SCC Manual of Rules and Regulations

8/7/2019 SCC Manual of Rules and Regulations

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Draft for Discussion

MANUAL OF RULES AND REGULATIONS FOR SAVINGS AND CREDITCOOPERATIVES (SCCS)IN THE PHILIPPINES

TABLE OF CONTENTS

INTRODUCTION 5

ARTICLE 1. SCOPE AND LIMITATIONS 6

S ECTION 1.1. COVERAGE 6 S ECTION 1.2. D EFINITION OF TERMS 6

ARTICLE 2. ORGANIZATION OF SCCS 7

S ECTION 2.1. D EFINITION OF SAVINGS AND CREDIT COOPERATIVE (SCC) . 7 S ECTION 2.2. M INIMUM REQUIREMENTS . 7 S ECTION 2.3. PROVISIONAL LICENSE TO OPERATE 8 S ECTION 2.4. REQUIREMENTS FOR REGULAR LICENSE . 8 S ECTION 2.5. ISSUANCE OF LICENSE TO OPERATE . 10 S ECTION 2.6. VALIDITY OF CONTRACTS . 10 S ECTION 2.7. BUSINESS NAME . 10 S ECTION 2.8. PROHIBITIONS . 10 S ECTION 2.9. SUSPENSION , CANCELLATION OR REVOCATION OF LICENSE . 10

ARTICLE 3. MANAGEMENT 10

S ECTION 3.1.O FFICERS OF THE SCC. 11 S ECTION 3.2. BOARD OF D IRECTORS . 11

S ECTION 3.3. KEY MANAGEMENT O FFICERS . 13S ECTION 3.4. COMMITTEES . 14 S ECTION 3.5. TRAINING OF D IRECTORS AND OFFICERS . 15 S ECTION 3.6. FUNCTIONS AND RESPONSIBILITIES . 15

ARTICLE 4. GOVERNANCE 15

S ECTION 4.1. COMPENSATION OF D IRECTORS , O FFICERS AND COMMITTEE MEMBERS . 15S ECTION 4.2. D EALINGS OF D IRECTORS , OFFICERS AND COMMITTEE MEMBERS 15S ECTION 4.3. LIABILITY OF D IRECTORS , O FFICERS AND COMMITTEE MEMBERS 16S ECTION 4.4. BONDS OF ACCOUNTABLE O FFICERS AND EMPLOYEES . 17

ARTICLE 5. REPORTORIAL REQUIREMENTS 17

S ECTION 5.1. REQUIRED REPORTS . 17 S ECTION 5.2. AUTHORIZED SIGNATORIES . 17 S ECTION 5.3. MANNER OF FILING . 17 S ECTION 5.4. REPORT ON CRIME / LOSSES . 17

Manual of Rules and Regulations for SCCs 1


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ARTICLE 6. CAPITALIZATION 20

S ECTION 6.1. D EFINITION OF NET W ORTH . 20 S ECTION 6.2. N ET W ORTH -TO-RISK ASSETS RATIO . 20 S ECTION 6.3. PROMPT CORRECTIVE ACTION . 21 S ECTION 6.4. REHABILITATION PLAN . 21 S ECTION 6.5. PERIOD TO CORRECT CAPITAL DEFICIENCY . 21 S ECTION 6.6. RESTRICTIONS FOR UNDERCAPITALIZED SCC S: 21 S ECTION 6.7. ACTION REQUIRED FOR CRITICALLY UNDERCAPITALIZED SCC S. 21S ECTION 6.8. INSOLVENCY OF SCC S. 22

ARTICLE 7. DEPOSIT AND BORROWING OPERATIONS 24

S ECTION 7.1. M INIMUM DEPOSIT . 24 S ECTION 7.2. O PENING AND OPERATION OF DEPOSIT ACCOUNTS . 24 S ECTION 7.3. D EPOSITS OF CHECKS AND OTHER CASH ITEMS . 25 S ECTION 7.4. PAYMENT OF INTEREST ON TIME D EPOSITS . 25 S ECTION 7.5. W ITHDRAWAL OF DEPOSITS . 25 S ECTION 7.6. D ORMANT SAVINGS DEPOSIT . 26 S ECTION 7.7. MATURED TIME D EPOSITS . 26 S ECTION 7.8. TAX ON INTEREST ON DEPOSITS . 26 S ECTION 7.9. RESERVE REQUIREMENTS AGAINST D EPOSIT LIABILITIES 26 S ECTION 7.10. BORROWINGS . 26

ARTICLE 8. LOANS AND INVESTMENT 27

S ECTION 8.1. FINANCIAL SERVICE . 27 S ECTION 8.2.

LENDING

POLICIES

. 27 S ECTION 8.3. BASIS IN THE GRANT OF LOANS . 27 S ECTION 8.4. LENDING REQUIREMENTS 27 S ECTION 8.5. LOAN COLLECTION . 28 S ECTION 8.6. LOAN RETENTION SAVING SCHEME . 28 S ECTION 8.7. SALARY DEDUCTIONS FOR LOAN REPAYMENT . 28 S ECTION 8.8. INTEREST AND OTHER CHARGES . 29 S ECTION 8.9. SECURED LOANS 29 S ECTION 8.10. UNSECURED LOANS . 31 S ECTION 8.11. RESTRICTION ON D IRECTORS , OFFICERS AND COMMITTEE MEMBERS . 32S ECTION 8.12. LOAN LIMITS /M ATURITY OF LOANS . 32 S ECTION 8.13. D EPOSITS IN BANKS . 32 S ECTION 8.14. LOANS /CREDIT ACCOMMODATIONS TO D IRECTORS , OFFICERS AND THEIR

RELATED INTERESTS (DORI) 32 S ECTION 8.15. SANCTIONS . 33 S ECTION 8.16. SUBMISSION OF CREDIT INFORMATION TO A CREDIT BUREAU . 33S ECTION 8.17. PAST D UE ACCOUNTS . 33 S ECTION 8.18. LOAN PORTFOLIO AND O THER RISK ASSETS REVIEW SYSTEM . 34S ECTION 8.19. BOOKED ALLOWANCE FOR PROBABLE LOSSES ON LOANS (APLL) WHILE THE

ACCOUNT IS IN THE NON -PERFORMING PORTFOLIO . 34



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S ECTION 8.20. EXTENSION /RENEWAL OF LOANS . 35 S ECTION 8.21. W RITE -OFF OF LOANS AS BAD DEBTS . 35 S ECTION 8.22. T RUTH IN LENDING ACT D ISCLOSURE REQUIREMENTS . 35 S ECTION 8.23. TREATMENT OF ASSETS ACQUIRED IN SETTLEMENT OF LOANS 35S ECTION 8.24. APPRAISAL OF PROPERTIES TO BE FORECLOSED OR ACQUIRED . 36S ECTION 8.25. INVESTMENTS . 36 S ECTION 8.26. INVESTMENT PROGRAM . 36 S ECTION 8.27. ALLOWABLE INVESTMENTS . 37 S ECTION 8.28. CEILING ON SCC INVESTMENTS . 37

ARTICLE 9. INTERNAL CONTROL 38

S ECTION 9.1. D EFINITION OF INTERNAL CONTROL . 38 S ECTION 9.2. COMPONENTS OF INTERNAL CONTROL 38 S ECTION 9.3. INTERNAL CONTROL STANDARDS . 38 S ECTION 9.4. INDEPENDENCE OF THE INTERNAL AUDITOR 47 S ECTION 9.5. EXTERNAL AUDITOR 47 S ECTION 9.6. D ISCLOSURE OF EXTERNAL AUDITOR S ADVERSE FINDINGS . 48 S ECTION 9.7. M ISCELLANEOUS PROVISIONS ON INTERNAL CONTROL 48 S ECTION 9.8. O THER INTERNAL CONTROL PRINCIPLES 49 S ECTION 9.9. STANDARD AUDIT SYSTEM FOR COOPERATIVES (SASC). 51

ARTICLE 10. PERFORMANCE STANDARDS FOR SCCS (COOP-PESOS) 52

S ECTION 10.1. FINANCIAL TRANSPARENCY 52 S ECTION 10.2. PERFORMANCE STANDARDS 53 S ECTION 10.3. COMPUTATION OF COOP-PESOS 55 S ECTION 10.4. O VERALL RATING . 55

ARTICLE 11. MISCELLANEOUS 56

S ECTION 11.1. CONFIDENTIAL INFORMATION . 56 S ECTION 11.2. COOPERATIVE PREMISES AND PROPERTY AND EQUIPMENT . 56 S ECTION 11.3. BRANCHING . 58 S ECTION 11.4. SATELLITE O FFICES . 59 S ECTION 11.5. SUPERVISION AND EXAMINATION OF SCC S 59

ARTICLE 12. GENERAL PROVISIONS ON SANCTIONS 60

S ECTION 12.1. SANCTIONS . 60 S ECTION 12.2. D EFINITION OF UNSAFE OR UNSOUND PRACTICE . 60 S ECTION 12.3. MONETARY PENALTY . 60 S ECTION 12.4. REMOVAL FROM O FFICE OF ERRING D IRECTORS AND OFFICERS 61S ECTION 12.5. PROHIBITION AND SUSPENSION 63 S ECTION 12.6. CEASE AND DESIST ORDER 64

ARTICLE 13. TRANSITORY PROVISIONS 67



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S ECTION 13.1. TRANSITORY PROVISIONS . 67 S ECTION 13.2. REPEALING CLAUSE . 67 S ECTION 13.3. EFFECTIVITY . 67



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MANUAL OF RULES AND REGULATIONS FOR SAVINGSAND CREDIT COOPERATIVES (SCCs)

IN THE PHILIPPINES

INTRODUCTION

It is the declared policy of the State under R.A. 6938 (An Act to Ordain A Cooperative Code of thePhilippines) to foster the creation and growth of cooperatives as a practical vehicle for promotingself-reliance and harnessing people power towards the attainment of economic development andsocial justice.

