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BANKING LAWS

TABLEOF CONTENTS

A. The New Central Bank Act

Republic Act No. 7653

B. The General Banking Act


In General

Establishment of Domestic Banks

Licensing of Foreign Banks

Commercial Banking Corporations and Universal Banks

Thrift Banks Act of 1996


Building and Loans Associations

Rural Banks Act of 1992


C. An Act Liberalizing the Entry of Foreign Banks


D. Offshore Banking System Law

Pres. Decree No. 1034

E. Foreign Currency Deposits Act

Republic Act No. 6426, as amended

F. An Act Creating the PDIC


G. The Truth in Lending Act


H. Law on Secrecy of Bank Deposits


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Note: We have included several banking laws which are not in the bar coverage.

Likewise, we have incorporated several laws on non-bank financial

intermediaries. Since they are not covered by the bar exam, the reviewee

has the option of not reading them.

BANKINGAND FINANCEIN GENERAL

Two types of financing

1. equity

2. debt-financing

A cross-breed of the two may also occur.

Intermediaries

1. Banks

2. Non-bank financial intermediaries

3. Exchanges

4. Others i.e. secondary markets

Function of intermediaries

1. Brokeringor matching investors with those in need of financing

2. Help in diminishing risks to investors

3. Provide liquidity

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NEW CENTRAL BANKACT


Approved 14 June 1993

IN GENERAL

Mandate

The Bangko Sentral ng Pilipinas is the States central monetary

authority, mandated in the 1987 Constitution, which shall function and

operate as an independent and accountable body corporate in the discharge

of its mandated responsibilities concerning money, banking and credit.

[Section 1, RA 7653]

The Bangko Sentral shall enjoy fiscal and administrative autonomy.


Objectives

1. The primary objective of the Bangko Sentral is to maintain price stability

conducive to a balanced and sustainable growth of the economy.

2. It shall also promote and maintain monetary stability and the convertibility of

the peso.

3. It shall also provide policy directions in the areas of money, banking and

credit.

4. It has supervision over banks and has regulatory powers over the operations

of finance companies and non-bank financial intermediaries performing

quasi-banking functions. [Section 3, RA 7653]

Typical functions of the Bangko Sentral

1. Supervision over banks and regulation of non-bank financial intermediariesengaged in quasi-banking functions

2. Bank of issue: as such, it has the sole power and authority to issue currency

3. Custodian of the nations reserves of foreign currency

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As such, it ensures convertibility of the peso and backs up Philippine

currency.

4. It has control of credit

a. regulating money supply i.e. reserve requirements for banks

b. open market operations i.e. Tbills

c. controlling interest rate

5. Lender of last resort

It has a "rediscounting window,allowing banks to sell their promissory notes

to it.

6. Custodian of cash reserves of banks

7. Government banker, agent and advisor

8. Central clearance and settlement agency

Fiscal policy v. monetary policy

Fiscal policy is concerned with revenue generation and expenditure while

monetary policy involves regulating money supply and price stability.

The Bangko Sentral will now concentrate on monetary policy and shed off

fiscal responsibilities which in the past had distracted it from its primary

function. [Section 129, RA 7653]

MONETARYBOARDAND GOVERNOR

Monetary Board

The powers and functions of the Bangko Sentral are exercised by the

Monetary Board.

The Board is composed of seven (7) members appointed by the President for

a term of six (6) years. No member may be reappointed more than once.

The seven members are:

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1. The Governor as Chairman;

2. A member of the Cabinet designated by the President; and

3. Five (5) members who shall come from the private sector, all of whom

shall serve full-time.

Qualifications of the members of the Monetary Board

1. Must be natural born citizens of the Philippines

2. At least thirty five (35) years of age, with the exception of the Governor who

should at least be forty (40) years old

3. Good moral character

4. Of unquestionable integrity

5. Of known probity and patriotism

6. With recognized competence in social and economic disciplines

Disqualifications

In addition to the disqualifications imposed by Republic Act No. 6713, a

member of the Monetary Board is disqualified from being a director, officer,

employee, consultant, lawyer, agent or stockholder of any bank, quasi-bank

or any other institution which is subject to supervision or examination by the

Bangko Sentral, in which case such member shall resign from, and divest

himself of any and all interests in such institution before assumption of office

as member of the Monetary Board.

The member of the Monetary Board coming from the private sector shall not

hold any other public office or public employment during their tenure.

No person shall be a member of the Monetary Board if he has been

connected with any multilateral banking or financial institution or has asubstantial interest in any private bank in the Philippines, within one (1) year

prior to his appointment; likewise, no member of the Monetary Board shall be

employed in any such institution within two (2) years after the expiration of

his term except when he serves as an official representative of the Philippine

Government to such institution.

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Withdrawal of persons having a personal interest

In addition to the requirements of Republic Act No. 6713, any member of the

Monetary Board with personal or pecuniary interest in any matter in the

agenda of the Monetary Board shall disclose his interest to the Board and

shall retire from the meeting when the matter is taken up. The decision taken

on the matter shall be made public. The minutes shall reflect the disclosure

made and the retirement of the member concerned from the meeting.

Responsibility and liability of the members of the Monetary Board

Members of the Monetary Board, officials, examiners, and employees of the

Bangko Sentral who willfully violate RA 7653 or who are guilty of negligence,

abuses or acts of malfeasance or misfeasance or fail to exercise

extraordinary diligence in the performance of his duties shall be held liable

for any loss or injury suffered by the Bangko Sentral or other banking

institutions as a result of such violation, negligence, abuse, malfeasance,

misfeasance or failure to exercise extraordinary diligence.

Similar responsibility shall apply to members, officers and employees of the

Bangko Sentral for;

1. The disclosure of any information of a confidential nature, or any

information on the discussions or resolutions of the Monetary Board, or

about the confidential operations of the Bangko Sentral, unless the

disclosure is in connection with the performance of official functions

with the Bangko Sentral, or is with prior authorizaytion of the Monetary

Board or the Governor; or

2. The use of such information for personal gain or to the detriment of

the Government, the Bangko Sentral or third parties.

However, any data or information required to be submitted to the President

and/or Congress, or to be published under the provisions of RA 7653 shall not

be considered confidential.

Authority of Governor to render opinions, decisions or rulings

The Governor of the Bangko Sentral shall have the power to render opinions,

decisions, or rulings which shall be final and executory, until reversed or

modified by the Monetary Board, on matters regarding application or

enforcement of laws pertaining to institutions supervised by the Bangko

Sentral and laws pertaining to quasi-banks, as well as regulations, policies or

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instructions issued by the Monetary Board, and the implementation thereof.

[Section 17(e), RA 7653]

Authority of the Governor in emergencies

In case of emergencies where time is insufficient to call a meeting of the

Monetary Board, the governor with the concurrence of two other members of

the Board may decide any matter or take an action within the authority of

the Board.

He shall thereafter submit a report to the President and Congress within 72

hours after the action has been taken.

At the soonest possible time, the Governor shall call a meeting of the

Monetary board to submit his action for ratification. [Section 19, RA 7653]

Outside interests of the Governor and the full-time members of the Board

The Governor of the Bangko Sentral and the full-time members of the Board

shall limit their professional activities to those pertaining directly to their

positions with the Bangko Sentral.

They may not accept any other employment, whether public or private,

remunerated or ad honorem.

Exceptions:

1. Positions in eleemosynary, civic, cultural or religious organizations

2. Whenever, by designation of the President, the Governor or the full-

time member is tasked to represent the interest of the Government or

other government agencies in matters connected with or affecting the

economy or the financial system of the country

CERTAIN OPERATIONSOFTHE BANGKO SENTRAL

Supervision and examination

The Bangko Sentral shall have supervision over, and conduct periodic or

special examination of, banking institutions and quasi-banks, including their

subsidiaries and affiliates engaged in allied activities.

