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BANKING LAWS
TABLEOF CONTENTS
A. The New Central Bank Act
Republic Act No. 7653
B. The General Banking Act
Republic Act No. 337
In General
Establishment of Domestic Banks
Licensing of Foreign Banks
Commercial Banking Corporations and Universal Banks
Thrift Banks Act of 1996
Republic Act No. 7906
Building and Loans Associations
Rural Banks Act of 1992
Republic Act No. 7353
C. An Act Liberalizing the Entry of Foreign Banks
Republic Act No. 7721
D. Offshore Banking System Law
Pres. Decree No. 1034
E. Foreign Currency Deposits Act
Republic Act No. 6426, as amended
F. An Act Creating the PDIC
Republic Act No. 3531
G. The Truth in Lending Act
Republic Act No. 3765
H. Law on Secrecy of Bank Deposits
Republic Act No. 1405
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Note: We have included several banking laws which are not in the bar coverage.
Likewise, we have incorporated several laws on non-bank financial
intermediaries. Since they are not covered by the bar exam, the reviewee
has the option of not reading them.
BANKINGAND FINANCEIN GENERAL
Two types of financing
1. equity
2. debt-financing
A cross-breed of the two may also occur.
Intermediaries
1. Banks
2. Non-bank financial intermediaries
3. Exchanges
4. Others i.e. secondary markets
Function of intermediaries
1. Brokeringor matching investors with those in need of financing
2. Help in diminishing risks to investors
3. Provide liquidity
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NEW CENTRAL BANKACT
Republic Act No. 7653
Approved 14 June 1993
IN GENERAL
Mandate
The Bangko Sentral ng Pilipinas is the States central monetary
authority, mandated in the 1987 Constitution, which shall function and
operate as an independent and accountable body corporate in the discharge
of its mandated responsibilities concerning money, banking and credit.
[Section 1, RA 7653]
The Bangko Sentral shall enjoy fiscal and administrative autonomy.
[Section 1, RA 7653]
Objectives
1. The primary objective of the Bangko Sentral is to maintain price stability
conducive to a balanced and sustainable growth of the economy.
2. It shall also promote and maintain monetary stability and the convertibility of
the peso.
3. It shall also provide policy directions in the areas of money, banking and
credit.
4. It has supervision over banks and has regulatory powers over the operations
of finance companies and non-bank financial intermediaries performing
quasi-banking functions. [Section 3, RA 7653]
Typical functions of the Bangko Sentral
1. Supervision over banks and regulation of non-bank financial intermediariesengaged in quasi-banking functions
2. Bank of issue: as such, it has the sole power and authority to issue currency
3. Custodian of the nations reserves of foreign currency
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As such, it ensures convertibility of the peso and backs up Philippine
currency.
4. It has control of credit
a. regulating money supply i.e. reserve requirements for banks
b. open market operations i.e. Tbills
c. controlling interest rate
5. Lender of last resort
It has a "rediscounting window,allowing banks to sell their promissory notes
to it.
6. Custodian of cash reserves of banks
7. Government banker, agent and advisor
8. Central clearance and settlement agency
Fiscal policy v. monetary policy
Fiscal policy is concerned with revenue generation and expenditure while
monetary policy involves regulating money supply and price stability.
The Bangko Sentral will now concentrate on monetary policy and shed off
fiscal responsibilities which in the past had distracted it from its primary
function. [Section 129, RA 7653]
MONETARYBOARDAND GOVERNOR
Monetary Board
The powers and functions of the Bangko Sentral are exercised by the
Monetary Board.
The Board is composed of seven (7) members appointed by the President for
a term of six (6) years. No member may be reappointed more than once.
The seven members are:
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1. The Governor as Chairman;
2. A member of the Cabinet designated by the President; and
3. Five (5) members who shall come from the private sector, all of whom
shall serve full-time.
Qualifications of the members of the Monetary Board
1. Must be natural born citizens of the Philippines
2. At least thirty five (35) years of age, with the exception of the Governor who
should at least be forty (40) years old
3. Good moral character
4. Of unquestionable integrity
5. Of known probity and patriotism
6. With recognized competence in social and economic disciplines
Disqualifications
In addition to the disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is disqualified from being a director, officer,
employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank
or any other institution which is subject to supervision or examination by the
Bangko Sentral, in which case such member shall resign from, and divest
himself of any and all interests in such institution before assumption of office
as member of the Monetary Board.
The member of the Monetary Board coming from the private sector shall not
hold any other public office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been
connected with any multilateral banking or financial institution or has asubstantial interest in any private bank in the Philippines, within one (1) year
prior to his appointment; likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after the expiration of
his term except when he serves as an official representative of the Philippine
Government to such institution.
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Withdrawal of persons having a personal interest
In addition to the requirements of Republic Act No. 6713, any member of the
Monetary Board with personal or pecuniary interest in any matter in the
agenda of the Monetary Board shall disclose his interest to the Board and
shall retire from the meeting when the matter is taken up. The decision taken
on the matter shall be made public. The minutes shall reflect the disclosure
made and the retirement of the member concerned from the meeting.
Responsibility and liability of the members of the Monetary Board
Members of the Monetary Board, officials, examiners, and employees of the
Bangko Sentral who willfully violate RA 7653 or who are guilty of negligence,
abuses or acts of malfeasance or misfeasance or fail to exercise
extraordinary diligence in the performance of his duties shall be held liable
for any loss or injury suffered by the Bangko Sentral or other banking
institutions as a result of such violation, negligence, abuse, malfeasance,
misfeasance or failure to exercise extraordinary diligence.
Similar responsibility shall apply to members, officers and employees of the
Bangko Sentral for;
1. The disclosure of any information of a confidential nature, or any
information on the discussions or resolutions of the Monetary Board, or
about the confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official functions
with the Bangko Sentral, or is with prior authorizaytion of the Monetary
Board or the Governor; or
2. The use of such information for personal gain or to the detriment of
the Government, the Bangko Sentral or third parties.
However, any data or information required to be submitted to the President
and/or Congress, or to be published under the provisions of RA 7653 shall not
be considered confidential.
Authority of Governor to render opinions, decisions or rulings
The Governor of the Bangko Sentral shall have the power to render opinions,
decisions, or rulings which shall be final and executory, until reversed or
modified by the Monetary Board, on matters regarding application or
enforcement of laws pertaining to institutions supervised by the Bangko
Sentral and laws pertaining to quasi-banks, as well as regulations, policies or
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instructions issued by the Monetary Board, and the implementation thereof.
[Section 17(e), RA 7653]
Authority of the Governor in emergencies
In case of emergencies where time is insufficient to call a meeting of the
Monetary Board, the governor with the concurrence of two other members of
the Board may decide any matter or take an action within the authority of
the Board.
He shall thereafter submit a report to the President and Congress within 72
hours after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the
Monetary board to submit his action for ratification. [Section 19, RA 7653]
Outside interests of the Governor and the full-time members of the Board
The Governor of the Bangko Sentral and the full-time members of the Board
shall limit their professional activities to those pertaining directly to their
positions with the Bangko Sentral.
They may not accept any other employment, whether public or private,
remunerated or ad honorem.
