Latestissuances

BSP Issuances

24 May 2012

RBAP 59th Annual Convention and Corporate Meeting

Topics:Topics:

Circular No. Date Subject

Guidelines to Implement New Agri-Agra Law

736 07.20.11

Rules and Regulations on the Mandatory Credit Allocation for Agriculture and Agrarian Reform

Credit

1


RATIONALIZATION OF RESERVE REQUIREMENT POLICY

753 03.29.12

Unification of the Statutory/Legal and Liquidity Reserve Requirement, Non-Remuneration of the Unified Reserve

Requirement, Exclusion of Vault Cash and Demand Deposits as Eligible Forms of Reserve

Requirement Compliance, and Reduction in the Unified Reserve Requirement Ratios

752 03.29.12Change in Maturity of Placements in the

Reserve Deposit Account Facility2


ENHANCED TRANSPARENCY RULE ON LOANS

730 07.20.11Updated Rules Implementing the Truth in Lending Act to Enhance Loan Transaction

Transparency

754 04.17.12Updated Rules for NBFIs under BSP

Supervision, and Penal Provisions on Banks and NBFIs for Non-Compliance

755 04.20.12

Implementing Guidelines to Entities with Credit-Granting Facilities not Covered by

Existing Issuances by the BSP, SEC, IC and CDA 3


SIMPLIFIED CONFIRMATION PROCEDURES ON THE ELECTION/APPOINTMENT OF DIRECTORS/OFFICERS

758 05.11.12

Amendment to the Regulations on the Approval/Confirmation of the

Election/Appointment of Directors/Officers

4

Topics:Topics:

Presidential Decree 717(29 May 1975)

vs.

Republic Act 10000(23 February 2010)

Agri-Agra LawAgri-Agra Law

Objectives:1.To promote rural development by enhancing access to financial services and programs that increase market efficiency and promote modernization.

2.To develop an agriculture and agrarian reform credit, insurance and financing system through government and private banking institutions.

Agri-Agra Reform Credit Act of 2009Agri-Agra Reform Credit Act of 2009

• Retention of the mandatory credit allocation in PD 717

• Identification of intended beneficiaries

• Expansion of agri-agra activities and purpose

• Rationalization of alternative modes of compliance

• Penalty Clause

Features:Features:

Banks shall set aside at least 25% of their total loanable funds for agriculture and agrarian reform credit in general, of which at least 10% of the total loanable funds shall be made available for agrarian reform beneficiaries.

Required Allocation:Required Allocation:

Sum of net increase in Funding Liabilities + Sum of net increase in Equity - Net increase in Non-Cash/Strategic Invt. - Net increase in reserve requirements - Net increase in 15% provision for liquidity Total Loanable Funds

Loanable Funds:Loanable Funds:

Reference Date for Calculation of Reference Date for Calculation of Loanable Funds:Loanable Funds:

• from 29 May 1975 to 20 April 2010 resulted to lower amount of loanable funds

• In the event that a bank reports negative total loanable funds, this would be equal to zero loanable funds for purposes of computing the 25% Agri-Agra requirement

Exclusions Loanable Funds:Exclusions Loanable Funds:• highly volatile and liquid funds not

available for long-term lending (deposits of banks, due to other banks, interbank borrowings)

• minimum working balances of the Govt. maintained for operational requirements (deposit of the National Govt, LGUs, GOCCs)

Exclusions Loanable Funds:Exclusions Loanable Funds:• Funds earmarked for certain

purposes/ activities (emergency adv. from PDIC, retained earnings – reserves)

• Unrealized gains/losses that are non-cash in nature (net unrealized gains/losses on AFS financial assets, cumulative foreign currency translation.

