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[ BSP CIRCULAR NO. 789, February 28, 2013 ]
AMENDMENTS TO THE MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS APPLICABLE TO NON-STOCK SAVINGS AND LOAN ASSOCIATIONS
Section 1. New provisions of Section 4301S are hereby inserted in the MORNBFI-S Regulations, while its existing provisions on Authority, Loan Limits, Maturity of Loans are amended and transferred to the new Subsection 4301S.1, as follows:
"Sec. 4301S Lending Policies. It shall be the responsibility of the board of trustees of NSSLAs to formulate written policies on the extension of credit. Well-defined lending policies and sound credit risk management practices are essential if NSSLAs are to perform their lending function effectively and minimize the risk inherent in any extension of credit. The responsibility should be approached in a way that will provide assurance to the members, other stakeholders and the supervisory authority that timely and adequate action will be taken to maintain the quality of the loan portfolio.”
“Subsec. 4301S.1 Authority; Loan Limits, Maturity of Loans. The board of trustees of NSSLAs shall be responsible for the design of appropriate loan products in accordance with the Association’s business strategies and its members’ requirements. The board of trustees shall ensure that they fully understand all the risks attendant to the Association’s lending activities and shall adopt appropriate risk management policies and practices that are commensurate to the risks attendant to their operations, and which, at a minimum, shall comply with the regulations and standards prescribed herein. NSSLAs deemed to be engaged in hazardous lending practices shall be cited as operating in an unsafe and unsound manner.
“a. Loan Products. NSSLAs may grant loans to members to service the needs of households by providing long term financing for home building and development, for personal finance and for agricultural and entrepreneurial projects. The board of trustees of NSSLAs shall consider, among other things, the following in the definition of its loan products:
(1) the nature or purpose of the loan;
(2) the repayment capacity and circumstances of the member-borrower;
(3) terms of the loan; and
(4) normal loan collection cyclesThe definitions and characterization of all loan products shall be embodied in a product manual approved by the board of trustees. The product manual shall, at a minimum, contain the term of the loan, the maturity of which shall in no case exceed the maximum provided under Item “d” of this Subsection, interest rate, net-take home pay requirement vis-à-vis the type of member-borrower, repayment terms, collection scheme, documentary requirements and applicable work-out strategies. The normal collection period, which refers to the normal period of time within which the Association is able to effect the first periodic amortization/salary deduction for amortization of a loan reckoned from loan release date, shall likewise be set by the NSSLA’s board of trustees and shall be based on the recent historical experience of the NSSLA (e.g., last three years) and/or the remittance period specified in contracts entered into with private companies or department/branch/office of government employing the NSSLA’s members. The NSSLA’s normal collection period and the manner by which it is established shall be set forth in the NSSLA's loan policies and considered in its overall risk assets review system in order to reflect the true status of loan accounts and ensure that adequate loss reserves are provided. In no case, however, shall the normal collection period exceed six (6) months from the date of release of the loan.”
“b. Loan limit to single borrower. xxx”
“c. Limitations on lending authority. xxx”
“d. Maximum loan maturity. xxx”
Section 2. Subsection 4306S.1 on accounts considered past due is hereby amended, as follows:
“Subsec. 4306S.1 Accounts considered Past Due. The following shall be considered past due:
“a. For loan or receivable payable on demand not paid upon written demand as required herein or within one (1) year from date of grant or renewal, whichever comes earlier. “xxx xxx xxx”
“b. For loans or receivables payable on installment, the outstanding balance of the loan if a payment has fallen due and remained unpaid;
“c. In case of restructured loans as defined in Sec. 4308S, the total outstanding balance of the loan if a payment has fallen due and remained unpaid; and
“d. All items in litigation as defined in the Manual of Accounts.
“Past due accounts as defined herein are considered non-performing loans (NPL).”
