Professional Documents
Culture Documents
8791
GENERAL BANKING LAW
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. In furtherance thereof, the State shall
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.
Concepts
Banks are entities engaged in the lending of funds obtained in the form of deposits from the
public.
a. It is required that banks are stock corporations and that its funds are obtained from the
public, meaning deposits of twenty (20) or more persons.
b. An investment company which uses its capital to invest in other companies .Such
investment company that is engaged solely in investing, reinvesting or trading in
securities is not engaged in banking. However, an investing company which loans out
the money of its customers, collects the interests, and charges a commission to both
lender and borrower is engaged in banking.
Quasi-banks are 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.
Under Sec. 95 RA 7653, deposit substitutes are alternative forms 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 relending or purchasing of
receivables and other obligations. These instruments may include, but
need not be limited to, bankers acceptances, promissory notes, participations,
certificates of assignment and similar instruments with recourse, and repurchase
agreements.
Trust entities are stock corporations that engage in trust business and act as a trustee or
administer any trust or hold property in trust or on deposit for the use, benefit, or in behalf
of others. Trust entities must be authorized by the Monetary Board to be able to operate.
The business of banking is impressed with public interest and great reliance is made on the bank’s
s professional diligence and meticulousness in giving irreproachable service.
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Incorporation of banks
Foreign banks
Foreign individuals and non bank corporations may own or control up to 40% of the voting
stock of a domestic bank.
Grandfather Rule the percentage of foreign owned voting stocks in a bank shall be determined
by citizenship of individual stockholders in that bank.
Citizenship of corporation which is a stockholder in a bank shall follow the citizenship of
stockholders of the corporation irrespective of the place of incorporation.
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Effect of merger or consolidation of banks to the number of directors allowed
A: The number of directors may be more than 15 but should not exceed 21 (Sec. 17, GBL)
BANK SUPERVISION
Operations and activities of banks shall be subject to supervision of the bangko sentral.
a. issuance of rules of conduct or the establishment of standards of operation for uniform
application to all banking and financial institutions
b. the conduct of examination of the bank and its wholly owned or controlled enterprise
note: the PDIC may also conduct a regular annual examination upon prior approval of the MB
(sec. 8(8) R.A No. 3591 as amended by R.A No. 93021) special examination without prior MB
approval may be made by PDIC if there is an impending bank closure (PDIC reg. No. 2009 -05)
c. overseeing to ascertain that laws and regulations are complied with
d. regulatory investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis
e. inquiring into the solvency and liquidity of the institution or
f. enforcing prompt corrective action
Bank operations
Universal or commercial banks may open branches or other offices within or outside the
Philippines only upon prior BSP approval.
A bank authorized to establish branches or other offices shall be responsible for al 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.
A bank may subject to prior approval of the MB use any or all of its branches as outlets for the
presentation and/or sale of the financial products of its allied undertaking or of its investment
house rules.
When a bank maintains branches each branch becomes a separate business entity with
separate books.However when considered with relation to the parent bank they are not
independent. They are merely branches and are subject to the supervision and control of the
parent bank. Ultimately liability for a debt of a branch would rest upon the parent bank.
Strikes and lockouts
Any strike or lockout involving banks if unsettled after 7 calendar days shall be reported by the
BSP to the Dole Secretary who may assume jurisdiction over dispute or decide it or certify the
same to the NLRC for compulsory arbitration.However the President may at anytime intervene
and assume jurisdiction over such labor dispute in order to settle or terminate the same
Liability for torts
As a general rule a banking corporation is liable for the wrongful or tortuios acts and
declarations of its directors or agents within the course and scope of their employment.It may
be liable for the tortuous acts of its officers even as regards that species of torts of which
malice is an essential element.
A bank holding out its officers and agents as worthy of confidence will not be permitted to
profit by frauds those officers or agents were enabled to perpetuate in apparent course of their
employment nor will it be permitted to shrirk its responsibility for such frauds even though
no benefit may accrue to the bank is liable for fraudulent acts or representations of an officer
or agent acting within the scope of his employment or authority.
