II.

CLASSIFICATION OF BANKS

A. Types of Bank - Secs. 3.2., 23, 25, 26, 29-32, GBL;

B. Secs. 3(a) & 10, RA 7906 "Thrift Banks Act";

C. Sec. 12, RA 7353 "Rural Ba ks Act" as Amended;

D. Art. 100, RA 6938 "Cooperative Bank Act";

E. Sec. 6.7, RA 6648

A) Types of Bank - Secs. 3.2., 23, 25, 26, 29-32, GBL;

Sec 3.2, GBL - Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock
savings and loan associations, and (iii) Private development banks, as
defined in Republic Act No. 7906 (hereafter the "Thrift Banks Act");

(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural
Banks Act");
(e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the
"Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as
the "Charter of Al Amanah Islamic Investment Bank of the Philippines"; and

(g) Other classifications of banks as determined by the Monetary Board of

the Bangko Sentral ng Pilipinas

Why are banks classified as such? - because banks are classified

according to capitalization - the bigger the bank, the higher is the
capitalization
 7 CLASSIFICATIONS OF BANKS

1. Universal banks,

- Capitalization: highest
- Power: highest

- Functions:

banks that have authority to exercise, in addition to the

(a.) powers and functions of commercial banks,

(b.) powers of an investment house and

(c.) the power to invest in non-allied enterprises (not strictly a banking function

2. Commercial banks,

banks that are given all such power necessary to engage in commercial banking in addition to
general corporate powers; commercial banking includes the power to accept drafts, issue letters
of credits, discounting and negotiation of negotiable instruments and evidence of debts, accept
and create demand deposits and the like

POWERS:

1. General powers incident to a corporation;

2. All such powers as may be necessary to carry on the business of commercial banking;

3. such as accepting drafts and issuing letters of credit;

4. discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt;

5. accepting or creating demand (checking) deposits; NOTE: UB AND CB – They CAN accept or create demand
deposits (without prior approval from the monetary board or BSP) FROM OTHER TYPES OF BANKS (They need prior
approval from monetary board)

6. receiving other types of deposits and deposit substitutes;

7. buying and selling foreign exchange and gold or silver bullion;

 8. acquiring marketable bonds and other debt securities; and

9. extending credit, subject to such rules as the Monetary Board may promulgate.

10.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, GBL).

NOTE:
- CB cannot invest in non-allied enterprises (Sec. 30, GBL);
- only UB are allowed to invest in a non-allied enterprises.

3. Rural banks,

banks that are created to make needed credit available and readily accessible in rural areas for
the purpose of promoting comprehensive rural development.

DEFINITION: These are banks that are formed for the purpose of providing adequate credit facilities to farmers and
merchants, or to cooperatives of such farmers and merchants and in general, the people of the rural communities.
They are primarily governed by RA 7353 (Rural Banks Act).

- banks which are normally found in the provinces (if there are no universal or commercial banks) - geared
towards rural development –

CAPITALIZATION:

1. Nationalized industries – 100% FILIPINO; and

2. Partly nationalized industries – LAW ALLOWS FOREIGN OWNERSHIP Rural banks shall be organized in the form
of stock corporations.

1. No less than 40% of the voting stocks of a rural bank – owned by Filipino citizens (at least 60% of whose capital
shall be owned by Filipino citizens); and

1. Up to 60% of the voting stocks – may be owned by Non-Filipino citizens. (40% may be owned by Non-Filipino citizens)
[Sec. 4 (R.A. 7353 as amended by R.A. 10574)]. NOTE: Holders of non-voting shares are nevertheless entitled to vote
on the following: (AASIIMID)

1) Amendment of the articles of incorporation; 2) Adoption and amendment of bylaws; 3) Sale, lease, exchange,
mortgage, pledge, or other disposition of all or substantially all of the corporate property; 4) Incurring, creating, or
increasing bonded indebtedness; 5) Increase or decrease of authorized capital stock; 6) Merger or consolidation of the
corporation with another corporation or other corporations; 7) Investment of corporate funds in another corporation
or business in accordance with this Code; and 8) Dissolution of the corporation

4. Thrift banks
include savings and mortgage banks, private development banks, and stock savings and loan
associations (SSLA).

