MORB_03_of_16

Manual of Regulations for Banks

PART TWO

DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS

Section X201 Authority to Accept orCreate Demand Deposits. Banks mayaccept or create demand deposits subjectto withdrawal by check.

A UB/KB may accept or create demanddeposits subject to withdrawal by check,without prior authority from the BSP.

A TB/RB/Coop Bank may accept orcreate demand deposits upon prior authorityof the BSP.

X201.1 Prerequisites to accept orcreate demand deposits for thrift banks/rural banks/cooperative banks. In additionto the Standard Pre-qualificationRequirements for the Grant of BankingAuthorities enumerated in Appendix 5, aTB/RB/Coop Bank applying for authority toaccept or create demand deposits shall alsocomply with the following requirements:

a. The applicant TB/RB/Coop Bankmust have complied with the minimumcapital required under Subsec. X111.1.

The terms capital and net assets shallhave the same meaning as in Sec. X111.

b. It has neither unpaid assessment duenor past due obligations with the PDIC; and

c. The applicant bank must have beenexamined by the BSP within one (1) yearprior to the date of submission of completedocumentary requirements with the CentralApplications and Licensing Group (CALG).(As amended by Circular Nos. 696 dated 29 October 2010,674 dated 10 December 2009 and 667 dated 01 October 2009)

X201.2 Requirements for acceptingdemand deposits. After a TBs/RBs/CoopBanks application to accept demanddeposits has been approved, it may actually

accept such deposits, subject to thefollowing conditions:

a. Submission of a certification signedby the President/Chairman of the Board ofthe bank stating that the requirementsenumerated under Subsec. X201.1 havebeen complied with up to the day beforethe checking account services are actuallyoffered/extended to the public;

b. That if it is not a member of thePhilippine Clearing House Corporation(PCHC), it has appointed a commercialbank, or a normally operating thrift bankwhich is a direct participant in clearing withthe PCHC/BSP and has complied with theminimum capital required for commercialbanks, thru which it shall participate in thecheck clearing system; and

c. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit a writtennotice to the appropriate supervising andexamining department of the BSP of theactual date when the demand depositservice is offered to the public not later thanten (10) banking days from such offering ofthe service.

X201.3 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653.

a. On the bankSuspension of its authority to accept or

create demand deposits for one (1) year.b. On the certifying officerA fine of P5,000 per day from the time

the certification was made up to the timethe certification was found to be false.

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Sec. X202 Temporary Overdrawings;Drawings Against Uncollected DepositsThe following regulations shall governtemporary overdrawings and drawingsagainst uncollected deposits (DAUDs).

a. Temporary overdrawings.Temporary overdrawings against demanddeposit account (DDA) shall not beallowed, unless caused by normal bankcharges and other fees incidental tohandling such accounts.

Banks which violate these regulationsshall be subject to a fine of one-tenth of onepercent (1/10 of 1%) per day of violation,computed on the basis of the amount ofoverdrawing or fines in amounts as may bedetermined by the Monetary Board, but notto exceed P30,000 a day for each violation.

Technical overdrawings arising fromforce posting in-clearing checks shall bedebited by banks under Returned Checksand Other Cash Items (RCOCI) which ispart of Other Assets in the Balance Sheet.Items to be lodged under this account shallconsist only of in-clearing checks whichmay result in technical overdrawnaccounts and shall be immediately reversedthe following day, value dated on date oforiginal presentation of Checks and OtherCash Item (COCI) to PCHC for IntegratedGreater Manila local exchanges (IntegratedGM LX) or to Regional Clearing Center(RCC) for regional local exchanges (RLX). 1

The checks lodged under RCOCIwhich were dishonored due to insufficiencyof funds shall be returned not later than 7:30a.m. on the clearing day immediatelyfollowing the original date of presentationof the COCI to PCHC or RCC.1

Peso DDAs maintained by foreigncorrespondent banks with UBs/KBs shall notbe subject to the above-mentionedregulations: Provided, That:

(a) The maintenance of non-residentcorrespondent banks peso DDAs andoverdrawings therefrom are covered byreciprocal arrangement;

(b) Temporary overdrawings arecovered within fifteen (15) banking daysfrom the date overdrawings are incurred;and

(c) Such accounts are credited onlythrough foreign exchange inwardremittance.

b. DAUDs. DAUDs shall beprohibited except when the drawings aremade against uncollected depositsrepresenting managers/cashiers/treasurerschecks, treasury warrants, postal moneyorders and duly funded on us checkswhich may be permitted at the discretionof each bank.(As amended by Circular Nos. 705 dated 29 December 2010and 681 dated 08 February 2010)

Sec. X203 Returned Checksa. Checks without sufficient funds/

with stop payment orders. To complementthe provisions of Batas Pambansa Blg. 22,(An Act Penalizing the Making or Drawingand Issuance of a Check Without SufficientFunds or Credit), the following regulationsshall govern checks drawn againstinsufficient funds and checks drawn againstclosed accounts:

1. The drawee bank shall affix to thecheck a return stamp, indicating therein thedate when the check is returned and thereason for the refusal to pay the same to the

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______________________1 The revised clearing and settlement process shall become effective as follows:

Clearing Exchanges From To 1.Integrated Greater Manila Local Exchanges (Integrated GM LX) 01 January 2011 24 January 2011 2.Regional Local Exchanges (RLX) 01 January 2011 01 July 2011

Provided, That for RLX, the extended deferral from 24 January 2011 to 01 July 2011 shall refer only to the provision onthe mandatory return of checks drawn against insufficient funds or credit, checks drawn against closed accounts and/orchecks with stop payment orders, (i.e., not later than 7:30 AM of the next clearing day following the original presentationto PCHC or RCC), subject to the condition that checks returned due to insufficiency of funds or credit shall no longer beallowed to be covered or funded after the day they were presented to PCHC or RCC.


holder thereof.2. For checks which shall be

dishonored or returned by reason ofinsufficiency of funds or credit, the draweebank shall indicate the remark or notationDrawn Against Insufficient Funds, NoFunds or Insufficient Funds on the returnstamp. For checks which shall bedishonored or returned for the reason thatsuch is drawn against a closed account, thedrawee bank shall indicate the remark ornotation Account Closed.

3. Notwithstanding receipt of an orderto stop payment, the drawee bank shalllikewise indicate in the return stamp, theremarks or notations mentioned in Item 2hereof indicating that there were nosufficient funds in or credit with such bankfor the payment in full of such check or theaccount is closed, if such be the fact. Thebank shall also indicate receipt of a stoppayment order.

For checks which shall be dishonoredfor the reason that payment has beenstopped, the following shall be observed:

(a) The drawee bank shall affix to thecheck a return stamp indicating therein thedate when the check is returned and thereason for the refusal to pay the same to theholder thereof.

(b) The drawee bank shall indicate theremark or notation Payment Stopped orWith Stop Payment Order on the returnstamp.

A COCI dishonored for the reason thatsuch is drawn against insufficient funds orcredit, or is drawn against a closed account,or payment thereof has been stopped shallbe returned by the drawee bank to thenegotiating bank not later than 7:30 AM onthe clearing day immediately following theoriginal date of presentation of the COCI toPCHC or RCC. 1

(1) For Local ExchangesThere shall only be one (1) clearing

windows for COCIs returned due to

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insufficient funds or credit, closed accountand/or stop payment order in the IntegratedGM LX and RLX.2

The settlement of interbank transactionsvis--vis covering reserve requirement/deficiency of banks DDA is shown inAppendix 39.

The AM returned COCI clearingwindow for COCIs dishonored due toinsufficiency of funds or credit, closedaccount and/or stop payment order in theIntegrated GM LX and in the RLX shall beconducted from 2:00 AM to 7:30 AM onthe clearing 1 day immediately following theoriginal date of presentation of the COCI toPCHC or RCC.

Returned COCI in the AM clearingwindows shall be given value on the samedate as the date of original presentation ofthe COCI to PCHC or RCC. The amount ofdebits and credits on the date of originalpresentation shall be reversed to the extentof the amount of credits and debits arisingfrom the returned COCI. The processrestores the balances of the demand depositsof banks with the BSP to their position priorto the settlement of the clearing resultsaffected by the COCI later returned due toinsufficient funds or credit, closed accountand/or stop payment order.

(2) For Integrated GM Outward toRegion, Integrated GM Inward From Regionand Region to Region Clearing Operations

A COCI dishonored by reason ofinsufficiency of funds or credit, drawnagainst a closed account and/or stoppayment order shall continue to be coveredby regulations issued by BSP and relevantPCHC Clearing House Rules andRegulations.3

(3) COCI not coursed through theClearing System

A COCI dishonored by reason ofinsufficiency of funds or credit, drawnagainst a closed account and/or stoppayment order which was not coursed

1 See revised clearing and settlement process schedule 2 Ibid 3 Ibid


through the clearing system shall bereturned by the drawee bank to the holderor the negotiating bank, as the case may be,not later than the banking day following thedate the COCI is presented for payment withthe drawee bank.

The negotiating bank shall, in turn,return a COCI dishonored by reason ofinsufficiency of funds or credit, drawnagainst a closed account and/or stoppayment order to the holder not later thanthe banking day following its receipt of thedishonored COCI from the drawee bank.

b. Checks dishonored due to technicalreasons. A COCI dishonored due totechnical reasons shall be returned by thedrawee bank to the negotiating bank not laterthan the afternoon regular clearing.