CLASSIFICATION OF BANKS
Universal Banks—banks that have authority to exercise, in addition to the powers and
functions of commercial banks, powers of an investment house and the power to invest in non-
allied enterprises. They have the authority to exercise powers of a commercial bank. It can
also act as an investment house which is a corporation engaged in selling and guaranteeing
securities and shares. It can also engage in non allied undertaking which is an industry
unrelated to banking
Operations of universal banks
It shall have the authority to exercise in addition to powers authorized for commercial bank:
Powers of an investment house
Invest in non allied enterprises as provided in GBL
Rural Banks RA 7353 or Rural Bank Act these banks that are created to make needed credit
available and readily accessible in the rural areas for the purpose of promoting comprehensive
and rural development. The purpose of rural banks is “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 Rural banks are banks that are created to make needed
credit available and readily accessible in the rural areas for purposes of promoting
comprehensive rural development.
It is a government-sponsored/assisted banks which are privately managed and largely
privately owned that provide credit facilities to farmers and merchants, or to cooperatives of
such farmers or merchants at reasonable terms and in general, to the people of the rural
community.
Thrift Bank RA 7906 or Thrift Bank Act include savings and mortgage banks, private
development banks, and stock savings and loan associations.
Thrift banks shall include savings and mortgage banks, private development banks, and stock
savings and loans associations organized under existing laws, and any banking corporation that
may be organized for the following purposes:
a. 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 or
household finance, whether secured or unsecured, or in financing for homebuilding 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 may determine as necessary in the furtherance of national economic objectives;
b. Providing short-term working capital, medium- and long-term financing, to businesses
engaged in agriculture, services, industry and housing; and
c. Providing diversified financial and allied services for its chosen market and
constituencies specially for small and medium enterprises and individuals.”
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Thrift banks must be organized as a stock corporation where at least 40% of its voting stock
shall be owned by Filipinos citizens
Cooperative Banks According to RA 6893 or Cooperative Code these banks primarily provide
financial, banking and credit services to cooperative organizations and their members. This
bank is owned and controlled by cooperatives so as to give financial and credit services to
cooperatives
Islamic Banks According to RA 6848 these are banks that are subject to the basic principles and
rulings of Islamic Shari'a. Example: Al Amana Islamic Investment Bank of the Philippines.It is bank
created to promote and accelerate the socio-economic development of the Autonomous Region
of Muslim Mindanao by performing baking,financing and investing operations and to establish
and participate in agricultural,commercial and industrial ventures based on Islamic concepts
concept of banking.
Foreign bank it is a bank or banking corporation formed, organized and existing under any
foreign law.
Foreign Banks Republic Act 10641
Authorized foreign banks to
Acquire,purchase or own up to 100% of the voting stock of an existing bank
Invest up to 100% of the voting stock of a new domestic banking subsidiary
Establishing branches with full full banking authority
However the law mandates the MB to ensure that control of at least 60% of the resources or
assets of the entire banking system is held by domestic banks that are majority owned by
Filipinos
Only foreign banks widely owned and publicly listed in their country of origin may be allowed to
enter the Philippines unless such foreign bank is owned and controlled by the government of its
country of origin
Offshore banking refers to the conduct of banking transactions in forign currencies involving
the receipt of funds from external sources and utilization of such fuds in transactions with non
residents or other offshore banking units
Only banks which are organized under any law other than those of the Philippines,their
branches, subsidiaries aor affiliates shall be qualified to operate offshore banking units
However local branches of foreign banks already authorized to accept foreign currency deposits
under FCDU may opt to apply for authority to operate an offshore banking unit.
Universal banks and commercial banks (as well as other banks depending on the type of bank
and/or the corresponding authority given by the Monetary Board) may also exercise the
following functions:
1.Receive in custody funds, documents and valuable objects; Funds, securities and other effects
which it receives shall be kept separate from
the bank’s own assets and liabilities.
2.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;
3.Make collections and payments for the account of others and perform such other services for
their customers as are not incompatible with banking business;
4.Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management/advisory/consultancy accounts; 5.Rent out safety
deposit boxes.
