Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No. 7878

Introduced by Representative PABLO JOHN F. GARCIA

EXPLANATORY NOTE

The importance of cooperative banks in furnishing capital, credit, and other
financial services to our grassroots sectors cannot be overstated. They have been
instrumental in the upliftment of the quality of Filipino life and are primary allies in the
fight against impoverishment. Cooperativism empowers and emboldens — a nation
cannot call itself strong if the humble among its people remain feeble.

The Cooperative Development Authority (CDA) reports that as of 31 December
2018, the Philippines had 18,065 operating cooperatives.’ As of 2019, twenty-five (25)
cooperative banks are operating in the Philippines — four (4) operating nationally,
eleven (11) regionally, and ten (10) provincially. Based on the records of the Banko
Sentral ng Pilipinas, the total assets of cooperative banks amounted to PhP
21,134,817,720.00 while their total capital account stood at PhP 4,545,113,030.00 as
of September 2019. Of the twenty (25) cooperative banks, all but five (5) are
categorized as “large” by asset size.

This bill aims to create a more robust legal regime specifically for cooperative
banks. It aims to expand on the membership, powers, management, functions, and
governance of such institutions. It likewise contains provisions concerning board
membership, quorum requirements, the setting of meetings, and director conduct to
hold those in positions of responsibility true to their fiduciary capacity.

The bill seeks to address various issues by setting the compensation of Board
Members; limiting lending authority depending on the cooperative bank's net worth;
making the control structure of such banks more flexible; providing for escheat
proceedings for Samahang Nayon- and Municipal Katipunan ng mga Samahang

+ https:/mww.cda.gov.ph/resources/updates/statistics/1205-statistics-as-of-december-31-2018 (last
accessed 10 February 2020).


Nayon-derived accounts; and providing tax privileges to cooperative banks as a
general rule, among others.

The measure opens cooperative banks to more allied undertakings and
enriches the Philippine financial system by placing them under the joint regulation of
the Banko Sentral ng Pilipinas and the Cooperative Development Agency.

Republic Act No. 9520, which amended the Cooperative Code of the
Philippines, was passed more than a decade ago. The changing economy and times
compel us to strengthen cooperative banks — institutions no doubt depended on by
millions of Filipinos.

The urgent passage of this bill is earnestly sought.

Rep. PABI JOHN F. GARCIA
3rd District, Province of Cebu


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
Second Regular Session

House Bill No. 7878

Introduced by Representative PABLO JOHN F. GARCIA

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

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

CHAPTER!
DECLARATION OF POLICY AND DEFINITIONS

Section 1. Title. - This Act shall be known as the “Cooperative Banking Act of
2020”.

Section 2. Declaration of Policy. - It is the declared policy of the State to foster the
creation and growth of cooperatives as a practical vehicle for promoting self-reliance,
communal unity 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.

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 harnessing of people power towards the attainment of
economic development and 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. The Bangko Sentral ng Pilipinas (BSP), in consultation with the Cooperative
Development Authority (CDA), shall be primarily responsible for the formulation of the
Implementing Rules and Regulations of this Act.


SECTION 3. Definition of Terms. - The following definitions shall apply within this
Act:

a.

Bangko Sentral ng Pilipinas (BSP) — refers to the central monetary authority of
the Philippines created and existing under the authority of Republic Act (R.A.)
No. 7653, as amended, otherwise known as the New Central Bank Act, which
provides policy directions in the areas of money, banking and credit, and
exercises supervision over the operations of banks, and other financial
institutions which fall under its jurisdiction.

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 2008, and prior laws, the majority shares of which are owned and controlled
by the cooperative organizations, for the primary purpose of providing a wide
range of financial services to cooperatives and their members and the public.
Cooperative Code — refers to the Philippine Cooperative Code of 2008, or also
known as R.A. No. 9520.

