In Republic v.

Security Credit and Acceptance law states that the Securities and Exchange
R.A. 8791 GENERAL BANKING LAW OF 2000 Corporation, the Court said that an investment Commission shall not register the articles of As to Powers
company which loans out the money of its incorporation of any bank, or any amendment
GENERAL BANKING LAW customers, collects the interest and charges a thereto, unless accompanied by a certificate of
commission to both lender and borrower, is a authority issued by the Monetary Board, under its The
RA 8791 GENERAL BANKING LAW OF 2000 bank. It is conceded that a total of 59,463 seal. powers authorized for a
An Act Providing for the Regulation of an savings account deposits have been made by Commercial Bank;
the public with the corporation and its 74 In addition, an entity performing banking and quasi- The
Organization and Operations of Banks, Quasi- banking function cannot also operate without a
banks, Trust Entities and for other purposes. branches, with an aggregate deposit of powers of an
P1,689,136.74, which has been lent out to such certificate of authority from the BSP. investment house
The General Banking Law of 2000 (GBL) is the law persons as the corporation deemed suitable Classification of Banks as provided in existing
that generally governs the regulation, organization therefore. It is clear that these transactions laws;
and operation of banks, quasi-banks, and other partake of the nature of banking, as the term is Section 3.2 of the GBL classifies banks into: and
quasi-entities. It primarily governs Universal used in Section 2 of the General Banking The power
Banks (UB) and Commercial Banks (CB), and has Act. 1. Universal Banks (UB) banks that have to invest in non-allied
suppletory application to Thrift Banks (which is the authority to exercise, in addition to the powers enterprises as provided
primarily governed by RA 7906, the Thrift Banks Banks must also be contrasted from quasi- authorized for a commercial bank, the powers of an in the GBL. (Sec. 23)
Act), Rural Banks (primarily governed by RA 7353, banks (QB). The latter refer to entities engaged investment house and the power to invest in non- THE
the Rural Banks Act), and Cooperative Banks in the borrowing of funds through the issuance, allied enterprises. GENERAL POWERS
(primarily governed by RA 6938, the Cooperative endorsement or assignment with recourse or INCIDENT TO
acceptance of deposit substitutes (as defined in 2. Commercial Banks (CB) banks that
Code). have, in addition to the general powers incident to CORPORATIONS,
Sec. 95 RA 7653, the New Central Bank Act) for ALL SUCH
Banks purposes of relending or purchasing of corporations, all such powers as may be necessary
to carry on the business of commercial banking, POWERS AS MAY BE
receivables and other obligations. (last part of NECESSARY TO
Definition Sec. 4) Since this is an inherent power of UBs such as accepting drafts and issuing letters of credit;
discounting and negotiating promissory notes, CARRY ON THE
Banks are entities engaged in the lending of funds and CBs, they do not require separate licensing BUSINESS OF
or authorization for this purpose. drafts, bills of exchange, and other evidences of
obtained in the form of deposits from the public. This debt; accepting or creating demand deposits; COMMERCIAL
is usually referred to as core-banking functions of Nature of Business receiving other types of deposits and deposit BANKING, SUCH AS
mobilizing savings (through deposit-taking) and substitutes; buying and selling foreign exchange and ACCEPTING DRAFTS
allocating resources (through lending). Section 2 of GBL provides that the State recognizes gold or silver bullion; acquiring marketable bonds AND ISSUING
the vital role of banks in providing an environment and other debt securities; and extending credit, LETTERS OF CREDIT; BSP Circular 271
GBL requires that banks are stock corporations and conducive to the sustained development of the DISCOUNTING AND (2002)
its funds are obtained from the public, i.e. deposits subject to such rules as the Monetary Board may
national economy and the fiduciary nature of promulgate. NEGOTIATING (1) invest in the equities
of twenty (20) or more persons. banking that requires high standards of integrity and PROMISSORY of allied enterprises;
In Baas v. Asia Pacific Finance Corp., the Supreme performance. This consequently means that a bank 3. Rural Banks banks that are created NOTES, DRAFTS, (2) purchase, hold and