Credit cooperatives and other types of cooperatives with lending activities have establishedthemselves to be effective vehicles in the improvement of the social and economic conditions of theirmembers, particularly those in the countryside. By providing their members access to financialservices including savings, cooperatives have encouraged thrift and opened opportunities to the poorthat other formal financial institutions may not be willing to provide.

As government veers away from direct intervention in the provision of financial services, the need tofurther develop and strengthen cooperatives into viable and sustainable financial institutionsbecomes more apparent. Safe and sound operations of cooperatives will have to be ensured in orderto protect the investments and savings of their members. With strong credit cooperatives operatingin a viable and efficient manner, creative and innovative loan products and financial services suitedto the needs of the poor will continuously be offered and enhanced. By providing greater access toquality financial products and services, cooperatives with savings and credit activities can greatlycontribute to the improvement of the lives and welfare of their constituents.

Recognizing these realities, the Cooperative Development Authority (hereinafter referred to as theAuthority) has resolved to put in place measures to develop and strengthen cooperatives. Theseinclude, among others, the establishment of an effective regulatory and supervisory environment forcredit and savings cooperatives. The Authority in collaboration with the National Credit Council(NCC)-Department of Finance (DOF), the Bangko Sentral Ng Pilipinas (BSP), other relevantgovernment agencies and the major federations of cooperatives have initiated work towards this end.Following the establishment of the Standard Chart of Accounts (SCA), the performance standards forcredit cooperatives (COOP-PESOS), and the adoption of the framework for effective regulation andsupervision of credit and other types of cooperatives with credit services, this Manual of Rules andRegulations was developed.The rules and regulations set forth in this Manual and the attached Appendices will provide creditcooperatives specific guidelines for the safe and sound conduct of their operations and for thedevelopment and strengthening of their respective institutions. It shall be the comprehensiveauthority on the rules and regulations to implement the provisions of RA 6938 and RA 6939 and otherexisting laws that will govern the operations of cooperatives with savings and credit operations.Any changes or amendments to the laws, circulars or issuance, shall subsequently be integrated and

form part of the affected sections or subsections of this Manual while repealed rules shall thenceforthbe deleted so that the user of this Manual shall no longer refer to a separate issuance, e.g., circular,memorandum, but shall instead cite the particular section or subsections of the manual, including itsappendices.

As a code of regulations, the manual contains the basic features of division into parts furthersubdivided into major type of headings, which introduce the corresponding sections and subsectionsthat will make up the provisions governing the operations and activities of SCCs subject to the



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related regulations. Parts and major topic headings as well as coded section numbers and headingsare made uniform for all the groups of regulations.

This manual is useful for both the supervisory and regulatory authorities, and the Management ofSCCs themselves. The performance indicators and standards established herein shall ensure that theSCCs have the financial discipline for the safety and soundness of the institution. In the end, this will

result in stronger, viable and sustainable SCCs with greater public trust and confidence.

ARTICLE 1. SCOPE AND LIMITATIONS

Section 1.1. Coverage

1.1.1.

1.1.2.

1.1.3.

1.2.1.

With Minimum Paid-In Capitalization. All prospective and duly registeredcooperatives with a minimum paid-in capitalization of TWO MILLION ANDFIVE HUNDRED MILLION PESOS (P2,500,000) that intends to or will continue toengage in savings and credit activities beyond the effectivity of this Manual, arehereby required to apply for a License to Operate as a Savings and CreditCooperative ( hereinafter referred to as SCC ), subject to the herein rules andregulations.

With Less Than Minimum Paid-In Capitalization. Cooperatives with a paid-incapitalization of less than P2.5 million shall not be covered by these rules andregulations, PROVIDED, THAT, all other existing applicable laws, circulars,issuances, and rules and regulations shall apply, and PROVIDED, FURTHER, thatas soon as the minimum capitalization of P2.5 million has been reached, the rulesand regulations provided herein shall apply.

Not Engaging in Credit Activities. Duly registered cooperatives with a paid-incapitalization of P2.5 million and above, that do not apply or have been deniedthe License to Operate as a SCC, shall immediately terminate and cease fromengaging in any credit activity within one (1) year from the date of effectivity ofthis Manual; PROVIDED, THAT, cooperatives without a License to Operate as aSCC may continue to engage in their savings activity in support of other businessactivities as approved by the Authority, and PROVIDED, FURTHER, thatcooperatives previously allowed to engage in credit operations but did not applyor was denied the License, shall immediately amend their Articles of Cooperationand By-laws to reflect such changes, to be submitted to and subsequentlyapproved by the Authority.

Section 1.2. Definition of Terms

For purposes of this Manual, the terms defined in the General Guidelines, Rules andRegulations for the Registration and Operation of Cooperatives and those enumeratedbelow shall apply:

Credit accommodation includes borrowings of members and advances made byofficers and employees;



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1.2.2.

1.2.3.

1.2.4.

1.2.5.

1.2.6.

1.2.7.

1.2.8.

2.2.1.

Debentures are serial obligations or notes issued on the basis of the general creditof the corporation, since they are not secured by the corporation property, theyare not bonds under Section 38 (Corporation Code, De Leon)

Loans in Litigation are total collectibles from past due loans under legal action.

Loans restructured are past due loans whose terms and conditions have beenmodified, extended or renewed after full payment of interest/surcharges duethereon. Items in litigation and loans subject of judicially approved compromise,as well as those covered by petitions for suspension or a new plan of paymentapproved by the court, shall not be classified as restructured loans.

Loans shall include all types of credit accommodations granted to the borrower.

Past due accounts shall refer to loan accounts where one amortization/installmenthas not been paid on the due date.

Savings deposits are deposits made by members evidenced by a passbook or anyother equivalent financial document consisting of funds deposited to the credit ofone (1) or more members that can be withdrawn anytime at the option of themember-depositor.

Time deposits are deposits made by the members over a specified period of time asevidenced by a time deposit certificate or any other equivalent financialinstrument that provides on its face that the amount of such deposit iswithdrawable at a predetermined date.

ARTICLE 2.

ORGANIZATION OF SCCsSection 2.1. Definition of Savings and Credit Cooperative (SCC) . SCCs are duly registered

cooperatives licensed to operate as a financial entity with savings and creditoperations that are owned and operated by its members with the followingobjectives:

Encouraging thrift and savings among its members; Creating a pool of such savings for which loans for productive or provident

purposes maybe granted to its members; and Providing related financial services to enable its members to maximize the

benefit from such services.

Section 2.2. Minimum Requirements. Cooperatives covered under Article 1, Section 1.1.1above are required to apply for a License to Operate as a SCC and submit to theAuthority, a resolution of the Board of Directors indicating its approval of thefollowing:

Savings and credit operations shall be a primary function of the Cooperative; and



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2.2.2.

2.2.2.1.

2.2.2.2.

2.2.2.3.

2.3.1.

2.3.2.

2.4.1.

2.4.2.

2.4.3.

2.4.3.1.

2.4.3.2.

2.4.3.3.

A minimum amount of TWO MILLION AND FIVE HUNDRED THOUSANDPESOS (P2,500,000.00) of the cooperatives paid-in capitalization shall beexclusively allocated for its savings and credit operations. For this purpose, thefollowing additional documents shall be submitted to the Authority:

In the case of a new cooperative, a Depository Bank Certificate of depositsof the cooperatives paid-in capital allotted for this purpose;

In the case of existing cooperative, the financial statement indicating theP2.5 million capital allocated for savings and credit operations with theaccompanying schedule;

Duly notarized Treasurers Affidavit indicating that at least P2.5 Millionof the paid-in capital has been allocated.

Section 2.3. Provisional License to Operate

Upon submission to and approval by the Authority of the minimum requirementsin Section 2.1.2, the applicant cooperative shall be granted a provisional license tooperate as SCC.

The provisional license shall be valid for a maximum of one (1) year within whichthe License to Operate shall have been issued by the CDA. Otherwise, theprovisional license shall be automatically revoked and deemed null and void,unless extended by the CDA.

Section 2.4. Requirements for Regular License. Within one (1) year from receipt of theprovisional license to operate, the applicant cooperative shall:

Establish the business site which shall be equipped with facilities, furniture, formsand stationery, and vault of reinforced concrete with a steel two-hour fireresistant door and equipped with time delay device, in accordance with standardspecifications;

Effect and complete the training/seminar of directors and officers of thecooperative as hereby required;

At least thirty (30) days prior to the start of operations, the cooperative shallsubmit the following requirements:

Amended Articles of Cooperation and By-laws;

Request for ocular inspection of the premises at least thirty (30) daysbefore the scheduled date of operations;

Certificates of training/seminar of officers and employees on cooperative



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management by accredited federation/union;

2.4.3.4.

