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Transcript of Chapter 14 - THRIFT AND RURAL BANKS

There are three types of banks which are categorized under the general grouping of thrift banks :
Savings and mortgage banks, or simply, saving banks
Private development banks ; and
Stocks savings and loan association.
These types of thrift banks may perform any or all of the following :
a. accept savings and time deposits;
b. grant loans, whether secured or unsecured;
c. invest in readily marketable bonds and other debt-securities, commercial papers and accounts receivables, drafts;
d. issue domestic letters of credit;
e. engage in trust business with Monetary Board approval;
f. with prior Monetary approval, deal in foreign exchange;
g. with prior Monetary Board approval, and in accordance with specific guidelines with respect to laid in capital (P50 M), accept checking accounts, engage in quasi- banking operations (money market) and;
h. with prior approval, deal in government securities or collect taxes, subsidiaries and other revenues of the government;
The First Savings Bank
August 21, 1881 - the first savings bank in the Philippines was founded by Father Felix Huertas for whom a street in Manila is named after. Originally it was called
" Monte de Piedad y Caja de Aborros de Manila"
1906 - the Postal Savings Bank was created as a division of the burea of posts.
Two years later, the government established the Agricultural bank with a capital of P 1 million - an amount considered quite meager even then.
Passage Act No. 2612 - the assets and liabilities of said bank were transferred to the Philippine National Bank.
Prior to its establishment, banking business in the philippines was dominated by foreign interest.
In addition ti its privilage of note issue, which is enjoyed together with the Bank of the Philippines Islands (forerunner of the Banco Espanol-Filipino Isabel II), for many years, the Philippine National Bank functioned effectively in the grant of short-term loans to industry.
Establishment of Savings Bank Registration
The Securities and Exchange Commission shall not register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by a Monetary Board, under its official seal.
Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it :
(a) that all the requirements of exixting laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with
(b) that the public interest and economic condition both general and local , justify the authorization;
(c) that the amount of the capital, the financing organization, direction and administration, as well as the integrity and responsibility of the organizers and adminitrators reasonably assure the safety of the interest which the public may entrust to them.
The monetary Board shall prescribe the qualification of bank directors and officers for puposes of Section k9-A of the General Bank Act.
Voting Stock
At least 70% of the voting stock of any banking institution which may be established after the approval of the General Banking Act shall be owned by citizens of the Philippines, excep where a new bank is established as a result of :
(a) the local incorporatiion of any of the existing branches or agencies of any foreign banks in the Philippines pursuant to Section 68 of the said banking Act
(b) the consolidation of existing banks in any of which there are foreign-owned voting stocks at the time of consolidation.
The consumption of the minimum percetage of Filipino-owned voting stocks as required above shall be governed by the provisions of the second paragraph of Section Twelve A of the General Banking Act.
Capital Accounts Requirements
In accordance with BSP Circular No. 156, March 19, 1998, otherwise known as the combined capital accounts of each savings and mortgage bank, shall not be less than P325 million by December 31, 1999 as in total assets minus the following assets :
(a) Cash on hand;
(b) Amounts due from the Central Bank;
(c) Evidence of indebtness of the Republic of the Philippines and of the Central Bank, and any other evidence of indebtness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. Loans to the extent covered by the hold-out on or assignment of, deposits maintained in the Philippines;
(d) Other non-risk items as the Monetary Board may, from time to time, authorize to be deducted from total assets.
In this connection, the Monetary Board shall prescribe the manner of determining the total assets of banking institutions.
Circular No. 156, 19 March 1998

increases the minimum capitalization of new banks by
for universal banks,
for regular commercial banks and
for rural and
thrift banks from mandated banks' capitalization requirement for
The provision granting banks listed or in the process of being listed in the

