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oat 01 JUL 2018

Republic of the Philippines.
HOUSE OF REPRESENTATIVES,
Quezon City

16" Congress
First Regular Session

House Bill No. 4

Introduced by HON. AGAPITO H. GUANLAO.

EXPLANATORY NOTE

Cooperatives have been hailed as a modern means of empowering the population
through collective action at the grassroots level. Cooperativism involves the combined
energies and efforts of individuals, united by a common goal and purpose, and banding
together to assist each other for mutual support and benefit

The next logical step for cooperatives especially in these trying times is to expand
their reach to be of concrete assistance to people mostly in the countryside. It is in
these places where the bulk of our farmers, fisher folk and members of other
marginalized sector reside and operate. .Sadly, it is also in these areas where access to
much-needed capital and infrastructure assistance is very much wanting

The bill seeks to transform cooperatives into entities which are more useful and
relevant. By facilitating the establishment and creation of cooperative banks, the best
qualities of both cooperatives and banks would be hamessed and utilized into a single
legal entity.

Depending in their size, whether they are national in scope or local in character,
and depending likewise on their location, cooperative banks are intended to be a
cornerstone of rural progress and development. Their creation is strongly dictated by
the need to support small-scale and medium-scale entrepreneurs in the countryside.

Cooperative banks, being intended primary to foster the entrepreneurial spirit and
to be a comerstone in rural progress, enjoy strong privileges’ and benefits under the
law, and these legal privileges are intended to further strengthen both the cooperative
spirit and the banking activities in their intended locations.

This piece of legislation remains relevant and important for small farmers to gain

organizational and economic strength in the light of existing situations, The enactment
of this bill is therefore sought.

HON. AGAPITO Hi} GUANLAO


Republic of the Philippines

HOUSE OF REPRESENTATIVES,
Quezon City

16" Congress
First Regular Session
464

House Bill No.

Introduced by HON. AGAPITO H. GUANLAO

AN ACT
PROVIDING FOR THE CREATION, ORGANIZATION AND OPERATION
OF COOPERATIVE BANKS AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives of the Philippines
In Congress assembled

Section 1. TITLE - This act shall be known as the “Cooperative Banking Act of 2013)

Section2. DECLARATION OF POLICY - it is a declared policy of the state to promote
comprehensive cooperative development in order to attain a more equitable distribution
of wealth, create opportunities for development and job generation, secure a sustained
increase in the amount of goods and services for the benefit of the people; and expand
productivity at all level as a key to raising the quality of life for all, especially the small
farmers, fisherfolk and members of other marginalized sectors.

Further, it is hereby declared the policy of the state to:

(1) Recognize cooperative banks as practical vehicles for the promotion of self-
reliance and the harnessing of people power towards the attainment of
‘economic development and social justice;

(2) Encourage thrift and savings mobilization for the achievement of sustainable
economic development primarily among cooperatives and their members;
and

(3) Regulate and supervise the activities of cooperative banks in order to achieve
sound, stable and efficient operations for the protection of the public
interest.

Towards these ends, the Government shall encourage and assist in the establishment
of cooperative banks in order to make credit facilities available and readily accessible
on reasonable terms. The Monetary Board of the Bangko Sentral ng Pilipinas shall
formulate the necessary rules and regulations governing the establishment, operation
and supervision of cooperative banks.

SECTION 3. DEFINITION OF TERMS
The following definition shalll apply within this Act.

1. Cooperative Bank - A bank organized under this act and under this provisions of
the Cooperative Code, the majority shares of which are owned and
controlled by cooperative organizations, for the primary purpose of
providing financial and credit services to cooperatives and their members.
It shall include cooperative rural banks.


en

ts

. Samahang Nayon - Pre-cooperatives organizations established under PD.175.
|. Monetary Board shall mean the Monetary Board of the Bangko Sentral ng

Pilipinas.

