E. DEPOSIT SUBSTITUTE OPERATIONS Subsec. X234.

1 hereof, for the limited purpose of financing

(QUASI-BANKING FUNCTIONS) their own needs or the needs of their agents or dealers; and

Sec. X234 Scope of Quasi-Banking Functions. b. The mere buying and selling without recourse of
The following rules and regulations shall govern the quasi- instruments mentioned in Subsec. X234.1: Provided, That:
banking operations of banks.
(1) The institution buying and selling without recourse
§ X234.1 Elements of quasi-banking. The essential elements of shall indicate in conspicuous print on its instrument the
quasi-banking are: phrase without recourse, sans recourse or words of
similar import that will convey the absence of liability or
a. Borrowing funds for the borrower’s own account; guarantee by said institution; and

b. Twenty (20) or more lenders at any one (1) time; (2) In the absence of the phrase “without recourse”,
“sans recourse” or words of similar import, the
c. Methods of borrowing are issuance, endorsement, or instrument so issued, endorsed or accepted, shall
acceptance of debt instruments of any kind, other than automatically be considered as falling within the purview
deposits, such as acceptances, promissory notes, of these regulations: Provided, further, That any of the
participations, certificates of assignments or similar following practices or practices similar and/or tantamount
instruments with recourse, trust certificates, repurchase thereto in connection with a without recourse transaction
agreements, and such other instruments as the Monetary is hereby prohibited:
Board may determine; and
(a) Issuance of postdated checks by a financial
d. The purpose of which is (1) relending, or (2) purchasing intermediary, whether for its own account or as an
receivables or other obligations. agent of the debt instrument issuer, in payment of
the debt instrument, sold, assigned or transferred
§ X234.2 Definition of terms and phrases. The following terms without recourse; or
and phrases shall be understood as follows:
(b) Issuance by a financial intermediary of any
a. Borrowing shall refer to all forms of obtaining or raising form of guaranty on sale transactions or on
funds through any of the methods and for any of the purposes negotiations or assignment of debt instruments
provided in Subsec. X234.1 whether the borrower’s liability without recourse; and
thereby is treated as real or contingent.
(c) Payment with its own funds by a financial
b. For the borrower’s own account shall refer to the intermediary which assigned, sold or transferred
assumption of liability in one’s own capacity and not in the debt instrument without recourse, unless the
representation, or as an agent or trustee, of another. financial intermediary can show that the issuer
has with the said financial intermediary funds
c. Purchasing of receivables or other obligations shall refer to corresponding to the amount of the obligation.
the acquisition of claims collectible in money, including
interbank borrowings or borrowings between FIs, or of § X234.4 Pre-conditions for the exercise of quasi-banking
acquisition of securities, of any amount and maturity, from functions. No bank shall engage in quasi-banking functions
domestic or foreign sources. without authority from the BSP: Provided, however, That banks
authorized by the BSP to perform universal or commercial
d. Relending shall refer to the extension of loans by an banking functions shall automatically have the authority to
institution with antecedent borrowing transactions. engage in quasi-banking functions: Provided, further, That the
authority to obtain funds from the public, which shall mean
twenty (20) or more persons under Section 8.2 of R.A. 8791, is
Relending shall be presumed, in the absence of express
not a condition but an authorization for the bank or quasi-bank,
stipulations, when the institution is regularly engaged in
once the Monetary Board has granted the quasi-banking license.
lending.
In addition to the Standard Pre-qualification Requirements for the
e. Regularly engaged in lending shall refer to the practice of
Grant of Bank Authorities enumerated in Appendix 5, a TB
extending loans, advances, discounts or rediscounts as a
securing BSP authority to engage in quasi-banking functions must
matter of business, as distinguished from isolated lending
meet the following requirements:
transactions.
a. The bank must have a networth or combined capital of at least
§ X234.3 Transactions not considered quasi-banking. The
P650.0 million computed in accordance with Sec. X111;
following shall not constitute quasi-banking:
b. The bank is well capitalized with risk-based capital adequacy
a. Borrowing by commercial, industrial and other non-
ratio of not lower than twelve percent (12%) at the time of filing
financial companies through any of the means listed in
the application;
c. The bank’s operation during the preceding calendar year and (g) direct loans;