Philippines Stock Exchange

additional six months

to comply with the capitalization requirement was cancelled through

Circular No. 168 dated July 1998.
Loans and Investment
The loans and savings function of savings and mortgage banks are distinct from the functions performed by commercial banking institutions and are governed by a Section of General Banking Act.
Such loans and investment shall be limited to the following :
(a) Loans with the security of their own savings deposit obligation of mortgage and chartel mortgage bonds which they have issued, or with the security of savings deposit obligations of other banks doing business in the Philippines.
(b) Medium-term loans of the following types :
1. Loans for the encouragement of the cattle, carabao, and other livestock breeding, with maturities up to three-years.
2. Equipment loans, with maturities up to five years, for the acquisition of fertilizers an any instruments, machinery and other movable equipment used in the production, processing, transformation , handling of transportation of agriculrural and industrial products.
(c) Mortgage loans, with maturities up to 10 years, for the conservation, enlargement or improvement of productive properties, or the acquisition or machinery or other fixed installations.
(d) Real estate mortgage loans with maturities of not more than 20 years, for the following puposes only :
1. For the construction, acquisition, expansions or improvement of the rural and urban properties,
2. For enhancing of similar loans and mortgages; and
3. For such other puposes as may be authorized by the Monetary Board.
(e) High- grade bonds and other evidence of indebtedness, and loans against such obligations.
(f) Drafts, bills of exchange , acceptances, or notes arising out of current commercial transactions, which are endorsed or accepted, by any solvent bank in the Philippines.
(g) Collateral trust bonds or notes, or obligations secured by a first mortgage or by a participating interest in a first mortgage on improved urban or rural estate in cities and municipalities of the Philippines, provided that such bonds and notes shall have been outstanding for at least three years, provided that during that period of earnings of the property mortgaged and available for paying interest have been equal to at least 200% of the annual interest payable account of all first mortgaged obligations outstanding.
(h) Loans secured by the pledge to the corporation of gold or silver bullion.
(i) Loans with first mortgages transferred to the corporation as collateral un encumbered real estates in the cities and municipalities of the Philippines.
(j) Equities of allied undertakings as may be provided by the Monetary Board for savings and mortgage banks provided :
1. the total investment in the equities shall not exceed 25% of the net worth of the bank
2. the equity investment in any single enterprise shall not exceed 15% of the net worth of the bank
3. the total equity investment of the bank in any single enterprise shall remain a minority holding in that enterprise, except where the enterprise is not financial intermediary
4.the equityy investment in other banks, if limitations imposed on similar investment of commercial banks shall be deducted for the investing bank's net worth for the puposes of computing the prescribed ratio of net worth risk assets.
Outstanding Deposits of Thrift Banks
Thrift banks were established to entice the people to save. The savings generated by the Savings Bank can be lent out to invetors or can be used by the banks themeselves to invest in marketable bonds and other commercial papers.
Types of Deposit Accounts
A. Individual Account
B. Joint Survivorship
C. Young Person's Account
D. Trustee Account for Adult
E. Trustee Account for Minor Child
F. Estate Accounts
The rules of savings banks regarding deposits and withdrawals are printed in the passbook.
All deposits and withdrawals shall be made only with the proper presentation of the passbook.
In the case of withdrawal, it must be made by the depositor in person by filling out a withdrawal slip/receipt furnished by the bank.
Saving and mortgage banks do not set a limit as to amount a depositor can withdraw at any time provided the amount does not exceed the balance outstanding to his credit as shown in his deposit book.
The bank customarily reserves the right to require so many days notice , say 30 days, by the depositor of his intention to make withdrawal.
Thrift Banking Authority