Cooperative Development Authority — refers to the agency of the Government
created under R.A. No. 6939, as amended by R.A. No. 11364, which is
mandated to register, develop, regulate and supervise cooperatives.
Cooperative Organization — refers to any cooperative whether primary,
secondary or tertiary, or special types of cooperatives registered under the
provisions of the R.A. No. 9520 and R.A. No. 10744, otherwise known as Credit
Surety Fund Cooperative Act of 2015.

Monetary Board — refers to the Monetary Board of the BSP.

‘Samahang Nayon and Municipal Katipunan ng mga Samahang Nayon — refers
to pre-cooperative organizations established under Presidential Decree No.
175.

CHAPTER Il
ORGANIZATION

SECTION 4. Organization and Membership. - The organization and membership of
a CB shall be governed by the following provisions of this Act:

a. Organization — At least five (5) cooperative organizations duly established and

registered under the Cooperative Code may register a CB with the CDA, upon
compliance with the requirements of and required authorization from the BSP.

. Membership — Membership in a CB shall be open to: (a) cooperatives of all

types and categories; (b) individuals who are members of a member-primary
cooperative, and (c) associations and organizations. Membership is either
regular or associate. Regular membership shall be limited to cooperative
organizations which are holders of common shares and/or preferred shares.
Associate members shall be individuals or associations or organizations which
are subscribing and holding preferred shares only.

Section 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 Monetary Board.


Section 6. Establishment of Branches and Other Offices. - The establishment of
branches/branch-lite units/other banking offices by CBs shall be governed by the rules
and regulations of the BSP.

CHAPTER Il
MANAGEMENT AND GOVERNANCE OF COOPERATIVE BANKS

SECTION 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.

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
refers to the body entrusted with the management of the affairs of the CB. It
shall be responsible for the strategic planning, direction-setting and policy
formulation activities of the CB.

The Election Committee shall refer to the committee which shall be responsible
in the formulation and implementation of election rules and guidelines. It shall
supervise the conduct of election, 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/representative
assembly.

The Audit Committee shall be responsible for the oversight of financial reporting
framework, internal control system, selection/appointment of an independent
auditor and perform such other functions as may be required by the by-laws
and existing regulations of the BSP. It shall assist the board of directors in
fulfilling its overseeing responsibilities in relation to the adequacy and
effectiveness of the internal audit function, implementation of corrective actions,
investigation of issues/concems within the committee's terms of reference, and
establishment of a whistleblowing mechanism.

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 but is not limited to the President,


Treasurer, Internal Auditor, or their equivalent ranks. The BSP shall prescribe
the qualifications and disqualifications of the key management officers.

Section 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 his 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 vacated term.

Section 9. Compensation. - In the absence of any provisions 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.

Section 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.

Section 11. Disloyalty of Directors and Officers. - A director or officer who, by virtue
of his office, acquires for himself an 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 his act has been 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 his own funds for
the venture.

Section 12. Dealings of Directors and Officers. - Dealings with directors and officers
of the CB shall comply with the provisions of Section 36 of R.A. No. 8791, otherwise
known as General Banking Law of 2000.

Section 13. Illegal Use of Confidential Information. - A director or officer, or an
associate of a director or officer, who, for his 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 him or his associate, as a result of the transaction.

Section 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 his/her duties and obligations.

Section 15. Quorum and Voting Rights. - \n meetings of the board of directors,
whether special or regular, the quorum requirements shall be one-half plus one of all
the members of the board of directors. Each director shalll only have one vote.

CHAPTER IV
GENERAL ASSEMBLY

Section 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.

Section 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 cooperation, 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 and by-
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.

Section 18, Meetings. -

a. 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 twenty
(120) days after the close of each fiscal year: Provided, That notice of regular
meetings shall be in writing which shall be sent through personal delivery,


registered mail or other electronic means to all members of record, and posted
in conspicuous places within the CB premises;

b. 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 in writing shall be sent one (1) week prior to
the meeting to all members who are entitled to vote. However, a special
meeting shall be called by the board of directors after compliance with the
required notice or by at least ten per centum (10%) of the total members who
are entitled to vote to transact specific business covered by the call.

c. If the board fails to call a regular or a special meeting within the given period,
the CDA, upon petition of ten per centum (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;

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

e. 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

f. Notice of any meeting may be waived, expressly or impliedly, by any member.