Exceptions:
1. Positions in eleemosynary, civic, cultural or religious organizations
2. Whenever, by designation of the President, the Governor or the full-
time member is tasked to represent the interest of the Government or
other government agencies in matters connected with or affecting the
economy or the financial system of the country
CERTAIN OPERATIONSOFTHE BANGKO SENTRAL
Supervision and examination
The Bangko Sentral shall have supervision over, and conduct periodic or
special examination of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
This power however is subject to the provision of existing laws protecting or
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safeguarding the secrecy or confidentiality of bank deposits as well as
investments of persons, natural or juridical, in debt instruments issued by the
Government. [Section 25, RA 7653]
Subsidiary and affiliate
A subsidiary means a corporation more than fifty percent (50%) of the voting
stock of which is owned by a bank or quasi-bank and an affiliate means a
corporation the voting stock of which, to the extent of fifty percent (50%) or
less, is owned by a bank or quasi-bank or which is related or linked to such
institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.
No restraining order on power of examination
No restraining order or injunction shall be issued by the court enjoining the
Bangko Sentral from examining any institution subject to supervision or
examination by the Bangko Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary and made in bad faith and
the petitioner or plaintiff files with the clerk or judge of the court in which the
action is pending a bond executed in favor of the Bangko Sentral, in an
amount to be fixed by the court. [Section 25, RA 7653]
Prohibitions on personnel of the Bangko Sentral
In addition to the prohibitions found in RA 3019 and 6713, personnel of the
Bangko Sentral are hereby prohibited from:
1. Being an officer, director, lawyer or agent, employee, consultant or
stockholder, directly or indirectly, of any institution subject to
supervision or examination by the Bangko Sentral, except non-stock
savings and loan associations and provident funds organized
exclusively for employees of the Bangko Sentral, and except as
otherwise provided in RA 7653;
2. Directly or indirectly requesting or receiving any gift, present or
pecuniary or material benefit for himself or another, from anyinstitution subject to supervision or examination by the Bangko
Sentral;
3. Revealing in any manner, except upon orders of the court, the
Congress or any government office or agency authorized by law, or
under such conditions as may be prescribed by the Monetary Board,
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information relating to the condition or business of any such
institution. This prohibition shall not apply to the giving of information
to the Monetary Boar or the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing, to receive such
information; and
4. Borrowing from any institution subject to supervision or examination
by the Bangko Sentral unless said borrowings are adequately secured,
fully disclosed to the Monetary Boar, and shall be subject to such
further rules and regulations as the Monetary Board may prescribe.
CONSERVATORSHIPV. RECEIVERSHIP
CONSERVATOR
Grounds for appointment of conservator
The Monetary Board may appoint a conservator whenever it finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to protect the interest of
depositors and creditors. [Section 29, RA 7653]
The conservator should be competent and knowledgeable in bank operations
and management. The conservatorship shall not exceed one (1) year.
Powers of conservator
1. Take charge of the assets, liabilities and management of the bank or quasi-
bank
2. Reorganize the management
3. Collect all monies and debts due said institution
4. Exercise all powers necessary to restore its viability
Extent of the power of the conservator
The conservator has the power to overrule or revoke the actions of the
previous management and board of directors of the bank or quasi-bank.
However, the power cannot extend to thepost-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment
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clause of the Constitution.
Section 28-A of RA No. 265 merely gives the conservator the power to revoke
contracts that are deemed to be defective under existing law (i.e., void,
voidable, unenforceable, or rescissible); hence, the conservator merely takes
the place of a banks board of directors. What the board of directors cannot
do, such as repudiating a contract validly entered into under the doctrine of
implied authority, the conservator cannot do either. [First Philippine
International Bank v. CA, 252 SCRA 255 (1986)]
Termination of conservatorship
The Monetary Board shall terminate the conservatorship when it is satisfied
that the institution can continue to operate on its own and the
conservatorship is no longer necessary.
The conservatorship shall likewise be terminated should the Monetary Board
determine that the continuance in business of the institution would involve
probable loss to its depositors or creditors, in which case proceedings for
receivership and liquidation shall be pursued. [Section 29, RA 7653]
PROCEEDINGSIN RECEIVERSHIPAND LIQUIDATION
Grounds for proceedings in receivership and liquidation
The Monetary Board shall institute proceedings for receivership whenever it
finds that a bank or quasi-bank:
1. Is unable to pay its liabilities as they become due in the ordinary
course of business; provided that this shall not include inability to pay
caused by extraordinary demands induced by financial panic in the
banking community;
2. Has insufficient realizable assets to meet its liabilities;
3. Cannot continue in business without involving probable loss to its
depositors or creditors; or
4. Has willfully violated a cease and desist order that has become final,
involving acts or transactions which amount to fraud or a dissipation of
the assets of the institution.
No need of prior notice and hearing
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In such cases, the Monetary Board may summarily and without need for prior
hearing, forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution. [Section 30, RA 7653]
Who acts as receiver
For a bank, the Philippine Deposit Insurance Corporation shall serve as
receiver; for a quasi-bank, any person of recognized competence in banking
or finance may be designated as receiver.
Tasks of the receiver
The receiver shall immediately (1) gather and take charge of all assets and
liabilities of the institution, (2) administer the same for the benefit of its
creditors, and (3) exercise the general powers of a receiver. (4) The receiver
shall determine as soon as possible, but not later than ninety (90) days from
takeover, whether the institution may be rehabilitated or otherwise placed in
such a condition so that it may be permitted to resume business with safety
to its depositors and creditors and the general public.
Resumption
Any determination for the resumption of business of the institution shall be
subject to prior approval of the Monetary Board.
Liguidation
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business, the Monetary Board shall notify in writing the
board of directors of its findings and direct the receiver to proceed with the
liquidation of the institution.
Procedure for liquidation
The receiver shall then:
1. File ex parte with the proper regional trial court, and without the
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the institution pursuant to a liquidation
plan adopted by the Philippine Deposit Insurance Corporation in the
case of a bank or by the Monetary Board in the case of a quasi-bank;
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2. Upon acquiring jurisdiction, the court shall, upon motion by the
institution, assist the enforcement of individual liabilities of the
stockholders, directors and officers, and decide on other issues as may
be material to implement the liquidation plan adopted; and
3. Convert the assets of the institution to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of such
institution in accordance with the rules on concurrence and preference
of credit under the Civil Code of the Philippines and he may, in the
name of the institution, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action
against, the institution.
Custodia legis and exemption from levy, attachment or execution
The assets of an institution under receivership or liquidation shall be deemed
in custodia legis in the hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution. [Section 30, RA
7653]
Actions of Monetary Board final and may be questioned only through
certiorari
The actions of the Monetary Board taken regarding the designation of a
conservator and appointment of a receiver shall be final and executory and
may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.
Designation of conservator not precondition to designation of receiver
The designation of a conservator or the appointment of a receiver shall be
vested exclusively with the Monetary Board.
The designation of a conservator is not a precondition to the designation of a
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receiver.
THE BANGKO SENTRALANDTHE MEANSOF PAYMENT
Unit of monetary value
The unit of monetary value in the Philippines is the peso.
Currency
The word "currency" is hereby defined as meaning all Philippine notes and
coins issued or circulating in accordance with the provisions of RA 7653.
Bank of issue
The Bangko Sentral has the sole power and authority to issue currency within
the territory of the Philippines [Section 50, RA 7653]
Notes and coins issued by the BSP shall be liabilities of the BSP and may be
issued only against and in amounts not exceeding, the assets of the BSP.
Said notes and coins shall be a first and paramount lien on all assets of the
BSP [Section 51, RA 7653]
All notes and coins issued by the BSP are fully guaranteed by the RP and
shall be legal tender in the Philippines for all debts, both public and private.
[Section 52, RA 7653]
Demand deposits
"Demand deposits" means all those liabilities of the Bangko Sentral and of
other banks which are denominated in Philippine currency and are subject to
payment in legal tender upon demand by the presentation of checks.
