uprevised banking reviewer

8/21/2019 UPRevised Banking Reviewer

1/76

1

BANKINGLAWS

TABLE OFCONTENTS

A. The New Central Bank Act

Republic Act No. 7653

B. The General Banking Act

Republic Act No. 337 In General Establishment of Domestic Banks Licensing of Foreign Banks Commercial Banking Corporations and Universal Banks Thrift Banks Act of 1996 Republic Act No. 7906 Building and Loans Associations Rural Banks Act of 1992 Republic Act No. 7353

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 Republic Act No.

3765

H. Law on Secrecy of Bank Deposits


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.


2/76

2

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. Brokering or matching investors with those in need of financing

2. Help in diminishing risks to investors

3. Provide liquidity

NEWCENTRALBANKACTRepublic Act No. 7653

Approved 14 June 1993

INGENERALMandate

The Bangko Sentral ng Pilipinas is the States central monetary authority, mandated inthe 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. [Section 1, RA

7653]

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]


3/76

3

Typical functions of the Bangko Sentral

1. Supervision over banks and regulation of non-bank financial intermediaries engaged

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. As such, it ensures

convertibility of the peso and back up the Philippine Currency.4. It has control of credita. 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]

MONETARYBOARD ANDGOVERNOR

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:

1. The Governor as Chairman;

2.

A member of the Cabinet designated by the President; and3. Five (5) members who shall come from the private sector, all of whom shall

serve full-time.


4/76

4

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 a substantial 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.

Quorum in the Monetary Board

The presence of four (4) members shall constitute a quorum. However, in all cases, the

Governor or his duly designated alternate shall be among the four.

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 themeeting 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.


5/76

5

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 authorization of the Monetary Board or the Governor; or

2.

The use of such information for personal gain or to the detriment of theGovernment, 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 bythe 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 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]


6/76

6

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

CERTAINOPERATIONS OF THEBANGKOSENTRAL

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 orsafeguarding 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


7/76

7

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 any institution 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 conditionsas may be prescribed by the Monetary Board, 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.

CONSERVATORSHIP V. 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 andcreditors. [Section 29, RA 7653]

The conservator should be competent and knowledgeable in bank operations and

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


8/76

8

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 the post-facto repudiation of perfected

transactions, otherwise they would infringe against the non-impairment 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 abanks 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 PhilippineInternational 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]

PROCEEDINGS INRECEIVERSHIP ANDLIQUIDATION

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


9/76

9

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

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

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 itsdepositors 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 resumebusiness, 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.


10/76

10

Procedure for liquidation

The receiver shall then:

1. File ex partewith 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;

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 recoveraccounts 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 orconservatorship.

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.


11/76

11

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

receiver.

THEBANGKOSENTRAL AND THEMEANS OFPAYMENT

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

Sentral has the sole power and authority to issue currency within the territory

of the Philippines [Section 50, RA 7653]

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. [Section 52, RA 7653]

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 such operations 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 their


12/76

12

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]

DOMESTICMONETARYSTABILIZATIONGuiding 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

levelWhenever 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 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]


13/76

13

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

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 MonetaryBoard;

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.

INSTRUMENTS OF 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.


14/76

14

Purchases and sales of gold

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

Purchases and sales of foreign exchange

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. [Section 72, RA 7653] 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


15/76

15

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.


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]

LOANS TO BANKING AND 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

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


16/76

16

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

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. [Section 83, RA 7653]

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 extraordinaryloans 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,


17/76

17

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]

OPENMARKETOPERATIONS FOR THEACCOUNT OF THEBANGKOSENTRAL

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 purchase and sale

of government securities as well as issue and negotiate obligations of the Bangko

Sentral.

BANK RESERVES

Reserve requirements

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.


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


18/76

18

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 reserverequirements 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 REGULATION OF BANK OPERATIONSGuiding 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.

FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE 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


19/76

19

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-owned or controlled

corporations.

THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF

THE GOVERNMENT

Issue of government obligations

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.

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 onthe 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 officiomember of the National Economic and Development

Authority Board.


20/76

20

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.

TRANSITORY PROVISIONS

Phaseout of fiscal agency functions

Unless circumstances warrant otherwise and approved by the Congress Oversight

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]

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. [Section 130, RA 7653]

GENERALBANKINGACTRepublic Act No. 337, as amended

An act regulating banks and banking institutions and for other purposes Approved 23

February 1995

INGENERAL

Rule on bank operations

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


21/76

21

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 functions shall mean borrowing funds, for the borrowersown

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 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 performingquasi-banking functions.

