CHAPTER 5

THRIFT
BANKS
Group 2
 Introduction
-Thrift banks are financial institutions that accept
deposits and provide loans, primarily focusing on
individuals and small businesses. They offer various
services, including savings accounts and residential
mortgages, and aim to promote economic growth by
facilitating home ownership and supporting community
development. Regulated by government authorities, thrift
banks play a vital role in mobilizing savings and providing
accessible credit within their local communities.
 Three types of thrift banks are:

2
1 Private Development 3
Banks
Savings and Loan Savings Banks
Associations They offer medium- and
These focus on long-term loans for These are established to
accumulating savings investment and credit gather savings from
from stockholders to needs. depositors and invest
provide loans and those funds.
investments.
 Thrift banks can grant loans
secured by various forms of
collateral, including:
Loans can be backed by Loans secured by junior
bonds or mortgages on mortgages must not exceed
real estate, including 70% of the appraised value of
improvements. the property when combined
with senior mortgage balances.
Bonds and
Mortgages Junior Mortgages
1 2
 Savings Bank
Savings banks focus on collecting deposits from
individuals and investing these funds in easily
marketable bonds and securities. They also provide
secured and unsecured loans for personal and
household needs, such as home construction. Their
operations are regulated by Sections 29 to 38 of the
General Banking Act (Republic Act No. 337, as
amended), with the Bangko Central's Monetary Board
overseeing their investment activities to support
national economic goals.
 Private Development Banks

Are organized under Republic Act No.

4093.

Goal: to promote the growth of agriculture

and industry in the Philippines.
 Stock Savings and Loan
Stock savings and loan associations gather
savings from stockholders and use the funds
for loans or investments, mainly to finance
home building and development for
individuals and corporations. They operate
under Republic Act No. 3779, the Savings and
Loan Associations Act.
 Scope and Authority
Thrift banks, which include private development banks, can
perform the following services:

Grant secured or unsecured loans.

Invest in readily marketable bonds and other debt

securities.

Invest in savings and time deposits.

Issue domestic letters of credit.

With approval from the Monetary Board, thrift banks can also:

Engage in trust business.

Perform quasi-banking functions.

Accept checking accounts.

Accept foreign currency deposits.

 Capitalization
Thrift banks must meet minimum paid-in capital
requirements based on their location and whether they are
new or existing institutions. Existing thrift banks need P10
million if based in Metro Manila and P5 million outside
Metro Manila. New thrift banks require P20 million in Metro
Manila and P10 million outside. The capital can consist of
common stock, preferred stock, or a combination of both.
These requirements account for regional economic
differences and the operational scale of newer institutions.
 Establishment of Banking
Offices

Thrift banks can establish banking offices,

such as branches and extension offices,
upon approval from the Monetary Board.
 Deposit Operation

Thrift banks accept savings, time deposits,

demand deposits, and NOW accounts, but require
P50 million in capital to handle demand deposits
and NOW accounts. These deposits allow thrift
banks to gather public funds for lending and
investment activities.
 Thrift Banks offer:
Savings deposits: Accounts for saving money
with interest and withdrawal restrictions.
Time deposits: Require funds to be held for a
fixed period in exchange for higher interest.
Demand deposits: Checking accounts that
allow frequent transactions.
NOW accounts: Combine checking and
savings features with check-writing privileges.
 Loans and Investment
Operation

Thrift banks can grant loans secured by bonds, mortgages on real

estate (including improvements), and articles of collateral nature.

Thrift banks can grant junior mortgages on real estate.

Private development banks are authorized to grant real estate

loans.

Thrift banks can also grant personal security loans.

 Several regulations govern the granting
of loans by thrift banks:

Loans to a single unpaired company, corporation, or firm,

including those granted to members, cannot exceed 15% of the
unimpaired capital and surplus of the bank. The Monetary
Board may increase this limit to 15% of the bank's paid-in capital
and accumulated net profit.
The total outstanding accommodations to each of the bank's
directors, officers, stockholders, or their related interests cannot
exceed their combined capital contribution to the lending bank.
The total outstanding direct or indirect loans to directors,
officers, or stockholders cannot exceed 30% of their total
combined capital accounts.

