A Status Report

on the
Philippine
Financial System

Second Semester 2010

 This semestral report is prepared pursuant to Section 39(c), Article V of Republic Act No. 7653
(The New Central Bank Act) by the Ofice of Supervisory Policy Development, Supervision and Examination
Sector, Bangko Sentral ng Pilipinas. This semester's report incorporates the Report on the Implementation
of Republic Act No. 772f (An Act Liberalizing the Entry and Scope of Operations of Foreign Banks and for
Other Purposes) and the reports on BSP Rules and Regulations Promulgated, as well as Other Actuations
in Connection with ThriG BanksƒRural BanksƒNon−Stock Savings and Loan Associations under Section 27
of Republic Act No. 7906 (ThriG Banks Act of f995), Section 29 of Republic Act No. 7353 (Rural Banks Act
of f992) and Sections 26 of Republic Act No. 8367 (Revised Non−Stock Savings and Loan Association Act
of f997), respectively. A synopsis of the report is available online at http:ƒƒwww.bsp.gov.ph.
 Status Report on the Philippine Financial System
Second Semester 2010

Table of Contents
Page Number
Glossary of Terms i

Prologue v

The Philippine Financial System: An Assessment f

The Banking Sector

The Philippine Banking System 6
Universal and Commercial Banks 20
ThriG Banks 38
Rural Banks 48
Cooperative Banks 57
Foreign Bank Branches and Subsidiaries 63

The Non−Bank Financial Insitutions

Non−Bank Financial Institutions with Quasi−Banking Functions 7f
Non−Stock Savings and Loan Associations 75

Offshore Banking Units 77

Trust Operations 79

Tables
Schedules
Schedule f : Financial Institutions under BSP SupervisionƒRegulation
Schedule 2: Comparative Statement of Condition
Schedule 3: Selected Contingent Accounts
Schedule 4: Trust and Fund Management Operations
Schedule 5: Comparative Statement of Income and Expenses
Schedule 6: Branches and Subsidiaries of Foreign Banks
Schedule 7: Non−Bank Financial Institutions

Appendices
Appendix f : Changes in Bank Regulations (January to December 20f0)
Appendix 2: Directory of Philippine Banks'ƒNBQBs'ƒOffshore Banks' Head Ofices
Appendix 3: 2009 Survey Results on the Effects of Foreign Bank Entry
in the Philippine Banking System

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Glossary
A. SELECTED ACCOUNTS
f. financial Reporting Package (fRP) is a set of financial statements for prudential reporting
purposes composed of the Balance Sheet, Income Statement and Supporting Schedules. The
FRP is primarily designed to align the BSP reportorial requirements with the provisions of the
Philippine Financial Reporting Standards (PFRS)ƒPhilippine Accounting Standards (PAS) and Basel
2−based Capital Adequacy Framework. It is also designed to meet BSP's statistical requirements.

2. Total Assets refer to the sum of all assets, adjusted to net of ”Due from Head
OficeƒBranchesƒAgencies” and ”Due to Head OficeƒBranchesƒAgencies” of foreign bank
branches.

3. financial Axxetx (Other than Loanx and Receivablex) refer to the sum of all investments in financial
assets, net of direct equity investments. These include financial assets held for trading (HFT),
designated at fair value through profit or loss (DFVPL), available−for−sale (AFS), held−to−maturity
(HTM), unquoted debt securities classified as loans (UDSCL) and investments in non−marketable
equity securities (INMES).

4. Equity Invextmentx refer to equity investments in subsidiaries, associates and joint ventures.

5. For purposes of computing the average, one period covers f 2 months.

a. Average axxetx refer to the sum of total assets as of end of two periods divided by 2.

b. Average capital refers to the sum of total capital accounts as of end of two periods divided
by 2.

c. Average earning axxetx refer to the sum of earning assets as of end of two periods divided
by 2.

d. Average interext-bearing liabilitiex refer to the sum of interest−bearing liabilities as of end

of two periods divided by 2.

6. financial Liabilitiex Held Gor Trading (HfT) refer to the sum of derivatives with negative fair value
held for trading and liability for short position.

7. financial Liabilitiex Dexignated at fair Value Through Profit or Loxx (DfVPL) refer to financial
liabilities that upon initial recognition are designated by the bank at fair value through profit or
loss.