Court said that an investment company that shall be subject to heavy and close supervision to make needed credit available and readily BILLS OF convey real estate;
engages solely in investing, reinvesting, or trading in and/or regulation by the Bangko Sentral ng accessible in the rural areas for purposes of EXCHANGE, AND (3) receive in custody
securities is not engaged in banking. An Pilipinas, and that it must exercise utmost diligence promoting comprehensive rural development. OTHER EVIDENCES funds, documents and
investment company refers to any issuer which in the handling of deposits. OF DEBT; valuable objects;
4. Thrift Banks banks that include SUBJECT (4) act as financial
is or holds itself out as being engaged or To promote and maintain a stable and efficient savings and mortgage banks, private development
proposes to engage primarily in the business of TO SUCH RULES AS agent;
banking and financial system, there are special rules banks, and stock savings and loan associations. THE MB MAY (5) make collections
investing, reinvesting or trading in securities. As that govern banks. Because it is indispensable to
defined in Revised Securities Act, securities 5. Cooperative Banks banks that PROMULGATE. and payments for the
the national interest, any strike or lockout involving THESE RULES MAY account of others;
shall include commercial papers evidencing banks, if unsettled after seven (7) calendar days primarily provide financial, banking and credit
indebtedness of any person, financial or non- services to cooperative organizations and their INCLUDE THE (6) act as managing
shall be reported by the Bangko Sentral to the DETERMINATION OF agent, adviser,
financial entity, irrespective of maturity, issued, Secretary of Labor who has two options: (1) he may members.
endorsed, sold, transferred or in any manner BONDS AND OTHER consultant or
assume jurisdiction over the dispute or decide it or 6. Islamic Banks Charter of Al Amanah DEBT SECURITIES administrator of
conveyed to another with or without recourse, (2) certify the same to the National Labor Relations
such as promissory notes. Clearly, the Islamic Investment Bank of the ELIGIBLE FOR investment
Commission for compulsory arbitration. The law INVESTMENT, THE management/advisory/-
transaction between petitioners and respondent allows the President of the Philippines, at any time, Philippines.
was one involving not a loan but purchase of MATURITIES AND consultancy accounts;
to intervene and assume jurisdiction over such labor AGGREGATE (7) rent out safety
receivables at a discount, well within the vii. Other classification of banks as determined by
dispute in order to settle or terminate the same. AMOUNT OF SUCH deposit boxes; and
purview of investing, reinvesting or trading in the Monetary Board (MB) of the BSP.
securities which an investment company, like Authority to incorporate and operate INVESTMENT. (SEC. (8) engage in quasi-
ASIA PACIFIC, is authorized to perform and does 29) banking functions.
UNIVERSAL BANKS COMMERCIAL BANKS
not constitute a violation of the General Banking GBL provides that a bank or quasi-bank cannot
Act. be incorporated without authority from the BSP. The
 Deposit is one of the core banking functions. While 4. Negotiable Order of Withdrawal
As to Equity Investments Equity Investments in Non-Financial Allied the function is referred to as deposit, it is strictly (NOW) Account is an interest-bearing deposit
Enterprises simple loan where the bank is the debtor and the account that combines the payable on demand
depositor is the creditor. Fixed, savings and current feature of checks and investment feature of savings
A UB MAY INVEST IN deposits of money in banks and similar institutions accounts.
THE EQUITIES OF A CB MAY INVEST A UB OR CB MAY A UB OR CB MAY OWN shall be governed by the provisions concerning
ALLIED (EITHER ONLY IN THE OWN UP TO ONE UP TO ONE HUNDRED simple loan (Article 1980, Civil Code of the 5. Other Account is one that may be
FINANCIAL OR NON- EQUITIES HUNDRED PERCENT PERCENT (100%) OF Philippines). opened by one individual or by two or more persons.
FINANCIAL) AND OF ALLIED (100%) OF THE THE Whenever two or more persons open an account,
NON-ALLIED ENTERPRISES EQUITY IN A NON- EQUITY IN A NON- Since the bank is the borrower, it can make use as the same may be an and/or account or an and
ENTERPRISES. (SEC. (EITHER FINANCIAL ALLIED FINANCIAL ALLIED its own the money deposited, and the amount is not account.
