R.A.

8791 GENERAL BANKING LAW OF 2000

GENERAL BANKING LAW
(PowerpointPresentation in General Banking Law)
TOPICS
1.

2.

3.

4.

5.
6.
7.

Banks
Definition
Nature of business
Authority to incorporate and operate
Classification of Banks
Functions of Banks
Deposit Function
Loan Function
Other functions
Prohibited Acts
Ownership of Banks
Foreign Ownership
Filipino Stockholdings
Stockholdings of Family Groups and related interest
Directors and Officers
Composition of Board
Meetings
Qualifications
Liquidity and Security
Ownership of real property
Trust Operations of Banks
Prior Authority
Trust Business
Powers
Separation of Trust Business of Bank
RA 8791 GENERAL BANKING LAW OF 2000
An Act Providing for the Regulation of and Organization and
Operations of Banks, Quasi-banks, Trust Entities and for other
purposes.
The General Banking Law of 2000 (GBL) is the law that generally governs the
regulation, organization and operation of banks, quasi-banks, and other quasi-entities.
It primarily governs Universal Banks[1] (UB) and Commercial Banks[2] (CB), and has
suppletory application to Thrift Banks (which is primarily governed by RA 7906, the
Thrift Banks Act), Rural Banks (primarily governed by RA 7353, the Rural Banks Act),
and Cooperative Banks (primarily governed by RA 6938, the Cooperative Code).[3]

1.

Banks

1.

Definition
Banks are entities engaged in the lending of funds obtained in the form of deposits from
the public.[4] This is usually referred to as core-banking functions of mobilizing
savings (through deposit-taking) and allocating resources (through lending).
GBL requires that banks are stock corporations and its funds are obtained from the
public, i.e. deposits of twenty (20) or more persons.[5]
In Baas v. Asia Pacific Finance Corp.,[6] the Supreme Court said that an
investment company that engages solely in investing, reinvesting, or trading in
securities is not engaged in banking. An investment company refers to any
issuer which is or holds itself out as being engaged or proposes to
engage primarily in the business of investing, reinvesting or trading
in securities. As defined in Revised Securities Act, securities shall
include commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another
with or without recourse, such as promissory notes. Clearly, the
transaction between petitioners and respondent was one involving
not a loan but purchase of receivables at a discount, well within the
purview of investing, reinvesting or trading in securities which an
investment company, like ASIA PACIFIC, is authorized to perform
and does not constitute a violation of the General Banking Act.
In Republic v. Security Credit and Acceptance Corporation,[7] the
Court said that an investment company which loans out the money
of its customers, collects the interest and charges a commission to
both lender and borrower, is a bank. It is conceded that a total of
59,463 savings account deposits have been made by the public with
the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the
corporation deemed suitable therefore. It is clear that these
transactions partake of the nature of banking, as the term is used in
Section 2 of the General Banking Act.
Banks must also be contrasted from quasi-banks (QB). The latter
refer to entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance
of deposit substitutes (as defined in Sec. 95 RA 7653, the New

Central Bank Act) for purposes of relending or purchasing of

receivables and other obligations. (last part of Sec. 4) Since this is
an inherent power of UBs and CBs, they do not require separate
licensing or authorization for this purpose.
1.

Nature of Business
Section 2 of GBL provides that the State recognizes the vital role of banks in providing
an environment conducive to the sustained development of the national economy and
the fiduciary nature of banking that requires high standards of integrity and
performance. This consequently means that a bank shall be subject to heavy and close
supervision and/or regulation by the Bangko Sentral ng Pilipinas,[8] and that it
must exercise utmost diligence in the handling of deposits.[9]
To promote and maintain a stable and efficient banking and financial system, there are
special rules that govern banks. Because it is indispensable to the national interest, any
strike or lockout involving banks, if unsettled after seven (7) calendar days shall be
reported by the Bangko Sentral to the Secretary of Labor who has two options: (1) he
may assume jurisdiction over the dispute or decide it or (2) certify the same to the
National Labor Relations Commission for compulsory arbitration. The law allows the
President of the Philippines, at any time, to intervene and assume jurisdiction over such
labor dispute in order to settle or terminate the same.[10]

1.

