General Banking Law

Banking Law Issues
1. Banks 6. Ownership of Real Property

a. Nature of business
b. Authority to incorporate and operate
c. Classification of Banks 7. Loan to Banks
2. Functions of Banks a. Loans without collateral
a. Deposit Function b. Emergency Loans
b. Loan Function
c. Other functions 8. Conservatorship
d. Prohibited Acts a. Grounds
3. Ownership of Banks b. Powers of Conservatorship
a. Foreign Ownership
b. Filipino Stockholdings
9. Receivership and Liquidation
c. Stockholdings of Family Groups and related a. Grounds
interests b. Duties of Receiver
4. Directors and Officers c. Close Now-Hear Later Scheme
a. Composition of Board
d. Effect of Receivership and Liquidation
b. Meetings
c. Qualifications 10. Trust Operations of Banks
5. Liquidity and Security a. Prior Authority
b. Trust Business
c. Powers
d. Separation of Trust Business of Banks
General Objective:
To be familiarized with the provisions of the
General Banking Law of 2000, and Basel I, II, and
III, as well as jurisprudence involving the said laws.
At the end of the report, the participants must
be able to:
Discuss the policy behind the GBL;
Define, classify and differentiate banks;
Identify and discuss the core and other banking
functions;
Discuss and apply the rules on ownership of banks;
Describe and evaluate the management of banks; and
Discuss and apply the rules on conservatorship,
receivership, liquidation, and trust operation of banks
R.A. 8791
AN ACT PROVIDING FOR THE
REGULATION OF THE ORGANIZATION
AND OPERATIONS OF BANKS, QUASI-
BANKS, TRUST ENTITIES AND FOR OTHER
PURPOSES
Short Title: General Banking Law of 2000
A. Definition
B. Nature of business
C. Authority to incorporate and operate
D. Classification of Banks
Banks are entities engaged in:
the lending of funds
obtained in the form of deposits
from the public. (Sec. 3.1, GBL)
Requirements: (Sec. 8, GBL)
Stock corporation
Funds obtained from public
SA Corp. is an investment company;
It established 74 branches throughout the
Philippines;
It managed to induce the public to open
59,463 savings deposit accounts with an
aggregate deposit of P1,689,136.74;
It loans out the money of its customers,
collects the interest and charges a
commission to both lender and borrower;
Is SA Corp. a bank?
Yes.
Sec. 2, GBL.
Republic v. Security Credit and Acceptance
Corporation.
Funds were derived from the public;
Lent out the deposit to persons;
Violation - engaging in banking without
securing the administrative authority
required in Republic Act No. 337.
Quasi-banks (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.
Policy (Sec. 2, GBL)
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.
Rule on Strikes and Lockouts (Sec. 22, GBL)
If unsettled after seven (7) calendar days, Bangko
Sentral reports to the Secretary of Labor who has two
options:
(1) assumption jurisdiction
(2) certify to NLRC for compulsory arbitration.
The President of the Philippines may, at any time,
intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same.
REASON: INDISPENSABLE TO NATIONAL
INTEREST
TO INCORPORATE: Articles of Incorporation
must be accompanied by a certificate of
authority issued by the MB, under its seal.
TO OPERATE: Certificate of authority from the
BSP
Reserve Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
