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TOPIC 8 repay a loan before giving money. They look at income, past
payments, and debts. They also set loan limits, charge interest,
FINANCIAL PLANNING
is the process of assessing the current financial situation of a and ask for collateral. This helps protect the bank from losing
business to identify future financial goals and how to achieve money if someone can’t pay back.
them. The financial plan itself is a document that serves as a
roadmap for a company's financial growth.
IMPLICATIONS FOR BANKS AND FINANCIAL
LOAN REPAYMENT INSTITUTIONS CREDIT RISK DIRECTLY AFFECTS
is the act of settling an amount borrowed from a lender along with THE FINANCIAL HEALTH OF BANKS AND FINANCIAL
the applicable interest amount. INSTITUTIONS IN SEVERAL WAYS:

SAVING PLAN 1. Financial Losses

is a financial strategy designed to set - When people or businesses can’t pay back their loans, the bank
aside money regularly for future goals or emergencies. loses money. Just like anyone losing income, it affects their
ability to keep things running smoothly. If too many borrowers
TOPIC 10-11 fail, the bank could be in real trouble.

CREDIT RISK MANAGEMENT 2. Capital Requirements

is the process of identifying, assessing, and mitigating that risk. It - are the minimum amount of capital (money or assets) that a
includes tools, strategies, and policies used by banks and financial bank or financial institution must hold. This is to protect it from
institutions to protect themselves from potential losses. going bankrupt if borrowers can't repay loans.

Importance of credit risks management 3. Loan Pricing

- Ensures the financial stability of lenders. - If someone seems risky to lend to, banks charge them more
- Protects investors and depositors. interest—just like if you lent money to a friend who often forgets
- Promotes responsible lending and a healthy economy. to pay back. Safer borrowers get better deals because banks trust
they’ll return the money on time.
Type of Credit Risks Management
4. Reputation Risks
1. Credit Spread Risk: The risk that changes in interest rates - If a bank makes too many bad decisions, people notice.
could affect profits on loans or bonds. Customers might take their money elsewhere, and investors might
back off. Just like in life, if you seem unreliable, people start to
2. Default Risk: The risk that a borrower won’t repay their lose trust—and that hurts business.
loan.
BANKS AND FINANCIAL INSTITUTIONS USE MANY
STRATEGIES TO MANAGE RISK EFFECTIVELY:
3. Downgrade Risk: The risk that a borrower’s credit rating is
lowered, making them more likely to default.
1. Credit Analysis
- This involves a deep review of the borrower's financial
4. Concentration Risk: The risk of lending too much to one
background, such as their income, debts, and credit history, to
industry or sector, which could cause big losses if that sector fails.
ensure they have the ability to repay the loan.
5. Institutional Risk: The risk of problems with the
2. Loan Covenants
organization overseeing the loan or agreement, such as legal
- These are specific conditions in the loan agreement. For
issues.
example, the borrower might be required to maintain a certain
income level or avoid taking on more debt.
Credit Risks vs. Interest Rates

3. Diversification
Credit Risks
- To avoid losing a lot from one sector, banks spread their loans
- The chance that a person or business won't be back a loan.
across different industries, regions, or customer types.
Interest Rates
4. Regular Monitoring
- Is the extra money you pay when you borrow money (or earn
- After lending, banks continuously track the borrower's financial
when you save money).
health to catch problems early and take action if needed.
HOW ARE CREDIT RISKS AND INTEREST RATES
5. Setting Credit Limit
CONNECTED?
- The bank only gives you what they believe you can safely pay
back. They won’t give you more than you can handle. This
The higher the credit risk, the higher the interest rate, because the
protects both you and the bank.
lender wants more money to make up for the risk.
The lower the credit risk, the lower the interest rate, because the
6. Provisioning and Reserves
lender feels safer and doesn’t need extra compensation.
In short: more risk = more cost. - Banks set aside money to cover potential loan losses. These
reserves act as a safety net in case some borrowers fail to repay.

How do bank manage credit risks?

