment management activity: (3) Third offense – thirty (30) calendar
a. On the bank: day-suspension without pay; and
i. Monetary penalty/ies: (4) Subsequent offense(s) – sixty (60)
calendar day-suspension without pay.
Offense Third and For purposes of determining the
Trust First Second subsequent frequency of the violation, the bank’s
Asset Size offense(s) compliance profile for the immediately
TBs/RBs with preceding three (3) years or twelve (12)
Limited Trust P300.00 P400.00 P500.00 quarters will be reviewed: Provided, That
Authority for purposes of determining appropriate
Up to penalty on the head of the Investment
P500 P600.00 P700.00 P800.00 Management Department and/or other
million responsible officer(s), any offense committed
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
Above outside the preceding three (3) year or

Penalty per Calendar Day
P500 twelve (12) quarter - period shall be

million P1,000.00 P1,250.00 P1,500.00 considered as the first offense: Provided,
but not further, That in the case of the head of the
exceeding Investment Management Department, all
P1 billion offenses committed by him in the past as
Above the head of the Investment Management
P1 billion Department of other institution(s) shall also
but not P2,000.00 P3,000.00 P4,000.00 be considered: Provided, finally, That if the
exceeding offense cannot be attributed to any other
P10 billion officer of the bank, the head of the
Above Investment Management Department
P10 billion shall be automatically held responsible
but not P5,000.00 P6,000.00 P7,000.00 since the ultimate responsibility for
exceeding ensuring compliance with the regulation
P50 billion
rests upon him, as evidence may warrant.
Above
(As amended by Circular Nos. 617 dated 30 July 2008 and
P50 billion P8,000.00 P9,000.00 P10,000.00
585 dated 15 October 2007)

§§ X416 - X421
07.12.31
Sec. X416 Organization and Management unsound practices for investment

The provisions of Sec. X406 up to Subsec. management accounts.
X406.9 shall govern the organization and
management of banks without trust license Sec. X419 Conduct of Investment
which are engaged in investment Management Activities. The provisions of
management activities only. The following Sec. X411 shall govern the conduct of
terms shall, however, be used: investment management activities of a
a. Investment management activities, bank without a trust license.
in lieu of trust and other fiduciary business;
b. Investment management accounts, Sec. X420 Required Surplus. A bank
in lieu of trust and other fiduciary accounts; authorized to engage in investment
c. Investment management committee, management activities shall, before the
in lieu of trust committee; declaration of dividends, carry to
d. Investment management officer, in surplus at least ten percent (10%) of
lieu of trust officer; and its net profits realized out of its
e. Investment management department, investment management activities
in lieu of trust department. since the last preceding dividend
(As amended by M-2007-009 dated 22 March 2007) declaration until the surplus shall amount
to twenty percent (20%) of its authorized
Sec. X417 Non-Investment Management capital stock and no part of such surplus
Activities. The provisions of Sec. X407 shall shall at any time be paid out in dividends,
apply in determining non-investment but losses accruing in the course of its
management activities except that the terms business may be charged against surplus.
trust, other fiduciary, trustee and fiduciary
shall be disregarded. C. GENERAL PROVISIONS
Sec. X418 Unsound Practices. The Sec. X421 Books and Records. The bank’s
provisions of Sec. X408 shall govern the trust department or investment management

§§ X421 - X423
06.12.31
department shall keep books and records Sec. X422 Custody of Assets. All moneys,
on trust, other fiduciary and investment properties or securities received by a bank
management accounts separate and distinct in its capacity as trustee, fiduciary, or
from the books and records of its other investment manager shall be kept
businesses and shall follow the Manual of physically separate and distinct from the
Accounts for Trust and Other Fiduciary assets of its other businesses and shall be
Business and Investment Management under the joint custody of at least two (2)
Activities prescribed by the BSP. persons, one of whom shall be an officer
Each trust, other fiduciary or of the trust or investment management
investment management account shall department, designated for that purpose by
have a record separate from all other the board of directors.
accounts except only in the case of CTFs The investment of each trust, other
where the trustee can maintain common fiduciary or investment management
records utilizing pooled fund accounting account shall be kept physically separated
method for each fund: Provided, That the from those of other trust, other fiduciary or
trustee shall clearly indicate in the records investment management accounts, and
the trustors owning participation in the CTF adequately identified as the assets or
and the extent of the interest of such property of the relevant account.
trustors.
Books and records shall contain full Sec. X423 Fees and Commissions. A bank
information relative to each trust, other acting as trustee, fiduciary or investment
fiduciary or investment management manager shall be entitled to reasonable fees
account and shall be supported by duplicate and commissions which shall be
signed copies of related documents. Said determined on the basis of the cost of
records and duplicate signed copies of services rendered and the responsibilities
related documents shall be compiled and assumed: Provided, That where the trustee,
kept as to allow inspection by BSP fiduciary or investment manager is acting
examiners and submission of information as such under appointment by a court, the
or reports as may be required by compensation shall be that allowed or
competent authorities. approved by the court: Provided, further,
The bank’s trust department or That in the case of CTFs, the fee which a
investment management department shall trustee may charge each participant shall
maintain separate general ledger accounts be fully disclosed by the trustee in the CTF
and other relevant sub-accounts for tax- plan, prospectus, flyers, posters and in all
exempt individual trust accounts, CTFs and forms of advertising materials to market the
individual management accounts funds and in the documents given to clients
established under Section 24(B)(1) of R.A. as proof of participation in the fund. In no
No. 8424 and Subsecs. X409.8, X411.9, case shall such fees and commissions be
and Item “8” of Appendix 60. The bank’s based on the excess of the income of the
trust department or investment trust, other fiduciary or investment
management department shall also adopt management funds over a certain amount
appropriate systems, internal control or percentage.
procedures and audit trail mechanisms to No trustee, fiduciary or investment
ensure that the correct amount of final tax manager shall solicit or receive rebates on
is withheld or exempted from such commissions, fees and other payments for
accounts. the services rendered to the trust, other

§§ X423 - X425.1
06.12.31
fiduciary or investment management With respect to tax-exempt CTFs,

account or beneficiaries of the trust, other individual trust and investment
fiduciary or investment management management accounts established under
account by stockbrokers, real estate Section 24(B)(1) of R.A. No. 8424, the
brokers, insurance agents and similar bank’s trust department or investment
persons or entities unless the rebates, fees management department shall be
and other payments shall accrue to the responsible for obtaining the tax-exemption
benefit of the trust, other fiduciary or certifications which may be required by the
investment management account or the BIR for the interest-bearing instruments
beneficiaries thereof. where the CTFs, individual trust funds and
Officers and employees of the trust investment management funds will be
department or investment management invested. Likewise, the banks shall ensure
department of banks, while serving as such, that the correct amount of final tax on the
shall be prohibited from retaining any interest income on the interest-bearing
compensation for acting as co-trustee or instruments is withheld/deducted from the
fiduciary in the administration of a trust, proceeds from the CTF participation, trust
other fiduciary or investment management or investment management account and
account. remitted to the BIR in the event said tax
No bank shall collect, for its own becomes due such as when funds are
account, referral and/or arrangement fees, withdrawn before the required five (5)-year
or any other fees that take the nature of holding period or when corporations
payment to the bank from whatever source, happen to invest in the tax-exempt trust
in connection with loans sourced from trust instruments created within the purview of
funds managed by its trust department: R.A. No. 8424.
Provided, That if such fees are collected, the
same shall be properly disclosed to the Sec. X425 Reports Required
trustor, and shall accrue to the benefit of the
trust, in accordance with the provisions of § X425.1 To trustor, beneficiary,
Secs. X401 and X407. principal. A bank acting as trustee,
(As amended by Circular No. 541 dated 30 August 2006) fiduciary or investment manager shall
render reports on the trust, other
Sec. X424 Taxes. The terms and conditions fiduciary or investment management
of trust, other fiduciary or investment accounts to the trustor, beneficiary,
management agreements including CTF plans principal or other party in interest or the
shall contain provisions regarding the court concerned or any party duly
applicability of regulations governing designated by the court order, as the case
taxation on the income of trust, other may be, under the following guidelines:
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 or (2) An income statement;
investment manager in the periodic reports (3) A schedule of earning assets of the
submitted to trustors, beneficiaries, account; and
principals and other parties in interest. (4) An investment activity report.

§§ X425.1 - X426.2
05.12.31
b. Items (3) and (4) above shall include the trust department or investment
at least the following: management department at least once every
(1) Name of issuer or borrower; twelve (12) months. The board of directors,
(2) Type of instrument; in a resolution entered in its minutes, may
(3) Collateral, if any; also require the internal auditor to adopt a
(4) Amount invested; suitable continuous audit system to
(5) Earning rate or yield; supplement and/or to replace the periodic
(6) Amount of earnings; audit. In any case, the audit shall ascertain
(7) Transaction date; and whether the institution’s trust and other
(8) Maturity date; fiduciary business and investment
c. The reports shall be prepared in management activities have been
such frequency as required under the administered in accordance with laws, BSP
agreement but shall not in any case be rules and regulations, and sound trust or
longer than once every quarter; and fiduciary principles.
d. The reports shall be made available
to clients not later than twenty (20) § X426.2 External audit. The trust and
calendar days from the end of the reference other fiduciary business and investment
date/period in Item "c" above. management activities of a bank shall be
included in the annual financial audit by
§ X425.2 To the Bangko Sentral. A independent external auditors required
bank acting as trustee, fiduciary or under Sec. X164.
investment manager shall submit periodic The audit of the assets and
reports prescribed by the appropriate accountabilities of the trust department/
department of the SES on the bank’s trust and investment management department of a
other fiduciary business and investment bank authorized to engage in trust and other
management activities within the deadlines fiduciary business, investment management
indicated in Appendix 6. activities, which shall cover at the
minimum a review of the trust/investment
§ X425.3 Post-Bond Flotation Report management operations, practices and
The LGU or its representative or its trustee policies, including audit and internal control
bank, as the case may be, shall submit to system, shall be subject to auditing
the BSP the post-bond flotation report standards to the extent necessary to express
required in the Revised Guidelines on the an opinion on the financial statements.
Flotation of Bonds by LGUs (Without The audit of the trust/investment
National Government Guarantee) management department of a bank
(Appendix 57) that will indicate the actual authorized to engage in trust and other
amount of the issue as well as the final terms fiduciary business/investment management
and conditions of the issue within the activities shall be covered by a separate
deadline indicated in Appendix 6; and such supplemental audit report to be submitted
other reports as may be required by the BSP. to the bank’s board of directors and to the
BSP within the prescribed period
Sec. X426 Audits containing, among others things, the
statements of condition of trust funds and
§ X426.1 Internal audit. The bank’s managed funds and the related statements
internal auditor shall include among his of earnings of both funds presented
functions, the conduct of periodic audits of separately.

§§ X426.3 - X441
07.12.31
§ X426.3 Board action. A report of the acting as such under appointment by a

foregoing audits, together with the actions court, the receiver shall proceed pursuant
thereon, shall be noted in the minutes of the to the instructions of said court.
board of directors of the bank.
Sec. X429 Surrender of Trust or
Sec. X427 Authority Resulting from Investment Management License. Any
Merger or Consolidation. In merger of FIs, bank which has been authorized to engage
the authority to engage in trust and other in trust and other fiduciary business or in
fiduciary business and in investment investment management activities and
management activities shall continue to be which intends to surrender said authority
in effect if the surviving institution has such shall file with the BSP a certified copy of
authority and the same has not been the resolution of its board of directors
withdrawn by the BSP. In case the surviving manifesting such intention. The appropriate
institution does not have previous authority department of the SES shall then conduct
but desires to engage in trust and other an examination of the bank’s trust, other
fiduciary business and in investment fiduciary business and investment
management activities, it shall secure the management activities. If the bank is found
prior approval of the Monetary Board to to have satisfactorily discharged its duties
engage in such business as part of its and responsibilities as trustee, fiduciary or
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
and such other pertinent documents. basis of the recommendation of the
In the consolidation of FIs where the examining department, shall order the
resulting entity is an entirely new one, it shall withdrawal of the bank’s authority to
secure from the Monetary Board an authority engage in trust and other fiduciary
to engage in trust and other fiduciary management activities.
business or in investment management
activities before it may engage in such Secs. X430 – X440 (Reserved)
business.
Sec. X441 Securities Custodianship and
Sec. X428 Receivership. Whenever a Securities Registry Operations. The
receiver is appointed by the Monetary following rules and regulations shall
Board for a bank which is authorized to govern securities custodianship and
engage in trust and other fiduciary business securities registry operations of banks.
or in investment management activities, The guidelines to implement the
the receiver shall, pursuant to the delivery by the seller of securities to the
instructions of the Monetary Board, proceed buyer or to his designated third party
to close the trust, other fiduciary and custodian are shown in Appendix 68.
investment management accounts Violation of any provision of the
promptly and/or transfer all other accounts guidelines in Appendix 68 shall be subject
to substitute trustees, fiduciaries or to the sanctions/penalties under Subsec.
investment managers acceptable to the X441.29.
trustors, beneficiaries, principals or other (As amended by M-2007-002 dated 23 January 2007, M-2006-
parties in interest: Provided, That where the 009 dated 06 July 2006, M-2006-002 dated 05 June 2006 and
trustee, fiduciary or investment manager is Circular No. 524 dated 31 March 2006)

§§ X441.1 - X441.2
05.12.31
§ X441.1 Statement of policy. It is the transactions in securities as defined in

policy of the BSP to promote the protection Section 3 of the Securities Regulation Code
of investors in order to gain their confidence (SRC), whether exempt or required to be
and encourage their participation in the registered with the SEC, that are sold,
development of the domestic capital market. borrowed, purchased, traded, held under
Therefore, the following rules and custody or otherwise transacted in the
regulations are promulgated to enhance Philippines where at least one (1) of the
transparency of securities transactions with parties is a bank or an NBFI under BSP
the end in view of protecting investors. supervision. However, this regulation
shall not cover the operations of stock and
§ X441.2 Applicability of this regulation transfer agents duly registered with the
This regulation shall govern securities SEC pursuant to the provisions of SRC
custodianship and securities registry Rule 36-4.1 and whose only function is
operations of banks and NBFIs under BSP to maintain the stock and transfer book
supervision. It shall cover all their 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
07.12.31
PART FIVE
FOREIGN CURRENCY DEPOSIT SYSTEM AND OTHER OPERATIONS IN

FOREIGN CURRENCY
Section X501 Foreign Currency Deposit if located in Metro Manila or P52.0 million
System. The foreign currency deposit if located outside Metro Manila may,
operations of banks under R.A. No. 6426, subject to prior Monetary Board approval,
as amended, shall be governed by the operate an FCDU. A TB desiring to
following rules and regulations. operate an FCDU shall file an application
with the appropriate department of the SES.
§ X501.1 Definition of terms. The The application shall be signed by the bank
following terms and phrases shall mean president or officer of equivalent rank and
as follows: shall be accompanied by the following
a. FCDU and EFCDU shall refer to a documents:
unit of a local bank or of a local branch of a (1) Certified true copy of the resolution
foreign bank authorized by the BSP to of the bank’s board of directors authorizing
engage in foreign currency-denominated the application.
transactions, pursuant to the provisions of (2) A certification signed by the
R.A. No. 6426, as amended. president or the officer of equivalent rank
b. Local bank shall refer to a KB, UB that the bank has complied with all
or TB organized under the laws of the conditions/prerequisites for the grant of
Republic of the Philippines. authority to operate an FCDU in
c. Local branch of a foreign bank Appendix 5a.
shall refer to a branch of a foreign bank Transitory provisions. TBs authorized
doing business in the Philippines. to operate and are actually operating an
d. Short-term loans and securities FCDU are hereby given a period of two
shall refer to those with maturities of one (2) years reckoned from 07 March 2002
(1) year or less. within which to comply with the minimum
e. Medium-term loans and securities capital requirements for FCDU: Provided,
shall refer to those with maturities of more That this requirement may be substituted
than one (1) year but not more than five by a capital build-up program for a period
(5) years. of not more than five (5) years or only up
f. Long-term loans and securities to 31 December 2007 and which must be
shall refer to those with maturities of more approved by the Monetary Board:
than five (5) years. Provided, further, That annual cash infusion
shall be included in the capital build-up
§ X501.2 Qualification requirements program adopted for this purpose. The
a. KBs/UBs may be authorized to amount of cash infusion shall be evenly
operate an FCDU or EFCDU: Provided, distributed over the capital build-up
That they meet the minimum capital program period. Banks which failed to
requirements as prescribed under Sec. comply with the required capitalization
X106 and Subsecs. X106.1 and X106.2, and upon expiration of said two (2)-year period
in the case of branches of foreign banks, given them or those which failed to comply
Subsecs. X121.4 and X121.5. with approved capital build-up program shall
b. TBs with net worth or combined liquidate their FCDU business within one
capital accounts of at least P325.0 million (1) year and shall surrender to the BSP their
Manual of Regulations for Banks Part V - Page 1

§§ X501.2 - X501.3
08.12.31
corresponding FCDU licenses. The license (b) Establish a risk management system
of TBs already authorized to operate FCDU appropriate to its operations, characterized
but not yet operating the same shall be by clear delineation of responsibility for risk
automatically revoked if they do not management, adequate risk measurement
comply with the above minimum capital system, appropriately structured risk
requirements as of 07 May 2002. limits, effective internal control system and
In addition, the standard pre-qualification complete, timely and efficient risk
requirements prescribed under Appendix 5 reporting system.
shall be complied with by a bank applying (As amended by Circular Nos. 582 dated 17 September 2007,
for an FCDU/EFCDU license. 579 dated 23 August 2007, and 522 dated 23 March 2006)
c. RBs/Coop Banks may, subject to
prior Monetary Board approval, be § X501.3 Authorized transactions
authorized to operate an FCDU: Provided, a. Banks which are granted a
That they meet the minimum capital under certificate of authority to operate an FCDU
Subsec. X151.3 or P20.0 million, are authorized to engage in the following
whichever is higher. An RB/Coop Bank transactions in any acceptable foreign
desiring to operate an FCDU shall file an currency:
application with the appropriate (1) Accept deposits and trust accounts
department of the SES. The application from residents and non-residents;
shall be signed by the bank president or (2) Deposit, regardless of maturity,
officer of equivalent rank and shall be with foreign banks abroad, OBUs and
accompanied by the following documents: other FCDUs/EFCDUs;
(1) Certified true copy of the resolution (3) Invest in readily marketable
of the bank’s board of directors authorizing foreign currency denominated debt
the application. instruments. For this purpose, readily
(2) Certification signed by the marketable debt instruments shall refer to
president or the officer of equivalent rank debt instruments that are quoted in an
that the bank has complied with all the active market and the quoted prices are
conditions/prerequisites for the grant of readily and regularly available from an
authority to operate an FCDU in exchange, dealer, broker, industry group,
Appendix 5a. pricing service or regulatory agency, and
In addition to requirements under those prices represent actual and regularly
existing regulations, an RB/Coop Bank occurring market transactions on an arm’s
authorized to operate an FCDU shall: length basis;
(a) Have the capacity to operate an (4) Grant short-term foreign currency
FCDU. An RB/Coop Bank may, however, loans as may be allowed by BSP regulations;
upgrade its capacity by appointing as (5) Borrow, (a) regardless of maturity,
officer who will be in-charge of the FCDU from EFCDUs, foreign banks abroad and
operations either, (i) an individual with OBUs, subject to existing rules on foreign/
actual experience in another bank as foreign currency borrowings; and (b) on
in-charge or assistant in-charge of the same short-term maturity, from other FCDUs;
operations for at least one (1) year, or (6) Engage in foreign currency-foreign
(ii) an individual who has attended a currency swap with the BSP, OBUs and
specialized training course on FCDU other FCDUs/EFCDUs;
transactions or operations conducted by the (7) Engage in securities lending
BSP Institute or an institution or bank duly activities as lender subject to the provisions
accredited by the BSP; and in Sec. X531;
Part V - Page 2 Manual of Regulations for Banks

§ X501.3
08.12.31
(8) Engage in repo agreements (1) Accept deposits and trust accounts
involving foreign currency denominated from residents and non-residents;
government securities subject to the (2) Deposit with foreign banks abroad,
provisions in Sec. X532; OBUs and other FCDUs/EFCDUs;
(9) Purchase foreign currency (3) Invest in foreign currency-
denominated government securities under denominated debt instruments;
resale agreements from other banks’ (4) Grant foreign currency loans as
EFCDU/FCDU, non-resident FIs and OBUs, may be allowed by the BSP;
subject to the following conditions: (5) Borrow from other FCDUs/
(a) That the government securities EFCDUs and from non-residents and
purchased shall be limited to those issued OBUs, subject to existing rules on foreign
by central governments and/or central borrowings;
banks of foreign countries with the (6) Engage in foreign currency-foreign
highest credit quality given by any two currency swap;
(2) internationally accepted rating (7) Engage in foreign exchange
agencies (i.e., currently the equivalent trading and, with prior BSP approval,
of Standard and Poor’s AA- or Moody’s engage in financial futures and options
Aa3 or better); trading;
(b) That for TBs which are granted a (8) On request/instructions of its
certificate of authority to operate an FCDU, foreign correspondent bank:
the maximum term of the resale (a) issue letters of credit for a
agreements shall be one (1) year; and non-resident importer in favor of a
(c) That such government securities non-resident exporter;
purchased under resale agreements shall (b) pay, accept or negotiate drafts/ bills
be classified as “Trading Account Securities of exchange drawn under the letter of
- Loans” and booked under the sub-account credit; and
“Government Securities Purchased under (c) make payment to the order of the
Resale Agreements – EFCDU/FCDU”; non-resident exporter:
(10) Issue HT1 capital instruments; and Provided, That the foreign correspondent
(11) Engage in US dollar denominated bank shall deposit sufficient foreign
repo agreements with the BSP, as provided exchange with the EFCDU issuing the letter
under Subsec. X601.1. of credit to cover all drawings;
RBs/Coop Banks which are authorized (9) Engage in direct purchase of export
to operate FCDUs shall be governed by bills of resident exporters, subject to the
the provisions of Circular 1389 dated 13 following conditions:
April 1993, as amended, and by all existing (a) Export transactions covered by
regulations applicable to FCDUs. They usance or sight letters of credit shall be
may undertake all transactions which TBs allowed to be purchased by EFCDUs; and
with FCDUs are authorized to enter into, (b) Export bills negotiated/purchased
except the granting of loans to producers/ by the bank’s Regular Unit and outstanding
manufacturers, including oil companies in its books shall not be allowed to be
and public utility concerns. purchased by its EFCDU;
b. UBs/KBs which are authorized to (10)Engage in securities lending
operate under the expanded foreign activities as lender subject to the provisions
currency deposit system may engage in in Sec. X531;
the following transactions in any acceptable (11)Engage in repo agreements
foreign currency: involving foreign currency denominated

§ X501.3
08.12.31
government securities subject to the average daily balance (using 2-month

provisions in Sec. X532; rolling data) as of end of the second week
(12)Invest in foreign currency prior to the reference week (refer to
denominated structured products issued Appendix 51a for sample computation).
by banks and SPVs of high credit quality Total outstanding balance of FCDU/
subject to the provisions in Sec. 1636; EFCDU lending to RBU shall, at all times,
(13)Purchase foreign currency be within the prescribed cap. Any breach
denominated government securities under thereon shall be subject to the imposition
resale agreements from other banks’ of a monetary penalty of P30,000 per day,
EFCDU/FCDU, non-resident FIs and commencing on the day the cap was
OBUs, subject to the following conditions: breached until the same is corrected.
(a) That the government securities (b) Charged interest at prevailing
purchased shall be limited to those issued market rates, computed monthly at the
by central governments and/or central banks average daily balance of the receivable
of foreign countries with the highest credit from RBU.
quality given by any two (2) internationally (c) On short-term maturity, or for a
accepted rating agencies (i.e., currently the period of one (1) year or less. Balances
equivalent of Standard and Poor’s AA - or shall be settled, within a year from
Moody’s Aa3 or better); and availment, by way of actual transfer of
(b) That such government securities foreign currency assets from the RBU
purchased under resale agreements shall be books to the FCDU/EFCDU books.
classified as “Trading Account Securities -Loans” (3) The lending transaction shall be
and booked under the sub-account booked as “Lending-RBU” in the FCDU/
“Government Securities Purchased under EFCDU books and “Borrowing-FCDU/
Resale Agreements – EFCDU/FCDU”; EFCDU” in the RBU books.
(14) Issue HT1 capital instruments; and (4) The “Lending-RBU” account
(15) Engage in US dollar denominated balance [net of transactions outstanding for
repo agreements with the BSP, as provided more than one (1) year] shall qualify as
under Subsec. X601.1. eligible asset cover, but not as liquid asset
c. Excess FCDU/EFCDU funds of cover, for FCDU/EFCDU liabilities.
UBs and KBs may be lent to RBU to fund (5) Banks shall establish and maintain
the latter’s on-balance sheet foreign systems to–
exchange trade transactions, subject to the (a) monitor the foreign currency funds
following conditions – flow of RBU and the average daily
(1) FCDU/EFCDU may lend funds to balances of foreign currency trade assets,
RBU only after it has fully complied with with minimum database covering a two
the prescribed 100% asset cover/thirty (2) -month rolling period; and
percent (30%) liquid asset cover on (b) account for the utilization of funds
FCDU/EFCDU liabilities. borrowed from FCDU/EFCDU.
(2) FCDU/EFCDU lending to RBU The systems as well as periodic reports
shall be - generated therefrom shall be made
(a) Capped at the lower of total available to the BSP examiners for
outstanding balance on RBU’s on-balance verification.
sheet foreign currency trade assets1 or (6) Banks shall submit to the appropriate
thirty percent (30%) of the level of FCDU/ department of the SES, within five (5)
EFCDU deposit liabilities, computed at the banking days from end of reference month,
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
08.12.31
a certification under oath (prescribed format (5) Derivatives with Positive Fair
shown in Appendix 51), signed by the Value Held for Trading and/or Hedging
bank’s president or country manager, in (Derivatives with Negative Fair Value Held
case of local branch/subsidiary of foreign for Trading and/or Hedging shall require
banks, compliance officer and head of corresponding asset/liquid asset cover);
treasury, to the effect that, at any day of (6) Investments in readily marketable
the reference month, the outstanding foreign currency-denominated debt
balance on funds borrowed from FCDU/ instruments, booked under the following
EFCDU did not exceed the prescribed cap control accounts:
[i.e., lower of total outstanding balance on (a) Held for Trading (HFT);
RBU’s on-balance sheet foreign currency (b) Designated at Fair Value through
trade assets or thirty percent (30%) of the Profit or Loss (DFVPL);
level of FCDU/EFCDU deposit liabilities] (c) Available for Sale (ASS); and
and were utilized by RBU solely for foreign (d) Held to Maturity (HTM).
currency trade transactions. Foreign currency-denominated debt
The foregoing rule shall be subject to securities sold/lent in repo agreements/
quarterly review by BSP. securities lending and borrowing transactions
(As amended by Circular Nos. 627 dated 23 October 2008, shall be considered as eligible asset cover
590 dated 27 December 2007, 565 dated 03 May 2007, for the 100% asset cover requirement. The
522 dated 23 March 2006 and 519 dated 16 March 2006) same treatment shall likewise apply to
foreign currency denominated debt
§ X501.4 Foreign currency cover securities used as additional collateral in
requirements. Depository banks under repo agreements or as collateral by
the foreign currency deposit and expanded borrowing bank in securities lending and
foreign currency deposit systems shall borrowing transactions;
maintain at all times a 100% cover for their (7) Foreign currency loans and
foreign currency liabilities, except US receivables maturing within one (1) year
dollar denominated repo agreements with authorized by the BSP, booked under the
the BSP: Provided, That violation of the following:
terms and conditions of the US dollar (a) Loans to BSP;
denominated repo agreements facility shall (b) Interbank loans receivable; and
subject the borrowings of the bank to the (c) Loans and receivables – others.
FCDU/EFCDU asset and liquid asset cover Loans and receivables authorized by
requirements. For purposes of complying the BSP shall refer to those granted pursuant
with this requirement, the principal offices to Circular No. 1389 dated 13 April 1993,
in the Philippines of the authorized banks as amended, and shall include the
and all its branches located therein shall following:
be considered as a single unit. The (a) those with specific approval by the
foreign currency cover shall consist of BSP under Section 23 of Circular No. 1389,
the net carrying amount of the following: as amended (Loans Requiring Prior BSP
a. For banks authorized to operate an Approval);
FCDU - (b) those short term loans to resident
(1) Foreign currency cash on hand; private and public sector borrowers which
(2) Foreign currency checks and other under existing regulations require no prior
cash items; BSP approval but allowed to be serviced
(3) Due from BSP – Foreign Currency; using foreign exchange purchased from the
(4) Due from other banks (other FCDUs/ banking system (i.e., loans to commodity
EFCDUs, OBUs, and non-resident banks); and service exporters, indirect exporters,

§ X501.4
08.12.31
producers/manufacturers, including oil of maturity, and in the case of investment

companies and public utility concerns) in foreign currency denominated debt
under Section 24.4 of Circular No. 1389, instruments (including debt instruments
as amended, (Loans Not Requiring Prior booked under Unquoted Debt Securities
BSP Approval); and Classified as Loans and investments in
(c) those loans to resident private sector structured products), regardless of maturity
borrowers to be serviced using foreign and marketability, shall all be considered
exchange purchased from outside of the as eligible asset cover. Loans to resident
banking system under Section 24.1.a of private and public sector borrowers which
Circular No. 1389, as amended: under Section 24.4 of Circular No. 1389,
Provided, That all applicable banking as amended, require no prior BSP approval
rules and regulations are complied with and allowed to be serviced using foreign
including single borrower’s limit as exchange purchased from the banking
provided in Sec. X303; system (i.e., loans to commodity and
(8) Loans and receivables arising from service exporters, indirect exporters,
repo agreements, certificates of assignment/ producers/manufacturers, including oil
participation with recourse, and securities companies and public utility concerns) shall
lending and borrowing transactions, however have short-term maturity.
maturing within one (1) year; In addition, the following shall also be
(9) Foreign currency accrued interest considered as eligible asset cover:
income from financial assets; (1) Loans and receivables granted by
(10) Accounts receivable arising from EFCDU pursuant to Section 24 of Circular
sale of financial assets under the trade date No. 1389 dated 13 April 1993, as
accounting pending actual settlement/ amended, i.e., those loans of non-residents
delivery of the underlying securities; from EFCDUs, to be serviced using foreign
(Accounts payable arising from the exchange purchased from outside the
purchase of financial assets under the trade banking system under Section 24.1.b of
date accounting pending actual settlement/ Circular No. 1389, as amended: Provided,
receipt of the underlying securities shall That all applicable banking rules and
require corresponding asset/liquid asset regulations are complied with including
cover); single borrower’s limit as provided in
(11) Loans to RBU [net of transactions Sec. X303;
outstanding for more than one (1) year]: (2) Outstanding export bills purchased
Provided, That the conditions under Item in the EFCDU books, booked under the
“(c)" of Subsec. X501.3 are complied with; following control accounts:
(12) Receivable from the RBU book (a) Interbank loans receivable - if
arising from the exercise of warrants paired without recourse; and
with ROP Global Bond Holdings in the (b) Loans and receivables – others - if
FCDU/EFCDU book: Provided, That it with recourse.
shall be settled by the RBU book to the For this purpose, net carrying amount
FCDU/EFCDU book within six (6) months shall refer to the gross amount of financial
from the date of receipt of the Exchange asset, plus or minus, as the case may be,
Securities; and the following: (i) unamortized premium/
(13) Such other assets as may be (discount) determined using the effective
determined by the Monetary Board as interest method; (ii) any accumulated market
eligible asset cover. gains/(losses) in the case of ASS financial
b. For banks authorized to operate an assets; and (iii) any allowance for credit losses
EFCDU - The foregoing accounts, regardless determined based on existing regulations.

§§ X501.4 - X501.5
08.12.31
c. Further, at least thirty percent (30%) BSP’s Export Dollar Facility, up to the
of the cover requirement for foreign currency extent guaranteed by TIDCORP or
liabilities in the FCDU/EFCDU shall be in SBGFC: Provided, That these credits are
the form of liquid assets as follows: not overdue;
(1) Foreign currency cash on hand; (7) Loans and receivables arising from
(2) Foreign currency checks and other repo agreements, certificates of
cash items; assignment/participation with recourse and
(3) Due from BSP – Foreign currency securities lending and borrowing
with remaining maturity of one (1) year or transactions, maturing within one (1) year;
less regardless of funding: Provided, That (8) Accounts receivable arising from
such deposit/placement is not encumbered sale of financial assets under the trade date
or is not being utilized for any other accounting pending actual settlement/
purposes; delivery of the underlying securities
(4) Due from other banks (other pertaining to readily marketable foreign
FCDUs/EFCDUs, OBUs and non-resident currency denominated debt instruments; and
banks); (9) Receivable from the RBU book
(5) Investments in readily marketable arising from the exercise of warrants paired
foreign currency denominated debt with ROP Global Bond Holdings in the
instruments, booked under the following FCDU/EFCDU book: Provided, That it shall
control accounts: be settled by the RBU book to the FCDU/
(a) HFT; EFCDU book within six (6) months from the
(b) DFVPL; date of receipt of the Exchange Securities.
(c) ASS; and The 100% asset cover and thirty percent
(d) HTM; (30%) to be held in the form of liquid assets
except for the following: enumerated above, shall be unencumbered,
(a) those which are sold/lent in repo except as otherwise provided in second
agreements/securities lending and paragraph of Item “a(6)" hereof.
borrowing transactions and those used as d. The Due from Other Banks -
additional collateral in repo agreements or Non-Resident (DFOB-Non-Resident)
as collateral by borrowing bank in account representing cover for foreign
securities lending and borrowing currency liabilities of FCDU/EFCDU shall be
transactions; and kept separate and distinct from the DFOB -
(b) those investments in structured Non-Resident account for the RBU.
products; (As amended by Circular Nos. 627 dated 23 October 2008, 602
(6) Loans and receivables authorized dated 13 February 2008, 601 dated 13 February 2008, 575 dated
by the BSP booked under the following: 17 July 2007 and 559 dated 26 January 2007)
(a) Loans to BSP maturing within one
(1) year; § X501.5 Foreign currency deposit
(b) Interbank loans receivable with the Bangko Sentral. Foreign currency
maturing within one (1) year; deposit with the BSP equivalent to at least
(c) Loans and receivables – Others that fifteen percent (15%) as a form of foreign
is any of the following: currency cover referred to in Section 4 of
(i) Outstanding export bills purchased R.A. No. 6426, as amended, shall be
in the EFCDU books; and optional on FCDUs of KBs/UBs and TBs.
(ii) Short-term EFCDU loans to The BSP may pay interest on the foreign
exporters in the form of export packing currency deposit and if requested, shall
credits, whether rediscounted or not under exchange the foreign currency notes and

§§ X501.5 - X501.16
08.12.31
coins into foreign currency instruments § X501.11 Rates of interest. Foreign

drawn on its depository banks. currency deposits shall not be subject to
interest ceilings.
§ X501.6 Currency composition of
the cover. FCDUs of TBs shall maintain § X501.12 Eligibility as collateral
the foreign currency cover in the same Deposits under the Foreign Currency
currency as that of the corresponding Deposit System are eligible as collateral
foreign currency deposit liability. for peso loans or for foreign currency loans
FCDUs/EFCDUs of KBs/UBs shall to residents and non-residents.
maintain not less than seventy percent
(70%) of the foreign currency cover in § X501.13 Taxes. All foreign currency
the same currency as that of the liability deposits, including interest and all other
and thirty percent (30%) or less, at the income or earnings of such deposits, are
option of the FCDU/EFCDU, may be exempt from any and all taxes whatsoever,
denominated in other acceptable foreign irrespective of whether or not these
currencies. deposits are made by residents or
non-residents, so long as the deposits are
§ X501.7 Secrecy of deposits. All eligible or allowed under these rules, and
foreign currency deposits are absolutely in the case of non-residents, irrespective
confidential. Except upon the written of whether or not they are engaged in
permission of the depositor, in no instance trade or business in the Philippines.
shall such foreign currency deposits be
examined, inquired or looked into by any § X501.14 Exemption from court order
person, government official, bureau or or process. Foreign currency deposits shall
office, whether judicial, administrative or be exempt from attachment, garnishment or
legislative, or any other entity, whether any other order or process of any court,
public or private. legislative body, government 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 currency transactions under this Section.
be no restrictions on the withdrawal by
the depositor of his deposit or on the § X501.16 Accounting. The foreign
transfer of the same abroad, except those currency deposits and their corresponding
arising from the contract between the cover shall be considered as funds separate
depositor and the bank. and distinct from the regular assets and
liabilities of the authorized banks. Authorized
§ X501.10 Insurance coverage banks shall maintain a separate accounting for
Foreign currency deposits shall be insured transactions covered by these rules that will
under the provisions of R.A. No. 3591, as enable preparation of the Balance Sheet and
amended. Depositors are entitled to Profit and Loss Statement covering said funds.
receive payment in the same currency in For purposes of preparing the FCDU/
which the insured deposits are EFCDU financial statements, the bank
denominated. shall use the US dollar (USD) as its

§§ X501.16 - X502.1
08.12.31
functional currency. However, for (2) Monetary penalty of P1,200 per

purposes of consolidating the FCDU/ day for delayed and/or incomplete
EFCDU financial statements with the RBU certifications.
financial statements, these shall be c. Any deficiency in the 100%
translated into the presentation currency, FCDU/EFCDU cover and/or thirty percent
i.e., Philippine Peso (Php). (30%) liquid asset cover that may be
(As amended by Circular No. 601 dated 13 February 2008) incurred due to violation of the conditions
in Subsec. X501.3c shall be subject to the
§ X501.17 Supervision. The Governor imposition of a monetary penalty of one-
and the head of the appropriate tenth of one percent (1/10 of 1%) of the
department of the BSP, personally or by deficiency, converted to its peso equivalent
deputies, are authorized to verify the at the exchange rate prevailing on the date
books of account and transactions of each the deficiency was incurred but not to
authorized bank, to verify the eligible exceed P30,000 per deficiency, per day.
cover, as well as review all other
requirements under these regulations Sec. X502 Other Transactions in Foreign
and the bank’s compliance with the Currency. All categories of banks duly
provisions of law and these regulations. licensed by the BSP (including RBs/Coop
Banks) are considered authorized agent
§ X501.18 Sanctions banks (AABs) and therefore, can, subject
a. Any willful violation of R.A. No. to compliance with the provisions of
6426, as amended, or any regulation duly Circular No. 1389 dated 13 April 1993, as
promulgated by the Monetary Board amended, buy and sell foreign exchange
pursuant thereto, shall subject the offender (FX) from the public even without an
upon conviction to an imprisonment of not FCDU license and prior BSP approval.
less than one (1) year nor more than five They are likewise required to comply with
(5) years or a fine of not less than P5,000 the requirements under Sec. X691,
nor more than P25,000 or both such fine particularly on the “Know Your Customer”
and imprisonment, at the discretion of the (KYC) rules, record keeping and reporting
court. of covered and suspicious transactions.
The BSP may revoke or suspend the The operation of mobile foreign currency
authority of a bank to accept new foreign booths and off-site automatic multi-currency
currency deposits for violation of R.A. No. money changers (OAMMC) shall be
6426, as amended, or these regulations, governed by this Section.
or if such bank ceases to possess the (As amended by Circular No. 522 dated 22 March 2006)
minimum qualifications required.
b. Violation on the monthly § X502.1 Mobile foreign exchange
reportorial requirement required under booths. Without prior authority from the
Subsec. X501.3c shall be subject to: BSP, banks may operate mobile foreign
(1) Maximum monetary penalty of currency booths, subject to the following
P30,000 per day (reckoned from due date guidelines:
until date corrected) for any false/erroneous a. The bank shall advise the BSP of
certification issued, without prejudice to the the number of mobile foreign currency
imposition, on the erring bank and/or the booths it will operate, the date it will start
concerned bank officers, of the penal operations, the areas of operation and the
sanctions provided under Sections 35 and branch where the foreign exchange
36 of R.A. No. 7653. acquisition will be turned over and booked;

§§ X502.1 - X531
08.12.31
b. The services of the mobile foreign Sec. X503 Recognition of Positions Arising
currency booths shall be solely for from Banks’ Foreign Currency Options in
changing foreign exchange currency into the Computation of Net Open FX Position
peso notes and coins, and not pesos to other The following are the guidelines for the
foreign currency; recognition of positions arising from banks’
c. The mobile foreign currency booths foreign currency options in the computation
shall not accept deposit or perform other of the net open FX position:
banking functions other than purchase of a. Scope. For purposes of complying
foreign currencies; with Circular No. 1327 dated 30 January
d. The internal control system of the 1992, as amended, UBs and KBs with
proposed mobile foreign currency booths expanded derivatives authority shall
shall be submitted to the appropriate include the net delta weighted positions
department of the SES, as well as other of foreign currency options in their
security measures adopted therein; and computation of the net FX position. UBs
e. The mobile foreign currency and KBs without expanded derivatives
booths shall be covered by insurance to authority shall include the notional
protect adequately the bank against amounts of purchased options that are in
losses of whatever nature arising from its or at the money and exclude those that
operations. are out of the money in their computation
of the net FX position.
§ X502.2 Off-site automatic b. Reporting. The USD equivalent of
multi-currency money changers. With the positions arising from foreign currency
prior approval of the BSP, banks which options shall be reported as a manual
have shown general compliance with adjustment to the net FX position amount
banking laws, rules and regulations may reported in the bank’s Consolidated
install an OAMMC, subject to the Foreign Exchange Position Report
following conditions: (CFXPR). For banks with expanded
a. The OAMMC shall be installed only derivatives authority, the USD equivalent
in centers of activities like shopping of the foreign currency options position is
centers, supermarkets, hotels and equal to the sum of long delta-weighted
airports: Provided, That the site is within positions minus the sum of short
the area where the applicant bank has a delta-weighted positions arising from FX
regular branch to service the money options contracts. The breakdown of the
changers; options positions by currency and a listing
b. The applicant bank shall maintain of outstanding contracts shall be annexed
adequate internal control and security to the CFXPR.
measures, which shall include immediate
rejection and detection of fake currencies Secs. X504 – X530 (Reserved)
by the machines;
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
time of application for the putting up of an subject 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
currency into peso notes and coins, and not (TAS) - Investments” (for UBs and KBs
pesos to other foreign currencies. only) and “ASS - Foreign”.

§ X531
08.12.31
The use of IBODI holdings shall also policies and procedures duly approved by
be allowed in securities lending, subject the board of directors;
to the following conditions: c. The securities lending shall be
(1) The lending bank had the positive done through reputable internationally -
intention and ability to maintain or recover recognized and experienced third-party
control of the same or substantially similar lending agent/intermediary which must be
securities as those lent. a regulated entity in its country of operation;
(2) The counterparty’s failure to d. The securities lending transaction
redeliver the securities lent at maturity or shall be subject to a written legal agreement
at the date agreed upon could not have between the lending bank and the lending
been reasonably anticipated by the lender agent which must clearly specify the -
at the time of the transaction. (1) relationship as well as the
(3) In case of failure or default of the respective duties and responsibilities of
counterparty to redeliver the securities each counterparty;
lent, the same shall be immediately (2) obligation of the borrower to
replaced by identical or substantially redeliver a like quantity of the same issue
similar securities. For this purpose, a or series as the loaned securities;
replacement security may only be (3) guidelines for selecting investments
considered substantially similar to the for cash collateral, which shall include a
securities lent if all of the following provision that cash collateral will not be
circumstances are present: reinvested in liabilities of the lender, its
(a) the security must have the same subsidiaries or affiliates; and
primary obligor and must have the same (4) lending fee or compensation;
guarantor under the same terms and e. The loaned securities must be
conditions, if guaranteed; fully secured by debt securities of
(b) the security must be identical in countries or entities with highest credit
form and type so as to give the same risks quality, cash in currencies acceptable as
and rights to the holder; and part of international reserves, letters of
(c) the debt instrument must have the credit and certificates of deposits issued
same maturity and interest rate. by banks with highest credit quality. For
Sanctions. Without prejudice to the this purpose, a foreign country and a bank
criminal and administrative sanctions with highest credit quality refer to a
provided for under Sections 36 and 37, foreign country and a bank given the
respectively, of R. A. No. 7653, violation highest credit rating by any two (2) of the
of any provision of Item “a“ of this Section following internationally accepted rating
shall be a ground for considering all IBODI agencies:
of the concerned entity as TAS subject to
mark-to-market requirements and shall Rating Agencies Highest Rating
• Moody’s “Aa3”
disqualify said entity from carrying in its • Standard and Poors’s “AA”
books the account “Investment in Bonds • Fitch IBCA “AA”
and Other Debt Instruments” for a period • Others as may be approved
of two (2) years reckoned from the date by the Monetary Board
the violation was committed or
discovered, whichever comes later. Collateral value shall initially be at least
b. The lending activity shall have prior 102% of the current market value of the
approval of the bank’s board of directors loaned securities and maintained at 100%
and shall be governed by adequate written of the value of the loaned securities plus

§§ X531 - X532
08.12.31
accrued interest thereon during the course currency-denominated government

of the loan; securities, subject to the following conditions:
f. The lender shall do daily a. Such repo agreements shall be
mark-to-market on the loaned securities limited to:
and on the securities where cash collateral (1) Trading Account Securities (TAS)
is invested/reinvested; held under the FCDU/EFCDU books. The
g. The lender shall require from the government securities subject of repo
lending agent/intermediary timely and agreements are to be booked under the
comprehensive reports on the lending account “Government Securities Sold
activity; under Repo Agreements-FCDU/EFCDU”.
h. For proper identification and (2) IBODI holdings, subject to the
monitoring, the outstanding book following conditions:
balance on the loaned securities shall be (a) The selling bank had the positive
reclassified to “Government Securities intention and ability to maintain or recover
Lent under Securities Lending control of the same or substantially similar
Agreements”; securities as those sold.
i. The bank has in place a risk (b) The counterparty’s failure to
management system commensurate to the redeliver the securities sold at maturity or
nature, volume and complexity of its at the date agreed upon could not have been
operations and characterized by clear reasonably anticipated by the seller at the
delineation of responsibility for risk time of the transaction.
management, adequate risk measurement (c) In case of failure or default of the
systems, appropriately structured risk counterparty to redeliver the securities
limits, effective internal controls and sold, the same shall be immediately
complete, timely and efficient risk replaced by identical or substantially
reporting system: Provided, That this similar securities. For this purpose, a
requirement shall be automatically replacement security may only be
considered complied with by banks with considered substantially similar to the
derivatives license; securities sold if all of the following
j. The bank’s CAMELS composite circumstances are present:
rating in the last BSP regular examination (i) the security must have the same
is at least “3”, with a minimum score of “3” primary obligor and must have the same
on management; and guarantor under the same terms and
k. The foreign currency-denominated conditions, if guaranteed;
debt securities lent or used as collateral by (ii) the security must be identical in
the borrowing bank in securities lending form and type so as to give the same risks
and borrowing transactions shall be and rights to the holder; and
considered as eligible asset cover for the (iii) the debt instrument must have the
100% cover requirement. However, these same maturity and interest rate.
shall not be eligible for the thirty percent The provisions/requirements under
(30%) liquid asset cover. Sec. X531 which are not inconsistent with
(As amended by Circular No. 601 dated 13 February 2008) the foregoing shall be strictly observed by
the bank concerned.
Sec. X532 Repurchase Agreements (3) ASS held under the FCDU/EFCDU
Involving Foreign Currency-Denominated books. HFT and ASS under the RBU of UBs
Government Securities. Banks may engage and KBs are also allowed to be used in repo
in repo agreements involving foreign agreements.

§§ X532 - X564
08.12.31
(4) Securities booked as HFT and ASS Sec. X564 Transfer of Undivided Profits/
Debt Securities under the RBU of UBs and (Losses) from FCDU/EFCDU to RBU
KBs are also allowed to be used in repo Books. The transfer of Undivided Profits/
agreements. (Losses) – FCDU/EFCDU to the Retained
Sanctions. Without prejudice to the Earnings – Free (and in the case of
criminal and administrative sanctions Philippine branches of foreign banks, Net
provided for under Sections 36 and 37, Due to H. O./Branches/Agencies Abroad)
respectively, of R.A. No. 7653, violation account in the RBU book shall refer to
of any provision of Item “a(2)“ of this realized FCDU/EFCDU profits/(losses)
Section shall be a ground for considering only and shall exclude the following:
all IBODI of the concerned entity as TAS 1. Unrealized Gains/(Losses) from
subject to mark-to-market requirements Marking to Market of Financial Assets and
and shall disqualify said entity from Liabilities HFT;
carrying in its books the account 2. Unrealized Gains/(Losses) from
“Investment in Bonds and Other Debt Marking to Market of Financial Assets and
Instruments” for a period of two (2) years Liabilities DFVPL;
reckoned from the date the violation was 3. Foreign Exchange Profit/(Loss);
committed or discovered, whichever 4. Unrealized Gains/(Losses) from
comes later. Remeasurement of Hedging Instruments;
b. The borrowings shall only be from and
FCDUs/EFCDUs, non-resident FIs and 5. Unrealized Gains/(Losses) from
OBUs; Remeasurement of Hedged Items
c. For TBs which are granted a (collectively referred to as Net
certificate of authority to operate an Unrealized Gains/(Losses) from
FCDU, the maximum term of the repo Operations in this Section): Provided,
agreements shall be one (1) year; That prior to the transfer of realized
d. The borrowings shall be booked Undivided Profits/(Losses) – FCDU/
under “Bills Payable” and included in the EFCDU to the Retained Earnings – Free
computation of the total FCDU/EFCDU in the RBU book, the FCDU/EFCDU shall
liabilities subject to the mandatory 100% fully provide for its classified accounts.
asset cover and thirty percent (30%) liquid a. The transfer of realized FCDU/
asset cover; EFCDU profits to the RBU book shall be
e. The foreign currency-denominated made initially by a debit to Undivided
debt securities sold or used as additional Profits/(Losses) – FCDU/EFCDU and a
collateral in repo agreements shall be credit to Retained Earnings – Free - FCDU/
considered as eligible asset cover for the EFCDU at the end of the calendar year or
100% cover requirement. However, fiscal year adopted by the bank, and
these shall not be eligible for the thirty subsequently by a corresponding transfer
percent (30%) liquid asset cover; of eligible foreign currency assets from the
f. Banks shall, at all times, comply with FCDU/EFCDU to the RBU books within a
the 100% FCDU/EFCDU asset cover and period of one month from the end of the
thirty percent (30%) liquid asset cover; and calendar year or fiscal year adopted by the
g. Banks shall monitor and assess the bank. The foreign currency assets shall be
risks inherent in these repo transactions. in the form of:
(As amended by Circular No. 601 dated 13 February 2008) (1) Due from BSP – Foreign Currency;
(2) Due from other banks (other FCDUs/
Secs. X533 – X563 (Reserved) EFCDUs, OBUs and non-resident banks);

§ X564
08.12.31
(3) Investments in readily marketable at the end of the calendar year or fiscal
foreign currency denominated debt year adopted by the bank.
instruments, except for the following: The amount of eligible foreign currency
(a) those which are sold/lent in repo assets to be transferred from the RBU book
agreements/securities lending and to the FCDU/EFCDU shall be that which
borrowing transactions and those used as will bring the balance of Due to RBU -
additional collateral in repo agreements FCDU/EFCDU Realized Losses from
or as collateral of the borrowing bank in Operations, equal to the cumulative net
securities lending and borrowing realized losses incurred from the beginning
transactions; of the calendar year or fiscal year adopted
(b) those investments in structured by the bank.
products: and Whenever the balance of Due to RBU
(c) those Philippine debt papers which - FCDU/EFCDU Realized Losses from
were restructured during the period of Operations exceeds the cumulative net
moratorium in the payment of external debt. realized losses incurred from the beginning
Provided, That these shall likewise be of the calendar year or fiscal year adopted
booked under the same category in the by the bank, the excess shall be settled by
RBU book as they were before the transfer the FCDU/EFCDU to the RBU by a credit
from FCDU/EFCDU. to the abovementioned eligible foreign
The transfer of the abovementioned currency assets at the end of the reference
eligible foreign currency assets month.
representing realized FCDU/EFCDU c. The items comprising the Net
profits to RBU book shall be made by a debit Unrealized Gains/(Losses) from Operations
to Retained Earnings – Free - FCDU/ in the FCDU/EFCDU, on the other hand,
EFCDU. shall be credited/debited to Undivided
b. The transfer of realized FCDU/ Profits/(Losses) - FCDU/EFCDU at the end
EFCDU losses to the RBU book shall be of each month, which account shall be
made immediately and shall be credited/debited to Retained Earnings - Free
accompanied by a corresponding transfer of - FCDU/EFCDU at the end of the calendar
the abovementioned eligible foreign year or fiscal year adopted by the bank.
currency assets from the RBU book to the Whenever the total of the following
FCDU/EFCDU: Provided, That investments FCDU/EFCDU book accounts:
in readily marketable foreign currency (1) Retained Earnings - Free - FCDU/
denominated debt instruments shall likewise EFCDU, representing cumulative
be booked under the same category in the unrealized gains/(losses) from operations
FCDU/EFCDU as they were before the from prior years;
transfer from RBU book. (2) Items comprising the Net
The transfer of the abovementioned Unrealized Gains/(Losses) from Operations
eligible foreign currency assets representing credited/debited to Undivided Profits/
realized FCDU/EFCDU losses during the (Losses), as well as those not yet credited/
interim period from the RBU book shall be debited to Undivided Profits/(Losses);
made by a credit to Due to RBU – FCDU/ (3) Net Unrealized Gains/(Losses) on
EFCDU Realized Losses from Operations, ASS Financial Assets recognized directly
which account shall not be subject to asset in equity; and
and liquid asset cover requirements, and (4) Gains/(Losses) on Fair Value
which account shall be credited to the Adjustments of Hedging Instruments
Undivided Profits/(Losses) – FCDU/EFCDU recognized directly in equity;

§§ X564 - X565
08.12.31
results to a net debit balance, the bank (a) current and performing; and (b) eligible
shall transfer from the RBU book to the to be serviced by the banking system:
FCDU/EFCDU immediately the Provided, That a past due FCDU/EFCDU
abovementioned eligible foreign currency loan may be transferred to the RBU if it meets
assets by a credit to the Due to RBU - the following criteria: (a) eligible to be
FCDU/EFCDU Unrealized Losses serviced by the banking system; (b) fully
Recognized in Profit or Loss and in Equity, secured by real estate mortgage; (c)
which account shall not be subject to asset foreclosure of the collateral shall be effected
and liquid asset cover requirements.1 within six (6) months from the date of transfer
The amount of eligible foreign to the RBU if the loan remains to be past
currency assets to be transferred from the due; and (d) they are not eligible to be
RBU book to the FCDU/EFCDU shall be serviced by the banking system but loan is
that which will bring the balance of Due already outstanding as of 27 October 2000:
to RBU - FCDU/EFCDU Unrealized Provided, further, That a past due partially
Losses Recognized in Profit or Loss and in secured or unsecured FCDU/EFCDU loan
Equity equal to the net debit balance of shall only be eligible for conversion/
the immediately preceding Items "1" to transfer to RBU if part of a multi-creditor
"4" above. rehabilitation or work-out plan
Whenever the Due to RBU - FCDU/ acceptable to all creditors where the said
EFCDU Unrealized Losses Recognized in plan requires the conversion of FCDU/
Profit and Loss and in Equity exceeds the EFCDU loans to peso;
net debit balance of the immediately (2) there shall be actual settlement in
preceding Items "1" to "4" above, the foreign currency, simultaneous with the
excess shall be settled by the FCDU/ transfer, by the RBU to the FCDU/EFCDU
EFCDU to the RBU book by a credit to of the total amount of foreign currency-
the abovementioned eligible foreign denominated loans being transferred to the
currency assets at the end of the RBU using the prevailing foreign exchange/
reference month. conversion rate at the time of transfer;
The illustrative accounting entries are (3) the transfer and conversion of
shown in Appendix 85. foreign currency-denominated loans from
(Circular No. 601 dated 13 February 2008 as amended by the FCDU/EFCDU books to the RBU
Circular No. 629 dated 31 October 2008) books including the prevailing foreign
exchange/conversion rate to be used shall
Sec. X565 Conversion to Peso Loans/ have the prior approval of the bank’s board
ROPA and Transfer to RBU of FCDU/ of directors, or the Country Head, in case
EFCDU Loans/ROPA. The following are of branches of foreign banks, and the prior
the 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 agreement allowing the bank to
books of the RBU: unilaterally convert and transfer the FCDU/
a. FCDU/EFCDU loans may be EFCDU loan in which case the prior written
transferred to the RBU without prior BSP consent requirement may be dispensed
approval, subject to the following conditions: with;
(1) the FCDU/EFCDU loan to be (4) the converted/transferred FCDU/
transferred must meet the following criteria: EFCDU loans are properly documented/
1
From 31 October 2008 to 31 March 2009, banks may add back the resulting net debit balance in the total of Item Nos. “1”
to “4” above to total assets in the FCDU/EFCDU book for purposes of determining compliance with the 100% asset cover
requirement instead of transferring eligible foreign currency assets from the RBU book to FCDU/EFCDU book.

§§ X565 - X599
05.12.31
covered by a written agreement/contract: d. All foreign currency-denominated

Provided, That if the original loan agreement loans and ROPA in the FCDU/EFCDU
allows the bank to unilaterally convert/transfer converted to peso and transferred to the
the FCDU/EFCDU loan to peso, the said loan books of the RBU shall be reported
agreement should indicate the general monthly to the appropriate department
terms and conditions of the converted/ of the SES within ten (10) banking days
transferred peso loan: Provided, further, from end of reference month. The report,
That upon conversion/transfer, the classified as Category B, shall include
borrower must be informed in writing of name of borrower, date transferred/
the peso loan’s new terms and conditions: converted, outstanding balance in
Provided, finally, That once converted/ foreign currency in the FCDU/EFCDU,
transferred to a peso loan, the same loan peso amount booked in the RBU,
should not be converted back to an FCDU/ prevailing foreign exchange rate used,
EFCDU loan; status and classification on date of
(5) no income shall be recognized by transfer, collateral (if any) and date
the FCDU/EFCDU or RBU on the transfer approved by bank’s board/Country Head.
of FCDU/EFCDU loans to RBU; A report is not required if no transfers
(6) the status of the FCDU/EFCDU loan were effected during the month.
prior to the transfer, i.e., current or past due, The prescribed accounting entries on
performing or non-performing, and the loan the conversion and transfer of FCDU/
classification, i.e., especially mentioned, EFCDU loans and ROPA to RBU books
substandard, doubtful or loss, shall be are shown in Appendix 59.
retained once the loan is transferred to the
RBU books, which transfer shall also Secs. X566 – X598 (Reserved)
include the corresponding booked
allowance for probable losses; Sec. X599 General Provision on
b. FCDU/EFCDU ROPAs may also be Sanctions Any violation of the provisions
transferred to the RBU without prior BSP of this Part shall be subject to Sections 36
approval, subject to Items “(2)” to “(6)” above; and 37 of R.A. No. 7653.
c. Conversions and transfers of The guidelines for the imposition of
FCDU/EFCDU loans and ROPA to RBU monetary penalty for violations/offenses
books that do not meet the above with sanctions falling under Section 37 of
guidelines shall be subject to prior R.A. No. 7653 on banks, their directors
Monetary Board approval; and and/or officers are shown in Appendix 67.

§§ X601 - X601.1
08.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS within three (3) days from the date of its
disqualification, the BSP shall proceed to
Section X601 Open Market Operations collect said amount in accordance with the
The following rules and regulations shall preceding paragraph.
govern the buying and selling of d. Reverse repo 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
a. The BSP may buy and sell in the 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
The above evidences of indebtedness banks that are wholly-owned or controlled
must be freely negotiable and regularly by these institutions; and (c) the Philippine
serviced. Purchases and sales in the Veterans Bank. Transactions shall be done
open market shall be made through with the bank proper and not through its
banks, QBs and accredited government trust department.
securities dealers.
b. Outright purchases and sales of § X601.1 Repurchase agreements
government securities shall be effected at with Bangko Sentral
prevailing market prices. a. Repo agreements may be effected
c. Repo agreements shall be open to with the BSP subject to the following terms
banks (except RBs), QBs, and accredited and conditions:
government securities dealers and shall be (1) Rate. The rates on the repo
made under the terms provided for in agreement facility shall be set by the
Subsec. X601.1 and the following: Treasury Department, with the
(1) The repo agreement may be paid concurrence of the Governor, taking into
at any time before maturity, subject to account prevailing liquidity/market
mutual agreement of both parties; conditions.
(2) In the event the securities covered (2) Term. At the option of the Treasury
by the repo agreement are not repurchased Department, availments may be for a
by the issuer of such agreement, the same minimum of one (1) day (overnight) and a
may be sold in the open market or transferred maximum of ninety-one (91) days.
to the BSP portfolio; and (3) Security. Only obligations of the
(3) Should an issuer of a repo National Government and its
agreement become no longer qualified as instrumentalities and political subdivisions,
such, its outstanding repo agreement shall which are fully guaranteed by the
immediately become due and payable. If Government, with a remaining maturity of
settlement of the amount due is not made not more than ten (10) years and which are
Manual of Regulations for Banks Part VI - Page 1

§§ X601.1 - X601.2
08.12.31
freely negotiable and regularly serviced, The Monetary Board may, at its
shall be eligible as underlying instruments discretion, impose any or all of the following
for repo agreements subject to the collateral sanctions to a bank and/or its director/s or
requirement prescribed by the BSP. officer/s found to be responsible for violation
(4) Delivery. Delivery of the of the provisions on the terms and conditions
underlying instruments shall be made to of the USD denominated repo agreement
the BSP at the prescribed time. For with the BSP :
overnight repo agreements, delivery of the (1) Termination of eligibility and
underlying instruments shall be made not pre-termination of any outstanding balance
later than 12:00 noon of the date of through repayment and/or sale of the
transaction. collateral;
Government securities which are held (2) Fine of up to P30,000 per
by the issuer of the repo agreement under transaction per day of violation reckoned
the book-entry system with the BSP may from the time the violation was committed
be used as underlying instruments only up to the date it is corrected;
with the conformity of the BSP. (3) Suspension of interbank clearing
(5) Upon termination of the repo privileges/immediate exclusion from
agreement, the issuer of such agreement clearing;
shall claim and take delivery of the (4) Suspension of access to BSP
underlying instruments at the Treasury rediscounting facilities;
Department, BSP. Failure to claim and take (5) Suspension of lending or foreign
delivery of the underlying instruments exchange operations or authority to accept
immediately upon such termination shall new deposits or make new investments;
relieve the BSP of any liability or (6) Revocation of authority to perform
responsibility for the loss or misplacement trust operations;
of said instruments. (7) Revocation of quasi-banking
b. US dollar (USD) denominated repo license;
agreement facility may likewise be effected (8) Suspension for 120 days without
with the BSP, subject to the following terms pay of the officers and/or directors
and conditions, and as may be provided responsible for the violation; and
under the repo agreement facility: (9) Other sanctions as may be
(1) Eligible borrowers. The USD provided by law.
denominated repo agreement facility shall (As amended by Circular Nos. 631 dated 12 November 2008,
only be available to banks with legitimate 627 dated 23 October 2008, M-2008-034 dated 12 November
foreign currency denominated funding 2008 and M-2008-031 dated 23 October 2008)
needs as may be provided under the repo
agreement facility: Provided, That the § X601.2 Reverse repurchase
borrowing shall be for the account of the agreements with Bangko Sentral. Reverse
applicant bank and shall not be used to fund repo agreements may be effected with the BSP
liquidity requirements of foreign branches, subject to the following terms and conditions:
affiliates, or subsidiaries. a. Rate. The rates shall be set by the
(2) Collateral. Only USD denominated Treasury Department, with the concurrence
obligations of the National Government of of the Governor, taking into account the
the Republic of the Philippines shall be prevailing liquidity/market conditions.
eligible as collateral. b. Term. At the option of the Treasury
(3) The guidelines on the availment of Department, availments may be for a
USD denominated repo agreement with minimum of one (1) day (overnight) and a
the BSP are shown in Appendix 86. maximum of 364 days.
Part VI - Page 2 Manual of Regulations for Banks

§§ X601.2 - X602
08.12.31
c. Security. The collateral shall consist § X601.3 Settlement procedures on

of obligations of the National Government the purchase and sale of government
and other freely negotiable securities in securities under repurchase agreements
the BSP portfolio valued at 100%. with the Bangko Sentral. Purchase and sale
d. Delivery. No delivery of the of government securities under repo
collateral shall be made, but a custody agreements (GS/repo agreements) between
receipt shall be issued instead. and among banks and QBs and BSP in
e. Reservation. Prepayment may be connection with the latter’s open market
made by the BSP at its option anytime operations shall be settled in accordance with
before maturity. the provisions of the agreement for the
Effective 01 July 2003, published PhilPaSS executed on 12 December 2002
interest rates that will be applied on BSP’s between the BSP and BAP/CTB/RBAP and
reverse repo agreements with banks shall any subsequent amendments thereto.
be inclusive of Value Added Tax (VAT). (As superseded by the agreement between the BSP and BAP/
Reverse repo agreements entered CTB/RBAP dated 12 December 2002)
into by the BSP with any AAB are
included in the definition of the term §§ X601.4- X601.5 (Reserved)
“deposit substitutes” under Sec. 22 (y)
Chapter 1 of the National Internal § X601.6 – BSP trading windows and
Revenue Code of 1997. services during public sector holidays. The
The BSP shall withhold twenty percent guidelines on BSP’s trading windows and
(20%) Final Withholding Tax (FWT) on its services during public sector holidays are
overnight reverse repo agreements shown in Appendix 84.
starting January 1, 2008, under the (M-2008-025 dated 13 August 2008)
following guidelines:
(1) All overnight reverse repo Sec. X602 Derivatives. A bank may
agreements with the BSP shall be engage in authorized derivatives activities:
subject to the twenty percent (20%) FWT Provided, That the bank:
in the same manner as term reverse repo a. Understands, measures, monitors
agreements, which tax is deducted on and controls the risks assumed from its
each maturity date and remitted to the derivatives activities;
BIR; b. Adopts effective risk management
(2) The total twenty percent (20%) practices whose sophistication are
FWT on the overnight reverse repo commensurate to the risks being
agreements due starting 01 January 2008 monitored and controlled; and
until 08 September 2008 shall be divided c. Maintains capital commensurate
equally in the remaining months of taxable with the risk exposures assumed.
year 2008. The installments due will be Further, a bank may likewise engage
deducted every end of the month from the in financial derivatives activities in
RDDA of concerned banks; and accordance with these guidelines. The
(3) Concerned banks shall issue the transacting bank shall have the
corresponding debit authority to the BSP responsibility to comply with the
to cover the twenty percent (20%) FWT guidelines set out in this Section, including
on their overnight reverse repo the relevant appendices, and other
agreements with the BSP mentioned in applicable laws, rules and regulations
Item “2” above. governing derivatives transaction. In case
(As amended by Circular No. 619 dated 22 August 2008) of derivatives instruments involving

§ X602
08.12.31
foreign currencies and/or other foreign trading, managing capital or funding costs,
currency – denominated assets, the obtaining indirect exposures to desired
transacting bank shall observe the pertinent market factors, investment, yield-
FX rules and regulations. For purposes of enhancement, and/or altering the
these guidelines, a bank that transacts risk-reward profile of a particular item or
(i.e., transacting bank) whether as end-user, an entire balance sheet.
broker or dealer, in derivatives instruments An end-user may be classified
is considered to be engaging in a according to its financial sophistication:
derivatives activity. (1) Market counterparty - refers to any
Derivative is broadly defined as a UB or KB, only with respect to the
financial instrument that primarily derives instruments for which it is authorized to
its value from the performance of an engage in as a dealer.
underlying variable. For purposes of these (2) Institutional counterparty - refers to
guidelines, a financial derivative is any an institution which is not a market
financial instrument or contract with all of counterparty and has the level of net worth,
the following characteristics: knowledge, expertise, and experience to
a. Its value changes in response to a deal with financial derivatives.
change in a specified interest rate, financial (3) Sophisticated individual end-user -
instrument price, commodity price, FX refers to an individual who has demonstrated
rate, index of prices or rates, credit spread, to the bank as having the level of net worth,
credit rating or credit index or other knowledge and experience in dealing with
variables not prohibited under existing financial products, including financial
laws, rules and regulations (the derivatives. An individual may register as a
“underlying”); sophisticated individual end-user with the
b. It requires either no initial net Centralized Applications and Licensing
investment or an initial net investment that Group of the BSP.
is smaller than would be required for other (4) Other end-user - This refers to all
types of contracts that would be expected other institutional or individual clients not
to have a similar response to changes in categorized as market counterparty,
market factors; and institutional counterparty or sophisticated
c. It is settled at a future date. individual end-user.
Financial derivatives activities shall b. A broker is a financial market
also include transactions in cash participant that facilitates a derivatives
instruments with embedded derivatives transaction between a dealer and its client,
that reshape the risk-return profile of the for a fee or commission. The counterparties
host instrument, such as credit-linked notes to the derivatives contract are the client and
(“CLNs”) and other structured products an authorized dealer.
(“SPs”). c. A dealer is defined as a financial
A market participant may take any of market participant that engages in a
the following roles in a derivatives derivatives activity as an originator of
transaction: derivatives products or as market-maker
a. An end-user is defined as a financial in derivatives products. A dealer can
market participant that enters, for its own distribute its own derivatives products,
account, in a derivatives transaction for including those of others. A dealer can also
legitimate economic purposes. These act as broker and/or end-user of derivatives
purposes may include, but are not limited instruments.
to, the following: hedging, proprietary (As amended by Circular No. 594 dated 08 January 2008)

§ X602.1
08.12.31
§ X602.1 Generally authorized in naked FX options with a tenor of three

derivatives activities. A bank may engage (3) years or less.
in the following derivatives activities (c) RBU and EFCDU of UBs and KBs,
without need of prior BSP approval: including its trust departments, may invest,
Provided, That it observes the provisions for their own account, in the following SPs:
of Appendix 25 and meets the following (i) Principal-protected foreign
conditions: currency-denominated SPs, the revenue
a. UBs and KBs may transact in the streams of which are linked to interest
following derivatives in the capacities rate indices, interest rate instruments,
specified: listed equity shares or indices, FX rates,
(1) As a dealer. A UB or KB may originate credit rating or index, or gold: Provided,
and distribute the following “organized That the maximum contractual maturity
market”-traded financial derivatives: shall be five (5) years;
(a) FX forwards, FX swaps, currency (ii) Plain vanilla single-name CLNs
swaps and analogous financial futures with where the reference asset is an obligation
a tenor of three (3) years or less; and issued or guaranteed by the Republic of the
(b) Interest rate swaps, forward rate Philippines.
agreements and analogous financial futures Provided, That the bank or trust entity
with a tenor of ten (10) years or less: Provided, shall comply with the following conditions:
That the issuance of sub-participation in any (aa) Total carrying value of all
derivatives held as an end-user shall be investments in SPs shall not exceed 100%
deemed as undertaking the role of a dealer: of the bank’s qualifying Tier 1 capital or
Provided, further, That the dealer UB or KB fifty percent (50%) of a trust entity’s trust
observes the provisions of Appendix 26 and assets; and
other pertinent securities laws, rules and (bb) For investments in SPs under the
regulations. EFCDU, total carrying value of SPs as
For purposes of this Subsection, an defined herein shall also not exceed twenty
organized market refers to an exchange or percent (20%) of the total FCDU assets:
a BSP-recognized over-the-counter market Provided, That SPs which are not booked in
governed by transparent and binding market an investment account (e.g., booked as
conventions on price transparency, trade inter-bank loans), for this purpose, shall be
reporting, market surveillance and orderly considered as part of the EFCDU assets.
conduct/operations of the market. An SP is considered principal-protected
(2) As end-user1. if the minimum all-in return for such
(a) A UB or KB, including its trust investment is at least zero and such
department, may enter in any financial minimum all-in return is guaranteed by an
derivatives transaction for the purpose of entity (i.e., issuer or a third party) rated at
hedging its own risks: Provided, That it least “A” or its equivalent by an
observes all the requirements for hedging international rating agency acceptable to
transactions under PAS. the BSP or fully collateralized by an asset
(b) A UB or KB may trade with with equivalent credit quality.
counterparties in order to take positions for (3) As a broker. A UB or KB may facilitate
its own account in “organized market” - traded derivatives transactions between dealers and
financial instruments enumerated under Item market and/or institutional counterparties
"1" above. It can also take long positions and/or sophisticated individual end-users:
1
All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered as among the
generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks) may engage in as end-user,
without need for additional derivatives authority required under this Subsection: Provided, That banks holding such
instruments shall comply with the requirements of Appendix 25, where applicable.

§§ X602.1 - X602.2
08.12.31
Provided, That the UB/KB, acting as broker, § X602.2 Activities requiring additional
ensures that its client fully understands its derivatives authority. A bank shall apply
limited responsibility as a broker: for prior BSP approval of additional
Provided further, That the bank adheres to derivatives authority to engage in all other
procedures for evaluating client suitability, financial derivatives activities not
including risk disclosures, as prescribed in expressly allowed in Subsec. X602.1. A
Appendix 26: Provided finally, That the bank may apply for two (2) or more
bank complies with other pertinent additional authorities. A bank applying for
securities laws, rules and regulations. additional derivatives authority/ies must
b. TBs, RBs and Coop Banks may have and maintain a risk management
enter in derivatives transactions as end-user system commensurate to the additional
with BSP - authorized dealers and brokers authority/ies being applied for, in
solely for hedging purposes: Provided, That accordance with the provisions of
they observe all the requirements for Appendix 25 and meet other conditions
hedging transactions under PAS1. A TB, RB specified under this Subsection.
or Coop Bank may apply for a Type 3 a. Classification of additional
authority to enter into derivatives derivatives authority
transactions as end-user for purposes other (1) Type 1–Expanded dealer authority
than hedging: Provided, That the applicant A UB or KB may apply for a Type 1
bank agrees to be covered by all authority. A bank with Type 1 authority
regulations prescribing capital for market may transact in any financial derivatives
risk, notwithstanding any provision to the as a dealer: Provided, That a bank with
contrary; and Type 1 authority shall comply with the sales
c. A trust department of a UB or KB and marketing guidelines prescribed in
may transact, as an institutional Appendix 26. A bank with Type 1 authority
counterparty, with financial derivatives may likewise transact in any financial
instruments enumerated under Subsec. derivatives as a broker and an end-user.
X602.1(a)(2) on behalf of its trustor/ The BSP expects banks applying for
principal/s as may be authorized by such Type 1 authority to institutionalize a
trustor/ principal/s: Provided, That the trust (a) comprehensive and integrated risk
department observes the relevant management system; and (b) sales and
provisions of Appendices 25 and 26. Trust marketing practices that are deemed
entities other than that within a UB or KB appropriate and adequate for the different
may apply for a Type 3 authority to enter derivatives activities it expects to engage
on behalf of its trustor/principal/s in in. It must be rated at least CAMELS (or
derivatives transactions under Subsec. ROCA for branches of foreign banks) of
X602.1(a)(2). Any trust entity may also “4” or better over-all, notwithstanding any
apply for Type 3 authority in order to provision to the contrary.
transact as end-user on behalf of its trustor/ (2) Type 2 – Limited dealer authority
principal/s with derivatives instrument A UB or KB may apply for a Type 2
outside those enumerated under Subsec. authority. A bank with Type 2 authority
X602.1(a)(2). may operate as a dealer in specific types
(As amended by Circular Nos. 605 dated 05 March 2008 and of derivatives products with specific
594 dated 08 January 2008) underlying reference, as applied for by
1
All transactions involving warrants issued under the ROP’s “Paired Warrants Program” shall be considered as among the
generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks) may engage in as end-user,
without need for additional derivatives authority required under this Subsection: Provided, That banks holding such
instruments shall comply with the requirements of Appendix 25, where applicable.

§ X602.2
08.12.31
the bank, outside those financial b. Qualification requirements. A

derivatives instruments under Subsec. bank applying for additional authority to
X602.1(a)(1): Provided, That a bank with engage in expanded derivatives activities
Type 2 authority shall comply with the shall:
sales and marketing guidelines (1) Demonstrate adequate competence
prescribed in Appendix 26. The Type 2 in its general operations as evidenced by:
authority also carries authority to transact (a) CAMELS (or ROCA for branches
as broker and end-user of the said specific of foreign banks) composite rating of at
derivatives instruments. least “3” with a similar rating for
(3) Type 3 – Limited user authority Management;
Any bank may apply for a Type 3 (b) No unresolved major safety and
authority. A bank with Type 3 authority soundness issues that threaten liquidity or
may transact, as an end-user, in specific solvency; and
types of derivatives products, with specific (c) Substantial compliance with
underlying reference, as applied for by the regulations on anti-money laundering,
bank, outside of those instruments under corporate governance and risk
Subsec. X602.1(a)(2). However, as regards management.
a TB, RB or Coop Bank and trust entity other (2) Hold capital commensurate to the
than that within a UB or KB, a Type 3 risks assumed or to be assumed from the
authority will enable said bank/entity to derivatives activities. The BSP expects a
transact as end-user of a derivative instrument bank applying for or holding additional
as may be applied for by the bank/entity. derivatives authority to have adequate
(4) Type 4 – Special broker authority capital to accommodate existing and future
A bank, other than a UB or KB, may risks from additional and generally
apply for a Type 4 authority. A bank with authorized derivatives activities as well as
Type 4 authority may facilitate a derivatives risks arising from the bank’s other business
transaction between a UB or KB, as dealer, activities. For this purpose, the BSP may
and market and institutional counterparties require capital higher than the minimum
and sophisticated individual end-users: required under prudential regulations.
Provided, That the bank, acting as broker, (3) Have and maintain a risk
ensures that its client fully understands its management system that conforms to the
limited responsibility as a broker and principles and complies with the minimum
observes the provisions of Appendix 26. standards prescribed in Appendix 25.
A UB or KB may likewise apply for a c. Applicability to trust entities. Trust
Type 4 authority to enable itself to broker entities may apply for Type 3 authority:
a derivatives transaction for or with other Provided, That they comply with the
end-users. requirements prescribed and observe the
A bank with additional Type 1, 2 or 4 provisions of Appendix 26.
authorities shall be responsible for d. Application procedures. The
complying with pertinent securities laws, applicant shall submit to the Capital
rules and regulations. Markets Specialist Group, SES of the BSP
For purposes of this Subsection, the a written application for additional
types of derivatives are classified as derivatives authority/ies accompanied by:
follows: forwards, swaps and options. (1) A copy of the board resolution (or
Underlying reference pertains to the equivalent management review body in
following: interest, FX, equity, credit and the case of branches of foreign banks or
commodity. trust committee, in case of trust entities)

§§ X602.2 - X602.3
08.12.31
approving the application for a specific type (5) The BSP will not accept
of derivatives authority; applications lacking any of the above-
(2) A notarized certification signed stated requirements. The BSP, however,
jointly by the president, treasurer and may require additional documents to aid
compliance officer of the applicant-bank (or its evaluation of the application. By virtue
two (2) authorized signatories of equivalent of the application, the applicant
rank of the trust committee in case of trust automatically authorizes the BSP to
entities), stating that the bank complies conduct an on-site evaluation of the
with all the requirements for the authority applicant’s risk management capabilities,
being applied for specified in Subsec. if this is deemed necessary.
X602.2; and (6) Type 1 authority shall be subject
(3) A list of the types of derivatives and to approval by the Governor, upon
underlying reference the bank intends to recommendation of the Deputy Governor,
engage in, including the following SES. All other applications for additional
information for each derivatives class or authority/ies shall be subject to approval
type: by the Deputy Governor, SES.
(a) Target customers for such (7) A bank whose application for
derivatives; additional derivatives authority/ies or an
(b) The capacity in which the bank upgrade thereof (e.g., from Type 2 to Type
intends to engage in such derivatives; 1 authority) has been denied cannot submit
(c) Description of each type of a new application for additional derivatives
derivatives and underlying reference with authorities until after six (6) months from
which it will deal; receipt of denial. The same rule applies
(d) Analysis of the risks involved in for a bank whose authorities have been
transacting in each type of derivatives; limited or downgraded.
(e) Procedures/methodologies that the (8) A bank that holds an additional
bank will implement to measure, monitor derivatives authority may apply for
(including risk management reports) and additional derivatives authorities (e.g.,
control the risks inherent in the types of currently holding Type 3 authority who
derivatives; wish to apply for Type 4 authority) or an
(f) Relevant accounting guidelines, upgrade thereof only after the lapse of six
including pro-forma accounting entries; (6) months from the grant of the previous
(g) Analysis of any actual or potential additional derivatives authority.
legal/regulatory restrictions; and (As amended by Circular No. 594 dated 08 January 2008)
(h) Process flow chart, from deal
initiation to risk reporting, indicating the § X602.3 Intra-group transactions. All
departments and personnel involved in derivatives transactions between a bank
identified processes. and any of its subsidiaries and affiliates
(4) Payment of a non-refundable shall comply with minimum risk
processing fee amounting to: management standards for related-party
transactions outlined in Appendix 25, as
Authority Amount part of the bank’s internal control
Type 1 P 200,000 procedures. The BSP expects banks to
Type 2 100,000 (UBs and KBs) establish internal reporting and
Type 3 50,000 monitoring system for derivatives
25,000 (other applicants) activities for related-party transactions.
Type 4 25,000 (all banks) Failure to comply with minimum

§§ X602.3 - X602.6
08.12.31
standards shall be a ground for citing considered non-reporting, subject to

non-compliance with Subsecs. X602.1 and applicable penalties for amended/delayed
X602.2 without prejudice to other BSP reports. For purposes of imposing
rules and regulations such as those related monetary penalties, the reports shall be
to corporate governance and unsafe and classified as a Category A-1 report.
unsound banking practices. Habitual delayed or erroneous reporting
(As amended by Circular No. 594 dated 08 January 2008) may be a ground for further sanction,
including limitation of generally authorized
§ X602.4 Accounting guidelines. A bank activities and/or additional authorities
that engages in derivatives activities must and/or suspension of authority to engage
strictly account for such transactions in in such derivatives activities.
accordance with PAS. c. Non-compliance with the provisions
(As amended by Circular No. 594 dated 08 January 2008) of Sec. X602 and its Subsections and
Appendices 25 and 26. Any bank/trust entity
§ X602. 5 Reporting requirements. A found violating any of the provisions of
bank or trust department/entity engaged Sec. X602 and its Subsections, and/or
in any derivatives transaction shall submit, Appendices 25 and/or 26 shall be
in addition to the derivatives reports sanctioned with the penalties prescribed
enumerated under the BSP FRP, a monthly under Sections 36 and 37 of R.A. No. 7653
report on derivatives transactions/ in accordance with the gravity/seriousness
outstanding derivatives within fifteen (15) of the offense taking into consideration the
banking days from end of the reference number of times the offense was
month. The reports shall be certified by committed, possible consequent losses on
the treasurer. the clients, effect on the financial markets
(As amended by Circular No. 594 dated 08 January 2008) and other relevant factors.
d. Curtailment of derivatives
§ X602.6 Sanctions authority. The BSP reserves the right to
a. Unauthorized transactions. Sanctions suspend, modify, downgrade, limit or
prescribed under Sections 36 and 37 of revoke any bank’s derivatives authority
R.A. No. 7653 shall be imposed on any (including any or all of those generally
bank (including its directors and officers) authorized activities) for prudential
found to have engaged in an unauthorized reasons as may be evidenced by any or
derivatives activity. all of the following:
A bank undertaking unauthorized (1) The bank is assigned a CAMELS
derivatives activities may be considered (or ROCA in the case of branches of
as conducting its business in an unsafe and foreign banks) composite rating or
unsound manner under Section 56 of component management rating of lower
R.A. No. 8791. than that prescribed under Subsec.
b. Delayed/erroneous/inaccurate X602.2, in the most recent regular
reporting. Banks failing to submit the reports examination.
required under Subsec. X602.5 within the (2) The bank has not maintained
prescribed deadline shall be subject to adequate risk management systems
monetary penalties applicable for delayed given the level and type of derivatives
reporting under existing regulations. activities it has engaged in as may be
Moreover, submission of incomplete, determined by the BSP in any on-site
uncertified or improperly certified or evaluation and confirmed by the
otherwise erroneous reports shall be Monetary Board.
Manual of Regulations for Banks Part VI - Page 8a

§§ X602.6 - X602.15
08.12.31
(3) The Monetary Board has confirmed (deliverable and non-deliverable) may
an SES finding that the bank has conducted only be used when the underlying
business in an unsafe and unsound manner. transaction is eligible for servicing by the
An erring bank may apply for banking system under Circular No. 1389
reinstatement of its derivatives authority dated 13 April 1993, as amended.
only after six (6) months from lapse of the Customers may, likewise, cover their
implementation of the sanction: Provided, funding requirements thru FX swaps.
That the bank has satisfactorily addressed Banks may only engage in FX forwards
all BSP concerns. and swap transactions with customers if the
Transitory provisions. Expanded or any latter is hedging market risk or covering
other derivatives authority granted prior to funding requirements. There shall be no
30 January 2008 shall be operative for one double/multiple hedging such that at any
(1) year from the said date: Provided, That given point in time, the total notional
a bank undertaking any derivatives amount of the FX derivatives transaction/s
activities pursuant thereto shall shall not exceed the amount of the
immediately comply with the pertinent underlying FX obligation/exposure.
provisions of Appendices 25 and 26. A bank The customer shall no longer be
which intends to continue its existing allowed to buy FX from the banking
derivatives authority not covered by those system for FX obligations/exposures that
generally authorized under Subsec. are fully covered by deliverable FX
X602.1, must submit an application for the forwards and FX swaps.
appropriate additional derivatives authority The following guidelines, as well as
within the one (1) - year transitory period. minimum documentary requirements, shall
After the lapse of the one (1) - year cover FX forward and swap transactions
transitory period, a bank can only perform involving the Philippine peso between
those activities which are permissible authorized dealer banks and their customers.
under Sec. X602 and its Subsections. (As amended by Circular No. 591 dated 27 December 2007)
A bank whose SPs, as of 30 January 2008,
exceed the prudential limits prescribed § X602.15 Definition of terms
under Subsec. X602.1(a)(3) may maintain a. Credit default swaps (CDS) - refers
existing positions but cannot increase its to a financial contract between two (2)
exposures or invest in additional SPs until such parties, the protection buyer and
time when its exposure levels are within the protection seller, with reference to a
prescribed limits. certain notional value of a reference
(As amended by Circular No. 594 dated 08 January 2008) credit or a basket of reference credits,
whereby the former pays a premium to
§§ X602.7 - X602.13 (Reserved) the latter, and in return the latter agrees
to make certain protection payments to
§ X602.14 Forward and swap the former contingent upon the
transactions occurrence of a credit event with respect
Statement of policy. It is the policy of to the reference entity(ies)/asset(s).
the BSP to support the deepening of the b. Credit-linked note (CLN) – refers
Philippine financial markets. In line with to a pre-funded credit derivative
this policy, customers may, thru FX instrument under which the note holder
forwards, hedge their market risks arising effectively accepts the transfer of credit risk
from FX obligations and/or exposures: pertaining to a reference asset or basket of
Provided, That forward sale of FX assets issued by a reference entity/ies. The
Part VI - Page 8b Manual of Regulations for Banks

§ X602.15
08.12.31
repayment of the principal to the note AAB where the amount, payment tenor and
holder is contingent upon the occurrence party have been determined.
of a defined credit event. In consideration h. FX options – refers to option
thereof, the note holder receives an contracts which convey the right or the
economic return reflecting the underlying obligation depending upon whether the
credit risk of the reference assets. For bank is the purchaser or the writer,
purposes of Sec. X602, the term shall respectively to buy or sell at a specified
generically include similar instruments price by a specified future date, for a fee or
such as credit-linked deposits (CLDs) and a premium, two (2) different currencies at
credit-linked loans (CLLs). Unless a specified exchange rate.
otherwise stated, the term shall refer only i. FX swaps - refers to an agreement
to plain vanilla CLNs. Plain vanilla CLNs involving an initial exchange of two (2)
are composed of a debt or deposit currencies, usually at the prevailing spot
instrument and a CDS. Non-plain vanilla rate, and a simultaneous commitment to
CLNs are those that are leveraged and/or reverse the exchange of the same two
include features of other SPs (e.g., coupon (2) currencies at a date further in the
payments linked to interest or FX rate future at a rate (different from the rate
movements) and/or contains more than applied to the initial exchange) agreed
one (1) embedded derivative. on deal date.
c. Currency swaps - refers to an j. Interest rate swaps (IRS) - refers
arrangement in which two parties to an agreement in which the parties
exchange a series of cash flows in one (1) agree to exchange interest cash flows on
currency for a series of cash flows in a principal amount at certain times in the
another currency, at specified exchange future according to an agreed upon
and/or interest rates and at agreed intervals formula.
over an agreed period. k. Non-deliverable forward (NDF)
d. Forward FX contracts - refers to an - refers to a forward FX contract where
agreement for delayed delivery of a foreign only the net difference between the
currency in which the buyer agrees to contracted forward rate and the market
purchase and the seller agrees to deliver rate shall be settled at maturity.
at a specified future date a specified amount l. Non-resident - refers to an
at a specified exchange rate. individual, a corporation or other juridical
e. Forward rate agreement (FRA) - person not included in the definition of
refers to an agreement fixing the interest resident.
rates for a specified period whereby the m. Resident - refers to:
buyer receives (or pays) and the seller pays (1) An individual citizen of the
(or receives) the interest rate differential if Philippines residing therein; or
the reference rate rises above (or falls (2) An individual who is not a citizen
below) the contract rate, respectively. of the Philippines but is permanently
f. FX exposure - refers to an FX risk residing therein; or
arising from an existing commitment to or (3) A corporation or other juridical
from a non-resident or AAB which leads person organized under the laws of the
to payment of an FX obligation or receipt Philippines; or
of an FX asset based on verifiable (4) A branch, subsidiary, affiliate,
documents on deal date. extension office or any other unit of
g. FX obligation – refers to an actual corporations or juridical persons which are
FX commitment to a non-resident or any organized under the laws of any country
Manual of Regulations for Banks Part VI - Page 8c

§§ X602.15 - X602.18
08.12.31
and operating in the Philippines, except longer than: (i) the maturity of the underlying
OBUs. FX obligation; or (ii) the approximate due
n. Structured product (SP) - refers to a date or settlement of the FX exposure. For
financial instrument where the total return is deliverable FX forward contracts, the tenor/
a function of one (1) or more underlying maturity shall be co-terminus with the
indices, such as interest rates, equities and maturity of the underlying obligation or the
exchange rates. It is composed of a host approximate due date or settlement of the
contract (e.g., plain vanilla debt or equity FX exposure. This shall not preclude
securities) and an embedded derivative (e.g., pretermination of the contract due to
swaps, forwards or options) that re-shape the prepayment of the underlying obligation
risk-return pattern of the hybrid instrument. or exposure: Provided, That for foreign
For purposes of guidelines under Sec. X602, currency loans, prior BSP approval has
the term SP does not include asset-backed been obtained for the prepayment and a
securities. Provisions under Sec. 1648 shall copy of such approval is presented to the
continue to apply for securities overlying bank counterparty.
securitization structures. b. FX Swaps- No restriction on tenor.
(As amended by Circular Nos. 594 dated 08 January 2008 and c. Settlement of NDFs - All NDF
591 dated 27 December 2007) contracts with residents shall be settled in
pesos.
§ X602.16 Documentation. Minimum d. Remittance of FX proceeds of
documentary requirements for FX forward deliverable forward and swap contracts
and swap transactions in Appendix 58 FX proceeds of deliverable forward and swap
shall be presented on or before deal date contracts shall be delivered by the bank
to the banks unless otherwise indicated. counterparty directly to the beneficiaries
FX selling banks shall stamp the concerned except for foreign investments
supporting documents upon presentation where said FX proceeds are reconverted to
by customers as follows: Philippine pesos and reinvested in eligible
a. For hedging transactions: “FX peso instrument such as those listed in Item
hedged/deliverable” or “FX hedged/ “A.2.2” of Appendix 58. For this purpose,
non-deliverable"; beneficiaries shall refer to the FCDU of a
b. For funding transactions: “FX sold”, bank or a nonresident entity (e.g., creditor,
indicating the contract date and amount supplier, investor) to whom the customer is
involved, and signed by the bank’s committed to pay/remit FX.
authorized officer. Copies of all duly (As amended by Circular No. 591 dated 27 December 2007)
marked supporting documents shall be
retained by the banks and made available § X602.18 Cancellations, roll overs or
to the BSP for verification. The retained non-delivery of FX forward contracts. All
copies shall also be marked “Documents cancellations, roll-overs or non-delivery of
Presented as Required” and signed by the all FX deliverable forward contracts and the
bank’s authorized officer. forward leg of swap contracts shall be
(As amended by Circular No. 591 dated 27 December 2007) subject to the following guidelines to
determine the validity thereof:
§ X602.17 Tenor/maturity and a. Eligibility test - Contracts must be
settlement supported by documents listed in
a. Forward sale of FX (whether Appendix 58 hereof.
deliverable or non-deliverable). The tenor/ b. Frequency test - the reasonableness
maturity of such contracts shall not be of the cancellation, roll-over or non-delivery
Part VI - Page 8d Manual of Regulations for Banks

§§ X602.18 - X602.25
07.12.31
shall be based on the results of the comply with existing regulations on

evaluation of the justification/explanation anti-money laundering under Sec. X691.
submitted by banks as evidenced by (As amended by Circular No. 591 dated 27 December 2007)
appropriate documents.
c. Counterparty test – the cancellation § X602.21 Reporting requirements
or roll-over of contracts must be duly Banks duly authorized to engage in
acknowledged by the counterparty to the derivatives transactions shall continue to
contract as shown in documents submitted be covered by the BSP’s existing reporting
by banks, e.g., there should be conforme requirements on financial derivatives.
of counterparty as evidenced by the Cancellations, roll-overs or non-delivery of
counterparty signature on pertinent deliverable FX forward contracts and under
documents. the forward leg of swap contracts shall be
d. Mark-to-Market test– the booking reported electronically in Excel format to
or recording in the books of accounts of the BSP not later than five (5) banking days
the profit or loss on contracts and cash flows/ after reference month as indicated in
settlement to counterparties must be fully Appendix 6.
supported by appropriate documents such Swap contracts with counterparties
as authenticated copy of debit/credit involving purchase of FX by banks at the
tickets, schedules showing among others, initial leg shall likewise be reported
mark-to-market valuation computation, etc. electronically in Excel format to the BSP not
(As amended by Circular No. 591 dated 27 December 2007) later than five (5) banking days after reference
month as indicated in Appendix 6.
§ X602.19 Non-deliverable forward The reports shall be transmitted to the
contracts with non-residents. NDF International Department at iod@bsp.gov.ph,
contracts to sell FX to non-residents shall copy furnished the SDC at the following
be covered by the provisions of addresses: sdcfxkbdom@bsp.gov.ph (for
Section 1602. domestic banks) and sdcfxkbfor@bsp.gov.ph
(for foreign banks).
§ X602.20 Compliance with Anti- (As amended by Circular No. 591 dated 27 December 2007)
Money Laundering rules. All transactions
under Subsecs. X602.14 to X602.21 shall §§ X602.22 - X602.25 (Reserved)
(Next page is Part VI - Page 9)
Manual of Regulations for Banks Part VI - Page 8e

§§ X602.26 - 1602
07.12.31
§ X602.26 Sanctions. Violations of “Abusive” Suspension of the bank’s

Subsecs. X602.14 to X602.21 shall be violation rediscounting privileges,
subject to the penalty provisions under R.A. cash dividend declaration
No. 7653 (The New Central Bank Act) and and branching privileges
until the violation is
other existing banking laws and regulations.
corrected but in no case
Failure to comply with Subsec. X602.18 shall such suspension be
shall result in the exclusion of the forward less than sixty (60)
contracts in the computation of the bank’s calendar days.
consolidated daily position starting from day c. The Monetary Board may impose
one , i.e., when the individual contracts were other non-monetary sanctions on a bank for
entered into. Violations of the prescribed FX violations determined by BSP as “chronic”
position limits shall be subject to the or “abusive” on a case-to-case basis,
following sanctions provided under Circular pursuant to Sec. 37 of R.A. No. 7653.
Letter dated 13 March 1998: d. Banks shall be duly advised by the
BSP of their violations and the
a. Monetary Penalties corresponding sanctions imposed for such
Per Calendar Month Daily Penalty violations.
1st banking day P10,000 e. A monetary penalty imposed on a
2nd banking day 20,000
bank shall be paid to the BSP Cash
3rd banking day of violation, 30,000
Department, within three (3) banking days
and onwards, or if the excess
FX position of the bank is from the bank’s receipt of advice of said
thirty percent (30%) or more penalty imposition.
of the allowable For purposes of imposing sanctions for
limits in any banking day, delayed, erroneous or unsubmitted reports,
regardless of whether a bank reports required under Subsec. X602.21 are
is in the first, second, third or classified as Category B reports and subject
more days of violation to corresponding penalties.
b. In addition, the following non- Counterparties that habitually cancel
monetary sanctions shall be imposed on the deliverable forwards without proper
bank committing violations considered as: justification may be subject of a BSP watchlist.
(1) “chronic”, i.e., when the violation (As amended by Circular No. 591 dated 27 December 2007)
continues beyond three (3) banking days
within a calendar month, but the excess Sec. 1602 Forward Contracts with Non-
position is less than thirty percent (30%) of Residents. All forward contracts to sell
the allowable limit; and foreign exchange to non-residents
(2) “abusive”, i.e., when the violation (including OBUs) with no full delivery of
continues beyond three (3) business days principal, including cancellations, roll-
within a calendar month and excess overs/renewals shall be submitted for prior
position is thirty percent (30%) or more of clearance to the BSP. However, every roll-
the allowable limit. over of short-term (ST) deliverable forward
“Chronic” Suspension of the bank’s contracts with non-residents need not be
violation rediscounting privileges, prior–approved, provided:
cash dividend declaration a. The underlying transaction for each
and branching privileges
ST deliverable FX forward contract is a
until the violation is
corrected but in no case foreign investment in long-term (LT)
shall such suspension be Philippine government securities for which
less than thirty (30) a Bangko Sentral Registration Document
calendar days. (BSRD) has been issued;

§§ 1602 - X604.3
07.12.31
b. The roll-over is effected during the governed by the relevant BIR Revenue
tenor of the underlying LT Philippine Regulations.
government securities; Deposits of the BIR shall be limited to
c. The actual delivery/settlement of those arising from tax collection.
the forward contract coincides with the The Authorized Agent Banks (AABs)
date of the intended capital repatriation of shall transfer the deposit collection to the
the BSP-registered investments; account of the Treasurer of the Philippines
d. The value of the forward contract with the BSP on the sixth day from the day
does not exceed the foreign currency of deposit of the BIR collections.
equivalent of the maturity value/net proceeds
of the BSP-registered investments computed § X604.3 Collection and reporting of
at the agreed forward exchange rate; and customs duties and import processing
e. The repatriation of capital and fees. Participating banks are authorized to
remittance of income for the BSP- accept payment of customs duties, taxes
registered investment complies with and other levies, and import processing
documentary requirements under existing fees under the following procedures:
BSP rules. a. The collecting bank shall
(As amended by Circular No. 591 dated 27 December 2007) acknowledge receipt of payments of
customs duties, taxes and other levies, and
Sec. X603 Clearing Operations. Banks import processing fees by issuing Official
shall observe the clearing procedures Receipts (ORs) in forms to be requisitioned
outlined in Appendix 28 for the clearing by the Head Office from the General Services
of checks and settlement of interbank Division, Bureau of Customs, Manila;
balances through the clearing facilities. b. The collecting bank shall book all such
collections and credit the same to the special
Sec. X604 Collection of Customs Duties/ account "Due to BSP - Bureau of Customs";
Taxes/Levies and Other Revenues. The c. The branch shall report by
following regulations shall govern the telephone, telex or other means to its Head
collection and reporting of customs duties, Office, at the end of each day, total
taxes, levies and other revenues through collections for the day and the inclusive
the banking system. serial numbers of ORs issued, to be used
as basis for the preparation by the Head
§ X604.1 Coverage. All presently Office of the Consolidated Report of Daily
accredited agent banks with demand Collections of Customs Duties, Taxes and
deposit accounts with the BSP and Other Levies (RC 82-005);
government banks are authorized to d. The Head Office and its branches
collect (a) customs duties, taxes and shall accomplish the Abstract of Daily
other levies, (b) import processing fees, Collections of Customs Duties, Taxes and
and (c) export/premium duties: Other Levies (RC 82-006) and submit the
Provided, however, That the collection same, duly supported with copies of Orders
of taxes from GOCCs shall be made only of Payment (OPs), ORs, Release Certificates
through banking offices of government (RCs) and commercial invoices on the same
banks. day to the offices indicated in the form; and
e. The Head Office of the participating
§ X604.2 Collection and reporting of banks shall consolidate all reports of
internal revenue taxes. Banks which are collections with those of its branches and
duly accredited by the BIR to accept submit the original of the Consolidated
payment of internal revenue taxes shall be Report on Daily Collections of Customs

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

§§ X604.5 - X604.10
07.12.31
Copies of debit/credit advices to AABs next 5 days amount of

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

§ X604.10
05.12.31
b. Amount of import duties. The likewise apply even if the importation

import duties due shall be determined and is effected under other types of
declared by the applicant for the letter of payment arrangements or on a
credit subject to the penalties prescribed deferred payment basis. The deposit
under the Tariff and Customs Code. should be made upon presentation of
c. Other payment arrangements. the import documents to the agent
The requirement of a deposit shall bank.

§§ X604.10 - X605.3
05.12.31
d. Validation of official receipt. Such During the thirty (30)-day period that
deposits shall be validated by official such premium contributions are in the
receipts of the FIs concerned and shall be custody of the banks, such funds shall not
credited in the final computation of the earn interest.
import duties, taxes and other charges due The banks shall not collect from the
on the importation, upon the filing of the SSS any service charge for such agency.
corresponding import entry. The funds collected by banks shall be
e. Collection of deficiency and refund handled by the bank proper and not the
of excess deposits. Any deficiency in the trust department: Provided, however, That
deposit made as against the actual import such deposits shall be subject to the reserve
duties, taxes and other charges due on the requirements and the liquidity floor
importation shall be collected by the requirements on government deposits.
Bureau of Customs from the importer prior
to the release or withdrawal of the § X605.2 Commercial banks as
shipment. Any excess deposit shall be depository of rediscounting proceeds
refunded by the Bureau of Customs to the Rediscounting proceeds for RBs situated
importer. outside the fifty (50)-kilometer radius from
f. Remittance of collection. The BSP Manila shall be credited, for the account of
demand deposit account of the FIs the RB concerned, to the clearing account
concerned shall be debited for the deposits with the BSP of the depository KB to be
collected, in accordance with Subsec. designated by the borrowing RB. The
X604.5 contemplated depository relationship
g. Violation. Violation of the arrangement must be manifested to the
provisions of this Section shall be penalized BSP thru the submission by the RB of an
under the pertinent provisions of the Tariff authenticated copy of the letter of
and Customs Code and/or under Sections understanding between the RB and the KB
36 and 37 of R.A. No. 7653. showing such depository relationship.
Sec. X605 Miscellaneous Operations. The § X605.3 Collection agents of

following rules and regulations shall apply PhilHealth. Banks are authorized to act as
to operations specified herein. collecting agents of the Philippine Health
Insurance Corporation (PhilHealth) under
§ X605.1 Collection and paying agents which agency:
of the Social Security System. Banks duly a. PhilHealth members may pay their
accredited by the SSS are authorized to premium contributions to PhilHealth
act as collecting and paying agents under through the said banks and the funds thus
which agency, employer-members of the collected shall be remitted to PhilHealth
SSS may pay their premium contributions in accordance with PhilHealth’s agreed
to the SSS through the said banks and the remittance schedule which in no case shall
funds thus collected shall be remitted to exceed thirty (30) days from receipt thereof;
the SSS within thirty (30) days from receipt b. During the period that such
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.

