GENERAL BANKING LAW

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GENERAL BANKING LAW
REPUBLIC ACT NO. 8791
AN ACT PROVIDING FOR THE REGULATION OF THE
ORGANIZATION AND OPERATIONS OF BANKS,
QUASI-BANKS, TRUST ENTITIES AND FOR OTHER
PURPOSES.
"The General Banking Law of 2000."
DEFINITION AND CLASSIFICATION OF
BANKS
 BANKS- shall refer to entities engaged in the lending of funds obtained in the form of
deposits. (Sec. 3.1)
 Banks shall be classified into:
a. Universal banks;
b. Commercial banks;
c. Thrift banks, composed of:
(i) Savings and mortgage banks,
(ii) Stock savings and loan associations
(iii) Private development banks
d. Rural banks
e. Cooperative banks
f. Islamic banks , or "Charter of Al Amanah Islamic Investment Bank of the Philippines"
g. Other classifications of banks as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas.
QUASI BANK
 “ (QB) refer to entities engaged in the borrowing of funds through
the issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of relending or
purchasing of receivables and other obligations. (Sec. 4, GBL)
 Quasi-banking function is an inherent power of Universal Banks
and Commercial Banks.
 Note:
A person or entity cannot engage in banking or quasi-banking
functions without a certificate of authority from the BSP( Sec. 6).
The determination of whether a person or entity is performing
banking or quasi-banking functions without BSP authority shall be
decided by the Monetary Board.
CONDITIONS FOR ORGANIZATION:
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, and;
 That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are
satisfied. (Sec. 8, GBL)
ORGANIZATION AND OPERATION
A. Authority to Register/Incorporate
 The SEC shall not register the articles of incorporation of any bank or any
amendment there to unless accompanied by a certificate of authority
issued by the Monetary Board under its seal.
 The certificate of authority shall not be issued unless the Monetary Board
is satisfied:
1.That all 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;
3.That the amount of the capital, the financing, organization, direction
and administration, as well as the integrity and responsibility of the
organizers and administrators, reasonably assure the safety of deposits and
the public interest ( Sec. 14).
NATURE OF BUSINESS
 Impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that:
1.The appropriate standard of diligence must be very high, if
not the highest, degree of diligence.
2. Subject to reasonable regulation under the police power of
the state.
While an innocent mortgagee is not expected to conduct an
exhaustive investigation on the history of the mortgagor ¶s
title, in case of a banking.
institution, it must exercise due diligence before entering into said
contract, and cannot rely upon on what is or is not annotated on
the title.
 Reason:
Before a loan is approved, representatives are sent to the premises
offered as collaterals so as to investigate who the real owners.
The business of a bank is one affected by public interest for which
reason the bank should guard against loss due to negligence and
bad faith. It is expected to ascertain and verify the identities of the
persons it transacts business.
Due diligence required of banks extend even to persons, or
institutions like the GSIS, regularly engaged in the business of
lending money secured by real estate mortgages.
 SECTION 2. Declaration of Policy.
The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that
requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a
developing economy.
CONSEQUENCES OF NATURE IN
BUSINESS
 It is subject to heavy and close supervision and/or regulation by the
BSP.
 It is required to exercise utmost diligence in the handling of deposits.
 Special rules on strikes and lockouts: any strike or lockout involving
banks, if unsettled after 7calendar days shall be reported by the BSP
to the Sec. of Labor who has 2 options:
a. He may assume jurisdiction over and decide the dispute
b. Certify it to the NLRC for compulsory arbitration.
The President may also intervene at any time and assume jurisdiction
over such labor dispute in order to settle or terminate the same.
