Professional Documents
Culture Documents
UPRevised Banking Reviewer
UPRevised Banking Reviewer
TABLE OF CONTENTS
A. B. The New Central Bank Act Republic Act No. 7653 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 An Act Liberalizing the Entry of Foreign Banks Republic Act No. 7721 Offshore Banking System Law Pres. Decree No. 1034 Foreign Currency Deposits Act Republic Act No. 6426, as amended An Act Creating the PDIC Republic Act No. 3531 The Truth in Lending Act Republic Act No. 3765 Law on Secrecy of Bank Deposits Republic Act No. 1405 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.
C. D. E. F. G.
H.
Intermediaries
1. 2. 3. 4. Banks Non-bank financial intermediaries Exchanges Others i.e. secondary markets
Function of intermediaries
1. 2. 3.
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. 2. 3. 4. The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainable growth of the economy. It shall also promote and maintain monetary stability and the convertibility of the peso. It shall also provide policy directions in the areas of money, banking and credit. 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] 2
3.
4.
5. 6. 7. 8.
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 a substantial 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.
2.
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.
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 instructions issued by the Monetary Board, and the implementation thereof. [Section 17(e), 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. 2. Positions in eleemosynary, civic, cultural or religious organizations 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
the Bangko Sentral, in an amount to be fixed by the court. [Section 25, RA 7653]
2.
3.
4.
Powers of conservator
1. 2. 3. 4. Take charge of the assets, liabilities and management of the bank or quasi-bank Reorganize the management Collect all monies and debts due said institution Exercise all powers necessary to restore its viability
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]
2. 3. 4.
extraordinary demands induced by financial panic in the banking community; Has insufficient realizable assets to meet its liabilities; Cannot continue in business without involving probable loss to its depositors or creditors; or 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.
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.
2.
3.
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.
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
Sentral has the sole power and authority to issue currency within the territory of the Philippines [Section 50, RA 7653]
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.
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]
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; 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; 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 The measures which the Monetary Board has taken and the other monetary, fiscal or administrative measures which it recommends to be adopted.
2.
b.
c.
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]
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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.
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 15
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 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.
2.
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.
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]
BANK RESERVES
Reserve requirements
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]
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.
Deposits maintained by banks with the Bangko Sentral as part of their 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.
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.
Official deposits
The Bangko Sentral shall be the official depository of the Government, its political subdivisions and instrumentalities as well as of government-owned or controlled corporations.
THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF THE GOVERNMENT
Issue of government obligations
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]
The servicing and redemption of the public debt shall also be effected through the Bangko Sentral.
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. 19
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.
TRANSITORY PROVISIONS
Phaseout of fiscal agency functions
Unless circumstances warrant otherwise and approved by the Congress Oversight 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]
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]
IN GENERAL
Rule on bank operations
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.
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 functions shall 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 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
2.
3.
loan associations. These entities will be subject to regulation by the Monetary Board which may include, but need not be limited to: 1. 2. 3. 4. 5. 6. 7. the imposition of net worth to risk assets ratios; reserve requirements; interest rate ceilings; methods of computation thereof; prescribing charges which may be collected; minimum capitalization; and submission of statistical reports.
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 Regulation shall 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 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
Supervision shall 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.
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. 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. 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 the very 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.
2.
3.
It involves commercial papers which 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 users and thefund suppliers. he market mechanism is intended to provide quick mobility of money and securities.
2.
mortgage to it in the course of an ordinary banking transaction. If the mortgage was not within the normal banking transaction, it must be 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.
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3.
2.
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.
At least seventy percent (70%) of the voting stock of any banking institution 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.
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.
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. With prior approval of the Central Bank, these foreign entities may also purchase equities in domestic banks, subject to restrictions.
2.
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Revocation of license
1. 2. The foreign bank is in imminent danger of insolvency. Its continuance in business will involve probable loss to those transacting business with it.
2. 3. 4.
A commercial bank may also accept or create demand deposits subject to withdrawal by check. 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.
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. The equity investment in any one enterprise shall not exceed fifteen percent (15%) of the net worth of the bank; The total equity investment of the bank in any single enterprise shall remain a minority holding in that enterprise; and 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.