§§ X605.3 - X606.2
06.12.31
The funds collected by the banks shall (1) Bank Premises - Land and
be handled by the operating departments Buildings, Buildings under Construction,
(cash departments) of the banks concerned Leasehold Rights and Improvements and
and not their trust operations: Provided, Furniture, Fixtures and Equipment (as
however, That such funds shall be subject defined in the Manual of Accounts for All
to the reserve requirement on deposits and Banks), owned and used by the bank in
to the liquidity floor on government the conduct of its business, including staff
deposits. houses, recreational facilities and
landscaping costs, net of accumulated
B. SUNDRY PROVISIONS depreciation: Provided, however, That
appraisal increment on bank premises
Sec. X606 Bank Premises and Other Fixed shall not be included in the total
Assets. The following rules shall govern the investment in real estate and
premises and other fixed assets of banks. improvements for purposes of these
guidelines; and
§ X606.1 Appreciation or increase in (2) Real properties, equipment or
book value. Bank premises, furniture, other chattels purchased by the bank in
fixtures and equipment shall be accounted its name for the benefit of its officers and
for using the cost model under PAS 16 employees, net of depreciation and in the
“Property, Plant and Equipment.” case of land or other non-depreciable
Outstanding appraisal increment as of property, net of payments already made
13 October 2005 arising from mergers and to the bank by the officers and employees
consolidation and other cases approved by for whose benefits the property was
the Monetary Board, shall be deemed part bought, where such property has not yet
of the cost of the assets. However, appraisal been fully paid and ownership has not yet
increment previously allowed to be been transferred to them.
booked shall be reversed. b. The following shall be included in
Accordingly, the booking of the computation of a bank’s total
appreciation or increase in the book value investment in bank premises:
of bank premises and other fixed assets in (1) (a) The cost of real estate leased
cases where the market value of the in whole or in part by the bank from a
property has greatly increased since the corporation, other than a corporation
original purchase is no longer allowed. primarily engaged in real estate in which
(As amended by Circular No. 520 dated 20 March 2006) the bank has equity, equivalent to the
amount obtained by applying the
§ X606.2 Ceiling on total investments percentage of the equity of the bank in
The total investment of a bank in real estate the lessor to the cost of that portion of the
and improvements thereon, including bank property being leased, or
equipment, shall not exceed fifty percent (b) the amount of equity in the lessor,
(50%) of the bank’s net worth. In whichever is lower, plus the amount
determining compliance with such ceiling, obtained by applying the percentage of the
the following rules shall apply: equity of the bank in the lessor to any
a. The investment shall include all outstanding loans of the lessor with the
real estate and equipment necessary for the bank, the proceeds of which were used
bank’s immediate use in the transaction of to purchase, construct or develop the real
its business, such as: estate used for the bank’s purposes.

§§ X606.2 - X607
06.12.31
(2) The lower of - § X606.10 Batas Pambansa Blg. 344 -

(a) the cost of real estate leased in An Act to Enhance the Mobility of
whole or in part by the bank from a Disabled Persons by Requiring Certain
corporation in which any or a group of Buildings, Institutions, Establishments and
stockholders owning ten percent (10%) or Public Utilities to Install Facilities and
more of the voting stock of the bank, Other Devices. In order to promote the
directors and/or officers of the bank, hold realization of the rights of disabled persons
or own more than fifteen percent (15%) of to participate fully in the social life and the
the subscribed capital stock of the lessor, development of the societies in which they
equivalent to the amount obtained by live and the enjoyment of the opportunities
applying the percentage of the equity of available to other citizens, no license or
said stockholders/directors/officers in the permit for the construction, repair or
lessor to the cost of that portion of the renovation of public and private buildings for
property being leased by the bank, or public use, educational institutions, airports,
(b) the amount obtained by applying sports and recreation centers and complexes,
the percentage of the equity of the shopping centers or establishments, public
stockholders/directors/officers in the lessor parking places, workplaces, public utilities,
to any outstanding loans of the corporation shall be granted or issued unless the owner
with the bank, the proceeds of which were or operator thereof shall install and
used to purchase, construct or develop the incorporate in such building, establishment
real estate used for the bank’s purposes. or public utility, such architectural facilities
The equity investment of a bank in a or structural features as shall reasonably
corporation engaged primarily in real enhance the mobility of disabled persons
estate shall be included in the computation such as sidewalks, ramps, railings and the
of the bank’s total investment in real estate, like. If feasible, all such existing buildings,
unless otherwise provided by the institutions, establishments, or public utilities
Monetary Board. may be renovated or altered to enable the
disabled persons to have access to them.
§ X606.3 Reclassification of real and
other properties acquired as bank Sec. X607 Bank Advertisements. The
premises. ROPA reclassified as bank following rules and regulations shall
premises shall be booked at their ROPA govern bank advertisements.
balance, net of any valuation reserves: a. No bank shall publish, issue or
Provided, That only such acquired asset or distribute in any form, any advertisement
a portion thereof that will be immediately that shall degrade, deprecate or otherwise
used or earmarked for future use may be prejudice other banking and financial
reclassified and booked as bank premises. institutions.
Banks, prior to the reclassification of b. No bank shall publish, issue or
their ROPA accounts to bank premises, distribute in any form of advertisement (in
shall first secure prior BSP approval before newspapers, magazines, television, radio,
effecting the reclassification and shall billboards, brochures, prospectuses, or any
submit, in case of future use, justification other medium) or allow itself to be used/
and plans for expansion/use. mentioned in any form of advertisement
unless such advertisement is in pursuance
§ X606.4 Lease of bank premises of its business or investment.
(Deleted by Circular No. 525 dated 04 April 2006) c. No bank shall place or cause to be
placed any advertisement tending to
§§ X606.5 - X606.9 (Reserved) mislead a depositor into believing that he

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

§§ X608.1 - X609.1
07.12.31
Comptrollership Department shall one-time monetary penalty on a per

bill the bank for the full amount of the transaction basis.
annual fee or for the balance thereof not (3) Continuing penalty refers to the
covered by its deposit account, as the monetary penalty imposed on continuing
case may be. offenses/violations on a per calendar day
Within thirty (30) calendar days from basis reckoned from the time the offense/
receipt of the bill, the bank shall make the violation occurred or was committed until
corresponding remittance to the BSP the same was corrected/rectified.
Accounting Department. Failure to pay the (4) Transactional penalty refers to a
bill within the prescribed period shall one-time penalty imposed on a
subject the institution to administrative transactional offense/violation.
sanctions. b. Basis for the computation of the
period or duration of penalty. The
Sec. X609 Collection of Fines and Other computation of the period or duration of
Charges from Banks. The following all penalties shall be based on calendar
regulations shall govern the payment of days. For this purpose the terms “per
fines and other charges by banks. banking day”, “per business day”, “per
day” and/or “a day” as used in this Manual,
§ X609.1 Guidelines on the imposition and other BSP rules and regulations shall
of monetary penalties. The following are mean “per calendar day” and/or “calendar
the guidelines on the imposition of monetary day” as the case may be.
penalties on banks, their directors and/or c. Additional charge for late payment
officers. of monetary penalty. Late payment of
a. Definition of terms. For purposes monetary penalty shall be subject to an
of the imposition of monetary penalties, additional charge of six percent (6%) per
the following definitions are adopted: annum to be computed from the time said
(1) Continuing offenses/violations are penalty becomes due and payable up to the
acts, omissions or transactions entered into, time of actual payment. The penalty shall
in violation of laws, BSP rules and become due and payable fifteen (15)
regulations, Monetary Board directives, calendar days from receipt of the Statement
and orders of the Governor which persist of Account from the BSP. For banks which
from the time the particular acts were maintain DDA with the BSP, penalties
committed or omitted or the transactions which remain unpaid after the lapse of the
were entered into until the same were fifteen-day period shall be automatically
corrected/rectified by subsequent acts or debited against their corresponding DDA on
transactions. They shall be penalized on a the following banking day without additional
per calendar day basis from the time the charge. If the balance of the concerned
acts were committed/omitted or the bank’s DDA is insufficient to cover the
transactions were effected up to the time amount of the penalty, said penalty shall
they were corrected/rectified. already be subject to an additional charge of
(2) Transactional offenses/violations six percent (6%) per annum to be reckoned
are acts, omissions or transactions entered from the banking day immediately following
into in violation of laws, BSP rules and the end of said fifteen (15)-day period up to
regulations, Monetary Board directives, the day of actual payment.
and orders of the Governor which cannot d. Appeal or request for
be corrected/rectified by subsequent acts reconsideration. A one (1)-time appeal or
or transactions. They shall be meted with request for reconsideration on the

§§ X609.1 - X609.4
07.12.31
monetary penalty approved by the head office of the bank are open for
Governor/Monetary Board to be business.
imposed on the bank, its directors and/ For uniform implementation of the
or officers shall be allowed: Provided, above regulations, the procedural
That the same is filed with the guidelines embodied in Appendix 29 shall
appropriate department of the SES within be observed.
fifteen (15) calendar days from receipt (As amended by Circular No. 585 dated 15 October 2007)
of the Statement of Account/billing
letter. The appropriate department of the § X609.3 Cost of checks and
SES shall evaluate the appeal or request documentary stamps. Banks are given
for reconsideration of the bank/ fifteen (15) days from receipt of invoice
individual and make recommendations to settle their accounts with the BSP
thereon within thirty (30) calendar days Security Printing Plant for transactions
from receipt thereof. The appeal or representing the cost of printed checks
request for reconsideration on the and documentary stamps. Accounts not
monetary penalty approved by the settled within fifteen (15) days will be
Governor/Monetary Board shall be debited against the bank’s corresponding
elevated to the Monetary Board for demand deposit account with the BSP. A
resolution/decision. The running of the debit advice showing invoices paid shall
penalty period in case of continuing be sent to the head office of the bank
penalty and/or the period for computing concerned.
additional charge shall be interrupted (As amended by Circular No. 585 dated 15 October 2007)
from the time the appeal or request for
reconsideration was received by the § X609.4 Check/demand draft
appropriate department of the SES up to payments to the Bangko Sentral of thrift,
the time that the notice of the Monetary cooperative and rural banks. TBs, Coop
Board decision was received by the Banks and RBs are required to make all
bank/individual concerned. check and demand draft payments for
(As amended by Circular No. 585 dated 15 October 2007) CB:IBRD, LC/STD, legal reserve,
supervisory fees, fines or penalties,
§ X609.2 Payment of fines by banks redemption of preferred shares and cash
Banks shall pay the fines within fifteen dividends for government held preferred
(15) calendar days from receipt of the shares, and collections or repayments of
statement of account from the BSP. notes used as collateral for loans payable
For banks which maintain demand either to the Cash Department, Bangko
deposit account with the BSP, fines which Sentral ng Pilipinas, Mabini St., Malate,
are unpaid after the lapse of the fifteen Manila or directly to BSP Regional Cash
(15)-day period shall be automatically Units. Such payments shall be accompanied
debited against the corresponding demand by appropriate payment form as shown in
deposit account of the bank concerned: Appendix 35. Payments not accompanied
Provided, That if the balance of the bank’s by the required payment forms shall be
account is insufficient to cover the fines presumed to be additions to reserves and
due, such fines shall be paid not later than shall be credited to the demand deposit
the following banking day. For the purpose account of the paying bank.
of this Subsection, banking day means a Check payments shall be value dated
day on which the BSP head office and the when the check is cleared.

§§ X609.4 - X610.2
07.12.31
However, all assessments for annual e. Unauthorized Reproduction of

supervisory fees, fines and penalties of TBs Legal Tender Philippine Coin - A
shall be debited from the respective reproduction of a facsimile or any object
demand deposit accounts with BSP. in metal form bearing the likeness or
(As amended by Circular No. 585 dated 15 October 2007) similitude of legal tender Philippine
currency coin or any part thereof, without
Sec. X610 Philippine and Foreign prior authority from the Governor of BSP
Currency Notes and Coins. The following or his duly authorized representative.
rules and regulations shall govern the
treatment and disposition of counterfeit § X610.2 Treatment and disposition
Philippine and foreign currency notes and of counterfeit Philippine and foreign
coins, the reproduction and/or use of currency notes and coins. Any person or
facsimiles of legal tender Philippine entity, public or private, who receives or
currency notes and coins, the replacement takes hold of a note or coin which is
and redemption of legal tender Philippine counterfeit or whose genuineness is
currency notes and coins considered questionable, whether Philippine or foreign
mutilated or unfit for circulation, and the currency, shall issue a temporary receipt
treatment and disposition of Philippine to its owner/holder and must indicate
currency notes and coins called in for therein his name, address and community
replacement. tax certificate number or the passport
number, in case of a foreigner, the date of
§ X610.1 Definition of terms. For receipt, the denomination, serial number
purposes of this Section, the following of the note or the coin series as the case
terms are defined. may be. The owner/holder shall be required
a. Legal Tender Philippine Currency to 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 questionable, whether Philippine or foreign
deceive or to be taken for that which is currency, shall forward the same within
original, legal and genuine. five (5) working days from date of receipt/
c. Counterfeit Coin - An imitation or possession thereof, together with a copy
forged design of a genuine legal and of the temporary receipt required herein
authorized coin intended to deceive or pass for examination to:
for the genuine coin, regardless of its
intrinsic value. The Cash Department
d. Unauthorized Reproduction of Bangko Sentral ng Pilipinas
Legal Tender Philippine Note - A A. Mabini St., Manila
reproduction of a facsimile or any
illustration or object bearing the likeness In cases where personal delivery to the
or similitude of legal tender Philippine Cash Department, BSP, Manila, is not
currency note or any part thereof, without feasible, delivery of the afore-stated notes
prior authority from the Governor of BSP or coins may be made through any of the
or his duly authorized representative. following agencies:

§ X610.2
05.12.31
(1) The BSP Regional Offices/ Units; or items. All seized notes or coins which are
(2) Any banking institution. not or no longer needed as evidence in
Any law enforcement agency which any investigation/legal proceedings shall
conducted any seizure of notes and coins, be immediately turned over to the Cash
whether Philippine or foreign, which are Department, BSP, for proper disposition.
counterfeits or suspected to be counterfeit The Cash Department, BSP, after
currency, shall within five (5) working days examining all notes and coins submitted
from date of seizure, advise in writing the to it for examination and/or determination
Cash Department, BSP, Manila of said as to its genuineness, shall:
seizure enclosing therewith a copy of the (a) Issue a corresponding certification
receipt and inventory taken on the seized for the currency examined, if needed;
(Next Page is Part VI-Page 19)
Part VI - Page 18b Manual of Regulations for Banks

§§ 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 network; following shall be the standard conditions
(iii) what types of telecommunications channels for approval:
and remote access capabilities (e.g., direct a. Existence at all times of appropriate
modem dial-in, internet access, or both) top-level risk management oversight;
exist; and (iv) what security controls/ b. Operation of electronic banking
measures are installed; system outsourced to a third party service
(3) A list of software and hardware provider taking into consideration the
components indicating the purpose of the existence of adequate security controls and
software and hardware in the electronic the observance of confidentiality [as
banking infrastructure; required in R.A. No. 1405 (Bank Secrecy
(4) A description of the security policies Law)] of customer information;
and procedures manual containing c. Adoption of measures to properly
(i) description of the bank’s security educate customers on safeguarding of user
organization, (ii) definition of responsibilities ID, PIN and/or password, use of bank’s
for designing, implementing, and monitoring products/services, actual fees/bank charges
information security measures; and thereon and problem/error resolution
(iii) established procedures for evaluating procedures;
policy compliance, enforcing disciplinary d. Clear communication with its
measures and reporting 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 losses from security breaches, systems
for 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
and the availability of back-up facilities; terms and conditions and the corresponding
(6) Copy of contract with the risks that entail in availing electronic
communications carrier, arrangements for banking service;
any liability arising from breaches in the f. The bank’s oversight process shall
security of the system or from ensure that business expansion shall not put
unauthorized/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 for
provider/s; and 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 on
areas, the bank may be required to make fund transfers in cases where clients use the
a presentation of its electronic banking electronic banking services to transfer funds;
transactions to BSP. i. The electronic banking service
shall not be used for money laundering or
§ X621.5 Conditions for Monetary other illegal activities that will undermine
Board approval. Upon completion of the confidence of the public; and
evaluation, the appropriate recommendation j. The BSP shall be notified in writing
shall be made to the Monetary Board. The thirty (30) days in advance of any

§§ X621.5 - X631
08.12.31
enhancements that may be made to the of electronic banking activities or both,

online electronic banking service. shall be imposed on erring banks
and/or its officers:
§ X621.6 Pending applications. The
same procedure and requirements stated Monetary penalties Amount
in the foregoing shall apply to all banks a. For responsible officer/s a one time
with pending applications with the BSP, and/or director/s - for failure penalty of
to seek prior BSP approval P200,000
except on the submission of the and/or for non-submission/
documents enumerated in Item “e”, delayed submission of
Subsec. X621.1, i.e., banks which have required information/
already submitted all the required documents
information/documents need not comply b. On the bank - for failure to P30,000 per day
seek prior BSP approval starting from the
with this requirement.
and/or for non-submission/ day the offense
delayed submission of was committed
§ X621.7 Exemption. Electronic required information/ up to the time
banking services that are purely documents the same was
informational in nature are exempted from corrected
these regulations: Provided, however, That
should such services be upgraded to § X621.13 Outsourcing. Outsourcing
transactional service, then prior BSP of internet and mobile banking services
approval shall be required. shall be governed by the provisions of
Subsec. X169.2.
§ X621.8 Transitory provision. Banks (M-2008-030 dated 12 September 2008)
with existing electronic banking services
but do not qualify as a result of the Secs. X622 – X623 (Reserved)
pre-screening process mentioned in Item
“b”, Subsec. X621.1, shall be given three Sec. X624 Consumer Protection for
(3) months from 21 December 2000, within Electronic Banking. The rules and
which to show proof of improved overall regulations concerning consumer protection
financial condition and/or substantial for electronic banking (e-banking) products
compliance with BSP’s prudential and services are in Appendix 70.
requirements, otherwise, their electronic The guidelines govern the
banking activities will be temporarily implementation of e-banking activities of
suspended until such time that the same a bank for purposes of compliance with
have been complied with. the requirements to safeguard customer
information; prevention of money
§§ X621.9 - X621.11 (Reserved) laundering and terrorist financing;
reduction of fraud and theft of sensitive
§ X621.12 Sanctions. For failure to customer information; and promotion of
seek BSP approval before launching/ legal enforceability of banks’ electronic
enhancing/implementing electronic agreements and transactions.
banking services, and/or submit within (As amended by CL-2007-048 dated 09 September 2007 and
the prescribed deadline the required Circular No. 542 dated 01 September 2006)
information/documents, the following
monetary penalties and/or suspension Secs. X625 – X631 (Reserved)

§ 1631
05.12.31
Sec. 1631 Financial Products of Allied a. Financial products covered by this

Undertakings or Investment House Units Section are the following:
of Banks. The following guidelines shall (1) Credit cards;
govern the use of the head office and/or (2) Insurance products limited to:
any or all branches of UBs and KBs as outlets (a) Life insurance products;
for the presentation and sale of financial (i) Term insurance (including mortgage
products of their allied undertakings redemption insurance);
(subsidiaries and affiliates as defined hereafter) (ii) Whole life insurance;
or of their IH units. In case of sale of insurance (iii) Endowment;
products of insurance company affiliates, said (iv) Health and accident policies;
affiliates must be accredited or pre-cleared by (v) Variable life insurance contracts;
the Insurance Commission (IC) to ensure that and
only stable and reputable insurance companies (vi) Life annuities.
can sell their products through banks. (b) Non-life insurance;

§§ 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. Secs. X634 - X635 (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. X636 (Reserved)
In cases where there are two (2) or more
types of collateral, capital charge shall Sec. 1636 EFCDUs Investments in Foreign
depend on the lowest rated collateral. Currency Denominated Structured
Products. The following guidelines allow
The mapping of ratings to the UBs and KBs without expanded derivatives
corresponding risk weights shall be as authority to invest in certain specified
follows: structured products.
Risk weight Moody’s Standard Fitch § 1636.1 Statement of policy. The BSP
& Poor's Ratings
50% Aaa to Aa3 AAA to AA- AAA to AA- encourages banks to diversify their EFCDU
100% A1 to A3 A+ to A- A+ to A- investment portfolios in order to stabilize
150% Baa1 to Baa3 BBB+ to BBB+ to
BBB- BBB-
earnings, control maturity mismatches and
Deduction minimize over concentration of exposures.
from total
of Tier 1 and Below Baa3 Below BBB- Below BBB-
Tier 2 capital Unrated § 1636.2 Scope. EFCDUs of UBs and
KBs without expanded derivatives authority
(2) Use of ratings. If an issuer of a may invest, for their own account, in foreign
structured product has only one (1) rating currency-denominated structured products
by any of the BSP-recognized international issued by banks and SPVs of high credit
rating agencies, that rating shall be used to quality: Provided, That the revenue streams
determine the risk weight of the product; of such products may only be linked to
in cases where there are two (2) or more interest rate indices and/or foreign
ratings which map into different risk exchange rates other than those that
weights, the higher of the lowest two (2) involve the Philippine Peso: Provided,
risk weights should be used. further, That the minimum all-in return of
b. Trading book. Capital charge for such investments may not be lower than
structured products held in the trading book zero. For purposes of this Section,
shall be determined in accordance with structured products do not include asset-
Appendix 46. backed securities, credit-linked notes and
other similar instruments.
§ 1635.5 BSP approval not required
No prior BSP approval is required to enter § 1636.3 Other conditions
into authorized transactions. However, it a. Maturity – The maximum
shall be the responsibility of UBs/KBs to contractual maturity of any investment in
fully comply with appropriate risk structured products shall be five (5) years.

§§ 1636.3 - 1648.1
05.12.31
b. Credit quality of issuer – (5) Management should ensure that

Acceptable issuers are banks and SPVs the risks of the investments are accurately
collateralized by securities rated at least “A” aggregated in risk reports on a timely basis.
or its equivalent by an international rating
agency acceptable to the Monetary Board. § 1636.4 Capital treatment of EFCDUs
c. Booking – Investments in The capital treatment shall be in accordance
structured products as herein defined shall with existing rules and regulations as
be booked under banking book accounts modified for structured instruments.
as follows: (1) DFVPL, (2) AFS, (3) Held
to Maturity (HTM); or (4) Unquoted Debt § 1636.5 BSP approval not required
Securities Classified as Loans, which shall No prior BSP approval is required to enter
be accounted for in accordance with into authorized transactions. However, it
Subsecs. X164.1, X388.5 and Appendix 33, shall be the responsibility of UBs/KBs to fully
but not under the HFT category. comply with appropriate risk management
d. Prudential limits – The total carrying standards including, as a minimum, those
value of all investments in structured products prescribed under this Section. The
as defined herein at any given point in time regulatory requirements enumerated in
must not exceed twenty percent (20%) of the Appendix 66 shall be fully complied with
total investment portfolio of the EFCDU by UBs/KBs investing in products allowed
[combined amount of Trading Account under this Section.
Securities (TAS), ASS and IBODI].
e. Risk management – Investing banks § 1636.6 Sanctions. Non-compliance
must have established internal processes to with the provisions of this Section shall subject
identify, evaluate, monitor and manage the the bank to a fine of one-tenth of one percent
risk exposures, e.g., credit risk, market risk, (1/10 of 1%) of the outstanding investment
liquidity risk, operational risk, legal risk, per day, but not to exceed P30,000 per day,
compliance risk, created by their investments to be reckoned from the day the bank is
in structured products. As a minimum: deemed in violation of regulations, until the
(1) Such investments must be day the bank has complied with the
specifically approved by the board of directors requirements. Banks may also be
and be subject to appropriate internal limits temporarily or permanently prohibited from
and periodic reporting to the Board. such investments as circumstances may
(2) Banks must comply with generally 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 - X648 (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 § 1648.1 Statement of policy. The BSP
bid 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 - X659.6
05.12.31
Secs. X655 - X657 (Reserved) investigation of an institution, or any

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

§§ X660 - X691.1
08.12.31
Sec. X660 Disclosure of Remittance Banks shall likewise post said

Charges and Other Relevant Information information in their respective websites
It is the policy of the BSP to promote the and display them prominently in
efficient delivery of competitively-priced conspicuous places within their premises
remittance services by banks and other and/or remittance/service centers.
remittance service providers by promoting (Circular No. 534 dated 26 June 2006)
competition and the use of innovative
payment systems, strengthening the Secs. X661 - X690 (Reserved)
financial infrastructure, enhancing access to
formal remittance channels in the source Sec. X691 Anti-Money Laundering
and destination countries, deepening the Regulations. Banks, OBUs, QBs, trust
financial literacy of consumers, and entities, NSSLAs, pawnshops, and all
improving transparency in remittance other institutions, including their
transactions, consistent with sound banking subsidiaries and affiliates supervised and/or
practices. regulated by the BSP, otherwise known
Towards this end, banks providing as “covered institutions” shall comply with
overseas remittance services shall disclose the provisions of R.A. No. 9160, otherwise
to the remittance sender and to the known as the “Anti- Money Laundering
recipient/beneficiary, the following Act of 2001” and its Implementing Rules
minimum items of information regarding and Regulations (IRRs) in Appendix 52 and
remittance transactions, as defined herein: those in Appendix 52a.
a. Transfer/remittance fee - charge for (As amended by Circular Nos. 612 dated 13 June 2008 and 564
processing/sending the remittance from dated 03 April 2007)
the country of origin to the country of
destination and/or charge for receiving the § X691.1 Minimum guidelines for
remittance at the country of destination; fund transfers and correspondent
b. Exchange rate – rate of conversion banking account opening and customer
from foreign currency to local currency, identification. Banks shall adopt the
e.g., peso-dollar rate; minimum prescribed guidelines that
c. Exchange rate differential/spread - contain the salient and relevant policies
foreign exchange mark-up or the related to electronic fund transfers in
difference between the prevailing BSP Appendix 52b and correspondent banking
reference/guiding rate and the exchange/ transactions in Appendix 52c.
conversion rate; The prescribed minimum guidelines
d. Other currency conversion charges should be incorporated as part of the
- commissions or service fees, if any; standard operating procedures manual
e. Other related charges - e.g., and wider anti-money laundering
surcharges, postage, text message or program which must be adhered to at
telegram; all times. Enhancements may be
f. Amount/currency paid out in the introduced to these minimum guidelines
recipient country - exact amount of money to suit the particular institution’s risk
the recipient should receive in local profile but taking into consideration the
currency or foreign currency; and minimum requirements prescribed under
g. Delivery time to recipients/ existing anti-money laundering rules and
beneficiaries - delivery period of regulations of the BSP, particularly in the
remittance to beneficiary stated in number area of “Know Your Customer/Customer
of days, hours or minutes. Due Diligence”.

§§ X691.2 - X695
08.12.31
§§ X691.2 - X691.4 (Reserved) §§ X691.5 - X691.8 (Reserved)
§ 1691.4 Electronic monitoring § X691.9 Sanctions and penalties

systems for money laundering. UBs and a. Whenever a covered institution
KBs are hereby required to adopt an violates the provisions of Section 9 of
electronic money laundering transaction R.A. No. 9160 or of this Section, the officer(s)
monitoring system which at the minimum or other persons responsible for such
shall detect and raise to the bank’s violation shall be punished by a fine of not
attention, transactions and/or accounts that less than P50,000 nor more than P200,000
qualify either as “covered transactions” or or by imprisonment of not less than two (2)
“suspicious transactions” as defined under years nor more than ten (10) years, or both,
Rules 3.b and 3.b.1 of Appendix 52, at the discretion of the court pursuant to
respectively, of R.A. No. 9160 otherwise Section 36 of R.A. No. 7653, otherwise
known as the Anti-Money Laundering Act known as “The New Central Bank Act”.
of 2001, as amended. b. Without prejudice to the criminal
The system must have at least the sanctions prescribed above against the
following functionalities: culpable persons, the Monetary Board may,
a. Covered and suspicious transaction at its discretion, impose upon any covered
monitoring – performs statistical analysis institution, its directors and/or officers for
and profiling; any violation of Section 9 of R.A. No. 9160,
b. Watch list monitoring – checks the administrative sanctions provided under
transfer parties (originator, beneficiary and Section 37 of R.A. No. 7653.
narrative fields) and the existing customer
database for any listed undesirable Secs. X692 - X694 (Reserved)
individual or corporation;
c. Investigation - checks for given Sec. X695 Valid Identification (ID) Cards
names throughout the history of payment for Financial Transactions. The following
stored in the system; guidelines govern the acceptance of valid
d. Can generate both the covered ID cards for all types of financial
transaction reporting (CTR) and the transactions by banks, including financial
suspicious transaction reporting (STR); transactions involving overseas Filipino
e. Must provide complete audit trail; workers (OFWs), in order to promote
f. Capable of aggregating information access of Filipinos to services offered by
and statistics for reporting purposes; and formal FIs, particularly those residing in the
g. Has the capability to support the remote areas, as well as to encourage and
investigation of alerts surfaced by the system. facilitate remittances of OFWs through the
UBs and KBs are given up to 14 October banking system:
2007 to put in place the electronic money a. Clients who engage in a financial
laundering transaction monitoring system. transaction with covered institutions for the
UBs and KBs with existing electronic first time shall be required to present the
system of flagging and monitoring original and submit a clear copy of at least
transactions already in place shall ensure one (1) valid photo-bearing ID document
that their existing system is fully issued by an official authority.
compliant with and has similar For this purpose, the term official
functionalities as those required above authority shall refer to any of the following:
by 14 October 2007. (1) Government of the Republic of the
(As amended by Circular No. 527 dated 28 April 2006) Philippines;

§§ X695 - X699
08.12.31
(2) Its political subdivisions and c. Banks shall require their clients to
instrumentalities; submit a clear copy of one (1) valid ID on
(3) GOCCs; and a one-time basis only, or at the
(4) Private entities or institutions commencement of a business
registered with or supervised or regulated relationship. They shall require their
either by the BSP or SEC or IC. clients to submit an updated photo and
Valid IDs include the following: other relevant information whenever the
(a) Passport need for it arises.
(b) Driver’s license The foregoing shall be in addition to
(c) PRC ID the customer identification requirements
(d) NBI clearance under Rule 9.1.c of the Revised IRRs of
(e) Police clearance R.A. No. 9160, as amended (Appendix 52).
(f) Postal ID For purposes of this Section, financial
(g) Voter’s ID transactions may include remittances,
(h) Barangay certification among others, as falling under the
(i) GSIS e-Card definition of transaction. Under the
(j) SSS card Anti-Money Laundering Act of 2001, as
(k) Senior Citizen card amended, a financial transaction is any act
(l) OWWA ID establishing any right or obligation or
(m) OFW ID giving rise to any contractual or legal
(n) Seaman’s book relationship between the parties thereto.
(o) Alien Certification of Registration/ It also includes any movement of funds by
Immigrant Certificate of Registration any means with a covered institution”.
(p) Government office and GOCC ID (Circular No. 564 dated 03 April 2007 as amended by Circular
(e.g., AFP, HDMF IDs) No. 608 dated 20 May 2008)
(q) Certification from the NCWDP
(r) DSWD certification Secs. X696 - X698 (Reserved)
(s) IBP ID; and
(t) Company IDs issued by private Sec. X699 General Provision on
entities or institutions registered with or Sanctions. Except as otherwise
supervised or regulated either by the BSP, prescribed in Subsec. X691.9, any
SEC or IC. violation of the provisions of this Part
b. Students who are beneficiaries of shall be subject to Sections 36 and 37 of
remittances/fund transfers and who are R.A. No. 7653.
not yet of voting age, may be allowed to The guidelines for the imposition of
present the original and submit a clear monetary penalty for violations/offenses
copy of one (1) valid photo-bearing with sanctions falling under Section 37 of
school ID duly signed by the principal R. A. No. 7653 on banks, their directors
or head of the school. and/or 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
08.12.31
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 bank 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; and
c. Liquidity floor on government deposits; 90 days continuing

APP. 5
08.12.31
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
08.12.31
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
(As amended by Circular No. 613 dated 13 June 2008)
a - applicable
n/a - not applicable

APP. 5a
07.12.31
PREREQUISITES FOR THE GRANT OF

AUTHORITY TO OPERATE FCDU
A. Thrift Banks board of directors conducted or accredited

by the BSP;
A TB applying for authority to operate (3) the ceilings on credit
an FCDU shall comply with the following accommodations to DOSRI;
requirements: (4) liquidity floor requirements for
government deposits;
a. The bank’s operation during the (5) single borrower’s loan limit; and
preceding calendar year and for the period (6) investment in bank premises and
immediately preceding the date of other fixed assets;
application has been profitable;
f. The bank maintains adequate
b. The bank is well capitalized with provisions for probable losses
risk-based CAR not lower than twelve commensurate to the quality of its asset
percent (12%) at the time of filing the portfolio but not lower than the required
application; valuation reserves as determined by the
BSP;
c. The officer who will be in-charge
of FCDU operations shall either: g. The bank has no float item
(1) have at least one (1) year of actual outstanding for more than sixty (60)
experience in another bank as in-charge calendar days in the “Due From/To Head
or assistant in-charge of the same Office/Branches/Offices” accounts and the
operations; or “Due From Bangko Sentral” account
(2) have attended a specialized training exceeding one percent (1%) of the total
course on FCDU transactions or operations resources as of date of application;
conducted by the BSP Institute or an
institution or bank duly accredited by the h. The bank has no past due
BSP; obligation with the BSP or with any
government FI;
d. The bank has not incurred net
weekly reserve deficiencies within eight i. The bank has established a risk
(8) weeks immediately preceding the date management system appropriate to its
of application; operations characterized by clear
delineation of responsibility for risk
e. The bank has generally complied management, adequate risk measurement
with banking laws, rules and regulations, systems, appropriately structured risk
orders or instructions of the Monetary limits, effective internal controls and
Board and/or BSP Management in the last complete, timely and efficient risk
two (2) preceding examinations prior to the reporting system;
date of application, more particularly on:
(1) election of at least two (2) j. The bank has a CAMELS composite
independent directors; rating of at least “3” in the last regular
(2) attendance by every member of the examination with Management rating not
board of directors in a special seminar for lower than “3”; and
Manual of Regulations for Banks Appendix 5a - Page 1

APP. 5a
07.12.31
k. The bank is a member of the PDIC (1). Unbooked valuation reserves -

in good standing. (2). Inadequate regular and liquidity reserves 12 weeks
on deposits including government deposits
B. Rural/Cooperative Banks and deposit substitutes
(3). DOSRI loans in excess of ceilings 3 months
An RB/Coop Bank applying for (4). Poor asset quality -
authority to operate an FCDU must comply (5). Violation of single borrower’s loan -
with the following requirements: limit and investment limits.
(6). Past due obligation with the BSP or -
a. Minimum capital under Subsection with any FI
X151.3 or P20.0 million, whichever is higher; (7). Unsafe and unsound banking 6 months
practices
b. Risk-based CAR at the time of filing (8). Inadequate accounting records, -
the application of at least twelve percent systems, procedures and internal controls
(12%); (9). Corporate governance
(10). Compliance with banking laws, -
c. CAMELS composite rating in the latest rules and regulations, orders or -
examination of at least “3”, with Management instructions of the Monetary Board and/
component score not lower than “3”; and or BSP Management
(11). Membership with the PDIC -
d. No outstanding major supervisory
concerns on safety and soundness from last (As amended by Circular Nos. 582 dated 17 September 2007 and
examination, such as, but not limited to: 522 dated 23 March 2006)
Appendix 5a - Page 2 Manual of Regulations for Banks

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:
(1) election of at least two (2)
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 Form 2B/2B.1 X162.9 Balance Sheet (BS)/Consolidated Balance Sheet Quarterly 12th banking day from Diskette/CD/e-mail to SDC
(BSP-7-16-03) (Cir. 576 dated (CBS) the date of the Call Letter sdckb-pbs@bsp.gov.ph
08.08.07 and
MAB-030
dated 10.04.07) Control Prooflist duly notarized and signed by the SDC
authorized official of the reporting bank Fax to 523-3461 or 523-0230
Published BS/CBS 20th banking day from SDC

the date of the Call Letter Postal/messengerial
services/Fax to 523-3461 or
A-1 Unnumbered X162.16 Financial Reporting Package (FRP) 523-0230
(Cir. 512 dated
02.03.06, as amended Balance Sheet (FRP)
by M-2008-012 dated
03.14.08, M-2008- -
Solo basis (Head Office and branches) Monthly 15th banking day after
011 dated 03.07.05, end of reference month Diskette/CD/Email to SDC2/
M-026 dated sdckb-frp@bsp.gov.ph
09.20.07, M-015 - Consolidated basis(together with applicable Quarterly 30th banking day after
dated 05.28.07, Cir. schedules)1/ end of reference quarter -do-
568 dated 05.08.07,
M-006 dated 07.07.06
and MAB dated
03.07.06)
Appendix 6 - Page 1
1
Only banks with financial allied subsidiaries, excluding insurance subsidiaries, shall submit the reports on consolidated basis.
2
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461 or hard
copy via postal/messengerial services.
08.12.31
APP. 6
Appendix 6 - Page 2
08.12.31
APP. 6
Income Statement (FRP): Quarterly 15th banking day after Diskette/CD/Email to SDC2/
end of reference quarter sdckb-frp@bsp.gov.ph
-
Solo basis (Head Office and branches)
- Consolidated basis1/ -do- 30th banking day after -do-

end of reference quarter
Schedules (Solo Report):
1 - Checks and Other Cash Items (COCI) Monthly 15th banking day after -do-
end of reference month
2 - Due from Other Banks -do- -do- -do-
3 - Financial Assets Held for Trading -do- -do- -do-
3a - Held for Trading (HFT) Financial Assets Quarterly 15th banking day after -do-
Purchased/Sold/Lent Under Repurchase end of reference quarter
Agreements, Certificates of Assignment/
Participation with Recourse, Securities Lending
and Borrowing Agreements
4 - Derivatives Held for Trading (HFT) -do- -do- -do-
4a - Derivatives Held for Trading Monthly 15th banking day after -do-
Matrix of Counterparty and Type of Derivative end of reference month

Contracts
1
2

5 - Financial Assets Designated at Fair Value through Monthly 15th banking day after Diskette/CD/Email to SDC1/
Profit or Loss end of reference month sdckb-frp@bsp.gov.ph
6 - Available-For-Sale Financial Assets -do- -do- -do-
6a - Available for Sale Financial Assets Purchased/ Quarterly 15th banking day after -do-
Sold/Lent Under Repurchase Agreements, end of reference quarter
Certificates of Assignment/Participation with
Recurse, Securities Lending and Borrowing
Agreements
6b to -do- -do- -do-

6b4 - Available-For-Sale Financial Assets- Classified
as to Status
6c to Annually 15th banking day after -do-

6c4 - Available-For-Sale Financial Assets end of reference year
Movements in Allowances for Credit Losses
7 - Held to Maturity (HTM) Financial Assets Monthly 15th banking day after -do-
7a - Held to Maturity Financial Assets Sold/Lent Quarterly 15th banking day after -do-
Under Repurchase Agreements, Certificates of end of reference quarter
Assignment/Participation with Recourse,
Securities Lending and Borrowing Agreements
7b - Fair Value of Held to Maturity (HTM) Financial Annually 15th banking day after -do-
Assets end of reference year
Appendix 6 - Page 3
1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission
08.12.31
deadlines to SDC via Fax No. (02) 523-3461 or hard copy via postal/messengerial services.
APP. 6
Appendix 6 - Page 4
08.12.31
APP. 6
7c to Quarterly 15th banking day after Diskette/CD/e-mail to SDC1/

7c4 - Held to Maturity Financial Assets end of reference quarter sdckb-frp@bsp.gov.ph
Classified as to Status
7d to Annually 15th banking day after -do-

7d4 - Held to Maturity Financial Assets end of reference year
8 - Unquoted Debt Securities Classified as Loans Monthly 15th banking day after -do-
8a - Fair Value of Unquoted Debt Securities Annually 15th banking day after -do-
Classified as Loans end of reference year
8b to - Unquoted Debt Securities Classified as Loans Quarterly 15th banking day after -do-
8b4 Classified as to Status end of reference quarter
8c to - Unquoted Debt Securities Classified as Loans Annually -do-

15th banking day after
8c4 Movements in Allowances for Credit Losses end of reference year
9 - Investment in Non-Marketable Equity Monthly -do-

15th banking day after
Securities end of reference month
10 - Interbank Loans Receivables -do- -do-

-do-
11 - Loans and Receivables - Others -do- -do-

-do-
11a to- Loans and Receivables - Others -do- -do-

-do-
11a4 Classified as to Status
1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461 or hard copy via
postal/messengerial services.

11b to- Restructured Loans and Receivables Monthly 15th banking day after Diskette/CD/e-mail to
11b4 Classified as to Status end of reference month SDC1/
sdckb-frp@bsp.gov.ph
11c to- Loans and Receivables - Others Quarterly 15th banking day after -do-
11c4 Movements in Allowances for Credit Losses end of reference quarter
11d to- Gross Loans and Receivables - Others Monthly 15th banking day after -do-
11d4 Classified as to Type of Business/Industry of end of reference month
Counterparty
11e to- Loans and Receivables - Others Annually 15th banking day after -do-
11e4 Classified as to Status Per PAS 39 end of reference year
11f - Schedule of Agri/Agra SME, DIL and Monthly 15th banking day after -do-
Microfinance Loans and Receivables under end of reference month
Schedule II- Classified as to Counterpary
Cir. No. 600 11g1 - Report on Real Estate Exposure Quarterly 15th banking day after -do-
dated
02.04.08
11g2 Investment in Debt and Equity Securities -do- -do- -do-
issued by Real Estate Companies
11g3 Original maturity and Earliest Repricing of -do- -do- -do-

Real Estate Exposure
12 - Loans and Receivables Arising from Monthly 15th banking day after -do-
Repurchase Agreements, Certificates of end of reference month
Appendix 6 - Page 5
Assignment/Participation with Recourse and

Securities Lending and Borrowing
Transactions
08.12.31
1
APP. 6
Appendix 6 - Page 6
08.12.31
APP. 6
12a to Loans and Receivables Arising from Repurchase Quarterly 15th banking day after Diskette/CD/e-mail to SDC1/
12a4 Agreements, Certificates of Assignment/ end of reference quarter sdckb-frp@bsp.gov.ph
Participation with Recourse and Securities
Lending and Borrowing Transactions Matrix
of Counterparty and Issuer of Collateral
Securities
13 - Fair Value Adjustments in Hedge Accounting -do- -do- -do-
13a - Financial Derivatives Held for Fair Value -do- -do- -do-
Hedge
13b - Financial Derivatives Held for Cash Flow -do- -do- -do-
Hedge
13c - Financial Derivatives Held for Hedges of Net -do- -do- -do-
Investment in Foreign Operations
13d - Financial Derivatives Portfolio Hedge of -do- -do- -do-

Interest Rate Risk
14 - Accrued Interest Income/Expense from -do- -do- -do-

Financial Assets and Liabilities
15 - Investment in Subsidiaries, Associates and Monthly 15th banking day after -do-
Joint Ventures end of reference Month
1

15a - Investment in Subsidiaries, Associates and Quarterly 15th banking day after Diskette/CD/e-mail to
Joint Ventures- Classified as to Nature of end of reference quarter SDC1/
Business sdckb-frp@bsp.gov.ph
15b - Details of Investment in Subsidiaries, -do- -do- -do-

Associates and Joint Ventures
16 - Bank Premises, Furniture, Fixture and -do- -do- -do-

Equipment
17 - Real and Other Properties Acquired -do- -do- -do-
18 - Deferred Tax Assets and Liabilities Annually 15th banking day after -do-
end of reference year
19 - Other Assets Monthly 15th banking day after -do-

20 - Breakdown of Due from and Due to Head -do- -do- -do-

Office/Branches/Agencies Abroad - Philippine
Branch of Foreign Banks
21 - Liability for Short Position Quarterly 15th banking day after -do-
22 - Deposit Liabilities Monthly 15th banking day after -do-

Classified as to Type of Deposit end of reference month
22a - Deposit Liabilities by Size of Accounts Quarterly 15th banking day after -do-
Excluding Deposits in Foreign Offices/
Appendix 6 - Page 7

Branches
08.12.31
APP. 6
1
Appendix 6 - Page 8
08.12.31
APP. 6
23 - Due to Other Banks Monthly 15th banking day after Diskette/CD/e-mail to SDC1/
end of reference month sdckb-frp@bsp.gov.ph
24 - Bills Payable -do- -do- -do-
25 - Bonds Payable, Unsecured Subordinated Quarterly 15th banking day after -do-
Debt and Redeemable Preferred Shares end of reference quarter
26 - Fair Value of Financial Liabilities Annually 15th banking day after -do-
27 - Financial Liabilities Associated with Quarterly 15th banking day after -do-
Transferred Assets end of reference quarter
28 - Other Liabilities Monthly 15th banking day after -do-

29 - Interest Income/Expense from Financial Quarterly 15th banking day after -do-
Instruments end of reference quarter
29a - Interest Income from Due from Other Banks -do- -do- -do-
Classified as to Type of Deposits
29b - Interest Income from Held for Trading, -do- -do- -do-
Designated at FVPL, Available for Sale, Held

to Maturity Financial Assets and Unquoted
Debt Securities Classified as Loans
29c - Interest Income from Interbank Loans -do- 15th banking day after -do-
Receivables end of reference quarter
1

29d to- Interest Income from Loans and Receivables - Quarterly 15th banking day after end Diskette/CD/e-mail to
29d4 Others - Classified as to Status of the reference month SDC1/
Interest Income from Loans and Receivables - sdckb-frp@bsp.gov.ph
Others - Classified as to Status
29e - Interest Income from Loans and Receivables -do- -do- -do-
Arising from Repurchase Agreements,
Recourse and Securities Lending and
Borrowing Transactions
30a - Interest Expense on Deposit Liabilities -do- -do- -do-
30b - Interest Expense on Bills Payable -do- -do- -do-
30c - Interest Expense on Bonds Payable, -do- -do- -do-

Unsecured Subordinated Debt and
RedeemablePreferred Shares
31 - Dividend Income -do- -do- -do-
32 - Gains/(Loss) on Financial Assets and Liabilities -do- -do- -do-

Held for Trading
33 - Gains/(Losses) from Sale/Redemption/ -do- -do- -do-

Appendix 6 - Page 9
Derecognition of Non-Trading Financial

Assets and Liabilities
08.12.31
APP. 6
1
Appendix 6 - Page 10
08.12.31
APP. 6
34 - Compensation/Fringe Benefits Quarterly 15th banking day after end Diskette/CD/e-mail to SDC1/
of the reference quarter sdckb-frp@bsp.gov.ph
35 - Other Administrative Expenses -do- -do- -do-
36 - Depreciation/Amortization Expense -do- -do- -do-
37 - Impairment Loss -do- -do- -do-
38 - Off-Balance Sheet -do- -do- -do-
38a - Compliance with Section X347 -do- -do- -do-
39 & Residual Maturity -do- -do-

39a Performing Financial Assets and Financial -do-
Liabilities
40 & - Repricing - Performing Financial Assets and -do- -do- -do-

40a FinancialLiabilities
41 - Investment in Debt Instruments Issued by LGUs -do- -do- -do-

and Loans Granted to LGUs
42 - Disclosure of Due From FCDU/RBU and Due -do- -do- -do-

to FCDU/RBU
1

Schedules (Consolidated Report): Quarterly 30th banking day after Diskette/CD/e-mail to

end of reference quarter SDC1/
1 Checks and Other Cash Items -do- -do- -do-
2 Due from Other Banks -do- -do- -do-
3 Financial Assets Held for Trading -do- -do- -do-
3a Breakdown of Held for Trading (HFT) -do- -do- -do-

Financial Assets
Purchased/Sold/Lent Under
Repurchase Agreements, Certificates of
assignment/Participation with Recourse, Securities
Lending and Borrowing agreements
4 Derivatives Held for Trading (HFT) -do- -do- -do-
4a Derivatives Held for Trading Matrix of -do- -do- -do-

counterparty and Type of Derivative Contracts
5 Financial Assets Designated at Fair Value through -do- -do- -do-

Profit of Loss
6 Available-For-Sale Financial Assets -do- -do- -do-
6a Available for Sale -do- -do- -do-

Financial Assets
Purchased/Sold/Lent Under Repurchase

08.12.31
APP. 6
08.12.31
APP. 6
6b Available-For-Sale Financial Assets-Classified as Quarterly 30th banking day after Diskette/CD/e-mail to SDC1/
to Status end of reference quarter sdckb-frp@bsp.gov.ph
6c Available-for-sale Financial Assets Movements in Annually 30th banking day after Check with SDC
allowances for credit losses end of reference year
7 Held to Maturity (HTM) Financial Asset Quarterly 30th banking day after -do-
7a Held to Maturity Financial Assets -do- -do- -do-

Participation with Recourse, Securities Lending -do- -do- -do-
7b Fair Value of Held to Maturity Annually 30th banking day after -do-
Financial Assets end of reference year
-do-
7c Held to Maturity Financial Assets Classified as to Quarterly 30th banking day after
Status end of reference quarter
-do-
7d Held to Maturity Financial Assets Movements in Annually 30th banking day after
Allowances for Credit Losses end of reference year -do-
8 Unquoted Debt Securities Classified as Loans Quarterly 30th banking day after -do-
8a Fair Value of Unquoted Debt Annually 30th banking day after Diskette/CD/Email to SDC1/
Securities Classified as to Status end of reference year sdckb-frp@bsp.gov.ph
8b Unquoted Debt Securities Classified as Loans Quarterly 30th banking day after -do-
Classified as to Status end of reference quarter
9 Investment in Non-Marketable Equity Securities -do- -do- -do-


10 Interbank Loans Receivables Quarterly 30th banking day after Diskette/CD/e-mail to

11 Loans and Receivables - Others -do- -do- -do-
11a Loans and Receevables - Others -do- -do- -do-

11b Restructured Loans and Receivables -do- -do- -do-

11c Loans and Receivables - Others -do- -do- -do-

11d Gross Loans and Receivables - Others Classified -do- -do- -do-
as to Type of Business/Industry of Counterparty
Economic Purpose
11e Loans and Receivables-Others Annually 30th banking day after -do-
Classified as to status per PAS 39 end of reference year
-do-
11f Schedule of Agri/Agra SME, DIL and Quarterly 30th banking day after
Microfinance Loans and Receivables Classified end of reference quarter -do-
as to Counterparty
Cir. No. 600 11g1- Report on Real Estate Exposure -do- -do- -do-
dated 02.04.08
11g2- Investment in Debt and Equity Securities Issued -do- -do- -do-
by Real Estate companies
11g3- Original Maturity and Earliest Repricing of Real -do- -do- -do-
Estate Exposure
08.12.31
APP. 6
08.12.31
APP. 6
12 Loans and Receivables Arising from Quarterly 30th banking day after Diskette/CD/e-mail to SDC1/
Repurchase Agreements, Certificates of end of reference quarter sdckb-frp@bsp.gov.ph
Securities Lending and Borrowing Transactions
12a Loans and Receivables Arising from -do- -do- -do-

Repurchase agreements, Cerificates of
Securities Lending and Borrowing transactions
Matrix of Counterparty and Issuer of Collateral
Securities
13 Fair Value Adjustments in Hedge Accounting -do- -do- -do-
13a Financial Derivatives Held for Fair Value Hedge -do- -do- -do-
13b Financial Derivatives Held for Cash Flow Hedge -do- -do- -do-
13c Financial Derivatives Held for Hedges of Net -do- -do- -do-
13d Financial Derivatives Portfolio Hedge of Interest -do- -do- -do-

Rate Risk
14 Accrued Interest Income/Expense from -do- -do- -do-

financial Assets and Liablities
15 Equity Investment in Subsidiaries, -do- -do- -do-

15a Equity Investment in Subsidiaries, Associates

and Joint Ventures-Classified as to Nature of -do- -do- -do-
Business
15b Details of Investment in Subsidiaries, Associates -do- -do- -do-

and Joint Ventures

16 Bank Premises, furniture, Fixture and Equipment Quarterly 30th banking day after Diskette/CD/e-mail to
17 Real and Other Properties Acquired -do- -do- -do-
18 Deferred Tax Assets & Liabilities Annually 30th banking day after -do-
19 Other Assets Quarterly 30th banking day after -do-

20 Breakdown of Due from and Due to Head -do- -do- -do-

Office/Branches/Agencies Abroad - Philippine
Branch of a Foreign Bank
21 Liability for Short Position -do- -do- -do-
22 Deposit Liabilities Classified as to Type of -do- -do- -do-

Deposit
22a Deposit Liabilities by Size of Accounts -do- -do- -do-

Excluding Deposits in Foreign Offices/Branches
23 Due to Other Banks -do- -do- -do-
24 Bills Payable -do- -do- -do-
25 Bonds Payable, Unsecured Subordinated -do- -do- -do-

Debt and Redeemable Preferred Shares
26 Fair Value of Financial Liabilities Annually 30th banking day after -do-
08.12.31
APP. 6
08.12.31
APP. 6
27 Financial Liabilities Associated with Quarterly 30th banking day after Diskette/CD/e-mail to SDC1/
Transferred Assets end of reference quarter sdckb-frp@bsp.gov.ph
28 Other Liabilities -do- -do- -do-
29 Interest Income from Due from Other Banks -do- -do- -do-
29a Interest Income from Due from Other Banks -do- -do- -do-
29b Interest Income from Held for Trading, -do- -do- -do-
Designated at FVPL, Available for Sale, Held to
Maturity Finacial Assets and Unquoted Debt
Securities Classified as Loans
29c Interest Income from Interbank Loans -do- -do- -do-

Receivables
29d Interest Income from Loans and Receivables - -do- -do- -do-
29e Interest Income from Loans and Receivables -do- -do- -do-
certificates of Assignment/Participation with

Borrowing Transactons
30a Interest Expense on Deposit Liabilities -do- -do- -do-
30b Interest Expense on Bills Payable -do- -do- -do-
30c Interest Expense on Bonds Payable, -do- -do- -do-

Redeemable Preferred Shares

31 Dividend Income Quarterly 30th banking day after Diskette/CD/e-mail to SDC1

end of reference quarter sdckb-frp@bsp.gov.ph
32 Gains/(Loss) on Financial Assets and Liabilities -do- -do- -do-

Held for Trading
33 Gains/(Losses) from Sale/Redemption/ -do- -do- -do-

34 Compensation/Fringe Benefits -do- -do- -do-
35 Other Administrative Expenses -do- -do- -do-
36 Depreciation/Amortization Expense -do- -do- -do-
37 Impairment Loss -do- -do- -do-
38 Off-Balance Sheet -do- -do- -do-
38a Compliance with Section X347 -do- -do- -do-
39 Residual Maturity Performing Financial Assets -do- -do-

and Financial Liabilities
40 Repricing - Performing Financial Assets and -do- -do- -do-

Financial Liabilities
41 Investment in Debt Instruments Issued by -do- -do- -do-

LGUs and Loans Granted to LGUs
42 Disclosure of Due from FCDU/RBU and Due -do- -do- -do-

to FCDU/RBU
08.12.31
APP. 6
08.12.31
APP. 6
A-1 Unnumbered X116.4 Computation of the Adjusted Risk-Based Capital Quarterly 15th banking day after SDC
1116.5 Adequacy Ratio Covering Combined Credit Risk, end of reference month
(As amended by Market Rist, and Operational Risk
Cir. Nos. 574
dated 07.10.07, - Solo basis (Head Office and branches)
503 dated -do- 30th banking day after SDC
12.22.05 and
475 dated
02.14.05)
- consolidated basis (parent bank plus subsidiary Monthly 15th banking day after CMSG cc: SDC
financial allied undertakings, but excluding end of reference month cmsg@bsp.gov.ph.sdc-
insurance companies) derivatives@bsp.gov.ph
Derivatives Report
A-1 Unnumbered X602.5
Cir. No. 594
dated 01.08.08,
as amended by
M-2008-009 Schedules:
dated 02.27.08 Report on Outstanding Derivatives Contracts
(Stand - Alone - RBU, Stand - Alone - FCDU,
Hybrid)
Report on Trading (Gains/Losses) on Financial

Derivatives
Certification (Hard Copy) Monthly 15th banking day after Receiving Section, SES
A-3 DCB I/II Form 1 X116.2 Consolidated Daily Report of Condition: Weekly 3rd banking day after cc mail: SDC at
(Revised June 2001 X121.5 Schedules: end of reference week sdckb-cdrc@bsp.gov.ph
X258 Schedule 1 - Other Non-Risk Assets
Schedule 2 - Selected Domestic Accounts SDC via Fax no (02)523-
and Conrol Proofsheet 3461 or postal/
messengerial service
Annexes - Weekly Inventory of GS Held


CARE Reports
Reports on Required and Available Reserves on: Weekly Upon completion of (Note: CDRC-sourced
KAR 230KB (BSP-SES - Deposit Substitutes/Interbank Loans; and Processing by SDC reports generated by
1.03) SDC are furnished to the
KAR 240KB (BSP-SES - Deposit Liabilities appropriate department
1.04) of the SES)
KAR 250KB (BSP 7-16 Reports on Minimum Capital Required Under
-07) Section 34 of R.A. No. 8791
KAR 260KB (BSP 7-16- Summary Utilization of Available Reserves; &
01.1-.3) Liquidity
KUB 265DR Floor on Gov't Funds Held
A2 Unnumbered X405.9 Report on Peso-Denominated Common Trust Fund Weekly 3rd banking day after In diskette format
and Other Similarly Managed Funds end of reference week hardcopy via postal/
messengerial service via
electronic mail at sdckb-
trust@bsp.gov.ph to
SDC
A2 Unnumbered X405.9 Report on Trust and Other Fiduciary Accounts -do- 3rd banking day after In diskette format to: SDC
(Per CL dated (TOFA) - Others end of reference week
8-20-98)
A2 BSP - 16-35 TR X162 Report on Trust and Other fiduciary Business and Quarterly 10th banking day after SDC via electronic mail at
X425.2 Investment Management Activities end of reference quarter sdckb-trust@bsp.gov.ph
A2 X425.2 Report on Investment Management Activities -do- 10th banking day after SDC via electronic mail at
end of reference quarter sdckb-trust@bsp.gov.ph
A2 Unnumbered X425.2 Financial Reporting Package for Trust Institutions Quarterly 20th banking day after the SDC
(Cir. 609 dated end of reference quarter sdckb-frpti@bsp.gov.ph
05.26.08 as
amended
by M-2008-022
08.12.31
APP. 6
dated 06.26.08
08.12.31
APP. 6
Schedules:
Balance Sheet
A1 to A2 Main Report
B to B2 Details of Investments in Debt and
Equity Securities
C to C2 Details of Loans and Receivables
D to D2 Wealth/Asset/Fund Management -
UITF
E Other Fiduciary Accounts
E1 to E1b Other Ficuciary Services - UITF
Income Statement
Control Prooflist Quarterly 20th banking day after the SDC
A2 Unnumbered (no X141.9 Acknowledgment of copies of specific duties and Annually or 30th banking day after Hardcopy to CPCD/ISD or
prescribed form) responsibilities of the board of directors and of a as directors date of election Appropriate department of
director and certification that they fully understand are elected the SES
the same
A2 Unnumbered App. 52a Covered Transaction Report (CTR) As 10th banking day after Original and duplicate to
(Revised May transaction the occurence of the Anti-Money Laundering
2002, as Occurs transaction Council (AMLC)
amended by
Cir.no. 612
dated 06.03.08)
A2 Unnumbered App. 52a Suspicious Transaction Report (STR) -do- -do- -do-
Rev. May 2002,
as amended by
Cir. No. 612
dated 06.03.08
* A report is not required if no transfers were effected during the month.


A2 Unnumbered App. 52a Certification on compliance with Anti-Money Annually 20th banking day after Original and duplicate -
(Cir. 279 dated Laundering Regulations end of reference year Appropriate department
04.02.01) of the SES
A2 Unnumbered (Cir.No. Report on Microfinance Loans Monthly 15th banking day after SDC
607dated end of the reference month sdckb-micro@bsp.gov.ph
04.30.08,
as amended by
M-2008-021
dated 06.16.08
Control Prooflist -do- -do- SDC via Fax at (632)
523-3461 or 523-0230
A2 Unnumbered (Cir. No. Income Statement on Microfinance Operations Quarterly 15th banking day after end SDC
607 dated of the reference quarter sdckb-micro@bsp.gov.ph
04.30.08
as amended by
M-2008-021
dated 06.16.08
Control Proofllist -do- -do- SDC via Fax at (632)
523-3461 or 523-0230
A2 Unnumbered X171.5 Self-Assesment and Certification of Compliance with Annually On or before 30 january Appropriate department
Cir. No. 620 Rules and Regulations on Bank Protection/ Updated of the SES
dated 09.03.08 Security Program
A3 DCB I/II Form 2C X162 Statement of Condition (By Banking Unit) with the Quarterly 15th banking day after Original and duplicate-
(BSP-7-16-02-KB) prescribed schedules (including ROPA by banks), to end of reference quarter Appropriate department
(Revised Nov. 2003 wit: of the SES
per MAB dated

12.30.03)
08.12.31
APP. 6
08.12.31
APP. 6
Schedules:
1 - Loans-to-Deposit Ratio
Supplementary Information;
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)
A3 DCB I/II Form 3B X162 Statement of Income and Expenses (By Banking Unit) Quarterly 15th banking day after Original- SDC
(BSP-7-16-04- A) (NOTE: Covering the periods: for the !st Quarter, 1st end of the reference Duplicate - Appropriate
(Revised November Semester, Three Quarters and for the Year, quarter department of the SES
2003 per MAB dated respectively)
12.22.08
A3 Unnumbered X393 Report of Selected Branch Accounts Semestral 20th banking day after Cc: Mail - SDC
(Cir. 613 dated Schedules endof reference semester sdckb-bris@bsp.gov.ph.
06.18.08,
as amended by
M-2008-032 Selected Balance Sheet Accounts
dated 10.31.08)
Selected Balance Sheet and Income
Statement Accounts
Aging of Loans and Receivables - Others
Breakdown of Deposit Liabilities


Bank Loans-to-Deposits Ratio
Reconciling Items Outstanding for More than Six (6)

Months on the Due From/Due To Head Office,
Branches and Agencies Account
A3 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 Accommdations to Directors/ end of reference week Appropriate deparment
Officers/Stockholders(DOSRI), Secured and of the SES
Unsecured Loans
A3 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 department
Accommodations to Directors/Officers/ of the SES, as combined
Stockholders(DOSRI) report w/ Form 5 above
A3 SES I/VI Form 5A.1 X330 Daily Report on Compliance with Individual Ceilings -do- -do- Original and duplicate -
(BSP-716-07B.1) X409.3 on Direct Credit Accommodations to DOS, secured Appropriate department
and unsecured loans together with a Certification by of the SES, as supporting
authorized signatories that no one has exceeded the schedules to Form 5A
prescribed individual ceilings above
A3 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 department
semester of the SES
A3 DCB I/II Form 5D X334 Report on Compliance with Section 36 of As loan to 20th banking day after -do-
(BSP-7-16-17) R.A. No. 8791 director or approval of direct or
Transmittal of Board resolution/Written approval on officer is indirect loan granted any

credit Accommodatin to DOSRI in compliance with approved director or officer (DOSRI)
Sec. 36 R.A. No. 8791
08.12.31
APP. 6
08.12.31
APP. 6
A3 Unnumbered X328.5 Transmittal of Board Resolution/Written Approval On As loan to 20th banking day after Original and duplicate -
(Cir. 560 dated Credit Accommodations to Subsidiaries and/or subsidiaries approval Appropriate department
01.31.07) Affiliates and/or of the SES
affiliates is
approved
A3 DCB I/II Form 5E X162.5 Sworn Statement on Real Estate/Chattel Transaction As 10th banking day after -do-
(BSP-7-16-31) X162.15 to DOS transaction approval of the
is approved transaction
A3 DCB I/II Form 6 X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day after Cc: Mail/e-Mail/Diskette-SDC
(MAB dated Allocation Required by R.A. No. 6977 as amended by end of reference quarter sdckb-sme@bsp.gov.ph
4.28.03, R.A. Nos. 8289 and 9501
as amended (Solo and Consolidated Reports Appropriate department of
by M-2008- the SES;
035 dated
Schedules:
11.19.08 and
Cir. 625 dated
10.14.08) 1A Computation of Total Loan Portfolio for
Purposes of Determining Amount of
Mandatory Credit Allocation for MSMEs
1A-1 Wholesle Lending of a Bank to Conduit
NBFIs w/o QB authority Other Than
those for On-Lending to MSMEs
1A-2 Loans Granted Under Special Financing
Program Other Than for MSMEs

1A-3 Loans Granted to MSMEs Other Than To
BMBEs Which are Funded by Wholesale
Lending of or Rediscounted with Another
Bank
1B Details of Eligible Investments for
Compliance
with the Required Credit Allocation for
MSMEs
1B-1 Loans Granted to MSMEs Other Than to
Bank

1B-2 Wholesale Lending or Rediscounting

Facility Granted to Participating Financial
Institutions for On-Lending to MSMEs
other than to BMBEs
2 Loans Granted to BMBEs
3 Reconciliation of Loans granted to MSMEs
as Reported Under Schedules 1B,1B-1 and
2 and FRP Balance of Microfinance and SME
Loans
Control Prooflist,duly notarized and signed by the Quaterly 15th banking day after Via Fax at (632)
authorized official end of reference quarter 5233461 or 5230230
A3 DCB I/II Form 2D X162 Statement of Condition (For branches/agencies/offices -do- -do- Original and duplicate-
abroad of domestic banks) with schedules, Appropriate department
as follows: of the SES
1 - Analysis of Due to Head Office/Branches/Agencies Semestral Attachment to Main

Account; and Report
2 - Schedule of Selected Accounts - Classified by -do- Attachment to Main

Country Report
A3 DCB I/II Form 2E X162.12 Statement of Conditon (For subsidiaries/affiliates Quarterly 15th banking day after Original and duplicate-
abroad of domestic banks) with schedules, as end of reference quarter Appropriate department
follows: of the SES, and Triplicate
1 - Analysis of Due to Parent Firm/Bank and/or Semestral - ID

Other Susidiaries/Affiliates; and
2 - Schedule of Selected Accounts - Classified by -do- Attachment to Main

Country Report
08.12.31
APP. 6
08.12.31
APP. 6
A3 DCB I/II Form 3C X162 Statement of Income and Expenses (For branches/ Quarterly/ 15th banking day after end Original and duplicate-
agencies/offices abroad of domestic KBs) Annually of reference quarter/year Appropriate department of
the SES
A3 DCB I/II Form 3D X162.12 Statement of Income and Expenses (For subsidiaries/ -do- -do- -do-
affiliates abroad of domestic KBs)
A3 BSP-7-16-27 X341.9 Consolidated Report on the Utilization of Loanable Quarterly -do- Original and duplicate -
(Revised Dec. Funds Generated Which Were Set Aside for Agrarian SDC
2004 per Reform/Other Agricultural Credits with prescribed Electronic mail at
MAB schedules to wit: sdckb-agra@bsp.gov.ph
dated 9.8.04)
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 R.A. 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,

R.A. 7721
F - Report on Compliance with P.D. 717 Under

Sec. 11 of R.A. 7835
G - Report on Loans Granted to BMBEs (Revised

per MAB dated 4.28.03)
Upon transmission/ Original - SDC (by fax, if
Control Prooflist (notarized) submission of main hard copy cannot be
report submitted on deadline)

A3 Unnumbered (CL-2007- Report on Borrowings of BSP Personnel Quarterly 15th banking day after Original to SDC
050 dated end of reference quarter
10.04.07
CL-2007-059
dated
11.28.07)
B DCB I/II Form 4 X162.7 Consolidated List of Stockholders and Their Annually/ 12th banking day after Original - Appropriate
(BSP 7-16-11) (Rev. June Stockholdings quarterly end of calendar year and department of the SES
2006per Cir. when any if there are chages, 12th
533 dated change banking day after end of
06.19.06) occurs the reference quarter
B DCB I/II Form 6C X339.4 Availments of Financial Assistance to Officers and Semestral 15th banking day after Original and duplicate -
(BSP 7-16-20) June Employees Under an Approved Plan the end of reference Appropriate department
2005 per semester of the SES
Cir. 487
dated
12.22.08
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 If sent by After 7th banking day from CC: Mail/Diskette: SDC
(BSP 7-16-18) (CL dated electronic mail - Notarized first page of Biographical election or the date of the meeting Appropriate department
1.09.01 Data or Notarized list of names of Directors/Officers appointment of the board of of the SES
as whose Biographical Data were submitted thru and as directors in which the
amended electronic mai to be faxed to SDC changes directors/officers are
by M-
occur elected or appointed
2008-024
If submitted in diskette form - Notarized first page of
dated
07.31.08)
each of the directors'/officers' bio-data save in diskette
and control prooflist
Report on Disqualification of Director/officer
08.12.31
q
APP. 6
08.12.31
APP. 6
MAAB dated Certification under oath of independent directors that CC:Mail/Diskette:SDC

09.02.04 he/she is an independent directior as defined under Appropriate department of
Subsec. X141.1 and that all the information hereby the SES
supplied are true and correct
X143.3 Verified Statement of Directors/Officers After 7th banking day as -do-

Cir. 513 election or changes occur or after
dated appointment election/appointment
02.10.06 and as
chages
occur
B Unnumbered List of Members of the Board of Directors and Officers Annually 25th banking day after Original and duplicate -
annual election/ Appropriate department of
appointment the SES
B SES Form 6G X162.4 Report on Crimes/Losses As crimes or Not later than ten (10) SDC and SITD
(BSP 7-16-20) (As amended incidents calendar days from
by Cir. Nos. occur knowledge of crime/
587 dated incident and complete
10.26.07 and report not later than
486 dated twenty (20) calendar days
6.01.05) from termination of
investigation
B Unnumbered X143.4 Report on Disqualification of Director/Officer As disquali- Within 72 hours from Appropriate department
(no prescribed fication receipt of report by the of the SES
form) occurs BOD
B DCB I/II Form 6H X306.5c Notice/Application for Write-Off of Loans, Other Credit As write-off Within 30 banking days Original and duplicate-
(BSP-7-16-21) Accommodations, Advances and Other Assets occurs after every write-off Appropriate department
of the SES
B BSP-7-16-32 A X162 Report on Credit and Equity Exposures to Individuals/ Quarterly 15th banking day after Electronic submission/
(Rev. August Companies/Groups aggregating P1.0 million and end of reference qurter diskette - SDC
2003) above (Bank Proper and Trust Department)

B Unnumbered X162.10 Report on Consolidated Financial Statements of Banks Annually 120th calendar day Original and duplicate -
and their Subsidiaries Engaged in Allied Financial after the end of reference Appropriate department
Undertakings together with audited financial reports year or adopted fiscal of the SES
of such subsidiaries period
B Unnumbered X166.6 Annual Report of Management to Stockholders -do- 180th calendar day after -do-
Covering Results of Operations for the Past Year the close of the calendar/
fiscal year elected by the
bank
B Unnumbered X166 Financial Audit Report - Bank Proper Annually 120th calendar day after -do-
a. Audited Financial Statements1/ the close of the calendar
or fiscal year
b. Opinion of the Auditor Together with
attachments listed in Appendix 61
B X426.2 Financial Audit Report - Trust Department -do- -do- -do-

a. Audited Financial Statements1/
b. Opinion of the Auditor together with

B Unnumbered X166 Annual Audit Report 2/ - Bank Proper -do- 30th banking day after -do-
X166.1 a. Audited Financial Statements1/ receipt of the report
b. Opinion of the Auditor together with -do-

B Unnumbered X426.2 Annual Audit Report 2/ - Trust Department As -do- Original and duplicate-
a. Audited Financial Statements1/ examination Appropriate
occurs department of the SES

08.12.31
APP. 6
08.12.31
APP. 6
B Unnumbered X162.12 Audited Financial Statements of the Foreign Banking Annually 30th banking day from Original and Duplicate -
Offices and Subsidiaries date of submission/ Appropriate department
release of said reports of the SES
to the foreign banking
offices 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 X162.3 Report on Change of required Information on Bank's As changes 15th banking day from -do-
Profiles, Organizational Structure and Operating occur such change/issuance
Policies
B Unnumbered X162.1 Report on Designation of Authorized Signatories of As 3rd banking day from -do-
Bank's Reports Classified as Category A-1, A-2, A-3 designation date of disignation/and
and B by Bank's as changes occur
board of -do-
directors
occurs
B Unnumbered X342.2c Report on reconciliation Statement of Demand Deposit Monthly 7th banking day from -do-
Account with the BSP receipt of BSP statement
B Unnumbered X233.9 Registry Bank Report of Compliance with Prohibition -do- 10th banking day after -do-
on Holdings of LTNCTDs end of reference month
B Unnumbered X262.3 Certification of Compliance with Section 55.4 of R.A. Semestral 7th banking day after Original - Appropriate
No. 8791(prohibits banks from employing casual, end of June and Dec. department of the SES
non-regular personnel)
B Unnumbered X501.3 Certification on Funds Borrowed from FCDU/EFCDU Monthly 5th banking day after Original and Duplicate -
(Revised end of reference month Appropriate department
Jan. 2003 per of the SES
Cir. 366 dated
1.21.03)

B Unnumbered X565 Conversion/Transfer of FCDU loans to RBU (A report Monthly 10th banking day from Appropriate department
is not required if no transfers were effected during the end of reference month of the SES
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 -do- Within 72 hours from -do-
(Cir. 467 knowledge of transaction
dated
1.10.05)
X235.12 Notarized Certification that the bank did not enter into Semestral 5th banking day after end -do-
Repuchase Agreement covering Government of referenc semester
Securities, commercial Papers and Other
Nonnegotiable securities or instruments that are not
documented
B SEC Form (MAB dated General Information Sheet Annual 30 days from date of Drop box - SEC Central
09.02.05) annual Stockholders' Receiving Section
meeting or if changes
occur, 7days from date of
change
B (M-2008-005 Disclosure statement on SPV Transactions Quarterly 15th banking day after SDC
dated end of reference quarter
02.04.08)
DES/ID
Reports:
A2 ID Form 5 (CL-2008-024 Report on Bank Liabilities to Non - Residents Monthly 15th banking day after International Dept. (ID)
dated end of reference month id-form5@bsp.gov.ph
05.08.08)
08.12.31
Banks Certification -do- -do- Hardcopy to ID
APP. 6
08.12.31
APP. 6
A3 Fx Form1 Rev. 2000, Consolidated Foreign Exchange Assets and Liabilities Weekly Within 5 banking days CC: Mail to Appropriate
Main Report as amended in Original Currency - RBU & FCDU after end of the reference department of the SES /ID
(Formerly FED by M-2008- week and DES and hardcopy to
Form 1) 031 dated ID
10.23.08
1 - Summary of FX Acquisitions and Dispositons -do- -do- -do-
2 - Interbank Transactions -do- -do- -do-
3 - FX Acquisition from Loans -do- -do- -do-
4 - FX Disposition for Loans -do- -do- -do-
5 - Other Current Accounts and Transfers -do- -do- -do-

Acquisitions/Dispositions (As amended by
CL dated 5.8.03)
6 - Investment Acquisition/Disposition -do- -do- -do-
7 - Other FXAcquisitions/Dispositions -do- -do- -do-
8 - Details of Spot and Forward FX transactions Daily 2nd banking day after -do-
end of reference day
9 - Export Proceeds Weekly Within 5 banking days -do-

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

Imported (RGIS) under DA-OA
11 - Import Payments -do-
12 - Spot and Financial Derivatives Acquisition/ -do- -do- -do-

Disposition
13 - FX Position Report -do- 2nd banking day after -do-

end of reference week

A3 BSP-ID Form (CL-2008-004 Monthly FX Sales by authorized Agent Banks (AABs) Monthly 5th banking day after end Original - ID
No.1 S-2008 dated 11 Jan. for Outward Investments of reference month
2008)
A3 Unnumbered X503 Consolidated FX Position Report of Bank's branches/ Daily 15th banking day after CC:Mail to appropriate
(Per CL dated (As offices, subsidiaries/affiliates, here and abroad with the semester department of the SES/
09.05.97) amended Certification of its CEO and Treasurer at month-end DES/ID & hardcopy to ID
by Cir No.
445 dated
08.20.04)
A3 FX Form 1 Sch. 1 Consolidated Foreign Exchange assets and Liabilities Monthly 15th banking day after CC:Mail to appropriate
(Formely FED in Original Currency - RBU & FCDU the month department of the SES/
Form I, Sch.16) DES/ID
B RS Form 1A 1162.13 Report on the Volume and Interest Rates on Loans Weekly Not later than 4:00pm Original - DES
(BSP 5-17-30) and Discounts Granted Thursday after end of
reference week
B RS Form 1A 1162.13 Report on the Volume and Weighted Monthly Average Monthly Not later than 2:00
(BSP 5-17-33) Interest Rate on Savings Deposit P.M. on the following -do-
day after end of
reference month
B RS Form 1B 1162.13 Weighted Average Interest Rate on Outstanding Loans -do- -do-
(BSP 5-17-30) and Discounts -do-
B RS Form 1B 1162.13 Daily Report on Volume of Money Market Daily Not later than 3:00 Appropriate
(BSP-5-17-27) Transactions P.M. on reference day department of the SES
B RS Form 2A 1162.13 Report on the Volume of Interest Rates on Deposits Weekly Not later than 4:00pm
(BSP-5-17-33) Thursday after end of
reference week
B BSP-5-17-35.A 1162.13
08.12.31
Report on the Volume of and Interest Rates on Credit Monthly Not later than five (5) -do-
APP. 6
Line Availments under Short Term Prime Rates banking days after end
of reference month
08.12.31
APP. 6
B RS Form 2C Weekly Report on Quoted Rates of Dollar Savings Weekly Not later than 2:00 P.M. Original - DES
(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 -do- Not later than 4:00 P.M. -do-
Rates on Time Deposits Received of the following day
B TCRKB.dbf (As Report of Outstanding Loans, Advances, Dixcounts Semestral 15th banking day after Email to des@bsp.gov.ph
amended by and Trading Account Securities the semester
CL dated
01.11.06)
Control Proof List for Outstanding Loans and Loans 15th banking day after Fax to DEX (523-7985)
Granted the semester
B Combined Report on Credits Granted and Outstanding - By Monthly 15th banking day after In Diskette-format to DES
BSP 5-17-02 and Banking Units end of reference month
BSP 5-17-31
Unnumbered X425.3 Post Bond Flotation Report As transac- 30th day from date of DES
tion occurs bond flotation by Local
Government Unit
Unnumbered Report on Non-Deliverable USD/PHP Forward Weekly 2nd banking day after SDC
(M-2008-019 dated Transactions with Non-Residents end of reference week sdc-ndf@bsp.gov.ph
05.03.08)
cc:Treasury Dept. fx-
(M-2008-019 dated Control Prooflist -do- -do- omo@bsp.gov.ph SDC
05.03.08) via Fax at (632) 5233461
or 5230230

B Unnumbered 1602 Report on Cancellations, Roll-overs and Non-Delivery Monthly 5th banking day after ID at e-mail address:
(As amended of Fx Forwards Purchase - Sales Contracts and Forward end of reference month id@bsp.gov.ph SDC at
by Cir. Leg of Swap Contracts1 e-mail address:
No. 591 dated (For banks with derivatives license) sdcfxkbdom@bsp.gov.ph
12.27.07) sdcfxkbfor@bsp.gov.ph
Report on Sale of Foreign Currency (FC) for Advance -do- Within the first 5 banking ID
Unnumbered CL-2008-003
dated Payment of Importations up to $100,000.00 days of the month
01.11.08 succeeding the date of
foreign exchange sale
Unnumbered CL-2008-003 Report on Purchase of Foreign Currency (FC) from -do- Within the first 5 days of ID
dated Refund of Advance Payment of Importations up to the month succeeding
01.11.08
$100,000.00 the receipt of the refund
IOD Form1 (CL dated Consolidated Daily Foreign Portfolio Investment Daily 2nd banking day from ID@ iod-
4.23.03, as Registration and Outward Remittance Report transaction date pid@bsp.gov.ph/
amended by
Cir. No. 611
dated Schedules:
05.30.08) - Annex 1a - Initial Registration 2nd banking day from
issuance of BSRD
- Annex 1b - Changes on Existing Registered 2nd banking day from

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

remittance date (when FX
was actually remitted)
B Unnumbered Statement of Remittance Report -do- 2nd banking day from Hardcopy to ID
Part II: Report on Repatriation/FX Remittances Accruing transaction date
to Registered Foreign Direct Investments
08.12.31
APP. 6
08.12.31
APP. 6
B IOS Form4 Consolidated Report on Loans Granted by FCDUs/ Monthly 15th banking day after Original - Appropriate
(BSP 6-22-01) EFCDUs end of reference month department of the SES
Duplicate - ID
B Unnumbered (As amended Report on FX Swaps with Custormers1 where 1st Leg is -do- 5th banking day after ID at e-mail address:
by Cir. No. a Purchase of FX Against Pesos (For banks with end of reference month iod@bsp.gov.ph SDC at
591 dated derivatives license) e-mail address:
12.27.07) sdcfxkbdom@bsp.gov.ph
sdcfxkbfor@bsp.gov.ph
B R-4 Report on Foreign Guarantees Securing Loans of -do- 15th banking day after Original - ID
Residents from Local Banks and Financial Institutions end of reference month
B R-1 Report on Guarantees Issued by Local Banks and Quarterly 15th banking day after -do-
Financial Institutions in Favor on Non-Residents end of reference quarter
B BSP 6-40-04 Statement of Earnings and Expenses Semestral 15th banking day after end -do-
of reference semester
Domestic Operation Sector Report
DOS Form I Report on Negotiation of Accounts Rediscounted with Monthly 15th banking day after end Original - DLC
(DLC Form G) Banko Sentral of reference month
B. TBs


(Cir. 512 dated Financial Reporting Package (FRP)
2.3.06, as amended
by M-2008-012 Balance Sheet (FRP):
dated 03.14.08, M-
2008-011 dated
- Solo basis (Head Office and branches) Monthly 15th banking day after Diskette/CD/Email to
03.07.08, M-026
dated 09.20.07, M-
end of reference month SDC2/
015 dated25.28.07, sdctbfrp@bsp.gov.ph
Cir. 568 dated
05.08.07, M-006 - Consolidated basis (together with applicable Quarterly 30th banking day after -do-
dated 07.07.06 and schedules)1/ end of reference quarter
MAB dated
03.07.06)
Income Statement (FRP): -do- 15th banking day after -do-
- Solo basis (Head Office and branches)
- Consolidated basis (together with applicable -do- 30th banking day after -do-
schedules)1/ end of reference quarter

1 - Checks and Other Cash Items (COCI) Monthly 15 banking day after end -do-
of the reference month

1
Only banks with financial allied subsidiaries, excluding insi\urance subsidiaries, shall submit the reports on consolidated basis.
2
08.12.31
APP. 6
08.12.31
APP. 6
3a - Breakdown of Held for Trading (HFT) Quarterly 15 banking day after end Diskette/CD/Email to SDC1/
Financial Assets Purchased/Sold/Lent under of the reference quarter sdctb-frp@bsp.gov.ph
Assignment/Participation with Recourse,
Securities Lending and Borrowing Agreements
4a - Derivatives Held for Trading Matrix of Monthly 15th banking day after -do-
Counterparty and Type of Derivative Contracts end of the reference month
5 - Financial Assets Designated at Fair Value -do- -do- -do-

through Profit or Loss
6a - Breakdown of Available for Sale Financial Quarterly 15th banking day after -do-
Assets Purchased/Sold/Lent Under Repurchase end of the reference
Agreements, Certificates of Assignment/ quarter
Participation with Recouse, Securities Lending
6b to
6b3 - Available-For-Sale Financial Assets -do- -do- -do-
6c to
6c3 - Available-For-Sale Financial Assets Annually 15th banking day after -do-
Movements in Allowances for Credit Losses end of the reference year
7 - Held to Maturity (HTM) Financial Assets Monthly 15th banking day after end
7a - Held to Maturity Financial Assets Purchase/ Quarterly 15th banking day after end -do-
Sold/Lent Under Repurchase Agreements, of the reference quarter
Recourse, Securities Lending and Borrowing
Agreements
1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC
via Fax No. (02) 523-3461 or hard copy via postal/messengerial services.

7b - Fair Value of Held to Maturity (HTM) Annually 15th banking day after Diskette/CD/Email to
Financial Assets end of the reference year SDC1/
sdctb-frp@bsp.gov.ph
7c to
7c3 - Held to Maturity Financial Assets Classified as Quarterly 15th banking day after end -do-
to Status of the reference quarter
7d to
7d3 - Held to Maturity Financial Assets Annually 15th banking day after -do-
Movements in Allowances for Credit Losses end of the reference year
8 - Unquoted Debt Securites Classified as Loans Monthly 15th banking day after -do-
end of the reference month
8a - Fair Value of Unquoted Debt Securities Monthly -do- -do-

Classified as Loans
8b to
8b3 - Unquoted Debt Securities Classified as Loans Quarterly 15th banking day after end -do-
Classified as to Status of the reference quarter
8c to
8c3 - Unquoted Debt Securities Classified as Loans Annually 15th banking day after end -do-
Movements in Allowances for Credit Losses of the reference year
9 - Investment in Non-Marketable Equity Securities Monthly 15th banking day after -do-
10 - Interbank Loans Receivables -do- -do- -do-

11 - Loans and Receivables - Others -do- -do- -do-
08.12.31
1
APP. 6
08.12.31
APP. 6
11a to Monthly 15th banking day after end Diskette/CD/Email to SDC1/

11a3 - Loans and Receivables - Others of the reference month sdctb-frp@bsp.gov.ph
11b to Monthly 15th banking day after end -do-

11b3 - Restructured Loans and Receivables of the reference month
11c to Quarterly 15th banking day after end -do-

11c3 - Loans and Receivables - Others of the reference quarter
11d to Monthly 15th banking day after end -do-
11d3 - Gross Loans and Receivables - Others of the reference month
Classified as to Type of Business/Industry of
Counterparty
11e to Annually 15th banking day after end -do-

11e3 - Loans and Receivables - Others of the reference year
Classified as to Status Per PAS 39
11f - Schedule of Agri/Agra SME, DIL and Monthly 15th banking day after end -do-
Microfinance Loans and Receivables of the reference month
Classified as to Counterparty
11g1 - Report on Real Estate Exposure Quarterly 15 banking days after end -do-
of the reference quarter
11g2 - Investment in Debt and Equity Securities -do- -do- -do-

Issued by real estate companies
11g3 - Original Maturity and Earliest Repricing of -do- -do- -do-

1

12 - Loans and Receivables Arising from Repurchase Monthly 15th banking day after Diskette/CD/Email to
Agreements, Certificates of Assignment/ end of the reference SDC1/
Participation with Recourse and Securities month sdctb-frp@bsp.gov.ph
Lending and Borrowing Transactions
12a to
12a3 - Loans and Receivables Arising from Repurchase Quarterly 15th banking day after end -do-
Agreements, Certificates of Assignment/ of the reference quarter
Lending and Borrowing Transactions
Matrix of Counterparty and Issuer of
Collateral Securities
Hedge
Hedge
Investment in Foreign Operations -
13d - Financial Derivatives Portfolio Hedge of Interest -do- -do- -do-

Rate Risk
14 - Accrued Interest Income/Expenses from -do- -do- -do-

15 - Equity Investment in Subsidiaries, Associates Monthly 15th banking day after end -do-
and Joint Ventures of the reference month
08.12.31
APP. 6
1
08.12.31
APP. 6
15a - Equity Investment in Subsidiaries, Associates Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
and Joint Venttures- Classified as to Nature of the reference quarter sdctb-frp@bsp.gov.ph


Equipment
18 - Deferred Tax Assets and Liabilities Monthly 15th banking day after end -do-
19 - Other Assets Monthly -do- -do-

Office/Branches/Agencies Abroad - Ohilippine
21 - Liability for Short Position Quarterly 15th banking day after end -do-
22 - Deposit Liabilities Monthly 15th banking day after end -do-

Classified as to Type of Deposit of the reference month
22a - Deposit Liabilities by Size of Accounts Excluding Quarterly 15th banking day after end -do-
Deposits in Foreign Offices/Branches of the reference quarter
23 - Due to Other Banks Monthly 15th banking day after end -do-
1

25 - Bonds Payable, Unsecured Subordinated Debt Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
and Redeemable Preferred Shares of the reference quarter sdctb-frp@bsp.gov.ph
end of the reference year
27 - Financial Liabilities Associated with Transferred Quarterly 15th baking day after end -do-
Assets of the reference quarter
28 - Other Liabilities Monthly 15th banking day after end -do-

29 - Interest Income/Expense from Financial Quarterly 15th banking day after end -do-
Instruments of the reference quarter
Maturity Financial Assets and UDSCL
29c - Interest Income from Interbank Loans Receivables -do- -do- -do-
29d to
29d3 - Interest Income from Loans and Receivables - -do- -do- -do-
1
08.12.31
APP. 6
08.12.31
APP. 6
29e - Interest Income from Loans and Rceivables Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
Arising from Repurchase Agreements, of the reference quarter sdctb-frp@bsp.gov.ph
30c - Interest Expense on Bonds Payable, Unsecured -do- -do- -do-

Subordinated Debt and Redeemable Preferred
Shares

34 - Compensation/Fringe Benefits -do- -do- -do-


1

39 and Quarterly 15th banking day after end Diskette/CD/Email to SDC1/

39a - Residual Maturity of the reference quarter sdctb-frp@bsp.gov.ph
Performing Financial Assets and Financial
Liabilities
40 and -do- -do- -do-

40a - Repricing- Performing Financial Assets and
Financia Liabilities


to FCDU/RBU
Schedules (Consolidated Report): Quarterly 30th banking day after end -do-
1 - Checks and Other Cash Items -do- -do- -do-
3a - Held for Trading (HFT) Financial Assets -do- -do- -do-

Agreements, Certificates of Assignment
and BorrowingAgreements
08.12.31
APP. 6
08.12.31
APP. 6
4a - Derivatives Held for Trading Matrix of Counterparty Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
and Type of Derivative Contracts of the reference quarter sdctb-frp@bsp.gov.ph
5 - Financial Assets Designated at Fair Value through -do- -do-

Profit of Loss -do-
6 - Available-For-Sale Financial Assets -do- -do-

-do-
6a - Breakdown of Available for /sale Financial Assets -do- -do-
Purchased/Sold/Lent Under Repurchase -do-
Agreements, Certificates of Assignment/Participation
with Recourse, /securities Lending and Borrowing
Agreements
6b - Available-For-Sale Financial Assets- Classified -do- -do-

as to Status -do-
7 - Held to Maturity (HTM) Financial Asset -do- -do-

-do-
7a - Held to Maturity Financial Assets Purchased/ -do- -do-
Sold/Lent Under Repurchase Agreements, -do-
Recourse, Securities Lending and Borrowing
Agreements
7c - Held to Maturity Financial Assets Classified as -do- -do-

to Status -do-
7d - Held to Maturity Financial Assets Classified as Annually 30th banking day after end
to Status of the reference year -do-
8 - Unquoted Debt Securities Classified as Loans Quarterly 30th banking day after end
of the reference quarter -do-
1 For TBs which are subsidiaries of UBs and KBs


8b - Unquoted Debt Securities Classified as Loans Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Classified as to Status of the reference quarter sdctb-frp@bsp.gov.ph
8c - Unquoted Debt Securities Classified as Loans Annually 30th banking day after -do-
Movements in allowances for Credit Losses end of the reference year
9 - Investment in Non-Marketable Equity Securities Quarterly 30th banking day after end -do-
11a - Loans and Receivables - Others -do- -do- -do-

11b - Restructured Loans and Receivable -do- -do- -do-

11c - Loans and Receivables - Others Movements -do- -do- -do-

in Allowances for Credit Losses
11d - Gross Loans and Receivables _ Others -do- -do- -do-

Counterparty
11e - Loans and Receivables-Others Annually 30th banking day after -do-
Classified as to Status Per PAS 39 end of the reference year
11f - Schedule of Agri/Agra SME, KIL and Quarterly 30th banking day after end -do-
Microfinance Loans and Receivables of the reference quarter
08.12.31
APP. 6
08.12.31
APP. 6
Cir. No. 600 11g1- Report on Real Estate Exposure Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
dated 02.04.08 of the reference quarter sdctb-frp@bsp.gov.ph
11g2- Investment in Debt and Equity Securities -do- -do- -do-

issued by Real Estate Companies
11g3- Original Maturity and Earliest repricing of the -do- -do- -do-
12 - Loans and Receivables Arising from -do- -do- -do-

Transactions
12a - Loans and Receivables Arising from -do- -do- -do-

Transactions Matrix of Counterparty and
Issuer of Collateral Securities

13a - financial Derivatives Held for Fair Value -do- -do- -do-
Hedge
Hedge
13c - Financial Derivatives Held for Hedges of -do- -do- -do-

Net Investment in Foreign Operations

13d - Financial Derivatives Portfolio Hedge of Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Interest Rate Risk of the reference quarter sdctb-frp@bsp.gov.ph

15 - Equity Investment in Subsidiaries, -do- -do- -do-

15a - Equity Investment in Subsidiaries, -do- -do- -do-

Associates and JOint Ventures-Classified as
to Nature of Business


Equipment
18 - Deferred Tax Assets and Liabilities Annually 30th banking day after -do-
19 - Other Assets Quarterly 30th banking day after end -do-


Office/Branches/Agencies Abroad -
Philippine Branch of a Foregn Bank -do- -do- -do-
21 - Liability for Short Position -do- -do- -do-
08.12.31
APP. 6
08.12.31
APP. 6
22 - Deposit Liabilities Classified as to Type of Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Deposit of the reference quarter sdctb-frp@bsp.gov.ph
22a - Deposit Liabilities by Size of Accounts -do- -do- -do-

Excluding Deposits in Foreign Offices/
Branches
23 - Due to Other Banks -do- -do- -do-
25 - Bonds Payable, Unsecured Subordinated -do- -do- -do-

Debt and Redeemanble Preferred Shares
27 - Financial Liabilities Associated with Quarterly 30th banking day after end -do-
Transferred Assets of the reference quarter
28 - Other Liabilities -do- -do- -do-
29 - Interest Income/Expense from Financial -do- -do- -do-

Instruments
29a - Interest Income from Due from Other -do- -do- -do-
Banks Classified as to Type of Deposits
Designated at FVPL, Available for /sale,
Held to Maturity Financial Assets and
Unquoted Debt Securities Classifiesd as
Loans

29c - Interest Income from Interbank Loans Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Receivables of the reference quarter sdctb-frp@bsp.gov.ph
29d - Interest Income from Loans and -do- -do- -do-

Receivables - Others - Classified as to Status
29e - Interest Income from Loans and -do- -do- -do-

Receivabloes Arising from Repurchase
Participation wityh Recourse and
transactions

Redeemable Preferred Shares -do- -do- -do-
32 - Gains/(Loss) on Financial Assets and -do- -do- -do-

Liabilities Held for Trading
33 - Gains/(Losses) from Salwe/Redemption/ -do- -do- -do-

08.12.31
APP. 6
08.12.31
APP. 6
35 - Other Administrative Expenses Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
of the reference quarter sdctb-frp@bsp.gov.ph
36 - Depreciation/Amotization Expense -do- -do- -do-
39 - Residual Maturity Performing Financial -do- -do- -do-

Assets and Financial Liabilities
40 - Repricing - Performing Financial Assets and -do- -do- -do-

41 - Investment in Debt Instruments Issued by -do- -do- -do-

LGUs and Loans Granted to LGUs
42 - Disclosure of Due from FCDU/RBU and -do- -do- -do-

Due to FCDU/RBU
Consolidated Daily Report of Condition (CDRC) Weekly 6th bankng day after end By electronic mail to SDC
of week
Control Prooflist ofn the contents of the data sent via -do- Immediately after the SDC via facsimile at Fax
electronic mail, with certification and signature of the bank has received the No. (02) 52-3461 or hard
authorized officer of the bank acknowledgment copy via postal/
receipt from the BSP messengerial services
Control Prooflist, together with the cover page of the -do- -do- Appropriate department
report of the SES

A2 TB Form 1 Weekly Inventory List of Govt. Securities Held - On a Weekly 6th banking day after By electronic mail to
Schedule Daily Basis end of week SDC
Unnumbered Weekly Inventory List of Government Securities Held -do- Every Thursday -do-
Set Aside for the Intra-Day Liquidity Facility from Week
starting Monday to Friday
A2 TB Form 1 Schedule of Other Non-Risk Assets Monthly 6th banking day after Appropriate department
Schecule 1B end of week wherein of the SES & SDC
month-end falls
A1 Unnumbered X116.4 Computation of the Adjusted Risk-Based Capital Quarterly

(As amended by Adequacy Ratio Covering Combined Credit Risks
Cir. Nos. 503
dated 12.212.05
and 475 dated
02.14.05)
- Solo basis (Head office and branches) Quarterly 15th banking day after Original copy to
end of reference quarter appropriate department
of the SES
- Consolidated basis (parent bank plus subsidiary -do- 30th banking day after -do-
financial allied undertakings, but excluding end of quarter
insurance companies)
A1 Unnumbered X116 Computation of the Adjusted Risk-Based Capital

(Cir. 574 dated Adequacy Ratio Covering Combined Credit Risks,
04.10.07) Market Risk and Operational Risk1/
-
Solo basis (Head office and branches) Quarterly 15th banking day after Original copy to SDC
- Consolidated basis (parent bank plus subsidiary Quarterly 30th banking day after Original copy to SDC
financial allied undertakings, but excluding end of reference quarter
08.12.31
APP. 6
08.12.31
APP. 6
A1 Unnumbered X602.5 Derivatives Report Monthly 15th banking day after the CMSG cc: SDC
Cir No, 594 end of the reference month cmsg@bsp.gov.ph
dated 01.08.08 sdcderivatives@bsp.gov.ph
as amended
by M-2008-
009 dated
02.27.08 Schedules:
Report on Outstanding Derivatives Contracts

(Stand - Alone - RBU, Stand - Alone - FCDU,
Hybrid)
Report on Trading Gains/Losses) on Financial

Derivatives
Certification (Hard Copy) -do- -do- Receiving Section, SES
Acknowledgement receipt of copies of specific duties Annually or 30th banking day after the
A2 Unnumbered X141.9 and reponsibilities of the board of directors and of a as directors end of the reference year
(no director and certification that they fully understand are elected
prescribed the same -do-
form)
TBs with resources of P1.0 billion and above
Balance sheet/Consolidated Balance Sheet Quarterly 12th banking days from Diskette/CD/e-mail to SDC
A2 Form 2B/2B.1 X162.9 the date of the Call Letter sdctb-pbs@bsp.gov.ph
(Cir. 576 dated
08.08.07 and
MAB-030 dated
0.04.07)
Control Prooflist duly notarized and signed by the -do- -do- Fax to 523-3461 or
authorized official of the reporting bank 523-0230 or via postal/
messengerial services to
SDC
Published Balance Sheet/Consolidated Balance Sheet -do- 20th banking days from -do-
(together with the publisher's certificate) the date of the Call Letter

TBs with resources of less than P1.0 billion

A2 Form 2B/2B.1 (Cir.576 dated
08.08.07 and
MAB-030 dated
10.04.07) Balance Sheet/Consolidated Balance Sheet Quarterly 20th banking days from Diskette/CD/e-mail to SDC
the end of the reference sdctb-pbs@bsp.gov.ph
quarter hard copy to SDC
Control Prooflist duly notarized and signed by the -do- -do- Fax to 523-3461 or
authorized official of the reporting bank 523-0230 or via postal/
messengerial services to
SDC
Published/Posted Balance Sheet/Consolidated -do- 20th banking day after -do-

Balance Sheet (together with publisher's certificate, if the end of reference
applicabe) quarter
Financial Reporting Package for Trust Institutions Quarterly 20th banking day after SDC
A2 Unnumbered X425.2 the end of reference sdctb-frpti@bsp.gov.ph
(Cir. 609 dated quarter
05.26.08 Schedules:
as amended by Balance Sheet
M-2008-022 A1 to a2 Main Report
dated 06.26.08) B to B2 Details of Investments in Debt and
Equity Securities
C to C2 Details of Loans and Receivables
D to D2 Wealth/Asset/Fund Management-
UITF
E Other fiduciary Accounts
E1 to E1b Other fiduciary Services - UITF
Income Statement
08.12.31
APP. 6
08.12.31
APP. 6
A2 Unnumbered Cir. No. 607 Report on Microfinance Loans Monthly 15th banking day after the SDC
dated 04.30.08 end of reference month sdctb-micro@bsp.gov.ph
as amended by
M-2008-021
dated 06.16.08
A2 Unnumbered Cir. No. 607 dated Income Statement on Microfinance Operations Quarterly 15th banking day after end -do-
04.30.08, as of the reference quarter
amended by M-
2008-021 dated
06.16.08
A2 Unnumbered X171.5 Self-Assesment and Certification of compliance with Annually On or before 30 January Appropriate department
Cir. No. 620 dated Rules and Regulations on Bank Protection/Updated of the SES
09.03.08 Security Program
A2 TB Form X405.9 Report on Peso-Denominated Common Trust Funds Weekly 3rd banking day after SDC Appropriate
20A and Other Similarly Managed Funds (for TBs engaged end of reference week department of the SES
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 SDC
report end of reference week
A2 TB Form Report on Trust and Other Fuduciary Accounts (TOFA) -do- 3rd banking day after end SDC
20B - Others of reference week Appropriate department
of the SES
Control Prooflist Immediately after receipt Fax - SDC

of BSP acknowlegment
Control Prooflist, together with the cover page of the -do- 3rd banking day after SDC
report end of reference week

A2 TB Form 3 X162 Statement of Condition (By Banking Unit) Quarterly 15th banking day after Appropriate department
(As amended by end of reference quarter of the SES & SDC
MAB dated
12.30.03)
Schedules:
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 schecules)
3D - Aging of Loans and Selected Receivable

(Revised December 2003 per MAB dated
12.30.03)
3E - Loans-to-Deposits Ratio
Supplementary Information
A3 TB Form 6 X162 Statement of Income and Expenses by Banking Unit -do- -do- SDC
(Revised Dec. Appropriate department
2003 per MAB of the SES
dated 12.30.03)
08.12.31
* A report is not required and no transfers were effected during the month.
APP. 6
08.12.31
APP. 6
A3 Unnumbered X393 Report of Selected Branch Accounts Semestral 20th banking day after end Appropriate department
(Cir. 613 dated of reference semester of the SES & SDC
06.18.08, as
amended by M-
2008-032 dated
Schedules:
10.31.08)
Selected Balance Sheet Accounts
Selected Balance sheet and Income Statement