Section 3. Section 4308S is hereby added to provide for the rules and regulations on restructuring of loans, which shall read as follows:
“Sec. 4308S Restructured Loans; General Policy. Restructured loans are loans the principal terms and conditions of which have been modified for it not to become a problem account, or if already past due, to allow for a better settlement plan to fully pay-off the loan. Restructured loans are supported by a restructuring agreement setting forth a new plan of payment or a schedule of payment on a periodic basis. The modification may include, but is not limited to, change in maturity, installment amortization, interest rate, collateral or increase in the face amount of the debt resulting from the capitalization of accrued interest/accumulated charges.
“Items in litigation and loans subject of judicially-approved compromise, as well as those covered by petitions for suspension or for new plans of payment approved by the court or the SEC, shall not be classified as restructured loans.
“NSSLAs shall have the flexibility to determine the basis for and terms of the loan restructuring, considering, among other things, the paying capacity of the borrowers: Provided, That these shall at all times be consistent with sound credit risk management standards.
“Loan restructuring shall be subject to the approval of the board of trustees whose resolution shall embody, among other things:
1. basis of or justification for the approval;
2. basis for the determination of the borrower’s capacity to pay; and
3. nature and extent of protection of the exposure.“The restructuring of loans granted to trustees and/or officers of an NSSLA should be upon terms not less favorable to the Association than those offered to other members.”
“In case of loans secured by real estate collateral, such security shall be appraised at the time of restructuring to ensure that current market values are being used.”
“A second restructuring of a loan may be allowed only if there are reasonable justifications, and after the borrower has paid at least twenty percent (20%) of the principal obligation and updated the payment of all interest accruing to the loan as first restructured.
“Restructured loans shall be classified and provided with adequate allowance for probable losses in accordance with Appendix 9.”
Section 4. Subsection 4306S.2 on Extension/renewal of loans is hereby transferred to Section 4309S and amended to read as follows:
“Sec. 4309S Renewal of loans
“Loans payable in periodic installments may be renewed for the full or beyond the amount of such loans but within the limit prescribed under Subsec. 4301S.1b or the NSSLA by-laws, as applicable: Provided, That at least thirty percent (30%) of the loan shall have been paid.”
Section 5. Section 4392S is hereby added to provide for the rules and regulations on risk assets review system and provision of adequate allowance for probable losses, to read as follows:
“Sec. 4392S Loan portfolio and other risk assets review system
“To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets, and that adequate loss reserves are set-up and maintained at a level sufficient to absorb the loss inherent in the loan accounts and other risk assets, each NSSLA shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets, and of evaluating credit and asset management policies vis-à-vis prevailing circumstances and emerging portfolio trends.
“The board of trustees is responsible for ensuring that the NSSLA has, at a minimum:
- A robust risk management system that shall include, at least, an independent and periodic review of quality of risk assets;
- Controls in place, and policies and procedures to determine the adequacy of booked allowance for probable losses on loans and other risk assets, consistent with the Philippine Accounting Standards and the minimum standards required in Appendix 9. The allowance for losses required in the said appendix shall likewise be set-up immediately; and
- A robust process to ensure that the board of trustees is informed of the results of independent and periodic reviews, and determination of adequacy of booked loss reserves, and that appropriate actions on such reports are undertaken consistent with the specific duties and responsibilities of the board of trustees as provided under Subsec. 4141S.5.a(7).
Section 6. Section 4655S on Annual Fees on NSSLAs is amended to read as follows:
“Sec. 4655S Annual Supervisory Fees
“The prescribed rate of annual supervisory fees for an NSSLA beginning assessable year 2012 shall be one-sixty-fifth of one percent (1/65 of 1%) of its Average Assessable Assets (AAA) of the immediately preceding year but shall not exceed the maximum amount provided below:
FEES> P1.0 BILLION > P750.0 MILLION – P1.0 BILLION > P500.0 MILLION – P750.0 MILLION > P250.0 MILLION – P500.0 MILLION > P100.0 MILLION – P250.0 MILLION UP TO P100.0 MILLION “Provided, That the minimum amount of annual fees of NSSLAs with AAA of up to P100.0 million shall be P10,000.00.”