Authority to incorporate and operate

GBL provides that a bank or quasi-bank cannot be incorporated without authority
from the BSP. The law states that 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
seal.[11]
In addition, an entity performing banking and quasi-banking function cannot
also operate without a certificate of authority from the BSP.[12]

1.

Classification of Banks
Section 3.2 of the GBL classifies banks into:

1.
2.

1.
2.
3.

Universal Banks (UB) banks that have the authority to exercise, in

addition to the powers authorized for a commercial bank, the powers of an
investment house and the power to invest in non-allied enterprises.[13]
Commercial Banks (CB) banks that have, in addition to the general
powers incident to corporations, all such powers as may be necessary to
carry on the business of commercial banking, such as accepting drafts and
issuing letters of credit; discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of debt; accepting or creating
demand deposits; receiving other types of deposits and deposit substitutes;
buying and selling foreign exchange and gold or silver bullion; acquiring
marketable bonds and other debt securities; and extending credit, subject to
such rules as the Monetary Board may promulgate.[14]
iii. Rural Banks banks that are created to make needed credit available and readily
accessible in the rural areas for purposes of promoting comprehensive rural
development.[15]
Thrift Banks banks that include savings and mortgage banks, private
development banks, and stock savings and loan associations.
Cooperative Banks banks that primarily provide financial, banking
and credit services to cooperative organizations and their members.[16]
Islamic Banks Charter of Al Amanah Islamic Investment Bank of the
Philippines.[17]
vii. Other classification of banks as determined by the Monetary Board (MB) of the
BSP.
UNIVERSAL
BANKS

COMMERCIAL BANKS

As to Powers
1.

The powers
authorized for a
Commercial Bank;
2.
The powers
of an investment
house
as provided in
existing laws;

BSP Circular 271 (2002)

(1) invest in the equities of
allied enterprises;
(2) purchase, hold and
convey real estate;

(3) receive in custody funds,

documents and valuable
3.
The power to objects;
invest in non-allied (4) act as financial agent;
enterprises as
(5) make collections and
provided in the
payments for the account of
GBL. (Sec. 23)
others;
4.
THE
and

GENERAL POWERS
INCIDENT TO
CORPORATIONS,
5.
ALL SUCH
POWERS AS MAY
BE NECESSARY TO
CARRY ON THE
BUSINESS OF
COMMERCIAL
BANKING, SUCH AS
ACCEPTING
DRAFTS AND
ISSUING LETTERS
OF CREDIT;
DISCOUNTING AND
NEGOTIATING
PROMISSORY
NOTES, DRAFTS,
BILLS OF
EXCHANGE, AND
OTHER EVIDENCES
OF DEBT;
6.
SUBJECT TO
SUCH RULES AS
THE MB MAY
PROMULGATE.
THESE RULES MAY
INCLUDE THE
DETERMINATION
OF BONDS AND
OTHER DEBT
SECURITIES
ELIGIBLE FOR
INVESTMENT, THE
MATURITIES AND
AGGREGATE
AMOUNT OF SUCH
INVESTMENT. (SEC.
29)

(6) act as managing agent,

adviser, consultant or
administrator of investment
management/advisory/consultancy accounts;
(7) rent out safety deposit
boxes; and
(8) engage in quasi-banking
functions.