Accounts
Breakdown of Deposit Liabilities
Reconciling Items Outstanding for More than Six (6)

Months on the Due From/Due to Head Office, Branches
and Agencies Account
B TB Form 7 X162.7 Consolidated List of Stockholders Annually 12th banking day after -do-
Cir. 533 dated end of reference year
06.19.06 Changes in the List of Stockholders and their Quarterly 12th banking day after -do-
Stockholdings end of reference quarter
A3 TB Form 8 X335 Consolidated Report on Compliance with Agregate Quarterly 7th banking day after Appropriate department
X409.3 Ceiling on Credit Accommodations to Directors/Officers/ end of reference quarter of the SES & SDC
Stockholders/Related Interest
A3 TB Form 9 X335 Consolidated Report on Compliance with Agregate Semestral 15th banking day after end Appropriate department
Page 1 X409.3 Ceiling on Credit Accommodations to Directors/Officers/ of reference semester of the SES & SDC
Stockholders/Related Interest

A3 Page2 X338.3 Availments of Financial Assistance to Officers and Semestral 15th banking day after Appropriate department
X339.4 Employees under Banko sentral Approved Plan end of reference of the SES & SDC
Revised June semester
2005 per Cir.
487 dated
06.03.05
A3 TB Form 11 X342.6 Report on Compliance with Mandatory Credit Quarterly 15th banking day after By electronic mail to
(As amended Allocation Required under R.A. 6977 (As amended end of reference quarter SDC -sdctb-sme@ bsp.gov
by M-2008- by R.A. Nos. 8289 and 9501)
035 dated
11.19.08, Cir.
625 dated
10.14.08, and
MAB dated
4.28.03)
Schedules:
1A Computation of Total Loan Portfolio for

Purposes of Detemining Amount of
1A-1 Wholesale Lending of a Bank to conduit

NBFIs w/o QB Authority Other Than Those
for On-Lending to MSMEs
1A-2 Loans Granted Under Special Financing

Program Other Than for MSMEs
1A-3 Loans Granted to MSMEs Other Than to

Bank
08.12.31
APP. 6
08.12.31
APP. 6
1B Details of Eligible Investments for

Compliance with the Required Credit
Allocation for MSMEs
1B-1 Loans Granted to MSMEs Other Than to

Bank
1B-2 Wholesale Lending or Rediscounting

Facility Granted to Participating Financial
Institutions for On-Lending to MSMEs other
than to BMBEs
3 Reconciliation of Loans Granted to MSMEs

as Reported Under Schedules 1B, 1B-1 and
2 and FRP Banlance of Microfinance and
SME Loans
Control Prooflist Quarterly 15th banking day after SDC

A3 TB Form 12 X341.9 Consolidated Report on the Utilization of Loanable Quarterly 15th banking day after By electronic mail to SDC/
(Revised Funds generated Which Were Set Aside for Agrarian end of reference quarter Diskette/hardcopy at
December Reform/Other Argicultural Credit (Compliance with PD sdctb-agra@bsp.gov.ph
2004 per 717)
MAB dated
9.8.04
- 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. 252 dated 7-18-00)
A - Total collectons 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 R.A. 7835
G - Report on Loans Granted to BMBEs

(Revised per MAB dated 4.28.03)
Control Prooflist, notarized and signed by the

authorized officer of the bank
08.12.31
APP. 6
08.12.31
APP. 6
A3 TB Form 13 X425.2 Report on Trust and Other Fiduciary Business and Quarterly 10th banking day after SDC
Investment Management Activities end of reference quarter Appropriate department
of the SES
A3 TB Form 14 X425.2 Report on Investment Management Activities -do- -do- -do-
A3 Unnumbered X162 Report on Borrowings of BSP Personnel -do- 15th banking day after Original to SDC
( CL-2007- end of reference quarter
050 dated
10.04.07 CL-
2007-059
dated
11.28.07)
B TB Form 15 X162 Report on Credit and Equity Exposures to -do- -do- -do-
(Revised Individuas/Groups/Companies Aggregating P1M
August 2003 and above
per CL dated
8.6.03)
B Control Prooflist, notarized and signed by the -do- -do- -do-
authorized officer of the bank
B Q06-TB X162.6 Report on Reconciling Items Outstanding for More -do- 30th banking day after SDC
(formerly TB than six Months in the "Due from/Due to Head end of reference quarter Appropriate department
Form 16) Office, Branches and Agencies" accounts (by of the SES
Banking Unit)
B Unnumbered X166 Financial Audit Report - Bank Proper Annually 120th calendar day after Original and duplicate -
the close of the calendar Appropriate department
a. Audited Financial Statements or fiscal year of SES

1
Solo and consolidated basis

X426.2 Financial Audit Report - Trust Department Annually 120th calendar day Original and duplicate -
after the close of the Appropriate department
calendar or fiscal year of the SES
a. Audited Financial Statements -do- 30th banking day after -do-

receipt of the report

attachments listed in appendix 61
B Unnumbered X166 Annual Audit Report2/ - Bank Proper -do- -do- -do-
Unnumbered a. Audited Financial Statements1/ -do- -do- -do-
b. Opinion of the Auditior together with -do- -do- -do-

X426.2 Annual Audit Report2/ - Trust Department
a. Audited Financial Statements -do- -do- -do-
b. Opinion of the Auditor together with -do- -do- -do-

A2 Unnumbered App. 52a Report on Suspicious Transactions As 10th banking day from Original and duplicate -
(Revised May transaction the occurrence of the Anti-Money Laundering
2002 as occurs transaction Council (AMLC)
amended by
Cir. No. 612
dated
06.03.08
08.12.31
Solo and consolidated basis
APP. 6
1
2
for banks under the current jurisdiction of the BSP and COA
08.12.31
APP. 6
A2 Unnumbered App. 52a Covered Transaction Report As 10th banking day from Original and duplicate -
(Revised May transaction the occurrence of the Anti-Money
2002, as occurs transaction Laundering Council
amended by (AMLC)
Cir. No. 612
dated
06.03.08)
A2 Unnumbered App. 52a Certificate on Compliance with Anti-Money Annually 20th banking day after Original and duplicate -
(Cir. 279 dated Laundering Regulations end of reference year Appropriate department
4.2.01) of the SES
B Unnumbered X262.3 Certification of Compliance with Secton 55.4 of R.A. Semestral 7th banking day after end -do-
No. 8791 of June and December
B Unnumbered X501.3 Certification on Funds Borrowed from FCDU/ Monthly 5th banking day from -do-
(Revised EFCDU end of reference month
September
2003 per Cir.
403 dated
9.19.03)
B Unnumbered X235.12 Report on Undocumented Repurchase Agreements As Within 72 hours from Appropriate department
(Cir 467 dated transaction knowledge of transaction of the SES
01.10.05) occurs

B Unnumbered X235.12 Notarized Cerification that the bank did not enter Semestral 5th banking day after Appropriate department
(Cir 467 into Repurchase Agreement covering Government end of the reference of the SES
dated Securities, Commercial Papers and Other semester
01.10.05) Negotiable securities or instruments that are not
documented.
B SEC Form (MAB dated General Information Sheet Annual 30 days from date of Drop box-SEC Central
9.02.05) annual stockholders' Receiving Section
meeting
B SES II Form 10 X334 Transmittal of Board Resolution/Written Approval As any 20th banking day from Appropriate department
on Credit Accommodations to DOSRI in direct or date of approval of the SES
Compliance with Sec. 36, R.A. 8791, as amended indirect
loan to any
DOSRI is
Approved
B Unnumbered X328.5 Transmittal of Board Resolution/Written Approval As loan to -do- Original and duplicate -
(Cir. 560 On Credit Accommodations to Subsidiaries and/or subsidiaries Appropriate deparment
dated Affiliates in Compliance with Sec. X328.5 and/or of the SES
01.31.07) affiliates is
approved
B SES II Form 12 X162.5 Sworn Statements on Real Estate/Chattel As Within 10 banking Appropriate department
(NP06-TB) X162.15 Transactions to Directors, Officers and Stockholders transacton days from approval of of the SES
is approved transaction
B SES II Form 14 X156.2 New Schedule of Banking Days/Hours As changes 7th banking day prior -do-
(NP04-TB occur to effectivity of the
change
08.12.31
APP. 6
08.12.31
APP. 6
B SES II For 15 X144 Biographical Data of Directors/Officers After 7th banking day from Electronic mail or
(NP08-TB) As amended - If submitted in diskette form - Notarized first page of election or the date of the meeting diskette form to SDC or
by M-2008- each of the directors'/officers' bio-data saved in appointment of the board of if hard copy Original to
024 dated diskette and control prooflist and as directors in which the Appropriate department
07.31.08 - If sent by electronic mail - Notarized first page of changes directors/officers are of the SES, Duplicate to
Biographical Data or Notarized list of names of occur elected or appointed SDC
Directors/Officers whose Biographical Data were
submitted thru electronic mail to be faxed to SDC
MAAB dated Certification under oath of independent directors

09.02.05 that he/she is an independent director as defined
under Subsection X141.10 and that all the
information thereby supplied are true and correct
Cir. 513 dated Verified statement of Director/officer that he/she has

02.10.06 all the aforesaid qualifictions and none of the
disqualifications
B SES II Form 16 X162.4 Report on Crimes and Losses As crime/ Not later than ten (10) SDC and SITD
(Rev. October incident calendar days from
2007 per Cir. occurs knowledge of crime/
587 dated incident and complete
10.26.07; report not later than
June 2005 per twenty (20) calendar
Cir. 486 dated days from termination

06.01.05) of examination.
B Unnumbered X143.4 Report on Disqualification of Director/Officer As Within 72 hours from Appropriate department
(no prescribed disqualification receipt of report by the of the SES
form) occurs BOD
B SES Form 6H X306.5 Notice/Application for Write-off of Loans, Other As write-off Within 30 days after
(CBP 7-16-21) Credit Accommodations, Advances and Other occurs every write-off
Revised Assets

B SES II Form 26 X162.3 Information/Documents Required under Only once; 15th banking day from Appropriate department
Appendices 7 & 8 (MOR) as change date of change of the SES
occurs
B SES II Form 27 X162.1 Specimen Signature of Authorized Signatories and As change 3rd banking day from Appropriate department
Board Resolution designating Authorized occurs date of resolution of the SES & SDC
Signatories
B Unnumbered X144 List of Members of the Board of Directors and As election 12th banking day after -do-
(NP09-TB) Officers occurs annual board election
-do-
B X151.8 Notice of transfer of branches/voluntary closure of As transfer 5th banking day from
X151.9 branches occurs date of transter
-do-
B X153.4 Notice of Actual Date of Opening a Branch As it occurs 10th banking day after
opening
-do-
B Unnumbered X565 Conversion/Transfer of FCDU Loans to RBU* Monthly 10th banking day from
(Report is not required when no transfers were end of reference month
effected during the month)
X409.16 As Within 72 hours from -do-

(f) transaction knowledge of
occur transactions
(M-2008-005 Disclosure Statement on SPV Transactions Quarterly 15 banking days after SDC
dated end of reference quarter
02.04.08)
08.12.31
APP. 6
08.12.31
APP. 6
B FX Form 1A X162.2 Consolidated Foreign Exchange Assets and Monthly 10th banking day after Appropriate
(Formerly FED (as amended Liabilities end of reference month department of the SES
Form 1) by Cir.No.284 & SDC
dated
06.04.01)
Schedules:
1 - Monthly Summary of FX 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
9 - Export Proceeds
B Unnumbered Certification as to the veracity and accuracy of the Monthly Next banking day DES
Consolidated Report on FX assets and Liabilities and following the prescribed
all supporting schedules, to be signed by an officer date of submission of the
of the bank with the rank of AVP or equivalent rank report and schedules

RS Form 1 (TB) Summary Report of Transactons on TB Loans by Monthly for 15th banking day after Appropriate department of
Banking Unit loans end of reference period the SES
granted;
quarterly for
loans
outstanding
RS Survey on the Volume and Weighted Average Daily A daily survey report Appropriate department of
Form 2A-TB Interest Rates on Deposits only for banks notified the SES
by DER
RS Form 1B (5-17-27) Report on Volume of Money Market Transactions As 2nd banking day after DES
DER (TR-D01-TB) transacton transaction occurs
occurs
Unnumbered X425.3 Post Bond Flotation Report As 30th day from date of -do-
transaction the bond flotation by
occurs the LGU
ID Reports
A2 M01-TB X501.4 Foreign Currency Cover Monthly 15th banking day after ID
(For FCDUs) end of reference month
A2 ID Form 5 Report on Bank Liabilities to Non-Residents Monthly 15th banking day after id-form5@bsp.gov.ph
[formerly, Schedule of Foreign Exchange Liabilities end reference month
to Non-Residents (In Original Currency)] (CL dated
2.18.03)
Bank Certification Monthly -do- ID

A3 BSP-ID Form No. Monthly FX Sales by Authorized Agent Banks Monthly 15th banking day after ID
1 S-2008(CL- 2008 (AABs) for Outward Investments end of reference month
-004 dated 11 Jan.
2008)
08.12.31
APP. 6
08.12.31
APP. 6
B IOS Form 4 Consolidated Report on Loans Granted by FCDUs Monthly 15th banking day after 15th banking day after
end of reference month end of reference month
B Unnumbered X602.21 Report on FX Swaps with Customers1 where 1st Leg Monthly 5th banking days after ID @ e-mail address:
(As amended is a Purchase of FX Against Pesos (For TBs with end of reference month iod@bsp.gov.ph
by Cir. No. derivatives License) SDC @ e-mail address:
591 dated sdcfxkbdom@bsp.gov.ph
12.27.07) sdcfxkbfor@bsp.gov.ph
Unnumbered (M-2008-019 Report on Non-Deliverable USD/PHP Forward Weekly 2nd banking day after SDC
dated Transactions with Non-Residents end of reference week sdc-ndf@bsp.gov.ph
05.03.08) cc: Treasury Dept.
(M-2008-019 fx-omo@bsp.gov.ph
dated
05.03.08)
(M-2008-019 Control Prooflist Weekly 2nd banking day after SDC sdc-
dated end of reference week ndf@bsp.gov.ph. cc:
05.03.08) Treasury Dept. fx-
omo@bsp.gov.ph.
(CL-2008-003 Report on Sale of Foreign Currency (FC) for Advance Monthly Within the first 5 banking ID
dated Payment of Importations up to $100,000.00 days of the month
01.11.08) succeeding the date of
foreign exchange sale
(Cl-2008-003 Report on Puchase of Foreign Currency (FC) from Monthly Within the first 5 days of ID
dated Refund of Advance Payment of Importations up to the month succeeding
01.11.08) $100,000.00 the receipt of the refund
C. RBs/Coop Banks


(Cir. No. 512 dated Financial Reporting Package (FRP)
02.03.06,as amended
by M-2008-012 Balance Sheet (FRP):
dated 03.14.08,
M-2008-011 dated
03.07.08, M-026
- Solo basis (Head Office and branches) Monthly 15th banking day after Diskette/CD/Email to SDC1/
dated 09.20.07, M- end of reference month sdcrb-frp@bsp.gov.ph
015 dated 05.28.07
Cir.568 dated - Consolidated basis (together with applicable Quarterly 30th banking day after -do-
05.08.07, M-006 schedules)2/ end of reference quarter
dated 07.07.06 and
MAB dated 03.07.06)
Income Statement (FRP): Quarterly 15th banking day after -do-

- Solo basis (Head Office and branches)
- Consolidated basis (together with applicable -do- 30th banking day after -do-
schedules)1/ end of reference quarter
1 - Checks and Other Cash Items Monthly 15 banking day after end -do-
2 - Due from Other Banks -do-

1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or
hard copy via postal/messengerial services.
08.12.31
2
APP. 6
08.12.31
APP. 6
3a - Breakdown of Held for Trading (HFT) Financial Quarterly 15th banking day after Diskette/CD/Email to SDC1/
Assets Purchased/Sold/Lent Under end of reference quarter sdcrb-frp@bsp.gov.ph
Purchased/Sold/Lent Under Repurchase -
Agreements, Cerificates of Assignment/
4 - Derivatives Held for Trading (HFT) Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
of the reference quarter sdcrb-frp@bsp.gov.ph
4a - Derivatives Held for Trading Matrix of Monthly 15th banking day after end -do-
Counterparty and Type of Derivative Contracts of the reference month
5 - Financial Assets Designated at Fair Value -do- -do- -do-

6a - Breakdown of Available for Sale Financial Quarterly 15th banking day after end -do-
Assets Purchased/Sold/Lent Under Repurchase of the reference quarter
and Borrowing agreements
6b - Available-For-Sale Financial -do- -do- -do-

to Assets-Classified as to Status
6b3
6c - Available-For-Sale FA Annually 15th banking day after end -do-

to Movements in Allowances for of the reference year
6c3 Credit Losses
7 - Held to Maturity (HTM) Financial Asset Monthly 15th banking day after end -do-

7a - Held to Maturity Financial Assets Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
Purchased/Sold/Lent Under Repurchase of the reference quarter sdcrb-frp@bsp.gov.ph
Agreements, Cerificates of Assignment/
Participation with Recourse, Securities Lending -do-
7b - Fair Value of Held to Mturity (HTM) Financial Annually 15th banking day after end -do-
Asset of the reference year
7c - Held to Maturity Financial Assets Classified as Quarterly 15th banking day after end
to to Status of the reference quarter -do-
7c3
7d to - Held to Maturity Financial Assets Annually 15th banking day after end -do-
7d3 Movements in Allowances for Credit of the reference year
-do-
8 - Unquoted Debt Securities Classified as Loans Monthly 15th banking day after end
8a - Fair Value of Unquoted Debt Securities Annually 15th banking day after end -do-
Classified as Loans of the reference year
8b to - Unquoted Debt Securities Classified as Loans Quarterly 15th banking day after end -do-
8b3 Classified as to Status of the reference quarter
8c to - Unquoted Debt Securities Classified as Loans Annually 15th banking day after end -do-
8c3 Movements in Allowances for Credit Losses of the reference year
9 - Investment in Non-Marketable Equity Monthly 15th banking day after end -do-
Securities of the reference month
08.12.31
APP. 6
08.12.31
APP. 6
11a to - Loans and Receivables - Others Monthly 15th banking day after end Diskette/CD/Email to SDC1/
11a3 Classified as to Status of the reference month sdcrb-frp@bsp.gov.ph
11b to - Restructured Loans and Receivables Monthly 15th banking day after end -do-
11b3 Classified as to Status of the reference month
11c to - Loans and Receivables - Others Quarterly 15th banking day after end -do-
11c3 Movements in Allowances for Credit Losses of the reference quarter
11d to - Gross Loans and Receivables - Others Monthly 15th banking day after end
11d3 Classified as to Type of Business/Industry of of the reference month -do-
counterparty
11e to - Loans and Receivables - Others Annually 15th banking day after end -do-
11e Classified as to Status Per PAS 39 of the reference year
3
11f - Schedule of Agri/Agra SME, DIL and Monthly 15th banking day after end -do-
Microfinance Loans and Receivables of the reference month
12 - Loans and Receivables Arising from Monthly 15th banking day after end -do-
Repurchase Agreements, Certificates of of the reference month

Transactions
1

12a to Quarterly 15th banking day after end Diskette/CD/Email to SDC1/

12a3 - Loans and Receivables Arising from Repurchase of the reference quarter sdcrb-frp@bsp.gov.ph
Lending and Borrowing Transactions Matrix
of Counterparty and Issuer of Collateral
Securities
13 - Fair Value Adjustments in Hedge Accounting Quarterly 15th banking day after end -do-
Hedge
Hedge
13d - Financial Derivatives Portfolio Hedge of -do- -do- -do-

Interest Rate Risk
14 - Accrued Interest Income/Expense from -do- 15th banking day after end -do-
Financial Assets and Liabilities of the reference quarter
15 - Equity Investment in Subsidiaries, Associates Monthly 15th banking day after end -do-
and Joint Ventures of the reference month
1
08.12.31
APP. 6
08.12.31
APP. 6
15a - Equity Investment in Subsidiaries, Associates Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
and Joint Ventures- Classified as to Nature of of the reference quarter sdcrb-frp@bsp.gov.ph
Business


Equipment
17 - Real and Other Properties Acquired Quarterly -do- -do-
18 - Deferred Tax Assets and Liabilities Monthly 15th banking day after end -do-
19 - Other Assets Monthly 15th banking day after end -do-


Office/Branches/Agencies Abroad -
Philippine Branch of a Foreign Bank
21 - Liability for Short Position Quarterly 15th banking day after end -do-
22 - Deposit Liabilities Monthly 15th banking day after end -do-

Classified as to type of Deposit of the reference month
22a - Deposit Liabilities by Size of Accounts Quarterly 15th banking day after end -do-
Excluding Deposits in Foreign Offices/ of the reference quarter
Branches
1

23 - Due to Other Banks Monthly 15th banking day after end Diskette/CD/Email to SDC1/
of the reference month sdcrb-frp@bsp.gov.ph
25 - Bonds Payable, Unsecured Subordinated Quarterly 15th banking day after end -do-
Debt and Redeemable Preferred Shares of the reference quarter
26 - Fair Value of Financial Liabilities Monthly 15th banking day after end -do-
27 - Financial Liabilities Associated with Qurterly 15th banking day after end -do-
Transferred Assets of the reference quarter
28 - Other Liabilities Monthly 15th banking day after end -do-

29 - Interest Income/Expense from Financial Quarterly 15th banking day after end
Instruments of the reference quarter -do-
-do-
29b - Interest Income from Held for Trading, -do- -do-
Designated at FVPL, Available for Sale, Held -do-
to Maturity Financial Assets and UDSCL
29c - Interest Income from Interbank Loans -do- -do- -do-

Receivables
29d to -do- -do- -do-

29d3 - Interest Income from Loans and Receivables -
08.12.31
APP. 6
1
08.12.31
APP. 6
29e - Interest Income from Loans and Receivables Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
Arising from Repurchase Agreements, of the reference quarter sdcrb-frp@bsp.gov.ph

Unsecured
Subordinated Debt and RedeemablePreferred -do- -do- -do-
Shares
32 - Gains/(Losses) on Financial Assets and -do- -do- -do-

Liabilities Held for Trading


38a - Compliance with Secton X347 -do- -do- -do-
1

39 and Quarterly 15th banking day after end Diskette/CD/Email to SDC1/

39a - Residual Maturity of the reference quarter sdcrb-frp@bsp.gov.ph
Performing Financial Assets and Financial
Liabilities
40 and -do- -do- -do-

40a - Repricing- Performing Financial Assets and


To FCDU/RBU
Schedules (consolidated Report):
1 - Checks and Other cash Items Quarterly 30th banking day after end -do-
3 - Financial Assets Held for Trading -do- -do-

-do-
3a - Breakdown of Held for Trading (HFT) Financial -do- -do-
Assets Purchased/Sold/Lent Under Repurchase
Agreements, Certificates of Assignment/ -do-
08.12.31
APP. 6
1
08.12.31
APP. 6
4a - Derivatives Held for Trading Matrix of Counterparty Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
and Type of Derivative Contracts of the reference quarter sdcrb-frp@bsp.gov.ph
5 - Financial Assets Dexignated at Fair Value -do- -do- -do-

6a - Breakdown of Available for Sale Financial -do- -do- -do-

Assets Purchased/Sold/Lent Under Repurchase
Participation with recourse, Securities Lending
6b -Available-For-Sale Financial Assets-Classified as -do- -do- -do-

to Status
6c - Available-For-Sale financial Assets Movements Annually 30th banking day after -do-
in allowances for Credit Losses end of the reference year
7 - Held to Maturity (HTM) Financial Asset Quarterly -do- -do-

Control Prooflist
7a - Held to Maturity Financial Assets Purchase/ -do- -do- -do-

Sold/Lent Under Repurchase Agreements,

Certificates of Assignment/Participation with -do-
recourse, Securities Lending and Borrowing
Agreements
7b - Fair value of Held to Maturity (HTM) financial Annually 30th banking day after end -do-
Assets of the reference year
1

7c - Held to Maturity Financial Assets Classified as Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
to Status of the reference quarter sdcrb-frp@bsp.gov.ph
7d - Held to Maturity Financial assets Movements Annually 30th banking day after end -do-
in allownaces for Credit Losses of the reference year
8 - Unquoted Debt Securities Classified as Loans Quarterly 30th banking day after end -do-
8a - Fair value of Unquoted Debt Annually 30th banking day after end -do-
Securities classified as to Status of the reference year
8b - Unquoted Debt Securities Quarterly 30th banking day after end -do-
Classified as Loans Classified as to Status of the reference quarter
8c - Unquoted Debt Securities Classified as Loans Annually 30th banking day after end -do-
Movements in allowances for Credit Loans of the reference year
9 - Investment in Non-Marketable Equity Quarterly 30th banking day after end -do-
Securities of the reference quarter
11a- Loans and Receivables - Others Classified as -do- -do- -do-

to Status
11b- Restructured Loans and Receivables classified Quarterly 30th banking day after -do-
as to Status end of reference quarter
08.12.31
APP. 6
1
08.12.31
APP. 6
11c- Loans and Receivables - Others Movements in Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Allowances for Credit Losses of the reference quarter sdcrb-frp@bsp.gov.ph
11d- Gross Loans and Receivables - Others -do- -do- -do-

Counterparty
11f - Schedule of Agri/Agra SME, DIL and -do- -do- -do-

Microfinance Loans and Receivables Clssified
as to Counterparty
12 - Loans and Receivables Arising from -do- -do- -do-

Repurchase Agreements, certificates of
Assignment/Participation with recourse and
12a - Loans and Receivables Arising from -do- -do- -do-

Matrix of Counterparty and Issuer of Collateral
Securities
13 - Fair Value Adjustments in Hedge -do- -do- -do-

13a - Financial Derivatives Held for Fair Value Hedge -do- -do- -do-
13b - Financial Derivatives Held for Cash Flow Hedge -do- -do- -do-
1

13d - Financial Derivatives Portfolio Hedge of Interest Quarterly 15th banking day after Diskette/CD/Email to SDC1/
Rate Risk end of reference quarter sdcrb-frp@bsp.gov.ph

15 - Equity Investment in Subsidiaries, Associates -do- -do- -do-

and Joint Ventures
15a - Equity Investment in Susidiaries, Associates and -do- -do- -do-

Joint Ventures-Classified as to Nature of
Business
-do- -do- -do-
15b - Details of Investment in Subsidiaries, Associates
and Joint Ventures -do-
-do- -do-
16 - Bank Premises, Furniture, Fixture and -do-
Equipment -do-
19 - Other Assets
20 - Breakdown of Due from and Due to Head -do -do- -do-

Office/Branches/Agencies Abroad - Philippines
-do- -do- -do-
21 - Liability for Short Position
22 - Deposit Liabilities Classified as to Type of -do- -do- -do-

Deposit
08.12.31
1
APP. 6
08.12.31
APP. 6
22a - Deposit Liabilities by Size of Accounts Quarterly 15th banking day after end Diskette/CD/Email to SDC1/
Excluding Deposits in foreign Offices/Branches of the reference quarter sdcrb-frp@bsp.gov.ph
23 - Due to Other Banks -do- -do- -do-
25 - Bonds Payable, Unsecured Subordinated Debt -do- -do- -do-

and Redeemable Preferred Shares
26 - Fair Value of financial Liabilities Annually 30th banking day after -do-
27 - Financial Liabilities Associated with Transferred Quarterly 30th banking day after end -do-
Assets of the reference quarter
28 - Other Liabilities -do- -do- -do-
29 - Interest Income/Expense from Financial -do- -do- -do-

Instrument
29a - Interest Income from due from Other Banks -do- -do- -do-
Maturity Financial Assets and Unquoted Debt
Securities Classified as Loans
29c - Interest Income from Interbank Loans -do- -do- -do-

Receivables
1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or hard

29d - Interest Income from Loans and Receivables - Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
Others - Classified as to Status of the reference quarter sdcrb-frp@bsp.gov.ph
29e - Interest Income from Loans and Receivables -do- -do- -do-
Certificates of Assignmnet/Participation with
Borrowing transactions
30c - Interest Expense on Bonds Payable, Unsecured -do- -do- -do-

Subordinated Debt and Redeemable Preferred
Shares
32 - Gains/(Loss) on Financial Assets and Liabilities -do- -do- -do-

Held for trading

Derecognition of Non-Trading Financial Assets
and Liabilities -do- -do- -do-

1
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or hard
08.12.31
APP. 6
08.12.31
APP. 6
35 - Other Administrative Expenses Quarterly 30th banking day after end Diskette/CD/Email to SDC1/
of the reference quarter sdcrb-frp@bsp.gov.ph
36 - Depreciation/Amotization Expense -do- -do- -do-
39 - Residual Maturity Performing Financial Assets -do- -do- -do-

and Financial Liabilities
40 - Repricing - Performing Financial Assets and -do- -do- -do-


42 - disclosure of Due From FCDU/RBU and Due -do- -do- -do-

To FCDU/RBU
1
For RBs which are subsidiaries of UBs/KBs

A1 Unnumbered X602.5 Derivatives Report Monthly 15th banking day after the CMSG cc: SDC
Circular No. 594 end of the reference month cmsg@bsp.gov.ph. sdc-
dated 01.08.08 Schedules: derivatives@bsp.gov.ph.
and M-2008-009
dated 02.27.08 Report on Outstanding Derivatives Contracts
(Stand - Alone - RBU, Stand - Alone - FCDU, Hybrid)
Report on Trading (Gains/Losses) on Financial

Derivatives
Certification (Hard Copy) Monthly 15th banking day after the Receiving Section, SES
Control Prooflist
A-1 Unnumbered X116.4 Computation of the Adjusted Risk-based Capital

(As amended by Adequacy Ratio Covering Combined Credit Risks SDC
Cir. Nos. 503 for stand alone RBs
dated 12.22.05
and 475 dated
02.14.05)
- Solo basis (Head office and branches) Quarterly 15th banking day after Appropriate
end of reference quarter department of the SES
- Consolidated basis (parent bank plus subsidiary -do- 30th banking day after -do-
financial allied undertakings, but excluding end of reference quarter
A-1 Unnumbered X116.4 - Computation of the Adjusted Risk-Based Capital -do-

(Cir. 574 dated Adequacy Ratio Covering Combined Credit Risks,
07.10.07) Market Risk and Operational Risk1
08.12.31
APP. 6
08.12.31
APP. 6
A1 X116 - Solo basis (Head office and branches) Quarterly 15th banking day after SDC
A1 X116 Consolidated basis (parent bank plus subsidiary -do- 30th banking day after -do-
financial allied undertakings, but excluding insurance end of reference quarter
companies)
A2 RB/COB X116.2 Consolidated Daily Report of Condition (CDRC) Weekly 4th banking day after -do-
Form1 end of reference week
A2 RB/COB X162 Consolidated Statement of Condition Monthly 15th banking day after cc: Mail to SDC
Form 2A Rev. 2004 per end of reference month Appropriate department
MAB dated of the SES
05.21.04
Schedules:
1 - Due from/Due to Other Banks
2 - Loan Portfolio and Other
Accommodations
2.1 - Loan Portfloio and Other
Accommodations (Borrowings of Local
Government Units)
2.2 - Schedule of Microfinance Loans
3 - Investments in Bonds and Other Debt
Instruments
3.1 - Investments in Bonds and Other Debt

Instruments (Govenment Issue - Local
Government Units)
3A - Equity Investments
4 - Fixed and Other Assets
5 - Deposit Liabilities
6 - Bills Payable
Control Prooflist -do- -do- -do-


A-2 Unnumbered X141.9 Acknowledgment receipt of copies of specific duties Annually or 30th 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-2 Form 2B/2B.1 X162.9 RBs with resources of P1.0 billion and above
(Cir. 576 dated
08.08.07 and Balance Sheet/Consolidated Balance Sheet Quarterly 12 banking days from Diskette/CD/e-mail to SDC
MAB-2007-030 the date of the Call Letter sdcrb-pbs@bsp.gov.ph
dated 10.04.07) Control Prooflist duly notarized and signed by the hard copy to SDC
authorized official of the reporting bank
Fax to 523-3461 or
523-0230
Published Balance Sheet/Consolidated Balance Sheet
(together with the publisher's certificate)
20 banking days from Fax to 523-3461 or 523-
the date of the Call Letter 0230 or via postal/
A-2 Form (Cir. 576 RBs with resources of less than P1.0 billion messengerial services to
2B/2B.1 dated SDC
08.08.07 and
MAB-2007- Balance Sheet/Consolidated Balance Sheet -do- 20 banking days from Diskette/CD/e-mail to SDC
030 dated the date of the Call Letter sdcrb-pbs@bsp.gov.ph
10.04.07) hard copy to SDC
Control Prooflist duly notarized and signed by the Fax to 523-3461 or 523- Fax to 523-3461 or 523-
aurthorized official of the reporting 0230 or via postal/ 0230 or via postal/
messengerial services to messengerial services to
SDC SDC
Published Balance Sheet/Consolidated Balance Sheet 20 banking Fax to 523-3461 or 523-

(together with the publisher's certificate if applicable) days from 0230 or via postal/
the date of messengerial services to
the reference SDC
quarter
08.12.31
APP. 6
08.12.31
APP. 6
A2 Unnumbered X425.2 Financial Reporting Package for Trust Institution1 Quarterly 20th banking day after SDC
Cir. 609 dated the end of reference sdcrb-frpti@bsp.gov.ph
05.26.08 and Schedules: quarter
M-2008-022
dated 06.26.08 Balance Sheet
A1 to A2 Main Report
B to B2 Details of Investments in Debt and

Equity Securities
C to D2 Details of Loans and Receivables
D to D2 Wealth/Asset/Fund Management -
UITF
E Other Fiduciary Accounts
E1 to E1b Other fiduciary Services - UITF
Income Statement

end of reference quarter sdcrb-frpti@bsp.gov.ph
A2 Unnumbered X162 Report on Microfinance Loans Monthly 15th banking day after end SDC
Cir. 607 of the reference month sdcrb-micro@bsp.gov.ph
dated
04.30.08 and
M-2008-021
dated
06.16.08

A2 Unnumbered X162 Income Statement on Microfinance Operations Quarterly 15th banking day after end SDC
Cir. 607 dated of the reference quarter sdcrb-micro@bsp.gov.ph
04.30.08 and
M-2008-021
dated
06.16.08
A2 X171.5 Self-Assesment and Certification of Compliance with Annually On or before 30 January Appropriate department of
Cir. No. 620 Rules and Regulations on Bank Protection/Updated the SES
dated Security Program
09.03.08
A2 RB/COB X254 Report on Microfinance Transactions Monthly 5th banking day after end Original - DLC/BSPRLC
Form 7 of reference month
A2 RB/COB X254 Weekly Report on Required and Available Reserves Weekly 4th banking day after end Electronic mail to SDC
Form 7A Against Deposit Liabilities (To be replaced with CDRC of reference week
- Form 1)
A2 RB/COB X240.8 Control Prooflist of WRRAR Against Deposit Liabilities -do- -do- -do-
Form 8
A2 Unnumbered X240.6 Government Funds Held/Compliance with Liquidity Quarterly 15th banking day after end Original - Appropriate
(Rev. May Floor Requirement of the reference quarter department of the SES
2002) Duplicate - SDC
A2 Unnumbered App. 52a Covered Transaction Report (CTR) As 10th banking day from Original and duplicate -
Rev. May transaction the occurrence of the Anti - Money Laundering
2002 as occurs transaction Council (AMLC)
amended by
cir. no. 612

dated
06.13.08
08.12.31
APP. 6
08.12.31
APP. 6
A2 Unnumbered App. 52a Suspicious Transaction Report (STR) As 10th banking day from Original and duplicate -
Cir. 279 transaction the occurrence of the Appropriate department of
dated occurs transaction the SES
04.02.01
A1 RB/COB App.52a Certification of Compliance with Anti - Money Annually 20th banking day after -do-
Form 9 Laundering Regulations end of reference year
A3 RB/COB X162 Statement of condition (by Banking Unit) -do- Original - SDC Duplicate -
Form 2B (As amended - including ROPA by banks Appropriate department of
by MAB the SES
dated
05.21.04)
Schedules:
1 - Loans-to-Deposit Ratio
Supplementary
Information
A3 RB/COB X162 Consolidated Statement of Income and Expenses Quarterly 15th banking day after cc: Mail/Diskette/Hard
Form 3A (As amended end of reference quarter copy; SDC/Appropriate
by CL-022 department of the SES
dated
08.29.06)
Control Prooflist -do- -do- SDC/Appropriate

department of the SES
A3 RB/COB X162 Statement of Income and Expenses (by Banking Unit) -do- -do- cc: Mail/Diskette/Hard
(As amended copy; SDC
by MABdated
05.21.04)

A3 Unnumbered X393 Report of Selected Branch Accounts Semestral 20 banking days after end SDC
Cir. 613 dated of reference semester sdcrb-bris@bsp.gov.ph
06.18.08 and Schedules:
M-2008-032
dated Selected Balance Sheet Accounts
10.31.08
Selected Balance Sheet and Income Statement
Accounts
Breakdown of deposit Liabilities

Reconciling Items Outstanding for More than Six

(6) Months on the Due From/Due to Head Office,
Branches and Agencies Account
A3 RB/COB X335 Consolidated Report on compliance with Individual Quarterly 15th banking day after Original - Appropriate
Form 4A X409.3 Ceiling on Direct credit Accommodations to Directors/ end of reference quarter department of the SES
Officers/Stockholders/Related Interests (DOSRI)
Schedule:
1. Compliance with Individual Ceiling on Credit
Accommodations to DOSRI
A3 RB/COB X335 Consolidated Report on the Compliance with -do- -do- -do-
Form 4B X409.3 Aggregate Ceiling on Credit Accommodations to
DOSRI
Schedules:
1 Secured and Unsecured DOSRI Loans Quarterly 15th banking day after Electronic mail/Diskette/
end of the reference Hardcopy: SDC
A3 RB/COB X341.9 Consolidated Report on the Utilization of Loanable quarter sdcrb-agra@bsp.gov.ph
Form 5a (Rev. Dec. Funds Generated Which Were Set Aside for Agrarian
2004 MAB
08.12.31
Reform Credit/Other Aricultural Credit
APP. 6
dated
09.08.04)
08.12.31
APP. 6
Schedules:
A - Total Collection 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 71
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 copy: SDC (by fax, if hard
report copy cannot be submitted
on deadline)
A3 RB/COB X342.6 Report on Compliance with Mandatory Credit -do- 15th banking day after Electronic mail/diskette:
Form 5B (Cir. 625 Allocation Required under RA 6977, as amended by end reference quarter SDC - email at sdcrb-
dated RA nos. 8289 and 9501 sme@bsp.gov.ph
10.14.08 and
M-2008-035
dated
11.19.08)
Schedules:
1A Computation of Total Loan Portfolio for

Purposes of Determining Amount of
1A- Wholesale Lending of a Bank to

1 Conduit NBFIs w/o QB authority Other Than
Those for ON-Lending to MSMEs

1A- Loans Granted Under Special
2 Financing Program Other Than for MSMEs
1A Loans Granted to MSMEs Other

3 Than to BMBEs Which are Funded by
Wholesale Lending of or Rediscounted with
Another Bank
1B Details of Eligible Inverstments for

Compliance with the Required Credit
Allocation for MSMEs
1B- Loans Granted to MSMEs Other than

1 to BMBEs which are Funded by Wholesale
Bank
1B- Wholesale Lending or Rediscounting Facility

2 Granted to Participating Financial Institutions
for On-Lending to MSMEs other than to
BMBEs
3 Reconciliation of Loans Granted to MSMEs

as Reported Under Schedules 1B, 1B-1 and
2 and FRP Balance of Microfinance and SME
Loans
Control Prooflist Quarterly 15th Banking day after SDC

A3 Unnumbered 32776 Summary of Loans Granted Annually 15th banking day after Original - SDC
end of reference year Duplicate- Appropriate
department of the SES
08.12.31
APP. 6
08.12.31
APP. 6
A3 Unnumbered X162 Report on Borrowings of BSP Personnel Quarterly 15 banking days after end Original to SDC
(Cl-2007-050 of reference quarter
dated
10.04.07 CL-
2007-059
dated
11.28.07)
B RB/COB X162.6 Reconciling Items Outstanding for More than Six Semestral 15th banking day after Original - Appropriate
Form 10 Months on the Due from/Due to Head Office/Branches end of reference department of the SES
& Agencies Account (by Banking Unit) semester
B RB/COB X338.3 Report on Availment of Financial Assistance to Officers Semestral 15th banking day after -do-
Form 13 X339.4 and Employees under an Approved Plan end of reference
(Cir. 487 semester
dated -do-
06.03.05)
B RB/COB X162.7 Consolidated List of Stockholders and Their Annually/ 30th banking day after Original - Appropriate
Form 16 (As amended Stockholdings and Changes thereto Quarterly end of calendar year and department of the SES
by Cir. No. when if there are changes, 12th
533 dated changes banking day after end of
06.19.06) occurs the reference quarter
B RB/COB X144 Biographical Data of Directors/Officers After 7th day from the date of cc: Mail/Diskette to SDC
Form 18 (CL dated - If submitted in discette form - Notarized first page election or the meeting of the board Original - SDC Duplicate-
01.09.01, as of each of the directors'/officers' bio-data saved appointment of directors in which the Appropriate department of
amended by in diskette and control prooflist and as directors/officers are the SES
M-2008-024 - If sent by electronic mail - Notarized first page of change elected of appointed
dated Biographical Data or Notarized list of names of occurs
07.31.08) Directors/Officers whose Biographical data were
submitted thru electronic mai to be faxed to SDC
(CL dated 1.09.1)

MAAB dated Certification under oath of independent directors that
09.02.05 he/she is and independent director as defined under
Section X141.10 and that all the information thereby
suppliled are true and correct.
Cir. 513 Verified statement of directors/officers that he/she has

dated all the aforesaid qualificatons and none of the
02.10.06 disqualifications.
B RB/COB X156.2 New Schedule of Banking Days/Hours As 7th banking day prior to Original-Appropriate
Form 19 necessary effectivity of change department of the SES
B RB/COB X162.5 Sworn Statement of Real Estate/Chattel transaction to As 10th banking day from -do-
Form 20 DOS transaction approval of transaction
is approved
B SES Form S162.4 Report on Crimes and Losses As Not later than ten (10) SDC and SITD
6G (As amended transaction calendar days from
by Cir. Nos. occurs As knowledge of crime/
587 dated incident incident and complete
10.26.07 and occurs report not later than
486 dated twenty (20) calendar days
06.01.05) from termination of
examination
B Unnumbered X143.4 Report on disqualification of Directors/Officers As Within 72 hours from Original-Appropriate

(no precribed disqualification receipt of report by the department of the SES
form) occurs BOD
B RB/COB X306.5 Notice/Application for Write-off Loans, Other Credit As write-off Within 30 days after Original and duplicate-
Form 23 (As amended Accommodations, advances and Other Assets occurs every write-off Appropriate department
by Cir. No. of the SES
463 dated
12.29.04)
08.12.31
APP. 6
08.12.31
APP. 6
B RB/COB X144 List of Members of the Board of Directors and Officers Annually 10th banking day after Original-Appropriate
Form 25 election or appointment department of the SES
B RB/COB X334 Transmittal of Board Resolution/Written Approval on As 20th banking day from -do-
Form 26 Credit Accommodation to DOSRI in compliance with transaction date of approval
Sec. 36, R.A. 8791, as amended occurs
B Unnumbered X328.5 Transmittal of Board Resolution/Written Approval On As loan to 20 banking days after Original and duplicate-
(Cir.560 dated Credit Accommodations to Subsidiaries and/or subsidiaries approval Appropriate department
01.31.07) Affiliates in Compliance with Sec. X328.5 and/or of the SES
affiliates is
approved
B X166.6 Annual report of Management to Stockholders Annually 180 days after close of Original-appropriate
Covering Results of Operation for the Previous Year calendar or fiscal year department of the SES
B Unnumbered X162.1 Report on the Designation of Authorized Signatories as Within 3 banking days -do-
of Bank's Reports Classified as Category A1, A2, A3 designation from the date the
and B by bank's designation/change
board of occurs
directors
occurs
B Unnumbered X262.3 Cerification 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 transaction 30th day from date of the DES
occurs bond flotation by the LGU
X409.16 Waiver of the Confidentiality of Information under As transaction Appropriate department

Sections 2 and 3 of R.A. No. 1405, as amended occurs of the SES

B Unnumbered X235.12 Notarized Cerification that the bank did not enter into Semestral Within 72 hours from Appropriate department
(Cir. 467 dated Repurchase Agreement covering Government Secuities, knowledge of transaction of the SES
01.10.05) Commercial Papers and Other Non-negotiable Securities
or instruments that are not documented
B Unnumbered X235.12 Report on Undocumented Repurchase Agreements As 5th banking day after end -do-
(Cir. 467 dated transaction of the reference semester
01.10.05) occurs
B SEC Form (MAB dated General Information Sheet Annual 30 days from date of Drop box-SEC Cenmtral
09.02.05) annual stockholders' Receiving Section
meeting
(M-2008-
005dated Disclosure Statement on SPV Transactions Quarterly 15th banking day after SDC
02.04.08) end of reference quarter
(M-2008-019 Report on Non-Deliverable USD/PHP Forward Weekly 2nd banking day after SDCsdc-ndf@bsp.gov.ph
dated Transactions with Non-Residents end of reference week cc: Treasury Dept.
05.03.08) fx-omo@bsp.gov.ph
Control Prooflist Weekly 2nd banking day after -do-

end of reference week
08.12.31
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
08.12.31
FORMAT OF SELF-ASSESSMENT AND CERTIFICATION ON COMPLIANCE WITH

RULES AND REGULATIONS ON BANK PROTECTION
(Name of Bank)
I hereby certify that the Bank has developed and adopted an updated security
program which has been reduced in writing and approved by the Bank’s Board of Directors
in its Resolution No. ______ dated __________ and retained by this Bank in such form as
will readily permit determination of its adequacy and effectiveness. I also certify that I
have evaluated/assessed said security program and its implementation and that to the best
of my knowledge and belief said security program equals or exceeds the standards
prescribed by the Bangko Sentral rules and regulations.
Attached are the results of the self-assessment prepared under my supervision

regarding the Bank's security program.
President
Date
ASSESSMENT OF COMPLIANCE WITH RULES AND

REGULATIONS ON BANK PROTECTION
(Name of Bank)
I, ________________________, Security Officer of (Name of Bank), hereby certify

that -
1. The Bank has a written security program approved by its board of directors and
retained by this Bank in such form as will readily permit determination of its adequacy and
effectiveness;
2. The security program is compliant with the standards set by BSP rules and regulations
and commensurate to the Bank’s operations, taking into consideration its size, locations
and the number of its offices. The security program of the Bank is deemed adequate to
promote maximum protection of life and property against crimes and other destructive
causes; prevent and discourage crimes against the Bank; and assist law enforcement
agencies in the identification and prosecution of perpetrators of crimes committed against
the Bank;

APP. 10
08.12.31
3. The assessment we conducted last ___________ disclosed that said security program
of the Bank has faithfully been implemented by the Bank and the implementation
thereof is substantially compliant with the requirements on bank protection prescribed
under Section X171 as follows:
a. Guard system
Description of the system
b. Security devices
Description of the security devices, such as:
• Surveillance system;
• Burglar alarm system; and
• Robbery/hold-up alarm system.
c. Vaults and safes
State physical description and minimum security measures designed for the vault
d. Security of the premises
Description of the security measures/devices for banking premises
e. Automated Teller Machines (ATM)
Description of security measures/devices for ATMs
f. Armored car operation
Description of armored vehicles and security measures adopted for them
g. Employees training
Describe training given
There are no noted adverse deviations of the program from the requirements under
BSP rules and regulations. (If there are deviations, please state, “We noted the following
deviations and the measures taken to address the deviations.”)
4. The Bank has written procedures on the following emergency programs:

a. Anti-robbery/hold-up plan;
b. Bomb threat plan;
c. Fire protection plan; and
d. Other disaster plan like earthquake and terrorist attack.
5. The Bank periodically inspects, tests and reviews its security program and records
thereof are adequately maintained and will be made readily available to the BSP for the
determination of the program’s adequacy and effectiveness.
Security Officer
Date
Noted by:
President
Date
(As amended by Circular No. 620 dated 03 September 2008)

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
08.12.31
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 is the bank’s chance to be repaid or the

classifying loans as either current or past borrower’s ability to liquidate the loan in
due, the same should be qualitatively an orderly manner undermined. These
appraised and grouped as Unclassified or exceptions should be brought to
Classified. management’s attention for corrective
A. Unclassified loans. These are loans action during the examination and those
that do not have a greater-than-normal risk not corrected shall be included in the
and do not possess the characteristics Report of Examination under
of classified loans as defined below. “Miscellaneous Exceptions – Loans”.
The borrower has the apparent ability Moreover, deficiencies which remained
to satisfy his obligations in full and uncorrected in the following examination
therefore no loss in ultimate collection shall be classified as “Loans Especially
is anticipated. The following loans, Mentioned”.
among others, shall not be subject to The following are examples of loans to
classification: be cited under “Miscellaneous Exceptions
1. Loans or portions thereof secured – Loans”:
by hold-outs on deposits/deposit a. Loans with unregistered mortgage
substitutes maintained in the lending instrument which is not in compliance with
institution and margin deposits, or the loan approval;
government-supported securities; b. Loans with improperly executed
2. Loans granted by Philippine supporting deed of assignment/pledge
branches of foreign banks to subsidiaries agreement/chattel mortgage/real estate
and affiliates in the Philippines of mortgage;
multinational companies which are c. Loans with unnotarized mortgage
covered by standby letters of credit instruments/agreements;
(Standby LC) issued by the bank head d. Loans with collaterals not covered
offices in favor of their local branches, and by appraisal reports or appraisal reports not
are current in status: Provided, That the updated;
foreign bank is rated at least “AA-” or its e. Loan availments against expired
equivalent by a BSP-recognized credit line; availments in excess of credit
international credit assessment agency line; availments against credit line
based on the guidelines for the use of third without prior approval by appropriate
party credit assessment as provided in authority;
App. 63b: Provided, further, That the f. Loans with collaterals not insured
Standby LC is direct, explicit,irrevocable or with inadequate/expired insurance
and unconditional; and policies or the insurance policy is not
3. 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 approving authority;
deficiencies are isolated cases where the h. Loans granted without compliance
exceptions involved are not material nor with conditions stated in the approval; and

APP. 18
08.12.31
i. Loans secured by property the title e. Loans the repayment of which may
to which bears an uncancelled annotation be endangered by economic or market
or lien or encumbrance. conditions that in the future may affect the
B. Classified loans. These are loans borrower’s ability to meet scheduled
which possess the characteristics outlined repayments as evidenced by a declining
hereunder. Classified loans are subdivided trend in operations, illiquidity, or increasing
into (1) loans especially mentioned; (2) leverage trend in the borrower’s financial
substandard; (3) doubtful; and (4) loss. statements;
1. Loans especially mentioned f. Loans to borrowers whose
These are loans and advances that have properties securing the loan (previously
potential weaknesses that deserve well secured by collaterals) have declined
management’s close attention. These in value or with other adverse information;
potential weaknesses, if left uncorrected, g. Loans past due for more than thirty
may affect the repayment of the loan (30) days up to ninety (90) days; and
and thus increase credit risk to the h. Loans previously cited as
bank. Their basic characteristics are as "Miscellaneous Exceptions" still uncorrected
follows: in the current BSP examination.
a. Loans with unlocated collateral 2. Substandard. These are loans or
folders and documents including, but not portions thereof which appear to involve a
limited to, title papers, mortgage substantial and unreasonable degree of risk
instruments and promissory notes; to the institution because of unfavorable
b. Loans to firms not supported by record or unsatisfactory characteristics.
board resolutions authorizing the There exists in such loans the possibility
borrowings; of future loss to the institution unless given
c. Loans without credit investigation closer supervision. Those classified as
report/s; “Substandard” must have a well-defined
d. Loans not supported by the weakness or weaknesses that jeopardize
documents required under Subsec. their liquidation. Such well-defined
X304.1 except: consumer loans, with weaknesses may include adverse trends or
original amounts not exceeding P2.0 development of financial, managerial,
million: Provided, That these loans are economic or political nature, or a significant
current, and are supported by latest ITR weakness in collateral. Their basic
or by BIR Form 2316 or payslips for at characteristics are as follows:
least three (3) months immediately a. Secured loans
preceding the date of loan application, (1) Past due and circumstances are such
and financial statements submitted for that there is an imminent possibility of
taxation purposes to the BIR, as may be foreclosure or acquisition of the collateral
applicable, at the time they were granted, because of failure of all collection efforts;
renewed, restructured or extended. For (2) Past due loans to borrowers whose
this purpose, consumer loans include properties securing the loan have declined
housing loans, loans for purchase of car, in value materially or have been found
household appliance(s), furniture and with defects as to ownership or other
fixtures, loans for payment of educational adverse information; and
and hospital bills, salary loans and loans (3) Current loans to borrowers whose
for personal consumption, including audited financial statements show
credit card loans; impaired/negative net worth except for

APP. 18
08.12.31
start-up firms which should be evaluated a. Past due clean loans classified as
on a case-to-case basis. “Substandard” in the last BSP examination
Loans and advances possessing any of without at least twenty percent (20%)
the above characteristics shall be classified repayment of principal during the
“Substandard” at the full amount except succeeding twelve (12) months or with
portions thereof secured by hold-outs on current unfavorable credit information;
deposits, deposit substitutes, margin b. Past due loans secured by
deposits, or government-supported collaterals which have declined in value
securities. The portions so secured are not materially such as, inventories,
subject to classification. receivables, equipment, and other chattels
b. Unsecured loans without the borrower offering additional
(1) Renewed/extended loans of collateral for the loans and previously
borrowers with declining trend in classified “Substandard” in the last BSP
operations, illiquidity, or increasing examination;
leverage trend in the borrower’s financial c. Past due loans secured by real
statements without at least twenty percent estate mortgage, the title to which is
(20%) repayment of the principal before subject to an adverse claim rendering
renewal or extension; and settlement of the loan through
(2) Current loans to borrowers with foreclosure doubtful; and
unfavorable results of operations for two (2) d. Loans wherein the possibility of
consecutive years or with impaired/negative loss is extremely high but because of
net worth except for start-up firms which certain important and reasonably specific
should be evaluated on a case-to-case basis. pending factors that may work to the
c. Loans under litigation; advantage and strengthening of the asset,
d. Loans past due for more than ninety its classification as an estimated loss is
(90) days; deferred until a more exact status is
e. Loans granted without requiring determined.
submission of the latest AFS/ITR and/or 4. Loss. These are loans or portions
statements of assets and liabilities to thereof which are considered uncollectible
determine paying capacity of the borrower; or worthless and of such little value that
f. Loans with unsigned promissory their continuance as bankable assets is not
notes or signed by unauthorized officers warranted although the loans may have
of the borrowing firm; and some recovery or salvage value. The
g. Loans classified as “Loans amount of loss is difficult to measure and
Especially Mentioned” in the last BSP it is not practical or desirable to defer
examination which remained uncorrected writing off these basically worthless assets
in the current examination. even though partial recovery may be
3. Doubtful. These are loans or obtained in the future. Their basic
portions thereof which have the characteristics are as follows:
weaknesses inherent in those classified as a. Past due clean loans the interest of
“Substandard", with the added which is unpaid for a period of six (6)
characteristics that existing facts, months;
conditions, and values make collection or b. Loans payable in installments
liquidation in full highly improbable and where amortization applicable to interest
in which substantial loss is probable. Their is past due for a period of six (6) months,
basic characteristics are as follows: unless well secured;

APP. 18
08.12.31
c. When the borrower’s whereabouts If cost is greater than book value, the excess
is unknown, or he is insolvent, or his shall be charged in full to operations or
earning power is permanently impaired booked as deferred charges and amortized
and his co-makers or guarantors are as expense over a period not exceeding five
insolvent or that their guaranty is not (5) years. Subsequent to acquisition, if there
financially supported; is an impairment in the recorded value, the
d. Where the collaterals securing the impairment should adequately be provided
loans are considered worthless and the with allowance for probable losses.
borrower and/or his co-makers are C. Other property owned or
insolvent; acquired
e. Loans considered as absolutely 1. The basic characteristics of real
uncollectible; and estate property acquired subject to
f. Loans classified as “Doubtful” in "Substandard " classification are as follows:
the last BSP examination and without a. Acquired for less than five (5) years
any payment of interest or substantial unless worthless.
reduction of principal during the b. Converted into a Sales Contract
succeeding twelve (12) months or have Receivable.
current unfavorable credit information c. Sold subject to a firm purchase
which renders collection of the loan commitment from a third party before the
highly improbable. close of the examination.
C. Credit card receivables. Credit 2. The basic characteristics of real
card receivables shall be classified in estate property acquired subject to "Loss"
accordance with age as follows: classification are as follows:
a. Foreclosure expenses and other
No. of days charges included in the book value of the
past due Classification property, excluding the amount of non-
refundable capital gains tax and
91 - 120 Substandard documentary stamp tax paid in connection
121 - 180 Doubtful with the foreclosure/purchase which meet
181 or more Loss the criteria for inclusion in the book value
of the acquired property.
The foregoing is the minimum b. The excess of the book value over
classification requirement. Management the appraised value.
may therefore formulate additional specific c. Property whose title is definitely lost
guidelines. to a third party or is being contested in court.
d. Property wherein the exercise of
II. Investments and Other Risk Assets the right of usufruct is not practicable or
possible as when it is eroded by a river or
A. Investment in debt securities and is under any like circumstances.
marketable equity securities. The Real estate property acquired are not
classification, accounting procedures, sound bank assets. Because of their nature,
valuation and sales and transfers of that is, non-liquid and non-productive, their
investment in all debt securities and immediate disposal through sale is highly
marketable equity securities is in recommended.
Appendix 33. D. Acquired or repossessed personal
B. Equity investment in affiliates property
shall be booked at cost or book value 1. All personal property owned or
whichever is lower on the date of acquisition. acquired held for three (3) years or less from

APP. 18
08.12.31
date of acquisition shall be classified as loans or loan installments have matured or

"Substandard " assets. have become non-performing shall be
2. The basic characteristics of acquired provided with a 100% allowance for
or repossessed personal property classified uncollected interest on loans.
as "Loss" are as follows: 2. All other accrued interest
a. Property not sold for more than receivable on loans or loan installments
three (3) years from date of acquisition; shall be classified similar to the
b. Property which is worthless or not classification of their respective loan
salable; accounts.
c. Property whose title is lost or is
being contested in court; III. Allowance for probable losses
d. Foreclosure expenses and other An allowance for probable losses on
charges included in the book value of the the loan accounts shall be set up as follows:
property; and
e. The excess of the book value of the A. Specific allowance
property over its appraised or realizable Allowance
value. Classification (Percent)
E. Accounts Receivable 1. Unclassified 0.0
1. Accounts receivable arising from 2. Loans Especially Mentioned 5.0
loan and investment accounts still 3. Substandard
uncollected after six (6) months from the (a) Secured 10.0
date such loans or loan installments have (b) Unsecured 25.0
matured or have become past due shall be 4. Doubtful 50.0
provided with a 100% allowance for 5. Loss 100.0
uncollected accounts receivable.
2. All other accounts receivable B. General allowance. In addition to
should be classified in accordance with age the specific allowance for probable losses
as follows, unless there is good reason for required under Item "A", a general
non-classification: provision for loan losses shall also be set
up as follows:
No. of Days (1) Five percent (5%) of the
Outstanding Classification outstanding balance of unclassified
restructured loans less the outstanding
61 - 180 Substandard balance of restructured loans which are
181 - 360 Doubtful considered non-risk under existing laws,
361 or more Loss rules and regulations: Provided, That loans
restructured/rescheduled under the debt
The classification according to age of relief and rehabilitation program for
accounts receivable should be used in borrowers adversely affected by the super
classifying other risk assets not covered typhoon last 20 July 2003 in the Province
above. However, their classification of Isabela shall be treated as regular loans
should be tempered by favorable and shall be subject to the general loan loss
information gathered in the review. provision of one percent (1%) instead of
F. Accrued Interest Receivable five percent (5%) applicable to restructured
1. Accrued interest receivable on loans: Provided, further, That the
loans or loan installments still uncollected restructuring/rescheduling of said loans are
after three (3) months from the date such effected not later than 31 December 2003:

APP. 18
08.12.31
Provided, finally, That the restructured/ required to be set up to one percent (1%)
rescheduled loans are subsequently shall first be applied to unbooked specific
maintained in performing status or have valuation reserves, whether authorized to be
complied with the terms of the restructuring booked on a staggered basis or not and only
agreement. the remainder can be considered as income.
(2) One percent (1%) of the C. Allowance for probable losses -
outstanding balance of unclassified loans microfinance loans
other than restructured loans less loans Specific allowance for probable losses
which are considered non-risk under on microfinance loans shall be set up
existing laws, rules and regulations. immediately in accordance with the PAR
The general loan loss provision shall number of days of missed payment, as follows:
be computed as follows:
No. of days of Allowance for
For Loans Not Restructured missed payment probable losses (%)
Gross Loan Portfolio PAR 1 - 30 2
(Excluding Restructured Loans) P xxx 31 - 60 and/or loans
Less: Classified Loans restructured
(based on latest BSP examination) once 20
Loans especially mentioned P xxx
61 - 90 50
Substandard
Secured xxx 91 - or more and/or
Unsecured xxx loans restructured
Doubtful xxx twice 100
Loss xxx xxx
Unclassified Loans xxx Provided, That a general provision for
Less: Loans considered non- losses for microfinance loans equivalent
risk under existing regulations xxx to one percent (1%) of the outstanding
Loan Portfolio, net of exclusions xxx balance of microfinance loans not subject
General Loan Loss Provision to the foregoing provisioning less
(1% of net loan portfolio) P xxx
microfinance loans which are considered
For Restructured Loans non-risk under existing laws/rules/
Restructured Loans (Gross) P xxx regulations, if any, shall also be set up.
Less: Classified Restructured Loans The specific and general allowances
(based on latest BSP examination) for probable losses shall be adjusted
Loans especially mentioned P xxx accordingly for additional allowance
Substandard required by the BSP: Provided, That in
Secured xxx cases of partially secured loans, only ten
Unsecured xxx percent (10%) allowance shall be required
Doubtful xxx
for the portion thereof which are covered
Loss xxx xxx
Unclassified Restructured Loans xxx
by the appraised value of the collateral:
Less: Rest. Loans considered non- Provided, further, That said collateral is
risk under existing regulations xxx re-appraised at least annually.
Restructured Loans, net of exclusions xxx Management is, however, encouraged
General Loan Loss Provision to provide additional allowance as it
(5% of net restructured loans) P xxx deems prudent and to formulate additional
specific guidelines within the context of
The excess of the booked general loan the herein-described system.
loss provisions over the amount required (As amended by Circular Nos. 622 dated 16 September 2008,
as a result of the reduction of the amount 603 dated 03 March 2008, 520 dated 20 March 2006)

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
08.12.31
AGREEMENT FOR THE ENHANCED

INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)

APP. 21a
08.12.31
SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND

PURCHASE AND SALE OF GOVERNMENT SECURITIES
UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)

APP. 21b
08.12.31
ENHANCED INTRADAY LIQUIDITY FACILITY

Given the increasing volume of Chief, Scripless Securities Registration

PhilPaSS transactions as well as concerns Division. The application letter shall be in
of having temporary gridlocks in the the form of ANNEX 1 hereto.
PhilPaSS, the current features of the ILF had
been enhanced, specifically on the B. Timeline
following areas: From 9:00AM to 9:30AM of each
a. Flexibility in changing the banking day, an Eligible Participant bank
securities that will be used for the ILF; shall electronically instruct the BTr to move/
b. Availment of the facility on a “as transfer from its Principal Securities Account
the need arises” basis; and with the BTr’s ROSS to the CSA-ILF under
c. Removal of commitment fees the name of the Eligible Participant bank, the
pool of peso-denominated GS to be set aside
The revised features of the ILF are described for the ILF purpose. The Eligible Participant
below. bank hereby confirms to the BTr that pursuant
to an ILF availment, it has authorized the
A. Access to ILF transfer without consideration unto the CSA-
Government securities (GS) held by an ILF the pool of GS to be used for ILF purposes.
Eligible Participant bank in its Regular From 9:30 AM to 10:00 AM, the BTr
Principal Securities Account that will be RoSS shall electronically submit a
used for ILF purposes shall be delivered to consolidated report to BSP showing the
a sub-account under the BSP-ILF Securities details of the GS that were transferred to
Account with the Bureau of the Treasury’s the BSP-ILF Securities Account.
(BTr) Registry of Scripless Securities (RoSS). From 10:00 AM to 4:00PM, Eligible
The delivered GS to be used for ILF Participant banks with insufficient balances
purposes shall be recorded by RoSS in a in its Demand Deposit Account No.2
sub-account (the “Client Securities Account (PhilPaSS Account) may avail of the ILF.
(CSA)”-ILF) under the BSP-ILF Securities Eligible Participant banks may avail of
Account in the name of the Eligible the ILF as necessary to fund pending
Participant/banks. payment instructions. Thus, when the ILF
Banks without RoSS securities accounts system detects queued transactions in the
who intend/desire to avail of the ILF shall be PhilPaSS-Central Accounting System, the
required to open/maintain a Securities Eligible Participant bank with insufficient
Account with the RoSS. The documentation balance in its PhilPaSS Account will
requirements for RoSS membership shall be automatically sell to the BSP-Treasury the
prescribed by the BTr. GS in the CSA-ILF pool corresponding to
Banks desiring to avail of the ILF shall the amount which may be needed to cover
be further required to open a sub-account any pending payment instruction, and the
under the BSP-ILF Securities Account with proceeds of the sale of securities shall be
the BTr’s RoSS by accomplishing an immediately credited to the bank’s
application letter addressed to the Treasurer PhilPaSS Account. There may be more than
of the Philippines, Attn: The Director, one availment during the day. Until a sale
Liability Management Service and the to the BSP or an Overnight Repurchase
Appendix 21b - Page 1

APP. 21b
08.12.31
(O/N-RP) transaction with the BSP is normally by 5:45PM, the BSP Treasury
executed, the beneficial ownership of the Department shall electronically instruct
GS that have been transferred to the CSA- RoSS, using the ILF RoSS system
ILF still belongs to the banks. developed for herein purpose, to return/
At 5:00PM, the BSP shall sell back to deliver from the CSA-ILF of the
the Eligible Participant bank the GS at the participating banks to their respective
same price as the original BSP purchase. Regular Principal Securities Accounts with
Partial repayment of a particular availment the RoSS all unused/unencumbered GS.
will not be allowed. GS used for O/N-RP shall remain in the
In case the PhilPaSS Account balance CSA-ILF until repayment of subject O/N-
of the participating bank is not sufficient to RP or conversion to outright sale the
cover the afternoon repayment transaction, following day.
the BSP and the participating bank may Upon receipt of BSP’s electronic
agree on the following: instruction for the return of GS back to the
a. BSP shall extend to the Eligible participating banks’ regular Principal
participant bank an O/N-RP at 600 basis points Securities Accounts, the BTr shall update
over the BSP’s regular overnight lending rate their database after which participating
for the day. The O/N-RP shall be paid not banks may request/download statements
later than 11:00AM on maturity date. Unpaid of securities accounts for their verification.
O/N-RP shall be automatically converted into
an absolute sale to the BSP of the subject C. Eligible Securities
GS earlier delivered/transferred to the Peso-denominated scripless securities
CSA-ILF, pursuant to an ILF availment by of the National Government that are free
the Eligible Participant bank, in which case, and unencumbered and with remaining
BSP shall issue an instruction to BTr to maturity of eleven (11) days to ten (10) years
deliver/transfer the subject GS from the shall be eligible for the ILF. GS that will be
BSP-ILF Securities Account to the BSP used for ILF purposes would be reclassified
regular Principal Securities Account. The with due consideration to the original
sale shall be evidenced by the issue of booking of the security, as follows:
Confirmation of Sale by the Eligible
Participant bank (Annex 2) and the Original Booking of GS To be reclassified to
Confirmation of Purchase by the BSP
Treasury Department (Annex 3), or, a. Held for Trading Held for Trading – ILF
b. Only in extreme cases, the BSP b. Designated Fair Value Designated Fair Value
shall sell back to the participating bank GS Through Profit or Loss Through Profit or Loss - ILF
up to the extent of the PhilPaSS Account c. Available for Sale Available for Sale - ILF
balance. The BSP shall issue an instruction d. Held to Maturity Held to Maturity - ILF
to the BTr to transfer the remaining GS
amounting to the unpaid ILF availment D. Valuation of Securities
from the BSP-ILF Securities Account to the The GS subject of an ILF transaction
BSP’s Regular Principal Securities Account. shall be valued based on the 11:16AM
At the end of the day and after BSP’s fixing rates of the previous business day,
sell-back of the GS to ILF participants, from the applicable Reuters PDEX pages
Appendix 21b - Page 2 Manual of Regulations for Non-Bank Financial Institutions

APP. 21b
08.12.31
or any other valuation benchmark as may banks of any change in fee at least fifteen
be prescribed by the BSP. (15) days prior to implementation.
E. Margins G. DDA Statements/Transaction Details

Margins shall be applied based on Eligible Participating banks will be able
prevailing policies of the BSP Treasury to verify the status of their accounts by
Department. initiating the SWIFT/PPS-Front-end System
inquiry request.
F. Transaction Fee
The BTr shall collect a monthly AVAILABILITY OF SERVICE
maintenance fee of One Thousand Pesos The ILF is covered by a Memorandum
(P1,000.00) from each Eligible Participant of Agreement (MOA) dated 25 March 2008
bank for the use of the CSA-ILF Securities by and among the BSP, the BTr, the
Account. The maintenance fees herein Bankers Association of the Philippines (for
required to be paid by each Eligible BAP members) and the Money Market
Participant bank shall be separate from and Association of the Philippines (for non-BAP
exclusive of any other fees being assessed members). Participating banks shall sign
and collected by BTr for membership in individual participation agreements. The
the RoSS. For this purpose, the Eligible services outlined in the MOA shall be
Participant bank shall issue to the BTr an available at the BSP and the BTr at a fixed
autodebit instruction to authorize the BTr hour on all banking days. Banking days
to debit its DDA with BSP for the above- refer to the days banking institutions are
mentioned monthly maintenance fee. The open for business Mondays thru Fridays as
BTr will inform the Eligible Participant authorized by the BSP.
Manual of Regulations for Non-Bank Financial Institutions Appendix 21b - Page 3

APP. 21b
08.12.31
PARTICIPATION AGREEMENT
__________________
Date
A. Mabini corner P. Ocampo Sr. Streets,
Manila
Bureau of the Treasury

Palacio del Gobernador
Intramuros, Manila
Bankers Association of the Philippines

11th Floor, Sagittarius Building
H. V. dela Costa Street, Salcedo Village
Makati City
Money Market Association of the Philippines

Penthouse, PDCP Bank Center
Herrera corner L. P. Leviste Streets, Salcedo Village
Makati City
Gentlemen:
Please be advised that we agree to participate in the Agreement for the Establishment of Intraday Liquidity
Facility to support the Philippine Payment and Settlement System (the “System”) which is covered by
the Memorandum of Agreement dated _____ (the “Agreement”) among yourselves and its subsequent
amendments of 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 payment instructions
and the authority of the Bureau of the Treasury (BTr) to execute our instructions on transfer to/from,
credit and debit to/against our Securities Account. Further, we agree to comply with all our obligations
as participating bank/financial institution as provided in the Agreement. Lastly, we agree to keep
yourselves free and harmless from any claim or liability arising from, or in connection with, our
transactions transmitted through the System in accordance with the provisions of the Agreement.
This participation will become effective upon your conformity hereto and your notification of the
same to us, the BSP and the BTr.
Very truly yours,
________________________________
Participating Bank/Financial Institutions
APPROVED:
Bangko Sentral ng Pilipinas By:
Bureau of the Treasury By: ________________
Bankers Association of the Philippines By: ________________
Money Market Association of the Philippines By: ________________

APP. 21b
08.12.31
Annex 1
(LETTERHEAD OF THE APPLICANT)
The Treasurer of the Philippines

Intramuros, Manila
Sir:
The undersigned hereby makes an application to open a Client Securities Account

under the BSP-ILF RoSS Account in the Registry of Scripless Securities (RoSS) operated and
maintained by the Bureau of the Treasury (BTr).
The undersigned will pay to BTr an additional monthly fee of P1,000.00 for the
Client Securities Account opened payable on the first business day of each month. The BTr
will inform the undersigned of any change in fee at least fifteen (15) days prior to
implementation.
Please debit/credit our Regular Demand Deposit Account No. ______ with the
BSP for the payment of said monthly fee.
_______________ Manila, Philippines

(Date)
(Name of Applicant)
(Signature of Authorized Signatory)
(Designation)

APP. 21b
08.12.31
Annex 2
LETTERHEAD OF THE SELLER
Transaction No. ________

Value Date ________
CONFIRMATION OF SALE OF GOVERNMENT SECURITIES
The _______________, does hereby CONFIRM that it has SOLD, TRANSFERRED

AND CONVEYED unto _______________, pursuant to the Memorandum of Agreement
for Intraday Liquidity Facility and the Participation Agreement executed on ______ and
______, respectively, all of its rights, titles and interests over the following described
Government Securities, held by the Bureau of the Treasury under the Registry of Scripless
Securities System.
ISIN TERM ISSUE MATURITY FACE

DATE DATE AMOUNT
(Code) (Account Number)
(Name of GSED)
(Designation)

APP. 21b
08.12.31
Annex 3
Transaction No. ________

Value Date ________
CONFIRMATION OF PURCHASE OF GOVERNMENT SECURITIES
The _____________, does hereby CONFIRM that it has PURCHASED from

______________, pursuant to the Memorandum of Agreement for Intraday Liquidity Facility
and the Participation Agreement executed on ______ and ______, respectively, all of its
rights, titles and interests over the following described Government Securities, held by
the Bureau of the Treasury under its Registry of Scripless Securities System.
ISIN TERM ISSUE MATURITY FACE

DATE DATE AMOUNT
(Code) (Account Number)
(Name of GSED)
(Designation)

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
08.12.31
RISK MANAGEMENT GUIDELINES FOR DERIVATIVES

I. Introduction only upon prior BSP approval on the basis

This appendix, together with the that such in-sourcing will not give rise to
Guidelines on Supervision by Risk potential conflict of interest.
(Appendix 72) and other BSP issuances on
management of the different risks attendant II. Risk associated with derivatives
to banking activities, provides a framework While derivatives primarily help
on which a bank can establish its risk manage existing and anticipated risks,
management activities. Accordingly, this derivatives themselves are exposed to the
set of risk management guidelines for risks they are designed to manage.
derivatives should be read and used in Moreover, simple derivatives, when
conjunction with all related BSP issuances combined with other financial instruments,
on risk management. may result in a structure that exposes a bank
A bank, in using these guidelines to to complicated risks. Thus, derivatives can
evaluate the propriety and adequacy of its aggravate the risks of banks and of
risk management, must consider the counterparties if derivatives are not clearly
following principles: understood and properly managed.
a. No single risk management A single derivatives product may
system for derivatives is expected to work expose a bank to multiple risks as
for all banks considering that the structure enumerated under Appendix 72. These
and level of derivatives activities will vary categories are not mutually exclusive of
from one bank to another. Each bank should each other. Hence, derivatives activities
apply the principles set in these guidelines must be managed with consideration of all
in a manner appropriate to its needs and these risks.
circumstances. The BSP shall evaluate the
quality of a bank’s risk management III. Risk management process for
system based on the principles and derivatives
minimum requirements of these guidelines, The management of derivatives activities
scaled to the derivatives activities being should be integrated into a bank’s overall risk
undertaken. management system using a conceptual
b. The requirements prescribed in framework common to the bank’s other
these guidelines are merely minimum businesses. For example, price risk exposure
standards and therefore, should not be taken arising from derivatives transactions should
as the “be-all” for a bank’s risk be assessed in a manner comparable to and
management. The board of directors1 has aggregated with all other price risk
the responsibility of ensuring that a bank’s exposures. Risk consolidation is particularly
risk management system appropriately important because the various risks contained
captures its risk exposures and affords in derivatives and other market activities can
proper management of these. be interconnected and may transcend
c. A trust entity within a bank must specific markets.
have a separate risk management system. At a minimum, the risk management
However, the trust department may process for derivatives should be able to:
in-source back office functions of its risk a. Identify the risks arising from its
management system with the bank proper derivatives activities in whatever capacity
1
In case of a local branch of a foreign bank, the equivalent management review arrangement (e.g., management committee,
regional review committee). In case of a trust entity, the trust committee.

APP. 25
08.12.31
it deals with the same. A bank must policies and procedures on control should
likewise identify the impact of its provide for contingencies when limits are
derivatives activities on its overall risk breached. A bank must allot lead time and
profile. To properly identify risks, a bank have a mechanism that enables management
must understand the derivatives products to act in time to control unacceptable or
with which it is transacting and the factors undesired exposures. A bank must also
that affect them. Considering that changes establish a system that separates functions
in the value of derivatives are highly susceptible to conflicts of interest.
influenced by changes in market factors,
risk identification should be a continuing IV. Sound risk management practices for
process and should occur at both a derivatives
transaction and portfolio level. Consistent with the criteria for sound
b. Measure the risks arising from its risk management practices in Item V of
derivatives activities. A bank must have Appendices 73 and 74, the BSP shall assess
measurement models or tools to quantify the the propriety and adequacy of a bank’s risk
risks identified. These measurement tools management system for its derivatives
should be suitable to the nature and volume activities in accordance with the following
of a bank’s derivatives activities. As the basic principles:
complexity and volume of the derivatives a. Active and appropriate board1 and
activity increases, the measurement tools senior management oversight
should correspondingly be more A bank’s board of directors must set
sophisticated. The primary criteria for the the general policy or the policy direction
propriety of the measurement tools are relating to the management of a bank’s
accuracy, timeliness, efficiency and risks, including those arising from its
comprehensiveness with which these tools derivatives activities. This policy should
can capture the risks involved and their be consistent with the bank’s business
contribution to the decision-making process strategies, capital strength, management
of bank management. expertise and risk profile. Accordingly, the
c. Monitor the risks arising from its board of directors must understand the
derivatives activities. Derivatives products nature and purpose of the bank’s
are very sensitive to market factors, which derivatives activities and the role
continually change. Thus, a bank should derivatives play in the bank’s overall
have a mechanism to monitor the business strategy. Passive board of
responsiveness of derivatives to market directors approval is not acceptable. There
factors to enable it to review and assess its must be verifiable evidence of the board
risk positions. In order to effectively of directors approval processes and that
monitor the risks, reports must be timely senior management exerted effort to
generated in order to aid management in explain the nature and purpose of the
determining whether there is a need to derivatives activities to the board of
adjust the bank’s derivatives positions. directors (e.g., minutes of board of directors
d. Control the risks arising from its meetings documenting presentations and
derivatives activities. A bank must establish reports to the board of directors and the
limits to its derivatives exposure. These limits approval processes).
should be comprehensive and aligned with The board of directors must review and
a bank’s overall risk tolerance. A bank’s pre-approve new derivatives products as
1
In case of a local branch of a foreign bank, the equivalent management review arrangement (e.g., management committee,
regional review committee). In case of a trust entity, the trust committee.

APP. 25
08.12.31
well as significant related policies and to a bank’s derivatives activities will be

procedures. Central to the approval of new reflected in the overall risk management
products is defining when a product or process, the adequacy of resources
activity is new in order to ensure that (financial, technical expertise, and systems
variations on existing products receive the technology) devoted to handle derivatives
proper review and authorization. Policies activities and its use of the monitoring
should also detail authorized activities (e.g., reports. The board of directors and senior
at what stages approvals should be management shall be responsible for
obtained, from whom approvals should be ensuring that bank personnel comply with
obtained), those that require one-time prescribed risk management standards and
approval and those that are considered sales and marketing guidelines.
inappropriate. b. Adequate risk management policies
The board of directors must be apprised and procedures
of the bank’s derivatives exposures on a A bank must establish policies and
timely basis in order to enable the board procedures to guide its personnel in
of directors to act on such exposures conducting derivatives activities. These
accordingly. Consequently, there should risk management policies must be
be an established reporting methodology reflective of a bank’s current strategy and
to ensure that the board of directors practice.
receives, on a continuing basis, detailed A bank should not issue policies and
information regarding the bank’s risk procedures for derivatives in isolation. All
exposures from derivatives, including the aspects of the risk management process for
impact to the bank’s overall risk profile, derivatives activities should be integrated
earnings and capital. These reports should into the bank’s over-all risk management
include both normal and stress scenarios. system to the fullest extent possible using
Pursuant to the general policy or policy a conceptual framework common to the
direction on risk management set by the bank’s other activities. Risk management
board of directors, senior management must policies should be comprehensive,
adopt adequate policies and procedures for covering all activities of the bank. The BSP
conducting the bank’s derivatives activities will evaluate the degree to which controls
on both a long-range and day-to-day basis. covering derivatives activities have been
Policies should clearly delineate integrated in other issuances of the bank
responsibility for managing risk, and covering aggregate risk-taking activities
provide effective internal controls and a For banks that conduct derivatives
comprehensive risk-reporting process. transactions with subsidiaries and affiliates,
Policies must also keep pace with the there should be policies and procedures
changing nature of derivatives products and that describe the nature, pricing,
markets and therefore must be reviewed monitoring, and reporting of acceptable
on an on-going basis. Senior management related-party transactions.
should ensure that the various components All risk management policies and
of a bank’s risk management process are procedures must be written, well
regularly reviewed and evaluated. Internal communicated to all personnel involved in
evaluations may be supplemented by the derivatives activities and readily
external auditors or other qualified outside available in user-friendly form, whether the
parties. same is a hard or soft copy thereof. A bank
The quality of oversight provided by the must also put up systems and procedures
board of directors and senior management to ensure an audit trail evidencing the

APP. 25
08.12.31
dissemination process for new and The risk measurement system should
amended policies and procedures. be structured to enable management to
At a minimum, a bank is expected to initiate prompt remedial action, facilitate
have: stress-testing, and assess the potential
1. Comprehensive, updated and impact of various changes in market factors
relevant risk policy manual(s); on earnings and capital. A risk
2. Operations manual(s) or similar measurement system is considered sound
documents that describe the flow of if it is capable of comprehensively
transactions among and between the capturing risks from: (a) the bank’s on and
relevant units and personnel in a bank’s off-balance sheet exposure; (b) all relevant
treasury (front office, back office and market factors; and (c) normal
accounting) and risk management unit; circumstances and stress events. Sound
3. Approved product manual(s) that risk measurement practice includes
includes product definition, benefits and identifying possible events or changes in
risks, pricing mechanisms, risk market behavior that could have
management processes, capital allocation unfavorable effects on the bank and
guidelines, tax implications and other assessing the ability of the bank to withstand
operating procedures and controls for the these events or changes. The stress testing
bank’s derivatives activities. should include not only quantitative
c. Appropriate risk measurement exercises that compute potential gains or
methodologies, limits structure, monitoring losses but also qualitative analyses of
and management information system actions that management might take under
The process of measuring, monitoring particular scenarios.
and controlling risk should be carried out A bank’s risk measurement system
independently from individuals conducting should provide appropriate pricing and
derivatives activities. An independent valuation procedures to ensure best
system of reporting exposures to both execution for both proprietary trading and
senior level management and to the board those undertaken for clients and
of directors is critical to the effectiveness mark-to-market/model (MTM) methodology
of the process. for derivatives instruments that follows
(1) Measurement methodologies established MTM regulations and Philippine
A bank must be able not only to Accounting Standards (PAS 39).
accurately quantify the multiple risk New measurement models whether
exposures arising from its derivatives developed internally or purchased from
activities but also aggregate similar risks vendors, should be subject to an initial
across the different activities of the bank validation before it is used. Internally
to the fullest extent possible. A bank must developed models require more intensive
develop a risk measurement model evaluation where they have not been
appropriate to its portfolio. Accordingly, a market-tested by external parties. The
bank must evaluate the assumptions used, validation process should consist of a
computational requirements, procedures review of the logic, mathematical or
for computing the risk metric, sourcing of statistical theories, assumptions, internal
inputs used in the measurement process, processes and overall reliability of a bank’s
including the theoretical reasons for a measurement models, including the
particular input choice, and how these compatibility of the measurement model
concepts apply to the bank’s portfolio. with the bank’s technology and systems.

APP. 25
08.12.31
The validation must be undertaken by a bank-wide limit structure to ensure

technical expert independent from the unit consistency with the board of director-
that developed the model. For example, approved risk appetite and business
pricing systems developed by a trader is strategy.
required to be independently validated by The limit structure should be realistic
a corresponding technical expert from the taking into consideration the target budget,
bank’s risk management unit. If no such level of earnings and capital. Limits must be
personnel from the risk management unit documented and promptly communicated to
exists, an independent validation may be all relevant personnel. Limits must be
performed by internal audit provided that reviewed at least annually or more
internal audit has the necessary expertise. frequently, if circumstances warrant, in order
A bank may also avail of the services of an to ensure that limits reflect the bank’s past
independent outside expert. Thereafter, performance and current position.
the frequency and extent to which models Limits should be continually analyzed
are validated depends on changes that as regards its impact on target income,
affect pricing, risk presentation or the earnings and capital. These analyses should
existing control environment. Changes in be submitted/reported to the board of
market conditions that affect pricing and directors. Any excess over the limit must
risk conventions, which model be approved only by authorized personnel
performance, should trigger additional and immediately reported to senior
validation review. management and depending on the
Risk management policies should seriousness, also to the board of directors.
clearly address the scope of the validation The seriousness of limit exceptions
process, the frequency of validations, depends upon management’s approach
documentation requirements, and towards setting limits and on the actual size
management responses. At a minimum, of individual and organizational limits
policies should require the evaluation of relative to the bank’s capacity to take risks.
significant underlying algorithms and A bank with relatively conservative limits
assumptions before the model is put in may encounter more exceptions to those
regular use, and as market conditions limits than that with less restrictive limits.
warrant thereafter. Such internal There must also be mechanisms for the
evaluations should be conducted by parties correction of breach of these limits.
who, where practicable, are independent A bank’s limit structure should address
of the business sector using or developing the following:
the model. The evaluation may, if (a) Definition of a credit exposure;
necessary, be conducted or supplemented (b) Maximum credit exposure to an
with reviews by qualified outside parties, individual counterparty;
such as experts in highly technical models (c) Credit concentrations;
and risk management techniques. (d) Maximum nominal exposure:
(2) Limits structure (i) per trader and per transaction; and
A bank must specify individual limits (ii) position limits.
for all types of risks involved in a bank’s (e) Approved credit risk mitigation
derivatives activities. A bank should use a techniques;
variety of limits to adequately capture the (f) Appropriate loss exposure triggers:
range of risks or to address risks that the (i) loss alert;
measurement system does not capture. (ii) stop loss;
These limits should be integrated into the (iii) value-at-risk; and

APP. 25
08.12.31
(iv) earnings-at-risk. type of action expected from the users of

(3) Monitoring the report. At a minimum, management
Monitoring of risk exposures, market reports should contain the following:
conditions, and trading positions should be outstanding derivatives positions,
done at least daily. Derivatives instruments compliance with or status of positions as
are highly influenced by movements in against limits, analysis of derivatives
market factors. Thus, a bank must have a positions, along with other bank exposures,
mechanism that can track and analyze the in relation to the impact to earnings and
effect of market movements on its capital, monitoring of trigger events, and
derivatives exposures. deviations from established policies and
To ensure proper monitoring of risks, a procedures and justifications thereof.
bank is expected to have technology and The management information system
systems that can (a) track movements in must be able to translate the measured risks
reference variables (underlying) and other from derivatives activities from a technical
market factors affecting the value of the and quantitative format to one that can
derivatives instruments, such as trigger easily be read and understood by senior
events; and (b) incorporate observed managers and directors, who may not have
market movements into the pricing and specialized and technical knowledge of
valuation of derivatives instruments. derivatives products. Such a system
While monitoring is undertaken enables management and the board of
independently from the personnel directors to judge the changing nature of
conducting derivatives activities, bank the bank’s risk exposures. The electronic
traders are expected to actively monitor data processing capability must be
their positions to ensure that they do not commensurate to the volume and
breach their limits. Bank traders should not complexity of the bank’s derivatives
wait until a limit is breached to alert senior activities to facilitate the generation of
management and risk control units. needed reports.
Instead, traders should promptly report The frequency and content of board of
unanticipated changes and progressively directors and management reporting will
deteriorating positions, as well as other ultimately depend upon the nature and
significant issues arising from their significance of derivatives activities.
positions, to the risk control function and Where applicable, board of directors and
responsible management. management reports should consolidate
(4) Management information system information across functions and
A bank must institute an information divisions. Board of directors and
system that generates accurate and incisive management reporting should be
reports to ensure that management and the tailored to the intended audience,
board of directors are timely and regularly providing summary information to senior
apprised of the bank’s derivatives management and the board of directors
exposures. A bank is expected to have and more detailed information to bank
policies and procedures pertaining to the traders.
derivatives reporting specifying, among Management reports should be
others, the types of derivatives reports to generated by control departments
be generated, the purpose and contents independent of the risk-takers. When
thereof, responsible units that will generate risk-takers provide information (e.g.,
the reports, frequency and deadlines of valuations or volatilities on thinly traded
reports, recipients/users of reports, and the derivatives contracts) for management

APP. 25
08.12.31
reports, senior management should be measurement model, including an

informed of possible weaknesses in the evaluation of the relationship between
data, and these positions should be audited measures of risk exposure and trading
frequently. limits. Risk control personnel staff should
d. Comprehensive internal controls periodically communicate their
and independent audits observations to senior management and
A sound system of internal controls the board of directors.
promotes effective and efficient operations, A bank’s control structure shall be
reliable financial and regulatory reporting, considered sound if all the following
and compliance with relevant laws, elements are present:
regulations and policies of the bank. In (a) Formal approval process for new
determining whether a bank’s internal products
controls meet these objectives, the BSP will A bank should have an effective
consider the overall control environment process to evaluate and review risks
of the bank, particularly, the process of involved in products that are either new to
identifying, measuring, analyzing and the bank or new to the market and of
managing risk, the adequacy of potential interest to the bank. A bank that
management information systems, and desires to engage in new products and
degree of adherence to control activities transactions must first subject these
such as approvals, confirmations and products and transactions to a rigorous
reconciliations. Control of the reconciliation review and approval process. This will
process is particularly important where ensure that all bank personnel involved in
there are differences in the valuation the activity have sufficient knowledge of
methodologies or systems used by the the product or transaction, and that the
front and back offices. ensuring risk exposures can be identified,
(1) Risk control measured and analyzed. The process must
A bank should have an independent be contained in a board of directors-
risk control unit responsible for the design approved policy that is fully documented
and implementation of the bank’s risk and must be implemented consistently and
management system. A strong risk control with integrity.
function is a key element in fulfilling the Before initialing a new derivatives
oversight responsibilities of board of activity, all relevant personnel should
directors and senior managers. This unit understand the product. Risks arising from
must be independent from business trading the new product should be integrated into
units and should report directly to senior the bank’s risk measurement and control
management of the bank. The role and systems. The new product approval
structure of risk control function should be process should include a sign-off by all
commensurate to the nature, complexity relevant areas such as risk control,
and extent of a bank’s derivatives activities. operations, accounting, legal, audit, and
A risk control unit should regularly senior management and trading operations.
evaluate risk-taking activities by assessing Defining a product or activity as “new”
risk levels and the adequacy of risk is central to ensuring that variations on
management processes. It should also existing products receive the proper review
monitor the development and and authorization. Factors that should be
implementation of control policies and risk considered in classifying a product/activity
measurement systems. It should analyze as “new” include: capacity changes (e.g.,
daily reports produced by the bank’s risk end-user to dealer), structure variations

APP. 25
08.12.31
(e.g., non-amortizing swap versus control, and operational functions.

amortizing interest rate swap), products Management should regularly review the
which require a new pricing methodology, knowledge, skills and number of people
legal or regulatory considerations, or needed to engage in the bank’s derivatives
market characteristics (e.g., foreign activities. The staff must be appropriately
exchange forwards in major currencies as balanced among the different areas
opposed to emerging market currencies). involved in derivatives activities such that
A bank should introduce new products no area is understaffed in terms of number
in a manner that adequately limits potential or skill.
losses and permits the testing of internal Staff turnover can create serious
systems. problems, especially if knowledge is
(b) Segregation of functions/units concentrated in a few individuals. The
subject to conflict of interest impact of staff turnover can be particularly
A bank must separate the business unit acute in specialized trading markets where
conducting the derivatives activities from bank traders are in high demand and are
the unit/s tasked with the checking, often recruited in teams.
accounting, reporting and control functions To mitigate business continuity and
of its derivatives activities. succession risk arising from a high staff
A bank should have policies and turnover, a bank should devise a system
procedures addressing conflicts of interest, of building technical expertise across
particularly among the following functions: involved personnel through continuous
proprietary trading, sales or marketing technical training, periodic rotation and
desks/units, personal trading, and asset cross-training of staff members performing
management. key functions and developing
A bank that conducts derivatives understudies.
activities with its subsidiaries and/or The board of directors should ensure
affiliates must establish policies and that the power and control delegated to
procedures to avoid actual, or even the these expert personnel are not abused.
appearance of a conflict of interest. Therefore, the board of directors must
Off-market rates between related parties establish appropriate controls over their
should generally be forbidden. activities.
A bank should avoid dealing in (d) Independent control functions or
transactions conducted at off-market rates. units
A bank should have internal policies The risk control and audit units should
defining what constitutes “market rates” and possess the authority, independence, and
identify the range of deviation from the corporate stature to enable them to
benchmark rates which could still be identify and report their findings
considered as “market rates”. The bank’s unimpeded by bank traders. It is equally
monitoring system should be able to alert important to employ individuals with
management of any breaches in the rate sufficient experience and technical
tolerance levels and the appropriate action expertise to be credible to the business
that should be taken. A bank must be able line they monitor and senior executives
to justify any off-market transaction. to whom they report.
(c) Competent and adequate 2. Audit
personnel who are properly supervised Audits should be conducted by
The increased complexity of qualified professionals who are
derivatives activities requires highly skilled independent of the business line being
staff particularly in the risk-taking, risk audited. Audits should supplement, and

APP. 25
08.12.31
not be a substitute for, risk control significant changes in product lines, risk
function. management methods, risk limits,
The scope of audit coverage should be operating systems, and internal controls so
commensurate with the level of risk and that the auditors can update their scope and
volume of derivatives activity. The audit procedures accordingly. Auditors should
should include an appraisal of the periodically review and analyze
effectiveness and independence of the performance and risk management reports
bank’s risk management process; the to ensure that areas showing significant
adequacy of operations, compliance, changes are given appropriate attention.
accounting and reporting systems; The audit function must have the
propriety of risk measurement models; support of management and the board of
and the effectiveness of internal controls. directors in order to be effective.
Auditors should test compliance with the Management should respond promptly to
bank’s policies, including limits. audit findings by investigating identified
The level of auditor expertise should system and internal control weaknesses
be consistent with the level and and implementing corrective action.
complexity of activities and degree of risk Thereafter, management should
assumed. A bank may choose to periodically monitor newly implemented
out-source audit coverage to ensure that systems and controls to ensure they are
the professionals performing the work working appropriately. The board of
possess sufficient knowledge and directors, or designated committee, should
experience. receive reports tracking management’s
Procedures should be in place to actions to address identified deficiencies.
ensure that auditors are informed of (As amended by Circular No. 594 dated 08 January 2008)

APP. 26
08.12.31
SALES AND MARKETING GUIDELINES FOR DERIVATIVES

(Appendix to Section X602)
I. General principle objectives are clearly identified. This can

A bank, in dealing with its clients, be done through questionnaires and
should always act with honesty, fairness and interviews. A bank may design and use its
in pursuance of the best interests of its own system for obtaining client information
clients. Due to the complex nature of that would be responsive to its client
derivatives and the increasingly suitability process.
sophisticated products introduced into the At a minimum, client information,
market, a bank acting as dealer or broker including client classification, should be
must have appropriate controls and reviewed and updated annually or earlier,
procedures to ensure the suitability of the in cases of material changes in the client’s
transactions to its clients. A bank should financial situation or goals.
ensure that (1) a client understands the b. Client classification
nature of the transaction and the risks Based on the information obtained from
involved and (2) the transaction meets the a client, a bank should be able to ascertain,
client’s financial objectives and risk at a minimum, a client’s classification
tolerance. A bank should also disclose according to financial sophistication as
sufficient, accurate and comprehensible embodied in Section X602 and its
information about derivatives products, Subsections1/ and his/its risk tolerance. The
including inherent risks, in a clear and client classification should serve as basis
balanced presentation in order to enable for a bank product/service offerings and
its clients to make informed investment level of disclosures required.
decisions. In dealing with corporate clients, a bank
These guidelines prescribe the should determine whether the client is
minimum standards for sales and specifically authorized to enter into all or
marketing procedures for banks acting as specific kinds of derivatives transactions
dealers or brokers of derivatives. and the person/s authorized to act in its
behalf. A bank should also determine if a
II. Client suitability guidelines corporate client has competent/ qualified
A bank should ensure that the personnel to handle the proposed
derivatives products it offers to a client are derivatives activities. If a corporate client
appropriate for that client through a client seeks to participate in highly sophisticated/
suitability process which involves obtaining more complex products, a bank should
client information, classifying a client require the client to incorporate in its board
according to his/its financial sophistication resolution authorizing the latter’s
and conducting a suitability review. derivatives activities that it likewise has
a. Client information appropriate risk management techniques
A bank, at the inception of a possible and systems sufficient to manage and
business relationship with a client, should monitor the risks it will take.
obtain from said client information about In determining an individual client’s
his/its financial situation, experience, and classification, a bank should consider the
financial objectives relevant to his/its following:
desired products/ services. A bank should (1) The client’s knowledge and
ensure that the clients’ risk and return understanding of derivative transactions,
1\
A bank, however, may adopt its own sub-classification for its own purposes.

APP. 26
08.12.31
related investments and the risks involved (5) Client’s regulatory and legal
therein, including the derivatives markets; circumstances;
(2) The length of time the client has (6) Liquidity needs;
been actively dealing with investment (7) Returns objectives (e.g., income,
and/or derivative products, the frequency growth in principal, maintenance of
of dealings and the extent to which he has purchasing power);
relied on the investment advice of a bank (8) Risk tolerance; and
or any financial advisor, if any; (9) Client’s understanding of the risks.
(3) The size and nature of investment A bank should maintain a record of
transactions that have been undertaken by all the information as bases of its
the client; and suitability assessment. It is highly
(4) The client’s financial standing, recommended that a bank requires a
which may include an assessment of his client to sign its conformity to the
net worth or the value of his portfolio. suitability assessment (including the
A bank must make a record of the information basis of the assessment) in
classification under which each client is order to avoid disputes with the client
categorized, including sufficient information on its suitability assessment.
to support the categorization. For non-sophisticated clients, a bank
Only banks with Type 1 or 2 authorities should adopt a suitability statement
may originate or distribute authorized explaining simply and clearly why the
derivatives products to non-sophisticated product offered is viewed suitable,
end-users for investment purposes. considering the client’s needs and
Non-sophisticated end-users should be preferences. To ensure the statement will
provided greatest protection compared to be effective, a bank should consider the
all other client types. following features:
c. Suitability review • Simple and plain language: when
Before presenting, proposing or technical terms need to be incorporated,
recommending a particular derivatives they should be explained if the client is
product to a client, a dealer should unlikely to understand their meaning; and
determine that the derivatives product is • Concise and clear messages:
suitable to the client’s financial situation and lengthy explanations and extensive
consistent with the clients’ mandates, statements are likely to reduce the
financial objectives and constraints. effectiveness of the statement and make
At a minimum, a bank should consider the client less likely to read the statement
the following in choosing the derivatives properly.
products/ services offerings to its clients: Ideally, each suitability letter for
(1) Investment amount or investible non-sophisticated will be different,
funds; reflecting the approach taken by the bank
(2) Concentration ratio (i.e., asset representative in obtaining client
allocation of the client’s investible funds); information, the derivatives product
(3) Purpose for transacting in presentation, the client’s profile and
derivatives transaction (e.g., hedging vs. considerations on which the investment
investment; long-term buy and hold as proposal was based, all of which involve
opposed to short-term active trading); professional judgment. A bank, however,
(4) Holding period or investment can apply a degree of standardization to
horizon; aid quality control. A bank should clearly

APP. 26
08.12.31
link its proposed or recommended impression in any of its advertisements,

derivatives product to the client’s own electronic communications, written
needs, priorities and attitude toward risk. materials (whether publicly disseminated
A bank may mention alternative products or not) or oral representations regarding the
suitable for the client. The suitability letter financial derivatives offered. A
should be signed by the client and the misrepresentation is any statement that
officer authorized by the bank to advise/ deviates from the truth or omits a material
sell/propose the recommended product. fact or even tends to mislead the recipients.
A bank does not need to comply with a. Financial promotion (marketing
the requirement of suitability review in and sales)
cases where the client is classified as a A bank embarking on a financial
market counterparty, considering its promotion, whether through a direct offer
recognized sophistication. However, a or information/sales publications, should
bank should be able to provide sufficient ensure it gives sufficient information to
support for its classification. enable a client to make an informed
assessment of the derivatives transaction,
III. Disclosures including its underlying. A bank must
A bank should always be mindful of its prominently indicate its name in all its
statements regarding its products/services, promotional materials and must specify its
whether the statements pertain to role or capacity in the transaction (e.g., as
promotion, marketing or sale thereof or in issuer, dealer/distributor, broker).
the course of making the required A financial promotion is considered
disclosures. A bank must institute clear, fair and not misleading if all the
measures to ensure that its clients following requisites are present:
understand the nature and risks in a (1) Any statement of fact, promise or
derivative transaction. These procedures prediction is clear, fair and not misleading.
may vary with the sophistication of its A statement should disclose relevant
client. A bank can tailor-fit information, assumptions;
marketing and sales presentations/materials (2) A client, by himself, can discern
in accordance with the client classification from the presentation whether the
under Section X602 and its Subsections. A statement is a fact, promise or prediction;
bank should take further steps to (3) The accuracy of all material
adequately disclose the attendant risks of statements of fact can be substantiated.
specific types of transactions when dealing (4) Any comparison or contrast of a
with an unsophisticated client, either product offered should be with another
generally or with respect to a particular investment intended to meet the same
derivatives transaction (e.g., non- needs or to serve the same purpose. The
sophisticated client or sophisticated client facts on which any comparison or contrast
with respect to complex product types). A is made are verified, or alternatively, that
bank should adopt standards for its relevant assumptions are disclosed. The
publications/materials/disclosure comparison or contrast should be presented
statements and review the aforementioned in a fair and balanced way and includes all
documents regularly to ensure that they factors which are relevant to the
meet the standards. comparison or contrast.
A bank, when providing information to (5) The design, content or format of
its clients, including potential clients, must any presentation does not disguise, obscure
not knowingly misrepresent or give a false or diminish the significance of any

APP. 26
08.12.31
statement, warning or other matter which of the derivatives product or its underlying,
the presentation should contain; must comply with the following:
(6) Disclosures on risks and warnings (1) When using past performance of a
should not be less prominent than any other derivatives instrument, or its underlying,
information on performance; to illustrate possible returns, the disclosure
(7) No reference to an approval by a should state that past performance is not
regulatory body or its officials shall be necessarily indicative of future
made, unless a written approval was performance. This should be presented in
actually obtained; the main text of presentation material. Past
(8) A recommendation to consult/refer performance must be culled from a
to a financial advisor, if the client has doubts sufficient time frame to provide a fair and
on suitability of derivatives product; and balanced indication of performance; and
(9) It does not omit any information, (2) When using any forecast on the
the omission of which causes a material fact economy, stock market, bond market and
to be misleading, unclear, or unfair. economic trends of markets, the disclosure
A bank should consider the client’s should state that such forecast is not
knowledge of the transaction to which a necessarily indicative of the likely or future
given information relates. A bank should performance of the instrument; and
not assume that clients/recipients (3) Illustrations of returns should
necessarily have an understanding of the include worst case scenarios (i.e., not just
derivatives product being promoted. A the likely or best scenarios). Benefits
bank should assess its usage of terms, shown in headline rates (pro-forma returns
especially those which are technical. If highlighted) should be realistic and
promotional or marketing materials are achievable, and not based on unreasonably
specially designed for a targeted client base optimistic view of events.
reasonably believed to have particular Product disclosures for derivatives
knowledge of the investment, this should products with some form of guarantee or
be made clear in the materials. protection must highlight which benefits
b. Product disclosures are guaranteed/protected and those which
A bank must endeavor to explain the are not. In case of structured deposit
derivatives products it offers to its clients products, a bank must ensure that any
to enable the latter make an informed representation or claim of PDIC guarantee
investment decision. Product disclosures should have been pre-cleared with the
should present an adequate description of PDIC. In instances where the guarantee
at least (a) the nature of the derivatives or protection involves a cost to the client,
product, including the underlying, (b) the the bank must disclose the fee or charge
amount of investment required and (c) the for the same. A bank should also disclose
risks involved. The adequacy of the counterparty (e.g., issuer/guarantor) risk
description depends on the target client involved to clients so that they are not
classification and type of product offered. misled about the capital security/principal
In general, disclosure should always be protection. A bank, when applicable,
presented in a balanced manner where the should state if the guaranteed or protected
potential benefits of an investment are amount is payable only at the end of the
tempered by a fair indication of the risks term.
involved. Product disclosures for leverage
A product disclosure, which includes products/transactions2\ should emphasize
an illustration of past or future performance that while these types of products/
2\
Leverage or gearing can be employed in structured product to be able to offer high yields.