for the period immediately preceding the date of application has
been profitable;
(2) expected sources of funds to support investment program
classified as to -
d. The bank has elected at least two (2) independent directors and
all its directors have attended the required seminar for directors
of banks conducted or accredited by the BSP; (a) maturity: short, medium and long-term;

e. The bank has established a risk management system (b) interest rates; and
appropriate to its operations characterized by clear delineation of
responsibility for risk management, adequate risk measurement (c) domestic or foreign sources whether institutional
systems, appropriately structured risk limits, effective internal or personal.
controls, and complete, timely and efficient risk reporting system;
and TBs authorized to engage and are actually performing quasi-
banking functions but do not meet the new capital requirement
f. The bank has a CAMELS Composite Rating of at least “3” in are hereby given a period of two (2) years reckoned from 11
the last regular examination with management rating of not lower November 2004 within which to comply with the minimum
than “3”. capital requirement in Subsec. X234.4 (a): Provided, That in case
the TB has an approved capital build-up program under Subsec.
§ X234.5 Certificate of Authority from the Bangko Sentral. A X501.2, for its FDCU license, the approved capital build-up
bank securing BSP’s Certificate of Authority to engage in quasi- program, may be considered compliance with this requirement:
banking functions shall file an application with the appropriate Provided, further, That in case, the TB has no approved capital
department of the SES. The application shall be signed by the build-up program, the minimum capital requirement may be
bank president or officer of equivalent rank and shall be substituted by a capital build-up program for a period of not more
accompanied by the following documents: than five (5) years from 11 November 2004 and which must be
approved by the Monetary Board. Such capital build-up program
shall be in equal annual or diminishing amounts and shall be
a. Certified true copy of the resolution of the bank’s board of
submitted to the appropriate department of the SES within three
directors authorizing the application;
(3) months from 11 November 2004.
b. A certification signed by the president or the officer of
TBs which fail to comply with the required capitalization upon
equivalent rank that the institution has complied with all
expiration of said two (2) year period given them or those which
conditions/prerequisites for the grant of authority to engage in
fail to comply with approved capital build-up program shall
quasi-banking functions;
liquidate their quasi-banking operations within one (1) year and
shall be considered revoked/ cancelled. The license of a TB with
c. An information sheet; authority to engage in quasi-banking functions but has not
actually engaged in quasi-banking functions and has not complied
d. Bio-data signed under oath, of the members of the managerial with the above minimum capital requirements as of 11 November
staff who will undertake quasi-banking operations; 2004, shall automatically be revoked.

e. Borrowing-investment program for one (1) year which should § X234.6 Sale, discounting, assignment or negotiation by banks
include at the minimum: of their credit rights arising from claims against the BSP.
Pursuant to the policy of the BSP to promote investor protection
(1) planned distribution of portfolios asto- and transparency in securities transactions as important
components of capital markets development, credit rights in
Special Deposit Account (SDA) placements and reverse repo
(a) underwriting; 

agreements with the BSP, shall not be subject of sale, discounting,
assignment or negotiation on a with or without recourse basis.
(b) commercial paper markets; 

Any violation of the provisions of this Subsection shall be
considered a less serious offense and shall subject the bank and
(c) stocks and bonds; 
 the director/s and/or officer/s concerned to the sanctions provided
under Section X299.
(d) government securities; 

(Circular No. 636 dated 17 December 2008)

(e) receivables financing, discounting 
 and

factoring;