Banks manage credit risks by checking if a person or business can

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(k) "Non-Accessing Entity" refers to an entity other than a

TOPIC 12 Submitting Entity, Special Accessing Entity or Borrower that is
Credit Information System Act (CISA) republic act authorized by the Corporation to access credit information from a
no. 9510 Special Accessing Entity.
- An act establishing a credit Information system and for other
purposes. (L) "Outsource entity" refers to any accredited third party
provider to whom the Corporation may outsource the processing
Section 1: CISA and consolidation of basic credit data.
- This act shall be known as CISA.
(m) "Positive credit information" refers to information/data
Section 2: Declaration Policy concerning the credit performance of a borrower such as, but not
- The State recognizes the need to establish a comprehensive and limited to, information on timely repayments or non-delinquency.
centralized credit information system for the collection and
dissemination of fair and accurate information relevant to, or (n) "Relevant Government Agencies" refers to the
arising from, credit and credit-related activities of all entities Department of Finance, Department of Trade and Industry,
participating in the financial system. Bangko Sentral ng Pilipinas, Insurance Commission and the
Cooperative Development Authority.
The operations and services of a credit information
system can be expected to: (o) "SEC" refers to the Securities and Exchange Commission.

- greatly improve the overall availability of credit especially to (p) "Special Accessing Entity" refers to a duly accredited
micro, small and medium-scale enterprises. private corporation engaged primarily in the business of providing
- provide mechanisms to make credit more cost-effective. credit reports, ratings and other similar credit information
- reduce the excessive dependence on collateral to secure credit products and services.
facilities.
(q) "Submitting Entity" refers to any entity that provide credit
Section 3: DEFINITION OF TERMS. -FOR PURPOSES facilities..
OF THIS ACT:
SECTION 4. ESTABLISHMENT OF THE CREDIT
(a) "Accessing Entity” refers to any submitting entity or any INFORMATION SYSTEM.
other entity authorized by the Corporation to access basic credit - IN FURTHERANCE OF THE POLICY SET FORTH IN
data from the Corporation. SECTION 2 OF THIS ACT A CREDIT INFORMATION
SYSTEM IS HEREBY ESTABLISHED.
(b) "Basic Credit Data" refers to positive and negative
information provided by a borrower to a submitting entity in SECTION 5. ESTABLISHMENT OF THE CENTRAL
connection with the application. CREDIT INFORMATION CORPORATION.
- THERE IS HEREBY CREATED A CORPORATION WHICH
(c) "Borrower" refers to a natural or juridical person, including SHALL BE KNOWN AS THE CREDIT INFORMATION
any local government unit (LGU), its subsidiaries and affiliates, CORPORATION.
that applies for and/or avails of a credit facility.
SECTION 6. CONFIDENTIALITY OF CREDIT
(d) "BSP" refers to the Bangko Sentral ng Pilipinas, created under INFORMATION.
Republic Act No.7653. - The Corporation, the submitting entities, the accessing entities,
the outsource entities, the special accessing entities and the duly
(e) "Corporation" refers to the Credit Information Corporation authorized non-accessing entities shall hold the credit information
established under Section 5 of this Act. under strict confidentiality and shall use the same only for the
declared purpose of establishing the creditworthiness of the
(f) "Credit facility" refers to any loan, credit line, guarantee or borrower.
any other form of financial accommodation from a submitting
entity. SECTION 7. EDUCATIONAL CAMPAIGN.
- A continuing nationwide educational campaign shall be
(g) "Credit Rating" refers to an opinion regarding the developed and undertaken by the Corporation to promote the
creditworthiness of a borrower or of an issuer of debt security, benefits of a credit information system to the economy.
using an established and defined ranking system.
SECTION 8. RULES AND REGULATIONS.
(h) "Credit Report" refers to a summary of consolidated and - For purposes of creating a healthy balance between the need for
evaluated information on creditworthiness, credit standing, credit reliable credit information and safeguarding consumer protection.
capacity, character and general reputation of a borrower.
TOPIC 13
(i) "Government Lending Institutions" refers to existing
and future government financial institutions (GFIs), government- SECTION 9: CONGRESSIONAL OVERSIGHT
owned and controlled corporations (GOCCS) primarily engaged COMMITTEE
in lending activities.
There is hereby created a congressional oversight committee,
(j) "Negative Credit Information" refers to information/data composed of seven (7) members from the Senate and seven (7)
concerning the poor credit performance of borrowers. members from the House of Representatives. The Members from
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the Senate shall be appointed by the Senate President with at least 3. Consolidate Credit History
three (3) Senators representing the minority. The - Consolidate these data into a reliable credit history database.
Members of the House of Representatives shall be appointed by
the Speaker with at least three (3) members representing the 4. Reduce Financial Risks
minority. - Help in the reduction of credit risk, financial fraud, and over-
indebtedness.