8. Unxecured Subordinated Debt (USD) refers to the amortized cost of obligations arising from the
issuance of unsecured subordinated debt which may be eligible as Tier 2 (supplementary) capital
of the bank, subject to certain terms and conditions.

9. Redeemable PreGerred Sharex refer to preferred shares issued which provides for redemption on
a specific date.

f0. Total Capital refers to the sum of paid−in capital of locally incorporated banks, assigned capital
and the allowable qualified capital component of the net ”Due ToƒDue From Head
OficeƒBranchesƒAgencies” accounts of branches of foreign banks, other equity instruments,
retained earnings and undivided profits, other comprehensive income, and appraisal increment
reserves.
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f f. Earning Axxetx refer to the sum of loans (net of allowance for probable losses) and other financial
assets (net of allowance for credit losses and accumulated market gains or losses), net of equity
investments.

f2. Interext-bearing Liabilitiex refer to the sum of deposit liabilities, bills payable, unsecured
subordinated debt, bonds payable and redeemable preferred shares.

f3. Liquid Axxetx refer to the sum of cash and due from banks and other financial assets (net of
allowance for credit losses.

f4. Total Operating Income refers to the sum of net interest income and non−interest income.

f5. Net Interext Income refers to the difference between interest income, provisions for losses on
accrued interest income from financial assets and interest expense.

f6. Provixion Gor Loxxex on Accrued Interext Income Grom financial Axxetx refers to the impairment
loss on accrued interest income from loans and other financial assets, net of equity securities,
charged against current operations.

f7. Non-Interext Income refers to the sum of dividend income, fee−based income (including income
from fiduciary activities), trading income, foreign exchange profits, profits from
saleƒderecognition of non−trading financial assets and liabilities, profits from saleƒderecognition
of non−financial assets, profits on financial assets and liabilities DFVPL, profits on fair value
adjustment in hedge accounting and other non−interest income.

f8. Dividend Income refers to cash dividends earned on equity securities held as HFT, DFVPL, AFS
and INMES.

f9. fee-baxed Income refers to the sum of income from payment services, intermediation services,
custodianship, underwriting and securities dealership, securitization activities, fiduciary activities
and other fee−based income.

20. Trading Income refers to the sum of realized gainsƒ(losses) from saleƒredemption, and unrealized
gainsƒ(losses) from marking−to−market of HFT financial assets, and realized gainsƒ(losses) from
foreign exchange transactions.

2f. Non-Interext Expenxex refer to the sum of compensation and fringe benefits, taxes and licenses,
other administrative expenses, depreciation and amortization, impairment losses and provisions.

22. Loxxex or Recoveriex on financial Axxetx refer to the sum of provision for credit losses on loans
and receivables and other financial assets, bad debts written−off and recovery on charged−off
assets.

23. Income Tax Expenxe refers to provision for income tax.

24. Net Profit or Loxx refers to the difference of total operating income and non−interest expenses,
plus (less) the recoveries (losses) on financial assets, share in the profit (loss) of unconsolidated
subsidiaries, associates, joint ventures and minority interest in profit (loss) of subsidiaries.

25. Non-PerGorming Loanx (NPL) refer to past due loan accounts whose principal andƒor interest is
unpaid for thirty (30) days or more aGer due date. This applies to loans payable in lump sum
and in quarterly, semi−annual or annual installments, including: the outstanding balance of
loans payable in monthly installments when three (3) or more installments are in arrears;

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 Status Report on the Philippine Financial System
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the outstanding balance of loans payable in daily, weekly or semi−monthly installments when
the total amount of arrearages reaches f 0 percent of the total loan receivable balance; and
restructured loans which do not meet the requirements to be treated as performing loans
under existing rules and regulations, including all items in litigation. Effective September 2002,
NPLs exclude loans classified as ”Loss” in the latest BSP examination which are fully covered by
allowance for probable losses and applicable to a bank with no unbooked valuation reserves and
other capital adjustments required by the BSP (Circular No. 35f).

26. Real and Other Propertiex Acquired (ROPA) refer to real and other properties, other than those
used for banking purposes or held for investment, acquired by the bank in settlement of loans
through foreclosure or dacion in payment andƒor for other reasons, whose carrying amount will
be recovered principally through a sale transaction.