(f) leasing; and


A. CLASSIFICATIONS AND POWERS OF BANKS (2) KBs. In addition to the general powers incident to
corporations and those provided in other laws, a KB shall have
Section X101 Classifications, Powers and Scope of Authorities the authority to exercise all such powers as may be necessary to
of Banks. The following are the classifications, powers and scope carry on the business of commercial banking, such as accepting
of authorities of banks, as well as the prerequisites for the grant drafts and issuing letters of credit; discounting and negotiating
of banking authorities. promissory notes, drafts, bills of exchange, and other evidences
of debt; accepting or creating demand deposits; receiving other
a. Classifications of banks. Banks are classified into the following types of deposits and deposit substitutes; buying and selling
subject to the power of the Monetary Board to create other classes foreign exchange and gold or silver bullion; acquiring marketable
or kinds of banks: bonds and other debt securities; and extending credit, subject to
such rules as the Monetary Board may promulgate. These rules
may include the determination of bonds and other debt securities
(1) Universal banks (UBs);
eligible for investment, the maturities and aggregate amount of
such investment.
(2) Commercial banks (KBs);

It may also exercise or perform any or all of the following:

(3) Thrift banks (TBs), as defined in Republic Act (R.A.) No.
7906, which shall be composed of:
(a) invest in the equities of allied enterprises as provided in
Sections 31 and 32 of R.A. No. 8791;
(a) savings and mortgage banks,
(b) purchase, hold and convey real estate as specified under
(b) stock savings and loan associations, and Sections 51 and 52 of R.A. No. 8791;

(c) private development banks; (c) receive in custody funds, documents and valuable objects;

(4) Rural banks (RBs), as defined in R. A. No. 7353; (d) act as financial agent and buy and sell, by order of and for
the account of their customers, shares, evidences of
(5) Cooperative banks (Coop Banks); and indebtedness and all types of securities;

(6) Islamic banks (IBs), as defined in R.A. No. 6848. (e) make collections and payments for the account of others
and perform such other services for their customers as are not
b. Powers and scope of authorities. The following are the powers incompatible with banking business;
and scope of authorities of banks.
(f) upon prior approval of the Monetary Board, act as
(1) UBs. A UB shall have the authority to exercise, in addition to managing agent, adviser, consultant or administrator of
the powers and services authorized for a KB as enumerated in investment management/advisory/consultancy accounts;
Item “b(2)” and those provided by other laws, the following:
(g) rent out safety deposit boxes; and
(a) the powers of an investment house (IH) as provided under
existing laws; (h) engage in quasi-banking functions.

(b) the power to invest in non-allied enterprises; (3) TBs. In addition to the powers provided in other laws, a TB
may perform any or all of the following services:
(c) the power to own up to one hundred percent (100%) of the
equity in a TB, an RB, a financial allied enterprise, or a non- (a) grant loans, whether secured or unsecured;
financial allied enterprise; and
 (d) in case of publicly-listed
UBs, the power to own up to one hundred percent (100%) of (b) invest in readily marketable bonds and other debt
securities, commercial papers and accounts receivable, drafts,
the voting stock of only one (1) other UB or KB.
 A UB may
bills of exchange, acceptances or notes arising out of
perform the functions of an commercial transactions;

IH either directly or indirectly through a subsidiary IH; in (c) issue domestic letters of credit;
either case, the underwriting of equity securities and
securities dealing shall be subject to pertinent laws and
(d) extend credit facilities to private and government
regulations of the Securities and Exchange Commission
employees;
(SEC): Provided, That if the IH functions are performed
directly by the UB, such functions shall be undertaken by a
separate and distinct department or other similar unit in the (e) extend credit against the security of jewelry, precious
UB: Provided, further, That a UB cannot perform such stones and articles of similar nature, subject to such rules and
functions both directly and indirectly through a subsidiary. regulations as the Monetary Board may prescribe;
 (f) accept savings and time deposits; (d) rediscount paper with the LBP, DBP or any other bank,
including its branches and agencies. Said banks shall specify
(g) rediscount paper with the Land Bank of the Philippines the nature of paper deemed acceptable for rediscount, as well
(LBP), Development Bank of the Philippines (DBP), and as the rediscount rate to be charged by any of these banks;
other government-owned or-controlled corporations;
(e) act as collection agent;
(h) accept foreign currency deposits as provided under R.A.
No. 6426, as amended; (f) offer other banking services as provided in Section 53 of
R.A. No. 8791; and
(i) act as correspondent for other financial institutions (FIs);
(g) buy and sell foreign exchange.
(j) purchase, hold and convey real estate as specified under
Sections 51 and 52 of R.A. No. 8791; With prior approval of the Monetary Board, an RB may
perform any or all of the following services:
(k) offer other banking services as provided in Section 53 of
R.A. No. 8791; and (h) accept current or checking accounts: Provided, That such
RB has net assets of at least P5.0 million;
(l) buy and sell foreign exchange.
(i) accept negotiable order of withdrawal (NOW) accounts;
With prior approval of the Monetary Board, and subject to such
guidelines as may be established by it, TBs may also perform the (j) act as trustee over estates or properties of farmers and
following services: merchants;

