THRIFT BANKS

THRIFT BANKS
 Thrift banks are primarily engaged in mobilizing the small
savings of the people. They encourage the habit of thrift and
savings, and provide loans at reasonable interest rates.
 It has motivated the low income groups and school children
to save their money in the bank. The low interest rates of the
bank have saved the poor borrowers from the loan sharks.
 CATEGORY OF THRIFT BANKS:
1. Savings and Mortgage Banks
2. Private Development Banks
3. Stock Savings Loan Associations

• They provide funds for agriculture industry at reasonable

interest rates. The small producers like farmers, fishermen,
craftsmen, and poor consumers can rely on such banks for
financing their production and consumption inputs.
 SAVINGS BANKS
The basic provisions of law governing the operations of a
savings bank can be found in Sections 29 to 38 of the General
Banking Act (Republic Act No. 337, as amended).
 A savings bank is organized for the purpose of accumulating
the savings of depositors and investing them, together with its
capital, in readily to marketable bonds and debt securities,
commercial papers and accounts receivable, drafts, bills of
exchange, acceptances, or notes arising out of commercial
transactions.
 PRIVATE DEVELOPMENT BANKS
 It is organized under the provisions of Republic Act No. 4093 as
amended (otherwise known as Private Development Banks Act).

The principal objective of a private development bank is to cater to the

capital needs and demand for adequate investment credit or medium and
long term loans for the promotion and growth of agriculture and industry
at reasonable cost.
 STOCK SAVINGS AND LOAN
ASSOCIATIONS
 it is engaged in the business of accumulating the savings of its
stockholders and using such accumulation, together with its capital,
for loans and/or for investments in the securities of productive
enterprises or in the securities of the government, or any of its
political subdivisions, instrumentalities, or corporations.
 It is organized and shall operate in accordance with the provisions of
Republic Act No. 377, and the rules and regulations promulgated
thereunder.
 SCOPE OF AUTHORITY
 To grant loans, whether secured or unsecured.
 To accept savings and time deposits.
 To invest in readily marketable bonds
 To issue domestic letters of credit.

With prior approval of the Monetary Board, thrift banks may undertake
the following:
1. Engage in trust business.
2. Perform quasi-banking functions (money market)
3. Accept checking accounts (demand deposits)
CAPITALIZATION
1. For existing thrift banks (old) with head offices located
a. within Metro Manila 10 million
b. outside Metro Manila 5 million
2. For new thrift banks located
a. within Metro Manila 20 million
b. outside Metro Manila 10 million

The capitalization of a thrift bank may be in the form of common stock,

or a combination of common stock and preferred stock.
 ESTABLISHMENT OF BANKING OFFICES
Thrift banks ay, upon prior approval of the Monetary Board, establish
banking offices which include branches and extension offices on a
nationwide basis. A branch is an independent unit of the head office which
performs all the functions and offers the service facilities of the head
office.

DEPOSIT OPERATION
Thrift banks are allowed to accept savings and time deposits as part of
their built in authority to operate as banking institutions.
They must meet the following requirements:
1. They must not have incurred any capital deficiency on any day during the six month
period immediately preceding the filing of application for such authority.
2. They must not have incurred any net deficiency in legal reserves against deposit
liabilities in any week during the six month period immediately preceding the date of filing
of such application.
3. They had profitable operations during the last three years immediately preceding the
filing of application.
4. The personnel who will handle the demand deposit operation possess the necessary
experience or training.
5. The banks facilities are adequate to service demand deposit.
6. They have adopted appropriate and adequate procedures and system of internal control.
 LOANS AND INVESTMENT OPERATION
Thrift banks may grant loans secured by bonds, mortgages on real estate and insured
improvements thereon and other forms of security, including the following:
1. Loans against pledge of jewelry, precious stones and articles of similar nature.
2. Thrift banks may also grant loans on junior mortgages on real estate.

 A senior mortgage is the first lien or encumbrance obtained by a borrower on his real
property (land and/or building). Any subsequent mortgage negotiated on the same real
property while the senior mortgage still exists is known as junior mortgage.
 Real estate mortgage loans granted by savings banks shall not have maturities
exceeding twenty years and loan values exceeding 70% of the appraised value of
the real state securities.
 Private development banks, on the other hand, are authorized to grant real estate
mortgage loans with maturities of not more than twenty years for purposes of the
establishment, rehabilitation, and expansion of, and for investment in, agricultural,
industrial, manufacturing, commercial and other economic enterprises.
 Thrift banks in general may also grant loans against personal security (also known
as unsecured loans) in accordance with certain guidelines.
 As minimum requirements, in addition to the usual personal information sheet on
the borrower, banks shall require that an application for a credit accommodation
against personal security should be accompanied by the following:
 1. A copy of the latest income tax return of the borrower duly stamped as received by
the Bureau of Internal Revenue.
2. A copy of the corresponding financial statement duly certified by an independent
public accountant.
 Thrift banks are also allowed to grant loans under the Agrarian Reform Credit and
Supervised Credit Programs of the government.

PERTINENT REGULATIONS ON THE GRANT OF LOANS

1. Loans and other credit accommodations granted to any person, company,
corporation or firm, including those granted to the members thereof, shall not exceed
15% of the unimpaired capital and surplus of the bank.
2. The total outstanding credit accommodations to each of the banks directors, officers,
stockholders, or their related interests shall not exceed, at any time, an amount
equivalent to his outstanding deposits and book value of his paid in capital
contribution in the lending bank.
3. The total outstanding borrowings of directors, officers, or stockholders, whether direct or
indirect, shall not exceed 15% of the total loan investment of the bank, or 100% of its
combined capital accounts.
• Below are some of the figures taken from the books of a thrift bank:
Total loan investments P10,000,000.00
Total paid in capital 20,000,000.00
Accumulated net income 2,000,000.00
4. Each bank shall set aside an amount equivalent to at least 25% of its loanable funds for
agricultural credit in general.