2.4.3.5.

2.4.3.6.

2.4.3.7.

2.4.3.8.

2.4.3.9.

2.4.3.10.

2.4.3.11.

2.4.3.12.

2.4.3.13.

2.4.3.14.

2.4.3.15.

2.4.3.16.

Certificates of attendance of the special seminar on financialintermediation and good governance for Members of the Board ofDirectors conducted by Bangko Sentral ng Pilipinas (BSP) or its accreditedinstitutions;

List of management officers and their respective designations andsalaries;

Biodata sheets, National Bureau of Investigation (NBI) and Bureau ofInternal Revenue (BIR) clearances, statement of assets and liabilities,income tax returns and statement of income and expenses for the lastthree (3) years of directors/officers who have not had the previousapproval of the Authority for evaluation of their qualifications prior toassumption of office;

Chart of Organization. (The chart shall show the names ofdepartments/units/offices with their respective functions andresponsibilities, and the designations of positions in eachdepartment/unit/office with their respective duties and responsibilities);

Manual of Operations embodying the policies and operating procedures;

Pro-forma (two (2) sets) of accounting and other forms in conformity withthe Standard Chart of Accounts (SCA) and Accounting Manual;

Copy of Contract for the use of the SCCs premises;

Copy of the insurance coverage of the SCC office and premises;

Copy of the Bonds of accountable officers/employees. This may beexecuted in the form of an insurance bond (such as fidelity, surety, orguarantee bond), cash bond or real estate bond.

Excerpts of the minutes of meetings confirming all transactions relative toactivities undertaken to prepare the cooperative to operate as SCC (e.g.appointment of officers, contract of lease, etc);

An alphabetical list of regular and associate members with the numberand percentage of the amount of share capital subscribed, paid and

unpaid;

A separate list containing the names of members who are related to eachother within the 3 rd degree of consanguinity or affinity;

Certification by the Chairman of the Board that no person who is thespouse or relative within the 2 nd degree of consanguinity or affinity of anyperson holding the position of Chairman, General Manager, Treasurer,Chief Cashier or Chief Accountant or any position of equivalent rank will



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be appointed to any of said positions in the SCC;

2.4.3.17.

2.4.3.18.

2.8.1.

2.8.2.

2.8.3.

Appointment of officer of the registered SCC who shall have undergoneorientation on the reportorial requirements with the AUTHORITY and acertification by the Manager that he is fully aware of said reportorialrequirements and the respective deadlines for submission to theAUTHORITY; and

Other documents/papers which may be required by the Authority.

Section 2.5. Issuance of License to Operate. Within sixty (60) days from submission and fullcompliance of the mandatory requirements specified under this Section, theAuthority shall issue to the applicant cooperative the License to Operate as aSavings and SCC.

Section 2.6. Validity of Contracts. Contracts executed between and among private personsand the cooperative prior to the issuance by the Authority of the License toOperate shall remain valid and binding between the concerned parties. A formalwritten contract shall be entered into by the contracting parties and made in theSCC's name or on its behalf.

Section 2.7. Business Name. Duly registered cooperatives organized and operating underR.A. 6938 and granted license by the Authority shall include in their names theterm Savings and SCC. Such cooperative shall display at their business offices asign including, among other things, the following words: Licensed by theCooperative Development Authority.

Section 2.8. Prohibitions.

No person, juridical or natural, shall do business or hold itself out as doingbusiness as a savings and SCC, or shall use the term Savings and SCC or anyother title or name tending to give the public impression that it is engaged in thesavings and credit operations and activities unless licensed by the CDA.

The use of savings and SCCs of any other name or title or combination of namesand titles or any other deviation from the requirements of this section shall not bemade except upon prior authorization by the CDA.

SCCs shall not advertise nor represent itself to its members or to the public as abank or a quasi-bank.

Section 2.9. Suspension, Cancellation or Revocation of License . The CDA may suspend,cancel or revoke, after due notice and hearing, the License to Operate as SCC onany violation or non-compliance of the provisions of this Manual, the Code,circulars and issuances of the CDA.

ARTICLE 3. MANAGEMENT



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Section 3.1. Officers of the SCC. The Officers of the SCC shall be comprised of the membersof the Board of Directors, and key management officers.

Section 3.2. Board of Directors. In addition to the provision of Section 6.02 of the GeneralGuidelines on the Registration and Operations of Cooperatives provided for inAppendix A , at least one (1) of the members of the Board of Directors must have,in addition to the minimum qualifications prescribed in this Manual, at least one(1) year experience in banking or credit cooperative operations.

3.2.1.

3.2.2.

3.2.2.1.

3.2.2.2.

3.2.2.3.

3.2.2.4.

3.2.3.

3.2.3.1.

3.2.3.1.1.

3.2.3.1.2.

Qualifications and Disqualifications of BOD . Persons elected or appointed asofficers of SCCs without the qualifications or possessing any of thedisqualifications as enumerated hereunder shall vacate their respective positionsimmediately.

Minimum Qualifications of a SCC Board Director.

At least twenty-five (25) years of age at the time of his/her election orappointment;

At least college level or have at least three (3) years experience inbusiness;

Must be fit and proper for the position of a director of the cooperative. Indetermining whether a person is fit and proper for the position of adirector, the following must be considered:

Cooperative Values as defined in the International CooperativeAlliance (ICA);

Competence; Education; Diligence; and Experience/ training.

Must be member in good standing for at least two (2) consecutive yearsprior to election, except in the case of newly registered SCC.

Grounds for Disqualification of a SCC Board Director . Without prejudice tospecific provisions of law prescribing disqualifications for Board directors, thefollowing members are disqualified from becoming directors:

Permanently disqualified:

Persons who have been convicted by final judgment of the court foroffenses involving dishonesty or breach of trust, such as estafa,embezzlement, extortion, forgery, malversation, swindling and theft;

Persons who have been convicted by final judgment of the court forviolation of banking and cooperative laws; or



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3.2.3.1.3.

3.2.3.2.

3.2.3.2.1.

3.2.3.2.2.

3.2.3.2.3.

3.2.3.2.4.

Persons who have been judicially declared insolvent, spendthrift,insane or incapacitated to contract.

Temporarily disqualified:

Persons who refuse to fully disclose the extent of their businessinterest to the Authority when required. This disqualification shall bein effect as long as the refusal persists;

Persons who have business directly competing with the cooperativebusiness, until such time that such persons have divested theirinterests in and/or have disengaged from said business;

Directors who have been absent or who have not participated duringtheir incumbency, in three (3) consecutive meetings or in more thanfifty percent (50%) of all meetings within a twelve (12) month period,both regular and special, unless with valid excuse as approved by theBoard of Directors. This disqualification shall be applied immediatelyand for the succeeding election;

Persons who are delinquent in the payment of their obligations asdefined hereunder:

3.2.3.2.4.1. Obligations with the cooperative where he/she is a director orofficer or at least two obligations with othercooperatives/financial institutions.

3.2.3.2.4.2. Obligations from a SCC/bank/quasi-bank or another cooperativeobtained by:

3.2.3.2.4.2.1. A director or officer for his own account or as therepresentative or agent of others or where he/she acts asguarantor, endorser or surety for loans from such financialinstitutions;

3.2.3.2.4.2.2. The spouse or child under the parental authority of thedirector or officer;

3.2.3.2.4.2.3. Any person whose borrowings or loan proceeds werecredited to the account of, or used for the benefit of a director orofficer;

3.2.3.2.4.2.4. A partnership of which a director or officer, or his/herspouse is the managing partner or a general partner owning acontrolling interest in the partnership; and

3.2.3.2.4.2.5. A corporation, association or firm wholly-owned or majorityof the capital of which is owned by any or a group of personsmentioned in the foregoing items I), ii), and iv). This



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disqualification shall be in effect as long as the delinquencypersists.

3.2.3.2.5.

3.2.3.2.6.

3.2.3.2.7.

3.2.3.2.8.

3.2.3.2.9.

3.2.3.2.10.

3.2.3.2.11.

3.2.4.

3.3.1.

3.3.1.1.

Persons convicted for offenses involving dishonesty, breach of trust orviolation of cooperative/banking laws but whose conviction has notyet become final and executory;

Directors and officers of closed cooperatives/banks/quasi-banks/trust entities pending their clearance by the Authority orMonetary Board;

Directors disqualified for failure to observe/discharge their duties andresponsibilities prescribed under existing regulations;

Directors who failed to attend the special seminar required for boardof directors. This disqualification applies until the director concernedhad attended such seminar;

Persons dismissed/terminated from employment for cause. Thisdisqualification shall be in effect until they have cleared themselves ofinvolvement in the alleged irregularity;

Those under preventive suspension; or

Persons with derogatory records with the National Bureau ofInvestigation (NBI), court, police, Interpol and monetary authority(central bank) of other countries involving violation of any law, rule orregulation of the Government or any of its instrumentalities adverselyaffecting the integrity and/or ability to discharge the duties of acooperative/bank/quasi-bank/trust entity director/ officer. Thisdisqualification applies until they have cleared themselves ofinvolvement in the alleged irregularity.

Additional Qualifications/Disqualifications. The foregoingqualifications/disqualifications for directors shall be in addition to those alreadyrequired or prescribed under existing laws or By-laws.