APP. 26
08.12.31
strategies amplify the potential gain from (9) Any warning, exclusion or
an investment, they also increase the disclaimer in relation to the product,
potential loss thereof. A client who intends including, but not limited, to the following:
to engage in margin buying, a means of (a) The derivatives products carry
applying leverage in investing, must be higher risks than those associated with
cautioned on possible loss exceeding the ordinary bank savings or time deposits;
margin or initial cash outlay. (b) The transactions are risky and may
c. Minimum required disclosures not be appropriate if client is not willing or
The minimum required disclosure able to accept the risk of adverse movements
should always be in writing. Except for a in the underlying securities/reference rates;
market counterparty, a bank should require (c) Past performance of the underlying
its client to sign or initial the disclosure reference is not a guarantee of future
statement as affirmation of the client’s performance.
receipt and understanding of the disclosure (d) When applicable, a bank should
statement. A bank may opt to draft draw the attention of the client to the
individual and separate suitability following:
assessment and disclosure statement to its (i) The effect of early redemption of a
client or consolidate the same into a product on the return (e.g., penalties and a
separate document or incorporate these poor return);
with the main derivatives transaction (ii) The availability of maximum benefit
agreement/ contract. advertised after a specified period; and
Product-specific minimum disclosures (iii) The pre-requisite conditions for the
should include: advertised growth rate of income.
(1) The nature of the derivatives Complex products (i.e., those outside
product, including the underlying financial the enumeration of instruments under
instruments and how these instruments Subsection X602.1 (a)(2) must carry a
work; standard warning that they are not suitable
(2) Investment horizon or tenor of for all clients, and are intended for
financial derivatives; experienced and sophisticated investors.
(3) Fees and charges, whether Complex products should carry appropriate
embedded in the structure or not; warnings on the high economic risks of
(4) Details on the issuing entity in case complex derivatives transaction, such as
the dealing bank is not the issuing (1) Loss of all or a substantial portion
institution, (i.e., the bank acts as a broker/ of the investment due to leveraging or
dealer, market maker); other sophisticated practices;
(5) Returns or benefits likely to be (2) Volatility of returns;
derived from the instrument, the amount (3) Lack of liquidity considering that
and timing thereof and whether the benefits there may be no secondary market for the
are guaranteed or not; instrument;
(6) All risk factors that may result in (4) Restrictions on transferring
the client receiving returns less than the interests; and
illustrated returns and factors affecting the (5) Absence of information regarding
recoverable amount by the client; valuation and pricing.
(7) Details of conflicts of interest, if any; Appendix 26a contains a sample
(8) All termination clauses, when disclosure statement which a bank may
appropriate, including charges and adopt in accordance with the features of the
restrictions3\; derivatives product offered.
3\
For instance, for a structured deposit, the bank should ensure that the customer is fully aware of the tenor of the deposit
and that the principal amount is only guaranteed if held to maturity.

APP. 26
08.12.31
IV. Sales and marketing personnel involved in derivatives activities as well as

Any informational or promotional comply with certification requirements
presentation regarding derivatives products prescribed by existing securities laws, rules
should be undertaken only by personnel and regulations. In addition, a bank should
who are knowledgeable on derivatives implement, and maintain a reasonably
products involved. A bank, in assessing comprehensive system of training of
its personnel’s knowledge in derivatives personnel geared at enhancing technical
transactions, may consider the personnel’s knowledge of its personnel to enable them
educational background, relevant training, to understand, explain the nature and risks
professional experience in rendering of a bank’s derivatives products and ensure
investment advice, making presentations client suitability.
regarding derivatives products or assessing The bank’s board of directors and senior
the propriety of investment products for a management4\ shall be liable to its clients
client. Personnel involved in derivatives for the acts performed and representations
transactions must likewise be familiar with made by sales and marketing personnel
all relevant laws, applicable rules and in their official capacity. Notwithstanding
regulations and must ensure compliance the foregoing, a bank’s board of directors
therewith. and senior management are not precluded
At a minimum, a bank should establish from filing the necessary action against the
qualification standards for personnel erring sales and marketing personnel.
4\
For purposes of this appendix, senior management shall comprehend officers starting from the level of the president
down to the level of vice presidents.

APP. 26a
08.12.31
SAMPLE RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES

While derivatives instruments are • This transaction may be used for

utilized for hedging or managing investment hedging purposes. If you are entering into
risk, derivatives instruments themselves the transaction for hedging purposes, this
involve a variety of significant risks. product may not match your exposure
Considering the complexity of derivatives perfectly. You may be under or over hedged
products, these products are generally or may be subject to other exposures as a
unsuitable for non-sophisticated investors. result of the transaction.
You should not deal in derivatives • These are over-the-counter
products unless you understand their nature derivatives which may pose liquidity risks to
and the extent of your exposure to the you. These are generally not liquid because
attendant risks. And even assuming that you there is no exchange or secondary trading
understand derivatives transactions, you market through which you can dispose the
should not deal with the same unless the derivative. Bid and offer prices for these
product is suitable for you in the light of your instrument may not be quoted. Bid and offer
circumstances, experience, financial position quotes, if any, are established by the dealers
and operational resources. in the instruments and consequently fair
As in any financial transaction, you price may be difficult to establish.
should ensure that you understand and • While you may terminate this
comply with the regulatory requirements transaction prior to the specified termination
applicable to you and/or limitations set by date, the cost of early termination may be
your board of directors or other governing substantial. Pre-termination may reduce the
body. You should also consider the legal, expected return or the investment amount,
tax and accounting implications of entering even in the case of principal protected
into any derivatives transaction. structured products.
This product generally carries higher
risks than those associated with ordinary Product specific disclosures:
bank investments and therefore not a suitable • This transaction can be subject to the
substitute for savings or time deposits. These risk of loss of the entire principal/notional
transactions are risky and may not be amount of the transaction. You may lose
appropriate if you are not willing or able to some or all of your investment.
accept the risk of adverse movements in the • (For principal protected structured
underlying securities/reference rates. products) While the principal for structured
This transaction does not guarantee a deposits may be protected and carries PDIC
yield, return or income. Past performance guarantee, returns are variable and are often
of the reference rate or similar instruments contingent on the performance of complex
is not a guarantee of future performance. financial instruments that an average customer
The income from the transaction may or may may not fully understand. There is still a
not fluctuate depending on prevailing market potential loss of the principal amount invested
conditions. if the structured deposit is not held to maturity,
(A bank need not adopt all the following i.e. there is an early redemption fee.
enumerated statements. It only has to • (For leveraged products/ transactions)
incorporate those statements that may be if the derivatives transactions require you to
applicable to the derivatives products or put up a margin, you may sustain a loss of
transactions) the entire margin you deposited with the

APP. 26a
08.12.31
bank to establish or maintain your position. If sustained well in excess of the premium
the market moves against you (i.e., received. By writing an option, you are
unfavorably), you may even be called upon accepting a legal obligation to purchase or
to pay additional margin (known as margin sell the underlying asset if the option is
call) at short notice to maintain the position. exercised against you, however far the
If you fail to do so within the time required, exercise price may have moved from the
your position may be liquidated at a loss and market price of the underlying asset. If you
you will be responsible for the resulting deficit. already own the underlying asset (known
• (For non-readily realizable as covered call option), the risk is reduced.
investments) You may have difficulty selling However, if you do not own the underlying
this investment at a reasonable price and, in asset, the risk can be unlimited. Only
some circumstances, it may be difficult to sell experienced persons should contemplate
it at any price. Do not invest in this unless you writing uncovered options, and then only
have carefully thought about whether you can after securing full details of the applicable
afford it and whether it is right for you. conditions and potential risk exposure.
• These instruments often involve a high Any scenario analysis is being provided
degree of gearing or leverage, so that a for illustrative purposes only. It does not
relatively small movement in the price of the represent actual prices that may be available
underlying asset or variable can result in a to you. It does not present all possible
much larger movement, unfavorable or outcomes or describe all factors that may
favorable, in the price of the instrument. The affect the value of the transaction.
price of the instrument can therefore be volatile No advice on investments has been
• In buying options, the maximum loss given. If you have any doubt about the
can be limited to the premium (plus any suitability of the product, you should contact
commission or transaction charges) when the a financial advisor or carefully consider
price of the underlying asset moves against whether the product is suitable for you.
you because you can simply allow the option In entering into any derivatives activity
to lapse. However, if you buy a call option with or arranged by us, you should
on another derivatives instrument, e.g., understand that we are not acting in the
futures contract, the exercise of the option capacity of your financial adviser due to the
may expose you to the risks for that particular inherent conflicts of interest in simultaneously
derivatives. acting as dealer and financial adviser.
• If you write an option, the risks are Notwithstanding the conflict of interest, we
considerably greater. You may be liable for may act as your financial adviser only if you
margin (i.e., minimum level of collateral) to have so agreed in writing and only to the
maintain your position and a loss may be extent so provided.
THIS STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR RELEVANT
CONSIDERATIONS IN ENTERING INTO DERIVATIVES TRANSACTONS. YOU SHOULD REFRAIN
FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU FULLY UNDERSTAND ALL SUCH
RISKS AND HAVE INDEPENDENTLY DETERMINED THAT THE ACTIVITY IS SUITABLE FOR YOU.
(Name of Bank)
I/We have read and understood the risk warning set out above.
Date
(Signature of Customer)
(As amended by Circular 594 dated 08 January 2008)

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
06.12.31
IMPLEMENTING GUIDELINES FOR THRIFT BANKS AUTHORIZED TO ACCEPT

DEMAND DEPOSITS AND RURAL BANKS WHO ARE MEMBERS OF THE
PHILIPPINE CLEARING HOUSE CORPORATION
(Appendix to Items "c" and "d" of Sections 2205 and 3205)
Section 1. Requirements for Thrift b. The applicant bank shall furnish the
Banks Migrating from NOW and DLC a copy of the application, together
Conduit Arrangements and Rural Banks with the following:
Who are Members of the Philippine (1) A duly notarized secretary’s
Clearing House Corporation: certificate together with a resolution
a. TBs migrating from NOW and of the board of directors of the bank
conduit arrangements and RB members authorizing the bank to apply for a loan
of the PCHC shall secure a Bank Routing line and designating the officers
Symbol Transit Number (BRSTN) with authorized to negotiate, sign and execute
PCHC. all accessory documents for the loan
b. TBs and RB members shall secure line;
prior authority to participate directly in (2) Duly signed and notarized
the PCHC and BSP clearing operations Overnight Clearing Line Agreement
with the appropriate department of the between the bank and the BSP;
SES. (3) Duly accomplished Tripartite
Memorandum of Agreement between and
Sec. 2. Requirements for Thrift Banks among the BSP, the applicant-bank and the
and Rural Banks Who are Members of PCHC;
PCHC (4) Notarized Surety Agreement
TBs/RBs participating directly in the executed by the controlling stockholders
clearing operations of PCHC and BSP (owning more than fifty percent (50%)
Regional Clearing Centers shall apply for of the voting stocks) and every person
collateralized overnight clearing line or group of persons whose stockholdings
under Items "c" and "d" of Sections 2205 are sufficient to elect at least one director
and 3205 of the Manual. Said banks shall obligating themselves jointly and
enter into an agreement with the BSP severally with the bank to pay promptly
conforming to these guidelines and they on maturity or when due the BSP, its
shall in turn enter into similar agreements successors or assigns, all promissory
with their clients. notes covering availment against the
loan line; and
Sec. 3. Application for Overnight (5) Collateral documents to cover the
Clearing Line loan line.
a. TBs and RBs authorized to c. The loan line shall be secured by
participate directly in the clearing first class collaterals that refer to the
operations of PCHC shall file their assets and securities which have
application for an Overnight Clearing relatively stable and clearly definable
Line with the appropriate department of value and/or greater liquidity and free
the SES supported by documents from lien and encumbrances, to the
indicated below under Items “b.1”, “b.2” extent of their applicable loan values,
and “b.3”. as follows:

APP. 31
06.12.31
Acceptable Collaterals Loan Value f. The bank shall be allowed the

c.1.a Government 80% of the current flexibility of changing or substituting
securities market value of the collateral, specially matured government
securities securities. The DLC shall act on such
c.1.b Commercial Credits
(AAA) request, provided it will not result in an
amendment of the approved overnight
c.2 Unencumbered real 70% of the appraised
estate properties in value of the land and clearing line.
the name of the insured improvements
bank determined by a Sec. 4. Availments Against the Approved
licensed and Loan Line
independent appraiser
acceptable to the BSP in
a. The electronic notice of application
accordance with BSP’s of the loan line to settle net clearing losses
terms of reference. from the BSP Comptrollership Department
shall constitute availment. Upon receipt of
c.3 Mortgage credits 70% of the appraised the electronic notice of availment, DLC shall
value of the property immediately post the transaction to the
securing the loan bank’s loan ledger.
evidenced by b. Each availment shall be fully paid
negotiable instruments
as determined by a
through an automatic debit to the demand
licensed and deposit account of the bank with BSP on
independent appraiser the next clearing day, without need of
acceptable to the BSP demand.
in accordance with c. The availments against the
BSP’s terms of
reference or 80% of approved loan line shall bear interest at the
the outstanding 91-day Treasury Bill rate of the last auction
balance of such loan immediately preceding the availments.
whichever is lower. d. Availments that remain unpaid on
c.4 Holdout on foreign 80% of current market the next clearing day shall be subject to three
currency deposits value percent (3%) per month in liquidated
with the BSP damages.
e. The loan value of the collaterals
d. The DLC shall inform the securing the loan line shall be
appropriate department of the SES of the total correspondingly reduced under any of the
loan value of eligible collaterals and the following circumstances:
appropriate department of the SES upon (1) There are collections received on
finding the application and any amendments the mortgage credits;
thereto to be in order, shall recommend to (2) The mortgage credits become past
the Monetary Board the approval of the due;
bank’s loan line. (3) The property mortgaged was
e. The loan line, once approved, can sold; and
be amended at the instance of the (4) The collateral assets fall short of
applicant bank only once every twelve the definition of first class collateral.
(12) months. The loan line shall be equal f. The bank shall duly inform DLC
to at least five (5%) percent of the bank’s of any collections on mortgaged credits
deposit liabilities as at end of prior month. or sale of assets mortgaged and ensure
The appropriate department of the SES that adequate records on collections and
shall recommend to the Monetary Board sales made by the branches are
any request for amendment of the line. maintained in its head office.

APP. 31
06.12.31
Sec. 5. Definition of Value or Settlement demand deposit accounts on value date

Date. Value or Settlement Date shall refer as defined in Sec. 5 above.
to date when the checks presented for d. The participating banks in BSP
clearing are given value. For local clearing, Regional Clearing Centers shall prepare their
the Value or Settlement Date shall be the next electronic clearing statements following the
clearing day when dishonored checks are procedures contained in the BSP Clearing
returned within the reglementary period, Operations User Manual for Participating
reckoned after the date of presentation in the Banks.
integrated Manila clearing area of PCHC and e. Manila outward regional clearing
in all BSP regional clearing centers. For inter- demands bound for BSP Regional Clearing
regional clearing items, outward Manila Centers and On Manila outward clearing
clearing items and to Manila clearing items, demands shall be presented to PCHC in
the Value or Settlement Date will be defined accordance with the existing PCHC
in clearing circulars to be issued by BSP. prescribed clearing rules.
Unless otherwise modified in f. BSP Regional Clearing Centers shall
subsequent clearing circulars, value or consolidate clearing statements and transmit
settlement date for clearing items shall be back electronically to the participating
as stated in the following schedule: banks the consolidated clearing statement
for each bank. The hard copy of the
Session Value/Settlement Date consolidated clearing statements signed
Returned Items On date of return by responsible officials of the participating
Outward Items banks shall be submitted to the BSP Regional
Local Clearing Next clearing day Clearing Center on the next clearing day.
g. Participating banks shall present
Inter-Regional Clearing As defined in Clearing the demand items in sealed envelopes,
Circular Letter for segregating the demand items according
nationwide inter-regional
to regional clearing centers. Each
clearing
envelope shall show the number and the
Out-of-town and Manila As defined in Clearing total value of the checks presented. The
Outward Regional Circular Letter fixing duly authorized settling representatives of
Outward Regional t h e the participating banks shall sign on the
number of float days for BSP control copy of the consolidated
exchanges between
Manila and the BSP clearing statements to document the
Regional Clearing exchanges.
Centers
Sec. 7. Procedures for Settling Losses
Sec. 6. Procedures for Clearing and Clearing losses shall be settled to the
Settling Clearing Results extent of the combined amount of the
a. Regular exchanges shall be demand deposit balance and additional
conducted daily for local, inter-regional and funds obtained from the following credit
out-of-town and outward Manila on regular sources of the participating bank:
banking days and local holidays. a. Interbank borrowing through IBCL
b. Returned Items shall be contained - MIPS;
in special red envelopes and presented b. Interbank borrowing from BSP
separately in the clearing statements. Treasury Department; and
c. The net clearing demands of c. Collateralized overnight clearing
banks shall be debited/credited to the line granted by the BSP.

APP. 31
06.12.31
Sec. 8. Procedures for Unwinding e. Checks which are the subject of the
Clearing Transactions unwound clearing transactions shall be
a. Procedures for unwinding clearing returned to the presenting banks not later
transactions shall apply to all inward than 9:00 o’clock A.M. of the following
items, other than Returned Items, and to clearing day.
local exchanges only.
b. The aggregate values of all inward Sec. 9. Identification of Checks Issued
items of all clearing centers, including On Under Sec. 2205/3205. Participating bank
Manila inward clearing demands presented shall print or stamp on the face of the blank
to PCHC, shall be ranked from highest to checks issued to current account depositors
lowest. The unsettled net clearing losses the words “issued subject to Sec. 2205/3205
shall be eliminated by unwinding the inward of the MOR”.
items starting from the clearing centers,
including PCHC, with highest aggregate Sec. 10. Exemption from Liability. The
value. participating bank and PCHC shall have no
c. In case the aggregate value of the cause of action or right of relief whatsoever
inward items for a given clearing center, against the BSP in connection with or arising
except PCHC, exceeds the unsettled net out of any transaction under this Agreement.
clearing losses, the total inward items for Moreover, BSP shall not be held responsible
that clearing center shall be the subject of for any loss or damage to the Bank, PCHC
unwinding. or any third party arising out of or by reason
d. In the case of checks cleared through of this Agreement.
PCHC, the inward clearing items shall be
unwound to the extent of the unsettled net Sec. 11. Effectivity Date
clearing loss. The selection of the specific The clearing operation guidelines shall
demand items to be covered by unwinding take effect on 15 September 1998.
shall be based on PCHC rules. (As amended by Circular No. 516 dated 06 March 2006)

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
08.12.31
CLASSIFICATION, ACCOUNTING PROCEDURES, VALUATION AND

SALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIES
AND MARKETABLE EQUITY SECURITIES
Section 1. Statement of Policy. It is the a. Held to Maturity (HTM) Securities

policy of the BSP to promote full - These are debt securities with fixed or
transparency of the financial statements of determinable payments and fixed maturity
banks and other supervised institutions in that an FI has the positive intention and
order to strengthen market discipline, ability to hold to maturity other than:
encourage sound risk management (1) those that meet the definition of
practices, and stimulate the domestic Securities at Fair Value Through Profit or
capital market. Towards these ends, the Loss; and
BSP desires to align local financial (2) those that the FI designates as
accounting standards with international Available-for-Sale Securities .
accounting standards as prescribed by the An FI shall not classify any debt security
International Accounting Standards Board as HTM if the FI has, during the current
(IASB) to the greatest extent possible. financial year or during the two (2)
preceding financial years, sold or
Sec. 2. Scope. This Appendix covers reclassified more than an insignificant
accounting for investments in debt and amount of HTM investments before
equity securities except: maturity (more than insignificant in relation
a. those that are part of hedging to the total amount of HTM investments)
relationship; other than sales or reclassifications that:
b. those that are hybrid financial (a) are so close to maturity or the
instruments; security’s call date (i.e., less than three (3)
c. those financial liabilities that are months before maturity) that changes in the
held for trading; market rate of interest would not have a
d. those financial assets and financial significant effect on the security’s fair value;
liabilities which, upon initial recognition, (b) occur after the FI has substantially
are designated by the FIs as at fair value collected all [i.e., at least eighty-five percent
through profit or loss; and (85%)] of the security’s original principal
e. those that are classified as loans and through scheduled payments or
receivables. prepayments; or
It also does not include accounting for (c) are attributable to an isolated event
derivatives and non-derivative financial that is beyond the FI’s control, is non-recurring
instruments other than debt and equity and could not have been reasonably
securities. The foregoing exceptions and anticipated by the FI.
exclusions shall be covered by separate For this purpose, the phrase “more than
regulations. an insignificant amount” refers to sales or
reclassification of one percent (1%) or more
Sec. 3. Investments in Debt and Equity of the outstanding balance of the HTM
Securities. Depending on the intent, portfolio: Provided, however, That sales or
investments in debt and equity securities reclassifications of less than one percent
shall be classified into one (1) of four (4) (1%) shall be evaluated on case-to-case
categories and accounted for as follows:1 basis.
1
Reclassification allowed until 30 Nov. 2005 as per MAB dated 23 Nov. 2005

APP. 33
08.12.31
Sales or reclassifications before maturity Sales before maturity could satisfy the
that do not meet any of the conditions condition of HTM classification and
prescribed in this Appendix shall require therefore need not raise a question about
the entire HTM portfolio to be reclassified the FI’s intention to hold other HTM
to Available-for-Sale. Further, the FI shall securities to maturity if they are attributable
be prohibited from using the HTM account to any of the following:
during the reporting year of the date of sales (i) A significant deterioration in the
or reclassifications and for the succeeding issuer’s creditworthiness; for example, a
two (2) full financial years. Failure to sale following a downgrade in a credit
reclassify the HTM portfolio to Available- rating by an external rating agency would
for-Sale on the date of sales or not necessarily raise a question about the
reclassifications, shall subject the FI and FI’s intention to hold other investments to
concerned officers to penalties and maturity if the downgrade provides
sanctions provided under Item "c" of evidence of a significant deterioration in
X388.5. This provision shall be applied the issuer’s creditworthiness judged by
prospectively, i.e., on prohibited sales or reference to the credit rating at initial
reclassifications occurring on 13 March recognition. Similarly, if an FI uses internal
2005 (effectivity date of Cir. 476 dated 16 ratings for assessing exposures, changes in
February 2005) and thereafter. those internal ratings may help to identify
Securities held in compliance with BSP issuers for which there has been a
regulations, e.g., securities held as liquidity significant deterioration in
reserves and for the faithful performance creditworthiness, provided the FI’s
of trust duties, may be classified either as approach to assigning internal ratings and
HTM, Securities Held-for-Trading (HFT) or changes in those ratings give a consistent,
Available-for-Sale: Provided, That the reliable and objective measure of the credit
provision of Item (4) of paragraph 2 of quality of the issuers. If there is evidence
Section 3.a.1 shall not apply to sales or that an instrument is impaired, the
reclassifications of the said securities deterioration in creditworthiness is often
booked under HTM. regarded as significant;
a.1. Positive intention and ability to hold (ii) A change in tax law that eliminates
investments in HTM securities to maturity or significantly reduces the tax-exempt
– An FI does not have a positive intention status of interest on the HTM security (but
to hold to maturity an HTM security if: not a change in tax law that revises the
(a) the FI intends to hold the security marginal tax rates applicable to interest
for an undefined period; income);
(b) the FI stands ready to sell the (iii) A major business combination or
security (other than if a situation arises that major disposition (such as sale of a
is non-recurring and could not have been segment) that necessitates the sale or
reasonably anticipated by the FI) in transfer of HTM securities to maintain the
response to changes in market interest rates FI’s existing interest rate risk position or
or risks, liquidity needs, changes in the credit risk policy: Provided, That the sale
availability of and the yield on alternative or transfer of HTM security shall be done
investments, changes in financing sources and only once and within a period of six (6)
terms or changes in foreign currency risk; or months from the date of the business
(c) the issuer has a right to settle the combination or major disposition:
security at an amount significantly below Provided, further, That prior BSP approval
its amortized cost. is required for sales or transfers occurring

APP. 33
08.12.31
after the prescribed six (6)-month time agents (including employees acting as
frame. In this case, FIs shall submit to the selling agents), advisers, brokers and
appropriate department of the SES, a plan dealers, levies by regulatory agencies and
stating the reason for the extension and the securities exchanges, and transfer taxes and
proposed schedule for the disposition of the duties. Transaction costs do not include
HTM security; debt premiums or discounts, financing costs
(iv) A change in statutory or regulatory or internal administrative or holding costs.
requirements significantly modifying either After initial recognition, an FI shall
what constitutes a permissible investment measure HTM securities at their amortized
or the maximum level of particular types cost using the effective interest method.
of investments, thereby causing an FI to For this purpose, the effective interest
dispose of an HTM security; method is a method of calculating the
(v) A significant increase in the amortized cost of a security (or group of
industry’s regulatory capital requirements securities) and of allocating the interest
that causes the FI to downsize by selling income over the relevant period using the
HTM securities; or effective interest rate. The effective interest
(vi) A significant increase in the risk rate shall refer to the rate that exactly
weights of HTM securities used for discounts the estimated future cash receipts
regulatory risk-based capital purposes. through the expected life of the security or
An FI does not have a demonstrated when appropriate, a shorter period to the
ability to hold to maturity an investment in net carrying amount of the security. When
HTM security if: calculating the effective interest rate, an FI
(aa) it does not have the financial shall estimate cash flows considering all
resources available to continue to finance contractual terms of the security (for
the investment until maturity; or example, prepayment, call and similar
(bb) it is subject to an existing legal or options) but shall not consider future credit
other constraint that could frustrate its losses. The calculation includes all fees and
intention to hold the security to maturity. points paid to the other party to the contract
Sales before maturity due to events that that are an integral part of the effective
are non-recurring and could not have been interest rate, transaction costs, and all other
reasonably anticipated by the FI such as a premiums or discounts. There is a
run on a bank, likewise satisfy the condition presumption that the cash flows and the
of HTM classification and therefore need expected life of a group of similar securities
not raise a question about the FI’s intention can be estimated reliably. However, in
and ability to hold other HTM investments those rare cases when it is not possible to
to maturity. estimate reliably the cash flows or the
An FI assesses its intention and ability expected life of a security (or group of
to hold its investment in HTM securities to securities), the FI shall use the contractual
maturity not only when those securities are cash flows over the full contractual terms
initially recognized, but also at each time of the security.
that the FI prepares its financial statements. A gain or loss arising from the change
a.2. HTM securities shall be measured in the fair value of the HTM security shall
upon initial recognition at their fair value be recognized in profit or loss when the
plus transaction costs that are directly security is derecognized or impaired, and
attributable to the acquisition of the securities. through the amortization process.
For this purpose, transactions costs An FI shall assess at each time it
include fees and commissions paid to prepares its financial statements whether

APP. 33
08.12.31
there is any objective evidence that an what the amortized cost would have been
HTM security is impaired. had the impairment not been recognized
If there is objective evidence that an at the date the impairment is reversed. The
impairment loss on HTM securities has amount of the reversal shall be recognized
been incurred, the amount of the loss is in profit or loss.
measured as the difference between the b. Securities at Fair Value through
security’s carrying amount and the present Profit or Loss – These consist initially of
value of estimated future cash flows HFT securities. HFT are debt and equity
(excluding future credit losses that have not securities that are:
been incurred) discounted at the security’s (1) acquired principally for the purpose
original effective interest rate (i.e., the of selling or repurchasing them in the near
effective interest rate computed at initial term; or
recognition). The carrying amount of the (2) part of a portfolio of identified
security shall be reduced through the use securities that are managed together and
of an allowance account. The amount of the for which there is evidence of a recent
loss shall be recognized in profit or loss. actual pattern of short-term profit-taking.
As a practical expedient, a creditor may For this purpose, an FI shall adopt its
measure impairment of HTM securities on own definition of short-term which shall be
the basis of an instrument’s fair value using within a twelve (12)-month period. Said
an observable market price. definition which shall be included in its
An FI first assesses whether objective manual of operations, shall be applied and
evidence of impairment exists individually used consistently.
for HTM securities that are individually b.1 HFT securities shall be measured
significant, and individually or collectively upon initial recognition at their fair value.
for HTM securities that are not individually Transaction costs incurred at the acquisition
significant. If an entity determines that no of HFT securities shall be recognized
objective evidence of impairment exists for directly in profit or loss. After initial
an individually assessed HTM security, recognition, an FI shall measure HFT
whether significant or not, it includes the securities at their fair values without any
asset in a group of HTM securities with deduction for transaction costs that it may
similar credit risk characteristics and incur on sale or other disposal. A gain or
collectively assesses them for impairment. loss arising from a change in the fair value
HTM securities that are individually of HFT securities shall be recognized in
assessed for impairment and for which an profit or loss under the account “Trading
impairment loss is or continues to be Gain/(Loss)”.
recognized are not included in a collective c. Available-for-Sale Securities.
assessment of impairment. These are debt or equity securities that are
If, in a subsequent period, the amount designated as Available-for-Sale or are not
of the impairment loss decreases and the classified/designated as (a) HTM, (b)
decrease can be related objectively to an Securities at Fair Value through Profit or
event occurring after the impairment was Loss, or (d) Investment in Non-Marketable
recognized (such as an improvement in the Equity Securities (INMES).
debtor’s credit rating), the previously c.1 Available-for-Sale securities shall
recognized impairment loss shall be be measured upon initial recognition at
reversed by adjusting the allowance their fair value plus transaction costs that
account. The reversal shall not result in a are directly attributable to the acquisition
carrying amount of the security that exceeds of the securities. After initial recognition,

APP. 33
08.12.31
an FI shall measure Available-for-Sale removed from equity and recognized in

securities at their fair values, without any profit or loss even though the security has
deduction for transaction costs it may incur not been derecognized.
on sale or other disposal. A gain or loss The amount of the cumulative loss that
arising from a change in the fair value of is removed from equity and recognized in
an Available-for-Sale security shall be profit or loss shall be the difference
recognized directly in equity under the between the acquisition cost (net of any
account “Net Unrealized Gains/(Losses) on principal repayment and amortization) and
Securities Available-for-Sale” and reflected current fair value, less any impairment loss
in the statement of changes in equity, on that security previously recognized in
except for impairment losses and foreign profit or loss.
exchange gains and losses, until the Impairment losses recognized in profit
security is derecognized, at which time the or loss for an investment in an equity
cumulative gain or loss previously instrument classified as Available-for-Sale
recognized in equity shall be recognized in shall not be reversed through profit or loss.
profit or loss. However, interest calculated If, in a subsequent period, the fair
using the effective interest method is value of a debt instrument classified as
recognized in profit or loss. Dividends on Available-for-Sale increases and the
an Available-for-Sale equity security are increase can be objectively related to an
recognized in profit or loss when the FI’s event occurring after the impairment loss
right to receive payment is established. was recognized in profit or loss, the
For the purpose of recognizing foreign impairment loss shall be reversed, with the
exchange gains and losses on a monetary amount of the reversal recognized in profit
Available-for-Sale security that is or loss.
denominated in a foreign currency, it shall c.2.Underwriting Accounts (UA) shall
be treated as if it were carried at amortized be a sub-account under Available-for-Sale.
cost in the foreign currency. Accordingly, These are debt and equity securities
for such an Available-for-Sale security, purchased which have remained unsold/
exchange differences resulting from locked-in from underwriting ventures on
changes in amortized cost are recognized a firm basis. UA account is applicable only
in profit or loss and other changes in to UBs and IHs.
carrying amount are recognized directly d. INMES- These are equity
in equity. For Available-for-Sale securities instruments that do not have a quoted
that are not monetary items (for example, market price in an active market, and
equity instruments), the gain or loss that is whose fair value cannot be reliably
recognized directly in equity includes any measured.
related foreign exchange component. INMES shall be measured upon initial
An FI shall assess at each time it recognition at its fair value plus transaction
prepares its financial statements whether costs that are directly attributable to the
there is any objective evidence that an acquisition of the security. After initial
Available-for-Sale security is impaired. recognition, an FI shall measure INMES at
When a decline in the fair value of an cost. A gain or loss arising from the change
Available-for-Sale security has been in fair value of the INMES shall be
recognized directly in equity and there is recognized in profit or loss when the
objective evidence that the asset is security is derecognized or impaired.
impaired, the cumulative loss that had been An FI shall assess each time it prepares
recognized directly in equity shall be its financial statements whether there is any

APP. 33
08.12.31
objective evidence that an INMES is HTM investments do not meet any of the
impaired. conditions in Section 3.a, any remaining
If there is objective evidence that an HTM investments shall be reclassified as
impairment loss has been incurred on an Available-for-Sale. On such reclassification,
INMES, the amount of impairment loss is the difference between the carrying
measured as the difference between the amount and fair value shall be accounted
carrying amount of the security and the for in accordance with Section 3.c.1.
estimated future cash flows discounted at d. If a reliable measure becomes
the current market rate of return for a similar available for an INMES, it shall be
financial instrument. Such impairment loss reclassified as Available-for-Sale and
shall not be reversed. remeasured at fair value, and the difference
For Securities at Fair Value through between its carrying amount and the fair
Profit or Loss and Available-for-Sale, an FI value shall be accounted for in accordance
is required to book the mark-to-market with Section 3.c.1.
valuation on a daily basis. However, an FI e. If, as a result of a change in intention
may opt to book the mark-to-market or ability, or because the two (2) preceding
valuation every end of the month: financial years’ referred to in Section 3.a have
Provided, That an adequate mechanism is passed, it becomes appropriate to carry the
in place to determine the daily fair values debt security at amortized cost (i.e., HTM)
of securities. rather than at fair value (i.e, Available- for-
An FI shall recognize an investment in Sale), the fair value carrying amount of the
debt or equity security on its balance sheet security on that date becomes its new
when, and only when, the FI becomes a amortized cost. Any previous gain or loss
party to the contractual provisions of the on that debt security that has been
financial instrument. A regular way recognized directly in equity in
purchase or sale of financial assets shall be accordance with Section 3.c.1 shall be
recognized and derecognized, as amortized to profit or loss over the
applicable using trade date accounting or remaining life of the HTM using the effective
settlement date accounting. The method interest method. Any difference between
used is applied consistently for all the new amortized cost and maturity
purchases and sale of financial assets that amount shall also be amortized over the
belong to the same category. remaining life of the security using the
effective interest method, similar to the
Section 4. Reclassifications1 amortization of a premium and a discount. If
a. An FI shall not reclassify a security the security is subsequently impaired, any
into or out of the Fair Value through Profit gain or loss that has been recognized directly
Loss category while it is held. in equity is recognized in profit or loss in
b. If, as a result of a change in intention accordance with Section 3.c.1.
or ability, it is no longer appropriate to f. If, in the rare circumstance that a
classify a debt security as HTM, it shall be reliable measure of fair value is no longer
reclassified as Available-for-Sale and available, it becomes appropriate to carry
remeasured at fair value, and the difference the equity security at cost (i.e., INMES) rather
between its carrying amount and fair value than at fair value (i.e., Available-for-Sale), the
shall be accounted for in accordance with fair value carrying amount of the security
Section 3.c.1. on that date becomes its new cost. Any
c. Whenever sales or reclassifications previous gain or loss on that equity security
of more than an insignificant amount of that has been recognized directly in equity
1
The guidelines governing the reclassification of financial assets between categories in accordance with the provisions of
the October 2008 amendments to PAS39 and PFRS7 are shown in Annex A.

APP. 33
08.12.31
in accordance with Section 3.c.1 shall evidence of impairment as a result of event

remain in equity until the security is sold that occurred after the initial recognition of the
or otherwise disposed of, when it shall be security (a “loss event”) and that loss event has
recognized in profit or loss. If the financial impact on the estimated future cash flows of
asset is subsequently impaired, any the securities. Losses expected as a result of
previous gain or loss that has been future events, no matter how likely, are not
recognized directly in equity is recognized. Objective evidence that the
recognized in profit or loss in accordance security is impaired includes observable data
with Section 3.c.1; and that comes to the attention of the holder of
g. The following securities booked the security about the following loss events:
under the HTM category, shall be a. significant financial difficulty of the
exempted from the “tainting” provision for issuer or obligor;
prudential reporting purposes which b. a breach of contract, such as a
prohibits banks from using the HTM default or delinquency in interest or
category and requires reclassification of the principal payments;
entire HTM portfolio to the Available-for- Sale c. the FI, for economic or legal
category during the reporting year and for reasons relating to the issuer’s financial
the succeeding two full financial years difficulty, granting to the issuer a concession
whenever a bank sells or reclassifies more that the FI would not otherwise consider;
than an insignificant amount of HTM d. it becoming probable that the issuer
investments before maturity, other than for will enter bankruptcy or other financial
reasons specified in Items “a(a)” to reorganization;
“a(c)” of Section 3 of this Appendix: e. the disappearance of an active
Provided, That securities rejected under market for that security because of financial
items “i” and “ii” shall continue to be difficulties; or
booked under the HTM category: f. observable data indicating that
i. Securities exchanged pursuant to there is a measurable decrease in the
the Domestic Debt Exchange Offer of the estimated future cash flows from a portfolio
Republic of the Philippines; of securities since the initial recognition of
ii. Securities offered and accepted in those assets, although the decrease cannot
the Global Bond Offering of the Republic yet be identified with the individual
of the Philippines; and securities in the portfolio, including:
iii. Foreign currency denominated NG/ (1) adverse change in the payment
BSP bonds/debt securities, outstanding as of status of issuers in the portfolio; or
10 February 2007, which were reclassified (2) national or local economic
from the HTM category in view of the conditions that correlate with defaults on
increased risk-weights of said securities the securities in the portfolio.
under Appendix 63b within thirty (30) The disappearance of an active market
calendar days after 10 February 2007. The because an FI’s held securities are no
subject securities once reclassified shall be longer publicly traded is not evidence of
accounted for in accordance with the impairment. A downgrade of an issuer’s
measurement requirements of their new credit rating is not, of itself, evidence of
category (i.e., Available-for-Sale securities). impairment, although it may be evidence
of impairment when considered with other
Section 5. Impairment. A debt or equity available information. A decline in the fair
security is impaired and impairment losses value of a security below its cost or
are incurred if, and only if, there is objective amortized cost is not necessarily evidence

APP. 33
08.12.31
of impairment (for example, a decline in instrument may not be recovered. A

fair value of an investment in debt security significant or prolonged decline in the fair
that results from an increase in the risk free value of an investment in an equity security
interest rate). below its cost is also objective evidence of
In addition to the types of events impairment.
enumerated in Items “a” to “f” in this
Section, objective evidence of impairment Section 6. Operations Manual. The FI shall
for an investment in an equity instrument maintain an operations manual for booking
includes information about significant and valuation of HTM, Securities at Fair
changes with an adverse effect that have Value through Profit or Loss, Available-for-
taken place in the technological, market, Sale and INMES.
economic or legal environment in which (As amended by Circular Nos. 628 dated 31 October 2008,
the issuer operates and indicates that the 626 dated 23 October 2008, 558 dated 22 January 2007,
cost of the investment in the equity 546 dated 21 September 2006 and 509 dated 01 February 2006)

APP. 33a
07.12.31
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
BSP exists for a given security, that market price shall be the basis of marking-to-market.
However, in the absence of a market price, a calculated price shall be used as prescribed
herein.
Marking-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
(e.g., Bloomberg, Reuters)
1. US Treasuries Price as of end of day, Manila time.
2. US Agency papers (e.g., Fannie Maes, Latest available price for the day, Manila
Freddie Macs, Ginnie Maes, Municipal time. In the absence of a price, use average
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.
* 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.

APP. 33a
07.12.31
C. Foreign Currency Denominated their commitments and for possible

Debt Securities Traded in a Local market manipulation and enforce
Registered Exchange or Market sanctions on errant participants and
The basis for marking-to-market foreign immediately inform BAP and the BSP
currency-denominated debt securities thereon; and
traded in a local registered exchange or 4. Review and upgrade the
market shall be the same as those used in benchmark setting methodology upon
Peso-Denominated Government Securities consultation with BAP on a continuing
in Section D below. basis, including documentation and
publications thereof.
D. Peso-Denominated Government Accordingly, all data on done and firm
Securities bids/offers must be credible and verifiable
The benchmark or reference prices shall and preferably sourced from trade
be based on the weighted average of done executions and reporting systems that are
or executed deals in a trading market part of a regulated and organized market
registered with the SEC. In the absence of duly licensed by the SEC where the data
done deals, the best firm bid per benchmark contributors are bound to uphold the
tenor shall be used in calculating the principles of transparency, fair trading and
benchmark: Provided, That the best firm best execution.
offer per benchmark tenor shall likewise
be included as soon as permissible under E. Peso-Denominated Private Debt
securities laws and regulations. Securities
The benchmark or reference rate shall The basis for marking-to-market peso-
be computed and published in accordance denominated debt securities traded in an
with prescribed guidelines on the organized market shall be the same as
computation of reference rates by a those used in Peso-Denominated
Calculation Agent which is recognized by Government Securities in Section D above.
the Bankers Association of the Philippines For private debt securities which are
(BAP): Provided, That both the Calculation not traded in an organized market, the
Agent and its method of computation are mark-to-market value shall be based on
acceptable to the BSP. the corresponding government security
To ensure the integrity of the benchmark plus risk premium. The
benchmark or reference prices, the corresponding government security
Calculation Agent shall perform the benchmark shall be determined according
following: to Section D above. In determining the
1. Monitor the quality of the risk premium, the credit risk rating of the
contributed source rates for the benchmark; securities involved given by a BSP-
2. Monitor the data contributors and recognized credit risk rating agency shall
replace participants, upon consultation be established and taken into account
with the BAP, that fail to meet commitments whenever available. In the absence of such
to the benchmark; credit risk rating, alternative analyses may
3. Monitor the activities of the be used: Provided, That, these are well-
participants to ensure compliance with justified by sound risk analysis principles.

APP. 33a
07.12.31
Other Guidelines Penalties and Sanctions

For the market valuation of FIs and the concerned officers found
securities with odd tenors, to have violated the provisions of these
interpolated yields derived from the regulations shall be subject to the penalties
benchmark or reference rates in prescribed under Subsec. X388.5:
accordance with the BSP-approved Provided, That non-compliance with the
guidelines for computation of above guidelines may be a basis for a finding
reference rate in Section D above shall of unsafe and unsound banking practice.
be used. (As amended by M-2007-006 dated 28 February 2007)

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
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
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
06.12.31
REVISED GUIDELINES FOR THE

ESTABLISHMENT OF COOPERATIVE BANKS
Pursuant to Monetary Board Sec. 4 Application documents. Duly

Resolution No. 1244 dated 28 August registered cooperatives applying for authority
2003, the Revised Guidelines for the to establish a Coop Bank shall submit the
Establishment of Cooperative Banks is following documents to the Central
hereby issued, as follows: Applications and Licensing Group (CALG):
a. Certificate of registration or re-
Section 1 Cooperative defined. A registration with the CDA;
cooperative is a duly registered b. Board resolution authorizing the
association of persons with a common investment of the cooperative to the Coop
bond of interest, who have voluntarily Bank;
joined together to achieve a lawful c. Board resolution appointing/
common social or economic end, making designating the authorized representative
equitable contributions to the capital of the cooperative to the Coop Bank. The
required and accepting a fair share of the authorized representative must either be
risks and benefits of the undertaking in the chairman, president or secretary of the
accordance with universally-accepted cooperative;
cooperative principles. d. Latest AFS of the cooperatives;
For purposes of these regulations, all e. Articles of Cooperation, Treasurer’s
cooperative organizations registered or Sworn Statement and By-Laws of the
re-registered with the Cooperative proposed Coop Bank in six (6) copies;
Development Authority (CDA) under R.A. f. Certificate of Good Standing of each
No. 6938 shall be considered cooperative from the CDA;
cooperatives. g. Bio-data, accomplished in the
prescribed form under oath and in triplicate,
Sec. 2 Organizers of Coop Banks by each of the authorized representatives
Only duly established cooperatives and of the cooperative-members, and proposed
federations of cooperatives which are members of the board of directors and
registered or re-registered with the CDA officers of the Coop Bank;
under R.A. No. 6938 may become h. NBI/BIR clearances of the
members/organizers of Coop Banks authorized representatives of the
organized in accordance with the cooperative members and proposed
provisions of these guidelines. At least members of the board of directors and
fifteen (15) such cooperatives organized officers of the Coop Bank;
in the province applied for may form and i. Latest statement of assets and
operate a Coop Bank. liabilities of authorized representatives
which must be not earlier than ninety (90)
Sec. 3 Registration requirements. A days from date of application;
prospective Coop Bank shall file its j. Projected monthly financial
application for licensing as a bank with statements for the first three (3) years of
the BSP and, upon approval, shall be operations which must be supported by the
registered with the CDA. following:

APP. 38
06.12.31
1. reasonable assumptions; Sec. 6 Limitation on capital

2. plantilla of organization including contribution of cooperatives. Capital
the estimated salaries and allowances of contributions in a Coop Bank shall be as
the officers and employees, as well as the widely dispersed as possible. No
members of the board of directors; cooperative member shall own or control
3. schedule of proposed banking more than forty percent (40%) of the total
premises, furniture, fixtures and capital contributions of a Coop Bank. This
equipment indicating their estimated cost; limitation shall also apply to cooperatives
and purchasing government-held preferred
4. such other information as may be shares of Coop Banks which are converted
necessary. into common stock.
k. Detailed plan of operations which
should include the following minimum Sec. 7 Capitalization. Coop Banks
information: shall have the following minimum
1. marketing plan describing how the capitalization (Private Paid-in Capital)1:
bank expects to generate viable and Amount
sustainable business; (In Millions)
2. description of how the bank will National Coop Bank P20
be organized and controlled internally to Local Coop Bank:
To be established in Metro Manila P20
ensure that an appropriate system of To be established in the Cities of
corporate governance will be in place; and Cebu and Davao P10
3. adequate operational policies and To be established in other places P 5
procedures, internal control procedures 2nd Coop Bank to be established
and management expertise to operate within the province P 5
the proposed bank in a safe and sound
manner. Sec. 8 Members of the board of
l. Economic justification. The directors. The number of members of the
economic justification for establishing the board of directors of a Coop Bank shall
bank should provide information on the not be less than five (5) nor more than
economic profile of the proposed area of fifteen (15) which shall at all times be in
operation, i.e., whether it is industrial, odd numbers and at least two (2) of whom
agricultural, etc., number of existing shall be independent directors. These
business establishments, population, directors shall come from the ranks of the
expected competition and such other authorized representatives of the
relevant information. cooperative-member. For this purpose,
an independent director shall mean a
Sec. 5 Limitation on the director who is not an officer or employee
establishment of Coop Bank. Only one of the Coop Bank.
Coop Bank shall be established in each
province, which must be located in a place Sec. 9 Qualifications and
accessible to the public. However, a disqualifications of officers and
second Coop Bank may be allowed to be directors. Officers, such as president,
established in a province: Provided, That vice-president, manager, treasurer,
it shall be located in a city or municipality cashier and accountant and directors of the
other than the city or municipality where Coop Bank must possess the qualifications
the first Coop Bank is located. and none of the disqualifications
1
Required under Subsec. X106.1

APP. 38
06.12.31
prescribed under the attached Annex “A” 6. Certificates of attendance of the

(Instructions for Directors and Officers of special seminar for members of the board
Proposed Cooperative Banks). of directors conducted or accredited by
the BSP;
Sec. 10 Limitation on officership/ 7. List of principal and junior officers
directorship. Any officer or employee of and their respective designations and
the CDA shall be disqualified to be elected salaries;
or appointed to any position in a Coop 8. Bio-data sheets, NBI/BIR
Bank. Elective officials of the government clearances, statement of assets and
except barangay officials, shall also be liabilities, ITRs and statement of income
ineligible to become officers and directors and expenses for the last three (3) years
of Coop Banks. of directors/officers who have not had the
previous approval of the Monetary Board,
Sec. 11 Pre-operating requirements for evaluation of their qualifications prior
a. Within eight (8) months from to their appointment;
receipt of advice of approval of the 9. Chart of organization. The chart
Monetary Board of its application, the should show the names of departments/
proposed Coop Bank shall: units/offices with their respective
1. Complete the construction and functions and responsibilities, and the
furnishing of the bank building which shall designations of positions in each
be equipped with facilities, furniture, forms department/unit/office with their
and stationery, and vault of reinforced respective duties and responsibilities.
concrete with a steel two (2)-hour fire The internal organization should
resistant door and equipped with time provide for a management structure with
delay device, in accordance with the clear accountability, a board of directors
specifications of the BSP; with ability to provide independent check
2. Effect and complete the training/ on management and independent audit
seminar of directors, officers and and compliance functions, and should
employees of the Coop Bank; and follow the “four eyes” principle, i.e.,
3. Inaugurate and open the Coop Bank segregation of various functions, cross
for business. checking, dual control of assets, double
b. At least thirty (30) days prior to the signatures;
start of operations, the Coop Bank shall 10. Manual of Operations embodying
submit the following requirements the policies and operating procedures of
1. Certification of compliance with each department/unit/office covering
the conditions of approval of the such areas as signing/delegated
applications duly signed by the cooperators; authorities;
2. Proof of registration of Articles of 11. Two (2) sets of specimens of
Cooperation, Treasurer’s Sworn Statement principal bank accounting and other forms;
and By-Laws of the Bank; 12. Blueprint of floor layout of bank
3. Certificate of deposits of the bank’s premises;
paid-in capital; 13. Contract of lease on bank’s
4. Request for ocular inspection of the premises, if the same are to be leased;
bank premises at least thirty (30) days 14. Insurance coverage of bank
before the scheduled date of operations; properties;
5. Certificates of training/seminar of 15. Fidelity bonds of accountable
officers and employees; officers;

APP. 38
06.12.31
16. Excerpts of the minutes of the 22. Other documents/papers which

organizational meetings confirming all may be required.
organizational and pre-opening
transactions relative to activities Sec. 12 Training of personnel,
undertaken to prepare the bank to operate directors and officers. The following
(such as appointment of officers, contract personnel of the Coop Bank as well as the
of lease, etc.); directors and officers are required to
17. An alphabetical list of stockholders undergo training at the Bangko Sentral ng
with the number and percentage of voting Pilipinas Institute:
stocks owned by them; a. The manager who must possess
18. A separate list containing the names the qualifications and none of the
of persons who own voting stocks in banks disqualifications as enumerated in the
and who are related to each other within attached Annex “A”.
the 3rd degree of consanguinity or affinity, b. The cashier who must also possess
with proper indication of the combined the qualifications and none of the
percentage of voting stocks held by them disqualifications as enumerated in the
in the particular bank, as well as attached Annex “A”.
corporations which are wholly-owned or a c. The bookkeeper who must be at
majority of the stock of which is owned by least twenty one (21) years old, a college
any of such persons, including their wholly degree holder, and must have at least
or majority-owned subsidiaries; eighteen (18) units in accounting.
19. Certification by the president or d. The field inspector-appraiser who
officer of equivalent rank that no person must be at least twenty (21) years old, at
who is the spouse or relative within the 2nd least a high school graduate, and must
degree of consanguinity or affinity of any have knowledge/experience in farming,
person holding the position of chairman, preferably an Agriculture graduate.
president, executive vice president or any
position of equivalent rank, general Sec. 13 Validity period of authority
manager, treasurer, chief cashier or chief to operate the Coop Bank. The Coop
accountant will be appointed to any of said Bank shall be organized and opened for
positions in the bank; business within eight (8) months upon
20. Appointment of an officer of the receipt by the proposed Coop Bank of the
proposed bank who shall have undergone notice of approval of its application by the
orientation on the reportorial requirements Monetary Board, otherwise, the authority
with the BSP and a certification by the to operate shall be deemed automatically
manager that he is fully aware of said revoked.
reportorial requirements and the respective
deadlines for submission to the BSP; Sec. 14 These rules and regulations
21. A certification by the PDIC that the supersede the Guidelines for the
organizers had already been briefed on all Organization of Rural Banks by
of its requirements for newly established Cooperatives approved under M.B.
banks; and Resolution No. 1155, dated 6 October 1990.

APP. 38
06.12.31
Annex A
INSTRUCTIONS FOR DIRECTORS AND OFFICERS

OF PROPOSED COOPERATIVE BANKS
The term officers shall include the - education;

president, senior vice-president, vice - diligence; and
president, manager, secretary, cashier, and - experience/training.
others mentioned as officers of the bank, At least one (1) of the members of the
or those whose duties as such are defined board of directors must, in addition to the
in the by-laws, or are generally known to above-mentioned minimum qualifications,
be the officers of the bank (or any of its have at least one (1) year experience in
branches and offices other than the head banking.
office) either thru announcement, The foregoing qualifications for
representation, publication or any kind of directors shall be in addition to those
communication made by the bank. already required or prescribed under
The term directors shall include: (1) existing laws.
directors who are named as such in the 2. Persons disqualified to become
Articles of Cooperation; (2) directors duly directors. Without prejudice to specific
elected in subsequent meetings of provisions of law prescribing
authorized representative of each disqualifications for directors, the following
cooperative-member, and (3) those elected persons are disqualified from becoming
to fill vacancies in the board of directors. directors:
The following are the qualifications and (a) Permanently disqualified
disqualifications of directors and officers of Directors/officers/employees
Coop Banks: permanently disqualified by the Monetary
1. Qualifications for directors. A Board from holding a director position:
director must have the following minimum (1) Persons who have been convicted
qualifications: by final judgment of the court for offenses
(a) He shall be at least twenty-five (25) involving dishonesty or breach of trust such
years of age at the time of his election or as estafa, embezzlement, extortion,
appointment; forgery, malversation, swindling and theft;
(b) He shall be at least a college (2) Persons who have been convicted
graduate or have at least five (5) years by final judgment of the court for violation
experience in business; of banking laws;
(c) He must have attended a special (3) Persons who have been judicially
seminar for board of directors conducted declared insolvent, spendthrift or
or accredited by the BSP within a period incapacitated to contract; or
of six (6) months from the date of his (4) Directors, officers or employees of
election; and closed banks/QBs/trust entities who were
(d) He must be fit and proper for the responsible for such institution’s closure as
position of a director of the Coop Bank. In determined by the Monetary Board.
determining whether a person is fit and (b) Temporarily disqualified
proper for the position of a director, the Directors/officers/employees
following matters must be considered: disqualified by the Monetary Board from
- integrity/probity; holding a director position for a specific/
- competence; indefinite period of time. Included are:

APP. 38
06.12.31
(1) Persons who refuse to fully disclose which is owned by any or a group of
the extent of their business interest to the persons mentioned in the foregoing Items
appropriate department of the SES when "i", "ii" and "iv";
required pursuant to a provision of law or This disqualification shall be in effect
of a circular, memorandum or rule or as long as the delinquency persists.
regulation of the BSP. This disqualification (4) Persons convicted for offenses
shall be in effect as long as the refusal persists; involving dishonesty, breach of trust or
(2) Directors who have been absent or violation of banking laws but whose
who have not participated for whatever conviction has not yet become final and
reasons in more than fifty percent (50%) of executory;
all meetings, both regular and special, of (5) Directors and officers of closed
the board of directors during their banks/QBs/trust entities pending their
incumbency, or any twelve (12) month clearance by the Monetary Board;
period during said incumbency. This (6) Directors disqualified for failure to
disqualification applies for purposes of the observe/discharge their duties and
succeeding election; responsibilities prescribed under existing
(3) Persons who are delinquent in the regulations. This disqualification applies
payment of their obligations as defined until the lapse of the specific period of
hereunder: disqualification or upon approval by the
(a) Delinquency in the payment of Monetary Board on recommendation by
obligations means that an obligation of a the appropriate department of the SES of
person with a bank/QB/trust entity where such directors’ election/reelection;
he/she is a director or officer, or at least (7) Directors who failed to attend the
two obligations with other banks/FI, special seminar for board of directors
under different credit lines or loan required under Item "3" of Subsec. X141.2
contracts, are past due pursuant to Sec. of the MORB or Subsec. 4141Q.2 of the
X306 of the MORB and Sec. 4308Q of MORNBFI. This disqualification applies
the MORNBFI; until the director concerned had attended
(b) Obligations shall include all such seminar;
borrowings from a bank/QB obtained by: (8) Persons dismissed/terminated from
(i) A director or officer for his own employment for cause. This
account or as the representative or agent disqualification shall be in effect until they
of others or where he/she acts as a have cleared themselves of involvement
guarantor, endorser, or surety for loans from in the alleged irregularity;
such FIs; (9) Those under preventive
(ii) The spouse or child under the suspension; or
parental authority of the director or officer; (10) Persons with derogatory records
(iii) Any person whose borrowings or with the NBI, court, police, Interpol and
loan proceeds were credited to the account monetary authority (central bank) of other
of, or used for the benefit of a director or countries (for foreign directors and officers)
officer;
involving violation of any law, rule or
(iv) A partnership of which a director
regulation of the government or any of its
or officer, or his/her spouse is the managing
partner or a general partner owning a instrumentalities adversely affecting the
controlling interest in the partnership; and integrity and/or ability to discharge the
(v) A corporation, association or firm duties of a bank/QB/trust entity director/
wholly-owned or majority of the capital of officer. This disqualification applies until

APP. 38
06.12.31
they have cleared themselves of accountant is disqualified from holding or

involvement in the alleged irregularity. being elected or appointed to any of said
positions in the same bank; and the spouse
3. Qualification for officers or relative within the second degree of
(a) He shall be at least twenty-one (21) consanguinity or affinity of any person
years of age; holding the position of manager, cashier,
(b) He shall be at least a college or accountant of a branch or office of a bank
graduate, or have at least five (5) years is disqualified from holding or being
experience in banking or trust operations or appointed to any of said positions in the
related activities or in a field related to his same branch or office.
position and responsibilities, or have (b) Any officer or employee of the
undergone training in banking acceptable to CDA or any appointive or elective public
the appropriate department of the SES; and official, except a barangay official;
(c) He must be fit and proper for the (c) Except as may otherwise be
position he is being proposed/appointed allowed under C.A. No. 108, otherwise
to. In determining whether a person is fit known as “The Anti-Dummy Law”, as
and proper for a particular position, the amended, foreigners cannot be officers or
following matters must be considered: employees of a Coop Bank.
- integrity/probity; The foregoing disqualifications for
- competence; officers shall be in addition to those already
- education; required or prescribed under existing laws.
- diligence; and 5. Government officers and
- experience/training. employees.
Any one of the president, chief Any officer or employee of the CDA
operating officer or general manager of a shall be disqualified to be elected or
national Coop Bank must, in addition to appointed to any position in a cooperative;
the abovementioned minimum and (2) elective officials of the government,
qualifications, have at least two (2) years except barangay officials, shall be
actual banking experience in a senior ineligible to become officers and directors
management capacity (head or assistant of cooperatives.
head) while the manager of a local Coop However, any government employee
Bank must have actual banking experience may, in the discharge of his duties as
(at least manager or assistant manager). member in the cooperative, be allowed by
The foregoing qualifications for officers the head office concerned to use official
shall be in addition to those already time for attendance at the general
required or prescribed under existing laws. assembly, board and committee meetings
4. Persons disqualified to become of cooperatives as well as cooperative
officers. The grounds for disqualification for seminars, conferences, workshops,
directors shall likewise apply to officers, technical meetings, and training courses
except that stated in Items "2.b.2" and "2.b.7". locally or aboard: Provided, That the
(a) Except as may be authorized by the operations of the office concerned are not
Monetary Board or the Governor, the adversely affected.
spouse or a relative within the second Unless otherwise provided, officers
degree of consanguinity or affinity of any elected or appointed without possessing
person holding the position of chairman, the qualifications or possessing any of the
president, executive vice president or any disqualifications as enumerated herein,
position of equivalent rank, general shall vacate their respective positions
manager, treasurer, chief cashier or chief immediately.

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:
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
REPUBLIC OF THE PHILIPPINES)

PROVINCE/CITY OF ) S.S.
BEFORE ME, a Notary Public, for and in the Province/City of ______________ this
_____ day of ______________, 200_, personally appeared the herein named persons with
their Community Tax Receipts, known to me to be the same persons who executed the
foregoing instrument and acknowledged before me that the same is their own free and voluntary
act and deed.
Comm.
Tax Cert.
Name No. Date of Issue Place of Issue
______________________ ________ ________________ __________________

______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
______________________ ________ ________________ __________________
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date and place
above written.
Notary Public
Until December 31, 20___
PTR No. ______________
Issued at _________on __________
Doc. No. __________;
Page No. __________;
Book No. __________;
Series of __________.

APP. 43
06.12.31
GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF BANKS
A. GENERAL REQUIREMENTS obligations which are normally available

to other credit card holders and fully
Only external auditors included in the secured auto loans and housing loans
list of BSP selected external auditors shall which are not past due) with the bank, its
be engaged by banks, for regular audit or subsidiaries and affiliates at the time of
special engagements. The external auditor signing the engagement and during the
to be hired shall also be in-charge of the engagement. In the case of partnership,
audit of the entity’s subsidiaries and affiliates this prohibition shall apply to the partners
engaged in allied activities: Provided, That and the auditor-in-charge of the
the external auditor shall be changed or 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 CPAs. In the case a. The external auditor for a UB or KB
of a partnership, this limitation shall apply must have at least twenty (20) existing
to the partners, associates and the auditor- corporate clients with resources of at least
in-charge of the engagement and P50.0 million each and at least one (1)
members of their immediate family; existing client UB or KB in the regular audit
2. The external auditor and the or in lieu thereof, the external auditor or
members of the audit team do not have/shall the auditor-in-charge of the engagement
not have outstanding loans or any credit must have at least five (5) years experience
accommodations (except credit card in the regular audit of UBs or KBs;

APP. 43
06.12.31
b. The external auditor for a TB and managing partner, in case of partnership

national Coop Bank must have at least ten and shall be submitted to the appropriate
(10) existing corporate clients with resources department of the SES together with the
of at least P25.0 million each and at least following documents/information:
one (1) existing client TB, QB, trust entity 1. An undertaking:
or national Coop Bank in the regular audit a. That the external auditor, partners,
or in lieu thereof, the external auditor or associates, auditor-in-charge of the
the auditor-in-charge of the engagement engagement and the members of their
must have at least five (5) years experience immediate family shall not acquire any
in the regular audit of TBs, QBs, trust direct or indirect financial interest with the
entities or national Coop Banks: Provided, bank, its subsidiaries and affiliates. Neither
That an external auditor who has been shall the external auditor, partners,
selected by the BSP to audit a UB or KB is associates and auditor-in-charge accept an
automatically qualified to audit a TB or audit engagement with a bank, its
national Coop Bank; and subsidiaries and affiliates where they or
c. The external auditor for an RB or any member of their immediate family
local Coop Bank must have at least three have any direct or indirect financial interest
(3) years track record in conducting external and that their independence is not
audit: Provided, That an external auditor considered impaired under the
who has been selected by the BSP to audit circumstances specified in the Code of
a UB, KB, TB, QB, trust entity and national Professional Ethics for CPAs;
Coop Bank is automatically qualified to b. That the external auditor, partners,
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
of an external auditor whose partner or apply for loans or any credit
auditor-in-charge of audit engagement accommodations (except normal credit
during the preceding year had been hired card obligations and fully secured auto
or employed by the bank, its subsidiaries loans and housing loans) nor shall accept
and affiliates as chief executive officer, an audit engagement with a bank, its
chief financial officer, controller, chief subsidiaries and affiliates where they have
accounting officer or any position of outstanding loans or any credit
equivalent rank; and accommodations (except normal credit
7. The external auditor must undertake card obligations and fully secured auto
to keep for at least five (5) years all audit or loans and housing loans which are not past
review working papers in sufficient detail due);
to support the conclusions in the audit c. That the external auditor shall not
report which shall be made available to the accept an audit engagement with a bank,
BSP upon request. Working papers shall its subsidiaries and affiliates where he was
include, but shall not be limited to, pre-audit engaged during the preceding year in
analysis, audit scope and detailed work providing the following services:
program. (1) Internal audit functions;
(2) Information systems design,
B. APPLICATION AND PRE- implementation and assessment; and
QUALIFICATION REQUIREMENTS (3) Such other services, which could
affect his independence as may be
The application for BSP selection shall determined by the Monetary Board from
be signed by the external auditor or the time to time.

APP. 43
06.12.31
This requirement shall not, however, clients and/or details of three (3) years track
affect audit engagement existing as of record in external audit for external auditors
26 November 2003 (effectivity of Circular of an RB and a local Coop Bank;
No. 410). b. If the external auditor for a UB or
d. That the external auditor and KB has no existing UB or KB client, and
members of the audit team shall adhere to the external auditor for a TB and national
the highest standards of professional Coop Bank, has no existing client TB or
conduct and shall carry out their services national Coop Bank, a notarized certification
in accordance with relevant ethical and that the external auditor or the auditor-in-
technical standards of the accounting charge of the engagement has at least five
profession; (5) years experience in the regular audit of
e. That the lead or concurring partner banks of appropriate category mentioning
and auditor-in-charge shall not accept the banks they have audited;
employment with the bank, its subsidiaries c. Updated PRC license (for individual
and affiliates being audited during the auditors) and business license for the
engagement period and within a period of partnership;
one (1) year after the audit engagement; d. Copy of the proposed engagement
f. That the external auditor shall not contract between the bank and the external
accept an audit engagement with a bank, auditor where applicable; and
its subsidiaries and affiliates where an e. Certification from PRC that the
officer (i.e., chief executive officer, chief external auditor, lead partner, concurring
financial officer, controller, chief partner, auditor-in-charge and members of
accounting officer or other senior officer the audit team have no derogatory
of equivalent rank) had been a partner of information, previous conviction or any
the external auditor or had worked for the pending investigation. However, in the
audit firm and had been the auditor-in- event that the certification cannot be
charge of the audit engagement of said obtained because of the pendency of a case,
entities during the year immediately the BSP may dispense with this
preceding the engagement; requirement upon determination by the
g. That the external auditor shall keep Monetary Board that the case involves
all audit or review working papers for at purely legal question, or does not, in any
least five (5) years in sufficient detail to way, negate the auditor’s adherence to the
support the conclusions in the audit report; highest standards of professional conduct
and nor degrade his integrity and objectivity.
h. That the audit work shall include
assessment of the audited institution’s C. REQUIRED REPORTS
compliance with BSP rules and regulations,
such as, but not limited to the following: 1. To enable the BSP to take timely
(1) CAR; and and appropriate remedial action, the
(2) Loans and other risk assets review external auditor must report to the BSP
and classification. within thirty (30) calendar days after
2. Other documents/information: discovery, the following cases:
a. List of existing corporate clients a. Any material finding involving fraud
with resources of at least P50.0 million or dishonesty (including cases that were
each for external auditor of a UB or KB; for resolved during the period of audit); and
a TB and national Coop Bank, list of existing b. Any potential losses the aggregate
corporate clients with resources of at least of which amounts to at least one percent
P25.0 million each; and list of existing (1%) of the capital.

APP. 43
06.12.31
2. The external auditor shall report or indirectly owned, controlled or held

directly to the BSP within fifteen (15) calendar with power to vote by a bank.
days the occurrence of the following: 2. Affiliate. A corporation, not more
a. Termination or resignation as external than fifty percent (50%) but not less than
auditor and stating the reason therefor; ten percent (10%) of the outstanding voting
b. Discovery of a material breach of stock of which is directly or indirectly
laws or BSP rules and regulations such as, owned, controlled or held with power to
but not limited to: vote by a bank, and a juridical person that
(1) CAR; and is under common control with the bank.
(2) Loans and other risk assets review 3. Control. Exists when the parent
and classification. owns directly or indirectly more than one
c. Findings on matters of corporate half of the voting power of an enterprise
governance that may require urgent action unless, in exceptional circumstance, it can
by the BSP. be clearly demonstrated that such
3. In case there are no matters to ownership does not constitute control.
report (e.g. fraud, dishonesty, breach of Control may also exist even when
laws, etc.) the external auditor shall submit ownership is one half or less of the voting
directly to the BSP within fifteen (15) power of an enterprise when there is:
calendar days after the closing of the audit a. Power over more than one-half of
engagement a notarized certification that the voting rights by virtue of an agreement
there is none to report. with other stockholders;
The management of the bank, its b. Power to govern the financial and
subsidiaries and affiliates shall be informed operating policies of the enterprise under a
of the adverse findings and the external statute or an agreement;
auditor’s report to the BSP shall include its c. Power to appoint or remove the
explanation and/or corrective action. majority of the members of the board of
The management of the bank, its directors or equivalent governing body;
subsidiaries and affiliates shall be given the d. Power to cast the majority votes at
opportunity to be present in the discussions meetings of the board of directors or
between the BSP and the external auditor equivalent governing body; or
regarding the audit findings, except in e. Any other arrangement similar to
circumstances where the external auditor any of the above.
believes that the entity’s management is 4. Associate. Any director, officer,
involved in fraudulent conduct. manager or any person occupying a similar
It is, however, understood that the status or performing similar functions in the
accountability of an external auditor is audit firm including employees performing
based on matters within the normal supervisory role in the auditing process.
coverage of an audit conducted in 5. Partner. All partners including those
accordance with generally accepted not performing audit engagements.
auditing standards. 6. Lead Partner. Also referred to as
the engagement partner/partner-in-charge/
D. DEFINITION OF TERMS managing partner who is responsible for
signing the audit report on the
For purposes of these guidelines, the consolidated financial statements of the
following terms shall be defined as follows: audit client, and where relevant, the
1. Subsidiary. A corporation or firm individual audit report of any entity whose
more than fifty percent (50%) of the financial statements form part of the
outstanding voting stock of which is directly consolidated financial statements.

APP. 43
06.12.31
7. Concurring Partner. The partner who 2. That disclosure of information by

is responsible for reviewing the audit report. the external auditor to the BSP as required
8. Auditor-in-charge. Refers to the under Items "C" and "F" hereof, shall be
team leader of the audit engagement. allowed; and
3. That both parties shall comply with
E. INCLUSION IN BSP LIST all of the requirements under these
guidelines.
In case of partnership, inclusion in the
list of BSP selected external auditors shall H. DELISTING OF EXTERNAL
apply to the audit firm only and not to the AUDITORS
individual signing partners or auditors under
its employment. The BSP will circularize 1. Grounds for delisting
to all banks the list of selected external External auditors may be delisted from
auditors once a year. The BSP, however, the list of BSP selected external auditor for
shall not be liable for any damage or loss the bank, for violation of, or non-compliance
that may arise from its selection of the with any provision of these guidelines or
external auditors to be engaged by banks in case of dissolution of the audit firm
for regular audit or special engagements. except when said dissolution was solely for
the purpose of admitting new partner/s and
F. SPECIFIC REVIEW the new partner/s have complied with the
requirements of these guidelines.
When warranted by supervisory 2. Procedure for delisting
concern, the Monetary Board may, at the An external auditor shall only be
expense of the bank, its subsidiaries and delisted upon prior notice to him and after
affiliates require the external auditor to giving him the opportunity to be heard and
undertake a specific review of a particular defend himself by presenting witnesses/
aspect of the operations of these institutions. evidence in his favor. Delisted external
The report shall be submitted to the BSP and auditor may re-apply for BSP selection after
the audited institution simultaneously, within the period prescribed by the Monetary
thirty (30) calendar days after the conclusion Board.
of said review.
I. AUDIT BY THE BOARD OF
G. AUDIT ENGAGEMENT CONTRACT DIRECTORS
Banks shall submit the audit engagement Pursuant to Section 58 of R.A. No. 8791,
contract between them, their subsidiaries otherwise known as “The General Banking
and affiliates and the external auditor to the Law of 2000” the Monetary Board may also
appropriate department of the SES within direct the board of directors of a bank or
fifteen (15) calendar days from signing the individual members thereof, to conduct,
thereof. Said contract shall include the either personally or by a committee created
following provisions: by the board, an annual balance sheet audit
1. That the bank shall be responsible of the bank to review the internal audit and
for keeping the auditor fully informed of the internal control system of the
existing and subsequent changes to concerned entity and to submit a report of
prudential, regulatory and statutory such audit to the Monetary Board within
requirements of the BSP and that both thirty (30) calendar days after the conclusion
parties shall comply with said thereof.
requirements; (As amended by Circular No. 529 dated 11 May 2006)

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
07.12.31
ANTI-MONEY LAUNDERING REGULATIONS

Banks, QBs, trust entities and all other a. In cases of corporate and other
institutions, and their subsidiaries and legal entities, the following measures
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 and structure of the client from the
of R.A. No. 9160, as amended, and the appropriate agency or from the client itself
following rules and regulations on anti- or both, proof of incorporation, including
money laundering. information concerning the customer’s
name, legal form, address, directors,
1. Customer identification. Covered principal officers and provisions regulating
institutions shall establish and record the the power behind the entity.
true identity of its clients based on official (2) Verification of the authority and
documents. They shall maintain a system identification of the person purporting to
of verifying the true identity of their clients act on behalf of the client.
and, in case of corporate clients, require a b. In case of doubt as to whether their
system of verifying their legal existence and purported clients or customers are acting
organizational structure, as well as the for themselves or for another, reasonable
authority and identification of all persons measures should be taken to obtain the true
purporting to act on their behalf. identity of the persons on whose behalf an
The guidelines on Customer Due account is opened or a transaction
Diligence for banks issued by the BASEL conducted.
Committee on Banking Supervision which c. The provisions of existing laws to
highlights the Know-Your-Customer (KYC) the contrary notwithstanding, anonymous
standards to be observed in the design of accounts, accounts under fictitious names,
KYC programs are shown in Annex B. and all other similar accounts shall be
The guidelines on the Account Opening absolutely prohibited. In case where
and Customer Identification issued by the numbered accounts is allowed (i.e., peso
BASEL Committee on Banking Supervision and foreign currency non-checking
represent the starting point, which can be numbered accounts), bank should ensure
used by banks in the area of customer that the client is identified in an official or
identification are shown 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
07.12.31
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
behaviour. purchased by the same person within any
f. Special attention should be given thirty (30) day period amounts to at least
to all complex, unusual large transactions, P50,000, the purpose of the buyer should
and all unusual patterns of transactions, be stated.
which have no apparent or visible lawful d. Banks which issue as well as those
purpose. The background and purpose of which accept as deposits, said cashier’s,
such transactions should, as far as possible, manager’s or certified checks or other
be examined, the findings established in similar instruments issued in blank or
writing, and be available to help payable to cash, bearer or numbered account
supervisors, auditors and law enforcement shall take such measure(s) as may be
agencies. necessary to ensure that said instruments are
g. Banks should not, or should at least not being used/resorted to by the buyer or
avoid, transacting business with criminals. depositor in furtherance of a money
Reasonable measures should be adopted laundering activity;
to prevent the use of their facilities for e. The deposit of said instruments shall
laundering of proceeds of crime and other be subject to the same requirements/scrutiny
illegal activities. applicable to cash deposits; and
h. Banks are enjoined to require their f. Transactions involving said
clients FDXs/MCs and RAs to submit a copy instruments should be accordingly
of their certificate of registration issued by reported to the BSP if there is reasonable
the BSP. This requirement shall be ground to suspect that said transactions are
considered as part of KYC compliance being used to launder funds of illegitimate
procedures. origin.
The certificates can be confirmed or
verified with the appropriate department 3. Programs against money
of the BSP. The registration of FXDs/MCs laundering. Programs against money
and the RAs with the BSP is provided for laundering should be developed. These
under Sec. 4511N of the MORNBFIs. programs, should include, as a minimum:

APP. 52a
07.12.31
a. The development of internal policies, (5) Complex, unusually large

procedures and controls, including the transactions, and all unusual patterns of
designation of compliance officers at transactions, which have no apparent or
management level, and adequate screening visible lawful purpose;
procedures to ensure high standards when (6) Funds being managed or held as
hiring employees; deposit substitutes if there is reasonable
b. An ongoing employee training ground to believe that the same are
program; and proceeds of criminal and other illegal
c. An audit function to test the system. activities;
(7) Suspicious Transaction Indicators or
4. Submission of plans of action “red flags” as a guide in the submission to
Banks shall submit a plan of action on how the AMLC of reports of suspicious
to comply with the requirements of Items transactions relating to potential or actual
"1", "3" and "5", on customers financing of terrorism:
identification, programs against money (a) Wire transfers between accounts,
laundering and requires reporting, without visible economic or business
repectively, within thirty (30) days from purpose, especially if the wire transfers are
31 July 2000 or from 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
to believe that the funds are proceeds of wire transfers are citizens of countries
an unlawful activity as defined under R.A. which are identified or connected with
No. 9160, as amended, and/or its IRRs, the terrorist activities;
transactions involving such funds or (c) Repetitive deposits or withdrawals
attempts to transact the same, should be that cannot be explained or do not make
reported to the Anti-Money Laundering sense;
Council (AMLC) in accordance with Rules (d) Value of the transaction is over and
5.2 and 5.3 of the 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
IRRs, to the AMLC using the forms individuals who have no known
prescribed by the AMLC. Reportable connection or relation with the account
transactions shall include the following: holder;
(1) Outward remittances without (g) An individual receiving
visible lawful purpose; remittances, but has no family members
(2) Inward remittances without visible working in the country from which the
lawful purpose or without underlying trade remittance is made;
transactions; (h) Client was reported and/or
(3) Unusual purchases of foreign mentioned in the news to be involved in
exchange without visible lawful purpose; terrorist activities;
(4) Unusual sales of foreign exchange (i) Client is under investigation by law
whose sources are not satisfactorily enforcement agencies for possible
established; involvement in terrorist activities;
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex A) and AMLC Resolution No. 10 dated 31 January
2007 (Annex A-1).

APP. 52a
07.12.31
(j) Transactions of individuals, be deemed to have violated R.A. No. 1405,

companies or NGOs that are affiliated or as amended; R.A. No. 6426, as amended;
related to people suspected of being R.A. No. 8791 and other similar laws, but
connected to a terrorist group or a group are prohibited from communicating, directly
that advocates violent overthrow of a or indirectly, in any manner or by any
government; means, to any person the fact that a covered
(k) Transactions of individuals, transaction report was made, the contents
companies or NGOs that are suspected as thereof, or any other information in relation
being used to pay or receive funds from thereto. In case of violation thereof, the
revolutionary taxes; concerned officer, employee, representative,
(l) The NGO does not appear to have agent, advisor, consultant or associate of
expenses normally related to relief or the covered institution, shall be criminally
humanitarian effort; liable. However, no administrative, criminal
(m) The absence of contributions from or civil proceedings, shall lie against any
donors located within the country of origin person for having made a covered
of the NGO; transaction report in the regular
(n) A mismatch between the pattern performance of his duties and in good faith,
and size of financial transactions on the one whether or not such reporting results in any
hand and the stated purpose and activity of criminal prosecution under R.A. No. 9160,
the NGO on the other; as amended, or any other Philippine law.
(o) Incongruities between apparent c. Prohibition from disclosure of the
sources and amount of funds raised or covered transaction report. When reporting
moved by the NGO; covered transactions to the AMLC, covered
(p) Any other transaction that is similar, institutions and their officers, employees,
identical or analogous to any of the representatives, agents, advisors, consultants
foregoing; and or associates are prohibited from
(8) All other suspicious transactions/ communicating, directly or indirectly, in
activities which can be reported without any manner or by any means, to any
violating any law. person, entity, the media, the fact that a
The report on suspicious transactions covered transaction report was made, the
shall provide the following minimum contents therof, or any other information in
information: relation thereto. Neither may such
(a) Name or names of the parties reporting be published or aired in any
involved; manner or form by the mass media,
(b) A brief description of the electronic mail, or other similar devices.
transaction or transactions; In case of violation thereof, the concerned
(c) Date(s) the transaction(s) occurred; officer, employee, representative, agent,
(d) Amount(s) involved in every advisor, consultant or associate of the
transaction; and covered institution, or media shall be held
(e) Such other relevant information criminally liable.
which can be of help to the authorities
should there be an investigation. 6. Certification of compliance with
b. Exemption from Bank Secrecy anti-money laundering regulations. Banks
Law. When reporting covered transactions shall submit annually to the BSP thru the
to the AMLC, covered institutions and their appropriate supervising and examining
officers, employees, representatives, agents, department a certification (Appendix 53)
advisors, consultants or associates shall not signed by bank president or officer of

APP. 52a
07.12.31
equivalent rank and by their compliance from properly identified clients and only
officer to the effect that they have after establishing that the nature of the
monitored compliance with existing business of said client justifies, or at least,
anti-money laundering regulations. makes practical the deposit of second-
The certification shall be submitted in endorsed checks. In case of isolated
accordance with Appendix 6 and shall be transactions involving deposits of
considered a Category A-2 report. second-endorsed checks by clients who
are not engaged in trade or business, the
7. Acceptance of second-endorsed identity of the first endorser should be
checks. Banks shall adopt stricter policy established and the record of the
guidelines in the acceptance of second- identification shall also be kept for five
endorsed checks to ensure that they are not (5) years. It is also understood that banks
being used as instruments for money shall at all times follow the Know-Your-
laundering or other illegal activities. Customer (KYC) rules whenever they
For this purpose, banks shall limit the handle or transact second-endorsed checks.
acceptance of second-endorsed checks (As amended by CL-2007-010 dated 28 February 2007)

APP. 52a
07.12.31
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 covered institutions shall be required to file
to file STRs on transactions involving all CTRs on its clients whose transactions
kinds of monetary instruments or property. exceed P500,000 and are included in the
2. Banks shall file CTRs on transactions bulk transactions.
involving all kinds of monetary instruments 5. With respect to insurance
or property, i.e., in cash or non-cash, companies, when the total amount of the
whether in domestic or foreign currency. premiums for the entire year, regardless of
3. Covered institutions, other than the mode of payment (monthly, quarterly,
banks, shall file CTRs on transactions in semi-annually or annually), exceeds
cash or foreign currency or other monetary P500,000, such amount shall be reported
instruments (other than checks) or as a covered transaction, even if the
properties. Due to the nature of the amounts of the amortizations are less than
transactions in the stock exchange, only the the threshold amount. The CTR shall be
brokers-dealers shall be required to file CTRs filed upon payment of the first premium
and STRs. The PSE, PCD, SCCP and transfer amount, regardless of the mode of payment.
agents are exempt from filing CTRs. They, Under this rule, the insurance company
are however, required to file STRs when the shall file the CTR only once every year until
transactions that pass through them are the policy matures or rescinded, whichever
deemed to be suspicious. comes first.
4. Where the covered institution 6. The submission of CTRs is deferred
engages in bulk transactions with a bank, until the AMLC directs otherwise.
i.e., deposits of premium payments in bulk Submission of STRs, however, are not
or settlements of trade, and the bulk deferred and covered institutions are
transactions do not distinguish clients and mandated to submit such STRs when the
their respective transaction amounts, said 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 version, 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
(2) 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
07.12.31
Annex A-1
It has come to the Council’s attention becomes incumbent upon the drawee
that a number of banks failed to file bank to report to the AMLC the fraudulent
Suspicious Transaction Reports (STRs) in transaction. The presenting bank, in turn,
cases involving deposit of fraudulent or informs the depository bank of the
spurious checks based on the impression dishonor of the check. Evidently, all the
that only either the original depository transacting banks are actually informed of
bank or drawee bank has the obligation to the fraudulent character of the check.
file the required STR. As the deposit and presentment of the
Some banks are also of the impression fraudulent check are related to the unlawful
that the filing to the BSP of Reports on activity of Estafa, such transactions are
Crimes and Losses involving deposit of deemed suspicious and all transacting
fraudulent or spurious checks dispenses banks should file STRs with the AMLC
with the filing of STR with the AMLC. within five (5) working days from
A check deposit usually involves three occurrence thereof, or from the time they
(3) parties: the depositor, the depository are notified or become aware of the
bank and the drawee bank. In cases where fraudulent or spurious character of the
the depository bank has no clearing check involved in the transactions,
facilities, the check is deposited to another pursuant to Section 9 (c) of the AMLA.
bank (presenting bank) which has clearing The Council resolved to enjoin all
facilities, which shall then present the banks to strictly comply with the
check to the drawee bank for payment. requirement on reporting of suspicious
Necessarily, each movement of the check transactions and remind them of the
creates a contractual relationship between following:
the transacting parties, i.e., between the 1. A bank through which a fraudulent
depositor and the depository bank; or spurious check passes, either as
between the depository bank and the depository, presenting, or drawee bank,
presenting bank; and between the shall file the corresponding STR pursuant
presenting bank and the drawee bank. In to Section 9 (c) of R.A. No. 9160, as
other words, the initial deposit of a check amended.
with a depository bank, its deposit with 2. The STR shall be filed within five
another bank (in case the original (5) working days from the occurrence of
depository bank has no clearing facilities), the transaction, or from the time the
and its presentment to the drawee bank concerned bank is notified or becomes
for payment are all deemed separate or aware of the spurious character of the check
individual “transactions”, as defined under or the fraudulent nature of the transaction.
Section 3 (h) of R.A. 9160, as amended. 3. The filing with the BSP of a Report
In case a fraudulent or spurious check on Crimes and Losses relating to the
is deposited and the drawee bank detects deposit of a fraudulent or spurious check
the fraudulent issuance and/or negotiation does not dispense with the filing of the STR
thereof, it necessarily informs the with the AMLC pursuant to Section 9 (c) of
presenting bank of the dishonor of the R.A. 9160, as amended.
check and the reason for such dishonor. It (CL-2007-010 dated 28 February 2007)

APP. 52a
07.12.31
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
07.12.31
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 FI, bearing in mind that the previous
measure of confidentiality. Private banking account manager may have asked for the
accounts can be opened in the name of an account to be removed because of a
individual, a commercial business, a trust, concern about dubious activities.
an intermediary or a personalized Banks should never agree to open an
investment company. In each case account or conduct ongoing business with
reputational risk may arise if the bank does a customer who insists on anonymity or
not diligently follow established KYC “bearer” status or who gives a fictitious
procedures. In no circumstances should name. Nor should confidential numbered2
private banking operations function accounts function as anonymous accounts
autonomously, or as a “bank within a but they should be subject to exactly the
bank”1 , and no part of the bank should ever same KYC procedures as all other customer
escape the required procedures. This accounts, even if the test is carried out by
means that all new clients and new selected staff. Whereas a numbered
accounts should be approved by at least account can offer additional protection for
one person other than the private banking the identity of the account-holder, the
relationship manager. If particular identity must be known to a sufficient
safeguards are put in place internally to number of staff to operate proper due
protect confidentiality of private banking diligence. Such accounts should in no
customers and their business, banks must circumstances be used to hide the customer
still ensure that at least equivalent scrutiny identity from a bank’s compliance function
and monitoring of these customers and their or from the supervisors.
business can be conducted, e.g., they must Banks need to be vigilant in
be open to review by compliance officers preventing corporate business entities
and auditors. from being used by natural persons as a
method of operating anonymous accounts.
2.1 General identification requirements Personal asset holding vehicles, such as
Banks need to obtain all information international business companies (IBCs),
necessary to establish to their full may make proper identification of
satisfaction the identity of each new customers or beneficial owners difficult.
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
07.12.31
A bank should take all steps necessary to to due diligence should be clearly
satisfy itself that it knows the true identity established. The beneficial owners should
of the ultimate owner of all such entities. be verified where possible. Where not,
the banks should perform due diligence
2.2 Specific identification issues on the intermediary and establish to its
There are a number of more detailed complete satisfaction that the intermediary
issues relating to customer identification has a sound due diligence process for each
which need to be addressed. Particular of its 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
(40) recommendations, and the Working evidence of the identity of beneficial
Group recognizes the need to be owners of all companies needs to be
consistent with 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 introducers when business is being
(e.g., client accounts managed by law referred. In doing so, banks risk placing
firms) or accounts opened on behalf of excessive reliance on the due diligence
pooled entities, such as mutual funds and procedures that they expect the introducers
money managers. In such cases, banks to have performed. Relying on due
have to decide, given the circumstances, diligence conducted by an introducer,
whether the customer is the intermediary, however reputable, does not in any way
or whether it would be more appropriate remove the ultimate responsibility of the
to look through the intermediary to the recipient bank to know its customers and
ultimate beneficial owners. In each case, their business. In particular, banks should
the identity of the customer that is subject not rely on introducers that are subject to

APP. 52a
07.12.31
weaker standards than those governing 3. On-going monitoring of high risk

the banks’ own KYC procedures or that are accounts
unwilling to share copies of due diligence On-going monitoring of accounts and
documentation. transactions is an essential aspect of
The FATF is currently engaged in a effective KYC procedures. Banks can only
review of the appropriateness of eligible effectively control and reduce their risk if
introducers, i.e., whether they should be they have an understanding of normal and
confined to reputable banks only or should reasonable account activity of their
extend to other regulated institutions, customers. Without such knowledge, they
whether a bank should establish a are likely to fail in their duty to report
contractual relationship with its introducers suspicious transactions to the appropriate
and whether it is appropriate to rely on a authorities in cases where they are required
third party introducer at all. The Working to do so. The on-going monitoring process
Group is still developing its thinking on this includes the following:
topic. • Banks should develop “clear
standards on what records must be kept on
2.2.3 Reputational risk customer identification and individual
Business relationship with individuals transactions and the retention period”.4 As
holding important/prominent positions, the starting point and natural follow-up of
public or private, and with persons or the identification process, banks should
companies clearly related to them may obtain and keep up to date customer
expose a bank to significant reputational identification papers and retain them for at
and/or legal risks. least five (5) years after an account is
Accepting and managing funds from closed. They should also retain all financial
such persons could put at risk the bank’s transaction records for at least five (5) years
own reputation and can undermine public after the transaction has taken place.
confidence in the ethical standards of an • Banks should ensure that they have
entire financial centre, since such cases adequate management information systems
usually receive extensive media attention and to provide managers and compliance
strong political reaction, even if the illegal officers with timely information needed to
origin of the assets is often difficult to prove. identify, analyze and effectively monitor
In addition, the bank may be subject to costly higher risk customer accounts. The types
information requests and seizure orders of reports that may be needed include
from law enforcement or judicial authorities reports of missing account opening
(including international mutual assistance documentation, transactions made through
procedures in criminal matters) and could a customer account that are unusual, and
be liable to actions for damages by the state aggregations of a customer’s total
concerned or the victims of a regime. relationship with the bank.
Under certain circumstances, the bank and/ • Senior management of a bank in
or its officers and employees themselves charge of private banking business
can be exposed to charges of money should know the personal circumstances
laundering, if they know or should have of the bank’s large/important customers
known that the funds stemmed from and be alert to sources of third party
corruption or other serious crimes. information. Every bank should draw its
4
Core Principles Methodology, Essential Criterion 2.

APP. 52a
07.12.31
own distinction between large/important training and other related policies. The
customers and others, and set threshold board of directors of the bank should be
indicators for them accordingly, taking fully committed to an effective KYC
into account the country of origin and programme by establishing appropriate
other risk factors. Significant transactions procedures and ensuring their
by high-risk customers should be effectiveness. Banks should appoint a
approved by 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
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
07.12.31
and is kept informed of new developments. management or the Board of Directors

It is crucial that all relevant staff fully if it believes management is failing to
understand the need for and implement address KYC procedures in a
KYC policies consistently. A culture within responsible manner.
banks that promotes such understanding is Internal audit plays an important role
the key to successful implementation. in independently evaluating the risk
Banks’ internal audit and compliance management and controls, discharging its
functions have important responsibilities in responsibility to the Audit Committee of
evaluating and ensuring adherence to KYC the board of directors or a similar oversight
policies and procedures. As a general rule, body through periodic evaluations of the
the compliance function provides an effectiveness of compliance with KYC
independent evaluation of the bank’s policies and procedures. Management
own policies and procedures, including should ensure that audit functions are
legal and regulatory requirements. Its staffed adequately with individuals who are
responsibilities should include ongoing well-versed in such policies and procedures.
monitoring of staff performance through In addition, internal auditors should be
sample testing of compliance and review proactive in following-up their findings and
of exception reports to alert senior criticisms.

APP. 52a
07.12.31
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
07.12.31
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 (5) 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 (5) years after the transaction
procedures. has 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
07.12.31
8. These guidelines are divided into • confirming the date of birth from an
two (2) sections covering different aspects official document (e.g., birth certificate,
of 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 (2) parts, the first relating to the information supplied after an account
corporate vehicles and the second to other has been opened (e.g., a disconnected
types of 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 authorized person (e.g.,
Section 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 13. FIs should apply equally effective
full address should be obtained; a Post customer identification procedures for non-
Office box number is not sufficient); face-to-face customers as for those
• telephone number, fax number, available for interview.
and e-mail address; 14. From the information provided in
• date and place of birth; paragraph 10, FIs should be able to make
• nationality; an initial assessment of a customer’s risk
• occupation, public position held profile. Particular attention needs to be
and/or name of employer; focused on those customers identified
• an official person identification thereby as having a higher risk profile and
number or other unique identifier additional inquiries made or information
contained in an unexpired official obtained in respect of those customers to
document (e.g., passport, identification 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; reference agency 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; and

APP. 52a
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• 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; and
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
Section B. Institutions firm of lawyers or accountants confirming
the documents submitted;
17. The underlying principles of • undertaking a company search and/
customer identification for natural persons or other commercial enquiries to see that
have equal application to customer the institution has not been, or is not in the
identification for all institutions. Where in process of being, dissolved, struck off,
the following the identification and wound up or terminated;
verification of natural persons is involved, • utilizing an independent
the foregoing guidance in respect of such information verification process, such as
persons should have equal application. by accessing public and private
18. The term institution includes any databases;
entity that is not a natural person. In • obtaining prior bank references;
considering the customer identification • visiting the corporate entity,
guidance for the different types of where practical; and
institutions, particular attention should be • contacting the corporate entity by
given to the different levels of risk telephone, mail or e-mail.
involved. 21. The bank should also take
reasonable steps to verify the identity and
I. Corporate Entities reputation of any agent that opens an
19. For corporate entities (i.e., account on behalf of a corporate customer,
corporations and partnerships), the if that agent is not an officer of the corporate
following information should be obtained: customer.
• name of institution;
• principal place of institution’s Corporations/Partnerships
business operations; 22. For corporations/partnerships, the
• mailing address of institution; principal guidance is to look behind the
• contact telephone and fax numbers; institution to identify those who have
• some form of official identification control over the business and the
number, if available (e.g., TIN); company’s/partnership’s assets, including
• the original or certified copy of the those who have ultimate control. For
Certificate of Incorporation and corporations, particular attention should be
Memorandum and Articles of Association; paid to shareholders, signatories, or others

APP. 52a
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who inject a significant proportion of the • copy of documentation confirming

capital or financial support or otherwise the legal existence of the account holder
exercise control. Where the owner is (e.g., register of charities).
another corporate entity or trust, the 25. The bank should verify this
objective is to undertake reasonable information by at least one of the following:
measures to look behind that company or • obtaining an independent
entity and to verify the identity of the undertaking from a reputable and known firm
principals. What constitutes control for this of lawyers or accountants confirming the
purpose will depend on the nature of a documents submitted;
company, and may rest in those who are • obtaining prior bank references; and
mandated to manage funds, accounts or • accessing public and private
investments without requiring further databases or official sources.
authorization, and who would be in a
position to override internal procedures and Retirement Benefit Programmes
control mechanisms. For partnerships, 26. Where an occupational pension
each partner should be identified and it is programme, employee benefit trust or
also important to identify immediate share option plan is an applicant for an
family members that have ownership account the trustee and any other person
control. who has control over the relationship (e.g.,
23. Where a company is listed on a administrator, programme manager, and
recognized stock exchange or is a account signatories) should be considered
subsidiary of such a company then the as principals and the bank should take steps
company itself may be considered to be to verify their identities.
the principal to be identified. However,
consideration should be given to whether Mutuals/Friendly Societies, Cooperatives
there is effective control of a listed and Provident Societies
company by an individual, small group of 27. Where these entities are an
individuals or another corporate entity or applicant for an account, the principals to
trust. If this is the case then those be identified should be considered to be
controllers should also be considered to those persons exercising control or
be principals and identified accordingly. significant influence over the organization’s
assets. This will often include board
II. Other Types of Institution members plus executives and account
24. For the account categories referred signatories.
to 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
principals: opened for charities, clubs, and societies,
• name of account; the bank should take reasonable steps to
• mailing address; identify and verify at least two signatories
• contact telephone and fax numbers; along with the institution itself. The
• some form of official identification principals who should be identified should
number, if available (e.g., TIN); be considered to be those persons
• description of the purpose/activities exercising control or significant influence
of the account holder (e.g., in a formal over the organization’s assets. This will
constitution); and often include members of a governing body

APP. 52a
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or committee, the president, any board not need to look beyond the intermediary
members, the treasurer, and all signatories. (e.g., when the intermediary is subject to
29. In all cases, independent verification the same due diligence standards in respect
should be obtained that the persons involved of its client base as the bank).
are true representatives of the institution. 32. Where such circumstances apply
Independent confirmation should also be and an account is opened for an open or
obtained of the purpose of the institution. close-ended investment company, unit
trust or limited partnership which is also
Trusts and Foundations subject to the same diligence standards in
30. When opening an account for a respect of its client base as the bank, the
trust, the bank should take reasonable steps following should be considered as
to verify the trustee(s), the settler(s) of the principals and the bank should take steps
trust (including any persons settling assets to identify:
into the trust) any protector(s), • the fund itself;
beneficiary(ies), and signatories. • its directors or any controlling board
Beneficiaries should be identified when where it is a company;
they are defined. In the case of a • its trustee where it is a unit trust;
foundation, steps should be taken to verify • its managing (general) partner
the founder, the managers/directors and the where it is a limited partnership;
beneficiaries. • account signatories; and
• any other person who has control
Professional Intermediaries over the relationship, e.g., fund
31. When a professional intermediary administrator or manager.
opens a client account on behalf of a single 33. Where other investment vehicles
client that client must be identified. are involved, the same steps should be taken
Professional intermediaries will often open as in paragraph 32 where it is appropriate to
“pooled” accounts on behalf of a number do so. In addition, all reasonable steps
of entities. Where funds held by the should be taken to verify the identity of
intermediary are not co-mingled but where the beneficial owners of the funds and of
there are “sub-accounts” which can be those who have control of the funds.
attributable to each beneficial owner, all 34. Intermediaries should be treated as
beneficial owners of the account held by individual customers of the bank and the
the intermediary should be identified. standing of the intermediary should be
Where the funds are co-mingled, the bank separately verified by obtaining the
should look through to the beneficial appropriate information drawn from the
owners; however, there may be itemized lists included in paragraphs 19-20
circumstances which should be set out in above.
supervisory guidance where the bank may (As amended by CL-2007-010 dated 28 February 2007)

APP. 52a
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Annex D

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 with
which remains in full force and effect. 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 AMLC the foregoing policies and guidelines in the
Secretariat (or the Officer-in-charge) is ongoing development and implementation
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
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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
06.12.31
TRANSFER/SALE OF NON-PERFORMING ASSETS TO A

SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL
The following procedures shall govern copy) by the selling bank with the BSP
the transfer/sale of NPAs to a SPV or to an through the appropriate department of the
individual that involves a single family SES for each proposed transfer of asset/s.
residential unit, or transactions involving Although no specific form is prescribed, the
dacion en pago by the borrower or third applicant shall describe in sufficient detail
party of a non-performing loan (NPL), for its proposed transaction, identifying its
the purpose of obtaining the COE which counterparty/ies and disclosing the terms,
is required to avail of the incentives conditions and all material commitments
provided under R.A. No. 9182, as related to the transaction.
amended by R.A. No. 9343. c. For applications involving more
a. Prior to the filing of any application than ten (10) NPA accounts, the list of NPAs
for transfer/sale of NPAs, a bank shall to be transferred/sold shall be submitted in
coordinate with the BSP through the SDC soft copy (by electronic mail or diskette) in
and the appropriate department of the SES excel format using the prescribed data
to develop a reconciled and finalized structure/format for NPLs and ROPAs to the
master list of its eligible NPAs. appropriate department of the SES of the
For this purpose, banks were requested applicant bank at the following addresses:
to submit a complete inventory of their
NPAs in the format prescribed under SEDI-SPV@bsp.gov.ph
Circular Letter dated 07 January 2003. Only SEDII-SPV@bsp.gov.ph
NPAs included in the master list that meet SEDIII-SPV@bsp.gov.ph
the definition of NPA, NPL and ROPA SEDIV-SPV@bsp.gov.ph
under R.A. No. 9182 may qualify for the
COE. The banks shall be provided a copy For applications involving ten (10) NPA
of their reconciled and finalized master list accounts or less, it is preferable that the list
for their guidance. be submitted also in soft copy. The
Only banks which have not yet applicant may opt to submit the list in hard
submitted their master list of NPAs and copy, provided all the necessary information
intend to avail of the incentives and fee shown in the prescribed data structure that
privileges of the SPV Act 2nd Phase are relevant to each NPL or ROPA to be
implementation are allowed to submit a transferred/sold will be indicated. The list
complete inventory of their NPAs in the to be submitted in hard copy would be ideal
format prescribed under Circular Letter for the sale/transfer of NPAs that involve one
dated 07 January 2003. Banks which have (1) promissory note and/or one (1) asset item
already submitted to BSP a master list of per account.
NPAs as of 30 June 2002 in the 1st Phase d. The application shall be
implementation of the SPV Act will not accompanied by a written certification
be allowed to submit a new/amended signed by a senior officer with a rank of at
master list. least senior vice president or equivalent,
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:

APP. 56
06.12.31
(1) the assets to be sold/transferred are transfer price, whichever is higher, but not
NPAs as defined under the SPV Act of 2002; below P25,000 if the transfer is made to
(2) the proposed sale/transfer of said an SPV;
NPAs is under a true sale; (2) 1/100 of 1% of the book value of
(3) the notification requirement to the the NPL but not below P5,000 in case of a
borrowers has been complied with; and dacion en pago arrangement by an
(4) the maximum ninety (90)-day period individual or corporate borrower;
for renegotiation and restructuring has been (3) P5,000 if the transfer involves a
complied with. single family residential unit to an
Items "3" and "4" above shall not apply individual.
if the NPL has become a ROPA after 30 h. An SPV that intends to transfer/sell
June 2002. to a third party an NPA that is covered by
e. In the case of dacion en pago by a COE previously issued by the BSP shall
the borrower or a third party to a bank, the file an application for such transfer/sale
application for COE on the NPL being with the SEC which shall issue the
settled shall be accompanied by a Deed of corresponding COE based on the data base
Dacion executed by the borrower, the third of COEs maintained at the BSP.
party, the registered owner of the property An individual who intends to transfer/
and the bank. sell an NPA that involves a single family
f. The appropriate department of the residential unit he had acquired that is
SES may conduct an on-site review of the covered by a COE shall file an application
NPLs and ROPAs proposed to be for another COE with the BSP through the
transferred/sold. After the on-site review, bank from which the NPA was acquired.
the application for transfer/sale shall be The individual shall indicate in his
submitted to the Deputy Governor, SES for application the previous COE issued for
approval and for the issuance of the the NPA he had acquired and the name,
corresponding COE. address and TIN of the transferee/buyer
g. Upon the issuance of the SPV of the NPA. A processing fee of P5,000
Application Number by the BSP, a bank shall shall be collected by BSP upon issuance
be charged a processing fee, as follows: of the SPV Application Number by the
(1) 1/100 of one percent (1%) of the BSP.
book value of NPAs transferred or the (As amended by M-2006-001 dated 11 May 2006)

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. 56b
08.12.31
SIGNIFICANT TIMELINES RELATIVE TO THE IMPLEMENTATION OF

R.A. NO. 9182, ALSO KNOWN AS THE “SPECIAL PURPOSE VEHICLE ACT”,
AS AMENDED BY R.A. NO. 9343
A. Filing of Applications with the SEC for 2. The transfer of the ROPA by the
Establishing an SPV bank to an SPV;
Under Section 6 of R.A. No. 9182, as 3. The dation in payment (dacion en
amended by R.A. No. 9343, applications pago) of the NPL by the borrower to the bank;
for the establishment and registration of an 4. The dation in payment (dacion en
SPV shall be filed with the SEC within pago) of the NPL by a third party, on behalf
eighteen (18) months from the effectivity of the borrower, to the bank;
of the amendatory Act (i.e., up to 14 5. The transfer of the NPL (secured by
November 2007). a real estate mortgage on a residential unit)
by the bank to an individual; and
B. Sale/Transfer of NPAs Entitled to Tax 6. The transfer of the ROPA (single family
Exemptions and Fee Privileges residential unit) by the bank to an individual.
The following transactions enumerated For purposes of determining whether a
as Items “1” to “6” of Section 15 of the IRR transaction occurred within the two (2)-year
of the SPV Law are entitled to the tax period or from 14 May 2006 to 14 May
exemptions and fee privileges under the 2008; relevant documents to support the
same Section only if such transactions occur application (e.g., Asset Sale and Purchase
within two (2) years from the effectivity of Agreement, Deed of Assignment, Deed of
the amendatory Act or from 14 May 2006 Dation, etc.) should be notarized within the
to 14 May 20081: said two (2)-year period.
1. The transfer of the NPL by the bank (M-2007 -013 dated 11 May 2007 as amended by M-2008-014
to an SPV; dated 17 March 2008)
1
The Monetary Board authorized the SES to accept applications for Certificate of Eligibility (COE) until 13 June 2008, or
up to 30 days after the 14 May 2008 deadline.