SECTION 10: INDEMNITY IN FAVOR OF THE

CORPORATION, ITSS OFFICERS AND EMPLOYEES CIC's Role in the Financial Ecosystem

Unless the Corporation or any of its officers and employees is Economic Development
found liable for any willful violation of this Act, bad faith, malice - Supporting the growth of the Philippine economy.
and/or gross negligence, the Submitting Entities, Accessing
Entities, Special Accessing Entities, Outsource Entities and duly Inclusive Financial System
authorized non-accessing entities shall hold the Corporation, its - Creating access for underserved markets.
directors, and employees free and harmless to the fullest extent
permitted by law and shall indemnify them from any and all Financial Institutions
liabilities, losses, claims, demands, damages, deficiencies, costs - Providing data for informed lending decisions.
and expenses of whatsoever kind and nature that may arise in
connection with the performance of their functions without Individual Borrowers
prejudice to any criminal liability under existing laws. - Building credit profiles for better access to financing.

Section 11: Penalties Vision of CIC

- Any person who willfully violates any of the provisions of this "To be the leading provider of reliable, comprehensive, and
Act or the rules and regulations promulgated by the SEC in independent credit information in the Philippines, supporting a
coordination with the relevant government agencies shall, upon strong and inclusive financial system."
conviction, suffer a fine of not less than Fifty thousand pesos
(PhP50,000.00). nor more than One million pesos Reliability
(PhP1,000,000.00) or imprisonment of not less than one (1) year - Ensuring accurate credit information.
nor more than five (5) years, or both, at the discretion of the court.
Inclusivity
Section 12: Inviolable nature of the secrecy deposits - Supporting access for all Filipinos.
and/or client funds
- means that the privacy of a person's bank account information Comprehensive
and money is strictly protected. - Providing complete credit histories.

Independence
Section 13: Annual Report - Maintaining objectivity in data handling.
- is a document that a company or organization publishes once a
year to provide information about its Mission of CIC
activities and financial performance. "To collect and provide accurate and fair credit information to
help establish a fair and efficient credit system that supports the
Section 14: Principal Government Agency development of the Philippine economy."
- This refers to the main or lead government organization
responsible for managing a specific area of public policy or Accurate Data
service. - Ensuring integrity of submitted information.

TOPIC 14 Fair Reporting

Credit Information Corporation (CIC) - Allowing borrowers to see and dispute errors.
- The Credit Information Corporation (CIC) is a government-
owned and controlled corporation under the supervision of the Efficient Access
Department of Finance (DOF). It was established under Republic - Providing timely information to authorized entities.
Act No. 9510, also known as the Credit Information System Act
(CISA), which was enacted in 2008. Its main objective is to Economic Growth
collect, consolidate, and disseminate credit information to help - Supporting development through proper credit assessment.
financial institutions assess the creditworthiness of borrowers.
CIC DATA COLLECTION PROCESS
Mandate of CIC
Data Submission
1. Collect and Store Data - Financial institutions submit credit data of borrowers to CIC.
- Collect and store relevant credit data from various financial
institutions (banks, cooperatives, insurance companies, etc.) Data Validation
- CIC verifies and validates the submitted information for
2. Provide Secure Access accuracy.
- Provide access to this credit data to authorized users such as
banks, lending companies, and other financial institutions. Database Integration
- is consolidated into the centralized credit information system.
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Information Access Business Sustainability

- Authorized institutions can access the credit information for - During challenging times, businesses may need financial
assessment purposes. support to sustain operations. A positive credit history provides a
safety net for entrepreneurs facing temporary difficulties.

Benefits of CIC for Financial Institutions

TOPIC 15
Reduced Credit Risk
- Access to comprehensive credit histories allows financial
Functions of Credit Bureaus and Importance in
institutions to better assess the risk associated with potential
Assessing Credit
borrowers, reducing the likelihood of defaults.