Section 3.3. Key Management Officers. The key management officers of a cooperative mayeither be elected or appointed by the General Assembly/Board and shall includebut not be limited to the:

General Manager/Chief Executive Officer; Treasurer, Accountant; and Committee Members.

Qualifications for Key Management Officers.

At least twenty-one (21) years of age;



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3.3.1.2.

3.3.1.3.

3.3.1.4.

3.3.1.5.

3.3.1.6.

3.3.2.

3.3.2.1.

3.3.2.2.

3.3.2.3.

3.4.1.

3.4.1.1.

3.4.1.2.

At least a college graduate;

Have at least three (3) years of experience in operations or relatedactivities or in a field related to his/her position and responsibilities;

Have undergone training in SCC/banking operations acceptable to theBSP/AUTHORITY or will undergo said training within six (6) monthsupon assumption of office; and

Must be fit and proper for the position he/she is beingproposed/appointed to, as indicated in Section 3.2.2.3 above.

The foregoing qualifications for officers shall be in addition to thosealready required or prescribed under existing laws and the SCCs By-laws.

Disqualification of Management Officers . The following grounds for

disqualification shall apply to officers in addition to those already required orprescribed under existing laws, By-laws and the grounds for disqualification ofdirectors, except that stated in Section 2.02 (E)(2)(iii) and (viii) hereto:

The spouse or a relative within the second degree of consanguinity oraffinity of any person holding the position of Board of Directors andmanagement officers;

The spouse or relative within the second degree of consanguinity oraffinity of any person holding the position of Manager, Cashier, orAccountant of a branch or office of a cooperative is disqualified fromholding or being appointed to any of said positions in the same branch or

office; and

Any officer or employee of the CDA or any appointive or elective publicofficial, except a barangay official.

Section 3.4. Committees. The SCC by-laws shall provide for the creation and establishment ofthe following committees:

Audit; Credit; Election; Education/Training and Membership;

Ethics, Mediation and Conciliation; and Other committees necessary for the proper conduct of the affairs of the SCC.

Appointment/Election of Committee Members

Members of the Committees shall be elected during the holding of aGeneral Assembly or appointed by the Board.

The Board shall appoint from among themselves, other than the



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Chairman, the Chairperson of the Education/Training and Membershipcommittee.

3.4.1.3.

4.2.1.1.

4.2.1.2.

4.2.1.2.1.

4.2.1.2.2.

Unless otherwise provided in the by-laws, the Board, in case of vacancyin said committees, may cause an election to fill the vacancy or appoint aperson to fill the same subject to the provision that the person elected orappointed shall serve only for the unexpired portion of the term.

Section 3.5. Training of Directors and Officers . Directors and officers of the SCC shall berequired to undergo continuous training at an accredited organization of the BSPand/or Authority.

Section 3.6. Functions and Responsibilities. The functions and responsibilities of the officersand members of various committees shall be those as prescribed in the SCCs by-laws. (These functions are shown in Appendix E .)

ARTICLE 4. GOVERNANCE

Section 4.1. Compensation of Directors, Officers and Committee Members. The Board ofDirectors/committee members shall not receive any form of compensation otherthan reasonable per diem as set by the General Assembly. Provided, thatpayment of per diem shall not exceed two (2) meetings in a month; Providedfurther, that only per diems shall be paid during the first year of existence of thecooperative. In succeeding years, additional compensation maybe granted todirectors/committee members; provided that such additional compensation shallbe approved by a majority of the members with voting rights at a regular orspecial general assembly meeting. The By-laws shall specify the process by whichthe compensation of officers shall be determined.

Section 4.2. Dealings of Directors, Officers and Committee Members

At the option of the Cooperative, a contract of the cooperative with one(1) or more of its directors, officers or committee members may bedeemed valid and binding should all the following conditions arepresent:

That the presence of such director in the board meeting in which thecontract was approved was not necessary to constitute a quorum for suchmeeting;

That the vote of such director was not necessary for the approval ofthe contract;

That the contract is fair and reasonable under the circumstances; and



16/67


4.2.1.2.3.

4.2.1.2.4.

4.3.1.

4.3.2.

4.3.3.

4.3.4.

4.3.4.1.

4.3.4.2.

That in the case of an officer or committee member, the contract withthe officer or committee member has been previously authorized bythe General Assembly or by the Board.

Where any of the first two conditions set forth in the precedingparagraph is absent in the case of a contract with a director, suchcontract may be ratified by two-thirds (2/3) vote of all the memberswith voting rights in a meeting called for the purpose: Provided, Thatfull disclosure of the adverse interest of the directors involved is madeat such meeting, and that the contract is fair and reasonable under thecircumstances.

Section 4.3. Liability of Directors, Officers and Committee Members

Directors, officers and committee members, who willfully and knowingly vote foror consents to patently unlawful acts, or who are guilty of gross negligence or badfaith in directing the affairs of the cooperative, or acquire any personal orpecuniary interest in conflict with their duty as such directors, officers orcommittee member, shall be liable jointly and severally to the SCC for the fullamount of damages or personal gain resulting therefrom.

Directors, officers or committee members who, by virtue of his office, acquires forhimself an opportunity which should belong to the cooperative, shall be liable fordamages and must account for double the profits that otherwise would haveaccrued to the cooperative by refunding the same, unless his act has been ratifiedby a two-thirds (2/3) vote of all the members with voting rights. This provisionshall be applicable, notwithstanding the fact that the director used his own fundsin the venture.

Directors, officers or committee members who attempt to acquire or acquire, inviolation of his duty, any interest or equity adverse to the cooperative withrespect to any matter which has been reposed in him in confidence, he shall, as atrustee for the cooperative, be personally liable for damages and for twice theprofits which otherwise would have accrued to the cooperative.

Directors, officers, or committee members, or their associates 1 who, make use ofor disclose confidential information on the operation of a cooperative, thatincludes, among other things, transaction relating to shares or a debt obligationfor his benefit or advantage or that of an associate, that, if generally known, mightreasonably be expected to adversely and materially affect the condition of theSCC shall be held:

Liable to compensate any person for a direct loss suffered by that personunless such information was known or reasonably should have beenknown to the person at the time of the transaction; and

Accountable to the cooperative for any direct benefit or advantage

1 Associate as referred in this Section shall refer to any person connected or has joined such directorsand officers in a common purpose or to partake or share in a common design of making use of confidential information prejudicial to the condition of the cooperative



17/67


received or yet to be received by him or his associate, as a result of thetransaction.

4.3.4.3.

4.4.1.

4.4.2.

5.2.1.

5.2.2.

5.4.1.

The cooperative shall take all the necessary steps and measures to enforcethe liabilities described in this section.

Section 4.4. Bonds of Accountable Officers and Employees.

Every officer or employee handling funds, securities or property on behalf of acooperative shall, before performing such duties, execute and deliver adequateand appropriate bonds for the faithful performance of his duties and obligations,and provide indemnity to the cooperative against the loss of money or securitiesby reason of their dishonesty or gross negligence. The board of directors shalldetermine the adequacy of such bonds.

The bond of the cashier, assistant cashier, treasurer and other employees havingmoney accountability shall not be less than their average daily accountability forimmediately preceding a three (3) month period. The bond must be issued by areputable bonding company duly licensed by the Insurance Commission. Capitalcontribution or a cash bond deposited with the SCC or with a bank may also beallowed.

ARTICLE 5. REPORTORIAL REQUIREMENTS

Section 5.1. Required Reports. SCCs shall regularly submit to the Authority the requiredreports listed in Appendix G of this Manual.

Section 5.2. Authorized Signatories.

Appendix H provides the guidelines on the prescribed report signatories for eachreport category and the requirements on signatory authorization. Reportssubmitted electronically shall be subject to the same requirements.

A report submitted under the signature of an officer who is not authorized inaccordance with the requirements in this subsection shall be considered as nothaving been submitted.

Section 5.3. Manner of filing. Reports shall be submitted personally to the Authority, or viaregistered mail or special delivery through couriers .

Section 5.4. Report on crime/losses. SCCs shall report to the Authority the following:

Crimes whether consummated, frustrated or attempted against property/facilities(such as robbery, theft, swindling or estafa, forgery and other deceits) and othercrimes involving loss/destruction of the cooperative property when the amountinvolved, in each crime is P20,000 or more.



18/67


5.4.2.

5.4.3.

5.4.4.

5.4.4.1.

5.4.4.2.

5.4.4.3.

5.5.1.

5.5.1.1.

5.5.1.2.

5.5.1.3.

Crimes involving officers and employees, regardless of whether or not suchcrimes involve the loss/destruction of cooperative property, even if the amountinvolved is less than P20,000 shall likewise be reported to the Authority.

Incidents involving material loss, destruction or damage to the cooperativeproperty/facilities, other than arising from a crime, when the amount involvedper incident is P100,000 or more.

The following guidelines shall be observed in the preparation and submission ofthe report on crime/loss:

The report shall be prepared in the prescribed form as shown inAppendix G in two (2) copies and shall be submitted to the Authoritywithin five (5) days from the knowledge of the crime or incident;

Where a thorough investigation and evaluation of facts is necessary tocomplete the report, an initial report submitted within the deadline maybe accepted: Provided, that a complete report is submitted not later thanfifteen (15) business days from termination of investigation; and

Proof of submission of the report within the deadline shall be determinedby the date of postmark, if the report was sent by mail or by the datereceived, if hand-carried to the Authority.

