Republic of the Philippines

HOUSE OF REPRESENTATIV!
Quezon City

FIFTEE it CONG:
First Regular Session

HOUSE BILL N

Introduced by: REP. JOSE R. PING-AY and REP. CRESENTE C. PAEZ

EXPLANATORY NOTE

It has been a long awaited dream for the cooperative banking sector to have its
own rule book distinct and different from that of rural and commercial banks.
Management and operations of cooperative banks clearly manifest its
peculiarities because of its nature in terms of ownership, governance, clients
and profit allocation. It is along this line that these humble Representatives
thought of finally coming up with a rule book that will govern the existence and
operations of cooperative banks.

The important role of cooperative banks in the provision of credit and other
financial services to the so-called non-bankable sector of our society has been
very noteworthy. Cooperative banks are owned and financed by primary
cooperatives and Samahang Nayons (SNs) using the small shareholding of
farmers, fisher folks, micro-entrepreneurs, small traders, etc. In return, these
primary cooperatives borrow money from cooperative banks to support its loan
program for members. After the end of each year and after an external audit,
net surplus generated by these cooperative banks are then returned back to
owners, i.e. primary cooperatives and SNs in the form of dividends and
patronage refund.

Aside from this, cooperative banks 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.

It is our humble prayer that this important piece of legislation be given utmost
attention and speedy passage for the sake of the more than 2,500 primary
cooperatives and SNs whose membership can reach not less than 5 million
individuals. Hence, we urgently seek for its approval.

HON. CRF BNTE C. PARZ

“Ve



Ponipes

Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

4
HousE BILL No.__ 4278

Introduced by: REP. JOSE R. PING-AY and REP. CRESENTE C. PAEZ

An Act Providing for the Creation of the Cooperative Banking Act
of 2011

Section 1. Title. - This Act shall be known and cited as the "Cooperative
Banking Act of 2011."

Sec. 2. Declaration of Policy. - The State hereby recognizes the need to promote
a holistic countryside development where the main beneficiaries are the
development players themselves. It is aimed to attain a more equitable
distribution of opportunities, income and wealth thereby expanding
productivity and raising the quality of life for all, especially the underprivileged.

‘Towards these ends, the State hereby encourages and assists in the
establishment of Cooperative Banks that would make needed credit available
and readily accessible to primary cooperatives and non-bankable sectors of our
society in the rural areas on affordable terms.

Sec. 3. In furtherance of this Act, the Monetary Board of the Bangko Sentral
ng Pilipinas (BSP) and the Cooperative Development Authority (CDA) shall
formulate the necessary rules and regulations governing the establishment and
operation of cooperative banks, separate and distinct from rural and
commercial banks. It shall be called Rule Book governing cooperative banks.

Sec. 4. Organization of Cooperative Banks. The organization of cooperative
banks shall be based on Article 97 of RA 9520 otherwise known as the
Philippine Cooperative Code of 2008.


Sec. 5. Administration of Cooperative Banks. The administration of cooperative
banks shall be an utmost concern of the Board of Directors and Management
pursuant to Article 98 of RA 9520. Provided, further, that the Board of
Directors possess no disqualifications as indicated in Article 39 of RA 9520,

Sec. 6. Capital Requirements of Cooperative Banks. The capital requirements of
cooperative banks shall be subscribed and paid by the listed primary
cooperative shareholders, including Samahang Nayons, of the cooperative bani
pursuant to Article 101 of RA 9520. Cooperative banks shall also institute
capital build-up schemes to increase its capital subject to approved guidelines.

Individual and foreign investments shall be accepted by cooperative
banks subject to guidelines by BSP and CDA.