27. Non-PerGorming Axxetx (NPA) refer to the sum of NPL and ROPA, gross. Effective March 2003,
NPAs exclude performing sales contract receivables, which met certain requirements under
Circular No. 380. Based on the new FRP framework provided for under Circular No. 5f2 dated 3
February 2006 and effective on 3f December 2006, NPA should also include non−current assets
held for sale.

28. Dixtrexxed Axxetx refer to the sum of NPLs, ROPA, gross, non−current assets held for sale, past
due loans and receivables but not yet non−performing, and current restructured loans. Effective
end−July 2004, performing restructured loans replaced current restructured loans.

29. Gross Assets refer to total assets plus: ”Net of Due to Head OficeƒBranchesƒAgencies” of foreign
bank branches, if any; allowance for credit losses on loans; allowance for credit losses on sales
contract receivables (SCR); and allowance for losses on ROPA minus loans classified as loss fully
covered by allowance for credit losses.

30. Allowance on NPAx refers to the sum of allowance for credit losses on loans, allowance for credit
losses on SCR, allowance for losses on ROPA.

3f. Non-Current Axxetx Held Gor Sale refer to ROPAs that are available for immediate sale in their
present condition subject only to terms that are usual and customary for sales of such assets and
the sale must be highly probable.

32. Salex Contract Receivable (SCR) refers to the amortized cost of assets acquired in settlement of
loans through foreclosure or dacion in payment and subsequently sold on installment basis
whereby the title to the said property is transferred to the buyers only upon full payment of the
agreed selling price.

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B.FINANCIAL AND OTHER RATIOS

f. Capital adequacy ratio (CAR) refers to the ratio of capital to risk weighted assets computed in
accordance with the risk−based capital adequacy framework that took into account credit risks
effective f July 200f under BSP Circular No. 280 dated 29 March 200f. Under BSP Circular No. 360
dated 3 December 2002, which took effect on f July 2003, the computation of CAR for universal
and commercial banks incorporates market risks in addition to credit risks. Under Circular No. 538
dated 4 August 2006, which took effect on f July 2007, the computation of CAR for universal and
commercial banks incorporate operational risk in addition to credit and market risks.

2. Coxt-to-Income ratio refers to the ratio of non−interest expenses to total operating income.

3. Denxity ratio refers to the ratio of the total number of domestic banking ofices to the total
number of citiesƒmunicipalities in the Philippines.

4. Dixtrexxed axxetx ratio refers to the ratio of distressed assets to total loans (gross of allowance for
probable losses), inclusive of interbank loans, plus ROPA (gross of allowance for losses).

5. Earning axxet yield refers to the ratio of interest income to average earning assets.

6. funding coxt refers to the ratio of interest expense to average interest−bearing liabilities.

7. Interext xpread refers to the difference between earning asset yield and funding cost.

8. Liquid axxetx ratio refers to the ratio of liquid assets to total deposits.

9.Net interext margin refers to the ratio of net interest income to average earning assets.

f0. NPA coverage ratio refers to the ratio of allowance on NPA to total NPA.

f f. NPA ratio refers to the ratio of NPA to total assets, gross of allowance for probable losses.

f2. NPL coverage ratio refers to the ratio of allowance for credit losses on loans to total NPL.

f3. NPL ratio refers to the ratio of NPL to total loans (gross of allowance for credit losses), inclusive
of interbank loans.

f4. Population-to-banking oficex ratio (Cuxtomer Ratio) refers to the ratio of the total population
to the total number of domestic banking ofices.

f5. Return on assets refers to the ratio of net profit or loss to average assets.

f6. Return on equity refers to the ratio of net profit or loss to average capital.

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Prologue
The Status Report on the Philippine Financial System is a semestral report prepared
by the Ofice of Supervisory Policy Development, Supervision and Examination Sector,
Bangko Sentral ng Pilipinas (BSP), and is submitted by the Governor to the President and the
Congress, in compliance with Section 39 (c), Article V of Republic Act No. 7653 or The New
Central Bank Act.