This power however is subject to the provision of existing laws protecting or

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safeguarding the secrecy or confidentiality of bank deposits as well as

investments of persons, natural or juridical, in debt instruments issued by the

Government. [Section 25, RA 7653]

Subsidiary and affiliate

A subsidiary means a corporation more than fifty percent (50%) of the voting

stock of which is owned by a bank or quasi-bank and an affiliate means a

corporation the voting stock of which, to the extent of fifty percent (50%) or

less, is owned by a bank or quasi-bank or which is related or linked to such

institution or intermediary through common stockholders or such other

factors as may be determined by the Monetary Board.

No restraining order on power of examination

No restraining order or injunction shall be issued by the court enjoining the

Bangko Sentral from examining any institution subject to supervision or

examination by the Bangko Sentral, unless there is convincing proof that the

action of the Bangko Sentral is plainly arbitrary and made in bad faith and

the petitioner or plaintiff files with the clerk or judge of the court in which the

action is pending a bond executed in favor of the Bangko Sentral, in an

amount to be fixed by the court. [Section 25, RA 7653]

Prohibitions on personnel of the Bangko Sentral

In addition to the prohibitions found in RA 3019 and 6713, personnel of the

Bangko Sentral are hereby prohibited from:

1. Being an officer, director, lawyer or agent, employee, consultant or

stockholder, directly or indirectly, of any institution subject to

supervision or examination by the Bangko Sentral, except non-stock

savings and loan associations and provident funds organized

exclusively for employees of the Bangko Sentral, and except as

otherwise provided in RA 7653;

2. Directly or indirectly requesting or receiving any gift, present or

pecuniary or material benefit for himself or another, from anyinstitution subject to supervision or examination by the Bangko

Sentral;

3. Revealing in any manner, except upon orders of the court, the

Congress or any government office or agency authorized by law, or

under such conditions as may be prescribed by the Monetary Board,

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information relating to the condition or business of any such

institution. This prohibition shall not apply to the giving of information

to the Monetary Boar or the Governor of the Bangko Sentral, or to any

person authorized by either of them, in writing, to receive such

information; and

4. Borrowing from any institution subject to supervision or examination

by the Bangko Sentral unless said borrowings are adequately secured,

fully disclosed to the Monetary Boar, and shall be subject to such

further rules and regulations as the Monetary Board may prescribe.

CONSERVATORSHIPV. RECEIVERSHIP

CONSERVATOR

Grounds for appointment of conservator

The Monetary Board may appoint a conservator whenever it finds that a bank

or a quasi-bank 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. [Section 29, RA 7653]

The conservator should be competent and knowledgeable in bank operations

and management. The conservatorship shall not exceed one (1) year.

Powers of conservator

1. Take charge of the assets, liabilities and management of the bank or quasi-

bank

2. Reorganize the management

3. Collect all monies and debts due said institution

4. Exercise all powers necessary to restore its viability

Extent of the power of the conservator

The conservator has the power to overrule or revoke the actions of the

previous management and board of directors of the bank or quasi-bank.

However, the power cannot extend to thepost-facto repudiation of perfected

transactions, otherwise they would infringe against the non-impairment

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clause of the Constitution.

Section 28-A of RA No. 265 merely gives the conservator the power to revoke

contracts that are deemed to be defective under existing law (i.e., void,

voidable, unenforceable, or rescissible); hence, the conservator merely takes

the place of a banks board of directors. What the board of directors cannot

do, such as repudiating a contract validly entered into under the doctrine of

implied authority, the conservator cannot do either. [First Philippine

International Bank v. CA, 252 SCRA 255 (1986)]

Termination of conservatorship

The Monetary Board shall terminate the conservatorship when it is satisfied

that the institution can continue to operate on its own and the

conservatorship is no longer necessary.

The conservatorship shall likewise be terminated should the Monetary Board

determine that the continuance in business of the institution would involve

probable loss to its depositors or creditors, in which case proceedings for

receivership and liquidation shall be pursued. [Section 29, RA 7653]

PROCEEDINGSIN RECEIVERSHIPAND LIQUIDATION

Grounds for proceedings in receivership and liquidation

The Monetary Board shall institute proceedings for receivership whenever it

finds that a bank or quasi-bank:

1. Is unable to pay its liabilities as they become due in the ordinary

course of business; provided that this shall not include inability to pay

caused by extraordinary demands induced by financial panic in the

banking community;

2. Has insufficient realizable assets to meet its liabilities;

3. Cannot continue in business without involving probable loss to its

depositors or creditors; or

4. Has willfully violated a cease and desist order that has become final,

involving acts or transactions which amount to fraud or a dissipation of

the assets of the institution.

No need of prior notice and hearing

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In such cases, the Monetary Board may summarily and without need for prior

hearing, forbid the institution from doing business in the Philippines and

designate the Philippine Deposit Insurance Corporation as receiver of the

banking institution. [Section 30, RA 7653]

Who acts as receiver

For a bank, the Philippine Deposit Insurance Corporation shall serve as

receiver; for a quasi-bank, any person of recognized competence in banking

or finance may be designated as receiver.

Tasks of the receiver

The receiver shall immediately (1) gather and take charge of all assets and

liabilities of the institution, (2) administer the same for the benefit of its

creditors, and (3) exercise the general powers of a receiver. (4) The receiver

shall determine as soon as possible, but not later than ninety (90) days from

takeover, whether the institution may be rehabilitated or otherwise placed in

such a condition so that it may be permitted to resume business with safety

to its depositors and creditors and the general public.

Resumption

Any determination for the resumption of business of the institution shall be

subject to prior approval of the Monetary Board.

Liguidation

If the receiver determines that the institution cannot be rehabilitated or

permitted to resume business, the Monetary Board shall notify in writing the

board of directors of its findings and direct the receiver to proceed with the

liquidation of the institution.

Procedure for liquidation

The receiver shall then:

1. File ex parte with the proper regional trial court, and without the

requirement of prior notice or any other action, a petition for

assistance in the liquidation of the institution pursuant to a liquidation

plan adopted by the Philippine Deposit Insurance Corporation in the

case of a bank or by the Monetary Board in the case of a quasi-bank;

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2. Upon acquiring jurisdiction, the court shall, upon motion by the

institution, assist the enforcement of individual liabilities of the

stockholders, directors and officers, and decide on other issues as may

be material to implement the liquidation plan adopted; and

3. Convert the assets of the institution to money, dispose of the same to

creditors and other parties, for the purpose of paying the debts of such

institution in accordance with the rules on concurrence and preference

of credit under the Civil Code of the Philippines and he may, in the

name of the institution, institute such actions as may be necessary to

collect and recover accounts and assets of, or defend any action

against, the institution.

Custodia legis and exemption from levy, attachment or execution

The assets of an institution under receivership or liquidation shall be deemed

in custodia legis in the hands of the receiver and shall, from the moment the

institution was placed under such receivership or liquidation, be exempt from

any order of garnishment, levy, attachment, or execution. [Section 30, RA

7653]

Actions of Monetary Board final and may be questioned only through

certiorari

The actions of the Monetary Board taken regarding the designation of a

conservator and appointment of a receiver shall be final and executory and

may not be restrained or set aside by the court except on petition for

certiorari on the ground that the action taken was in excess of jurisdiction or

with such grave abuse of discretion as to amount to lack or excess of

jurisdiction.

The petition for certiorari may only be filed by the stockholders of record

representing the majority of the capital stock within ten (10) days from

receipt by the board of directors of the institution of the order directing

receivership, liquidation or conservatorship.