(1) For Local ExchangesThere shall be two (2) separate clearing

windows for COCIs returned due totechnical reasons in the Integrated GM LXand RLX.

The settlement of interbank transactionsvis-vis covering reserve requirement/deficiency of banks DDA is shown inAppendix 39.

(a) AM Returned COCI Clearing TheAM returned COCI clearing window forCOCIs dishonored due to technical reasonsin the Integrated GM LX and in the RLX shallbe conducted from 2:00 AM to 7:30 AMon the clearing day immediately followingthe original date of presentation of the COCIto PCHC or RCC. 1

Returned COCI in the AM clearingwindow shall be given value on the samedate as the date of original presentation ofthe COCI to PCHC or RCC. The amount ofdebits and credits on the date of originalpresentation shall be reversed to the extentof the amount of credits and debits arisingfrom the returned COCI. The processrestores the balances of the demand depositsof banks with the BSP to their position priorto the settlement of the clearing results

affected by the COCI later returned due totechnical reasons.

(b) PM Returned COCI Clearing ThePM returned COCI clearing window forCOCIs dishonored due to technical reasonsshall coincide with the afternoon regularclearing. Such returned COCI shall be givenvalue on the date the returned COCI waspresented to PCHC for the Integrated GMLX or to RCC for the RLX.

(2) For Integrated GM Outward toRegion, Integrated GM Inward from Regionand Region to Region Clearing Operations

A COCI dishonored due to technicalreasons continues to be covered by circularsissued by BSP and relevant PCHC ClearingHouse Rules and Regulations. 2

(3) COCI not Coursed Through theClearing System

A COCI dishonored due to technicalreasons which was not coursed through theclearing system shall be returned by thedrawee bank to the holder or the negotiatingbank, as the case may be, not later than thebanking day following the date the COCI ispresented for payment with the draweebank.

The negotiating bank shall, in turn,return a COCI dishonored due to technicalreasons to the holder not later than thebanking day following its receipt of thedishonored COCI from the drawee bank.(As amended by Circular Nos. 705 dated 29 December 2010and 681 dated 08 February 2010)

Sec. X204 Current Accounts of BankOfficers and Employees. As a general rule,officers and employees of banks, theirspouses and relatives within the seconddegree of consanguinity and affinity,including partnerships, associations orcorporations in which such officers andemployees, their spouses and relativeswithin the second degree of consanguinityand affinity, individually or as a group, ownor control at least a majority of the capital

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1 See revised clearing and settlement process schedule 2 Ibid


are prohibited from maintaining demanddeposits or current accounts with thebanking office in which they are assigned.However, officers and employees withoutdirect access and involvement in thehandling of transactions and/or recordspertaining to demand deposit operationsmay be allowed to maintain demanddeposits or current accounts in the bankingoffice where they are assigned subject tothe following conditions:

a. It shall be the responsibility of thebank concerned to identify the officers,employees, departments or units with directinvolvement in its demand depositoperations and/or deposit records;

b. The opening of current accounts ofofficers and employees shall be subject toapproval of the head of the branchesdepartment or any designated higher rankingofficer; and

c. The following minimum operatingcontrol measures shall be implemented toensure systems integrity and mitigatetechnology-related risks:

(1) Tagging of accounts. Savings anddemand deposits of officers and employees,their spouses and relatives within thesecond degree of consanguinity and affinity,including partnerships, associations orcorporations in which such officers andemployees, their spouses and relativeswithin the second degree of consanguinityand affinity, individually or as a group, ownor control at least a majority of the capitalshall be tagged in the banks currentaccounts/savings accounts (CA/SA) system;

(2) Monitoring of accounts. All accountsmaintained by officers, employees and saidrelatives including their business interestsshall be monitored by a designated officerwho shall be responsible for ensuring thataccounts of officers and staff are properlymaintained. Any irregularity in the accountactivity shall be promptly investigated andreported to the appropriate managementlevel;

(3) Access controls. Access to all data,application software, operating systems andutilities must be restricted to authorizedpersons through appropriate identificationmechanisms and access codes and suchauthentication and authorization controlsmust be fully documented and auditable. Noofficer or employee, regardless of rank orposition, shall be allowed to process anytransaction from initiation to finalauthorization;

(4) Data capture. Operating proceduresfor data capture, update and retrieval mustbe strictly adhered to. The operating systemshall maintain a permanent record of eachauthenticated user session including everyuser input; and

(5) Audit trails. Detailed records andaudit trails shall be maintained tosubstantiate the processing of alltransactions. Audit trails must be reviewedperiodically by a designated officercommensurate with the risk level of theinformation system. The review processmust ensure that the reviewer does notreview his/her own activity.(As amended by Circular No. 508 dated 24 January 2006)

Sec. X205 (2008 - X603) Check ClearingRules for Banks Authorized to AcceptDemand Deposits. 1 The following are thecheck clearing rules for banks authorizedto accept demand deposits:

a. Banks authorized to acceptdemand deposits may participate in theclearing process conducted by the PCHC,subject to the latters accreditation rules,either through (i) direct participation inclearing operations; or (i i ) indirectpart icipation through conduitarrangements with UBs/KBs. Other banksmay indirectly part icipate throughmaintenance of DDAs with UBs/KBs assettlement account for demand deposit orNOW accounts of TBs/RBs.

b. Banks authorized to participatedirectly in the clearing in PCHC shall be

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1 See revised clearing and settlement process schedule


subject to the following measures to managethe settlement risks:

(1) Settlement of both inward andoutward items shall be value dated on theday the checks are originally presented toPCHC or RCC, net of AM returns. For thispurpose, the value date or settlement datereferred to herein shall be defined uniformlyas the date of original presentation of theCOCI to PCHC for the Integrated GM LXand to the RCC for the RLX. For theIntegrated GM Outward to Region,Integrated GM Inward from Region andRegion to Region clearing, the value date orsettlement date shall be on the day theCOCIs are received and processed atPCHC.

(2) A ceiling shall be set on the amountof overdraft a bank may incur due to failureto cover clearing losses through interbankborrowings and/or repurchase agreementswith the BSP. The ceiling is defined as thesum of clean Overdraft Credit Line (OCL)equivalent to fifteen percent (15%) ofrediscounting line with the BSP, and thecollateralized OCL that will be extended byBSP. A bank not meeting the followingcriteria:

(i) CAMELS composite rating of atleast 3;

(ii) CAR of at least ten percent (10%);or

(iii) No chronic reserve deficiencies forthe immediately preceding one (1) year,or other measures as may be defined by theBSP for this purpose, should apply forcollateralized OCL in an amount equivalentto at least five percent (5%) of their demanddeposit liabilities as of end of month, two(2) months prior to the date of applicationwith the DLC; otherwise, its outwardclearing items shall be subject to second dayvalue dating.

Other banks may also apply forcollateralized OCL in any amount.

(3) Provided the overdraft does notexceed the ceiling as defined in Item 2hereof, the bank may avail of the clean/collateralized OCL. The availments againstthe approved clean/collateralized OCL shallbear interest at a rate equivalent to one-tenthof one percent (1/10 of 1%) per day or theninety-one (91)-day T-Bill rate of the lastauction immediately preceding theavailment, plus three percentage (3%)points, whichever is higher.

(4) The availment shall be for amaximum period of five (5) consecutiveclearing days or five (5) clearing days withinany thirty (30)-day rolling calendar period,after which the OCL shall be suspended.

(5) Should the overdraft exceed theceiling, as defined in Item 2 hereof, noavailment of the clean/collateralized OCLshall be allowed.

(i) In the case of end-of-day overdraft,the Payments and Settlements Office (PSO)shall advise the PCHC of the amountavailable for settlement of the drawee banksnet clearing loss, beyond which amountinward clearing items will be unwound inaccordance with the PCHC Clearing HouseRules and Regulations.

(ii) In the case of final overdraft, i.e.,after AM returns, where unwinding is nolonger possible, the bank shall be excludedfrom next clearing. The PSO shall advisethe PCHC of such exclusion upon priorMonetary Board approval.

(6) The collateralized OCL may beconverted into an emergency loan providedthe bank complies with the guidelinesgoverning the grant of emergency loansunder Subsec. X272.2 or may be subject toforeclosure of collateral.

The guidelines implementing Item bof this Section are in Appendix 31.

c. In indirect participation throughconduit arrangement, where the clearingresults of participating TBs/RBs are

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consolidated with those of the conduit UBs/KBs, caps shall be set on the net clearinglosses to be passed on to the conduit UB/KB by the TB/RB.

The cap is defined as the combinedvalue of the following amounts:

(1) the TB/RBs DDA with the BSP; and(2) the value of clean/collateralized

overdraft credit line that may be extendedby the conduit UB/KB to the TB/RB.

