FUNCTIONS OF BANKS What are banks again?

- Banks are entities engaged in the lending of funds obtained in the form of deposits. Basic Functions 1. Loan Function 2. Deposit Function Other er!ices Offered b" the Bank LOAN FUNCTION 1. #redit $pplication - Bank must ascertain the capabilit" of the credit applicant%borro&er to fulfill all its commitments to the bank. 'o&? Bank ma" demand a statement of assets and liabilities( income and e)penditures( and such other information to enable the bank to properl" e!aluate the credit application. *his includes the financial statements of the borro&er submitted to the B+, for ta)ation purposes. - hould such statements be incorrect in an" material detail( the bank ma" terminate the loan or credit accommodation granted on the basis of such statements and demand immediate repa"ment of the loan or the li-uidation of the loan. - .urpose of the Loan / must also be in the contract bet&een the bank and the borro&er Wh"? a. *he loan &ill be granted onl" in the amounts and for the periods of time essential for the effecti!e completion of the operations to be financed. b. +f the loan &ill be used for a purpose other than that stated in the credit application( &ithout the bank0s appro!al( the bank ma" terminate the loan and%or demand immediate repa"ment of the balance. 1ot&ithstanding the preceding sentence( the proceeds of a loan or other credit accommodation ma" be utili2ed b" the borro&er for a purpose3s4 other than that originall" stated in the application and contract5 .ro!ided( *hat such other purpose3s4 is%are among those for &hich the lending bank ma" grant loans and other credit accommodations under e)isting la&s and regulations5 .ro!ided( further( *hat such utili2ation shall be &ith prior &ritten appro!al of dul" authori2ed officer3s4% committee%board of directors of the lending bank and such &ritten appro!al shall form part of the contract bet&een the bank and the borro&er. - *he 6onetar" Board must take into consideration the peculiar characteristics of micro-financing in the promulgation of rules and regulations regarding credit applications. Micro-financing - $ t"pe of banking ser!ice that is pro!ided to unemplo"ed or lo&-income indi!iduals or groups &ho &ould other&ise ha!e no other means of gaining financial ser!ices. - Loans and credit accommodations shall be granted in accordance &ith safe and sound banking practices.

Joint and Solidary Signature JSS! "ractice $ common banking practice re-uiring as an additional securit" for a loan granted to a corporation the 7oint and olidar" signature of a ma7or stockholder or corporate officer of the borro&ing corporation 3 ecurit" Bank !s. #uenca( 891 #,$ :;14. ,easons5 a. +n case of default( creditor0s recourse is not limited to corporate properties but e)tends to personal assets of the suret"< b. uret" &ould be compelled to ensure that the loan &ould be used for the purpose intended. LIMITATIONS IM"OS#$ ON BANKIN% O"#&ATIONS 1. ingle Borro&er Limit ,ules 3 ec. 8= of the >BL4 - *hese rules regulate the total amount of loans &hich a bank ma" grant%e)tend to a borro&er. - Wh"? *o protect the bank from making e)cessi!e loans to a single borro&er b" prohibiting it from lending be"ond a specified ceiling ?)cept as the 6onetar" Board ma" other&ise prescribe for reasons of national interest( the total amount of loans( credit accommodations and guarantees &hich a bank ma" e)tend to an" person( partnership( association( corporation or other entities shall at no time e)ceed 2=@ of the net &orth of such bank. 3 ec. 8=.1 >BL4 *he basis for determination of compliance &ith the single borro&er limit rule is the total commitment of the bank to the borro&er. Loans and other credit accommodations( deposits maintained &ith( and usual guarantees b" a bank to an" other bank or non-bank entit"( &hether locall" or abroad( shall be sub7ect to the limits as herein prescribed. Ot'er credit acco((odations / shall refer to credit and specific market risk e)posures of banks arising from accommodations other than loans such as recei!ables 3sales contract recei!ables( accounts recei!ables and other recei!ables4( and debt securities booked as in!estments. Ban) guarantee - $ bank guarantee is an irre!ocable commitment of a bank binding itself to pa" a sum of mone" in the e!ent of non-performance of a contract b" a third part". *he guarantee is a commitment separate and distinct from the principal debt or contract. Net *ort' / total of the unimpaired paid-in capital including paid-in surplus( retained earnings and undi!ided profit( net of unbooked !aluation reser!es and other ad7ustments as ma" be re-uired b" the B .. - *otal assets less total liabilities *he ceiling is sub7ect to an additional 1A@ pro!ided that the additional liabilities are ade-uatel" secured b" trust receipts( shipping documents( &arehouse receipts or other similar documents transferring or securing title co!ering readil" marketable non-perishable goods &hich must be full" co!ered b" insurance.

$s pro!ided in the first part of ec. 8=.1( the 6onetar" Board ma" prescribe another ceiling. For e)ample5 - additional 2=@ of the net &orth of such bank in the additional loans( credit accommodations and guarantees for the purpose of undertaking infrastructure and%or de!elopment pro7ects under the .ublic-.ri!ate .artnership 3...4 .rogram of the go!ernment dul" certified b" the ecretar" of ocio-?conomic .lanning - additional 1=@ of the net &orth of such bank in additional loans( credit accommodations and guarantees granted to finance oil importation of oil companies &hich are not subsidiaries or affiliates of the lending bank engaged in energ" and po&er generation ?!en if a parent corporation( partnership( association( entit" or an indi!idual &ho o&ns or controls a ma7orit" interest in such entities has no liabilit" to the bank( the 6onetar" Board ma" prescribe the combination of the liabilities of subsidiar" corporations or members of the partnership( association( entit" or such indi!idual under certain circumstances( including but not limited to an" of the follo&ing situations5 3a4 the parent corporation( partnership( association( entit" or indi!idual guarantees the repa"ment of the liabilities< 3b4 the liabilities &ere incurred for the accommodation of the parent corporation or another subsidiar" or of the partnership or association or entit" or such indi!idual< or 3c4 the subsidiaries though separate entities operate merel" as departments or di!isions of a single entit". #+clusions NON-&ISK LOANS!, 1. Loans and other credit accommodations secured b" obligations of the Bangko entral or the .hilippine >o!ernment< 2. Loans and other credit accommodations full" guaranteed b" the go!ernment< 8. Loans and other credit accommodations co!ered b" assignment of deposits maintained in the lending bank and held in the .hilippines< 9. Loans( credit accommodations and acceptances under letters of credit to the e)tent co!ered b" margin deposits< and =. Other loans or credit accommodations &hich the 6B ma" specif" as non-risk items.