Designation of conservator not precondition to designation of receiver

The designation of a conservator or the appointment of a receiver shall be

vested exclusively with the Monetary Board.

The designation of a conservator is not a precondition to the designation of a

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receiver.

THE BANGKO SENTRALANDTHE MEANSOF PAYMENT

Unit of monetary value

The unit of monetary value in the Philippines is the peso.

Currency

The word "currency" is hereby defined as meaning all Philippine notes and

coins issued or circulating in accordance with the provisions of RA 7653.

Bank of issue

The Bangko Sentral has the sole power and authority to issue currency within

the territory of the Philippines [Section 50, RA 7653]

Notes and coins issued by the BSP shall be liabilities of the BSP and may be

issued only against and in amounts not exceeding, the assets of the BSP.

Said notes and coins shall be a first and paramount lien on all assets of the

BSP [Section 51, RA 7653]

All notes and coins issued by the BSP are fully guaranteed by the RP and

shall be legal tender in the Philippines for all debts, both public and private.


Demand deposits

"Demand deposits" means all those liabilities of the Bangko Sentral and of

other banks which are denominated in Philippine currency and are subject to

payment in legal tender upon demand by the presentation of checks.

Issue of demand deposits

Only banks duly authorized to do so may accept funds or create liabilities

payable in pesos upon demand by the presentation of checks, and suchoperations shall be subject to the control of the Monetary Board in

accordance with the powers granted it with respect thereto under RA 7653.

Legal character of checks

Checks representing demand deposits do not have legal tender power and

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their acceptance in the payment of debts, both public and private, is at the

option of the creditor. [Section 60, RA 7653]

However, a check which has been cleared and credited to the account of the

creditor shall be equivalent to a delivery to the creditor of cash in an amount

equal to the amount credited to his account. [Section 60, RA 7653]

DOMESTIC MONETARYSTABILIZATION

Guiding principle

The Monetary Board shall endeavor to control any expansion or contraction

in monetary aggregates which is prejudicial to the attainment or

maintenance of price stability.

Action when abnormal movements occur in the monetary aggregates,

credit, or price level

Whenever abnormal movements in the monetary aggregates, in credit, or in

prices endanger the stability of the Philippine economy or important sectors

thereof, the Monetary Board shall:

1. Take such remedial measures as are appropriate and within the

powers granted to the Monetary Board and the Bangko Sentral;

2. Submit to the President of the Philippines and the Congress, and make

public, a detailed report which shall includes, as a minimum, a

description and analysis of:

a. The causes of the rise or fall of the monetary aggregates, of

credit or of prices;

b. The extent to which the changes in the monetary aggregates, in

credit, or in prices have been reflected in changes in the level of

domestic output, employment, wages, and economic activity in

general and the nature and significance of any such changes;

and

c. The measures which the Monetary Board has taken and the

other monetary, fiscal or administrative measures which it

recommends to be adopted.

INTERNATIONAL MONETARYSTABILIZATION

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International monetary stabilization

The Bangko Sentral shall exercise its powers to preserve the international

value of the pesos and to maintain its convertibility into other freely

convertible currencies primarily for, although not necessarily limited to,

current payments for foreign trade and invisibles. [Section 64, RA 7653]

International reserves

In order to maintain the international stability and convertibility of the

Philippine peso, the Bangko Sentral shall maintain international reserves

adequate to meet any foreseeable net demands on the Bangko Sentral for

foreign currencies. [Section 65, RA 7653]

Composition of the international reserves

1. Gold

2. Assets in foreign currencies

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Action when international stability of the pesos is threatened

Whenever the international reserve of the Bangko Sentral falls to a level

which the Monetary Board considers inadequate to meet the prospective net

demands on the Bangko for foreign currencies, or whenever the international

reserve appears to be in imminent danger of falling to such a level, or

whenever the international reserve is falling as a result of payments or

remittances abroad which, in the opinion of the Monetary Board, are contrary

to the national welfare, the Monetary Board shall:

1. Take such remedial measures as are appropriate and within the

powers granted to the Monetary Board and the Bangko Sentral;

2. Submit to the President of the Philippines and the Congress, and make

public, a detailed report which shall includes, as a minimum, a

description and analysis of:

a. The nature and causes of the existing or imminent decline;

b. The remedial measures already taken or to be taken by the

Monetary Board;

c. The monetary, fiscal or administrative measures further

proposed; and

d. The character and extent of the cooperation required from other

government agencies for the successful execution of the policies

of the Monetary Board.

INSTRUMENTSOF BANGKO SENTRAL ACTION

Means of action

In order to achieve the primary objective of price stability, the Monetary

Board shall rely on its moral influence and the powers granted to it under RA

7653 for the management of monetary aggregates.

Purchases and sales of gold

The Bangko Sentral may buy and sell gold in any form.

Purchases and sales of foreign exchange

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The Bangko sentral may buy and sell foreign notes and coins, and documents

and instruments of types customarily employed for the international transfe

rof funds.

The Bangko Sentral may engage in future exchange operations.

To whom can engage

The Bangko Sentral may engage in foreign transactions with the following

entities or persons only:

1. Banking institutions operating in the Philippines;

2. The Government, its political subdivisions and instrumentalities;

3. Foreign or international financial institutions;

4. Foreign governments and their instrumentalities; and

5. Other entities or persons which the Monetary Board is hereby

empowered to authorize as foreign exchange dealers.

Foreign asset position of the Bangko Sentral

The Bangko Sentral shall endeavor to maintain at all times a net positive

foreign asset position so that its gross foreign exchange assets will always

exceed its gross foreign liabilities.

Emergency restrictions on foreign exchange operations

Emergency restrictions on foreign exchange operations include:

1. Temporarily suspending or restricting sales of foreign exchange by the

Bangko Sentral;

2. Subjecting all transactions in gold and foreign exchange to license by

the Bangko Sentral; and

3. Requiring that any foreign exchange thereafter obtained by any person

residing or entity operating in the Philippines be delivered to the

Bangko Sentral or to any bank or agent designated by the Bangko

Sentral for the purpose, at the effective exchange rate or rates.


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Emergency restrictions may be imposed for the following purposes:

1. In order to achieve the primary objective of the Bangko Sentral;

2. To protect the international reserves of the Bangko Sentral in the

imminence of, or during an exchange crisis, or in time of national

emergency; and

3. To give the Monetary Board and the Government time in which to take

constructive measures to forestall, combat, or overcome such a crisis

or emergency. [Section 72, RA 7653]

Such measures may be adopted with the concurrence of at least five (5)

members of the Monetary Board and with the approval of the President of the

Philippines. [Section 72, RA 7653]

Exchange rates

The Bangko Sentral shall determine the exchange rate policy of the country.

Foreign exchange holdings of the banks

In order that the Bangko Sentral may at all times have foreign exchange

resources sufficient to enable it to maintain the international stability and

convertibility of the peso, or in order to promote the domestic investment of

bank resources, the Monetary Board may require the banks to sell to the

Bangko Sentral or to other banks all or part of their surplus holdings of

foreign exchange. [Section 76, RA 7653]

LOANSTO BANKINGAND OTHER FINANCIAL INSTITUTIONS

Guiding principles

The rediscounts, discounts, loans and advances, which the Bangko Sentral is

authorized to extend to banking institutions, shall be used to influence the

volume of credit consistent with the objective of price stability.

Types of credit operations

1. Normal credit operations

2. Special credit operations

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3. Emergency credit operations

Normal credit operations

1. Commercial credits

2. Production credits

3. Other credits

Commercial credits

The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,

promissory notes and other credit instruments with maturities of not more

than one hundred eighty (180) days from the date of their rediscount,

discount or acquisition by the Bangko Sentral and resulting from transactions

related to:

1. The importation, exportation, purchase or sale of readily saleable

goods and products, or their transportation within the Philippines; or

2. The storing of non-perishable goods and products which are duly

insured and deposited, under conditions assuring their preservation in

authorized bonded warehouses or in other places approved by the

Monetary Board.

