Rationalization of Bank Office Regulations

Governance and scope of MORB amendments

The amendments apply to the MORB provisions governing the establishment, relocation, voluntary closure, and sale of local branches and branch-lite units of domestic banks, including locally incorporated subsidiaries of foreign banks.
The establishment of branches of foreign banks in the Philippines remains governed by Sec. X105 (liberalized entry and scope of operations) and Sec. X153 (establishment of sub-branches).
Section 1 amends Sec. X151 and related subsections for branches and branch-lite units.
Sections 2 to 4 amend additional MORB provisions on relocation of head offices, sub-branches of foreign banks, conversion of microfinance-oriented thrift banks/rural banks, and minimum capitalization.

Definitions: branches and branch-lite units

A branch is a permanent office or place of business in the Philippines other than the head office where a bank may perform activities and provide products and services within its scope of authority and relevant licenses.
A branch must maintain a complete set of books and records in each branch.
A branch-lite unit is a permanent office or place of business in the Philippines other than the head office or a branch.
A branch-lite unit performs limited banking activities and records transactions in the books of the head office or the branch to which it is annexed.

Allowed branch-lite activities

A branch-lite unit may perform activities and provide products and services that a branch may perform, except those suited only to sophisticated clients with aggressive risk tolerance.
The board of directors must approve the defined range of activities and services for the branch-lite unit, consistent with the bank’s business model and a specifically defined market or sector.
The board of directors must ensure adequate personnel, internal control measures, physical facilities, security arrangements, and information systems commensurate with the extent of activities and services of the branch-lite unit.
Management must ensure the branch-lite unit is considered in the bank’s capital adequacy assessment and planning exercises, recognizing potentially high operational risk exposures.
Management must ensure timely accounting and reporting of branch-lite unit activities and transactions to the head office/branch to which it is annexed.
The bank’s risk management system, compliance program, and internal audit program must cover the branch-lite unit.

Authority requirements and application process

Banks may establish a branch or a branch-lite unit subject to the prudential criteria in Subsec. X1101.2.
Any approved but unopened branch(es) at the time of application must be included in determining compliance with the minimum capitalization requirement.
No bank may establish a branch or branch-lite unit or transact business outside the premises of its duly authorized principal office or head office without prior approval of the Bangko Sentral.
Banks seeking authority to establish a branch or branch-lite unit must submit documents to the appropriate department of the SES comprising:
- An application letter signed by the chief executive officer or equivalent rank indicating the number of branch(es)/branch-lite units and proposed location(s); branch-lite unit applications must include the range of activities and services to a specifically defined market or sector (excluding activities suited only to sophisticated clients with aggressive risk tolerance);
- A Secretary’s Certificate indicating board approval for establishment; and
- A Certification/Undertaking signed by the CEO or equivalent rank that the bank is compliant or will comply with the pre-requisites under Subsec. X151.2.

Locations and capital impact rules

As a general rule, banks may establish branch(es) or branch-lite units anywhere in the Philippines, including cities previously considered as restricted areas.
If TBs/RBs establish branches in cities/municipalities of a higher classification than their head office, the applicable minimum required capital under Subsec. X111.1 must be increased to the level required for the higher-class city/municipality, regardless of where the head office is located.
For Coop Banks:
- The Coop Bank of the province may set up branches/branch-lite units anywhere within the province subject to compliance with applicable branching rules and regulations under Sec. X151.
- Coop Banks from other provinces may set up branches/branch-lite units in cities or municipalities of another province where there are no other Coop Bank head office/branch/branch-lite units.

Fees for processing and special licensing

Banks must be charged the total processing fee computed for all approved branch(es)/branch-lite units under Subsec. X151.5(a).
Processing fee exemption: branches/branch-lite units established in unbanked cities and municipalities are exempted from the processing fee.
Processing fee schedule (per branch/branch-lite unit):
- Branch:
  - UBs/KBs/Affiliated TBs: PHP 200,000 in Metro Manila cities of Cebu and Davao and PHP 100,000 in all other cities / 1st to 2nd class municipalities / 3rd to 6th class municipalities; (fee values vary by category as set out in the schedule).
  - Non-affiliated TBs: PHP 100,000 (Metro Manila cities of Cebu and Davao); PHP 50,000 (all other cities / 1st to 2nd class municipalities / 3rd to 6th class municipalities); (as set out in the schedule).
  - RBs/Coop Banks: PHP 25,000 (Metro Manila cities of Cebu and Davao); PHP 12,500 (all other cities / 1st to 2nd class municipalities / 3rd to 6th class municipalities); (as set out in the schedule).
- Branch-lite unit: PHP 10,000 (Metro Manila cities of Cebu and Davao) and PHP 5,000 (all other cities / 1st to 2nd class municipalities / 3rd to 6th class municipalities); (as set out in the schedule).
Special licensing fee (for restricted areas): for applications to establish branches/branch-lite units in cities previously considered as restricted areas, the applicant bank must pay a special licensing fee per branch/branch-lite unit upon acceptance, based on bank category:
- UB/KB: PHP 20 million per Branch and PHP 5 million per Branch-lite unit;
- TB: PHP 15 million per Branch and PHP 3 million per Branch-lite unit;
- RB/Coop Bank: PHP 1.5 million per Branch and PHP 300 thousand per Branch-lite unit.