(m) open current or checking accounts; (k) act as official depository of municipal, city or provincial
funds in the municipality, city or province where it is located;
(n) engage in trust, quasi-banking functions and money
market operations; (l) sell domestic drafts; and


(o) act as collection agent for government entities, including

but not limited to, the Bureau of Internal Revenue (BIR), (m) invest in allied undertakings.

Social Security System (SSS) and the Bureau of Customs
(BOC); (5) Coop Banks. A Coop Bank shall primarily provide financial,
banking and credit services to cooperatives and their members,
(p) act as official depository of national agencies and of although it may provide the same services to non-members or the
municipal, city or provincial funds in the municipality, city or general public.
province where the TB is located;
In addition to the powers granted to Coop Banks under existing
(q) issue mortgage and chattel mortgage certificates, buy and laws, any Coop Bank may perform any or all of the banking
sell them for its own account or for the account of others, or services offered by rural banks under Items “4.a” to “4.g” above.
accept and receive them in payment or as amortization of its A Coop Bank may likewise perform any or all of the banking
loan; services offered by rural banks under Items “4.h” to “4.m” as well
as any or all of the banking services offered by other types of
(r) invest in the equity of allied undertakings; banks, subject to prior approval of the Bangko Sentral.

(s) issue foreign letters of credit; and (6) IBs. In addition to the general powers incident to corporations
and those provided in other laws, as well as in Circular No. 105
(t) pay/accept/negotiate import/export draft/bills of exchange. (Appendix 44), insofar as they are not inconsistent or
incompatible with the provisions of R.A. No. 6848, an IB may
perform any or all of the following services:
(4) RBs. In addition to the powers provided in other laws, an RB
may perform any or all of the following services:
(a) open savings accounts for safekeeping or custody with no
participation in profit and losses except unless otherwise
(a) extend loans and advances primarily for the purpose of
authorized by the account holders to be invested;
meeting the normal credit needs of farmers, fishermen or farm
families as well as cooperatives, merchants, private and
public employees; (b) accept investment account placements and invest the same
for a term with the IB’s funds in Islamically permissible
transactions on participation basis;
(b) accept savings and time deposits;
(c) accept foreign currency deposits from banks, companies,
(c) act as correspondent of other FIs;
organizations and individuals, including foreign
governments; (3) Storage companies;


(d) buy and sell foreign exchange;