Sec. 7. Supplemental Capital for Cooperative Banks. To provide supplemental
capital to any cooperative bank until it has accumulated enough capital of its
own or stimulate private investments in cooperative banks, the Land Bank of
the Philippines, the Development Bank of the Philippines or any government-
owned or controlled bank or financial institution shall subscribe within thirty
(30) days to the capital stock of any cooperative bank from time to time in an
amount equal to the total equity investment of the shareholders which shall be
paid in full at the time of the subscription or such amount as may be necessary
to promote and expand rural economic development. Share capital held by the
Land Bank of the Philippines, the Development Bank of the Philippines or by
any government-owned or controlled bank or financial institution, under the
terms of this section, shall be made preferred only as to assets upon liquidation
and without the power to vote and shall share in dividend distributions from
the date of issuance in the amount to be set forth by BSP in consultation with
the cooperative shareholders and the Cooperative Development Authority
(CDA).

Subject to guidelines, government-owned and commercial banks who
cannot abide by the 25% allocation of their loanable funds for agriculture and
agrarian reform as mandated by the Agri-Agra law (RA 10000), can deposit the
said allocation/amount to cooperative banks and such be treated as a
compliance of the said law.

Sec. 8. Share capital certificates shall be issued to represent the contributions
to capital stock of the cooperative bank to all cooperative-investors, LBP or any
government-owned or controlled bank or financial institution and individuals
who have paid and subscribed capital shares of the cooperative bank subject to
conditions set forth by the BSP and CDA.

Sec. 9. The power to supervise the operation of any cooperative bank shall be
vested to the Monetary Board of the BSP and CDA pursuant to Article 96 of RA
9520.


Sec. 10. In addition to the operations specifically authorized in this Act, any
cooperative bank may;

(a) Accept savings and time deposits;

(b) Open current or checking accounts, provided the cooperative bank has
net assets of at least Five Million pesos (P5,000,000) subject to such
guidelines as may be established by BSP and CDA;

(c) Act as correspondent for other financial institutions;
(d) Act as a collection agent;
(e) Operate an Automated Teller Machine;

() Act as official depository of municipal, city or provincial funds in the
municipality, city or province where it is located, subject to such guidelines
as may be established by the Monetary Board of BSP and CDA.

(g) Rediscount paper with the Land Bank of the Philippines, the
Development Bank of the Philippines or any banking institution, including
its branches and agencies. Said institution shall specify the nature of paper
deemed acceptable for rediscount, as well as the rediscount rate to be
charged by any of these institutions;

(h) Offer other banking services as may be specified and allowed by the
Monetary Board of BSP and CDA;

(i) Extend loans to private and public employees in accordance with the
provisions of Sections 5 or Republic Act No. 3779, as amended; and

(j) Extend loans to primary cooperative-investors. At least 50% of the entire
loan portfolio shall be allocated to primary cooperatives. Provided, that loans
granted to primary cooperatives who are investors of the Bank shall not be
considered DOSRI loans.

Sec. 11. The Land Bank of the Philippines, the Development Bank of the
Philippines or any government-owned or controlled bank or financial
institution shall within sixty (6) days of certification of the Monetary Board,
which shall be final, extend to a cooperative bank a loan or loans from time to
time repayable in ten (10) years, with concessional rates of interest, against
security which may be offered by any shareholder or shareholders of the
cooperative bank.

Sec. 12. In an emergency or when a financial crisis is imminent, the BSP shall
provide financial assistance to any cooperative bank against assets of the


cooperative bank which may be considered acceptable by a concurrent vote of a
least four (4) members of the Monetary Board of the BSP.

Sec. 13. To encourage consolidation and mergers of cooperative banks within
three (3) years and that merged or consolidated banks shall be given the
following incentives for a period of seven (7) years.

(a) Its deposit liabilities shall be subjected to only one third (1/3) of
reserves normally required for cooperative banks.

(b) Its loans from government banks and financial institutions shall be
restructured for a period of not less than 10 (ten) years and shall be
converted as share capital (preferred) after the said period.

(c) Its reserve requirement can all be maintained under interest-bearing
government securities but kept unencumbered with government financial
institutions or the BSP; and

(d) It shall have unrestricted branching right within the region, free from
any assessment or surcharges required in setting up a branch but under
coordination with the BSP and CDA which will have to assess that there
are qualified personnel, control and procedures to operate the branch.