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
07.12.31
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 2. NON-TRADE TRANSACTIONS

documentary requirements for FX forward Only non-trade transactions with
and swap transactions. Unless otherwise specific due dates shall be eligible for
indicated, original documents* shall be forward contracts, and shall be subject to
presented on or before deal date to banks. the same documentation requirements
under Circular No. 388 dated 26 May 2003
A. FORWARD SALE OF FX TO COVER with the following additional guidelines for
OBLIGATIONS – DELIVERABLE AND foreign currency loans and investments.
NON-DELIVERABLE 2.1 Foreign Currency Loans owed to
non-residents or AABs
1. FORWARD SALE OF FX – TRADE 2.1.1 Deliverable Forwards
1.1 Trade transactions The maturing portion of the outstanding
1.1.1 Under Letters of Credit (LC) eligible obligation, i.e., those that are
a. Copy of LC opened; and registered with the BSP registration letter,
b. Accepted draft, or commercial may be covered by a deliverable forward
invoice/Bill of Lading subject to the documentary requirements
1.1.2 Under Documents against under Circular No. 388. A copy of the
Acceptances (DA)/Open Account (OA) creditor’s billing statement may be
arrangements submitted only on or before the maturity
a. Certification of reporting bank on the date of the contract.
details of DA/OA under Schedule 10 (Import 2.1.2 NDFs
Letters of Credits Opened and DA/OA The outstanding eligible obligation, i.e.,
Import Availments and Extensions) of FX those that are registered with the BSP,
Form 1 (Consolidated Report on Foreign including interests and fees thereon as
Exchange Assets and Liabilities); and indicated in the BSP registration letter may
b. Copy of commercial invoice; be covered by a NDF, subject to the
In addition to the above requirements, documentary requirements under
the bank shall require the customer to Circular No. 388, except for the creditor’s
submit a Letter of Undertaking that: billing statement which need not be
(i.) Before or at maturity date of the submitted.
forward contract, it (the importer) shall The amount of the forward contract
comply with the documentation shall not exceed the outstanding amount
requirements on sale of FX for trade of the underlying obligation during the
transactions under existing regulations; term of the contract.
and 2.2 Inward Foreign Investments
(ii.) No double hedging has been The unremitted amount of sales/
obtained by the customer for the covered maturity proceeds due for repatriation to
transactions. non-resident investors pertaining to BSP -
1.1.3 Direct Remittance registered investments in the following
Original shipping documents instruments issued by a Philippine resident:
indicated in Item "II.a" of Circular Letter a. shares of stock listed in the PSE;
dated 24 January 2002. b. government securities;
* If copy is indicated, it shall mean photocopy, electronic copy or facsimile of original.

APP. 58
07.12.31
c. money market instruments; and (i.) At maturity of the forward

d. peso time deposits with a minimum contract, it shall comply with the
tenor of ninety (90) days may be covered documentation requirements on the sale
by FX forward contracts subject to the of FX for trade transactions under Circular-
presentation of the original BSRD on or Letter dated 24 January 2002, as amended;
before deal date. However, for Item and
"2.2.a" above, original BSRD or BSRD (ii.) No double hedging has been
Letter-Advice, together with the broker’s obtained by the customer for the covered
sales invoice, shall be presented on or transactions.
before maturity date of the FX forward
contract, which date coincides with the 2. NON-TRADE (NON-DELIVERABLE)
settlement date of the PSE transaction. The outstanding balance of BSP-
Sales proceeds of BSP-registered registered foreign investments without
investments in shares of stock that are not specific repatriation date, appearing in the
listed in the PSE may be covered by a covering BSRD may only be covered by
deliverable FX forward contract only if an NDF contract, based on its market/
determined to be outstanding as of the deal book value on deal date, subject to prior
date for the contract and payable on a BSP approval and if already with BSRD
specific future date as may be indicated in presentation of the covering BSRD and the
the Contract To Sell/Deed of Absolute Sale proof that the investment still exists (e.g.,
and subject to the same documentary stock certificate, or broker’s buy invoice,
requirements under Circular No. 388. or confirmation of sale, or certificate of
investment in money market instruments,
B. FORWARD SALE OF FX TO COVER or certificate of peso time deposits).
EXPOSURES– DELIVERABLE AND Hedging for permanently assigned capital
NON-DELIVERABLE of Philippine branches of foreign banks/
firms is not allowed.
1. TRADE (DELIVERABLE AND NON-
DELIVERABLE) C. FORWARD PURCHASE OF FX
1.1 Under LC
a. Copy of LC opened; and Such FX forward contracts shall be
b. Proforma Invoice, or Sales Contract/ subject to the bank’s “Know Your
Purchase Order Customer” policy and existing regulations
1.2 Under DA/OA, Documents Against on anti-money laudering. In addition,
Payment (DP) or Direct Remittance (DR) counterparties must be limited to those
Any of the following where delivery that are manifestly eligible to engage in
or shipment shall be made not later than FX forwards as part of the normal course
one (1) year from deal date: of their operations and which satisfy the
a. Sales Contract bank’s suitability and eligibility rules for
b. Confirmed Purchase Order such transactions.
c. Accepted Proforma Invoice
d. Shipment/Import Advice of the D. FX SWAP TRANSACTIONS
Supplier
In addition to the above 1. FX SALE (first leg)/FORWARD FX
requirements, the bank shall require the PURCHASE (second leg)
customer to submit a Letter of Undertaking The same minimum documentary
that: requirements for sale of FX under BSP

APP. 58
07.12.31
Circular No. 388 for non-trade transactions, policy and existing regulations on anti-
and Circular-Letter dated 24 January 2002, money laundering. The second leg of the
as amended, for trade transactions, shall swap transaction will be subject to the
be presented on or before deal date. swap contract between the counterparties.
Swap contracts of this type intended to
2. FX PURCHASE (first leg)/FORWARD fund peso loans to be extended by non-
FX SALE (second leg) residents in favor of residents shall require
The first leg of the swap will be subject prior BSP approval.
to the bank’s “Know Your Customer” (As amended by Circular No. 591 dated 15 October 2007)

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
06.12.31
CHECKLIST OF BSP REQUIREMENTS IN THE SUBMISSION OF FINANCIAL

AUDIT REPORT (FAR), ANNUAL AUDIT REPORT (AAR) AND REPORTS
REQUIRED UNDER APPENDIX 43
The external 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. AFS of banks with subsidiaries shall be presented side by side on a
solo basis and on a consolidated basis (banks and subsidiaries). The FAR shall be submitted
by the bank to the appropriate department of the SES not later than 120 calendar days after the
close of the calendar year or fiscal year adopted by the bank, together with the following:
Information/Data required Deadline for submission
A. Financial Audit Report

1. Certification by the external auditor on For submission together with the FAR not
the following: later than 120 calendar days after the close
of the calendar year or fiscal year adopted
a. The dates of commencement and by the bank.
termination of audit.
b. The date when the FAR and certification

under oath stating that no material
weakness or breach in the internal control
and risk management systems was noted
in the course of the audit of the bank were
submitted to the bank's board of directors
or country head, in the case of foreign bank
branches; and
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 the
bank, its subsidiaries and affiliates and
that their independence is not considered
impaired under the circumstances
specified in the Code of Professional
Ethics for CPA.
2. Reconciliation statement for the For submission together with the FAR not
differences in amounts between the later than 120 calendar days after the close
audited and the submitted Balance Sheet of the calendar year or fiscal year adopted
and Income Statement for bank proper by the bank.

APP. 61
06.12.31
(regular and FCDU) and trust

department, including copies of
adjusting entries on the reconciling
items.
Note: Please see pro-forma comparative

analysis (Annex A).
3. LOC indicating the external auditor's Within thirty (30) calendar days after the
findings and comments on the material submission of the FAR.
weakness noted in the internal control
and risk management systems and
other aspects of operations.
In case no material weakness is noted For submission together with the FAR not
to warrant the issuance of an LOC, a later than 120 calendar days after the close
certification under oath stating that no of the calendar year or fiscal year adopted
material weakness or breach in the by the bank.
internal control and risk management
systems was noted in the course of the
audit of the bank shall be submitted by
the external auditor.
4. Copies of the board resolutions showing the:
a. Action taken on the FAR and, where Within thirty (30) banking days after the
applicable, on the certification under receipts of the financial audit report and
oath including the names of the certification under oath by the board of
directors present and absent, among directors.
other things; and
b. Action taken on the findings and Within thirty (30) banking days after the
recommendations in the LOC, and the receipt of the LOC by the board of
names of the directors present and directors.
absent, among other things.
5. In case of foreign banks with branches

in the Philippines, in lieu of the board
resolution:
a. A report by the country head on the Within thirty (30) calendar days after the
action taken by management (head receipt of the FAR and certification under
office, regional or country) on the FAR oath by the country head.
and, where applicable, on the
certification under oath stating that no

APP. 61
06.12.31
material weakness or breach in the

internal control and risk management
systems was noted in the course of the
audit of the bank.
b. A report by the country head on the Within thirty (30) banking days after the
action taken by management (head receipt of the LOC by the country head.
office, regional or country) on the LOC.
6. Certification of the external auditor on Within thirty (30) banking days after the
the date when the LOC was submitted receipt of the LOC by the board of directors
to the board of directors or country or country head.
head.
7. All the required disclosures in the AFS For submission together with the FAR not
provided under Subsec. X166.4. later than 120 calendar days after the close
of the calendar year or fiscal year adopted
by the bank.
8. Reports required to be submitted by

the external auditor under Appendix
43:
a. To enable the BSP to take timely and Within thirty (30) calendar days after the
appropriate remedial action, the discovery.
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: occurence/discovery.
(1) Termination or resignation as

external auditor and stating the reason
therefore;
(2) Discovery of a material breach of

laws or BSP rules and regulations such
as, but not limited to:

APP. 61
06.12.31
a. CAR; and
b. Loans and other risk assets

review and classification.
(3) Findings on matters of corporate

governance that may require urgent
action by the BSP.
c. In case there are no matters to report Within fifteen (15) calendar days after the
(e.g., fraud, dishonesty, breach of laws, closing of the audit engagement.
etc.) a notarized certification that there
is none to report.
B. Annual Audit Report (AAR)– For banks

and other financial institutions under the
concurrent jurisdiction of the BSP and
COA.
1. Copy of the AAR accompanied by the: Within thirty (30) banking days after receipt
of the AAR by the board of directors.
a. Certification by the institution
concerned on the date of receipt of the
AAR by the board of directors;
b. Reconciliation statement between the

AFS in the AAR and the balance sheet
and income statement of bank proper
(Regular and FCDU) and trust
department submitted to the BSP,
including copies of adjusting entries on
the reconciling items; and
c. Other information that may be required

by the BSP.
2. Copy of the board resolution showing Within thirty (30) banking days after receipt
the action taken on the AAR, as well as of the AAR by the board of directors.
on the comments and observations,
including the names of the directors
present and absent, among other
things.
(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)

APP. 61
06.12.31
Annex A
Name of Bank
Comparison of Submitted Consolidated Balance Sheet and Income Statement
and Audited Financial Statements
(Parent and Subsidiaries)
As of (end of calendar or fiscal year)
(In Thousand Pesos)
Submitted Audited Variance/ Reasons for

Report Report Discrepancy Discrepancy
Cash and Other Cash Items

Due from BSP
Due from Other Banks
Financial Assets Held for Trading (HFT)
Held-to-Maturity (HTM) Financial Assets
Available-for-Sale Financial Assets
Loans and Receivables, net
Interbank Loans Receivable
Equity Investments in Subsidiaries, Associates
& Joint Ventures
Bank Premises, Furniture, Fixtures and Equipment, net
Real and Other Properties Acquired (ROPA), net
Other Assets
Due from Head Office/Branches/Agencies Abroad
Total Assets
===== ==== ===== ======
Deposit Liabilities
Bills Payable
Bonds Payable
Unsecured Subordinated Debt (UnSD)
Redeemable Preferred Shares
Accrued Interest, Taxes and Other Expenses
Other Liabilities
Due to Head Office/Branches/Agencies Abroad
Total Liabilities
===== ==== ===== ======
Paid-in Capital Stock
Additional Paid-In Capital
Retained Earnings
Assigned Capital
Total Capital
===== ==== ===== ======
Total Liabilities and Capital
===== ==== ===== ======
Total Income
Total Expenses
Net Income before Income Tax
===== ==== ===== ======
(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)

APP. 62
08.12.31
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 _______________ (fund classification, e.g., money
market fund, bond fund, balanced fund and equity fund) suited for clients who
_____________. 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 Fee1: Pxxx/xx%

Minimum Investment:
Holding Period:
Participation/Redemption Conditions:
Special Reimbursable Expenses, if any: [Art V, Sec.3(b)]
Nature of Expense Name of Third Party Amount/Expense

Ratio2
Custodianship Fees xxx P xxx/xx%
External Audit Fees xxx xxx/xx%
Others (specify) xxx xxx/xx%
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:
1
Indicate either the (a) amount of trust fees charged to the UIT Fund or (b) the ratio/percentage of such amount to average
daily net asset value of the UIT Fund, for the quarter.
2
Indicate either the (a) amount of special reimbursable expense charged to the UIT Fund or (b) ratio/percentage of such
expense to the average daily net asset value of the UIT Fund, for the quarter.
Average daily net asset value of the UIT Fund for the quarter ended _____________________: P_____________________.

APP. 62
08.12.31
The UIT Fund is not a deposit and not insured by PDIC. Due to the nature of the
investments yield and potential yields cannot be guaranteed. Any income or loss arising
from market fluctuations and price volatility of the securities held by the UIT Fund, even if
invested in government securities, is for the account of the investor. As such, the units of
participation of the investor in the UIT Fund, when redeemed, may be worth more or be
worth less than his/her initial investment/contributions. Historical performance, when
presented, is purely for reference purposes and is not a guarantee of future results. The
trustee is not liable for losses, unless upon willful default, bad faith or gross negligence.
(As amended by Circular No. 593 dated 08 January 2008)

APP. 62a
08.12.31
Annex A
(NAME OF TRUST ENTITY) - (TRUST BANKING GROUP/TRUST DEPARTMENT)

Unit Investment Trust Funds
RISK DISCLOSURE STATEMENT
Prior to making an investment in any of the (Name of Trust Entity) Unit Investment Trust Funds (UITFs),
(Name of Trust Entity) is hereby informing you of the nature of the UITFs and the risks involved in investing
therein. As investments in UITFs carry different degrees of risk, it is necessary that before you participate/invest
in these funds, you should have: 1. Fully understood the nature of the investment in UITFs and the extent of your
exposure to risks; 2. Read this Risk disclosure Statement completely; and 3. Independently determined that the
investment in the UITFs is appropriate for you.
There are risks involved in investing in the UITFs because the value of your investment is based on the Net
Asset Value per unit (NAVpu) of the Fund which uses a marked-to-market valuation and therefore may fluctuate
daily. The NAVpu is computed by dividing the Net Asset Value (NAV) of the Fund by the number of outstanding
units. The NAV is derived from the summation of the market value of the underlying securities of the Fund plus
accrued interest income less liabilities and qualified expenses.
Investment in the UITF does not provide guaranteed returns even if invested in government securities
and high-grade prime investment outlets. Your principal and earnings from investment in the Fund can be lost
in whole or in part when the NAVpu at the time of redemption is lower than the NAVpu at the time of
participation. Gains from investment is realized when the NAVpu at the time of redemption is higher than the
NAVpu at the time of participation.
Your investment in any of the (Name of Trust Entity) UITFs exposes you to the various types of risks
enumerated and defined hereunder:
Interest Rate Risk. This is the possibility for an investor to experience losses due to changes in interest rates.
The purchase and sale of a debt instrument may result in profit or loss because the value of a debt instrument
changes inversely with prevailing interest rates.
The UITF portfolio, being market-to-market, is affected by changes in interest rates thereby affecting the value
of fixed income investments such as bonds. Interest rate changes may affect the prices of fixed income securities
inversely, i.e., as interest rates rise, bond prices fall and when interest rates decline, bond prices rise. As the prices
of bonds in a Fund adjust to a rise in interest rates, the Fund’s unit price may decline.
Market/Price Risk. This is the possibility for an investor to experience losses due to changes in market prices
of securities (e.g., bonds and equities). It is the exposure to the uncertain market value of a portfolio due to price
fluctuations.
It is the risk of the UITF to lose value due to a decline in securities prices, which may sometimes happen
rapidly or unpredictably. The value of investments fluctuates over a given time period because of general market
conditions, economic changes or other events that impact large portions of the market such as political events,
natural calamities, etc. As a result, the NAVpu may increase to make profit or decrease to incur loss.
Liquidity Risk. This is the possibility for an investor to experience losses due to the inability to sell or convert
assets into cash immediately or in instances where conversion to cash is possible but at a loss. These may be
caused by different reasons such as trading in securities with small or few outstanding issues, absence of buyers,
limited buy/sell activity or underdeveloped capital market.
Liquidity risk occurs when certain securities in the UITF portfolio may be difficult or impossible to sell at a
particular time which may prevent the redemption of investment in UITF until its assets can be converted to cash.
Even government securities which are the most liquid of fixed income securities may be subjected to liquidity risk
particularly if a sizeable volume is involved.
Credit Risk/Default Risk. This is the possibility for an investor to experience losses due to a borrower’s
failure to pay principal and/or interest in a timely manner on instruments such as bonds, loans, or other forms of
security which the borrower issued. This inability of the borrower to make good on its financial obligations may
have resulted from adverse changes in its financial condition thus, lowering credit quality of the security, and
consequently lowering the price (market/price risk) which contributes to the difficulty in selling such security. It
also includes risk on a counterparty (a party the UITF Manager trades with) defaulting on a contract to deliver its
obligation either in cash or securities.
This is the risk of losing value in the UITF portfolio in the event the borrower defaults on his obligation or in
the case of a counterparty, when it fails to deliver on the agreed trade. This decline in the value of the UITF
Appendix 62a - Page 1

APP. 62a
08.12.31
happens because the default/failure would make the price of the security go down and may make the security
difficult to sell. As these happen, the UITFs NAVpu will be affected by a decline in value.
Reinvestment Risks. This is the risk associated with the possibility of having lower returns or earnings when
maturing funds or the interest earnings of funds are reinvested.
Investors in the UITF who redeem and realize their gains run the risk of reinvesting their funds in an
alternative investment outlet with lower yields. Similarly, the UITF manager is faced with the risk of not being able
to find good or better alternative investment outlets as some of the securities in the fund matures.
In case of a foreign-currency denominated UITF or a peso denominated UITF allowed to invest in securities
denominated in currencies other than its base currency, the UITF is also exposed to the following risks:
Foreign Exhange Risk. This is the possibility for an investor to experience losses due to fluctuations in
foreign exchange rates. The exchange rates depend upon a variety of global and local factors, e.g., interest rates,
economic performance, and political developments.
It is the risk of the UITF to currency fluctuations when the value of investments in securities denominated in
currencies other than the base currency of the UITF depreciates. Conversely, it is the risk of the UITF to lose value
when the base currency of the UITF appreciates. The NAVpu of a peso-denominated UITF invested in foreign
currency-denominated securities may decrease to incur loss when the peso appreciates.
Country Risk. This is the possibility for an investor to experience losses arising from investments in securities
issued by/in foreign countries due to the political, economic and social structures of such countries. There are
risks in foreign investments due to the possible internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases of the foreign country involved which are difficult to predict but must be
taken into account in making such investments.
Likewise, brokerage commissions and other fees may be higher in foreign securities. Government supervision
and regulation of foreign stock exchanges, currency markets, trading systems and brokers may be less than those
in the Philippines. The procedures and rules governing foreign transactions and custody of securities may also
involve delays in payment, delivery or recovery of investments.
Other Risks. Your participation in the UITFs may be further exposed to the risk of any actual or potential
conflicts of interest in the handling of in-house or related party transactions by (Name of Trust Entity). These
transactions may include own-bank deposits; purchase of own-institution or affiliate obligations (stock, mortgages);
purchase of assets from or sales to own institution, directors, officers, subsidiaries, affiliates or other related
interests/parties; or purchases or sales between fiduciary/managed accounts.
I/we have completely read and fully understood this risk disclosure statement and the same was clearly explained
to me/us by a (Name of Trust Entity) UIT marketing personnel before I/we affixed my/our signature/s herein. I/we
hereby voluntarily and willingly agree to comply with any and all laws, regulations, the plan rules, terms and
conditions governing my/our investment in the (Name of Trust Entity) UITFs.
Signature over Printed Name Date
I acknowledge that I have (1) advised the client to read this Risk Disclosure Statement, (2) encouraged the client
to ask questions on matters contained in this Risk Disclosure Statement, and (3) fully explained the same to the
client.
________________________________ ____________________
Signature over Printed Name/ Date
Position of UIT Marketing Personnel
(Circular No. 593 dated 08 January 2008)

Appendix 62a - Page 2 Manual of Regulations for Non-Bank Financial Institutions
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
07.12.31
QUALIFYING CAPITAL UNDER THE RISK BASED CAPITAL ADEQUACY

FRAMEWORK
(Appendix to Subsec. X116.1 and X119.4)
Qualifying Capital. The qualifying (vi) Unsecured loans, other credit

capital shall be the sum of : accommodations and guarantees granted
a. Tier 1 capital - to subsidiaries and affiliates;
(1) Core Tier 1 capital (vii) Deferred income tax; and
(a) Paid-up common stock; (viii) Goodwill; and
(b) Paid-up perpetual and non- (2) Hybrid Tier 1 (HT1)
cumulative preferred stock; (a) With prior BSP approval,
(c) Common stock dividends perpetual preferred stock and perpetual
distributable; UnSD, subject to the following
(d) Perpetual and non-cumulative conditions:
preferred stock dividends distributable; (i) The HT1 must be issued and fully
(e) Surplus; paid-up. Only the net proceeds received
(f) Surplus reserves; from the issuance of HT1 shall be included
(g) Undivided profits (for domestic as capital;
banks only); and (ii) The dividends/coupons on the
(h) Minority interest in the equity of HT1 must be non-cumulative. It is
subsidiary financial allied undertakings acceptable to pay dividends/coupons in
which are less than wholly-owned: scrip or shares of stock if a cash dividend/
Provided, That a bank shall not use coupon is withheld: Provided, That this
minority interests in the equity accounts of does not result on issuing lower quality
consolidated subsidiaries as avenue for capital: Provided, further, That where such
introducing into its capital structure dividend/coupon stock settlement feature
elements that might not otherwise qualify is included, the bank should ensure that it
as Tier 1 capital or that would, in effect, has an appropriate buffer of authorized
result in an excessive reliance on preferred capital stock and appropriate stockholders
stock within Tier 1: and board authorization, if necessary, to
Provided, further, that the following fulfill their potential obligations under such
items shall be deducted from the total of issues;
Tier 1 capital: (iii) The HT1 must be available to
(i) Common stock treasury shares; absorb losses of the bank without it being
(ii) Perpetual and non-cumulative obliged to cease carrying on business. The
preferred stock treasury shares; agreement governing the issuance of the
(iii) Net unrealized losses on HT1 should specifically provide for the
underwritten listed equity securities dividend/coupon and principal to absorb
purchased (for domestic banks and losses where the bank would otherwise be
Philippine branches of foreign banks); insolvent, or for the holders of the HT1 to
(iv) Unbooked valuation reserves and be treated as if they were holders of a
other capital adjustments based on the latest specified class of share capital in any
report of examination as approved by the proceedings commenced for the winding
Monetary Board; up of the bank. Issue documentation must
(v) Total outstanding unsecured credit disclose to prospective investors the
accommodations, both direct and indirect, manner by which the instrument is to be
to DOSRI; treated in loss situation.

APP. 63a
07.12.31
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 repayment
The rate of conversion must be fixed prior to maturity shall be approved by the
at the time of subscription to the BSP only if the preferred share/debt is
instrument. The bank must also ensure that simultaneously replaced with issues of new
it has appropriate buffer of authorized capital which is neither smaller in size nor
capital stock and appropriate stockholders of lower quality than the original issue,
and board authorization for conversion/ unless the bank’s capital ratio remains
issue to take place anytime; more than adequate after redemption.
(iv) The holders of the HT1 must not It must not contain any clause which
have a priority claim, in respect of principal requires acceleration of payment of
and dividend/coupon payments of the HT1 principal, except in the event of
in the event of winding up of the bank, insolvency. The agreement governing the
which is higher than or equal with that of issuance of the HT1 must not contain any
depositors, other creditors of the bank and provision that mandates or creates an
holders of LT2 and UT2 capital instruments. incentive for the bank to repay the
The holder of the HT1 must waive his right outstanding principal of the instrument,
to set-off any amount he owes the bank e.g., a cross-default or negative pledge or
against any subordinated amount owed to a restrictive covenant, other than a call
him due to the HT1; option which may be exercised by the
(v) The HT1 must be perpetual; bank;
(vi) The HT1 must neither be secured (viii) The main features of the HT1 must
nor covered by a guarantee of the issuer be publicly disclosed by annotating the
or related party or other arrangement that same on the instrument and in a manner
legally or economically enhances the that is easily understood by the investor;
priority of the claim of any holder of the (ix) The proceeds of the HT1 must be
HT1 as against depositors, other creditors immediately available without limitation
of the bank and holders of LT2 and UT2 to the bank;
capital instruments; (x) The bank must have full discretion
(vii) The HT1 must not be redeemable over the amount and timing of dividends/
at the initiative of the holder. It must not coupons under the HT1 where the bank –
be repayable prior to maturity without the (aa) Has not paid or declared a
prior approval of the BSP: Provided, That dividend on its common shares in the
repayment may be allowed only in preceding financial year; or
connection with call option after a (bb) Determines that no dividend is to
minimum of five (5) years from issue date: be paid on such shares in the current
Provided, however, That a call option may financial year.
be exercised within the first five (5) years The bank must have full control and
from issue date when – access to waived payments;

APP. 63a
07.12.31
(xi) Any dividend/coupon to be paid be treated as time deposit liability, deposit

under the HT1 must be paid only to the substitute liability or other forms of
extent that the bank has profits distributable borrowings: Provided, further, That the total
determined in accordance with existing BSP amount of HT1 that may be included in the
regulations. The dividend/coupon rate, or Tier 1 capital shall be limited to a maximum
the formulation for calculating dividend/ of fifteen percent (15%) of total Tier 1 capital
coupon payments must be fixed at the time (net of deductions therefrom): Provided,
of issuance of the HT1 and must not be furthermore, That the amount of HT1 capital
linked to the credit standing of the bank; in excess of the maximum allowable limit
(xii) The HT1 may allow only one (1) shall be eligible for inclusion in the Upper
moderate step-up in the dividend/coupon Tier 2 capital, subject to the limit on total
rate in conjunction with a call option, only Tier 2 capital. To determine the allowable
if the step-up occurs at a minimum of ten amount of HT1, the amount of total Tier 1
(10) years after the issue date and if it results capital (net of deductions therefrom)
in an increase over the initial rate that is not excluding the HT1 should be multiplied by
more than – seventeen and sixty five percent (17.65%),
(aa) 100 basis points less the swap the number derived from the proportion of
spread between the initial index basis and fifteen percent (15%) to eighty five percent
the stepped-up index basis; or (85%) (i.e., 15%/85% = 17.65%);
(bb) Fifty percent (50%) of the initial b. Tier 2 (supplementary) capital
credit spread less the swap spread between which shall be the sum of –
the initial index basis and the stepped-up (1) Upper Tier 2 capital -
index basis. (a) Paid-up perpetual and cumulative
The swap spread should be fixed as of preferred stock;
the pricing date and reflect the differential (b) Paid-up limited life redeemable
in pricing on that date between the initial preferred stock issued with the condition
reference security or rate and the stepped- that redemption thereof shall be allowed
up reference security or rate (Refer to Annex only if the shares redeemed are replaced
A for computation of dividend/coupon rate with at least an equivalent amount of newly
step-up); paid-in shares so that the total paid-in capital
(xiii)The HT1 must be underwritten or stock is maintained at the same level prior
purchased by a third party not related to the to redemption;
issuer bank nor acting in reciprocity for and (c) Perpetual and cumulative preferred
in behalf of the issuer bank; stock dividends distributable;
(xiv)The HT1 must be issued in (d) Limited life redeemable preferred
minimum denominations of at least stock with the replacement requirement
P500,000.00 or its equivalent; upon redemption dividends distributable;
(xv) The HT1 must clearly state on its (e) Appraisal increment reserve - bank
face that it is not a deposit and is not insured premises, as authorized by the Monetary
by the PDIC; and Board;
(xvi) The bank must submit a written (f) Net unrealized gains on
external legal opinion that the above underwritten listed equity securities
mentioned requirements, including the purchased: Provided, That the amount
subordination and loss absorption features, thereof that may be included in upper Tier
have been met: 2 capital shall be subject to a fifty five
Provided, That for purposes of reserve percent (55%) discount (for domestic banks
requirement regulation, the HT1 shall not and Philippine branches of foreign banks);

APP. 63a
07.12.31
(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-fourth board authorization for conversion/issue to
percent (1-1/4%) of gross risk-weighted take place anytime;
assets, and any amount in excess thereof (iii) The holders of the UT2 must not
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, unsecured higher than or equal with that of depositors,
subordinated debt with a minimum original other creditors of the bank, and holders of
maturity of at least ten (10) years, hereinafter LT2 capital instruments. The holder of the
referred to as “UT2”, subject to the following UT2 must waive his right to set-off any
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 up repayment may be allowed only in
of the bank. Issue documentation must connection with call option after a
disclose to prospective investors the manner minimum of five (5) years from issue date:
by which the instrument is to be treated in Provided, however, That a call option may
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 for (cc) The UT2 does not qualify as Upper
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
07.12.31
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 that the pricing date and reflect the differential
mandates or creates an incentive for the in pricing on that date between the initial
bank to repay the outstanding principal of reference security or rate and the stepped-
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 (xiii) The UT2 must clearly state on its
to 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 to (5) years to maturity [i.e., twenty percent
bear interest but the interest rate payable must (20%) if the remaining life is four (4) years
not exceed market rates; to less than five (5) years, forty percent
(ix) The coupon rate, or the formulation (40%) if the remaining life is three (3) years
for calculating coupon payments must be to less than four (4) years, etc.]: Provided,
fixed at the time of issuance of the UT2 further, That where it is denominated in a
and must not be linked to the credit foreign currency, it shall be revalued in
standing of the bank; accordance with PAS 21: Provided,
(x) The UT2 may allow only one (1) furthermore, That for purposes of reserve
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
07.12.31
(j) Deposit for perpetual and non- higher than or equal with that of depositors
cumulative preferred stock subscription: and other creditors of the bank. The
Provided, That the following items shall holder of the LT2 must waive his right to
be deducted from the total of Upper Tier 2 set-off any amount he owes the bank
capital: against any subordinated amount owed to
1. Perpetual and cumulative preferred him due to the LT2;
stock treasury shares; (iii) The LT2 must neither be secured
2. Limited life redeemable preferred nor covered by a guarantee of the issuer
stock treasury shares with the replacement or related party or other arrangement that
requirement upon redemption; and legally or economically enhances the
3. Sinking fund for redemption of priority of the claim of any holder of the
limited life redeemable preferred stock with LT2 as against depositors and other
the replacement requirement upon creditors of the bank;
redemption; and (iv) The LT2 must not be redeemable
(k) Hybrid Tier 1 capital instruments at the initiative of the holder. It must not
in excess of the maximum allowable limit be repayable prior to maturity without the
of fifteen percent (15%) of total Tier 1 prior approval of the BSP: Provided, That
capital (net of deductions therefrom) repayment may be allowed only in
referred to in Item “a(2)(a)” above on connection with call option after a
Hybrid Tier 1 (HT1) capital. 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/
forty 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) UnSD with a minimum original replaced with issues of new capital which
maturity of at least five (5) years, hereinafter is neither smaller in size nor of lower
referred to as “LT2”, subject to the quality than the original issue, unless 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

APP. 63a
07.12.31
outstanding principal of the instrument, abovementioned requirements, including

e.g., a cross-default or negative pledge or a the subordination feature have been met:
restrictive covenant other than a call option Provided, That the LT2 shall be subject
which may be exercised by the bank; to a cumulative discount factor of twenty
(v) The main features of the LT2 must percent (20%) per year during the last five
be publicly disclosed by annotating the (5) years to maturity [i.e., twenty percent
same on the instrument and in a manner (20%) if the remaining life is four (4) years
that is easily understood by the investor; to less than five (5) years, forty percent
(vi) The proceeds of the LT2 must be (40%) if the remaining life is three (3) years
immediately available without limitation to to less than four (4) years, etc.]: Provided,
the bank; further, That where it is denominated in a
(vii) The coupon rate, or the foreign currency, it shall be revalued in
formulation for calculating coupon accordance with PAS 21: Provided,
payments must be fixed at the time of furthermore, That, for purposes of reserve
issuance of the LT2 and must not be linked requirement regulation, it shall not be
to the credit standing of the bank; treated as time deposit liability, deposit
(viii)The LT2 may allow only one (1) substitute liability or other forms of
moderate step-up in the coupon rate in borrowings;
conjunction with a call option, only if the (d) Deposit for perpetual and
step-up occurs at a minimum of five (5) cumulative preferred stock subscription; and
years after the issue date and if it results in (e) Deposit for limited life
an increase over the initial rate that is not redeemable preferred stock subscription
more than- with the replacement requirement upon
(aa) 100 basis points less the swap redemption:
spread between the initial index basis and Provided, That the following items shall
the stepped-up index basis; or be deducted from the total of Lower Tier 2
(bb) fifty percent (50%) of the initial capital:
credit spread less the swap spread between (i) Limited life redeemable preferred
the initial index basis and the stepped-up stock treasury shares without the
index basis; replacement requirement upon
The swap spread should be fixed as of redemption;
the pricing date and reflect the differential (ii) Sinking fund for redemption of
in pricing on that date between the initial limited life redeemable preferred stock
reference security or rate and the stepped- without the replacement requirement upon
up reference security or rate (Refer to Annex redemption: Provided, That the amount to
A for computation of coupon rate step-up); be deducted shall be limited to the balance
(ix) The LT2 must be underwritten or of redeemable preferred stock after
purchased by a third party not related to applying the cumulative discount factor:
the issuer bank nor acting in reciprocity for Provided, That the total amount of
and in behalf of the issuer bank; Lower Tier 2 capital that may be included
(x) The LT2 must be issued in in the Tier 2 capital shall be limited to a
minimum denominations of at least maximum of fifty percent (50%) of total Tier
P500,000.00 or its equivalent; 1 capital (net of deductions therefrom):
(xi) The LT2 must clearly state on its Provided, further, That the total amount of
face that it is not a deposit and is not insured Upper and Lower Tier 2 capital that may
by the PDIC; and be included in the qualifying capital shall
(xii) The bank must submit a written be limited to a maximum of 100% of total
external legal opinion that the Tier 1 capital (net of deductions therefrom);

APP. 63a
07.12.31
c. Less deductions from the total of numerator of the risk-based capital ratio
Tier 1 and Tier 2 capital, as follows: shall not be included in the risk-weighted
(1) Investments in equity of assets in computing the denominator of the
unconsolidated subsidiary banks and other ratio.
financial allied undertakings, but excluding For foreign bank branches, Tier 1
insurance companies; capital elements shall consist of -
(2) Investments in debt capital 1. Assigned capital; and
instruments of unconsolidated subsidiary 2. Net due “to” head office,
banks; branches, subsidiaries and other offices
(3) Investments in equity of subsidiary outside the Philippines as defined under
insurance companies and non-financial Subsec. X121.5.d (inclusive of earnings not
allied undertakings; and remitted to head office per Subsec.
(4) Reciprocal investments in equity X121.5.c): Provided, That the amount of
of other banks/enterprises: “Net due to account” shall be limited to an
(5) Reciprocal investments in amount prescribed under Subsec. X121.6:
unsecured subordinated term debt Provided, further, That should there be
instruments of other banks/QBs qualifying any “Net due from account”, the same
as Hybrid Tier 1, Upper Tier 2 and Lower shall be deducted from the Tier 1 capital.
Tier 2, in excess of the lower of (i) an All outstanding issues of unsecured
aggregate ceiling of five percent (5%) of subordinated term debt instruments
total Tier 1 capital of the bank excluding qualifying as UT2 and LT2 capital shall
Hybrid Tier 1; or (ii) ten percent (10%) of continue to be governed by the provisions
the total outstanding unsecured of regulations existing at the time of their
subordinated term debt issuance of the issuance, except that premiums thereon
other bank/QBs. may now be counted as part of capital.
Provided, That any asset deducted from (As amended by Circular Nos. 560 dated 31 January 2007 and
the qualifying capital in computing the 528 dated 03 May 2006)

APP. 63a
07.12.31
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. 63b
08.12.31
RISK-BASED CAPITAL ADEQUACY FRAMEWORK

FOR THE PHILIPPINE BANKING SYSTEM
Introduction the best means to preserve the integrity of

This Appendix outlines the BSP capital in banks with subsidiaries by
implementing guidelines of the revised eliminating double gearing. However, as
International Convergence of Capital one of the principal objectives of
Measurement and Capital Standards, or supervision is the protection of depositors,
popularly known as Basel II. Basel II is the it is essential to ensure that capital
new international capital standards set by recognized in capital adequacy measures
the Basel Committee on Banking is readily available for those depositors.
Supervision (BCBS)1. It aims to replace Accordingly, individual banks should
Basel I, which was issued in 1988 with an likewise be adequately capitalized on a
amendment in 1996, to make the stand-alone basis.
risk-based capital framework more 4. To the greatest extent possible, all
risk-sensitive. Banks are enjoined to banking and other relevant financial activities
submit their group-wide (including (both regulated and unregulated) conducted
subsidiary banks and QBs) Basel II by a bank and its subsidiaries will be captured
implementation plans from 2007-2010, not through consolidation. Thus, majority-owned
later than 31 December 2006. or -controlled financial allied undertakings
The guidelines contained in this should be fully consolidated on a line by line
Appendix shall take effect on 1 July 2007. basis. Exemptions from consolidation shall
(As amended by M-2006-022 dated 24 November 2006) only be made in cases where such
holdings are acquired through debt
Part I. Risk-based capital adequacy ratio previously contracted and held on a
temporary basis, are subject to different
1. The risk-based CAR of UBs and KBs regulation, or where non-consolidation for
and their subsidiary banks and QBs, regulatory capital purposes is otherwise
expressed as a percentage of qualifying required by law. All cases of exemption
capital to risk-weighted assets, shall not be from consolidation must be made with prior
less than ten percent (10%). clearance from the BSP.
2. Qualifying capital is computed in 5. Banks shall comply with the
accordance with the provisions of Part II. minimum CAR at all times notwithstanding
Risk-weighted assets is the sum of (1) credit that supervisory reporting shall only be on
risk-weighted assets (Parts III, IV, and V), quarterly basis. Any breach, even if only
(2) market risk-weighted assets (Parts IV temporary, shall be reported to the bank’s
and VI), and (3) operational risk-weighted Board of Directors and to BSP, SES within
assets (Part VII). three (3) banking days. For this purpose,
3. The CAR requirement will be banks shall develop an appropriate system
applied to all UBs and KBs and their to properly monitor their compliance.
subsidiary banks, and QBs on both solo 6. The BSP reserves the right, upon
and consolidated bases. The application of authority of the Deputy Governor,SES, to
the requirement on a consolidated basis is conduct on-site inspection outside of
1
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the
central bank governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory
authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. It usually meets at the Bank for International Settlements in
Basel, Switzerland where its permanent Secretariat is located.

APP. 63b
08.12.31
regular or special examination, for the through profit or loss that are due to own
purpose of ascertaining the accuracy of credit worthiness;
CAR calculations as well as the integrity of v. Unbooked valuation reserves and
CAR monitoring and reporting systems. other capital adjustments based on the
latest report of examination as approved
Part II. Qualifying capital by the Monetary Board;
vi. Total outstanding unsecured credit
1. Qualifying capital consists of Tier 1 accommodations, both direct and indirect,
(core plus hybrid) capital and Tier 2 to DOSRI and unsecured loans, other
(supplementary) capital elements, net of credit accommodations and guarantees
required deductions from capital. granted to subsidiaries and affiliates;
vii. Deferred income tax;
A. Tier 1 Capital viii.Goodwill, including that relating to
2. Tier 1 capital is the sum of core unconsolidated subsidiary banks, financial
Tier 1 capital and allowable amount of hybrid allied undertakings, excluding subsidiary
Tier 1 capital, as set in paragraph 12. securities dealers/brokers and insurance
3. Core Tier 1 capital consists of: companies, (on solo basis) and
a) Paid-up common stock; unconsolidated subsidiary securities
b) Paid-up perpetual and non- dealers/brokers, insurance companies and
cumulative preferred stock; non-financial allied undertakings (on solo
c) Additional paid-in capital; and consolidated bases); and
d) Retained earnings; ix. Gain on sale resulting from a
e) Undivided profits (for domestic securitization transaction.
banks only); 4. Hybrid Tier 1 capital in the form of
f) Net gains on fair value adjustment perpetual preferred stock and perpetual
of hedging instruments in a cash flow hedge UnSD may be issued subject to prior BSP
of available for sale equity securities; approval and to the conditions in
g) Cumulative foreign currency paragraph 12.
translation; and 5. In the case of foreign banks, Tier 1
h) Minority interest in subsidiary capital is equivalent to:
financial allied undertakings which are less a) Assigned capital including earnings
than wholly-owned: Provided, That a bank not remitted to the head office which the
shall not use minority interests in the equity bank elects to consider as part of assigned
accounts of consolidated subsidiaries as capital (in which case it can no longer be
avenue for introducing into its capital remitted to the head office); and
structure elements that might not otherwise b) “Net due to” head office, branches,
qualify as Tier 1 capital or that would, in subsidiaries and other offices outside the
effect, result in an excessive reliance on Philippines as defined under Subsec.
preferred stock within Tier 1: X121.5.d (inclusive of earnings not remitted
Less: to head office per Subsec. X121.5.c, unless
i. Common stock treasury shares; considered as part of the assigned capital by
ii. Perpetual and non-cumulative the bank), subject to the limit prescribed
preferred stock treasury shares; under Subsec. X121.6,
iii. Net unrealized losses on available Less:
for sale equity securities purchased; i. Any balance in the “Net due from”
iv. Gains (Losses) resulting from account.
designating financial liabilities at fair value (As amended by Circular No. 560 dated 31 January 2007)

APP. 63b
08.12.31
B. Tier 2 Capital Remaining maturity Discount factor

6. Tier 2 capital is the sum of upper 5 years & above 0%
Tier 2 capital and lower Tier 2 capital. 4 years to <5 years 20%
7. The total amount of lower Tier 2 3 years to <4 years 40%
(LT2) capital before deductions 2 years to <3 years 60%
enumerated in paragraph 10 that may be 1 year to <2 years 80%
included in total Tier 2 capital shall be < 1 year 100%
limited to a maximum of fifty percent
(50%) of total Tier 1 capital (net of g) Deposit for common stock
deductions enumerated in paragraph 3). subscription;
The total amount of upper and lower Tier 2 h) Deposit for perpetual and non-
capital both before deductions enumerated cumulative preferred stock subscription; and
in paragraph 10 that may be included in i) Hybrid Tier 1 capital as defined in
total qualifying capital shall be limited to a paragraph 4 in excess of the maximum
maximum of 100% of total Tier 1 capital allowable limit of fifteen percent (15%) of
(net of deductions enumerated in total Tier 1 capital (net of deductions
paragraph 3). enumerated in paragraph 3):
8. Upper Tier 2 capital consists of: Less:
a) Paid-up perpetual and cumulative i. Perpetual and cumulative preferred
preferred stock; stock treasury shares;
b) Paid-up limited life redeemable ii. Limited life redeemable preferred
preferred stock issued with the condition stock treasury shares with the replacement
that redemption thereof shall be allowed requirement upon redemption;
only if the shares redeemed are replaced iii. Sinking fund for redemption of
with at least an equivalent amount of limited life redeemable preferred stock
newly paid-in shares so that the total paid- with the replacement requirement upon
in capital stock is maintained at the same redemption; and
level prior to redemption; iv. Net losses in fair value adjustment
c) Appraisal increment reserve – of hedging instruments in a cash flow
bank premises, as authorized by the hedge of available for sale equity
Monetary Board; securities.
d) Net unrealized gains on available 9. LT2 capital consists of:
for sale equity securities purchased subject a) Paid-up limited life redeemable
to a fifty five percent (55%) discount; preferred stock without the replacement
e) General loan loss provision, requirement upon redemption in an
limited to a maximum of one percent (1%) amount equivalent to its carrying amount
of credit risk-weighted assets, and any discounted by the following rates:
amount in excess thereof shall be deducted
from the credit risk-weighted assets in Remaining maturity Discount factor
computing the denominator of the risk- 5 years & above 0%
based capital ratio; 4 years to <5 years 20%
f) With prior BSP approval, UnSD 3 years to <4 years 40%
with a minimum original maturity of at 2 years to <3 years 60%
least ten (10) years issued subject to 1 year to <2 years 80%
the conditions in paragraph 13, in an < 1 year 100%
amount equivalent to its carrying
amount discounted by the following b) With prior BSP approval, UnSD
rates: with a minimum original maturity of at

APP. 63b
08.12.31
least five (5) years, issued subject to the c) Investments in equity of

conditions in paragraph 14, in an amount unconsolidated subsidiary securities
equivalent to its carrying amount dealers/brokers, insurance companies,
discounted by the following rates: and non-financial allied undertakings, after
deducting related goodwill, if any (for both
Remaining maturity Discount factor solo and consolidated bases);
5 years & above 0% d) Capital shortfalls of unconsolidated
4 years to <5 years 20% subsidiary securities dealers/brokers and
3 years to <4 years 40% insurance companies (for both solo and
2 years to <3 years 60% consolidated bases);
1 year to <2 years 80% e) Significant minority investments
< 1 year 100% (20%-50% of voting stock) in banks and QBs,
and other financial allied undertakings (for
c) Deposit for perpetual and both solo and consolidated bases);
cumulative preferred stock subscription; f) Reciprocal investments in equity
and of other banks/enterprises;
d) Deposit for limited life redeemable g) Reciprocal investments in other
preferred stock subscription with the regulatory capital instruments of other
replacement requirement upon banks and QBs;
redemption. h) Materiality thresholds in credit
Less: derivative contracts purchased;
i. Limited life redeemable preferred i) Securitization tranches which are
stock treasury shares without the replacement rated below investment grade or are
requirement upon redemption; and unrated; and
ii. Sinking fund for redemption of j) Credit enhancing interest only
limited life redeemable preferred stock strips in relation to a securitization structure,
without the replacement requirement upon net of the amount of “gain-on-sale” that
redemption up to the extent of the balance must be deducted from core Tier 1 capital
of redeemable preferred stock after referred to in paragraph 3.
applying the cumulative discount factor. 11. Any asset deducted from qualifying
capital in computing the numerator of the
C. Deductions from the total of Tier 1 and risk-based capital ratio shall not be included
Tier 2 capital in the risk-weighted assets in computing
10. The following items should be the denominator of the ratio. Available for
deducted fifty percent (50%) from sale debt securities shall be risk-weighted
Tier 1 and fifty percent (50%) from Tier net of specific provisions as provided in
2 capital: paragraph 1 of Part III.A, but without
a) Investments in equity of considering accumulated market gains/
unconsolidated subsidiary banks and QBs, losses.
and other financial allied undertakings
(excluding subsidiary securities dealers/ D. Eligible instruments under hybrid Tier 1
brokers and insurance companies), after capital
deducting related goodwill, if any 12. Perpetual preferred stock and
(for solo basis); perpetual UnSD issuances of banks should
b) Investments in other regulatory comply with the following minimum
capital instruments of unconsolidated conditions in order to be eligible as hybrid
subsidiary banks and QBs (for solo basis); Tier 1 (HT1) capital:

APP. 63b
08.12.31
a) It must be issued and fully paid-up. and board authorization for conversion/
Only the net proceeds received from the issue to take place anytime;
issuance shall be included as capital; d) Its holders must not have a priority
b) The dividends/coupons must be claim, in respect of principal and dividend/
non-cumulative. It is acceptable to pay coupon payments in the event of winding
dividends/coupons in scrip or shares of up of the bank, which is higher than or
stock if a cash dividend/coupon is withheld: equal with that of depositors, other creditors
Provided, That this does not result on of the bank and holders of LT2 and UT2
issuing lower quality capital: Provided, capital instruments. Its holder must waive
further, That where such dividend/coupon his right to set-off any amount he owes the
stock settlement feature is included, the bank against any subordinated amount
bank should ensure that it has an owed to him due to the HT1 capital
appropriate buffer of authorized capital instrument;
stock and appropriate stockholders and e) It must neither be secured nor
board authorization, if necessary, to fulfill covered by a guarantee of the issuer or
their potential obligations under such related party or other arrangement that
issues; legally or economically enhances the
c) It must be available to absorb priority of the claim of any holder as against
losses of the bank without it being obliged depositors, other creditors of the bank and
to cease carrying on business. The holders of LT2 and UT2 capital instruments;
agreement governing its issuance should f) It must not be redeemable at the
specifically provide for the dividend/ initiative of the holder. It must not be
coupon and principal to absorb losses repayable without the prior approval of the
where the bank would otherwise be BSP: Provided, That repayment may be
insolvent, or for its holders to be treated as allowed only in connection with call option
if they were holders of a specified class of after a minimum of five (5) years from issue
share capital in any proceedings commenced date: Provided, however, That a call option
for the winding up of the bank. Issue may be exercised within the first five (5)
documentation must disclose to prospective years from issue date when –
investors the manner by which the i. It was issued for the purpose of a
instrument is to be treated in loss situation. merger with or acquisition by the bank and
Alternatively, the agreement the merger or acquisition is aborted;
governing its issuance can provide for ii. There is a change in tax status of
automatic conversion into common shares the HT1 capital instrument due to changes
or perpetual and non-cumulative preferred in the tax laws and/or regulations; or
shares upon occurrence of certain trigger iii. It does not qualify as HT1 capital
events, as follows: as determined by the BSP:
i. Breach of minimum capital ratio; Provided, further, That such repayment
ii. Commencement of proceedings shall be approved by the BSP only if the
for winding up of the bank; or preferred share/debt is simultaneously
iii. Upon appointment of receiver for replaced with issues of new capital which
the bank. is neither smaller in size nor of lower
The rate of conversion must be fixed quality than the original issue, unless the
at the time of subscription to the bank’s capital ratio remains more than
instrument. The bank must also ensure that adequate after redemption.
it has appropriate buffer of authorized It must not contain any clause which
capital stock and appropriate stockholders requires acceleration of payment of

APP. 63b
08.12.31
principal, except in the event of the initial index basis and the stepped-up
insolvency. The agreement governing its index basis.
issuance must not contain any provision The swap spread should be fixed as of
that mandates or creates an incentive for the pricing date and reflect the differential
the bank to repay the outstanding principal in pricing on that date between the initial
of the instrument, e.g., a cross-default or reference security or rate and the stepped-
negative pledge or a restrictive covenant, up reference security or rate.
other than a call option which may be l) It must be underwritten by a third
exercised by the bank; party not related to the issuer bank nor
g) Its main features must be publicly acting in reciprocity for and in behalf of
disclosed by annotating the same on the the issuer bank;
instrument and in a manner that is easily m) It must be issued in minimum
understood by the investor; denominations of at least P500,000.00 or
h) The proceeds of the issuance must its equivalent;
be immediately available without n) It must clearly state on its face that
limitation to the bank; it is not a deposit and is not insured by the
i) The bank must have full discretion PDIC; and
over the amount and timing of dividends/ o) The bank must submit a written
coupons where the bank – external legal opinion that the
i. Has not paid or declared a dividend abovementioned requirements, including
on its common shares in the preceding the subordination and loss absorption
financial year; or features, have been met:
ii. Determines that no dividend is to Provided, That for purposes of reserve
be paid on such shares in the current requirement regulation, it shall not be
financial year. treated as time deposit liability, deposit
The bank must have full control and substitute liability or other forms of
access to waived payments; borrowings: Provided, further, That the total
j) Any dividend/coupon to be paid amount of HT1 capital that may be included
must be paid only to the extent that the in the Tier 1 capital shall be limited to a
bank has profits distributable determined maximum of fifteen percent (15%) of total
in accordance with existing BSP Tier 1 capital (net of deductions
regulations. The dividend/coupon rate, or enumerated in paragraph 3): Provided,
the formulation for calculating dividend/ furthermore, That the amount of HT1
coupon payments must be fixed at the time capital in excess of the maximum limit
of issuance and must not be linked to the shall be eligible for inclusion in the UT2
credit standing of the bank; capital, subject to the limit in total Tier 2
k) It may allow only one (1) moderate capital. To determine the allowable amount
step-up in the dividend/coupon rate in of HT1 capital, the amount of total core Tier 1
conjunction with a call option, only if the capital (net of deductions enumerated in
step-up occurs at a minimum of ten (10) paragraph 3) should be multiplied by
years after the issue date and if it results in seventeen and sixty five percent (17.65%),
an increase over the initial rate that is not the number derived from the proportion
more than: of fifteen percent (15%) to eighty five
i. 100 basis points less the swap percent (85%), i.e., 15%/85% = 17.65%.
spread between the initial index basis and
the stepped-up index basis; or E. Eligible unsecured subordinated debt
ii. fifty percent (50%) of the initial 13. UnSD issuances by banks should
credit spread less the swap spread between comply with the following minimum

APP. 63b
08.12.31
conditions in order to be eligible as UT2 against any subordinated amount owed to

capital: him due to the UT2 capital instrument;
a) It must be issued and fully paid-up. d) It must neither be secured nor
Only the net proceeds received from the covered by a guarantee of the issuer or
issuance shall be included as capital; related party or other arrangement that
b) It must be available to absorb legally or economically enhances the
losses of the bank without it being obliged priority of the claim of any holder as against
to cease carrying on business. The depositors, other creditors of the bank and
agreement governing its issuance should holders of LT2 capital instruments;
specifically provide for the coupon and e) It must not be redeemable at the
principal to absorb losses where the bank initiative of the holder. It must not be
would otherwise be insolvent, or for its repayable prior to maturity without the
holders to be treated as if they were prior approval of the BSP: Provided, That
holders of a specified class of share capital repayment may be allowed only in
in any proceedings commenced for the connection with a call option after a
winding up of the bank. Issue minimum of five (5) years from issue date:
documentation must disclose to Provided, however, That a call option may
prospective investors the manner by which be exercised within the first five (5) years
the instrument is to be treated in loss from issue date when:
situation. i. It was issued for the purpose of a
Alternatively, the agreement governing merger with or acquisition by the bank and
its issuance can provide for automatic the merger or acquisition is aborted;
conversion into common shares or ii. There is a change in tax status of
perpetual and non-cumulative shares or the UT2 capital instrument due to changes
perpetual and cumulative preferred shares in the tax laws and/or regulations; or
upon occurrence of certain trigger events, iii. It does not qualify as UT2 capital
as follows: as determined by the BSP:
i. Breach of minimum capital ratio; Provided, further, That such repayment
ii. Commencement of proceedings prior to maturity shall be approved by the
for winding up of the bank; or BSP only if the debt is simultaneously
iii. Upon appointment of receiver for replaced with issues of new capital which
the bank. is neither smaller in size nor of lower
The rate of conversion must be fixed quality than the original issue, unless the
at the time of subscription to the bank’s capital ratio remains more than
instrument. The bank must also ensure that adequate after redemption.
it has appropriate buffer of authorized It must not contain any clause which
capital stock and appropriate stockholders requires acceleration of payment of principal,
and board authorization for conversion/ except in the event of insolvency. The
issue to take place anytime; agreement governing its issuance must not
c) Its holders must not have priority contain any provision that mandates or
claim, in respect of principal and coupon creates an incentive for the bank to repay
payments in the event of winding up of the outstanding principal of the instrument,
the bank, which is higher than or equal e.g., a cross-default or negative pledge or
with that of depositors, other creditors of a restrictive covenant, other than a call option
the bank, and holders of LT2 capital which may be exercised by the bank;
instruments. Its holder must waive his right f) Its main features must be publicly
to set off any amount he owes the bank disclosed by annotating the same on the

APP. 63b
08.12.31
instrument and in a manner that is easily m) It must clearly state on its face that
understood by the investor; it is not a deposit and is not insured by the
g) The proceeds of the issuance must PDIC; and
be immediately available without n) The bank must submit a written
limitation to the bank; external legal opinion that the
h) The bank must have the option to abovementioned requirements, including
defer any coupon payment where the the subordination and loss absorption
bank: features, have been met:
i. has not paid or declared a dividend Provided, That it shall be subject to a
on its common shares in the preceding cumulative discount factor of twenty
financial year; or percent (20%) per year during the last five
ii. determines that no dividend is to (5) years to maturity [i.e., twenty percent
be paid on such shares in the current (20%) if the remaining life is four (4) years
financial year; to less than five (5) years, forty percent
It is acceptable for the deferred coupon (40%) if the remaining life is three (3) years
to bear interest but the interest rate to less than four (4) years, etc.]: Provided,
payable must not exceed market rates; further, That where it is denominated in a
i) The coupon rate, or the formulation foreign currency, it shall be revalued in
for calculating coupon payments must be accordance with PAS 21: Provided,
fixed at the time of issuance and must not furthermore, That for purposes of reserve
be linked to the credit standing of the requirement regulation, it shall not be
bank; treated as time deposit liability, deposit
j) It may allow only one (1) substitute liability or other forms of
moderate step-up in the coupon rate in borrowings.
conjunction with a call option, only if the 14. UnSD issuances by banks should
step-up occurs at a minimum of ten (10) comply with the following minimum
years after the issue date and if it results conditions in order to be eligible as LT2
in an increase over the initial rate that is capital:
not more than: a) It must be issued and fully paid-up.
i. 100 basis points less the swap Only the net proceeds received from the
spread between the initial index basis and issuance shall be included as capital;
the stepped-up index basis; or b) Its holders must not have priority
ii. fifty percent (50%) of the initial claim, in respect of principal and coupon
credit spread less the swap spread payments in the event of winding up of
between the initial index basis and the the bank, which is higher than or equal
stepped-up index basis. with that of depositors and other creditors
The swap spread should be fixed as of of the bank. Its holder must waive his right
the pricing date and reflect the differential to set-off any amount he owes the bank
in pricing on that date between the initial against any subordinated amount owed to
reference security or rate and the stepped- him due to the LT2 capital instrument;
up reference security or rate; c) It must neither be secured nor
k) It must be underwritten by a third covered by a guarantee of the issuer or
party not related to the issuer bank nor related party or other arrangement that
acting in reciprocity for and in behalf of legally or economically enhances the
the issuer bank; priority of the claim of any holder as against
l) It must be issued in minimum depositors and other creditors of the bank;
denominations of at least P500,000.00 or d) It must not be redeemable at the
its equivalent; initiative of the holder. It must not be

APP. 63b
08.12.31
repayable prior to maturity without the h) It may allow only one (1) moderate
prior approval of the BSP: step-up in the coupon rate in conjunction
Provided, That repayment may be with a call option, only if the step-up occurs
allowed only in connection with a call at a minimum of five (5) years after the issue
option after a minimum of five (5) years date and if it results in an increase over the
from issue date: Provided, however, That initial rate that is not more than:
a call option may be exercised within the i. 100 basis points less the swap
first five (5) years from issue date when: spread between the initial index basis and
i. It was issued for the purpose of a the stepped-up index basis; or
merger with or acquisition by the bank ii. fifty percent (50%) of the initial
and the merger or acquisition is aborted; credit spread less the swap spread
ii. There is a change in tax status of between the initial index basis and the
the LT2 capital instrument due to changes stepped-up index basis.
in the tax laws and/or regulations; or The swap spread should be fixed as
iii. It does not qualify as LT2 capital of the pricing date and reflect the
as determined by the BSP: differential in pricing on that date between
Provided, further, That such the initial reference security or rate and
repayment prior to maturity shall be the stepped-up reference security or rate;
approved by the BSP only if the debt is i) It must be underwritten by a third
simultaneously replaced with issues of party not related to the issuer bank nor
new capital which is neither smaller in acting in reciprocity for and in behalf of
size nor of lower quality than the original the issuer bank;
issue, unless the bank’s capital ratio j) It must be issued in minimum
remains more than adequate after denominations of at least P500,000.00 or
redemption. its equivalent;
It must not contain any clause which k) It must clearly state on its face that
requires acceleration of payment of it is not a deposit and is not insured by the
principal, except in the event of PDIC; and
insolvency. The agreement governing its l) The bank must submit a written
issuance must not contain any provision external legal opinion that the
that mandates or creates an incentive for abovementioned requirements, including
the bank to repay the outstanding principal the subordination features, have been met:
of the instrument, e.g., a cross-default or Provided, That it shall be subject to a
negative pledge or a restrictive covenant, cumulative discount factor of twenty
other than a call option which may be percent (20%) per year during the last five
exercised by the bank; (5) years to maturity [i.e., twenty percent
e) Its main features must be publicly (20%) if the remaining life is four (4) years
disclosed by annotating the same on the to less than five (5) years, forty percent
instrument and in a manner that is easily (40%) if the remaining life is three (3)
understood by the investor; years to less than four (4) years, etc.]:
f) The proceeds of the issuance must Provided, further, That where it is
be immediately available without denominated in a foreign currency, it shall
limitation to the bank; be revalued in accordance with PAS 21:
g) The coupon rate, or the Provided, furthermore, That for purposes
formulation for calculating coupon of reserve requirement regulation, it shall
payments must be fixed at the time of not be treated as time deposit liability,
issuance and must not be linked to the deposit substitute liability or other forms
credit standing of the bank; of borrowings.

APP. 63b
08.12.31
Part III. Credit risk-weighted assets The table below sets out the mapping of
external credit assessments with the
A. Risk-weighting corresponding risk weights for banking
1. Banking book exposures shall be book exposures. Exposures related to
risk-weighted based on third party credit credit derivatives and securitizations are
assessment of the individual exposure dealt with in Parts IV and V, respectively.
given by eligible external credit Exposures should be risk-weighted net of
assessment institutions listed in Part III.C. specific provisions.
STANDARDIZED CREDIT RISK WEIGHTS

Credit Assessment1 AAA AA+ to A+ BBB+ to BB+ to B+ Below
AA- to A- BBB- BB- to B- B- Unrated
Sovereigns 0% 0% 20% 50% 100% 100% 150% 100%
MDBs 0% 20% 50% 50% 100% 100% 150% 100%
Banks 20% 20% 50% 50% 100% 100% 150% 100%2
Interbank call loans 20%
Local government units 20% 20% 50% 50% 100% 100% 150% 100%2
Government corporations 20% 20% 50% 100% 100% 150% 150% 100% 2
Corporates 20% 20% 50% 100% 100% 150% 150% 100% 2
Housing loans 50%
MSME qualified portfolio 75%
Defaulted exposures
Housing loans 100%
Others 150%
ROPA 150%
All other assets 100%
Sovereign Exposures Community (EC) shall also receive zero

2. These include all exposures to percent (0%) risk weight.
central governments and central banks. (As amended by Circular No. 588 dated 11 December 2007)
All Philippine peso (Php) denominated
exposures to the Philippine National MDB Exposures
Government (NG) and the BSP shall be 3. These include all exposures to
risk-weighted at zero percent (0%). multilateral development banks. Exposures
Foreign currency denominated exposures to the World Bank Group comprised of the
to the NG and the BSP, however, shall IBRD and the IFC, the ADB, the AfDB, the
be risk-weighted according to the table EBRD, the IADB, the EIB, the European
above: Provided, That only one-third Investment Fund (EIF), the NIB, the CDB,
(1/3) of the applicable risk weight shall the Islamic Development Bank (IDB), and
be applied from 01 July 2007, two-thirds the CEDB currently receive zero percent
(2/3) from 01 January 2008, and the full (0%) risk weight. However, it is the
risk weight from 01 January 2009 3 . responsibility of the bank to monitor the
Exposures to the Bank for International external credit assessments of multilateral
Settlements (BIS), the International development banks to which they have an
Monetary Fund (IMF), and the European exposure to reflect in the risk weights any
Central Bank (ECB) and the European change therein.
1 The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external
rating agencies is in Part III.C
2 Or risk weight applicable to sovereign of incorporation, whichever is higher
3 The capital treatment of banks holdings of ROP Global Bonds paired with Warrants under the BSP's revised
risk-based capital adequacy framework is contained in Appendix 63b-1.

APP. 63b
08.12.31
Bank Exposures Micro, Small, and Medium Enterprises

4. These include all exposures to (MSME)
Philippine-incorporated banks/QBs, as 10. An exposure must meet the
well as foreign-incorporated banks. following criteria to be considered as an
MSME exposure:
Interbank Call Loans a) The exposure must be to an MSME
5. Interbank call loans refer to as defined under existing BSP regulations;
interbank loans that pass through the and
Interbank Call Loan Funds Transfer System b) The exposure must be in the form
of the BSP, the BAP, and the PCHC. of direct loans, or unavailed portion of
committed credit lines and other business
Exposures to Local Government Units facilities such as outstanding guarantees
6. These include all exposures to non- issued and unused letters of credit:
central government public sector entities. Provided, That the credit equivalent
Bonds issued by Philippine local amounts thereof shall be determined in
government units (LGU Bonds), which are accordance with the methodology for
covered by Deed of Assignment of Internal off-balance sheet items.
Revenue Allotment of the LGU and
guaranteed by the LGU Guarantee Qualified portfolio
Corporation shall be risk-weighted at the 11. For a bank’s portfolio of MSME
lower of fifty percent (50%) or the appropriate exposures to be considered as qualified, it
risk weight indicated in the table above. must be a highly diversified portfolio, i.e.,
it has at least 500 borrowers that are
Exposures to Government Corporations distributed over a number of industries. In
7. These include all exposures to addition, all MSME exposures in the
commercial undertakings owned by qualified portfolio must be current
central or local governments. Exposures exposures. All non-current MSME
to Philippine GOCCs that are not explicitly exposures are excluded from count and are
guaranteed by the Philippine NG are also to be treated as ordinary non-performing
included in this category. loans. Current MSME exposures not
qualifying under highly diversified MSME
Corporate Exposures portfolio will be risk-weighted based on
8. These include all exposures to external rating and shall be risk-weighted
business entities, which are not considered in the same manner as corporate
as micro, small, or medium enterprises exposures.
(MSME), whether in the form of a
corporation, partnership, or sole- Defaulted Exposures
proprietorship. These also include all 12. A default is considered to have
exposures to FIs, including securities dealers/ occurred in the following cases:
brokers and insurance companies, not falling a) If a credit obligation is considered
under the definition of Bank in paragraph 4. non-performing under existing rules and
regulations. For non-performing debt
Housing Loans securities, they shall be defined as follows:
9. These include all current loans to i. For zero-coupon debt securities,
individuals for housing purpose, fully secured and debt securities with quarterly,
by first mortgage on residential property that semi-annual, or annual coupon payments,
1\
is or will be occupied by the borrower . they shall be considered non-performing
(As amended by M-2008-015 dated 19 March 2008) when principal and/or coupon payment, as
1\
Includes housing microfinance loans under Sec. X361.5

APP. 63b
08.12.31
may be applicable, is unpaid for thirty (30) Other Assets

days or more after due date; and 16. The standard risk weight for all
ii. For debt securities with monthly other assets, including bank premises,
coupon payments, they shall be furniture, fixtures and equipment, will be
considered non-performing when three (3) 100%, except in the following cases:
or more coupon payments are in arrears: a) Cash on hand and gold, which shall
Provided, however, That when the total be risk-weighted at zero percent (0%); and
amount of arrearages reaches twenty b) Checks and other cash items,
percent (20%) of the total outstanding which shall be risk-weighted at twenty
balance of the debt security, the total percent (20%).
outstanding balance of the debt security Accruals on a claim shall be classified
shall be considered as non-performing. and risk-weighted in the same way as the
b) If a borrower/obligor has sought or claim. Bills purchased shall be classified
has been placed in bankruptcy, has been and risk-weighted as claims on the drawee
found insolvent, or has ceased operations bank. The treatments of credit derivatives
in the case of businesses; and securitization exposures are presented
c) If the bank sells a credit obligation separately in Parts IV and V, respectively.
at a material credit-related loss, i.e., Investments in equity or other regulatory
excluding gains and losses due to interest capital instruments issued by banks or
rate movements. Banks’ board-approved other financial/non-financial allied/non-
internal policies must specifically define allied undertakings will be risk-weighted
when a material credit-related loss at 100%, unless deductible from the capital
occurs; and base as required in Part II.
d) If a credit obligation of a borrower/
obligor is considered to be in default, all Off-balance sheet items
credit obligations of the borrower/obligor 17. For off-balance sheet items, the
with the same bank shall also be risk-weighted amount shall be calculated
considered to be in default. using a two-step process. First, the credit
equivalent amount of an off-balance sheet
Housing loans item shall be determined by multiplying its
13. These include all loans to notional principal amount by the appropriate
individuals for housing purpose, fully credit conversion factor, as follows:
secured by first mortgage on residential a) 100% credit conversion factor - this
property that is or will be occupied by the shall apply to direct credit substitutes, e.g.,
borrower, which are considered to be in general guarantees of indebtedness
default in accordance with paragraph 12. (including standby letters of credit serving
as financial guarantees for loans and
Others securities) and acceptances (including
14. These include the total amounts or endorsements with the character of
portions of all other defaulted exposures, acceptances), and shall include:
which are not secured by eligible collateral i. Guarantees issued other than
or guarantee as defined in Part III.B. shipside bonds/airway bills;
ii. Financial standby letters of credit
ROPA b) Fifty percent (50%) credit
15. All real and other properties conversion factor – this shall apply to
acquired and classified as such under certain transaction-related contingent
existing regulations. items, e.g., performance bonds, bid bonds,

APP. 63b
08.12.31
warranties and standby letters of credit iv. Travelers’ checks unsold;

related to particular transactions, and shall v. Trust department accounts;
include: vi. Items held for safekeeping/
i. Performance standby letters of custodianship;
credit (net of margin deposit), established vii. Items held as collaterals;
as a guarantee that a business transaction viii.Deficiency claims receivable; and
will be performed; ix. Others.
This shall also apply to – 18. For derivative contracts, the credit
i. Note issuance facilities and equivalent amount shall be the sum of the
revolving underwriting facilities; and current credit exposure (or replacement
ii. Other commitments, e.g., formal cost) and an estimate of the potential future
standby facilities and credit lines with an credit exposure (or add-on). However, the
original maturity of more than one (1) year, following shall not be included in the
and this shall also include Underwritten computation:
Accounts Unsold. a) Instruments which are traded in an
c) Twenty percent (20%) credit exchange where they are subject to daily
conversion factor – this shall apply to short- receipt and payment of cash variation
term, self-liquidating trade-related margin; and
contingencies arising from movement of b) Exchange rate contract with
goods, e.g., documentary credits original maturity of fourteen (14) calendar
collateralized by the underlying days or less.
shipments, and shall include: 19. The current credit exposure shall be
i. Trade-related guarantees: the positive mark-to-market value of the
- Shipside bonds/airway bills contract (or zero if the mark-to-market value
- Letters of credit – confirmed is zero or negative). The potential future
ii. Sight letters of credit outstanding credit exposure shall be the product of the
(net of margin deposit); notional principal amount of the contract
iii. Usance letters of credit outstanding multiplied by the appropriate potential future
(net of margin deposit); credit conversion factor, as indicated below:
iv. Deferred letters of credit (net of
margin deposit); and Interest Exchange
v. Revolving letters of credit (net of Residual Maturity Rate Rate Equity
Contract Contract Contract
margin deposit) arising from movement of One (1) year or less 0.0% 1.0% 6.0%
goods and/or services; Over one (1) year to
This shall also apply to commitments five (5) years 0.5% 5.0% 8.0%
with an original maturity of up to one (1) Over five (5) years 1.5% 7.5% 10.0%
year, and shall include Committed Credit
Line for Commercial Paper Issued. Provided, That:
d) Zero percent (0%) credit conversion a) For contracts with multiple
factor – this shall apply to commitments exchanges of principal, the factors are to
which can be unconditionally cancelled at be multiplied by the number of remaining
any time by the bank without prior notice, payments in the contract;
and shall include Credit Card Lines. b) For contracts that are structured to
This shall also apply to those not settle outstanding exposure following
involving credit risk, and shall include: specified payment dates and where the
i. Late deposits/payments received; terms are reset such that the market value
ii. Inward bills for collection; of the contract is zero on these specified
iii. Outward bills for collection; dates, the residual maturity would be set

APP. 63b
08.12.31
equal to the time until the next reset date, on claims for which an issue-specific rating
and in the case of interest rate contracts is used that already reflects that CRM.
with remaining maturities of more than one Principal-only ratings will not be allowed
(1) year that meet these criteria, the potential within the framework of CRM.
future credit conversion factor is subject to 24. While the use of CRM techniques
a floor of one-half percent (1/2%); and reduces or transfers credit risk, it
c) No potential future credit exposure simultaneously may increase other risks
shall be calculated for single currency (residual risks). Residual risks include
floating/floating interest rate swaps, i.e., the legal, operational, liquidity and market
credit exposure on these contracts would risks. Therefore, it is imperative that banks
be evaluated solely on the basis of their employ robust procedures and processes
mark-to-market value. to control these risks, including strategy;
20. The credit equivalent amount shall consideration of the underlying credit;
be treated like any on-balance sheet asset, valuation; policies and procedures;
and shall be assigned the appropriate risk systems; control of roll-off risks; and
weight, i.e., according to the third party management of concentration risk arising
credit assessment of the counterparty from the bank’s use of CRM techniques
exposure. and its interaction with the bank’s overall
credit risk profile.
B. Credit risk mitigation (CRM) 25. The disclosure requirements under
21. Banks use a number of techniques Part VIII of this document must also be
to mitigate the credit risks to which they observed for banks to obtain capital relief
are exposed. For example, exposures may (i.e., adjustments in the risk weights of
be collateralized by first priority claims, in collateralized or guaranteed exposures) in
whole or in part with cash or securities, or respect of any CRM techniques.
a loan exposure may be guaranteed by a
third party. Physical collateral, such as real Collateralized transactions
estate, buildings, machineries, and 26. A collateralized transaction is one
inventories are not recognized at this time in which:
for credit risk mitigation purposes in line a) banks have a credit exposure or
with Basel II recommendations. potential credit exposure; and
22. In order for banks to obtain capital b) that credit exposure or potential
relief for any use of CRM techniques, all credit exposure is hedged in whole or in
documentation used in collateralized part by collateral posted by a counterparty1
transactions and for documenting or by a third party in behalf of the
guarantees must be binding on all parties counterparty.
and legally enforceable in all relevant 27. In addition to the general
jurisdictions. Banks must have conducted requirement for legal certainty set out in
sufficient legal review to verify this and have paragraph 22, the legal mechanism by
a well-founded legal basis to reach this which collateral is pledged or transferred
conclusion, and undertake such further must ensure that the bank has the right to
review as necessary to ensure continuing liquidate or take legal possession of it, in a
enforceability. timely manner, in the event of default,
23. The effects of CRM will not be insolvency or bankruptcy (or one or more
double counted. Therefore, no additional otherwise-defined credit events set out in
supervisory recognition of CRM for the transaction documentation) of the
regulatory capital purposes will be granted counterparty (and, where applicable, of the
1
Counterparty refers to a party to whom a bank has an on- or off-balance sheet credit exposure or a potential credit
exposure.

APP. 63b
08.12.31
custodian holding the collateral). the collateralized portion of the credit

Furthermore, banks must take all steps exposure (equivalent to the fair market
necessary to fulfill those requirements value of recognized collateral), subject to
under the law applicable to the bank’s a floor of twenty percent (20%). The
interest in the collateral for obtaining and twenty percent (20%) floor shall not apply
maintaining an enforceable security and a zero percent (0%) risk weight can
interest, e.g., by registering it with a be applied when the exposure and the
registrar, or for exercising a right to net collateral are denominated in the same
or set off in relation to title transfer currency, and either:
collateral. a) The collateral is cash as defined in
28. In order for collateral to provide paragraph 34.a; or
protection, the credit quality of the b) The collateral is a sovereign debt
counterparty and the value of the collateral security eligible for zero percent (0%) risk
must not have a material positive weight, or a Php-denominated debt
correlation. For example, securities issued obligation issued by the Philippine NG or
by the counterparty – or by any related the BSP, which fair market value has been
group entity – would provide little discounted by twenty percent (20%).
protection and so would be ineligible. 33. For collateral to be recognized,
29. Banks must have clear and robust however, the collateral must be pledged
procedures for the timely liquidation of for at least the life of the exposure and it
collateral to ensure that any legal must be marked to market and revalued
conditions required for declaring the with a minimum frequency of every six
default of the counterparty and liquidating (6) months.
the collateral are observed, and that 34. The following are the eligible
collateral can be liquidated promptly. collateral instruments:
30. Where the collateral is required to a) Cash (as well as certificates of
be held by a custodian, the BSP will only deposit or comparable instruments issued
recognize the collateral for regulatory by the lending bank) on deposit with the
capital purposes if it is held by BSP- bank which is incurring the counterparty
authorized third party custodians. exposure;
31. A capital requirement will be b) Gold;
applied to a bank on either side of the c) Debt obligations issued by the
collateralized transaction: for example, Philippine NG or the BSP;
both repos and reverse repos will be d) Debt securities issued by central
subject to capital requirements. Likewise, governments and central banks (and PSEs
both sides of a securities lending and treated as sovereigns) of foreign countries
borrowing transaction will be subject to as well as MDBs with at least investment
explicit capital charges, as will the posting grade external credit ratings;
of securities in connection with a e) Other debt securities with external
derivative exposure or other borrowing. credit ratings of at least BBB- or its equivalent;
f) Unrated senior debt securities
Banking book issued by banks with an issuer rating of at
32. Where banks take eligible least BBB- or its equivalent, or with other
collateral, as listed in paragraph 34, and debt issues of the same seniority with a
satisfies the requirements under rating of at least BBB- or its equivalent;
paragraphs 27 to 31, they are allowed to g) Equities included in the main index
apply the risk weight of the collateral to of an organized exchange; and

APP. 63b
08.12.31
h) Investments in Unit Investment period, daily marking to market and

Trust Funds (UITF) and the Asian Bond daily remargining), expressed as
Fund 2 (ABF2) duly approved by the BSP. percentages:
Haircut
Trading book Sovereign Other
35. A credit risk capital requirement (and PSEs Issuers
should also be applied to banks’ treated as
Issue rating for Residual sovereign)
counterparty exposures in the trading debt securities1 maturity and MDB
book (e.g., repo-style transactions, OTC (with 0%
derivatives contracts). Where banks take risk weight)
issuers
eligible collateral for these trading book Php – denomi- <1 year 0.5
transactions, as listed in paragraph 34, and nated securities
issued by the >1 yr. to < 5 yrs. 2
satisfies the requirements under Philippine NG > 5 years 4
paragraphs 27 to 31, they are to compute and BSP
for the credit risk capital requirement <1 year 0.5 1
AAA to AA- >1 yr. to < 5 yrs. 2 4
according to the following paragraphs: > 5 years 4 8
Provided, That, for repo-style transactions A+ to BBB-/ <1 year 1 2
in the trading book, all instruments which Unrated bank >1 yr. to < 5 yrs. 3 6
debt securities > 5 years 6 12
are included in the trading book may be as defined in
used as eligible collateral. paragraph 34.f
Equities inclu- 15
36. For collateralized transactions in ded in the main
the trading book, the exposure amount index and gold
after risk mitigation is calculated as follows: UITF and ABF2 Highest haircut
applicable to any
E* = max {0, [E x (1 + He) – C x (1 – Hc security in which
– Hfx)]} the fund can invest
Cash per parag- 0
Where: raph 34.a in the
same currency
E* = the exposure value after risk Other financial 25
mitigation instruments in
E = the current value of the exposure the trading book
(applies to repo-
H e = haircut appropriate to the exposure style transactions
C = the current value of the collateral in the trading
received book only)
H c = haircut appropriate to the collateral

Hfx = haircut appropriate for currency
mismatch between the collateral 39. Where the collateral is a basket of
and exposure set at 8% (based on assets, the haircut on the basket will be
a 10-business day holding period H =Σai Hi, where ai is the weight of the
and daily marking to market) asset in the basket and Hi is the haircut
applicable to that asset.
37. The treatment of transactions 40. For collateralized OTC derivatives
where there is a maturity mismatch transactions in the trading book, the credit
between the maturity of the counterparty equivalent amount will be computed
exposure and the collateral is given in according to paragraphs 18 to 19, but
paragraphs 50 to 54. adjusted by deducting the volatility
38. These are the haircuts to be used adjusted collateral amount as computed
(based on a 10-business day holding according to paragraphs 36 to 39.
1
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external

APP. 63b
08.12.31
41. The exposure amount after risk the guarantee. The bank must have the right
mitigation will be multiplied by the risk to receive any such payments from the
weight of the counterparty to obtain the guarantor without first having to take legal
risk-weighted asset amount for the actions in order to pursue the counterparty
collateralized transaction. for payment;
b) The guarantee is an explicitly
Guarantees documented obligation assumed by the
42. Where guarantees are direct, guarantor; and
explicit, irrevocable and unconditional, c) The guarantee must cover all types
banks may be allowed to take account of of payments the underlying obligor is
such credit protection in calculating expected to make under the
capital requirements. documentation governing the transaction,
43. A guarantee must represent a direct for example, notional amount, margin
claim on the protection provider and must payments, etc. Where a guarantee covers
be explicitly referenced to specific payment of principal only, interests and
exposures or a pool of exposures, so that other uncovered payments should be
the extent of the cover is clearly defined treated as an unsecured amount.
and incontrovertible. Other than non- 45. Where the bank’s exposure is
payment by a protection purchaser of guaranteed by an eligible guarantor, as
money due in respect of the credit listed in paragraph 47, and satisfies the
protection contract, the guarantee must be requirements under paragraphs 42 to 44,
irrevocable; there must be no clause in the the bank is allowed to apply the risk weight
contract that would allow the protection of the guarantor to the guaranteed portion
provider unilaterally to cancel the credit of the credit exposure.
cover or that would increase the effective 46. The treatment of transactions where
cost of cover as a result of deteriorating there is a mismatch between the maturity
credit quality in the hedged exposure. It of the counterparty exposure and the
must also be unconditional; there should guarantee is given in paragraphs 50 to 54.
be no clause in the protection contract 47. The following are the eligible
outside the direct control of the bank that guarantors:
could prevent the protection provider from a) Philippine NG and the BSP;
being obliged to pay out in a timely manner b) Central governments and central
in the event that the original counterparty banks and PSEs of foreign countries as well
fails to make the payment(s) due. as MDBs with a lower risk weight than the
44. In addition to the legal certainty counterparty;
requirement in paragraph 22, in order for c) Banks with a lower risk weight than
a guarantee to be recognized, the the counterparty; and
following conditions must be satisfied: d) Other entities with external credit
a) On the qualifying default/ assessment of at least A- or its equivalent.
non-payment of the counterparty, the bank 48. Where a bank provides a credit
may in a timely manner pursue the protection to another bank in the form of a
guarantor for any monies outstanding guarantee that a third party will perform
under the documentation governing the on its obligations, the risk to the guarantor
transaction. The guarantor may make one bank is the same as if the bank had entered
lump sum payment of all monies under into the transaction as a principal. In such
such documentation to the bank, or the circumstances, the guarantor bank will be
guarantor may assume the future payment required to calculate capital requirement
obligations of the counterparty covered by on the guaranteed amount according to the

APP. 63b
08.12.31
risk weight corresponding to the third party occurs when the residual maturity of a hedge
exposure. In this instance, and provided is less than that of the underlying exposure.
the credit protection is deemed to be 52. The maturity of the hedge and the
legally effective, the credit risk is maturity of the underlying exposure should
considered transferred to the bank both be defined conservatively. For the
providing credit protection. However, the hedge, embedded options which may
bank receiving credit protection on its reduce the term of the hedge should be
exposure to a third party shall recognize a taken into account so that the shortest
corresponding risk-weighted credit exposure possible effective maturity is used. Where
to the bank providing credit protection. a call is at the discretion of the guarantor/
49. An exposure that is covered by a protection seller, the maturity will always
guarantee that is counter-guaranteed by the be at the first call date. If the call is at the
Philippine NG or BSP, may be considered discretion of the protection buying bank
as covered by the guarantee of the but the terms of the arrangement at
Philippine NG or BSP: Provided, That: origination of the hedge contain a positive
a) the counter-guarantee covers all incentive for the bank to call the transaction
credit risk element of the exposure; before contractual maturity, the remaining
b) both the original guarantee and the time to the first call date will be deemed
counter-guarantee meet all operational to be the effective maturity. For example,
requirements for guarantees, except that where there is a step-up in cost in
the counter guarantee need not be direct conjunction with a call feature or where
and explicit to the original exposure; and the effective cost of cover increases over
c) the cover is robust and that no time even if credit quality remains the
historical evidence suggests that the same or increases, the effective maturity
coverage of the counter-guarantee is less will be the remaining time to the first call.
than effectively equivalent to that of a direct The effective maturity of the underlying,
guarantee of the Philippine NG and BSP. on the other hand, should be gauged as
Currently, Php-denominated exposures the longest remaining time before the
to the extent guaranteed by Industrial counterparty is scheduled to fulfill its
Guarantee and Loan Fund (IGLF), Home obligation, taking into account any
1\
Guaranty Corporation (HGC) , and Trade and applicable grace period.
Investment Development Corporation of the 53. Hedges with maturity mismatches
Philippines (TIDCORP), which guarantees are only recognized when their original
are counter-guaranteed by the Philippine NG maturities are greater than or equal to one
receive zero percent (0%) risk weight. year. As a result, the maturity of hedges for
(As amended by M-2008-015 dated 19 March 2008) exposures with original maturities of less
than one (1) year must be matched to be
Maturity mismatch recognized. In all cases, hedges will no
50. For collateralized transactions in the longer be recognized when they have a
trading book and guaranteed transactions, residual maturity of three months or less.
the credit risk mitigating effects of such 54. When there is a maturity mismatch
transactions will still be recognized even with recognized credit risk mitigants, the
if a maturity mismatch occurs between the following adjustment will be applied.
hedge and the underlying exposure, Pa = P x (t – 0.25)/(T – 0.25)
subject to appropriate adjustments. Where:
51. For purposes of calculating Pa = value of the credit protection
risk-weighted assets, a maturity mismatch adjusted for maturity mismatch
1\
Housing microfinance loans under Sec. X361.5 to the extent guaranteed by the HGC, shall be subject to a zero percent
(0%) risk weight.

APP. 63b
08.12.31
P = credit protection (e.g., collateral International credit assessment agencies:

amount, guarantee amount) a) Standard & Poor’s;
adjusted for any haircuts b) Moody’s;
t = min (T, residual maturity of the c) Fitch Ratings; and
credit protection arrangement) d) Such other rating agencies as may
expressed in years be approved by the Monetary Board.
T = min (5, residual maturity of the Domestic credit assessment agencies:
exposure) expressed in years a) PhilRatings; and
b) Such other rating agencies as may
C. Use of third party credit assessments be approved by the Monetary Board.
55. The following third party credit 56. The tables below set out the mapping
assessment agencies are recognized of ratings given by the recognized credit
by the BSP for regulatory capital assessment agencies for purposes of
purposes: determining the appropriate risk weights:
Agency INTERNATIONAL RATINGS
S&P AAA AA+ AA AA- A+ A A-
Moody’s Aaa Aa1 Aa2 Aa3 A1 A2 A3
Fitch AAA AA+ AA AA- A+ A A-
Agency DOMESTIC RATINGS

PhilRatings AAA Aa+ Aa Aa- A+ A A-

S&P BBB+ BBB BBB- BB+ BB BB- B+
Moody’s Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1
Fitch BBB+ BBB BBB- BB+ BB BB- B+

PhilRatings Baa+ Baa Baa- Ba+ Ba Ba- B+

S&P B B-
Moody's B2 B3
Fitch B B-
PhilRatings B B-
57. The BSP will issue the mapping of the Philippine sovereign as reference
ratings of other rating agencies as soon as highest credit quality anchor.
it is recognized by the BSP for regulatory
capital purposes. Multiple Assessments
59. If an exposure has only one rating
National Rating Systems by any of the BSP recognized credit
58. With prior BSP approval, assessment agencies, that rating shall be
international credit rating agencies may used to determine the risk weight of the
have national rating systems developed exposure; in cases where there are two or
exclusively for use in the Philippines using more ratings which map into different risk

APP. 63b
08.12.31
weights, the higher of the two lowest risk use credit derivatives to mitigate its credit
weights should be used. risks or to acquire credit risks. For credit
derivatives that are used as credit risk
Issuer versus issue assessments mitigants (CRM), the general requirements
60. Any reference to credit rating shall for the use of CRM techniques in paragraphs
refer to issue-specific rating; the issuer 21 to 25, Part III.B, have to be satisfied, in
rating may be used only if the exposure addition to the specific operational
being risk-weighted is: requirements for credit derivatives in
a) an unsecured senior obligation of paragraphs 8 to 14.
the issuer and is of the same denomination 2. The contents of this Part are just the
applicable to the issuer rating (e.g., local general rules to be followed in computing
currency issuer rating may be used for risk capital requirements for credit derivatives.
weighting local currency denominated A bank, therefore, is expected to consult
senior claims); the BSP-SES when there is uncertainty
b) short-term; and about the computation of capital
c) in cases of guarantees. requirements, or even about whether a
61. For loans, risk weighting shall given transaction should be treated under
depend on either the rating of the borrower the credit derivatives framework.
or the rating of the unsecured senior
obligation of the borrower: Provided, That A. Definitions and general terminology
in case of the latter, the loan is of the same 3. Credit derivative – a contract
currency denomination as the unsecured wherein one party called the protection
senior obligation. buyer or credit risk seller transfers the
credit risk of a reference asset or assets
Domestic versus international debt issued by a reference entity or entities,
issuances which it may or may not own, to another
62. Domestic debt issuances may be party called the protection seller or credit
rated by BSP-recognized domestic credit risk buyer. In return, the protection buyer
assessment agencies or by international pays a premium or interest-related payments
credit assessment agencies which have to the protection seller reflecting the
developed a national rating system underlying credit risk of the reference
acceptable to the BSP. Internationally- asset/s. Credit derivatives may refer to
issued debt obligations shall be rated by credit default swaps (CDS), total return
BSP-recognized international credit swaps (TRS), and credit-linked notes (CLN)
assessment agencies only. and similar products.
4. Credit default swap – a credit
Level of application of the assessment derivative wherein the protection buyer
63. External credit assessments for one may exchange the reference asset or any
entity within a corporate group cannot be deliverable obligation of the reference
used to proxy for the credit assessment of entity for cash equal to a specified amount,
other entities within the same group. Such or get compensated to the extent of the
other entities should secure their own ratings. difference between the par value and
market value of the asset upon the
Part IV. Credit Derivatives occurrence of a defined credit event.
5. Total return swap – a credit
1. This Part sets out the capital derivative wherein the protection buyer
treatment for credit derivatives. Banks may exchanges the actual collections and

APP. 63b
08.12.31
variations in the prices of the reference a) failure to pay the amounts due
asset with the protection seller in return under terms of the underlying obligation
for a fixed premium. that are in effect at the time of such failure
6. Credit-linked note – a pre-funded (with a grace period that is closely in line
credit derivative wherein the note holder with the grace period in the underlying
acts as a protection seller while the note obligation);
issuer is the protection buyer. As such, the b) bankruptcy, insolvency or inability
repayment of the principal to the note of the obligor to pay its debts, or its failure
holder is contingent upon the non- or admission in writing of its inability
occurrence of a defined credit event. All generally to pay its debts as they become
references to CLNs shall be taken to due, and analogous events; and
generically include similar instruments, c) restructuring of the underlying
such as credit-linked deposits (CLDs). obligation involving forgiveness or
7. Special purpose vehicle – refers to postponement of principal, interest or fees
an entity specifically established to issue that results in a credit loss event
CLNs of a single, homogeneous risk class (i.e., charge-off, specific provision or other
that are fully collateralized as to principal similar debit to the profit and loss account).
by eligible collateral instruments listed in 10. The credit derivative shall not
paragraph 34, Part III.B, and which are terminate prior to expiration of any grace
purchased out of the proceeds of the note period required for a default on the
issuance. underlying obligation to occur as a result
of a failure to pay, subject to the provisions
B. Operational requirements for credit of paragraph 52 of Part III.B.
derivatives 11. Credit derivatives allowing for cash
8. A credit derivative must represent a settlement are recognized for capital
direct claim on the protection seller and purposes insofar as a robust valuation
must be explicitly referenced to specific process is in place in order to estimate loss
exposures or a pool of exposures, so that reliably. There must be a clearly specified
the extent of the cover is clearly defined and period for obtaining post-credit event
incontrovertible. Other than non-payment valuations of the underlying obligation.
by a protection buyer of money due in 12. If the protection buyer’s right or
respect of the credit derivative contract, it ability to transfer the underlying obligation
must be irrevocable; there must be no to the protection seller is required for
clause in the contract that would allow the settlement, the terms of the underlying
protection seller unilaterally to cancel the obligation must provide that any required
credit cover or that would increase the consent to such transfer may not be
effective cost of cover as a result of unreasonably withheld.
deteriorating credit quality in the hedged 13. The identity of the parties
exposure. It must also be unconditional; responsible for determining whether a
there should be no clause in the credit credit event has occurred must be clearly
derivative contract outside the direct control defined. This determination must not be
of the protection buyer that could prevent the sole responsibility of the protection
the protection seller from being obliged seller. The bank as protection buyer must
to pay out in a timely manner in the event have the right/ability to inform the
of a defined credit event. protection seller of the occurrence of a
9. The credit events specified by the credit event.
contracting parties must at a minimum 14. Asset mismatches (underlying
cover: obligation is different from the obligation

APP. 63b
08.12.31
used for purposes of determining cash a) The fixed amount, if such is to be

settlement or the deliverable obligation, or paid upon the occurrence of a credit
from the obligation used for purposes of event; or
determining whether a credit event has b) The notional value of the contract
occurred) are permissible if: if either (1) par is to be paid in exchange
a) the obligation used for purposes of for physical delivery of the reference asset,
determining cash settlement or the or (2) par less market value of the asset is
deliverable obligation, or the obligation to be paid upon the occurrence of a credit
used for purposes of determining whether event.
a credit event has occurred ranks pari passu 18. A bank may obtain credit
with or is junior to the underlying protection for a basket of reference entities
obligation; and where the contract terminates and pays out
b) both obligations share the same on the first entity to default. In this case,
obligor (i.e., the same legal entity) and the bank may substitute the risk weight of
legally enforceable cross-default or the protection seller for the risk weight of
cross-acceleration clauses are in place. the asset within the basket with the lowest
risk-weighted amount, but only if the
C. Capital treatment for protection notional amount is less than or equal to
buyers the notional amount of the credit
15. A bank that enters into a credit derivative.
derivative transaction as a protection buyer 19. Where the contract terminates and
in order to hedge an existing exposure in pays out on the nth (other than the first)
the banking book may only get capital relief entity to default, the bank will only be able
if all the general requirements for the use of to recognize any reductions in the risk
CRM techniques in paragraphs 21 to 25, Part weight of the underlying asset if (n-1)th
III.B and the conditions in paragraphs 8 to default-protection has also been obtained
14 are satisfied. In addition, only the eligible or when n-1 of the assets within the basket
guarantors listed in paragraph 47, Part III.B has already defaulted.
are considered as eligible protection sellers. 20. Where the contract is referenced to
16. If all of the conditions in paragraph entities in the basket proportionately,
15 are satisfied, banks that are protection reductions in the risk weight will only
buyers may apply the risk weight of the apply to the extent of the underlying
protection seller to the protected portion of asset’s share of protection in the contract.
the exposure being hedged. The risk weight 21. When a bank conducts an internal
of the protection seller should therefore be hedge using a credit derivative
lower than the risk weight of the exposure (i.e., hedging the credit risk of an exposure
being hedged for capital relief to be in the banking book with a credit derivative
recognized. Exposures that are protected booked in the trading book), in order for
through the issuance of CLNs will be treated the bank to receive any reduction in the
as transactions collateralized by cash and a capital requirement for the exposure in the
zero percent (0%) risk weight is applied to banking book, the credit risk in the trading
the protected portion. The uncovered book must be transferred to an outside third
portion shall retain the risk weight of the party (i.e., an eligible protection seller).
bank’s underlying counterparty. 22. Where a bank buys credit
17. The protected portion of an protection through a TRS and records the
exposure is measured as follows: net payments received on the swap as net

APP. 63b
08.12.31
income, but does not record offsetting 27. For a bank holding a CLN, credit
deterioration in the value of the asset that exposure is acquired on two fronts. As
is protected (either through reductions in such, the on-balance sheet exposure
fair value or by an addition to reserves), the arising from the note should be weighted
credit protection will not be recognized. by adding the risk weights of the reference
23. Materiality thresholds on payments entity and the risk weight of the note
below which no payment is made in the issuer. The amount of exposure is the
event of loss are equivalent to retained first carrying amount of the note. If the CLN
loss positions and must be deducted in full principal is fully collateralized by an
from the capital of the bank buying the eligible collateral listed in paragraph 34,
credit protection. Part III.B, and which satisfies the
24. Where the credit protection is requirements in paragraphs 27 to 31, Part
denominated in a currency different from that III.B, the risk weight of the note issuer is
in which the exposure is denominated – i.e., substituted with the risk weight associated
there is a currency mismatch – the protected with the relevant collateral.
portion of the exposure will be reduced by 28. When the credit derivative is
the application of a haircut, as follows: referenced to a basket of reference entities
and the contract terminates and pays out
Ga = G x (1 – Hfx) on the first entity to default in the basket,
Where: capital should be held to consider the
Ga = adjusted protected portion of the cumulative risk of all the reference entities
exposure in the basket. This means that the risk
G = protected portion of the exposure prior
weights of all the reference entities are
to haircut
Hfx = haircut appropriate for currency
added up and multiplied by the amount
mismatch between the credit protection of the protection provided by the credit
and underlying obligation set at eight derivative to obtain the risk-weighted
percent (8%) (based on a 10-business exposure to the basket. However, the risk-
day holding period and daily marking weighted exposure is capped at ten (10)
to market) times the protection provided under the
contract. Accordingly, the maximum
25. Where a maturity mismatch occurs capital charge is 100% of the protection
between the credit protection and the provided under the contract. The multiplier
underlying exposure, the protected portion ten (10) is the reciprocal of the BSP-
of the exposure adjusted for maturity required minimum CAR of ten percent
mismatch will be computed according to (10%). For CLNs, the risk weight of the
paragraph 50 to 54, Part III.B. issuer is likewise included in the summing
of the risk weights.
D. Capital treatment for protection sellers 29. When the contract terminates and
th
26. Where a bank is a protection seller pays out on the n (other than the first)
in a CDS or TRS transaction, it must entity to default, the treatment above shall
calculate a capital requirement on the apply except that in aggregating the risk
reference asset as if it were a direct investor weights of the reference entities, the risk
in the reference asset. The risk weight of weight/s of the n-1 lowest risk-weighted
the reference asset is multiplied by the entity/ies is/are excluded from the
nominal amount of the protection computation. For CLNs, the risk weight
provided by the credit derivative to obtain of the issuer is likewise included in the
the risk-weighted exposure. summing of the risk weights.