Section 5.5. Sanctions for willful delay in submission of reports/refusal to permitexamination.

Definition of terms . For purposes of this subsection, the following definitionsshall apply:

Reports shall refer to any reports or statement required of SCCs to besubmitted to the Authority periodically or within a specified period.

Willful delay in the submission of reports shall refer to the failure of SCCs tosubmit a report on time. Failure to submit a report on time due tofortuitous events, such as fire and other natural calamities, systembreakdown and public disorders, including strike or lockout affecting theSCCs as defined in the Labor Code or a national emergency affecting theoperations of SCCs shall not be considered as willful delay.

Examination shall include, but need not be limited to, the verification,

review, investigation and inspection of the books and records, businessaffairs, administration and financial condition of any SCC including thereproduction of its records as well as the taking possession of the booksand records and keeping them under the AUTHORITY and/or deputizedsupervisor custody after giving proper receipt therefore. It shall alsoinclude the interview of the directors and personnel of the SCC includingits Electronic Data Processing (EDP) service provider. Books and recordsshall include, but not limited to data and information stored in magnetictapes, disks, printouts, logbooks and manual kept and maintained by the



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SCC or the EDP service provider, necessary and incidental to the use ofEDP systems by the SCCs.

5.5.1.3.1.

5.5.2.

5.5.2.1.

5.5.2.2.

5.5.2.3.

5.5.2.4.

5.5.3.

5.5.3.1.

5.5.3.2.

5.5.3.3.

5.5.4.

Refusal to permit examination shall mean any act or omission whichimpedes, delays, or obstructs the duly authorized examiner fromconducting an examination, including the act of refusing to accept orhonor a letter of authority to examine presented by the Authority.

Fines for willful delay in submission of reports .

SCCs incurring willful delay in the submission of required reports (A1and A2) shall pay a fine of P100.00 per report per business day of default.

Delay or default shall start to run on the day following the last dayrequired for the submission of reports. However, should the last day offiling fall on a non-working day in the locality where the reporting SCC issituated, delay or default shall start to run on the day following the nextworking day.

For the purpose of establishing delay or default, the date ofacknowledgement by the Authority appearing on the copies of suchreports filed or submitted or the date of mailing postmarked on theenvelope/the date of registry or special delivery receipt, as the case maybe, shall be considered as the date of filing.

Delayed schedules or attachments and amendments shall be consideredlate reporting subject to the above penalties.

Fines for refusal to permit examination.

Any SCC which shall willfully refuse to permit examination shall pay afine of P3,000.00 daily from the day of refusal and for as long as suchrefusal lasts.

The duly authorized examiner shall report to the Authority, who shallforthwith make a written demand upon the SCC concerned for suchexamination. If the SCC continues to refuse said examination withoutany satisfactory explanation therefor, the duly authorized examiner shallsubmit a report to the Authority.

The fine shall be imposed starting on the day following the receipt by the

said Authority of the written report submitted by the duly authorizedexaminer concerned regarding the continued refusal of the SCC to permitthe desired examination. A copy of the said report shall be provided tothe SCC. Transfer to the table of Sanctions

Manner of payment or collection of fines .



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5.5.4.1.

5.5.4.2.

5.5.5.

5.5.6.

6.2.1.

6.2.2.

6.2.3.

6.2.4.

6.2.5.

6.2.6.

6.2.7.

SCCs shall, within thirty (30) calendar days from receipt of the statementof account from Authority, pay the fines imposed;

Failure to settle the full amount of the fines within the period or on theday prescribed herein shall be subject to additional penalties, fines andsurcharges as provided for in the Table of General Sanctions.

Other penalties. The imposition of the penalties shall be without prejudice tothe imposition of other administrative sanctions and to the filing of a criminalcase as provided for in other provisions of law.

Appeal to the AUTHORITY . SCCs may request for a reconsideration of theimposition of sanctions to the CDA within thirty (30) calendar days upon receiptof notice. The Board of Administrators of the Authority shall, upon receipt of therequest for reconsideration, act within sixty (60) calendar days, otherwise theimposition of sanctions shall be deemed lifted. The decision of the Board ofAdministrators shall be final and executory.

ARTICLE 6. CAPITALIZATION

Section 6.1. Definition of Net Worth. The term net worth shall refer to equity inclusive ofmembers equity, donations/grants and reserve funds less unbooked allowancefor probable losses on loans, investments and other assets and other capitaladjustments as may be required by the CDA.

Section 6.2. Net Worth-To-Risk Assets Ratio . The net worth of a SCCSCC shall at all timesnot be less than an amount equal to eight percent (8%) of its risk assets which isdefined as its total assets minus the following assets:

Cash on hand;

Evidences of indebtedness of the Republic of the Philippines and of the BSP, andother evidences of indebtedness or obligations the servicing and repayment ofwhich are fully guaranteed by the Republic of the Philippines;

Loans to the extent covered by hold-outs on, or assignments of, depositsmaintained in the SCC and held in the Philippines;

Land owned by the SCC used for operations;

Building and land improvements, net of depreciation;

Furniture, fixtures and equipment, net of depreciation;

Real estate mortgage loans insured by the Home Insurance GuaranteeCorporation (HIGC), to the extent of the amount of the insurances, and;



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6.2.8.

6.3.1.

6.3.2.

6.3.3.

6.3.4.

6.3.5.

6.6.1.

6.6.2.

6.6.3.

Other non-risk items as the CDA may, from time to time, authorize to bededucted from total assets.

Section 6.3. Prompt Corrective Action. The SCCs net worth position should be sufficient tomeet competitive pressure and adverse economic conditions as they arise. Itshould enhance the safety of the members shares and keep pace with growth inSCC assets. Net worth categories for purposes of prompt corrective action are:

Well-capitalized the SCCs net worth to risk-asset ratio is at least ten percent(10%);

Adequately capitalized - net worth to risk-asset ratio is equal to eight percent(8%) but less than ten percent (10%);

Undercapitalized - net worth to risk-asset ratio is equal to six percent (6%) butless than eight percent (8%);

Significantly undercapitalized net worth to risk-asset ratio is equal to twopercent (2%) but less than six percent (6%)

Critically undercapitalized net worth-to-risk asset ratio is less than two percent(2%).

Section 6.4. Rehabilitation Plan. A SCC that is categorized, as either undercapitalized orsignificantly undercapitalized shall submit for approval within the deadline setby the Authority, a rehabilitation plan prior to its implementation.

Section 6.5. Period to Correct Capital Deficiency. Whenever the net worth of SCCs aredeficient with respect to the requirements of Section 3.2 above, the SCC shallwithin a two (2) year period meet the minimum requirement for net worth to riskasset ratio.

Section 6.6. Restrictions for undercapitalized SCCs: From the time the Authority hasdeclared the SCC as undercapitalized and until such time that the SCC isadequately capitalized, it shall not be permitted to:

Distribute interest on share capital and patronage refund unless added to sharecapital;

Increase its risk assets; and

Expand operations unless part of the rehabilitation plan

Section 6.7. Action required for critically undercapitalized SCCs .

6.7.1.

The CDA, not later thanninety (90) days after the date on which a SCC becomes critically undercapitalizedshall:

Appoint a conservator, receiver or liquidator, as the case may be; or



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6.7.2.

6.8.1.

6.8.2.

6.8.2.1.

6.8.2.2.

6.8.2.3.

6.8.2.4.

6.8.2.5.

6.8.2.6.

Take such other actions as it determines would better achieve the purpose in lieuof appointing a liquidator.

Section 6.8. Insolvency of SCCs. A SCC will be determined to be insolvent when the cashvalue of its assets is less than its total liabilities.

Proceedings Upon Insolvency . In case a SCC is unable to fulfill its obligations tocreditors due to insolvency, such SCC may apply for such remedies as it maydeem fit under the provisions of the Insolvency Law (Act No. 1956, as amended).Nothing in this section, however, precludes creditors from seeking protectionfrom said insolvency law.

Appointment of Conservator.

Whenever, on the basis of a report submitted by the appropriatesupervising or examining department of the Authority, or upon therequest of the delegated supervising and examining federation or union,in accordance with Section 3.07 above (Action Required for CriticallyUndercapitalized) or the Authority finds that the primary cooperative isin a state of continuing liability or unwillingness to maintain a conditionof liquidity deemed adequate to protect the interest of members andcreditors, the CDA may appoint a conservator with such powers as theCDA shall deem necessary to take charge of the assets, liabilities, and themanagement thereof, reorganize the management, collect all monies anddebts due said SCC, and exercise all powers necessary to restore itsviability.

The conservator shall report and be responsible to the CDA and shallhave the power to overrule or revoke the actions of the previousmanagement and board of directors of the primary cooperative.

The conservator should be competent and knowlegeable in cooperativeoperations and management. The conservatorship shall not exceed one(1) year.

The conservator shall receive remuneration to be fixed by theAUTHORITY in an amount not to exceed two-thirds (2/3) of the salary ofthe manager of the primary cooperative or its equivalent in one (1) year,payable in twelve (12) equal monthly installments; Provided, that, at anytime within the one (1) year period, the conservatorship is terminated onthe ground that the institution can operate on its own, the conservator shall receive the balance of the remuneration which he would havereceived up to the end of the year; but if the conservatorship is terminatedon other grounds, the conservator shall not be entitled to such remainingbalance.

