Non-Bank Thrift Institutions in the Philippines

Non-bank thrift institutions – form a small segment in the country’s financial system and are not so well known as the others. Organized as non-bank entities, they do not perform any banking or quasi-banking functions.

Two kinds:

  1. Savings and loan association
  2. Mutual building and loan association

Savings and loan association Organization Republic Act No. 3779 – was approved on June 22, 1963, provided for the establishment and operation of savings and loan association in this country. Central Bank Circular No. 157 – was promulgated for the effective implementation of the enabling Act by the Monetary Board laying down rules and regulations governing the establishment and operations of savings and loan associations. Presidential Decrees Nos. 113 and 450 – With the dawn of the New Society and feeling the inadequacy of certain provisions of the said Act, the president issued these as amendment thereto. Declaration of Policy The state declares that it is its policy:

a. To regulate and supervise the activities of savings and loan associations in order to place their operations on a sound, stable and efficient basis to the end that they may be able to better provide for the establishment of additional credit and savings facilities in a fair manner to the consuming public and industry, commerce, and agriculture and to curtail or prevent acts or practices of these savings and loan associations which are prejudicial to the public interest.

b. To lay down the minimum requirements and the standards under which savings and loan associations may be established and do business

c. To maximize the protection of the public, and of the members and stockholders of savings and loan associations against misfeasance of the directors and officers thereof

d. To encourage industry, frugality and the accumulation of savings among the public, and the members and stockholders of savings and loan associations. Savings and loan association, defined.

The term savings and loan association includes any corporation engaged in the business of accumulating the savings of its members or stockholders, and using such accumulations, together with its capital in the case of a stock corporation, for loans or investment in the securities of productive enterprises or in securities of the Government, or any of its political subdivisions, instrumentalities or corporations. Form of organization A savings and loan association shall be organized either as  a. a stock or b. Non-stock Corporation.

Stock Corporation

  • The monetary board shall fix the minimum paid-up capital of a savings and loan association organized as a stock corporation in such amount as the said board may consider necessary for the safe and sound operation of such association.

Non-stock Corporation

  • A savings and loan association organized as a non-stock shall confine its membership to a well-defined group of persons and shall not transact business with the general public.
  • It shall accept deposits from, and grant loans to, only to its member-depositors and no entrance fee of any kind may be charged by any association without first securing the approval of the Monetary Board.

Application

The articles of incorporation of a proposed association shall be submitted to the Monetary Board together with a copy of the proposed by-laws and an application signed by a majority and verified by one of the directors, requesting approval. The application shall set forth:

a. The names and address of the incorporators, directors, and officers, with a statement of their character, experience, and general fitness to engage in the savings and loan business.

b. An itemized statement of the estimated receipts and expenditures of the proposed association for the first year

c. A statement showing that the public convenience and advantage will be promoted by the formation of the proposed association

d. Any other matters the Monetary Board may require. Grounds for disapproval of the application 

The following constitute the grounds for the disapproval of the application:

  1. The savings and loan association is to be formed for any business other than the legitimate savings and loan business.
  2. The savings and loan association’s financial program is unsound.
  3. The area where the savings and loan association is to be located is adequately served by one or more existing savings and loan associations.
  4. Any of the directors or principal officers of the savings and loan association does not possess the integrity or competence to manage a savings and loan association.
  5. There exist other reasons which the Monetary Board may consider as sufficient ground for such disapproval.

Deposit Operations Savings and Time Deposits, distinguished. Savings and time deposits are both subject to time or term. Savings – is subject to an indeterminate time at the will of the depositor, who may, therefore, withdraw the same at his pleasure, unless notice is reserved by the depository savings and loan association.

Time deposit – is subject to a definite time of maturity and, therefore, cannot be withdrawn by the depositor until its maturity date arrives, unless the depository association waives its right to the term. Who may open deposit accounts? All persons, natural or legal, or juristic, may, individually or jointly and severally, open savings and time deposits. However, the cashier, bookkeeper and their assistants, and employees of the savings and loan association whose duties entail the handling of cash or checks are prohibited from opening deposit accounts with the association in which they are employed. Number of deposit accounts

A depositor may open and have only one savings account in his own name in the same capacity although he may open and have various deposits in different cities such as guardian, agent, or trustee for others. Minimum savings and time deposits Savings deposits may be opened with a minimum of one peso (P1. 00) and time deposits with a minimum of one hundred peso (P100. 00). Capital-risk asset ratio, credit operations, & etc Capital-Risk Asset Ratio The combined capital accounts of each savings and loan association shall not be less than an amount equal to 20% of its total assets, excluding the following assets: a.

