Chapter 6:

Bank
Organization
PROF3: Banking and Financial Institutions

Lecturer: Yvonne Hitty L. Mier,

Sacred Heart College
 General Aspects in Establishing Banks

Bank Organization, Management and

Administration

Agenda Why Banks are Established as Corporations

Bank Location

Role of Regulatory Government Bodies in Bank

Organization

Yvonne Hitty L. Mier – Sacred Heart College – A.Y. 2020 - 2021 2

 ◦ Any business, whether big or small, must be formed
under the accepted principles of organizing and
financing.
◦ The following are the general aspects which organizers
General could fall upon for a pattern. These points have to be

Aspects in
threshed out in order to be assured of initial success:
◦ Economic justification for banks. Ascertain the degree of

Establishing
competition in the business, the degree of risk, the potential
customers, availability of manpower, businesses and
products within the locale, habits and customs of the people,
Banks etc.
◦ Selection of stockholders. Stockholders selected should be
of good moral character, have adequate knowledge on the
business of banking, equipped with needed capital, known in
the community as honest and righteous citizens, and willing
and able to contribute to the bank’s success.

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 ◦ Determination of the kind of bank to be formed. Depends
upon the economic survey: income level of the
community, the businesses and industries, population of
General the place, number of banks or financial institutions, and
factors which will lead to a decision on the size of the

Aspects in organization to be set up. The chosen type of bank will

determine the amount of capital to be raised.

Establishing ◦ Determination of the amount of capital to be raised.

Organizers must be aware that at least the minimum

Banks – requirements should be met. These are to cover

organizational expenses; to carry on operations which will

Cont.
require current capital; to provide for the acquisition of
fixed assets; and to include enough room for the initial
cost of operation. In a nutshell, there must be enough
capital to see the bank through until it has gained
prominence and has become profitable.

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 ◦ After the preliminary steps, the organizers can
proceed to the formal establishment of the bank
itself. In this regard, the Philippine banking laws
and the Corporation Code shall serve as guide to
Organization, the organizers.

Management ◦ To start with, the New General Banking Act

(Republic Act 8791) requires that all banks shall
and be established as corporations.
Administration ◦ With the exception of building and loan
associations, all banking institutions shall be
stock corporations, and shall issue par value
stocks.

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 ◦ Sec 8. Organization. The Monetary Board may
Organization, authorize the organization of a bank or quasi-
bank subject to the following conditions:
Management 8.1. That the entity is a stock corporation;
and 8.2. That its funds are obtained from the public,
which shall mean twenty (20) or more persons; and
Administration 8.3 That the minimum capital requirements
– Cont. prescribed by the Monetary Board for each category
of banks are satisfied.

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 ◦ Sec 9. Issuance of Stocks. The Monetary Board
Organization, may prescribe rules and regulations on the types

Management of stock a bank may issue, including the terms

thereof and rights appurtenant thereto to
and determine compliance with laws and regulations
Administration governing capital and equity structure of banks:
provided, that banks shall issue par value stock
– Cont. only.

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 ◦ Sec. 10. Treasury Stocks. No bank shall purchase
or acquire shares of its own capital stock or
accept its shares as a security for a loan, except
Organization, when the stock so Foreign Stockholdings. Foreign
individuals and non-bank corporations may own
Management or control up to forty percent (40%) of the voting
and stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations.
Administration ◦ The percentage of foreign-owned voting stocks in a bank

– Cont. 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.

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 ◦ Sec. 12. Stockholdings of Family Groups or
Related Interests. Stockholdings of individuals
related to each other within the fourth degree of
consanguinity or affinity, legitimate or common-
Organization, law, shall be considered family groups or related
Management interests and must be fully disclosed in all
transactions by such an individual with the bank.
and ◦ Sec 13. Corporate Stockholdings. Two or more
Administration corporations owned or controlled by the same
– Cont. 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.

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 ◦ Sec. 14. Certificate of Authority to Register. The Securities
and Exchange Commission (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. Such
Organization, certificate shall not be issued unless the Monetary Board
is satisfied from the evidence submitted to it:
Management 14.1. That all requirements of existing laws and regulations to
engage in the business for which the applicant is proposed to be

and incorporated have been complied with;

14.2 That the public interest and economic conditions, both

Administration general and local, justify the authorization; and

14.3 That the amount of capital, the financing, organization,

– Cont.
direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest.
The SEC shall not register the by-laws of any bank, or any
amendments thereto, unless accompanied by a certificate
of authority from the Bangko Sentral.

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 ◦ Sec. 15. Board of Directors. The provisions of the
Corporation Code to the contrary
notwithstanding, there shall be at least five (5),
and a maximum of fifteen (15) members of the
board of directors of a bank, two (2) of whom
Organization, shall be independent directors. An “independent
Management director” shall mean a person other than an

and officer or employee of the bank, its subsidiaries

or affiliates, or related interests.
Administration ◦ Non-Filipino citizens may become members of the

– Cont. board of directors of a bank to the extent of the

foreign participation in the equity of said bank.
◦ The meetings of the board of directors may be
conducted through modern technologies such as,
but not limited to, teleconferencing and video-
conferencing.

