Republic of the Philippines
House of Representatives
Quezon City

NINETEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 1323

Introduced by Hon. Felimon M. Espares
COOP-NATCCO PARTYLIST

AN ACT
PROVIDING FOR THE REGISTRATION,
REGULATION, AND OPERATION OF COOPERATIVE
BANKS

EXPLANATORY NOTE

With more than 2,500 primary cooperatives and Samahang Nayon (SN) whose
membership can reach not less than 5 million individuals, it has been an aspiration for the
cooperative banking sector t6o have its own rule book distinct and different from that of the
rural and commercial banks. The pivotal role of cooperative bank in furnishing credit and other
financial services to the so-called non-bankable sector of our society has been very impressive.
Cooperative banks are owned and financed by primary coope3ratives and SN using the small
shareholding of farmers, fisher folks, micro entrepreneurs, small traders and as a return, these
primary cooperatives borrow money from cooperative banks to support its loan program for
members. After the close of each year, the net surplus generated by these cooperative banks
are then plowed back to the owners. A demonstration of a give and take relationship whereby
the co-existence of both arm in evident.

Aside from this, cooperative have been very active in helping our government in its
poverty alleviation efforts. Moreover, with the new Philippine Cooperative Code of 2008, bigger
challenges have been posted for the cooperative sector to play a bigger and more meaningful
role in the delivery of credit and credit facilities to the countryside. This proposed Act will then
make cooperative banks more responsive to the challenges of the new cooperative code.

This Bill was approved by the House of Representatives during 18" Congress filed by
Representative Sabiniano S. Canama with House Bill no. 2435.

reasons Cited above, the expeditious approval of this bill is earnestly sought.

HON. FELIMON M. ESPARES


Republic of the Philippines
House of Representatives
Quezon City

NINETEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 1329

Introduced by Hon. Felimon M. Espares
COOP-NATCCO PARTYLIST,

o AWNo

AN ACT
PROVIDING FOR THE REGISTRATION,
REGULATION, AND OPERATION OF COOPERATIVE
BANKS

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

CHAPTER I
DECLARATION OF POLICY AND DEFINITIONS
Section 1. Title. - This Act shall be known as the "Cooperative Banking Act".

Sec. 2. Declaration of Policy. - It is the declared policy of the State to foster the creation
and growth of cooperatives to promote self-reliance, communal unity and the attainment
of economic development and social justice. The State shall encourage the private
sector to undertake the actual formation and organization of cooperatives and shall
create an atmosphere that is conducive to the growth and development of these
cooperatives.
Further, it is hereby declared the policy of the State to:
a. Recognize Cooperative Banks (CBs) as practical vehicles for the promotion of
self-reliance and economic development and the attainment of social justice;
b. Encourage thrift and savings mobilization for the achievement of sustainable
economic development primarily among cooperatives and their members; and
c, Regulate and supervise the activities of CBs in order to achieve sound, stable,
sustainable and efficient operations for the protection of the public interest.

Towards these ends, the Government shall encourage and assist in the establishment
of CBs in order to make credit facilities available and readily accessible on reasonable
terms.

Sec. 3. Definition of Terms. ~ As used in this Act:

a. Cooperative Bank — refers to a bank organized under this Act and under the
provisions of R.A. No. 9520, otherwise known as Philippine Cooperative Code of

2


10.

12.
13.

15.

16.

2008, and prior laws, for the primary purpose of providing a wide range of
financial services to cooperatives and their members and the public, and which
was issued by the Bangko Sentral ng Pilipinas (BSP) a license to operate as such,
the majority shares of which are owned and controlled by the cooperative
organizations;

b. Cooperative organization — refers to any cooperative whether primary,
secondary, tertiary, or a special type of cooperative registered under the
provisions of R.A. No. 9520 and R.A. No. 10744, otherwise known as Credit
Surety Fund Cooperative Act of 2015;

c. Samahang Nayon and Municipal Katipunan ng mga Samahang Nayon— refers
to pre-cooperative organizationsestablished under Presidential Decree
No.175, on Strengthening the Cooperative Movement.