. Cooperative organization shall refer to any cooperative whether primary,

secondary or tertiary registered under the provisions of the cooperative

code, and registered with the cooperative development authority.
Cooperative Code - A law created by Republic Act no.6938, otherwise known

as the Cooperative Code of the Philippines and any amendments thereto.

. Cooperative Development Authority (CDA )- the agency of the government

created under R.A.No.6939, mandated to register, regulate and supervise
cooperatives.
Bankoop - refers to the Cooperative Banks Federation of the Philippines.

SECTION 4. ORGANIZATION, MEMBERSHIP AND ESTABLISHMENT OF
COOPERATIVE BANK.

(A) ORGANIZATION - At least fifteen (15) cooperative organizations duly

established and registered under the Cooperative Code may organize and
operate a cooperative bank, which shall likewise be considered a
cooperative registerable under the provisions of this Act, subject to the
requirements and requisite authorization from the Bangko Sentral ng
Pilipinas.

(B) MEMBERSHIP - Membership in a cooperative bank shall be open to cooperative

organizations as well as, but not limited to the following
(1) Individual members of the bank's primary cooperatives; and

a. Samahang Nayons and Municipal Katipunan ng mga
‘Samahang Nayons (MKSNS) which held common shares of
cooperative banks prior to the effectivity of this Act shall
apply for conversion to full-fledged cooperatives in order to
maintain their status as regular members of the cooperative
banks: Provided, that they shall notify the cooperative banks
concerned of their intention to convert within a period of one
(1) year from the effectivity of this Act to complete
conversion to cooperatives. Cooperative banks shall exert
reasonable efforts to inform their member Samahang
Nayons and MKSNS to finally convert or to give the notice of
conversion within the prescribed period.

(2) Establishment of cooperative banks.- the articles of cooperation
and by-laws of any cooperative bank, or any amendments thereto,
shall be registered only accompanied by a certificate of authority
issued by the monetary board, under its official seal

SECTION 5, ADMINISTRATION OF COOPERATIVES BANKS -

(A) BOARD OF DIRECTORS - the cooperative bank shall be governed by a board

of directors, the member which shall is no case be less than five (5) nor
more than fifteen (15), composition, terms and voting rights of the
shareholders shall be defined in the articles of cooperation and by-laws of
the cooperative bank, notwithstanding the provisions of any existing laws
to the contrary.


(B) All members of the Board of Directors of the cooperative banks shall process all
the qualifications and none of the disqualifications as required by any
existing laws and by the Bangko Sentral. All such members shall be of
legal age and citizens of the Philippines, In case there are appointive
government officials sittings in the Board, said appointive officials may
serve as director provided that their position in the government will not be
in conflict with their functions as member of the board.

(©) No director or officer of any cooperative bank shall, either directly or indirectly, for
himself or as the representative or agent of another, borrow any of the
deposits or funds of such banks, nor shall be become a guarantor,
endorser, or surety for loans from such bank to others, or in any manner
be an obligor for money borrowed from the bank or loaned by it except
with the written approval of the majority of the directors of the bank,
excluding the director concerned.

(D) Any such approval shall be entered upon the records of the cooperative and a
copy of such entry shall be transmitted forthwith to the appropriate
supervising department of the Bangko Sentral ng Pilipinas. The
director/officer of the bank who violates the provisions of this section shall
be immediately dismissed from his office and the penalties provided in
Section 9 of this Act shall be made applicable to such officer.

SECTION 6. POWERS, FUNCTIONS AND ALLIED UNDERTAKING OF
COOPERATIVE BANKS - COOPERATIVE BANKS SHALL PRIMARILY PROVIDE
FINANCIAL, BANKING AND CREDIT SERVICES TO COOPERATIVE
ORGANIZATIONS AND THEIR MEMBERS, AND LIKEWISE TO THE
AGRICULTURAL, AND OTHER SECTORS THAT MAY BE CONSIDERED
MARGINALIZED.

