The document discusses several BSP issuances and circulars. It covers topics such as: 1) Guidelines for the implementation of the new Agri-Agra Law including required loan allocations and eligible activities. 2) Rationalization of reserve requirement policies including unification into a single requirement and exclusion of some assets from compliance. 3) Enhanced transparency rules for loan transactions to ensure fair pricing and full disclosure of loan terms. 4) Simplified confirmation procedures for the election/appointment of bank directors and officers.

1. BSP Issuances
RBAP 59th Annual Convention
and Corporate Meeting
24 May 2012

2. Topics:

3. Circular
Date Subject
No.
Guidelines to Implement New Agri-Agra Law
Rules and Regulations on the
736 07.20.11
Mandatory Credit Allocation for
Agriculture and Agrarian Reform
Credit
1

4. Circular
Date Subject
No.
RATIONALIZATION OF RESERVE REQUIREMENT
POLICY
Unification of the Statutory/Legal and
Liquidity Reserve Requirement, Non-
Remuneration of the Unified Reserve
753 03.29.12 Requirement, Exclusion of Vault Cash and
Demand Deposits as Eligible Forms of Reserve
Requirement Compliance, and Reduction in
the Unified Reserve Requirement Ratios
Change in Maturity of Placements in the
752 03.29.12
Reserve Deposit Account Facility
2

5. Circular
Date Subject
No.
ENHANCED TRANSPARENCY RULE ON LOANS
Updated Rules Implementing the Truth in
730 07.20.11 Lending Act to Enhance Loan Transaction
Transparency
Updated Rules for NBFIs under BSP
754 04.17.12 Supervision, and Penal Provisions on
Banks and NBFIs for Non-Compliance
Implementing Guidelines to Entities with
Credit-Granting Facilities not Covered by
755 04.20.12
Existing Issuances by the
BSP, SEC, IC and CDA 3

6. Circular
Date Subject
No.
SIMPLIFIED CONFIRMATION PROCEDURES ON THE
ELECTION/APPOINTMENT OF DIRECTORS/OFFICERS
Amendment to the Regulations on
758 05.11.12
the Approval/Confirmation of the
Election/Appointment of Directors/
Officers
4

7. Topics:

8. 1

9. Agri-Agra Law
Presidential Decree 717
(29 May 1975)
vs.
Republic Act 10000
(23 February 2010)

10. Agri-Agra Reform Credit Act of 2009
Objectives:
•To promote rural development by enhancing
access to financial services and programs that
increase market efficiency and promote
modernization.
•To develop an agriculture and agrarian reform
credit, insurance and financing system through
government and private banking institutions.

11. Features:
• 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

12. Required Allocation:
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.

13. Loanable Funds:
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

14. Reference Date for Calculation of
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

15. 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)

16. 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.

17. Direct Compliance:
• loans extended to qualified
borrowers for qualified purposes

18. 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

19. Expansion of agri-agra reform activities and
purpose:
Include enumerated under Section 23 of
R.A. No. 8435 “The Agriculture and Fisheries
Modernization Act of 1997”

20. Rationalization of Alternative Modes of
Compliance
• Deleted those which do not directly
contribute to the development of
agri-agra reform sector such as
development incentive loans

21. Rationalization of Alternative Modes of
Compliance
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

22. Rationalization of Alternative Modes of
Compliance
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)

23. No Double Counting:
Loans that are
• rediscounted with UBs/KBs, or
• funded by proceeds from the issuance
of bonds and SDAs by banks
as well as wholesale lending of other
banks shall not be eligible as
compliance on the part of the lending
bank

24. 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.

25. BSP-accredited Rural Financial Institutions:
• Qualification Requirements
For the last 4 quarters:
•total loan portfolio is greater than bank’s total
investments; and
•average credit exposure to agri-agra is greater
than any exposure to other economic sectors

26. Application for Accreditation:
To be submitted to the Managing Director,
Central Supervisory Support Subsector, SES:
•Notarized undertaking that the bank shall
comply with the regulations, directives and
instructions of the BSP; and
•Notarized certification that the bank’s loan
portfolio is substantially agri-agra related.

27. 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

28. Sanctions:
• Penalties/sanctions are applicable to
• the bank; and
• directors/officers concerned of the
bank.
• Penalties/sanctions are monetary and non-
monetary fines.

29. Sanctions:
• Monetary penalties are for
• non-compliance/under-compliance;
• delayed/amended reports; and
• false/misleading statements

30. Sanctions:
Amount of non-compliance/under
compliance as of the end of the
reference quarter
X 0.00125
Amount of Penalty

31. 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.