CHAPTER Il
ORGANIZATION

Sec. 4. Organization and Membership. - The organization and membership of a
Cooperative Bank (C8) shall be governed by the following:

a. Organization —At least fifteen (15) cooperative organizations duly
established and registered under the Cooperative Code may register a CB with
the Cooperative Development Authority (CDA), upon compliance with the
requirements of and required authorization from the BSP;

b. Membership — Membership in a CB shall be open to:

(1) cooperatives of all types and categories;

(2) individuals who are members of a cooperative;

(3) foreign cooperatives;

(4) pre-cooperative organizations established under P.D. 175; and
(5) individuals.

Membership in a CB is either regular or associate. Regular membership shali
be limited to cooperative organizations and individuals who are members of
a domestic cooperative or foreign cooperative. Associate members shall be
pre-cooperative organizations established under P.D. 175 and individuals who
are subscribing and holding preferred shares only.

The common shareholdings of local cooperative organizations shall at all times
be at least sixty percent (60%) of the total outstanding voting shares of the CB.
Common shares held by individuals who are members of a cooperative and
foreign cooperatives shall not be more than forty percent (40%) of the total
outstanding voting shares: Provided, That the common shareholdings of each
individual who is a member of a cooperative shall not be more than 5%

of the total outstanding voting shares.

Sec. 5. Establishment of Cooperative Banks. - The articles of cooperation and by-laws
of a CB or any amendment thereto shall be registered with the CDA only when
accompanied by a Certificate of Authority issued by the BSP.

Sec. 6. Establishment of Branches and Other Offices. - The establishment of
branches, branch-like units, or other banking offices shall be governed by the rules and
regulations of the BSP,


1
2.

2.

10.

11.

CHAPTER IIT
MANAGEMENT AND GOVERNANCE OF COOPERATIVE BANKS

Sec. 7. Management of Cooperative Banks. - The management of the CBs shall be
governed by the rules and regulations to be promulgated by the BSP, in consultation
with the CDA. To maintain the quality of bank management and accord appropriate
protection to depositors and the public in general, the BSP shall prescribe the fit and
proper qualifications of bank directors and officers for the purposes of this Section,
giving due recognition to the unique nature and character of CBs.

The number, composition, and term of the board of directors shall be defined in the
Articles of Cooperation and by-laws of the CB in accordance with the following
guidelines:

a.Board and Committees. - The CB shall constitute, at a minimum, the Board of
Directors, Election Committee, and Audit Committee.

The Board of Directors shall be composed of at least five (5) but not more than
fifteen (15) members, at least one (1) of whom is an independent director. It
shall be entrusted with the management of the affairs of the CB. It shall be
responsible for the policy formulation, strategic planning, direction-setting and
activities of the CB. The members of the Board of Directors shall be elected
by the general assembly or representative assembly of the cooperative.

The Election Committee shall be responsible for the formulation and
implementation of election rules and guidelines. It shall supervise the conduct of
election and election-related activities, canvass and certify the results of the
election, and decide cases relative to such election, except those involving
the committee itself or its members. The members of the Election Committee
shall be elected by the general assembly or representative assembly.

The Audit Committee is a board-level committee which composition, functions
and responsibilities shall be in accordance with the existing regulations of the
BSP. Other board-level committees may be created as may be directed by the
BSP.

Other committees may be created by the board of directors with powers,
functions, and responsibilities which shall be defined in the by-laws.

b. Key Management Officers. - The key management officers shall be appointed
by the Board and shall include the President, Treasurer, Internal Auditor, and
Compliance Officer, or their equivalent ranks. The BSP shall prescribe the
qualifications and disqualifications of the key management officers.

Sec. 8. Vacancy in the Board and Committees. - Any vacancy in the board of directors,
other than by removal or by expiration of term, may be filled by the vote of at least
a majority of the remaining directors, if still constituting a quorum; otherwise, said
vacancy must be filled by the general assembly in a regular or special meeting called
for that purpose. A director so elected to fill a vacancy shall serve only the unexpired
term of the predecessor in office.

In case of vacancy in the committees, the board, unless otherwise provided in the by-
laws, will appoint a person to fill the same, subject to the provision that the person
appointed shall serve only for the unexpired portion of the term.


10.