(A) Subject to such guidelines, rules and regulations as may established and
promulgated by the Monetary Board, a cooperative bank may:

(1) Accept savings and time deposits

(2) Mobilize savings for the benefit of the cooperative movement;

(3) Receive financial and/or loans from any institution and the Bangko Sentral
for and in behalf primarily of the cooperative banks and cooperative
organizations engaged in business and supervise the lending and
collection of loans;

(4) Act as a balancing medium for the surplus funds of cooperative
organizations;

(5) Issue negotiable instruments to facilitate the activities of cooperative
organizations;

(6) Issue debentures subject to the approval of and under conditions and
guarantees to be prescribed by the government;

(7) Open letters of credit and bank drafts;

(8) Borrow money from banks and other financial institutions within the limit to
be prescribed by the Bangko Sentral;

(9) Discount and rediscount paper with private and government financial
institutions;

(10) Issue mortgage and chattel mortgage certificates, buy and sell them for its
own account or for the account of others, or accept or receive them in
payment for amortization of its loan;

(11) Purchase, hold and convey real estate under the same conditions as
those governing commercial banks as specified under Section 51 and 52
of Republic Act No. 8791 otherwise known as the General Banking Law of
2000;

(12) Engage in quasi-banking and money market operations;


(13) Extend credit against the security of jewelry, precious stones and articles
of similar nature, subject to such rules and regulations as the monetary
board may prescribe

In addition to the powers granted by this Act and other existing laws, any
cooperative bank may perform any or all of the services offered by other types of
banks upon prior approval of the Monetary Board, including the following:

(1) Offer current or checking accounts subject to such guidelines as may be
established by the Philippine Clearing House Corporation,

(2) Actas correspondent bank for other financial institutions, local or foreign,

(8) Act as collection and/or withholding agent for government entities
including but not limited to the bureau of internal revenue, the social
security systems, and the bureau of customs,

(4) Act as official depository of national government agencies, municipality or
provincial government units in the municipality, city or province where the
cooperative bank is located, subject to such guidelines as may be
established by the monetary board and the department of finance,

(5) Extend credit facilities to private and government employees, provided,
that in the case of a borrower who is a permanent employee or wage
earner, the treasurer, cashier or paymaster of the office employing him is
authorized, notwithstanding the provisions of any existing law, rules or
regulations to the contrary, to make deductions from his salary, wage or
income pursuant to the terms of his loans, to remit deductions to the
cooperative bank concerned and collect such reasonable fees for his
services.

Nothing in this act shall be construed as precluding a cooperative bank from
performing, with prior approval by the Monetary Board, commercial banking
services or from operating under an expanded banking authority, or from
exercising, whenever applicable and not inconsistent with the provisions of this
act and Bangko Sentral regulations, such other powers incident to a cooperative.

(B) Investments in allied undertakings - subject to such guidelines as maybe
established by the Monetary Board, cooperative banks may invest in
equities of allied undertakings as hereinafter enumerated; provided that:

(1) The total investment in equities shall not exceed twenty-five percent (25%)
of the net worth of the cooperative bank;

(2) The equity investment in any single enterprise shall be limited to fifteen
percent (15%) of the net worth of the cooperative bank; and

(3) The equity investment in other banks shall be subject to the same
provision governing similar investments of commercial banks and shall be
deducted from the investing bank's net worth for the purpose of computing
the prescribed ratio as provided in section 7, hereof: provided further, the
equity investments shall not be permitted in non-related activities. Where
the allied activity is a wholly or majority-owned subsidiary of the
cooperative bank, the Bangko Sentral may subject such subsidiary to
examination.

Investments in allied undertaking shall mean investing in institutions engaged in
the following activities:

(1) Banking and financing,

(2) Warehousing and other post-harvest activities,

(3) _ Fertilizer and agricultural chemical and pesticide distribution,

(4) Farm equipment distribution,

(5) Trucking and transportation of agricultural products,

(6) Marketing of agricultural products,


(7) Leasing,
(8) Insurance, and
(9) Other undertaking as may be determined by the Monetary Board.