Production credits

The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,

promissory notes and other credit instruments having maturities of not more

than three hundred sixty (360) days from the date of their rediscount,

discount or acquisition by the Bangko Sentral and resulting from transactions

related to the production or processing of agricultural, animal, mineral, or

industrial products.

Other credits

Special credit instruments not otherwise rediscountable under commercial

and production credits may be eligible for rediscounting in accordance with

the rules and regulations which the Bangko Sentral shall prescribe.

Special credit operation

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1. Loans for liquidity purposes

Loans for liquidity purposes

The Bangko Sentral may extend loans and advances to banking institutions

for a period of not more than seven (7) days without any collateral for the

purpose of providing liquidity to the banking system in times of need.


Emergency loans and advances

In periods of national and/or local emergency or of imminent financial panic

which directly threaten monetary and banking stability, the Monetary Board

may, by a vote of at least five (5) of its members, authorize the Bangko

Sentral to grant extraordinary loans or advances to banking institutions

secured by assets. [Section 84, RA 7653]

The Monetary Board may, at its discretion, likewise authorize the Bangko

Sentral to grant emergency loans or advances to banking institutions, even

during normal periods, for the purpose of assisting a bank in a precarious

financial condition or under serious financial pressures brought by

unforeseen events, or events which, though foreseeable, could not be

prevented by the bank concerned. This requires that the Monetary Board has

ascertained that the bank is not insolvent and has the assets to secure the

advances and that the concurrent vote of at least five (5) members of the

Monetary Board is obtained. [Section 84, RA 7653]

OPEN MARKET OPERATIONSFORTHE ACCOUNTOFTHE BANGKO SENTRAL

Principle of open market operations

The open market purchases and sales of securities by the Bangko Sentral

shall be made exclusively in accordance with its primary objective of

achieving price stability.

In pursuit of this principle, the Bangko Sentral may engage in the purchaseand sale of government securities as well as issue and negotiate obligations

of the Bangko Sentral.

BANKRESERVES

Reserve requirements

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In order to control the volume of money created by the credit operations of

the banking system, all banks operating in the Philippines shall be required

to maintain reserves against their deposit liabilities.

The required reserves of each bank shall be proportional to the volume of its

deposit liabilities and shall ordinarily take the form of a deposit in the Bangko

Sentral. [Section 94, RA 7653]

No interest on bank reserves

Since the requirement to maintain bank reserves is imposed primarily to

control the volume of money, the Bangko Sentral shall not pay interest on

the reserves maintained with it unless the Monetary Board decides otherwise

as warranted by circumstances. [Section 94, RA 7653]

Deposit substitutes

The term "deposit substitutes" is defined as an alternative form 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 re-lending or purchasing of receivables and other

obligations.

Required reserves against foreign currency

The Monetary Board is similarly authorized to prescribe and modify the

minimum reserve ratios authorized applicable to deposits denominated in

foreign currencies.

Increase in reserve requirements

Whenever in the opinion of the Monetary Board it becomes necessary to

increase reserve requirements against existing liabilities, the increase shall

be made in a gradual manner and shall not exceed four percentage points in

any thirty-day period.

Banks and other affected financial institutions shall be notified reasonably in

advance of the date on which such increase is to become effective.

Exemption from attachment and other purposes of reserves

Deposits maintained by banks with the Bangko Sentral as part of their

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reserve requirements shall be exempt from attachment, garnishment, or any

other order or process of any court, government agency or any other

administrative body issued to satisfy the claim of a party other than the

Government, or its political subdivision or instrumentalities.

SELECTIVE REGULATIONOF BANKOPERATIONS

Guiding principle

The Monetary Board shall use the powers granted to it under RA 7653 to

ensure that the supply, availability and cost of money are in accord with the

needs of the Philippine economy and that bank credit is not granted for

speculative purposes prejudicial to the national interests.

Regulations on bank operations shall be applied to all banks of the same

category uniformly and without discrimination.

Margin requirements against letters of credit

The Monetary Board may at any time prescribe minimum cash margins for

the opening of letters of credit, and may related the size of the required

margin to the nature of the transaction to be financed.

FUNCTIONSAS BANKERAND FINANCIAL ADVISOROFTHE GOVERNMENT

Designation of Bangko Sentral as banker of the government

The Bangko Sentral shall act as a banker of the Government, its political

subdivisions and instrumentalities.

The Bangko Sentral shall represent the government with the International

Monetary Fund and other financial institutions.

Official deposits

The Bangko Sentral shall be the official depository of the Government, its

political subdivisions and instrumentalities as well as of government-ownedor controlled corporations.

THE MARKETINGAND STABILIZATIONOF SECURITIESFORTHE ACCOUNTOFTHE GOVERNMENT

Issue of government obligations

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The issue of securities representing obligations of the Government, its

political subdivisions or instrumentalities may be made through the Bangko

Sentral, which may act as agent of, and for the account of, the Government

or its respective subdivisions or instrumentality, as the case may be.

The Bangko Sentral shall not be a member of any stock exchange or

syndicate, but may intervene therein for the sole purpose of regulating their

operations in the placing of government securities. [Section 118, RA 7653]

Servicing and redemption of public debt

The servicing and redemption of the public debt shall also be effected

through the Bangko Sentral.

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Financial advice on official credit operations

Before undertaking any credit operation abroad, the Government, through

the Secretary of Finance, shall request the opinion, in writing, of the

Monetary Board on the monetary implications of the contemplated action.

Such opinion must similarly be requested by all political subdivisions and

instrumentalities of the Government before any credit operation abroad is

undertaken by them.

Whenever the Government, or any of its political subdivisions or

instrumentalities, contemplates borrowing within the Philippines, the prior

opinion of the Monetary Board shall likewise be requested in order that the

Board may render an opinion on the probable effects of the proposed

operation on monetary aggregates, the price level, and the balance of

payments.

In order to assure effective coordination between the economic, financial and

fiscal policies of the government and the monetary, credit and exchange

policies of the Bangko Sentral, the Deputy Governor designated by the

Governor of the Bangko Sentral shall be an ex officio member of the National

Economic and Development Authority Board.

PROHIBITIONS

Prohibitions

The Bangko Sentral shall not acquire shares of any kind or accept them as

coolateral, and shall not participate in the ownership or management of any

enterprise, either directly or indirectly.

The Bangko Sentral shall not engage in development banking or financing.

TRANSITORYPROVISIONS

Phaseout of fiscal agency functions

Unless circumstances warrant otherwise and approved by the CongressOversight Committee, the Bangko Sentral shall within a period of three (3)

years but in no case longer than five (5) years from the approval of RA 7653,

phase out all fiscal agency functions, and transfer the same to the

Department of Finance. [Section 129, RA 7653]

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Phaseout of regulatory powers over the operations of finance

corporations and other institutions performing similar functions

The Bangko Sentral shall within a period of five (5) years from the effectivity

of RA 7653 phase out its regulatory powers over finance companies without

quasi-banking functions and other institutions performing similar functions,

the same to be assumed by the Securities and Exchange Commission.


GENERAL BANKING ACT

Republic Act No. 337, as amended

An act regulating banks and banking institutions and for other purposes

Approved 23 February 1995

IN GENERAL

Rule on bank operations

Only entities duly authorized by the Monetary Board of the Bangko Sentral

may engage in the lending of funds obtained from the public through the

receipt of deposits of any kind and all entities regularly conducting such

operations shall be considered as banking institutions.