Sec. 9. Compensation. - In the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any compensation except for reasonable
per diems: Provided, however, That the directors and officers shall not be entitled to
any per diem when, in the preceding calendar year, the CB reported a net loss or had a
dividend rate less than the official inflation rate for the same year. Any compensation
other than per diems may be granted to directors by a majority vote of the members
with voting rights at a regular or special general assembly meeting specifically called for
the purpose: Provided, that no additional compensation other than per diems shall be
paid during the first year of existence of the CB.

In no case shall the total yearly compensation of directors exceed ten percent (10%)
of the net income of the CB during the preceding year.

Sec. 10. Liability of Directors, Officers and Committee Members. - Directors, officers,
and committee members, who willfully and knowingly vote for or assent to patently
unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs
of the CB or acquire any personal or pecuniary interest in conflict with their duties as
such directors, officers or committee members shall be liable jointly and severally to
the CB for the full amount of damages or personal gain resulting therefrom.

Sec. 11. Disloyalty of Directors and Officers. - A director or officer who, by virtue
of the office, acquires a financial opportunity which should belong to the CB shall be
liable for damages and must account for double the profits that otherwise would have
accrued to the CB by refunding the same, unless the act was ratified by a two-thirds
(2/3) vote of all the members with voting rights.

This provision shall be applicable notwithstanding the fact that the director or officer
used personal funds for the venture.

Sec. 12. Dealings of Directors, Officers, Stockholders and Related Interests (DOSRI). -
Dealings with directors, officers, stockholders and related interests of the CB shall
comply with Section 36 of R.A. No. 8791, otherwise known as General Banking Law of
2000.

Sec. 13. Jilegal Use of Confidential Information. - A director or officer, or an associate
of a director or officer, who, for the benefit or advantage or that of an associate, makes
use of confidential information that, if generally known, might reasonably be expected
to adversely affect the operations and viability of the CB, shall be held:

a. Liable to compensate the CB for the direct losses suffered by the CB
as a result of the illegal use of information; and
b. Accountable to the CB for any direct benefit or advantage received or
yet to be received by the associate, as a result of the transaction.
The CB shall take the necessary steps to enforce the liabilities and accountabilities
described herein.



Sec. 14. Bond for Faithful Performance of Duties and Obligations. - Every
officer or employee handling funds, securities, or property on behalf of a CB
shall, before performing such duties, execute and deliver adequate and
appropriate bond for the faithful performance of one’s duties and obligations.

Sec. 15. Quorum and Voting Rights. ~ In meetings of the board of directors,
whether special or regular, the quorum requirements shall be one-half plus
one of all the members. Each director shall only have one (1) vote.

CHAPTER IV
GENERAL ASSEMBLY

Sec. 16. Composition of the General Assembly. - The general assembly shall
be composed of regular members who are entitled to vote under the Articles
of Cooperation and By-laws of the CB.

Sec. 17. Powers of the General Assembly. - The general assembly shall be the
highest policy-making body of the CB and shall exercise such powers as are
stated in the Cooperative Code, in the Articles of Ccooperation, and in the By-
laws of the CB.

The general assembly shall have the following exclusive powers which cannot
be delegated:

a. To determine and approve amendments to the articles of cooperation
andby- laws;

b. To elect or appoint the members of the board of directors, and to
remove them for cause; and

c. To approve developmental plans of the CB.

Subject to such other provisions of the Cooperative Code and only for purposes
of prompt and intelligent decision-making, the general assembly may, by a
three-fourths (3/4) vote of all its members with voting rights present and
constituting a quorum, delegate some of its powers to a smaller body of the
CB. These powers shall be enumerated under the by-laws of the CB.

Sec. 18. Meetings - A regular meeting shall be held annually by the general
assembly on a date fixed in the by-laws, or if not so fixed, on any date within
one hundred eighty (180) days after the close ofeach fiscal year: Provided,
That notice of regular meetings may be sent through personal delivery,
registered mail or other electronic means, or such other manner as the
BSP may allow under its existing regulations, to all members of record, and
posted in conspicuous places within the CB premises.