The conduit arrangement should includeprovisions setting aforementioned cap onthe net clearing losses.(As amended by Circular Nos. 705 dated 29 December 2010and 681 dated 08 February 2010)

Secs. 1205 (Reserved)

Sec. 2205 Check Clearing Rules for ThriftBanks Authorized to Accept DemandDeposits. The following are the checkclearing rules for TBs authorized to acceptdemand deposits:

a. TBs authorized to accept demanddeposits may participate in the clearingprocess conducted by the PCHC in theintegrated Metro Manila clearing area andby the BSP in regional clearing centersthrough either of the following modes:(i) maintenance of NOW accounts with KBs;(ii) conduit arrangements with KBs; and(iii) direct participation in clearingoperations, at the option of the TBconcerned.

b. In conduit arrangements, caps shallbe set on the net clearing losses to be passedon to the conduit KB by the conduit TB.

To address the settlement risks, the pro-forma conduit arrangement should includeprovisions setting aforementioned cap onthe net clearing losses. The cap is definedas the combined value of the followingamounts:

(1) the TBs reserve deposit with BSP;and

(2) the value of collateralized overdraftline that may be extended by the conduit

KB to the conduit TB.Parties to existing conduit arrangements

shall have thirty (30) days from 08 April1998 to comply with the above requirement.

c. For TBs authorized to participate inthe PCHC and BSP check clearingoperations, ceilings for clearing losses notcovered by interbank borrowings shall beestablished and unwinding of the clearingtransactions shall be authorized when theceilings are breached.

(1) The proposed ceiling is defined asthe collateralized overnight clearing line thatwill be extended by BSP. Every TBauthorized to participate directly in theclearing operations of PCHC should applyfor this line with the appropriate departmentof the SES. The availments against theapproved loan line shall bear interest at theninety-one (91)-day Treasury Bill rate of thelast auction immediately preceding theavailments.

(2) Procedures for unwinding shallapply to all inward items, other thanReturned Items and to local exchanges only.

(3) The aggregate value of all inwarditems of all clearing centers, including OnManila clearing demands presented toPCHC, shall be ranked from highest tolowest. The unsettled net clearing lossesshall be eliminated by unwinding theinward items starting from the clearingcenters, including PCHC, with highestaggregate value.

(4) In case the aggregate value of theinward items for a given clearing center,except PCHC, exceeds the unsettled netclearing losses, the total inward items forthat clearing center shall be the subject ofunwinding.

(5) In the case of checks clearedthrough PCHC, the inward clearing itemsshall be unwound to the extent of theunsettled net clearing loss. The selection ofthe specific demand items to be covered byunwinding shall be based on PCHC rules.

(6) Checks which are the subject of the

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unwound clearing transactions shall bereturned to the presenting banks not laterthan 9:00 A.M. of the following clearingday.

d. TBs authorized to participatedirectly in the clearing in PCHC and BSPregional clearing centers shall be subject tothe following measures to manage thesettlement risks:

(1) Settlement of Outward items shallbe value dated on the day the checks arecleared, net of returns. For this purpose, thevalue date or settlement date referred toherein shall be defined uniformly as the nextclearing day when dishonored checks arereturned within the reglementary period,reckoned after the date of presentation forlocal clearing in the integrated ManilaClearing area for PCHC and in all BSPregional clearing centers. For inter-regionalclearing items, outward Manila clearingitems and to Manila clearing items, the valueor settlement date shall be defined in clearingcirculars to be issued by BSP.

(2) A ceiling shall be set on the amountof overdraft a TB authorized to acceptdemand deposits may incur due to failureto cover clearing losses through interbankborrowings. The ceiling is defined as thecollateralized overnight clearing line that willbe extended by BSP DLC. The availmentsagainst the approved loan line shall bearinterest at the ninety-one (91)- day TreasuryBill (T-Bill) rate of the last auctionimmediately preceding the availments.

(3) Should the overdraft exceed theceiling, the BSP Accounting Department isauthorized to instruct the PCHC and the BSPregional clearing centers to unwind theclearing transactions following theprocedures defined in Item c of thisSection.

The operating guidelines implementingItems c and d of this Section are inAppendix 31.

e. Any overdraft incurred underSection 102 of R.A. No. 7653 may beconverted into an emergency loan oradvance provided it complies with theguidelines governing the grant of emergencyloans under Subsec. X272.2.(As amended by Circular Nos. 681 dated 08 February 2010 and516 dated 06 March 2006)

Sec. 3205 Check Clearing Rules for RuralBanks Who Are Members of the PhilippineClearing House Corporation. Theprovisions of Items c and d of Sec. 2205and the implementing operating guidelinesin Appendix 31 shall also apply to RBswhich are members of the PCHC.(As amended by Circular Nos. 681 dated 08 February 2010 and516 dated 06 March 2006)

Sec. X206 (2008 - X603) ClearingOperations. Banks shall observe the clearingprocedures in accordance with the PCHCClearing House Rules and Regulations forthe clearing of checks.1

(As amended by Circular Nos. 705 dated 29 December 2010and 681 dated 08 February 2010)

Sec. X207 Check Clearing OperationsDuring Public Sector Holidays. Theguidelines on check clearing operationsduring public sector holidays are shown inAppendix 84.(M-2008-025 dated 13 August 2008)

Secs. X208 - X212 (Reserved)

B. SAVINGS DEPOSITS

Sec. X213 Servicing Deposits Outside BankPremises. Banks may be authorized by theBSP to solicit and accept deposits outsidetheir bank premises, subject to the followingconditions:

a. Minimum capital requirement ismet;

b. No major supervisory concerns

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1 See revised clearing and settlement process schedule


affecting safety and soundness;c. The area of operations shall be

within one (1)-hour normal travel time byland/sea from any head office or branch,except in remote areas where more thanone (1)- hour normal travel time may beallowed; and

d. Applicant bank shall institutemaintain the following minimumsafeguards:

(1) All deposit solicitors shall be

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initially bonded for at least P1,000 subjectto the increase thereof to approximate theirdaily collections;

(2) Deposit solicitors shall be providedwith proper identification cards withphotograph and signature of each respectivesolicitor, certified to by the appropriateofficer of the bank. Said identification cardsshall be worn by each solicitor at all timesat the upper breast of his outer garmentwhen soliciting deposits; and

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X213 - X21508.12.31

(3) Adequate insurance coverage forfunds in transit (representing depositscollected outside banking premises) shallbe secured by applicant bank frominsurance companies not included in thelist of companies blacklisted by theInsurance Commissioner;

(4) Deposit slips shall be in bookletform, prenumbered, in triplicate copies andin three (3) colors - the original to be issuedto the depositor, the second copy to beused for posting reference, and the thirdcopy to be retained in the booklet;

(5) All collections shall be turned over tothe cashier at the end of each day accompaniedby a Collection Summary Report to beaccomplished in duplicate which shall containthe following minimum information:

(a) Date of the report(b) Names and addresses of the

depositors(c) Deposit slip numbers(d) Amounts of deposit(e) Savings account and passbook

numbers(f) Name and signature of solicitor

rendering the report(6) Depositors shall always be

required to accomplish a Signature Cardwhen opening an account, which cardshall be used always as reference inchecking the genuineness/authenticity ofsignatures affixed on withdrawal slips orauthorizations for withdrawal;

(7) Deposits/withdrawals shall berecorded by the bookkeeper or any ledgerclerk, except any bank solicitor, in thedepositors ledger cards and passbooks onthe same day that such deposits/withdrawals are accepted. Passbooks shallbe returned to the depositors not later thanthe following business day;

(8) At the end of each month,depositors shall be advised in writing ofthe balances of their deposits with the bank,the advise slips of which shall never behandcarried by the solicitors themselves;

(9) Places of assignments of banksolicitors shall be rotated at least quarterly.

Sec. X214 Withdrawals. Banks areprohibited from issuing/acceptingwithdrawal slips or any other similarinstruments designed to effect withdrawalsof savings deposits without requiring thedepositors concerned to present theirpassbooks and accomplishing thenecessary withdrawal slips, except forbanks authorized by the BSP to adopt theno passbook withdrawal system: Provided,That banks which are already adopting theno passbook withdrawal system shall begiven six (6) months from effectivity of thisManual to seek approval from the BSP.

The provisions of Sec. X202b shall alsoapply to withdrawals from savings deposits.

Sec. X215 Rental Deposits of LesseesThe following guidelines shall govern theopening and handling by banks of depositsmade by lessees under Section 5(b) ofBatas Pambansa Blg. 25, otherwise knownas the Rent Control Law:

a. The deposit made by the lesseeshall only be accepted by the bank under aspecial savings account in the name of thelessor;

b. The bank shall require the lesseeto submit a copy of the written notice sentto the lessor for the deposit made, statingamong other things, the date and amountof the deposit and the name and addressof the lessor;

c. The bank, at its option, may requirethe lessee to submit any supporting document,such as the lease contract or official receiptsof previous rentals paid, which will show thespecimen signature of the lessor, or otherpapers to identify the lessor;

d. The bank shall segregate from itsregular savings deposit accounts andmaintain a separate subsidiary controlledger for deposits made under Section 5(b)of Batas Pambansa Blg. 25;

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X215 - X223.210.12.31

e. Any withdrawal against thesespecial savings deposit accounts may onlybe allowed in favor of the lessee concernedbefore the amount deposited underconsignation has been accepted by thelessor, or when authorized by the lessor;

f. The expenses which may beincurred by the bank with respect to suchrental deposits shall be charged against thelessor;

g. All the minimum internal controlstandards applicable to savings depositaccounts prescribed in Sec. X185 shall becomplied with; and

h. The acceptance of such rentaldeposits, however, shall be optional ordiscretionary only upon the bank concerned.