Deposit Insurance
Capital Adequacy
i. Universal Banks (UB) banks that have the
authority to exercise, in addition to the
powers authorized for a commercial bank,
the powers of an investment house and the
power to invest in non-allied enterprises.
(Sec. 23)
E.g. BDO Unibank, Inc., BPI, RCBC, SBC,
Union Bank, UCPB, Al-Amanah, DBP, LBP,
ANZ Banking, HSBC
ii. Commercial Banks (CB) banks that have,
in addition to the general powers incident to
corporations, all such powers as may be
necessary to carry on the business of
commercial banking. (Sec. 29)
E.g.
Bank of Commerce, Citibank, Maybank Phil.,
PBC, Veterans, BDO Private Bank
iii. Rural Banks banks that are created to
make needed credit available and readily
accessible in the rural areas for purposes of
promoting comprehensive rural
development. R.A. No. 7353
E.g.
Providence Rural Bank, Rural Bank of
Gattaran, Claveria Rural Bank, Rural Bank of
Sanchez Mira, Rural Bank of Cauayan, Golden
Rural Bank of the Philippines, Banco Agricula
iv. Thrift Banks banks that include:
savings and mortgage banks,
private development banks, and
stock savings and loan associations.
E.g.
Allied Savings Bank, Bank of Makati, BPI
Direct Savings Bank, Century Savings Bank,
Express Savings Bank, Malayan Bank, Win
Bank
v. Cooperative Banks banks that primarily
provide financial, banking and credit services
to cooperative organizations and their
members. (Sec. 100, R.A. 6938 as amended
by R.A. 9520)
E.g.
Cooperative Bank of Cagayan, Coop of
Bulacan, Coop of La Union, Coop of Bohol
vi. Islamic Banks Charter of Al Amanah
Islamic Investment Bank of the Philippines.
(R.A. 6848)
E.g.
Al-Amanah Islamic Investment Bank of the
Philippines
UNIVERSAL BANKS COMMERCIAL BANKS
As to Powers
1. The powers authorized for a Commercial Bank; 1. THE GENERAL POWERS INCIDENT TO
2. The powers of an investment house CORPORATIONS,
as provided in existing laws; 2. ALL SUCH POWERS AS MAY BE NECESSARY
and TO CARRY ON THE BUSINESS OF
3. The power to invest in non-allied enterprises as COMMERCIAL BANKING, SUCH AS
provided in the GBL. (Sec. 23) ACCEPTING DRAFTS AND ISSUING LETTERS
OF CREDIT; DISCOUNTING AND
NEGOTIATING PROMISSORY NOTES, DRAFTS,
BILLS OF EXCHANGE, AND OTHER
EVIDENCES OF DEBT;
3. SUBJECT TO SUCH RULES AS THE MB MAY
PROMULGATE. THESE RULES MAY INCLUDE
THE DETERMINATION OF BONDS AND
OTHER DEBT SECURITIES ELIGIBLE FOR
INVESTMENT, THE MATURITIES AND
AGGREGATE AMOUNT OF SUCH
INVESTMENT. (SEC. 29)
As to Equity Investments
A UB MAY INVEST IN THE A CB MAY INVEST ONLY IN THE
EQUITIES OF ALLIED (EITHER EQUITIES OF ALLIED ENTERPRISES
FINANCIAL OR NON-FINANCIAL) AND (EITHER FINANCIAL OR NON-
NON-ALLIED ENTERPRISES. (SEC. 24) FINANCIAL). (SEC. 30)
EXCEPT AS THE MB MAY EXCEPT AS THE MB MAY
OTHERWISE PRESCRIBE: OTHERWISE
THE TOTAL INVESTMENT IN PRESCRIBE:
EQUITIES OF ALLIED AND NON-ALLIED THE TOTAL INVESTMENT IN
ENTERPRISES SHALL NOT EXCEED 50% EQUITIES OF ALLIED ENTERPRISES
OF THE NET WORTH; AND THE EQUITY SHALL NOT EXCEED 35% OF THE NET
INVESTMENT IN ANY ONE ENTERPRISE, WORTH OF THE BANK; AND
WHETHER ALLIED OR NON-ALLIED, THE EQUITY INVESTMENT IN
SHALL NOT EXCEED 25% OF THE NET ANY ONE ENTERPRISE SHALL NOT
WORTH OF THE BANK (SEC. 24) EXCEED 25% OF THE NET WORTH OF
THE BANK.
Equity Investments in Financial Allied Enterprises

