The Monetary Board (MB), the policy-making body of the Bangko Sentral ng Pilipinas (BSP) approved on 26 October 2006 the lifting of the moratorium on the grant of license to engage in quasi-banking functions to investment houses (IHs) and finance companies (FCs) as well as the reduction of the minimum capital requirement for the issuance of authority to perform quasi-banking functions to non-bank financial institutions (NBFIs) to P= 300 million.
Quasi-banking refers to the act of obtaining funds from the public other than deposits, through the issuance, endorsement or acceptance of debt instruments for the borrower’s own account for the purpose of relending or purchasing of receivables and other obligations.
Several years back, the MB held in abeyance the granting of quasi-banking licenses to NBFIs pending rationalization of quasi-banking rules.
However, the recent upsurge of initial public offerings (IPOs) and bond flotations from several established corporations as well as industry newcomers has prompted the MB to lift the moratorium.
The MB also decided to reduce the minimum capital required for NBFIs authorized to engage in quasi-banking functions (NBQBs), taking cognizance of their lower risk profile and focus, especially of IHs, on the quick turnover of its primarily government securities (GS) portfolio which boosts market liquidity, rather than on maintaining a sizable loan portfolio. It was felt that a system of risk-based capital ratios to measure capital adequacy would be more appropriate in the supervision of NBQBs which can adjust their asset portfolio and trading activities to meet these ratios depending upon market conditions and their risk assessment.
However, NBFIs applying for BSP authority to engage in quasi-banking functions must meet such other requirements as general compliance with applicable laws, rules and regulations, adequate accounting records, internal control systems and procedures, no past due obligation with any financial institution, officer-in-charge of quasi-banking operations must have actual two years experience, compliance with the fit and proper rule, at least two independent directors, no unsafe and unsound practices and comprehensive risk management system.
Existing NBQBs with capitalization of less than P= 300 million shall be given two years within which to comply with the minimum capital. However, this requirement may be substituted by a capital build-up program with a maximum period of three years which must be approved by the MB. The capital build-up program must include equal annual cash inflows or diminishing installments over the capital build-up program period.
NBQBs which fail to comply with the required capitalization upon expiry of the two-year period or those which fail to comply with the approved capital build-up program shall liquidate their quasi-banking operations within one year from said deadlines and shall surrender their quasi-banking licenses to the BSP. Furthermore, the licenses of NBQBs not actually performing quasi-banking functions which fail to comply with the required capitalization on the date of effectivity of the implementing circular shall be automatically revoked.