Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

15% Congress
Second Regular Session

House Bill No 4940

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 upliftment, 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, fisherfolk 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 harnessed 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 cornerstone 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.

Approval of this bill is therefore sought.

HON/AGAPITO(H. GUANLAO


Republic of the Philippines

HOUSE OF REPRESENTATIVES
‘Quezon City

15% Congress
Second Regular Session

4940

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 2011”

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
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 shall 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.

Samahang Nayon - Pre-cooperatives organizations established under PD.175.

Monetary Board shall mean the Monetary Board of the Bangko Sentral ng,

Pilipinas.

4, 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.

5. Cooperative Code - A law created by Republic Act No.6938, otherwise
known as the Cooperative Code of the Philippines and any amendments
thereto and further amended by RA 9520.

6. Cooperative Development Authority (CDA) - the agency of the government
created under R.A.No.6939, mandated to register, regulate and supervise
cooperatives.

7. Bankoop - refers to the Cooperative Banks Federation of the Philippines.

eR

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

2. 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.

3, 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.

(CNo 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 shalll 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:

Accept savings and time deposits

Mobilize savings for the benefit of the cooperative movement;

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. Actasa 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;

Open letters of credit and bank drafts;

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.

eye

2N

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,

Act as correspondent bank for other financial institutions, local or foreign,

Actas 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. Actas 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,

eR


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 shalll 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:

Banking and financing,

Warehousing and other post-harvest activities,

Fertilizer and agricultural chemical and pesticide distribution,

. Farm equipment distribution,

Trucking and transportation of agricultural products,

Marketing of agricultural products,

Leasing,

Insurance, and

Other undertaking as may be determined by the Monetary Board.

SPINA eeyo

(© 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.

Except as the Monetary Board may prescribe, the direct indebtedness to
cooperative bank(s) of any single or association for money borrowed,
excludin,
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 shares 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 shalll have
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.

(© To promote positive maintenance of regulatory capital, Cooperative Banks
may accept capital equity from foreign individuals, banks and/or financial
institutions to increase its capital requirements. Provided, That the capital or
equity infusion from foreign sources shall not exceed 40% of the total bank
capital equity.

(D) Cooperative banks may offer its preferred shares to individual shareholders.
Provided, That individual shareholding shall not exceed 20% of the total
preferred shares. Provided further, That total individual ownership of
preferred shares shall not exceed 50% of the total shareholding.


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.

(In cases 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 shalll be attached to the record of the case.

A cooperative bank shall be allowed to foreclose land mortgaged to it subject
to the provisions of Republic Act No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law of 1988, and as amended by Republic
Act No. 9700.

(D) 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.

() Any register of deeds shall accept for registration, free of charge, any
instrument relative 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.

(F) Cooperative banks 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.

(G)Cooperative banks 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 Athority 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.


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

0)

0)

securities act provided such security is non-speculative.

‘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.

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:

(A)Cooperative Bank with accumulated reserves and undivided net savings of
NOT more than TWENTY MILLION PESOS (20,000,000.00) shall be entitled to
exemptions from all kinds of national internal revenue and local taxes,
including but not limited to:

1. 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:

1.1 Interest income derived from any currency bank deposits, yield from
deposit substitutes, trust funds, foreign currency deposit units (FCDUs)
and similar arrangements:

1.2 Royalties;

1.3 Prizes and other winnings, and

1.4 Capital gains realized from sale, barter or exchange of shares of
stocks and real properties.

2. Gross receipt tax imposed on lending activities pursuant to the provisions
of Title V of the National Internal Revenue Code;


3. 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;

4. 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;

5. 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;

Cash dividends shalll be subject to 10% final withholding tax;

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 shalll 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.

no

8. 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 Banigko
Sentral ng Pilipinas and by the Cooperative Development Authority.

10


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.

cb