32. Topics:

33. 1
2

34. 3 Operational Adjustments:
1. Unification of the existing statutory reserve
requirement and liquidity reserve requirement
into a single set of reserve requirement
3. Non-remuneration of the unified reserve
requirements
5. Exclusion of vault cash (for banks) and demand
deposits (for NBFIs with QB functions) as
eligible forms of reserve requirement
compliance

35. Required Reserves Against Deposit
Required
Account Reserves
Demand Deposits 4%
“NOW” Accounts 4%
Savings Deposits 2%
Time Deposits, Negotiable CTDs,
Long-Term Non-Negotiable Tax 2%
Exempt CTDs
Long-Term Negotiable CTDs 3%
IBCL (Sec. X343) 0%

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

37. Composition of Reserves
Transitory Provisions:
Government Securities
• shall be continue to be eligible as
compliance with the reserve
requirements until they mature

38. Composition of Reserves
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)

39. Composition of Reserves
Cash in Vault
• No longer allowed as reserve

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

41. Effectivity
Reserve week starting 6 April 2012

42. Topics:

43. 3

44. Main 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)

45. Main Enhancements of the New Rules
• 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

46. Main Enhancements of the New Rules
• Provides a simpler disclosure statement
• Includes the key information useful for
the borrowers

47. Methods of Computing Interest
• Interest based on the outstanding balance of
loan at the beginning of an interest period

48. Definition of Terms
• Finance Charge - includes
• Interest
• Fees
• Service charge
• Discounts
• And other charges incident to the
extension of credit

49. Definition 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

50. 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

51. Effective Interest Rate (EIR)
• If contractual interest rate is stated on a
monthly basis, EIR may be expressed as a
monthly rate

52. Charges included in the Computation of
EIR
• Interest;
• Service charge/processing fees; and
• Other charges/fees incidental to the
extension of credit, e.g.:
• Documentary stamps
• Notarial fees
• Appraiser’s fee

53. Charges included in the Computation of
EIR
• 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

54. Charges NOT included in the
Computation of EIR
• Not considered in the computation of EIR
• Insurance premium
• Conditional charges

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

56. Information 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

57. Information to be Disclosed
• Furnish each borrower a copy of disclosure
statement, prior to the consummation of the
transaction

58. Posters
• 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

59. Disclosure Statement

60. Amortization Schedule

61. Circular No. 754
• Enhanced Loan Transaction Transparency
for NBFIs under BSP Supervision
 QBs
 NSSLAs
 Subsidiary/affiliate credit card
companies of Banks/QBs
 Pawnshops

62. Circular No. 754
• 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

63. Circular No. 754
• 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

64. Circular No. 755
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.

65. Objective of Transparent Pricing
• Not to set limits on rates
• To make rates more understandable,
comparable and known to client

66. Regulatory Agencies’ Implementing
Guidelines
Regulatory Agency Issuance Covered Entity
Securities and SEC Memorandum
All Lending and
Exchange Commission Circular No. 7 Series
Financing Companies
(SEC) of 2011 (09.15.11)
All Insurance/
Reinsurance
Insurance Commission Circular Letter No.:
Companies and
(IC) 31-2011 (10.05.11)
Mutual Benefit
Association
Memorandum Credit and Multi-
Cooperative
Circular No. 2012-05 Purpose Cooperatives
Development
Series of 2012 with savings and loan
Authority (CDA)
(03.14.12) services

67. MB 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.

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

69. Coverage
CGEs :
• Include corporations, organizations,
partnerships and single proprietorships
registered with the SEC and DTI

70. Coverage
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

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

72. Topics:

73. 4

74. Confirmation of the Election/Appointment
of the Directors/Officers

75. Confirmation 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;

76. Confirmation Not Required
• 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

77. Confirmation Not Required
• 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.

78. Banking 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.

79. Confirmation Not Required
• The appointment of officers below the
rank of SVP shall be subject neither to MB
approval nor BSP confirmation.

80. 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

81. Documentary Requirements (Directors)
• 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

82. Documentary Requirements (Directors)
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

83. Documentary Requirements (Directors)
For first-time director
• Duly accomplished and notarized
authorization form for querying the BSP
watchlist files from the director concerned

84. Documentary Requirements (Directors)
For independent director
• Certification under oath that he/she is an
independent director as defined in BSP
regulations

85. Documentary Requirements (Directors)
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.

86. Documentary Requirements (Officers
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

87. Documentary Requirements (Officers
requiring confirmation)
• 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

88. Documentary Requirements (Officers
requiring confirmation)
For first-time officer
• Duly accomplished and notarized
authorization form for querying the BSP
watchlist files from the director concerned

89. Documentary Requirements (Officers
requiring confirmation)
• Brief description of his/duties and
responsibilities
• Alien Employment Permit issued by the
DOLE for foreigners appointed as officers

90. Bio-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

91. Bio-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.