SEMINAR ON BANKING LAWS

UNIVERSITY OF ST. LA SALLE COLISEUM

SEPTEMBER 13, 2017

THE GENERAL BANKING LAW OF 2000

REPUBLIC ACT NO. 8791
HISTORICAL DEVELOPMENT OF BANKS AND
BANKING LEGISLATIONS
Definition and Etymology
BANCA means BENCH. Stems from Italian practice during
the middle ages where money changers brought benches to
market places to transact their business.

Banking History
Around the 12th century, Chamber of Loans, a.k.a. Bank of
Venice was established. It came about as a result of war and
the Italian Republic resorted to forced loan. In 15th century,
Table of Exchange in Barcelona and Chamber of St. George in
Genoa were founded. Bank of Amsterdam in the 17th century.
In 1694, the Bank of England was chartered as the prototype
of all modern banks.
Philippine Banking History
Spanish Colonial Period
• Obras Pias – credit institutions capitalized by pious
Catholics to maintain hospitals, orphanages and other
charitable works.
• El Banco Espanol Filipino de Isabel – first to issue
banknotes known as Pesos Fuertes. Other banks like
Monte de Piedad, Banco Peninsular Ultramarino de
Madrid, Chartered Bank of India. During this period,
no significant Filipino interest, initiative or capital in
banking.
Philippine Banking History
American Colonial Period
By 20th century, banks from the USA started to establish
branches to cater to growing American economic
interests and capital inflow into the country.

Commonwealth Period
The period from 1935 to 1946 was marked by the
establishment of more foreign bank branches in the
Philippines. The Philippine Bank of Communication
(PBCom) was reported to be the first bank with genuine
Filipino private capital.
Philippine Banking History
Japanese Occupation
During the Second World War, only Filipino-owned and
Japanese banks were allowed to operate.

Philippine Republic
In 1949, when the Central Bank of the Philippines started
operation, the banking system then consisted of 7
commercial banks, 3 thrift banks, 1 govt. specialized
bank and 7 foreign bank branches.
Development of Financial and Legal Reforms
Prior to 1990
• 1949 – Central Bank of the Philippines was
established and General Banking Act, RA 337 became
effective
• 1952 – Rural Banks Act was enacted
• 1954 – Agricultural and Industrial Bank merged with
Reconstruction and Rehabilitation Fund to form the
Development Bank of the Philippines
• 1960 – growing corporate demand for funds, a small
number of non-bank financial institutions started
trading short-term instruments of banks.
Development of Financial and Legal Reforms
Prior to 1990
• 1963 – law creating the Philippine Deposit Insurance
Corp was passed.
• 1970 – the Central Bank imposed prudential measures.
Banks widened their market by extending trust business
services to corporations and individuals with high net
worth.
• 1971 – the General Banking Act was amended by PDs 71
and 72.
• 1980 – the Central Bank issued rules creating
investment management accounts that did not qualify
strictly as trust accounts encouraging trust departments
of banks to introduce a new financial product called
common trust fund.
Development of Financial and Legal Reforms
1990-2000
• 1992 – the Banker’s Association of the Philippines
created the Philippine Dealing System linking bank
participants thru an electronic screen-based network
for sharing information and undertaking foreign
exchange transactions.
• 1993 – RA 7653 was enacted creating the Bangko
Sentral ng Pilipinas as independent central monetary
authority.
• 1994 – RA 7721 liberalized the participation of foreign
banks in the local banking system, from 4 to 18 head
offices and subsidiaries
• 1995 – Thrift Banks Act was enacted.
Development of Financial and Legal Reforms
2000 onwards
• On April 12, 2000, RA 8791 – General Banking Law of
2000 was enacted which strengthened the Bangko
Sentral’s policy agenda and institutionalized banking
reforms in the Philippines.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
TITLE – The General Banking Law of 2000
Legislative History and Discourse on the Banking System
The passage of RA 8791 was initiated by the BSP to
review the laws that governed the banking system.
The legal framework for the operations of banks and
other financial institutions needs to keep pace with
the fast changing domestic and international
economic developments.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS

DECLARATION OF POLICY
Banks play a pivotal role in the development of
a nation’s economy. Their vital functions in the
economy include their involvement in financial
intermediation, the money supply creation
process and the payment systems.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS

DEFINITION AND CLASSIFICATION OF BANKS

Banks refer to entities engaged in the lending
of funds obtained in the form of deposits.
(classic definition)
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
CLASSIFICATION OF BANKS
According to functions and services:
• Universal Banks (UBs)– have the authority to exercise, in
addition to the powers granted to commercial banks, the
powers of an investment house and to invest in non-allied
enterprises.
• Commercial Banks (KBs) - those that have, in addition to
general powers incident to corporations, all such powers
necessary to carry on the business of commercial banking, e.g.
accepting drafts, issuing letters of credit, discounting /
negotiating promissory notes, other debt instruments,
accepting or creating demand deposits, buying/selling fx, gold
or silver bullion.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
CLASSIFICATION OF BANKS
According to functions and services:
• Thrift Banks (TBs) – include savings/mortgage banks, private
devt banks and stock savings and loan association, created for
the purpose of meeting capital needs for medium & long-term
loans in the promotion of agriculture and industry within the
easy of the people at reasonable cost.
• Rural Banks (RBs) – are established to make needed credit
available and readily accessible in the rural areas on
reasonable terms.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
CLASSIFICATION OF BANKS
According to functions and services:
• Cooperative Banks (CBs) – are organized for providing a wide
range of financial services to cooperative and members.
• Islamic Bank – was created for promoting and accelerating the
socio-economic devt of the Autonomous Region whose aims
and operations do not involve interest (riba) which is
prohibited by the Islamic Shari’a principles.
• Government Banks – refer to UBs and KBs owned or
controlled by the national govt like DBP and Landbank
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
BANK DEPOSITS
A deposit transaction, which is peculiar to the banking
business, is the act of placing money, checks and the like
with a bank.
The relationship between banks and depositors has
been held to be that of a debtor and creditor, respectively.
Thus, the bank make use of the money deposited for its
ordinary transactions and for the banking business
without the necessity of the depositor’s consent. The
bank has the right to invoke the rules on compensation. It
can set-off the deposits in its hands for the payment of
any indebtedness to it on
the part of a depositor.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
TYPES OF DEPOSITS
Demand Deposit
Those liabilities of banks denominated in Ph
currency and subject to payment in legal tender
upon demand by presentation of checks.

Savings Deposit
Refer to interest-bearing deposits withdrawable
upon presentation of properly accomplished
withdrawal slip with the corresponding passbook or
thru the Automated Tellering Machines (ATMs).
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
TYPES OF DEPOSITS
Negotiable Order of Withdrawal Accounts
Refer to interest-bearing savings deposit withdrawable by
means of Negotiable Orders of Withdrawal (NOW). They
are deposit accounts that combine the payable on
demand feature of checks and investment feature of
savings accounts.

Time Certificates of Deposit

Time deposit is a deposit account paying interest for a
fixed term, with the understanding that funds cannot be
withdrawn before maturity without giving advance notice.
This kind of deposit shall be issued for a specific period of
term.
CHAPTER I – TITLE AND CLASSIFICATION OF BANKS
TYPES OF DEPOSITS
Long Tern Negotiable Certificates of Deposit
Refer to interest bearing negotiable certificates of deposit with
a minimum maturity of five (5) years.
Deposits and deposit substitutes shall not be subject to
interest ceilings. Banks must comply with the reserve
requirement imposed by the Monetary Board wherein a
percentage of bank deposits and deposit substitute liabilities
must be kept on hand or in deposit with the BSP and therefore
may not be lent. Bank deposits are insured by the Philippine
Deposit Insurance Corporation (PDIC) up to Php500,000.00.
Deposit substitutes are alternative forms of obtaining funds
from the public thru the use of debt instruments other than
bank deposits.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
The operations and activities of banks shall be subject to
supervision of the Bangko Sentral.
SUPERVISORY POWERS
• The issuance of rules of conduct or the establishment
of standards of operation for uniform application to
all institutions…….
• The conduct of examination to determine compliance
with laws and regulations if the circumstances so
warrant as determined by the Monetary Board;
• Overseeing to ascertain that laws and regulations are
complied with;
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL

SUPERVISORY POWERS
• Regular 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 sound basis………
• Inquiring into the solvency and liquidity of the
institution;
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL

SUPERVISORY POWERS
• Enforcing prompt corrective action (PCA)
It is a principle of effective banking supervision
that supervisors must have at their disposal adequate
supervisory measures to bring about timely corrective
action when banks fail to meet prudential measures,
when there are regulatory violations, or where
depositors are threatened in any other way. To
protect depositors and creditors and prevent
widespread contagion of such problems, supervisors
must be able to conduct appropriate intervention as
well as graduated response depending on the nature
of the problems detected.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
GROUNDS FOR PCA ENFORCEMENT
i. When either of the Total Risk-Based Capital Adequacy
Ratio (CAR), Tier 1 risk-based ratio, or leverage ratio
(total capital/total assets) falls below 10%, 6% and 5%,
respectively, or such other minimum levels that may be
prescribed for the said ratios under relevant regulations,
and/or the combined capital account falls below the
prescribed minimum capital requirement;
ii. Capital Adequacy, Asset Quality, Management, Earnings,
Liquidity, Sensitivity to Market Risk (CAMELS) composite
rating is less that “3” or a Management component
rating of less than “3”;
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
GROUNDS FOR PCA ENFORCEMENT
iii. A serious supervisory concern has been identified that
places a bank at more than-normal risk of failure in the
opinion of the Director of the examination department
concerned, which opinion is confirmed by the Monetary
Board. Such concerns could include, but are not limited,
any one (1) or a combination of the following:
a) Finding of unsafe and unsound activities that could
adversely affect the interest of depositors and/or
creditors;
b) A finding of repeat violations of law or continuing failure
to comply with Monetary Board directives; and
c) Significant reporting errors that materially misrepresent
the bank’s financial condition.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
PCA MEASSURES
i. Capital Restoration Plan
Sale of assets, capital infusion, sale of bank to highest
bidder, merger or consolidation with a stronger bank,
disposition of a majority stockholder’s interest, limit
or curtailment of dividend payment to stockholders,
payment of fees to related parties
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
PCA MEASSURES
ii. Business Improvement Plan
Reduction of risk exposures to manageable levels,
strengthening risk management, curtailment or
imposition of limits on bank’s scope of operations in
its subsidiaries/affiliates, change/replacement of
management officials, reduction of expenses
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
PCA MEASSURES
iii. Corporate Governance Reforms
Change in the composition of the Board of Directors
or any mandatory committees, enhancement to the
frequency and/or depth of reporting to the board of
directors, reduction in exposures and/or a
termination or reduction of business relationships
with affiliates that pose excessive risk or are
inherently disadvantageous to the supervised
financial institution, a change of external auditor
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
SUPERVISED AND REGULATED INSTITUTIONS
• Banks
• Subsidiaries and affiliates of banks
• Quasi-banks
• Subsidiaries and affiliates of quasi-banks
engaged in allied activities
• Trust entities
• Non-stock savings and loan associations
• Pawnshops
• Offshore banking units
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
POLICY DIRECTION; RATIOS, CEILINGS AND LIMITATIONS
i. Minimum Capital Ratios
The size of capital of a bank is a measure of its ability
to lend, and its lending capability affects the liquidity
in the banking system. Capital adequacy has long
been regarded as a measure of bank safety.
ii. Portfolio Ceilings
The MB may place an upper limit on the amount of
loans and investments which banks may hold, or may
place a limit on the rate of increase of such assets
within specified periods of time, whenever it
considers it advisable to prevent or check an
expansion of bank credit.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
POLICY DIRECTION; RATIOS, CEILINGS AND LIMITATIONS
iii. Reserve Requirements
Reserves are required to be maintained by banks
against their deposit liabilities in order to control the
volume of money created by the credit operations of
the banking system. It is a means by which the
money supply can be regulated.
iv. Security Against Bank Loans
In order to minimize credit risk and afford banks
some protection, the Monetary Board requires banks
to demand collateral or security from its borrowers.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
POLICY DIRECTION; RATIOS, CEILINGS AND LIMITATIONS
v. Maturities of Bank Loans and Investments
In order to control the exposure of banks in long-
term loans and investments, the Monetary Board
shall issue regulations prescribing the maximum
permissible maturities of bank loans and
investments. The maturity period of the loan or
financial instrument is one of the factors that
influences the rates of interest. Those with longer
maturity and with higher probability of incurring loss
carry higher interest rates.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
AUTHORITY TO ENGAGE IN BANKING AND QUASI-
BANKING FUNCTIONS
A person or entity who intends to engage in banking
operations or quasi-banking functions must obtain prior
authority from the Bangko Sentral. Once UBs or KBs
engage in quasi-banking functions, it is presumed that
they have at least twenty (20) lenders.
Quasi-Banking
Refers to borrowing of funds, for the borrower’s own
account, thru the issuance, endorsement or acceptance
of debt instruments of any kind other than deposits,
from 20 or more lenders at any one time.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
EXAMINATION BY THE BANGKO SENTRAL
The Bangko Sentral shall, when examining a bank, have
the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank.