UNIVERSAL BANKS COMMERCIAL BANKS
POWER
POWER
1. General powers incident to corporations
1. The powers authorized for a Commercial
2. Such powers as maybe necessary to carryon
Bank;
the business of commercial banking:
2.The powers of an investment house
a. Accepting drafts and issuing letter
as provided in existing laws;
of credits;
and
b. Discounting and negotiating promissory
3. The power to invest in non-allied enterprises as
notes, drafts, bills of exchange and
other evidence of debt;
provided in the GBL. (Sec. 23)
c. Accepting or creating demand deposits;
receiving other types of deposits and deposit
substitutes;
d. Buying and selling foreign exchange and
other debt securities;
e. Extending credit
UNIVERSAL BANKS
(SEC 24-28)
COMMERCIAL BANK
(SEC 30-32)
Total investment in allied
enterprises
50% of net worth
Total investment in non-allied
enterprises
50% of net worth
Equity investment in anyone
enterprise
25% of net worth
25% of net worth
100% of equity
100% of equity
Equity investment in financial
allied enterprise: thrift bank,
rural bank or any financial allied
enterprise.
( Sec. 25)
A publicly-listed bank may own
up to 100% of the voting stock
of only one other UB / CB
( Sec.25)
35 % of net worth
N/A
In other financial allied
enterprises, investment shall
remain a minority holding
( Sec. 31)
UNIVERSAL BANKS
(SEC 24-28)
Equity investment in nonfinancial allied enterprises
Equity investment in a single
non-allied enterprise.
Equity investment in QuasiBanks
100% of equity
Shall not exceed35% of the total
equity in that enterprise
nor shall it exceed35% of the
voting stock in that enterprise.
40%
COMMERCIAL BANK
(SEC 30-32)
100% of equity
N/A
40%
 Allied Enterprises
those entities which enhance or complement banking
 Non-Financial Allied Enterprises
pertains to activities that do not involve money matters
(such as ware housing, safety deposit boxes
 NET WORTH
The total of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net valuation
reserves and other adjustments as may be required by the
Bangko Sentral. ( Sec. 24).
FUNCTION OF BANKS
 DEPOSIT FUNCTION
 Simple Loan
 Fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loan (Article 1980, Civil Code of the Philippines).
 The depositary would be liable if in performing its obligation it is found
guilty of fraud, negligence; in the absence of any stipulation prescribing the
degree of diligence required, that of a good father of the family is to be
observed. Any stipulation exempting the depositary from any liability arising
from loss on account of fraud, negligence would be void for being contrary
to public policy.
 Note:
The bank acting as depositary or as an agent shall keep the funds, securities
and other effects which it receives duly separated from its own assets and
liabilities. (Sec. 53)
KINDS OF DEPOSIT
Demand deposits
 The depositor can take out his funds any time.
 No interest is paid by the bank
 The depositor can withdraw the money he deposited on the very
same day.
Savings Account
 Evidenced by a passbook
 Has interest rate, but not as high as time deposits
Time Deposit
 Has a fixed term
 Money deposited cannot be withdrawn within a certain period
 Has a higher rate of interest than saving account
KINDS OF DEPOSIT
Negotiable Order of Withdrawal (NOW) Account
is an interest-bearing deposit account that combines the
payable on demand feature of checks and investment feature of
savings accounts.
Other Account
is one that may be opened by one individual or by two or more
persons. Whenever two or more persons open an account, the
same may be an “and/or account” or an “and” account.
 Safety Deposit Boxes
 Special kind of deposit
 Not an ordinary contract of lease
 Bailer and bailee
LOAN FUNCTION
 Requirement for Grant of Loans
Before granting a loan, a bank must ascertain that the
debtor is capable of fulfilling his commitments to the bank.
 Rules:
1. A bank may demand from its applicants a statement of
their assets and liabilities and of their income and
expenditures and other information.
2.Should such statements prove to be false or incorrect , the
bank may terminate any loan granted on the basis of said
statements and shall have the right to demand immediate
repayment or liquidation of obligation( Sec. 40).