24) FINANCIAL OR NON- ENTERPRISE. (SEC. ENTERPRISE. (SEC. held in trust for the depositor nor is it kept for
safekeeping. Bank officers cannot also be held NB: A bank other than a UB or CB cannot
EXCEPT AS THE MB FINANCIAL). (SEC. 26 AND 32) 26 AND 32) accept or create demand deposits except upon prior
MAY OTHERWISE 30) liable for estafa if they authorized the use of the
money deposited by the depositor.] Third persons approval of, and subject to such conditions and
PRESCRIBE: EXCEPT AS THE MB rules as may be prescribed by the Monetary Board.
THE TOTAL MAY OTHERWISE Equity Investments in QBs who may have the right to the money deposited
INVESTMENT PRESCRIBE: cannot hold the bank responsible unless there is a Moreover, the bank is under the obligation to treat
IN EQUITIES OF THE TOTAL court order or garnishment, since the duty of the deposit accounts of it depositors with meticulous
TO PROMOTE bank is to the creditor-depositor and not to third
ALLIED INVESTMENT IN COMPETITIVE TO PROMOTE care. It must bear the blame for failing to discover
AND NON-ALLIED EQUITIES OF persons. the mistake of its employees despite the established
CONDITIONS IN COMPETITIVE
ENTERPRISES SHALL ALLIED ENTERPRISES FINANCIAL CONDITIONS IN In San Carlos Milling Co., Ltd v. BPI, the Court procedure requiring bank papers to pass through
NOT SHALL NOT MARKETS, THE MB FINANCIAL MARKETS, declared that banks are run for gain, and they bank personnel whose duty it is to check and
EXCEED 50% OF THE EXCEED 35% OF THE MAY FURTHER LIMIT THE MB MAY solicit deposits in order that they can use the money countercheck them for possible errors. As a
NET WORTH; AND NET WORTH OF THE TO 40% EQUITY FURTHER LIMIT TO for that very purpose. For the same reason, it has business affected with public interest and because
THE EQUITY BANK; AND INVESTMENTS OF 40% EQUITY been held that a bank has a right of set off of the of the nature of its functions, a bank is under
INVESTMENT IN ANY THE EQUITY UBS AND INVESTMENTS OF deposits in its hands for the payment of any obligation to treat the accounts of its depositors with
ONE ENTERPRISE, INVESTMENT IN ANY CBS IN QBS. (SEC. UBS AND indebtedness to it on the part of a meticulous case, always having in mind the fiduciary
WHETHER ALLIED OR ONE 28) CBS IN QBS. (SEC. 28) depositor. Conversely, the depositor has every right nature of their relationship.
NON-ALLIED, SHALL ENTERPRISE SHALL to apply his deposit in a bank against his loan from
NOT EXCEED 25% OF NOT EXCEED 25% OF Note on Safety Deposit Boxes: In the case of rent
such bank. of safety deposit box, the contract is a special kind
THE NET WORTH OF THE NET WORTH OF Equity Investments in Non-Allied Enterprises
THE BANK (SEC. 24) THE BANK. (SEC Kinds of Deposits of deposit and cannot be characterized as an
ordinary contract of lease because the full and
THE EQUITY The basic types of deposit are demand absolute possession and control of the deposit box
Equity Investments in Financial Allied INVESTMENT OF A deposits, savings account, time deposits, and NOW is not given to the renters. The prevailing rule is that
Enterprises UB, OR OF ITS account. the relation between the bank renting out and the
WHOLLY OR renter is that of bailer and bailee the bailment being
1. Demand deposits are those liabilities for hire and mutual benefit.
MAJORITY-OWNED
A KB MAY OWN UP TO of banks which are denominated in Philippine
SUBSIDIARIES, IN A
100% OF THE currency and are subject to payment in legal tender Loan Function
SINGLE NON-ALLIED
EQUITY OF upon demand by presentation of checks. In here, no
ENTERPRISE Basic Rules and Restrictions: A bank shall grant
A THRIFT BANK OR interest is paid by the bank because the depositor
shall not loans and other credit accommodations only in
A RURAL BANK. (SEC. can take out his funds any time. It is called demand
exceed 35% of the total amounts and for the periods of time essential for the
31) deposit because the depositor can withdraw the
equity in that enterprise effective completion of the operations to be
WHERE THE EQUITY money he deposited on the very same day.
nor financed, consistent with safe and sound banking
INVESTMENT OF A CB shall it 2. Savings Account, which is the most practices. The bank must ascertain before granting
IS IN OTHER exceed 35% of the common type of deposit, is usually evidenced by a the load or other credit accommodation the ability of
FINANCIAL ALLIED voting stock in that passbook. Under the fine print, if you deposit today, the debtor to fulfill his commitment.