This report is basically culled from the various periodic reports submitted by BSP
supervisedƒregulated institutions to the Supervisory Data Center,Supervision and Examination
Sector. At end−year 20f0, BSP supervisedƒregulated financial institutions consisted of 758
banks with 8 , f f f branches and other ofices, 6,5ff non−bank financial institutions (NBFIs)
with 9,369 branches and five offshore banking units (OBUs). (Schedule 1)

Effective 3 July f998, the supervision and regulation of the BSP over non−banking
entities were turned over to the Securities and Exchange Commission (SEC) for corporations
and partnerships, and to the Department of Trade and Industry (DTI) for single proprietorships,
in accordance with Section f30 of Republic Act No. 7653, except the following: non−banks
with quasi−banking functions andƒor with trust or Investment Management Activities (IMA)
license, non−banks which are subsidiariesƒafiliates of banks and quasi−banks, non−stock
savings and loan associations, including pawnshops.

Likewise, the supervision and regulation over building and loan associations were
transferred to the Home Guarantee Corporation (HGC) effective 7 February 2002, in
accordance with Section 94 of Republic Act No. 879f (The General Banking Law of 2000).

Finally, pursuant to Circular No. 5f2 dated 3 February 2006 (as amended) and Circular
No. 644 dated f 0 February 2009, and in line with the adoption of the Philippine Financial
Reporting Standards (PFRS) and Philippine Accounting Standards (PAS), the BSP amended
the Manual of Accounts and the BSP reportorial requirements consisting of the Consolidated
Statement of Condition (CSOC), Consolidated Statement of Income and Expenses (CSIE) and
their supporting schedules issued under Circular f08 dated 9 May f996 (as amended) for
universal and commercial banks, Circular No. 270 dated f 9 December 2000 (as amended) for
thriG banks, and Circular No. 249 dated 26 June 2000 (as amended) for rural and cooperative
banks, through the issuance of the new Financial Reporting Package (FRP) for banks. The
FRP is designed to align the Manual of Accounts and the BSP reportorial requirements with
the provisions of the PFRSƒPAS.

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 “The Philippine financial system
emerged from the 2008 global
financial crisis in reasonable shape
and continues to build onits current
position of strength to withstand
future external and internal shocks
to the economy”

The Philippine Financial System:
An Assessment
While fragilities remain in the Western Hemisphere particularly in the Euro
area where there is a prevailing negative interaction between sovereign and
banking risks, the Philippine financial system emerged from the 2008 global
financial crisis in reasonable shape and continues to build on its current position
of strength to withstand future external and internal shocks to the economy.
Such resilience even received favorable third party
validation from the International Monetary Fund (through
its April 20f0 FSSA Report) and international credit
watchers following an upgrade in sovereign ratings from
Standard & Poor's and in sovereign outlook from Moody's
in 20f0.
The sustained implementation of key financial sector
reforms such as Basel f.5 for stand−alone thriG banks,
rural banks and cooperative banks in an improving
macroeconomic environment also augured well for the
financial system during the year in review.
The banking system, as the core of the Philippine financial
system and principal source of credit for the economy,
reported remarkable performance in its key balance
sheet accounts: steady asset expansion, sustained credit
growth, growing deposit base, ample liquidity, continuing
improvement in overall asset quality and above standard
solvency ratios. Banks also raked in substantial revenues
and kept their shareholders happy as net profit reached
P9f.2 billion, 3f.4 percent higher than last year's P69.4
billion from the combined effect of brisk trading of
derivatives and government securities and of sustained
growth in lending−related revenues.
Other Bangko Sentral ng Pilipinas (BSP) supervised financial
institutions similarly exhibited sustained resilience during
the year.
To remain in tip−top shape and gain further strength
within the ASEAN−5 moving forward, the system has to
maintain the following fitness regimen:
First, regulators have to sharpen their focus on the
effective supervision of financial conglomerates as
potential stressors of supervisory muscle. The April 20f0
Financial System Stability Assessment (FSSA) Country
Assessment report of the International Monetary Fund
(IMF) cited the unique construct of the financial system
in the conglomerated economy of the Philippines. The
report further disclosed that majority of bank assets were
controlled by banks belonging to a conglomerate or a
conglomerate itself.
f Refers to the revised risk−based capital adequacy framework for stand−alone thriG banks, rural banks and cooperativebanks.
Status Report on the Philippine Financial System
Second Semester 2010
Cognizant of this challenge, the inter−agency coordinating
body of financial regulators in the Philippines known as
Financial Sector Forum (FSF) is bulking up their
regulatory muscle for the effective supervision of financial
conglomerates and prevent the double−leveraging of
capital as seen in many other jurisdictions dealing with
financial conglomerates. The initial step toward this end
is periodic updating of conglomerate maps and intensified
information sharing between the BSP, the Securities and
Exchange Commission (SEC) and the Insurance
Commission (IC) to appropriately monitor crucial bank
and non−bank linkages and mitigate concentration risk in
the financial system.
Second, banks need to have a burning desire to ascribe
to the highest ideals of corporate governance to promote
corporate responsibility and market discipline. For
its part, the BSP has been diligently building on its
corporate governance regulatory framework to foster a
deeper commitment to corporate governance among its
supervised financial institutions. During the review
period, the BSP has rationalized ”Related Interest” for
purposes of DOSRI ceilings to rationalize connected party
lending (Circular No. 695 dated 22 October 20f0).
Third, there is a need to continually develop market niches
and nurture the rural economy to provide texibility in
banks' core earning potential. With the Philippines being
an archipelago, the role of the small market players in
serving various market niches remains pivotal especially
in catering to the unique needs of microfinance clients
and beneficiaries of migrant Filipinos (cash transfers of
remittances). Toward this end, the BSP provided some
guidelines to strengthen the capital position of rural banks
by: raising the minimum capital requirement for rural
banks (Circular No. 696 dated 29 October 20f0 or Box
Article f), promoting industry consolidation through the
Strengthening Program for Rural Banks or SPRB (Circular
No. 693 dated 6 August 20f0) and implementing Basel
f.5 f (Circular No. 688 dated 26 May 20f0).
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Box 1:

Rural Banking System: Recent Policy Initiatives

The BSP recently approved regulations aimed at promoting a stronger, more eficient, and more competitive
rural banking system. This is in line with the BSP's policy to foster healthy competition within the rural banking system
and enable rural banks (RBs) to maximize their potential as catalysts of economic expansion.

• Grant of regulatory relief under the Strengthening Program for Rural Banks (SPRB)
The SPRB (Circular No. 693 dated 9 August 20f0) is a joint undertaking of the BSP and the Philippine Deposit Insurance
Corporation (PDIC) that is intended to promote mergers and consolidations as a means to further strengthen the rural
banking system. While the PDIC ensures the grant of financial assistance, the BSP extends regulatory relief to RBs that
may qualify as strategic third party investors (STPIs) and are seeking to enter into mergers and consolidations with
distressed RBs that may be considered eligible to participate under the SPRB*.

Subject to approval of the BSP, RBs may avail themselves of the following merger or consolidation incentives under the
SPRB:

f. Conversion of the existing head ofices, branches andƒor extension ofices of the mergingƒconsolidating RBs into
head ofice, branches or extension ofices of the mergedƒconsolidated RB.

2.Relocationƒopening of existingƒapproved but unopened branches, extension ofices andƒor other banking ofices
of the mergedƒconsolidated RB within two years from date of merger or consolidation, subject to applicable
requirements on relocation of branches, extension ofices andƒor other banking ofices.

3.Condonation of liquidated damages on past due rediscountingƒemergency loans andƒor monetary penalties for
violation of BSP issuances on rediscountingƒemergency loans of the eligible RBs as of the end of the month
immediately preceding the date of request for loan restructuring.

4.Restructuring of past due rediscountingƒemergency loans of the eligible RBs with the BSP, subject to compliance
with certain requirements, i.e., the amount to be restructured, interest rate, terms of repayment, among others.

5.The shares for staggered redemption shall be the LBP preferred shares of stock of the eligible RBs, representing
the rediscounting arrearages with BSP converted into LBP equity. Repayment arrangement should be made by the
mergedƒconsolidated RB directly with the LBP.

6.Rediscount ceiling of at least f50 percent of the

adjusted capital accounts of the mergedƒconsolidated
RB for a period of one year reckoned from the date
of merger or consolidation, subject to
requirements as specified under Subsec. X268.3
of the Manual of Regulations for Banks (MORB),
as amended by Circular No. 648 dated 2 March 2009.