(4) Companies engaged in the management of mutual
funds but not in the mutual funds themselves; and
(e) act as correspondent of banks and institutions to handle
remittances or any fund transfers;
(5) Such other similar activities as the Monetary Board
has declared or may declare as appropriate from time to
(f) accept drafts and issue letters of credit or letters of time, subject to existing limitations imposed by law.
guarantee, negotiate notes and bills of exchange and other
evidence of indebtedness under the universally accepted
(As amended by Circular Nos. 865 dated 22 December 2014, 682
Islamic financial instruments;
dated 15 February 2010 and 650 dated 09 March 2009)
(g) act as collection agent insofar as the payment orders, bills
§ 1101.1 (Reserved)
of exchange or other commercial documents are exclusive of
riba or interest prohibitions;
§ 2101.1 Authority of thrift banks to issue foreign letters of
credit and pay/ accept/negotiate import/export drafts/bills of
(h) provide financing with or without collateral by way of
exchange. With prior Monetary Board approval, TBs may be
leasing, sale and leaseback, or cost plus profit sales
authorized to issue foreign letters of credit (LCs) and pay/
arrangement;
accept/negotiate import/export drafts/bills of exchange, subject to
compliance with the following conditions (at the time of
(i) handle storage operations for goods or commodity application unless otherwise indicated):
financing secured by warehouse receipts presented to the
bank;
a. Minimum capital requirement of P1.0 billion;
(j) issue shares for the account of institutions and companies
b. Ten percent (10%) risk-based capital adequacy ratio (CAR);
assisted by the bank in meeting subscription calls or
augmenting their capital and/or fund requirements as may be
allowed by law; c. CAMELS composite rating not lower than “3”, with
Management component score not lower than “3” in the latest
examination of the bank;
(k) undertake various investments in all transactions allowed
by the Islamic Shari’a in such a way that shall not permit the
haram (forbidden), nor forbid the halal (permissible); d. Risk management system appropriate to its operations,
characterized by clear delineation of responsibility for risk
management, adequate risk measurement system, appropriately
(l) act as an official government depository, or its branches,
structured risk limits, effective internal control system and
subdivisions and instrumentalities and of government- owned
complete, timely and efficient risk reporting system;
or-controlled corporations, particularly those doing business
in the Autonomous Region;
e. Articles of incorporation which shall include among its powers
or purposes, the issuance of foreign LCs and payment/
(m) issue investment participation certificates, muquaradah
acceptance/negotiation of import/export drafts/bills of exchange
(non-interest- bearing bonds), debentures, collaterals and/ or
(which may be submitted any time prior to engaging in said
the renewal and refinancing of the same, with the approval of
activities);
the Monetary Board to be used by the IB in its financing
operations for projects that will promote the economic
development primarily of the Autonomous Region; f. Correspondent banking relationship or arrangement with
reputable foreign banks (which should be in place prior to
engaging in said activities);
(n) carry out financing and joint investment operations by
way of mudarabah purchasing for others on a cost-plus
financing arrangement, and invest funds directly in various g. Appointment of the officer with actual experience of at least
projects or through the use of funds whose owners desire to two (2) years as in-charge or at least as assistant in-charge of
invest jointly with other resources available to the IB on a import and export financing operations in a UB/KB who will be
joint mudarabah basis; and in-charge of the said operations (prior to engaging in said
activities);
(o) invest in equities of the following allied undertakings:
h. Appointment of bank personnel with actual experience and/or
specific training in import and export financing operations who
(1) Warehousing companies;
 will handle the said operations (prior to engaging in said
activities);
(2) Leasing companies;

i. No net weekly regular and liquidity reserve deficiencies during
the twelve (12) week period immediately preceding the date of
application;

j. No deficiency in asset and liquid asset cover for FCDU

liabilities for three (3) months immediately preceding the date of
application;

k. No deficiency in liquidity floor requirement for government

funds held during the twelve (12)- week period immediately
preceding the date of application;

l. No float items outstanding for more than sixty (60) calendar

days in the “Due From/To Head Office/Branches/Offices” and
“Due from BSP” accounts exceeding one percent (1%) of the total
resources as of end of month preceding the date of application;

m. No unbooked valuation reserves;

n. Compliant with ceilings on loans, other credit accommodations

and guarantees to directors, officers, stockholders, and their
related interests (DOSRI) for the quarter immediately preceding
the date of application;

o. Compliant with the single borrower’s loan limit (SBL);

p. Compliant with the limit on real estate and improvements,

including bank equipment;

q. No uncorrected findings of unsafe and unsound banking

practices;

r. Generally compliant with banking laws, rules and regulations,

orders or instructions of the Monetary Board and/or Bangko
Sentral Management; and

s. No past due obligations with the BSP or with any FI.
 (Circular
No. 650 dated 09 March 2009 as amended by Circular No. 686
dated 20 April 2010)

§ 2101.2 Application for authority to issue foreign letters of

credit and pay/ accept/negotiate import/export drafts/bills of
exchange. An application for authority to issue foreign LCs and
pay/accept/ negotiate import/export drafts/bills of exchange shall
be signed by the president of the bank or officer of equivalent rank
and shall be accompanied by a certified true copy of the resolution
of the bank’s board of directors authorizing the application.

(Circular No. 650 dated 09 March 2009)