The CDA shall not appoint a conservator from the unit or department ofthe Authority recommending conservatorship.

The CDA shall, on the basis of its findings, the report of the conservator



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and/or the report of the examiner, terminate the conservatorship when:

6.8.2.6.1.

6.8.2.6.2.

6.8.3.

6.8.3.1.

6.8.3.1.1.

6.8.3.1.2.

6.8.3.1.3.

6.8.3.2.

6.8.3.3.

6.8.3.4.

6.8.3.5.

It is satisfied that the SCC can continue to operate on its own; or

The continuance in business of the SCC would result in additional lossto its members or creditors, in which case the process of receivershipand liquidation shall apply.

Proceedings in Receivership and Liquidation.

The CDA may summarily and without need for prior hearing, forbid theSCC from doing business in the Philippines and designate a receiver ofthe SCC concerned, whenever the CDA finds that a SCC:

Is unable to pay its liabilities as they become due in the ordinarycourse of business; Provided, that this shall not include inability to paycaused by extraordinary demands induced by financial panic;

Cannot continue in business without resulting in probable losses to itsmembers or creditors; or

Has willfully violated a cease and desist order that has become final,involving acts or transactions which amount to fraud or a dissipationof the assets of the SCC.

Any person of recognized competence in finance and cooperativism maybe designated as receiver.

The receiver shall immediately gather and take charge of all the assets

and liabilities of the SCC, administer the same for the benefit of itsmembers and creditors, and exercise the general powers of a receiverunder the Revised Rules of Court but shall not, with the exception ofadministrative expenditures, pay or commit any act that will involve thetransfer or disposition of any asset of the SCC; Provided, That the receivermay deposit or place the funds of the SCC in non-speculativeinvestments.

The receiver shall determine, as soon as possible but not later than ninety(90) days from takeover, whether the SCC may be rehabilitated orotherwise placed in such a condition so that it may be permitted toresume business with safety to its members and creditors, and the general

public; Provided, That any determination for the resumption business ofthe SCC shall be subject to prior approval of the CDA .

If the receiver determines that the SCC cannot be rehabilitated orpermitted to resume business in accordance with the precedingparagraph, the CDA shall notify in writing the cooperatives Board ofDirectors of its findings and direct the receiver to proceed with theliquidation of the cooperative. The receiver shall:



24/67


6.8.3.5.1.

6.8.3.5.2.

6.8.4.

7.2.1.

7.2.2.

7.2.3.

7.2.4.

7.2.5.

File ex-parte with the proper Regional Trial Court, and withoutrequirement of prior notice or any other action, a petition forassistance in the liquidation of the SCC pursuant to a liquidation planadopted by the CDA. The receiver shall pay the cost of theproceedings from the assets of the cooperative.

The designation of a conservator under the preceding Section or theappointment of a receiver under this Section shall be vestedexclusively with the CDA. Furthermore, the designation of aconservator is not a precondition to the designation of a receiver.

Liquidation, Distribution and Disposition of Liquidation Proceeds. Theprocess for liquidation, and the distribution and disposition of the SCCs assetsafter liquidation shall be governed by the provisions of Sections 12.05, 12.06 and12.07 of the General Guidelines, Rules and Regulations on the Registration andOperation of Cooperatives.

ARTICLE 7. DEPOSIT AND BORROWING OPERATIONS

Section 7.1. Minimum Deposit. Savings and Time Deposits with SSC may be opened with aminimum amount to be determined by the Board of Directors .

Section 7.2. Opening and Operation of Deposit Accounts . The following shall govern theopening and operation of deposit accounts of SCC:

Who may open deposit accounts . Only members of the SCC may open savingsand/or time deposit accounts. The cashier, bookkeeper and their assistants, andother employees and officers of the SCC whose duties entail the handling of cashor checks, can deposit and withdraw provided that such transactions areprocessed by another officer. Any withdrawal from their accounts has to beapproved by the General Manager or his/her designated officer.

Identification of member-depositors . A SCC shall be responsible for the properidentification of its member-depositors.

Number of deposit accounts . A member-depositor may open and maintainseveral deposit accounts in his/her own name. In the case of savings deposits,the accounts so opened and maintained shall be on a per savings product basiswhile time deposit accounts shall be opened and maintained on the basis of itsterms and conditions. He/she may also open an account in other capacities asguardian, agent or trustee for his/her immediate family members who are minorsand cannot be qualified as a member.

Signature card. A signature card bearing at least three (3) specimen signatures ofeach member-depositor shall be required upon opening of a deposit account.

Savings Passbook and certificate of time deposits.



25/67


7.2.5.1.

7.2.5.2.

7.2.5.3.

7.5.1.

7.5.2.

A savings deposit passbook, signed by the receiving teller and anauthorized officer, shall be issued to a member-depositor showing,among other things, his name and address, account number, date,amount of deposit/withdrawal, interest credits and balance.

In the case of a time deposit, a certificate of time deposit or its equivalentinstrument signed by at least two (2) authorized officers, shall be issuedto the member-depositor containing, among other things, his name,amount of deposit, date when the deposit was made, its due date andinterest rate.

Savings deposit passbooks and certificates of time deposit shall be pre-numbered.

Section 7.3. Deposits of checks and other cash items. Checks and other cash items may beaccepted for deposit by the SCC: Provided, That withdrawals from such depositsshall not be made until the check or other cash items is collected.

Section 7.4. Payment of Interest on Time Deposits. Interest on time deposits may be paid atmaturity or upon withdrawal or in advance: Provided, That interest paid inadvance shall not exceed the interest for one (1) year.

Section 7.5. Withdrawal of Deposits. Withdrawal from:

Savings deposits can be made by presenting to the SCC a duly accomplishedwithdrawal slip together with the depositors passbook or through AutomaticTeller Machines (ATMs).

Time deposits can be made upon presentation by the member-depositor of the

certificate of time deposit or equivalent document that the SCC issued to evidenceits receipt of time deposit placement. The Paying/Disbursing Teller shallimmediately stamp the withdrawn certificate of time deposit or its equivalentdocument as Cancelled or Paid and shall require the member-depositor toacknowledge receipt of the proceeds said deposits.



26/67


Section 7.6. Dormant Savings Deposit. A SCC may charge a service fee for the maintenanceof dormant savings deposits. Savings deposits shall be classified as dormant if nodeposit or withdrawal has been made for the last two (2) years.

Section 7.7. Matured Time Deposits. A time deposit not withdrawn or renewed on its duedate shall be treated as a savings deposit and shall earn interest from maturity tothe date of actual withdrawal or renewal at a rate applicable to savings deposits.

Section 7.8. Tax on Interest on Deposits. Interest income earned by members of thecooperative from any deposits or any other monetary benefit from depositsubstitutes and similar arrangements shall be subject to the 20% final income taxon interest. SCCs are considered as withholding agents and are required to filewithholding tax returns with and remit withholding taxes on interest incomepayments within the specified period as prescribed by the Bureau of InternalRevenue.

Section 7.9. Reserve Requirements against Deposit Liabilities

7.9.1.

7.9.2.

7.9.2.1.

7.9.2.2.

7.9.2.3.

Liquidity Reserve Fund . SCCs shall maintain a liquidity reserve fund that will berestricted in nature to meet withdrawals against deposit liabilities equivalent to atleast two percent (2%) of their savings and time deposit liabilities. The liquidityreserve fund shall be computed based on the preceding end-of-month level.

Form and Composition of Liquidity Reserve Fund. The composition of thereserve fund shall be:

At least ten percent (10%) in the form of cash on hand and/or cash inbanks, and

The remaining ninety percent (90%), in the form of evidences ofindebtedness or obligations of the government, its political subdivisionsor instrumentalities.

For the purpose of computing the reserve fund, the value of governmentsecurities shall be the cost of acquisition. The SCC may keep physicalpossession of such government securities, but shall supply the Authoritywith the following information:

Name of issuer Serial number/Transaction code Denominations Cost of acquisition Maturity Dates

Section 7.10. Borrowings. The SCC through the Board of Directors as authorized by thegeneral assembly, may borrow from any source at the best terms or conditionsavailable and in such amount that may be needed .



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ARTICLE 8. LOANS AND INVESTMENT

Section 8.1. Financial Service . Loans represent a SCCs primary earning asset and is anessential financial service provided by the SCC to its members .

Section 8.2. Lending Policies. The Board of Directors shall be responsible for setting writtenloan policies. Lending policies should clearly reflect:

8.2.1.

8.2.2.

8.2.2.1. 8.2.2.2.

8.2.2.3.

8.2.2.4.

8.3.1.

8.3.2.

8.3.3.

8.3.4.

Limits on loan amounts; loan maturities and repayment terms; acceptablecollateral; and interest rates that are reasonably designed to meet the SCCsobjectives.

Effective loan collection policies designed with the following characteristics:

Prompt and accurate delinquent loan reporting to the board;Timely and consistent follow-up actions;

Utilization of outside collection sources when internal efforts fail toproduce results; andMaintenance of collection records.

Section 8.3. Basis in the Grant of Loans . The granting of loans by the credit committee andloan officers shall be based on the four "Cs" of credit: Character, Capacity to pay,Circumstances, and Collateral.