Cash on hand; b. Amounts due from banks, including all deposits with the Central Bank; and c. Evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidences of indebtedness or obligations the servicing or repayment of which are fully guaranteed by the Republic of the Philippines. Principles governing credit operations The following principles govern credit operations of savings and loan associations:

a. Stock savings and loan association shall provide the normal credit needs of the consuming public, and of industry, commerce and agriculture.

b. Savings and loan association loans shall be for an amount no greater than what is deserved so as not to impose a repayment burden on the borrower and a collection problem to the association.

c. Repayment periods should be short. Savings and loan associations should confine business to meeting short-term needs which shall be repayable within, and not allowed to go beyond twelve (12) months, except real estate loans.

d. The size of the loan should be measured by the borrower’s earning capacity, character and ability to repay obligations, or the fair value of the property offered as collateral.

The term “fair value” shall mean fair market value of the property offered as collateral. Powers of Savings and Loan Association A non-stock savings and loan association, in addition to the powers granted in the Corporation Code of the Philippines, shall exercise the following:

a. To grant loans not exceeding the member-borrower’s savings and time deposits in the association, plus his four months’ salary or regular income from employment or from his own business, or 70% of the fair market value of any property acceptable as collateral on first mortgage that he may offer as security;

b. To charge reasonable interest and collect such necessary fees and charges incidental to the grant of loans;

c. Subject to such rules as the Monetary Board may approve, to discount with recourse commercial papers and accounts receivables;

d. To invest its funds in any sound non-speculative enterprise, as well as in bonds, securities, and other obligations issued by the Government of the Philippines, or any of its political subdivisions, instrumentalities or corporations including government-owned or controlled corporations subject to the rules and regulations of the Monetary Board;

e. allow members to participate in the profits of the Association;

f. To borrow money or incur such obligations not exceeding 20% of the total assets of the association, from any public lending institution, such as the DBP, PNB, GSIS, SSS, and from such private lending institutions as may be approved by the Monetary Board.

g. To maintain deposits with banks and other stock savings and loan association.

Kinds of security: Security for loans may be in any or all of the following forms:

a. Real estate mortgages

b. Chattel mortgages on harvested or stored crops of non-perishable character

c. Chattel mortgages on livestock, tools, equipment or machinery, supplies and materials, merchandise and other property which may have been purchased or acquired out of the proceeds of the loan

d. Assignment of quedans which give the association the right of disposal of readily marketable products.

e. Time and savings deposits

f. Pledge of bonds, stocks and other securities of agricultural, industrial or commercial enterprises that are non-speculative in nature

Limitation on Lending Authority

A savings and loan association shall not commit itself to make loan for amounts in excess of the total of the following amounts:

a. Amounts of cash available for loan purposes

b. Amounts of cash which can be readily realized upon sale or redemption of permissible investments made by the association

c. Amount of credit available for loan purposes from government or private financing institutions

Investment Limitations

As provided under section 21 of Republic Act. No. 3779, as amended by Presidential Decree No. 113, the following are placed as limitations on investments of any savings and loan association:

a. No association at any one time shall have invested in bonds and securities an aggregate amount in excess of 10% of the total assets of such association.

b. No non-stock savings and loan association at any one time shall have invested in real property an aggregate amount in excess of 5% of the total assets of such association.

c. Non non-stock savings and loan association at any one time shall invest in furniture, fixture, furnishings and equipment and leasehold improvements for its offices, more than 10% of its aggregate paid-up capital.

d. No stock savings and loan association, at any one time shall have an investment in real estate and improvements thereon, including equipment, in an aggregate amount in excess of 50% of the net worth.

Building and Loan Associations Building and loan associations – All corporations whose capital stock is required or is permitted to be paid in by the stockholders in regular, equal periodical payment and whose purpose is to accumulate the savings of its stockholders, to repay to said stockholders their accumulated savings and profits upon surrender of their shares, to encourage industry, frugality, and home building among its stockholders, and to loan its funds, and funds borrowed for the purposes, to stockholders on the security of unencumbered real estate and with the pledge of shares of the capital stock owned by such stockholders as collateral security.

The words “mutual building and loan association” shall form part of the name of every such association. Capital Stock and Certificates of Stock The capital stock of every such association shall be divided into shares of the matured or par value of two hundred pesos each.

Free shares – are shares which have not been pledged as security for the payment of a loan. Pledged shares – are shares which have been pledged. Non-Stock Savings and Loan Association Non stock savings and loan association – is any organization engaged in the business of administering the savings of its members and using such accumulation for loans to its member-depositors and shall not transact with the general public. In essence, it is akin to what is known in this country as “paluwagan”, where members pool their resources together to a common fund for use by members themselves in case of need.