At least 25% of a thrift bank's loanable funds for

agricultural credit must be made available for agrarian
reform credit.
 Pertinent Regulations on the Grant of
Loans
The outlines regulations for thrift banks in the Philippines to
ensure responsible lending and protect both banks and
borrowers:
Loan Limits to Related Interests: Unsecured loans to
directors, officers, and stockholders cannot exceed 30% of
their capital contributions and deposits. Total outstanding
loans are capped at 15% of the bank's loan portfolio,
potentially rising to 30% for specific purposes like housing.
Single Borrower Limits: Loans to a single borrower cannot
exceed 15% of the bank's unimpaired capital and surplus,
with a possible increase to 25%.

Agricultural Credit Requirement: At least 10% of loanable

funds must be allocated for agrarian reform credit.

Loan Security and Documentation: Loans can be secured

by junior mortgages, and personal security loans require
thorough creditworthiness assessments and
documentation.
 Equity Investments

A thrift bank can invest in the equity (shares of

stock) of allied undertakings, which may be
financial or non-financial in nature.
 A thrift bank's equity investment in a
single financial allied undertaking cannot
exceed the following ratios:

1. Banks: up to 30% of their total voting stock

2. Other financial allied undertakings: up to
40% of their total voting stock
3. Non-financial allied undertakings include:-
a. Warehousing companies
b. Storage companies
c. Safe deposit box companies
d. Companies engaged in the management of
mutual funds
e. Management corporations engaged in
activities similar to the management of mutual
funds
f. Companies engaged in the provision of
computer services
g. Insurance agencies
h. Companies engaged in home building and
home development

i. Companies providing drying and/or milling

facilities for agricultural crops, such as rice and
corn

j. Insurance brokerage
 Borrowing Operation
The borrowing operations of thrift banks in the Philippines,
focusing on their access to funds from the Bangko Central (BS)
to improve liquidity and support lending.

1. Rediscounting with Bangko Central: Thrift banks can

sell eligible loans to the BS for immediate cash. The
maximum rediscounting amount is 100% of the
bank's net worth, with specific maturity limits for
various types of loans.
2. Eligibility Requirements: Banks must comply with
laws, maintain a capital build-up program, and ensure
financial ratios, including limits on overdue loans.
3. Special Credit Accommodations: The BS may offer
special credit to banks facing liquidity issues, with
conditions on loans to related interests.
4. Other Borrowing Options: Thrift banks can also
borrow from government entities, issue commercial
papers, or mortgage certificates.
 Deposit Substitute Operation

Deposit substitute operation, also known as

quasi-banking function, is a way for banks to
raise funds from the public other than through
the acceptance of deposits.
The following are the sources of funds for
quasi-banking:

1. Borrowing funds for the borrower's own

account
2. Twenty or more lenders at any one time
3. A thrift bank can engage in quasi-banking if it
meets the following conditions:
4. A minimum paid-in capital of P50 million
5. At least majority of the voting stock is owned by
citizens of the Philippines

6. At least majority of the members of the board of

directors are citizens of the Philippines

7. The managerial staff has the integrity,

experience, and expertise to ensure the bank is
being conducted with reasonable prudence
 Other Borrowings
Thrift banks in the Philippines can enhance their fund
management through several "Other Borrowings"
methods:
1. Government Borrowing
2. Trust Department Borrowing
3. Commercial Papers
4. Mortgage Certificates
 Other Operations

A thrift bank may also undertake the following:

1. Purchase open market operations, that is,

buying and selling of government securities.
2. Invest in readily marketable bonds and other
debt securities.
3. Engage in trust and other trust business.

4. Sell government securities.

5. Collect taxes, levies and other revenues of the

government, upon prior authority.

6. Participate in clearing operations, if authorized

to accept demand deposits.
7. Sell PNB money orders as consignee.