Unclassified Loans
Those that do not have a greater than normal
risk and the borrower have apparent ability to
satisfy it in full and no loss in ultimate
collection is anticipated
Classified Loans
Those that have extra ordinary risks of loss in
collection due to some defects such as bad
debts or those under litigation.
RISK – BASED CAPITAL
Minimum ratio which the net worth of the bank must bear
to its total risk assets which may include contingent accounts.
SINGLES BORROWER’S LIMIT
 Limit on loans, credit accommodations and guarantees
(Sec. 35)
 The total amount of loans 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 total amount of loans may be increased by an additional
10% of the net worth of such bank provided the additional liabilities
of any borrower are adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, nonperishable goods which must be fully covered by insurance
 Excluding loans and other credit
accommodations
 secured by obligations of the Bangko Sentral or of the Philippine
Government
 fully guaranteed by the government as to the payment of
principal and interest
 covered by assignment of deposits maintained in the lending
bank and held in the Philippines
 under letters of credit to the extent covered by margin deposits
 Non-risk items
DOSRI
RECQUISITES
 a.The borrower is director, officer, or any stockholder of a bank and related
interest
 b. He contracts a loan or any form of financial accommodation.
 c.The loan or financial accommodation is from his bank or a bank that is a
subsidiary of a bank holding company of which both his bank and lending
bank are subsidiaries, a bank in
which a controlling proportion of the shares is
owned by the same interest that owns a controlling proportion
of the shares of his bank.
 d.The loan or financial accommodation of the DOS, singly or with that of his
related interest, is in excess of 5% of the capital and
surplus of the lending bank or in the maximum
amount permitted by law, whichever is lower.
Who are covered?
 1. Directors - Directors of the lending bank
 2. Officers- Either identified in the by-laws or are generally known
as such
 3. Stockholders - those whose stockholdings, individually and/or
together with any of the following persons, amount to 2% or more
of the total subscribed capital stock of the bank:
a. His spouse or relative within the first
degree of affinity/consanguinity or relative by legal adoption,
partnership wherein any of the foregoing is a general partner;
b. A co-owner, with the stockholder or the stockholder ‘s spouse,
or relative mentioned above, of property/right/interest
(mortgaged, pledged or assigned to secure the loan or credit
accommodations, except when the mortgage, pledge or assignment
covers only said co-owner ‘s undivided interest.
 4. Related Interest
a. Spouse, relatives within first degree of consanguinity or
affinity, or relative by legal adoption of a DOS, partnerships of
which a DOS or any of the foregoing is a general partner.
b. Co-owner, with the DOS or his spouse or relative within the
first degree of consanguinity or affinity, or relative by legal
adoption, of the property/interest/ right mortgaged, pledged,
assigned to secure the loans or credit accommodations, except
when the mortgage, pledge or assignment covers only said coowner’s undivided interest.
c. Corporation with inter-locking directors or where 20% of the
capital stock is owned by the DOS and/or their spouses or
relatives mentioned above, or wholly or majority owned or
controlled by any related entity or a group of related entities .
DOSRI
 EXCEPTION:
 written approval of the majority of all the directors
 entered upon the records of the bank
 copy of such entry transmitted to BSP.
 Such written approval shall not be required for
loans, other credit accommodations and advances
granted to officers under a fringe benefit plan
approved by the BSP.
 Rules on amount of secured loans
 a.Those secured by real estate shall not exceed 75%of
the appraised value of the real estate security, plus 60%
of the appraised value of the insured improvements(Sec.
37).
 b.Those secured by chattels and intangible
properties(such as patents, trademarks, trade names and
copyrights)shall not exceed 75% of the appraised value
of the security( Sec. 38).
 Amortization on Loans and Other Credit
Accommodations
 In case of more than 5 years maturity
Payment must be made annually
Provided, that when the borrowed funds are to be used
for purposes which do not initially produce revenues for
regular amortization payments there form, the bank may
permit the initial amortization payment to be deferred
until such time as said revenues are enough for such
purpose
Ceiling on Investments in Certain Assets
 Total investment shall not exceed 50% of combined capital
accounts
FORCLOSURE OF MORTAGE
 Debtor has the right to redeem real property within 1
year from sale of real estate.