“The annual supervisory fee shall be payable within thirty (30) days from receipt of the billing statement from the Bangko Sentral. Failure to pay the annual fee within the prescribed period shall subject the NSSLA to administrative sanctions.”
“For purposes of computing the annual supervisory fees, AAA shall be the summation of end-of-quarter total assessable assets (end-of-quarter total assets per balance sheet, after deducting cash on hand and amounts due from banks) divided by the number of quarters in operation during the particular assessment period.”
Section 7. The first and second paragraphs of Section 4106S on Capital are hereby amended to read as follows:
“Sec. 4106S Capital of NSSLAs
“A newly organized NSSLA shall have a minimum initial aggregate capital contribution of P1.0 million. Thereafter, an NSSLA shall maintain a minimum capital that would allow it to comply with the capital adequacy ratio requirement as provided under Sec. 4116S.
“NSSLAs shall adopt policies to encourage their members to increase their capital contributions which shall be classified by the NSSLA as either fixed/non-withdrawable or withdrawable capital in accordance with the definition provided under Subsec. 4106S.1. Partial withdrawal from the amount paid by a member as withdrawable capital contributions, during his membership, may be allowed unless the bylaws of the NSSLA provide otherwise: Provided, That policies allowing the partial withdrawal by a member of his withdrawable capital contributions shall comply with the provisions of Subsec. 4106S.1.”
Section 8. Subsection 4106S.1 on Revaluation Surplus is hereby renumbered as Subsection 4106S.7, Subsections 4106S.2 up to 4106S.6 are created as reserved subsections, and the new Subsection 4106S.1 shall now read as follows:
“Subsec. 4106S.1 Regulatory Treatment of Capital Contributions of Members.
“An NSSLA shall ensure that monies received representing capital contributions are duly registered in the books of the Association under the name of the member making such contributions.
“Capital contributions of members shall be classified by an NSSLA as either fixed/non-withdrawable or withdrawable as herein defined.
“a. Fixed/non-withdrawable capital refers to the member’s capital contribution in the NSSLA which he must maintain for the duration of his membership thereon.
(1) Minimum Amount - Every member of an NSSLA shall be required to maintain a fixed/non-withdrawable capital contribution of at least P1,000.00 unless a higher minimum is prescribed under the NSSLA’s by-laws.
(2) Ceiling. An NSSLA shall encourage all its members to increase their fixed/non-withdrawable capital over time beyond the minimum amount prescribed under item “(1)” hereof. However, to ensure that control over the affairs of the NSSLA remains broad-based, the total amount that a member and/or his immediate family may contribute as fixed/non-withdrawable contributions shall be subject to a ceiling which shall be determined by the board of trustees and duly confirmed by the NSSLA’s general assembly. The prescribed ceiling shall be applied uniformly to all members: Provided, That in cases where the NSSLA is unable to comply with the capital adequacy ratio requirement as provided under Sec. 4116S, any deviation from the uniform application of or setting-up of aforesaid ceiling may be allowed.
“b. Withdrawable capital refers to the amount of capital contributions which may be withdrawn by a member pursuant to the terms and conditions prescribed under the NSSLA’s by-laws, or as approved by the board of trustees and duly confirmed by the NSSLA’s general assembly.
(1) Ceiling. At no time shall the total withdrawable capital contributions of a member and that of his immediate family, as defined in Subsec. 4101S.1.b(3), exceed ten times (10X) their fixed/non-withdrawable capital contributions.
(2) Restrictions on withdrawability. Notwithstanding the capital contributions’ withdrawability, the NSSLA shall establish and prescribe the conditions and/or circumstances when the NSSLA may limit the withdrawal of the members’ withdrawable capital contributions, such as, when the NSSLA is under liquidity stress or is unable to meet the capital adequacy ratio requirement under Sec. 4116S.
“c. Limit on total capital contributions. NSSLAs shall prescribe a maximum amount on the total amount of fixed and withdrawable capital contributions that a family group (i.e., member and his immediate family as defined under Subsec. 4101S.1.b (3)) may hold in an NSSLA.