(C) Lending-activities and limitation on lending authority - cooperative organizations,
their members, and the bank's depositors may obtain loans from a
cooperative bank, subject to such limitations as may be provided for by
the Monetary Board.

Expect as the monetary board may prescribe, the direct indebtedness to
cooperative bank(s) of any single or association for money borrowed,
excluding:

(1) Loans secured by obligations of the Bangko Sentral,

(2) Loans fully guaranteed by the government as to the payment of principal
and interest,

(3) Loans to the extent covered by the hold-out, or assignment of deposits
maintained in the Philippines,

(4) Loans to cooperative organizations or their members from funds passed
through the cooperative bank as a conduit in any private or government
lending program, and

(5) Other loans or credits as the Monetary Board may, from time to time
specify non-risk assets; shall at no time exceed twenty percent (20%) of
the unimpaired capital and surplus of the cooperative bank.

SECTION 7. CAPITALIZATION AND CAPITAL STRUCTURE

(A)A NATIONAL cooperative bank shall have a minimum AUTHORIZED SHARE
CAPITAL OF TWO BILLION (P2,000,000,000,00) PESOS, divided into
such number of common and preferred shared as may be stated in its
articles of cooperation. Provided, that the common shares shall be at least
50% of the total paid-up capital; and Provided, further, that each share of
stock shall a par value of not less than ONE THOUSAND (1,000.00)
PESOS.

(B) A local cooperative bank shall have a minimum authorized share capital of
Twenty Million (P20,000,000.00) pesos, divided into such member of
common and preferred shares as may be stated in its articles of
incorporation. Provided that the common shares shall be at least 50% of
the total paid-up capital; provided further, that each share of stock shall
have a par value of not less than One Thousand (1,000.00) pesos.

SECTION 8. BARRIO SAVINGS FUND (BSF) AND BARRIO GUARANTEE FUND
(BGF) - In order to augment the capitalization of cooperative banks, the BSF and BGF
collected/deducted by various banks throughout the country from the loan proceeds of
farmer borrowers in compliance to PD 175, which are still floating and outstanding either
as active or dormant accounts in the books of those banks shall be remitted to the
cooperative bank located in the province where the depository banks of the BSF and
BGF are located. The Bangko Sentral in coordination with the Cooperative Banks
Federation of the Philippines (BANGKOOP) shall come up with the implementing
guidelines on how to credit the owners of those. Those whose owners could not be
located or identified shall be entrusted to Bangkoop in order to finance the cooperative
banks strengthening program of the federation.

SECTION 9. PROHIBITED ACTS - Any bank not organized and registered under this
act, and any person, association, or corporation doing the business of banking, not
authorized under this act or existing laws which use the words ‘cooperative bank’ as.


part of its name or title, such bank or such person, association or corporation, shall be
penalized by a fine of not less than One Hundred (P100.00) pesos, but in no case to
exceed Thirty Thousand (30,000.00) pesos for each day during which the said words
are used.

SECTION 10. SUPERVISION - The cooperative banks registered under this act and
under the Cooperative Code shall be under the supervision of the Bangko Sentral ng
Pilipinas, In order to facilitate the supervision and implementation of standards in
financial discipline, considering the unique cooperative nature and character of
cooperative banks, said banks are hereinafter required to be a members of the
BANGKOOP, and additionally required to maintain membership in good standing.

SECTION 11. PRIVILEGES AND INCENTIVES OF COOPERATIVE BANKS -

(A) Cooperative banks registered under this act and under the cooperative code
shall be given the same privileges and incentives granted to rural banks,
private development banks, commercial banks, and all other banks to
rediscount notes with the Bangko Sentral, the Land Bank of the
Philippines and other government banks without affecting in any way the
provisions of this act.