Whenever necessary, a special meeting of the general assembly may be
called at any time by a majority vote of the board of directors or as provided
for in the by-laws: Provided, That a notice shall be sent one (1) week prior to
the meeting to all members who are entitled to vote: Provided, however, That
a special meeting shall be called by the board of directors after compliance
with the required notice or by at least ten percent (10%) of the total members
who are entitled to vote to transact specific business covered by the call.


13. If the board fails to call a regular or a special meeting within the given period,
the CDA shall, upon petition of ten percent (10%) of all the members of the
CB who are entitled to vote, and for good cause shown, shall issue an order to
the petitioners directing them to call a meeting of the general assembly by
giving proper notice as required in the Cooperative Code or in the by-laws.

1 In the case of a newly approved CB, a special general assembly shall be
called, as far as practicable, within ninety (90) days from such approval;

2. The CDA may call a special meeting of the CB for the purpose of reporting to
the members the result of any examination or other investigation of the CB affairs;
and Notice of any meeting may be waived, expressly or impliedly, by any member.

3. Sec. 19. Quorum and Voting System. - The quorum requirement for
general assembly meetings, whether special or regular, shall be one-half plus
one of the number of voting shares of all the members in good standing.

4. To amend its articles of cooperation and by-laws, at least three-fourths (3/4)
vote of all the members with voting rights, present and constituting a quorum shall
be required. All other voting requirements shall be prescribed by the BSP.

6 The voting rights of the members shall be proportionate to the number of their
paid-up shares.

ds CHAPTER V.
2. POWERS, FUNCTIONS, AND ALLIED UNDERTAKINGS

3. Sec. 20. Powers and Functions of Cooperative Banks. - CBs shail primarily
provide a wide range of financial services to cooperative organizations, their
members, and the public. A CB may perform any or all of the following banking
services:

4, a, Extend loans and advances primarily for the purpose of meeting the
normal credit needs of farmers, fishermen, or farm families as well as
cooperatives, merchants, and private and public employees: Provided,
That loans and advances granted to cooperative organizations shall not
be subject _ to individual ceilings on loans to DOSRI;

5. b. Accept savings and time deposits;

6. c. Act as correspondent of other financial institutions;

7. d. Discount and rediscount paper with the Land Bank of the Philippines,
Development Bank of the Philippines or any other bank, including its
branches and agencies. Said banks shall specify the nature of paper

deemed acceptable for rediscounting, as well as the rediscount rate to be
charged by any of these banks;
he e. Act as collection agent;

9. f. Act as official depository of Local Government Units and other

government agenciesor instrumentalities;

10. g. Acquire readily marketable bonds and other debt securities;

11. h. Buy and sell foreign exchange;

12. i. To act as conduit bank for the disbursement of government funds


intended for lending to agriculture, micro, small-medium enterprises (MSMEs)
and projects for local economic development;
13. j. To be eligible to participate in government program allocations for
agricultural lending, social housing, loans to rural micro enterprises and
other initiatives towards inclusive growth; and
14, k. Offer other banking services as provided for in Section 53 of R.A. No.
8791.

a) In addition to the powers granted to CBs by this Act and other existing laws,
any CB may perform any or all of the banking services offered by other types
of banks subject to the prior approval of the BSP.

15. Sec. 21. Investment in Allied Undertakings. - Subject to the requirements
and restrictions as may be imposed by the Monetary Board under its existing
rules and regulations, CBs may invest in equities of allied undertakings which
may include the following:

16. a. Banks, financial institutions and non-bank financial intermediaries;
17. b. Warehousing and other post-harvest facilities;

18. c. Fertilizer and agricultural chemical and pesticides distribution;

19. d. Farm equipment distribution;

20. e. Trucking and transportation of agricultural products;

21. f. Marketing of agricultural products;

22. g. Leasing;

23. h. Automated teller machine (ATM) networks;

24. i, Public transportation;

25. j. Financial technology; and

26. k. Other undertakings as may be determined by the Monetary Board.