ENTERPRISES, enterprise. (Sec. 27) you cannot withdraw the amount until 60 days later.
A UB CAN OWN UP INCLUDING ANOTHER Risk-Based Capital Ratio: The MB shall prescribe
Bank pays an interest rate, but not as high as time
TO COMMERCIAL BANK, the minimum ratio which the net worth of a bank
deposits.
100% OF THE EQUITY SUCH must bear to its total risk assets which may include
IN INVESTMENT SHALL Functions of Banks 3. Time Deposit is an account with fixed contingent accounts (i.e. net worth : total risk
A THRIFT BANK, REMAIN A term. The interest rate is stipulated depending on assets). The risk-based capital ratio of a bank,
A RURAL BANK OR MINORITY HOLDING the number of days. During this period, the money expressed as a percentage of qualifying capital to
A FINANCIAL ALLIED IN THAT deposited cannot be withdrawn. It has a higher rate risk-weighted assets, shall not be less than 10% for
ENTERPRISE. (SEC. ENTERPRISE. (SEC. Deposit Function
of interest than saving account. both solo basis (head office plus branches) and
25) 31) Nature of the Function consolidated basis (parent bank plus subsidiary
financial allied undertakings, but excluding
insurance companies). The ratio shall be maintained
daily.
iii. Single Borrowers Limit (SBL): Except as the
MB may otherwise prescribe for reasons of national
interest, the total amount of loans, credit
accommodations and guarantees as may be defined
by the MB that may be extended by a bank to any
person, partnership, association, corporation or
other entity shall at no time exceed 25% of the net
worth of such bank. The basis for determining
compliance with SBL is the total credit commitment
of the bank to the borrower.
GBL provides that, unless the MB prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the
preceding paragraph 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, non-perishable goods which
must be fully covered by insurance.
DORSI Accounts: GBL imposes restrictions (not
total prohibition) on borrowings and security
arrangement by directors, officers, and stockholders
of the bank. These restrictions apply when the loan
or financial accommodation of DORSI 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. The GENERAL RULE is: a
director or officer of any bank shall neither, directly
or indirectly, for himself or as the representative or
agent of others, borrow from such bank; nor become
a guarantor, indorser or surety for loans from such
bank to others, or in any manner be an obligor or
incur any contractual liability to the bank. The
EXCEPTION is when there is a written approval of
the majority of all the directors of the bank,
excluding the director concerned. The required
approval shall be entered upon the records of the
bank and a copy of such entry shall be transmitted
forthwith to the appropriate supervising and
examining department of the BSP.
Limits on loans and other credit
accommodations (collaterals): Unless otherwise
prescribed by the MB, loans and other credit
accommodations against real estate shall not
exceed 75% of the appraised value of the respective
real estate security, plus 60% of the appraised value
of the insured improvements, and such loans may
be made to the owner of the real estate or to his
assignees. Those against security of chattels and
intangible properties shall not exceed 75% of the
appraised value of the security, and such loans and
other credit accommodations may be made to the
title-holder of the chattels and intangible properties
or his assignees.
NB: The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative
shareholders.
Foreclosure of Mortgage: In the event of
foreclosure, whether judicially or extrajudicially, of
any mortgage on real estate which is security for
any loan or other credit accommodation granted, the
mortgagor or debtor whose real property has been
sold for the full or partial payment of his obligation
shall have the right within one year after the sale of
the real estate, to redeem the property by paying the
amount due under the mortgage deed, with interest
thereon at the rate specified in the mortgage, and all
the costs and expenses incurred by the bank or
institution from the sale and custody of said property
less the income derived therefrom. However, the
purchaser 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. Any petition in court to
enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint
of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the
property in accordance with this provision until, but
not after, the registration of the certificate of
foreclosure sale with the applicable Register of
Deeds which in no case shall be more than 3
months after foreclosure, whichever is earlier.
Owners of property that has been sold in a
foreclosure sale prior to the effectivity of the GBL
shall retain their redemption rights until their
expiration.
Loan to Banks
The guiding principle for loan on banks is
enunciated in Section 81 of NCBA which reads,
The rediscounts, discounts, loans and advances
which the BSP is authorized to extend to banking
institutions under the provisions of the present
article of this Act shall be used to influence the
volume of credit consistent with the objective of
price stability.