Sec. X221 Peso Savings Deposit Accountsof Embassy Officials. Embassy officialsare allowed to open peso savings depositaccounts with Philippine banks: Provided,That they submit proof of conversion offoreign currency to peso with Philippinebanks.(M-2007-021 dated 15 September 2007)

Sec. X222 (Reserved)

C. NEGOTIABLE ORDER OFWITHDRAWAL ACCOUNTS

Sec. X223 Authority to Accept NegotiableOrder of Withdrawal Accounts. NegotiableOrder of Withdrawal (NOW) accounts areinterest-bearing deposit accounts thatcombine the payable on demand feature ofchecks and investment feature of savingsaccounts.

A UB/KB may offer NOW accountswithout prior authority of the MonetaryBoard.

A TB/RB/Coop Bank may accept NOWaccounts upon prior approval of theMonetary Board.

X223.1 Prerequisites to acceptnegotiable order of withdrawal accountsfor thrift banks/rural banks/cooperativebanks. In addition to the Standard Pre-qualification Requirements for the Grant ofBanking Authorities enumerated inAppendix 5, a TB/RB/Coop Bank applyingfor authority to accept NOW accountsshall also comply with the followingrequirements:

a. The applicant TB must havecomplied with the minimum capital requiredunder Subsec. X111.1.

In the case of RB/Coop Bank, it musthave net assets of at least P5.0 million:Provided, That RBs which have beenauthorized to accept or create NOWaccounts prior to the approval of R.A. No.7353 (Rural Banks Act of 1992) shall beallowed to continue servicing suchdeposits.

The terms capital and net assets shallhave the same meaning as in Sec. X111.

b. It has neither unpaid assessmentdue nor past due obligations with the PDIC.(As amended by Circular Nos. 696 dated 29 October 2010 and674 dated 10 December 2009)

X223.2 Requirements for acceptingnegotiable order of withdrawal accountsAfter a TBs/RBs/Coop Banks applicationto accept NOW account has beenapproved, it may actually accept the samesubject to the following conditions:

a. Submission of a certification signedby the president/chairman of the board ofthe bank stating that the requirementsenumerated under Subsec. X223.1 havebeen complied with up to the day beforethe NOW account services are actuallyoffered/extended to the public; and

b. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit awrit ten notice to the appropriatedepartment of the SES of the actual datewhen the NOW account deposit service


is offered to the public not later than ten(10) banking days from such offering of theservice.

X223.3 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653:

a. On the bankSuspension of its authority to accept or

create NOW accounts for one (1) year.b. On the certifying officerA fine of P5,000 per day from the time


Sec. X224 Rules on Servicing NegotiableOrder of Withdrawal Accounts. Thefollowing rules shall be observed inservicing NOW accounts:

a. Prior to or simultaneous with theopening of a NOW account, the bank shallinform the depositor of its terms andconditions;

b. The bank shall be responsible forthe proper identification of its depositors; itshall require, among other things, two (2)specimen signatures and such otherpertinent information;

c. Deposits shall be covered bydeposit slips in duplicate duly validated andinitialed by the teller receiving the deposit.A copy of the deposit slip shall be furnishedthe depositor;

d. NOW accounts shall be kept andmaintained separately from the regularsavings deposits;

e. Blank NOW forms shall beprenumbered and shall be controlled as inthe case of unissued blank checks;

f. A bank statement shall be sent toeach depositor at the end of each month forconfirmation of balances; and

g. Banks must use the form prescribedby present rules for NOW accounts.

Nothing herein shall be construed asprecluding a TB, RB or Coop Bank fromapplying for authority to accept bothdemand deposits and NOW accounts.

Sec. X225 Minimum Features. The order ofwithdrawal form shall have a size of three(3) inches by seven (7) inches, and shall beprinted on security/check paper. It shallcontain, as a minimum, the features of thepro-forma order of withdrawal shown inAppendix 11.

Sec. X226 Clearing of Negotiable Orderof Withdrawal Accounts. Any NOWaccount which may be deposited with abank other than the drawee bank may becleared through the PCHC in accordancewith the PCHC Clearing House Rules andRegulations. 1 Nothing in this Section shallprevent direct settlement between theparties concerned.The provision of Sec.X202 shall also apply for withdrawals onNOW accounts.(As amended by Circular Nos. 705 dated 29 December 2010and 681 dated 08 February 2010)


D. TIME DEPOSITS

Sec. X231 Term of Time Deposits. Timedeposits shall be issued for a specific periodof term.

Sec. X232 Special Time DepositsAuthority shall be automatically grantedto any accredited banking institutionwhich may participate in the supervisedcredit program to accept special timedeposits from the Agrarian Reform FundCommission with interest lower than therate allowed on time deposits acceptedfrom the general public. Such depositsshall be exempt from the legal reserverequirements, as an exception to theexisting policies on the matter.

X223.2 - X23210.12.31

Part II - Page 9

1 Ibid


Sec. X233 Certificates of Time Deposita. Negotiable Certificates of Time

Deposit (NCTDs)(1) UBs/KBs may issue NCTDs without

approval of the BSP.(2) TBs/RBs/Coop Banks may issue

NCTDs upon the prior approval of the BSP.b. Non-Negotiable Certificates of Time

DepositBanks may issue long-term non-

negotiable tax-exempt certificates of timedeposit without approval of the BSP.

X233.1 Prerequisites to issuenegotiable certificates of time deposits forthrift banks/rural banks/cooperative banksIn addition to the Standard Pre-qualificationRequirements for the Grant of BankingAuthorities enumerated in Appendix 5, a TB/RB/Coop Bank applying for authority toissue NCTDs shall also comply with thefollowing requirements:

a. Applicants capital must be at leastP150.0 million. For this purpose, capital shallhave the same meaning as in Sec. X111; and

b. It has neither assessment due norpast due obligations with the PDIC.(As amended by Circular No. 674 dated 10 December 2009)

X233.2 Requirements for issuingnegotiable certificates of time depositsAfter a TBs/RBs/Coop Banks applicationto issue NCTDs has been approved, it mayactually issue the same subject to thefollowing conditions:

a. Submission of a certification signedby the president/chairman of the board ofthe bank stating that the requirementsenumerated under Subsec. X233.1 have beencomplied with up to the day before the NCTDsare actually issued to the public; and

b. That it has complied with all otherconditions that the BSP may impose.

The applicant bank shall submit a writtennotice to the appropriate department of theSES of the actual date when the NCTDs are

actually issued to the public not later thanten (10) banking days from such issuance.

X233.3 Minimum featuresa. Form; denomination - NCTDs may

be issued in bearer or other form denotingnegotiability and shall have a standardformat to be prescribed by the BSP whichshall be prenumbered serially andpredenominated. The minimumdenomination shall be at the discretion ofthe issuing bank. No certificate payable tobearer shall contain words prohibiting itsnegotiation.

b. Term - The minimum maturity of thecertificates shall be 731 days.

c. Manner of issuance - The certificatesshall be issued only upon receipt of fundsequivalent to their face value.

d. Manner of printing - NCTDs shallbe printed on security paper by the SecurityPrinting Plant (SPP) of the BSP.

Orders for the printing of the desiredforms shall not exceed a total valueequivalent to twenty percent (20%) of theissuing banks capital accounts (based onthe quarter immediately preceding therequest for printing) at any one time.Additional orders for printing which shallresult in an excess over the prescribedbenchmark shall require prior BSP approval.

X233.4 Insurance coverage. TheNCTDs shall be insured with the PDIC.Banks issuing bearer certificates shallimprint on the instrument the following:

For purposes of deposit insurance bythe PDIC, the holder shall have his nameregistered in the books of the issuing bank.

X233.5 Desistance from issuing newnegotiable certificates of time depositsUnless authorized by the BSP, TBs/RBs/Coop Banks with outstanding NCTDs shallimmediately desist from issuing newNCTDs.

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Part II - Page 10


All outstanding NCTDs shall be validand negotiable up to their maturity dates andshall not be subject to renewal.

X233.6 Sanctions. If any part of thecertification submitted by the bank asrequired in these guidelines is found to befalse, the following sanctions shall beimposed, without prejudice to the sanctionsunder Section 35 of R.A. No. 7653.

a. On the bankSuspension of its authority to issue

NCTDs for one (1) year.b. On the certifying officerA fine of P5,000 per day from the time


X233.7 - X233.8 (Reserved)

X233.9 Long-term negotiablecertificates of time deposit. The followingguidelines shall govern the issuance of long-term negotiable certificates of time deposit(LTNCTD) with a minimum maturity of five(5) years:

a. Prior BSP approval. No LTNCTDshall be issued without the prior approvalof the BSP.

b. Application for authority of theissuing bank. An application for authorityon each issue/issue program of LTNCTDshall be filed with the appropriatedepartment of the SES: Provided, That theissue period of an issue program of two (2)or more tranches shall not exceed one (1)year from approval.