◆To date, there are f4 applications under the SPRB. Of these, 5 applications are currently being evaluated for approval. These 5 applications involve f f rural
banks

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7.Waiver of monetary penalties imposed on the eligible RBs for violations of existing laws and BSP rules and
regulations, as of date of mergerƒconsolidation, except for penalties accruing to the other parties as follows:

a.Micro, Small and Medium Enterprises Development (MSMED) Council Fund as provided under
Section f9 of Republic Act No. 6977 (Magna Carta for Micro, Small and Medium Enterprises), as
amended
b.Agricultural Guarantee Fund Pool (AGFP) and the Philippine Crop Insurance Corporation (PCIC) as
provided under Section f0 of Republic Act No. f0000 (The Agri−Agra Reform Credit Act of 2009).

• Increase in the minimum capital requirement

Circular No. 696 dated 29 October 20f0 sets out the guidelines for the new minimum capital requirement for rural
banks which shall apply only upon establishment of a new RB.

In the case of existing banks, the new capital requirement shall apply only:

f. Upon conversion of an existing RB to a higher category and vice versa

2. Upon relocation of the head ofice of an RB in areas of higher classification
3.When majority of an RB's total assets andƒor majority of its total deposit liabilities are regularly accounted for by
branches located in areas of higher classification
4.When an RB applies for the grant of special banking authorities such as limited trust, foreign currency deposit unit
(FCDU) operations and acceptance of demand deposits and NOW accounts.

These RBs are now required to meet the following minimum capital requirement, depending upon the location of their
head ofice:

Bank Category Required Minimum Capitalization

RBx with Head OGGicein:
Metro Manila PfOO million
Cities of Cebu and Davao 5Omillion
All other cities 25 million
f s t to 4th classMunicipalities fO million
5th to 6th class Municipalities 5 million

Lastly, access to financial services can be extended to
some remote areas of the archipelago through financial
inclusion. Efforts to develop a truly inclusive financial
system has started to show gainful results with the recent
citation from the Economist Intelligence Unit (EIU)
recognizing the Philippines (together with Cambodia and
Pakistan) as the best in the world in terms of providing
regulatory framework for microfinance.
During the year, the BSP further build on its financial
inclusion framework (Box Article No. 2) with the following
issuancesƒinitiatives: guidelines on the outsourcing of
services by electronic money issuers or EMIs and electronic
money network service providers or EMNSPs (Circular
No. 704 dated 22 December 20f0), guidelines on the
establishment of other banking ofices and micro business
ofices as alternative service delivery network (Circular
No. 694 dated f4 October 20f0), rules and regulations on
the recognitionƒderecognition of microfinance institution
rating agencies (Circular No. 685 dated 07 April 20f0) and
development of various microfinance oriented products
and services like microinsurance (Circular No. 683
dated 23 February 20f0), micro−agri loans (Circular No.
680 dated 03 February 20f0) and housing microfinance
(Circular No. 678 dated 06 January 20f0).
As of end−year 20f0, there were 203 banks engaged in
microfinance with a total loan porVolio of P6.9 billion and
serving 930,965 microborrowers. These represent a total
savings component of P3.2 billion.
Summing up, the path to sustained health and wellness is
a test of discipline, commitment and endurance. The
Philippine financial system emerged from the 2008 global
financial crisis in great shape. Definitely, it cannot rest on
its initial gains and has to remain hard set in the continuing
build up of core strength to be in great pink of health for
the years to come.

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Box 2:
Promoting Financial Inclusion through an Enabling Policy
and Regulatory Environment
In the second half of 20f0, the BSP issued new regulations that seek to broaden access to financial products
and services, particularly by the low−income and underserved and unbanked sectors. This is consistent with BSP's
continuing thrust to promote a more inclusive financial system by fostering an enabling and responsive policy and
regulatory environment.

Widening Access Points through Establishment of Other Banking Oflces (OBOs)

and Micro-Banking Oflces (MBOs)

BSP Circular No. 694 sets out the guidelines for the establishment of OBOs and MBOs. OBOs and MBOs are
essentially scaled down bank ofices other than a branch or extension ofice that are specifically intended to
cater to underservedƒunbanked populations, as well as microfinance clients and overseas Filipinos (OFs) and
their beneficiaries.

OBOs in general refer to a permanent ofice or place of business of a bank with less requirements to set up as
compared to a head ofice, branch or extension ofice. OBOs are classified into: (f) regular OBOs and
(2) microfinance−oriented OBOs (MF−OBOs) or micro−banking ofices (MBOs).