Other Functions
UB and CB may also exercise any of
the following functions:
1. Receive in custody funds, documents
and valuable objects;
2. 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;
1. Upon prior approval of the MB, act as
managing agent, adviser, consultant of administrator
of investment management/advisory/consultancy
accounts; and
2. Rent out safety deposit boxes.
Prohibited Acts
1. GBL prohibits banks from directly
engaging in insurance business as insurer.
2. Directors, officers, employees, or
agents of any bank are prohibited from:
(1) Making false entries in any bank report or
statement or participating in any fraudulent
transaction, thereby affecting the financial interest
of, or causing damage to, the bank or any person;
(2) Without order of a court of competent
jurisdiction, disclosing to any unauthorized person
any information relative to the funds or properties in
the custody of the bank belonging to private
individuals, corporations, or any other entity:
Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(3) Accepting gifts, fees or commissions or any other
form of remuneration in connection with the
approval of a loan or other credit accommodation
from said bank;
(4) Overvaluing or aiding the overvaluing of any
security for the purpose of influencing in any way
the actions of the bank or any bank; or
(5) Outsourcing inherent banking functions.
iii. Outsourcing per BSP Circular 268 (2000)
1.
Section 2.1 Outsourcing of inherent banking
functions shall refer to any
contract between the bank and a service provider
for the latter to supply the manpower to service the
deposit transactions of the former.
Section 2.2 Banks cannot outsource management
functions except as may be authorized by the
Monetary Board when circumstances justify.
Section 3. Outsourcing of Information Technology
Systems/Processes. Subject to prior approval of the
MB, banks may outsource all information technology
systems and processes except for functions
excluded in Section 3.1.
Section 3.1 Functions affecting the ability of the
bank to ensure the fit of
technology services deployed to meet its strategic
and business objectives
and to comply with all pertinent banking laws and
regulations may not be outsourced. Subject to prior
approval of the MB, consultants and/or service
providers may be engaged to provide
assistance/support.
Section 4. Outsourcing of Other Banking Functions.
Section 4.1 Subject to prior approval of the MB,
banks may outsource data
imaging, storage, retrieval and other related
systems; clearing and processing of checks not
included in the Philippine Clearing House System;
printing of bank deposit statements.
Section 4.2. Banks may outsource credit card
services; printing of bank
loan statements and other non-deposit records,
bank forms and promotional materials; credit
investigation and collection; processing of export,
import and other trading transactions; transfer agent
services for debt and equity securities; property
appraisal; property management services;
messenger, courier and postal services; security
guard services; vehicle service contracts; janitorial
services.
Section 5. Service Providers. When allowed by law
and under this circular,
banks may enter into outsourcing contracts only with
service providers with demonstrable technical and
financial capability commensurate to the services to
be rendered.
Prohibited Transactions of
Borrowers of Bank: borrowers of banks are
prohibited from
2. Fraudulently overvaluing property
offered as security for a loan or other credit
accommodation from the bank;
3. Furnishing false or misrepresenting or
suppressing material facts for the purpose of
obtaining, renewing, or increasing a loan or other
credit accommodation or extending the period
thereof;
4. Attempting to defraud the said bank in
the event of a court action to recover a loan or other
credit accommodation; or
5. Offering any director, officer, employee
or agent of a bank any gift, fee, commission, or any
other form of compensation in order to influence
such persons into approving a loan or other credit
accommodation application.
Ownership of Banks
Foreign Ownership
As to their stockholdings, foreign individuals
and non-bank corporations may own or control up to
forty percent (40%) of the voting stock of a domestic
bank. This rule shall apply to Filipinos and domestic
non-bank corporations.
The percentage of foreign-owned voting stocks in a
bank shall be determined by the citizenship of the
individual stockholders in that bank. The citizenship
of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling
stockholders of the corporation, irrespective of the
place of incorporation.
NB: Foreign banks are not subject to the 40%
limitation prescribed under Sec. 11 of the GBL. R.A.
7721 prescribes 60% are the maximum foreign bank
equity. Sec. 73 of the GBL also allows the
acquisition beyond the 60% limit within a period of
seven years from the effectivity of the GBL.