Examination is the investigation of an institution under

the supervisory authority of the Bangko Sentral to
determine compliance with laws and regulations. It shall
include determination that the institution is conducting
its business on a safe and sound basis.
CHAPTER II – AUTHORITY OF THE BANGKO SENTRAL
EXAMINATION BY THE BANGKO SENTRAL
A wholly-owned subsidiary is a corporation 100% of the
voting stock of which is owned by the bank, while a
majority-oowned subsidiary is a corporation more than
50% but less than 100% of the voting stock of which is
owned by the bank.

Subsidiary – 50% of the voting stock owned by bank

while an Affiliate 50% or less owned by bank.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
The Monetary Board may authorize the organization of
a bank or quasi-bank subject to the following
conditions:

• That the entity is a stock corporation;

• That its funds are obtained from the public, which
shall mean 20 or more persons;
• That the minimum capital requirements prescribed by
the Monetary Board for each category of banks are
satisfied.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES

FOREIGN STOCKHOLDINGS
Foreign individuals and non-bank corporations
may own or control up to 40% of the voting stock
of a domestic bank. The percentage of foreign-
owned voting stocks in a bank shall be
determined by the citizenship of the individual
stockholders in that bank.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES

STOCKHOLDINGS OF FAMILY GROUPS OR RELATED

INTERESTS
Stockholdings of individuals related to each other
within the 4th 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.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES

CORPORATE STOCKHOLDINGS
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.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
BOARD OF DIRECTORS
The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least 5
and a maximum of 15 members of the board of
directors of a bank, 2 of shall be an 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.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
BOARD OF DIRECTORS
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.

The meetings of the board of directors may be

conducted through modern technologies such as,
but not limited to, teleconferencing and video-
conferencing.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
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, pass upon and
review the qualifications and disqualifications of
individuals elected or appointed bank directors or
officers and disqualify those found unfit.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
FIT AND PROPER RULE
After due notice to the board of directors of the bank,
the MB 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.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
FIT AND PROPER RULE
This rule will ensure that bank directors and officers will
be conscious of the need to take prudent decisions,
bearing in mind that banking is based on trust and
confidence of the general public.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
DIRECTORS OF MERGED OR CONSOLIDATED BANKS
In the case of a bank merger or consolidation, the
number of directors shall not exceed 21.

Two or more corporations are authorized to merge into a

single corporation known as CONSTITUENT
CORPORATION, or to consolidate into a new single
corporation known as CONSOLIDATED CORPORATION.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
DIRECTORS OF MERGED OR CONSOLIDATED BANKS
Merger is the absorption of 1 organization that ceases to
exist into another that retains its own name and identity
and acquires the assets and liabilities of the former.

Consolidation is the union of 2 or more existing

corporations to form a new corporation called
consolidated corporation.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
COMPENSATION AND OTHER BENEFITS OF DIRECTORS /
OFFICERS
To protect the funds of depositors and creditors, the
Monetary Board may regulate the payment by the bank
its directors and officers of compensation, allowance,
fees, bonuses, stock options, profit sharing and fringe
benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the
following:
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
COMPENSATION AND OTHER BENEFITS OF DIRECTORS /
OFFICERS
(i) When a bank is under comptrollership or
conservatorship; or
(ii) When a bank is found by the Monetary Board to be a
conducting business in an unsafe or unsound
manner; or
(iii) When a bank is found by the Monetary Board to be in
an unsatisfactory financial condition.
Rationale: To prevent abuses
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES

PROHIBITION ON PUBLIC OFFICIALS

Except as otherwise provided in the Rural Banks Act, 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 provided under existing laws.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES

BANK BRANCHES
UBs or KBs may open branches or other offices within or
outside the Philippines upon prior approval of the
Bangko Sentral.
BANKING DAYS AND HOURS
Banking days mean Mondays to Fridays, except if such
days are holidays for at least 6 hours a day. As
authorized, they may open on Saturdays, Sundays or
holidays for at least 3 hours a day.
CHAPTER III – ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST
ENTITIES
STRIKES AND LOCKOUTS
The banking industry is hereby declared as indispensable
to the national interest and, notwithstanding provisions
of any law to the contrary, any strike or lockout involving
banks, if unsettled after 7 calendar days shall be reported
by the Bangko Sentral to the Secretary of Labor who may
assume jurisdiction over the dispute or decide it or
certify the same to the National Labor Relations
Commission for compulsory 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.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK
A universal bank shall have the authority to exercise, in
addition to the powers authorized for a commercial
bank, the powers of an investment house as provided in
existing laws and the power to invest in non-allied
enterprises as provided in this Act.
• An investment house is an enterprise which
engages in the underwriting of securities of other
corporations.
• Equity investments refer to investments in capital
stock of companies, firms or enterprises, made for
purposes of control, affiliation or other continuing
business advantage.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK
• Non-allied enterprises – those engage in physically
productive activities in agriculture, mining and
quarrying, manufacturing, public utilities,
construction, wholesale trade and community and
social services, industrial park projects, industrial
estate development, financial and commercial
complex projects.
• UBs may own up to 100% equity in a TB, an RB or a
financial allied enterprises and voting stock of only
one (1) UB or KB.
• Allied undertakings are related services that may be
rendered by banks.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK
• Financial Allied Undertakings
Leasing companies including leasing of stalls and
spaces in a commercial establishment, banks,
investment houses, financing companies, credit
card companies, financial institutions catering to
SMEs, companies engaged in stock brokerage /
securities dealership, fx dealership, trust
corporations, insurance companies, holding
company
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK
• Non-Financial Allied Undertakings
Those companies engaged in warehousing, storage,
safety deposit box, management of mutual funds,
computer services, insurance brokerages/agencies,
drying/milling facilities, service bureaus, health
maintenance organizations, Philippine Clearing
House, Philippine Central Depository Inc. and Fixed
Income Exchange.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

EQUITY INVESTMENTS IN QUASI-BANKS

To promote competitive conditions in financial
markets, equity investment of UBs and KBs is limited
to 40%.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

POWERS OF A COMMERCIAL BANK

In addition to powers incident to corporations, KB
powers include accepting drafts, issuing letters of credit,
discounting/negotiating debt instruments,
accepting/creating demand deposits, buying/selling fx,
acquiring marketable bonds/debt securities, extending
credit.
Like UBs, KBs are allowed to invest in the equities in
another KB and equities of financial allied enterprises and
non-financial allied entities.
A financial allied enterprise is a firm with homogenous
or similar activities/business/functions as a financial
intermediary.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
ACCEPTANCE OF DEMAND DEPOSITS
A bank other than a UB or KB 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.

RISK-BASED CAPITAL
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.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
LIMITS ON LOANS, CREDIT ACCOMMODATIONS AND
GUARANTEES
…the total amount of loans, credit accommodations
and guarantees extended by a bank to any person,
partnership, association, corporation or other entity shall
at no time exceed 20% of the net worth of such bank.

The basis for determining compliance with single-

borrower limit is the total credit commitment of the bank
to the borrower.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
RESTRICTION ON BANK EXPOSURE TO DIRECTORS,
OFFICERS, STOCKHOLDERS AND THEIR RELATED
INTERESTS
They are not allowed to become a guarantor, indorser of
surety for loans or obligor or incur any contractual liability
to the bank except with the written approval of the
majority of all the directors of the bank, excluding the
director concerned.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES

LOANS AND OTHER CREDIT ACCOMODATIONS AGAINST

REAL ESTATE
Loans and other credit accommodations against real
estate shall not exceed 75% of its appraised value plus
60% of the appraised value of the insured improvements.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES

LOANS AND OTHER CREDIT ACCOMODATIONS ON

SECURITY OF CHATTELS AND INTANGIBLE PROPERTIES
Loans on security of chattels and intangibles (patents,
trademarks, trade name, copyrights) shall not exceed 75%
of their appraised value.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES

UNSECURED LOANS OR OTHER CREDIT ACCOMODATIONS

Unsecured loans must be made under the signature of the
principal borrower and at least one (1) co-maker, except
when such borrower has the financial capacity and good
track record of paying his obligations. Among the
common unsecured loans are credit card loans and
microfinance loans.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
FORECLOSURE OF REAL ESTATE MORTGAGE
The mortgagor or debtor has one (1) year to redeem the
property after paying all costs incurred by the bank.
PROVISIONS FOR LOSSES AND WRITE-OFFS
The amount of reserves for bad debts, doubtful accounts
or other contingencies and writing-off of loans shall be
subject to regulations issued by the Monetary Board.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
ACQUISITION OF REAL ESTATE BY WAY OF SATISFACTION
OF CLAIMS
Acquired assets must be disposed of within a period of
five (5) years.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-

BANKS AND TRUST ENTITIES
OTHER BANKING SERVICES
• Receive in custody of funds, documents and valuable
objects
• Financial agent, buy and sell for the account of
customers, shares, securities and debt instruments
• Consultancy accounts, consultant, administrator of
investment management, managing agent
• Rent out safety deposit boxes.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PROHIBITED TRANSACTIONS
(i) No director shall –
• Make false entries in bank report or participate in
fraudulent transaction causing damage to the bank;
• Disclose any information relative to funds or properties in
its custody belonging to private persons, without court
order;
• Accept gifts, fees or commissions or any remuneration in
loan accommodations;
• Overvalue or aid in overvaluing any security to influence
the actions of the bank;
• Outsource inherent banking functions.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PUBLICATION OF FINANCIAL STATEMENTS/CAPITAL STOCK

Financial statements shall prepared as of a specific date
and must be published once every quarter in newspapers of
general circulation.
The amount of authorized or subscribed capital stock
shall not be published without indicating the amount of
capital fully paid up.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

PLACEMENT UNDER CONSERVATORSHIP

The MB shall place the bank or quasi-bank under
conservatorship when it 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
Conservatorship is a tool in restoring the viability of
banks and quasi-banks. It shall not exceed one (1) year.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

CESSATION OF BANKING BUSINESS

• VOLUNTARY LIQUIDATION
It shall not be undertaken without the prior approval of
the MB.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

RECEIVERSHIP AND INVOLUNTARY LIQUIDATION

• Liquidity – inability to pay liabilities as they become due
• Insolvency – insufficient realizable assets to meet its
liabilities
• Persistence in conducting business in an unsafe or
unsound manner
• Willful violation of a cease and desist order involving acts
or transactions amounting to fraud or dissipation of
bank’s assets
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

LAWS GOVERNING OTHER TYPES OF BANKS

• Rural Banks Act
• Thrift Banks Act
• Cooperative Code
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

FOREIGN BANKS
• The Foreign Banks Liberalization Act governs the entry of
foreign banks thru the establishment of branches.
• Foreign banks may acquire up to 100% of the voting
stock of one (1) local bank.
• Offshore banking refer to the conduct of banking
transactions in foreign currencies involving the receipt of
funds from external sources and the utilization of such
funds.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

REVOCATION OF LICENSE OF A FOREIGN BANK

Its license to operate may be revoke if it becomes
insolvent or in imminent danger thereof and that its
continuance in business involves probable losses to those
transacting with it.

TRUST OPERATIONS
Trust is a fiduciary relationship with respect to property
subjecting the person by whom the title to property is held
to equitable duties to deal with the property for the benefit
of another person, which arises as a result of a
manifestation of an intention to create it.
CHAPTER IV – DEPOSITS, LOANS AND OTHER OPERATIONS
POWERS OF A UNIVERSAL BANK

AUTHORITY TO ENGAGE IN TRUST BUSINESS

Only a stock corporation or a person duly authorized by
the MB to engage in trust business shall act as trustee or
administer any trust or hold property in trust or on deposit
for the use, benefit or behoof of others.