 However, the buyer at the auction sale concerned
whether in a judicial or extrajudicial foreclosure shall
have the right to enter upon and take possession of such
property immediately after the date of the confirmation
of the auction sale and administer the same in
accordance with law.
 UB and CB may also exercise any of the
following functions:
 i. Receive in custody funds, documents and valuable objects;
 ii. Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness
and all types of securities;
 iii. Make collections and payments for the account of others and
perform such other services for their customers as are not
incompatible with baking business;
 iv. Upon prior approval of the MB, act as managing agent,
adviser, consultant of administrator of investment
management/advisory/consultancy accounts; and
 v. Rent out safety deposit boxes.
PROHIBITIONS
ON BANK
 1.To directly act as insurer (Sec. 54)
 2. for banks or quasi-banks to declare dividends, if at the time of declaration
a. its clearing account with the Bangko Sentral is over drawn
b. it is deficient in the required liquidity floor for government deposits for 5
or more consecutive days
c. it does not comply with the liquidity standards/ratios prescribed by the
Bangko Sentral for purposes of determining funds
available for dividend
declaration; or d. It has committed a major violation as may be determined by
the Bangko Sentral (Sec. 57)
 3.To conduct business in an unsafe or unsound manner (Sec. 56)
 4. Publication of capital stock (Sec. 62)
 5. Unauthorized advertisement or business representation (Sec. 64)
 6.To employ casual or non-regular personnel or too lengthy probationary
personnel in the conduct of its business involving bank deposits (Sec. 55)
PROHIBITIONS
No director, officer, employee, or agent of any bank
shall
 Make false entries in any bank reports
 Disclose to any unauthorized person any information relative to
the funds in the custody of the bank without order of a court
 Accept fees to approve a loan or other credit accommodation
 Outsource inherent banking functions
PROHIBITIONS
No borrower
 Make misrepresentation of material facts for the purpose of
obtaining a loan or other credit accommodation
 Attempt to defraud the said bank
 Offer any director or employee of a bank any gift or money
 Fraudulently overvalue property offered as security for a loan
or other credit accommodation

Financial Statement
 Every bank, quasi-bank or trust entity shall submit financial
statements to the BangkoSentral which include the results o its
operation, and other information required by the BangkoSentral
 Must publish at least once every quarter in a newspaper of
general circulation on the city or province
Capital Stock
 Shall not publish the amount of its authorized capital stock
without indicating at the same time and with equal prominence,
the amount of its capital actually paid up
Penalty for Violation of this Act
 If the offender is a director or officer of a bank, Monetary Board
may also suspend or remove such director or officer
 If a corporation violates the Act, it may be dissolved by quo
warranto proceedings instituted by Solicitor General
VOLUNTARY LIQUIDATION (SEC.68)
 In case of the voluntary liquidation* written notice of such
liquidation shall be sent to the Monetary Board before such
liquidation is undertaken, and the Monetary Board shall have
the right to intervene and take such steps as may be necessary
to protect the interests of creditor
 *to sell property to pay off debts
ACQUISITION OF VOTING STOCK
 Within 7 years of affectivity, the Monetary Board may
authorize any foreign bank the privilege to acquire up to
sixty percent (60%) of the voting stock of a bank under the
Foreign Banks Liberalization Act and the Thrift Banks Act
OWNERSHIP OF BANKS
 Foreign stockholdings
 Up to 40% of the voting stock of domestic banks
 Foreigners - total equity participation
 Corporate stockholder – citizenship is determined by
citizenship of controlling stockholders
 Filipino stockholdings
 Section 11 of the GBL applies to Filipinos and
domestic non-bank corporations.