Issue of demand deposits
Only banks duly authorized to do so may accept funds or create liabilities
payable in pesos upon demand by the presentation of checks, and suchoperations shall be subject to the control of the Monetary Board in
accordance with the powers granted it with respect thereto under RA 7653.
Legal character of checks
Checks representing demand deposits do not have legal tender power and
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their acceptance in the payment of debts, both public and private, is at the
option of the creditor. [Section 60, RA 7653]
However, a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account. [Section 60, RA 7653]
DOMESTIC MONETARYSTABILIZATION
Guiding principle
The Monetary Board shall endeavor to control any expansion or contraction
in monetary aggregates which is prejudicial to the attainment or
maintenance of price stability.
Action when abnormal movements occur in the monetary aggregates,
credit, or price level
Whenever abnormal movements in the monetary aggregates, in credit, or in
prices endanger the stability of the Philippine economy or important sectors
thereof, the Monetary Board shall:
1. Take such remedial measures as are appropriate and within the
powers granted to the Monetary Board and the Bangko Sentral;
2. Submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall includes, as a minimum, a
description and analysis of:
a. The causes of the rise or fall of the monetary aggregates, of
credit or of prices;
b. The extent to which the changes in the monetary aggregates, in
credit, or in prices have been reflected in changes in the level of
domestic output, employment, wages, and economic activity in
general and the nature and significance of any such changes;
and
c. The measures which the Monetary Board has taken and the
other monetary, fiscal or administrative measures which it
recommends to be adopted.
INTERNATIONAL MONETARYSTABILIZATION
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International monetary stabilization
The Bangko Sentral shall exercise its powers to preserve the international
value of the pesos and to maintain its convertibility into other freely
convertible currencies primarily for, although not necessarily limited to,
current payments for foreign trade and invisibles. [Section 64, RA 7653]
International reserves
In order to maintain the international stability and convertibility of the
Philippine peso, the Bangko Sentral shall maintain international reserves
adequate to meet any foreseeable net demands on the Bangko Sentral for
foreign currencies. [Section 65, RA 7653]
Composition of the international reserves
1. Gold
2. Assets in foreign currencies
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Action when international stability of the pesos is threatened
Whenever the international reserve of the Bangko Sentral falls to a level
which the Monetary Board considers inadequate to meet the prospective net
demands on the Bangko for foreign currencies, or whenever the international
reserve appears to be in imminent danger of falling to such a level, or
whenever the international reserve is falling as a result of payments or
remittances abroad which, in the opinion of the Monetary Board, are contrary
to the national welfare, the Monetary Board shall:
1. Take such remedial measures as are appropriate and within the
powers granted to the Monetary Board and the Bangko Sentral;
2. Submit to the President of the Philippines and the Congress, and make
public, a detailed report which shall includes, as a minimum, a
description and analysis of:
a. The nature and causes of the existing or imminent decline;
b. The remedial measures already taken or to be taken by the
Monetary Board;
c. The monetary, fiscal or administrative measures further
proposed; and
d. The character and extent of the cooperation required from other
government agencies for the successful execution of the policies
of the Monetary Board.
INSTRUMENTSOF BANGKO SENTRAL ACTION
Means of action
In order to achieve the primary objective of price stability, the Monetary
Board shall rely on its moral influence and the powers granted to it under RA
7653 for the management of monetary aggregates.
Purchases and sales of gold
The Bangko Sentral may buy and sell gold in any form.
Purchases and sales of foreign exchange
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The Bangko sentral may buy and sell foreign notes and coins, and documents
and instruments of types customarily employed for the international transfe
rof funds.
The Bangko Sentral may engage in future exchange operations.
To whom can engage
The Bangko Sentral may engage in foreign transactions with the following
entities or persons only:
1. Banking institutions operating in the Philippines;
2. The Government, its political subdivisions and instrumentalities;
3. Foreign or international financial institutions;
4. Foreign governments and their instrumentalities; and
5. Other entities or persons which the Monetary Board is hereby
empowered to authorize as foreign exchange dealers.
Foreign asset position of the Bangko Sentral
The Bangko Sentral shall endeavor to maintain at all times a net positive
foreign asset position so that its gross foreign exchange assets will always
exceed its gross foreign liabilities.
Emergency restrictions on foreign exchange operations
Emergency restrictions on foreign exchange operations include:
1. Temporarily suspending or restricting sales of foreign exchange by the
Bangko Sentral;
2. Subjecting all transactions in gold and foreign exchange to license by
the Bangko Sentral; and
3. Requiring that any foreign exchange thereafter obtained by any person
residing or entity operating in the Philippines be delivered to the
Bangko Sentral or to any bank or agent designated by the Bangko
Sentral for the purpose, at the effective exchange rate or rates.
[Section 72, RA 7653]
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Emergency restrictions may be imposed for the following purposes:
1. In order to achieve the primary objective of the Bangko Sentral;
2. To protect the international reserves of the Bangko Sentral in the
imminence of, or during an exchange crisis, or in time of national
emergency; and
3. To give the Monetary Board and the Government time in which to take
constructive measures to forestall, combat, or overcome such a crisis
or emergency. [Section 72, RA 7653]
Such measures may be adopted with the concurrence of at least five (5)
members of the Monetary Board and with the approval of the President of the
Philippines. [Section 72, RA 7653]
Exchange rates
The Bangko Sentral shall determine the exchange rate policy of the country.
Foreign exchange holdings of the banks
In order that the Bangko Sentral may at all times have foreign exchange
resources sufficient to enable it to maintain the international stability and
convertibility of the peso, or in order to promote the domestic investment of
bank resources, the Monetary Board may require the banks to sell to the
Bangko Sentral or to other banks all or part of their surplus holdings of
foreign exchange. [Section 76, RA 7653]
LOANSTO BANKINGAND OTHER FINANCIAL INSTITUTIONS
Guiding principles
The rediscounts, discounts, loans and advances, which the Bangko Sentral is
authorized to extend to banking institutions, shall be used to influence the
volume of credit consistent with the objective of price stability.
Types of credit operations
1. Normal credit operations
2. Special credit operations
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3. Emergency credit operations
Normal credit operations
1. Commercial credits
2. Production credits
3. Other credits
Commercial credits
The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments with maturities of not more
than one hundred eighty (180) days from the date of their rediscount,
discount or acquisition by the Bangko Sentral and resulting from transactions
related to:
1. The importation, exportation, purchase or sale of readily saleable
goods and products, or their transportation within the Philippines; or
2. The storing of non-perishable goods and products which are duly
insured and deposited, under conditions assuring their preservation in
authorized bonded warehouses or in other places approved by the
Monetary Board.
Production credits
The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments having maturities of not more
than three hundred sixty (360) days from the date of their rediscount,
discount or acquisition by the Bangko Sentral and resulting from transactions
related to the production or processing of agricultural, animal, mineral, or
industrial products.
Other credits
Special credit instruments not otherwise rediscountable under commercial
and production credits may be eligible for rediscounting in accordance with
the rules and regulations which the Bangko Sentral shall prescribe.
Special credit operation
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1. Loans for liquidity purposes
Loans for liquidity purposes
The Bangko Sentral may extend loans and advances to banking institutions
for a period of not more than seven (7) days without any collateral for the
purpose of providing liquidity to the banking system in times of need.
