Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BILL NO. _4054

Introduced by Honorable Cresente C. Paez, Honorable Jose R. Ping-ay and
Honorable Aga) H. Guanlao

EXPLANATORY NOTE

‘The State recognizes the vital and unique social role of cooperatives in the national economic
development especially in the countryside communities. ~

‘This recognition is evident in Article 2 (Declaration of Policy) of the New Philippine
Cooperative Code (RA 9520) which so eloquently provides:

“It is the declared policy of the State to foster the creation
and growth of cooperatives as a practical vehicle for
promoting self-reliance and harnessing people power
towards 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.”

In the same Article, it further mandates the Government and all its implementing arms to
afford cooperatives the necessary assistance and guidance to guarantee the promotion and
development of this distinctive sector. To wit

“Toward this end, the Government and all its branches,
subdivisions, instrumentalities and agencies shall ensure the
provision of technical guidance, FINANCIAL ASSISTANCE,
and other services to enable said cooperatives to develop
into VIABLE AND RESPONSIVE ENTERPRISES and thereby
bring about a strong cooperative movement that is free from
any conditions that might infringe upon the autonomy or
organizational integrity of cooperatives.”

Moreover, Article 103, Chapter XII (Chapter on Cooperative Banks) of RA 9520, clearly state

the unequivocal obligation of the Government to provide Assistance to Cooperative Banks, The said
Article says:

“In accordance with existing policies, government agencies,
government-owned or controlled corporations and financial
institutions shall provide assistance, technical or otherwise,
to cooperative banks to permit them to grow, develop and
perform their role in countryside development towards a
sustainable national economic development.”

In the Philippines, Cooperative Banks are part of the rural banking system, and BSP classifies
them as rural banks. As one of the vital sources of financing in the countryside, the rural banking
industry continues to deliver sustainable and market-driven financial services to the agricultural sector
and the enterprising households.”


At this instance, consider some interesting statistics integral on the status of cooperative
banks:

+ There were 55 co-op banks organized under PD 175 (29) and under the
Cooperative Code (26), and now, it is down to 43, or decrease by 22%
(12). Last year, 3 were closed. Of the 43, 10 (or 23%) are under PCA
(Prompt Corrective Action). Again, of the 43 co-op banks, 30 (or 70%)
have failed to comply with the Capital Adequacy Ratio (CAR).

* In the year 2009, cooperative banks reported an impressive growth in
earnings as net profit rose by 29.5% (P84 million) to P368 million from
P284 million in 2008. As a result, the industry achieved higher return on
assets (ROA) and return of equity (ROE) at 2.8% (from 1.9% in 2008) and
20.2% (from 12.1%), respectively.

+ The industry's total assets were at record high at P15.2 billion, up by
17.9% from P12.9 billion in the previous year.

+ Loans extended to borrowers in the rural areas increased by 17.4% to
P10.9 billion, from 9.3 billion over the previous year. The non-performing
loans (NPL) and non-performing assets (NPA) ratios got better to 8% (from
9.1% previous year) and 7.9% (from 9.6%), respectively.

+ Deposit liabilities posted double digit growth of 20% to P9.2 billion from
P7.6 billion in the previous year. These were provided with adequate cover
as the liquid assets-to-deposits ratio stood at 35.7% (up from 34.9% at
end-2008) while cash and due from banks to deposit ratio widened to 31%
(from 28.9%) over 2008. =

+ Although the cooperative banking industry continued to expand, the
industry's share of banking offices remained the smallest within the
Philippine banking system. As of December 2009, the industry has a reach-
out of 119 branches/offices all-over the country.

* A recent alarming report however shows that ten (10) coop banks are in trouble and are
under “Prompt Corrective Action” (PCA) by the Bangko Sentral ng Pilipinas (BSP), or under the
“ICU” due to capital deficiency or hemorrhage. The government will stand to lose P1.8 billion if these
10 distressed cooperatives will eventually be foreclosed by the BSP due to a “PCA failure.” And very
likely, ordinary people numbering 258,000 will lose their hard-earned P244.2 million equity funds
invested in these distressed cooperative banks if nothing is done to prevent their closures. The most
precarious consequence of this situation is the lost of the public’s trust and confidence to this sector
that the agricultural and household markets eamestly depend for lifeblood financial services

This bill seeks to provide a more prudent and strategic remedy to capital inadequacy of
financially distressed cooperative banks by proposing for the establishment of a Provident Endowment
and Viability Enhancement Fund for the rehabilitation of cooperative banks in financial distressed,
Needless to stress, the sustainability and capital enhancement of cooperative bank institutions is a
crucial consideration for the poorest of the poor, and a thorough review of the characteristics of these
institutions should be given high priority by all regulatory agencies task with their supervision and
henceforth granting said sector the necessary assistance, support, and guidance to address the demands
of current operational, industry, and socio-economic challenges. In the end, government assistance
through this proposed program of equity endowment would empower the disadvantaged sectors of the
society in their fight against poverty.