Direct Compliance:Direct Compliance:

• loans extended to qualified borrowers for qualified purposes

Qualified Borrowers:Qualified Borrowers:

farmers, fisherfolks, settlers, agricultural lessees, agrarian reform beneficiaries, amortized owners, farmworkers, fishworkers, owner-cultivators, compact farmers, tenant farmers and farmer’s and fisherfolk’s cooperatives, organizations and association

Expansion of agri-agra reform activities and Expansion of agri-agra reform activities and purpose:purpose:

Include enumerated under Section 23 of R.A. No. 8435 “The Agriculture and Fisheries Modernization Act of 1997”

Rationalization of Alternative Modes of Rationalization of Alternative Modes of ComplianceCompliance

• Deleted those which do not directly contribute to the development of agri-agra reform sector such as development incentive loans


Alternative Compliance• Investment in debt securities• DBP/LBP Bonds

• Investment in equity securities• Preferred shares of stocks of

accredited RFIs• Quedancor• Phil Crop Insurance Corp


Loans and other credits• Investment in SDA of BSP-accredited RFIs• Wholesale lending facility granted to RFIs• Rediscounting facility granted by UBs/KBs

covering eligible agriculture, fisheries and agrarian reform credits

• Loans for construction and upgrading of infrastructure (farm-to-market roads, post harvest facilities)

No Double Counting:No Double Counting:

Loans that are (i) rediscounted with UBs/KBs, or (ii) funded by proceeds from the issuance

of bonds and SDAs by banksas well as wholesale lending of other

banks shall not be eligible as compliance on the part of the lending bank

Excess in Compliance:Excess in Compliance:

Excess compliance in the 10% agrarian reform credit may be used to offset a deficiency, if any, in the 15% other agricultural credit, in general, but not vice versa.

BSP-accredited Rural Financial Institutions:BSP-accredited Rural Financial Institutions:

• Qualification Requirements For the last 4 quarters: (1)total loan portfolio is greater than bank’s total investments; and (2)average credit exposure to agri-agra is greater than any exposure to other economic sectors

Application for Accreditation:Application for Accreditation:

To be submitted to the Managing Director, Central Supervisory Support Subsector, SES:

(1)Notarized undertaking that the bank shall comply with the regulations, directives and instructions of the BSP; and

(2)Notarized certification that the bank’s loan portfolio is substantially agri-agra related.

Purpose of Accreditation:Purpose of Accreditation:

The accreditation is solely for the purpose of ascertaining that the portfolio of the rural FI is substantially agri-agra related pursuant to R.A. No. 10000 and should not serve as an endorsement by the BSP on the soundness of the rural FI

Sanctions:Sanctions:

• Penalties/sanctions are applicable to (1) the bank; and (2) directors/officers concerned of the

bank.

• Penalties/sanctions are monetary and non-monetary fines.


• Monetary penalties are for (1) non-compliance/under-compliance; (2) delayed/amended reports; and (3) false/misleading statements


Amount of non-compliance/under

compliance as of the end of the reference quarter X 0.00125 Amount of Penalty

Disposition of Penalty Collected:Disposition of Penalty Collected:

•90% shall be remitted by the BSP to the Agricultural Guarantee Fund Pool and the PCIC (equal sharing).

•10% shall be retained by the BSP to cover administrative expenses.

Topics:Topics:

3 Operational Adjustments:3 Operational Adjustments:1. Unification of the existing statutory reserve

requirement and liquidity reserve requirement into a single set of reserve requirement

2. Non-remuneration of the unified reserve requirements

3. Exclusion of vault cash (for banks) and demand deposits (for NBFIs with QB functions) as eligible forms of reserve requirement compliance

Required Reserves Against DepositRequired Reserves Against Deposit

AccountRequired Reserves

Demand Deposits 4%

“NOW” Accounts 4%

Savings Deposits 2%

Time Deposits, Negotiable CTDs, Long-Term Non-Negotiable Tax

Exempt CTDs2%

Long-Term Negotiable CTDs 3%

IBCL (Sec. X343) 0%

Composition of ReservesComposition of Reserves

Required Reserves shall be kept in the form of deposits placed in bank’s Demand Deposit Accounts (DDAs) with the BSP.


Transitory Provisions:

Government Securities• shall be continue to be eligible as

compliance with the reserve requirements until they mature


Transitory Provisions:

Reserve Deposit Account• shall be continue to be eligible as

compliance with the reserve requirements until they mature

• all new deposits in RDA facility shall be given a maturity date of 4 April 2012 (Cir. 752)


Cash in Vault• No longer allowed as reserve

Interest Income on Reserve Interest Income on Reserve DepositsDepositsDeposits maintained by banks with the BSP in compliance with the reserve requirement shall no longer be paid interest.

