Banking Laws

I. General Banking Laws

Purpose: Promote and maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy.

Scope of Application
1. Primarily governs universal banks and commercial banks.
2. Suppletorily governs thrift banks, rural banks, and cooperative banks.

Banks - entities engaged in the lending of funds obtained in the form of deposits from deposits from the
public; engaged in other activities allowed by law.

Ordinary Corporation
1. May be a stock or non-stock corporation;
2. May issue par value or no par value shares;
3. May be registered with the SEC without any certificate of authority issued by a government agency;
4. May purchase/acquire its own shares for a legitimate corporate purpose; must have an unrestricted retained
earnings in its books to cover the shares to be purchased or acquired;
5. Must be composed of 5-15 directors, each of whom shall own at least 1 share of the capital stock of the
corporation;
6. May declare dividends provided it has unrestricted retained earnings;
7. Requires a certificate of tax clearance as prior requirement for the approval of the dissolution by the SEC.

Banking Corporations
1. Must generally be a stock corporation;
2. Shall issue par value shares only;
3. Must secure a certificate of authority from the Monetary Board before it can be registered with SEC;
4. May not purchase or acquire its shares or accept them as security for a loan;

i. (Exception) when authorized by the Monetary Board. But the bank must sell or dispose of said shares
within 6 months from the time of their acquisition at a public or private sale.
5. Composed of 5-15 directors. In case of merger or consolidation, the number of directors shall not exceed
21, 2 of whom shall be an independent director.
6. May declare dividends in the absence of the conditions set forth under Sec. 57 under GBL.
7. Does not require a certificate of tax clearance for BSP to approve dissolution.

Quasi-Banks - entities engaged in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and
other obligations.

Financial Intermediaries - persons or entities whose principal functions include the lending, investing or
placement of funds on evidences of indebtedness or equity deposited with them, acquired by them or
otherwise coursed through them, either for their own account or for the account of others.

Characteristics of Bank Deposits:

1. Loans to a bank because it can use the same and they earn interest;
2. Irregular deposit
3. Generic Fund
Nature of Banking Business:
1. There is a debtor-creditor relationship;
2. There is a fiduciary duty
3. Not a trust agreement
4. An indispensable institution
5. Impressed with public interest
6. Requires utmost diligence
7. Must have a meticulous care in treating the accounts of its depositors
8. Has a fiduciary duty to keep records of their daily transactions
9. Banks are not gratuitous bailees
10. Banks are not expected to be infallible
11. May exclude persons in their premises
12. Charges interest for loans

Liability for acts of Officers and Employees

1. Negligence or Misdeed of Manager, the bank is liable
2. Negligence, wrongful or tortious acts of officers, the banking corporation is liable
3. A banks liability as obligor is not merely vicarious but primary wherein the defense of exercise of due
diligence in the selection and supervision of its employees is inapplicable.

Classification of Banks
1. Commercial banks
2. Universal banks
3. Thrift banks
a. Stock savings and loan associations
b. Private Development banks
c. Savings and mortgage banks

4. Rural banks
5. Islamic banks
6. Cooperative banks
7. Other classifications of banks as determined by the Monetary Board of BSP

Commercial Banks - given all powers necessary to engage in commercial banking in addition to general
corporate banking in addition to general corporate powers.

1. No additional powers
2. May only invest in equities of allied enterperises whether financial or non-financial
3. General powers incident to corporations; such powers as may be necessary to carry on the business of
commercial banking;
4. Has 35% of net worth as to total investment in equities of allied enterprises;
5. Has 25% of net worth as to total investment in any one enterprise;
6. Has 100% of equity of a thrift or rural bank as to equity investment in financial allied enterprise; in other
financial allied enterprises including another commercial bank, investment shall remain a minority holding.

Universal Banks - has the authority to exercise the powers of a commercial bank and an investment house,
invest in non-allied enterprises and have the highest capitalization requirement; primarily governed by GBL.

1. Authority to exercise additional powers other than those authorized for commercial banks;
2. May invest in the equities of allied whether financial or non-financial, and non-allied enterprises;
3. Has Corporate Powers;
4. Has the powers of an investment house;
5. Power to invest in allied enterprises;
6. Has 50% of net worth as to total investment in equities of allied enterprises;
7. Has 50% of net worth as to total investment in equities of non-allied enterprises;
8. Has 25% of net worth as to total investment in any one enterprise;
9. Has 100% of equity as to equity investment in financial allied enterprise
10. Equity investment in a single non-allied enterprise shall not exceed 35% of the total equity in that
enterprise nor shall it exceed 35% of the voting stock in that enterprise.

Thrift Banks - engaged in accumulating savings of depositors and investing them and provide short-term
working capital and medium-term and long-term financing to business engaged in agriculture, services,
industry and housing, and diversified financial and allied services, and to their chosen markets and
constituencies, especially small and medium enterprises and individuals.

1. Savings and mortgage banks;

2. Stock savings and loan associations; and
3. Private development banks

Rural banks - designed to make needed credit available and readily accessible in the rural areas on
reasonable terms

Islamic banks - promotes and accelerates the socio-economic development of Autonomous Region by
performing banking, financing and investment operations and to establish and participate in agricultural;
commercial and industrial ventures based on the Islamic concept of banking.

Cooperative Banks - organized by cooperatives and the majority shares of which are owned and controlled
by cooperatives, primarily to provide financial and credit services to cooperatives.

Philippine Veterans bank - created as a private commercial bank owned by the Filipino veterans of World
War II and deeply imbued and impressed with public interest.

Land Bank of the Philippines - created to finance the acquisition and distribution of agricultural estates for
division and resale to small landlords as well as the purchase of the landholding by the agricultural lessee.

Development Bank of the Philippines - provide banking services principally to cater to the medium and
long-term needs of agricultural and industrial enterprises with emphasis on small and medium-scale
enterprises.

Universal & Commercial Banks:

1. Authorized to engage in quasi-banking functions without the need for approval;
2. May accept or create deposits without need for approval

Other banks:
1. Not authorized to engage in quasi-banking functions;
2. Must seek approval of the Monetary Board before accpeting or creating demand deposits

Deman deposits - all those liabilities of the BSP and of the other banks which are denominated in Philippine
currency and are subject to payment in legal tender upon demand by the presentation of checks.

Non-Stock Savings and Loan Associations - non-stock and non-profit corporation engaged in the business
of accumulating the savings of its members and using such accumulations for loans to members and using
such accumulations for loans to members to service the needs of households by providing long-term
financing for home building and development and for personal finance.
Off-shore Banking - the conduct of banking transaction in foreign currencies involving the receipt of funds
from external sources and the utilization of such banks.

Off-shore Banking Unit - branch, subsidiary or affiliate of a foreign banking corporation duly authrized by
BSP to transact off-shore banking business in the Philippines.

Authority of Bangko Sentral

- the SEC 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, provided that:

a. Requirements of existing laws and regulations to engage in the business;

b. Public interest and economic conditions justify the authorization;
c. Capital, financing organization, direction and administration as well as integrity and responsibility of the
organizers and administrators, reasonably assure the safety of deposits and the public interest.

Organization of Bank or Quasi-Bank Conditions:

a. Entity is as stock corporation;
b. Its funds are obtained from the public (20 or more persons); and
c. Minimum capital requirements are satisfied

Stockholdings
1. Treasury Stock
a. General Rule: No bank shall purchase or acquire shares if its own capital stock or accept its own shares
as security for a loan.

b. Exception: When authorized by the Monetary Board (MB)

2. Foreign Stockholding
a. Individual and Non-banks - may own or control up to 40% of the voting stock of a domestic bank;
citizenship of the corporation shall follow the citizenship of the controlling stockholders of the corporation.

Controlling Stockholders - individuals holding more than 50% of the voting stock of the corporate
stockholders of the bank.

3. Foreign Banks
a. Modes of entry
i. By acquiring 100% of the voting stock of an existing domestic bank;

ii. By investing in up to 100% of the voting stock of a new banking subsidiary incorporated under the
rules of the Philippines;

iii. By establishing branches with full banking authority.

b. Capital requirements:
i. Locally incorporated subsidiaries - the minimum capital required for locally incorporated subsidiaries
of foreign banks shall be equal to that prescribed by the MB for domestic banks of the same category;

ii. Foreign bank branches - minimum capital shall not be less than that required for domestic banks of
the same category.

c. Participation in foreclosure Proceedings - FB shall be allowed to bid and take part in foreclosure sales of
 real property mortgaged to them.
d. Filipino Stockholding
i. May each own up to 40% of the voting stock of a bank;
ii. The restriction of Filipinos refer to individual equity participation.

Aquisition of Voting Stock

1. Commercial Bank - At least 60% is owned by Filipinos;
2. Thrift Banks - at least 40%
3. Rural Banks - no less than 40%

Financial allied enterprises

1. Leasing companies;
2. Banks;
3. Investment houses;
4. Credit card companies;
5. Financial institutions, including venture capital corporations;
6. Securities dealership/brokerage;
7. Foreign exchange dealership/brokerage;
8. (universal banks) Insurance companies; and
9. (universal bamks) Holding company\

Non-financial allied Enterprises

1. Warehousing companies;
2. Storage companies;
3. Safety deposit box companies;
4. Management corporations engaged or to be engaged in an activity similar to the management of mutual
funds;
5. Computer services;
6. Insurance agencies/brokerages;
7. Home building and home development;
8. Drying and/or milling facilities for agricultural crops;
9. Service bureaus;
10. Philippine Clearing House Corporation, Philippine Central Depository, Inc. and fixed income exchange;
11. Others as MB may declare

Non-allied enterprises:
1. Agriculture, mining, quarrying, manufacturing public utilities, construction, wholesale trade and
community and social services;
2. Industrial park projects and/or industrial estate developments;\
3. Financial and commercial complex projects arising from or in connection with Government’s privatization
programs; and
4. Other categories as MB may declare

Net worth - the total of the unimpaired pain-in capital including paid-in surplus, retained earnings and
undivided profit, net of evaluation reserves and other adjustments as may be required by the BSP

Risk-based Capital -