Financial intermediaries

Financial intermediaries shall mean persons or entities whose principalfunctions

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 aregular 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


22/76

22

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;

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 Regulation shall 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 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.


23/76

23

Supervision

Supervision shall include not only the issuance of rules but also theoverseeing 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. [CAAgro-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; thatis 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 the very 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.

Money market transactions

ealing 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.


24/76

24

It involves commercial paperswhich are instruments evidencing indebtednessof 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 thefund suppliers.

he

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.

-day equity redemption

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

Alien bank mortgage

mortgage to it in the course of an ordinary banking transaction. If the mortgage was not

within the normal banking transaction, it must be 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 thesecurity.


25/76

25

Classification of banks [CUT-RICO]

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.

ESTABLISHMENT OF 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.

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,


26/76

26

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 and

agencies of foreign bank shall not be invested in any manner outside theterritorial limits of the Republic of the Philippines.

Voting stock requirements

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

institution 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 foreignowned 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.


27/76

27

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.

LICENSING OF 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 from the 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.

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 acceptsummons and legal processes.

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.


28/76

28

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.

CLASSIFICATION OF PRIVATE BANKS

COMMERCIAL BANKING CORPORATIONS AND 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.

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.


29/76

29

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.

Banks3. Investment houses

4. Financing companies

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.


30/76

30

By virtue of such expanded power, the universal bank may, in addition to powers

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

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.

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 directlyexercise 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


31/76

31

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.

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 thefollowing 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.

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.


32/76

32

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 andconstituencies especially for small and medium enterprises and 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;


33/76

33

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

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 differential2. 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 be reduced and, once reduced, shall not

be increased thereafter beyond 60% of the voting stock of the Thrift Bank.


34/76

34

Minors as depositors

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

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.

BUILDING ANDLOANASSOCIATIONS

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 uponproperty 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

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


35/76

35

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.

Stockholders who have not paid twelve (12) monthly installments of dues may, aftergiving 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.


36/76

36

RURALBANKSScope 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

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.


37/76

37

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

ewspaper publication requirements if the loan,

excluding interest due and unpaid, does not exceed P100,000.

except corporate income taxes and local taxes, fees and charges for aperiod of five years

from the date of commencement of operations.

ACTLIBERALIZINGENTRY OFFOREIGNBANKSRepublic Act No. 7721

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.


38/76

38

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 the voting

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.

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 ofeconomic 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.


39/76

39

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).

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.


40/76

40

OFFSHORE BANKING SYSTEM LAWPresidential 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.

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;


41/76

41

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 theapplicant shall have first submitted to the Central Bank a sworn undertaking of its

head office or parent or holding company, duly supported 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 liquidityneeds 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 preventcircumvention 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.


42/76

42

Tax and other incentives

The provisions of any law to the contrary notwithstanding, the transactions of

offshore banking units with non-residents and other offshore banking units shall be

subject to a five percent (5%) tax on the net income from such transactions which

shall be in lieu of all taxes on the said transactions.

The transactions of offshore banking units with local commercial banks, including

branches of foreign banks that may be authorized by the Central Bank to transact

business with offshore banking units, shall likewise be subject to the same tax, except

net income from such transactions as may be specified by the Secretary of Finance,

upon recommendation of the Monetary Board, to be subject to the usual income tax

payable by banks.

Any income of non-residents from transactions with said offshore banking units shall

be exempt from any tax.

In the case of transaction with residents (other than other offshore banking units orlocal commercial banks including local branches of foreign banks that may be

authorized by the Central Bank to transact business with offshore banking units),

interest income from loans granted to such residents shall be subject only to a ten

percent (10%) withholding tax as final tax.

Effect of certain laws

The Usury Law, Uniform Currency Law, and PDIC law shall not apply to transactions

and/or deposits in offshore banking units in the Philippines.

The provisions of RA 1405 or the Law on Secrecy of Bank Deposits shall apply to

deposits in offshore banking units.


43/76

43

FOREIGN CURRENCY DEPOSIT ACTRepublic Act No. 6426, as amended

An act instituting a foreign currency deposit system in the Philippines and for other purposesApproved 04 April 1974

Authority to deposit foreign currencies

Any person, natural or juridical, may deposit with such Philippine banks in good

standing, as may upon application be designated by the Central Bank for the purpose,

foreign currencies which are acceptable as part of the international reserve.

Exception

Foreign currencies which are required by the Central Bank to be surrendered in

accordance with the provisions of RA 7653 may not be deposited.

Authority of the banks to accept foreign currency deposits

The banks designated by the Central Bank shall have the authority:

1. To accept deposits and to accept foreign curre

uprevised banking reviewer

Documents