Example: Thrift banks – LUZON DEVELOPMENT BANK (LDB) –

 No definition under the law; -

Private development bank is not a classification of a bank; -

The correct classification is thrift bank - DEFINITION 1.

“Thrift banks" shall include: 1. savings and mortgage banks (SMB

5. Cooperative Banks, banks that are primarily provide financial, banking and credit services to
cooperative organizations and their members.

DEFINITION: Cooperative bank is one organized by, the majority shares of which is owned and controlled by,
cooperatives primarily to provide financial and credit services to cooperatives. The term “cooperative bank” shall
include cooperative rural banks (Art. 100, R.A. No. 6938).

- FUNCTIONS: Page 20 of 422

1. A cooperative bank shall primarily provide financial, banking and credit services to cooperative organizations
and their members.

2. However, the BSP may prescribe appropriate guidelines, ceilings and conditions on borrowing of a cooperative
organization from a cooperative bank.

3. The powers and functions of a cooperative bank shall be subject to such rules and regulations as may be
promulgated by the BSP.

4. In addition to the powers granted by this Code and other existing laws, any cooperative bank may perform any
or all of the banking services offered by other types of banks subject to the prior approval of the BSP (Art. 100, R.A.
No. 6938 as amended by R.A. No. 9520).

- normally provides financial, banking and credit services to the cooperative and its members - functions are not
limited or restricted to the financial needs of member or cooperative because it may also extend financial and
credit accommodations in favor of the public, non-members or third persons other than the members of the
cooperative –

REGISTRATION:

No entry shall be registered by the Cooperative Development Authority as a cooperative bank unless the articles
of cooperation and by-laws thereof as well as its establishment and operation as a cooperative bank have been
approved by the Central Bank of the Philippines and it satisfies all requirements for registration as a cooperative
(Art. 101, R.A. No. 6938)

6. ISLAMIC BANK
Only Islamic bank in the Philippines is a subsidiary of Development Bank of the Philippines (DBP) which is Al
Amanah Islamic Investment Bank of the Philippines - SEC. 6, RA 6848 - Islamic Bank’s Powers.—The Al-Amanah
Islamic Investment Bank of the Philippines, upon its organization, shall be a body corporate and shall have the
power:

DISTINCTIONS

1. As to capitalization-

they have different minimum capitalization requirements

 It will depend on the extent of operation of the bank

 a universal bank has higher capitalization than a rural bank or a thrift bank - under
MORB (Manual of Regulations of Banks), the higher number of branches of banks
requires a higher minimum of capitalization

 - different classification of banks requires different minimum capitalization (general

statement)

2. As to purpose-

some of the banks have specific purposes and social functions.

For instance, Rural banks are meant to hasten rural development.

3. As to powers or functions-

there are functions and powers that are not exercised by one that are exercised by the others.
Some banks may exercise certain powers only upon prior approval of the Monetary Board.

Thus, a. only universal banks and commercial bank scan create and accept demand deposits
without separate authority from the Monetary Board, while other banks must secure authority
from the Monetary board.

B. only universal banks may act as an investment house.

C. generally, only universal banks and commercial banks may be involved in quasi-banking
functions.

4. As to who can be directors-

 public officers can be directors of Rural Banks while such officer are prohibited from being
directors or officers of other types of banks

GENERAL RULE: elective public officer as member of bod is prohibited (Rural Bank Act) o
EXCEPT IN CASE OF:

1. RURAL BANKS: under the Rural bank Act, appointive or elective public officers may hold
or may be elected as a member of the board of directors 2. GOVERNMENT BANKS: there
are officers who are called ex officio officers or members of the board of directors, e.g., LBP –
one of the BOD is the Secretary of Finance (not considered as double compensation because
he is merely acting in an ex officio position)

5. As to incorporators-

Consistent with the provisions of corporation code, incorporators of banks are natural
persons.

The exception is with respect to rural banks which can be organized or established by
cooperatives and corporations primarily organized to hold equities in rural banks.

6. As to foreign equity –

a rural bank must be wholly owned by Filipinos while 100% of outstanding capital oof other
banks can be acquired by foreign Banks.