Filipino Stockholdings
Section 11 of the GBL applies to Filipinos and
domestic non-bank corporations.
NB: The restriction applies on foreigners in terms of
their total equity participation, while it applies to
individual equity participation to Filipinos and non-
bank corporations.
Stockholdings of Family Groups and related
interests
There is no prohibition against stockholding
of family groups or related interests. What GBL
imposes is that stockholdings of individuals related
to each other within the fourth degree of
consanguinity or affinity, legitimate or common-law,
shall be considered family groups or related
interests and must be fully disclosed in all
transactions by such an individual with the bank.
In addition, two or more corporations owned or
controlled by the same family group or same group
of persons shall be considered related interests and
must be fully disclosed in all transactions by such
corporations or related groups of persons with the
bank.
Directors and Officers
Composition of Board
Section 15 of the GBL provides for the
composition of the BOD: there shall be at least five
(5), and a maximum of fifteen (15) members of the
board of directors of bank, two (2) of whom shall be
independent directors.
An independent director shall mean a person other
than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n)
Non-Filipino citizens may become members of the
board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec.
7, RA 7721)
Section 19 of GBL imposes a prohibition on public
officials, such that no appointive or elective public
official, whether full-time or part-time shall at the
same time serve as officer of any private bank, save
in cases where such service is incident to financial
assistance provided by the government or a
government-owned or controlled corporation to the
bank or unless otherwise provided under existing
laws.
Meetings
Section 15 of the GBL also provides that the
meetings of the board of directors may be
conducted through modern technologies such as,
but not limited to, teleconferencing and video-
conferencing.
Qualifications
Section 16 of the GBL provides the Fit and
Proper Rule which states that to maintain the
quality of bank management and afford better
protection to depositors and the public in general,
the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of
individuals elected or appointed bank directors or
officers and disqualify those found unfit.
After due notice to the board of directors of the
bank, the Monetary Board may disqualify, suspend
or remove any bank director or officer who commits
or omits an act which render him unfit for the
position.
In determining whether an individual is fit and
proper to hold the position of a director or officer of a
bank, regard shall be given to his integrity,
experience, education, training, and competence.
NB: Sec. 19 of the GBL prohibits appointive or
elective public official, whether full-time or part-
time, from serving as officer of any private bank,
save in cases where:
1. Such service is incident to financial
assistance provided by the government or a GOCC
to the bank;
2. Unless otherwise provided in the Rural
Banks Act; or
3. Unless otherwise provided under
existing laws.
Liquidity and Security
For purposes of maintaining liquidity and
security, GBL and the New Central Bank Act provide
regulations relating to loans and other matters:
1. The Monetary Board shall prescribe the
minimum ratio which the net worth of a bank must
bear to its total risk assets which may include
contingent accounts.
2. The law imposes limits on loans, credit
accommodations and quarantees that may be
extended by banks.
3. Limitation is placed on banks exposure
to DORSI.
4. The law imposes restrictions on the
value of collaterals on loans.
5. The law may provide for restrictions on
unsecured loans.
6. MB may prescribe maturities and other
terms and conditions for various types of loans and
accommodations.
7. The law prescribes restrictions on
dividend declrations.
Ownership of Real Property
1. Section 51 of the GBL provides that
any bank may acquire real estate as shall be
necessary for its own use in the conduct of its
business. However, the total investment in such
real estate and improvements thereof, including
bank equipment, shall not exceed fifty percent
(50%) of combined capital accounts. It must be
noted however that the equity investment of a bank
in another corporation engaged primarily in real
estate shall be considered as part of the banks total
investment in real estate, unless otherwise provided
by the Monetary Board.
1. In Section 52, however, of the GBL, a
bank may acquire, hold or convey real property
under the following circumstances:
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; or
iii. Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds held
by it and such as it shall purchase to secure debts
due it.
Any real property acquired or held under the
circumstances enumerated in the above paragraph
shall be disposed of by the bank within a period of
five (5) years or as may be prescribed by the
Monetary Board. After said period, the bank may
continue to hold the property for its own use, subject
to the limitations of the preceding Section.
Trust Operations of Banks
Applicable Rules
NB: Art 1442 of the Civil Code states that the
principles of the general law of trusts, insofar as
 they are not in conflict w/ the Civil Code, the Code of
Commerce, the Rules of Court and special laws
(including the GBL) are hereby adopted.