Character. A determination of character involves the development of informationrelating to the applicants credit history. This may be obtained from thecommunity, other financial institutions and credit bureaus.

Capacity to Pay . In determining an applicants capacity to pay, the creditcommittee or loan officer should carefully examine income, debts, debt payments,and living expenses. After debt payments and living expenses are taken intoaccount, the applicants income should be adequate to repay the loan inaccordance with the agreed upon terms.

Collateral. A SCC may grant unsecured and secured loans. Unsecured loans areconsumer-type loans, usually relatively small, traditionally offered for variouspurposes incidental to the members needs. Secured loans extend credit with asecurity interest in personal or real property of tangible value. The security mayalso be an endorsement by another person who agrees to repay if the borrowerfails to do so. Co-maker loans, share-secured loans, and automobile loans are

common types of secured loans. Other types of secured loans are home equityloans, residential real estate loans and member business loans.

Circumstances

Section 8.4. Lending Requirements



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8.4.1.

8.4.2.

8.4.3.

8.4.4.

8.4.5.

8.4.6.

8.7.1.

8.7.2.

Application . A member-borrower applying for a loan must submit an applicationstating the purpose of the loan and such other information as may be required bythe SCC. The loan application and other required documents shall form part ofthe credit information file of the member-borrower.

Credit investigation . No loan shall be approved unless prior investigation hasbeen made to determine the credit standing of the applicant and/or the fairmarket value of the property offered as security and the report thereon shall bemade part of the loan application.

Credit information file/collateral file. SCC shall maintain a credit informationfile which shall contain, among other things, the member-borrowers application,financial record, the collateral and other information relative to the member-borrower.

Loan Approvals . Loans shall be approved in accordance with the CodifiedApproving and Signing Authority (CASA) (Appendix I) as approved by theGeneral Assembly.

Loan Agreements. For each loan granted by a SCC, a promissory note shall beexecuted by the member-borrower in favor of the cooperative stating the amountof the loan, date granted, due date, interest rate and other information.

Inscription of Lien. In case of mortgage loans, no release against an approvedloan shall be made before the inscription of the mortgage.

Section 8.5. Loan Collection. While loan collections maybe delegated to a committee or staffmember(s), the board has the responsibility of exercising close control andmonitoring over the lending program.

Section 8.6. Loan Retention Saving Scheme. SCCs may require member-borrowers todeposit a portion of the loan proceeds, whether in the form of savings or timedeposits. Where, subsequent to the release of the loan proceeds, member-borrowers open deposit accounts or make additional deposits to their existingaccounts, no part of such new deposits shall be covered by a stipulationprohibiting or limiting withdrawal while a portion of their loans are outstanding:Provided, That this prohibition shall not apply in cases of loans secured by a hold-out on deposits to the extent of the unencumbered amount of the deposit existingat the time of the above-mentioned loan application.

Section 8.7. Salary Deductions for Loan Repayment.

Pursuant to Section 59 of R.A. 6938 and in reference to Supreme Court Decisionon the Legality of Salary Deduction dated June 30, 1995, the SCC is authorized tomake the necessary payroll deduction arrangements with the employer of themember-borrowers.

In the case of a member-borrower who is a permanent employee or wage earner,the treasurer, cashier or paymaster of the firm employing him shall be authorized,pursuant to Supreme Court Decision on the Legality of Salary Deduction dated



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June 30, 1995 and Section 59 of R.A. 6938, to make deductions from his salary,wage or income in accordance with the terms of his/her loan, and to remit suchdeductions to the SCCs.

8.7.3.

8.8.1.

8.8.2.

8.8.3.

8.8.4.

8.9.1.

8.9.2.

8.9.2.1.

8.9.2.2.

In case of government employees cooperative, participation in the automaticpayroll deduction shall be subjected to the provisions and limitations of theGeneral Appropriations Act (GAA) or any other government rules andregulations on the matter.

Section 8.8. Interest and Other Charges. The following shall govern the rates of interest andother charges on loans granted by SCC:

Interest Rate. The rate of interest including commissions, premiums, fees andother charges on loans and forbearance of money, regardless of maturity andwhether secured or unsecured, shall be reasonably set to at least fully cover theoperational and financial costs of the SCC;

Payment of loan before maturity. Should a member-borrower opt to pay theoutstanding balance of his loan before maturity, the SCC may impose a premiumon the portion of the loan to be prepaid, subject to prior agreement between theSCC and its member-borrowers. Provided, That in case of interest paid inadvance, the amount of interest for the unmatured portion of the loan shall berefunded to the member-borrower.

Interest in the absence of contract. The rate of interest for the loan or forbearanceof any money, goods or credit and the rate allowed in judgments, in the absenceof express contract as to such rate of interest, shall be twelve percent (12%) perannum.

Accrual of interest earned on loans. SCCs shall not accrue interest income onloans that are already past due or on loan installments that are in arrears,regardless of whether the loans are secured or unsecured. Interest on past dueloans or loan installments in arrears shall be taken up as income only when actualpayments thereon are received.

Section 8.9. Secured Loans

Loans Secured by Real Estate Mortgages. Loans against real estate security shallnot exceed seventy percent (70%) of the appraised value of the real estate securityincluding insured improvements, if any, and such loans shall not be made unlesstitle to the real estate is in the name of the mortgagor and properly annotated withthe appropriate regulatory body.

Real Estate Security Without Torrens Title . Loans may also be granted on thesecurity of lands without Torrens Title where:

The owner of the private property can show 5 years or more of peaceful,continuous and uninterrupted possession in the concept of an owner;

Portions of friar land estates or other lands administered by the Bureau of



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Lands are covered by sales contracts and the purchasers have paid at leastfive (5) years installment thereon, without the necessity of prior approvaland consent by the Director of Lands;

8.9.2.3.

8.9.2.4.

8.9.2.4.1.

8.9.2.4.2.

8.9.2.4.3.

8.9.2.4.4.

8.9.3.

8.9.4.

8.9.4.1.

8.9.4.2.

8.9.4.3.

Portions of other estates under the administration of the Department ofLand Reform (DLR) or other governmental agency are likewise coveredby sales contracts and the purchases have paid at least five (5) yearsinstallments thereon, without the necessity of prior approval and consentof the DLR or corresponding governmental agency;

Homesteads or free patent lands have approved titles that are yet to beissued, the provisions of any law or regulations to the contrarynotwithstanding, Provided, That:

When the corresponding titles are issued, the same shall be deliveredto the Register of Deeds of the province where such lands are situatedfor the annotation of the encumbrance;

Copies of notices for the presentation of the final proof shall also befurnished the SCC and, if the borrower applicants fail to present thefinal proof within thirty (30) days from date of notice, the SCC may doso for them at their expense;

The applicant for homestead or free patent has already madeimprovements on the land and the loan applied for is to be used forfurther development of the same or for other productive economicactivities; and

The appraisal and verification of the status of a land is a fullresponsibility of the cooperative and any loan granted on any landwhich shall be found later to be within the forest zones shall be for thesole account of the cooperative.

Loans Secured by Chattels. Loans on the security of chattels shall not exceed fiftypercent (50%) of the appraised value of the security, and such loans shall not bemade unless title to the chattels, shall be in the name of the mortgagor.

Loans Secured by Personal Properties. Loans may be secured by unencumberedpersonal property which may consist of:

Bonds and securities issued by the Government. Such bonds andsecurities may be accepted at their face value;

Quedans or warehouse receipts issued by bonded warehouses coveringstock deposited in said warehouses up to eighty percent (80%) of thecalculated market value of the stock; and

Any other personal property, up to fifty percent (50%) of the fair marketvalue. If the property is newly purchased and the purchase price thereofappears in a bill of sale, then the above percentage shall be based on the



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price of the said bill of sale.

8.9.5.

8.9.5.1.

8.9.5.2.

8.9.5.3.

8.9.5.4.

8.9.5.5.

8.9.5.6.

8.9.6.

8.9.7.

8.10.1.

Loans Secured by Certificates of Time Deposits (CTDs). The following rules shallgovern the grant of loans secured by hold-out on and/or assignment of CTDsissued by the lending cooperative or any other financial institution

The original copy of the CTDs subject to hold-out or assignment shall besurrendered to the lending cooperative;

If the terms of the CTDs subject to hold-out or assignment is shorter thanthe term of the loan, there shall be an agreement in writing that renewalof the time deposit upon maturity shall be made at least co-terminus withthe term of the loan;

The depository bank, other than the lending bank, shall be furnished acopy of the Deed of Assignment or hold-out agreement on the depositused as collateral;

There shall be no pre-termination of the time deposit without the consentof the lending cooperative and unless an acceptable substitute collateralfor the loan has been made;

The SCC shall keep a complete record of all pertinent loan documents,such as, but not limited to, the original copy of the CTDs subject toassignment or hold-out agreement; deed of assignment or hold-outagreement; and written waiver of the depositor required in item 6below, which shall be made available for inspection and/or examinationby the Authority; and

The loan documents shall include a waiver on the part of the depositor ofhis rights under existing law to the confidentiality of his deposits.

Insurance on Real Estate Improvements. The required insurance onimprovements used as collateral for loan should be such as shall be sufficient tosecure seventy percent (70%) of the appraised value of such improvements or ifinadequately insured, the loan value shall correspond to the extent of insurancetaken on such improvements.