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 ◦ Sec. 16. Fit and Proper Rule. To maintain the
quality of bank management and afford better
protection to depositors and the public in
general, the Monetary board shall prescribe,

Organization, pass upon and review the qualifications and

disqualifications of individuals elected or
Management appointed bank directors or officers and

and disqualify those found unfit.

◦ After due notice to the board of directors of the bank, the
Administration Monetary Board may disqualify, suspend, or remove any
bank director or officer who commits or omits an act
– Cont. 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.

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 ◦ Sec. 17. Directors of Merged or Consolidated
Banks. In the case of a bank merger or
consolidation, the number of directors shall not
exceed twenty-one (21).
◦ Sec 18. Compensation and Other Benefits of
Organization, Directors and Officers. To protect the funds of
Management depositors and creditors, the Monetary Board
may regulate the payment by the bank of its
and directors and officers of the compensation,

Administration allowance, fees, bonuses, stock options, profits

sharing, and fringe benefits only in exceptional
– Cont. cases and when the circumstances warrant,
such as but not limited to the following:
18.1. When a bank is under comptrollership or
conservatorship; or
18.2. When a bank is found by the Monetary Board to be in
an unsatisfactory financial condition.

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 ◦ Sec. 19. Prohibition on Public Officials. Except as
otherwise provided in the Rural Banks Act, no
Organization, appointive or elective public officials, whether

Management full-time or part-time, shall at the same time

serve as officer of any private bank, save in
and cases where such service is incident to financial
Administration assistance provided by the government or a
government-owned or controlled corporation to
– Cont. the bank or unless otherwise provided under
existing laws.

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 ◦ Sec. 20. Bank Branches. Universal or
commercial banks may open branches or other
offices within or outside the Philippines upon
prior approval of the Bangko Sentral. Branching
Organization, by all other banks shall be governed by pertinent
laws.
Management ◦ A bank may, subject to prior approval of the Monetary Board,
and use any or all of its branches as outlets for the presentation
and/or sales of the financial products of its allied
Administration undertaking or of its investment house units.

– Cont. ◦ A bank authorized to establish branches or other offices shall

be responsible for all business conducted in such branches
and offices 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 and offices shall be treated
as one unit.

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 ◦ Sec. 21. Banking Days and Hours. Unless
otherwise authorized by the Bangko Sentral in
the interest of the banking public, all banks
including their branches and offices shall
transact business on all working days for at least
Organization, six (6) hours a day. In addition, banks or any of
Management their branches or offices may open for business
on Saturdays, Sundays, or holidays for at least
and three (3) hours a day: provided, that banks which
Administration opt to open on days other than working days
shall report to the Bangko Sentral the additional
– Cont. days during which they or their branches or
offices shall transact business.
◦ For purposes of this Section, working days shall
mean Mondays to Fridays, except if such days are
holidays.
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 ◦ Sec. 22. Strikes and Lockouts. The banking
industry is hereby declared as indispensable to
the national interest and, notwithstanding the
provisions of any law to the contrary, any strike or
Organization, lockout involving banks, if unsettled after seven

Management (7) calendar days shall be reported by the

Bangko Sentral to the Secretary of Labor who
and may assume jurisdiction over the dispute or
Administration decide it or certify the same to the National
Labor Relations Commission for compulsory
– Cont. arbitration. However, the President of the
Philippines may at any time intervene and
assume jurisdiction over such labor dispute in
order to settle or terminate the same.

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 ◦ This is due to the advantages of a corporations over
that of a single proprietorship or a partnership.

Why Banks ◦ A corporation is formed by a number of persons who pool

in their resources to enter a business for profit. The

are
methods of financing available to such type of
organization such as the sale of stocks and bonds can

Established
raise a greater amount of capital which is needed to
undertake a business with multifarious functions. A
corporation then meets this test because of its perpetual
as life.
◦ The risk of an investor is also limited to the extent of his
Corporation contribution in the business. And above all, a
corporation’s charter represents a tripartite contract
among the state, the stockholders and the bank.
◦ This assures safe conduct of the business.

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 Bank Location:
Factors influencing the choice of location
These will enhance the
Accessibility of the chances of the bank to
Availability of place to both human attract the greatest
transportation and vehicular traffic number of potential
should be considered depositors and
customers.

Facilities should
Place’s provision of
comprise consumers’
facilities
shopping needs.

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Role of Regulatory Government Bodies in
Bank Organization
◦ The role of the regulatory government bodies in the bank organization is to facilitate the processing and
approval of pertinent documents to make the organization legal.
◦ Before the articles of incorporation could be duly registered, a certificate of authority must be secured
from the Monetary Board of the Bangko Sentral ng Pilipinas. The approval of the by-laws is also sought
from this body before filing the same with the SEC.
◦ The particular department in the BSP which processes the applications and other pertinent papers for
bank organization and passes judgement as to whether it merits certification is the Supervising and
Examining Department.
◦ This office makes recommendations regarding the establishment of a bank to the Monetary Board. The
Monetary Board, based on the recommendation of the Supervising and Examining Department, will take
appropriate action – either to issue or not to issue a certificate of authority.
◦ The SEC, for its part, also duly examines the papers to see to it that all requirements are met before
issuing the certificate of incorporation.
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 Thank you for listening! ☺

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Reference
❑ Leuterio, M. & Estepa, C. (2009). Banking: Theory and Practice,
Anvil Publishing.

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