[Section 83, RA 7653]
Emergency loans and advances
In periods of national and/or local emergency or of imminent financial panic
which directly threaten monetary and banking stability, the Monetary Board
may, by a vote of at least five (5) of its members, authorize the Bangko
Sentral to grant extraordinary loans or advances to banking institutions
secured by assets. [Section 84, RA 7653]
The Monetary Board may, at its discretion, likewise authorize the Bangko
Sentral to grant emergency loans or advances to banking institutions, even
during normal periods, for the purpose of assisting a bank in a precarious
financial condition or under serious financial pressures brought by
unforeseen events, or events which, though foreseeable, could not be
prevented by the bank concerned. This requires that the Monetary Board has
ascertained that the bank is not insolvent and has the assets to secure the
advances and that the concurrent vote of at least five (5) members of the
Monetary Board is obtained. [Section 84, RA 7653]
OPEN MARKET OPERATIONSFORTHE ACCOUNTOFTHE BANGKO SENTRAL
Principle of open market operations
The open market purchases and sales of securities by the Bangko Sentral
shall be made exclusively in accordance with its primary objective of
achieving price stability.
In pursuit of this principle, the Bangko Sentral may engage in the purchaseand sale of government securities as well as issue and negotiate obligations
of the Bangko Sentral.
BANKRESERVES
Reserve requirements
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In order to control the volume of money created by the credit operations of
the banking system, all banks operating in the Philippines shall be required
to maintain reserves against their deposit liabilities.
The required reserves of each bank shall be proportional to the volume of its
deposit liabilities and shall ordinarily take the form of a deposit in the Bangko
Sentral. [Section 94, RA 7653]
No interest on bank reserves
Since the requirement to maintain bank reserves is imposed primarily to
control the volume of money, the Bangko Sentral shall not pay interest on
the reserves maintained with it unless the Monetary Board decides otherwise
as warranted by circumstances. [Section 94, RA 7653]
Deposit substitutes
The term "deposit substitutes" is defined as an alternative form 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 re-lending or purchasing of receivables and other
obligations.
Required reserves against foreign currency
The Monetary Board is similarly authorized to prescribe and modify the
minimum reserve ratios authorized applicable to deposits denominated in
foreign currencies.
Increase in reserve requirements
Whenever in the opinion of the Monetary Board it becomes necessary to
increase reserve requirements against existing liabilities, the increase shall
be made in a gradual manner and shall not exceed four percentage points in
any thirty-day period.
Banks and other affected financial institutions shall be notified reasonably in
advance of the date on which such increase is to become effective.
Exemption from attachment and other purposes of reserves
Deposits maintained by banks with the Bangko Sentral as part of their
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reserve requirements shall be exempt from attachment, garnishment, or any
other order or process of any court, government agency or any other
administrative body issued to satisfy the claim of a party other than the
Government, or its political subdivision or instrumentalities.
SELECTIVE REGULATIONOF BANKOPERATIONS
Guiding principle
The Monetary Board shall use the powers granted to it under RA 7653 to
ensure that the supply, availability and cost of money are in accord with the
needs of the Philippine economy and that bank credit is not granted for
speculative purposes prejudicial to the national interests.
Regulations on bank operations shall be applied to all banks of the same
category uniformly and without discrimination.
Margin requirements against letters of credit
The Monetary Board may at any time prescribe minimum cash margins for
the opening of letters of credit, and may related the size of the required
margin to the nature of the transaction to be financed.
FUNCTIONSAS BANKERAND FINANCIAL ADVISOROFTHE GOVERNMENT
Designation of Bangko Sentral as banker of the government
The Bangko Sentral shall act as a banker of the Government, its political
subdivisions and instrumentalities.
The Bangko Sentral shall represent the government with the International
Monetary Fund and other financial institutions.
Official deposits
The Bangko Sentral shall be the official depository of the Government, its
political subdivisions and instrumentalities as well as of government-ownedor controlled corporations.
THE MARKETINGAND STABILIZATIONOF SECURITIESFORTHE ACCOUNTOFTHE GOVERNMENT
Issue of government obligations
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The issue of securities representing obligations of the Government, its
political subdivisions or instrumentalities may be made through the Bangko
Sentral, which may act as agent of, and for the account of, the Government
or its respective subdivisions or instrumentality, as the case may be.
The Bangko Sentral shall not be a member of any stock exchange or
syndicate, but may intervene therein for the sole purpose of regulating their
operations in the placing of government securities. [Section 118, RA 7653]
Servicing and redemption of public debt
The servicing and redemption of the public debt shall also be effected
through the Bangko Sentral.
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Financial advice on official credit operations
Before undertaking any credit operation abroad, the Government, through
the Secretary of Finance, shall request the opinion, in writing, of the
Monetary Board on the monetary implications of the contemplated action.
Such opinion must similarly be requested by all political subdivisions and
instrumentalities of the Government before any credit operation abroad is
undertaken by them.
Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed
operation on monetary aggregates, the price level, and the balance of
payments.
In order to assure effective coordination between the economic, financial and
fiscal policies of the government and the monetary, credit and exchange
policies of the Bangko Sentral, the Deputy Governor designated by the
Governor of the Bangko Sentral shall be an ex officio member of the National
Economic and Development Authority Board.
PROHIBITIONS
Prohibitions
The Bangko Sentral shall not acquire shares of any kind or accept them as
coolateral, and shall not participate in the ownership or management of any
enterprise, either directly or indirectly.
The Bangko Sentral shall not engage in development banking or financing.
TRANSITORYPROVISIONS
Phaseout of fiscal agency functions
Unless circumstances warrant otherwise and approved by the CongressOversight Committee, the Bangko Sentral shall within a period of three (3)
years but in no case longer than five (5) years from the approval of RA 7653,
phase out all fiscal agency functions, and transfer the same to the
Department of Finance. [Section 129, RA 7653]
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Phaseout of regulatory powers over the operations of finance
corporations and other institutions performing similar functions
The Bangko Sentral shall within a period of five (5) years from the effectivity
of RA 7653 phase out its regulatory powers over finance companies without
quasi-banking functions and other institutions performing similar functions,
the same to be assumed by the Securities and Exchange Commission.
[Section 130, RA 7653]
GENERAL BANKING ACT
Republic Act No. 337, as amended
An act regulating banks and banking institutions and for other purposes
Approved 23 February 1995
IN GENERAL
Rule on bank operations
Only entities duly authorized by the Monetary Board of the Bangko Sentral
may engage in the lending of funds obtained from the public through the
receipt of deposits of any kind and all entities regularly conducting such
operations shall be considered as banking institutions.
Banks or banking institutions
Entities engaged in the lending of funds obtained from the public through the
receipt of deposits of any kind, and all entities regularly conducting such
operation.
Banks or banking institutions must be duly authorized by the Monetary Board
of the Central Bank.
Public shall mean twenty or more lenders.
Quasi-banking functions
Quasi-banking functionsshall mean borrowing funds, for the borrowers
own account, through the issuance, endorsement or acceptance of debt
instruments of any kind other than deposits, or through the issuance of
participations, certificates of assignment, or similar instruments with
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recourse, trust certificates, or of repurchase agreements, from twenty or
more lenders at any one time, for purposes of re-lending or purchasing of
receivables and other obligations.
However, commercial, industrial, and other non-financial companies, which
borrow funds through any of these means for the limited purposes of
financing their own needs or the needs of their agents or dealers, shall not be
considered as performing quasi-banking functions.
Financial intermediaries
Financial intermediariesshall mean persons or entities whose principal
functions include the lending, investing or placement of funds or evidence of
indebtedness or equity deposited with them, acquired by them or otherwise
coursed through them, either for their own account or for the account of
others.
