Purpose and regulatory framework
- BSP Circular No. 1281 revises the rules and regulations governing the establishment and relocation of branches of commercial banks and thrift banks.
- The revisions are approved to liberalize the rules and regulations on branch establishment and relocation.
- The Circular sets standards for bidding of branch franchises, authority to open branches, branch-count limits per service area, conditions for participation, and rules on closures and relocations.
Scope: banks and service areas
- The Circular governs branch establishment and branch relocation by commercial and thrift banks.
- Branch franchise bidding uses service areas consisting of National Capital Region, Cebu City and Davao City, 1st Class Cities and 1st Class Municipalities, and other areas (including 2nd class cities and municipalities and lower ranked cities and municipalities).
- A bidding restriction applies to thrift banks with head offices outside Metro Manila, which are not allowed to bid for franchises in Metro Manila service areas.
- Transfers/relocations are governed primarily by the service area where the branch is located, with limited adjacency exceptions.
- Non-operating departments/offices (executive offices, legal administrative, personnel, and general service departments/offices) are evaluated separately from the rules for establishing or relocating banking offices.
Bidding of branch franchises
- Franchises to establish branches may be bid out by the Central Bank, and banks meeting prequalification requirements may participate.
- A franchise is awarded to the highest bidder, subject to a specific tie-break/coverage rule.
- If the bid is submitted by a bank with no existing branch/banking office in the relevant service area and the bid is at least 90% of the highest bid submitted by a bank that already has branches/banking offices in the area, the franchise is awarded to the bank with no branch/banking office yet.
- Minimum franchise bids are required by area:
- National Capital Region, Cebu City and Davao City: PHP 4.0 million
- 1st Class Cities and 1st Class Municipalities: PHP 2.0 million
- Other Areas: None
- A bank shall not sell or assign its privilege to establish branches covered by approved bids.
Payments, forfeiture, and bidding limits
- Approved bids must be paid to the Central Bank as follows:
- 30% within seven (7) calendar days from receipt of the notice of award by the appropriate supervising and examining department of the Supervision and Examination Sector; and
- 70% within twenty (20) calendar days from the date the 30% was paid.
- Approved bids are revoked if the bank fails to remit the prescribed payments.
- The 30% down payment is forfeited in favor of the Central Bank if the balance of 70% is not paid within the prescribed period.
- The number of awarded bids for which no branch/banking office has been opened shall not exceed ten (10) for each bank at any given time.
- If a bank submits more than ten (10) bids, it must indicate its priorities.
- A bank is prohibited from bidding for franchises in a service area if it has:
- three (3) existing branches in the service area; or
- branches whose combined deposits constitute 20% of the combined average deposits of all bank branches in the service area for the last 12 months prior to a bidding.
Branch establishment in other areas (no bidding)
- No bidding is required to open a branch in other areas (i.e., second class cities and municipalities and lower ranked cities and municipalities).
- Applications to establish branches in other areas must be submitted to the Central Bank and processed on a first come, first served basis.
- A bank seeking branch establishment in other areas has least priority if it has:
- three (3) existing branches in the service area; or
- branches whose combined deposits constitute 20% of the combined average deposits of all bank branches in the service area for the last 12 months prior to submission of its application.
- Applications to establish branches/banking offices in other areas must be accompanied by:
- a certified true copy of the resolution of the bank’s board of directors authorizing the establishment of the additional branch/banking office;
- banking facilities and services to be offered;
- a projected statement of condition at the end of the first and second semesters of operations of the proposed branch/banking offices;
- a statement of estimated earnings and expenses for the first twelve (12) months of operations;
- an organizational setup showing proposed positions;
- bank premises and initial outlay.
Determining authorized number of branches
- The maximum number of branches/banking offices allowed in an area is determined by dividing total deposits in a service area by the break-even level of deposits in that area.
- The additional number of branches/banking offices that may be bidded out equals:
- the maximum number determined under the deposits/break-even calculation minus the actual number of branches/banking offices in the area.
- The break-even deposit levels are:
- National Capital Region, Cebu City and Davao City: PHP 50.0 million
- 1st Class Cities and 1st Class Municipalities: PHP 35.0 million
- 2nd and 3rd Class Cities and 2nd Class Municipalities: PHP 20.0 million
- Other Areas: None
- Deposits in other areas must be monitored to determine if a break-even deposit level is needed.
- The Central Bank determines how many franchises may be bidded out in each service area.
Preconditions: compliance and sound banking practices
- No bank may participate in bidding for branch licenses or be granted authority to establish a branch until after it corrects the following violations/exceptions and unsound and unsafe banking practices noted in the latest examination.
- Republic Act No. 337, as amended, is identified for specific prohibited conditions:
- Section 21-A: investment in equities exceeds prescribed ceilings.
- Section 23: loans in excess of single borrower’s limits.
- Section 25: investment in bank premises exceeds ceilings.
- Section 76: loans granted without supporting financial statements and/or credit information, or loans not justified by financial statements and/or credit information, where the total amount aggregates 5% of net worth.
- Section 78: loans granted in excess of maximum loan value, where total excess aggregates 5% of net worth.
- Unsound and unsafe practices also bar participation until corrected when the aggregate equals 5% of net worth for each category described:
- loans approved/released without authority from the appropriate body/officer;
- loans released without complying with the terms of approval;
- loans released before full documentation of papers (PNs, mortgage contracts, pledges, assignments).
- Participation is also barred where the aggregate of all loans under the listed categories totals 10% of net worth.
Incentives and additional branches
- A bank establishing branches in other areas after the Circular’s effectivity receives an incentive.
- For every three (3) branches a bank has established in other areas, the bank may be allowed to establish one (1) branch in either:
- National Capital Region, Cebu City and Davao City, or
- 1st Class Cities and 1st Class Municipalities,
- in the bank’s choice, without bidding.
- The incentive applies only if the chosen area is still open for additional branches.
Transfer, relocation, conversion, and evaluation
- Transfers/relocations of branches are generally allowed only within the same service area where the branch is currently located.
- Transfers/relocations to a different service area are allowed if the new service area is immediately adjacent to the service area where the branch is operating.
- Converting a head office that is transferred to another location into a branch is treated as establishment of a new branch, subject to the same regulations.
- Transfer/relocation of non-operating departments/offices (executive offices, legal administrative, personnel, and general service departments/offices) is not subject to the rules and requirements governing transfer/relocation of banking offices or establishment of branches.
- Non-operating departments/offices transfers/relocations are evaluated based on the need therefor.
Closure of branch/banking office
- No branch/banking office may be closed without the prior approval of the Central Bank.
Transitory arrangements and review
- Complete applications for branches in categories IV and V service areas in National Capital Region, Cebu City, Davao City, and 1st Class Cities and 1st Class Municipalities received up to June 30, 1991 are processed on a first come, first served basis without bidding.
- The number of additional branches allowed for those transitory applications is governed by existing rules.
- After June 30, 1991, applications for branches in those areas are governed by the Circular’s rules and are subject to bidding.
- The rules and regulations on establishment/relocation of branches must be reviewed within two (2) years to allow further relaxation.