The application shall be signed by thepresident/country manager (branch of aforeign bank) of the bank. It shall beaccompanied by a certified true copy of theresolution of the banks board of directorsauthorizing the issuance of LTNCTDindicating, among others, the issue size,offering period, purpose or intended use ofproceeds thereof, registry bank, underwriter/arranger, selling agent(s) and market maker(s).

c. Pre-qualification requirements(1) Issuing bankA bank applying for authority to issue

an LTNCTD shall comply with thefollowing requirements:

(a) It has complied with the followingcapital adequacy requirements:

(i) Minimum capitalization as definedunder Sec. X111; and

(ii) Risk-based capital adequacy ratiounder Sec. X115 within the sixty (60) daysimmediately preceding the date of application;

(b) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(c) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/or BSP Management in the last two (2)preceding examinations prior to the date ofapplication, more particularly:

(i) The ceilings on creditaccommodations to DOSRI;

(ii) Liquidity floor requirements forgovernment deposits;

(iii) Single borrowers loan limit; and(iv) Investment in bank premises and

other fixed assets;(d) It maintains adequate provisions for

probable losses commensurate to the qualityof its asset portfolio but not lower than therequired valuation reserves as determinedby the BSP;

(e) It does not have float itemsoutstanding for more than sixty (60) calendardays in the Due From/To Head Office/Branches/Offices accounts and the DueFrom Bangko Sentral account exceedingone percent (1%) of the total resources asof date of application;

(f) It has no past due obligations withthe BSP or with any government FI;

(g) It has established a risk managementsystem appropriate to its operationscharacterized by clear delineation ofresponsibility for risk management, adequate

X233.5 - X233.909.12.31


risk measurement systems, appropriatelystructured risk limits, effective internalcontrols and complete, timely and efficientrisk reporting system;

(h) It has a CAMELS CompositeRating of at least 3 in the last regularexamination; and

(i) It has neither unpaid assessment duenor past due obligations with the PDIC.

(2) Registry bank(a) It may be a UB, a KB, or such other

specialized entity that may be qualified bythe Monetary Board;

(b) In the case of a UB or a KB:(i) It must be a third party:(aa) with no subsidiary/affiliate

relationship with the issuing bank; and(bb) which is not related to the issuing

bank in any manner that would undermineits independence.

(ii) It must have adequate facilities andthe organization to do the following:

(aa) Maintain the Electronic RegistryBook (ERB);

(bb) Deliver transactions within theagreed trading period; and

(cc) Issue registry confirmations toholders of LTNCTDs.

(iii) It must have a CAMELS CompositeRating of at least 3 in the last regularexamination.

(3) Underwriter/Arranger(a) I t i s e i ther a UB or an IH:

Provided, That if an offering is on a best-efforts basis, such arranger may also be aKB;

(b) It must be a third party, such that:(i) it has no subsidiary/affiliate

relationship with the issuing bank; and(ii) it is not related in any manner that

would undermine the objective conduct ofdue diligence.

(c) Underwriters must be well-capitalized and must have adequate riskmanagement as evidenced by compliancewith Items c(1)(a), (d), (g) and (h) as maybe applicable.

(4) Selling agentIt may be any FI, with dealership or

brokering license, under the regulatorysupervision of the BSP.

(5) Market maker(a) It must not be the issuing bank;(b) It must be a third party which is not

related to the issuing bank in any manner thatwould undermine its independence;

(c) It must be a FI, with dealership orbrokering license, under the regulatorysupervision of the BSP; and

(d) It must be well-capitalized andmust have adequate risk management asevidenced by compliance with Itemsc(1)(a), (d), (g) and (h) as may beapplicable.

d. Additional requirements for theissuance of LTNCTD. After a banksapplication to issue an LTNCTD has beenapproved, it may issue the same, subject tothe submission of the following additionalrequirements:

(1) At least fifteen (15) days before thedate of offering:

(a) Written waiver of the secrecy ofdeposits on said LTNCTD by the issuingbank, its subsidiaries, affiliates and whollyor majority-owned or -controlled entities ofsuch subsidiaries and affiliates;

(b) Information disclosure and theterms and conditions of the LTNCTDissuance;

(c) Promotional materials; and(d) Specimen of the proposed registry

confirmation and purchase advice fromeach selling agent/market maker which willevidence sale of the LTNCTD.

(2) Within ten (10) days after issuanceof the initial and subsequent tranches:

Written notice to the appropriatedepartment of the SES of the actual date ofinitial/tranche offering accompanied by acertification by the president/countrymanager that the pre-qualificationrequirements under Item c(1) have beencomplied with up to the time of offering.

X233.909.12.31


e. Functions/responsibilities of theparties involved. The respective parties shallhave, among others, the following functions/responsibilities:

(1) Registry bank(a) Generates and maintains the

ERB;(b) Records any transfer of ownership;(c) Issues and sends registry

confirmation to holders;(d) Functions as paying agent for

periodic interest and principal payments;and

(e) Monitors compliance with theprohibition on holdings of LTNCTD, asprescribed under Item h hereof.

(2) Underwriter/Arranger(a) Conducts due diligence on the

issuing bank and determines the valuation/pricing of the primary issue;

(b) Prepares the prospectus/informationdisclosure/updates for multi-tranche issues;

(c) Formulates the distr ibution/allocation plan for the initial offering andensures proper and orderly distribution ofthe primary sale/issue of the LTNCTDs;

(d) Disseminates information toprospective depositors/investors ofLTNCTDs on the terms and conditionsof the issue (including information ofnon-pretermination by the depositorprior to original maturi ty and thel iquidi ty mechanism in secondarytrades) and the rights and obligationsof the holder, issuer, market maker/selling agent, underwriter/ arranger andregistry bank; and

(e) When selling to its clients, it mustperform the functions/responsibilities of theselling agent under Items e(3)(a) and (b).

(3) Selling agent(a) Verifies identity of each investor

and applies other standards to combatmoney laundering as required underSec. X801; and

(b) Issues the purchase advice for theprimary offering of the LTNCTDs.

(4) Market maker(a) Sets independent pricing for the

secondary trading of LTNCTDs;(b) Posts daily the bid and offer prices

for the LTNCTDs on the screen of at leastone (1) of the information providers untilthe operation of a fixed income exchangefor LTNCTDs;

(c) Verifies identity of each investorand applies other standards to combatmoney laundering as required underSec. X801;

(d) Issues the purchase advice for thesecondary sale of the LTNCTDs; and

(e) Ensures secondary market transfersand registration in coordination with theregistry bank.

f. Change of Underwriter/Arranger,registry bank, selling agent(s)/marketmaker(s). After an application for authorityto issue LTNCTDs has been approved bythe BSP, the issuing bank cannot change itsunderwriter/arranger, registry bank, sellingagent(s) and market maker(s) without theprior approval of the BSP.

g. Waiver of the secrecy of deposits formarket makers. A market maker who holdsan LTNCTD for its own account must issuea waiver of the secrecy of deposits in favorof the BSP for examination purposes. Anyinformation obtained from an examinationof said LTNCTD shall be held strictlyconfidential.

h. Prohibition on holdings ofLTNCTDs. The issuing bank including itsrelated companies (subsidiaries and affiliatesand wholly or majority-owned or -controlledentities of such subsidiaries and affiliates)cannot be a holder of the LTNCTDs of theissuing bank.

The issuing bank shall provide theregistry bank with an updated list of allrelated companies. This report shall be aCategory B report.

For purposes of this Subsection, anaffiliate is an entity, at least twenty percent(20%) but not exceeding fifty percent (50%)

X233.909.12.31


of the outstanding voting stock of which is,owned by the issuing bank.

i. Agreements between issuing bankand registry bank/selling agent(s)/marketmaker(s). The agreements between theissuing bank and the registry bank/marketmakers/selling agents shall comply with theprovisions of Sec. X162 on bank servicecontracts. The issuing bank shall be liablefor any damages to investors/depositorscaused by actions of said registry bank,selling agent(s)/market maker(s) contrary tothe agreements entered into.

j. Minimum features(1) Form; denomination - An LTNCTD

shall be in scripless form with a third partyregistry bank maintaining the ERB. To havelegal effect, it shall comply with theprovisions of R.A. No. 8792 (ElectronicCommerce Act) particularly on the existenceof an assurance on the integrity, reliabilityand authenticity of the LTNCTD in electronicform. LTNCTDs shall be registered in thename of individuals or corporations,negotiable and prenumbered serially. Theminimum denomination shall be at thediscretion of the issuing bank.

(2) Currency - Denomination shall bein Philippine pesos.

(3) Term - The minimum maturity of theLTNCTDs shall be five (5) years.

(4) Primary Offering/Secondary Trading- The initial offering shall be executedthrough an underwriter or an arranger.Subsequent negotiations in secondarytrading must be executed throughauthorized market maker(s).

k. Purchase Advice and RegistryConfirmation

(1) The Purchase Advice and RegistryConfirmation shall conspicuously containthe following caveat:

(a) This LTNCTD cannot be terminatedby the holder nor the Issuing Bank before(maturity date). However, negotiations/transfers from one (1) holder to another donot constitute pretermination.

The caveat shall apply if the issuing bankcommits no pretermination. Otherwise, itshall read as follows:

This LTNCTD cannot be terminated bythe holder before (maturity date). However, itmay be preterminated at the instance of theIssuing Bank upon prior notice to the holderon record. Negotiations/transfers from one (1)holder to another do not constitutepretermination; and

(b) All negotiations/transfers of thisLTNCTD prior to maturity must be coursedthrough a Market Maker.