As part of the prudential requirements, banks that apply for and maintain such ofices must have adequate
processes and systems in place to ensure timely record keeping, appropriate internal controls and security
measures. In the case of MBOs, they must ensure that 50% of the total transactions generated shall be from
the micro−deposits and micro−loans of microfinance clients. MBOs must also have a manual of operations and
must be managed by a responsible oficer with experience or training in microfinance activities.

Promoting Innovation in the Provision of Financial Services through the Use

of Electronic Money (E-money)

In 2009, the BSP issued Circular No. 649 which provided the regulatory framework for e−money issuance and
governed the operations of e−money issuers (EMIs**). Since the issuance of this circular, there are now 20
banks providing e−money services***.

The use of e−money as an innovative solution for low value payments enabled banks to effectively lower
transaction costs, decrease cash−on−hand risk and increase accessibility to a broad range of financial services,
including loans and deposits.

In 20f0, the BSP, through Circular 704, has introduced new measures to further promote e−money as a
revolutionary plaVorm for expanding delivery of financial services, especially to the unbanked in the
countryside. The new regulation primarily allows EMIs to outsource certain functions to e−money network
service providers (EMNSP). This will help address existing barriers to entry into e−money transactions by
smaller institutions since the new policy paves the way for more effective convergence of technological
innovations with financial service provision through bank and non−bank strategic partnerships and innovative
business models.

An EMNSP shall refer to a non−financial institution that provides automated systems, network infrastructure,
including a network of accredited agents utilizing the systems, to enable clients of an EMI to: (f) convert cash
to e−money and monetize e−money; (2) transfer funds from one electronic wallet to another;
(3)use e−money as payment for goods and services; and (4) conduct other similar andƒor related e−money
activitiesƒtransactions.
This regulation is seen to provide opportunity to more market players to become competitive e−money
issuers, particularly rural banks whose niche constitute clients from the countryside where such services are
lacking.
◆◆EMIs can either be banks (EMI−Bank), non−bank financial institutions (EMI−NBFI), or other providers (EMI−Others)
◆◆◆ As of end−December 20f0, e−money service providers consisted of 20 EMI−Banks and 3 EMI−Others. (Source: 20f0 Year−End Report on BSP Initiatives in
Microfinance and Financial Inclusion)
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Second Semester
Semester2010
2010

Regular OBO
They are authorized to undertake purely non−transactional banking−related activities, as follows:

f. Market loans, deposits and other bank products and services;

2. Accept loan applications and conduct preliminary credit evaluation as well as perform
credit administration support services;
3. Host on−site automated teller machines (ATMs);
4. Perform customer care services;
5. Perform customer identification process, receive account opening documents and
facilitate account activation. However, account opening approval and actual opening of
deposit accounts shall be done only at the head oficeƒbranchesƒextension ofices; and
6. Other non−transactional banking−related activities as may be authorized by the BSP.

MF-OBO/MBO
Shall primarily cater to the banking needs of microfinance clients and OFs and their beneficiaries.

They are authorized to undertake any or all of the following limited transactional banking activities and services:

f. Accept micro−deposits including initial deposit and service withdrawals. Micro−deposit is essentially a
simplified account that is appropriately designed and priced to fit the needs and capacity of the
underserved market. The features include a minimum balance requirement not exceeding one
hundred pesos (Pf00.00), non−applicability of dormancy charges, and an average daily savings
account balance not exceeding fiGeen thousand pesos (Pf5,000.00).
2. Accept check deposits of microfinance clients for collection and credit to own deposit accounts;
3. Disburse proceeds of micro−loans and collect loan amortization payments and related charges;
4. Present, market, sell and service microinsurance products;
5. Receiveƒpay out funds in connection with authorized remittance transactions;
6. Act as cash inƒout points for electronic money (e−money) transactions;
7. Collect premiums and pay out benefits from social security institutions and other benefit systems,
including government conditional cash transfer programs;
8. Receive utilities payments; and
9. Purchase foreign currencies up to the maximum equivalent of US$300 per client per day for credit
to micro−deposit accounts.

The MF−OBOƒMBO shall only perform the activities for which it has specifically applied for and had been
authorized to perform.

Oflce of Supervisory Policy Development, Supervision and Examination Sector 5