EQUITY INVESTMENTS
A thrift bank may invest in the equity (shares of stock) of allied undertakings which may
be financial or non financial in nature.
 The following are declared as financial allied undertakings of a thrift bank:
1. leasing companies 5. credit and operations
2. banks 6. financial institutions
3. investment houses
4. financing companies
The following are declared as non financial allied undertakings of a thrift bank:
1. Warehousing companies
2. Storage companies
3. Safe deposit box companies
4. Companies engaged in the management of mutual funds but not in the mutual
funds themselves
5. Management corporations engaged or to be engaged in activity similar to the
management of mutual funds
6. Companies engaged in the provision of computer services
7. Insurance agencies
8. Companies engaged in home building and home development
9. Companies providing drying and/or milling facilities for agricultural crops, such as
rice and corn
10. Companies engaged in insurance brokerage

Borrowing Operation
A thrift bank may borrow from the Bangko Sentral by way of rediscounting, that is,
the bank assigns the eligible papers of borrowers in favor of the BS for which the latter
grants a loan under the following guidelines:
1. The maximum amount of loan which may be granted to the bank is equal to 100% of the
bank’s net worth as of the end of the quarter immediately preceding the date of application for
the rediscounting.
2. The maturity of the loan for production credit shall not exceed 360 days, while that for
commercial credit shall not exceed 180 days from the date the proceeds of such loan are
released to the bank.
3. Advances against treasury bills shall not exceed 60 days while those against other
government eligible securities shall not be more than 180 days from the date of rediscount.
 In order to qualify for the privilege to rediscount with the Bangko Sentral, a thrift bank must
met the following:
1. It must be operating in accordance with pertinent laws and existing rules and regulations
governing the operations of thrift institutions.
2. It must have a duly approved program of payment to meet the minimum capital
requirements and that it has complied with its program of capital build-up.
3. The ratio of past due loans granted to its directors, officers, and stockholders must not
exceed 10% of the total past due loans.
4. It has no net deficiency in reserves against deposit liabilities for the past four
consecutive weeks immediately preceding the date of application for rediscounting.
5. Its combined capital accounts have not been deficient continuously for a period of
thirty days as shown in the reports submitted to the Bangko Sentral.
6. It has submitted on or before the given deadlines, all reports required by the Bangko
Sentral.
7. It has complied with the investment-deposit ratio for four consecutive quarters
immediately preceding the date of rediscounting application, that is, at least 75% of total
deposits accumulated by the applicant bank’s head office, branch, and extension office in
a particular region
Shall be invested there in as a means to develop that region.
8. The papers which may be rediscounted with the Bangko Sentral may be those
supporting ordinary loans and loans granted under the various special financing
programs of the government.

 These credit facilities may be obtained by a thrift bank under the following
conditions:
1. The loans granted to directors, officers, stockholders, and their related interests
have not exceeded the prescribed total or individual maximum and minimum of
unsecured loans and that such loans are in current status.
2. The bank’s past due loans have not exceeded one and a half times the average
overdue accounts in the particular sector of the thrift banking industry.
 DEPOSIT SUBSTITUTE OPERATION
This is also known as the exercise of quasi-banking function, or money market
operation as commonly understood by the layman.
Deposit substitute as defined in Section 95 of the New Central Bank Act
(Republic Act No.7653) is an alternative form of obtaining funds from the public, other
than deposits, through the issuance, endorsement, or acceptance of debt instruments for
the borrowers own account, for the purpose of relending or purchasing of receivables
and other obligations.

 The essential elements of quasi-banking are the following:

1. Borrowing funds for the borrower’s own account.
2. Twenty or more lenders at any one time.
3. Methods of borrowing are issuance, endorsement, or acceptance
 of debt instruments of any kind, other than deposits, such as acceptances,
promissory notes.
4. The purpose may be for (a) relending, or (b) purchasing quasi-banking functions if –
• its minimum paid-in capital is P50 million;
• at least majority of the voting stock are owned by citizens of the Philippines;
• at least majority of the members of the board of directors are citizens of the
Philippines;
• the managerial staff possesses the integrity, experience, and expertise which provide
reasonable assurance that the bank is being conducted with financial prudence.
 OTHER BORROWINGS
1. Borrow from the government or any of its political subdivisions or
instrumentalities.
2. Borrow from trust departments of managed funds of banks or investment
houses.
3. Issue commercial papers:
a. short term
b. long term
4. Issue and deal in mortgage and chattel mortgage certificates exclusively for
the purpose of financing the following loans:
a. equipment loans
b. mortgage loans for acquisition of machinery and other
fixed installations
c. Loans for the conservation, enlargement, or improvement of productive
properties
d. Real estate mortgage loans for the construction, acquisition, expansion or
improvement of rural and urban properties, and for the refinancing of similar
loans and mortgages

OTHER OPERATIONS
1. Purchase receivables and other obligations.
2. Engage in open market operations; that is, buying and selling of
government securities.
3. Invest in readily marketable bonds and other debt securities.
4. Engage in trust operation or trust business; that is, the administration,
holding and management in the capacity of a trustees of funds and/or other
property for use, benefit or advantage of the trustor or of others known as
beneficiaries.
5. Sell government securities, such as Bangko Sentral Certificates of
Indebtedness, DBP Bonds, Premyo Savings Bonds and Biglang Bahay
Bonds, including those issued by other government agencies.
6. Collect taxes, levies and other revenues of the government agencies.
7. Participate in clearing operations, if authorized to accept demand deposits.
8. Sell PNB money orders as consignee.
9. Deal in foreign exchange, upon prior authority.
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