(B) Subject to the approval of the monetary board, a cooperative bank may publish
its statement of condition in a newspaper of general circulation, or a local
newspaper covering its area of operations or post it in a conspicuous
place area of its premises, the municipal building, the municipal public
market, if there be any, where the cooperative bank is located.

(C)In case of foreclosure of mortgages covering loans granted by a cooperative
bank and executions of judgments thereon involving real properties and
levied upon by a sheriff shall be exempt from publication requirement
where the total amount of the loan, excluding the interest due and unpaid
does not exceed Five Hundred Thousand Pesos (500,000.00) or such
amount as the monetary board may prescribe, as may be warranted by
the prevailing economic conditions and by the nature and character of
cooperative banks. It shall be sufficient publication in such cases if the
notice of foreclosure and execution of judgment are posted in conspicuous
areas of the cooperative bank's premises, the municipal hall, the municipal
public market, if there are be any, where the land mortgaged is situated,
within a period of sixty (60) days immediately preceding the public auction
or the execution of judgment. Proof of publication as required herein shall
be accomplished by an affidavit of the sheriff of officer conducting the
foreclosure sale or execution of judgment and shall be attached to the
record of the case.

A cooperative bank shall be allowed to foreclosure land mortgaged to it subject to the
provisions of Republic Act No. 6657, otherwise known as the comprehensive agrarian
reform law of 1988.

(A) Any judge in his capacity as notary public, ex-officio, shall render service, free of
charge, to any person or group of persons requiring either the
administration of oath or the acknowledgment of any instrument of loan
from cooperative bank not exceeding One Hundred Thousand
(P100,000,00) Pesos.

(B) Any register of deeds shall accept for registration, free of charge, any instrument
Telative to loan with cooperative bank which does not exceed One
Hundred Thousand (100,000.00) pesos or deeds of title or any property
acquired by the cooperative bank or any paper or document drawn in
connection with any action brought by the cooperative bank or with any
court judgment rendered in its favor or any instrument relative to a bond
of any accountable officer of a cooperative bank for the faithful
performance of its duties and obligations.


(© Cooperative bank shall be exempt from the payment of all court and sheriff fees

payable to the Philippine Government for and in connection with all
actions brought incident to its operation or where such action is brought by
the cooperative development authority before the court to enforce the
payment of obligations contracted in favor of the cooperative banks

(D) Cooperative bank shall be exempt from putting up a bond for bringing an appeal

against the decision of an inferior court or for seeking to set aside any
third party claim: provided, that a certification of the cooperative
development authority showing that the net assets of the cooperative bank
are in excess of the amount of the bond required by the court in similar
cases shall be accepted by the court as sufficient bond.

(B) Any security issued by the cooperative bank shall be exempt from the securities

act provided such security is non-speculative.

(F) The Philippine Deposit Insurance Corporation (PDIC), Land Bank of the

Philippines and other government agencies, government-owned and
controlled corporations and government financial institutions shall provide
assistance, whether technical, financial or otherwise to cooperative banks
directly or through its federation, Bangkoop, to permit them to grow,
develop and perform their role in countryside development and towards a
sustainable national economic development; and provide technical and
financial assistance to Bangkoop in order for this federation to be capable
‘of strengthening and stabilizing the operation of its member cooperative
banks. Whenever a cooperative bank is distressed or may need
assistance in the rehabilitation of its financial condition or to avoid
bankruptcy, the monetary board of the Bangko Sentral ng Pilipinas shall
designate an official of the Bangko Sentral or a person of a recognized
competence, preferably with experience in cooperative banking and
finance, to take over the management of such bank until a new board of
directors and officers are elected and qualified, in consultation with
Bangkoop and the cooperative development authority.

(G) Cooperative banks shall enjoy the privilege of being represented by the provincial

or city fiscal or the office of the solicitor general, free of charge, except
when the adverse party is the Republic of the Philippines.