APP. 63b
08.12.31
th
30. When a first or an n -to-default reference basket has/have already
credit derivative has an external credit defaulted.
rating acceptable to the BSP, the risk weight 36. When a credit derivative is
in paragraph 21, Part V.F will be applied. referenced to multiple entities and the
31. A contract that is referenced to contract terminates and pays out on the first
entities in the basket proportionately should obligation to default in the basket, the
be risk-weighted according to each transaction should be reported by the
reference entity’s share of protection under protection seller as long positions in each
the contract. of the reference obligations in the basket.
A CLN should likewise be reported as a
E. Credit derivatives in the trading book long position on the note issuer. The total
32. The following describes the capital charge is capped at the notional
positions to be reported for credit amount of the derivative or, in the case of
derivative transactions for purposes of a CLN, the carrying amount of the note.
calculating specific risk and general market 37. When the contract terminates and
th
risk charges under the standardized pays out on the n (other than the first)
approach. entity to default in the basket, the
33. A CDS creates a notional position treatment above shall apply except that the
in the specific risk of the reference protection seller may exclude the long
obligation. A TRS creates notional positions position/s on n-1 reference obligations with
on the specific and general market risks of the lowest risk-weighted exposures in its
the reference obligation, and an opposite report. A CLN should likewise be reported
notional position on a zero coupon as a long position on the note issuer. The
government security representing the fixed total capital charge is capped at the notional
payments or premium under the TRS. A CLN amount of the derivative or, in the case of
creates a notional position in the specific a CLN, the carrying amount of the note.
th
risk of the reference obligation, a position 38. When an n -to-default credit
on the specific risk associated with the derivative has an external credit rating
issuer, and a position on the general market acceptable to the BSP, the specific risk
risk of the note. weights in Part VI.B will be applied.
39. When the contract is referenced to
Specific risk multiple obligations under a proportionate
34. The specific risk position/s on the structure, positions in the reference
reference obligation/s created by credit obligations should be reported according
derivatives are reported as short positions to their respective proportions in the
by protection buyers and long positions by contract.
protection sellers. In addition, holders of
CLNs should report a long position on the General market risk
specific risk of the note issuer. 40. A protection buyer/seller in a TRS
35. The protection buyer in a first-to- should report a short/long notional position
default transaction should report a short on the reference obligation and a long/
position in the reference obligation with short notional position on a zero coupon
the lowest specific risk charge. A protection government security representing the
th
buyer in an n (other than the first)-to- fixed payment under the contract.
default transaction shall only be allowed 41. A protection buyer/seller in a CLN
to report a short position in a reference should report a short/long position on the
obligation only if n-1 obligations in the note.

APP. 63b
08.12.31
Counterparty credit risk rate or currency swaps, and credit

42. CDS and TRS transactions in the derivatives. Underlying instruments in the
trading book attract counterparty credit risk pool being securitized may include but are
charges. A five percent (5%) add-on factor not restricted to the following: loans,
for the computation of the potential future commitments, asset-backed and mortgage-
credit exposure shall be used by both backed securities, corporate bonds, equity
protection buyers and protection sellers if securities, and private equity investments.
the reference obligation has an external 2. Since securitizations may be
credit rating of at least BBB- or its equivalent. structured in many different ways, the capital
A ten percent (10%) add-on factor applies treatment of a securitization exposure must
to all other reference obligations. However, be determined on the basis of its economic
a protection seller in a CDS shall only be substance rather than its legal form. The
subject to the add-on factor if it is subject to contents of this Part are just the general rules
closeout upon the insolvency of the to be followed in computing capital
protection buyer while the underlying is still requirements for securitization exposures.
solvent. The add-on in this case should be A bank should therefore consult the BSP-
capped to the amount of unpaid premiums. SES when there is uncertainty about the
43. Where the credit derivative is a first computation of capital requirements, or
to default transaction, the add-on will be even about whether a given transaction
determined by the lowest credit quality should be considered a securitization.
underlying in the basket, i.e., if there are
any non-investment grade or unrated items A. Definitions and general terminology
in the basket, the ten percent (10%) add-on 3. Traditional securitization – a
should be used. For second and subsequent structure where the cash flow from an
to default transactions, underlying assets underlying pool of exposures is used to
should continue to be allocated according service at least two (2) different stratified
to the credit quality, i.e., the second lowest risk positions or tranches reflecting
credit quality will determine the add-on different degrees of credit risk. Payments
for a second to default transaction, etc. to the investors depend upon the
44. Where the credit derivative is performance of the specified underlying
referenced proportionately to multiple exposures, as opposed to being derived
obligations, the add-on factor will follow from an obligation of the entity originating
the add-on factor applicable for the those exposures. The stratified/tranched
obligation with the biggest share. If the structures that characterize securitizations
protection is equally proportioned, the differ from ordinary senior/subordinated
highest add-on factor should be used. debt instruments in that junior
securitization tranches can absorb losses
Part V. Securitization without interrupting contractual payments
to more senior tranches, whereas
1. Banks must apply the securitization subordination in a senior/subordinated debt
framework for determining regulatory structure is a matter of priority of rights to
capital requirements on their securitization the proceeds of liquidation.
exposures. Securitization exposures can 4. Synthetic securitization – a
include but are not restricted to the structure with at least two (2) different
following: asset-backed securities, stratified risk positions or tranches that
mortgage-backed securities, credit reflect different degrees of credit risk
enhancements, liquidity facilities, interest where credit risk of an underlying pool of

APP. 63b
08.12.31
exposures is transferred, in whole or in part, investors’ relative shares of the receivables

through the use of funded (e.g., credit-linked outstanding at the beginning of each month;
notes) or unfunded (e.g., credit default c) The bank must set a period for
swaps) credit derivatives or guarantees that amortization that would be sufficient for
serve to hedge the credit risk of the portfolio. at least ninety percent (90%) of the total
Accordingly, the investors’ potential risk is debt outstanding at the beginning of the
dependent upon the performance of the early amortization period to have been
underlying pool. repaid or recognized as in default; and
5. Originating bank – a bank that d) The pace of repayment should not
originates directly or indirectly underlying be any more rapid than would be allowed
exposures included in the securitization. by straight-line amortization over the
6. Clean-up call – an option that period set out in criterion (c).
permits the securitization exposures to be An early amortization provision that
called before all of the underlying does not satisfy the conditions for a
exposures or securitization exposures controlled early amortization provision
have been repaid. In the case of traditional will be treated as non-controlled early
securitizations, this is generally amortization provision.
accomplished by repurchasing the 9. Eligible liquidity facilities – an off-
remaining securitization exposures once the balance sheet securitization exposure shall
pool balance or outstanding securities have be treated as an eligible liquidity facility if
fallen below some specified level. In the the following minimum requirements are
case of a synthetic transaction, the clean-up satisfied:
call may take the form of a clause that a) The facility documentation must
extinguishes the credit protection. clearly identify and limit the circumstances
7. Credit enhancement – a contractual under which it may be drawn. Draws
arrangement in which the bank retains or under the facility must be limited to the
assumes a securitization exposure and, in amount that is likely to be repaid fully from
substance, provides some degree of added the liquidation of the underlying exposures
protection to other parties to the transaction. and any seller-provided credit
8. Early amortization provisions – enhancements. In addition, the facility
mechanisms that, once triggered, allow must not cover any losses incurred in the
investors to be paid out prior to the originally underlying pool of exposures prior to a
stated maturity of the securities issued. For draw, or be structured such that draw-
risk-based capital purposes, an early down is certain (as indicated by regular or
amortization provision will be considered continuous draws);
either controlled or non-controlled. A b) The facility must be subject to an
controlled early amortization provision must asset quality test that precludes it from
meet all of the following conditions: being drawn to cover credit risk exposures
a) The bank must have an appropriate that are considered non-performing under
capital/liquidity plan in place to ensure that existing BSP regulations. In addition,
it has sufficient capital and liquidity liquidity facilities should only fund
available in the event of an early exposures that are externally rated
amortization; investment grade at the time of funding;
b) Throughout the duration of the c) The facility cannot be drawn after
transaction, including the amortization all applicable (e.g., transaction-specific and
period, there is the same pro rata sharing program-wide) credit enhancements from
of interest, principal, expenses, losses and which the liquidity would benefit have
recoveries based on the bank’s and been exhausted; and

APP. 63b
08.12.31
d) Repayment of draws on the facility a) Significant credit risk associated

(i.e., assets acquired under a purchase with the securitized exposures has been
agreement or loans made under a lending transferred to third parties.
agreement) must not be subordinated to b) The transferor does not maintain
any interests of any note holder in the effective or indirect control over the
program or subject to deferral or waiver. transferred exposures. The assets are
10. Eligible servicer cash advance legally isolated from the transferor in such
facilities – cash advance that may be a way (e.g., through the sale of assets or
provided by servicers to ensure an through subparticipation) that the
uninterrupted flow of payments to exposures are put beyond the reach of the
investors. The servicer should be entitled transferor and its creditors, even in
to full reimbursement and this right is bankruptcy or receivership. These
senior to other claims on cash flows from conditions must be supported by an opinion
the underlying pool of exposures. provided by a qualified legal counsel.
11. Excess spread – generally defined The transferor is deemed to have
as gross finance charge collections and maintained effective control over the
other income received by the trust or transferred credit risk exposures if it:
special purpose entity (SPE, specified in i. is able to repurchase from the
paragraph 13) minus certificate interest, transferee the previously transferred
servicing fees, charge-offs, and other exposures in order to realize their benefits; or
senior trust or SPE expenses. ii. is obligated to retain the risk of the
12. Implicit support – arises when a bank transferred exposures.
provides support to a securitization in excess The transferor’s retention of servicing
of its predetermined contractual obligation. rights to the exposures will not necessarily
13. Special purpose entity – a constitute indirect control of the exposures.
corporation, trust, or other entity c) The securities issued are not
organized for a specific purpose, the obligations of the transferor. Thus, investors
activities of which are limited to those who purchase the securities only have
appropriate to accomplish the purpose of claim to the underlying pool of exposures.
the SPE, and the structure of which is d) The transferee is an SPE and the
intended to isolate the SPE from the credit holders of the beneficial interests in that
risk of an originator or seller of exposures. entity have the right to pledge or exchange
SPEs are commonly used as financing them without restriction.
vehicles in which exposures are sold to a e) Clean-up calls must satisfy the
trust or similar entity in exchange for cash conditions set out in paragraph 17.
or other assets funded by debt issued by f) The securitization does not contain
the trust. clauses that (i) require the originating bank
to alter systematically the underlying
B. Operational requirements for the exposures such that the pool’s weighted
recognition of risk transference in average credit quality is improved unless
traditional securitizations this is achieved by selling assets to
14. An originating bank may exclude independent and unaffiliated third parties
securitized exposures from the calculation at market prices; (ii) allow for increases in
of risk-weighted assets only if all of the a retained first loss position or credit
following conditions have been met. enhancement provided by the originating
Banks meeting these conditions, however, bank after the transaction’s inception; or
must still hold regulatory capital against (iii) increase the yield payable to parties other
any securitization exposures they retain. than the originating bank, such as investors

APP. 63b
08.12.31
and third-party providers of credit iv. Clauses that increase the yield
enhancements, in response to a deterioration payable to parties other than the originating
in the credit quality of the underlying pool. bank, such as investors and third-party
providers of credit enhancements, in
C. Operational requirements for the response to a deterioration in the credit
recognition of risk transference in synthetic quality of the reference pool; and
securitizations v. Clauses that provide for increases
15. For synthetic securitizations, the in a retained first loss position or credit
use of CRM techniques (i.e., collateral, enhancement provided by the originating
guarantees and credit derivatives) for bank after the transaction’s inception.
hedging the underlying exposure may be f) An opinion must be obtained from
recognized for risk-based capital purposes a qualified legal counsel that confirms the
only if the conditions outlined below are enforceability of the contracts in all relevant
satisfied: jurisdictions.
a) Credit risk mitigants must comply g) Clean-up calls must satisfy the
with the requirements as set out in Part III.B conditions set out in paragraph 17.
and Part IV of this Framework. 16. For synthetic securitizations, the
b) Eligible collateral is limited to that effect of applying CRM techniques for
specified in paragraph 34, Part III.B. Eligible hedging the underlying exposure are
collateral pledged by SPEs may be treated according to Part III.B and Part IV
recognized. of this Framework. In case there is a
c) Eligible guarantors are defined in maturity mismatch, the capital requirement
paragraph 47, Part III.B. SPEs are not will be determined in accordance with
recognized as eligible guarantors in the paragraphs 50 to 54, Part III.B. When the
securitization framework. exposures in the underlying pool have
d) Banks must transfer significant credit different maturities, the longest maturity
risk associated with the underlying exposure must be taken as the maturity of the pool.
to third parties. Maturity mismatches may arise in the
e) The instruments used to transfer context of synthetic securitizations when,
credit risk must not contain terms or for example, a bank uses credit derivatives
conditions that limit the amount of credit risk to transfer part or all of the credit risk of a
transferred, such as those provided below: specific pool of assets to third parties. When
i. Clauses that materially limit the the credit derivatives unwind, the
credit protection or credit risk transference transaction will terminate. This implies that
(e.g., significant materiality thresholds below the effective maturity of the tranches of the
which credit protection is deemed not to synthetic securitization may differ from that
be triggered even if a credit event occurs or of the underlying exposures. Originating
those that allow for the termination of the banks of synthetic securitizations with such
protection due to deterioration in the credit maturity mismatches must deduct all
quality of the underlying exposures); retained positions that are unrated or rated
ii. Clauses that require the originating below investment grade. Accordingly,
bank to alter the underlying exposures to when deduction is required, maturity
improve the pool’s weighted average mismatches are not taken into account. For
credit quality; all other securitization exposures, the bank
iii. Clauses that increase the banks’ must apply the maturity mismatch
cost of credit protection in response to treatment set forth in paragraphs 50 to 54,
deterioration in the pool’s quality; Part III.B.

APP. 63b
08.12.31
D. Operational requirements and E. Operational requirements for use of

treatment of clean-up calls external credit assessments
17. For securitization transactions that 20. The following operational criteria
include a clean-up call, no capital will be concerning the use of external credit
required due to the presence of a clean-up assessments apply in the securitization
call if the following conditions are met: framework:
(i) the exercise of the clean-up call must a) To be eligible for risk-weighting
not be mandatory, in form or in substance, purposes, the external credit assessment
but rather must be at the discretion of the must take into account and reflect the entire
originating bank; (ii) the clean-up call must amount of credit risk exposure the bank
not be structured to avoid allocating losses has with regard to all payments owed to it.
to credit enhancements or positions held For example, if a bank is owed both
by investors or otherwise structured to principal and interest, the assessment must
provide credit enhancement; and (iii) the fully take into account and reflect the credit
clean-up call must only be exercisable risk associated with timely repayment of
when ten percent (10%) or less of the both principal and interest.
original underlying portfolio, or securities b) The external credit assessments
issued remain, or, for synthetic must be from an eligible ECAI as
securitizations, when ten percent (10%) or recognized by the bank’s national
less of the original reference portfolio supervisor in accordance with Part III.C. An
value remains. eligible credit assessment must be publicly
18. Securitization transactions that available. In other words, a rating must be
include a clean-up call that does not meet published in an accessible form and
all of the criteria stated in paragraph 17 included in the ECAI’s transition matrix.
result in a capital requirement for the Consequently, ratings that are made
originating bank. For a traditional available only to the parties to a transaction
securitization, the underlying exposures do not satisfy this requirement.
must be treated as if they were not c) Eligible ECAIs must have a
securitized. Additionally, banks must not demonstrated expertise in assessing
recognize in regulatory capital any gain- securitizations, which may be evidenced
on-sale, as defined in paragraph 23. For by strong market acceptance.
synthetic securitization, the bank d) A bank must apply external credit
purchasing protection must hold capital assessments from eligible ECAIs consistently
against the entire amount of the securitized across a given type of securitization
exposures as if they did not benefit from exposure. Furthermore, a bank cannot use
any credit protection. Same treatment the credit assessments issued by one ECAI
applies for synthetic securitization that for one or more tranches and those of
incorporates a call, other than a clean-up another ECAI for other positions (whether
call, that effectively terminates the retained or purchased) within the same
transaction and the purchased credit securitization structure that may or may not
protection on a specified date. be rated by the first ECAI. Where two or
19. If a clean-up call, when exercised, more eligible ECAIs can be used and these
is found to serve as a credit enhancement, assess the credit risk of the same
the exercise of the clean-up call must be securitization exposure differently,
considered a form of implicit support paragraph 59 of Part III.C will apply.
provided by the bank and must be treated e) Where CRM is provided directly to
in accordance with paragraph 26. an SPE by an eligible guarantor defined in

APP. 63b
08.12.31
paragraph 47 of Part III.B and is reflected gain-on-sale that is recognized in

in the external credit assessment assigned regulatory capital. Such an increase in
to a securitization exposure(s), the risk capital is referred to as a “gain-on-sale”
weight associated with that external credit for the purposes of the securitization
assessment should be used. In order to framework.
avoid any double counting, no additional 24. Credit enhancing IOs (interest
capital recognition is permitted. If the CRM only), net of the amount that must be
provider is not an eligible guarantor, the deducted from Tier 1 as in paragraph 23,
covered securitization exposures should are to be deducted fifty percent (50%) from
be treated as unrated. Tier 1 capital and fifty percent (50%) from
f) In the situation where a credit risk Tier 2 capital.
mitigant is not obtained by the SPE but rather 25. Deductions from capital may be
applied to a specific securitization exposure calculated net of any specific provisions
within a given structure (e.g., ABS tranche), taken against the relevant securitization
the bank must treat the exposure as if it is exposures.
unrated and then use the CRM treatment 26. When a bank provides implicit
outlined in Part III.B to recognize the hedge. support to a securitization, it must, at a
minimum, hold capital against all of the
F. Risk-weighting exposures associated with the
21. The risk-weighted asset amount of securitization transaction as if they had not
a securitization exposure is computed by been securitized. Additionally, banks
multiplying the amount of the position by would not be permitted to recognize in
the appropriate risk weight determined in regulatory capital any gain-on-sale, as
accordance with the following table. For defined in paragraph 23. Furthermore, the
off-balance sheet exposures, banks must bank is required to disclose publicly that
apply a credit conversion factor (CCF) and (a) it has provided non-contractual support
then risk weight the resultant credit and (b) the capital impact of doing so.
equivalent amount. 27. As a general rule, off-balance
sheet securitization exposures will
Credit AAA to A+ to A- BBB+to Below BBB- receive a CCF of 100%, except in the
assessment1 AA- BBB- and unrated
cases below.
Risk weight 20% 50% 100% Deduction 28. A CCF of twenty percent (20%)
from capital and fifty percent (50%) will be applied to
(50% from Tier
1 and 50% eligible liquidity facilities as defined in
from Tier 2) paragraph 9 above with original maturity
of one year or less and more than one
22. The capital treatment of implicit year, respectively. However, if an
support, liquidity facilities, securitizations external rating of the facility itself is used
of revolving exposures, and credit risk for risk weighting the facility, a 100% CCF
mitigants are identified separately. must be applied. A zero percent (0%) CCF
23. Banks must deduct from Tier 1 may be applied to eligible liquidity
capital any increase in equity capital facilities that are only available in the
resulting from a securitization transaction, event of a general market disruption (i.e.,
such as that associated with expected whereupon more than one SPE across
future margin income resulting in a different transactions are unable to roll
1
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external

APP. 63b
08.12.31
over maturing commercial paper, and that mimic term structures (i.e., where the risk
inability is not the result of an impairment of the underlying facilities does not return
in the SPE’s credit quality or in the credit to the originating bank);
quality of the underlying exposures). To c) Structures where a bank securitizes
qualify for this treatment, the conditions one or more credit line(s) and where
provided in paragraph 9 must be satisfied. investors remain fully exposed to future
Additionally, the funds advanced by the draws by borrowers even after an early
bank to pay holders of the capital market amortization event has occurred; and
instruments (e.g., commercial paper) when d) The early amortization clause is
there is a general market disruption must solely triggered by events not related to the
be secured by the underlying assets, and performance of the securitized assets or the
must rank at least pari passu with the selling bank, such as material changes in
claims of holders of the capital market tax laws or regulations.
instruments. 32. As described below, the CCFs
29. A CCF of zero percent (0%) will depend upon whether the early
be applied to undrawn amount of eligible amortization repays investors through a
servicer cash advance facilities, as defined controlled or non-controlled mechanism.
in paragraph 10 above, that are They also differ according to whether the
unconditionally cancellable without prior securitized exposures are uncommitted
notice. retail credit lines (e.g., credit card
30. An originating bank is required to receivables) or other credit lines (e.g.,
hold capital against the investors’ interest revolving corporate facilities). A line is
(i.e., against both the drawn and undrawn considered uncommitted if it is
balances related to the securitized unconditionally cancelable without prior
exposures) when: notice.
a) It sells exposures into a structure that 33. For uncommitted retail credit lines
contains an early amortization feature; and (e.g., credit card receivables) that have either
b) The exposures sold are of a controlled or non-controlled early
revolving nature. These involve exposures amortization features, banks must compare
where the borrower is permitted to vary the three-month average excess spread
the drawn amount and repayments within defined in paragraph 11 to the point at
an agreed limit under a line of credit (e.g., which the bank is required to trap excess
credit card receivables and corporate loan spread as economically required by the
commitments). structure (i.e., excess spread trapping point).
31. Originating banks, though, are not In cases where such a transaction does not
required to calculate a capital requirement require excess spread to be trapped, the
for early amortizations in the following trapping point is deemed to be 4.5
situations: percentage points.
a) Replenishment structures where 34. The bank must divide the excess
the underlying exposures do not revolve spread level by the transaction’s excess
and the early amortization ends the ability spread trapping point to determine the
of the bank to add new exposures; appropriate segments and apply the
b) Transactions of revolving assets corresponding conversion factors, as
containing early amortization features that outlined in the following tables:

APP. 63b
08.12.31
Controlled Non-controlled
3-month average Credit conversion 3-month average Credit conversion
excess spread- factor (CCF) excess spread- factor (CCF)
credit conversion credit conversion
factor (CCF) factor (CCF)
Uncommitted Committed Uncommitted Committed
Retail credit lines 133.33% of 90% CCF 133.33% of 100% CCF

trapping point or trapping point or
more – 0% CCF more – 0% CCF
less than 133.33% less than 133.33%

to 100% of trapping to 100% of trapping
point – 1% CCF point – 5% CCF
less than 100% to less than 100% to

75% of trapping 75% of trapping
point – 2% CCF point – 15% CCF
less than 75% to less than 75% to

50% of trapping 50% of trapping
point - 10% CCF point - 50% CCF
less than 50% to less than 50% of

25% of trapping trapping point -
point - 20% CCF 100% CCF
less than 25% of

trapping point -
40%
Non-retail 90% CCF 90% CCF 100% CCF 100%CCF

credit lines
35.All other securitized revolving 37. For a bank subject to the early
exposures with controlled and non- amortization treatment, the total capital
controlled early amortization features will charge for all of its positions will be subject
be subject to CCFs of ninety percent (90%) to a maximum capital requirement (i.e., a ‘cap’)
and 100%, respectively, against the off- equal to the greater of (i) that required for
balance sheet exposures. retained securitization exposures, or (ii) the
36. The CCF will be applied to the capital requirement that would apply had the
amount of the investors’ interest. The exposures not been securitized. In addition,
resultant credit equivalent amount shall banks must deduct the entire amount of any
then be applied a risk weight applicable gain-on-sale and credit enhancing IOs arising
to the underlying exposure type, as if the from the securitization transaction in
exposures had not been securitized. accordance with paragraphs 23 and 25.

APP. 63b
08.12.31
G. Credit risk mitigation securitizations which will be determined

38. The treatment below applies to a in accordance with paragraph 16.
bank that has obtained or given a credit
risk mitigant on a securitization exposure. Part VI. Market risk-weighted assets
Credit risk mitigants include collateral,
guarantees, and credit derivatives. 1. Market risk is defined as the risk of
Collateral in this context refers to that used losses in on- and off-balance sheet positions
to hedge the credit risk of a securitization arising from movements in market prices.
exposure rather than the underlying The risks addressed in these guidelines are:
exposures of the securitization transaction. a) The risks pertaining to interest rate-
related instruments and equities in the
Collateral trading book; and
39. Eligible collateral is limited to that b) Foreign exchange risk throughout
recognized in paragraph 34, Part III.B. the bank.
Collateral pledged by SPEs may be
recognized. A. Definition of the trading book
2. A trading book consists of positions
Guarantees and credit derivatives in financial instruments held either with
40. Credit protection provided by the trading intent or in order to hedge other
entities listed in paragraph 47, Part III.B may elements of the trading book. To be eligible
be recognized. SPEs cannot be recognized for trading book capital treatment, financial
as eligible guarantors. instruments must either be free of any
41. Where guarantees or credit restrictive covenants on their tradability or
derivatives fulfill the minimum operational able to be hedged completely. In addition,
requirements as specified in Part III.B and positions should be frequently and
Part IV, respectively, banks can take account accurately valued, and the portfolio should
of such credit protection in calculating capital be actively managed.
requirements for securitization exposures. 3. A financial instrument is any
42. Capital requirements for the contract that gives rise to both a financial
collateralized or guaranteed/protected asset of one entity and a financial liability
portion will be calculated according to Part or equity instrument of another entity.
III.B and Part IV. Financial instruments include both primary
43. A bank other than the originator financial instruments (or cash instruments)
providing credit protection to a securitization and derivative financial instruments. A
exposure must calculate a capital requirement financial asset is any asset that is cash, the
on the covered exposure as if it were an right to receive cash or another financial
investor in that securitization. A bank asset; or the contractual right to exchange
providing protection to an unrated credit financial assets on potentially favorable
enhancement must treat the credit terms, or an equity instrument. A financial
protection provided as if it were directly liability is the contractual obligation to
holding the unrated credit enhancement. deliver cash or another financial asset or
to exchange financial liabilities under
Maturity mismatches conditions that are potentially unfavorable.
44. For the purpose of setting 4. Positions held with trading intent
regulatory capital against a maturity are those held intentionally for short-term
mismatch, the capital requirement will be resale and/or with the intent of benefiting
determined in accordance with paragraphs from actual or expected short-term price
50 to 54, Part III.B, except for synthetic movements or to lock in arbitrage profits,

APP. 63b
08.12.31
and may include for example proprietary positions or the portfolio risk profiles). This
positions, positions arising from client would include assessing the quality and
servicing (e.g. matched principal brokering) availability of market inputs to the valuation
and market making. process, level of market turnover, sizes of
5. The following will be the basic positions traded in the market, etc.
requirements for positions eligible to receive c) Clearly defined policy and
trading book capital treatment: procedures to monitor the positions against
a) Clearly documented trading the bank’s trading strategy including the
strategy for the position/instrument or monitoring of turnover and stale positions
portfolios, approved by senior in the bank’s trading book.
management (which would include 6. The documentations of the basic
expected holding horizon); requirements of paragraph 5 should be
b) Clearly defined policies and submitted to the BSP.
procedures for the active management of the 7. In addition to the above
position, which must include: documentation requirements, the bank
i. positions are managed on a trading should also submit to the BSP a
desk; documentation of its systems and controls
ii. position limits are set and monitored for the prudent valuation of positions in the
for appropriateness; trading book including the valuation
iii. dealers have the autonomy to enter methodologies.
into/manage the position within agreed
limits and according to the agreed strategy; B. Measurement of capital charge
iv. positions are marked to market at 8. The market risk capital charge shall
least daily, and when marking to model the be computed according to the
parameters must be assessed on a daily basis; methodology set under Subsec. 1116.5,
v. positions are reported to senior subject to certain modifications as outlined
management as an integral part of the in the succeeding paragraphs.
institution’s risk management process; and 9. The specific risk weights for trading
vi. positions are actively monitored book positions in debt securities and debt
with reference to market information derivatives shall depend on the third party
sources (assessment should be made of the credit assessment of the issue or the type of
market liquidity or the ability to hedge issuer, as may be appropriate, as follows:
Credit ratings of debt Credit ratings of debt Credit ratings of debt Unadjusted
securities/derivatives securities/derivatives securities/derivatives specific
1
issued by sovereigns issued by MDBs issued by other entities risk weight
Php-denominated debt securities/derivatives issued by the Philippine NG and BSP 0.00%
LGU Bonds covered by Deed of Assignment of Internal Revenue Allotment and guaranteed
by LGU Guarantee Corporation 4.00%
AAA to AA- AAA 0.00%
A+ to BBB- AA+ to BBB- AAA to BBB-
Residual maturity < Residual maturity < Residual maturity < 0.25%
6 months 6 months 6 months
Residual maturity > Residual maturity > Residual maturity >
6 months, < 24 months 6 months, < 24 months 6 months, < 24 months 1.00%
Residual maturity > Residual maturity > Residual maturity >
24 months 24 months 24 months 1.60%
All other debt securities/
derivatives 8.00%
1
The notations follow the rating symbols used by Standard & Poor’s. The mapping of ratings of all recognized external
rating agencies is in Part III.C. For purposes of this framework, debt securities/derivatives issued by sovereigns include
foreign currency denominated debt securities/derivatives issued by the Philippine NG.

APP. 63b
08.12.31
10. Foreign currency denominated the Management and Supervision of

debt securities/derivatives issued by the Operational Risk (February 2003). The
1
Philippine NG and BSP shall be same may be downloaded from the BIS
risk-weighted according to the table above: website (www.bis.org).
Provided, That only one-third (1/3) of the
applicable risk weight shall be applied B. Measurement of capital charge
from 01 July 2007, two-thirds (2/3) from 3. In computing for the operational
01 January 2008, and the full risk weight risk capital charge, banks may use either the
from 01 January 2009. basic indicator approach or the standardized
11. A security, which is the subject of approach.
a repo-style transaction, shall be treated as 4. Under the basic indicator approach,
if it were still owned by the seller/lender banks must hold capital for operational risk
of the security, i.e., to be reported by the equal to fifteen percent (15%) of the average
seller/lender. gross income over the previous three (3)
12. In addition to capital charge for years of positive annual gross income.
specific and general market risk, a credit Figures for any year in which annual gross
risk capital charge should be applied to income is negative or zero should be
banks’ counterparty exposures in repo-style excluded from both the numerator and
transactions and OTC derivatives contracts. denominator when calculating the average.
The computation of the credit risk capital 5. Banks that have the capability to
charge for counterparty exposures arising map their income accounts into the
from trading book positions are discussed in various business lines given in paragraph
paragraphs 35 to 41 of Part III.B. 7 may use the standardized approach
(As amended by Circular No. 605 dated 05 March 2008) subject to prior BSP approval2. In order to
qualify for use of the standardized
C. Measurement of risk-weighted assets approach, a bank must satisfy BSP that,
13. Market risk-weighted assets are at a minimum:
determined by multiplying the market risk a) Its board of directors and senior
capital charge by ten (10) [i.e., the management are actively involved in the
reciprocal of the minimum capital ratio of oversight of the operational risk
ten percent (10%)]. management framework;
b) It has an operational risk
Part VII. Operational risk-weighted management system that is conceptually
assets sound and is implemented with integrity; and
c) It has sufficient resources in the use
A. Definition of operational risk of the approach in the major business lines
1. Operational risk is defined as the as well as the control and audit areas.
risk of loss resulting from inadequate or 6. Operational risk capital charge is
failed internal processes, people and calculated as the three (3)-year average of
systems or from external events. This the simple summation of the regulatory
definition includes legal risk, but excludes capital charges across each of the business
strategic and reputational risk. lines in each year. In any given year,
2. Banks should be guided by the negative capital charges (resulting from
Basel Committee on Banking Supervision’s negative gross income) in any business line
recommendations on Sound Practices for may offset positive capital charges in other
1
Warrants paired with ROP Global Bonds shall be exempted from capital charge for market risk only to the extent of bank’s
holdings of bonds paired with warrants equivalent to not more than fifty percent (50%) of total qualifying capital, as defined
under Part II of this Appendix.
2
Refer to Appendix 63b-2 for the Guidelines on the Use of the Standardized Approach in Computing the Capital Charge
for Operational Risk

APP. 63b
08.12.31
business lines without limit. However, be excluded from both the numerator and
where the aggregate capital charge across denominator.
all business lines within a given year is 7. The business lines and their
negative, then figures for that year shall corresponding beta factors are listed below:
Business lines Activity Groups Beta factors

Level 1 Level 2
Corporate Finance Mergers and acquisitions, underwriting, 18%
Corporate finance Municipal/Govern- privatization, securitization, research, debt
ment Finance (government, high yield), equity, syndications, IPO,
Advisory Services secondary private placements
Sales Fixed income, equity, foreign exchanges, 18%
Market Making commodities, credit, funding, own position securities,
Trading and Sales Proprietary lending and repos, brokerage, debt, prime brokerage
Positions
Treasury
Retail Banking Retail lending and deposits, banking services, trust 12%
and estates
Private Banking Private lending and deposits, banking services,
Retail Banking
trust and estates, investment advice
Card Services Merchant/commercial/corporate cards, private
labels and retail
Commercial Commercial Project finance, real estate, export finance, trade 15%
Banking Banking finance, factoring, leasing, lending, guarantees,
bills of exchange
Payment and External Clients Payments and collections, funds transfer, clearing 18%
Settlement and settlement
Custody Escrow, depository receipts, securities lending 15%
(customers) corporate actions
Agency Services
Corporate Agency Issuer and paying agents
Corporate Trust
Discretionary Fund Discretionary and non-discretionary fund 12%
Asset Management Management management, whether pooled, segregated, retail,
Non-Discretionary institutional, closed, open, private equity
Fund Management
Retail Brokerage Retail brokerage Execution and full service 12%
8. Gross income, for the purpose of f) include other income (i.e., rental
computing for operational risk capital income, miscellaneous income, etc.)
charge, is defined as net interest income plus (As amended by M-2007-019 dated 21 June 2007)
non-interest income. This measure should:
a) be gross of any provisions for losses C. Measurement of risk-weighted assets
on accrued interest income from financial 9. The resultant operational risk capital
assets; charge is to be multiplied by 125% before
b) be gross of operating expenses, multiplying by ten (10) [i.e., the reciprocal of
including fees paid to outsourcing service the minimum capital ratio of ten percent (10%)].
providers;
c) include fees and commissions; Part VIII. Disclosures in the Annual
d) exclude gains/(losses) from the Reports and Published Statement of
sale/redemption/derecognition of non- Condition
trading financial assets and liabilities;
e) exclude gains/(losses) from sale/ 1. This section lists the specific
derecognition of non-financial assets; and information that banks have to disclose, at

APP. 63b
08.12.31
a minimum, in their Annual Reports, c) The scope and nature of risk

except Item "h", paragraph 4 which should reporting and/or measurement systems;
also be disclosed in banks’ quarterly and
Published Statement of Condition. These d) Policies for hedging and/or
enhanced disclosures shall commence mitigating risk, and strategies and processes
with Annual Reports for financial year 2007 for monitoring the continuing effectiveness
and quarterly published statement of of hedges/mitigants.
condition from end-September 2007.
2. Full compliance of these disclosure Credit risk
requirements is a prerequisite before banks 5. Aside from the general disclosure
can obtain any capital relief (i.e., adjustments requirements stated in paragraph 4, the
in the risk weights of collateralized or following information with regard to credit
guaranteed exposures) in respect of any risk have to be disclosed in banks’ Annual
credit risk mitigation techniques. Reports:
a) Total credit risk exposures (i.e.,
A. Capital structure and capital adequacy principal amount for on-balance sheet and
3. The following information with credit equivalent amount for off-balance
regard to banks’ capital structure and capital sheet, net of specific provision) broken down
adequacy shall be disclosed in banks’ by type of exposures as defined in Part III;
Annual Reports, except Item "h" below b) Total credit risk exposure after risk
which should also be disclosed in banks’ mitigation, broken down by:
quarterly published statement of condition: i. type of exposures as defined in Part
a) Tier 1 capital and a breakdown of III; and
its components (including deductions solely ii. risk buckets, as well as those that
from Tier 1); are deducted from capital;
b) Tier 2 capital and a breakdown of c) Total credit risk-weighted assets
its components; broken down by type of exposures as
c) Deductions from Tier 1 fifty percent defined in Part III;
(50%) and Tier 2 fifty percent (50%) capital; d) Names of external credit assessment
d) Total qualifying capital; institutions used, and the types of exposures
e) Capital requirements for credit risk for which they were used;
(including securitization exposures); e) Types of eligible credit risk mitigants
f) Capital requirements for market risk; used including credit derivatives;
g) Capital requirements for f) For banks with exposures to
operational risk; and securitization structures, aside from the
h) Total and Tier 1 CAR on both solo general disclosure requirements stated in
and consolidated bases. paragraph 4, the following minimum
information have to be disclosed:
B. Risk exposures and assessments i. Accounting policies for these
4. For each separate risk area (credit, activities;
market, operational, interest rate risk in the ii. Total outstanding exposures
banking book), banks must describe their securitized by the bank; and
risk management objectives and policies, iii. Total amount of securitization
including: exposures retained or purchased broken
a) Strategies and processes; down by exposure type;
b) The structure and organization of g) For banks that provide credit
the relevant risk management function; protection through credit derivatives, aside

APP. 63b
08.12.31
from the general disclosure have to disclose their operational risk-

requirements stated in paragraph 4, weighted assets in their Annual Reports.
total outstanding amount of credit
protection given by the bank broken Interest rate risk in the banking book
down by type of reference exposures 8. Aside from the general disclosure
should also be disclosed; and requirements stated in paragraph 4, the
h) For banks with investments in following information with regard to
other types of structured products, aside interest rate risk in the banking book
from the general disclosure requirements have to be disclosed in banks’ Annual
stated in paragraph 4, total outstanding Reports:
amount of other types of structured a) Internal measurement of interest
products issued or purchased by the bank rate risk in the banking book, including
broken down by type should also be assumptions regarding loan
disclosed. prepayments and behavior of non-
maturity deposits, and frequency of
Market risk measurement; and
6. Aside from the general disclosure b) The increase (decline) in earnings
requirements stated in paragraph 4, the or economic value (or relevant measure
following information with regard to market used by management) for upward and
risk have to be disclosed in banks’ Annual downward rate shocks according to
Reports: internal measurement of interest rate risk
a) Total market risk-weighted assets in the banking book.
broken down by type of exposures (interest
rate, equity, foreign exchange, and options); Part IX. Enforcement
and
b) For banks using the internal models A. Sanctions for non-reporting of CAR
approach, the following information have breaches
to be disclosed: 1. It is the responsibility of the bank
i. The characteristics of the models CEO to cause the immediate reporting
used; of CAR breaches both to its Board and to
ii. A description of stress testing the BSP. It is likewise the CEO’s
applied to the portfolio; responsibility to ensure the accuracy of
iii. A description of the approach used CAR calculations and the integrity of the
for backtesting/validating the accuracy and associated monitoring and reporting
consistency of the internal models and system. Any willful violation of the above
modeling processes; will be considered as a serious offense
iv. The scope of acceptance by the for purposes of determining the
BSP; and appropriate monetary penalty that will be
v. A comparison of VaR estimates imposed on the CEO. In addition, the
with actual gains/losses experienced by CEO shall be subject to the following
the bank, with analysis of important outliers non-monetary sanctions:
in backtest results. a) First offense – warning;
b) Second offense – reprimand;
Operational risk c) Third offense – 1 month
7. Aside from the general disclosure suspension without pay; and
requirements stated in paragraph 4, banks d) Further offense – disqualification.

APP. 63b
08.12.31
B. Sanctions for non-compliance with a) First offense – warning on CEO and

required disclosures the Board;
2. Willful non-disclosure or b) Second offense – reprimand on CEO
erroneous disclosure of any item required and the Board;
to be disclosed under this framework in c) Third offense – 1 month suspension
either the Annual Report or the Published of CEO without pay; and
Statement of Condition shall be considered d) Further offense – possible
as a serious offense for purposes of disqualification of the CEO and/or the Board.
determining the appropriate monetary (Circular No. 538 dated 04 August 2006, as amended by
penalty that will be imposed on the bank. M-2008-015 dated 25 March 2008, Circular Nos. 605 dated 05
In addition, the CEO and the Board shall March 2008, 588 dated 11 December 2007, M-2007-019 dated
be subject to the following non-monetary 21 June 2007, Circular No. 560 dated 31 January 2007 and
sanctions: M-2006-022 dated 24 November 2006)

APP. 63b-1
07.12.31
GUIDELINES ON THE CAPITAL TREATMENT OF BANKS’ HOLDINGS

OF ROP GLOBAL BONDS PAIRED WITH WARRANTS
A bank’s holdings of ROP Global weighted at zero percent (0%): Provided,

Bonds that are paired with Warrants (paired That the zero percent (0%) risk weight shall
Bonds), which give the bank the option or be applied only to bank’s holdings of paired
right to exchange its holdings of ROP Bonds equivalent to not more than fifty
Global Bonds into Peso-denominated percent (50%) of the total qualifying capital,
government securities upon occurrence of as defined under Appendix 63-b.
a predetermined credit event, shall be risk (Circular 588 dated 11 December 2007)
Manual of Regulations for Banks Appendix 63b-1 - Page 1

APP. 63b-2
07.12.31
GUIDELINES ON THE USE OF THE STANDARDIZED APPROACH IN

COMPUTING THE CAPITAL CHARGE FOR OPERATIONAL RISKS
Banks applying for the use of the Mapping of Gross Income

Standardized Approach (TSA) must satisfy 5. Banks using TSA in computing
the following requirements/criteria: operational risk capital charge must
develop specific written policies and
General Criteria criteria for mapping gross income of their
1. The use of TSA shall be current business lines into the standard
conditional upon the explicit prior business lines prescribed under Appendix
approval of the BSP. 63b. They must also put in place a review
2. The BSP will only give approval to process to adjust these policies and criteria
an applicant bank if at a minimum: for new or changing business activities or
a. Its board of directors (or equivalent products as appropriate.
management committee in the case of 6. Banks must adopt the following
foreign bank branches) and senior principles for mapping their business
management are actively involved in the activities to the appropriate business lines:
oversight of the operational risk (a) Activities or products must be
management framework; mapped into only one (1) of the eight (8)
b. It has an operational risk standard business lines, as follows:
management system that is conceptually (1) Corporate finance- This includes
sound and is implemented with integrity; banking arrangements and facilities [e.g.,
and, mergers and acquisitions, underwriting,
c. It has sufficient resources in the use privatizations, securitization, research, debt
of the approach in the major business (government, high yield), equity,
lines as well as in the control and audit syndications, Initial Public Offering (IPO),
areas. secondary private placements] provided to
3. The above criteria should be large commercial enterprises, multinational
supported by a written documentation of companies, NBFIs, government
the board-approved operational risk departments, etc.
management framework of the bank which (2) Trading and sales- This includes
should cover the following: treasury operations, buying and selling of
a. Overall objectives and policies securities, currencies and others for
b. Strategies and processes proprietary and client account.
c. Operational risk management (3) Retail banking- This includes
structure and organization financing arrangements for private
d. Scope and nature of risk reporting/ individuals, retail clients and small
assessment systems businesses such as personal loans, credit
e. Policies and procedure for cards, auto loans, etc. as well as other
mitigating operational risk facilities such as trust and estates and
4. This operational risk management investment advice.
framework of the bank should be disclosed (4) Commercial banking- This
in its annual report, as provided under includes financing arrangements for
Appendix 63b. commercial enterprises,including project

APP. 63b-2
07.12.31
finance, real estate, export finance, trade (d) The process by which banks map
finance, factoring, leasing, guarantees, bills their business activities into the
of exchange, etc. standardized business lines must be
(5) Payment and settlement- This regularly reviewed by party independent
includes activities relating to payments and from that process.
collections, inter-bank funds transfer, 7. In computing the gross income of
clearing and settlement. the bank, the amounts of the income
(6) Agency services- This refers to accounts reported in the operational risk
activities of the banks acting as issuing and template2 must be equal to the year-end
paying agents for corporate clients, balance reported in the FRP. Any
providing custodial services, etc. discrepancy must be properly accounted
(7) Asset management- This includes and supported by a reconciliation statement
managing funds of clients on a pooled,
segregated, retail, institutional, open or Application Process for the Use of TSA
closed basis under a mandate. 8. Banks applying for the use of TSA
(8) Retail brokerage- This includes should submit the following documents to
brokering services provided to customers their respective Central Points of Contact
that are retail investors rather than (CPCs) of the BSP:
institutional investors. (a) An application letter signed by the
(a) Any activity or product which president/CEO (or equivalent management
cannot be readily mapped into one (1) of committee in the case of foreign bank
the standardized business lines but which branches) of the bank signifying its intention
is ancillary1 to a business line shall be to use TSA in computing the capital charge
allocated to the business line to which it is for operational risk;
ancillary. If the activity is ancillary to two (b) Written documentation of the Board-
(2) or more business lines, an objective approved operational risk management
criteria or qualification must be made to framework as described in paragraph 3.
allocate the annual gross income derived (c) Written policies and criteria for
from that activity to the relevant business mapping business activities and their
lines. corresponding gross income into the
(b) Any activity that cannot be mapped standard business lines as described in
into a particular business line and is not an paragraphs 5 to 7.
ancillary activity to a business line shall be (d) An overall roll-out plan of the bank
mapped into one (1) of the business lines including project plans and execution
with the highest associated beta factor processes, with the appropriate time lines.
eighteen percent (18%). Any ancillary
activity to that activity will follow the same Initial Monitoring Period
business line treatment. 9. The BSP may require a six (6)-month
(c) Banks may use internal pricing period of initial monitoring of a bank’s TSA
methods to allocate gross income before it is used for supervisory capital
between business lines: Provided, That the purposes.
sum of gross income for the eight (8)
business lines must still be equal to the gross Reversion from TSA to BIA
income as would be recorded if the bank uses 10. A bank which has been approved
the Basic Indicator Approach (BIA). to use TSA in computing its capital charge
1 Ancillary function is an activity/function that is not the main activity of a given business line but only as a
support activity
2 Part V of the revised CAR report template
Appendix 63b-2 - Page 2 Manual of Regulations for Banks

APP. 63b-2
07.12.31
for operational risk will not be allowed to the whole application process should it opt
revert to the simpler approach, i.e., the BIA. to return to the use of TSA, but only after a
However, if the BSP determines that the year of using the BIA.
bank no longer meets the qualifying criteria These guidelines shall take effect on 21
for TSA, it may require the bank to revert to July 2007.
BIA. The bank shall be required to repeat (M-2007-019 dated 21 June 2007)

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. 66a
08.12.31
GUIDELINES ON THE ACCOUNTING TREATMENT FOR INVESTMENTS IN

CREDIT-LINKED NOTES AND OTHER STRUCTURED PRODUCTS
(Appendix to Sec. 1389)
In line with the policy of promoting be booked as HFT) or to be designated at

fairness and accuracy in reporting financial fair value through profit or loss shall be
transactions, banks are enjoined to observe accounted for as bifurcated financial
the following guidelines on accounting for instruments.
investments in credit-linked notes (CLNs) Accounting for host contracts. When
and other structured products (SPs) in the embedded derivatives are bifurcated
addition to those prescribed under PAS 39: (separated) from the host contract, the
CLNs and other SPs are financial host contract shall be accounted for as
instruments which consist of the host follows:
contract (e.g., debt or equity contract) and 1. In the case of CLN, the host contract
one or more embedded derivatives. Said shall be booked under the “Available for
financial instruments may be accounted for Sale” (ASS) but not under the “Held to
as compound financial instruments or as Maturity” (HTM) nor under the “Unquoted
bifurcated financial instruments where the Debt Securities Classified as Loans”
embedded derivatives shall be separated (UDSCL) category in accordance with
from the host contracts. PAS 39 provides Circular No. 494.
the conditions on when the embedded 2. In the case of other SPs, the host
derivative may be bifurcated from the host contract shall be booked under the ASS,
contract. HTM or UDSCL category in accordance
with X388.5.
Booking of CLNs and other SPs as a Host contracts of investments in CLNs
compound instrument and Other SPs shall in no case be booked
1. CLNs may be booked under the under the “Due from Other Banks” or
“Held for Trading” (HFT) or “Designated “Interbank Loans Receivable” accounts.
at Fair Value through Profit or Loss” Accounting for embedded derivatives
(DFVPL) category according to intention The bifurcated embedded derivatives shall
as provided under Circular No. 494 dated be accounted for as “Derivatives Held for
20 September 2005. Trading” with fair value changes reflected
2. Other SPs, shall also be booked in profit or loss, except in cases where the
under the HFT or DFVPL category according bifurcated embedded derivatives are
to intention as provided in PAS 39. designated and effective hedging
In either case, the compound instruments, which shall be booked under
instrument (host contract and embedded the “Derivatives Held for Hedging”
derivatives) shall be carried at fair value account. The following shall be observed
with fair value changes reflected in profit for purposes of FRP reporting of bifurcated
or loss. embedded derivatives:
• The entire notional amount (or
Booking of CLNs and other SPs as leveraged notional amount in cases of
bifurcated financial instrument leveraged exposures) of the hybrid contract
Investment in CLNs and other SPs that and the corresponding positive/(negative)
are not intended to be traded (i.e., not to fair value of the embedded derivatives shall

APP. 66a
08.12.31
be reported in Schedule 4 (Derivatives Marking to market guidance

Held for Trading – Embedded Derivatives) In addition to the marking to market
of the FRP. guidelines provided under PAS 39, banks
• In the case of CLNs and Other SPs should likewise consider apart from the
that have more than one embedded carrying amount of the host contract the
derivatives (multiple embedded notional amount (or leveraged notional
derivatives) that are required to be amount in cases of leveraged exposures)
separated from the hybrid contract, the of embedded derivatives in marking to
entire notional amount (or leveraged market the hybrid financial instrument.
notional amount in cases of leveraged For this purpose, the term CLN shall
exposures) of the hybrid contract and the include similar instruments such as
corresponding positive/(negative) fair value credit linked deposits (CLDs) and credit
of the embedded derivatives shall be linked loans (CLLs) where the repayment
reported in Schedule 4 (Derivatives Held of the principal to the note holder is
for Trading – Embedded Derivatives) of the contingent upon the occurrence of a
FRP for each type of bifurcated derivatives. defined credit event. On the other hand,
Generally, multiple embedded other SPs (as defined under X602.15)
derivatives in a single instrument are shall refer to a financial instrument where
treated as a single compound embedded the total return is a function of one or
derivative. However, embedded more underlying indices, such as interest
derivatives that are classified as equity are rates, equities and exchange rates. It is
accounted for separately from those composed of a host contract (e.g., plain
classified as assets or liabilities. In addition, vanilla debt or equity securities) and an
if an instrument has more than one embedded derivative (e.g., swaps,
embedded derivatives and those forwards or options) that re-shape the
derivatives relate to different risk risk-return pattern of the hybrid
exposures and are readily separable and instrument. The term SP does not include
independent of each other, they are asset-backed securities.
accounted for separately from each other. (M-2008-010 dated 07 March 2008)

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.

APP. 68
07.12.31
IMPLEMENTATION OF THE DELIVERY BY THE SELLER OF SECURITIES TO THE

BUYER OR TO HIS DESIGNATED THIRD PARTY CUSTODIAN
(Appendix to Sec. X441 and Subsecs. X235.5 & X238.1)
Section 1. Statement of Policy. Pursuant in electronic or in printed form. It records

to the policy of the BSP to promote the the initial issuance of the securities and
protection of investors in order to gain their subsequent transfer of ownership and issues
confidence in the securities market as registry confirmation to the buyers/holders.
enunciated under Circular Nos. 392 and Except as otherwise provided in existing BSP
428 dated 23 July 2003 and 27 April 2004, regulations, a BSP-accredited securities
respectively, the following rules/ registry is considered a third party if it has
guidelines shall be observed by banks and no subsidiary or affiliate relationship with
NBFI under BSP supervision in their the issuer of securities.
dealings in securities whether they are
acting as seller, buyer, agent or custodian. Sec. 3. Registry of Scripless Securities
The disposition of compliance issues of the Bureau of Treasury. The Bureau
of this Appendix is shown in Appendix 68a. of Treasury, as operator of the RoSS, which
The guidelines on the delivery of serves as the official registry for
government securities by the selling bank government securities, is not subject to
to an investor’s Principal Securities BSP accreditation and is exempted from
Account with the RoSS through the Client the independence requirement under the
Interface System facility are in Appendix existing BSP regulations.
68b.
Sec. 4. Delivery of Securities. Pursuant to
Sec. 2. Distinction Between a Custodian existing BSP regulations, securities sold on
and a Registry. A securities custodian is a a without recourse basis shall be delivered
BSP-accredited bank or NBFI designated by the seller to the purchaser, or to his
by the investor to perform the functions of designated BSP-accredited custodian
safekeeping, holding title to the securities which must not be a subsidiary or affiliate
either in a nominee or trustee capacity, of the issuer or seller.
reports rendition, mark-to-market
valuation, administration of dividends or Sec. 5. Mode of Delivery. If the securities
interest earnings and representation of sold are certificated, delivery shall be
clients in corporate actions. It may also effected physically to the purchaser, or to
perform value added services such as his designated BSP-accredited custodian.
collecting and paying and securities The certificate must be transferred to and
borrowing and lending as agent. A BSP- registered under the name of the purchaser
accredited custodian is considered a third and properly recorded in the registry book.
party if it has no subsidiary or affiliate On the other hand, delivery of
relationship with the issuer or seller of immobilized or dematerialized securities
securities. shall be effected by means of book entry
On the other hand, a securities transfer to the appropriate securities
registry, other than the Bureau of Treasury, account of either: (1) the purchaser in a
is a BSP-accredited bank or NBFI registry of said securities; or (2) the
designated or appointed by the issuer to purchaser’s designated custodian in a
maintain the securities registry book either registry of said securities. Book-entry

APP. 68
07.12.31
transfer to a sub-account for clients under Sec. 8. Authority of the Securities Owner/
the primary account of the seller will not Purchaser to Revoke Special Power of
be deemed compliant with this Attorney (SPA). Whenever a securities
requirement. The delivery must be owner/purchaser executes an SPA
supported by a confirmation of book-entry designating/appointing an agent to open and
transfer to be issued by the securities maintain a custodianship account with a
registry in case of name on registry or by a BSP-accredited third party custodian
confirmation receipt to be issued by the pursuant to Sec. 6 above, said SPA shall
custodian in case of delivery to the clearly stipulate that the appointment of the
purchaser’s designated custodian. agent is revocable at the instance of the
securities owner/purchaser or his agent.
Sec. 6. Client Information. Selling or Any revocation by either party shall be
dealing banks shall inform their clients of made in writing and must be given to the
the requirements under Secs. 3 and 4 other party and to the custodian. The
above, together with the complete list of custodian is hereby enjoined to
all BSP-accredited custodians. The selling acknowledge and respect said right of the
or dealing bank or NBFI must inform their client. It is, however, understood that the
clients that the choice of custodian is the revocation of the SPA shall be without
sole prerogative of the securities purchaser. prejudice to any transaction executed by
The seller or dealer may, however, indicate the agent or custodian prior to said party’s
to their clients their preferred custodian. knowledge of the revocation. Upon
Attached as Annex “A” is a suggested revocation of the SPA, the custodian shall
template of the letter to the client. deal directly with the securities owner or
his newly appointed agent. However, the
Sec. 7. Custodianship Agreement. The custodian has the right to impose additional
securities owner/purchaser shall enter into reasonable conditions similar to those
a custodianship agreement with a BSP- being imposed on separate custody
accredited third-party custodian of his accounts maintained directly by individual
choice. However, the securities or corporate clients.
purchasers/owners may designate/appoint
through a special power of attorney (SPA) Sec. 9. Reports of the
a representative or agent for the purpose Custodian. Periodic reports of the
of opening and maintaining an account custodian on account balances shall be
with the BSP-accredited third-party rendered at least quarterly and shall reflect
custodian: Provided, That if the securities the mark-to-market valuation of the security
seller or dealer is appointed as an agent, in accordance with existing BSP
its authority shall be limited to the opening regulations. It shall be delivered, mailed
of the custodianship account and the or electronically transmitted directly to the
execution of trade transactions (i.e. buying securities owner unless the securities
and selling instructions including relaying owner gives a written request or instruction
of instructions to the custodian to receive directly to the custodian to deliver said
or deliver securities in order to reports to a person/entity named therein.
consummate the buy/sell transactions). It Said request/instruction of the securities
shall be the responsibility of the custodian owner shall indicate that he is appointing
to protect the interest of the client by an agent/ representative for the purpose,
ensuring that the agent is acting within the notwithstanding contrary advice of the
scope of his authority. BSP.

APP. 68
07.12.31
Aside from the periodic reports, the Sec. 12. Compliance with the Anti-Money
custodian shall also issue confirmation of Laundering Act of 2001. For purposes of
transfers of ownership as they occur in compliance with the requirements of R.A.
either electronic or printed form No. 9160, otherwise known as the “Anti-
delivered directly to the securities Money Laundering Act of 2001”, as
owner, unless the securities owner amended, particularly the provisions
gives a written request or instruction regarding customer identification,
directly to the custodian to deliver the recordkeeping and reporting of suspicious
confirmation reports to a person/entity transactions, a BSP-accredited custodian
named therein. may rely on referral by the seller/issuer of
securities, in lieu of the face-to-face contact
Sec. 10. Right of the Securities Owner with client, subject to the following
to Sell his Securities. Subject to the conditions:
requirements of existing laws and a. the seller/issuer is also a covered
regulations, securities owners shall have institution;
the right to choose the best buyers of his b. the seller/issuer certifies to the
securities in the secondary market, custodian that it has performed its own KYC
without limiting himself to the original screening on the client;
selling or dealing bank that he transacted c. the custodian has unchallenged
with. The securities seller or dealer shall access to the KYC records/documents of
not impose any condition that will impair the referring seller/issuer pertaining to the
this right of the securities owner or leave referral client;
him no alternative except to sell his d. the custodian maintains a record of
securities exclusively to the selling or the referral together with the minimum
dealing bank. information/documents required under the
law and its implementing rules and
Sec. 11. Undelivered Securities. In regulations; and
cases where banks or NBFIs under BSP e. the seller/issuer must provide the
supervision maintain custody of securities custodian with the following minimum
which were sold prior to the effectivity of information/documents:
Circular No. 457 dated 14 October 2004 For individual clients:
to clients who are unable or unwilling to 1. Name;
take delivery of said securities pursuant 2. Present address;
to the provisions of Circular No. 392 dated 3. Permanent address;
23 July 2003 but who declined to deliver 4. Date and place of birth;
their existing securities to a BSP- 5. Nationality;
accredited third party custodian, said 6. Nature of work and name of employer
banks/FIs shall: or nature of self-employment/business;
a. report on a quarterly basis to the 7. Contact numbers;
appropriate department of the SES the 8. Tax identification number, SSS
volume of said securities broken down number or GSIS number;
into maturity dates, type of security, ISIN 9. Specimen signature; and
or applicable certificate or reference 10. Source of fund(s);
number, and registry; and
b. ensure that said securities under For corporate clients:
custody are segregated from their 1. Articles of Incorporation/
proprietary holdings. Partnership;

APP. 68
07.12.31
2. By-laws; customer identification documents

3. Official address or principal supporting its KYC certification: Provided,
business address; That:
4. List of directors/partners; a. The BSP accredited custodian has
5. List of principal stockholders received a certification from the seller/
owning at least two percent (2%) of the dealer that it has in its possession all
capital stock; required KYC documents and the custodian
6. Contact numbers; shall maintain a list of such documents;
7. Beneficial owners, if any; b. The accredited custodian shall
8. Authorized signatories; have unhampered access to the KYC
9. Board/Partnership Resolution on documents for its own verification; and
the authority of the signatories; and c. KYC or customer identification
10. Verification of the identification and documents shall be made available to
authority of the person purporting to act on regulators for verification upon request.
behalf of the client. Notwithstanding Secs. 12 and 13, the
custodian is not precluded from
Sec. 13. Safekeeping of Customers’ conducting its own KYC activities and
Identification Documents. The BSP maintaining direct custody of the KYC
accredited third-party custodian may documents of its clients.
entrust to the referring seller/dealer the (Circular No. 524 dated 31 March 2006 and as amended by
safekeeping and maintenance of the M-2007-002 dated 23 January 2007)

APP. 68
07.12.31
Annex A
TEMPLATE OF LETTER TO INVESTOR
Dear Investor:
We wish to inform you that the Bangko Sentral ng Pilipinas (BSP), in July of 2003
issued Circular No. 392, Series of 2003, which requires all securities sold by banks on a
“without recourse basis” (i.e. the bank has no liability to the buyer of securities in paying
the obligation due on the security) to be delivered to the buyer/purchaser of securities
through any of the following means:
(a) If the security is evidenced by a certificate of indebtedness, the certificate

must be transferred in the name of the purchaser/buyer and physically delivered
to the purchaser/buyer or to his designated BSP-accredited third party custodian.
(b) If the security is immobilized or dematerialized (i.e., that the security is not
evidenced by a certificate of indebtedness and instead security account is
created in the electronic books of the registry in the name of the purchaser/
buyer or his designated custodian):
i. The security must be delivered by book-entry transfer to the appropriate

securities account of the buyer in the registry of said securities which must
be evidenced by a confirmation in writing by the registrar to the buyer.
The confirmation of sale or document of conveyance shall be physically
delivered by the seller or dealer to the buyer, or
ii. The security must be delivered by book-entry transfer to the appropriate

securities account of the BSP-accredited third party custodian designated
by the buyer/purchaser in the registry of said securities which must be
evidenced by a confirmation in writing by the registrar to the said BSP-
accredited third party custodian, who shall in turn issue to the securities
owner a delivery receipt acknowledging receipt of the securities
Circular No. 392 is part of a package of reforms to support the development of the
domestic capital market through enhanced investor protection and greater market
transparency. It provides for a more defined role and responsibilities for the custodians and
registrars and a stricter supervision and regulation thereof by the BSP. It aims to provide the
client with the following benefits:
a. Full control and possession of the securities purchased;

b. Independent validation of the existence of securities purchased;
c. Regular reporting of securities holdings; and
d. Capability to choose most competitive counter-parties in case of sale, pledge,
transfer, and lending of securities.

APP. 68
07.12.31
Moreover, Circular No. 392, which amends CBP Circular 437-74, seeks to address
the changes in the legal framework brought by the developments in the market, i.e., where
purchase of securities may be evidenced not only by transfer of certificates but also by
electronic book-entry transfer of ownership in the books of the registrar for said security.
As an investor, therefore, of securities which is dematerialized or scripless, you

have the option to require your dealer/broker to deliver the securities to you by requiring
them to have the securities registered directly in your name in the registry of said securities
or by requiring them to have the securities registered in the name of the BSP accredited
third party custodian of your choice who in turn will credit your securities account with
them.
The registry is a BSP-accredited bank or non-bank financial institution (NBFI) designated

or appointed by the Issuer to (1) maintain the securities registry book; (2) record the (a) issuance
of the securities and (b) subsequent transfers of ownership thereof; and (3) issue registry
confirmation to the buyers/holders of security.
The custodian, on the other hand, is a BSP-accredited bank or NBFI designated by

the investor to safekeep the security by allowing it to hold title to the security, either in a
nominee or trustee capacity, to enable it to perform the following administrative functions/
services related to investing in a security or various securities: i) Mark to market valuation
of security that will enable the client to know the value of his investment at any period in
time; ii) compute and collect the interest due on the security; iii) render statements on
outstanding securities under safekeeping; iv) represents the client (per its instruction) in the
events of default or breach of contract of the issuer; and v) lend the security of the clients as
“agent” that will enable the client to earn additional income on the security.
The registrars and custodians underwent a rigorous evaluation process by the BSP
to determine whether they have the following: i) adequate capital to cover for potential
operating risks related to performing its custody functions; ii) competent management team
to manage the company with responsibility and proper corporate ethics; iii) robust
technology system to operate the custody business efficiently; and iv) favorable track record
or significant experience in the custody business or related business. They will also undergo
regular audit by the BSP to ensure that they comply with BSP rules and regulations and will
be subject to penalties and administrative sanctions for any violation thereof.
As of date, BSP has accredited the following registrars and custodians: Bank of the
Philippine Islands, CITIBANK N.A., Deutsche Bank, Hongkong and Shanghai Banking
Corporation, Philippine Depository and Trust Corporation, and Standard Chartered Bank.
The Registry of Scripless Securities (RoSS) operated by the Bureau of Treasury (BTR)
which is acting as a registry for government securities, is automatically accredited as securities
registry. However, the BTR, as registry, cannot act as custodian of government securities
pursuant to the opinion of the Secretary of Justice rendered on 17 January 2005 due to
irreconcilable conflict of loyalties that is anathema to agency if the same institution were to
act as registrar and custodian at the same time.

APP. 68
07.12.31
The custodian shall render periodic reports on your account balances on a quarterly
basis, or at such interval as you may require. Moreover, the custodian shall issue to you a
confirmation of any transfer of ownership as it occurs, in either electronic or printed forms.
Said reports shall be delivered/mailed directly at your address unless you give a written
instruction directly to the custodian to deliver the said reports to your designated person/
entity. You are, however, required to acknowledge in the written instruction that you are
designating another person/entity to receive the periodic reports from the custodian,
notwithstanding contrary advice of the BSP.
Please note that the abovementioned arrangements may change once the BSP issues
more detailed implementing rules and guidelines to the abovementioned circulars. We will
update you if and when these developments occur.
Please fill up and sign the required documentation of your chosen custodian and
we will forward the same to them so that your securities account can be opened as soon as
possible. You may, however, designate/appoint an agent for this purpose. In either case,
the custody arrangement may or may not entail additional fees.
If you have any further questions, please call us so that we can refer the matter to
the appropriate custodian/registrar.
Very truly yours,
(Circular No. 524 dated 31 March 2006 and as amended by M-2007-002 dated 23 January 2007)

APP. 68a
06.12.31
DISPOSITION OF COMPLIANCE ISSUES ON APPENDIX 68

(Appendix to Sec. X441 and Subsecs. X235.5 & X238.1)
A. The Monetary Board, in its Resolution dealing banks that notifications on the
No. 581 dated 5 May 2006 approved a thirty limitation of the dealing bank’s authority,
(30) calendar day period from 05 June 2006 together with a compliant SPA for the clients’
within which banks/non-banks will effect signature, have been sent to all their clients.
revisions to non-conforming SPAs issued by Absent confirmation from the dealing bank
investor-clients to strictly conform to the limited of the sending of notices and the revised
authority provisions of Section 7 of Appendix SPA, the custodian should immediately
68, subject to the following conditions: freeze (i.e., no new movements in the
1. The clean-up of SPAs will cover security, except sale or disposition thereof)
those issued by clients prior to Circular No. the account to be considered in substantial
524 dated 31 March 2006; compliance.
2. Custodians will allow transfers of 3. Absent a compliant SPA, the dealing
securities from proprietary accounts of bank and custodian should “freeze” the
dealers to their omnibus principal custody account of the client. Accordingly, if a client
accounts within the period; wants to transact with securities, the dealing
3. There will be no penalties imposed bank must require the submission of an
for dealer-banks and accredited securities executed compliant SPA before any new
custodians that allowed non-compliant SPAs transaction can be entered into. Otherwise,
prior to Circular No. 524 dated 31 March the dealing bank will be subject to the
2006 or those issued under Circular Letter appropriate penalties prescribed under
dated 4 August 2005 if corrected within the Subsec. X441.29. However, for the period
thirty (30)-day period; and of 05 July 2006 - 04 August 2006,
4. Non-compliance with other transactions by the dealing bank with its
provisions of Appendix 68 are not covered/ clients, absent a compliant SPA but to which
qualified to be corrected within the thirty (30)- an advice on the limitation of the authority
day period and are therefore subject to the of the dealing bank and a compliant SPA for
usual penalty/sanctions under existing signature have been sent, will be subject to
regulations. a fine of P10,000.00 per transaction/day:
B. The Monetary Board, in its Provided, That the total penalty arising from
Resolution No. 876 dated 06 July 2006 that class of violation for the said period shall
approved the following disposition of not exceed P100,000.00, computed in
compliance issues for the period of 05 July accordance with Section 37 of R.A. No. 7653
2006 - 04 August 2006: (The New Central Bank Act). Furthermore,
1. The sending by a dealing bank to all the Custodian will not be subject to any
its clients of: penalties for accepting securities subject of
(a) a notice indicating a limitation on the transaction.
the authority of the dealing bank pursuant 4. Starting on 05 August 2006, the
to Section 7 of Appendix 68; and penalties under Subsec. X441.29 shall be
(b) compliant SPA for execution applied for any violation of the provisions
will be deemed substantial compliance of Appendix 68. Custodians shall be
only as of 05 July 2006. Proof thereof should required to freeze the securities account for
be preserved for examination purposes. those without a compliant SPA from the
2. Custodians will be deemed in investor.
substantial compliance as of 05 July 2006 if (M-2006-009 dated 06 July 2006 and M-2006-002 dated 05 June
they have obtained confirmation from the 2006)

APP. 68b
07.12.31
DELIVERY OF GOVERNMENT SECURITIES TO THE INVESTOR’S PRINCIPAL

SECURITIES ACCOUNT WITH THE REGISTRY OF SCRIPLESS SECURITIES
(Appendix to Sec. X441, and Subsecs. X235.5 and X238.1)
The following are the guidelines on the the dealing bank/NBFI should freeze the
delivery of government securities by the account of the client/investor (i.e., no new
selling bank and/or NBFI under the movements in the account, except sale/
supervision of the BSP to an investor’s disposition upon written instruction by the
Principal Securities Account with the client/investor): Provided, That starting 01
Registry of Scripless Securities (RoSS) March 2007 no new Investors Principal
through the Client Interface System facility Securities Account shall be created unless
as compliance with the requirement of the investor submits a compliant Investor’s
effective delivery under Sec. X441 and Undertaking and SPA. Otherwise,
Subsecs. X235.5, X238.1, X238.3 and X441.12: the dealing bank/NBFI will be subject to the
(a) Banks/NBFIs, acting either as appropriate penalties prescribed under Sec.
accredited government securities eligible X441 and Subsecs. X235.5, X238.1, X238.3
dealers (GSEDs) or licensed government and X441.12.
securities dealers, shall execute the attached (e) The sub-accounts in the RoSS
Memorandum of Agreement (MOA) with the maintained by dealing banks/NBFI for their
BTr regarding the creation of the Principal client/investor who either (1) declined in
Securities Account with the RoSS on or writing the delivery of his/its securities to a
before 31 January 2007. The MOA between direct registry account under his/its name
the BTr and the GSED is attached as or a third-party custodian or (2) have not
Annex A. responded to the dealer’s letter to the client/
(b) If the dealing bank/NBFI is investor as regards the disposition of his/
designated as the agent of the client/investor, its securities shall be frozen. However,
the authority of the dealing bank/NBFI under sale/disposition of securities in the sub-
the Special Power of Attorney (SPA) accounts shall be allowed upon written
executed by the client/investor shall be instruction by the client/investor to dispose
limited to the opening of the Principal the same: Provided, That in case of a client/
Securities Account with the RoSS and the investor who as of 04 November 2004 has
execution of trade transactions (i.e., buying not responded to the dealer’s letter
and selling instructions, including relaying regarding the disposition of his/its
of instructions to the BTr, as operator of the securities, the dealer should be able to
RoSS, to receive and deliver securities in order obtain from the said client/investor the
to consummate the buy/sell transaction). written instruction regarding the client/
(c) Banks/NBFIs shall require their investor’s inability to take delivery of
clients/investors who have manifested the existing securities. For clarity, the sub-
desire to have their own Principal accounts maintained by the dealing banks/
Securities Account with the RoSS to execute NBFIs shall not be considered a violation
(1) an SPA pursuant to Sec. X441 and of Subsecs. X235.5, X238.1, X238.3 and
Subsecs. X235.5, X238.1 and X238.3 and X441.12: Provided, That (1) the same
(2) the revised Investor’s Undertaking were created on or before 04 November
(attached as Annex B) on or before 28 2004; and (2) no additional securities
February 2007. have been lodged thereon since
(d) Absent a compliant Investor’s 04 November 2004.
Undertaking and SPA as of 01 March 2007, (M-2007-002 dated 23 January 2007)

APP. 68b
07.12.31
Annex A
MEMORANDUM OF AGREEMENT
This agreement made and entered into this __________________ at

_________________, Philippines by and between:
The BUREAU OF THE TREASURY, a duly constituted government

bureau under the Department of Finance, Republic of the Philippines,
with principal office at Palacio del Gobernador Building, Gen. Luna
corner A. Soriano Avenue, Intramuros, Manila, represented herein by
the Treasurer of the Philippines, _________________________, and
hereinafter referred to as “BTr”;
-and-
__________________________________________, a domestic/
international banking/financial institution organized and existing pursuant
to the laws of the Republic of the Philippines/(country of incorporation),
duly licensed by the Securities and Exchange Commission (SEC) to deal
in securities, represented herein by
___________________________________ in her/his capacity as
____________________________, and hereinafter referred to as the
“Dealer”;
(the “BTr” and the “Dealer” may be referred to as a “Party” in the singular
tense, as “Parties” in the plural/collective tense)
WITNESSETH: THAT
WHEREAS, the Registry of Scripless Securities (“RoSS”) is the official registry of

government securities issued by the National Government through the Bureau of the
Treasury;
WHEREAS, the RoSS is an electronic registry of recording ownership of or interest

in and transfers of government securities;
WHEREAS, the delivery of government securities sold by the Dealer, on a without

recourse basis, to the investor’s Principal Securities Account with the RoSS through the
Client Interface System (“CIS”) Facility shall be sufficient compliance with the delivery
requirement under Subsec. X238.1, of the Bangko Sentral ng Pilipinas (“BSP”) Manual of
Regulations for Banks (MORB) and Circular No. 524 dated 31 March 2006.
WHEREAS, the Dealer is a government securities eligible dealer, accredited by

the BTr to participate in the primary auction of government securities pursuant to Finance

APP. 68b
07.12.31
Department Order No. 141-95, as amended, and/or a bank/financial institution licensed by

the SEC to deal in government securities in the secondary market;
WHEREAS, investors of government securities purchase/trade the same in the

secondary market through any of the dealers;
WHEREAS, recording of ownership of, or interest in government securities requires

the creation/opening of a Principal Securities Account with the RoSS through the CIS Facility;
WHEREAS, to promote transparency, investor confidence and deepening of the

government bond market, investors must be given adequate assistance in the opening/
creation of his/its Principal Securities Account with the RoSS (“Name-on- Registry”);
NOW, THEREFORE, in view of the foregoing premises and the mutual covenants
hereinafter provided, the parties hereby agree as follows:
Section 1. Obligations of BTr.
The BTr shall:
1. Receive instruction from the Dealer through the RoSS-CIS for the creation/
opening of the Principal Securities Account, as indicated in the Special Power of
Attorney executed by the investor in favor of the Dealer for that purpose;
2. Create/open in the RoSS a Principal Securities Account for the requesting investor
of scripless government securities through which all transactions affecting said
securities will be recorded;
3. Provide and forward to the investor an electronic confirmation of his/its RoSS

Principal Securities Account Number and notices and statements of account under
any of the modes indicated in the Investor’s Oath of Undertaking submitted to the
BTr;
4. On relevant coupon/maturity payment dates and for payments made through

the BSP, instruct the BSP to credit the regular demand deposit account (DDA) of
the investor’s settlement bank: Provided, That if the coupon/maturity payment date
falls on a Saturday, Sunday, or Holiday or on a day during which business operations
of the BTr is suspended, payment/s shall be made by the BTr on the next business
day, without adjustment in the amount of interest to be paid.
5. Ensure that all government securities bought by investors from the Dealer are
accurately recorded under the investor’s Principal Securities Account or to the
Securities Custody Account of the investor’s designated third-party custodian.
6. Furnish the investor with Statement(s) of Securities Account, at least quarterly

and whenever there is a movement in the investor’s Principal Securities Account,
through the investor’s preferred mode of receipt of notice and/or statement;

APP. 68b
07.12.31
7. Consistent with BTr Memoranda dated 28 December 2005, 12 January 2006

and 31 January 2006 and applicable BSP regulations, disallow any increase in the
holdings of beneficial owners of securities recorded in the sub-account of the Dealer,
if any, existing as of 02 February 2006, for beneficial owners of securities who
have either (a) declined in writing the delivery of his/its securities to a direct registry
account under his or its name or a third-party custodian or (b) not responded to the
Dealer’s letter to the investor as regards the disposition of his/its securities. Any
withdrawal or sale of the securities, either partial or total, under the sub-account of
the Dealer for the beneficial owners may only be allowed if the Dealer is authorized
in writing by the client/Investor. Such written authority shall be furnished by the
Dealer to the BTr prior to the execution of the transaction.
Sec. 2. Obligations of the Dealer
The Dealer shall:
1. Assist the investor to open his/its individual Principal Securities Account (Name-
On-Registry) with the RoSS through the CIS facility;
2. Conduct the Know your Client (“KYC”) screening of its investors/clients referred
to the BTr for the creation of the Principal Securities Account (Name-On-Registry)
with the RoSS. In this connection it shall: (a) issue a certification to the BTr that it
has conducted the necessary “KYC” screening; (b) maintain client identification
records; (c) report any suspicious transaction in accordance with the provisions of
R.A. No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001”, as
amended, and its implementing rules and regulations; and whenever necessary,
(d) afford BTr unchallenged access to said KYC records/documents. The same KYC
or customer identification documents shall likewise be made available to regulators
for verification upon request.
3. Transmit the investor’s instructions to the RoSS for the creation/opening of a

Principal Securities Account. For this purpose, the Dealer shall submit and/or inform
the investor to submit to the BTr his/her settlement account maintained in a
settlement bank of his/her choice, through which all relevant payments on the
securities will be made by the BTr;
4. Upon the creation of the investor’s Principal Securities Account with the BTr’s
RoSS to which the securities subject of a sale will be credited, immediately furnish
the investor with the BTr’s electronic confirmation of its creation. The Dealer shall
also provide to the investor the BTr electronic confirmation that includes a statement
on the credited amount of securities;
5. Ensure that Special Power of Attorney (SPA) executed by client investors in their
favor as agents of the former be limited, pursuant to BSP Circular No. 524;
6. Ensure that all government securities sold to investors are delivered to their
appropriate Principal Securities Account with the RoSS, or to the account of the
investor’s designated custodian;

APP. 68b
07.12.31
7. Undertake not to misuse the investor’s RoSS Account No., which may come
into its possession upon the creation of a Principal Securities Account for the investor
or on previous transactions with the investor;
8. Acquaint/apprise investors on the rules and procedure prescribed by the BTr in

connection with investment and trading of scripless government securities, including
but not limited to coupon payment, redemption value/proceeds of the investor’s
securities, legal encumbrances, and other relevant information relative to investor’s
security holdings. As a minimum, investors must be apprised of the Revised RoSS
Procedure on Buy and Sell of Securities and recording of transfers through the
RoSS-CIS facility found in the BTr website, with particular emphasis on the feature
of non-tagging of securities to GSEDs, or non-exclusivity of the selling GSEDs for
subsequent transactions;
9. Whenever designated as authorized agent, provide BTr upon reasonable request,

all evidence of authority to transact on the securities issued by investor to such
authorized agent;
10. Whenever designated as authorized agent and/or settlement bank, ensure

confidentiality and prompt delivery of all notices and statements of securities
account/s to investors;
11. Ensure that all instructions transmitted to BTr concerning the securities account
of clients-investors are legal, valid and duly authorized pursuant to an agreement,
a special power of attorney, or any written authority executed by the client-investor
in favor of the dealer; and
12. Disallow any increase in the securities holdings of clients recorded in its sub-
account in the RoSS, with respect to clients who have either (a) declined in writing
the delivery of his/its securities to a direct registry account under his or its name or
a third-party custodian or (b) have not responded to the Dealer’s letter to the investor
as regards the disposition of his/its securities. The Dealer shall allow the client/
investor to withdraw or sell, whether partial or total, from the said securities holdings
recorded in the Dealer’s sub-account only upon written request/instruction by the
investor/client: Provided, That in case of investors who have not responded to the
Dealer’s letter regarding the disposition of his/its securities, the Dealer should be
able to obtain from such investor a written advice that he is neither willing to take
delivery nor have his securities delivered to a third-party custodian. The dealer
shall furnish BTr such written request/instruction prior to the execution of the
transaction.
Sec. 3. Cut Off Period. No transfer of securities shall be allowed (i) during the period of
two (2) business days ending on (and including) the due date of any redemption payment
of principal and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the “Closed Period”). BTr shall prevent any transfer
of the securities to be recorded in the RoSS during any Closed Period. Bondholders of
record as appearing in the RoSS as of the Closed Period will be treated by BTr as the
beneficial owners of such securities for any relevant payment.

APP. 68b
07.12.31
Sec. 4. Settlement Bank. Whenever the Dealer is designated by the investor as his/its
settlement bank, it shall confirm receipt of payments from BTr intended for the investor
and shall promptly and punctually credit the investor’s bank account all said relevant
payments on the securities. Upon the crediting of the regular DDA of the Dealer with BSP
for the applicable payments, the investor shall be considered as having been fully paid on
his/its securities and the Dealer shall then be responsible to the investor. The BTr, its
officers and employees and agents shall not be made liable for any claim, liability, or
responsibility for damages or injury incurred by the investor on account of the Dealer’s
failure to pay/credit the investor’s settlement account.
Sec. 5. Compliance with Anti-Money Laundering Law. The Dealer shall be responsible
for compliance with the requirements of Anti-Money Laundering Law and other banking
laws, rules and regulations relative to reporting of suspicious accounts and deposits.
Sec. 6. Limitation of Liability. The BTr, its officers, employees and agents shall not be
held liable for any claim, liability or responsibility for damages or injury incurred by the
investor on account of the loss of his/its securities holdings unless the loss or injury was
caused by the act or omission of the BTr. Likewise, the BTr, its officers, employees and
agents shall be rendered free and harmless from any liability on account of effecting
instruction/s transmitted by the Dealer to the RoSS which the latter believed in good faith
to have emanated from the Dealer.
Sec. 7. Sanctions for Fraudulent Transactions. In case the Dealer commits any fraudulent
act or transaction in connection with government securities or violates any of its undertakings
herein, the BTr shall have the right to impose administrative sanctions such as but not
limited to dis-accreditation and/or suspension of accreditation as a government securities
eligible dealer, and other administrative sanctions as may be prescribed by competent
authorities without prejudice to civil or criminal prosecution in accordance with law.
Sec. 8. Amendment and Repeal. This agreement may be amended, modified or repealed
by the parties in writing, by giving 30 days prior written notice.
Sec. 9. Effectivity. This agreement shall take effect immediately.
IN WITNESS WHEREOF, the parties have hereunto signed these presents this
_____________________ at _____________________.
BUREAU OF THE TREASURY [Dealer]
By: By:
_______________________ _______________________
Treasurer of the Philippines President & CEO
Signed in the presence of:
_______________________ _______________________

APP. 68b
07.12.31
Republic of the Philippines)

________________________) S.S
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of ________________, personally
appeared:
Name CTC No. Date & Place Issued
Bureau of the Treasury ________ ________________

Rep. by the Treasurer of the
Philippines
[Dealer]
Rep. by ____________________ ________ ________________
known to me to be the same persons who executed the foregoing instrument consisting
of ____ ( ) pages, including this page where this Acknowledgment is written, and
acknowledge to me that the same is their free and voluntary act and deed and of the
agency/institution they represent.
WITNESS MY HAND AND NOTARIAL SEAL this _____________ at

__________________, Philippines.
NOTARY PUBLIC
Doc. No.: ______

Page No.: ______
Book No.:______
Series of ______

APP. 68b
07.12.31
Annex B
NOTE: TO BE SUBMITTED TO THE

BUREAU OF THE TREASURY
INVESTOR’S UNDERTAKING
I/We,
For Individual Investors Name:

of legal age Address:
Civil Status:
For Juridical Entity Name:

authorized to do business Principal Office Address:
in the Philippines Place of Incorporation:
Name of Representative:
Capacity/Position of Representative:
A. Hereby agree to execute, pursuant to BSP Circular 524, a limited Special Power of
Attorney in favor of either the dealing Government Securities Eligible Dealer1
(GSED) or Securities Dealer2 for the creation of a Principal Securities Account with
the RoSS or for the execution of trade transactions (i.e. buying and selling instructions,
including relaying of instructions to “the CUSTODIAN“ to receive or deliver
securities in order to consummate the buy/sell transactions) and to be bound by
the provisions of a written Authority or a special power of attorney, or any relevant
agreement I/we have entered into concerning my/our government security
holdings, thereby confirming my/our authority for BTr-RoSS to carry out and execute
the acts or instructions referred to in the aforesaid documents;
B. It is understood that the RoSS administered by the BTr is the official registry of
ownership of or interest in government securities; that all government securities
floated/originated by NG under its scripless policy are recorded in the RoSS as
well as subsequent transfer of the same; and that I/we will abide by the rules and
regulations of BTr-RoSS concerning government securities.
And further undertake as follows:
1. To create/open through the Client Interface System a Principal Securities Account

with the RoSS to ensure that title of said scripless securities is officially recorded in
my/our name and under my/our control.
2. That as a condition for the creation/opening of my/our Principal Securities Account

with the RoSS, I/we have opened a bank account with
(__________________________________ as Settlement Bank) to which coupon
and maturity proceeds and any other payments to be made on my/our government
securities holdings will be credited; undertake to furnish the RoSS of said bank
____________________
1 Accredited by the Bureau of the Treasury
2 Licensed by the Securities and Exchange Commission

APP. 68b
07.12.31
account number; and give notice at least three (3) business days prior to any coupon
and/or maturity payment of any change in the Settlement Bank and/or bank account
number.
3. That no transfer of securities shall be made (i) during the period of two (2) business
days ending on (and including) the due date of any redemption payment of principal
and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the “Closed Period”). I/We further acknowledge
that the BTr shall prevent any transfer of the securities to be recorded in the RoSS
during any Closed Period.
4. That in the case of outright sale transactions of government securities, including that
of RTBs, I/we undertake to sell the same to any of the GSEDs or Securities Dealers,
save those provided for under existing rules and regulations on government
securities applicable to tax-exempt institutions, government-owned or controlled
corporations and local government units. Otherwise, I/we shall have the said
securities delivered to my/our agent/custodian for trading or any other transactions
pursuant to a relevant written instruction/authority.
5. To receive notices and/or statements of account on a quarterly basis or whenever

there is a movement in my Principal Securities Account from the RoSS through
any of the following modes:
(Please indicate choice)
[ ] Pick-up at the RoSS

[ ] Registered Mail to Home/Office Address _______________________
[ ] Deliver electronically to Agent
[ ] Deliver electronically to Settlement Bank (for pick up)
[ ] Email - email address_________________
In the absence of an indicated choice, I/we understand that the BTr shall electronically
deliver all Notices and Statements to my/our designated settlement bank.
Note: In addition to the indicated manner of receiving notice(s) and statement(s),

Investor can directly secure from the BTr written copy of any notice, statement of
account, or confirmation report, subject to prior notice to and in accordance with
the procedures of the BTr.
I/We hereby agree to abide with the Schedule of Fees and the manner of collection,
as may be prescribed by the BTr from time to time.
6. That I/we expressly agree and acknowledge that the crediting to the regular DDA of
my/our settlement bank of coupons and/or redemption value due my/our scripless
securities, shall constitute actual receipt of payment by me/us.
7. To hold the BTr, its officers, employees and agents free and harmless against all
suits, actions, damages or claims arising from failure of my/our Settlement Bank to
credit my/our bank account for coupons and maturity values on due date.

APP. 68b
07.12.31
8. That all instructions affecting my/our scripless securities which are transmitted to
or received in good faith the RoSS from myself/ourselves or my/our designated
agent/custodian are covered by relevant documentation indicating my/our express
consent and authority.
9. That I/we expressly warrant and authorize the delivery of copies of all evidence of
authority granted to my/our designated agent/custodian to transact on my/our
scripless securities upon reasonable demand by BTr.
10. That I/we undertake to immediately notify the RoSS of any unauthorized trade of my/
our scripless securities, and until receipt of such notice, transactions effected by BTr
in good faith are deemed valid.
11. To render free and harmless the BTr, its officers, employees and agents for any
claim or damages with respect to trade instructions carried out in good faith.
12. That while it is understood that BTr shall maintain the strict confidentiality of records
in the RoSS, I/we hereby expressly waive and authorize BTr, to the extent allowed by
law, to disclose relevant information in compliance with Anti-Money Laundering
laws, rules and regulations.
13. To submit to the BTr the relevant special power of attorney or authorizations issued
to my/our agent, upon demand of BTr.
IN WITNESS WHEREOF, I/We hereunto affix our hands this _____ day of
_______________ at _____________________, Philippines.
__________________________________
Name & Signature of Investor
Conforme:
_________________________________
Settlement Bank

APP. 68b
07.12.31
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of _____________, personally
appeared:
Name: CTC No. Date: Place of Issue:
______________________________ _________ ____________ ________________

(Investor or Representative of Juridical Entity)
known to me to be the same person who executed the foregoing instrument and he/she
acknowledged to me that the same is his/her free and voluntary act and deed (and the free
act and deed of the entity they represent).
WITNESS MY HAND AND NOTARIAL SEAL this ___________ at _________________,

Philippines.
NOTARY PUBLIC
Doc. No.: ______

Page No.: ______
Book No.:______
Series of ______

APP. 69
06.12.31
PROMPT CORRECTIVE ACTION FRAMEWORK

In carrying out its primary objective of level commensurate to the underlying risk
maintaining price stability conducive to a exposure and in full compliance with
balanced and sustainable growth of the minimum capital adequacy requirement.
economy 1 , the BSP must necessarily In conjunction with this plan, the BSP may
maintain stability of the financial system also require any one (1), or a combination
through preservation of confidence therein. of the following:
While preservation of confidence in the 1. Limit or curtail dividend payments
financial system may call for closure of to common stockholders;
mismanaged banks and/or financial entities 2. Limit or curtail dividend payments
under its jurisdiction, such closure is not to preferred stockholders; and
the only option available to the BSP. When 3. Limit or curtail fees and/or other
a bank’s closure, for instance, is adjudged payments to related parties.
by the Monetary Board to have adverse Business improvement plan – this
systemic consequences, the State may act component contains the set of actions to
in accordance with law to avert potential be taken immediately to bring about an
financial system instability or economic improvement in the entity’s operating
disruption.2 condition, including but not limited to any
It is recognized that the closure of a one (1), or a combination of the following:
bank or its intervention can be a costly and 1. Reduce risk exposures to
painful exercise. For this reason, the BSP, manageable levels;
as supervisor, can enforce PCA3 as soon as 2. Strengthen risk management;
a bank’s condition indicates higher-than 3. Curtail or limit the bank’s scope of
normal risk of failure. operations including those of its subsidiaries
PCA essentially involves the BSP or affiliates where it exercises control;
directing the board of directors of a bank, 4. Change or replace management
prior to an open outbreak of crisis, to officials;
institute strong measures to restore the 5. Reduce expenses; and
entity to normal operating condition within 6. Other measures to improve the
a reasonable period, ideally within one (1) quality of earnings.
year. These measures may include any or Corporate governance reforms – this
all of the following components: component contains the actions to be
(1) Implementation of a capital immediately taken to improve the
restoration plan; composition and/or independence of the
(2) Implementation of a business board of directors and to enhance the quality
improvement plan; and of its oversight over the management and
(3) Implementation of corporate operation of the entity. This also includes
governance reforms. measures to minimize potential
Capital restoration plan – this shareholder conflicts of interest detrimental
component contains the schedule for to its creditors, particularly, depositors in a
building up a bank’s capital base (primarily bank. This likewise lays down measures
through an increase in Tier 1 capital) to a to provide an acceptable level of financial
1
Section 3 of Republic Act No. 7653
2
Section 17 and 18 of Republic Act No. 3591, as amended
3
Section 4.6 of Republic Act No. 8791

APP. 69
06.12.31
transparency to all stakeholders. Such actions c. Significant reporting errors that

could include, but are not limited to, any one materially misrepresent the bank’s
(1), or a combination of the following: financial condition.
1. A change in the composition of the The initiation of PCA shall be
board of directors or any of the mandatory recommended by the Deputy Governor,
committees (under the MORB); SES to the Monetary Board for approval.
2. An enhancement to the frequency Any initiation of PCA shall be reported to
and/or depth of reporting to the board of the PDIC for notation. Upon PCA
directors; initiation, the BSP shall require the bank
3. A reduction in exposures to and/or to enter into a MOU committing to the
a termination or reduction of business PCA plan. The MOU shall be subject to
relationships with affiliates that pose confirmation by the MB.
excessive risk or are inherently In order to monitor compliance with
disadvantageous to the supervised financial the PCA, quarterly progress reports shall
institution; and be made. The BSP reserves the right to
4. A change of external auditor. conduct periodic on-site visits outside of
A bank may be subject to PCA regular examination to validate
whenever any or all of the following compliance with the PCA plan.
conditions obtain: Subject to Monetary Board approval,
(1) When either of the Total Risk-Based sanctions may be imposed on any bank
Ratio1, Tier 1 Risk-Based Ratio, or Leverage subject to PCA whenever there is
Ratio2 falls below ten percent (10%), six unreasonable delay in entering into a PCA
percent (6%) and five percent (5%), plan or when PCA is not being complied
respectively, or such other minimum levels with. These may include any or all of the
that may be prescribed for the said ratios following:
under relevant regulations, and/or the (1) monetary penalty on or curtailment
combined capital account falls below the or suspension of privileges enjoyed by
minimum capital requirement prescribed the board of directors or responsible
under Subsec. X106.1; officers;
(2) The CAMELS composite rating is less (2) restriction on existing activities that
than “3” or a Management component rating of the supervised financial institution may
less than “3” ; undertake;
(3) A serious supervisory concern has (3) denial of application for branching
been identified that places a bank at more- and other special authorities;
than-normal risk of failure in the opinion of (4) denial or restriction of access to BSP
the director of the Examination Department credit facilities; and
concerned, which opinion is confirmed by (5) restriction on declaration of
the Monetary Board. Such concerns could dividends.
include, but are not limited, to any one (1) On the other hand, if the bank subject
or a combination of the following: to PCA promptly implements a PCA plan
a. Finding of unsafe and unsound and substantially complies with its
activities that could adversely affect the conditions, it may continue to have access
interest of depositors and/or creditors; to BSP credit facilities notwithstanding
b. A finding of repeat violations of law non-compliance with standard conditions
or the continuing failure to comply with of access to such facilities. The Deputy
Monetary Board Directives; and Governor, SES shall recommend such
1
Otherwise known as Capital Adequacy Ratio (“CAR”)
2
Total Capital /Total Assets

APP. 69
06.12.31
exemption to the Monetary Board for Subject to Monetary Board approval,

approval. the PCA status of a bank may be lifted:
In cases where a bank’s problems are Provided, That the bank fully complies with
deemed to be exceptionally serious from the terms and conditions of its MOU and:
the outset, or when a bank is unwilling to Provided, further, That the Deputy
submit to the PCA or unable to substantially Governor, SES has determined that the
comply with an agreed PCA plan, the financial and operating condition of the
Deputy Governor, SES may immediately bank no longer presents a risk to itself or
recommend to the Monetary Board more the financial system. Such improved
drastic actions as prescribed under Section assessment shall be immediately reported
29 (conservatorship) and Section 30 to the PDIC.
(receivership) of R.A. 7653. (Circular No. 523 dated 23 March 2006)

APP. 70
07.12.31
CONSUMER PROTECTION FOR ELECTRONIC BANKING

1. E-Banking Oversight Function Management and system designers

(a) Bank’s board of directors (BOD) should consult with the compliance officer
and a senior management committee are during the development and implementation
responsible for developing the bank’s stages of e-banking products and services.
e-banking business strategy and establishing This level of involvement will help decrease
an effective management oversight over bank’s compliance risk and may prevent the
e-banking services. need to delay deployment or redesign
The BOD is expected to take an explicit, programs that do not meet regulatory
informed and documented strategic decision requirements.
as to whether and how the bank is to provide
e-banking services to their customers. Effective 2. E-Banking Risk Management and Internal
management oversight encompasses the Control
review and approval of the key aspects of the (a) Information Security Program
bank’s security control program and process, Banks should establish and maintain
such as the development and maintenance of comprehensive information security
security control policies and infrastructure that program and ensure that it is properly
properly safeguard e-banking systems and data implemented and strictly enforced. They
from both internal and external threats. It also should also encourage the development of
includes a comprehensive process for a security culture within the organization.
managing risks associated with increased The information security program should
complexity of and increasing reliance on include, at a minimum, the following:
outsourcing relationships and third-party • Identification and assessment of
dependencies to perform critical e-banking risks associated with e-banking products and
functions. services;
It is also incumbent upon the BOD and • Identification of risk mitigation
banks’ senior management to take steps to actions, including appropriate authentication
ensure that their banks have updated and technology and internal controls;
modified where necessary, their existing risk • Information disclosure and
management policies and processes to cover customer privacy policy; and
their current or planned e-banking services. • Evaluation of consumer awareness
The integration of e-banking applications efforts.
with legacy systems implies an integrated Banks should adjust or update, as
risk management approach for all banking appropriate, their information security
activities. program in light of any relevant changes in
(b) Bank’s compliance officer should technology, the sensitivity of its customer
ensure that proper controls are incorporated information and internal or external threats
into the system so that all relevant to information such as increasing incidence
compliance issues are fully addressed. of identity theft1.
1
There are several schemes perpetrated by these identity thieves, e.g., credit card fraud, account takeover fraud,
new account fraud and check fraud.
Credit card fraud is where a fraudster causes the credit card of another person to be charged for a purchase.
Account takeover fraud occurs when a fraudster obtains an individual’s personal information, and changes
the official mailing address with that individual’s FI. Once accomplished, the fraudster has established a
window of opportunity in which transactions are conducted without the victim’s knowledge. New account
fraud involves the criminal using a false identity, made-up or stolen; to open a new account, typically to obtain
a credit card or loan. Check fraud may either be done through (i) alterations to the check, (ii) forgeries of the
maker’s signature on either the face of the check or the payee’s endorsement at the back of the check, or (iii)
counterfeit checks created by a dishonest third party

APP. 70
07.12.31
(b) Information Security Measures implemented for each transaction type and
Banks should ensure that their level of access based on the current and
information security measures and internal changing risk factors. Account fraud and
control related to e-banking are installed, identity theft are frequently the result of
regularly updated, monitored and is single-factor (e.g., ID/password)
appropriate with the risks associated with authentication exploitation. Where risk
their products and services. assessments indicate that the use of single-
Annex A and Annex B provide for the factor authentication is inadequate, banks
minimum security measures that banks should implement multi-factor
should employ in their ATM facilities and authentication (e.g., ATM card and PIN),
internet/mobile banking activities, layered security, or other controls
respectively, to protect depositors and reasonably calculated to mitigate those risks.
consumers from fraud, robbery and other Banks' authentication process should be
e-banking crimes. consistent with and support the bank’s
Banks should also take into account overall security and risk management
other relevant industry security standards programs. An effective authentication
and sound practices as appropriate, and process should have customer acceptance,
keep up with the most current information reliable performance, scalability to
security issues (e.g., security weaknesses accommodate growth, and interoperability
of the wireless environment), by sourcing with existing systems and future plans as
relevant information from well-known well as appropriate policies, procedures,
security resources and organizations. and controls.
(c) Authentication (d) Account Origination and Customer
To authenticate the identity of e-banking Verification
customers, banks should employ With the growth in e-banking and
techniques appropriate to the risks e-commerce, banks should use reliable
associated with their products and services. methods of originating new customer
The implementation of appropriate accounts. Potentially significant risks may
authentication methodologies should start arise when a bank accepts new customers
with a risk assessment process. The risk through the internet or other electronic
should be evaluated based on the type of channels. Thus, in an e-banking
customer; the customer transactional environment, banks need to ensure that in
capabilities (e.g., bill payment, fund originating new accounts, the KYC (“know
transfer, inquiry); the sensitivity of customer your customer”) requirement which
information and transaction being involves a “face-to-face” process is strictly
communicated to both the bank and the adhered to.
customer; the ease of using the (e) Monitoring and Reporting of
communication method; and the volume E-banking Transactions
of transactions. Monitoring systems can determine if
Because the standards for unauthorized access to computer systems
implementing a commercially reasonable and customer accounts has occurred. A
system may change over time as sound monitoring system should include
technology and other procedures develop, audit features that can assist in the detection
banks and technology service providers of fraud, money laundering, compromised
should continuously review, evaluate and passwords, or other unauthorized activities.
identify authentication technology and The activation and maintenance of audit
ensure appropriate changes are logs can help banks to identify unauthorized

APP. 70
07.12.31
activities, detect intrusions, reconstruct protection of customer data and business

events, and promote employee and user availability that they can expect when using
accountability. This control process also traditional banking services.
facilitates banks in the submission of To minimize operational, legal and
suspicious activities reports as required by reputational risks associated with e-banking
the AMLC and other regulatory bodies. activities, banks should make adequate
Adequate reporting mechanisms are disclosure of information and take
needed to promptly inform security appropriate measures to ensure adherence
administrators when users are no longer to customer privacy and protection
authorized to access a particular system and requirements. Annex D provides for the
to permit the timely removal or suspension minimum disclosure requirement of the
of user account access. banks.
Whenever critical systems or processes Likewise, to meet customers’
are outsourced to third parties, management expectations, banks should have effective
should ensure that the appropriate logging capacity, business continuity and
and monitoring procedures are in place and contingency planning. They should have the
that suspected unauthorized activities are ability to deliver e-banking services to all
communicated to the bank in a timely end-users and be able to maintain such
manner. availability in all circumstances (e.g., 24/7
An independent party (e.g., internal or availability). Effective incident response
external auditor) should also review activity mechanisms and communication strategies
reports documenting the security are also critical to minimize risks arising from
administrators’ actions to provide the unexpected events, including internal and
necessary checks and balances for managing external attacks.
system security. (b) Banks should apply to e-banking
financial transactions and disclosures the
3. Consumer Awareness Program record retention provisions required in
Consumer awareness is a key defense paper-based transactions.
against fraud and identity theft and security A written policy or procedure needs to
breach. Annex C provides for the minimum define vital records relating to e-banking
Consumer Awareness Program that banks financial transactions and disclosures and
should convey to their customers. the corresponding retention period of these
To be effective, banks should records.
implement and continuously evaluate their
consumer awareness program. Methods to 5. Complaint Resolution
evaluate a program’s effectiveness include Banks may receive customer complaint
tracking the number of customers who either through an electronic medium or
report fraudulent attempts to obtain their otherwise, concerning an unauthorized
authentication credentials (e.g., ID/password), transaction, loss, or theft in its e-banking
the number of clicks on information security account. Therefore, banks should ensure
links on websites, the number of inquiries. that controls are in place to review these
notifications and that an investigation is
4. Disclosure and Business Availability initiated as required. Banks should also
(a) Banks are required to provide their establish procedures to resolve disputes
customers with a level of comfort regarding arising from the use of the e-banking
information disclosures or transparencies, products and services.