EffectivityEffectivity

Reserve week starting 6 April 2012

Topics:Topics:

Main Enhancements of the New RulesMain Enhancements of the New Rules

• Emphasizes the importance of fair pricing• Interest computation based on

outstanding balance at the beginning of an interest period or each installment period

• Provides a comparable basis of disclosing loan interest via Effective Interest Rate (EIR)


• Shows the full cost of credit• EIR which includes all charges incident to

the extension of credit

• Requires the consistent use of EIR in all loan documents including the marketing materials


• Provides a simpler disclosure statement• Includes the key information useful for

the borrowers

Methods of Computing InterestMethods of Computing Interest

• Interest based on the outstanding balance of loan at the beginning of an interest period

Definition of TermsDefinition of Terms• Finance Charge - includes

• Interest• Fees• Service charge• Discounts• And other charges incident to the

extension of credit

Definition of TermsDefinition of Terms• Simple annual rate

• Uniform percentage• Represents ratio between finance charge

and the amount to be financed• Assumption – loan is payable in • One year• Single payment upon maturity• No up-front deductions to principal

Effective Interest Rate (EIR)Effective Interest Rate (EIR)• rate that exactly discount estimated future

cash flows through the life of the loan to the net amount of loan proceeds

• To be used for loans with terms different from the simple annual rate

• To be disclosed to the borrower as the relevant true cost of the loan

Effective Interest Rate (EIR)Effective Interest Rate (EIR)

• If contractual interest rate is stated on a monthly basis, EIR may be expressed as a monthly rate

Charges included in the Computation of Charges included in the Computation of EIREIR

• Interest;• Service charge/processing fees; and• Other charges/fees incidental to the

extension of credit, e.g.:• Documentary stamps• Notarial fees• Appraiser’s fee

Charges included in the Computation of Charges included in the Computation of EIREIR

• Taxes• Should be borne by entity• Should not be passed on to the

consumer• If paid by the borrower, should be

indicated in Disclosure Statement and included in the computation of EIR

Charges Charges NOT NOT included in the included in the Computation of EIRComputation of EIR

• Not considered in the computation of EIR

• Insurance premium• Conditional charges

Add-On InterestAdd-On Interest

• Add-On interest and straight-line methods are prohibited.

Information to be DisclosedInformation to be Disclosed• Total amount to be financed• Finance charges expressed in terms of pesos

and centavos• Net proceeds of the loan• Percentage that the finance charge bears to

the total amount to be financed• Expressed as a simple annual rate or EIR

Information to be DisclosedInformation to be Disclosed• Furnish each borrower a copy of disclosure

statement, prior to the consummation of the transaction

PostersPosters• Disclosure statement –• Post in conspicuous places in principal

place of business and branches• Explicit notification that the disclosure

statement is required attachment to the loan contract

• Customer has a right to demand a copy of the disclosure statement

Disclosure StatementDisclosure Statement

Amortization ScheduleAmortization Schedule

Circular No. 754Circular No. 754

• Enhanced Loan Transaction Transparency for NBFIs under BSP Supervision

QBs NSSLAs Subsidiary/affiliate credit card

companies of Banks/QBs Pawnshops


• Penal Provisions on Banks and NBFIs for Non-Compliance

Regarded at least as a less serious offense, depending on the severity of non-disclosure, number of loans and amount involved in the violation


• First offense Reprimand on the erring officer/s

• Second offense Reprimand on the entire board of

directors• Subsequent offense/s

Suspension of the erring officer/s and/or entire BOD; and

Restriction on lending activities


Republic Act No. 3765 – Truth in Lending Act

Section 5 grants the Monetary Board the power to prescribe such rules and regulations which are necessary or proper in carrying out the provision of the Act.

Objective of Transparent PricingObjective of Transparent Pricing

• Not to set limits on rates

• To make rates more understandable, comparable and known to client

Regulatory Agencies’ Implementing Regulatory Agencies’ Implementing GuidelinesGuidelines

Regulatory Agency Issuance Covered Entity

Securities and Exchange Commission

(SEC)

SEC Memorandum Circular No. 7 Series of 2011 (09.15.11)

All Lending and Financing Companies

Insurance Commission (IC)

Circular Letter No.: 31-2011 (10.05.11)

All Insurance/ Reinsurance

Companies and Mutual Benefit

Association

Cooperative Development

Authority (CDA)

Memorandum Circular No. 2012-05

Series of 2012 (03.14.12)

Credit and Multi-Purpose Cooperatives with savings and loan

services

MB Resolution No. 587 dated 12 April 2012MB Resolution No. 587 dated 12 April 2012

• Implementing guidelines to enhance loan transparency for all other entities with credit granting facilities not presently covered by regulatory agencies’ issuances.