2.
3.
4.
Financial allied undertakings 1. 2. 3. 4. 5. 6. Leasing companies Banks Investment houses Financing companies Credit card operations Financial institutions catering to small and medium scale enterprises
Non-financial allied undertakings 1. 2. 3. 4. 5. 6. 7. 8. 9. Warehousing companies Storage companies Safe deposit box companies Companies engaged in the management of mutual funds but not in the mutual funds themselves Management corporations engaged or to be engaged in activity similar to the engagement of mutual funds Companies engaged in the provision of computer services Insurance agencies Companies engaged in home building and home development Companies providing drying and/or milling facilities for agricultural crops
By virtue of such expanded power, the universal bank may, in addition to powers 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 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.
2.
3.
4.
Capitalization
Commercial bank Universal bank P 2 billion P 4.5 billion
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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. 31
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; Providing short term working capital, or medium- and long-term financing to businesses engaged in agriculture, services, industry and housing; and Providing diversified financial and allied services for its chosen market and constituencies especially for small and medium enterprises and individuals.
2.
3.
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; 32
Accept foreign currency deposits; Invest in equity of allied undertakings; Rediscount papers with the PNB, LBP, DBP, and other GOCCs; Issue domestic letters of credit; Invest in marketable bonds and other debt securities; Grant loans, secured or not secured; and With prior approval of the Monetary Board: a. b. c. d. e. f. Open current or checking accounts; Act as collection agent for government entities; Act as official depository of national agencies and municipal, city or provincial funds where the bank is located; Issue mortgage and chattel certificates; Engage in quasi-banking and money market operations; and 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 Outside Metro Manila P250 million P 40 million
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 be reduced and, once reduced, shall not be increased thereafter beyond 60% of the voting stock of the Thrift Bank.
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Minors as depositors
Minors in their own rights and in their own names may make deposits and 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.
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
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 34
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.
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
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. 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.
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Scope of authority
RURAL BANKS
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; Accept savings and time deposits; Ac as correspondent bank of other financial institutions; Rediscount paper with the LBP, DBP, or any other bank, including its branches and agencies. Act as a collection agent; Offer other banking services as provided in Section 772 of RA 337, as amended; Extend financial assistance to private and public employees in accordance with RA 3779, as amended; and 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 f. Invest in allied undertakings.
2. 3. 4. 5. 6. 7. 8.
Rationale
The rationale behind rural banking system is the need to promote comprehensive rural development with the end in view of the following: 1. 2. 3. A more equitable distribution of opportunities, income and wealth; A sustained increase of goods and services produced by the nation for the benefit of the people; and 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. 36
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
ewspaper publication requirements if the loan, excluding interest due and unpaid, does not exceed P100,000.
except corporate income taxes and local taxes, fees and charges for aperiod of five years from the date of commencement of operations.
Declaration of policy
The State shall: 1. 2. Develop a self-reliant and independent national economy effectively controlled by Filipinos; and 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.
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2.
3.
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.
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; 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 secure the listing in the Philippine Stock Exchange of the shares of stocks of banking corporations established under (a) and (b) modes of entry.
2.
3.
38
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).
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.
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Offshore banking
Offshore banking shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds in transactions with non-residents or other offshore banking units.
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.
2. 3. 4. 5. 6.
net worth and resources; management; international banking expertise; contribution to the Philippine economy; and 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 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; the operations of its offshore banking unit shall be managed soundly and with prudence; 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; it will provide and maintain in its offshore banking unit net office funds in the minimum amount of US $ 1,000,000; and it will start operations of its offshore banking unit within 180 days from receipt of its certificate of authority to operate such unit.
2.
3.
4.
5.
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Exception
Foreign currencies which are required by the Central Bank to be surrendered in accordance with the provisions of RA 7653 may not be deposited.
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The Central Bank may pay interest on the foreign currency deposit, and if requested, shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depositary banks. Central Bank may exempt from the 15% foreign currency cover in the form of foreign currency deposit with the Central Bank in cases of depository banks which, on account of their net worth, resources, past performance, or other pertinent criteria, have been qualified by the Monetary Board to function under an expanded foreign currency deposit system. Said banks may also be exempt from the limitations on the maturity periods for loans and securities subject to prior approval by the Central Bank.