Non-banking financial institutions performing quasi-banking functions
The following entities shall not be considered as banking institutions but shall
be subject to regulation by the Monetary Board:
1. Entities regularly engaged in the lending of funds or purchasing of
receivables or other obligations with funds obtained from the public
through the issuance, endorsement or acceptance of debt instruments
of any kind for their own account, or through the issuance of
certificates of assignment or similar instruments with recourse, trust
certificates, or of repurchase agreements, whether any of these means
of obtaining funds from the public is done on a regular basis or
occasionally.
2. Entities regularly engaged in the lending of funds which receive
deposits occasionally.
3. Trust companies, building and loan associations, and non-stock
savings and loan associations.
These entities will be subject to regulation by the Monetary Board which may
include, but need not be limited to:
1. the imposition of net worth to risk assets ratios;
2. reserve requirements;
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3. interest rate ceilings;
4. methods of computation thereof;
5. prescribing charges which may be collected;
6. minimum capitalization; and
7. submission of statistical reports.
Non-bank financial intermediaries
The operations and activities of non-bank financial intermediaries, except
insurance companies, shall be subject to regulation by the Monetary Board
which may include, but need not be limited to, the imposition of constraints
covering the:
1. minimum size of funds received;
2. methods of marketing and distribution;
3. terms and maturities of funds received; and
4. uses of funds.
If such entities are authorized by the Central Bank to perform quasi-banking
functions, they may be further subject to regulation as discussed below.
Note: Sec. 130 of the CB Act phasing out the regulation of MB over NBFCs not
engaged in quasi-banking functions.
Determination of functions
The determination of whether a person or an entity is a) performing banking
or quasi-banking functions; or b) engaged in other types of financial
intermediation shall be decided by the Monetary Board, subject to judicial
review.
Regulation
Regulationshall mean the issuance of rules of conduct or the
establishment of modes or standards of operation for uniform application to
all institutions or functions covered, taking into consideration in determining
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such coverage the distinctive character of the operations of institutions and
the substantive similarities of specific functions to which such rules, modes
or standards are to be applied. In some instances, these entities may be
subject to special examination.
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Supervision
Supervisionshall include not only the issuance of rules but also the
overseeing to ascertain that regulations are complied with, investigating or
examining to determine whether an institution is conducting its business on a
sound financial basis, and inquiring into the solvency and liquidity of the
institution.
Relationship between bank and depositor
Fixed savings and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. In other words,
the relationship between the bank and the depositor is that of a debtor and
creditor.
In the case of rent of safety deposit box. The contract is a special kind of
deposit and cannot be characterized as an ordinary contract of lease because
the full and absolute possession and control of the deposit box is not given to
the renters. The prevailing rule is that the relation between the bank renting
out and the renter is that of bailer and bailee the bailment being for hire and
mutual benefiit. [CA Agro-industrial Dev. Corp. v. CA, 219 SCRA 426
(1983)]
Types of deposits
1. Time Deposit-Interest rate stipulated depending on the number of days.
During this period, the money deposited cannot be withdrawn. The bank
uses this money to lend to others. That is why in these accounts, the
depositor is paid higher rates of interest for the use of the money.
2. Savings deposit-Interest fixed under the fine prints, if one deposits today, he
cannot withdraw the amount not until 60 days later. The bank can lend out
such funds; that is why it pays interests on such deposits.
3. Demand deposit or current accounts- No interest is fixed by the bank
because the depositor can take out his funds any time. It is called demand
deposit because the depositor can withdraw the money deposited on thevery same day when he deposited it. Note: As a general rule, only
commercial banks can accept demand deposits on checking accounts. By
way of exception, savings banks and even rural banks, are allowed by the CB
to accept checking accounts because their capitalizaition may be large.
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Money market transactions
Money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not
deal directly with each other but through a mediator or dealer in the open
market.
It involves commercial paperswhich are instruments evidencing
indebtedness of any person or entity which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or
without recourse.
The fundamental function of the money market devise in its operation is to
match and bring together in a most impersonal manner both the fund
usersand the fund suppliers.
The money market is an impersonal market free from personal
considerations. The market mechanism is intended to provide quick mobility
of money and securities.
The General Banking Act discriminates against banks in two aspects
1. Period- Under the Civil Code, a period is presumed to be for the benefit of
both parties. Insofar as banks are concerned, the period is always for the
benefit of the debtor if the bank is the creditor. The debtor can compel the
creditor bank to accept payment of a debt before it is due, and recover
interest deducted in advance.
2. Foreclosure of mortgage-
The general rule is that there is no right of redemption in judicial
foreclosure of mortgage. There is only 90 day equity redemption
period.
The exception is with the banks aside from the 90-day equity
redemption period, banks are required to give a one-year redemption
period.
Alien bank mortgage
An alien bank can bid in a public auction of mortgaged property if such
property was mortgage to it in the course of an ordinary banking transaction.
If the mortgage was not within the normal banking transaction, it must be
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prohibited from bidding.
Mortgage loans
Loans against real estate security shall not exceed 70% of the appraised
value of the real estate security, plus 70 %of the appraised value of the
improvements with title to the property being with the mortgagor.
Loans on the security of chattels shall not exceed 50% of the appraised value
of the security.
Classification of banks
1. Commercial banks
2. Thrift banks
a. Savings and mortgage banks
b. Stock savings and loan associations
c. Private development banks
3. Rural banks
Indispensable to the national interest
The banking industry is hereby declared as indispensable to the national
interest and, notwithstanding the provisions of any law to the contrary, any
strike or lockout involving banks, if unsettled after seven (7) calendar days,
shall be reported by the Central Bank to the Preside who shall immediately
certify the same to the appropriate court, government agency or commission
for resolution.
ESTABLISHMENTOF DOMESTIC BANKS
Form of organization
Domestic banking institutions, except building and loan associations, shall be
organized in the form of stock corporations.
No banking institution shall issue no-par value stock.
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The Securities and Exchange Commission shall not register the articles of
incorporation of any bank, or any amendment thereto, unless accompanied
by a certificate of authority issued by the Monetary Board, under its official
seal.
At least two thirds of the members of the board of directors of any bank or
banking institution which may be established after the approval of this Act
shall be Filipino citizens.
Requisites for issuance of certificate of authority
Such certificate shall not issue unless the Monetary Board is satisfied from
the evidence submitted to it:
1. that all the requirements of existing laws and regulations to engage in
the business for which the applicant is proposed to be incorporated
have been complied with;
2. that the public interest and economic conditions, both general and
local, justify the authorization; and
3. that the amount of capital, the financing organization, direction and
administration, as well as the integrity and responsibility of the
organizers and administrators reasonably assure the safety of the
interests which the public may entrust to them.
Receipt and disposition of deposits
No bank which may be established and licensed to do business in the
Philippines shall receive deposits, unless incorporated under the laws of the
Republic of the Philippines.
This prohibition, however, shall not apply to branches and agencies of foreign
banks which, at the time of approval of the General Banking Act, are actually
receiving deposits.
After approval of the Act, all deposits so received by such branches andagencies of foreign bank shall not be invested in any manner outside the
territorial limits of the Republic of the Philippines.
Voting stock requirements
At least seventy percent (70%) of the voting stock of any banking institution
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which may be established after the approval of the Act shall be owned by
citizens of the Philippines, except where a new bank is established as a result
of: a) the local incorporation of any of the existing branches or agencies of
foreign banks in the Philippines; or b) the consolidation of existing banks in
any of which there are foreign owned voting stocks at the time of
consolidation.
The Monetary Board may, with the approval of the President, increase the
percentage of foreign-owned voting stocks in any domestic bank from thirty
percent (30%) to forty percent (40%).
The percentage of foreign-owned voting stocks in a bank shall be determined
by the citizenship of the individual stockholders in that bank. In the case of
corporations owning bank shares, the citizenship of each stockholder in that
corporation shall be the basis of computing the percentage.
Ownership of stocks in banks by corporations
The total voting stocks which any corporation, including its wholly or majority
owned subsidiaries, may own in any bank shall not exceed thirty percent
(30%) of the voting stock of that bank.
In the case of a corporation which is wholly owned, or the majority of the
voting stock of which is owned, by any one person or by persons related to
each other within the third degree of consanguinity or affinity, that
corporation may own not more than twenty percent (20%) of the voting stock
of any bank.
LICENSINGOF FOREIGN BANKS
License to conduct business
No foreign bank or banking corporation formed, organized or existing under
any law other than those of the Philippines shall be permitted to transact
business in the Philippines, or maintain by itself or assignee any suit for the
recovery of any debt, claims, or demand whatsoever, until after it shall have
obtained, upon order of the Monetary Board, a license for that purpose fromthe Securities and Exchange Commission.
No foreign building and loan association or building and loan association not
formed, organized, or existing under the laws of the Philippines shall be
permitted to transact business in the Philippines.
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Requisites for issuance of license
1. Public and economic conditions, both general and local, justify the issuance
of such order.
2. The foreign bank or banking corporation is solvent and in sound financial
condition.
3. A duly appointed agent in the Philippines has been authorized to accept
summons and legal processes.
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Investment rights
1. Foreign banking institutions without branches in the Philippines, including
their wholly or majority owned subsidiaries and their holding companies
having majority holding in such foreign banking institutions, may invest, with
prior approval of the Monetary Board, in equities of local companies engaged
in financial allied undertakings. However, they shall maintain minority
participation in such enterprise.
2. With prior approval of the Central Bank, these foreign entities may also
purchase equities in domestic banks, subject to restrictions.
Revocation of license
1. The foreign bank is in imminent danger of insolvency.
2. Its continuance in business will involve probable loss to those transacting
business with it.
CLASSIFICATIONOF PRIVATE BANKS
COMMERCIAL BANKING CORPORATIONSAND UNIVERSAL BANKS
Commercial bank
A commercial banking corporation, in addition to the general powers incident
to corporations, shall have all such powers as shall be necessary to carry on
the business of commercial banking:
1. by accepting drafts and issuing letters of credit, by discounting and
negotiating promissory notes, drafts, bills of exchange, and other
evidences of debts;
2. by receiving deposits;
3. by buying and selling foreign exchange and gold or silver bullion; and
4. by lending money against personal security or against securities
consisting of personal property of mortgages on improved real estate
and the insured improvements thereon.
A commercial bank may also accept or create demand deposits subject to
withdrawal by check.
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A commercial bank may offer NOW accounts (special types of savings deposit
which can be withdrawn by means of a Negotiable Order of Withdrawal and is
offered only to natural persons).
A commercial bank may likewise acquire readily marketable bonds and other
debt securities subject to such rules as the Monetary Board may promulgate.
A commercial bank, finally, may invest to the extent allowed under
applicable law and regulations in equities of allied undertaking, whether
financial or non-financial.
Investment in allied undertakings
Commercial banks, including Government banks and foreign banks with
existing local branches, may invest in equities of allied undertakings.
Equity investments shall not be permitted in non-related activities.
Limitations on investments in allied undertakings:
1. The total investment in equities shall not exceed twenty five percent
(25%) of the net worth of the bank.
2. The equity investment in any one enterprise shall not exceed fifteen
percent (15%) of the net worth of the bank;
3. The total equity investment of the bank in any single enterprise shall
remain a minority holding in that enterprise; and
4. The equity investment in other banks shall be deducted from the
investing banks net worth for purposes of computing the prescribed
ratio of net worth to risk assets.
Financial allied undertakings
1. Leasing companies
2. Banks
3. Investment houses
4. Financing companies
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5. Credit card operations
6. Financial institutions catering to small and medium scale enterprises
Non-financial allied undertakings
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 engagement 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
Universal bank or expanded commercial banking authority
The Monetary Board may authorize -- to further national development
objectives or support national priority projects -- a commercial bank, a bank
authorized to provide commercial banking services, as well as a government
owned and controlled bank, to operate under an expanded commercial
banking authority.
By virtue of such expanded power, the universal bank may, in addition topowers authorized for commercial banks:
1. exercise the power of an Investment House as provided in PD 129;
2. invest in the equity of a non-allied undertaking; or
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3. own a majority or all of the equity in a financial intermediary other
than a commercial bank or a bank authorized to provide commercial
banking services.
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Limitations on exercise of power as investment house
Universal bank may perform the functions of an investment house either
directly OR indirectly through a subsidiary investment house (it cannot
perform such functions both directly and indirectly).
If performed directly, such functions shall be undertaken by a separate and
distinct department in the bank.
If performed indirectly through an investment house, universal bank may not
directly exercise such powers as are exclusively reserved to investment
houses.
Limitations on equity investment of a universal bank
1. The total investment in equities shall not exceed fifty percent (50%) of the
net worth of the bank.
2. The equity investment in any one enterprise whether allied or non-allied shall
not exceed fifteen percent (15%) of the net worth of the bank.
3. The equity investment of the bank, or of its wholly- or majority-owned
subsidiary, in a single non-allied undertaking shall not exceed thirty five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty
five percent (35%) of the voting stock in that enterprise.
4. The equity investment in other banks shall be deducted from the investing
banks net worth for purposes of computing the prescribed ratio of net worth
to risk assets.
Capitalization
Commercial bank - P 2 billion
Universal bank - P 4.5 billion
Ownership in a thrift bank or rural bank
A commercial bank or any bank authorized to provide commercial banking
services, or to operate under an expanded commercial banking authority
may own more than thirty percent (30%) of the voting stock of a thrift bank
or a rural bank up to a majority or all of the equity thereof.
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Subject to the prior approval of the Monetary Board.
Combined capital accounts
The combined capital accounts of each commercial bank shall not be less
than an amount equal to ten percent (10%) of its risk assets
Risk assets is defined as its total assets minus the following assets:
1. Cash on hand;
2. Amounts due from the Central Bank;
3. Evidence of indebtedness of the Philippine Government or Central
Bank or any other evidence of indebtedness fully guaranteed by the
Philippine Government;
4. Loans to the extend covered by hold-out on, or assignment of, deposits
maintained in the lending bank and held in the Philippines;
5. Loans or acceptances under letters of credit to the extend covered by
marginal deposits; and
6. Other non-risk items which the Monetary Board may, from time to
time, authorize to be deducted from total assets.
Purchase, holding or conveyance of real estate
Any commercial bank may purchase, hold, and convey real estate for the
following purposes:
1. Such as shall be necessary for its immediate accommodation in the
transaction of its business;
2. Such as shall be mortgaged to it in good faith by way of security for
debts;
3. Such as shall be conveyed to it in satisfaction of debts previously
contracted in the course of its dealings; and
4. Such as its shall purchase at sales under judgments, decrees,
mortgages, or trust deeds held by it and such as it shall purchase to
secure debts due to it.
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However, no such bank shall hold the possession of any real estate under
mortgage or trust deed, or the title and possession of any real estate
purchased to secure any debt due to it, for a longer period than five years.
Establishment of branches
Any commercial bank organized under Philippine laws may, with the prior
approval of the Monetary Board, establish branches in the Philippines or
branches and agencies outside the Philippines, and the bank shall be
responsible for all business conducted in such branches to the same extent
and in the same manner as though such business had all been conducted in
the head office.
A bank and its branches shall be treated as a unit.
THRIFT BANKS
Thrift banks
Thrift banks shall include savings and mortgage banks, private
development banks, and stock savings and loan associations organized under
existing laws and any banking corporation that may be organized for the
following purposes:
1. Accumulating the savings of depositors and investing them together
with capital loans secured by bonds, mortgages in real estate and
insured improvements thereon, chattel mortgage, bonds, and other
forms of security or in loans for personal and household finance,
whether secured or unsecured, or in financing for home building and
home development, in readily marketable and debt securities; in
commercial papers, and accounts receivables, drafts, bills of
exchange, acceptances or notes arising out of commercial
transactions; and in such other investments and loans which the
Monetary Board will determine as necessary in the furtherance of
national economic objectives;
2. Providing short term working capital, or medium- and long-term
financing to businesses engaged in agriculture, services, industry and
housing; and
3. Providing diversified financial and allied services for its chosen market
and constituencies especially for small and medium enterprises and
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individuals.
Scope of authority
Thrift banks may:
1. Accept savings and time deposits;
2. Act as correspondent for other financial institutions;
3. Purchase, hold and convey real estate;
4. Open letters of credit;
5. extend credit facilities to private and government employees;
6. Extend credit against the security of jewelry, precious stones and
similar articles;
7. Accept foreign currency deposits;
8. Invest in equity of allied undertakings;
9. Rediscount papers with the PNB, LBP, DBP, and other GOCCs;
10. Issue domestic letters of credit;
11. Invest in marketable bonds and other debt securities;
12. Grant loans, secured or not secured; and
13. With prior approval of the Monetary Board:
a. Open current or checking accounts;
b. Act as collection agent for government entities;
c. Act as official depository of national agencies and municipal, city
or provincial funds where the bank is located;
d. Issue mortgage and chattel certificates;
e. Engage in quasi-banking and money market operations; and
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f. Offer NOW accounts.
Thrift banks may perform services similar to those offered by commercial
banks under an expanded authority when permitted by the Bangko Sentral
ng Pilipinas.
Capitalization
Capitalization may vary according to the location of the head office:
Within Metro Manila - P250 million
Outside Metro Manila - P 40 million
Incentives and exemptions
1. Reserve requirement differential
2. Liberalized branching rules
3. Notices of statement of condition
4. Tax exemptions
5. Exemption from publication requirement
6. Exemption from notarial charges
7. Exemption from registration fees
Equity ownership
At least 40% of the voting stock of a thrift bank shall be owned by Filipino
citizens.
Exception: In case of merger or consolidation of existing Thrift Banks with
foreign holdings, the resulting holding shall not be increased but may bereduced and, once reduced, shall not be increased thereafter beyond 60% of
the voting stock of the Thrift Bank.
Minors as depositors
Minors in their own rights and in their own names may make deposits and
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withdraw the same, and may receive dividends and interests.
If the guardian shall give notice in writing to any thrift bank not to make
payments of deposits, dividends or interest to the minor of whom he is the
guardian, then such payment shall be made only to the guardian.
BUILDINGAND LOAN ASSOCIATIONS
Building and loan associations
Building and loan associations are corporations whose capital stock is
required or is permitted to be paid in by the stockholders in regular, equal
periodical payments and whose purpose is:
1. to accumulate the savings of its stockholders;
2. to repay to said stockholders their accumulated savings and profits
upon surrender of their shares;
3. to encourage industry, frugality, and home building among its
stockholders; and
4. to loan its funds, and funds borrowed for the purpose, to stockholders
on the security of unencumbered real estate and with the pledge of
shares of the capital stock owned by such stockholders as collateral
security.
Prohibition
It shall be unlawful for any building and loan association to make any loan
upon property that is suitable for us only as theatre, public hall, church,
convent, school, club, hotel, garage, or other public building. Monetary Board
may grant exemptions in cases of public hall, school, hotel and other public
buildings to facilitate the investment of idle funds.
Investment in bonds
With the approval of the Monetary Board, a building and loan association
may also invest such of its funds as may otherwise remain idle in bonds and
obligations of the Republic of the Philippines or any of its subdivisions, or
GOCCs.
Capital stock
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The capital stock of such associations shall be paid in by the stockholders in
regular, equal, periodical payments known as dues, at such times and in such
amounts as shall be provided in their by laws.
The dues on each share of stock subscribed for by a stockholder shall
continue to be paid by the stockholder to the association until the share has
been duly withdrawn, cancelled, or forfeited or until the share has reached its
matured value.
Matured value is when the due paid on each share and the net earnings
thereof, in accordance with the by laws, shall amount to the matured of the
share.
Certificates of stock
Certificates of stock shall be issued to each stockholder upon the payment of
the membership fees and first installment of the dues.
Installment shares v. paid-up shares
While still being paid, the shares are called installment shares. After they are
fully paid, they are called paid-up shares.
Once paid-up, relationship between the association and stockholder is
changed into that of debtor and creditor.
Free shares and pledged shares
Shares which have not been pledged as security for the payment of a loan
shall be called free shares,and shares which have been so pledged shall
be called pledged shares.
Surrender of shares
Stockholders may surrender their shares and withdraw from the association
after paying twelve (12) monthly installment of dues upon giving sixty (60)days notice in writing to the board of directors and the withdrawal value
shall be the total sum of the dues paid thereon plus not less than ninety
percent (90%) of all dividends earned by such shares up to the end of the
last preceding fiscal period plus such interest for the time elapsed since the
end of the period as shall be allowed by the board of directors.
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Stockholders who have not paid twelve (12) monthly installments of dues
may, after giving sixty (60) days notice to the board, surrender their shares
and withdraw from the association, and the withdrawal value shall be the
total sum of the due paid thereon plus such dividend or interest as may be
allowed by the board of directors.
RURAL BANKS
Scope of authority
A rural bank may perform any or all of the following services:
1. Extend loans and advances primarily for the purpose of meeting the
normal and credit needs of farmers, fishermen, or farm families as well
as cooperatives, merchants, private and public employees;
2. Accept savings and time deposits;
3. Ac as correspondent bank of other financial institutions;
4. Rediscount paper with the LBP, DBP, or any other bank, including its
branches and agencies.
5. Act as a collection agent;
6. Offer other banking services as provided in Section 772 of RA 337, as
amended;
7. Extend financial assistance to private and public employees in
accordance with RA 3779, as amended; and
8. With prior approval of the Monetary Board:
a. Accept current or checking accounts;
b. Accept NOW accounts;
c. Act as trustee over estates or properties of farmers and
merchants;
d. Act as official government depository;
e. Sell domestic drafts; and
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f. Invest in allied undertakings.
Rationale
The rationale behind rural banking system is the need to promote
comprehensive rural development with the end in view of the following:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase of goods and services produced by the nation for
the benefit of the people; and
3. An expanding productivity as a key to raising the quality of life for all.
This can be achieved by making credit available and readily accessible in the
rural areas.
Capital stock
With the exception of shareholdings of corporations organized primarily to
hold equities in rural banks, and of Filipino-controlled domestic banks, the
capital stock of any rural bank shall be fully-owned and held by Philippine
citizens or entities qualified under Phil. law to own and hold such capital
stock.