A bank other than a universal or commercial bank 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
FUNCTION OF BANKS
Deposit function
Loan function
Trust function
Deposit Function
This function refers to the receiving of money from depositors, safely keeping it and returning
the same Fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. Under the rule, the bank is the debtor while
the depositor is the creditor.
Consequences:
The bank can make use money deposited as its own. Said amount is not being held in trust for
the depositor nor is it being kept for safe-keeping.
Third persons who may have a right to the money deposited cannot hold the bank responsible
unless there is a court order or garnishment. The duty of the bank is to its creditor-depositor
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and not to third persons. If a third person has a valid right over the money deposited, he must
prove the same before a court of competent jurisdiction.
The officers of the bank cannot be held liable for estafa if they authorized the use of the money
deposited by the depositor. There would be no liability for estafa under Article 315(1)(b) of the
Revised Penal Code even if the bank failed to return the amount deposited.
The bank has the right to compensation. It can set off the deposits with the indebtedness of the
depositor that are due and demandable.
Kinds of Deposits
a.Demand Deposits Demand deposits are money deposited into a bank account from
which you can withdraw 'on demand' - at any time without any advance notice to the bank.
No interest is paid on this type of deposit because the depositor can withdraw the money at
any time.
They are subject to payment in legal tender upon demand by presentation of checks subject to
the following rules:
1. Only a universal bank or commercial bank can accept or create demand deposits.
2. A bank, other than a universal bank or commercial bank cannot accept demand
deposits except on prior approval of the Monetary Board.
3. Temporary overdrawing against current accounts shall not be allowed unless
caused by normal bank charges and other fees incidental to handling such
accounts.
4. Drawings against uncollected deposits (i.e., uncleared checks) are generally
prohibited.
b.Savings Account—this is the most common type of deposit and is usually evidenced by a
passbook.
1. Banks are prohibited from issuing/accepting withdrawal slips or any other similar
instruments designed to effect withdrawals of savings deposits without requiring
the depositors concerned to present their passbooks and accomplishing the
necessary withdrawal slips, except for bank authorized by the BSP to adopt the
no passbook withdrawal system.
2. The requirement of presentation of passbooks is usually included in the terms
and conditions printed in the passbooks. A bank is negligent if it allows the
withdrawal without requiring the presentation of a passbook.
3. Savings deposit is the most common type of deposit and is
usually evidenced by a passbook. The bank pays interest on this
type of deposit because banks stipulate a specific number of days
before the depositor can withdraw the money.
Current deposits are deposits to a bank account or financial institution without a specified
maturity date. This type of deposit is generally made available to the customer for withdrawal at
any time and without an early withdrawal penalty. Funds are typically made immediately
available to the customer for withdrawal by writing a check. Such Current Deposit accounts
are generally used for businesses that have a need for issuing checks to pay employee salaries
and bonuses, as well as to provide cash for inventories and other such business expenses.
Checking deposits are available money allocated to one's checking account, in a bank or financial
institution, allowing the account owner to write a check or draft against that available
amount in the account.
Anonymous Accounts are prohibited.
Exception: Foreign currency deposits which may be a “numbered account.” However, the law
requires the necessary measures are undertaken by the bank to record and establish the true
identity of the depositor (Foreign Currency Deposits Act).
Joint Accounts may be the subject of a survivorship agreement whereby the co-depositors
agree to permit either of them to withdraw the whole deposit during their lifetime and
transferring the balance to the survivor upon the death of one of them.
Freezing of accounts
A bank does not have a unilateral right to freeze the account of a depositor based on its mere
suspicion that the funds therein were the proceeds of some shady transactions.
Rules on depositors
a. Minors—they can open bank accounts in their own right provided that:
1. They are at least seven years of age,
2. They are able to read and write and have sufficient discretion,
3. They are not otherwise disqualified by any other incapacity,
4. It should only be savings or time deposits.
With respect to Thrift Banks, the law states that if any 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.
Married Women—they are allowed to open bank accounts without the assistance of
their husbands.
Bank account may be opened by one individual or by two or more persons. Whenever two (2)
or more persons open an account, the same may be an “and/or account” or an “and” account.