 individual equity participation should not exceed 40%
of the voting shares
INTEREST
 The percentage of foreign-owned voting stocks in a bank
shall be determined:
 (GRANDFATHER RULE)
a. If individuals: by the citizenship of the individuals
b. If corporations: by the citizenship of the controlling
stockholders of the corporation, irrespective of the place of
incorporation. ( Sec.11)
FOREIGN BANKS (sec.72-78)
 1.Governed by the provisions of the Foreign Bank
Liberalization Act and the Offshore Banking System
Decree.(Sec. 72)
 2.Revocation of license to do business in the Philippines:
The Monetary Board may revoke such license on the
grounds that the foreign bank is insolvent or in imminent
danger thereof or that its continuance in business will involve
probable loss to those transacting business with it. ( Sec. 78).
CAPITAL RECQUIREMENTS
 For Locally Incorporated Subsidiaries
 The minimum capital required for locally incorporated
subsidiaries of foreign banks shall be equal to that prescribed by
the Monetary Board for domestic banks of the same category
 For Foreign Bank Branches
 Shall be authorized to establish branches pursuant to Section 2
of this Act shall permanently assign capital of an amount not less
than the minimum capital required for domestic banks of the
same category.
EQUAL TREATMENT
 Foreign banks authorized to operate under Section 2 of this
Act, shall perform the same functions, enjoy same incentive
and be subject to the same limitations imposed upon a
Philippines bank of the same category.
 The single borrower’s limit of a foreign bank branch shall be
aligned with that of a domestic bank.
TRUST OPERATION (SEC. 79-93)
 Only a stock corporation or a person duly authorized by the
Monetary Board to engage in trust business shall act as a
trustee or administer any trust or hold property in trust or
on deposit for the use, benefit, or behalf of others. For
purposes of this Act, such a corporation shall be referred to
as a trust entity. (SEC. 79)
Trust Business
 any activity resulting from a trustor-trustee relationship
involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or
properties of the trustor by the trustee for the use, benefit,
advantage of trustor or others called beneficiaries.(sec. 80)
A trust entity shall have the power to:
 Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust
consistent with law;
 Act under the order or appointment of any court as guardian,
receiver, trustee, or depositary of the estate of any minor or other
incompetent person, and as receiver and depositary of any moneys
paid into court by parties to any legal proceedings and of property of
any kind which may be brought under the jurisdiction of the court;
 Act as the executor of any will when it is named the executor thereof;
 Act as administrator of the estate of any deceased person, with the
will annexed, or as administrator of the estate of any deceased person
when there is no will;
TRUST ENTITY
 Act as administrator of the estate of any deceased person,
with the will annexed, or as administrator of the estate of any
deceased person when there is no will;
 Accept and execute any trust for the holding, management,
and administration of any estate, real or personal, and the
rents, issues and profits thereof; and
 Establish and manage common trust funds, subject to such
rules and regulations as may be prescribed by the Monetary
Board.
TRUST ENTITY
 Before transacting trust business, every trust entity shall
deposit with the Bangko Sentrala’s security for the faithful
performance of its trust duties, cash or securities approved
by the Monetary Board in an amount equal to not less than
Five hundred thousand pesos (P500,000.00) or such higher
amount as may be fixed by the Monetary Board
 A trust entity so long as it shall continue to be solvent and
comply with laws or regulations shall have the right to collect
the interest earned on such securities deposited with the
Bangko Sentral and, from time to time, with the approval of
the Bangko Sentral, to exchange the securities for others
RULE MAKING POWERS OF MONETARY
BOARD OF BSP AND COMPLIANCE
REPORT
 Monetary Board shall issue rules and regulations as may be
needed by Banks Committees, on the developments in
implementation of this Act. On or before May 30 of each
year, the Monetary Board shall file a written report to
Congress and its representatives to implement the provisions
of this Act.
 It takes effect fifteen (15) days following its publication in the
Official Gazette or must be published in at least 2 national
newspapers of general circulation
THANK YOU
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