Amendment to Unsafe Banking Practices Guidelines

Operating at a deficit in net operating income is considered unsafe unless there are adequate measures to ensure future surpluses.

Excessive reliance on large, high-cost, or volatile deposits/borrowings to support aggressive growth may be deemed unsafe.
High-cost funds are defined as deposits or borrowings with effective interest rates 50% above the prevailing market median for comparable bank categories, maturities, and currencies.
Additional circumstances indicating unsound practices include:
- Heavy dependence on brokered deposits.
- Large deposit generation expenses such as commissions, referral, and solicitation fees.
- Deferred recording or inaccurate amortization of deposit generation expenses.
- Offering deposit packages with disproportionate non-cash incentives.
- Soliciting or accepting deposits outside bank premises without BSP authorization.

Engaging in risky lending and poor collection is unsafe if evidenced by:
- High incidence of spurious or fraudulent loans due to inadequate risk management causing capital impairment.
- A borrower niche largely comprised of clients with impaired or limited credit history, or loans being mostly unsecured or minimally collateralized except as allowed under microfinance guidelines, coupled with a lack of robust risk management systems.
- Loan interest rates excessively higher (50% above market median) than comparable market rates to offset higher risks.
- Assigning loans without recourse backed by real estate leading to investments in real estate exceeding prescribed caps.

Ignoring supervisory and regulatory warnings and admonitions.
Engaging in actions likely to cause insolvency, substantial loss of assets or earnings, or seriously weaken the bank’s condition.
Any conduct prejudicing depositors, investors, or clients significantly.

The Circular is adopted by the Monetary Board and signed by the Governor of the Bangko Sentral ng Pilipinas.