1. Sec. 22. Limitations on Lending Authority. - Except as the Monetary Board
may otherwise prescribe, the direct indebtedness to CBs of any person,
company, corporation, or firm, including the indebtedness of members of a
partnership and association, for money borrowed, shall in no time exceed
twenty five percent (25%) of unimpaired capital and surplus of the CB.
However, the direct indebtedness mentioned shall exclude loans secured by
obligations of the BSP; loans fully guaranteed by the Government as to the payment
of principal and interest; loans to the extent covered by the hold-out on, or
assignment of, deposits maintained in the —_ lending CB and held in the Philippines;
and other loans or credits as the Monetary Board may, from time to time, specify
non-risk assets.

1. CHAPTER VI

2. CAPITALIZATION AND CAPITAL STRUCTURE

3. Sec. 23. Capital Requirement for Cooperative Banks. - A CB shall have a
minimum ~ paid-up capital in such amount as may be required by the BSP. The BSP
may prescribe rules and regulations on the types of shares a CB may issue,
including the terms thereof and rights appurtenant thereto to determine
compliance with laws and regulations governing capital and equity structure of
banks: Provided, That CBs shall issue par value shares only.

4. Sec. 24, Barrio Savings Fund (BSF), Barrio Guarantee Fund (BGF), Cooperative

Development Loan Fund (CDLF), Cooperative Marketing Program (COMP), and
other funds administered by CDA. - In order to augment the capitalization of CBs,
the aforementioned funds collected or deducted by various CBs throughout the


country from the loan proceeds of farmer borrowers in compliance with P.D. 175,
which are still floating and outstanding either as active or dormant accounts in
the books of those banks, shall be converted as capital of the CB located in the
province where the depository banks of the BSF and BGF are located.

5, Sec. 25. Samahang Nayon and Municipal Katipunan ng mga Samahang
Nayon. - The Samahang Nayon (SN) and Municipal Katipunan ng mga Samahang
Nayon (MKSN) which held common shares of CBs prior to the effectivity of R.A. No.
9520 shall apply for conversion to cooperatives in order to maintain their status as
regular members of CBs: Provided, That the CBs shall exert efforts to inform and
assist the SN and MKSN to convert within a period of three (3) years from the
effectivity of this Act. Upon failure of the SN and MKSN to finally convert to a
cooperative within said period, the funds held in the name of such SN and MKSN
shall be considered as preferred shares and shall remain as capital of the CB.

6. Sec. 26. Additional Source of Capital of the CBs. - The funds or common shares
in CBs held in the name of cooperatives whose certificates of registration have
already been cancelled by the CDA and which failed to liquidate such funds or shares
during its liquidation shall remain as capital in said CBs and shall be treated as
preferred shares.

CHAPTER VIL
SUPERVISION

fre

3. Sec. 27. Supervision of Cooperative Banks. - All CBs shall be under the
supervision of the BSP: Provided, however, That the CDA shall monitor the
CBs' compliance with cooperative laws, rules, and regulations. With respect to the
governance of the CBs, the provisions of the banking laws, rules, and
regulations shall prevail, notwithstanding Section 71 of R.A. No. 8791.

4. Sec. 28. Promulgation of Guidelines. - The BSP and CDA may formulate
guidelines to implement or clarify the provisions of the Act: Provided, That the
BSP, as the regulator of banks, shall be the primary regulator of cooperative banks
consistent with the provisions of RA 8791: Provided, further, That in order to
minimize the burden of dually-regulated entities, the BSP shall, in consultation with
the CDA, shall in its promulgation of rules and regulations, to the extent allowed in
banking and other relevant laws, and insofar as consistent with the BSP’s exercise
of supervisory and regulatory powers over banks, consider the requirements of this
Act and the CDA for cooperatives in general.

1. CHAPTER VIIT
2. PRIVILEGES AND INCENTIVES

3. Sec. 29. Privileges of Cooperative Banks. - CBs registered under this Act and
the Cooperative Code shall have the following privileges and incentives:

4. 1. Those privileges and incentives accorded to cooperatives under the
Cooperative Code and other prior laws including exemption from all national,
city, provincial, municipal or barangay taxes, fees and charges of whatever
nature and description: Provided, however, that when a CB has reached an
undivided net savings of more than One hundred million pesos (P
100,000,000.00), transactions to non-member will become taxable;


3. Sec. 32. Effectivity. - This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in a newspaper of general circulation.

HON. FELIMON M. ESPARES
COOP NATCCO PARTYLIST