Sec. 14. Assistance to Cooperative Banks. The BSP and the CDA shall be the
lead agencies in extending assistance to cooperative banks pursuant to Article
103 of RA 9520.

Sec. 15. Cooperative Banks, after acquiring a Certificate of Tax Exemption
from the BIR, shall be exempted from taxes as indicated in ‘Articles 60 and 61
of the Philippine Cooperative Code of 2008.

Sec. 16. Without prejudice to any prosecution under any law which may have
been violated, a fine of not more than one hundred thousand pesos (P100,000),
or imprisonment for not less than six (6) months but more than ten (10) years,
or both, at the discretion of the court, shall be imposed upon.

(a) Any officer, employee, or agent of a cooperative bank who shall:
(1) Make false entries in any bank report or statement thereby affecting
the financial interest of, or causing damage to, the bank or any person;
or
(2) Without order of a court of competent jurisdiction, disclose any
information relative to the funds or properties in the custody of the bank
belonging to private individuals, corporations, or any other entity; or

(3) Accept gifts, fees or commission or any other form of remuneration in
connection with the approval of a loan from said bank; or


(4) Otherwise or aid in overvaluing any security for the purpose of
influencing in any way of the action of the bank on any loan; or

(5) Appear and sign as guarantor, endorser, or surety for loans granted;
or

(6) Violate any of the provisions of this Act.

(b) Any applicant for a loan from, or borrower of a cooperative bank who shall:
(1) Misuse, misapply, or divert the proceeds of the loan obtained by him
from its declared purpose; or

(2) Fraudulently overvalue property offered as security for a loan from
said bank; or

(3) Give out or furnish false or willful misrepresentation of material facts
for the purpose of obtaining, renewing, or increasing a loan or extending
the period thereof; or

(4) Attempt to defraud the said bank in the event of court action to
recover a loan; or

(5) Offer any officer, employee or agent of a cooperative bank as a gift,
fee, commission or other form of compensation in order to influence such
bank personnel into approving a loan application; or

(6) Dispose or encumber the property or the crops offered as security for
the loan,

(c) Any examiner, or officer or employee of the BSP and the CDA or of any
department, bureau, office, branch or agency of the Government who is
assigned to examine, supervise, assist or render technical service to
cooperative banks and who shall connive or aid in the commission of the
same.

Sec. 17. Any municipal trial court judge or register of deeds who shall demand
or accept, directly or indirectly, any gift, fee, commission or other form of
compensation in connection with the service, or shall arbitrarily or without
reasonable cause delay the acknowledgment or administration of oath or the
registration of documents required to be performed by said judge shall be
punished by a fine of not more than ten thousand pesos (P10,000) or by
imprisonment for not more than one (1) year, or both, at the discretion of the
court.


Sec. 18. Any bank not organized under this Act and any person, association,
or corporation doing the business of banking, not authorized under this Act
which shall use the words "Cooperative Bank" as part of the name or title of
such bank or of such person, association, or corporation, shall be punished by
a fine of not less than one thousand pesos (P1,000) for each day during which
said words are so used.

Sec. 19. The Monetary Board of the BSP, CDA in consultation with the
cooperative sector and in coordination with other government agencies shall
promulgate rules and regulations to carry out the provisions of this Act within
six (6) months from its effectivity. An oversight committee called the Joint
Congressional Oversight Committee on Cooperative Banks of both the House of
Representatives and the Senate shall be organized to review the implementing
guidelines and monitor the implementation of the law. The budgetary
requirement shall be provided for in the General Appropriations Act, annually.

Sec. 20. If, for any reason, any section or provision of this Act is declared
unconstitutional or invalid, the other sanctions or provisions hereof shall
continue to be in full force and effect.

Sec. 21. All laws, decrees, executive orders, proclamations, rules and
regulations or parts thereof inconsistent are hereby repealed.

Sec. 22. This act shall take effect upon its publication in the Official Gazette or
in two (2) newspapers of general circulation.

Approved: