RA 8791

A stable and efficient banking and financial system

that is globally competitive, dynamic, and
responsive to the demands of a developing
economy

BANKS?

Entities engaged in the

lending of funds obtained in
the form of deposits

BANKS?

CORE FUNCTIONS
Taking deposits from
public
Lending out these funds

the

BANKS

Provide a wide variety of

financial services, including
commercial and investment
services

BANKS

Examples: RCBC, Security

Bank, Union Bank, LandBank,
ING Bank, HSBC, BPI, BDO
Unibank, PNB

Provides services such as

accepting deposits, making
business loans, and offering
basic investment products

BANKS

Examples: BDO Private bank,

Philippine Veterans Bank
Corp., Robinsons Bank Corp.,
Maybank, JP MorganChase

BANKS

BANKS

Generally smaller in scale

than
universal
and
commercial banks

BANKS

Accept savings and time deposits, act

as a correspondent with other
financial institutions and as a
collection agent for government
entities, issue mortgages, engage in
real estate transactions and extend
credit

BANKS

Examples: ChinaBank Savings,

Inc., Life Savings Bank, Luzon
Development Bank

Provides the normal credit needs of

farmers, fishermen or farm families
owning or cultivating land dedicated
to agricultural production as well as
the normal credit needs of
cooperatives and merchants

BANKS

Examples:
Rural
Bank
of
Bagbag, Rural Bank of Iligan,
Malaybalay Rural Bank

BANKS

BANKS

Provide financial, banking

and credit services to
cooperative
organizations
and their members

BANKS

Examples: Bataan Cooperative

bank, Bukidnon Cooperative
Bank, Cooperative Bank of
Palawan

Its business dealings and

activities of which are subject
to the basic principles and
rulings of Islamic Sharia

BANKS

Philippine Veterans Bank [RA 3518]

Landbank of the Philippines [RA
3844]
Development
Bank
of
the
Philippines [RA 85]

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
receivables and other
obligations

Stock corporations or
persons duly authorized
by the Monetary Board
to engage in trust
business

1 Corporate Powers
1
2 Banking and Incidental 2
Powers
3 Power to invest in allied 3
enterprises
4 Power to invest in nonallied enterprises

5 Power of an investment
house

Corporate Powers
Banking and Incidental
Powers
Power to invest in allied
enterprises

1
A bank creates a bankers acceptance, which
is a negotiable time draft or bill of exchange
drawn on and accepted by a commercial bank.
This is different from trade acceptance, which
is accepted by the buyer

2
A letter issued by a bank to another bank
(typically in a different country) to serve as a
guarantee for payments made to a specified
person under specified conditions

3
Of promissory notes, drafts, bills of exchange,
and other evidence of debt

4
GENERAL RULE: Only a Universal Bank (UB) or
Commercial Bank (KB) can accept or create
demand deposits
Exception: Banks other than a UB or KB with
prior approval of, and subject to such conditions
and rules as may be prescribed by the Monetary
Board

5
Time Deposit - Interest rate stipulated
depending on the number of days.Banks pay
high interest rates
Savings Deposit - Banks pay an interest rate, but
not as high as time deposits.

5
Demand Deposits/Current Accounts - No
interest is paid 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 he deposited on the
very same day when he deposited it

5
Negotiable Order of Withdrawal Accounts
Interest-bearing deposit accounts that combine
the payable on demand feature of checks and
investment feature of savings accounts

7
8

Subject to the prior approval of and except as

the Monetary Board may otherwise prescribe:
Total investment in equities of both allied and
non-allied enterprises 50% of the net worth
of the bank
The equity investment in any one enterprise,
whether allied or non-allied 25% of the net
worth of the bank

Unimpaired paid-in capital

+ Paid-in surplus
+ Retained earnings
+ Undivided profit
- Valuation reserves
Other adjustments required by BSP
NET WORTH

Allied enterprises may either be financial or nonfinancial.

Equity investments in financial allied enterprises:
May own up to 100% of the equity of a thrift bank,
a rural bank, or a financial allied enterprise
A publicly-listed UB may own up to 100% of the
voting stock of only one other universal or
commercial bank

Allied enterprises may either be financial or nonfinancial.

Equity investments
in non-financial allied
enterprises:
May own up to 100% of the equity in a nonfinancial allied enterprise

Equity investments of a UB, or its wholly/majority

owned subsidiaries in non-allied enterprises:
May not exceed 35% of the total equity and voting
stock of a single non-allied enterprise
Equity investments in quasi-banks:
MB may limit to 40% equity investment

Subject to the prior approval of and except as the

Monetary Board may otherwise prescribe:

The total investment in equities 35% of the net

worth of the bank
The equity investment in any one enterprise 25%
of the net worth of the bank

Allied enterprises may either be financial or nonfinancial

Equity investments of a KB in financial allied
enterprises:
May own up to 100% of the equity of a thrift bank
or a rural bank
For other financial allied enterprises, including
another bank, such investment shall remain a
minority holding in that enterprise.

Allied enterprises may either be financial or nonfinancial

Equity investments of a KB in non-financial allied
enterprises:
May own up to 100% of the equity in a nonfinancial allied enterprise.

Equity investments in quasi-banks:

MB may limit to 40% equity investment

Max 50% of net

worth

Max 35% of net

worth

Max 25% of net

worth

Max 25% of net

worth

100% Equity

100% Equity

100% Equity

Minority Holding

100% of Voting
Stock

100% of Voting
Stock

Monetary Board may limit up to 40% of

equity for both

100% Equity for both

Max
35%
of
Equity and 35%
Voting Stock

N/A

The Fiduciary nature of

banks
requires
high
standards of integrity and
performance
This is the highest degree
of diligence

This diligence is required

when banks:
Record
every
single
transaction
Enter into every deposit
agreement
with
their
depositor
Select and supervise their
employees

Rational: The banking industry is declared as indispensable to the

national interest.

Notwithstanding
the
degree
of
diligence
required, a bank is not
expected to be infallible

Failure of the bank to satisfy

the degree of diligence
required of may warrant the
award of damages

Cases where the bank was held liable for loss despite the
depositors negligence:
For disbursing funds to a dishonest employee despite the
employees failure to strictly abide with the banks internal
procedure. [PBC v. CA, 1997]
Crediting the deposit in favor of another depositor, a check
where the signature of the drawer was forged. [Westmont Bank
v. Ong, 2002]

As to the banks deposit functions, the relation a depositor and the

bank is that of creditor and debtor
Bank deposits are governed by the provisions on simple loan.
They are in the nature of irregular deposits.
Regular deposits - the specific money deposited is returned
Irregular deposits - an equal sum of money is returned

Banks deposits are commingled with other money to constitute a

common bank fund.

Can prescribe the:

Maturities
Related terms and conditions

Board

Any change by the MB in the maximum maturities

shall apply only to loans and other credit
accommodations made after the date of such
action

1
General Rule: A bank must conform to the risk-based
capital ratio prescribed by the Monetary Board. (There are
exceptions*)
This is the minimum ratio of net-worth over total risk assets

1
Otherwise, the Monetary Board may:
Limit or prohibit the distribution of its net profits and
require that part of all of the net profits be used to
increase its capital accounts.
Restrict or prohibit the acquisition of major assets and
the making of new investments by the bank

2
The total loans, credit accommodations, and
guarantees that may be extended by a bank shall
not exceed 20% of the net worth of such bank.
(There are exceptions.)
The required limit prevents the bank from making
excessive
loans
and
other
credit
accommodations to a single borrower.

2
Additional liabilities of any borrower are
adequately secured by documents transferring
or securing title
Covering readily marketable, non-perishable
goods

Which must be covered by insurance

2
Total credit commitment
of the bank to the
borrower

2
If the Monetary Board otherwise prescribes for
reason of national interest.
For wholesale lending activities of government
banks to participating institutions for relending
to end-user borrowers: separate limit of 35%
net worth.

1
2
3

The direct liability of the maker or

acceptor and the liability of a general
indorser, drawer or guarantor who
obtains a loan or other credit
accommodation
Individual who owns or controls a
majority interest in a corporation,
partnership, association: the liabilities
of said entities to such bank
Corporation: all liabilities to such bank
of all subsidiaries in which such
corporation owns or controls a
majority interest

Partnership
or
association:
the
liabilities of the members to such bank

1
2
3
4
5

Loans
and
other
credit
accommodationssecured
by
obligations of the BSP 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 credits to the extent
covered by margin deposits
Specified by the Monetary Board as
non-risk items

2
The parent, partnership, association, entity or
individual guarantees repayment of the
liabilities
The liabilities were
accommodation

incurred

for

their

Subsidiaries operate merely as departments or

divisions of a single entity

2
Shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from
such bank.
Shall become a guarantor, indorser, or surety
for loans from such bank, or be an obligor or
incur contractual liability to the bank.
(There are exceptions.)

2
Valid insider lending.*
Loans,
credit
accommodations,
and
guarantees extended by a cooperative bank to
its cooperative shareholders.

In the regular course of business

Upon terms not less favorable to the bank than those offered
to others

With a written approval of the majority of all the directors of

the bank, excluding the director concerned

Limited to an amount equivalent to the DOSRI borrowers and

book value of his paid-in capital contribution in the bank

The required approval shall be entered upon the record of the

bank, and a copy of such transmitted to the supervising and
examining department of BSP

2
To prevent the bank from becoming
a captive source of finance for
DOSRI

(1) The amount of reserves for bad debts or doubtful

accounts or other contingencies; and

(2) The writing off of loans, other credit

accommodations, advances and other assets
For effective banking supervision


N/A

N/A

N/A