Banks or banking institutions

Entities engaged in the lending of funds obtained from the public through the

receipt of deposits of any kind, and all entities regularly conducting such

operation.

Banks or banking institutions must be duly authorized by the Monetary Board

of the Central Bank.

Public shall mean twenty or more lenders.

Quasi-banking functions

Quasi-banking functionsshall mean borrowing funds, for the borrowers

own account, through the issuance, endorsement or acceptance of debt

instruments of any kind other than deposits, or through the issuance of

participations, certificates of assignment, or similar instruments with

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recourse, trust certificates, or of repurchase agreements, from twenty or

more lenders at any one time, for purposes of re-lending or purchasing of

receivables and other obligations.

However, commercial, industrial, and other non-financial companies, which

borrow funds through any of these means for the limited purposes of

financing their own needs or the needs of their agents or dealers, shall not be

considered as performing quasi-banking functions.

Financial intermediaries

Financial intermediariesshall mean persons or entities whose principal

functions include the lending, investing or placement of funds or evidence 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.

Non-banking financial institutions performing quasi-banking functions

The following entities shall not be considered as banking institutions but shall

be subject to regulation by the Monetary Board:

1. Entities regularly engaged in the lending of funds or purchasing of

receivables or other obligations with funds obtained from the public

through the issuance, endorsement or acceptance of debt instruments

of any kind for their own account, or through the issuance of

certificates of assignment or similar instruments with recourse, trust

certificates, or of repurchase agreements, whether any of these means

of obtaining funds from the public is done on a regular basis or

occasionally.

2. Entities regularly engaged in the lending of funds which receive

deposits occasionally.

3. Trust companies, building and loan associations, and non-stock

savings and loan associations.

These entities will be subject to regulation by the Monetary Board which may

include, but need not be limited to:

1. the imposition of net worth to risk assets ratios;

2. reserve requirements;

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3. interest rate ceilings;

4. methods of computation thereof;

5. prescribing charges which may be collected;

6. minimum capitalization; and

7. submission of statistical reports.

Non-bank financial intermediaries

The operations and activities of non-bank financial intermediaries, except

insurance companies, shall be subject to regulation by the Monetary Board

which may include, but need not be limited to, the imposition of constraints

covering the:

1. minimum size of funds received;

2. methods of marketing and distribution;

3. terms and maturities of funds received; and

4. uses of funds.

If such entities are authorized by the Central Bank to perform quasi-banking

functions, they may be further subject to regulation as discussed below.

Note: Sec. 130 of the CB Act phasing out the regulation of MB over NBFCs not

engaged in quasi-banking functions.

Determination of functions

The determination of whether a person or an entity is a) performing banking

or quasi-banking functions; or b) engaged in other types of financial

intermediation shall be decided by the Monetary Board, subject to judicial

review.

Regulation

Regulationshall mean the issuance of rules of conduct or the

establishment of modes or standards of operation for uniform application to

all institutions or functions covered, taking into consideration in determining

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such coverage the distinctive character of the operations of institutions and

the substantive similarities of specific functions to which such rules, modes

or standards are to be applied. In some instances, these entities may be

subject to special examination.

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Supervision

Supervisionshall include not only the issuance of rules but also the

overseeing to ascertain that regulations are complied with, investigating or

examining to determine whether an institution is conducting its business on a

sound financial basis, and inquiring into the solvency and liquidity of the

institution.

Relationship between bank and depositor

Fixed savings and current deposits of money in banks and similar institutions

shall be governed by the provisions concerning simple loan. In other words,

the relationship between the bank and the depositor is that of a debtor and

creditor.

In the case of rent of safety deposit box. The contract is a special kind of

deposit and cannot be characterized as an ordinary contract of lease because

the full and absolute possession and control of the deposit box is not given to

the renters. The prevailing rule is that the relation between the bank renting

out and the renter is that of bailer and bailee the bailment being for hire and

mutual benefiit. [CA Agro-industrial Dev. Corp. v. CA, 219 SCRA 426

(1983)]

Types of deposits

1. Time Deposit-Interest rate stipulated depending on the number of days.

During this period, the money deposited cannot be withdrawn. The bank

uses this money to lend to others. That is why in these accounts, the

depositor is paid higher rates of interest for the use of the money.

2. Savings deposit-Interest fixed under the fine prints, if one deposits today, he

cannot withdraw the amount not until 60 days later. The bank can lend out

such funds; that is why it pays interests on such deposits.

3. Demand deposit or current accounts- No interest is fixed by the bank

because the depositor can take out his funds any time. It is called demand

deposit because the depositor can withdraw the money deposited on thevery same day when he deposited it. Note: As a general rule, only

commercial banks can accept demand deposits on checking accounts. By

way of exception, savings banks and even rural banks, are allowed by the CB

to accept checking accounts because their capitalizaition may be large.

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Money market transactions

Money market is a market dealing in standardized short-term credit

instruments (involving large amounts) where lenders and borrowers do not

deal directly with each other but through a mediator or dealer in the open

market.

It involves commercial paperswhich are instruments evidencing

indebtedness of any person or entity which are issued, endorsed, sold or

transferred or in any manner conveyed to another person or entity, with or

without recourse.

The fundamental function of the money market devise in its operation is to

match and bring together in a most impersonal manner both the fund

usersand the fund suppliers.

The money market is an impersonal market free from personal

considerations. The market mechanism is intended to provide quick mobility

of money and securities.

The General Banking Act discriminates against banks in two aspects

1. Period- Under the Civil Code, a period is presumed to be for the benefit of

both parties. Insofar as banks are concerned, the period is always for the

benefit of the debtor if the bank is the creditor. The debtor can compel the

creditor bank to accept payment of a debt before it is due, and recover

interest deducted in advance.

2. Foreclosure of mortgage-

The general rule is that there is no right of redemption in judicial

foreclosure of mortgage. There is only 90 day equity redemption

period.

The exception is with the banks aside from the 90-day equity

redemption period, banks are required to give a one-year redemption

period.

Alien bank mortgage

An alien bank can bid in a public auction of mortgaged property if such

property was mortgage to it in the course of an ordinary banking transaction.

If the mortgage was not within the normal banking transaction, it must be

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prohibited from bidding.

Mortgage loans

Loans against real estate security shall not exceed 70% of the appraised

value of the real estate security, plus 70 %of the appraised value of the

improvements with title to the property being with the mortgagor.

Loans on the security of chattels shall not exceed 50% of the appraised value

of the security.

Classification of banks

1. Commercial banks

2. Thrift banks

a. Savings and mortgage banks

b. Stock savings and loan associations

c. Private development banks

3. Rural banks

Indispensable to the national interest

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 lockout involving banks, if unsettled after seven (7) calendar days,

shall be reported by the Central Bank to the Preside who shall immediately

certify the same to the appropriate court, government agency or commission

for resolution.

ESTABLISHMENTOF DOMESTIC BANKS

Form of organization

Domestic banking institutions, except building and loan associations, shall be

organized in the form of stock corporations.

No banking institution shall issue no-par value stock.

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The Securities and Exchange Commission 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 official

seal.

At least two thirds of the members of the board of directors of any bank or

banking institution which may be established after the approval of this Act

shall be Filipino citizens.

Requisites for issuance of certificate of authority

Such certificate shall not issue unless the Monetary Board is satisfied from

the evidence submitted to it:

1. that all the requirements of existing laws and regulations to engage in

the business for which the applicant is proposed to be incorporated

have been complied with;

2. that the public interest and economic conditions, both general and

local, justify the authorization; and

3. that the amount of capital, the financing organization, direction and

administration, as well as the integrity and responsibility of the

organizers and administrators reasonably assure the safety of the

interests which the public may entrust to them.