Opening timelines and consequences

Approved branches/branch-lite units must be opened within one (1) year from the date of approval.
Extensions may be granted on a case by case basis, but the entire period from approval up to the requested extension must not exceed three (3) years.
The appropriate department of the SES may suspend or revoke the opening of approved branches/branch-lite units upon approval of the Deputy Governor.
Failure to open within the prescribed period results in:
- forfeiture of the bank’s right to open the branches/branch-lite units; and
- forfeiture of all fees paid to the Bangko Sentral in relation to the application.
Relocation of approved but not yet opened branches/branch-lite units requires prior approval by the Deputy Governor (SES), with justification and resubmission of documents required under Subsec. X151.3.
If a branch-lite unit located outside restricted areas is relocated into a restricted-area city, it is subject to the special licensing fee under Subsec. X151.5 upon approval of relocation.
The opening of a relocated branch/branch-lite unit must occur within the prescribed period from the date of approval of its establishment.
As an incentive for merger/consolidation or purchase/acquisition of majority or all outstanding shares of a distressed bank for rehabilitation, opening or relocation may be allowed within two (2) years from the date of merger/consolidation or purchase/acquisition.

Requirements upon opening

Not later than five (5) banking days from the date of opening, the bank must submit to the appropriate department of the SES, through its chief compliance officer and the head of the branch banking operations, the following:
- Written notification of the actual date of opening of the branch/branch-lite unit;
- A certification on compliance, as applicable, covering:
  - adequacy of personnel, internal control measures, physical facilities, information systems, and security arrangements (including installation of security devices and accessibility to persons with disability as required under Subsecs. X181.5 and X160.10, respectively);
  - posting in conspicuous places of required notices, schedules, and other relevant information for lending and deposit operations;
  - availability of efficient accounting and reporting means and communication facilities between head office, branches, and branch-lite units; and
  - compliance with the pre-requisites under Subsec. X151.2 as of the time of opening.
If a bank fails to comply with the pre-requisites under Subsec. X151.2 as of the intended opening date, the bank must refrain from opening until it has complied with all Subsec. X151.2 requirements.
For microfinance-oriented branch-lite units, the bank must certify that:
- the branch has a micro-financing manual duly approved by the bank’s board of directors;
- it has an adequate loan tracking system allowing daily monitoring of loan releases, collections, arrearages, and any restructuring/refinancing arrangements;
- it is managed by a person with adequate experience in microfinancing activities; and
- at least seventy percent (70%) of deposits lent out to qualified microfinance (including BMBE borrowers) and microfinance/BMBE loans remain at least fifty percent (50%) of its gross loan portfolio at all times.

Relocation, closure, surrender, and sale

Relocation of existing branches/branch-lite units is allowed under Subsec. X151.9 in accordance with the relocation procedures.
Relocation includes scenarios where branches/branch-lite units are opened at the next banking day or within one (1) year from the date of closure.
Relocated branches/branch-lite units may be relocated anywhere, and any branch-lite unit relocated into restricted areas is subject to the special licensing fee under Subsec. X151.5.
Relocation of a branch/branch-lite unit beyond one (1) year from the date of closure is treated as a permanent closure and surrender of the license at the old site.
Opening the branch/branch-lite unit at the new site after a deemed closure is treated as the establishment of a new branch/branch-lite unit subject to Subsec. X151.2.
Temporary closure and permanent closure rules under Subsec. X151.10 include:
- Within five (5) banking days from reopening, the bank must submit notice and certification signed by the CCO and the head of branch banking operations of at least vice president rank (or equivalent/higher) that the bank complied with Items (a) and (c) of Subsec. X151.8 on the requirements for opening.
- Temporary closure beyond one (1) year is deemed permanent closure and surrender of the branch-lite unit license; reopening is treated as establishment of a new branch/branch-lite unit under Subsec. X151.2.
Sale/acquisition of existing/operating branch/branch-lite units may be allowed with prior approval of the Monetary Board, subject to the procedures in Subsec. X151.10.
For acquisition, the acquiring bank must request Monetary Board approval by filing a request signed by the president or equivalent rank, together with a certified true copy of the board resolution authorizing acquisition.
The acquiring bank must comply with:
- the pre-requisites under Subsec. X151.2; and
- the ceiling on total investments of a bank in real estate and improvements thereon, including bank equipment under Subsec. X160.2.
A bank may purchase/acquire branches/branch-lite units anywhere, including in Metro Manila, subject to compliance with the minimum capital requirement under Subsec. X111.1.
Within five (5) banking days from opening of the acquired branch/branch-lite unit, the acquiring bank must submit notice and certification (signed by the CCO and head of branch banking operations with at least vice president rank/equivalent or higher) that the bank complied with Items (a) and (c) of Subsec. X151.8.
Buyers of closed banks may relocate/transfer acquired branches/branch-lite units subject to the conditions under Subsec. X151.11, tied to relocation conditions in Subsec. X151.9.