8. Deal in foreign exchange, upon prior

authority.
In addition to the above, a thrift bank may also
avail itself of the following borrowing
procedures:

1. Borrow from the government or any of its

political subdivisions or instrumentalities.
2. Borrow from trust departments of
managed funds of banks or investment
houses.
3. Issue commercial papers.
 4. Issue and deal in mortgage and chattel
mortgage certificates exclusively for the
financing of:

Equipment loans

Mortgage loans

Loans for the construction,

Real estate mortgage loans

CHAPTER 6

RURAL
BANKS
Group 2
 Introduction
Established in 1950s for poor consumers and small
producers.
Aimed at rural development through financial assistance.
Bangko Sentral offers tax exemptions and low interest
rates to encourage growth.
Past issues: Unpaid debts by farmers, reliance on
moneylenders.
Recent focus: Innovation, mergers, and better
management to strengthen operations.
 Nature of Rural Banking
Established under Republic Act No. 720 (The Rural
Banks Act), regulated by the Bangko Sentral.
Aimed to meet the credit needs of rural areas and
support rural development.
Community-oriented banking structure focused on
rural economies.
To stay competitive, mergers, consolidations, and
equity investments are common strategies.
Rural banks can open branches and correspond
with other financial institutions for wider financial
services.
Executive officers cannot be related within the
second degree, and no individual/family group can
own more than 35% of voting shares.
Government officials cannot serve as officers or
directors in rural banks.
 Organization

A rural bank is organized and operates under Republic

Act No. 720 (The Rural Banks Act), as amended, and
regulated by the Monetary Board of the Bangko Sentral ng
Pilipinas. Rural banks provide credit to rural areas and are
instrumental in rural development, which is a priority for
national development. Similar to urban banks, rural banks
face structural and economic changes to meet the needs of
rural communities and the evolving financial system.
 Directors and Officers
The president and a majority of key officers must
reside in the locality where the rural bank operates. Key
officers cannot be related within the second degree of
consanguinity or affinity. No family group may own or
control more than 35% of voting shares. Directors and
officers cannot serve in other rural banks, nor can
individuals connected with the government hold officer
roles.
 Functions of a Rural Bank
Rural banks perform several functions, including:

1. Granting loans and making investments in accordance with

existing rules and regulations.

2. Accepting savings and time deposits.

3. Selling domestic drafts.

4. Acting as correspondents for other financial institutions

5. Providing custodial services for funds, documents, and

other valuables.

6. Acting as financial agents by buying and selling

securities for customers.

7. Making collections and payments for customers.

 Services of a Rural Bank
Rural banks may offer the following services:

1. Open current, demand, or checking accounts.

2. Act as trustees over estates or properties.
3. Serve as official depositories for municipal, city, or
provincial funds.
4. Rediscount paper with the Philippine National Bank or
other banks, subject to regulations.
5. Invest in allied undertakings.
 Lending Operation of a Rural
Bank
1.Loan Extensions
Prioritize small credit needs of qualified borrowers.
2. Types of Loans Offered
Agricultural, commercial, and industrial operations.
Health, education, and subsistence needs.
Everyday credit needs for farmers, merchants, and
cooperatives.
Personal financing, home building, and development.
3. Credit Investigations
Verification of project existence, security property,
credit needs, and repayment capacity.
4. Approval Process
Final decision by the board of directors.
Delegation of authority to the manager and credit
committee for smaller loan amounts.
All loans must be confirmed by the board
afterwards.
 Lending Operations

A rural bank shall extend loans to as many qualified

borrowers as possible, preference to be given to
borrowers whose credit requirements are small.
Loans may be granted to conduct, develop, or improve
agricultural, commercial or industrial operations.
Loans are also extended to meet the health, educational
and subsistence.
 Types of Loans

1. Agricultural Loans
2. Commercial Loans
3. Industrial Loans
4. Term Loans
5. Loans to Cooperatives
 Terms of Loans

1. Agricultural loans shall be granted for a period not

exceeding 360 days, which may be renewed for nit more
than two ties.
2. Commercial Loans shall be granted for a maximum period
of 180 days, which may be renewed for a period not
exceeding 90 days.
3. Industrial Loans may be granted for a period of not more
360 day, renewable for another period not exceeding 180
days.
 Terms of Loans

4. Term Loans
Maximum maturity periods for medium and long term loan
shall be as follows
20 years
10 years
5 years
3 years
18 months
 Supervised Credit

This is a system of lending which combines

adequate and timely credit with arm and home
management guidance under a trained
technician.
 Special Financing Programs