(2) The selling agent/market maker shallissue a Purchase Advice to evidence initialpurchase/secondary trading of LTNCTDwith the original copy given to the holder.

(3) The registry bank shall issue aRegistry Confirmation to evidenceownership of the LTNCTD, with the originalcopy given to the holder.

l. Issue size and aggregate ceiling.An issuing bank can issue LTNCTDs upto 300% of its total capital accounts asdefined under Subsec. X111/X105.5:Provided, That each issue/issue programsize does not exceed P5.0 billion pesos.This ceiling shall be subject to a regularreview by the BSP.

m. Deposit insurance coverage. TheLTNCTDs shall be insured with the PDIC,subject to applicable rules and regulations,among others, on maximum insurancecoverage.

n. Pretermination by the issuer.LTNCTDs may be preterminated by theissuing bank, subject to the followingconditions:

(1) The Information Disclosure,Purchase Advice and Registry Confirmationshall include the information that theLTNCTD may be preterminated by theissuing bank;

(2) Thirty (30)-day prior notificationmust be given to the appropriate departmentof the SES together with the justification forthe pretermination;

X233.909.12.31


(3) Thirty (30)-day prior notification toholders of record;

(4) Notwithstanding any agreement tothe contrary, the issuer shall shoulder thetax due on the interest income alreadyearned by the holders; and

(5) The issuing banks reserve positionsshall be recomputed retroactively based onthe applicable reserve rate(s) for regular timedeposits during the affected periods.

If the recomputed amounts result in areserve deficiency, the issuing bank shallbe fined with the corresponding monetarypenalties. The preceding monetary penalty,however, shall not be imposed ifpretermination by the issuer is due to achange in law or regulation that willincrease the cost of maintaining theLTNCTDs.

o. Non-pretermination by the holder.Presentation of the LTNCTD to the issuingbank for payment before the maturity dateis not allowed. However, negotiation ortransfer from one (1) holder to another shallnot constitute pretermination of theLTNCTD.

p. Sanctions. Without prejudice to theother sanctions prescribed under Section 37of R.A. No. 7653 and the provisions ofSection 16 of R.A. No. 8791, the followingsanctions will be imposed on any issuingbank, registry bank and other parties forfailure to perform their respective functions/responsibilities and for non-disclosure ormisrepresentation of information:

(1) On the issuing bank - Suspensionof its authority to issue LTNCTDs,disqualification from future issuance ofLTNCTDs and a monetary penalty ofP30,000 for each violation.

(2) On the registry bank -Disqualification to be a registry bank for one(1)-year and a monetary penalty of P30,000for each violation.

(3) On all authorized selling agents/market makers - Disqualification to beappointed as selling agent/market maker for

one (1) year and a monetary penalty ofP30,000 for each violation.

(4) On the certifying officer - A fine ofP5,000 per day from the time of requireddisclosure up to the time disclosure wasmade; or from the time misrepresentationwas made up to the time the informationwas corrected.

(5) On the responsible officer - A fineof P30,000 for participating or confirmingin the non-disclosure or misrepresentationof information.(As amended by Circular Nos. 674 dated 10 December 2009 and585 dated 15 October 2007)

X233.10 (Reserved)

X233.11 Long-term non-negotiabletax-exempt certificates of time deposit. Theissuance of long-term non-negotiable tax-exempt certificates of time deposit shall begoverned by the following rules:

a. Minimum features(1) Form; denomination - The

certificate shall contain words denoting itsnon-negotiability and shall be issued bybanks only in the name of individuals withdenominations in increments ofP1,000.00.

(2) Term - The minimum maturity of thecertificate shall be five (5) years.

(3) Manner of issuance - The certificateshall be issued only upon receipt of fundsequivalent to their face value.

(4) Manner of printing - The certificateshall be printed on security paper.

(5) Pre- termination - In case ofpre-termination, the deposit shall besubject to income tax as provided underSection 24(B)(1) of the Tax Reform Actof 1997 which states that xxx a finaltax shall be imposed on the entireincome and shall be deducted andwithheld by the depository bank fromthe proceeds of the long-term depositor investment certificate based on theremaining maturity thereof:

X233.9 - X233.1109.12.31


(a) Four (4) years to less than

five (5) years 5%

(b) Three (3) years to less than

four (4) years 12%

(c) Less than three (3) years 20%

xxxb. Insurance coverage. The deposits

shall be insured with the PDIC, subject toapplicable rules and regulations, amongothers, on maximum insurance coverage.

c. Reserves against long-term non-negotiable certificates of time deposit. Therate and form of required reserves on regulartime deposit shall also apply to the requiredreserves on long-term non-negotiable tax-exempt certificates of time deposit.

E. DEPOSIT SUBSTITUTE OPERATIONS (QUASI-BANKING FUNCTIONS)

Sec. X234 Scope of Quasi-BankingFunctions. The following rules andregulations shall govern the quasi-bankingoperations of banks.

X234.1 Elements of quasi-bankingThe essential elements of quasi-banking are:

a. Borrowing funds for the borrowersown account;

b. Twenty (20) or more lenders at anyone (1) time;

c. Methods of borrowing are issuance,endorsement, or acceptance of debtinstruments of any kind, other than deposits,such as acceptances, promissory notes,participations, certificates of assignments orsimilar instruments with recourse, trustcertificates, repurchase agreements, andsuch other instruments as the MonetaryBoard may determine; and

d. The purpose of which is (1)relending, or (2) purchasing receivables orother obligations.

X234.2 Definition of terms andphrases. The following terms and phrasesshall be understood as follows:

a. Borrowing shall refer to all forms ofobtaining or raising funds through any ofthe methods and for any of the purposesprovided in Subsec. X234.1 whether theborrowers liability thereby is treated as realor contingent.

b. For the borrowers own accountshall refer to the assumption of liability inones own capacity and not inrepresentation, or as an agent or trustee, ofanother.

c. Purchasing of receivables or otherobligations shall refer to the acquisition ofclaims collectible in money, includinginterbank borrowings or borrowingsbetween FIs, or of acquisition of securities,of any amount and maturity, from domesticor foreign sources.

d. Relending shall refer to theextension of loans by an institution withantecedent borrowing transactions.Relending shall be presumed, in theabsence of express stipulations, whenthe institution is regularly engaged inlending.

e. Regularly engaged in lending shallrefer to the practice of extending loans,advances, discounts or rediscounts as amatter of business, as distinguished fromisolated lending transactions.

X234.3 Transactions not consideredquasi-banking. The following shall notconstitute quasi-banking:

a. Borrowing by commercial,industrial and other non-financialcompanies through any of the meanslisted in Subsec. X234.1 hereof, for thelimited purpose of financing their ownneeds or the needs of their agents ordealers; and

b. The mere buying and selling withoutrecourse of instruments mentioned inSubsec. X234.1: Provided, That:

(1) The institution buying and sellingwithout recourse shall indicate inconspicuous print on its instrument the

X233.11 - X234.308.12.31

Manual of Regulations for Banks Part II - Page 17

phrase without recourse, sans recourse orwords of similar import that will conveythe absence of liability or guarantee by saidinstitution; and

(2) In the absence of the phrasewithout recourse, sans recourse orwords of similar import, the instrument soissued, endorsed or accepted, shallautomatically be considered as fallingwithin the purview of these regulations:Provided, further, That any of the followingpractices or practices similar and/ortantamount thereto in connection with awithout recourse transaction is herebyprohibited:

(a) Issuance of postdated checks by afinancial intermediary, whether for its ownaccount or as an agent of the debtinstrument issuer, in payment of the debtinstrument, sold, assigned or transferredwithout recourse; or

(b) Issuance by a financial intermediaryof any form of guaranty on sale transactionsor on negotiations or assignment of debtinstruments without recourse; and

(c) Payment with its own funds by afinancial intermediary which assigned, soldor transferred the debt instrument withoutrecourse, unless the financial intermediarycan show that the issuer has with the saidfinancial intermediary funds correspondingto the amount of the obligation.

X234.4 Pre-conditions for theexercise of quasi-banking functions. Nobank shall engage in quasi-bankingfunctions without authority from the BSP:Provided, however, That banks authorizedby the BSP to perform universal orcommercial banking functions shallautomatically have the authority to engagein quasi-banking functions: Provided,further, That the authority to obtain fundsfrom the public, which shall mean twenty(20) or more persons under Section 8.2 ofR.A. 8791, is not a condition but anauthorization for the bank or quasi-bank,

once the Monetary Board has granted thequasi-banking license.

In addition to the StandardPre-qualification Requirements for theGrant of Bank Authorities enumerated inAppendix 5, a TB securing BSP authorityto engage in quasi-banking functions mustmeet the following requirements:

a. The bank must have a networth orcombined capital of at least P650.0 millioncomputed in accordance with Sec. X111;

b. The bank is well capitalized withrisk-based capital adequacy ratio of notlower than twelve percent (12%) at thetime of filing the application;

c. The banks operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

d. The bank has elected at least two(2) independent directors and all itsdirectors have attended the requiredseminar for directors of banks conductedor accredited by the BSP;

e. The bank has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls, andcomplete, timely and efficient riskreporting system; and

f. The bank has a CAMELSComposite Rating of at least 3 in the lastregular examination with managementrating of not lower than 3.

