FM 2: Banking and Financial Institution - Midterm Review

Comprehensive vocabulary flashcards covering midterm topics on branch operations, banking premises regulations, deposit operations, deposit substitutes, loan vs. credit distinctions, commercial and consumer loan categories, and the Five Cs of credit.

Commercial Banks

Financial intermediaries that operate by connecting fund providers (depositors) with fund users (borrowers) through daily operations, liability management, and asset deployment.

Single Unit Principle

The regulatory rule stating that a bank and all of its authorized branches and offices shall be treated as one unit, making the bank responsible for all business conducted in its branches to the same extent as if conducted in the head office.

Board Authorization (BSP Circular No. 505)

A mandatory banking premises requirement consisting of a certified true copy of the bank's Board Resolution explicitly authorizing the funding and establishment of a specific physical banking office.

Premise Layout & Outlay

Documentation submitted to the BSP proving the viability of bank premises, including the initial structural outlay and proof of control over the location, such as lease agreements or certificates of title.

Infrastructure Specification

Clear identification required by the BSP of the specific banking facilities, counters, and technical services that will be housed within a branch's physical footprint.

Staffing Framework

An organizational chart mapped specifically to new bank premises, delineating all required physical security and operational personnel positions.

Restricted Branch Areas (BSP Circular No. 505)

Specific areas in Metro Manila where regular bank branch establishment is restricted, consisting of the cities of Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig, Quezon, and the Municipality of San Juan.

Savings Deposits

Interest-bearing liquid funds without a maturity date that can be withdrawn anytime via ATM or over-the-counter through a passbook and withdrawal slip.

Time Deposits (Certificates of Deposit)

High-yielding fixed-term accounts requiring funds to remain untouched for a stated duration (such as 30, 90, or 360 days or longer), subject to early withdrawal penalties.

Deposit Substitute

An alternative method of obtaining funding from the public through the issuance, endorsement, or acceptance of debt instruments for relending, purchasing receivables, or financing economic needs.

The 20-Lender Rule

The legal threshold specifying that borrowing must be pooled from twenty (20) or more individual or corporate lenders at any single time to qualify as a deposit substitute under Section 95 of the New BSP Charter (R.A. No. 11211).

No Interest Ceilings Policy

The deregulatory framework under BSP regulations (such as CB Circular 905) where interest rates on bank deposits and deposit substitutes are determined by market forces and free negotiation rather than artificial caps.

The Immorality Doctrine

A Philippine Supreme Court judicial doctrine allowing courts to void an interest rate provision on a debt instrument if the rate is determined to be unconscionably excessive or usurious, violating morals and public order.

Manila Reference Rate (MRR)

A reference benchmark calculated and announced weekly by the BSP, formulated from the weighted average of interest rates paid on outstanding deposit substitutes by top commercial banks for floating-rate tracking.

Demand Deposit (Current Account)

A checking account that generally earns no interest, allowing funds to be withdrawn at any time by issuing or presenting a check, commonly used by businesses with mobile funds.

Term Savings Account (SSA / SDA)

A passbook-evidenced savings account kept untouched for a considerable period of time to allow the bank to lend long-term, which earns significantly higher interest than an ordinary savings account.

COMBO / CASA Account

An account combining current and savings features that earns interest like a regular savings account and permits withdrawals via withdrawal slip or check; also known as an automatic transfer account (ATA).

Multi One Account

A '3-in-1' bank account integrating savings deposit, ATM access, and checking facilities under a single account, allowing withdrawals through slips, checks, or ATM cards.

Certificate of Time Deposit (CTD)

A receipt or document issued by a bank certifying that a depositor has placed a specific amount of funds for a designated maturity period at a stated interest rate.

Loan

A lump-sum borrowing arrangement designed for a specific purpose where the borrower accesses the full amount once and interest starts accruing immediately on the entire balance.

Line of Credit

A preset borrowing limit that can be drawn from at any time, paid back, and borrowed again for any purpose, where interest accrues exclusively on the accessed amount.

Credit

A contractual agreement in which a borrower receives money or goods in the present and commits to repaying the lender at a later date, typically with interest.

Revolving Credit

A credit arrangement providing an ongoing borrowing limit that allows borrowers to withdraw funds, repay some or all of the balance, and re-borrow up to the limit (e.g., credit cards).

Installment Credit

A credit model delivering a fixed upfront principal amount that is scheduled to be repaid over a set period through predetermined regular payments (e.g., auto loans, mortgages).

Secured Credit

Credit protected by pledged collateral—such as real estate, vehicles, or cash deposits—typically resulting in lower interest rates due to reduced lender risk.

Unsecured Credit

Credit issued without collateral backing, where approval and interest rates depend heavily on the applicant's creditworthiness and financial profile.

Consumer Loans

Credit facilities created for individual borrowers to finance personal expenses, typically structured on an unsecured basis without collateral requirements.

Personal Loan

A flexible, typically unsecured consumer loan that allows individuals to access funds for various unspecified needs such as emergencies, travel, or debt consolidation.

Student Loan

A consumer loan specifically designed to cover tuition fees and other higher education expenses for students, parents, or working scholars.

Home Loan

A long-term financing arrangement intended to support the purchase, construction, or renovation of residential property.

Auto Loan

A financing facility for purchasing brand-new or used motor vehicles, typically requiring a 20% down payment with the remaining balance payable in monthly installments.

Motorcycle Loan

A consumer loan that funds the purchase of motorcycles for personal transport or small delivery enterprises, generally featuring lower down payments than car loans.

Commercial Loans

Debt financing products extended to enterprises to support working capital, expansion initiatives, machinery purchases, or other capital needs.

Revolving Line of Credit (Commercial)

A pre-approved borrowing facility that business entities can tap into and repay on demand to bridge short-term cash flow gaps and seasonal variances.

Fixed-Rate Commercial Loan

A commercial loan providing an upfront lump sum with an unvarying interest rate throughout the borrowing term, ensuring predictable monthly repayment figures.

Bills Purchase Line

A financing line enabling commercial enterprises to exchange uncashed, post-dated checks with the bank for immediate liquidity rather than waiting for clearance.

Equipment Loans

Asset-backed business loans dedicated to purchasing specialized machinery, vehicles, or manufacturing equipment without depleting company cash reserves.

Microfinancing

Credit facilities offering small-scale loans to individuals and microentrepreneurs (such as sari-sari store owners) who lack access to conventional commercial bank loans.

Character (5 Cs of Credit)

The borrower's reputation, reliability, and willingness to repay obligations, assessed via credit scores, past payment histories, and employment stability.

Capacity (5 Cs of Credit)

The financial ability of a borrower to handle ongoing loan payments, evaluated by contrasting income with debt liabilities through metrics like the debt-to-income (DTI) ratio.

Capital (5 Cs of Credit)

The personal financial resources or equity a borrower has committed to a venture or asset, indicating their direct financial stake ('skin in the game').

Collateral (5 Cs of Credit)

Valuable assets pledged by the borrower (such as real estate or vehicles) that the lending institution holds the legal right to claim and liquidate in the event of loan default.

Conditions (5 Cs of Credit)

The macroeconomic and market environment surrounding a loan request, including prevailing interest rates, inflation levels, industry developments, and the specific use of funds.