A UB CAN OWN UP TO 100% OF THE A KB MAY OWN UP TO 100% OF THE
EQUITY IN EQUITY OF A THRIFT BANK OR A RURAL
A THRIFT BANK, BANK. (SEC. 31)
A RURAL BANK OR
A FINANCIAL ALLIED WHERE THE EQUITY INVESTMENT OF A
ENTERPRISE. (SEC. 25) CB IS IN OTHER FINANCIAL ALLIED
ENTERPRISES, INCLUDING ANOTHER
COMMERCIAL BANK, SUCH
INVESTMENT SHALL REMAIN A
MINORITY HOLDING IN THAT
ENTERPRISE. (SEC. 31)
Equity Investments in Non-Financial Allied Enterprises

A UB OR KB MAY OWN UP TO ONE A UB OR KB MAY OWN UP TO ONE
HUNDRED PERCENT (100%) OF THE HUNDRED PERCENT (100%) OF THE
EQUITY IN A NON-FINANCIAL ALLIED EQUITY IN A NON-FINANCIAL ALLIED
ENTERPRISE. (SEC. 26 AND 32) ENTERPRISE. (SEC. 26 AND 32)
Equity Investments in QBs

TO PROMOTE COMPETITIVE A UB OR CB MAY OWN UP TO ONE
CONDITIONS IN FINANCIAL MARKETS, HUNDRED PERCENT (100%) OF THE
THE MB MAY FURTHER LIMIT TO 40% EQUITY IN A NON-FINANCIAL ALLIED
EQUITY INVESTMENTS OF UBS AND ENTERPRISE. (SEC. 26 AND 32)
CBS IN QBS. (SEC. 28)
Equity Investments in Non-Allied Enterprises

THE EQUITY INVESTMENT OF A UB, OR
OF ITS WHOLLY OR MAJORITY-OWNED
SUBSIDIARIES, IN A SINGLE NON-
ALLIED ENTERPRISE
1. shall not exceed 35% of the total
equity in that enterprise nor
2. shall it exceed 35% of the voting
stock in that enterprise. (Sec. 27)
A. Deposit Function
B. Loan Function
C. Other functions
D. Prohibited Acts
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).
A deposited in Bank X;
Bank used the money;
A would like to withdraw but the Bank cannot
pay;
Is the Bank liable for estafa?
No.
Guingona v. City Fiscal of Manila, 128 SCRA
577
Since the bank is the borrower, it can make
use as its own the money deposited, and the
amount is not held in trust for the depositor
nor is it kept for safekeeping. (Tang Tiong Tick
v. American Aphothecaries, 65 Phil. 414)
A deposited in Bank X;
B alleges that the money deposited by A
belongs to him;
A withdraws from the bank;
Is Bank X liable?
No.
Third persons who may have the right to the
money deposited cannot hold the bank
responsible unless there is a court order or
garnishment, since the duty of the bank is to
the creditor-depositor and not to third
persons.
Fulton Iron Work v. Chinabank, 55 Phil. 208
A deposits in Bank X;
Bank X loans out money to A;
If A defaults in payment, can Bank X off of the
deposits in its hands for the payment of As
indebtedness?
Yes.
A bank has a right of set off of the deposits
in its hands for the payment of any
indebtedness to it on the part of a depositor.
Gullas v. PNB, 1935
1. 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.
2. Savings Account
Evidenced by a passbook
Has interest rate, but not as high as time deposits.
3. Time Deposit
Has a fixed term
Money deposited cannot be withdrawn within a
certain period
Has a higher rate of interest than saving account.
4. 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.
5. 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
Basic Rules and Restrictions
Risk-Based Capital Ratio
DORSI Restrictions
Not exceed 25% of the net worth of bank
Basis: total credit commitment of the bank to
the borrower
GBL provides that the total amount of loans,
etc. may be increased by an additional 10% of
the net worth of such bank provided:
The additional liabilities of any borrower are
adequately secured
Sec. 35.2
GENERAL RULE:
CANNOT BECOME AN OBLIGOR OF THE BANK.
cannot borrow from bank;
cannot become a guarantor, indorser or surety for
loans from such bank to others;
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.
Individual lending ceiling =
insiders unencumbered deposit + book value of
his paid-in capital contribution
Aggregate Ceiling =
Whichever is lower between 15% of the total loan
portfolio and 100% of combined capital accounts
Unsecured portion of the loan =
It should not exceed 30% of the loan of the insider
real estate (collateral)
not exceed 75% of its appraised value
plus 60% of the appraised value of the insured
improvements,
Chattels and intangibles (collateral)
not exceed 75% of the appraised value of the
security
Debtor has the right to redeem real property
within 1 year from sale of real estate.
Right to take possession by the purchaser
from date of confirmation of auction sale.
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.
Engaging in insurance
Directors, Officers, Employees, Agents
Borrowers of Banks
A. Foreign Ownership
B. Filipino Stockholdings
C. Stockholdings of Family Groups and Related
Interests
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
No prohibition
Full disclosure
A. Composition of Board
B. Meetings
C. Qualifications
At least five (5), and a maximum of fifteen
(15) members of the BOD of bank, two (2) of
whom shall be independent directors.
Non-Filipino (restriction, equity participation)
Public Officials (prohibition)
conducted through modern technologies
E.g. teleconferencing and video-conferencing.
Fit and Proper Rule
integrity,
experience,
education,
training, and
competence

General Banking Law

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General Banking Law

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Banking Law Issues

1. Banks 6. Ownership of Real Property

Equity Investments in Financial Allied Enterprises

Equity Investments in Non-Financial Allied Enterprises

Equity Investments in QBs

Equity Investments in Non-Allied Enterprises

Directors, Officers, Employees, Agents

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