X234.5 Certificate of Authority fromthe Bangko Sentral. A bank securing BSPsCertificate of Authority to engage inquasi-banking functions shall file anapplication with the appropriatedepartment of the SES. The applicationshall be signed by the bank president orofficer of equivalent rank and shall beaccompanied by the following documents:

X234.3- X234.508.12.31

Part II - Page 18


a. Certified true copy of the resolutionof the banks board of directors authorizingthe application;

b. A certification signed by thepresident or the officer of equivalent rankthat the institution has complied with allconditions/prerequisites for the grant ofauthority to engage in quasi-bankingfunctions;

c. An information sheet;d. Bio-data signed under oath, of the

members of the managerial staff who willundertake quasi-banking operations;

e. Borrowing-investment program forone (1) year which should include at theminimum:

(1) planned distribution of portfoliosas to -

(a) underwriting;(b) commercial paper markets;(c) stocks and bonds;(d) government securities;(e) receivables financing, discounting

and factoring;(f) leasing; and(g) direct loans;(2) expected sources of funds to

support investment program classifiedas to -

(a) maturity: short, medium andlong-term;

(b) interest rates; and(c) domestic or foreign sources

whether institutional or personal.TBs authorized to engage and are

actually performing quasi-banking functionsbut do not meet the new capitalrequirement are hereby given a period oftwo (2) years reckoned from 11 November2004 within which to comply with theminimum capital requirement in Subsec.X234.4 (a): Provided, That in case the TBhas an approved capital build-up programunder Subsec. X501.2, for its FDCUlicense, the approved capital build-upprogram, may be considered compliancewith this requirement: Provided, further,

That in case, the TB has no approvedcapital build-up program, the minimumcapital requirement may be substituted bya capital build-up program for a period ofnot more than five (5) years from11 November 2004 and which must beapproved by the Monetary Board. Suchcapital build-up program shall be in equalannual or diminishing amounts and shallbe submitted to the appropriatedepartment of the SES within three (3)months from 11 November 2004.

TBs which fail to comply with therequired capitalization upon expiration ofsaid two (2) year period given them orthose which fail to comply with approvedcapital build-up program shall liquidatetheir quasi-banking operations within one(1) year and shall be considered revoked/cancelled. The license of a TB withauthority to engage in quasi-bankingfunctions but has not actually engaged inquasi-banking functions and has notcomplied with the above minimum capitalrequirements as of 11 November 2004,shall automatically be revoked.

X234.6 Sale, discounting, assignmentor negotiation by banks of their creditrights arising from claims against theBSP. Pursuant to the policy of the BSP topromote investor protection andtransparency in securities transactions asimportant components of capital marketsdevelopment, credit rights in SpecialDeposit Account (SDA) placements andreverse repo agreements with the BSP,shall not be subject of sale, discounting,assignment or negotiation on a with orwithout recourse basis.

Any violation of the provisions of thisSubsection shall be considered a lessserious offense and shall subject the bankand the director/s and/or officer/sconcerned to the sanctions provided underSection X299.(Circular No. 636 dated 17 December 2008)

X234.5 - X234.608.12.31


X235 - X235.308.12.31

Sec. X235 Deposit Substitute InstrumentsAny deposit substitute transaction by abank performing quasi-banking functionsshall be limited to its own promissorynotes, repurchase agreements, andcertificates of assignment/participationwith recourse.

X235.1 Prohibition against use ofacceptances, bills of exchange and trustcertif icates . Acceptances, bil ls ofexchange, and trust certificates shall notbe used by banks as evidence of depositsubstitute liabilities in connection withtheir quasi-banking functions. Thisprohibit ion shall not apply to theacceptance or negotiation of bills ofexchange in connection with tradetransactions, or to the issuance of trustcertificates creating trust relationships.

X235.2 Negotiation of promissorynotes. Negotiable promissory notesacquired by banks in connection withtheir quasi-banking functions shall not benegotiated by mere indorsements and/ordelivery, if they do not conform with theminimum features prescribed underSubsec. X235.3. If these notes do notcontain the features, their negotiationshall be covered by any of the appropriatedeposit substitute instruments above-mentioned.

X235.3 Minimum features. Depositsubstitute instruments issued by entitiesperforming quasi-banking functions shallhave the following minimum features: a. The present value and maturityvalue and/or the principal amount andinterest rate and such other informationas may be necessary to enable the partiesto determine the cost or yield of theborrowing or placement shall bespecified. b. The date of issuance shall beindicated at the upper right corner of the

instrument, and directly below whichshall be the maturity period or the worddemand, if it is a demand instrument. c. The payee may be identified by histrust account/deposit account number inboth negotiable and non-negotiableinstruments. d. Securities which are the subject ofa repurchase agreement or a certificate ofassignment/participation with recourse,shall be particularly described on the faceof said instruments or on a separateinstrument attached and specificallyreferred to therein and made an integralpart thereof as to the maker, value,maturity, serial number, and such otherparticulars as shall clearly identify thesecurities. e. The instrument shall provide for thepayment of liquidated damages, in additionto stipulated interest, in case of default bythe maker or issuer, as well as attorneysfees and costs of collection in case of suit. f. A conspicuous notice at the lowercenter margin of the face of the instrumentthat the transaction is not insured by thePDIC shall be indicated. g. The corporate name of the issuershall be printed at the upper center marginof the instrument and directly belowwhich shall be a designation of theinstrument, such as Promissory Noteor Repurchase Agreement. h. The words duly authorizedofficer shall be placed directly below thesignature of the person signing for themaker or issuer. i. Each instrument shall be seriallypre-numbered.

j. The copy delivered to the payee shallbear the word Original and the copiesretained by the issuer shall be identifiedas Duplicate, File Copy or words ofsimilar import. k. Only security paper with adequatesafeguards against al teration orfalsification shall be used.


X235.3 - X235.511.12.31

Borrowings of banks from the loans anddiscounts window of other banks ornon-bank financial intermediaries shall beexempted from the documentationrequirements prescribed in this Subsection:Provided, That the exemption from thedocumentation requirements prescribed inthis Subsection shall not be construed orinterpreted as exempting said borrowingsfrom other regulations standardizing depositsubstitute instruments and from otherBSP regulations on deposit substitutes.

Deposit substitute instruments shallconform to the language prescribed by theBSP. Any substantial deviation there fromor any additional stipulation therein shallbe referred to the BSP for prior approval.The size and appearance of theseinstruments, shall not be similar to the sizeand appearance of checks. Rubberstamping, typewriting or handwriting someprovisions shall not be consideredcompliance with said regulations. (Shownin Appendix 12 are the samples ofstandardized instruments as evidence ofdeposit substitute liabilities.)

X235.4 Interbank loan transactionsExcept for interbank borrowings which aresettled through the banks respective DDAswith the BSP via PhilPaSS, all interbankborrowings shall be evidenced by depositsubstitute instruments containing the minimumfeatures prescribed in Subsec. X235.3.(As amended by Circular No. 703 dated 23 December 2010)

X235.5 Delivery of securitiesa. Securities, warehouse receipts,

quedans and other documents of titlewhich are the subject of quasi-bankingfunctions, such as repurchase agreements,shall be physically delivered, if certificated,to a BSP accredited custodian that ismutually acceptable to the lender/purchaser and borrower/seller, or by meansof book-entry transfer to the appropriatesecurities account of the BSP-accredited

custodian in a registry for said securities, ifimmobilized or dematerialized while theoverlying principal borrowing instrumentshall be physically delivered to the lender/purchaser. The custodian shall hold thesecurities in the name of the borrower/seller, but shall keep said securitiessegregated from the regular securitiesaccount of the borrower/seller if theborrower/seller has an existing securitiesaccount with the custodian: Provided, Thata bank/other entity authorized by the BSPto perform custodianship function may notbe allowed to be custodian of securitiesissued or owned by said bank/entity, itssubsidiaries or affiliates, or of securities inbearer form.

The delivery shall be effected uponpayment and shall be evidenced by asecurities delivery receipt duly signedby authorized officers of the custodianand delivered to both the lender/purchaser and seller/borrower.

Sanctions. Violation of any provisionof Item a shall be subject to the followingsanctions/penalties:

(1) Monetary penaltiesFirst offense - Fine of P10,000 a day for

each violation reckoned from the date theviolation was committed up to the date itwas corrected.

Subsequent offenses - Fine of P20,000a day for each violation reckoned from thedate the violation was committed up to thedate it was corrected.

(2) Other sanctionsFirst offense - Reprimand for the

directors/officers responsible for the violation.Subsequent offense -(a) Suspension for ninety (90) days

without pay of directors/officers responsiblefor the violation;

(b) Suspension or revocation of theaccreditation to perform custodianshipfunction;

(c) Suspension or revocation of theauthority to engage in quasi-banking


X235.5- X235.1111.12.31

function; and/or(d) Suspension or revocation of the

authority to engage in trust and otherfiduciary business.

b. The guidelines to implement thedelivery by the seller of securities to thebuyer or to his designated third partycustodian are shown in Appendix 68.