Receipt and disposition of deposits

No bank which may be established and licensed to do business in the

Philippines shall receive deposits, unless incorporated under the laws of the

Republic of the Philippines.

This prohibition, however, shall not apply to branches and agencies of foreign

banks which, at the time of approval of the General Banking Act, are actually

receiving deposits.

After approval of the Act, all deposits so received by such branches andagencies of foreign bank shall not be invested in any manner outside the

territorial limits of the Republic of the Philippines.

Voting stock requirements

At least seventy percent (70%) of the voting stock of any banking institution

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which may be established after the approval of the Act shall be owned by

citizens of the Philippines, except where a new bank is established as a result

of: a) the local incorporation of any of the existing branches or agencies of

foreign banks in the Philippines; or b) the consolidation of existing banks in

any of which there are foreign owned voting stocks at the time of

consolidation.

The Monetary Board may, with the approval of the President, increase the

percentage of foreign-owned voting stocks in any domestic bank from thirty

percent (30%) to forty percent (40%).

The percentage of foreign-owned voting stocks in a bank shall be determined

by the citizenship of the individual stockholders in that bank. In the case of

corporations owning bank shares, the citizenship of each stockholder in that

corporation shall be the basis of computing the percentage.

Ownership of stocks in banks by corporations

The total voting stocks which any corporation, including its wholly or majority

owned subsidiaries, may own in any bank shall not exceed thirty percent

(30%) of the voting stock of that bank.

In the case of a corporation which is wholly owned, or the majority of the

voting stock of which is owned, by any one person or by persons related to

each other within the third degree of consanguinity or affinity, that

corporation may own not more than twenty percent (20%) of the voting stock

of any bank.

LICENSINGOF FOREIGN BANKS

License to conduct business

No foreign bank or banking corporation formed, organized or existing under

any law other than those of the Philippines shall be permitted to transact

business in the Philippines, or maintain by itself or assignee any suit for the

recovery of any debt, claims, or demand whatsoever, until after it shall have

obtained, upon order of the Monetary Board, a license for that purpose fromthe Securities and Exchange Commission.

No foreign building and loan association or building and loan association not

formed, organized, or existing under the laws of the Philippines shall be

permitted to transact business in the Philippines.

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Requisites for issuance of license

1. Public and economic conditions, both general and local, justify the issuance

of such order.

2. The foreign bank or banking corporation is solvent and in sound financial

condition.

3. A duly appointed agent in the Philippines has been authorized to accept

summons and legal processes.

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Investment rights

1. Foreign banking institutions without branches in the Philippines, including

their wholly or majority owned subsidiaries and their holding companies

having majority holding in such foreign banking institutions, may invest, with

prior approval of the Monetary Board, in equities of local companies engaged

in financial allied undertakings. However, they shall maintain minority

participation in such enterprise.

2. With prior approval of the Central Bank, these foreign entities may also

purchase equities in domestic banks, subject to restrictions.

Revocation of license

1. The foreign bank is in imminent danger of insolvency.

2. Its continuance in business will involve probable loss to those transacting

business with it.

CLASSIFICATIONOF PRIVATE BANKS

COMMERCIAL BANKING CORPORATIONSAND UNIVERSAL BANKS

Commercial bank

A commercial banking corporation, in addition to the general powers incident

to corporations, shall have all such powers as shall be necessary to carry on

the business of commercial banking:

1. by accepting drafts and issuing letters of credit, by discounting and

negotiating promissory notes, drafts, bills of exchange, and other

evidences of debts;

2. by receiving deposits;

3. by buying and selling foreign exchange and gold or silver bullion; and

4. by lending money against personal security or against securities

consisting of personal property of mortgages on improved real estate

and the insured improvements thereon.

A commercial bank may also accept or create demand deposits subject to

withdrawal by check.

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A commercial bank may offer NOW accounts (special types of savings deposit

which can be withdrawn by means of a Negotiable Order of Withdrawal and is

offered only to natural persons).

A commercial bank may likewise acquire readily marketable bonds and other

debt securities subject to such rules as the Monetary Board may promulgate.

A commercial bank, finally, may invest to the extent allowed under

applicable law and regulations in equities of allied undertaking, whether

financial or non-financial.

Investment in allied undertakings

Commercial banks, including Government banks and foreign banks with

existing local branches, may invest in equities of allied undertakings.

Equity investments shall not be permitted in non-related activities.

Limitations on investments in allied undertakings:

1. The total investment in equities shall not exceed twenty five percent

(25%) of the net worth of the bank.

2. The equity investment in any one enterprise shall not exceed fifteen

percent (15%) of the net worth of the bank;

3. The total equity investment of the bank in any single enterprise shall

remain a minority holding in that enterprise; and

4. The equity investment in other banks shall be deducted from the

investing banks net worth for purposes of computing the prescribed

ratio of net worth to risk assets.

Financial allied undertakings

1. Leasing companies

2. Banks

3. Investment houses

4. Financing companies

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5. Credit card operations

6. Financial institutions catering to small and medium scale enterprises

Non-financial allied undertakings

1. Warehousing companies

2. Storage companies

3. Safe deposit box companies

4. Companies engaged in the management of mutual funds but not in the

mutual funds themselves

5. Management corporations engaged or to be engaged in activity similar

to the engagement of mutual funds

6. Companies engaged in the provision of computer services

7. Insurance agencies

8. Companies engaged in home building and home development

9. Companies providing drying and/or milling facilities for agricultural

crops

Universal bank or expanded commercial banking authority

The Monetary Board may authorize -- to further national development

objectives or support national priority projects -- a commercial bank, a bank

authorized to provide commercial banking services, as well as a government

owned and controlled bank, to operate under an expanded commercial

banking authority.

By virtue of such expanded power, the universal bank may, in addition topowers authorized for commercial banks:

1. exercise the power of an Investment House as provided in PD 129;

2. invest in the equity of a non-allied undertaking; or

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3. own a majority or all of the equity in a financial intermediary other

than a commercial bank or a bank authorized to provide commercial

banking services.

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Limitations on exercise of power as investment house

Universal bank may perform the functions of an investment house either

directly OR indirectly through a subsidiary investment house (it cannot

perform such functions both directly and indirectly).

If performed directly, such functions shall be undertaken by a separate and

distinct department in the bank.

If performed indirectly through an investment house, universal bank may not

directly exercise such powers as are exclusively reserved to investment

houses.

Limitations on equity investment of a universal bank

1. The total investment in equities shall not exceed fifty percent (50%) of the

net worth of the bank.

2. The equity investment in any one enterprise whether allied or non-allied shall

not exceed fifteen percent (15%) of the net worth of the bank.

3. The equity investment of the bank, or of its wholly- or majority-owned

subsidiary, in a single non-allied undertaking shall not exceed thirty five

percent (35%) of the total equity in the enterprise nor shall it exceed thirty

five percent (35%) of the voting stock in that enterprise.

4. The equity investment in other banks shall be deducted from the investing

banks net worth for purposes of computing the prescribed ratio of net worth

to risk assets.

Capitalization

Commercial bank - P 2 billion

Universal bank - P 4.5 billion

Ownership in a thrift bank or rural bank

A commercial bank or any bank authorized to provide commercial banking

services, or to operate under an expanded commercial banking authority

may own more than thirty percent (30%) of the voting stock of a thrift bank

or a rural bank up to a majority or all of the equity thereof.

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Subject to the prior approval of the Monetary Board.

Combined capital accounts

The combined capital accounts of each commercial bank shall not be less

than an amount equal to ten percent (10%) of its risk assets

Risk assets is defined as its total assets minus the following assets:

1. Cash on hand;

2. Amounts due from the Central Bank;

3. Evidence of indebtedness of the Philippine Government or Central

Bank or any other evidence of indebtedness fully guaranteed by the

Philippine Government;

4. Loans to the extend covered by hold-out on, or assignment of, deposits

maintained in the lending bank and held in the Philippines;

5. Loans or acceptances under letters of credit to the extend covered by

marginal deposits; and

6. Other non-risk items which the Monetary Board may, from time to

time, authorize to be deducted from total assets.