Foreclosure and Redemption of Mortgages. The foreclosure of mortgages andredemption shall be in accordance with existing laws.

Section 8.10. Unsecured Loans. Before granting unsecured loans, SCCs must exercise propercaution by ascertaining that the borrowers, co-makers, endorsers, sureties and/orguarantors possess good credit standing and are financially capable of fulfillingtheir commitment to the cooperative. SCCs shall require:

Proof of Financial Capacity of Borrower. In addition to the usual personalinformation sheet about the borrower, cooperatives shall require that an



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application for a credit accommodation against personal security be accompaniedby:

8.10.1.1.

8.10.1.2.

8.10.2.

8.12.1.

8.12.1.1.

8.12.1.2.

8.12.2.

A copy of the latest income tax returns of the borrower and his co-makerduly stamped as received by the BIR, if applicable, or a statementshowing the household income and expenses of the borrower as verifiedby the SCC or

If the borrower is or will be engaged in business, a copy of the borrowersfinancial statements duly certified by an independent Certified PublicAccountant (CPA) and/or a feasibility study of the project to be financed.

Loan Signatories . Loan documents of credit accommodations against personalsecurity shall be signed by the principal borrower and at least one (1) co-makerexcept the spouse of the borrower. The co-maker shall at all times be a member ofthe cooperative.

Section 8.11. Restriction on Directors, Officers and Committee Members . No director orcommittee member shall vote on a loan requested by a member of his family,natural or by affinity to the third degree, or can he become a co-maker, surety orendorser on any loan contracted by a member with the cooperative. Theapplication for a loan by a member of the Credit committee shall be subject to theapproval of the Board of Directors.

Section 8.12. Loan Limits/Maturity of Loans.

Loan limit to a single borrower . Loans granted to member-borrowers shall at notime exceed the following percentages of the net worth of the SCC:

Five percent (5%) for individual member-borrower; and

Ten percent (10%) for member-borrower and his/her immediate familymember up to the third degree of consanguinity or affinity.

Loan Maturity . Loans granted by a SCC shall have a maximum term of not morethan five (5) years except loans adequately secured by unencumbered real estatefor the purpose of home building and home development which may be grantedwith maturity dates not exceeding fifteen (15) years: Provided, That extensions orrenewals of loan shall be in accordance with the provisions of Sec.___.

Section 8.13. Deposits in banks. The SCC shall maintain deposits in at least two (2) banks, butin no case shall deposits in one bank exceed twenty-five (25%) of the SCCs networth. The CDA may grant exemption from this provision in cases where there isno or limited number of banks in the city or municipality where the SCC islocated.

Section 8.14. Loans/Credit Accommodations to Directors, Officers and their Related Interests(DORI)



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8.14.1.

8.14.2.

8.14.3.

8.14.4.

8.15.1.

8.15.2.

8.15.2.1.

8.15.2.2.

8.15.3.

8.17.1.

Dealings of SCCs with any of its directors, officers and their related interests shallbe in regular course of business, and upon terms and conditions not less favorableto those offered to other member-borrowers.

SCCs shall not indirectly make any loan to any director or officer of suchcooperative, either for himself or as agent or as partner of another person orentity.

In all cases of accommodation granted to directors and officers, the writtenapproval of the majority of the directors of the cooperative, excluding the directorconcerned, shall be entered upon the records of the cooperative. A monthly agingreport of DORI accounts (individual and aggregate) shall be regularly reported tothe Board. These reports and records shall be made available for inspection bythe Authority.

The office of any director or officer of any SCC who violates the provisions ofthese rules on accommodations granted to directors and officers shallimmediately become vacant.

Section 8.15. Sanctions. Any violation of the loan ceilings prescribed in Section 8.12 and theprovisions of Section 8.14 above shall be subject to any or all of the following:

Disqualification of the directors participating in and voting for the approval of theloan or credit accommodation: Provided that the disqualification maybe lifted bythe AUTHORITY, as the circumstances warrant.

For the duration of each violation, imposition of a fine of one-tenth of one percent(1/10 of 1%) of the excess over the ceilings per day but not to exceed P________ aday on:

The SCC; and

Each of the directors voting for the approval of the loan or creditaccommodation in excess of the ceiling.

The penalty for exceeding the ceiling shall be computed on the average amount ofloans in excess of said ceiling during the same week.

Section 8.16. Submission of Credit Information to a Credit Bureau. SCCs shall regularlysubmit information on the credit transactions of a member-borrower to a creditbureau recognized by the Authority. Information from the credit bureau may be

obtained and used by the SCCs in determining the credit worthiness of aborrower.

Section 8.17. Past Due Accounts. Any amortization/installment not collected on due date shallbe booked as past due and shall remain in this account until paid .

Loans Receivable-Past Due. These are total collectibles from past due loans ofmember-borrowers. Aging of loans receivables should be prepared to determinestatus and risk of non-collection of the past due loans. A loan shall remain in this



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account until fully paid or until arrangements are formalized for itsrenewal/extension /restructuring or collection/foreclosure of collateral.

8.17.2.

8.17.2.1.

8.17.2.1.1. 8.17.2.1.2.

8.17.2.1.3.

8.17.2.2.

8.17.3.

8.18.1.

8.18.2.

8.18.3.

Loans Receivable Restructured. The restructuring of loans may be allowedonly upon full payment of interest due or under exceptional conditions. Loanscan at most be restructured twice. The restructuring of loans to directors orofficers should be upon terms not less favorable to those offered to other member-borrowers.

Procedural Requirements. Subject to the restructuring guidelines approvedby the Board of Directors, a loan maybe restructured, the condition ofwhich shall be contained in a resolution stating, among others thefollowing:

The basis of or jurisdiction for the approval;Determination of the borrowers capacity to pay, such as viability ofthe business; andNature and extent of protection of the SCCs exposure.

Approval Requirements. The approval/disapproval of restructured loansmay be delegated by the Board of Directors to a committee or officersunder existing restructuring guidelines set by the Board of Directors.Any action taken by the committee or officers shall be confirmed by theBoard of Directors.

Loans Receivable Loans in Litigation. Loans in Litigation shall remain in thisaccount during dependency of the legal proceedings until fullypaid/restructured/foreclosed. All expenses incurred in litigation shall becharged to operations and lodged under Litigation Expense. The correspondingmemorandum entries shall be made on the individual ledger account forreimbursement by the borrower during redemption of foreclosed properties.

Section 8.18. Loan Portfolio and Other Risk Assets Review System. The SCC shall taketimely and adequate management action to maintain the quality of loan portfolioand other risk assets. To ensure this, the management shall:

Set up and maintain adequate loan reserves at a level sufficient to absorb the lossinherent in the loan portfolio and other risk assets;

Establish a system of identifying and monitoring existing or potential problemloans and other risk assets; and

Evaluate credit policies vis--vis prevailing circumstances and emerging portfoliotrends.

Section 8.19. Booked allowance for probable losses on loans (APLL) while the account is inthe non-performing portfolio. The amount of allowance for probable lossesalready booked while the account is still in the non-performing portfolio shall beused to cover required APLL for other accounts.



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Section 8.20. Extension/Renewal of Loans. Except for home building and home developmentloans, extension of the period of payment of loans shall not exceed one-half (1/2)of the original period: Provided, That the thirty percent (30%) of the loan shall havebeen paid. A second extension may be further granted but not to exceed one-half(1/2) of the period of the first extension. No further extension shall be grantedafter the second extension.

Section 8.21. Write-off of loans as bad debts . The writing off of loans by credit cooperativesshall be governed by the following regulations:

8.21.1.

8.21.2.

8.21.3.

8.21.4.

8.21.5.

8.23.1.

Writing off of loans by the cooperative shall be made in accordance with the writeoff policy approved by the credit cooperative and shall be charged against theAllowance for Probable Losses on Loans (APLL). In the case of uncollectibleadvances, write-offs will be charged as administrative expense;

Credit cooperatives may condone or write-off loan receivables three months afterthe loan account has been declared uncollectible.

No loans shall be written off unless the same can be justified by the creditcooperative as non-collectible.

A loan may be declared uncollectible under any of the following conditions: (a)the death of a borrower; (b) incapacity to pay or insolvency of the borrower; (c)unknown whereabout of the borrower despite extra-diligent efforts to find thesame; and (d) exhaustion of all administrative and legal remedies to collect thereceivable. Other documentary requirements may vary depending on the nature,purpose and recipient of the loans.

Notice for write-off of loans shall be submitted, in the prescribed form, to theAuthority at least thirty (30) days prior to the intended date of write-off. In thecase of loans to directors and officers of the cooperative, prior approval of theAuthority is required.

Section 8.22. Truth in Lending Act Disclosure Requirements. Whenever applicable, SCCsshall conform to the provisions of R.A. 3765, otherwise known as the Truth inLending Act (Appendix K) and shall make the true and effective cost ofborrowing an integral part of every loan contract.

Section 8.23. Treatment of Assets Acquired in Settlement of Loans

The property acquired in settlement of loans through foreclosure or dacion en pago (payment in kind) shall be booked or recorded in the amount equivalent to thebalance of the loan (principal for time loans, or principal less interes

SCC Manual of Rules and Regulations

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