Efficient Decision Making

- With reliable credit information readily available, financial Accredited Credit Bureaus in the Philippines
institutions can make faster and more informed lending decisions, - CIC does not perform credit scoring directly. Instead, it
improving operational efficiency. accredits Special Accessing Entities (SAEs) or Credit Bureaus to
generate credit scores and reports using the data collected by CIC.
Fraud Prevention
- The centralized database helps identify suspicious patterns and CIBI Information, Inc.
potential fraudulent activities, protecting lenders from financial - one of the oldest credit bureaus, providing credit reports and
losses. scores for individuals and businesses,
along with background checks for employment and identity
Market Expansion validation.
- Better risk assessment enables lenders to safely extend credit to
previously underserved segments, expanding their customer base. CRIF Philippines
- Part of the global CRIF Group, offering credit scoring, analytics,
Benefits of CIC for Borrowers and business information solutions, working closely with local
banks and financial institutions.
Credit Profile Building
- Borrowers can establish and build their credit profiles through TransUnion Philippines
responsible borrowing and timely repayments, which are recorded - A global credit reporting agency providing detailed credit
in the CIC database. reports for individuals, including loan and payment histories, to
help lenders assess borrower risk.
•Positive credit history becomes visible to all lenders
•Previous good payment behavior is recognized How Credit Bureaus Function?
•Opportunity to correct inaccurate information Data Collection
Report Creation
Improved Access to Financing Score Generation
- With a documented credit history, borrowers can gain easier Credit Checks
access to loans and other financial products, often at better terms.
Importance of Credit Bureaus in Assessment
•Faster loan approvals based on existing data Financial Inclusion
•Potential for lower interest rates Better Interest Rates
•Access to higher credit limits Faster Loan Approvals
Risk Reduction
The CIC empowers borrowers by creating a system where good
credit behavior is rewarded, encouraging responsible financial
management and providing opportunities for financial inclusion. TOPIC 16

PHILIPPINE LAWS GOVERNING CREDIT AND

BACKGROUND INVESTIGATION

Importance of CIC to Entrepreneurs

1. Credit Information System Act (RA 9510)
- This Law establishes the Credit Information Corporation (CIC)
Starting a Business
to collect and manage credit information of individuals and
- New entrepreneurs often need initial capital to launch their
entities.
ventures. A good credit history through CIC can help secure the
necessary startup funding from formal financial institutions.
2. Data Privacy Act of 2012 (RA 10173)
- This Law go burns the processing of personal data including,
Business Expansion
background check information.
- As businesses grow, entrepreneurs require additional financing
for expansion. CIC records of consistent loan repayments can
3. Anti-Money Laundering Act (RA 9160, as
facilitate access to larger loans with better terms.
amended)
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- This Law is relevant in situations where financial background
checks are conducted to prevent money laundering.

4. Law on Secrecy of Bank Deposits (RA 1405)

- This Law protect the confidentiality of bank deposits, which
may be relevant in certain credit and background checks.

TOPIC 17

Private Policy

Private policies
- refer to internal rules or practices that companies or institutions
adopts when conducting credit and background checks.

These policies must align with national laws especially the Data
Privacy Act of 2012 (RA 10173) to ensure ethical and legal
handling information.

Key Components of a Private Policy on Credit and

Background Investigation

Purpose and Scope

- A company’s policy must private clearly explain why it is
collecting credit or background information.

Type of Information Collected

- Credit and background investigation includes verifying payment
history, current debts, income sources, credit scores, financial
obligations, employment history, education, criminal record (if
authorized), references, information. and identity

Consent and Authorization

- Consent forms typically state what information will be collected,
from whom, and for what purpose.

Sources of Information
- Sources of information may include Information the Credit
Corporation (CIC), previous employers or landlords, public
records (if legally permitted), credit bureaus, and background
screening agencies.

Data Privacy and Protection

- All collected data must be kept confidential.

Retention and Disposal

- Companies should define how long they will retain the data.

A good private policy must comply with:

Data Privacy Act of 2012

Credit Information System Act (RA 9510)
Any BSP guidelines if the organization is a financial