In addition to the privileges generally granted to cooperatives under the cooperative
code, cooperative bank organized under this act shall also be exempted from the
payment of taxes, fees and charges of whatever nature and description, as follows:

(1) Cooperative Bank with accumulated reserves and undivided net savings of NOT

(a)

more than TWENTY MILLION PESOS (20,000,000.00) shail be entitled to
exemptions from all kinds of national internal revenue and local taxes,
including but not limited to:

Income tax - arising from income and gains realized from banking
services: provided, however that the following shall be subject to final tax
pursuant to the provisions of title ii of the national internal revenue code:

a1 Interest income derived from any currency bank deposits, yield
from deposit substitutes, trust funds, foreign currency deposit units
(FCDUs) and similar arrangements:
a2 Royalties;
a3 Prizes and other winnings, and
a4 Capital gains realized from sale, barter or exchange of shares of
stocks and real properties.


(b) Gross receipt tax imposed on lending activities pursuant to the provisions
of Title V of the National Internal Revenue Code;

(c) Custom duties on importation of equipment and machineries, spare parts
and raw materials which are actually, directly and exclusively used in the
cooperative activities, provided that said importation shall need the prior
approval of the department of finance. In case that the subject imported
goods are subsequently sold, transferred or exchanged to non-exempt
persons or entities, the purchaser of recipients shall be considered
importers thereof, and shall be liable to the duty and internal revenue tax
due on such importation;

(d) All forms of local and real property taxes and exemptions from fees,
charges, imposts, special levies and special assessments as may be
granted by the local government unit pursuant to the provisions of
Republic Act No. 7160, otherwise known as the Local Government Code
of 1991;

(e) Value added tax on the sale or importation by cooperatives shall be in
accordance with the provisions of Title IV of the National Internal Revenue
Code;

(f) Cash dividends shall be subject to 10% final withholding tax;

(g) The CDA, upon its approval of the registration of a cooperative bank, shall
issue a certificate of compliance to the cooperative bank based on the
provisions of this act. This certification shall be the primary basis of the
BIR in determining the nature and extent of exemption status of the
cooperative bank. In order to determine any change in the tax exemption
status of the cooperative bank, the certification shall be renewed on an
annual basis upon the approval and issuance by the CDA of the
cooperative certificate of compliance. The CDA and the department of
finance shall issue the corresponding rules and regulations to implement
this section.

(h) All Cooperative Banks, regardless of the amount of accumulated reserves
and undivided net savings shall be exempt from payment of local taxes
and taxes on transactions with MEMBERS: Provided, That all services
rendered for non-members shall be subject to the applicable percentage
taxes

SECTION 12. REPORT ON PROMULGATED REGULATIONS — The Monetary Board
of the Bangko Sentral ng Pilipinas shall submit a report to the Congress of the
Philippines at the end of each calendar year of all the rules and regulations promulgated
by it in accordance with the provisions of this Act, as well as its other resolutions and
actions in connection with the operation of cooperative banks, together with
explanations of its reasons thereof.

SECTION 13. AMENDMENTS — Any amendments to the articles of cooperation and by-
laws of the cooperative bank shall be proposed by the Board of Directors and ratified by
2/3 votes of the SUBSCRIBED capital stock of the bank entitled to vote; and the same
shall take effect upon approval by the Monetary Board of the Bangko Sentral ng
Pilipinas and by the Cooperative Development Authority.

SECTION 14. SEPARABILITY CLAUSE - If any provision or section of this Act or the
application thereof to any person or circumstances is held invalid, the other provisions
or sections of this Act shall remain valid, and the application of such remaining
provisions or sections to the other persons or circumstances, shall not be affected
thereby.


SECTION 15. All provisions of Republic Act No.6938, Republic Act No. 7653 and any
provisions inconsistent with the provision of this Act are hereby amended accordingly.

SECTION 16. EFFECTIVITY — This Act shall take effect fifteen (15) days from the date

of its publication in the Official Gazette or in at least two (2) newspapers of general
circulation.

Approved.