Supervisory enforcement powers

The Bangko Sentral may deploy supervisory tools to promote adherence to the rules and to require timely corrective actions and compliance.
The Bangko Sentral may limit banking activities and services offered by a branch/branch-lite unit or revoke the franchise and close any branch/branch-lite unit.
If any part of a certification required under this Section is found to be false, the Bangko Sentral may:
- suspend the privilege to establish and/or open approved branches/branch-lite units; and/or
- suspend relocation of branches/branch-lite units; and
- impose sanctions on the certifying officers concerned.
Subsecs. X151.13 to X151.18 are reserved.

Related MORB amendments for offices

Section 2 amends Sec. X152 on relocation of head offices by allowing a bank’s head office to be relocated anywhere it is allowed to establish branches under Subsec. X151.4.
A head office located outside restricted-area cities that is relocated into restricted-area cities is subject to the special licensing fee under Subsec. X151.5 upon approval of relocation.
Section 3 amends Subsecs. X153.2 to X153.6 on sub-branches of foreign banks:
- In addition to Subsec. X151.2 pre-requisites, sub-branch applicants must pay the processing fee under Subsec. X151.5.
- Sub-branch applications in restricted-area cities are also subject to the special licensing fee under Subsec. X151.5.
- For opening a sub-branch, the foreign bank branch must submit within five (5) banking days:
  - written notice of the actual opening date;
  - proof/evidence of inward remittance needed to meet additional capital requirements under Subsec. X111.1; and
  - certification on compliance with Item (a) of Subsec. X151.8.
- A foreign bank authorized under R.A. No. 7721, as amended by R.A. No. 10641, may open up to five (5) sub-branches approved by the Monetary Board.
- A foreign bank may establish a branch-lite unit under Section X151, and a branch-lite unit counts as a sub-branch for purposes of the numerical limit under R.A. No. 7721, as amended by R.A. No. 10641.
- Supervisory enforcement for sub-branches includes enforcement actions mentioned under Subsec. X151.12.
Section 4 amends Subsec. X102.5 on conversion of microfinance-oriented thrift banks/rural banks by providing that microfinance-oriented branches may convert into regular branches subject to submission of a certification signed by the president or officer of equivalent rank that at least seventy percent (70%) of deposits generated by the branch shall be lent out to microfinance borrowers.
Section 5 amends Subsec. X111.1 on minimum capitalization and provides that the term branch excludes branch-lite units of banks for compliance with minimum capitalization under Subsec. X111.1.

Terminology shift to branch-lite units

References in the MORB to Extension Offices (EOs) and Other Banking Offices (OBOs) and corresponding microfinance-oriented OBOs/MBOs are replaced with branch-lite units in the enumerated MORB sections/subsections and appendices, except for specified relocation and conversion references within Subsec. X151.9 to X151.10 and specified subsections listed in Section 6.

Pre-qualification requirement and deleted provisions

Section 7 amends Appendix 5 of the MORB by deleting the application for establishment of additional branches of foreign banks (Subsec. X153.2) from the enumeration of banking authorities in items A and B.
Section 7 deletes Subsec. X192.11 on reports of other banking offices and deletes Appendix 93 on processing guidelines on the establishment of MF-OBOs/MBOs.

Transitory conversion to branch-lite units

EOs, OBOs, and microfinance-oriented OBOs/MBOs must now be referred to as branch-lite units, unless the bank intends to convert them into branch under existing regulations.
Banks must be given six (6) months from the date of effectivity of the Circular to convert existing EOs/OBOs/MBOs.
Banks must submit a notification to the appropriate department of the SES five (5) banking days before conversion of the EOs/OBOs/MBOs into branch-lite units.
The notification must indicate:
- the board-approved range of banking activities and services that will be performed and offered to a specifically defined market or sector (excluding activities suited only to sophisticated clients with aggressive risk tolerance);
- compliance with the conditions under Subsec. X151.1; and
- other relevant information pertaining to the conversion.

Effectivity and publication

Circular No. 987 takes effect fifteen (15) calendar days after publication in either the Official Gazette or a newspaper of general circulation.
The Circular is issued under the signature of Nestor A. Espenilla, Jr., Governor, for the Monetary Board.