As to Equity Investments
A UB MAY INVEST
IN THE EQUITIES
OF
ALLIED (EITHER

A CB MAY INVEST ONLY IN

THE EQUITIES
OF ALLIED ENTERPRISES

FINANCIAL OR
NON-FINANCIAL)
AND NON-ALLIED
ENTERPRISES.
(SEC. 24)
EXCEPT AS THE MB
MAY OTHERWISE
(EITHER
PRESCRIBE:
FINANCIAL OR NONTHE TOTAL
FINANCIAL). (SEC.
INVESTMENT
IN EQUITIES OF
ALLIED
AND NON-ALLIED
ENTERPRISES
SHALL NOT
EXCEED 50% OF
THE NET WORTH;
AND
THE EQUITY
INVESTMENT IN
ANY ONE
ENTERPRISE,
WHETHER ALLIED
OR NON-ALLIED,
SHALL NOT
EXCEED 25% OF
THE NET WORTH
OF THE BANK (SEC.
24)

30)
EXCEPT AS THE MB MAY
OTHERWISE
PRESCRIBE:
THE TOTAL INVESTMENT
IN EQUITIES OF
ALLIED ENTERPRISES
SHALL NOT
EXCEED 35% OF THE NET
WORTH OF THE
BANK; AND
THE EQUITY
INVESTMENT IN ANY ONE
ENTERPRISE SHALL NOT
EXCEED 25% OF
THE NET WORTH OF THE
BANK. (SEC

Equity Investments in Financial Allied

Enterprises
A UB CAN OWN UP
TO

A KB MAY OWN UP TO
100% OF THE

100% OF THE
EQUITY IN

EQUITY OF

A THRIFT BANK,
A RURAL BANK OR
A FINANCIAL
ALLIED

A THRIFT BANK OR
A RURAL BANK. (SEC. 31)
WHERE THE EQUITY
INVESTMENT OF A CB IS
IN OTHER FINANCIAL

ALLIED
ENTERPRISES,
INCLUDING ANOTHER
COMMERCIAL BANK,
SUCH
INVESTMENT SHALL
REMAIN A
MINORITY HOLDING IN
THAT

ENTERPRISE. (SEC.
25)
ENTERPRISE. (SEC. 31)
Equity Investments in Non-Financial
Allied Enterprises

A UB OR CB MAY
OWN UP TO ONE
HUNDRED
A UB OR CB MAY OWN UP
PERCENT (100%) OF TO ONE HUNDRED
THE
PERCENT (100%) OF THE
EQUITY IN A NONFINANCIAL ALLIED
ENTERPRISE. (SEC.
26 AND 32)

EQUITY IN A NONFINANCIAL ALLIED

ENTERPRISE. (SEC. 26
AND 32)

Equity Investments in QBs

TO PROMOTE
COMPETITIVE
CONDITIONS IN
FINANCIAL
MARKETS, THE MB
MAY FURTHER
LIMIT TO 40%
EQUITY
INVESTMENTS OF
UBS AND
CBS IN QBS. (SEC.
28)

TO PROMOTE
COMPETITIVE
CONDITIONS IN
FINANCIAL MARKETS,
THE MB MAY FURTHER
LIMIT TO 40% EQUITY
INVESTMENTS OF UBS
AND
CBS IN QBS. (SEC. 28)

Equity Investments in Non-Allied

Enterprises
THE EQUITY

INVESTMENT OF A
UB, OR OF ITS
WHOLLY OR
MAJORITY-OWNED
SUBSIDIARIES, IN A
SINGLE NONALLIED
ENTERPRISE
1.

shall not
exceed 35% of the
total
equity in that
enterprise nor

2.

shall it
exceed 35% of the
voting stock in that
enterprise. (Sec.
27)

2.

Functions of Banks

1.

Deposit Function

1.

Nature of the Function

Deposit is one of the core banking functions. While the function is referred to as deposit,
it is strictly simple loan where the bank is the debtor and the depositor is the creditor.
Fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan (Article 1980, Civil Code of the
Philippines).
Since the bank is the borrower, it can make use as its own the money deposited, and the
amount is not held in trust for the depositor nor is it kept for safekeeping.[18] Bank
officers cannot also be held liable for estafa if they authorized the use of the money
deposited by the depositor.[19] Third persons who may have the right to the money
deposited cannot hold the bank responsible unless there is a court order or
garnishment, since the duty of the bank is to the creditor-depositor and not to third
persons.[20]

In San Carlos Milling Co., Ltd v. BPI, the Court declared that banks are run for gain,
and they solicit deposits in order that they can use the money for that very purpose. For
the same reason, it has been held that a bank has a right of set off of the deposits in its
hands for the payment of any indebtedness to it on the part of a
depositor.[21]Conversely, the depositor has every right to apply his deposit in a bank
against his loan from such bank.[22]
1.

Kinds of Deposits
The basic types of deposit are demand deposits, savings account, time deposits,
and NOW account.

1.

2.

3.

4.
5.

Demand deposits are those liabilities of banks which are

denominated in Philippine currency and are subject to payment in legal
tender upon demand by presentation of checks. In here, no interest is paid
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 he
deposited on the very same day.
Savings Account, which is the most common type of deposit, is
usually evidenced by a passbook. Under the fine print, if you deposit today,
you cannot withdraw the amount until 60 days later. Bank pays an interest
rate, but not as high as time deposits.
Time Deposit is an account with fixed term. The interest rate is
stipulated depending on the number of days. During this period, the money
deposited cannot be withdrawn. It has a higher rate of interest than saving
account.
Negotiable Order of Withdrawal (NOW) Account is an interestbearing deposit account that combines the payable on demand feature of
checks and investment feature of savings accounts.
Other Account is one that may be opened by one individual or by two
or more persons. Whenever two or more persons open an account, the same
may be an and/or account or an and account.
NB: A bank other than a UB or CB cannot accept or create demand deposits
except upon prior approval of, and subject to such conditions and rules as may be
prescribed by the Monetary Board.[23]
Moreover, the bank is under the obligation to treat deposit accounts of it depositors with
meticulous care. It must bear the blame for failing to discover the mistake of its
employees despite the established procedure requiring bank papers to pass through
bank personnel whose duty it is to check and countercheck them for possible errors.
[24]As a business affected with public interest and because of the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with
meticulous case, always having in mind the fiduciary nature of their relationship.[25]

Note on Safety Deposit Boxes: 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 benefit.
[26]
1.

Loan Function

1.

Basic Rules and Restrictions: A bank shall grant loans and other
credit accommodations only in amounts and for the periods of time essential
for the effective completion of the operations to be financed, consistent with
safe and sound banking practices. The bank must ascertain before granting
the load or other credit accommodation the ability of the debtor to fulfill his
commitment.

1.

Risk-Based Capital Ratio: The MB shall prescribe the minimum ratio

which the net worth of a bank must bear to its total risk assets which may
include contingent accounts (i.e. net worth : total risk assets).[27] The riskbased capital ratio of a bank, expressed as a percentage of qualifying capital
to risk-weighted assets, shall not be less than 10% for both solo basis (head
office plus branches) and consolidated basis (parent bank plus subsidiary
financial allied undertakings, but excluding insurance companies). The ratio
shall be maintained daily.[28]

iii. Single Borrowers Limit (SBL): Except as the MB may otherwise prescribe
for reasons of national interest, the total amount of loans, credit accommodations and
guarantees as may be defined by the MB that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed 25% of the
net worth of such bank.[29] The basis for determining compliance with SBL is the total
credit commitment of the bank to the borrower.[30]
GBL provides that, unless the MB prescribes otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the preceding paragraph may be
increased by an additional 10% of the net worth of such bank provided the additional
liabilities of any borrower are adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or securing title covering
readily marketable, non-perishable goods which must be fully covered by insurance.
[31]
1.
DORSI Accounts: GBL imposes restrictions (not total prohibition) on
borrowings and security arrangement by directors, officers, and stockholders
of the bank. These restrictions apply when the loan or financial
accommodation of DORSI is in excess of 5% of the capital and surplus of the
lending bank or in the maximum amount permitted by law, whichever is

lower. The GENERAL RULE is: a director or officer of any bank shall neither,
directly or indirectly, for himself or as the representative or agent of others,
borrow from such bank; nor become a guarantor, indorser or surety for loans
from such bank to others, or in any manner be an obligor or incur any
contractual liability to the bank. The EXCEPTION is when there is a written
approval of the majority of all the directors of the bank, excluding the
director concerned. The required approval shall be entered upon the records
of the bank and a copy of such entry shall be transmitted forthwith to the
appropriate supervising and examining department of the BSP.[32]
2.
Limits on loans and other credit accommodations
(collaterals): Unless otherwise prescribed by the MB, loans and other credit
accommodations against real estate shall not exceed 75% of the
appraised value of the respective real estate security, plus 60% of the
appraised value of the insured improvements, and such loans may be made
to the owner of the real estate or to his assignees.[33] Those against
security of chattels and intangible properties shall not exceed 75%
of the appraised value of the security, and such loans and other credit
accommodations may be made to the title-holder of the chattels and
intangible properties or his assignees.[34]
NB: The limit on loans, credit accommodations and guarantees prescribed herein shall
not apply to loans, credit accommodations and guarantees extended by a cooperative
bank to its cooperative shareholders.[35]
1.

Foreclosure of Mortgage: In the event of foreclosure, whether

judicially or extrajudicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real
estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at the rate specified in the mortgage,
and all the costs and expenses incurred by the bank or institution from the
sale and custody of said property less the income derived therefrom.
However, the purchaser at the auction sale concerned whether in a judicial
or extrajudicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of
the auction sale and administer the same in accordance with law. Any
petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the
filing by the petitioner of a bond in an amount fixed by the court conditioned
that he will pay all the damages which the bank may suffer by the enjoining
or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with
this provision until, but not after, the registration of the certificate of foreclosure sale
with the applicable Register of Deeds which in no case shall be more than 3 months after

foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of the GBL shall retain their redemption rights until their
expiration.[36]
1.
Loan to Banks
The guiding principle for loan on banks is enunciated in Section 81 of NCBA which
reads, The rediscounts, discounts, loans and advances which the BSP is authorized to
extend to banking institutions under the provisions of the present article of this Act shall
be used to influence the volume of credit consistent with the objective of price stability.
1.

Other Functions
UB and CB may also exercise any of the following functions:

1.
2.

Receive in custody funds, documents and valuable objects;

Act as financial agent and buy and sell, by order of and for the account
of their customers, shares, evidences of indebtedness and all types of
securities;
iii. Make collections and payments for the account of others and perform such other
services for their customers as are not incompatible with baking business;

1.

Upon prior approval of the MB, act as managing agent, adviser,

consultant of administrator of investment management/advisory/consultancy
accounts; and
2.
Rent out safety deposit boxes.
1.
2.

Prohibited Acts
GBL prohibits banks from directly engaging in insurance business as
insurer.[37]
3.
Directors, officers, employees, or agents of any bank are prohibited
from:
(1) Making false entries in any bank report or statement or participating in any
fraudulent transaction, thereby affecting the financial interest of, or causing damage to,
the bank or any person;
(2) Without order of a court of competent jurisdiction, disclosing to any unauthorized
person any information relative to the funds or properties in the custody of the bank
belonging to private individuals, corporations, or any other entity: Provided, That with
respect to bank deposits, the provisions of existing laws shall prevail;
(3) Accepting gifts, fees or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation from said bank;
(4) Overvaluing or aiding the overvaluing of any security for the purpose of influencing
in any way the actions of the bank or any bank; or
(5) Outsourcing inherent banking functions.[38]

iii. Outsourcing per BSP Circular 268 (2000)

Section 2.1 Outsourcing of inherent banking functions shall refer to any
contract between the bank and a service provider for the latter to supply the manpower
to service the deposit transactions of the former.
Section 2.2 Banks cannot outsource management functions except as may be authorized
by the Monetary Board when circumstances justify.
Section 3. Outsourcing of Information Technology Systems/Processes. Subject to prior
approval of the MB, banks may outsource all information technology systems and
processes except for functions excluded in Section 3.1.
Section 3.1 Functions affecting the ability of the bank to ensure the fit of
technology services deployed to meet its strategic and business objectives
and to comply with all pertinent banking laws and regulations may not be outsourced.
Subject to prior approval of the MB, consultants and/or service providers may be
engaged to provide assistance/support.
Section 4. Outsourcing of Other Banking Functions.
Section 4.1 Subject to prior approval of the MB, banks may outsource data
imaging, storage, retrieval and other related systems; clearing and processing of checks
not included in the Philippine Clearing House System; printing of bank deposit
statements.
Section 4.2. Banks may outsource credit card services; printing of bank
loan statements and other non-deposit records, bank forms and promotional materials;
credit investigation and collection; processing of export, import and other trading
transactions; transfer agent services for debt and equity securities; property appraisal;
property management services; messenger, courier and postal services; security guard
services; vehicle service contracts; janitorial services.
Section 5. Service Providers. When allowed by law and under this circular,
banks may enter into outsourcing contracts only with service providers with
demonstrable technical and financial capability commensurate to the services to be
rendered.
1.

Prohibited Transactions of Borrowers of Bank: borrowers of banks

are prohibited from
2.
Fraudulently overvaluing property offered as security for a loan or
other credit accommodation from the bank;
3.
Furnishing false or misrepresenting or suppressing material facts for
the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
4.
Attempting to defraud the said bank in the event of a court action to
recover a loan or other credit accommodation; or

5.

3.
4.

Offering any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.[39]
Ownership of Banks
Foreign Ownership[40]
As to their stockholdings, foreign individuals and non-bank corporations may
own or control up to forty percent (40%) of the voting stock of a domestic bank. This
rule shall apply to Filipinos and domestic non-bank corporations.
The percentage of foreign-owned voting stocks in a bank shall be determined by the
citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation.
NB: Foreign banks are not subject to the 40% limitation prescribed under Sec. 11 of the
GBL. R.A. 7721 prescribes 60% are the maximum foreign bank equity. Sec. 73 of the
GBL also allows the acquisition beyond the 60% limit within a period of seven years
from the effectivity of the GBL.

1.

Filipino Stockholdings
Section 11 of the GBL applies to Filipinos and domestic non-bank corporations.
NB: The restriction applies on foreigners in terms of their total equity participation,
while it applies to individual equity participation to Filipinos and non-bank
corporations.

1.

Stockholdings of Family Groups and related interests

There is no prohibition against stockholding of family groups or related
interests. What GBL imposes is that stockholdings of individuals related to each other
within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be
considered family groups or related interests and must be fully disclosed in all
transactions by such an individual with the bank.[41]
In addition, two or more corporations owned or controlled by the same family group or
same group of persons shall be considered related interests and must be fully disclosed
in all transactions by such corporations or related groups of persons with the bank.

4.

Directors and Officers

1.

Composition of Board
Section 15 of the GBL provides for the composition of the BOD: there shall be at
least five (5), and a maximum of fifteen (15) members of the board of directors of bank,
two (2) of whom shall be independent directors.

An independent director shall mean a person other than an officer or employee of the
bank, its subsidiaries or affiliates or related interests. (n)
Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
Section 19 of GBL imposes a prohibition on public officials, such that no appointive or
elective public official, whether full-time or part-time shall at the same time serve as
officer of any private bank, save in cases where such service is incident to financial
assistance provided by the government or a government-owned or controlled
corporation to the bank or unless otherwise provided under existing laws.
1.

Meetings
Section 15 of the GBL also provides that the meetings of the board of directors
may be conducted through modern technologies such as, but not limited to,
teleconferencing and video-conferencing.

1.

Qualifications
Section 16 of the GBL provides the Fit and Proper Rule which states that to
maintain the quality of bank management and afford better protection to depositors and
the public in general, the Monetary Board shall prescribe, pass upon and review the
qualifications and disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an act
which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director
or officer of a bank, regard shall be given to his integrity, experience, education,
training, and competence.

NB: Sec. 19 of the GBL prohibits appointive or elective public official,

whether full-time or part-time, from serving as officer of any private bank, save in cases
where:
1.
Such service is incident to financial assistance provided by the
government or a GOCC to the bank;
2.
Unless otherwise provided in the Rural Banks Act; or
3.
Unless otherwise provided under existing laws.
5.

Liquidity and Security

For purposes of maintaining liquidity and security, GBL and the New Central
Bank Act provide regulations relating to loans and other matters:

1.
2.
3.
4.
5.
6.
7.
6.
1.

The Monetary Board shall prescribe the minimum ratio which the net
worth of a bank must bear to its total risk assets which may include
contingent accounts.[42]
The law imposes limits on loans, credit accommodations and
quarantees that may be extended by banks.
Limitation is placed on banks exposure to DORSI.[43]
The law imposes restrictions on the value of collaterals on loans.
The law may provide for restrictions on unsecured loans.[44]
MB may prescribe maturities and other terms and conditions for
various types of loans and accommodations.[45]
The law prescribes restrictions on dividend declrations.[46]
Ownership of Real Property
Section 51 of the GBL provides that any bank may acquire real
estate as shall be necessary for its own use in the conduct of its business.
However, the total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty percent (50%) of
combined capital accounts. It must be noted however that the equity
investment of a bank in another corporation engaged primarily in real estate
shall be considered as part of the banks total investment in real estate,
unless otherwise provided by the Monetary Board.

1.

In Section 52, however, of the GBL, a bank may acquire, hold or

convey real property under the following circumstances:
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; or
iii. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above
paragraph shall be disposed of by the bank within a period of five (5) years or as may be
prescribed by the Monetary Board. After said period, the bank may continue to hold the
property for its own use, subject to the limitations of the preceding Section.

7.

Trust Operations of Banks

1.

Applicable Rules

1.

NB: Art 1442 of the Civil Code states that the principles of the
general law of trusts, insofar as they are not in conflict w/ the Civil Code, the
Code of Commerce, the Rules of Court and special laws (including the GBL)
are hereby adopted.
2.
Prudent Man Rule
A trust entity shall administer the funds or property under its custody with the diligence
that a prudent man would exercise in the conduct of an enterprise of a like character and
with similar aims.[47]
iii. Self-Dealing Rule
The GBL provides, as a general rule, that no trust entity shall, for the account of the
trustor or the beneficiary of the trust,
1.
2.
3.
4.

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 entity
5.
relatives within the 1st degree of consanguinity or affinity, or the
related interests, of such directors, officers and stockholders,
Except:
1.
2.

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.[48]

1.

Prior Authority
Only a stock corporation or a person duly authorized by the MB to engage in trust
business shall act as a trustee or administer any trust or hold property in trust or on
deposit for the use, benefit, or behalf of others. For purposes of the GBL, such a
corporation is referred to as a trust entity.[49]

1.

Trust Business
A trust business is any activity resulting from a trustor-trustee relationship (trusteeship)
involving the appointment of a trustee by a trustor for the administration, holding,
management of funds and/or properties of the trustor by the trustee for the use, benefit
or advantage of the trustor or of others called beneficiaries.[50]

1.

Powers
A trust entity, in addition to the general powers incident to corporations, shall have the
power to:

1.
2.

3.
4.
5.
6.

1.

Act as trustee on any mortgage or bond issued by any municipality,

corporation, or any body politic and to accept and execute any trust
consistent with law;
Act under the order or appointment of any court as guardian, receiver,
trustee, or depositary of the estate of any minor or other incompetent
person, and as receiver and depositary of any moneys paid into court by
parties to any legal proceedings and of property of any kind which may be
brought under the jurisdiction of the court;
Act as the executor of any will when it is named the executor thereof;
Act 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;
Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and
profits thereof; and
Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the MB.
Separation of Trust Business of Banks
Section 87 of the GBL requires that the trust business and all funds, properties or
securities received by any trust entity as executor, administrator, guardian, trustee,
receiver, or depositary shall be kept separate and distinct from the general business
including all other funds, properties, and assets of such trust entity. The accounts of all
such funds, properties, or securities shall likewise be kept separate and distinct from the
accounts of the general business of the trust entity

8.

Conservatorship
Section 67 of the GBL provides that the grounds and procedures for placing a bank
under conservatorship, as well as, the powers and duties of the conservator appointed
for the bank shall be governed by the provisions of Section 29 and the last two
paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section shall
also apply to conservatorship proceedings of quasi-banks.

1.

Grounds
Whenever, on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board 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, the Monetary Board
may appoint a conservator with such powers as the Monetary Board shall deem
necessary.[51]

1.
2.
3.

Powers of Conservatorship[52]
Take charge of the assets, liabilities, and the management thereof,
Reorganize the management,
iii. Collect all monies and debts due said institution, and

1.

Exercise all powers necessary to restore its viability.

9.

Receivership and Liquidation

The grounds and procedures for placing a bank under receivership or liquidation, as
well as the powers and duties of the receiver or liquidator appointed for the bank shall
be governed by the provisions of Secs. 30, 31, 32, and 33 of the NCBA: Provided, That
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 BSP, in an amount to be fixed by the court. This
shall also apply to the extent possible to the receivership and liquidation proceedings of
QBs. (Sec. 69)

Defunct or merged banks[edit]

CitytrustSavings Bank (acquired by Bank of the Philippine Islands)
Acme Savings Bank(Acquired by the Sy Group of Companies and
RenamedBanco De Oro)
Far East Bank and Trust Company(acquired by Bank of the Philippine
Islands)
Peoples Bank and Trust Company(acquired by Bank of the Philippine
Islands)
SolidBank Corporation (acquired by Metropolitan Bank and Trust Co)
G7 Bank
Insular Savings Bank(acquired by Citibank)
International Exchange Bank(acquired by Union Bank of the
Philippines)
Insular Bank of Asia and America (Merged withPhilippine Commercial
International Bank)
Monte de Piedad Savings Bank(acquired by Keppel Bank)
Mindanao Development Bank(Merged withEquitable Banking
Corporation)
Ecology Bank(Merged withEquitable Banking Corporation)
Keppel Bank(acquired by GE Capital Finance)
Philippine Commercial International Bank(merged with Equitable Bank
forming Equitable PCI Bank and now merged with Banco De Oro)
PCIBank Savings (bought by the HSBC Group and renamed HSBC
Savings Bank.)
DBS Bank Philippines Ltd. (acquired by BPI)
Equitable Banking Corporation(merged with PCI Bank forming Equitable
PCI Bank and now merged with BDO)

Prudential Bank(acquired by Bank of the Philippine Islands)

Urban Bank(forced to close then merged with Export and Industry

Bank)

Allied Bank(merged with Philippine National Bank)

Banco Filipino
Export and Industry Bank
American Express Bank(Renamed BDO Elite Savings Bank)
Equitable Savings Bank(merged with BDO)
Banco Santander Central Hispano (Philippine subsidiary acquired
byBanco De Oro and renamed BDO Private Bank)
Dao Heng Bank(acquired by Banco de Oro)
1st E Bank(Philippine Branches acquired by Banco de Oro)
United Overseas Bank(66 out of 67 Branches merged with Banco De
Oro)
BDO Elite Savings Bank (merged with BDO along with Equitable
Savings, Equitable PCI and PCI Capital Corp)
GE Money Bank(acquired by Banco de Oro)
Green Bank of Caraga(Acquired by East West Bank)
LBC Development Bank
Traders Royal Bank (Acquired by Bank of Commerce)
Capitol Bank (acquired by RCBC, now named as RCBC Savings Bank)
Asianbank (acquired by Metrobank)