DOSRI accounts
DOSRI accounts are accounts held by Directors, Officers, Stockholders of a bank and
their related interests
Nature of bank deposit
All bank deposits are loans
The bank can use the money deposited as its own provided said amount is not held in trust or
for safekeeping
Contract between bank and depositors is not a trust agreement. The fiduciary natureof the
bank depositor relationship does not convert the contract to a trust agreement.
Nature of safety deposit box
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The contract for the use of safety deposit box is governed by the law on lease
The basis for determining compliance with the SBL is the total credit commitment of the bank
to the borrower.
Unless the MB prescribes otherwise SBL may be increased by an additional 10% of net worth
provided additional amount is supported adequately by trust receipts,shipping
documents,warehouse receipts or other similar documents transferring or securing title
covering readily marketable non perishable goods which must be covered by insurance
Other limitations imposed upon banks with respect to its loan function
The total amount of loans, credits accommodations and guarantees prescribe in (a) may be
increased by an additional 10% of the net worth of such bank provided that the additional
liabilities are adequately secured by trust receipt, shipping documents, warehouse receipts,
and other similar documents which must be fully covered by an assurance. (Sec. 35.2, GBL)
3. Loans and other credit accommodation secured by REM shall not exceed 75% of the
appraised value of the real estate security plus 60% of the appraised value of the insured
improvements (Sec. 37, GBL).
4. Loans being contractual, the period of payments may be subject to stipulation by the parties.
In loan the case of amortization, the amortization scheduled has no fixed period
as it depends on the project to be financed such as that if it was capable of raising revenues, it
should be at least once a year with grace period of 3 years if the project to be financed is not
that profitable which could be deferred up to 5 years if the project was not capable of raising
revenues (Sec. 44, GBL)
a bank shall grant loans and other credit accomodations only in amounts and for the periods of
time essential for the effective completion of the operations to be financed
before granting a loan or other credit accommodation a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank
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a bank may demand from its credit applicants a statement of their assets and liabilities and
their income and expenditure
the purpose of all loans and other credit accomodations shall be stated in the application and in
the contract between the bank and the borrower. if the bank finds that the borrower has hot
used the funds borrowed for the purpose agreed upon the bank may terminate the loan and
demand immediate payment
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.
No director or officer or any bank shall directly for himself or as the representative or against or
agent of others borrow from such bank nor shall he become a guarantor indorser or surety for
loans from such banks to others no in matter be an obligor or incur any contractual liability to the
bank
Except with written approval of majority of all directors of the bank excluding director concerned
Principles
Dealings of the bank shall be upon terms no less favorable to the bank than those offered to
others
Dosri accounts shall be limited to an amount equivalent to their respective unencumbered
deposits provided loans, credit accommodations secured by assets considered as non risk by
the monetary board shall be excluded from such limit
Loans, credit accommodations and advances to officers in form of fringe benefits granted shall
not apply to loans credit accommodations and guarantees extended by a cooperative bank to
its stockholders.
Banks are not created for the benefit of their directors and officers who cannot therefore
use the assets of the bank for their own benefit except as may be permitted by law.
The MB may regulate the amount of loans, credit accommodations and guarantees that may
regulate the amount equivalent to their respective unencumbered deposits and book value of
their paid in capital contribution in the bank provided that the loans, accommodations and
secured by assets considered as non risk by the MB shall bbr excluded from such limit. Provided
further that loans credit accommodations and advances to officers in the form of fringe
benefits granted in accordance with rules as may be prescribed by the MB shall not be subject
to individual limit.
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What are the restrictions of DOSRI accounts
The general banking law 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 DOSRI 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 transaction covered is loan and credit accommodation. Not being a loan, the ceiling will
not apply to lease and sale, however, it should still comply with the procedural requirement.
Aggregate ceilings
The monetary board may regulate the amount of loans, credit accommodation’s and
guarantees that may be extended, directly or indirectly by a bank to its director, officers
stockholders and their related interests as well as investment of such bank in enterprise owned
or controlled by said directors, officers stockholders and their related interest the manual of
regulation for banks provide that the aggregate is fifteen percent (15%) of the total loan
portfolio of the bank or one hundred percent (100 %) of the combined capital accounts
whichever is lower
Loans excluded from loans limitation
A: Non – risk loans, such as:
1. Loans secured by obligations of the Bangko Sentral ng Pilipinas or the Philippine
Government.