There shall be no restriction on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank.
Tax exemption
All foreign currency deposits made under RA 6426, as amended, as well as foreign currency deposits authorized under PD 1304, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under the said laws and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines.
other order or process of any court, legislative body, government agency, or any administrative body whatsoever.
45
Further, the SC said: In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.
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Creation of PDIC
There is hereby created a Philippine Deposit Insurance System which shall insure the deposits of all banks which are entitled to the benefits of insurance under RA 3591. PDIC may also be appointed as receiver of a banking institution.
Deposit
The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by a passbook, check and/or certificate of deposit, printed or issue in accordance with Central Bank rules and regulations and other applicable laws, together with such other obligations of the bank which, consistent with banking usages and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank. Provided that any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of insured deposits. Provided further, that, subject to the approval of the Board of Directors, any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch.
Insured deposit
The term insured deposit means the net amount due to any depositor for deposits in an insured bank (after deducting offsets) less any part thereof which is in excess of one hundred thousand pesos (P100,000). Therefore, the maximum amount of insured deposit for every depositor is only P100,000.
has all three types of accounts, he can only recover up to P100,000. He is considered as one depositor. In determining such amount due to any depositor, there shall be added together 47
all deposits in the bank maintained in the same capacity and the same right for his benefit either in his own name or in the name of others. Banks and its branches considered as one unit. The provisions of any law to the contrary notwithstanding, an owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof in the books of the issuing bank.
2.
Trust funds
The term means funds held by an insured bank in a fiduciary capacity and include, without being limited to, funds as trustee, executor, administrator, guardian or agent. Trust funds are not considered as insured deposits.
Should any bank fail or refuse to pay any assessment required to be paid by such bank, and should the bank not correct such failure or refusal within 30 days after written notice has been given by the PDIC, the insured status of such bank shall be terminated by the Board of Directors. The bank shall give written notice of such termination to each of the depositors and the PDIC shall publish the notice of the termination of the insured status of the bank. After the termination of the insured status of the bank, deposits of each depositor in the bank, less all subsequent withdrawals from any deposits of such depositor, shall continue to be insured for a period of 90 days.
A cease and desist order shall refer to the Order issued by PDIC, through its Board of Directors, to a member insured bank, or its directors or agents to correct (a) unsafe or unsound practices in conducting the business of the bank, (b) violations of any law or regulation to which the insured bank is subject, or (c) violations of the provisions of RA 3591, as amended or any order, rule or instruction issued by the PDIC or any written condition imposed by PDIC in connection with any transaction with or grant by the PDIC. The object of the CDO is to protect depositors and the PDIC against existing or potential risk exposures from said practices or violations.
Proof of claims may be required by PDIC before payment. If it is not satisfied, PDIC may require the final determination of a court of competent jurisdiction before paying such claim. Depositor shall retain his claim against the bank for any uninsured portion of his deposit.
Subrogation
The PDIC, upon payment, shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment. Payments made by PDIC shall be considered as a preferred credit similar to taxes.
Receiver
Receiver includes a receiver, commission, person, or other agency charged by law with the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing business in the Philippines, as well as the duty to gather, preserve, and administer such assets and liabilities for the benefit of the depositors and creditors of said bank, and to continue into liquidation whenever authorized under RA 3591, as amended, or other laws, and to dispose of the assets and to wind up the affairs of such bank.
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Declaration of policy
It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy.
Finance charge
Finance charge includes interest, fees, service charges discounts, and such other
charges incident to the extension of credit.
Credit
Credit means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge of other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.
Creditor
2. 3.
4.
5. 6. 7.
the amounts, if any, to be credited as down payment and/or trade in; the difference between the amounts set forth under clauses (1) and (2); the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; the total amount to be financed; the finance charge expressed in terms of pesos and centavos; and the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.
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All banks and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. 3765, otherwise known as the Truth in Lending Act, and shall make the true and effective cost of borrowing an integral part of every loan contract. The promissory notes signed by private respondents do not contain any stipulation on the payment of handling charges. Petitioner bank, therefore, cannot charge private respondent such handling charges.
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company which is subrogated in the place of the seller as creditor of the installment buyer. The transaction between IHMI and Medina did not involve any discounting, factoring or assignment of IHMIs credit against Medina to a finance company. The transaction was bilateral, not trilateral. No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMIs credit against Medina. Medina himself, not a financing company, paid IHMI for the truck engines. Medina made his installment payments or amortization to IHMI and not to a financing company. Since IHMIs business of selling trucks in installment is not the business of a financ ing company under Republic Act No. 5980, it did not need SEC authorization to engage in it.
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General rule
All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office. [Section 2, RA 1405] It shall be unlawful for any official or employee of a bank to disclose to any person, other than those mentioned in Section 2 hereof, any information concerning said deposits. [Section 3, RA 1405]
Exceptions
1. Upon written permission of the depositor, including: a. in determining estate of a decedent; and b. tax compromise cases; In cases of impeachment; Upon order of a competent court in cases of bribery or dereliction of duty of public officials; In cases where the money deposited or invested is the subject matter of the litigation; and Cases of unexplained wealth under Republic Act No. 3019 or the Anti-Graft and Corrupt Practices Act.
2. 3. 4. 5.
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deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary.
PNB then filed an action for declaratory judgment in the CFI of Manila which ruled that Section 8 of the Anti-Graft and Corrupt Practices Act clearly intended to provide an additional ground for the examination of bank deposits. Hence, this appeal. ISSUE: Whether or not a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth? HELD: Yes. Republic Act No. 3019 provided another exception to Section 2 of Republic Act No. 1405. RATIO: No reconciliation is possible between Republic Act No. 1405 and Republic Act No. 3019 as the two laws are so repugnant to each other. Thus, while Section 2 of Republic Act No. 1405 provides that bank deposits are absolutely confidential and, therefore, may not be examined, inquired or looked into, except in those cases enumerated therein, Section 8 of Republic Act No. 3019 (Anti -graft law) directs in mandatory terms that bank deposits shall be taken into consideration in the enforcement of
57
this section, notwithstanding any provision of law to the contrary. The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an additional exception to the rule against the disclosure of bank deposits. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to point out that while Section 2 of Republic Act No. 1405 declares bank deposits to be absolutely confidential, it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases of impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the money deposited is the subject of the litigation. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be different from the policy as to the other. This policy expresses the notion that a public office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny.
subpoena duces tecum of bank records of transactions by or in the names of the wife, children and
friends of a special agent of the Bureau of Customs accused before the Tanodbayan of having allegedly acquired property manifestly out of proportion to his salary and other lawful income in violation of RA 3019? The Supreme Court ruled in the negative. In PNB v. Gancayco, we ruled that: while Section 2 of Republic Act No. 1405 provides that bank deposits are absolutely confidential and, therefore, may not be examined, inquired or lo oked into, except in those cases enumerated therein, Section 8 of Republic Act No. 3019 (Anti -graft law)
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directs in mandatory terms that bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. The only conclusion possible is that Section 8 of the Anti-Graft Law is intended to amend Section 2 of Republic Act No. 1405 by providing an additional exception to the rule against the disclosure of bank deposits.
The inquiry into illegally acquired property - or property not legitimately acquired - extends to cases where such property is concealed by being held by or recorded in the name of other persons. This proposition is made clear by RA 3019 which quite categorically states t hat the term legitimately acquired property of a public officer or employee shall not include property unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the name of, of held by, respondents spouse, ascendants, descendants, relatives or any other persons. To sustain the petitioners theory, and restrict the inquiry only to property held by or in the name of the government official or employee, or his spouse and unmarried children is unwarranted in the light of the provisions of the statutes in question, and would make available to persons in government who illegally acquire property an easy and fool-proof means of evading investigation and prosecution; all they have to do would be to simply place the property in the possession or name of persons other than their spouse and unmarried children. This is an absurdity that we will not ascribe to the lawmakers.
Philippine Commercial & Industrial Bank, et. al. v. Court of Appeals, et. al.
GR no. 84526, 28 January 1991 A group of laborers obtained a favorable judgment against the Marinduque Mining and Industrial Corporation for the payment of backwages amounting to P205,853 before the National Labor Relations Commission. A writ of execution was issued and the Deputy Sheriff served the writ, but it was unsatisfied. The sheriff prepared on his own a Notice of Garnishment addressed to six banks in Bacolod City, including petitioner PCIB, directing the bank concerned to issue a check in satisfaction of the judgment. While the in house lawyer of the Corporation warned the PCIB to withhold any release of its deposit with the bank, the bank issued a managers check in the amount of P37,466 which was the exact balance of the private respondents account as of that day. The said check was also encashed by the sheriff the next day. Marinduque Mining thus filed a complaint before the RTC of Manila against PCIB and the deputy sheriff, alleging that its current deposit with the petitioner bank was levied upon, garnished, and with undue haste unlawfully allowed to be withdrawn, and notwithstanding the alleged unauthorized disclosure of the said current deposit and unlawful release thereof, the latter have failed and refused to restore the amount of P37,466 to the formers account despite repeated demands. Trial court rendered judgment in favor of Marinduque Mining Corporation. On appeal, the Court of Appeals initially reversed the trial courts order but later affirmed it. Thus, this petition to the SC. The issue is whether or not the petitioners violated RA 1405, otherwise known as the Secrecy of Bank Deposits Act, when they allowed the sheriff to garnish the deposit of Marinduque Mining
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Corporation? SC held no. The SC first ruled that the release of the deposit by the bank was not done in undue and indecent haste. We find the immediate release of the funds by the petitioner bank on the strength of the notice of garnishment and writ of execution, whose issuance, absent any patent defect, enjoys the presumption of regularity. The SC likewise did not find any violation whatsoever by the petitioners of RA 1405, otherwise known as the Secrecy of Bank Deposits Act. The Court, in China Banking Corporation v. Ortega, had the occasion to dispose of this issue when it stated, to wit:
It is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act No. 1405, that the prohibition against examination of or inquiry into a bank deposit under Republic Act No. 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed, there is no real inquiry in such a case, and if existence of the deposit is disclosed, the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank.
Since there is no evidence that the petitioners themselves divulged the information that the private respondent had an account with the petitioner bank and it is undisputed that the said account was properly the object of the notice of garnishment and writ of execution carried out by the deputy sheriff, a duly authorized officer of the court, we cannot therefore hold the petitioners liable under RA 1405.
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an action to recover the purchase price of said real property. SC ruled that the filing of a recovery suit in the US does not preclude the filing of an action in the Philippines for the recovery of the purchase price. With regard to our subject matter, Erlinda Baylosis of the Philippine Veterans Bank and Pilologo Red, Jr. of Hongkong and Shanghai Banking Corporation were required to give testimonies with regard to the deposits and checks issued by the private respondents Javier, et. al.. These testimonies were questioned for being immaterial and irrelevant as well as covered by RA 1405 on confidentiality. SC said: Private respondents protestations that to allow the questioned testimonies to remain on record would be in violation of the provisions of RA 1405 on the secrecy of bank deposits is unfounded. Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. Inasmuch as the civil case is aimed at recovering the amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition.
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Investment houses
An investment house is any enterprise which engages in the underwriting of securities of other corporations. Under its Rules and Regulations, an investment house is defined an any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities.
Underwriting
Underwriting is the act or process of guaranteeing the distribution and sale within the Philippines of securities of any kind issued by another corporation. The distribution and sale may be on public or private placement basis.
Private placement
Refers to the underwritten sale of securities to less than 20 persons or enterprises.
Public placement
Refers to the underwritten sale of securities to at least 20 persons or enterprises.
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Capital requirements
In the case of newly-organized Investment Houses, the minimum paid-in capital shall be three hundred million pesos (P300,000,000). The Monetary Board may prescribe a higher minimum capitalization in order to promote and ensure the stability of the Philippine capital market and the competitiveness of the investment house industry in line with the national economic goals.
b.
c.
Prohibition
No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No. 337, as amended.
2.
3.
4.
5.
6. 7. 8.
9.
Quasi-banking powers
The Monetary Board may, at its discretion, determine whether Investment Houses may be permitted to perform quasi-banking functions. If the Monetary Board decides to permit Investment Houses to engage in quasi-banking functions, the Board may require as a condition precedent the obtaining of a certificate of authority for the purpose from the Monetary Board. Whenever the Monetary Board authorizes an Investment House to engage in quasibanking functions, it may subject said Investment House to further regulations, which may include but need not necessarily be limited to a) liquidity reserve requirements; b) capital-to-risk assets ratios; c) interest rate ceilings; and d) such other constraints as the Board may deem necessary.
Dealer or broker
An Investment House may engage in the business of a dealer or a broker under the Securities Act without obtaining a separate license for the purpose.
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Investment company
Any issuer which is or holds itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities.
2.
Security
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, preorganization certificate or subscription, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a security or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. (Section 3(bb), RA 2629). 66
Note that there is an expanded definition under the Revised Securities Act.
Form
All shares of its capital stock shall be common and voting shares.
Capitalization
No public offering may be made unless the investment company has a paid up capital of at least P500,000 (Section 13(1), RA 2629). However, Rule 2.1 provides that the minimum subscribed and paid in capital should be at least 50 million.
Declaration of policy
It is hereby declared to be the policy of the State to regulate the activities of financing and leasing companies: 1. 2. to place their operations on a sound, competitive, stable and efficient basis as other financial institutions; to recognize and strengthen their critical role in providing medium and longterm credit for investments in capital goods and equipment especially by small and medium enterprises particularly in the countryside; and to curtail and prevent acts or practices prejudicial to the public interest.
3.
As such, they may be in a better position to extend efficient service in a fair manner to the general public and to industry, commerce and agriculture and thereby more fully contribute to the sound development of the national economy.
Financing companies
Financing companies are corporations, except banks, investment houses, savings and loans associations, insurance companies, cooperatives, and other financial institutions organized or operating under special laws, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises. It may extend such credit: 1. by direct lending; or 2. by discounting or factoring commercial papers or accounts receivable; or
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3. 4.
by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by financial leasing of movable as well as immovable property.
Financial leasing
Financial leasing is a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years. During the two-year period, the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor. Lessee also bears the cost of repairs, maintenance, insurance and preservation of the leased property. However, lessee has no obligation or option to purchase the leased property from the owner-lessor at the end of the lease contract.
Liability of lessors
Financing companies shall not be liable for loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except where the motor vehicle, aircraft, vessel, equipment, machinery or other property is operated by the financing company, its employees or agents at the time of the loss, damage or injury.
6.
Provide foreign currency loans and leases to enterprises who earn foreign currency by exports or other means, subject to existing laws and rules and regulations of the Bangko Sentral.
Prohibited acts
of not more than six(6)months or both, at the discretion of the court, on "persons, associations, partnerships or corporations, including managing officers thereof," upon the following unlawful acts:
1.
Engaging in the business of finance companies without authority from the SEC through advertisement in whatever from, or through other representations without authority. Using trade or firm name containing the words "financing company" or "leasing company" or "finance and leasing company" or "finance and investment company" or any other designation that would give the public the impression that it is engaged in the business of a financing company or leasing company without authority. Holding themselves out to be financing companies without authority from the SEC. Any officer, employee, or agent of a financing company who shall knowingly and willingly make any statement in any application, report or document required to be filed under the Act, which is false or misleading with respect to any material fact, or overvalue or aid in overvaluing any securities for the purpose of influencing in any way the action of the company on any loan, or discounting. Any officer, employee or examiner of the SEC directly charged with the implementation of the Act who shall commit, connive, aid or assist in the commission of acts enumerated above.
2.
3.
4.
5.
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PAWNSHOPS
Presidential Decree 114 in relation to CB Circular No. 374
Pawnshop
A pawnshop is a person (single proprietorship) or entity (corporation/partnership) engaged in the business of lending money on personal property delivered as security for loans.
stable basis: 1. 2. 3. To derive maximum benefit as source of credit To prevent and mitigate practices prejudicial to the public; and To prescribe minimum requirements
Secure a license to operate from the LGU concerned Minimum paid in capital of P100,000 Citizenship a. b. c. d. If single proprietor, must be a Filipino If partnership, 70% of capital owned by Filipinos If corporation, 70% of voting capital should be owned by Filipinos If no voting stock, 70% of members entitled to vote should be Filipinos
Insure place of business and pawns against fire and burglars. Accountable officers/employees shall be bonded. Accounting records Loans cannot be less than 30% of the appraised value of the personal property unless the borrower stipulated in writing that he is borrowing a lesser amount.
in no case to exceed 1% of the principal loan. No other charges, fees, and commissions shall be collected by pawnshop in connection with the loan transaction or payment thereof. Borrower shall not pay insurance premiums.
Conduct of business
1. 2. 3. 4. 5. 6. 7. 8. 9. Borrower offers to pledge personal property as security for loan. Property is appraised. Loan agreement is entered into. Pawnshop issues receipt (pawn ticket). Pawnshop lends money to pawner. Pawner pays charges not to exceed P5.00. Pawned property is placed in vault/safe. If upon maturity, borrower fails to pay, pawnshop will wait for 90 days after maturity before it can sell the thing pledged at a public auction. Pawnshop has to comply with notice requirements, to wit: a. Before the 90-day period expires, notice to the borrower that the pawn will be sold if not redeemed within 90 days from maturity specifying time, date, and place of auction sale. b. If there is no redemption, pawnshop will sell the pawn after publishing a notice of sale in at least two newspapers in the city/municipality of operation six (6) days before the date of sale. In remote areas where there is no newspaper, by posting at City Hall or Municipal Building and two other conspicuous public places where pawnshop operates. c. Sale of pawn by auctioneer/notary public to higher bidder.
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TRUST CORPORATIONS
Chapter VII General Banking Act
Trust Corporation
A trust corporation is any corporation formed or organized for the purpose of acting as trustee, administering any trust or holding property in trust or on deposit for the use, benefit or behooved of others. A corporation or a bank may engage in the business of a trust corporation.
Standard of care
A trust company or any bank authorized to engaged in the business of a trust company shall administer the funds or property under its custody with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting under like capacity and familiar with such matters, would exercise in the conduct of an enterprise of a like character and with similar aims. No trust company or bank engaged in the business of a trust company shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign or lend money or property to, or purchase debt instruments of any of the departments, directors, officers, stockholders, or employees of the trust company or bank, or relatives within the first degree of consanguinity or affinity, or the related interests, of such director, officers, and stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary of the trust prior to the transaction.
2.
3.
4.
To act under appointment of a court of competent jurisdiction as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there is no will, and when in either case there is no person qualified, competent, willing, able and entitled to accept such administration. To accept and execute any legal trust confided to it by any court of record or by any person or corporation for the holding, management, and administration of any estate, real or personal, and the rents, issues, and profits thereof. To establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board.
5.
6.
Except as may otherwise be provided in this Act, no bond or other security shall be required from any trust company for the faithful performance of its duties as trustee, executor, administrator, guardian, receiver or depositary. However, the court officer appointing such company as trustee, executor, administrator, guardian, receiver or depositary may, upon proper application, showing special cause therefor, require any corporation which shall seek to be or shall have been so appointed to give adequate security for the protection of the funds or property confided to the corporation and, upon failure of such corporation to give the security required, its appointment as trustee, executor, administrator, guardian, receiver or depositary shall be revoked. Section 65, however, provides: As security for the faithful performance of its trust duties, every trust company, before transacting trust business, shall carry on deposit with the Central Bank, cash or securities approved by the Monetary Board in an amount equal to not less than two hundred and fifty thousand pesos (P250,000). This may be increased by the Central Bank. Paid in capital and surplus of the company must be at least equal to the amount required to be deposited with the central Bank. 74
profits accruing since the last preceding dividend until the surplus shall amount to 20% of its authorized capital stock and no part of the surplus shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against the surplus.
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