In view of the foregoing, the immediate approval of this bill is sought.

A
CHES . PAEZ

AGAPATO H. GYANLAO


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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

HOUSE BILL NO.__ 4054

Introduced by Honorable Cresente C. Paez and Honorable Jose R. Ping-ay

NACT
TABLISHING A PROVIDENT ENDOWMENT AND VIABILITY-
ENHANCEMENT FUND FOR COOPERATIVE BANKS IN THE
PHILIPPINES, KNOWN AS THE COOPERATIVE B.
SECURITY AND REHABILITATION FUND.

Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1: TITLE. This act shall be known as

“Cooperative

Banks Security and Rehabilitation Fund Act of 2010”.

SECTION 2: DECLARATION OF POLICY. It is the declared
policy of ie ae to foster the creation and growth of cooperatives as
medium for poverty eradication and as a mechanism for harnessing people
power towards the attainment of economic development and social justice.
Further, the state shall give high priority to the sustainability of the

Philippine Cooperative Banking Sector in consideration of its vital role in


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the improvement and betterment of the quality and standard of life and
livelihood of the people in the rural and provincial regions by extending a
wide range of financial services to its members as well as the community for

productive and prudent purposes.

In pursuance of this objective, the Government shall economically
invigorate Cooperative Banks (CB) through the provision of technical
guidance, financial ‘assistance and other services. Towards this end, a
Cooperative Bank Enhancement and Rehabilitation Program (CBERP) is
hereby provided and a Cooperative Bank Security and Rehabilitation Fund is

established for this purpose.

SECTION 3: OBJECTIVES OF THE PROGRAM. The program
intends to solidify the economic and institutional structure of the Philippine
Cooperative Banking System by encouraging the strategic Merger and
Consolidation of eligible individual cooperative banks thereby pooling their
resources into a larger, more unified, and stronger cooperative. This program
ultimately aims to transform CBs into progressive economies: of scale
through the infusion and provision of capital and regulatory incentives
granted under this act, thereby optimistically perpetuating their unique
financial services which are specially catered to clearly defined and

identified markets.


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SECTION 4: DEFINITION OF TERMS. As used in this Act, the

term:

a) “Cooperative Bank” shall refer to one legally organized for the
primary purpose 6f providing a wide range of financial services to

cooperatives and their members.

b) “Program” shall refer to the Cooperative Bank Enhancement
and Rehabilitation Program to be established and managed by the respective
Government Agencies and Government Financial Institutions enjoined under

this Act to implement the said Program.

c) “Fund” shall refer to the Coop Bank Endowment and Viability-

Enhancement Fund created by this Act.

SECTION 5: APPROPRIATIONS. The amount of Two Billion Five
Hundred Million Pesos (Php 2,500,000,000.00) shall be appropriated by the
National Government as initial fund through the joint participation of the
Bangko Sentral ng Pilipinas (BSP), Land Bank of the Philippines (I,BP), and
the Philippine Deposit Insurance Corporation (PDIC) as pariner-benefactors

in the accomplishment of the program.

SECTION 6: IMPLEMENTING AGENCY. The Cooperative

Development Authority, Bangko Sentral ng Pilipinas, Land Bank of the


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Philippines, and the Philippine Deposit Insurance Corporation is directed to
implement this Act within ONE HUNDRED EIGHTY (180) days from the

passage of this Act by promulgating the implementing Rules and Guidelines.

SECTION 7: SEPARABILITY. If any provision of this Act is declared
invalid, the remainder hereof or any provision not affected shall remain in

full force and effect.

SECTION 8: REPEALING CLAUSE. All laws, decrees, orders, and rules
and regulations or parts thereof, inconsistent with the provisions of this Act

are hereby repealed, amended or modified accordingly.

SECTION 9: EFFECTIVITY. This Act shall take effect fifteen (15) days
after its publication in at least two (2) national newspapers of general

circulation.

Approved,