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07.12.31
6. Applicability consumer protection issues that have arisen

This appendix is intended for all in connection with new technologies are
e-banking services and products offered specifically addressed in this appendix.
by the banks to their customers. Although Additional issuances may be issued in the
these are focused on the risks and risk future to address other aspects of consumer
management techniques associated with protection as the financial service
an electronic delivery channel to protect environment through e-banking evolves.
customers and the general public, it should (CL-2007-048 dated 24 September 2007; Circular No. 542 dated
be understood, however, that not all of the 01 September 2006)

APP. 70
06.12.31
Annex A
AUTOMATED TELLER MACHINE (ATM) SAFETY MEASURES
To minimize/prevent ATM frauds and 7. Educate bank personnel to be

crimes, banks should, at a minimum, responsive and sensitive to customer concerns
implement the following security measures and to communicate them immediately to
with respect to their ATM facilities: the responsible bank officer; and
1. Locate ATM’s in highly visible areas; 8. Post near the ATM facility a clearly
2. Provide sufficient lighting at and visible sign which, at a minimum, provides
around the ATMs; the telephone numbers of the bank as well
3. Where ATM crimes (e.g., robbery, as other banks’ hotline numbers for other
vandalism) are high in a specific area or cardholders who are allowed to transact
location, banks should install surveillance business in the ATM, and police hotlines for
camera or cameras which shall view and emergency cases.
record all persons entering the facility. Such Banks must study and assess ATM
recordings shall be preserved by the banks crimes to determine the primary problem
for at least thirty (30) days; areas. Procedures for reporting ATM crime
4. Implement ATM programming should also be established. Knowing what
enhancements like masking/non-printing of crimes have occurred will aid the banks in
card numbers; recognizing the particular crime problem
5. Educate customers by advising them and to what degree it exists so that they can
regularly of risks associated with using the implement specific prevention measures to
ATM and how to avoid these risks; mitigate the risk. In this connection, banks
6. Conduct and document periodic are encouraged to share information
security inspection at the ATM location, and involving ATM fraud cases to deter and
make the pertinent information available to prevent proliferation of the crime.
their clients; (Circular No. 542 dated 01 September 2006)

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06.12.31
Annex B
INTERNET AND WIRELESS BANKING SECURITY MEASURES
1. Network controls b. Change all default passwords for

a. Implement adequate security new systems immediately upon installation
measures on the internal networks and as they provide the most common means
network connections to public network or for intruders to break into systems.
remote parties. Segregate internal networks
into different segments having regard to the 3. Encryption
access control needed for the data stored in, a. Implement encryption technologies
or systems connected to, each segment. that are appropriate to the sensitivity and
b. Properly design and configure the importance of data to protect confidentiality
servers and firewalls used for the e-banking of information while it is stored or in passage
services either internet-based or delivered over external and internal networks.
through wireless communication networks b. Choose encryption technologies
(e.g., install firewalls between internal and that make use of internationally recognized
external networks as well as between cryptographic algorithms where the
geographically-separate sites). strengths of the algorithms have been
c. Deploy strong and stringent subjected to extensive tests.
authentication and controls especially in c. Apply strong “end-to-end”
remote access or wireless access to the encryption to the transmission of highly
internal network. sensitive data (e.g., customer passwords) so
d. Implement anti-virus software, that the data are encrypted all the way
network scanners and analyzers, intrusion between customers’ devices and bank’s
detectors and security alert as well as conduct internal systems for processing the data. This
regular system and data integrity checks. would ensure that highly sensitive data
e. Maintain access security logs and would not be compromised even if the
audit trails. These should be analyzed for banks’ web servers or internal networks
suspicious traffic and/or intrusion attempts. were penetrated.
f. Ensure that wireless software for
wireless communication network includes 4. Website and Mobile Banking
appropriate audit capabilities (e.g., Authentication
recording dropped transactions). a. Authenticate official website to
g. Develop built-in redundancies for protect bank customers from spoofed or
single points of failure which can bring down faked websites. Banks should determine
the entire network. what authentication technique to use to
provide protection against these attacks.
2. Operating Systems Controls b. For wireless applications, adopt
a. Harden operating systems by authentication protocols that are separate
configuring system software and firewall and distinct from those provided by the
to the highest security settings consistent wireless network operator.
with the level of protection required,
keeping abreast of enhancements, updates 5. Physical Security
and patches recommended by system a. House all critical or sensitive
vendors. computers and network equipment in

APP. 70
06.12.31
physically secure locations (e.g., away from b. Ensure that the contractual
environmental hazards, unauthorized entry agreements with the service providers have
and public disclosure, etc.). clearly defined security responsibilities.
b. Implement physical security
measures such as security barriers (e.g., 9. Independent Audit, Vulnerability Test
external walls, windows); entry controls and Penetration Testing
(e.g., biometric door locks, manual or a. Conduct regular audit to assess the
electronic logging, security guards) and adequacy and effectiveness of the risk
physical protection facilities/devices (e.g., management process and the attendant
water and fire detectors, uninterruptible controls and security measures.
power supply [UPS], etc.) to prevent b. Perform vulnerability test or
unauthorized physical access, damage to assessment to evaluate the information
and interference with the e-banking services. security policies, internal controls and
procedures, as well as system and network
6. Development and Acquisition security of the bank. Assessment should also
a. Separate physical/logical include latest technological developments
environments for systems development, and security threats, industry standards and
testing and production. sound practices.
b. Provide separate environments for c. Conduct penetration testing at least
the development, testing, staging and annually.
production of internet facing web-based d. The audit and tests should be
applications; connect only the production conducted by security professionals or
environment to the internet. internal auditors who are independent in the
development, implementation or operation
7. IT Personnel Training of the e-banking services, and have the
Provide appropriate and updated required skills to perform the evaluation.
training to IT personnel on network, e. For e-banking services provided by
application and security risks and controls an outside vendor or service provider,
so that they understand and can respond to ensure that the above tests and audit are
potential security threats. performed and the bank is provided with
the results and actions taken on system
8. Service Providers security weaknesses.
a. Perform due diligence regularly to
evaluate the ability of the service providers 10. Incident Response
(e.g., internet service provider, Establish an incident management and
telecommunication provider) to maintain an response plan and test the predetermined
adequate level of security and to keep action plan relating to security incidents.
abreast of changing technology. (Circular No. 542 dated 01 September 2006)

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06.12.31
Annex C
ELECTRONIC BANKING CONSUMER AWARENESS PROGRAM
To ensure security in their e-banking d. Check for the right and secure
transactions and personal information, website.
consumers should be oriented of their roles (1) Before doing any online
and responsibilities which, at a minimum, transactions or sending personal
include the following: information, make sure that correct
website has been accessed. Beware of
1. Internet Products and Services bogus or “look alike” websites which are
designed to deceive consumers.
a. Secure Login ID and Password or PIN (2) Check if the website is “secure” by
(1) Do not disclose Login ID and checking the Universal Resource Locators
Password or PIN. (URLs) which should begin with “https”
(2) Do not store Login ID and and a closed padlock icon on the status bar
Password or PIN on the computer. in the browser is displayed. To confirm
(3) Regularly change password or PIN authenticity of the site, double-click on the
and avoid using easy-to-guess passwords lock icon to display security certificate
such as names or birthdays. Password information of the site.
should be a combination of characters (3) Always enter the URL of the website
(uppercase and lowercase) and numbers directly into the web browser. Avoid being
and should be at least 6 digits in length. re-directed to the website, or hyperlink it
from a website that may not be as secure.
b. Keep personal information private. (4) If possible, use software that
Do not disclose personal information encrypts or scrambles the information
such as address, mother’s maiden name, when sending sensitive information or
telephone number, social security number, performing e-banking transactions online.
bank account number or e-mail address —
unless the one collecting the information e. Protect personal computer from
is reliable and trustworthy. hackers, viruses and malicious programs.
(1) Install a personal firewall and a
c. Keep records of online transactions. reputable anti-virus program to protect
(1) Regularly check transaction history personal computer from virus attacks or
details and statements to make sure that malicious programs.
there are no unauthorized transactions. (2) Ensure that the anti-virus program
(2) Review and reconcile monthly is updated and runs at all times.
credit card and bank statements for any (3) Always keep the operating system
errors or unauthorized transactions and the web browser updated with the
promptly and thoroughly. latest security patches, in order to protect
(3) Check e-mail for contacts by against weaknesses or vulnerabilities.
merchants with whom one is doing (4) Always check with an updated anti-
business. Merchants may send important virus program when downloading a
information about transaction histories. program or opening an attachment to
(4) Immediately notify the bank if ensure that it does not contain any virus.
there are unauthorized entries or (5) Install updated scanner softwares
transactions in the account. to detect and eliminate malicious programs

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06.12.31
capable of capturing personal or financial (2) Do not open other browser

information online. windows while banking online.
(6) Never download any file or software (3) Avoid using shared or public
from sites or sources, which are not familiar personal computers in conducting e-
or hyperlinks sent by strangers. Opening banking transactions.
such files could expose the system to a (4) Disable the “file and printer
computer virus that could hijack personal sharing” feature on the operating system if
information, including password or PIN. conducting banking transactions online.
(5) Contact the banking institution to
f. Do not leave computer unattended discuss security concerns and remedies to
when logged-in. any online e-banking account issues.
(1) Log-off from the internet banking
site when computer is unattended, even if 2. Other Electronic Products
it is for a short while.
(2) Always remember to log-off when a. ATM and debit cards
e-banking transactions have been (1) Use ATMs that are familiar or that
completed. are in well-lit locations where one feels
(3) Clear the memory cache and comfortable. If the machine is poorly lit or
transaction history after logging out from is in a hidden area, use another ATM.
the website to remove account (2) Have card ready before
information. This would avoid incidents of approaching the ATM. Avoid having to go
the stored information being retrieved by through the wallet or purse to find the card.
unwanted parties. (3) Do not use ATMs that appear to
have been tampered with or otherwise
g. Check the site’s privacy policy and altered. Report such condition to the bank.
disclosures. (4) Memorize ATM PIN and never
(1) Read and understand website disclose it to anyone. Do not keep those
disclosures specifically on refund, numbers or passwords in the wallet or
shipping, account debit/credit policies and purse. Never write them on the cards
other bank terms and conditions. themselves. Avoid using easily available
(2) Before providing any personal personal information like a birthday,
financial information to a website, nickname, mother’s maiden name or
determine how the information will be consecutive numbers.
used or shared with others. (5) Be mindful of “shoulder surfers”
(3) Check the site’s statements about when using ATMs. Stand close to the ATM
the security provided for the information and shield the keypad with hand when
divulged. keying in the PIN and transaction amount.
(4) Some websites’ disclosures are (6) If the ATM is not working correctly,
easier to find than others — look at the cancel the transaction and use a different
bottom of the home page, on order forms or ATM. If possible, report the problem to the
in the “About” or “FAQs” section of a site. If bank.
the customer is not comfortable with the (7) Carefully secure card and cash in
policy, consider doing business elsewhere. the wallet, handbag, or pocket before
leaving the ATM.
h. Other internet security measures: (8) Do not leave the receipt behind.
(1) Do not send any personal Compare ATM receipts to monthly
information particularly password or PIN statement. It is the best way to guard against
via ordinary e-mail. fraud and it makes record-keeping easier.

APP. 70
06.12.31
(9) Do not let other people use your unsecure place since these documents
card. If card is lost or stolen, report the have direct access to credit card and/or
incident immediately to the bank. deposit account information. Consider
shredding sensitive documents rather than
b. Credit cards simply throwing them away. (Some
(1) Never disclose credit card people will go through the garbage to find
information to anyone. The fraudulent use this information).
of credit cards is not limited to the loss or (10) Notify the bank in advance of a
theft of actual credit cards. A capable change in address.
criminal only needs to know the credit card (11) Open billing statements promptly
number to fraudulently make numerous and reconcile card amounts each month.
charges against the account. (12) Do not let other people use your
(2) Endorse or sign all credit cards as card. If card is lost or stolen, report the
soon as they are received from the bank. incident immediately to the bank.
(3) Like ATM card PINs, secure credit
card PINs. Do not keep those numbers or c. Mobile Banking
passwords in the wallet or purse and never (1) Do not disclose your Mobile
write them on the cards themselves. Banking Pin (MPIN) to anyone.
(4) Photocopy both the front and back (2) Regularly change the MPIN.
of all credit cards and keep the copies in a (3) Do not let other people use your
safe and secure location. This will facilitate mobile phone enrolled in a mobile banking
in the immediate cancellation of the card if service. If the phone is lost or stolen, report
lost or stolen. the incident immediately to the bank.
(5) Carry only the minimum number of (4) Be vigilant. Refrain from doing
credit cards actually needed and never leave mobile banking transactions in a place
them unattended. where you observe the presence of
(6) Never allow credit card to be used “shoulder surfers”.
as reference (credit card number) or as an (5) Keep a copy of the transaction
identification card. reference number provided by the bank
(7) Never give your credit card account whenever you perform a mobile banking
number over the telephone unless dealing transaction as evidence that the specific
with a reputable company or institution. transaction was actually executed.
(8) When using credit cards, keep a Since customers may find it difficult to
constant eye on the card and the one take in lengthy and complex advice, banks
handling it. Be aware of the “swipe and should devise effective methods and
theft” scam using card skimmers. A channels for communicating with them on
skimmer is a machine that records the security precautions. Banks may make use
information from the magnetic stripe on a of multiple channels (e.g. banks' websites,
credit card to be downloaded onto a alert messages on customers mobile phone,
personal computer later. The card can be messages printed on customer statements,
swiped on a skimmer by a dishonest promotional leaflets, circumstances when
person and that data can then be used to banks' frontline staff communicate with
make duplicate copies of the credit card. their customers) to enforce these
(9) Do not leave documents like bills, precautionary measures.
bank and credit card statements in an (Circular No. 542 dated 01 September 2006)

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Annex D
DISCLOSURE REQUIREMENTS
1. General Requirement 2. Disclosure Responsibility

Banks offering e-banking services a. Compliance officers should review
have to adopt responsible privacy bank’s disclosure statements to determine
policies and information practices. They whether they have been designed to meet
should provide disclosures that are clear the general and specific requirements set
and readily understandable, in writing, or in this circular.
in a form the consumers may print and b. For banks that advertise deposit
keep. products and services on-line, they must
Banks should also ensure that verify that proper advertising disclosures
consumers who sign-up for a new are made (e.g. whether the product is
banking service are provided with insured or not by the PDIC; fees and
disclosures (e.g. pamphlet) informing charges associated with the product or
them of their rights as a consumers. At a services, etc.). Advertisements should be
minimum, the following disclosures monitored to determine whether they
should be provided to protect consumers are current, accurate, and compliant.
and inform them of their rights and c. For banks that issue various
responsibilities: products like stored value cards, e-
a. Information on the duties of the wallets, debit cards and credit cards, they
banking institution and customers. must provide information to consumers
b. Information on who will be liable regarding the features of each of these
for unauthorized or fraudulent products to enable consumers to
transactions. meaningfully distinguish them.
c. Mode by which customers will be Additionally, consumers would find it
notified of changes in terms and beneficial to receive information about
conditions. the terms and conditions associated with
d. Information relating to how their usage. Example of these
customers can lodge a complaint, and disclosures include: PDIC-insured or non-
how a complaint may be investigated and insured status of the product; fees and
resolved. charges associated with the purchase,
e. Disclosures that will help use or redemption of the product; liability
consumers in their decision-making (e.g., for loss; expiration dates, or limits on
PDIC-insured, etc.) redemption; and toll-free telephone
f. For internet environment, number for customer service,
information that prompt in the bank’s malfunction and error resolution.
website to notify customers that they d. Whenever e-banking services are
are leaving the banking institutions’ outsourced to third parties or service
website and hence they are not protected providers, banks should ensure that the
by the privacy policies and security vendors comply with the disclosure
measures of the banking institutions when requirements of the BSP.
they hyperlink to third party’s website. (Circular No. 542 dated 01 September 2006)

APP. 71
06.12.31
GUIDELINES FOR THE CHANGE IN THE MODE OF COMPLIANCE WITH THE

LIQUIDITY RESERVE REQUIREMENT
(Appendix to Subsecs. X253.2 & X405.5)
The following guidelines shall be 5. Principal and interest payments at

observed in implementing the change in the maturity net of applicable tax shall be
mode of compliance with the liquidity made by the BSP through automatic credit
reserve requirement from holding to the institution’s demand deposit account
government securities bought directly from with the BSP. Full or partial rollover of
the BSP: placements in the RDA shall be settled on a
1. Government securities previously gross basis;
bought from the BSP in compliance with 6. Any deficiency in the liquidity
the liquidity reserve requirement shall reserves shall continue to be in the forms or
remain eligible for such purpose until these modes prescribed under existing regulations
mature or are sold back to the BSP at yields for the composition of required reserves;
quoted by the BSP Treasury Department 7. Banks and QBs shall continue to
(TD). Only the outstanding ERAP and specify in the prescribed reports to the SDC
PEACe bonds shall qualify as eligible of the BSP the balance of government
securities for liquidity reserves. Future securities held for liquidity reserve
issuances will no longer carry the liquidity purposes. Said balance shall decline over
reserve eligibility under this Section. time as government securities previously
2. The interest rates applied to the bought from the BSP mature or are sold back
reserve deposit account (RDA) shall be set to the BSP; and
by the TD at one-half percent (1/2%) below 8. To facilitate the adoption of the
the prevailing market rate for comparable change in the mode of compliance with the
government securities; liquidity reserve requirement, the TD (while
3. Pre-termination of RDAs shall be starting to accept placements in the reserve
allowed subject to a reduction in applicable deposit account) shall continue to sell
interest rates, as prescribed by the TD; government securities for liquidity reserve
4. Banks and QBs shall submit on purposes until 29 September 2006.
placement date a written authority (see The above guidelines shall take effect on
Annex A) to the TD to debit their demand 25 August 2006.
deposit account with the BSP as payment (Circular Nos. 551 dated 17 November 2006 and 539 dated 09
for the RDA; August 2006)

APP. 71
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Annex A
DEBIT/CREDIT AUTHORITY FORMAT

ORDINARY WHITE PAPER
2 COPIES
(COUNTERPARTY’S LETTERHEAD)
DATE: _______________
TREASURY DEPARTMENT
TREASURY SERVICES GROUP – DOMESTIC
BANGKO SENTRAL NG PILIPINAS
GENTLEMEN:
THIS IS TO CONFIRM OUR RESERVE DEPOSIT ACCOUNT (RDA) PLACEMENT WITH

YOUR OFFICE, DETAILED AS FOLLOWS:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
LIQUIDITY RESERVES FOR Deposit Liabilities & Deposit Substitute
(PLEASE CHECK ONE) TOFA - Others
CTF
ACCORDINGLY, PLEASE DEBIT OUR REGULAR DEMAND DEPOSIT ACCOUNT

WITH YOURSELVES ON VALUE DATE FOR THE PRINCIPAL AMOUNT OF (AMOUNT IN
WORDS) (P) AND CREDIT THE SAME ACCOUNT ON MATURITY DATE THE AMOUNT
OF (AMOUNT IN WORDS) (P) REPRESENTING FULL PAYMENT OF THE PRINCIPAL
PLUS INTEREST (NET OF APPLICABLE WITHHOLDING TAX) THEREON.
VERY TRULY YOURS,
(AUTHORIZED SIGNATORY)1
(Circular Nos. 551 dated 17 November 2006 and 539 dated 09 August 2006)

APP. 72
06.12.31
GUIDELINES ON SUPERVISION BY RISK

I. Background cases, the primary concern of the BSP is

It must be recognized that banking is a that the FI operates in a safe and sound
business of taking risks in order to earn manner and maintains capital commensurate
profits. While banking risks historically have with its risks. Further guidance on risk
been concentrated in traditional banking management issues will be addressed in
activities, the financial services industry has subsequent issuances that are part of the
evolved in response to market-driven, overall risk assessment program.
technological, and legislative changes.
These changes have allowed FIs to expand III. Guidelines for risk management
product offerings, geographic diversity, For purposes of the discussion of risk,
and delivery systems. They have also the BSP will evaluate banking risk relative
increased the complexity of the FI’s to its impact on capital and earnings. From
consolidated risk exposure. Because of this a supervisory perspective, risk is the potential
complexity, FIs must evaluate, control, and that events, expected or unanticipated, may
manage risk according to its significance. have an adverse impact on the FI’s capital
The FI’s evaluation of risk must take into or earnings.
account how non-bank activities within a The BSP-SES has defined eight (8)
banking organization affect the FI. categories of risk for FI supervision
Consolidated risk assessments should be a purposes. These risks are: credit, market,
fundamental part of managing the FI. Large interest rate, liquidity, operational,
FIs assume varied and complex risks that compliance, strategic, and reputation. These
warrant a risk-oriented supervisory categories are not mutually exclusive; any
approach. product or service may expose the FI to
multiple risks. In addition, they can be
II. Statement of policy interdependent. Increased risk in one (1)
The existence of risk is not necessarily category can increase risk in other
a reason for concern. Likewise, the categories.
existence of high risk in any area is not
necessarily a concern, so long as Types and definitions of risk
management exhibits the ability to 1. Credit risk arises from a
effectively manage that level of risk. Under counterparty’s failure to meet the terms of
this approach, the BSP will not necessarily any contract with the FI or otherwise
attempt to restrict risk-taking but rather perform as agreed. Credit risk is found in
ensure that FIs identify, understand, and all activities where success depends on
control the risks they assume. As an counterparty, issuer, or borrower
organization grows more diverse and performance. It arises any time FI funds are
complex, the FI’s risk management extended, committed, invested, or otherwise
processes must keep pace. When risk is not exposed through actual or implied
properly managed, BSP will direct FI contractual agreements, whether reflected
management to take corrective action such on or off the balance sheet. Credit risk is
as reducing exposures, increasing capital, not limited to the loan portfolio.
strengthening risk management processes 2. Market risk is the risk to earnings or
or a combination of these actions. In all capital arising from changes in the value

APP. 72
06.12.31
of traded portfolios of financial instruments. or ethical standards. Compliance risk also

This risk arises from market-making, dealing, arises in situations where the laws or rules
and position-taking in interest rate, foreign governing certain FI products or activities of
exchange, equity and commodities markets. the FI’s clients may be ambiguous or untested.
3. Interest rate risk is the current and This risk exposes the FI to fines, payment of
prospective risk to earnings or capital arising damages, and the voiding of contracts.
from movements in interest rates. Interest Compliance risk can lead to diminished
rate risk arises from differences between the reputation, reduced franchise value, limited
timing of rate changes and the timing of cash business opportunities, reduced expansion
flows (repricing risk); from changing rate potential, and lack of contract enforceability.
relationships among different yield curves 7. Strategic risk is the current and
affecting FI activities (basis risk); from prospective impact on earnings or capital
changing rate relationships across the arising from adverse business decisions,
spectrum of maturities (yield curve risk); and improper implementation of decisions, or
from interest-related options embedded in lack of responsiveness to industry changes.
FI products (options risk). This risk is a function of the compatibility of
4. Liquidity risk is the current and an organization’s strategic goals, the
prospective risk to earnings or capital arising business strategies developed to achieve
from an FI’s inability to meet its obligations those goals, the resources deployed against
when they come due without incurring these goals, and the quality of implementation.
unacceptable losses. Liquidity risk includes The resources needed to carry out business
the inability to manage unplanned decreases strategies are both tangible and intangible.
or changes in funding sources. Liquidity risk They include communication channels,
also arises from the failure to recognize or operating systems, delivery networks, and
address changes in market conditions that managerial capacities and capabilities. The
affect the ability to liquidate assets quickly organization’s internal characteristics must
and with minimal loss in value. be evaluated against the impact of
5. Operational risk is the current and economic, technological, competitive,
prospective risk to earnings or capital arising regulatory, and other environmental changes.
from fraud, error, and the inability to deliver 8. Reputation risk is the current and
products or services, maintain a competitive prospective impact on earnings or capital
position, and manage information. Risk is arising from negative public opinion. This
inherent in efforts to gain strategic affects the FI’s ability to establish new
advantage, and in the failure to keep pace relationships or services or continue
with changes in the financial services servicing existing relationships. This risk may
marketplace. Operational risk is evident in expose the FI to litigation, financial loss, or
each product and service offered. a decline in its customer base. In extreme
Operational risk encompasses: product cases, FIs that lose their reputation may
development and delivery, operational suffer a run on deposits. Reputation risk
processing, systems development, computing exposure is present throughout the
systems, complexity of products and services, organization and requires the responsibility
and the internal control environment. to exercise an abundance of caution in
6. Compliance risk is the current and dealing with customers and the community.
prospective risk to earnings or capital arising
from violations of, or non-conformance IV. FI management of risk
with, laws, rules, regulations, prescribed Because market conditions and
practices, internal policies and procedures, company structures vary, there is no

APP. 72
06.12.31
single risk management system that reports should be frequent, timely,

works for all FIs. Each FI should tailor its accurate, and informative and should be
risk management program to its needs distributed to appropriate individuals to
and circumstances. Sound risk ensure action, when needed. For large,
management systems, however, have complex FIs, monitoring is essential to
several things in common; for example, ensure that management’s decisions are
they are independent of risk-taking implemented for all geographies,
activities. Regardless of the risk products, and legal entities.
management program’s design, each 4. Control risk: The FI should establish
program should: and communicate risk limits through
1. Identify risk: To properly identify policies, standards, and procedures that
risks, an FI must recognize and define responsibility and authority. These
understand existing risks or risks that control limits should be valid tools that
may arise from new business initiatives, management should be able to adjust
including risks that originate in non-bank when conditions or risk tolerances change.
subsidiaries and affiliates. Risk The FI should have a process to authorize
identification should be a continuing exceptions or changes to risk limits when
process, and should occur at both the warranted. In merging or consolidating
transaction and portfolio level. FIs, the transition should be tightly
2. Measure risk: Accurate and timely controlled; business plans, lines of
measurement of risk is essential to authority, and accountability should be
effective risk management systems. An FI clear. Large, diversified FIs should have
that does not have a risk measurement strong risk controls covering all
system has limited ability to control or geographies, products, and legal entities.
monitor risk levels. Further, the more The Board must establish the FI’s
complex the risk, the more sophisticated strategic direction and risk tolerances. In
should be the tools that measure it. An FI carrying out these responsibilities, the
should periodically conduct tests to make Board should approve policies that set
sure that the measurement tools it uses are operational standards and risk limits. Well-
accurate. Good risk measurement systems designed monitoring systems will allow
assess the risks of both individual the Board to hold management
transactions and portfolios. During the accountable for operating within
transition process in FI mergers and established tolerances. Capable
consolidations, the effectiveness of risk management and appropriate staffing are
measurement tools is often impaired also essential to effective risk
because of the technological management. FI management is
incompatibility of the merging systems or responsible for the implementation,
other problems of integration. Therefore, integrity, and maintenance of risk
the resulting FI must make a strong effort management systems. Management also
to ensure that risks are appropriately must keep the directors adequately
measured across the consolidated entity. informed. Management must:
Larger, more complex FIs must assess the a. Implement the FI’s strategy;
impact of increased transaction volume b. Develop policies that define the
across all risk categories. FI’s risk tolerance and ensure that they are
3. Monitor risk: FIs should monitor compatible with strategic goals;
risk levels to ensure timely review of c. Ensure that strategic direction
risk positions and exceptions. Monitoring and risk tolerances are effectively

APP. 72
06.12.31
communicated and adhered to throughout decisions about risk, and assess the
the organization; effectiveness of processes. Feedback
d. Oversee the development and should be timely, accurate, and pertinent.
maintenance of management information
systems to ensure that information is VI. Supervision by Risk
timely, accurate, and pertinent. Using the core assessment standards
of the BSP as guide, an examiner will
V. Assessment of risk management obtain both a current and prospective view
When assessing risk management of an FI’s risk profile. When appropriate,
systems, the BSP will consider the FI’s this profile will incorporate potential
policies, processes, personnel, and control material risks to the FI from non-bank
systems. Significant deficiencies in any one affiliates’ activities conducted by the FI.
of these areas will cause the BSP to expect Subsidiaries and branches of foreign FIs
the FI to compensate for these deficiencies should maintain sufficient documentation
in their overall risk management process. onsite to support the analysis of their risk
1. Policies are statements of the FIs’ management. This risk assessment drives
commitment to pursue certain results. supervisory strategies and activities. It also
Policies often set standards (on risk facilitates discussions with FI management
tolerances, for example) and recommend and directors and helps to ensure more
courses of action. Policies should express efficient examinations. The core
an FI’s underlying mission, values, and assessment complements the RAS.
principles. A policy review should always Examiners document their conclusions
be triggered when an FI’s activities or risk regarding the quantity of risk, the quality
tolerances change. of risk management, the level of
2. Processes are the procedures, supervisory concern (measured as
programs, and practices that impose order aggregate risk), and the direction of risk
on the FI’s pursuit of its objectives. Processes using the RAS. Together, the core
define how daily activities are carried out. assessment and RAS give the appropriate
Effective processes are consistent with the department of the SES the means to assess
underlying policies, are efficient, and are existing and emerging risks in FIs,
governed by checks and balances. regardless of size or complexity.
3. Personnel are the staff and managers Specifically, supervision by risk
that execute or oversee processes. Good staff allocates greater resources to areas with
and managers perform as expected, are higher risks. The appropriate department
qualified, and competent. They understand of the SES will accomplish this by:
the FI’s mission, values, policies, and 1. Identifying risks using common
processes. Compensation programs should definitions. The categories of risk, as they
be designed to attract, develop, and retain are defined, are the foundation for
qualified personnel. In addition, supervisory activities.
compensation should be structured to 2. Measuring risks using common
reward contributions to effective risk methods of evaluation. Risk cannot always
management. be quantified in pesos. For example,
4. Control systems include the tools numerous internal control deficiencies
and information systems (e.g, internal/ may indicate excessive operational risk.
external audit programs) that FI managers 3. Evaluating risk management to
use to measure performance, make determine whether FI systems and

APP. 72
06.12.31
processes permit management to consolidated banking organization, and the

manage and control existing and banking system.
prospective levels of risk. To fully implement supervision by risk,
The appropriate department of the SES the appropriate department of the SES will
will discuss preliminary conclusions also assign CAMELS ratings to the lead FI
regarding risks with FI management. and all affiliated FIs. It may determine that
Following these discussions, the risks in individual FIs are increased,
appropriate department of the SES will reduced, or mitigated in light of the
adjust conclusions when appropriate. consolidated risk profile of the FI as a
Once the risks have been clearly whole. To perform a consolidated analysis,
identified and communicated, the it will obtain pertinent information from FIs
appropriate department of the SES can and affiliates, and verify transactions
then focus supervisory efforts on the areas flowing between FIs and affiliates.
of greater risk within the FI, the (Circular No. 510 dated 03 February 2006)

APP. 73
06.12.31
GUIDELINES ON MARKET RISK MANAGEMENT

I. Background In evaluating the above parameters,

The globalization of financial markets, the BSP expects FIs to have sufficient
increased transaction volume and volatility, knowledge, skills and appropriate
and the introduction of complex products system and technology necessary to
and trading strategies have made market risk understand and effectively manage their
management take on a more important role market risk exposures. The principles set
in risk management. FIs now use a wide forth in these guidelines shall be used in
range of financial products and strategies, determining the adequacy and
ranging from the most liquid fixed income effectiveness of an FI’s market risk
securities to complex derivative management process, the level and trend
instruments and structured products. The of market risk exposure and adequacy
risk dimensions of these products and of capital relative to exposure. The BSP
strategies must be fully understood, shall consider the following factors:
monitored, and controlled by an FI. 1. The major sources of market risk
exposure and the complexity and level of
II. Statement of policy risk posed by the assets, liabilities, and off-
For purposes of these guidelines, FIs balance-sheet activities of the FI;
refer to banks and NBFIs supervised by the 2. The FI’s actual and prospective level
BSP and their respective financial of market risk in relation to its earnings,
subsidiaries. capital, and risk management systems;
The level of market risk assumed by 3. The adequacy and effectiveness of
an FI is not necessarily a concern, so long the FI’s risk management practices and
as the FI has the ability to effectively strategies as evidenced by:
manage the risk. Therefore, the BSP will • The adequacy and effectiveness of
not restrict the level of risk assumed by an Board and senior management oversight;
FI, or the scope of its financial market • Management’s knowledge and
activities, so long as the FI is authorized to ability to identify and manage sources of
engage in such activities and: market risk as measured by past and
• Understands, measures, monitors projected financial performance;
and controls the risk assumed, • The adequacy of internal
• Adopts risk management practices measurement, monitoring, and management
whose sophistication and effectiveness are information systems;
commensurate to the risk being monitored • The adequacy and effectiveness of
and controlled, and risk limits and controls that set tolerances
• Maintains capital commensurate on income and capital losses;
with the risk exposure assumed. • The adequacy and frequency of the
If the BSP determines that an FI’s risk FI’s internal review and audit of its market
exposures are excessive relative to the FI’s risk management process.
capital, or that the risk assumed is not well Further, an FI’s market risk management
managed, the BSP will direct the FI to system shall be assessed under the FI’s
reduce its exposure to an appropriate level general risk management framework,
and/or strengthen its risk management consistent with the guidelines on supervision
systems. by risk as set forth under Appendix 72.

APP. 73
06.12.31
III. Market risk management process usually involves establishing market risk
An FI’s market risk management limits that are consistent with an FI’s market
process should be consistent with its risk measurement methodologies. Limits
general risk management framework and may be applied through an outright
should be commensurate with the level of prohibition on exposures above a pre-set
risk assumed. Although there is no single threshold, by restraining activities or
market risk management system that deploying strategies that alter the risk-return
works for all FIs, an FI’s market risk characteristics of on- and off- balance sheet
management process should: positions. Appropriate pricing strategies
1. Identify market risk. Identifying may likewise be used to control market risk
current and prospective market risk exposures.
exposures involves understanding the 4. Monitor market risk. Ensuring that
sources of market risk arising from an FI’s market risk exposures are adequately
existing or new business initiatives. An FI controlled requires the timely review of
should have procedures in place to identify market risk positions and exceptions.
and address the risk posed by new products Monitoring reports should be frequent,
and activities prior to initiating the new timely and accurate. For large, complex FIs,
products or activities. consolidated monitoring should be
Identifying market risk also includes employed to ensure that management’s
identifying an FI’s desired level of risk decisions are implemented for all
exposure based on its ability and willingness geographies, products, and legal entities.
to assume market risk. An FI’s ability to
assume market risk depends on its capital IV. Definition and sources of market risk
base and the skills/capabilities of its Market risk is the risk to earnings or
management team. In any case, market risk capital arising from adverse movements in
identification should be a continuing factors that affect the market value of
process and should occur at both the instruments, products, and transactions in
transaction and portfolio level. an institution’s overall portfolio, both on or
2. Measure market risk. Once the off-balance sheet. Market risk arises from
sources and desired level of market risk have market-making, dealing, and position-taking
been identified, market risk measurement in interest rate, foreign exchange, equity and
models can be applied to quantify an FI’s commodities markets.
market risk exposures. However, market risk Interest rate risk is the current and
cannot be managed in isolation. Market risk prospective risk to earnings or capital arising
measurement systems should be integrated from movements in interest rates.
into an FI’s general risk measurement system Foreign exchange risk refers to the risk
and results from models should be to earnings or capital arising from adverse
interpreted in coordination with other risk movements in foreign exchange rates.
exposures. Further, the more complex an FI’s Equity risk is the risk to earnings or
financial market activities are, the more capital arising from movements in the value
sophisticated the tools that measure market of an institution’s equity-related holdings.
risk exposures arising from such complex Commodity risk is the risk to earnings
activities should be. or capital due to adverse changes in the
3. Control market risk. Quantifying value of an institution’s commodity-related
market risk exposures help an FI align holdings.
existing exposures with the identified desired While there are generally four sources
level of exposures. Controlling market risk of market risk, as defined herein, the focus

APP. 73
06.12.31
of this Appendix is interest rate risk and c. Yield curve risk

foreign exchange risk. Nevertheless, the Yield curve risk is the risk that rates of
principles set forth in the market risk different maturities may change by a
management process and sound risk different magnitude. It arises from variations
management practices are generally in the movement of interest rates across
applicable to all sources of market risk. the maturity spectrum of the same index
a. Interest rate risk or market. Yield curves can steepen, flatten
Interest rate risk is the risk that changes or even invert. Unanticipated shifts of the
in market interest rates will reduce current yield curve may have adverse effects on an
or future earnings and/or the economic value FI’s earnings or underlying economic value.
of an FI. Accepting interest rate risk is a d. Option risk
normal part of financial intermediation and Option risk is the risk that the payment
is a major source of profitability and patterns of assets and liabilities will change
shareholder value. Excessive or when interest rates change. Formally, an
inadequately understood and controlled option gives the option holder the right, but
interest rate risk, however, can pose a not the obligation to buy, sell, or in some
significant threat to an FI’s earnings and manner alter the cash flow of an instrument
capital. Thus, an effective risk or financial contract. Options may be stand-
management process that maintains interest alone instruments or may be embedded
rate risk within prudent levels is essential within otherwise standard instruments.
to the safety and soundness of FIs. Examples of instruments with embedded
options include various types of bonds,
1. Sources of interest rate risk notes, loans or even deposits which give a
a. Re-pricing risk counterparty the right to prepay or even
This is the most common type of extend the maturity of an instrument or to
interest rate risk and arises from differences change the rate paid. In some cases, the
in the maturity (for fixed-rate instruments) holder of an option can force a counterparty
and re-pricing (for floating-rate instruments) to pay additional notional, or to forfeit
of an FI’s assets, liabilities and off-balance notional already paid.
sheet (OBS) positions. While such re- The option holder’s ability to choose to
pricing mismatches are fundamental to the alter cash flows creates an asymmetric
business of financial intermediation, they performance pattern. If not adequately
also expose an FI’s earnings and managed, the asymmetrical payoff
underlying economic value to changes characteristics of instruments with
based on fluctuations in market interest optionality can pose significant risk
rates. particularly to those who sell the options,
b. Basis risk since the options held, both explicit and
Basis risk arises from imperfect embedded, are generally exercised to the
correlations among the various interest advantage of the holder and the
rates earned and paid on financial disadvantage of the seller.
instruments with otherwise similar re-
pricing characteristics. A shift in the 2. Measuring the effects of interest
relationship between these rates or rate risk.
interest rates in different markets can give Changes in interest rates affect both
rise to unexpected changes in the cash earnings and the economic value of an FI.
flows and earnings spread between assets, This has given rise to two separate, but
liabilities and OBS instruments of similar complementary, perspectives for evaluating
maturities or re-pricing frequencies. an FI’s exposure to interest rate risk.

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Exposure to earnings typically receives The focus of analysis under the earnings
the most attention. Many FIs use a modified perspective is the impact of changes in
interest rate gap or earnings simulation interest rates on accrual or reported
model to forecast earnings over a running earnings. Volatility in earnings should be
next twelve (12) month time horizon under monitored and controlled because reduced
a variety of interest rate scenarios. Given earnings or outright losses can threaten the
that a large portion of a typical FI’s liabilities financial stability of an FI by undermining
and even assets re-price in less than one (1) its capital adequacy. Further, unexpected
year, there is value in such a system. For volatility in earnings can undermine an FI’s
example, earnings are a key measure in reputation and result in an erosion of public
determining if the board of directors is confidence.
creating value for the shareholders. Fluctuations in interest rates generally
However, earnings over the next twelve have the greatest impact on reported
(12) months do not present a complete earnings through changes in net interest
picture of an FI’s exposure to interest rate income (i.e., the difference between total
risk. Many FIs hold assets such as bonds interest income and total interest expense).
and fixed rate loans with extended terms. Thus, the BSP will expect FIs to adopt
The full effect of changes in interest rates systems that are capable of estimating
on the value of these assets cannot be fully changes to net interest income under a
captured by a short-term earnings model. variety of interest rate scenarios. For
Thus, it is also important to consider a more example, non-complex FIs with traditional
comprehensive picture of the FI’s exposure business lines and balance sheets could
to interest rate risk through an assessment potentially limit their simulations to a single
of the FI’s economic value. +100 basis point parallel rate shock.
The BSP will not consider market risk However, FIs that hold significant levels
to be “well managed” unless the FI has fully of derivatives and structured products
implemented an effective risk measurement relative to capital should incorporate more
system whose sophistication is severe rate movements (e.g. +100, 200
commensurate with the nature and and 300 basis points) to determine what
complexity of the risk assumed. Smaller FIs happens if strike prices are breached or
with non-complex single currency balance “events” are triggered. Further, the BSP will
sheets may be able to use a single non- expect an FI to employ alternative
complex measurement methodology, such as scenarios such as changes to the shape of
re-pricing gap analysis to manage their interest the yield curve if the FI is exposed to
rate risk. However, large commercial or significant levels of yield curve or basis risk.
universal banks with complex, multi-currency Changes in market interest rates may
balance sheets, or FIs that accept large also affect the volume of activities that
exposures of interest rate risk relative to capital generate fee income and other non-interest
will be expected to measure interest rate risk income. Thus, FIs should incorporate a
through a combination of earnings simulation broader focus on overall net income –
and economic value. Trading activities should incorporating both interest and non-interest
continue to be managed through the use of income and expenses – if the FI reports
an effective, and independently validated significant levels of interest rate sensitive
Value-at-Risk (VaR) methodology. non-interest income.
a. Earnings perspective b. Economic value perspective
An FI should consider how changes in The economic value of an FI can be
interest rates may affect future earnings. viewed as the present value of an FI’s

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expected net cash flows, defined as the selling foreign exchange for its own
expected cash flows from assets minus the account, an FI undertakes a risk that
expected cash flows from liabilities plus the exchange rates might change subsequent
expected net cash flows on OBS positions. to the time the contract is consummated.
As such, it provides a more Foreign exchange risk may also arise from
comprehensive view of the potential long- maintaining an open foreign exchange (FX)
term effects of changes in interest rates than position. Thus, managing FX risk includes
is offered by the earnings perspective. monitoring an FI’s net FX position.
While a variety of models are available, An FI has a net position in a foreign
the BSP expects that economic value models currency when its assets, including spot and
will incorporate all significant classes of future contracts to purchase, and its
assets, liabilities and OBS. As with earnings liabilities, including spot and future
at risk, the FI should incorporate a variety contracts to sell, in that currency are not
of interest rate scenarios to ensure that any equal. An excess of assets over liabilities is
strike prices, caps, limits, or “events” are called a net “long” position and liabilities in
breached in the simulation. Also, FIs with excess of assets, a net “short” position.
significant levels of basis or yield curve risk It should be noted that when engaging
are expected to add scenarios such as in FX activities, FIs are also exposed to
alternative correlations between interest other risks including liquidity and credit
rates and/or a flatter or steeper yield curve. risks, particularly related to the settlement
of FX contracts. FIs should have an
Managing earnings and economic exposures integrated approach to risk management in
Management must make certain relation to its FX activities: FX risk should
tradeoffs when immunizing earnings and be reviewed together with other risks to
economic value from interest rate risk. When determine the FI’s overall risk profile.
earnings are immunized, economic value Liquidity and settlement risks related to FX
becomes more vulnerable, and vice versa. activities are outside the scope of these
The economic value of equity, like that of guidelines. Nevertheless, future guidelines
other financial instruments, is a function of may be issued on these risk areas.
the discounted net cash flows it is expected
to earn in the future. If an FI has immunized V. Sound market risk management practices
earnings, such that expected earnings When assessing an FI’s market risk
remain constant for any change in interest management system, the BSP expects an FI
rates, the discounted value of those earnings to address the four (4) basic elements of a
will be lower if interest rates rise. Hence, sound risk management system:
its economic value will fluctuate with rate 1. Active and appropriate Board and
changes. Conversely, if an FI fully immunizes senior management oversight;
its economic value, its periodic earnings 2. Adequate risk management policies
must increase when rates rise and decline and procedures;
when interest rates fall. 3. Appropriate risk measurement
methodologies, limits structure, monitoring
b. Foreign exchange risk and management information systems; and
Foreign exchange risk (FX risk) is the risk 4. Comprehensive internal controls
to earnings or capital arising from changes and independent audits.
in foreign exchange rates. The specific manner in which an FI
In contracting to meet clients’ foreign applies these elements in managing its
currency needs or simply buying and market risk will depend upon the

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complexity and nature of its activities, as nature and the level of market risk taken
well as the level of market risk exposure by the FI. In order to carry out its
assumed. What constitutes adequate responsibilities, the Board should:
market risk management practices can 1. Establish and guide the FI’s
therefore vary considerably. Regardless of strategic direction and tolerance for market
the systems used, the BSP will not consider risk. While it is not possible to provide a
market risk to be well managed unless all comprehensive list of documents to
four of the above elements are deemed to consider, the BSP should see a clear and
be at least “satisfactory”. documented pattern whereby the Board
As with other risk factor categories, reviews, discusses and approves strategies
banking groups (banks and subsidiaries/ and policies with respect to market risk
affiliates) should monitor and manage market management. In addition, there should be
risk exposures of the group on a consolidated evidence that the Board periodically
and comprehensive basis. At the same time, reviews and discusses the overall
however, FIs should fully recognize any legal objectives of the FI with respect to the
distinctions and possible obstacles to cash level of market risk acceptable to the FI.
flow movements among affiliates and adjust 2. Identify senior management who
their risk management practices accordingly. has the authority and responsibility for
While consolidation may provide a managing market risk and ensure that
comprehensive measure in respect of market senior management takes the necessary
risk, it may also underestimate risk when steps to monitor and control market risk
positions in one affiliate are used to offset consistent with the approved strategies
positions in another affiliate. This is because and policies. The BSP should be able to
a conventional accounting consolidation may discern a clear hierarchal structure with a
allow theoretical offsets between such clear assignment of responsibility and
positions from which an FI may not in practice authority.
be able to benefit because of legal or 3. Monitor the FI’s performance and
operational constraints. overall market risk profile, ensuring that
the level of market risk is maintained
A. Active and appropriate board and within tolerance and at prudent levels
senior management oversight1 supported by adequate capital. The Board
Effective board and senior should be regularly informed of the
management oversight of an FI’s market market risk exposure of the FI and any
risk activities is critical to a sound market breaches to established limits for
risk management process. It is important appropriate action. Reporting should be
that these individuals are aware of their timely and clearly presented. In assessing
responsibilities with regard to market risk an FI’s capital adequacy for market risk,
management and how market risk fits the Board should consider the FI’s
within the organization’s overall risk current and potential market risk
management framework. exposure as well as other risks that may
Responsibilities of the board of directors impair the FI’s capital, such as credit,
The board of directors has the ultimate liquidity, operational, strategic, and
responsibility for understanding the reputation risks.
1
This section refers to a management structure composed of a board of directors and senior management.
The BSP is aware that there may be differences in some financial institutions as regards the organizational
framework and functions of the board of directors and senior management. For instance, branches of foreign
banks have board of directors located outside of the Philippines and are overseeing multiple branches in various
countries. In this case, “board-equivalent” committees are appointed. Owing to these differences, the notions of
the board of directors and the senior management are used in these guidelines not to identify legal constructs but
rather to label two decision-making functions within a financial institution.

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4. Ensure that the FI implements 3. Maintain appropriate limits structure,

sound fundamental principles that facilitate adequate systems for measuring market risk,
the identification, measurement, and standards for measuring performance.
monitoring and control of market risk. The 4. Oversee the implementation and
board of directors should encourage maintenance of management information
discussions among its members and senior and other systems to identify, measure,
management – as well as between senior monitor, and control the FI’s market risk.
management and others in the FI – 5. Establish effective internal controls
regarding the FI’s market risk exposures over the market risk management process.
and management process. 6. Ensure that adequate resources are
5. Ensure that adequate resources, available for evaluating and controlling
both technical and human resources, are market risk. Senior management of FIs,
devoted to market risk management. including branches of foreign banks, should
While board members need not have ensure that analysis and market risk
detailed technical knowledge of complex management activities are conducted by
financial instruments, legal issues or competent staff with technical knowledge
sophisticated risk management techniques, and experience consistent with the nature
they have the responsibility to ensure that and scope of the FI’s activities. There should
the FI has personnel available who have be sufficient depth in staff resources to
the necessary technical skills to evaluate manage these activities and to accommodate
and control market risk. This responsibility the temporary absence of key personnel and
includes ensuring that there is continuous normal succession.
training of personnel on market risk In evaluating the quality of oversight, the
management and providing competent BSP shall evaluate how the board and senior
technical staff for the internal audit function. management carry out the above functions/
responsibilities. Further, sound management
Responsibilities of senior management oversight is highly related to the quality of
Senior management is responsible for other areas/elements of an FI’s risk
ensuring that market risk is adequately management system. Thus, even if board and
managed for both long-term and day-to- senior management exhibit active oversight,
day basis. In managing the FI’s activities, the FI’s policies, procedures, measurement
senior management should: methodologies, limits structure, monitoring
1. Develop and implement policies, and information systems, controls and audit
procedures and practices that translate the must be considered adequate before quality
board’s goals, objectives and risk of board and senior management can be
tolerances into operating standards that are considered at least “satisfactory”.
well understood by personnel and that are
consistent with the board’s intent. Senior Lines of responsibility and authority
management should also periodically FIs should clearly define the individuals
review the organization’s market risk and/or committees responsible for managing
management policies and procedures to market risk and should ensure that there is
ensure that they remain appropriate and adequate separation of duties in key
sound. elements of the risk management process to
2. Ensure adherence to the lines of avoid potential conflicts of interest.
authority and responsibility that the board Management should ensure that
has established for measuring, managing, sufficient safeguards exist to minimize the
and reporting market risk exposures. potential that individuals initiating risk-taking

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positions may inappropriately influence key reporting and approving exceptions to

control functions of the market risk policies, limits, and authorizations.
management process. FIs should therefore It is important that FIs identify market
have risk measurement, monitoring, and risk, as well as other risks, inherent in new
control functions with clearly defined products and activities and ensure these are
duties that are sufficiently independent subject to adequate procedures and controls
from position-taking functions of the FI and before the new products and activities are
which report risk exposures directly to the introduced or undertaken. Specifically, new
board of directors. products and activities should undergo a
The nature and scope of safeguards to careful pre-acquisition review to ensure that
minimize potential conflicts of interest the FI understands their market risk
should be in accordance with the size and characteristics and can incorporate them into
structure of an FI. Larger or more complex its risk management process. Major hedging
FIs should have a designated independent or risk management initiatives should be
unit responsible for the design and approved in advance by the board or its
administration of the FI’s market risk appropriate delegated committee.
measurement, monitoring and control Proposals and the subsequent new
functions. product/activity review should be formal and
written. For purposes of managing market risk
B. Adequate risk management policies inherent in new products, proposals should,
and procedures at a minimum, contain the following features:
An FI’s market risk policies and 1. Description of the relevant product
procedures should be clearly defined, or strategy;
documented and duly approved by the board 2. Use/purpose of the new product/
of directors. Policies and procedures should activity;
be consistent with the nature and complexity 3. Identification of the resources
of the FI’s activities. When reviewing banking required and unit/s responsible for
groups, the BSP will assess whether establishing sound and effective market risk
adequate and effective policies and management of the product or activity;
procedures have been adopted and 4. Analysis of the reasonableness of the
implemented across all levels of the proposed activities in relation to the FI’s
organization. overall financial condition and capital
Policies and procedures should delineate levels; and
lines of responsibility and accountability and 5. Procedures to be used to measure,
should clearly define authorized monitor, and control the risks of the
instruments, hedging strategies, position- proposed product or activity.
taking opportunities, and the market risk
models used to quantify market risk. Market C. Appropriate risk measurement
risk policies should also identify quantitative methodologies, limits structure, monitoring,
parameters that define the acceptable level of and management information system
market risk for the FI. Where appropriate, limits
should be further specified for certain types of Market risk measurement models/
instruments, portfolios, and activities. All methodologies
market risk policies should be reviewed It is essential that FIs have market risk
periodically and revised as needed. measurement systems that capture all
Management should define the specific material sources of market risk and that
procedures to be used for identifying, assess the effect of changes in market risk

APP. 73
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factors in ways that are consistent with the practice, the FI must assess the significance
scope of their activities. Depending upon of the potential loss of precision in
the size, complexity, and nature of activities determining the extent of aggregation and
that give rise to market risk, the ability to simplification to be built into the measurement
capture all material sources of market risk approach. Assumptions and limitations of the
in a timely manner may require an FI’s measurement approach, such as the loss of
market risk measurement system to be precision, should be documented.
interfaced with other systems, such as the On the other hand, banks holding an
treasury system or loan system. The expanded derivatives license and FIs
assumptions underlying the measurement engaging in options or structured products
system should be clearly understood by risk with embedded options cannot capture all
managers and senior management. material sources of market risk by using static
Market risk measurement systems models such as the re-pricing gap. These FIs
should: should have interest rate risk measurement
1. Assess all material market risk systems that assess the effects of rate changes
associated with an FI’s assets, liabilities, and on both earnings and economic value. These
OBS positions; systems should provide meaningful
2. Utilize generally accepted financial measures of an FI’s current levels of interest
concepts and risk measurement techniques; and rate risk exposure, and should be capable
3. Have well-documented assumptions of identifying any excessive exposures that
and parameters. might arise. Pricing models and simulation
There are a number of methods/ techniques will probably be required.
techniques for measuring market risks. There is also a question on the extent to
Complexity ranges from simple marking-to- which market risk should be viewed on a
market or valuation techniques to more whole institution basis or whether the
advanced static simulations using current trading book, which is marked to market,
holdings to highly sophisticated dynamic and the accrual book, which is often not,
modeling techniques that reflect potential should be treated separately. As a general
future business activities. In designing rule, it is desirable for any measurement
market risk measurement systems, FIs should system to incorporate market risk exposures
ensure that the degree of detail regarding arising from the full scope of an FI’s
the nature of their positions is commensurate activities, including both trading and non-
with the complexity and risk inherent in trading sources. A single measurement
those positions. system can facilitate analysis of market risk
At a minimum, smaller non-complex FIs exposure. However, this does not preclude
should have the ability to mark-to-market different measurement systems and risk
or revalue their investment portfolio and management approaches being used for
construct a simple re-pricing gap. When similar or different activities. For example, a
using gap analysis, the precision of interest bank with expanded derivatives license will
rate risk measurement depends in part on use pricing models as basic tools in valuing
the number of time bands into which position from its derivatives activities and
positions are aggregated. Clearly, structured products. In addition, the bank
aggregation of positions/cash flows into should use simulation models to assess the
broad time bands implies some loss of potential effects of changes in market risk
precision. In addition, the use of reasonable factors by simulating the future path of
and valid assumptions is important for a market risk factors and their impact on cash
measurement system to be precise. In flows from these activities.

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Different methodologies may also be economic value approach. The validity of

applied to the trading and accrual books. correlation assumptions to aggregate market
Regardless of the number of models or risk exposures is likewise important as
measurement systems used, management breakdowns in correlations may significantly
should have an integrated view of market affect the validity of model results. Key
risk across products and business lines. assumptions should therefore be subject to
Regardless of the measurement system rigorous documentation and review. Any
used, the BSP will expect the FI to ensure significant changes should be approved in
that input data are timely and correct, advance by the board of directors.
assumptions can be supported and are valid, (2) Model risk. While accuracy is key
the methodologies used produce accurate to an effective market risk measurement
results, and the results can be easily system, methodologies cannot be expected
understood by senior management and the to flawlessly predict potential losses arising
board. from market risk. The use of models
(1) Model input. All market risk introduces the potential for model risk. Thus,
measurement methodologies require various model risk is the risk of loss arising from
types of inputs, including hard data, readily inaccurate or incorrect quantification of
observable parameters such as asset prices, market risk exposures due to weaknesses in
and both quantitatively and qualitatively- market risk methodologies. It may arise from
derived assumptions. This applies equally relying on assumptions that are inconsistent
to simple gap as well as complex simulation with market realities, from employing input
models. parameters that are unreliable, or from
The integrity and timeliness of data is a calibrating, applying and implementing
key component of the market risk models incorrectly.
measurement process. The BSP expects that Model risk is more likely to arise for
adequate controls will be established to instruments that have non-standard or
ensure that all material positions and cash option-like features. The use of proprietary
flows from on- and off- balance sheet models that employ unconventional
positions are incorporated into the techniques that are not widely agreed upon
measurement system on a consistent and by market participants is likewise more
timely basis. Inputs should be verified sensitive to model risk. Even the use of
through a process that validates data standard models may lead to errors if the
integrity. Assumptions and inputs should be financial tools are not appropriate for a given
subject to control and oversight review. Any instrument.
manual adjustments to underlying data The BSP expects FIs to implement
should be documented, and the nature and effective policies and procedures to manage
reasons for the adjustments should also be model risk. The scope of policies and
clearly understood. procedures will depend upon the type and
Critical to model accuracy is the validity complexity of models developed or
of underlying assumptions. Assumptions purchased. However, FIs holding an
regarding maturity of deposits, for example, expanded license or significant levels of
are critical in measuring interest rate risk. complex investments including structured
The treatment of positions where behavioral products, should at a minimum implement
maturity is different from contractual maturity the following controls:
requires the use of assumptions and may a. Model development/acquisition,
complicate the measurement of interest rate implementation and revisions. The BSP
risk exposure, particularly when using the expects larger, complex FIs to adopt policies

APP. 73
06.12.31
governing development/acquisition, in market prices or market risk factors with

implementation and revision of market risk projections produced by the model. To be
models. These policies should clearly more effective, back-testing should be
define the responsibilities of staff involved conducted by parties independent of those
in the development/acquisition process. FIs developing or using the model. Policies
should ensure that modeling techniques should address the scope of the back-testing
and assumptions are consistent with widely process, frequency of back-testing,
accepted financial theories and market documentation requirements, and
practices. Policies and procedures should management responses. Complex models
be duly approved by the board of directors should be back-tested continually while
and properly documented. An inventory simple models can be back-tested
of the models in use should be maintained periodically. Significant discrepancies should
along with documentation explaining how prompt a model review.
they operate. 4. Periodic review of methodologies
The BSP also expects that revisions to and assumptions. The BSP expects that FIs
models will be performed in a controlled will periodically review or reassess their
environment by authorized personnel and modeling methodologies and assumptions.
changes should be made or verified by a Again, the frequency of review will depend
control function. Written policies should on the model but complex models should
specify when changes to models are be reviewed at least once a year, when
acceptable and how those revisions should changes are made, or when a new product
be accomplished. or activity is introduced. Model review
b. Model validation. Before models are could also be prompted when there is a need
authorized for use, they should be validated for the model to be updated to reflect
by individuals who are neither directly changes in the FI or market. The review
involved in the development process nor process should be performed by an
responsible for providing inputs to the model. independent group as it is considered to be
Independent model validation is a key part of the risk control and audit function.
control in the model development process The use of vendor models can present
and should be specifically addressed in an special challenges, as vendors often claim
FI’s policies. Further, the BSP expects that proprietary privilege to avoid disclosing
the staff validating the models will have information about their models. Thus, FIs
the necessary technical expertise. may be constrained from performing
A sound validation process should validation procedures related to internal
rigorously and comprehensively evaluate logic, mathematical accuracy and model
the sensitivity of the model to material assumptions. However, vendors should
sources of model risk and includes the provide adequate information on how the
following: models were constructed and validated so
1. Tests of internal logic and that FIs have reasonable assurances that the
mathematical accuracy; model works as intended.
2. Development of empirical support c. Stress testing. The underlying
for the model’s assumptions; statistical models used to measure market
3. Back-testing. The BSP expects FIs to risk summarize the exposures that reflect the
conduct backtesting of model results. Back- most probable market conditions. Regardless
testing is a method of periodically evaluating of size and complexity of activities, the BSP
the accuracy and predictive capability of an expects FIs to supplement their market risk
FI’s market risk measurement system by measurement models with stress tests. Stress
monitoring and comparing actual movements testing are simulations that show how a

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portfolio or balance sheet might perform interconnected risk involves assessing the
during extreme events or highly volatile total or aggregate impact of singular events.
markets. Guidelines for performing stress testing
Stress testing should be designed to should be detailed in the risk management
provide information on the kinds of policy statement. Management and the
conditions under which the FI’s strategies or board of directors should periodically
positions would be most vulnerable. Thus review the design, major assumptions, and
stress tests must be tailored to the risk the results of such stress tests to ensure that
characteristics of the FI. Possible stress appropriate contingency plans are in place.
scenarios might include abrupt changes in (3) Model output. Reports should be
the general level of interest rates, changes provided to senior management and the
in the relationships among key market rates board as a basis for making decisions.
(i.e., basis risk), changes in the slope and the Report content should be clear and
shape of the yield curve (i.e., yield curve risk), straightforward, indicating the purpose of
changes in the liquidity of key financial the model, significant limitations, the
markets, or changes in the volatility of market quantitative level of risk estimated by the
rates. simulation, a comparison to Board
In addition, stress scenarios should approved limits and a qualitative discussion
include conditions under which key regarding the appropriateness of the FI’s
business assumptions and parameters break current exposures. Sophisticated
down. The stress testing of assumptions simulations should be used carefully so that
used for illiquid instruments and they do not become “black boxes”
instruments with uncertain contractual producing numbers that have the
maturities are particularly critical to appearance of precision but may not be
achieving an understanding of the FI’s risk very accurate when their specific
profile. When conducting stress tests, assumptions and parameters are revealed.
special consideration should be given to
instruments or markets where Market limits structure
concentrations exist. FIs should consider The FI’s board of directors should set
also “worst case” scenarios in addition to the institution’s tolerance for market risk
more probable events. and communicate that tolerance to senior
Further, the BSP will expect FIs with management. Based on these tolerances,
material market risk exposure, particularly senior management should establish
from derivatives and/or structured products appropriate risk limits, duly approved by
to supplement their stress testing with an the Board, to maintain the FI’s exposure
analysis of their exposure to within the set tolerances over a range of
“interconnection risk.” While stress testing possible changes in market risk factors such
typically considers the movement of a as interest rates.
single market factor (e.g., interest rates), Limits represent the FI’s actual
interconnection risk considers the linkages willingness and ability to accept real losses.
across markets (e.g., interest rates and In setting risk limits, the board and senior
foreign exchange rates) and across the management should consider the nature
various categories of risk (e.g., credit, and of the FI’s strategies and activities, past
liquidity risk). For example, stress from one performance, and management skills.
market may transmit shocks to other markets Most importantly, the board and senior
and give rise to otherwise dormant risks, management should consider the level of
such as liquidity risk. Evaluating the FI’s earnings and capital and ensure that

APP. 73
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both are sufficient to absorb losses equal account of the full range of possible sources
to the proposed limits. Limits should be of interest rate risk to the FI including re-
approved by the board of directors. pricing, yield curve, basis, and option risks.
Furthermore, limits should be flexible to Simple scenarios using parallel shifts in
changes in conditions or risk tolerances and interest rates may be insufficient to identify
should be reviewed periodically. such risks. This is particularly important for
An FI’s limits should be consistent with FIs with significant exposures to these
its overall approach to measuring market risk. sources of market risk.
At a minimum, FIs using simple gap should The form of limits for addressing the
establish limits on mismatches in each time effect of rates on an FI’s economic value of
bucket on a stand-alone and cumulative equity should be appropriate for the size and
basis. In addition, limits should be adopted complexity of its underlying positions. For
to control potential losses in the investment FIs engaged in traditional banking activities,
portfolio to a pre-set percentage of capital. relatively simple limits may suffice.
Larger, more complex FIs should However, for FIs with significant holdings
establish limits on the potential impact of of long-term instruments, options,
changes in market risk factors on reported instruments with embedded options, or
earnings or/and the FI’s economic value other structured instruments, more detailed
of equity. Market risk limits may include limit systems may be required.
limits on net and gross positions, volume Depending on the nature of an FI’s
limits, stop-loss limits, value-at-risk limits, holdings and its general sophistication, limits
re-pricing gap limits, earnings-at-risk limits can also be identified for individual business
and other limits that capture either notional units, portfolios, instrument types, or specific
or (un)expected loss exposures. In assigning instruments. The level of detail of risk limits
interest rate risk limits under the earnings should reflect the characteristics of the FI’s
perspective, FIs should explore limits on the holdings including the various sources of
variability of net income as well as net market risk the FI is exposed to.
interest income in order to fully assess the The BSP also expects that the limits
contribution of non-interest income to the system will ensure that positions that exceed
interest rate risk exposure of the FI. Such predetermined levels receive prompt
limits usually specify acceptable levels of management attention. Limit exceptions
earnings volatility under specified interest should be communicated to appropriate
rate scenarios. senior management without delay. Policies
For example, interest rate risk limits may should include how senior management will
be keyed to specific scenarios of movements be informed and what action should be
in market interest rates such as an increase taken by management in such cases.
or decrease of a particular magnitude. The Particularly important is whether limits are
rate movements used in developing these absolute in the sense that they should never
limits should represent meaningful stress be exceeded or whether, under specific
situations taking into account historic rate circumstances, breaches of limits can be
volatility and the time required for tolerated for a short period of time. The
management to address exposures. Limits circumstances leading to a tolerance of
may also be based on measures derived from breaches should be clearly described.
the underlying statistical distribution of
interest rates, such as earnings at risk or Market risk monitoring and reporting
economic value-at-risk techniques. An accurate, informative, and timely
Moreover, specified scenarios should take management information system is

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essential for managing market risk 3. The establishment of control

exposures both to inform management and activities such as policies, procedures, and
to support compliance with board policy. methodologies;
Reporting of risk measures should be done 4. Adequate information systems;
regularly and should clearly compare current 5. Continual review of adherence to
exposure to policy limits. In addition, past established policies and procedures; and
forecasts or risk estimates should be 6. An effective internal audit and
compared with actual results to identify any independent validation process.
modeling shortcomings. Policies and procedures should specify
Reports detailing the market risk the approval processes, exposure limits,
exposure of the FI should be reviewed by reconciliations, reviews, and other control
the board on a regular basis. While the types mechanisms designed to provide a
of reports prepared for the board and for reasonable assurance that the institution’s
various levels of management will vary based market risk management objectives are
on the FI’s market risk profile, they should achieved. Many attributes of a sound risk
at a minimum include the following: management process, including risk
1. Summaries of the FI’s aggregate measurement, monitoring, and control
exposures; functions, are actually key aspects of an
2. Reports demonstrating the FI’s effective system of internal control. FIs
compliance with policies and limits; should ensure that all aspects of the
3. Summary of key assumptions, for internal control system are effective,
example, non-maturity deposit behavior, including those aspects that are not directly
prepayment information, and correlation part of the risk management process.
assumptions; An important element of an FI’s
4. Results of stress tests, including internal control system is regular
those assessing breakdowns in key evaluation and review. The BSP expects
assumptions and parameters; and that FIs will establish a process to ensure
5. Summaries of the findings of reviews that its personnel are following
of market risk policies, procedures, and the established policies and procedures, and
adequacy of the market risk measurement that its procedures are actually
systems, including any findings of internal and accomplishing their intended objectives.
external auditors and retained consultants. Such reviews and evaluations should also
address any significant change that may
D. Risk controls and audit impact the effectiveness of controls, and
Adequate internal controls ensure the that appropriate follow-up action was
integrity of an FI’s market risk management implemented when limits were
process. These internal controls should be breached. Management should ensure
an integral part of the institution’s overall that all such reviews and evaluations are
system of internal control and should conducted regularly by individuals who
promote effective and efficient operations, are independent of the function they are
reliable financial and regulatory reporting, assigned to review. When revisions or
and compliance with relevant laws, enhancements to internal controls are
regulations, and institutional policies. An warranted, there should be a mechanism
effective system of internal control for market in place to ensure that these are
risk includes: implemented in a timely manner.
1. A strong control environment; Independent reviews of the market risk
2. An adequate process for identifying measurement system should also include
and evaluating risk;

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06.12.31
assessments of the assumptions, correctly specified and that all major

parameters, and methodologies used. Such instruments, portfolios, and business units
reviews should seek to understand, test, are captured in the model. The review
and document the current measurement should also investigate whether data
process, evaluate the system’s accuracy, extracts and model inputs have been
and recommend solutions to any identified reconciled with transactions and general
weaknesses. If the measurement system ledger systems.1
incorporates one or more subsidiary systems 3. The reasonableness and validity of
or processes, the review should include scenarios and assumptions – This includes
testing aimed at ensuring that the a review of the appropriateness of the interest
subsidiary systems are well-integrated and rate scenarios as well as customer behaviors
consistent with each other in all critical and pricing/volume relationships to ensure
respects. The results of this review, along that these assumptions are reasonable and
with any recommendations for internally consistent.2
improvement, should be reported to 4. The validity of the risk measurement
senior management and/or the board. calculations - The scope and formality of the
The BSP expects that FIs with complex measurement validation will depend on the
risk exposures should have their size and complexity of the FI. At large FIs,
measurement, monitoring, and control internal and external auditors may have their
functions reviewed on a regular basis by an own models against which the FI’s model
independent party (such as an internal or is tested. FIs with more complex risk profiles
external auditor). In such cases, reports written and measurement systems should have the
by external auditors or other outside parties model or calculations audited or validated
should be available to the BSP. It is essential by an independent source. At smaller and
that any independent reviewer ensures that less complex FIs, periodic comparisons of
the FI’s risk measurement system is sufficient actual performance with forecasts may be
to capture all material elements of market risk, sufficient.3
whether arising from on- or off-balance-sheet The frequency and extent to which an
activities. Among the items that an audit FI should re-evaluate its risk measurement
should review and validate are: methodologies and models depend, in
1. The appropriateness of the FI’s risk part, on the particular market risk
measurement system(s) given the nature, exposures created by holdings and
scope, and complexity of its activities. activities, the pace and nature of market
2. The accuracy and completeness of rate changes, and the pace and complexity
the data inputs - This includes verifying that of innovation with respect to measuring
balances and contractual terms are and managing market risk.
1
It is acceptable for parts of the reconciliation to be automated; e.g., routines may be programmed to
investigate whether the balances being extracted from various transaction systems match the balances recorded
on the FI’s general ledger. Similarly, the model itself often contains various audit checks to ensure, for example,
that maturing balances do not exceed original balances.
2
Key areas of review include the statistical methods that were used to generate scenarios and assumptions
(if applicable), and whether senior management reviewed and approved key assumptions. The review should
also compare actual pricing spreads and balance sheet behavior to model assumptions. For some instruments,
estimates of value changes can be compared with market value changes. Unfavorable results may lead the FI to
revise model relationships.
3
The validity of the model calculations is often tested by comparing actual with forecasted results. When
doing so, FIs can compare projected net income results with actual earnings. Reconciling the results of eco-
nomic valuation systems can be more difficult because market prices for all instruments are not always readily
available, and the FI does not routinely mark all of its balance sheet to market. For instruments or portfolios with
market prices, these prices are often used to benchmark or check model assumptions.

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VI. Capital adequacy improve its system. In cases where an FI

In addition to adequate risk accepts significant market risk in its accrual
management systems and controls, capital book, the BSP expects that a portion of
has an important role to play in mitigating capital will be allocated to cover this risk.
and supporting market risk. FIs must hold When performing these evaluations,
capital commensurate with the level of the BSP will determine if:
market risk they undertake. As part of (a) All material market risk associated
sound market risk management, FIs must with an institution’s assets, liabilities, and
translate the level of market risk they OBS positions in the accrual book are
undertake whether as part of their trading captured by the risk management systems;
or non-trading activities, into their (b) Generally accepted financial
overall evaluation of capital adequacy. concepts and risk measurement
Where market risk is undertaken as part techniques are utilized. For larger,
of an FI’s trading activities, existing complex FIs, internal systems must be
capital adequacy ratio requirements shall capable of measuring risk using both an
prevail. earnings and economic value approach.
The BSP will periodically evaluate the (c) Data inputs are adequately
market risk measurement system for the specified (commensurate with the nature
accrual book to determine if the FI’s and complexity of an FI’s holdings) with
capital is adequate to support its exposure regard to rates, maturities, re-pricing,
to market risk and whether the internal embedded options, and other details;
measurement systems of the FI are adequate. (d) The system’s assumptions (used to
In performing this assessment, the BSP may transform positions into cash flows) are
require information regarding the market reasonable, properly documented, and stable
risk exposure of the FI, including re-pricing over time.1
gaps, earnings and economic value (e) Market risk measurement systems
simulation estimates, and the results of are integrated into the institution’s daily risk
stress tests. This information will typically management practices. The output of the
be found in internal management reports. systems should be used in characterizing the
If an FI’s internal measurement system level of market risk to senior management
does not adequately capture the level of and board of directors.
market risk, the BSP may require an FI to (Circular No. 544 dated 15 September 2006)
1
This is especially important for assets and liabilities whose behavior differs markedly from contractual
maturity or re-pricing, and for new products. Material changes to assumptions should be documented, justified,
and approved by management.

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GUIDELINES ON LIQUIDITY RISK MANAGEMENT

I. Background relative to the FI’s size, complexity, and

The on-going viability of institutions, risk profile.
particularly financial organizations, is In general, liquidity risk management
heavily influenced by their ability to practices should ensure that an institution is
manage liquidity. Innovations in able to maintain a level of liquidity sufficient
investment and funding products, growth to meet its financial obligations in a timely
in off-balance sheet activities and manner and to fulfill the legitimate funding
continuous competition for consumer needs of its community. Practices should reflect
funds have affected the way FI do business the ability of the institution to manage
and intensified the need for proactive unplanned changes in funding sources, as well
liquidity risk management. FIs need to as react to changes in market conditions that
fully understand, measure and control the affect the ability to quickly liquidate assets with
resulting liquidity risk exposures. minimal loss. In addition, funds-management
practices should ensure that liquidity is not
II. Statement of Policy consistently maintained at a high cost, from
For purposes of these guidelines, FI concentrated sources, or through undue
include banks, NBFIs supervised by the reliance on funding sources that may not be
BSP and their financial subsidiaries. The available in times of financial stress or adverse
BSP recognizes the liquidity risk inherent changes in market conditions.
in FI activities and how these activities In evaluating the above parameters, the
expose an FI to multiple risks which may BSP shall consider the following factors:
increase liquidity risk. 1. The actual and potential level of
The BSP will not restrict risk-taking liquidity risk posed by the FI’s products and
activities as long as FIs are authorized to services, balance sheet structure and off-
engage in such activities and: balance sheet activities;
1. Understand, measure, monitor 2. The cost of an FI’s access to money
and control the risk they assume; markets and other alternative sources of
2. Adopt risk management practices funding;
whose sophistication and effectiveness is 3. The diversification of funding
commensurate to the risk assumed; and sources (on and off-balance sheet);
3. Maintain capital commensurate 4. The adequacy and effectiveness of
with their risk exposures. board and senior management oversight,
The principles set forth in these particularly the Board’s ability to recognize
guidelines shall be used to determine the the effects of interrelated risk areas, such as
level and trend of liquidity risk exposure market and reputation risks, to liquidity risk;
and adequacy and effectiveness of an FI’s 5. The reasonableness of liquidity risk
liquidity risk management process. In limits and controls in relation to earnings,
evaluating the adequacy of an FI’s liquidity as affected by the cost of access to money
position, the BSP shall consider the FI’s markets and other alternative sources of
current level and prospective sources of funding, and capital;
liquidity as compared to its funding needs. 6. The adequacy of measurement
Further, the BSP will evaluate the methodologies, monitoring and
adequacy of funds management practices management information systems;

APP. 74
06.12.31
7. The adequacy of foreign currency on the FI’s capital base and access to funds
liquidity management; providers. Liquidity risk identification should
8. The appropriateness and be a continuing process and should occur at
reasonableness of contingency plans for both the transaction, portfolio and entity level.
handling liquidity crises; 2. Measure liquidity risk. Adequate
9. The adequacy of internal controls and measurement systems enable FIs to quantify
audit of liquidity risk management process. liquidity risk exposures on a per entity basis
The sophistication of liquidity risk and across the consolidated organization.
management shall depend on the size, nature A relatively large organization with extensive
and complexity of an FI’s activities. However, scope of operations would generally require
in all instances, FIs are expected to measure a more robust management information
their liquidity position on an ongoing basis, system to properly measure risk in a timely
analyze net funding requirements under and comprehensive manner.
alternative scenarios, diversify funding sources 3. Control liquidity risk. The FI should
and adopt contingency funding plans. establish policies and standards on acceptable
An FI’s liquidity risk management product types, activities, counterparties and
system shall be assessed under the FI’s set risk limits on a transactional, portfolio and
general risk management framework, aggregate/consolidated basis to control
consistent with the guidelines on supervision liquidity risk. In setting limits, the FI should
by risk as set forth under Appendix 72. If an recognize any legal distinctions and possible
FI’s risk exposures are deemed excessive obstacles to cash flow movements among
relative to the FI’s capital, or that the risk affiliates or across separate books. Lines of
assumed is not well managed, the BSP will authority and accountability should be clearly
direct the FI to reduce its exposure and/or defined to ensure liquidity risk exposures
strengthen its risk management system. remain reasonable and within the risk
tolerance expressed by the board.
III. Liquidity Risk Management Process 4. Monitor liquidity risk. Monitoring
Liquidity risk management process liquidity risk requires timely review of liquidity
should be tailored to an FI’s structure and risk positions and exceptions, including day-
scope of operations and application can vary to-day liquidity management. Monitoring
across institutions. Regardless of the reports should be frequent, timely, and
structure, an FI’s liquidity risk management accurate and should be distributed to
process should be consistent with its general appropriate levels of management.
risk management framework and should be
commensurate with the level of risk IV. Definition of Liquidity Risk
assumed. At a minimum, the process should: Liquidity risk is generally defined as
1. Identify liquidity risk. Proper the current and prospective risk to earnings
identification of liquidity risk requires that or capital arising from an FI’s inability to
management understand both existing risk meet its obligations when they come due
and prospective risks from new products and without incurring unacceptable losses or
activities. It involves determining the volume costs. Liquidity risk includes the inability
and trends of liquidity needs and the sources to manage unplanned decreases or
of liquidity available to meet these needs. changes in funding sources. Liquidity risk
Identifying liquidity risk necessitates also arises from the failure to recognize or
expressing the FI’s desired level of risk address changes in market conditions that
exposure based on its ability and willingness affect the ability to liquidate assets quickly
to assume risk which may primarily depend and with minimal loss in value.

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In terms of capital markets and trading management system is consistent with its
activities, FIs face two (2) types of liquidity general risk management framework.
risk: funding liquidity risk and market
liquidity risk. Funding liquidity risk refers V. Sound Liquidity Risk Management
to the inability to meet investment and Practices
funding requirements arising from cash When assessing an FI’s liquidity risk
flow mismatches without incurring management system, the BSP shall consider
unacceptable losses or costs. This is how an FI address the four basic elements
synonymous with the general definition of of a sound risk management system:
liquidity risk. 1. Active and appropriate board and
Market liquidity risk, on the other hand, senior management oversight;
refers to the risk that an institution cannot easily 2. Adequate risk management policies
eliminate or offset a particular position and procedures;
because of inadequate liquidity in the market. 3. Appropriate risk measurement
The size of the bid/ask spread of instruments methodologies, limits structure, monitoring
in a market provides a general indication of and management information system; and
its depth, hence its liquidity, under normal 4. Comprehensive internal controls
circumstances. Market liquidity risk is also and independent audits
associated with the probability that large Evaluation of the adequacy of the FI’s
transactions may have a significant effect on application of the above elements will be
market prices in markets that lack sufficient relative to the FI’s risk profile. FIs with less
depth. In addition, market liquidity risk is complex operations may generally use
associated with structured or complex more basic practices while larger, and/or
investments as the market of potential buyers more complex institutions will be
is typically small. Finally, FIs are exposed to expected to adopt more formal and
the risk of an unexpected and sudden erosion sophisticated practices. Large organizations
of market liquidity. This could be the result of should likewise take a comprehensive
sharp price movement or jump in volatility, perspective to measuring and controlling
or internal to the FI such as that posed by a liquidity risk by understanding how
general loss of market confidence. subsidiaries and affiliates can raise or lower
Understanding market liquidity risk is the consolidated risk profile.
particularly important for institutions with A. Active and appropriate Board and
significant holdings of instruments traded in senior management oversight1
financial markets. Effective liquidity risk management
Market and liquidity risks are highly requires that the Board and senior
interrelated, particularly during times of management be fully informed of the level
uncertainty when there is a high correlation of liquidity risk assumed by the FI and
between the need for liquidity and market ensure that the activities undertaken are
volatility. Likewise, an FI’s exposure to other within the prescribed risk tolerance. Senior
risks such as reputation, strategic, and credit management should have a thorough
risks, can likewise significantly affect an understanding of how other risks such as
institution’s liquidity risk. It is therefore credit, market, operational and reputation
important that an FI’s liquidity risk risks impact the FI’s overall liquidity strategy.1
1
This section refers to a management structure composed of a board of directors and senior management. The BSP is
aware that there may be differences in some financial institutions as regards the organizational framework and functions
of the board of directors and senior management. For instance, branches of foreign banks have board of directors located
outside of the Philippines and are overseeing multiple branches in various countries. In this case, “board-equivalent”
committees are appointed. Owing to these differences, the notions of the board of directors and the senior management
are used in these guidelines not to identify legal constructs but rather to label two decision-making functions within a
financial institution.

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Responsibilities of the board of directors 1. Develop and implement procedures

The Board has the ultimate responsibility and practices that translate the Board’s goals,
for understanding the nature and level of objectives, and risk tolerances into
liquidity risk assumed by the FI and the operating standards that are transmitted
processes used to manage it. to and well understood by personnel.
The board of directors should: Operating standards should be consistent
1. Establish and guide the FI’s strategic with the Board’s intent;
direction and tolerance for liquidity risk by 2. Plan for adequate sources of liquidity
adopting a formal written liquidity/funding to meet current and potential funding needs
policy that specifies quantitative and and establish guidelines for the development
qualitative targets; of contingency funding plans;
2. Approve policies that govern or 3. Adhere to the lines of authority and
influence the FI’s liquidity risk, including responsibility that the Board has established
reasonable risk limits and clear guidelines for managing liquidity risk;
which are adequately documented and 4. Oversee the implementation and
communicated to all concerned; maintenance of management information and
3. Identify the senior management staff other systems that identify, measure, monitor,
who has the authority and responsibility for and control the FI’s liquidity risk; and
managing liquidity risk and ensure that this 5. Establish effective internal controls
staff takes the necessary steps to monitor and over the liquidity risk management process.
control liquidity risk; In evaluating the quality of oversight
4. Monitor the FI’s performance and provided by the Board and senior
overall liquidity risk profile in a timely management, the BSP will evaluate how the
manner by requiring frequent reports that Board and senior management carry out the
outline the liquidity position of the FI along above functions/responsibilities. Further,
with information sufficient to determine if sound management practices are highly
the FI is complying with established risk related to the quality of other areas/elements
limits; of risk management system. Thus, even if
5. Mandate and track the Board and senior management exhibit active
implementation of corrective action in oversight, the FI’s policies, procedures,
instances of breaches in policies and measurement methodologies, limits
procedures; structure, monitoring and information
6. Establish, review and to the extent systems, controls and audit should be
possible, test contingency plans for dealing adequate before quality of Board and senior
with potential temporary and long-term management can be considered
liquidity disruptions; and “satisfactory”.
7. Ensure that the FI has sufficient
competent personnel, including internal Lines of Responsibility and Authority
audit staff, and adequate measurement Management of liquidity risk generally
systems to effectively manage liquidity risk. requires collaboration from various business
areas of the FI, thus a clear delineation of
Responsibilities of senior management responsibilities is necessary. The
Senior management is responsible for management structure should clearly define
effectively executing the liquidity strategy the duties of senior level committees,
and overseeing the daily and long-term members of which have authority over the
management of liquidity risk. In managing units responsible for executing liquidity-
the FI’s activities, senior management should: related transactions. There should be a clear

APP. 74
06.12.31
delegation of day-to-day operating measurement system that addresses business-

responsibilities to particular departments as-usual scenarios and a contingency funding
such as the Treasury Department. plan that addresses a variety of stress scenarios.
To ensure proper management of FIs should likewise have specific procedures
liquidity risk, the FI should designate an for addressing breaches in policies and
independent unit responsible for implementation of corrective actions.
measuring, monitoring and controlling Management should periodically review
liquidity risk. Said unit should take a its liquidity risk policies and ensure that these
comprehensive approach and directly remain consistent with the level and
report to the board of directors or a complexity of the FI’s operations. Policies
committee thereof. should be updated to incorporate effects of
new products/activities, changes in
B. Adequate risk management policies and corporate structure and in light of its liquidity
procedures experience.
An FI’s liquidity risk policies and
procedures should be comprehensive, C. Appropriate risk measurement
clearly defined, documented and duly methodologies, limits structure, monitoring,
approved by the board of directors. Policies and management information system
and procedures should cover the FI’s
liquidity risk management system in order Liquidity risk measurement models/
to provide appropriate guidance to methodologies
management. These policies should be An FI should have a measurement
applied on a consolidated basis and, as system in place capable of quantifying and
appropriate, at the level of individual capturing the main sources of liquidity risk
affiliates, especially when recognizing legal in a timely and comprehensive manner.
distinctions and possible obstacles to cash Liquidity management requires ongoing
movements among affiliates. measurement, from intra-day liquidity to
Liquidity risk policies should identify the long-term liquidity positions. Depending on
quantitative parameters used by the FI to its risk profile, an FI can use techniques of
define the acceptable level of liquidity risk simple calculations, static simulations based
such as risk limits and financial ratios as well on current holdings or sophisticated models.
as describe the measurement tools and What is essential is that the FI should be able
assumptions used. Qualitative guidelines to identify and avoid potential funding
should include description of the FI’s shortfalls such that the FI can consistently meet
acceptable products and activities, including investment, funding and/or strategic targets.
off-balance sheet transactions, desired FIs with simple operations can generally
composition of assets and liabilities, and use a static approach to liquidity
approach towards managing liquidity in management. Static models are based on
different currencies, geographies and across positions at a given point in time. While an
subsidiaries and affiliates. Where exact definition of “simple operations” will
appropriate, a large FI should apply these not be provided, the BSP expects that banks
policies on a consolidated basis to address using a static approach to liquidity
risk exposures resulting from inter- management would limit their operations to
connected funding structures and operations core banking activities such as accepting
among members of an FI’s corporate group. plain vanilla deposits and making traditional
It is essential that policies include the loans. Such banks would not have active
development of a formal liquidity risk Treasury Departments, would not hold or

APP. 74
06.12.31
offer structured products and would not be Liquidity models require projecting all
exposed to significant levels of FX risk. relevant cash flows. As such, FIs engaged
Board reporting could be less frequent than in complex activities should have the
in more complex banks but in no event capability to model the behavior of all assets,
should be less than quarterly. liabilities, and off-balance sheet items both
Complex FIs, on the other hand, will be under normal/business-as usual and a variety
expected to adopt more robust approaches of stressed conditions. Stressed conditions
such as a dynamic maturity/liquidity gap may include liquidity crisis confined
reporting or even simulation modeling. At a within the institution, or a systemic
minimum, universal banks should use liquidity crisis, in which all FIs are
maximum cash outflow/liquidity or maturity affected. For FIs operating in a global
gap models. FIs engaged in holding or environment, cash flow projections should
offering significant levels of structured reflect various foreign-currency funding
products and/or derivatives will be expected requirements.
to have the capability to model the cash When projecting cash flows,
flows from these instruments under a variety management should also estimate customer
of scenarios. Specifically, scenarios should behavior in addition to contractual
be designed to measure the effects of a maturities. Many cash flows are uncertain
breach of the triggers (strike price) on these and may not necessarily follow contractual
instruments. maturities. Cash flows may be influenced
Where the FI’s organizational structure by interest rates and customer behavior, or
and business practices indicate cash flow may simply follow a seasonal or cyclical
movements and liquidity support among pattern. When modeling liquidity risk, it is
corporate group members, the FI should important that assumptions be documented.
adopt consolidated risk measurement tools Assumptions should be reasonable and
to help management assess the group’s should be based on past experiences or with
liquidity risk exposure. Depending on the consideration of the potential impact of
degree of inter-related funding, non-complex changes in business strategies and market
measurement and monitoring systems may conditions. Measurement tools should
be acceptable. However, large, complex FIs include a sufficient number of time bands
that display a high degree of inter-related and to enable effective monitoring of both short-
inter-dependent funding will be expected to and long-term exposures. This expectation
utilize more sophisticated monitoring and applies not only to complex simulation
management systems. These systems should modeling, but to the construction of simple
enable the Board of the consolidated entity liquidity GAP models as well.
to simulate and anticipate the funding needs To sufficiently measure an FI’s liquidity
of the FIs on both a consolidated basis and risk, management should analyze how its
in each of its component parts. liquidity position is affected by changes in
Liquidity risk measurement internal (company-specific) and external
methodologies/models should be (market-related) conditions. Management
documented and approved by the board and will need to assess how a shift from a normal
should be periodically independently scenario to various levels of liquidity crisis
reviewed for reasonableness and tested for can affect its ability to source external funds
accuracy and data integrity. Assumptions and at what cost, liquidate certain assets at
used in managing liquidity should be expected prices within expected timeframes,
periodically revisited to ensure that these or hasten the need to settle obligations (e.g.,
remain valid. limited ability to roll-over deposits).

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Management should, at a minimum, • When to sell longer-term assets,

consider stress scenarios where securities fixed assets, or certain lines of business
are sold at prices lower than anticipated and • Coordinating lead bank funding
credit lines are partially or wholly cancelled. with that of the FI’s other banks and non-
Regardless of the liquidity risk models bank affiliates
used, an FI should adopt an appropriate • Developing strategies on how to
contingency plan for handling liquidity interact with non-traditional funding sources
crisis. Well before a liquidity crisis occurs, (e.g., whom to contact, what type of
management should carefully plan how to information and how much detail should be
handle administrative matters in a crisis. provided, who will be available for further
Management credibility, which is essential questions, and how to ensure that
to maintaining the public’s confidence and communications are consistent)
access to funding, can be gained or lost 3. Address administrative policies and
depending on how well or poorly some procedures that should be used during a
administrative matters are handled. A liquidity crisis:
contingency funding/liquidity plan ensures • The responsibilities of senior
that an FI is ready to respond to liquidity crisis. management during a funding crisis
The sophistication of a contingency plan • Names, addresses, and telephone
should be commensurate with the FI’s numbers of members of the crisis team
complexity and risk exposure, activities, • Where, geographically, team
products and organizational structure. The members will be assigned
plan should identify the types of events that • Who will be assigned responsibility
will trigger the contingency plan, quantify to initiate external contacts with regulators,
potential funding needs and sources and analysts, investors, external auditors, press,
provide the specific administrative policies and significant customers, and others
procedures to be followed in a liquidity crisis. • How internal communications will
Specifically, the contingency plan flow between management, ALCO,
should: investment portfolio managers, traders,
1. Clearly identify, quantify and rank employees, and others
all sources of funding by preference • How to ensure that the ALCO
including, but not limited to: receives management reports that are
• Reducing assets pertinent and timely enough to allow
• Modifying the liability structure or members to understand the severity of the
increasing liabilities FI’s circumstances and to implement
• Using off-balance-sheet sources, appropriate responses.
such as securitizations The above outline of the scope of a
• Using other alternatives for good contingency plan is by no means
controlling balance sheet changes exhaustive. FIs should devote significant
2. Consider asset and liability time and consideration to scenarios that
strategies for responding to liquidity crisis are most likely, given their activities.
including, but not limited to: Regardless of the strategies employed, an
• Whether to liquidate surplus money FI should consider the effects of such
market assets strategies on long-term liquidity positions
• When (if at all) HTM securities might and take appropriate actions to ensure that
be liquidated level of risk exposures shall remain or be
• Whether to sell liquid securities in brought down within the risk tolerance of
the repo markets the Board.

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06.12.31
Limits structure from commercial sources that can be

The Board and senior management drawn to fund the shortfall, and the amount
should establish limits on the nature and of unencumbered on-balance sheet assets
amount of liquidity risk they are willing to that can be sold without excessive loss and
assume. In setting limits, management in a reasonable time-frame.
should consider the nature of the FI’s Further, actual positions and limits
strategies and activities, its past should reflect the outcome of possible
performance, the level of earnings and stress scenarios caused by internal and
capital available to absorb potential losses external factors, particularly those related
and costs of an FI’s access to money to reputation risk. Stress scenarios should
markets and other alternative sources of consider the possibility that securities may
funding. be sold at a greater discount and/or may
Limits can take various forms. FIs take more time to sell than expected or
should address limits on types of funding that credit lines and other off-balance sheet
sources and uses of funds, including off- sources of funding may be cancelled or
balance sheet positions. In addition, may be unavailable at reasonable cost.
policies should set targets for minimum Management should define specific
holdings of liquid assets relative to procedures for the prompt reporting and
liabilities. Complex FIs, or FIs engaged in documentation of limit exceptions and the
complex activities should set maximum management approval and action required
cumulative cash-flow mismatches over in such cases.
particular time horizons and establish
counterparty limits. Such limits should be Liquidity risk monitoring and reporting
applied to all currencies to which the FI An adequate management information
has a significant exposure. In particular, FIs system is critical in the risk monitoring
should take into consideration any legal process. The system should be able to
distinctions and possible obstacles to cash provide the Board, senior management
flow movements between the RBU and and other personnel with timely
the FCDU. information on the FI’s liquidity position
When evaluating a bank’s liquidity in all the major currencies it deals in, on
position, the BSP will consider low levels an individual and aggregate basis, and for
of liquid assets relative to liabilities, and various time periods.
significant negative funding gaps to be Effective liquidity risk monitoring
indicative of high liquidity risk exposure. requires frequent routine liquidity reviews
Further, negative cash-flow mismatches in and more in-depth and comprehensive
the short term time buckets will receive reviews on a periodic basis. In general,
heightened scrutiny by the BSP and should monitoring should include sufficient
also receive the attention of senior information and a clear presentation such
management and the board of directors. that the reader can determine the FI’s
Before accepting negative funding ongoing degree of compliance with risk
gaps, or setting limits that allow negative limits. For example, reports should address
funding gaps, the board and senior funding concentrations, funding costs,
management should consider the FI’s projected funding needs and available
ability to fund these negative gaps. Factors funding sources.
include, but are not limited to: the Monitoring and board reporting should
availability of on-balance sheet liquidity, be robust. It is not unreasonable to expect
the amount of firm credit lines available complex FIs or FIs engaged in complex

APP. 74
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activities to monitor liquidity on a daily Internal audit reviews should cover all
basis. Board reporting should be no less aspects of the liquidity risk management
frequent than monthly. However, the BSP process, including determining the
would expect Board-level committees or appropriateness of the risk management
sub-committees to receive more frequent system, accuracy and completeness of
reporting. measurement models, reasonableness of
Comprehensive and accurate internal assumptions and stress testing
reports analyzing an FI’s liquidity risk should methodology. Audit staff should have the
be regularly prepared and reviewed by skills commensurate with the sophistication
senior management and submitted to the of the FI’s risk management systems. Audit
board of directors. results should be promptly reported to the
board. Deficiencies should be addressed
D. Risk controls and audit in a timely manner and monitored until
An FI should have adequate internal resolved/corrected.
controls in place to protect the integrity of
its liquidity risk management process. E. Foreign currency liquidity management
Fundamental to the internal control system The principles described in this
is for the Board to prescribe independent Appendix also apply to the management
reviews to evaluate the effectiveness of of any foreign currency to which the FI
the risk management system and check maintains a significant exposure.
compliance with established limits, Specifically, management should ensure
policies and procedures. that its measurement, monitoring and
An effective system of internal controls control systems account for these
for liquidity risk includes: exposures as well. Management needs to
1. A strong internal control set and regularly review limits on the size
environment; of its cash flow mismatches for each
2. An adequate process for identifying significant individual currency and in
and evaluating liquidity risk; aggregate over appropriate time horizons.
3. Adequate information systems; and In addition, an FI should consider effects
4. Continual review of adherence to of other risk areas, particularly settlement
established policies and procedures. risks from its off-balance sheet activities.
To ensure that risk management An FI should also conservatively assess its
objectives are achieved, management needs access to foreign exchange markets when
to focus on the following areas: appropriate setting up its risk limits. As with overall
approval processes, limits monitoring, liquidity risk management, foreign
periodic reporting, segregation of duties, currency liquidity should be analyzed
restricted access to information systems and under various scenarios, including stressful
the regular evaluation and review by conditions.
independent competent personnel. (Circular No. 545 dated 15 September 2006)

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GUIDELINES ON TECHNOLOGY RISK MANAGEMENT

I. Background those vendors, operational risk may increase.

Banks using technology-related products, Also, when banks merge with other banks
services, delivery channels, and processes can or acquire new businesses, the bank’s
be exposed to all types of risks enumerated combined computer systems may produce
under the BSP risk supervision framework inaccurate or incomplete information or
more particularly operational, strategic, otherwise fail to work properly. The failure
reputation, and compliance risk. With banks’ to establish adequate security measures,
increased reliance on technology, it is contingency plans, testing, and auditing
important for the banks to understand how standards also increases operational risk.
specific technologies operate and how their
use or failure may expose banks to risk. The Strategic risk - This is the risk to earnings
BSP expects banks to have the knowledge and or capital arising from adverse business
skills necessary to understand and effectively decisions or improper implementation of
manage their technology-related risks. The BSP those decisions. This risk is a function of the
will evaluate technology-related risks in terms compatibility of an organization’s strategic
of the categories of risks identified in its risk goals, the business strategies developed to
assessment system. achieve those goals, the resources deployed
against these goals, and the quality of
II. Description of technology related risks implementation. The resources needed to
Operational risk - This is the risk to carry out business strategies are both tangible
earnings or capital arising from problems and intangible. They include communication
with service or product delivery. This risk is channels, operating systems, delivery
a function of internal controls, information networks, and managerial capacities and
systems, employee integrity, and operating capabilities.
processes. Operational risk exists in all Use of technology can create strategic risk
products and services. when management does not adequately plan
Technology can give rise to operational for, manage, and monitor the performance of
risk in many ways. Operational risk often technology-related products, services,
results from deficiencies in system design, processes, and delivery channels. Strategic risk
implementation, or ongoing maintenance of may arise if management fails to understand,
systems or equipment. For example, support, or use technology that is essential for
incompatible internal and external systems the bank to compete or if it depends on a
and incompatible equipment and software technology that is not reliable. In seeking ways
expose a bank to operational risk. to control strategic risk, a bank should consider
Operational risk can increase when a bank its overall business environment, including:
hires outside contractors to design products, the knowledge and skills of senior
services, delivery channels, and processes management and technical staff; its existing
that do not fit with the bank’s systems or and planned resources; its ability to
customer demands. Similarly, when a bank understand and support its technologies; the
uses vendors to perform core bank functions, activities and plans of suppliers of technology
such as loan underwriting and credit and their ability to support the technology;
scoring, and does not have adequate and the anticipated life cycle of technology-
controls in place to monitor the activities of related products and services.

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Reputation risk - This is the risk to diminished reputation, reduced franchise

earnings or capital arising from negative value, limited business opportunities,
public opinion. This affects the institution’s lessened expansion potential, and the lack
ability to establish new relationships or of contract enforceability.
services, or to continue servicing existing Compliance risk may arise in many
relationships. This risk can expose the different ways. For example, it may arise
institution to litigation, financial loss, or when a bank fails to comply with applicable
damage to its reputation. Reputation risk disclosure requirements or when it discloses
exposure is present throughout the information to outside party that it is required
organization and that is why banks have the to keep confidential. Compliance risk also
responsibility to exercise an abundance of may arise when a bank does not have
caution in dealing with its customers and systems in place to ensure compliance with
community. This risk is present in activities mandatory reporting statutes. The use of
such as asset management and regulatory technology to automate lending decisions
compliance. also could expose a bank to compliance
Reputation risk arises whenever risks if the programs are not properly tested
technology-based banking products, or if the quality of the data is not verified.
services, delivery channels, or processes may For example, the use of credit scoring models
generate adverse public opinion such that it to automate lending decisions could expose
seriously affects a bank’s earnings or impairs a bank to compliance risk if the data upon
capital. Examples may include: flawed which the program rely are flawed or if the
security systems that significantly program design itself is flawed.
compromise customer privacy; inadequate As banks move increasingly from
contingency and business resumption plans paper to electronic-based transactions and
that affect a bank’s ability to maintain or information exchanges, they need to
resume operations and to provide customer consider how laws designed for paper-
services following system failures; fraud that based transactions apply to electronic-based
fundamentally undermines public trust; and transaction and information exchanges.
large-scale litigation that exposes a bank to Some new technologies raise unexpected
significant liability and results in severe compliance issues. Transactions conducted
damage to a bank’s reputation. Adverse through the internet also can raise novel
public opinion may create a lasting, negative questions regarding jurisdictional authority
public image of overall bank operations and over those transactions. Therefore, banks
thus impair a bank’s ability to establish and should be careful to monitor and respond
maintain customer and business relationships. to changes to relevant laws and regulations
Compliance risk - This is the risk to arising from these developments.
earnings or capital arising from violations
of, or nonconformance with laws, rules, III. Technology risk management process
regulations, prescribed practices, or ethical The technology risk management
standards. Compliance risk also arises in process is designed to help the bank to
situations where the laws or rules governing identify, measure, monitor, and control its
certain bank products or activities of the risk exposure. The process involves three
bank’s clients may be ambiguous or (3) essential elements, namely:
untested. Compliance risk exposes the 1. Planning
institution to fines, civil money penalties, 2. Implementing
payment of damages, and the voiding of 3. Measuring and monitoring
contracts. Compliance risk can lead to a performance

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It is the responsibility of bank’s board projects are consistent with the bank’s
of directors and a senior management overall strategic goals. Planning should
committee to ensure that an effective consider issues such as:
planning process exists, that technology is • Cost of designing, developing,
implemented properly with appropriate testing and operating the systems whether
controls, and that measurement and internally or externally;
monitoring efforts effectively identify ways • Ability to resume operations swiftly
to manage risk exposure. The process should and with all data intact in the event of
be more complex for larger institutions, system failure or unauthorized intrusions;
particularly for those with major technology- • Adequacy of internal controls,
related initiatives. including controls for third party providers;
For each IT project, the bank should and
adopt specific milestones and corresponding • Ability to determine when a specific
timelines up to the full implementation of risk exposure exceeds the ability of an
the IT project. institution to manage and control that risk.
In cases when specialized expertise is
A. Planning needed to design, implement, and service
Technology planning often involves new technologies, vendors may provide a
strategic, business, and project planning; valuable means to acquire expertise and
• Strategic plan establishes the overall resources that a bank cannot provide on its
role of technology as it relates to the bank’s own. However, in planning on whether and
mission and assesses the type of technology how to contract for its technology needs, a
that a bank needs to fulfill that role; bank should assess how it will manage the
• Business plan integrates the new risks associated with these new
technology into existing lines of business relationships. Without adequate controls,
and determines the level of technology best the use of vendors to design or support new
suited to meet the needs of particular bank technologies and systems could increase
business lines; a bank’s exposure to risk. While a bank can
• Project plan establishes resource outsource many functions, management
needs, time lines, benchmarks, and other remains responsible for the performance and
information necessary to convert the actions of its vendors while the vendors are
business plan into operation. performing work for the bank.
The review and planning cycle may vary To have an effective planning process
depending on the type of institution and its for technology-related applications, bank’s
uses of different types of technologies. planning process should at least have the
Proper planning minimizes the likelihood following basic components:
of computer hardware and software systems 1. Involvement of the board of directors
incompatibilities and failures, and and senior management
maximizes the likelihood that a bank’s The board of directors and a senior
technology is flexible enough to adapt to management committee play an important
future needs of the bank and its customers. role in managing bank’s IT risks. Both should
Because technology is constantly have knowledge of and involvement in the
changing, bank management should technology planning process.
periodically assess its uses of technology as The board of directors and the senior
part of its overall business planning. Such management committee should review,
an enterprise-wide and ongoing approach approve, and monitor technology projects
helps to ensure that all major technology that may have a significant impact on the

APP. 75
06.12.31
bank’s operations, earnings or capital. In technologies. Technical standards help to

addition, senior management is expected to ensure that systems are compatible and
have more involvement in and more interoperable.
knowledge about the day to day operations c. Determine when to deploy new
of these projects than the board of directors. technology. Timing is critical because there
At least one (1) key senior manager should are risks in deploying new technologies too
have knowledge and skills to evaluate slowly or too rapidly.
critically the design, operation and oversight 3. Assessment and Review
of technology projects. The board should be Bank management should carefully
fully informed by the senior management assess its technology needs and review its
committee, on an ongoing basis, of the risks options within the context of overall
that technology projects may pose to the planning. Management should consider
bank. whether the necessary resources, time, and
Banks that use technology extensively, project management expertise is available
particularly large banks, should have to successfully complete any new
sufficient expertise and knowledge among technology proposal. Prior to adopting new
managers and staff to provide critical review technologies, bank management should
and oversight of technology projects and to identify weaknesses or deficiencies in the
manage risks associated with them. Projects bank’s ability to use them. Management
should be coordinated to ensure that they should also consider whether staff can
adhere to appropriate policies, standards, operate both new and existing systems
and risk management controls. In addition, simultaneously. These considerations will
senior managers with knowledge of the help management to choose the type and
bank’s technology initiatives should report level of technology best suited to support
periodically to the board of directors on its key business needs and objectives.
technology-related initiatives. Banks should be cautious in establishing
2. Gathering and analysis of relevant project objectives and should ensure that
information the objectives are neither too ambiguous nor
Banks should consider existing systems, too ambitious. Management should control
consumer expectations, and competitive the bank’s risk exposure through practical
forces in their planning for new or enhanced planning. This planning may include
uses of technology. In the process of dividing projects into manageable segments
gathering and analyzing information, a bank and establishing specific decision points as
should: to whether a project should be modified
a. Make an inventory of the existing or terminated. Planning should also
systems and operations. A bank should establish contingency and exit plans in the
review their existing systems to determine event a new project does not proceed as
whether they satisfy current and projected planned.
bank needs. They should also evaluate how Management should assess and, where
new technologies will fit into existing possible, attempt to quantify the costs and
systems and whether additional changes to benefits of adopting new technology when
those systems will be necessary to reviewing its options. As part of this
accommodate the new technologies. assessment, management should evaluate
b. Review industry standards. Bank the risks, financial consequences, and
management should assess current and likelihood that certain risks may occur. This
developing industry standards in review should also include assessment of
determining whether to implement specific the cost to start, run, and terminate a project.