Purchase, holding or conveyance of real estate

Any commercial bank may purchase, hold, and convey real estate for the

following purposes:

1. Such as shall be necessary for its immediate accommodation in the

transaction of its business;

2. Such as shall be mortgaged to it in good faith by way of security for

debts;

3. Such as shall be conveyed to it in satisfaction of debts previously

contracted in the course of its dealings; and

4. Such as its shall purchase at sales under judgments, decrees,

mortgages, or trust deeds held by it and such as it shall purchase to

secure debts due to it.

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However, no such bank shall hold the possession of any real estate under

mortgage or trust deed, or the title and possession of any real estate

purchased to secure any debt due to it, for a longer period than five years.

Establishment of branches

Any commercial bank organized under Philippine laws may, with the prior

approval of the Monetary Board, establish branches in the Philippines or

branches and agencies outside the Philippines, and the bank shall be

responsible for all business conducted in such branches 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 shall be treated as a unit.

THRIFT BANKS

Thrift banks

Thrift banks shall include savings and mortgage banks, private

development banks, and stock savings and loan associations organized under

existing laws and any banking corporation that may be organized for the

following purposes:

1. 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 and household finance,

whether secured or unsecured, or in financing for home building 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 will determine as necessary in the furtherance of

national economic objectives;

2. Providing short term working capital, or medium- and long-term

financing to businesses engaged in agriculture, services, industry and

housing; and

3. Providing diversified financial and allied services for its chosen market

and constituencies especially for small and medium enterprises and

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individuals.

Scope of authority

Thrift banks may:

1. Accept savings and time deposits;

2. Act as correspondent for other financial institutions;

3. Purchase, hold and convey real estate;

4. Open letters of credit;

5. extend credit facilities to private and government employees;

6. Extend credit against the security of jewelry, precious stones and

similar articles;

7. Accept foreign currency deposits;

8. Invest in equity of allied undertakings;

9. Rediscount papers with the PNB, LBP, DBP, and other GOCCs;

10. Issue domestic letters of credit;

11. Invest in marketable bonds and other debt securities;

12. Grant loans, secured or not secured; and

13. With prior approval of the Monetary Board:

a. Open current or checking accounts;

b. Act as collection agent for government entities;

c. Act as official depository of national agencies and municipal, city

or provincial funds where the bank is located;

d. Issue mortgage and chattel certificates;

e. Engage in quasi-banking and money market operations; and

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f. Offer NOW accounts.

Thrift banks may perform services similar to those offered by commercial

banks under an expanded authority when permitted by the Bangko Sentral

ng Pilipinas.

Capitalization

Capitalization may vary according to the location of the head office:

Within Metro Manila - P250 million

Outside Metro Manila - P 40 million

Incentives and exemptions

1. Reserve requirement differential

2. Liberalized branching rules

3. Notices of statement of condition

4. Tax exemptions

5. Exemption from publication requirement

6. Exemption from notarial charges

7. Exemption from registration fees

Equity ownership

At least 40% of the voting stock of a thrift bank shall be owned by Filipino

citizens.

Exception: In case of merger or consolidation of existing Thrift Banks with

foreign holdings, the resulting holding shall not be increased but may bereduced and, once reduced, shall not be increased thereafter beyond 60% of

the voting stock of the Thrift Bank.

Minors as depositors

Minors in their own rights and in their own names may make deposits and

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withdraw the same, and may receive dividends and interests.

If the 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.

BUILDINGAND LOAN ASSOCIATIONS

Building and loan associations

Building and loan associations are corporations whose capital stock is

required or is permitted to be paid in by the stockholders in regular, equal

periodical payments and whose purpose is:

1. to accumulate the savings of its stockholders;

2. to repay to said stockholders their accumulated savings and profits

upon surrender of their shares;

3. to encourage industry, frugality, and home building among its

stockholders; and

4. to loan its funds, and funds borrowed for the purpose, to stockholders

on the security of unencumbered real estate and with the pledge of

shares of the capital stock owned by such stockholders as collateral

security.

Prohibition

It shall be unlawful for any building and loan association to make any loan

upon property that is suitable for us only as theatre, public hall, church,

convent, school, club, hotel, garage, or other public building. Monetary Board

may grant exemptions in cases of public hall, school, hotel and other public

buildings to facilitate the investment of idle funds.

Investment in bonds

With the approval of the Monetary Board, a building and loan association

may also invest such of its funds as may otherwise remain idle in bonds and

obligations of the Republic of the Philippines or any of its subdivisions, or

GOCCs.

Capital stock

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The capital stock of such associations shall be paid in by the stockholders in

regular, equal, periodical payments known as dues, at such times and in such

amounts as shall be provided in their by laws.

The dues on each share of stock subscribed for by a stockholder shall

continue to be paid by the stockholder to the association until the share has

been duly withdrawn, cancelled, or forfeited or until the share has reached its

matured value.

Matured value is when the due paid on each share and the net earnings

thereof, in accordance with the by laws, shall amount to the matured of the

share.

Certificates of stock

Certificates of stock shall be issued to each stockholder upon the payment of

the membership fees and first installment of the dues.

Installment shares v. paid-up shares

While still being paid, the shares are called installment shares. After they are

fully paid, they are called paid-up shares.

Once paid-up, relationship between the association and stockholder is

changed into that of debtor and creditor.

Free shares and pledged shares

Shares which have not been pledged as security for the payment of a loan

shall be called free shares,and shares which have been so pledged shall

be called pledged shares.

Surrender of shares

Stockholders may surrender their shares and withdraw from the association

after paying twelve (12) monthly installment of dues upon giving sixty (60)days notice in writing to the board of directors and the withdrawal value

shall be the total sum of the dues paid thereon plus not less than ninety

percent (90%) of all dividends earned by such shares up to the end of the

last preceding fiscal period plus such interest for the time elapsed since the

end of the period as shall be allowed by the board of directors.

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Stockholders who have not paid twelve (12) monthly installments of dues

may, after giving sixty (60) days notice to the board, surrender their shares

and withdraw from the association, and the withdrawal value shall be the

total sum of the due paid thereon plus such dividend or interest as may be

allowed by the board of directors.

RURAL BANKS

Scope of authority

A rural bank may perform any or all of the following services:

1. Extend loans and advances primarily for the purpose of meeting the

normal and credit needs of farmers, fishermen, or farm families as well

as cooperatives, merchants, private and public employees;

2. Accept savings and time deposits;

3. Ac as correspondent bank of other financial institutions;

4. Rediscount paper with the LBP, DBP, or any other bank, including its

branches and agencies.

5. Act as a collection agent;

6. Offer other banking services as provided in Section 772 of RA 337, as

amended;

7. Extend financial assistance to private and public employees in

accordance with RA 3779, as amended; and

8. With prior approval of the Monetary Board:

a. Accept current or checking accounts;

b. Accept NOW accounts;

c. Act as trustee over estates or properties of farmers and

merchants;

d. Act as official government depository;

e. Sell domestic drafts; and

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f. Invest in allied undertakings.

Rationale

The rationale behind rural banking system is the need to promote

comprehensive rural development with the end in view of the following:

1. A more equitable distribution of opportunities, income and wealth;

2. A sustained increase of goods and services produced by the nation for

the benefit of the people; and

3. An expanding productivity as a key to raising the quality of life for all.

This can be achieved by making credit available and readily accessible in the

rural areas.