Section 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. In the meetings of the
board of directors, whether special or regular, the quorum requirement shall one-half
plus one of all the members of the board of directors. Each director shall only have
one vote.

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.

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

CHAPTER V
POWERS, FUNCTIONS, AND ALLIED UNDERTAKINGS

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

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;

b. Accept savings and time deposits;

;- Act as correspondent of other financial institutions;

|. Discount and Rediscount paper with the Land Bank of the Philippines,

Development Bank of the Philippines or any other bank, including its branches

ao


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;

. Act as collection agent;
Acquire readily marketable bonds and other debt securities;

. Buy and sell foreign exchange; and

|. Offer other banking services as provided in Section 53 of R.A. No. 8791.

sao

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

Section 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, but
are not limited to the following:

. Banks, financial institution,s and non-bank financial intermediaries;
. Warehousing and other post-harvest facilities;

. Fertilizer and agricultural chemical and pesticides distribution;

. Farm equipment distribution;

.. Trucking and transportation of agricultural products;

Marketing of agricultural products;

Leasing;

Automated teller machine (ATM) networks;

Public transportation;

Financial technology; and

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

AUT sea>@aoce

Section 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, excluding: 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, shall in no time
exceed twenty five percent (25%) of unimpaired capital and surplus of the CB.

CHAPTER VI
CAPITALIZATION AND CAPITAL STRUCTURE

Section 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.


No cooperative member shall own or control more than forty percent (40%) of the total
capital contributions of a CB. This limitation shall also apply to cooperatives
purchasing government-held preferred shares of CBs which are converted into
common shares.

The maximum allocation of preferred share shall not be more than forty percent (40%)
of the total capitalization.

Section 24. Barrio Savings Fund (BSF), Barrio Guarantee Fund (BGF),
Cooperative Development Loan Fund (CDLF), Cooperative Marketing Program
(CMP), and other funds administered by CDA. - In order to augment the
capitalization of CBs, the aforementioned funds collected/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. The BSP, in
coordination with the CDA, 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 subject to escheat.

Section 25. Samahang Nayon and Municipal Katipunan ng mga Samahang
Nayon. - Samahang Nayon (SN) and Municipal Katipunan ng mga Samahang Nayon
(MKSN) which held common shares of CBs prior to the effectivity of RA. 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 five (5) 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 subject to escheat.

Section 26. Funds held in the name of cooperatives whose certificates of
registration have already been cancelled. - 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 in said CBs. In case of dissolution and liquidation of the CBs,
such funds or shares shall be subject to escheat.

CHAPTER VII
SUPERVISION

Section 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
provisions and governance of the CBs, the provisions of the banking laws, rules, and
regulations shall prevail, notwithstanding Section 71 of R.A. No. 8791.

CHAPTER VIII
PRIVILEGES AND INCENTIVES

Section 28. Privileges of Cooperative Banks. - CBs registered under this Act and
under the Cooperative Code shall be given the same privileges and incentives granted


to rural banks, thrift banks, commercial banks, and all other banks to rediscount notes
with the BSP, the Land Bank of the Philippines and other government banks without
affecting in any way the provisions of this Act.

The same privileges and incentives generally granted 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 shall be granted to CBs organized under this Act.. Provided, however, that
when a CB has reached an undivided net savings of more than ONE HUNDRED
MILLION PESOS (P100,000,000.00), transactions to non-member will become
taxable.

Section 29. Separability Clause. - If any provision or section of this Act or the
application thereof to any person or circumstance 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 30. Repealing Clause. - All laws, issuances, rules, and regulations
inconsistent with this Act are hereby repealed accordingly.

Section 31. 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,