2. Loans fully guarantee by the government.
3. Loans covered by assignment of deposit maintained in the lending bank and held in the
Philippines.
4. Loans, credit accommodations and acceptance under letters of credit to the extent covered
by margin deposit.
5. Other loans or credit accommodations which the MB may be specify as non – risk items.
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restrictions under sec. 26 ncba
1. The borrower shall be required by the lending bank to waive the secrecy of his deposits of
whatever nature in all banks in the Philippines. The directors, officers or stockholders are
required to make such waiver if they themselves are the borrowers
2. The accounts are subject to examination but any information obtained from an examination
of his deposits shall be held strictly confidential and may be used by examiners only in
connection with the supervisory and examination responsibility or by the bangko sentral in an
appropriate legal action it has initiated involving the deposit account
COLLATERALS
a. value of collaterals
The loan shall not exceed 75% of the appraised value of the real property plus 60% of the
appraised value of the improvement or 75% of the appraised value pf the chattel (SEC’S. 37
and 38, GBL)
a) redemption period
Possession
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 confirmation of the auction sale and administer the same in accordance with the law.
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Restrictions on borrowers of banks
A bank may be authorized by the monetary board to engage in trust business and act as a
trustee or administer any trust or hold property in trust or on deposit for the use, benefit or
behalf of others (sec. 79, GBL) the securities and exchange commission shall not register the
articles of incorporation and by-laws or any amendment thereto of any trust entity, unless
accompanied by a certificate of authority issued by the bangko sentral (sec. 80, GBL)
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 trustors by the trustee for the use benefit or advantage of the trustor
or of others called beneficiaries (sec.X403(a), manual)
A trust licensed bank may also be involved in other fiduciary business which refer to any activity
resulting from a contract or agreement whereby a bank binds itself to render services or to act
in a representative capacity such as in an agency, guardianship, administratorship or wills,
properties or estates, executorship which does not create or result in trusteeship (ILBID, par. )
A trust entity, in addition to the general powers incident to corporations shall have the power
to
a. act as trustee on any mortgage or bond issued by any municipality, corporation or anybody
politics and to accept and execute any trust consistent with law
b. 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 depository 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
c. act as administrator of the estate of any deceased person with the will when it is named the
executor thereof
d. 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
e. 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
f. establish and manage common trust funds, subject to such rules and regulations as may be
prescribed by the monetary board
Separation of trust business of banks
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The law prohibits the integration of the properties and funds of all the other business of the
bank with those of the trust business. The trust business and all funds, properties or securities
received by any trust entity as executor, administrator, guardian, trustee, receiver or
depositorty 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 and
assets of such trust entity the accounts of all such funds, properties or securities shall likewise
be kept separate and distinct fro, the accounts of the general business of the trust entity (sec.
87, GBL)
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.
1. Acceptance of deposits
2. Granting credits
3. Financial leasing
4. Provide credit services
5. Opening and management of accounts
6. Providing market securities
7. Lending deposit boxes
8. Acceptance of payment for beneficiaries
9. Currency exchange
The Monetary Board has the authority to regulate these services to ensure that the interests of
the depositors and other creditors of the bank are not endangered.
Under Republic Act no. 8791, directors, officers, employees, or agents of any bank are not
allowed to:
Falsify entries in any bank report or statement or participate in any fraudulent
transaction, thereby affecting the financial interest of, or causing damage to, the bank or any
person;
Without order of a court of competent jurisdiction, disclose 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;
Accept 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; Overvalue or aid in
overvaluing any security for the purpose of influencing in
any way the actions of the bank or any bank; or Outsource inherent banking functions.
Prohibited Acts
a. Banks are prohibited from engaging in insurance business.
b. Outsourcing of functions are generally prohibited.
c. Engage in prohibited banking transactions
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Prohibited Banking Transactions
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