The disposition of compliance issues ofAppendix 68 is shown in Appendix 68a.

The guidelines on the delivery ofgovernment securities to the investorsprincipal securities account with theRegistry of Scripless Securities (RoSS) are inAppendix 68b.

Sanctions. Without prejudice to thepenal and administrative sanctions providedfor under Sections 36 and 37, respectivelyof R.A. No. 7653 (The New Central BankAct), violation of any provision of theguidelines in Appendix 68 shall be subjectto the following sanctions/penaltiesdepending on the gravity of the offense:

(a) First offense -(1) Fine of up to P10,000 a day for the

institution for each violation reckoned fromthe date the violation was committed up tothe date it was corrected; and

(2) Reprimand for the directors/officersresponsible for the violation.

(b) Second offense -(1) Fine of up to P20,000 a day for

the ins t i tu t ion fo r each v io la t ionreckoned from the date the violationwas committed up to the date it wascorrected; and

(2) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

(c) Subsequent offenses -(1) Fine of up to P30,000 a day for the

institution for each violation from the datethe violation was committed up to the dateit was corrected;

(2) Suspension or revocation of theauthority to act as securities custodian and/or registry; and

(3) Suspension for 120 days without payof the directors/officers responsible for theviolation.(As amended by Circular No. 714 dated 10 March 2011,M-2007-002 dated 23 January 2007, M-2006-009 dated 06 July2006, M-2006-002 dated 05 June 2006 and Circular No. 524dated 31 March 2006)

X235.6 Other rules and regulationsgoverning the issuance and treatment ofdeposit substitute instruments

a. If there is any stipulation thatpayment of the deposit substitute shall bechargeable against a particular depositaccount, it shall further provide that theliability of the maker or issuer of theinstrument shall not be limited to theoutstanding balance of said account.

b. Any agreement allowing the issueror maker to substitute the underlyingsecurities shall further provide that theactual substitution shall be with the priorwritten consent of the payee.

c. Automatic renewal upon maturity ofthe instrument may be effected only underterms and conditions previously stipulatedby the parties.

d. Stipulations between the maker orissuer and the payee which are embodiedin separate instruments shall be specificallyreferred to in the deposit substituteinstruments and made an integral partthereof.

e. In the case of repurchaseagreements and certificates of assignment/participation with recourse, the stipulationshall clearly state either (1) that theunderlying securities are being delivered tothe buyer or assignee as collaterals or (2)that the ownership thereof is beingtransferred to the buyer or assignee.

f. The regulations on interbank loantransactions prescribed in Sec. X343 shallalso apply to interbank borrowings.(As amended by Circular No. 703 dated 23 December 2010)

X235.7 - X235.11 (Reserved)


X235.1208.12.31

X235.12 Repurchase agreementscovering government securities,commercial papers and other negotiableand non-negotiable securities orinstruments. The following regulations shallgovern repurchase agreements coveringgovernment securities, commercial papersand other negotiable and non-negotiablesecurities or instruments of banks as wellas sale on a without recourse basis of saidsecurities by banks.

a. Proper recording and documentationof repurchase agreements.

Banks shall have a true and accurateaccount, record or statement of their dailytransactions. As such, repurchaseagreements covering governmentsecurities, commercial papers and othernegotiable and non-negotiable securitiesor instruments must be properlyrecorded and documented in accordancewith existing BSP regulations.

The absence of proper documentationfor repurchase agreements is tantamountto willful omission of entries relevant toany transaction, which shall be a groundfor the imposition of administrativesanctions and the disqualification fromoffice of any director or officer responsibletherefor under existing laws andregulations.

b. Responsibilities of the chiefexecutive officer (CEO) or officer ofequivalent rank.

It shall be the responsibility of the CEO orthe officer of equivalent rank in a bank to:

(1) Institute policies and procedures toprevent undocumented or improperlydocumented repurchase agreementscovering government securities, commercialpapers and other negotiable and non-negotiable securities or instruments;

(2) Submit a notarized certification atthe end of every semester that the bank didnot enter into any repurchase agreementcovering government securit ies,commercial papers and other negotiable

and non-negotiable securit ies orinstruments that are not documented inaccordance with existing BSP regulationsand that the bank has strictly compliedwith the pertinent rules of the SEC andthe BSP on the proper sale of securities tothe public and performed the necessaryrepresentations and disclosures on thesecurities particularly the following:

(a) Informed the clients that suchsecurities are not deposits and as such, donot benefit from any insurance otherwiseapplicable to deposits such as, but notlimited to, R.A. No. 3591, as amended,otherwise known as the PDIC law;

(b) Informed and explained to theclient all the basic features of the securitybeing sold on a without recourse basis, suchas but not limited to:

(i) issuer and its financial conditions;(ii) term and maturity date;(iii) applicable interest rate and its

computation;(iv) tax features (whether taxable, tax

paid or tax-exempt);(v) risk factors and investment

considerations;(vi) liquidity feature of the instrument:(aa) procedures for selling the security

in the secondary market (e.g., OTC orexchange);

(bb) authorized selling agents; and(cc) minimum selling lots.(vii) disposition of the security:(aa) registry (address and contact

numbers);(bb) functions of the registry; and(cc) pertinent registry rules and

procedures.(viii) collecting and paying agent of the

interest and principal; and(ix) other pertinent terms and

conditions of the security and if possible, acopy of the prospectus or information sheetof the security.

(c) Informed the client that pursuant toSubsecs. X235.5 and X238.1:


(i) Securities sold under repurchaseagreements shall be physically delivered,if certificated, to a BSP-accreditedcustodian that is mutually acceptable to theclient and the bank, or by means of book-entry transfer to the appropriate securitiesaccount of the BSP-accredited custodian ina registry for said securities, if immobilizedor dematerialized; and

(ii) Securities sold on a withoutrecourse basis are required to be deliveredphysically to the purchaser, or to hisdesignated custodian duly accredited bythe BSP, if certificated, or by means ofbook-entry transfer to the appropriatesecurities account of the purchaser or hisdesignated custodian in a registry for saidsecurities if immobilized or dematerialized.

(d) Clearly stated to the client that:(i) The bank does not guarantee the

payment of the security sold on a withoutrecourse basis and in the event of defaultby the issuer, the sole credit risk shall beborne by the client; and

(ii) The bank is not performing anyadvisory or fiduciary function.

(3) Report to the appropriate departmentof the SES any undocumented repurchaseagreement within seventy-two (72) hours fromknowledge of such transactions.

c. Treatment as Deposit Substitutes.All sales of government securities,commercial papers and other negotiableand non-negotiable securities orinstruments that are not documented inaccordance with existing BSP regulationsshall be deemed to be deposit substitutessubject to regular reserves.

d. Certification. The submissiondeadline for the required certification fromthe CEO/officer of equivalent rank of thebank shall initially be 01 February 2005using the format attached as Annex A ofAppendix 65. Thereafter, the requiredsucceeding certification shall be submittedwithin five (5) banking days from end ofreference semester using the format attached

as Appendix 65.e. Sanctions. The Monetary Board

may, at its evaluation and discretion,impose any or all of the following sanctionsto a bank or the director/s or officer/s foundto be responsible for repurchase agreementscovering government securities, commercialpapers and other negotiable and non-negotiable securities or instruments that arenot documented in accordance with existingBSP regulations:

(1) Fine of up to P30,000 a day to theconcerned entity for each violation fromthe date the violation was committed upto the date it was corrected;

(2) Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

(3) Suspension of access to BSPrediscounting facilities;

(4) Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

(5) Revocation of quasi-bankinglicense;

(6) Revocation of authority to performtrust operations; and

(7) Suspension for one hundred twenty(120) days without pay of the directors/officers responsible for the violation.

Sec. X236 Minimum Trading Lot andMinimum Term of Deposit Substitute

a. The minimum size of any singledeposit substitute transaction shall beP50,000.

No bank performing quasi-bankingfunctions shall issue deposit substituteinstruments in the name of two (2) or morepersons or accounts except those fallingunder the following relationships in whichcases, commingling may be allowed:(a) husband and wife; (b) persons related toeach other within the second degree ofconsanguinity; and (c) in trust for (ITF)arrangements.(As amended by Circular No. 703 dated 23 December 2010)

X235.12- X23610.12.31


Sec. X237 Money Market Placements ofRural Banks. Banks shall not accept moneymarket placements from any RB unless thelatter presents a certification under oathstating: (a) that it has no overdue special timedeposits; (b) that it has no past dueobligations with the BSP or othergovernment financial institutions; (c) theamount of its current obligations, if any,with said government financial institutions;and (d) the amount of its total outstandingmoney market placements. However, in nocase shall such banks sell receivables to RBswithout recourse.

X237.1 Definition of terms. As usedin this Section, the following terms shallhave the following meanings:

a. Money market placements shallinclude investments in debt instruments,including purchase of receivables withrecourse to the lending institution, exceptpurchase of government securities on anoutright basis.

b. Government securities shall includeevidences of indebtedness of the Republicof the Philippines, the BSP and otherevidences of indebtedness or obligations ofgovernment entities the servicing andrepayment of which are fully guaranteed bythe Republic of the Philippines.

c. Persistent violation shall mean theviolation of any of the provisions of theserules by the director or officer concernedfor four (4) or more times within a twel

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