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B. Implementation Bank information system security

Proper implementation of projects and controls are particularly important. Security
initiatives is needed to convert plans into measures should be clearly defined with
better products and services, delivery measurable performance standards.
channels, and processes. Banks should Responsible personnel should be assigned
establish the necessary controls to avoid to ensure a comprehensive security program.
operational failures and unauthorized Bank management should take necessary
intrusions which could result in increased steps to protect mission-critical systems from
losses and damaged reputation. At a unauthorized intrusions. Systems should be
minimum, management should establish safeguarded, to the extent possible, against
technology standards that set the direction risks associated with fraud, negligence, and
for the bank in terms of the overall structure physical destruction of bank property.
or architecture of its technology systems. Control points should include facilities,
Management should establish priorities personnel, policies and procedures, network
to ensure proper coordination and controls, system controls, and vendors. For
integration of projects among managers, example, security access restrictions,
work units, and team members. It should background checks on employees,
provide clearly defined expectations, separation of duties, and audit trails are
including user and resource requirements, important precautions to protect system
cost estimates, project benchmarks, and security within the bank and with vendors.
expected deliver dates. Proper project As technologies and systems change or
monitoring by all relevant parties is mature, security controls may need to
important. Project managers should inform change periodically as well.
the senior management committee of b. Policies and procedures
obstacles as early as possible to ensure that Bank management should adopt and
proper controls are in place and corrective enforce appropriate policies and procedures
action can be taken to manage risk exposure. to manage risk related to bank’s use of
Proper project implementation should technology. The effectiveness of these
include the following: policies and procedures depends greatly on
a. Controls whether they are in practice among bank
Controls comprises of policies, personnel and vendors. Testing compliance
procedures, practices and organizational with these policies and procedures often
structures designed to provide reasonable helps banks correct problems before they
assurance that business objectives will be become serious. Clearly written and
achieved and undesired events will be frequently communicated policies can
prevented or detected and corrected. Banks establish clear assignments of duties, help
should adopt adequate controls based on employees to coordinate and perform their
the degree of exposure and the potential risk tasks effectively and consistently, and aid in
of loss arising from the use of technology. the training of new employees. Bank
Controls should include clear and management should ensure that policies,
measurable performance goals, the procedures, and systems are current and
allocation of specific responsibilities for well-documented.
key project implementation, and
independent mechanisms that will both c. Expertise and training
measure risks and minimize excessive risk- Bank management should ensure that
taking. These controls should be re- key employees and vendors have the
evaluated periodically. expertise and skills to perform necessary

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06.12.31
functions and that they are properly trained. by natural disasters or fires, security
Management should allocate sufficient breaches, inadequate staff training, or
resources to hire and train employees and uncontrolled reliance on vendors.
to ensure that there is succession planning A bank should have business continuity
particularly for the critical officers of the plans in place before the bank implements
bank. Training may include technical course new technology. They should establish a
work, attendance at industry conferences, bank’s course of action in the event of a
participation in industry working groups, as system failure or unauthorized intrusions
well as time allotment for appropriate staff and should be integrated with all other
to keep abreast of important technological business continuity plans for bank
and market developments. Training also operations. The plan may address data
includes customer orientations to ensure that recovery, alternate data-processing
bank’s customers understand how to use or capabilities, emergency staffing, and
access bank’s technology products and customer service support. Management
services and that they are able to do so in an should establish a communication plan that
appropriate and sound manner. designates key personnel and outlines a
d. Testing program for employee notification. The
Bank management should thoroughly plan should include a public relations and
test new technology systems and products. outreach strategy to respond promptly to
Testing validates that equipment and customer and media reaction to system
systems function properly and produce the failure or unauthorized intrusions.
desired results. As part of the testing process, Management should also plan for how it
management should verify whether new may respond to events outside the bank that
technology systems operate effectively with may substantially affect customer
the bank’s existing systems and, where confidence, such as an operational failure
appropriate, should include vendors. Pilot experienced by a competitor that relies on
programs or prototypes can be helpful in similar technology.
developing new technology applications Additional reference should also be made
before they are used on a broad scale. Testing to BSP Memorandum dated 22 January 2004
should be conducted periodically to help and 03 April 2003 on Back-up Operations
manage risk exposure. Centers and Data Recovery Sites and
e. Contingency planning and business Updated Business Continuity Plan,
resumption planning respectively.
Bank’s systems should be designed to f. Proper oversight of outsourcing
reduce bank’s vulnerability to system activities
failures, unauthorized intrusions, and other Bank management should ensure that
problems. Bank should have back-up all necessary controls are in place to manage
systems in place and they should be risks associated with outsourcing and
maintained and tested on a regular basis to external alliances. Management should
make sure that they will be readily available ensure that vendors have the necessary
when the need arises. The risk of equipment expertise, experience, and financial strength
failure and human error is possible in all to fulfill their obligations. They also should
systems. This risk may result from sources ensure that the expectations and obligations
both within and beyond bank’s control. of each party are clearly defined, understood
System failures and unauthorized intrusions and otherwise enforceable. Management
may result from design defects, insufficient should make certain that the bank has audit
system capacity, and destruction of a facility rights for vendors so that the bank can

APP. 75
06.12.31
monitor performance under the vendor channels, and processes in order to avoid
contract. potential operational failures and to mitigate
The key elements of proper project the damage that may arise if such failures
implementation apply whether a bank relies occur. Bank management should establish
on employees, vendors, or both to develop controls that identify and manage risks so
and implement projects. Failure to establish that the bank can adequately manage them.
necessary controls may result in To ensure accountability, management
compromised security, substandard service, should specify which managers are
and the installation of incompatible responsible for the business goals,
equipment, system failure, uncontrolled objectives, and results of specific technology
costs, and the disclosure of private customer projects or systems and should establish
information. If a bank joins or forms controls, which are independent of the
alliances with other banks or companies, business unit, to ensure that risks are
management should perform adequate due properly managed. Technology processes
diligence to ensure that the joint-venture should be reviewed periodically for quality
partners are competent and have the financial and compliance with control requirements.
strength to fulfill their obligations. Adequate
bank resources will be required to monitor Auditing
and measure performance under the terms of Auditors provide an important control
any third-party agreement. Additional mechanism for detecting deficiencies and
reference should be made to Sec. X169 on managing risks in the implementation of
Outsourcing. technology. They should be qualified to
assess the specific risks that arise from
C. Measurement and monitoring specific uses of technology. Bank
As part of both planning and monitoring, management should provide auditors with
banks must establish clearly defined adequate information regarding standards,
measurement objectives and conduct policies, procedures, applications, and
periodic reviews to ensure that goals and systems. Auditors should consult with bank
standards established by bank management management during the planning process to
are met. Goals and standards should include ensure that technology-related systems are
an emphasis on data integrity, which is audited thoroughly and in a cost-effective
essential to any effective use of technology. manner.
Information should be complete and
accurate both before and after it is processed. Quality assurance
This is a particular concern in any significant Bank management should establish
merger with other institutions or acquisition procedures to ensure that quality assurance
of other businesses. Control of technology efforts take place and that the results are
projects is complex because of the difficulty incorporated into future planning in order
in measuring progress and determining to manage and limit excessive risk taking.
actual costs. It is important that bank These procedures may include, for example,
management establish benchmarks that are internal performance measures, focus
appropriate for particular applications. groups and customer surveys. Bank should
Ultimately, the success of technology depends conduct quality assurance reviews
on whether it delivers the intended results. whenever it engages in a significant
Management should monitor and combination with another institution or
measure the performance of technology acquires another business.
related products, services, delivery (Circular No. 511 dated 03 February 2006)

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07.12.31
AUTHORIZATION FORM FOR QUERYING THE BSP WATCHLIST FILES FOR

SCREENING APPLICANTS AND CONFIRMING APPOINTMENTS OF
DIRECTORS AND OFFICIALS
AUTHORIZATION
I, , after being sworn in accordance with law, do

hereby authorize the following, pursuant to the provisions of Subsec. X143.5(c), of the
MORB:
a) (Name of Bank) , to conduct a background investigation

on myself relative to my application for or appointment to the position of (position)
in (Name of Bank) which include, among others, inquiring from the
Watchlist Files of the BSP; and
b) The BSP to disclose its findings pertinent to the aforementioned inquiry on the said
watchlist files to (Name of Bank) .
With the above authorization, I hereby waive my right to the confidentiality of the
information that will be obtained as a result of the said inquiry, provided that disclosure of
said information will be limited for the purpose of ascertaining my qualification or non-
qualification for the said position.
IN WITNESS WHEREOF, I have hereunto set my hand this ________________.
______________________________
(Signature Over Printed Name)
________________________ ________________________
(Witness) (Witness)

APP. 76
07.12.31
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES } S.S.

_________________CITY }
BEFORE ME, this ___ day of _________________200___ in __________________

personally appeared the following person:
Name Community Tax Place Date

Certificate
known to me to be the same person who executed the foregoing instrument and he
acknowledged to me to be the same person who executed the foregoing instrument and
he acknowledged to me that the same is his free act and deed.
This instrument, consisting of two (2) pages, including the page on which this
acknowledgment is written, has been signed on the left margin of each and every page
thereof by __________________, and his witnesses, and sealed with my notarial seal.
IN WITNESS WHEREOF, I have hereunto set my hand, the day, year and place
above written.
Notary Public
Doc. No.: __________

Page No.: __________
Book No.: __________
Series of 200___
(as amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006)

APP. 77
08.12.31
FINANCIAL REPORTING PACKAGE

(Appendix to Subsection X161.3)
The Financial Reporting Package GENERAL INSTRUCTIONS

(FRP) is a set of financial statements for
prudential reporting purposes composed Who must Report on What Forms/
of the Balance Sheet, Income Statement Schedules
and Supporting Schedules. The FRP is All banks are required to prepare the
primarily designed to align the BSP FRP. The FRP shall be prepared on a solo
reportorial requirements with the and consolidated basis. Solo basis shall refer
(1) provisions of the Philippine Financial to the combined financial statements of the
Reporting Standards (PFRS)/Philippine head office and branches/other offices.
Accounting Standards (PAS) and (2) Consolidated basis shall refer to the
Basel 2 Capital Adequacy Framework. combined financial statements of parent
It is also designed to meet BSP statistical bank and subsidiaries consolidated on a
requirements. line by line basis. Only banks with
financial allied subsidiaries, excluding
Organization of the Instructions of the insurance subsidiaries, shall submit the
FRP report on consolidated basis.
This instruction is divided into the The solo and consilidated FRP shall be
following sections: prepared on a quarterly basis, except for
(1) The General Instructions, which the solo balance sheet and the following
describe the overall reporting selected schedules which shall be prepared
requirements; on a monthly basis.
(2) Structure of the FRP; (1) Schedule 1 : Checks and Other Cash
(3) Manual of Accounts, which Items
provides in the order presented in the (2) Schedule 2 : Due from Other Banks
Balance Sheet and the Income (3) Schedule 3 : Financial Assets Held
for Trading
Statement the definitions of the accounts
(4) Schedule 4a : Derivatives Held for
in the FRP; Trading, Matrix of
(4) Line Item Instructions for the Counterparty and Type
Balance Sheet; Income Statements and of Derivative Contracts
Supporting Schedules; and (5) Schedule 5 : Financial Assets
(5) Report Formats, for solo and Designated at Fair
consolidated reports Value Through Profit
In determining the required or Loss
treatment of particular transactions or in (6) Schedule 6 : Available for Sale
determining the definitions of the Financial Assets
(7) Schedule 7 : Held to Maturity
various items, the General Instructions,
Financial Assets
the Structure of the FRP, Manual of (8) Schedule 8 : Unquoted Debt
Accounts and Line Item Instructions Securities Classified
must be used jointly. A single section as Loans
does not necessarily give the complete (9) Schedule 9 : Investment in Non
instructions for accomplishing the main Marketable Equity
report and schedules. Securities

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08.12.31
(10) Schedule 10 : Interbank Loans Solo and consolidated income

Receivables statement shall be prepared quarterly on a
(11) Schedule 11 : Loans and Receivables cumulative basis, i.e., first quarter report
– Others shall cover results of operations during the
(12) Schedule 11a :Loans and Receivables
first quarter, second quarter report shall
to 11a4 – Others, Classified
as to Status
cover results of operations during the first
(13) Schedule 11b : Restructured Loans and second quarters, etc.
to 11b4 and Receivables, All schedules shall be available to any
Classified as to Status type of reporting bank. Hence, schedules
(14) Schedule 11d : Loans and Receivables that do not apply to a particular bank should
to 11d4 – Others, at Amortized only be left blank when submitted.
Cost, Classified as to
Type of Business/ Frequency of Reporting
Industry The solo FRP, shall be submitted
(15) Schedule 11f :Schedule of Agri/Agra,
quarterly within fifteen (15) banking days
SME, Development
Loans Incentives and
after the end of the reference quarter. The
Microfinance Loans solo balance sheet and the selected
and Receivables, schedules listed above shall be submitted
Classified as to monthly within fifteen (15) banking days
Counterparty after the end of the reference month. The
(15) Schedule 12 :Loans and Receivables consolidated FRP, on the other hand, shall
Arising from Repurchase be submitted quarterly within thirty (30)
Agreements, banking days after end of reference
Certificates of quarter.
Assignment/
The following schedules or columns of
Participation with
Recourse and
particular schedules of the solo and/or
Securities Lending consolidated FRP, however, are required
and Borrowing to be submitted and/or accomplished only
Transactions, By annually (i.e. end December of each year):
Counterpart
(16) Schedule 15 :Equity Investment in (1) Schedule 6b : Available for Sale
Subsidiaries, to 6b(3) Financial Assets
Associates and Joint ("Collateral and Other
Ventures Credit Enhancements
(17) Schedule 19 :Other Assets Received as Security
(19) Schedule 20 :Breakdown of Due for the Related
from/to HO/Branches/ Impaired and Past
Agencies Abroad – Due Assets" column)
Philippine Branch of a (2) Schedule 6c : Available for Sale
Foreign Bank to 6c(3) Financial Assets
(20) Schedule 22 :Deposit Liabilities Movements in
Classified as to Type Allowances for Credit
of Deposit Losses
(21) Schedule 23 :Due to Other Banks (3) Schedule 7b : Fair Value of Held to
(18) Schedule 24 :Bills Payable Maturity Financial
(19) Schedule 28 :Other Liabilities Assets

APP. 77
08.12.31
(4) Schedule 7c : Held to Maturity PAS 27 "Consolidated and Separate

to 7c(3) Financial Assets Financial Statements", while insurance and
("Collateral and non-financial allied subsidiaries shall be
Other Credit accounted for using the equity method.
Enhancements
Financial/non-financial allied/non-allied
Received as Security
for the Related
associates shall be accounted for using the
Impaired and Past Due equity method in accordance with the
Assets” column) provisions of PAS 28 "Investments in
(5) Schedule 7d : Held to Maturity Associates".
to 7d(3) Financial Assets For purposes of preparing solo financial
Movements in statements, financial/non-financial allied/
Allowances for Credit non-allied subsidiaries/associates, including
Losses
insurance subsidiaries/associates, shall also
(6) Schedule 8a : Fair Value of Unquoted
Debt Securities be accounted for using the equity method.
Classified as Loans For purposes of preparing consolidated
(7) Schedule 8b : Unquoted Debt reports, the "Peso accounts", "Foreign
to 8b(3) Securities Classified as accounts", "FCDU/EFCDU" and "Foreign
Loans (“Collateral and Offices", and their supporting schedules shall
Other Credit not be filled-up/accomplished.
Enhancements
Received as Security Amounts Reported
for the Relate
All amounts reported in the FRP must
Impaired and Past Due
Assets” column) be in absolute figures including two (2)
(8) Schedule 8c : Unquoted Debt decimal places, except for "Losses"
to 8c(3) Securities Classified as columns/rows which shall be reported in
Loans Movements in negative figures, i.e., enclosed in
Allowances for Credit parentheses.
Losses
(9) Schedule 11e : Loans and STRUCTURE OF THE FRP
to 11e(3) Receivables-Others
Classified as to Status (1) The FRP is designed to reflect the
Per PAS 39
two (2) types of books as follows 1 :
(10) Schedule 15a : Investment in
(1) regular banking book, which shall be
Subsidiaries,
comprised of (a) peso accounts; and (b)
Associates and Joint
Ventures foreign accounts and (2) FCDU/EFCDU as
(Fair Value Column) allowed under Circular No. 1389 dated
(11) Schedule 18 : Tax Assets and 13 April 1993, as amended. Transactions
Liabilities in the foreign regular and FCDU/EFCDU
(12) Schedule 26 : Fair Value of Financial books shall be recorded at their foreign
Liabilities currency amounts and their local currency
equivalent using the Philippine Dealing
Rules of Consolidation System (PDS) Peso/US Dollar closing rate
In preparing consolidated financial and the New York US Dollar/Third
statements, only investments in financial Currencies closing rate.
allied subsidiaries except insurance (2) The FRP generally groups
subsidiaries shall be consolidated on a transactions into the different counterparties
line-by-line basis in accordance with of the reporting bank. Foreign offices and

APP. 77
08.12.31
branches of local banks abroad shall classify Insurance Corporation (PhilHealth) and
their counterparties from the perspective Social Security System (SSS).
of the Head Office. Counterparties are • Other FIs – This refers to GOCCs
broadly classified as to residents and that are primarily engaged in financial
non-residents and further sub-classified into intermediation or in auxiliary financial
the different sectors and institutional units activities that are closely related to financial
defined as follows: intermediation but are not classified as
(a) Residents – This refers to individuals banks such as the Home Guaranty
or institutional units that have a center of Corporation (HGC), Trade and Investment
economic interest in the economic territory Development Corporation (TIDCORP) and
of the Philippines. Small Business Corporation (SBC)
(a.1) Government • Non-FIs – This refers to GOCCs
(i) National Government – This refers that may not be classified as a social
to the Philippine National Government security institution nor other FIs.
and its agencies such as departments, (a.2) BSP
bureaus, offices, and instrumentalities, but (a.3) Banks
excluding local government units and • UBs/KBs – This refers to UBs and
government-owned and controlled KBs as defined under existing laws and
corporations. regulations.
(ii) Local Government Units (LGUs) – • Government Banks – This refers
This refers to the Philippine government to UBs/KBs owned or controlled by the
units below the level of national national government such as the DBP, the
government, such as city, provincial and LBP and the Al-Amanah Islamic Investment
municipal governments. Bank of the Philippines.
(iii) Government-Owned and Controlled • Non-Government Banks – This
Corporations (GOCCs) – This refers to any refers to private UBs/KBs, which are
agency organized as a stock or non-stock neither owned nor controlled by the
corporation vested with functions relating national government, including branches
to public needs whether governmental or of foreign banks licensed as UBs/KBs
proprietary in nature, and owned by the operating in the Philippines.
government directly or indirectly or (ii) Other Banks – This refers to
through its instrumentalities either wholly, banks other than UBs/KBs i.e., TBs, RBs
or where applicable as in the case of stock and Coop. Banks.
corporations to the extent of at least (a.4) Private Corporations
fifty-one percent (51%) of its capital stock: (i) Financial - This refers to private
Provided, That GOCCs may be further corporations that are primarily engaged in
categorized by the DBM, the Civil Service financial intermediation or in auxiliary
Commission and the COA for the purpose financial activities that are closely related
of the exercise and discharge of their to financial intermediation but are not
respective powers, functions and classified as banks. This shall include
responsibilities with respect to such among others, insurance corporations,
corporations. pension funds that are constituted as
• Social Security Institutions (SSIs) – separate from the units that have created
This refers to the social security agencies them, NSSLAs and QBs. Except in the case
such as the Employees Compensation of “Loans and Receivables – Interbank
Commission (ECC), Government Service Loans and Receivables” where QBs shall
Insurance System (GSIS), Philippine Health be a separate line item.
1
Provide Columns (in US$ and Peso Equivalent) for foreign accounts, where applicable.

APP. 77
08.12.31
(ii) Non-Financial – This refers to and for statistical purposes. Among the
private corporations whose principal information required to be disclosed are
activity is the production of goods or non- the following:
financial services for sale. (a) Classification as to Original Term,
(b) Non-Residents – This refers to which shall be reported only for solo reports
individuals or institutional units that have (a.1) Short Term (1 year or less)
a center of economic interest outside the (a.2) Medium Term (>1 year to 5
economic territory of the Philippines. years)
(b.1) Central Government/Central (a.3) Long Term (> 5 years)
Bank – Central Government refers to the (b) Geographic Regions of Non-
central government of a foreign country Resident Counterparties
which is regarded as such by a recognized (b.1) Advanced Economies – Australia;
banking supervisory authority in that Austria; Belgium; Canada; Cyprus;
country. Central Bank refers to the national Denmark; Finland; France; Germany;
FI (or institutions) that exercises control Greece; Hong Kong SAR; Iceland;
over key aspects of the financial system Ireland; Israel; Italy; Japan; Korea;
and carries out such activities as issuing Luxembourg; Netherlands; New
currency, managing international reserves, Zealand; Norway; Portugal; Singapore;
and providing credit to other depository Slovenia; Spain; Sweden; Switzerland;
corporations. Taiwan Province of China; United
(b.2) Public Sector Entities – This refers Kingdom and United States
to entities which are regarded as such by (b.2) Regions Excluding Advanced
a recognized banking supervisory Economies
authority in the country in which they are (i) Africa – Algeria; Morocco; Tunisia
incorporated. and Sub-Sahara
(b.3) Banks Of which; Sub-Sahara – South Africa;
(i) Off-Shore Banking Units (OBUs) – Djibouti; Ethiopia; Sudan; Burundi; Congo,
This refers to a branch, subsidiary or affiliate Democratic Republic of; Kenya; Rwanda;
of a foreign banking corporation which is Tanzania; Uganda; Angola; Botswana;
duly authorized by the BSP to transact Comoros; Lesotho; Madagascar; Malawi;
offshore banking business in the Mauritius; Mozambique, Republic of;
Philippines. Namibia; Seychelles; Swaziland; Zambia;
(ii) Other Banks – This refers to the Zimbabwe; Cape Verde; Gambia, The;
non-resident banks other than OBUs. Ghana; Guinea; Mauritania; Nigeria; Sao
(b.4) Corporations –This refers to non- Tome and Principe; Sierra Leone; Benin;
resident corporations. Burkina Faso; Cameroon; Central African
(c) Multilateral Agencies – This refers Republic; Chad; Congo, Republic of; Cote d’
to the World Bank Group comprised of the Ivoire; Equatorial Guinea, Gabon; Guinea –
IBRD and the IFC, ADB, AfDB, the EBRD, Bissau; Mali; Niger; Senegal; and Togo.
the IADB, the EIB, the NIB; the CDB, the (ii) Central and Eastern Europe -
CEDB and such others as may be Albania; Bulgaria; Croatia; Czech Republic;
recognized by the BSP. Estonia; Hungary; Latvia; Lithuania;
(3) The supporting schedules in the Macedonia, FYR; Malta; Poland; Romania;
FRP contain an Additional Information Slovak Republic and Turkey.
section which requires disclosure of (iii) Commonwealth of Independent
information necessary for validating States – Armenia; Azerbaijan; Belarus;
compliance with other BSP requirements Georgia; Kazakhstan; Kyrgyz Republic;

APP. 77
08.12.31
Moldova; Mongolia; Russia; Tajikistan; Ecuador; Paraguay; Peru; Uruguay;

Turkmenistan; Ukraine and Uzbekistan. Venezuela; Costa Rica; El Salvador;
(iv) Developing Asia – Bangladesh; Guatemala; Honduras; Nicaragua;
Bhutan; Cambodia; China; Fiji; India; Panama; Antigua and Barbuda; Bahamas,
Indonesia; Kiribati; Lao PDR; Malaysia; The; Barbados; Belize; Dominica;
Maldives; Myanmar; Nepal; Pakistan; Dominican Republic; Grenada; Guyana;
Papua New Guinea; Samoa; Solomon Haiti; Jamaica; St. Kitts and Nevis; St. Lucia;
Islands; Sri Lanka; Thailand; Tonga; St. Vincent and the Grenadines; Suriname
Vanuatu and Vietnam. and Trinidad and Tobago.
(v) Middle East – Bahrain; Iran I.R.; Definition of the other items and
Kuwait; Libya; Oman; Qatar; Saudi Arabia; instructions for filling-out the Additional
United Arab Emirates; Yemen, Republic of; Information section of each supporting
Egypt; Jordan; Lebanon and Syrian Arab schedule are presented in the Line Item
Republic. Instructions.
(vi) Western Hemisphere – Mexico; (Circular No. 512 dated 03 February 2006 as amended by M-2008-012
Argentina; Brazil; Bolivia; Chile; Colombia; dated 14 March 2008 and Circular No. 568 dated 08 May 2007)

APP. 78
07.12.31
GUIDELINES FOR TRUST DEPARTMENTS’ PLACEMENTS

IN THE SDA FACILITY OF BSP
The following are the guidelines Tier Tiered Rate

governing the trust deparments’ placements Amounts in excess of BSP published rate less
in the SDA facility of BSP. P5.0 billion up to 2%
1. Access to the subject BSP facility PI0.0 billion
shall be granted upon receipt by the BSP Amounts in excess of BSP published rate less
Treasury Department (BSP-TD) of a letter PI0.0 billion 4%
of request (Appendix 78 Annex 1) for 6. The minimum placement is P10.0
account opening together with the following million with the additional amounts in
requirements: increments of PI .0 million.
a. Internal approvals allowing the trust 7. Trust departments may place only
department to invest in the BSP SDA once per tenor per day
facility; 8. Trust departments may pre-
b. A list of authorized signatories; terminate their SDA placements, either fully
c. A list of authorized traders; and or partially. If the holding period of the SDA
d. Contact details for the front and back placement when it is rate pre-terminated is
offices. less than fifty percent (50%) of the original
2. The trust department shall use a tenor of the said placement, the applicable
depository institution that is a PhilPASS interest rate for the pre-terminated amount will
member when placing its funds in the SDA be the rate dealt on value date less two percent
facility. On transaction date, the trust (2%) p.a. If the holding period is fifty percent
department shall instruct said depository (50%) or more of the original tenor, the
institution to debit their account in favor of applicable interest rate for the pre-terminated
their SDA with the BSP. Similarly, the trust amount will be the rate dealt on value date
department shall specify a PhilPASS less one percent (1%) p.a. The pre-termination
member to which its principal and interest rate shall apply only to the amount pre-
will be credited at maturity of the SDA terminated.
placement. 9. The income from the SDA is subject
3. Trading hours shall be from I0:00 to a twenty percent (20%) final withholding
am to 3:00 pm for all business days. All tax
trades shall settle on trade date. 10. Depository institution shall
4. Applicable tenors and pricing shall generally follow the existing settlement
be based on published rates (i.e., in process for SDA placements with BSP of
Bloomberg’s CBPHI and Reuters BANGKO banks. The trust department will be required
page). to send the transaction confirmation directly
5. The existing tiering scheme, as to the BSP-TD back office. A sample
detailed below shall be applied to the SDA confirmation is attached as Appendix 78
placements of the trust departments Annex 1 and Annex 2.
separately from the placements of their bank 11. Trust departments may request a
proper. statement from the BSP-TD for their
Tier Tiered Rate outstanding SDA placement as of a specified
Amounts less than or BSP published rate date.
equal to P5.0 billion (M-2007-011 dated 08 May 2007)

APP. 78
07.12.31
Annex 1
(Institution’s Letterhead)
Date:_____________________
Mrs. Ma. Ramona GDT Santiago

Managing Director
Treasury Department
Dear Madam:
Pursuant to Monetary Board Resolution Nos. 433 and 518 dated 19 April 2007 and
3 May 2007, allowing trust departments to place their funds in the BSP’s Special Deposit
Account (SDA) facility, the trust department of (name of institution) respectfully request the
creation of an account for the said facility.
Please find attached the following documents, as required:
a. Internal approvals allowing the trust department to invest in the SDA

facility;
b. A list of authorized signatories;
c. A list of authorized traders; and
d. Contract details for the front and back offices.
For your kind attention.
Very truly yours,
__________________________
__________________________

APP. 78
07.12.31
Annex 2
(Institution’s Letterhead)
Date:_________________
TREASURY DEPARTMENT
Treasury Services Group - Domestic
Gentlemen:
This is to confirm our Special Deposit Account placement to yourselves as

follows:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
NET MATURITY VALUE
On value date, our funds will come from Regular Demand Deposit account of
(name of depository bank).
Accordingly, please CREDIT the Regular Demand Deposit Account of

(name of depository bank) on maturity date the amount of ____________PESOS (P___________),
representing full payment of the principal plus interest (net of applicable withholding tax)
thereon.
Very truly yours,
___________________________
___________________________

APP. 78a
07.12.31
SDA PLACEMENTS OF TRUST DEPARTMENTS/ENTITIES AS AGENT

FOR TAX-EXEMPT INSTITUTIONS (TEI) AND ACCOUNTS
(Appendix to Subsection X409.2)
Section 1. Placement of tax-exempt c. Copy of the covering trust

accounts in the SDA facility should comply agreement; and
with existing minimum placement and d. Certification from the trust
incremental requirements for the SDA department that such placements, for as long
facility. as these are outstanding, are owned by the
specified TEls and are accordingly exempt
Sec. 2. On transaction date, the trust from said twenty percent (20%) final
department/entity must inform the BSP the withholding tax (FWT). Shown in Annex 1.
exact amount of the tax-exempt placement Advance copies may be sent through
in the SDA and submit the following facsimile (facsimile number 523-3348) or
supporting documents: electronic mail of BSP-Treasury Back Office
a. Copy of the relevant ruling from the personnel (jsiguenza@bsp. gov. ph).
BIR, duly certified by the latter, affirming Absent the supporting documents by
the exemption from taxes of the income end of the business day, the tax-exempt
earned by concerned TEls or accounts from placement will be cancelled.
their investments;
b. Copy of the board resolution duly Sec. 3. For outstanding tax-exempt SDA
certified by the corporate secretary placements as of 01 November 2007, trust
authorizing the placement (directly for departments must submit the documents
managed funds or indirectly through specified in Item "2" hereof on or before 04
designated trustee bank/FI in the case December 2007 to avail of the exemption
of managed trust funds) in the SDA from withholding tax.
facility; ( M-2007-038 dated 29 November 2007)

APP. 78a
07.12.31
Annex 1
(Trust Entity/Department’s Letterhead)
Date:______________________
Ms. Ma. Ramona GDT Santiago
Managing Director
Treasury Department
A. Mabini corner P. Ocampo Sts.
Manila 1004
Dear Ms. Santiago:
This refers to the placement/s amounting to (Peso Amount) placed in the BSP’s SDA facility at
(SDA rate) % per annum for value (Value date) to mature on (Maturity date).
This is to certify that the above placement/s is/are transacted on behalf of the following Tax-
Exempt Institutions (TEI) or tax-exempt funds and interest income thereon are exempt from the twenty
percent (20%) final withholding tax based on the corresponding BIR rulings:
Tax Exempt Institutions Basis Amount

(BIR Ruling No. and date)
1.
2.
3.
(rows may be increased depending on number of placements)
TOTAL
This is to further certify that above placements will be owned by the specified TEIs/tax-exempt
funds for as long as these placements are outstanding.
In the event that the BSP is assessed for deficiency final withholding tax on the above
placements by the Bureau of Internal Revenue (BIR), (Bank name) shall be liable for and pay such
deficiency taxes and surcharges, and/or indemnify/reimburse the BSP for such deficiency taxes and
surcharges that the latter may eventually pay to the BIR as a result thereof. Further, (Bank name)
hereby authorizes the BSP to automatically debit its regular demand deposit account with the BSP for
payment or reimbursement of any such deficiency taxes and surcharges.
Sincerely yours,
HEAD OF TRUST DEPARTMENT
SUBSCRIBED AND SWORN to before me this ____ day of____________________ 2007 at

______________________, affiant exhibiting to me his Community Tax Certificate/Passport No.
____________, issued at _________________, on _____________________.
Notary Public
Doc. No. _________;
Page No. _________;
Book No. _________;
Series of 200___

APP. 79
07.12.31
GUIDELINES IN DETERMINING COMPLIANCE WITH CEILINGS

ON EQUITY INVESTMENTS
(Appendix to Secs. X378, X380, 1381, and X383, Subsecs. X379.1, 1381.1, and 1381.2)
The following are the guidelines in (3) Investments in Hybrid Tier 1

determining compliance with ceilings on securities that are issued in the form of
equity investments prescribed under perpetual preferred shares.
Sections/Subsections X3781, X379.1, X380, b. Shares of stock acquired in
1381, 1381.1, 1381.2 and X383, in view settlement of loans. Shares of stock of
of the adoption of the PFRS/PAS: another corporation acquired in settlement
a. Components of equity investment. of loans shall be excluded from total equity
Equity securities booked under the investments for purposes of determining
Designated at Fair Value Through Profit or compliance with the prescribed ceilings on
Loss (DFVPL), Available-For-Sale, equity investments: Provided, That
Investment in Non-Marketable Equity confirmation of the Monetary Board shall
Securities (INMES) and Equity Investments be required in the following cases within
in Subsidiaries/Associates/Joint Ventures thirty (30) days from the date of acquisition:
categories shall all be considered in (1) Acquisition of shares of stock of
computing for compliance with the ceilings non-allied enterprises by banks without
on equity investments prescribed under Sec. universal banking authority, otherwise
X383 and Subsec. X379.1: Provided, That prohibited in Sec. 1381;
Underwritten equity securities booked (2) Acquisition of shares of stock of
under the Available-For-Sale category shall non-allied enterprises other than those
be excluded from total equity investments specified under Subsec. 1381.1 by banks
for a period of two (2) years from the date with universal banking authority, otherwise
of acquisition thereof: Provided, further, requiring prior Monetary Board approval;
That upon prescription of the two (2) year (3) Acquisition of shares of stock of
period, such equity securities shall be non-allied enterprises by UBs in excess of
booked according to intention and shall limits provided in Subsec. 1381.2;
then be included in the computation of (4) Acquisition of shares of stock of
compliance with the prescribed ceilings. financial allied enterprises by banks, in
For this purpose, the following financial excess of limits provided in Sec. X378; and
instruments shall likewise be included in the (5) Acquisition of shares of stock of
computation of compliance with the non-financial allied enterprises by TBs and
prescribed ceilings: RBs in excess of limit provided in Sec. X380.
(1) Equity securities including those Provided, further, That said
accounted for as debt instruments booked confirmation shall be subject, among others,
under the Held for Trading (HFT) category, to the condition that such shares of stock
which remain unsold for more than one (1) shall be disposed of within a reasonable
year. period not to exceed five (5) years from the
(2) Mandatorily redeemable preferred date of acquisition thereof.
shares and preferred shares of similar nature c. Basis of computation. Compliance
that are accounted for as debt instruments, with the prescribed ceilings on equity
which may also be booked under the HTM investments shall be determined at each
or Unquoted Debt Securities Classified as time additional equity securities are
Loans (UDSCL) categories. acquired or shall be considered in the
1 amended by Circular No. 530 dated 19 May 2006

APP. 79
07.12.31
computation as in the case of prescription (1) Those without universal banking

of the two (2) year period for underwritten authority with acquired shares of stocks of
equity securities or in the case of equity non-allied enterprises in settlement of loans
securities booked under the HFT category, prohibited in Sec. 1381;
which remain unsold for more than one (1) (2) Those with universal banking
year. Further, this shall be computed using authority with acquired shares of stock of non-
the carrying amount of the equity allied enterprises in settlement of loans other
securities, which shall be the fair value than those specified under Subsec. 1381.1;
(marked-to-market amount) for those (3) Those with universal banking
investments booked under HFT, DFVPL and authority with acquired shares of stock of
Available- For-Sale, amortized cost for those non-allied enterprises in settlement of loans
investments booked under HTM and that are in excess of limits prescribed in
UDSCL or the cost and adjusted cost for Subsec. 1381.2;
those booked under INMES and Equity (4) Those with acquired shares of stock
Investment in Subsidiaries/Associates/Joint of financial allied enterprises in settlement
Ventures, respectively, net of Allowance for of loans that are in excess of limits provided
Credit Losses where applicable. in Sec. X378; and
For this purpose, adjusted cost shall refer (5) TBs and RBs with acquired shares
to the acquisition cost of Investments in of stock of non-financial allied enterprises
Subsidiaries/Associates/Joint Ventures in settlement of loans that are in excess of
adjusted for the investor’s share of the profit limit provided in Sec. X380.
or loss of investee after the date of Provided, That said confirmation shall
acquisition and other adjustments to the be subject, among others, to the condition
carrying amount of the investment. that such shares of stock shall be disposed
d. Transitory Provisions. Banks with of within a reasonable period not to exceed
acquired shares of stock in settlement of five (5) years from 05 October 2007.
loans that fall under any of the following e. Sanctions. Any violation of the
cases, which have not been previously provisions of this Appendix shall subject the
confirmed by the Monetary Board, shall seek bank and the director/s and/or officer/s
confirmation by the Monetary Board of such concerned to the sanctions provided under
acquisition not later than ninety (90) banking Section 37 of R.A. No. 7653.
days from 5 October 2007. (Circular No. 581 dated 14 September 2007)

APP. 80
07.12.31
GUIDELINES AND PROCEDURES GOVERNING CURRENCY DEPOSITS AND

WITHDRAWALS OF BANKS FOR CREDIT TO AND DEBIT FROM THEIR
DEMAND DEPOSIT ACCOUNTS WITH THE BSP
Currency notes/coins are classified as d. Bank deposits of fit currency

fit, unfit and mutilated pursuant to Sec. notes referred to in Item "c" above not
X610. The BSP Cash Department (CD) and withdrawn by the banks shall be verified
Regional Offices/Branches shall accept all piece-by-piece by the BSP on schedued
types of currency notes/coins for deposit dates.
except mutilated currency notes/coins, which e. The BSP shall accept coin deposits
must be presented directly for determination in standard quantity per denomination in
of redemption/exchange value to CD or the containers prescribed by BSP.
nearest BSP Regional Office/Branch in
accordance with Subsec. X610.6(f). CURRENCY DEPOSITS
Banks are encouraged to arrange direct f. Head Offices/Cash Centers of
exchange of their accumulated excess fit banks in Metro Manila or their designated
currency notes/coins with other banks to cash center/main branch in the provinces
optimize circulation of said notes/coins and shall make direct deposits of currency notes
to deposit only unfit currencies to their and coins with the BSP CD or the nearest
DDAs with BSP. BSP Regional Office/Branch, respectively.
To facilitate the expeditious receipt of The currency notes shall be duly classified
banks’ cash deposits and servicing of their as fit or unfit in accordance with the
cash withdrawals by BSP, all banks, “Currency Guide for Bank Tellers, Money
including their provincial branches shall Counters and Cash Custodians” prepared
observe the following guidelines and by BSP CD, and by denomination pursuant
procedures when making cash deposits to Subsec. X610.5 (a).
and/or withdrawals with BSP CD or any of g. In areas where there are no BSP
the BSP Regional Offices/Branches: Regional Offices/Branches, provincial
a. Receiving/releasing of banks’ cash branches of banks shall arrange with their
deposits/withdrawals shall start at 9:00 A.M. respective Head Offices the shipment of
and end at 2:00 P.M. their unfit notes/coins for deposit with
b. Banks should pre-sort all their BSP CD. Cost of shipment and other
currency notes/coins for fitness to ensure related expenses to be incurred shall be
that only pre-counted fit or unfit currency solely for the account of the bank
is deposited with BSP to effect an concerned.
expeditious servicing of banks’ cash h. Banks shall provide securely sealed
withdrawals and retirement of unfit transparent plastic bags prescribed by the
currency notes pursuant to the “Clean Note BSP for their deposits at BSP CD; separately
Policy” of BSP under Subsec. X610.5. for the fit and unfit notes. Each plastic bag
c. The BSP shall accept fit and unfit shall have uniform capacity of twenty (20)
note deposits only after conducting full bundles accompanied by a deposit slip
package and bundle count. Fit notes need for each type/category. The deposit slip for
not be verified piece-by-piece by the BSP each type/category of currency notes shall
before the same shall be re-issued to service be clearly labeled as “FIT” or “UNFIT” as
cash withdrawals of banks. the case may be.

APP. 80
07.12.31
At the BSP Regional Offices/Branches, (e) Notes of different denominations

banks shall provide securely sealed portable shall not be mixed in a single package/
metal sheet or GI sheet boxes measuring bundle/container;
15” in length x 12” in width x 14” in height (f) Bundled notes shall be packed in
for their deposits, separately for the fit and sealed plastic containers in uniform quantity
unfit notes. Each prescribed container shall of twenty (20) complete bundles per
have uniform capacity of twenty (20) full denomination (each bundle containing
bundles, accompanied by a deposit slip for 1,000 notes in ten equal packages, each
each type/category. The deposit slip for each package containing 100 notes); and
type/category of currency notes shall be g. A packing list/tag of the currency
clearly labeled as “Fit” or “Unfit” as the case in each plastic container shall be placed
may be. inside the container. Another tag shall be
i. To facilitate handling of cash attached to the container.
deposits, notes and coins shall be arranged (2) Coins
and placed in prescribed containers in the (a) The coin container bearing the
following manner: name of the bank shall be prescribed by
(1) Fit and Unfit Currency Notes the BSP;
(a) Notes of a single denomination (b) A tag shall be attached to each bag
must be arranged face and top up in indicating the denomination, quantity,
packages of 100 pieces each: amount, and date deposited:
(b) The wrapper of each package shall (c) Individual bags shall contain
be plainly marked with: standard quantities per denomination as
(i) the denomination and amount of follows:
currency in the package;
Denomination Quantity Value
(ii) the date of verification;
(Pieces)
(iii) the printed name(s) and signature(s)
10-Piso 1,200 P12,000.00
of depositing bank’s employee(s) who
performed the verification; and 5-Piso 1,500 7,500.00
(iv) the name of the depositing bank, 1-Piso 2,000 2,000.00
(c) Pins, clips and staple wires, if any, 25-Sentimo 3,000 750.00
must be removed prior to deposit in order to 10-Sentimo 4,500 450.00
avoid possible injury to employees and 5-Sentimo 5,000 250.00
damage to equipment; 1-Sentimo 5,000 50.00
(d) Individual packages of 100 notes
each shall be strapped/bundled in standard j. Upon delivery of the currency
units as follows: notes/coins to the BSP CD/Regional Office/
Branch, the representative of the depositing
Denomination Standard Value bank shall witness the package and bundle
Unit No. count for notes and bag count for coins
of Package
made by the BSP CD/Regional Office/
(Per 1 Bundle)
Branch Accountable Officer concerned. If
1000-Piso 10 P 1,000,000.00
500-Piso 10 500,000.00 found in order, said BSP officer shall
200-Piso 10 200,000.00 acknowledge receipt of the currency note/
100-Piso 10 100,000.00 coin deposits.
50-Piso 10 50,000.00 k. Deposits of currency notes at BSP
20-Piso 10 20,000.00 CD need not be taken out of the container

APP. 80
07.12.31
since contents are seen and can be counted Cash Withdrawal System. A Cash Order Slip
through the transparent plastic bag. For (COS), shall be sent by banks through FAX
deposits at BSP Regional Offices/Branches, to CD not later than 12:00 noon one (1)
the bundles of currency notes shall be day prior to actual cash withdrawal. Cash
returned by the authorized bank withdrawal shall be settled through the
representative to the containers, duly PhilPaSS before release of the cash
sealed with the depositor banks logo and withdrawal to banks.
padlocked with the key/s controlled by the q. At the BSP Regional Offices/
said representatives. Branches, cash withdrawal shall be made
l. The CD/Regional Office/Branch using the Integrated Regional Information
shall schedule piece-by-piece verification System (IRIS). BSP demand deposit checks
of cash deposits at a later date or whenever presented by banks for withdrawal after
it deems necessary, to be duly witnessed 12:00 noon shall be accepted for processing
by the bank’s authorized representatives. purposes only and the servicing thereof shall
m. The CD/Regional Offices/Branches be effected the following banking day.
of BSP may refuse acceptance of cash r. The authorized representative of
deposits that do not conform to the the withdrawing bank shall conduct:
foregoing guidelines and procedures. (1) bag/bundle/package count of the
notes and bag count of the coins withdrawn
CURRENCY WITHDRAWALS from the bank’s unverified fit currency note/
n. The BSP shall service cash coin deposits; and
withdrawals of banks from their respective (2) box/bundle/package/piece count of
unverified fit currency deposits and/or from the notes and bag count of the coins
verified/new currencies in stock. withdrawn from reissued/new currency
o. Only authorized representative of note/coin witnessed by authorized
the depositor-bank shall open the sealed representative of the BSP.
container(s) of unverified fit currency note Any overage/shortage found in the
deposits from which the BSP shall service verification of cash withdrawn from
the cash withdrawal of the same bank. It is reissued currency verified by BSP CD/
understood that said representative shall Regional Office/Branch shall be for the
have all the keys to the containers’ padlock account of BSP. The BSP shall not honor
of the bank’s currency fit note deposits any shortage/overage found after the
whenever assigned to BSP CD/Regional authorized bank representatives shall have
Office/Branch to effect cash withdrawals. left the BSP teller’s counter/cash withdrawal
p. At BSP CD, cash withdrawals of area.
banks shall be effected using the Electronic (M-2007-027 dated 19 September 2007)

APP. 81
08.12.31
APPRAISAL AND LOAN VALUATION FRAMEWORK

FOR RIGHTS-BASED SECURE TENURE ARRANGEMENTS
AS COLLATERAL SUBSTITUTES
In the appraisal of real properties or Valuation of leasehold

rights offered as collateral substitutes A leasehold is the real right of the lessee
under the housing microfinance acquired from an owner (the lessor) of a piece
program, the form of the secure tenure of real estate to occupy and use it for a fixed
instrument must be considered. Generally, term or period at a stipulated rental rate, and
two (2) appraisal methodologies or subject to conditions set forth in a written
approaches may be applied: the market document of lease. The lease may include
value must be determined using the the right of the lessee to improve the land,
market data or sales comparison mortgage the building, sublet all or part of
approach for properties under freehold the property, and assign or sell his leasehold.
and right to occupy and/or build (in The task of the appraiser is to estimate
respect of the housing unit or the present worth or “market value” of the
improvement to be used as collateral imputed rental income of the lessee derived
substitute), and for properties under from the property over and above the rent
Lease agreement and usufruct, the required to be paid by him to the lessor under
value of the Leasehold interest of the the terms of the lease and his interest in any
borrower must be determined. improvements made by him. In evaluating a
leasehold, the appraiser must have a thorough
Market value knowledge of all the salient terms and
Market value is the most probable conditions of the primary or main lease and
price that a property should obtain in a any subleases, for these affect the value of
competitive and open market under all the leasehold considerably, such as:
conditions requisite of a fair sale, with a. Rental. If the rental to be paid under
the buyer and seller each acting the terms of the lease is below the rental
prudently and knowledgeably, and prevailing in the market, the leasehold may
assuming that the price is not affected have a substantial value. Where the rental
by undue stimulus. In determining the actually paid is the prevailing rental value
market value of the property, the of the property, the leasehold may have no
appraiser must use the Market Data or value. Prevailing rental rates refer to the
Sales Comparison approach. This rental rates of comparable properties within
approach attempts to compare the comparable locations.
subject property’s value with similar b. Term of Lease. A long-term lease
properties and adjust its value according or the right of the lessee to renew the lease
to the presence or absence of value at the expiration of the original term of the
determining characteristics. This lease may add value to the leasehold.
approach is based upon the principles of c. Payment for Improvement
supply and demand and upon the d. Option to Purchase
principle of substitution. e. Leasehold Restrictions

APP. 81
08.12.31
Loan Valuation Based on Appraisal occupy and/or build) or prevailing rental rates
Valuation Framework or Methodology (leasehold/usufruct). The standard practice of
The valuation of properties under the participating banks in determining the loan
housing microfinance loan program will be to collateral ratios shall be adopted.The
based on prevailing market values of real following terms provided in the table below
estate properties (freehold and right to may be applied:
FORM OF SECURE NATURE AND TERMS AND APPRAISAL LOAN VALUATION

TENURE OR DESCRIPTION OF CONDITIONS METHODOLOGY
PROPERTY RIGHT ACCEPTABLE
INSTRUMENT
Usufruct Usufruct agreement or The Term of Lease must Valuation of Leasehold 70% of the appraised
contract – Duly executed not be less than the term Interest value of the collateral
contract executed by the of the loan.
owner of the property
granting the usufructuary/
beneficiary/ client the right
to use, possess, and
enjoy the real property
including its fruits and other
rights or benefits
Lease Lease agreement or The Term of Lease must Valuation of Leasehold 70% of the appraised
contract – Duly executed not be less than the term Interest value of the collateral
contract granting the of the loan
lessee the right to use and
possess the real property
for a fixed long-term
period in consideration of
rental payments
Freehold OCT/TCT – Torrens title Adjustment of appraisal Market Data Approach 90% of the appraised
issued by the Register of value due to documentary value of the collateral
Deeds evidencing nature or status of
absolute ownership of real instrument must be taken
property into account
Interim Title, Contract to

Sell or Conditional Sale –
Duly executed contract or
other legal instrument
issued by the appropriate
government agency
indicating full payment for
the purchase of the
property or its conditional
sale or conveyance to be
perfected upon full
payment of the purchase
price and/or the fulfillment
of other conditions

APP. 81
08.12.31
FORM OF SECURE NATURE AND TERMS AND APPRAISAL LOAN VALUATION

TENURE OR DESCRIPTION OF CONDITIONS METHODOLOGY
PROPERTY RIGHT ACCEPTABLE
INSTRUMENT
Right to occupy and/or (1) Certification validly Adjustment of appraisal Market Data Approach (as 70% of the appraised
build issued by the appropriate value due to documentary to the improvement or value of the collateral
government agency nature or status of housing unit)
stating that the borrower/ instrument must be taken
client has the right to into account
occupy, build and/or
acquire the property he/
she is possessing being
an eligible beneficiary of
a public or private social
housing program or a
Presidential proclamation,
or (2) certification or
written acknowledgment
from the owner of the
property that the borrower/
client has the owner’s
consent and permission to
occupy and build on such
property
(MAB-2008-015 dated 19 March 2008)

APP. 82
08.12.31
FORMAT CERTIFICATION ON DEPOSIT/CASH DELIVERY SERVICES

Name of Bank
CERTIFICATION
We, , Executive Vice President (or its equivalent

position) and , Compliance Officer, certify that the (Name
of Bank) shall render deposit pick-up/cash delivery services beyond regular banking hours/
days to the following clients:
Servicing Banking Client Name and Deposit Pick-up/Cash Delivery services

Unit1/ Address2/ Days Hours
1/ The name of the branch or banking unit that will render the Deposit Pick-up/Cash Delivery Services
2/ Name and address of client requesting deposit pick-up/cash delivery services
We further certify that in the performance of deposit pick-up/cash delivery services to the
above clients, the (Name of Bank) shall comply with all the conditions provided under
Section X266 of the Manual of Regulations for Banks on Deposit Pick-up/Cash Delivery
Services.
This certification executed on is being submitted in compliance with

the requirements of abovementioned regulation.
Signed: Signed:
(Name of Executive Vice President) (Name of Compliance Officer)

Position: Position:
Subscribed and sworn to before me, this day of , affiants exhibiting

their valid identifications indicated below:
Name Government ID/Passport No. Date/Place Issued
Notary Public
(Circular No. 614 dated 14 July 2008)

APP. 83
08.12.31
BASIC STANDARDS IN THE ADMINISTRATION OF TRUST, OTHER FIDUCIARY

AND INVESTMENT MANAGEMENT ACCOUNTS
I. Introduction the account. It shall be covered by a written

Trust and other fiduciary business and policy which shall contain, among other
investment management activities have things, the types of trust, other fiduciary and
evolved with the changes in the financial investment management accounts that are
market and advancement in technology. desirable and consistent with the TE’s risk
These innovations have allowed trust strategies and the specific conditions for
entities to expand the scope of trust accepting new accounts, and approved by
products and services offered to customers, the Trust Committee, or the Trust Officer,
thus increasing their exposure to various or subordinate officer of the trust
risks. As trust entities grow more diverse, department, authorized by the board of
necessarily policies and procedures as well directors or its functional oversight
as risk management practices must keep equivalent, in the case of foreign banks and
pace. The basic standards would provide institutions.
common processes for an efficient The review process entails the
operation and administration of trust, other thorough and complete review of the
fiduciary and investment management client’s/account’s characteristics and
activities across the trust industry. investment profile, including the assets/
properties to be contributed/delivered.
II. Statement of policy Non-financial/non-traditional assets (i.e.,
It is the policy of the BSP to provide real estate and the like) which are more
adequate level of protection to investors likely to be iliquid shall be carefully
who, under a fiduciary arrangement, reviewed prior to acceptance to ensure that
engage the services or avail of products of the TE only accepts accounts which hold
trust entities which are required to observe assets it may be able to properly manage.
prudence in the exercise of their fiduciary Prior to the acceptance of a fiduciary
responsibility. Along this line, the BSP account, the TE shall review the underlying
prescribes basic standards for the efficient instrument (trust agreement or contract)
administration and operation of trust and for potential conflicts of interest. If such
other fiduciary business and investment conflict exists, the TE shall take
management activities. appropriate action to address such
condition before the account is accepted.
III. Standards In cases where the TE is chosen as a
The basic standards in the administration successor trustee or investment manager,
of trust, other fiduciary and investment the TE shall perform a review and
management accounts are meant to address evaluation of all assets to be delivered to
the significant areas of operations and provide the TE to determine how these would serve
minimum set of requirements and the client's objectives, whether the TE can
procedures: properly handle such assets and to assess
A. Account acceptance and review any possible issue/problem which may
processes arise with respect to such assets before
1. Pre-acceptance account review acceptance of such assets and/or
This review must document that the assumption of the trust, fiduciary or
trust entity (TE) can effectively administer investment management relationship.

APP. 83
08.12.31
2. Establishment and post-acceptance portfolio/strategy to be recommended to

review each client. It shall provide prospective
Acceptance policies for new accounts clients with client suitability questionnaire
shall, at a minimum, include the following and require them to accomplish the same
processes and/or requirements: prior to the acceptance of the account and
(1) Account opening process. This execution of a transaction.
process defines the TE’s policies and For this purpose, the TE shall make an
procedures for client/account identification, assessment of the client’s level of financial
consistent with the TE’s KYC policy for sophistication and consider factors relevant
compliance with anti-money laundering to the creation and management of, or
regulations; identification of the needs of participation in, an investment portfolio,
the client; the objective(s) of the such as but not limited to, the specific
engagement; the vehicle to be used; and needs and unique circumstances of the
the account’s investment parameters. The client and/or beneficiary/(ies), basic
trust officer or other authorized personnel characteristics of the clients’ investment
of the trust department shall conduct the and experience, financial constraints, risk
account opening process for trust, fiduciary tolerance, tax considerations and regulatory
and investment management accounts. In requirements.
the case of UIT Funds, only authorized The same client suitability assessment
branch managers/officers as well as UIT process shall be applied by the TE for
marketing personnel, who have all directional accounts.
successfully undergone the required • Minimum information required for
certification/accreditation/licensing CSA:
process, may perform said process for UIT i. Personal/Institutional data. Minimum
Fund clients. The account opening process personal/institutional information that are
shall at least involve the following: unique to a natural or juridical client, which
a. Client profiling shall be performed shall also cover demographics and KYC
for all UIT Fund and regular trust, other information; the identity of beneficiaries,
fiduciary and investment management where applicable, and approximate portion
accounts (except court trusts) via a duly of total assets administered/managed.
acknowledged Client Suitability ii. Investment objective. A clear
Assessment (CSA), which aims to provide statement or definition of the client’s
the TE with information leading to the investment goals/purposes to be achieved
prudent design of investment packages, through a particular trust, fiduciary or
suited to a particular client or investment investment product or service. The client
account. The profiling process, to be may opt to open several accounts, each one
documented through a CSA Form signed with specific investment objectives
by the concerned parties 1 , shall be separate and distinct from the other
undertaken on a per client basis, which accounts.
shall emphasize the level of risk tolerance iii. Investment experience. A list of
of the client. various types of investment the prospective
• Client suitability assessment client is familiar with, acquired from actual/
The TE shall obtain adequate personal investment experience, or of
information from the client to determine similar investment circumstances.
the appropriateness of the fiduciary product/ iv. Knowledge and financial situation.
service to be provided and ensure the For complex transactions where the level
suitability of the investment product/ of risk involved is greater, the TE must take
1
i.e., the client, the UIT accredited marketing personnel or the officer of the trust department conducting the client
profiling. The CSA Form shall be acknowledged or confirmed by the trust officer or other officer of the trust department
autorized by the board of directors.
APP. 83
08.12.31
into account the knowledge, experience investment grade credit rating from a
and financial situation of the client or reputable international credit rating agency.
potential client to assess the level of ii. Moderate. Client wants a portfolio
investment sophistication. This may which may provide potential returns on
include the careful assessment whether the investment that are higher than the regular
specific type of financial instrument/service/ traditional deposit products and client is
portfolio/strategy is in line with the client’s aware that a higher return is accompanied
disclosed financial capacity. by a higher level of risk. Client is willing
Such assessment is necessary as there to expose the funds to a certain level of
are significant risks involved on financial risks in consideration for higher returns.
investments (e.g., derivatives), the type of iii. Aggressive. Client wants a portfolio
transaction (e.g. sale of options), the which may provide appreciation of capital
characteristics of the order (e.g., size or price over time and client is willing to accept higher
specifications) or the frequency of the trading. risks involving volatility of returns and even
v. Investment time frame and possible loss of investment in return for
liquidity requirement. The TE is able to potential higher long-term results.
organize the portfolio in a manner that will • Investment policy statement
provide for anticipated liquidity The TE shall have in place a method
requirement through redemption of by which suitability of investment is
principal contribution or earnings. determined based on the results of the CSA
vi. Risk tolerance. Allow the TE to and formulated via an Investment Policy
classify clients in accordance with its own Statement (IPS). It shall communicate to
pre-set internal risk classification. prospective clients the results of the
Based on the results of the CSA, assessment, recommend the investment
classification of clients by the TE may include, product/portfolio/strategy, and explain the
but need not be limited to the following: reasons why, on the basis of the given
i. Conservative. Client wants an information, its recommendation is to the
investment strategy where the primary best interest of the client as of a defined
goal is to prevent the loss of principal at timeframe. The TE shall make a
all times, and where the client prefers recommendation only after having
investment grade and highly liquid assets, reasonably determined that the proposed
government securities, Republic of the investment is suitable to the client’s and/or
Philippines' bonds (ROPs), deposits with beneficiary’s financial situation, investment
local banks/ branches of foreign banks experience, and investment objectives.
operating in the Philippines, and deposits The IPS is a clear reference frame for
with FIs in any foreign country: Provided, investment decisions and must be based
That said FI has at least an investment grade on the investment objectives and risk
credit rating from a reputable international tolerance of the client. It must include, at a
credit rating agency. For purposes of minimum, a description of the following:
investing in a UIT Fund, a client wants an i. Investment objective;
investment strategy where the primary ii. Investment strategy-indicating how
objective is to prevent the loss of principal assets will be allocated indicating the
at all times and where the fund is invested agreed portfolio mix;
in deposits with local banks/branches of iii. Investment performance review –
foreign banks operating in the Philippines indicating proposed market benchmarks, if
and with FI in any foreign country: any and the desired frequency of the
Provided, That said FI has at least an performance review/reporting;

APP. 83
08.12.31
iv. Investment limits – identifies any meets all relevant requirements as

limitation which the client may have for provided for in the TE’s written policies.
the portfolio such as investment restrictions • Frequency of CSA and IPS
(e.g., prohibited investments) and client’s i. The CSA shall be performed and
consent for taking losses. the IPS shall be formulated and executed
For UIT Fund, the IPS is equivalent to prior to the opening of the account;
the investment objective of the fund ii. The TE shall update the CSA and
specifically stated in the Declaration of Trust. the IPS at least every three (3) years except
• Option of client to reclassification in the following instances;
Generally, the TE shall recommend the • Whenever updates are
investment product/portfolio/strategy necessitated by the client, upon notice/
suitable to the client based on the results advise to the TE, on account of a change in
of the CSA. The TE may, however, provide personal/financial circumstances or
a process for allowing clients to invest in preferences, the TE shall adjust/modify its
investment products/ portfolio/strategy with investment strategy/portfolio and
a higher risk than those corresponding to recommendation, subject to the conformity
the CSA profile results. A client who of the client;
exercises the option to be re-classified • Whenever managed trust, other
outside the CSA process thereby waives fiduciary, and investment management
some of the protection afforded by these accounts express intention to invest in
guidelines. Such re-classification may be complex investment products such as
allowed subject to the observance of the financial derivatives, the TE shall ensure
following: that the CSA and the IPS are updated at
i. The client shall state in writing to least annually. Otherwise, the TE shall not
the TE that - make new/additional investments in
• He does not agree with or accept complex investment products.
the recommendation of the TE on the iii. The TE shall ensure that periodic
investment product/portfolio/strategy written notices given to clients reminding
appropriate to the client’s profile based on them of such updates are received/
the results of the CSA; acknowledged by clients or their
• He would like to avail of the authorized representatives;
investment product/portfolio/strategy other iv. Updated CSA and IPS shall be
than that which is consistent with the results acknowledged by the client;
of the CSA; v. The frequency of review shall be
• He requests/intends to be re- included as a provision in the written
classified, either generally or in respect to agreement; and
a particular investment/service/ transaction/ vi. The latest CSA and IPS will
product; and continue to be applied for any subsequent
• He fully understands and is willing principal contributions to the account, until
to take the risks incidental to the these are amended or updated by the
investment product/portfolio/strategy to be client.
availed of. b. Identification of degree of
ii. The TE shall issue a clear written discretion granted by client to the TE. This
warning to the client of the protections he process involves the determination of the
may lose and conversely, of the risks that extent of discretion granted to the TE to
he is exposed to. manage the client’s portfolio.
iii. The TE shall have taken all 1) Discretionary. The TE has authority
reasonable steps to ensure that the client or discretion to invest the funds/property

APP. 83
08.12.31
of the client in accordance with the iii. The obligations of the client with
parameters set forth by the client. Such respect to the transactions envisaged, in
authority of the TE which obtained a particular his financial commitments
composite Trust Rating of “4” in the latest towards the TE; and
BSP examination will not be subject to the iv. For engagements involving
investment limitations provided under management of assets or properties, the
Subsecs. X409.2 and X409.3 for trust and degree of discretion granted to the trustee
other fiduciary accounts and Subsecs. X411.4 or agent must be clearly defined and stated
and X411.5 for investment management in the agreement;
accounts, respectively; and b. The Agreement shall be in plain
(2) Non-discretionary. Investment language understandable by the client and/
activity of the TE is directed by the client or personnel of the TE responsible for
or limited only to specific securities or explaining the contents of the agreement
properties and expressly stipulated in the to the client.
agreement or upon written instruction of c. For complex investment products
the client. such as financial derivatives instruments or
(3) Documentation. The trust, fiduciary those that use synthetic investment
or investment management relationship vehicles, the TE shall disclose to the client
shall be formally established through a and require client’s prior written conformity
written legal document such as the trust or to the following:
investment management agreement. The i. Key features of investment services
engagement documents shall clearly and financial instruments envisaged,
specify the extent of fiduciary assignments/ according to the nature of such instruments
responsibilities of the TE and articulate the and services;
nature and limits of each party’s status as ii. The type(s) of instruments and
trustor/principal or trustee/agent. Policies transactions envisaged;
and procedures shall provide that trust or iii. The obligations of the TE with
investment management agreements are respect to the transactions envisaged, in
signed by the trust officer or , subordinate particular, its reporting and notice
officer of the trust department, or in the obligations to the clients; and
case of UIT Funds, branch managers/ iv. An appropriate disclosure bringing to
officers duly authorized by the board of the client’s attention the risks involved in
directors. the transactions envisaged.
The documentation process must also d. In order to give a fair and adequate
consider the following: description of the investment service or
a. The Agreement must conform to financial instrument, the TE shall provide a
the requirements provided under Subsec. clearly stated and easily understood Risk
X409.1 for trust and other fiduciary accounts Disclosure Statement to its clients, which
and Subsec. X411.1 for investment forms part of or attached to the trust, fiduciary
management accounts. In addition, the or investment management agreement.
Agreement shall contain the following The Risk Disclosure Statement shall
provisions: contain, among other things, the following
i. A description of the services to be provisions:
provided; i. Cautionary statement on the
ii. All charges relating to the services general risks of investing or associated with
or instruments envisaged and how the financial intruments, i.e., if the market is
charges are calculated; not good, an investor may not be able to

APP. 83
08.12.31
get back his principal or original of managed accounts shall be aligned with
investment. Such statement must be given the provisions on the review and updating
due prominence, and not to be concealed of the CSA and IPS. The board of directors
or masked in any way by the wording, may delegate the conduct of account
design or format of the information review to the Trust Officer or Trust
provided; Department Committee created for that
ii. If the investment outlet is exposed purpose. The policy shall likewise indicate
to any major or specific risks, a description the scope of the account review depending
and explanation of such risks shall be clearly upon the nature and types of trust, fiduciary
stated; and and investment management accounts
iii. Advisory statement that for managed.
complex investment products, said A comprehensive accounts review,
instruments can be subject to sudden and which shall entail an administrative as well
sharp falls in value such that the client may as investments review, shall be performed
lose its/his entire investment, and, on a periodic basis to ascertain that the
whenever applicable, be obligated to account is being managed in accordance
provide extra funding in case it/he is with the instrument creating the trust and
required to pay more later. other fiduciary relationship. The
Additional risk disclosures may be administrative review of an account is
provided as appropriate. taken to determine whether the portfolio/
The TE must ensure that the trust, assets are appropriate, individually and
fiduciary and investment management collectively, for the account, while an
agreements and documents have been investment review is used to analyze the
reviewed and found to be legally in order. investment performance of an account and
B. Account administration reaffirm or modify the pertinent investment
It is the fundamental duty of a fiduciary policy statement, including asset allocation
to administer an account solely in the guidelines. Whether the administrative
interest of clients. The duty of loyalty is a and investment review are performed
paramount importance and underlies the separately or simultaneously, the
entire administration of trust, other fiduciary reviewing authority shall be able to
and investment management accounts. A determine if certain portfolio/assets are no
successful administration will meet the longer appropriate for the account, (i.e., not
needs of both clients and beneficiaries in a consistent with the requirements of the
safe and productive manner. client) and to take proper action through
Account administration basically prudent investment practices to change the
involves three processes, namely; structure or composition of the assets.
(1) periodic review of existing accounts, The periodic review process also
(2) credit process and (3) investment involves disclosure of information on the
process. investment portfolio and the relevant
(1) Periodic review of existing accounts investing activities. Regardless of the degree
The board of directors and Trust of discretion granted by the client to the TE,
Committee shall formulate and implement the former assumes full risk on the investment
a policy to ensure that a comprehensive and related activities, and counterparties.
review of trust, fiduciary and investment Relevant changes in the TE’s organization or
management accounts (including collective investment policies that may affect the client’s
investment schemes such as UIT Funds) decision to continue the services of the TE
shall be conducted. The periodic review shall be disclosed to the client.

APP. 83
08.12.31
In the case of non-discretionary public function. The TE can share credit

interest accounts such as employee information with the bank proper subject
benefit/retirement or pension funds, due to proper delineation and documentation.
diligence review of the investment The credit process shall show the following
portfolio by the TE shall include providing at the minimum:
investors with appropriate information i. Clear credit process flow, from
needed to make an informed investment initiation of the lending activities
decision and avoid possible conflict of envisioned by the TE up to the execution
interest and self-dealing situations. of actual investment;
The TE should be able to show (in ii. Credit criteria and rating used;
addition to the specific written directive iii. Manner by which the TE handles
from the client) what it has done in the the information, including confidential and
exercise of due diligence and prudence on material data, which is shared between and
its part to protect the interest of the client among the departments, subsidiaries or
and/or beneficiaries, especially for affiliates of the TE; and
accounts of public interest like retirement/ iv. Clear delineation of duties and
pension fund accounts. responsibilities of each of the departments,
The TE shall keep its clients informed subsidiaries and affiliates of the TE, where
of the investment and related activities by such groups or entities share the credit
rendering periodic reports and financial process.
statements prescribed under Subsec. b. Counterparty accreditation process.
X425.1 and as necessary. The types of The TE must clearly define the policies and
reports and statements and the frequency the processes it will undertake to accredit
of their submission must be clearly counterparties, including the bank proper,
specified in the TE’s written policies and and its subsidiaries and affiliates, for their
procedures. investment trading functions. It may use or
The TE shall also establish a system that avail itself of the accreditation process of its
enables a trust account representative or bank proper provided there is proper
officer to periodically contact clients delineation of functions. The counterparty
and/or beneficiaries to determine whether accreditation process shall show the
their financial objectives and circumstances following at the minimum:
have changed. i. Clear accreditation process flow
(2) Credit process from the initiation of credit activities up to
Each trust entity shall define its credit the actual usage of lines;
process in relation to the discharge of the ii. Credit criteria and rating used;
TE’s investment function. The process iii. Manner by which the TE handles
ensures credit worthiness of investment the information, including confidential and
undertakings including dealings and material data, which are shared between
relationship with counterparties. It also and among the departments, subsidiaries
serves to institutionalize the independence or affiliates of the TE;
of the credit process of the TE. The credit iv. Usage, duties and responsibilities
process must at least cover the following: of each of the department, subsidiaries and
a. Credit policies. Trust entities must affiliates of the TE, where there is sharing
clearly define its credit policies and of credit lines between and among these
processes, including the use of internal and concerned groups/ entities; and
external credit rating and approval process v. Clear delineation of duties and
relative to the delivery of its instrument responsibilities of each of the departments,

APP. 83
08.12.31
subsidiaries and affiliates of the TE, where to be appropriate for the client’s profile and
such groups or entities share the investment objective. It includes the
accreditation credit process. allocation of desired tenors in conjunction
(3) Investment process with the client or portfolio profile based
This process defines the investment on the CSA or IPS. The asset allocation
policies and procedures, including may be based on percentage to total
decision-making processes, undertaken by funds managed by the TE or stated in
the TE in the execution of its fund/asset absolute amount whichever is preferred
management function. The primary by the client.
objective of such process is to create a • Security selection. Policies and
structure that will assure TEs observe procedures on the selection of investment
prudence in investment activities at all levels, outlets, including investment advisory, must
preservation of capital, diversification, a be in place. This involves the selection of
reasonable level of risk as well as issuers for each of the identified asset
undivided loyalty to each client and classes. The process provides for the
adherence to established structure for the review of investment performance using
TE’s investment undertakings. The risk parameters and comparison to
investment process covers a broad range appropriate benchmarks. It shall also
of activities; thus, the investment policies identify the documentation required for all
shall clearly outline the parameters that, at investment decisions.
a minimum, include the following: If the TE uses approved lists of
a. Overall investment philosophy, investments, there shall be an outline of
standards and practices. A general the criteria for the selection and monitoring
statement of principles that guides the of such investments, as well as a description
portfolio manager in the management of of the overall process for addition to and
investments outlined in the board-approved deletion from the lists.
policy, along with a discussion on the • Benchmark selection/creation.
practices and standards to be implemented Selects or crafts the benchmarks to reflect
to achieve the desired result. the desired return of the portfolio and to
b. Investment Policies and Processes. measure the performance of the portfolio
Defines the policies and the processes manager. The TE shall be required to
undertaken to create the portfolio to ensure measure performance based on benchmarks
the proper understanding of the client’s to gauge or measure the performance of the
preferences. account. The TE must have clear definition
i. Profiling of client. Aims to of its benchmarking policy.
understand the level of maturity of the • Limits. Identifies any limitations on
client relevant to the creation of an portfolio management which the client may
appropriate portfolio. impose on the TE. These limitations have
ii. Portfolio construction for custom- to be specific as to the nature of the portfolio,
made portfolios. Includes the process of such as but not limited to, core holdings,
researching and selecting recommended investment in competitor companies, and
portfolio and setting objectives or strategies companies engaged in vices.
for diversification by types and classes of • Risk disclosure statement. A clear
securities into general and specialized and appropriately worded statement/s to
portfolios. disclose different risks to clients of the
• Asset allocation. Outlines the various investment undertakings of the
process and criteria for selecting and investment manager done in behalf of the
evaluating different asset classes identified client.

APP. 83
08.12.31
iii. Internal policies on trade allocation. v. Value of services provided,

Defines the institution’s policies in ensuring including research; and
timely, fair and equitable allocation of vi. Available information about the
investments across investing portfolios. broker from other broker customers,
iv. Diversification of discretionary regulators, and self-regulated organizations
investments. The TE shall have a policy authorized by the SEC.
on the general diversification requirements The TE with large portfolio may opt to
for asset administration, as well as the evaluate broker performance using a
process implemented to monitor and formalized point scoring system. A list of
control deviations from policy guidelines. approved brokers shall be made available
v. A TE shall have access to timely by the TE, reviewed periodically and
and competent economic analyses and updated at least annually.
forecasts for the capital markets and other d. Best practices. The TE shall
products in which its clients will be document best practices policies and
investing. TEs engaged in more complex processes to institutionalize proper
transactions may consider providing an safeguards for the protection of its clients
economic and securities research unit that and itself. At a minimum, the policies must
continually monitors global trends and include the following standards:
capital markets. This unit provides i. Best execution. The TE shall use
necessary forecasts of capital market reasonable diligence to ensure that
expectations, currency relationships, investment trades are executed in a
interest rate movements, commodity timely manner and on the best available
prices, and expected returns of asset terms that are favorable to the client
classes and individual investment under prevailing market conditions as
instruments, which help the TE establish can be reasonably obtained elsewhere
appropriate investment policies and with an acceptable counterparty. For
strategies, select appropriate investments, related counterparties, no purchase/ sale
and manage risks effectively. must be made for discretionary accounts
vi. The TE shall have a process that without considering at least two (2)
will confirm trust personnel with competitive quotes from other sources. The
investment functions know and follow the policy on best execution must document
BOD-approved investment policies and processes to warrant such execution is
processes. readily and operationally verifiable.
c. Selection and use of brokers/ ii. Chinese wall. A clear policy on
dealers. The quality of execution is an Chinese Wall aims to protect the institution
important determinant in broker selection. from conflict of interest arising from
In selecting brokers/dealers, a TE must varying functions carried by the TE in
consider the following minimum standards relation to credit (debt), shareholder, and
and criteria: investment position taking. The policy
i. Execution capability and ability to shall state the duties and responsibilities
handle specialized transactions; of the TE and each department including
ii. Commission rates and other that of the bank proper and subsidiaries
compensation; and affiliates should transactions involve
iii. Financial strength, including the concerned departments and entities.
operating results and adequacy of capital iii. Personnel investment policies.
and liquidity; These policies aim to ensure honest and
iv. Past record of good and timely fair discharge of investment trading
delivery and payment on trades; functions of all qualified personnel.

APP. 83
08.12.31
Qualified personnel are those that may advice and recommendations to clients are
have access to information on clients and based on thorough analysis and take into
investment position-taking of clients, account available alternatives.
investment manager or portfolios. The use • The TE shall take all reasonable
of such information may be abused and steps to execute promptly client orders in
detrimental to the clients. The policy shall accordance with the instruction of clients.
state the duties and responsibilities of each • The TE, when acting for or with
qualified personnel in relation to trading clients, shall always execute client orders
and portfolio management activities on the best available terms.
including allowed and not allowed • The TE shall ensure that
transactions as well as sanctions in case of transactions executed on behalf of clients
violations. are promptly and fairly allocated to the
iv. Confidentiality and materiality of accounts of the clients on whose behalf the
Information. The TE must keep information transactions were executed.
about past, current and prospective clients Where a client opts not to accept the
confidential, unless disclosure is authorized recommendation of the TE and chooses to
in writing by the client or required by law purchase another investment product
and the information involve illegal which is not recommended, the TE may
activities perpetrated by the client. It must proceed with the client’s request/
ensure safekeeping of confidential and instruction, provided it shall document the
material information and prevent the abuse decision of the client and highlight to him/
of such information to the detriment of the her that it is his/her responsibility to ensure
institution or its clients. the suitability of the product selected.
v. Fair dealing. The TE shall vii. In-House or related party
document dealing practices to ensure fair, transactions handling. The TE shall define
honest and professional practices in the policies in handling related-interest
accordance with the best interest of the transaction to ensure that the best interest
client and counterparties at all times and of clients prevails at all times and all
for the integrity of the market. It must dealings are above board. It must conform
ensure that any representations or other to the requirements of Subsecs. X409.3 and
communications made and information X411.5.
provided to the client are accurate and not viii.Valuation. The TE shall document the
misleading. The TE must also take care institution’s valuation process to show the
not to discriminate against any client but sources of prices, either market or historical
treat all clients in a fair and impartial value, and the formula used to derive the
manner. NAV of investment portfolios. Valuation
vi. Diligence and reasonable basis. In shall be understood, compliant with written
conducting its investment services, the TE policies and operating procedures, and
shall act with skill, and care and diligence, used consistently within the TE. The TE
and in the best interests of its clients and must ensure that the valuation processes
the integrity of the market. The duty of of service providers, custodians, and other
due diligence is intertwined with the duty subcontractors are compatible with those
to maintain independence and objectivity of the TE and in compliance with relevant
in providing investment recommendations statutory or regulatory valuation standards.
or taking investment actions. When Risk officers shall document the
providing advice to a client, the TE shall accuracy and reliability of all valuation
act diligently and make certain that its processes and data sources and ensure that

APP. 83
08.12.31
valuations are completed as required by preparation and filing of required reports.

internal policies and procedures and The TE must ensure the risk control
regulatory reporting standards. processes are observed when terminating
e. Conflicts of interests. These may accounts just as when accepting them.
arise when the TE exercises any discretion The TE must have a general policy with
where mutually opposing interests are respect to the termination of trust accounts,
involved. The most serious conflict of which policy shall take into consideration
interest is self-dealing, which could the general processes to be observed in the
include transactions such as an return or delivery of different types of assets,
investment in related interests of the TE the possible modes of distribution, fees to
or purchase of securities from or through be paid, taxes to be imposed, the
an affiliate. Such transactions must be documentation required to effect the transfer
fully disclosed and authorized in writing of assets, the provision of terminal reports,
by clients. Because of the complexity and whenever applicable, the timing of
and sensitivity of the issue, a TE must distribution, needs and circumstances of
develop policies and procedures to identify the beneficiaries. Should the TE anticipate
and deal with conflicts of interest situations. possible issues or problems with
3. Account termination respect to the termination of the
Accounts may be terminated for a account, such as the liquidation of certain
variety of reasons, including the assets or the partition or division of assets,
occurrence of a specified event or upon these issues shall be disclosed to the client
written notice of either the client or the for proper disposition. The policy on the
TE. The trust or investment management termination of trust, fiduciary and
agreement shall provide for the terms and investment management accounts shall
manner of liquidation, return and delivery likewise include the approval process to
of assets/portfolio to the client. Generally, be observed for the termination of these
the TE's responsibilities include distribution accounts as well as the reporting
to the client, the successor trustee and/or requirements for accounts terminated and
beneficiaries of the remaining assets held closed.
under trusteeship/agency arrangement, (Circular No. 618 dated 20 August 2008)

GUIDELINES FOR DAYS DECLARED AS PUBLIC SECTOR HOLIDAYS
(Appendix to Secs. X207, X256 and X601.6)

Bangko Sentral ng Pilipinas Bureau of the Treasury
PCHC
Time of receipt Treasury Department Reserve
of Public Holiday PhilPASS Position Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS Cash Dept Auction
Announcement by
SDA/RDA Withdrawal
the BSP
Trading Settlement Trading Settlement
1. On an No clearing; no To be decided in
o r d i n a r y s e t t l e m e n t . coordination with
business day Closed Closed Closed Closed Closed Closed Closed Non- Closed Closed PCHC will issue Head Office
prior to the Reserve an advisory to its
date of members that it
effectivity will continue
accepting and
processing checks
2. On a
Saturday or
Sunday to take
effect the
following
Monday or on
a non-working
holiday to take
effect the next
business day
a. Under good No No No No To be decided in

w e a t h e r change change change in change in Open coordination with
Open Open Reserve Open Open Normal
condition in in trading settlement Head Office
trading settlement hours time
hours time
b . U n d e r No clearing; no To be decided in
unfavorable s e t t l e m e n t . coordination with
conditions such PCHC will issue Head Office
as bad Closed Closed Closed Closed Closed Closed Closed Non- an advisory to its
Closed Closed
weather, (e.g. Reserve members that it

Typhoon signal will continue
no. 3), natural accepting and
08.12.31
APP. 84
calamities or processing checks
c i v i l
disturbances
08.12.31
APP. 84
Time of receipt Bangko Sentral ng Pilipinas PCHC
of Public Holiday Treasury Department Reserve
Announcement by PhilPASS Position Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS Cash Dept Auction
the BSP
SDA/RDA Withdrawal
No clearing; no
3. Before 9:00 Closed Closed Closed Closed Closed Closed Closed Non- Closed Closed To be decided in
settlement. PCHC
a.m. on the date Reserve coordination with
will issue an advisory
of effectivity Head Office
to its members that
it will continue
accepting and
processing checks
4. After Day 1 Suspended No No Open Open Reserve Open Open Normal To be decided in
Open
9:00 a.m. on to be
change in change in coordination with
the date of resumed
trading settle- Head Office
effectivity the
hours ment
following
time
day at
9:01a.m.
to
9:45 a.m.
Resumed 9:01 a.m. No No Open Open Open Open Normal To be decided in
Day 2 Reserve Open
from 9:01 to change in coordination with
change
a.m. to 10:00 trading Head Office
in
9:45 am a.m. hours settlement
(for value
time
Day 1)
then,
4:45p.m. 4:45p.m.
to to
5:30p.m. 5:45p.m.
for same
day
transaction
5. In case of
suspension of
work is
extended to
Day 2
a. Before closed; Closed Closed Closed Closed Closed Non- Closed Closed No clearing; no To be decided in
Day 2 Closed
9:00am of Day 1 Reserve settlement PCHC coordination with
Day 2 transactions will issue an Head Office
will be advisory to its
moved members that it
to Day will continue
3 ( for accepting and
value processing checks
Day 1)
Time of receipt Bangko Sentral ng Pilipinas

of Public Holiday Reserve Bureau of the Treasury PCHC
Announcement by Position
Treasury Department
the BSP PDS Cash Dept
Overnight RP/RRP Term RP& RRP/GS/ PhilPASS
Withdrawal Auction Sec. Mkt. Manila Regional
SDA/RDA
Day 3 Resumed No No Open Open Open Reserve Open Open Normal To be decided in
from 9:01 a.m. change in change in coordination
9:01 a.m. to 10:00 trading settle- with Head
to am hours ment Office
9:45 am time
(for value
Day 1)
then, 4:45p.m.
4:45p.m. to
to 5:45p.m.
5:30p.m.
for same
day
transaction
b. After Day 2 Resumed 9:01 a.m. No No Open Open Open Reserve Open Open Normal To be decided in
9:00 a.m. from to change in change coordination with
of Day 2 9:01 a.m. 10:00 trading in Head Office
to a.m. hours settlement
9: 45 a.m. time
(for value
Day 1)
then, 4:45p.m.
Day 2 to
transactions 5:45p.m.
suspended
to be
resumed
the
following
day from
9:01a.m.
to
9:45 a.m.
08.12.31
APP. 84
08.12.31
APP. 84
Time of receipt Bangko Sentral ng Pilipinas PCHC

of Public Holiday Treasury Department Reserve
Announcement by Cash Dept Position Auction Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS PhilPASS
the BSP Withdrawal
SDA/RDA
Resumed No Open
Day 3 9:01 a.m. No Open Open Reserve Open Open Normal To be decided in
from change in change in
to 10:00 coordination with
9:01 a.m. trading
a.m. settlement Head Office
to 9:45 hours time
am (for
value
Day 2)
4:45p.m.
then,
to
4:45p.m.
5:45p.m.
to
5:30p.m.
for same
day
transaction
6. In case the 4:45 p.m. 4:45 p.m. No No Open Open Open Reserve Open Open Normal To be decided in
suspension of to 5:30 to 5:45 change in change in coordination with
work does not p.m. for p.m. trading settlement Head Office
apply to all same day hours time
government transaction
offices (Manila
Day, Quezon
City Day, etc.)
(M-2008-025 dated 13 August 2008)

ILLUSTRATIVE ACCOUNTING ENTRIES
I. Transfer of Net Realized Profits
E/FCDU Account Balances

Due to RBU -
E/FCDU
Net Due to RBU - Unrealized
Unrealized E/FCDU Losses Due from
Undivided Retained Gains/(Losses) Realized Recognized in Other Banks/
Profits/ Earnings - Recognized in Losses from Profit or Loss Cash Inflow
(Losses) Free1 Equity Operations and in Equity (Outflow)
To record net realized profits
Dr Asset/Liability 100
Cr Income 100
To close net realized profits to Undivided Profits/(Losses)

Dr Income 100
Cr Undivided Profits/(Losses) 100 100
Balance as of year-end before transfer of net realized profits and

assets to RBU 100 -
To close Undivided Profits/(Losses) to Retained Earnings - Free - EFCDU
Dr Undivided Profits/(Losses) 100 (100)
Cr Retained Earnings - Free - EFCDU 100 100
The undivided Profits/(Losses) shall be closed to Ratained Earnings - Free -
E/FCDU at the end of the calendar-fiscal year adopted by the bank pending
transfer of eligible assets to the RBU which shall be made within 1 month
after the end of the reference year
To transfer assets o RBU representing net realized profits
Dr Retained Earnings - Free - E/FCDU 100 (100)
Cr Due from other Banks/Cash 100 (100)

The corresponding journal entry in the RBU for the transfer of net realized
profits from E/FCDU is as follows:
Dr Due from Other Banks/Cash 100
08.12.31
APP. 85
Cr Retained Earnings - Free - RBU 100
Balance as of year-end after transfer of net realized profits and assets to RBU - - (100)
1
For branches of foreign banks the account to be used is Net Due to/from HO/Branches/Agencies Abroad
08.12.31
APP. 85
II. Transfer of Net Realized Losses
Due to RBU -
E/FCDU
Due to RBU - Unrealized
Net Unrealized E/FCDU Losses Due from
Month 1 (M1)
To record M1 net realized losses
Dr. Expense 10
Cr. Asset/Liability 10
To close M1 net realized losses to Undivided Profits/(Losses)

Dr. Undivided Profits/(Losses) 10 (10)
Cr. Expense 10
Balance as of M1 before transfer of assets from RBU (10)
To close transfer assets from RBU representing net realized losses

Dr. Due from Other Banks/Cash 10 10
Cr Due to RBU - E/FCDU Realized Losses from Operations 10 10
The “Due to RBU - E/FCDU Realized Losses from Opearations” shall not be subject
to E/FCDU cover requirements
Balance as of M1 after transfer of assets from RBU (10) 10 10

Month 2 (M2)
To record M2 net realized losses
Dr. Expense 5
Cr. Assets/Liability 5
To close M2 net realized losses to Undivided Profits/(Losses)

Cr Expense 5
Balance as of M2 before transfer of assets from RBU (15) 10 10

1

Due to RBU -
E/FCDU
To transfer assets from RBU representing net realized losses
Cr Due to RBU - E/FCDU Realized Losses from Operations 5 5
Computation of amount to be transfered from RBU

Cumulative net realized losses from operations incurred from beginning of year 15
Due to RBU - E/FCDU Realized Losses from Operations 10
Amount to be transferred from RBU 5
The “Due to RBU - E/FCDU Realized Losses from Operations”

shall not be subject to E/FCDU cover requirements
Balance as of M2 after transfer of assets from RBU (15) 15 15

Month 3 (M3)
To record M3 net realized profits
Dr. Asset/Liability 3
Cr. Income 3
To close M3 net realized profits to Undivided Profits/(Losses)

Dr. Income 3
Cr. Undivided Profits/(Losses) 3 3
Balance as of M3 before settlement of excess (12) 15 15
08.12.31
APP. 85
Due to RBU
1
08.12.31
APP. 85

Due to RBU -
E/FCDU
Due to RBU - Unrealized
Net Unrealized E/FCDU Losses Due from
To settle express Due to RBU-E/FCDU Realized Losses from Operations
Dr. Due to RBU - E/FCDU Ralized Losses from Operations 3 (3)
Cr Due from Other Banks/Cash 3 (3)
Computation of amount to be settled to RBU

Cumulative net realized losses from operations incurred from beginning of year 12
Due to RBU - E/FCDU Realized Losses from Operations 15
Excess amount to be settled to RBU2 (3)
2
Whenever the balance of “Due to RBU - E/FCDU Realized Losses from Operations”
exceeds the cumulative net realized losses incurred from the beginning of the year
the excess shall be settled to the RBU.
Balance as of M3 after settlement of excess Due to RBU (12) 12 12

Balance as of year - end before transfer of net realized losses to RBU (12) 12 12
To close Undivided Profits/(Losses) to Due to RBU - E/FCDU Realized Losses

from Operations
Dr. Due to RBU - E/FCDU Realized Losses from Operations 12 (12)
The corresponding journal entry in the RBU for the transfer of unrealized losses
from E/FCDU is as follows:
Dr. Retained Earnings - Free - RBU 12
Cr. Due from E/FCDU - E/FCDU Realized Losses from Operations 12
Balance as of year-end after transfer of net realized losses to RBU - - 12

1
III. Transfer of Net Unrealized Gains/(Losses)

Due to RBU -
E/FCDU
Dr. Cr. (Losses) Free1 Equity Operations and in Equity (Outflow)
Month 1 (M1) Case A
To record M1 MTM adjustment on derivatives
Dr. Gains/(Losses) on Financial Assets/Liabilities HFT 20
Cr. Derivatives with Negative Fair Value HFT 20
To close net unrealized losses to Undivided Profits/(Losses)

Cr. Gains/(Losses) on Financial Assets/Liabilities HFT 20
To record MTM adjustment on AFS Financial Assets

Dr. Net Unrealized Gains/(Losses) on AFS Financial Assets (Equity Account) 50 (50)
Cr Accumulated Market Gains/(Losses) on AFS Financial Assets 50
(Contra Asset Account)
Balance as of M1 before transfer of assets from RBU (20) (50)
To transfer assets from RBU representing net unrealized losses
Cr. Due to RBU - E/FCDU Unrealized Losses Recognized Profit or Loss 70 70
and in Equity
Computation of amount to be transferred from RBU

Net Unrealized Gains/(Losses) from Operations (debit balance) 20
Net Unrealized Gains/(Losses) on AFS Financial Assets (debit balance) 50
Net Unrealized Losses (net debit balance) 70
08.12.31
The “Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity”
APP. 85
shall not be subject to E/FCDU cover requirements
Balance as of M1 after transfer of assets from RBU (20) - (50) 70 70

1
08.12.31
APP. 85
III. Transfer of Net Urealized Gains/(Losses)

Due to RBU -
E/FCDU
Month 2 (M2)
To record M2 MTM adjustment on derivatives
Dr. Derivatives with Positive Fair Value HFT 80
Cr. Gains/(Losses) on Financial Assets/Liabilities HFT 80
To close net unrealized gains to Undivided Profits/(Losses)
Dr. Gains/(Losses) on Financial Assests/Liabilities HFT 80
To record MTM adjustment on AFS Financial Assets

Dr. Accumulated Market Gains/(Losses) on AFS Financial Assets
(Contra Asset Account) 30
Cr. Net Unrealized Gains/(Losses) on AFS Financial Assets
(Equity Account) 30 30
Balance as of M2 before settlement of excess due to RBU 60 - (20) 70 70
To settle excess Due to RBU - E/FCDU Unrealized Losses
Recognized in Profit or Loss and in Equity 70
Dr. Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity (70)
Cr. Due from Other Banks/Cash 70 (70)
Computation of amount to be settled to RBU
Cumulative net unrealized losses recognized in profit or loss and in equity3 0
Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity 70
Excess amount to be settled to RBU4 (70)
3
Computation of cumulative net unrealized losses recognized in
profit or loss and in equity
(1) Net unrealized gains from operations (60)
(2) Net unrealized losses on AFS Financial Assets 20
Cumulative net unrealized gains (40)
1
III. Transfer of Net Unrealized Gains/(Losses)

Due to RBU -
E/FCDU
Since the sum of items (1) and (2) results to net unrealized gains, cumulative
net unrealized losses is considered zero.
4
Whenever the “Due to RBU - E/FCDU Unrealized Losses Recognized in Profit
or Loss and in Equity” exceeds the cumulative net unrealized losses, the excess
shall be settled to the RBU
Balance as of M2 after settlement of excess Due to RBU 60 - (20) - -

Balance as of year-end before closing Undivided Profits/(Losses) to Retained
60 - (20) - -
Earnings - Free - E/FCDU
To close Undivided Profits/(Losses) to Retained Earnings - Free - E/FCDU
Cr. Retained Earnings - Free - E/FCDU 60 60
Balance as of year-end after closing Undivided Profits/(Losses) Retained

Earnings - Free - E/FCDU - 60 (20) - -
1
For branches of foreign banks the account to be used is Ne t Due to/from HO/Branches/Agencies Abroad
08.12.31
APP. 85
08.12.31
APP. 85
III. Transfer of Net Realized Losses

Due to RBU -
E/FCDU
Case B
Assume the following computation of cumulative net unrealized
losses recognized in profit and loss and in equity requiring transfer
of assets from RBU
(1) Net unrealized losses from operations 100
(2) Net unrealized losses on AFS Financial Assets 20
Cumulative net unrealized losses 120
Assume the balance of “Due to RBU - E/FCDU Unrealized losses recognized

in Profit or Loss and in Equity “ is 0 before transfer of assets at year-end from RBU
Balance as of year-end before closing Undivided Profits/(Losses) to Retained Earnings
Free - E/FCDU and transfer of assets from RBU (100) (20) - -
To close Undivided Profits/(Losses) to Retained Earnings - Free - E/FCDU
Dr. Retained Earnings Free-E/FCDU 100 (100)
Cr. Undivided Profits(Losses) 100 100
To transfer assets from RBU representing net unrealized losses

Dr. Due from Other Banks/Cash (120) 120
Cr. Due to RBU - E/FCDU Unrealized Losses Recognized in Profit
or Loss and in Equity (120) (120)
Balance as of year-end after closing Undivided Profits/(Losses) to Retained Earnings -
- (100) (20) (120) 120
Free - E/FCDU Unrealized and transfer of assets from RBU
1
APP. 86
08.12.31
GUIDELINES ON THE AVAILMENT OF USD DENOMINATED

REPURCHASE AGREEMENT FACILITY WITH THE BSP
The guidelines on the availment of D. Valuation of securities

USD denominated repo agreement facility The haircut on the underlying securities
of banks with the BSP are as follows: shall be determined by the Treasury
Department, with the concurrence of the
A. Eligible borrowers Governor. Collateral cover will be
RBUs or FCDU/EFCDUs of banks with maintained through periodic margin calls
FCDU/EFCDU authority who can as specified in the repo agreement.
demonstrate legitimate funding needs can Said valuation will be subject to
avail of this facility. periodic review and will be modified
when necessary.
B. Qualifying purposes
Proceeds from the borrowings shall be E. Available credit line
used for legitimate liquidity requirements Credit lines shall be based on
of FCDU/EFCDU or RBU for local outstanding USD-denominated evidences
operations as follows: of indebtedness issued directly by the
1. Compliance with FCDU/EFCDU Government of the Philippines (ROP
cover requirements; Bonds) held by the applicant bank as of 30
2. Servicing of withdrawals of September 2008.
FCDU/EFCDU; and
3. Servicing trade-related F. Rate, term and trading time
requirements. The rates of the USD denominated
Borrowing shall be for the account of repo agreement facility shall be set by the
the applicant bank and shall not be used Treasury Department, with the
to fund liquidity requirements of foreign concurrence of the Governor, taking into
head office, foreign branches, affiliates, or account prevailing liquidity/market
subsidiaries conditions.
The term of the USD denominated
C. Acceptable collateral repo agreement facility shall be set by the
Eligible securities shall cover USD- Treasury Department, with the
denominated evidences of indebtedness concurrence of the Governor: Provided,
issued directly by the Government of the That, should a bank become disqualified
Philippines (ROP Bonds) held by the for the repo agreement facility, the
applicant bank. These can be lodged in outstanding repo agreement shall
FCDU/EFCDU’s or RBU’s Available-for- immediately become due and payable.
Sale, HFT and HTM portfolios. Trading time for the USD repo
ROP Bonds to be pledged have to be agreement transactions shall be set from
transferred/credited to BSP’s designated 10:00 AM to 12 Noon, then from 1:00 PM
securities account before availment of the to 2:00 PM.
USD repo agreement facility.
The tenor of the underlying security G. Application requirements
should not be shorter than the overlying Applicant bank shall submit the
instrument. following information/documents, and

APP. 86
08.12.31
such other documents as may be deemed I. Pre-termination

necessary, to the Treasury Department, 1. The repo agreement may be paid
copy furnished the appropriate CPCD and at any time before maturity, subject to
SES, to aid BSP evaluate applications: mutual agreement of both parties.
1. Application for availment of the 2. The BSP may unilaterally
facility stating therein the amount, pre-terminate the borrowing arrangements
requested term, specific purpose of the under the following conditions:
borrowing, including disclosure of the (a) Funds are found to have been used
specific collateral, including source, i.e. for ineligible purposes
RBU or FCDU/EFCDU; (b) Collateral margins, if any, are not
2. Notarized undertaking/certification met.
signed by the bank’s president or country
manager (in the case of local branch of a J. Documentation
foreign bank), compliance officer and head The repo agreement between the
of treasury, indicating the following: bank and the BSP shall be covered by a
(a) Specific purpose of fund master repo agreement, repo agreement
utilization; confirmation and such other
(b) Proceeds of borrowing shall be documentation as may be necessary to
used exclusively to fund liquidity facilitate the transaction.
requirements of FCDU/EFCDU or RBU
local operations; K. Accounting treatment
(c) That the Bank is not a conduit for The USD denominated repo
another bank nor will the Bank take agreement facility shall be treated as
arbitrage positions on the availment of collateralized borrowings from the BSP and
the repo agreement facility. shall be accounted for in accordance with
the FRP issued under Subsection X161.3.
H. Reportorial requirements Eligible securities booked under the
Banks with outstanding USD HTM category shall be subject to the tainting
denominated repo agreement with the provision provided under Subsection X388.5
BSP are required to submit to the upon default/non-payment of the amount due
appropriate CPCD of the SES the three (3) banking days after the maturity of
following: the repo agreement or disqualification of
1. Report on the deployment/ borrowers.
utilization of USD repo borrowing and
other documents and supplemental L. Penalty clauses
information, as may be required, to Violations of the terms and conditions
enable BSP to assess the legitimacy of of the USD repo agreement facility are
the utilization of such funds, within three governed by sanctions provided under
(3) banking days from release of the X601.2, including but not limited, to
proceeds of the repo agreement; and termination of eligibility and pre-
2. All documents and records termination of any outstanding balance
relative to the Bank’s availment and use through repayment and/or sale of the
of proceeds of the USD denominated collateral.
repo agreement facility shall be made (M-2008-031 dated 23 October 2008 as amended/superseded
available to the BSP upon request. by M-2008-034 dated 12 November 2008)

Morb 2008

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Morb 2008

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MANUAL OF REGULATIONS

The 2008 Manual of Regulations for Banks (MORB) is an updated compilation

The updated MORB incorporates regulatory policies issued to align banking

AMANDO M. TETANGCO, JR.

A multi-departmental Committee on the Updating of the Manual of Regulations for

The Committee is composed of Director Alberto A. Reyes (Central Point of Contact

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager

The Bangko Sentral ng Pilipinas

A multi-departmental Committee on the Updating of the Manual of Regulations

The Committee is composed of Deputy Director Alberto A. Reyes (Central

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst.

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 ADMINISTRATION

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 Interim Tier 1 Capital for Banks Under Rehabilitation

E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS

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 X127 (Reserved)

SECTION 1127 Shares of Stock of Universal/Commercial Banks

SECTION 2127 Shares of Stock of Thrift Banks

SECTION X136 Dividends

SECTION X137 (Reserved)

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 X143 Disqualification of Directors and 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