CoverageCoverage

• All entities with credit-granting facilities (CGEs) not presently covered by issuances of the BSP, SEC, IC and CDA.

CoverageCoverage

CGEs :• Include corporations, organizations,

partnerships and single proprietorships registered with the SEC and DTI

CoverageCoverage

CGEs :

• Include, those, in the course of their business, extend credit through installment or deferred payment sale, such as but not limited to real estate dealers or property developers, car and other vehicle dealers, or appliance stores

RegistrationRegistration

• CGE may register its lending or financing activity with the BSP for the purpose of ensuring compliance with the requirements of the Acts.

Topics:Topics:

Confirmation of the Election/Appointment Confirmation of the Election/Appointment of the Directors/Officersof the Directors/Officers

Confirmation Not RequiredConfirmation Not Required

• Directors/Officers confirmed by the MB/SES Committee starting 1 January 2011:

• Reelection of a director (as a director) in the same bank or election of the same director in another bank, QB, NBFI with trust authority or trust corporation within a banking group;


• Reelection of an independent director (as an independent director or not) in the same bank or election of the same director (as an independent director or not) in another bank, QB, NBFI with trust authority or trust corporation within a banking group; and


• Promotion of an officer, other than to that which requires (i) prior MB approval or (ii) a different set of minimum qualifications or (iii) a different level of confirming authority, in the same bank or appointment/transfer to another bank, QB, NBFI with trust authority or trust corporation within the banking group.

Banking GroupBanking Group

• Parent bank and its subsidiary banks, QBs, NBFIs with trust authority and trust corporations, as well as other banks, QBs, NBFIs with trust authority and trust corporations over which the parent bank has power to exercise “control” as defined in Subsection X141.2.


• The appointment of officers below the rank of SVP shall be subject neither to MB approval nor BSP confirmation.

Documentary Requirements (Directors)Documentary Requirements (Directors)

• Letter request for BSP confirmation signed by authorized officer with an affirmative statement that the institution has conducted a fit and proper test on the director/s concerned

• Secretary’s Certificate attesting to the resolution of the stockholders or BOD approving the election


• Bio-data with photograph (2”x2”) taken within the last 6 months

• Certification under oath of the director concerned that he/she possesses all the qualifications and none of the disqualifications to become a director


For first-time director• Copy of certificate of attendance in

Corporate Governance seminar

• Certification under oath that the director has received copies of the general responsibility and specific duties and responsibilities of the BOD and of a director and that he/she fully understands and accepts the same


For first-time director• Duly accomplished and notarized

authorization form for querying the BSP watchlist files from the director concerned


For independent director

• Certification under oath that he/she is an independent director as defined in BSP regulations


For re-elected director

• Secretary’s Certificate on the attendance by the director concerned to the board meetings held for the last 12 months covering the term of service, indicating percentage of attendance to board meeting.

Documentary Requirements (Officers Documentary Requirements (Officers requiring confirmation)requiring confirmation)

• Letter request for BSP confirmation signed by authorized officer with an affirmative statement that the institution has conducted a fit and proper test on the officer/s concerned

• Secretary’s Certificate attesting to the resolution of the BOD approving the appointment


• Bio-data with photograph (2”x2”) taken within the last 6 months

• Certification under oath of the officer concerned that he/she possesses all the qualifications and none of the disqualifications to become an officer


For first-time officer• Duly accomplished and notarized

authorization form for querying the BSP watchlist files from the director concerned


• Brief description of his/duties and responsibilities

• Alien Employment Permit issued by the DOLE for foreigners appointed as officers

Bio-dataBio-data

• To be submitted upon every election/re-election/appointment/promotion

• Shall be updated and submitted • In case of change of name due to change

in civil status• In cases of requests for prior MB approval

of interlocks

Bio-dataBio-data

• Officers below the rank of SVP are not required to submit bio-data to BSP

• Bank, however, shall keep complete record of bio-data and shall maintain a system of updating said records which shall be made available during on-site exam or when required by BSP for submission for offsite verification.

Latestissuances

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