“Transitory provisions. An NSSLA shall have one (1) year period reckoned from (the effectivity of this Circular) within which to amend the pertinent provisions of its by-laws and written policies to comply with the foregoing requirements: Provided, That amounts held in excess of the prescribed ceiling under Item “b.(1)” hereof upon (effectivity of this circular) shall be allowed to continue as such but once reduced shall not thereafter be increased beyond the prescribed ceiling.”
Section 9. The first paragraph of Section 4116 on Capital-to-risk- assets ratio is hereby amended to read as follows:
“Sec. 4116S Capital-to-Risk Assets Ratio. Capital-to-risk assets ratio (CAR) is an important tool to measure solvency and effectively manage the risk-taking activities of an NSSLA, determine its capacity to absorb unexpected losses, and adequately provide protection to members and creditors.
“The CAR, expressed as a percentage of total capital accounts to total risk assets shall not be less than ten percent (10%).
“For purposes of computing CAR, the aggregate amount of withdrawable capital contributions that shall be allowed to form part of an NSSLA’s total capital accounts shall be capped at ten times (10X) the aggregate amount of fixed/non-withdrawable capital contributions.
“Total risk assets is defined as total assets minus the following assets:
- Cash on hand;
- Evidences of indebtedness of the Republic of the Philippines and any other evidences of indebtedness/obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines;
- Loans to the extent covered by hold-out on, or assignment of deposits maintained in the lending NSSLA;
- Office premises, depreciated;
- Furniture, fixture and equipment, depreciated;
- Real estate mortgage loans guaranteed by the Home Guarantee Corporation to the extent covered by the guarantee; and
- Other non-risk items as the Monetary Board may, from time to time, authorize to be deducted from total assets.
“xxx.”
“xxx.”“Transitory provisions. An NSSLA which failed to meet the minimum CAR as prescribed above shall have until 30 June 2013 within which to comply.”
Section 10. Section 4126S is hereby amended to read as follows:
“Sec. 4126S Limitations on Distribution of Net Income
- Amount available for income distribution. An NSSLA may distribute net income to members out of its adjusted Undivided Profits and the balance of its Surplus Free account as of the calendar year-end or fiscal year-end immediately preceding the date of net income distribution: Provided, That in addition to the requirements as provided in this Section, in no case shall the NSSLA distribute any of its net income and/or surplus to its members if its CAR and capital contributions are below the level required under Secs. 4116S and 4106S, respectively.
- Basis for participation in profits. Member-contributors of an NSSLA may participate in the profits of the NSSLA on the basis of the balances of their capital contributions as determined by the board of trustees: Provided, That an NSSLA shall distribute net income to members only once in a calendar or fiscal year adopted by such NSSLA.
- Level of withdrawable share reserve. No NSSLA shall distribute any of its net income to its members if the withdrawable share reserve required under Sec. 4117S is less than, or by such distribution would be reduced below, the amount specified in said Section. The reserve shall be adjusted first before the NSSLA shall distribute its net income for the year.
- Discrepancies between the general ledger and subsidiary ledger accounts. The surplus reserves set-up as required under Sec. 4118S shall not be reverted to Surplus Free available for distribution to members unless and until the discrepancy between the general ledger accounts and their respective subsidiary ledgers for which the surplus reserve has been set up ceases to exist.
- Other unbooked capital adjustments required by BSP, whether or not allowed to be set up on a staggered basis. The unbooked loss reserves and other unbooked capital adjustments required by the Bangko Sentral based on the latest approved Report of Examination of the NSSLA, whether or not allowed to be set up on a staggered basis, shall be deducted from the amount of net income available for distribution to members.
- Interest and other income earned but not yet collected/received, net of allowance for credit losses. Accrued interest and other income not yet received but already recorded by an NSSLA from financial assets, net of allowance for credit losses, shall be deducted from the amount of net income available for distribution to members.”
Section 11. Effectivity. This Circular shall take effect fifteen (15) calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD:
(SGD.) AMANDO M. TETANGCO, JR.
Governor