Rural banks have been allowed to participate in special financing

programs of the government for agricultural production, except
those covered by agreements with foreign production, except
those covered by agreements with foreign countries and/or
international financial institutions, which undertake under a
special financing scheme in accordance with the related rules
and regulations.
 Among the special financing programs wherein
rural banks are allowed to participate are the
following:

1. Bangko Sentral-International Bank for Reconstruction and

Development (CB-IBRD)
2. Small fishermen's Special credit Fund
3. Coconut Financing Program
4. Industrial and Guarantee Loan Fund Program
5. Livestock and Poultry Financing
6. Rice Production Program
7. Masaganang Maisan and Maisagana Programs
8. Gulayan sa Kalusugan
9. Financing Program for Fisheries Production and Development
 Deposit Operations

Types of Deposit accepted by a rural bank

Demand deposit
Savings deposit
Time deposit
NOW Account
 Interest on Deposit
Only savings and time deposits earn interest.
Computation of interest on savings deposits - Interest is
computed daily, monthly, or quarterly.
Basis for computation: 360 days/year.

Formula: Interest = Principal × Rate × (Days/360)

Computation of interest on time deposits - The number of
days will be based on:
1.Term of One Year or More: Based on 365 days/year.
2.Term Less Than One Year: Based on 360 days/year.
 Reserves Against Deposit Liabilities

A rural bank is required to put up reserves

against its deposit liabilities (demand, time,
and saving deposits). Reserves act as an
instrument of the Bangko Sentral in regulating
money supply (cash in actual circulation and
demand deposits).
Composition of Required Reserves against deposit
liabilities

1. Deposits with the Central Bank: At least 25% of the

required reserves must be held in the form of deposits with
the Central Bank.

2.Government Securities and Cash in Vault:The remaining

portion of the required reserves may be held as cash in the
bank’s vault or in the form of government securities or
evidence of indebtedness of the Republic of the
Philippines.
 Insurance on Deposits
Rural banks are required to indicate Philippine Deposit
Insurance Corporation (PDIC) coverage on Passbooks,
Certificates of time deposits, Checkbook covers for
demand deposits/NOW accounts.

The maximum insurance coverage under Republic Act

No. 3591, as amended, is P100,000 per depositor for
deposits maintained in an insured bank.
 Borrowing Operations
The two types of borrowing available to a rural bank are
the following:
1. Rediscounting - A privilege for rural banks to negotiate
with the Bangko Sentral ng Pilipinas (BSP) by transferring
ownership of eligible customer papers to secure
advances.
Purpose: To supplement operating capital and meet
community credit demands, fostering local economic
development and productivity.
An eligible paper is a promissory note, draft, or a bill of
exchange with the following characteristics:

Eligible papers must arise from agricultural,

commercial, or industrial transactions, with proceeds
used for the production, purchase, transportation, or
marketing of goods.
Eligible papers must have a maximum maturity of
360 days for agricultural and industrial credits, and
180 days for loans to small merchants.
Ineligible Papers for Rediscounting:

1. Proceeds used for permanent investments except

small machinery for cottage and agro-industrial
production.
2. Proceeds used for purely speculative investments.
3. Papers representing renewed loans or overdue
balances.
4. Papers with unregistered mortgages.
5. Incomplete or defective papers and supporting
documents.
2. Direct borrowing - A rural bank can borrow from the
Development Bank for 10 years at 2% interest, secured
by shareholders.

Conditions:
1 The Monetary Board must confirm that the bank's
assets are insufficient for local credit needs.
2. Private capital must be raised in the locality.
3. Shareholders cannot increase the bank's paid-up
capital.
 Equity Investment
A rural bank may invest in the equities or shares of
financial and non-financial allied undertakings.

Financial Allied Undertakings:

Institutions providing credit or financial assistance, such
as banks, investment houses, financing companies, and
pawnshops, which may or may not be regulated by the
Bangko Sentral.
 Non-Financial Allied Undertakings - Declared
investment fields by Bangko Sentral:
1 Warehousing companies
2. Processing facilities for agricultural crops (e.g., rice,
corn)
3. Drying facilities for agricultural crops (e.g., rice, corn)
4. Insurance agencies
5. Safe deposit companies
6. Marketing facilitation companies for agricultural
products (e.g., palay, rice, corn, vegetables, sugar)
Thank You
GROUP 2