Capital stock

With the exception of shareholdings of corporations organized primarily to

hold equities in rural banks, and of Filipino-controlled domestic banks, the

capital stock of any rural bank shall be fully-owned and held by Philippine

citizens or entities qualified under Phil. law to own and hold such capital

stock.

Board

All members of the BOD shall be Filipino citizens.

However, there is no prohibition against any appointive or elective public

official from serving as director, officer, consultant or in any capacity in the

bank.

Incentives

Foreclosure of mortgages exempt from newspaper publication requirementsif the loan, excluding interest due and unpaid, does not exceed P100,000.

Exempt from payment of all taxes, fees and charges of whatever nautre and

description, except corporate income taxes and local taxes, fees and

charges for aperiod of five years from the date of commencement of

operations.

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Free from notarization fees

Free from registration fees and DST in RD.

ACT LIBERALIZING ENTRYOF FOREIGN BANKS


An act liberalizing the entry and scope of operations of foreign banks in the

Philippines and for other purposes

Declaration of policy

The State shall:

1. Develop a self-reliant and independent national economy effectively

controlled by Filipinos; and

2. Encourage, promote and maintain a stable, competitive, efficient and

dynamic banking and financial system.

Pursuant to this policy, the Philippine banking and financial system is hereby

liberalized to create a more competitive environment and encourage greater

foreign participation through increase in ownership in domestic banks by

foreign banks and the entry of new foreign bank branches.

In allowing increased foreign participation in the financial system, it shall be

the policy of the State that the financial system shall remain effectively

controlled by Filipinos.

Three (3) modes of entry for foreign banks

The Monetary Board may authorize foreign banks to operate in the Philippine

banking system through any of the following modes of entry:

1. by acquiring, purchasing or owning up to sixty percent (60%) of thevoting stock of an existing bank;

2. by investing in up to sixty percent (60%) of the voting stock of a new

banking subsidiary incorporated under Philippine laws; or

3. by establishing branches with full banking authority.

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A foreign bank or a Philippine corporation, however, may own up to sixty

percent (60%) of the voting stock of only one domestic bank or new banking

subsidiary.

Guidelines for entry

In approving entry applications of foreign banks, the Monetary Board shall:

1. ensure geographic representation and complementation;

2. consider strategic trade and investment relationships between the

Philippines and the country of incorporation of the foreign bank;

3. study the demonstrated capacity, global reputation for financial

innovations and stability in a competitive environment of the

applicant;

4. see to it that reciprocity rights are enjoyed by Philippine banks in the

applicants country; and

5. consider willingness to fully share their technology.

Only those among the top one hundred fifty (150) foreign banks in the world

or the top five (5) banks in their country of origin as of the date of application

shall be allowed entry in (b) and (c) of modes of entry.

In approving entry, Monetary Board shall adopt such measures as may be

necessary:

1. to ensure that, at all times, the control of seventy (70%) of the

resources or assets of the entire banking system is held by domestic

banks which are at least majority-owned by Filipinos;

2. prevent a dominant market position by one bank or the concentration

of economic power in one or more financial institutions, or in

corporations, partnerships, groups or individuals with related interests;and

3. secure the listing in the Philippine Stock Exchange of the shares of

stocks of banking corporations established under (a) and (b) modes of

entry.

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To qualify to establish a branch or subsidiary, the foreign bank applicant

must be widely-owned and publicly-listed in its country of origin, unless the

foreign bank applicant is owned by the government of its country of origin.

Capital requirements

Locally incorporated subsidiaries shall have the same minimum capital

requirements as domestic banks of the same category.

For foreign bank branches, they shall permanently assign capital of not less

than the U.S. dollar equivalent of P210,000,000.00 at the exchange rate on

the date of effectivity of this law.

The permanently assigned capital shall be inwardly remitted and converted

into Philippine currency.

Branches

A foreign bank shall be entitled to three (3) branches upon remittance of

minimum capital requirement.

A foreign bank may open three (3) additional branches in locations

designated by the Monetary Board by inwardly remitting and converting into

Philippine currency as permanently assigned capital the U.S. dollar

equivalent of P35,000,000.00 per additional branch at the exchange rate on

the date of effectivity of this law.

Total number of branches for each new foreign bank entrant shall not exceed

six (6).

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Head office guarantee

The head office of foreign bank branches shall guarantee prompt payment of

all liabilities of its Philippine branches.

Equal treatment

Foreign banks authorized to operate under the law shall perform the same

functions, enjoy the same privileges, and be subject to the same limitations

imposed upon a Philippine bank of the same category.

These limits include, among others, the single borrowers limit and capital to

risk asset ratio as well as the capitalization required for expanded

commercial banking activities under the General Banking Act and other

related laws of the Philippines.

OFFSHORE BANKING SYSTEM LAW

Presidential Decree No. 1034

Authorizing the establishment of an offshore banking system in the Philippines

Approved 30 September 1976

Offshore banking

Offshore banking shall refer to the conduct of banking transactions in foreigncurrencies involving the receipt of funds from external sources and the

utilization of such funds in transactions with non-residents or other offshore

banking units.

Offshore banking unit

Offshore banking unit shall mean a branch, subsidiary or affiliate of a foreign

banking corporation which is duly authorized by the Central Bank to transact

offshore banking business in the Philippines.

Deposits

Deposits shall mean funds in foreign currencies which are accepted and held

by an offshore banking unit in the regular course of business, with the

obligation to return an equivalent amount to the owner thereof, with or

without interest.

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Who are qualified to operate an offshore banking unit?

Only banks which are organized under any law other than those of the

Republic of the Philippines, their branches, subsidiaries or affiliates, shall be

qualified to operate offshore banking units in the Philippines.

Local branches of foreign banks already authorized to accept foreign

currency deposits under RA 6426 may opt to apply for authority to operate

an offshore banking unit under PD 1034. However, upon their receipt of a

corresponding certificate of authority to operate as an offshore banking unit,

the license to transact business under RA 6426 shall be deemed

automatically withdrawn.

Certificate of authority to operate

The Monetary Board is authorized to issue certificates of authority to operate

offshore banking units.

In issuing such certificate, the Monetary Board shall take into consideration

the applicants:

1. liquidity and solvency position;

2. net worth and resources;

3. management;

4. international banking expertise;

5. contribution to the Philippine economy; and

6. other relevant factors such as participation in equity of local

commercial banks and appropriate geographic representation.

The Central Bank is authorized to collect a fee of not less than US $20,000

upon issuing any certificate of authority to operate and annually thereafter

on the anniversary date of such certificate.

Corporate undertaking

No application to operate as an offshore banking unit shall be considered

unless the applicant shall have first submitted to the Central Bank a sworn

undertaking of its head office or parent or holding company, duly supported

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by an appropriate resolution of its board of directors, that, among other

things:

1. it will, on demand, provide the necessary specified currencies to cover

liquidity needs that may arise or other shortfall that its offshore

banking unit may incur;

2. the operations of its offshore banking unit shall be managed soundly

and with prudence;

3. it will train and continually educate a specific number of Filipinos in

international banking and foreign exchange trading with a view to

reducing the number of expatriates;

4. it will provide and maintain in its offshore banking unit net office funds

in the minimum amount of US $ 1,000,000; and

5. it will start operations of its offshore banking unit within 180 days from

receipt of its certificate of authority to operate such unit.

Transactions of offshore banking units

Transactions of offshore banking units with non-residents or with other

offshore banking units shall be freely allowed, but safeguards will be

established to prevent circumvention of foreign exchange regulations.

Transactions of offshore banking units with residents of the Philippines,

including those with local commercial banks and local branches of foreign

banks authorized to receive foreign currency deposits under RA 6426, shall

be subject to applicable law and regulations.

Documents

59344421 Banking Laws