Prudent Man Rule
A trust entity shall administer the funds or property
under its custody with the diligence that a prudent
man would exercise in the conduct of an enterprise
of a like character and with similar aims.
iii. Self-Dealing Rule
The GBL provides, as a general rule, that no trust
entity shall, for the account of the trustor or the
beneficiary of the trust,
1. purchase or acquire property from, or
2. sell, transfer, assign or lend money or
property to, or
3. purchase debt instruments of
4. any of the departments, directors,
officers, stockholders, or employees of the trust
entity
5. relatives within the 1st degree of
consanguinity or affinity, or the related interests, of
such directors, officers and stockholders,
Except:
1. the transaction is specifically authorized
by the trustor, and
2. the relationship of the trustee and the
other party involved in the transaction
is fully disclosed to the trustor or beneficiary of the
trust prior to the transaction.
Prior Authority
Only a stock corporation or a person duly authorized
by the MB 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 the GBL, such a corporation
is referred to as a trust entity.
Trust Business
A trust business is any activity resulting from a
trustor-trustee relationship (trusteeship) 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 or advantage of the trustor or of others
called beneficiaries.
Powers
A trust entity, in addition to the general powers
incident to corporations, shall have the power to:
1. 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;
2. 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;
3. Act as the executor of any will when it is
named the executor thereof;
4. 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;
5. 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
6. Establish and manage common trust
funds, subject to such rules and regulations as may
be prescribed by the MB.
Separation of Trust Business of Banks
Section 87 of the GBL requires that the trust
business and all funds, properties or securities
received by any trust entity as executor,
administrator, guardian, trustee, receiver, or
depositary shall be kept separate and distinct from
the general business including all other funds,
properties, and assets of such trust entity. The
accounts of all such funds, properties, or securities
shall likewise be kept separate and distinct from the
accounts of the general business of the trust entity
Conservatorship
Section 67 of the GBL provides that the grounds and
procedures for placing a bank under
conservatorship, as well as, the powers and duties
of the conservator appointed for the bank shall be
governed by the provisions of Section 29 and the
last two paragraphs of Section 30 of the New
Central Bank Act: Provided, That this Section shall
also apply to conservatorship proceedings of quasi-
banks.
Grounds
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department,
the Monetary Board 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, the Monetary Board may
appoint a conservator with such powers as the
Monetary Board shall deem necessary.
1. Powers of Conservatorship[52]
2. Take charge of the assets, liabilities,
and the management thereof,
3. Reorganize the management,
iii. Collect all monies and debts due said institution,
and
1. Exercise all powers necessary to
restore its viability.
Receivership and Liquidation
The grounds and procedures for placing a bank
under receivership or liquidation, as well as the
powers and duties of the receiver or liquidator
appointed for the bank shall be governed by the
provisions of Secs. 30, 31, 32, and 33 of the NCBA:
Provided, That 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 BSP, in an
amount to be fixed by the court. This shall also
apply to the extent possible to the receivership and
liquidation proceedings of QBs. (Sec. 69)
REPUBLIC ACT No. 1405
AN ACT PROHIBITING DISCLOSURE OF OR
INQUIRY INTO, DEPOSITS WITH ANY BANKING
INSTITUTION AND PROVIDING PENALTY
THEREFOR.
Section 1. It is hereby declared to be the policy of
the Government to give encouragement to the
people to deposit their money in banking institutions
and to discourage private hoarding so that the same
may be properly utilized by banks in authorized
loans to assist in the economic development of the
country.
Section 2. 1 All deposits of whatever nature with
banks or banking institutions in the Philippines
including investments in bonds issued by the
Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature
and may not be examined, inquired or looked into by
any person, government official, bureau or office,
except upon written permission of the depositor, or
in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of
duty of public officials, or in cases where the money
deposited or invested is the subject matter of the
litigation.
Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose to any
person other than those mentioned in Section two
hereof any information concerning said deposits.
Section 4. All Acts or parts of Acts, Special
Charters, Executive Orders, Rules and Regulations
which are inconsistent with the provisions of this Act
are hereby repealed.
Section 5. Any violation of this law will subject
offender upon conviction, to an imprisonment of not
more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of
the court.
Section 6. This Act shall take effect upon its
approval.
Approved: September 9, 1955