Board
All members of the BOD shall be Filipino citizens.
However, there is no prohibition against any appointive or elective public
official from serving as director, officer, consultant or in any capacity in the
bank.
Incentives
Foreclosure of mortgages exempt from newspaper publication requirementsif the loan, excluding interest due and unpaid, does not exceed P100,000.
Exempt from payment of all taxes, fees and charges of whatever nautre and
description, except corporate income taxes and local taxes, fees and
charges for aperiod of five years from the date of commencement of
operations.
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Free from notarization fees
Free from registration fees and DST in RD.
ACT LIBERALIZING ENTRYOF FOREIGN BANKS
Republic Act No. 7721
An act liberalizing the entry and scope of operations of foreign banks in the
Philippines and for other purposes
Declaration of policy
The State shall:
1. Develop a self-reliant and independent national economy effectively
controlled by Filipinos; and
2. Encourage, promote and maintain a stable, competitive, efficient and
dynamic banking and financial system.
Pursuant to this policy, the Philippine banking and financial system is hereby
liberalized to create a more competitive environment and encourage greater
foreign participation through increase in ownership in domestic banks by
foreign banks and the entry of new foreign bank branches.
In allowing increased foreign participation in the financial system, it shall be
the policy of the State that the financial system shall remain effectively
controlled by Filipinos.
Three (3) modes of entry for foreign banks
The Monetary Board may authorize foreign banks to operate in the Philippine
banking system through any of the following modes of entry:
1. by acquiring, purchasing or owning up to sixty percent (60%) of thevoting stock of an existing bank;
2. by investing in up to sixty percent (60%) of the voting stock of a new
banking subsidiary incorporated under Philippine laws; or
3. by establishing branches with full banking authority.
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A foreign bank or a Philippine corporation, however, may own up to sixty
percent (60%) of the voting stock of only one domestic bank or new banking
subsidiary.
Guidelines for entry
In approving entry applications of foreign banks, the Monetary Board shall:
1. ensure geographic representation and complementation;
2. consider strategic trade and investment relationships between the
Philippines and the country of incorporation of the foreign bank;
3. study the demonstrated capacity, global reputation for financial
innovations and stability in a competitive environment of the
applicant;
4. see to it that reciprocity rights are enjoyed by Philippine banks in the
applicants country; and
5. consider willingness to fully share their technology.
Only those among the top one hundred fifty (150) foreign banks in the world
or the top five (5) banks in their country of origin as of the date of application
shall be allowed entry in (b) and (c) of modes of entry.
In approving entry, Monetary Board shall adopt such measures as may be
necessary:
1. to ensure that, at all times, the control of seventy (70%) of the
resources or assets of the entire banking system is held by domestic
banks which are at least majority-owned by Filipinos;
2. prevent a dominant market position by one bank or the concentration
of economic power in one or more financial institutions, or in
corporations, partnerships, groups or individuals with related interests;and
3. secure the listing in the Philippine Stock Exchange of the shares of
stocks of banking corporations established under (a) and (b) modes of
entry.
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To qualify to establish a branch or subsidiary, the foreign bank applicant
must be widely-owned and publicly-listed in its country of origin, unless the
foreign bank applicant is owned by the government of its country of origin.
Capital requirements
Locally incorporated subsidiaries shall have the same minimum capital
requirements as domestic banks of the same category.
For foreign bank branches, they shall permanently assign capital of not less
than the U.S. dollar equivalent of P210,000,000.00 at the exchange rate on
the date of effectivity of this law.
The permanently assigned capital shall be inwardly remitted and converted
into Philippine currency.
Branches
A foreign bank shall be entitled to three (3) branches upon remittance of
minimum capital requirement.
A foreign bank may open three (3) additional branches in locations
designated by the Monetary Board by inwardly remitting and converting into
Philippine currency as permanently assigned capital the U.S. dollar
equivalent of P35,000,000.00 per additional branch at the exchange rate on
the date of effectivity of this law.
Total number of branches for each new foreign bank entrant shall not exceed
six (6).
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Head office guarantee
The head office of foreign bank branches shall guarantee prompt payment of
all liabilities of its Philippine branches.
Equal treatment
Foreign banks authorized to operate under the law shall perform the same
functions, enjoy the same privileges, and be subject to the same limitations
imposed upon a Philippine bank of the same category.
These limits include, among others, the single borrowers limit and capital to
risk asset ratio as well as the capitalization required for expanded
commercial banking activities under the General Banking Act and other
related laws of the Philippines.
OFFSHORE BANKING SYSTEM LAW
Presidential Decree No. 1034
Authorizing the establishment of an offshore banking system in the Philippines
Approved 30 September 1976
Offshore banking
Offshore banking shall refer to the conduct of banking transactions in foreigncurrencies involving the receipt of funds from external sources and the
utilization of such funds in transactions with non-residents or other offshore
banking units.
Offshore banking unit
Offshore banking unit shall mean a branch, subsidiary or affiliate of a foreign
banking corporation which is duly authorized by the Central Bank to transact
offshore banking business in the Philippines.
Deposits
Deposits shall mean funds in foreign currencies which are accepted and held
by an offshore banking unit in the regular course of business, with the
obligation to return an equivalent amount to the owner thereof, with or
without interest.
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Who are qualified to operate an offshore banking unit?
Only banks which are organized under any law other than those of the
Republic of the Philippines, their branches, subsidiaries or affiliates, shall be
qualified to operate offshore banking units in the Philippines.
Local branches of foreign banks already authorized to accept foreign
currency deposits under RA 6426 may opt to apply for authority to operate
an offshore banking unit under PD 1034. However, upon their receipt of a
corresponding certificate of authority to operate as an offshore banking unit,
the license to transact business under RA 6426 shall be deemed
automatically withdrawn.
Certificate of authority to operate
The Monetary Board is authorized to issue certificates of authority to operate
offshore banking units.
In issuing such certificate, the Monetary Board shall take into consideration
the applicants:
1. liquidity and solvency position;
2. net worth and resources;
3. management;
4. international banking expertise;
5. contribution to the Philippine economy; and
6. other relevant factors such as participation in equity of local
commercial banks and appropriate geographic representation.
The Central Bank is authorized to collect a fee of not less than US $20,000
upon issuing any certificate of authority to operate and annually thereafter
on the anniversary date of such certificate.
Corporate undertaking
No application to operate as an offshore banking unit shall be considered
unless the applicant shall have first submitted to the Central Bank a sworn
undertaking of its head office or parent or holding company, duly supported
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by an appropriate resolution of its board of directors, that, among other
things:
1. it will, on demand, provide the necessary specified currencies to cover
liquidity needs that may arise or other shortfall that its offshore
banking unit may incur;
2. the operations of its offshore banking unit shall be managed soundly
and with prudence;
3. it will train and continually educate a specific number of Filipinos in
international banking and foreign exchange trading with a view to
reducing the number of expatriates;
4. it will provide and maintain in its offshore banking unit net office funds
in the minimum amount of US $ 1,000,000; and
5. it will start operations of its offshore banking unit within 180 days from
receipt of its certificate of authority to operate such unit.
Transactions of offshore banking units
Transactions of offshore banking units with non-residents or with other
offshore banking units shall be freely allowed, but safeguards will be
established to prevent circumvention of foreign exchange regulations.
Transactions of offshore banking units with residents of the Philippines,
including those with local commercial banks and local branches of foreign
banks authorized to receive foreign currency deposits under RA 6426, shall
be subject to applicable law and regulations.
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