Pursuant to Resolution, No. 1205 of then Monetary Board dated July 3, 1980, savings and mortgage banks, stock savings and loan associations, and private development of the banks, referred to as thift banks, may perform any or all of the following services :
(a) To grant loans, whether secured or unsecured
(b) To invest in readily marketable bonds and other debt securities, commercial papers and occounts receivables, drafts, bills of exchange, acceptances or notes arising out of commercial transactions;
(c) To issue domestic letters of credit;
(d) To undertake such other investments which the Monetary Board may determine as necessary in the furtherance of national economic objectives.
With prior approval of the Monetary Board, thrift banks may undertake trust and quasi-banking functions and accept checking accounts, "NOW" accounts, government depositions and foreign currencies deposits.
List of Local Thrift Banks (2008)
Philippine Postal Savings Bank
Privately owned
Acoord Savings Bank
Allied Savings Bank (subsidiary of Allied Bank)
Anchor Savings Bank
Area Development
Asiatrust Bank
Banco Filipino
Bank of Calape
Bank of Cebu
Bataan Development Bank
BPI Direct Savings Bank ( subsidiary of Bank of the Philippines Islands)
BPI Family Savings Bank (subsidiary of Bank of the Philippine Islands)
Business and Consumer Bank
Centennial Savings Bank
Century Savings Bank
City Savings Bank
Cordillera Savings and Loan Bank
Dumaguete City Development Bank
Dungganon Bank
EIB Savings Bank (subsidiary of EX port and Industry Bank )
Equitable Savings Bank (subsidiary of Banco de Oro)
Express Savings Bank
Farmers Savings Bank
First Consolidated Bank
GSIS Family Bank (subsidiary of the Government of Service Insurance System
Hiyas Bank
Iloilo City Development Bank
Inter-Asia Developmnent Bank
Kauswagan Bank
Legazpi Savings and Loan Bank
Lemery Savings and Loan Bank
Liberty Savings and Loan Association
Life Savings Bank
Luzon Development Bank
Malasiqui Progressive Savings and Loan Bank
Malayan Bank
Manila Bank
Merchants Savings and Loan Savings Bank
Metro Cebu Pacific and Savings Bank
Micro Enterprise Bank
Northpoint Development Bank
Opportunity Microfinance Bank
Optimum Development Bank
Orion Bank
Pacific Ace Savings Bank
Palawan Development Bank
Pampanga Development Bank
Penafrancia Savings and Loan Association
Philam Savings Bank (subsidiary of Philam Life )
Philippine Business Bank
Philippine Savings Bank (Metrobank Group)
Pilipinas Savings Bank
Planters Development Bank
Premiere Development Bank
Progress Savings and Loan Association
Quezon City Development Bank
Quezon Coconut Producers Savings and Loan Bank
RCBC Savings Bank (subsidiary of Rizal Commercial Banking Corporation )
Rizal Bank
Robinsons Savings Bank (subsidiary of JG Summit Holdings)
Sampaguita Savings and Loan Association
San Pablo City Development
Sandigan Savings Bank
Silangan Savings and Loan Bank
Sterling Bank of Asia
Tower Development Bank
UCPB Savings Bank (subsidiary of United Coconut Planters Bank)
University Savings and Loan Association
Village Savings and Loan Association
Vizcaya Savings and Loan Association
Wealth Development Bank
World Partners Bank
List of Foreign Banks with Thrift Banking Operations
American Express Bank
Citibank (through Citibank Savings )
GE consumer Finance (through GE Money Bank)
HSBC (through HSBC Savings Bank)
JP Morgan Chase & Co.
United Overseas Bank
Grant of Authority to Perform Other Banking Services
With prior approval of the Monetary Board, A thrift bank may convert into a commercial bank and then subsequently may be granted an expanded commercial banking autority ; or remain as a thrift bank, and to the extent allowed by law, perform all the services of a commercial bank and then those of a bank with expanded commercial banking authority, in which case it may retain its corporate name : provided, that its Articles of Incorporation are amended to encompass its new powers.
The Balance Sheet of Thrift Banks
Thrift banks are tasked to accept savings and time deposits from ordinary households, farmers and merchants.
Thrift banks exist to provide credit to small and medium enterprise. They also provide housing loans, open letters of credit, invest in marketable bonds and securities.
Compared to the commercial banks, they have limited power and size. They tend to be more conservative in their operations.
Rural Bank's Balance Sheet
Rural banks are tasked to accept savings and time deposits, rediscount papers with the Land Bank of the Philippines and Development Bank of the Philippines then extend loans and credi to farmers, fishermen, cooperatives and merchant.
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