31@4 or more of the total subscribed capital stock of the bank. ,elated interest - shall refer to an" of the follo&ing5 3a4 pouse or relati!e &ithin the first degree of consanguinit" or affinit"( or relati!e b" legal adoption( of a director( officer or stockholder of the bank< 3b4 .artnership of &hich a director( officer( or stockholder of a bank or his spouse or relati!e &ithin the first degree of consanguinit" or affinit"( or relati!e b" legal adoption( is a general partner< 3c4 #o-o&ner &ith the director( officer( stockholder or his spouse or relati!e &ithin the first degree of consanguinit" or affinit"( or relati!e b" legal adoption( of the propert" or interest or right mortgaged( pledged or assigned to secure the loans or other credit accommodations( e)cept &hen the mortgage( pledge or assignment co!ers onl" said co-o&ner0s undi!ided interest< 3d4 #orporation( association( or firm of &hich a director or officer of the bank( or his spouse is also a director or officer of such corporation( association or firm( e)cept 314 &here the securities of such corporation( association or firm are listed and traded in the big board or commercial and industrial board of domestic stock e)changes and less than fift" percent 3=A@4 of the !oting stock thereof is o&ned b" an" one 314 person or b" persons related to each other &ithin the first degree of consanguinit" or affinit"< or 324 &here the director( officer or stockholder of the lending bank sits as a representati!e of the bank in the board of directors of such corporation5 .ro!ided( *hat the bank representati!e shall not ha!e an" e-uit" interest in the borro&er corporation e)cept for the minimum shares re-uired b" la&( rules and regulations( or b" the b"-la&s of the corporation5 .ro!ided( further( *hat the borro&ing corporation is not among those mentioned in +tems e and f< 3e4 #orporation( association or firm of &hich an" or a group of directors( officers( stockholders of the lending bank and%or their spouses or relati!es &ithin the first degree of consanguinit" or affinit"( or relati!e b" legal adoption( hold or o&n at least t&ent" percent 32A@4 of the subscribed capital of such corporation( or of the e-uit" of such association or firm< 3f4 #orporation( association or firm &holl" or ma7orit"o&ned or controlled b" an" related entit" or a group of related entities mentioned in +tems b( d and e. &e-uisites BS" Circular No. /01!, a. *he borro&er is director( officer( or an" stockholder of a bank and related interest. b. 'e contracts a loan or an" form of financial accommodation c. *he loan or financial accommodation is from 314 his bank or 324 a bank that is a subsidiar" of a bank holding compan" of &hich both his bank and lending bank are subsidiaries( 384 a bank in &hich a controlling proportion of the shares is o&ned b" the same interest that o&ns a controlling proportion of the shares of his bank< and

2. DO ,+ 3Director( Officer( tockholder( ,elated +nterest4 ,ules / rules promulgated b" the B . &hich regulate the amount of credit accommodations that a bank ma" e)tend to its directors( officers( stockholders and their related interests. tockholder - shall refer to an" stockholder of record in the books of the bank &hose stockholdings in the lending bank( indi!idual and%or collecti!el" &ith the stockholdings of5 3i4 his spouse and%or relati!e &ithin the first degree b" consanguinit" or affinit" or legal adoption< 3ii4 a partnership in &hich the stockholder and%or the spouse and%or an" of the aforementioned relati!es is a general partner< and 3iii4 corporation( association or firm of &hich the stockholder and%or his spouse and%or the aforementioned relati!es o&n more than fift" percent 3=A@4 of the total subscribed capital stock of such corporation( association or firm( amount to one percent

d. *he loan or financial accommodation of the DO ( singl" or &ith that of his related interest( is in e)cess of =@ of the capital and surplus of the lending bank or in the ma)imum amount permitted b" la&( &hiche!er is lo&er. &ules, 1. 1o director or officer of an" bank shall( directl" or indirectl"( 3a4 borro& from such bank nor shall be 3b4 guarantor( endorser or suret" for loans from such bank to others( or 3c4 in an" manner be an obligor or incur an" contractual liabilit" to the bank( e)cept &ith the &ritten appro!al of the ma7orit" of all the directors of the bank( e)cluding the director concerned. *he &ritten appro!al shall not be re-uired for loans granted to officers under a fringe benefit plan appro!ed b" the Bangko entral. 2. Dealings of a bank &ith an" of its DO ,+ must be in the regular course of business and shall be on terms not less fa!orable to the bank than those offered to others 3$,6 L?1>*' ,BL?4. 8. $n" DO &ho ma" &ish to borro& from the bank must obser!e the follo&ing formalities5 3a4 must be &ith &ritten appro!al of a ma7orit" of the bank0s board of directors( e)cluding the director concerned< 3b4 such appro!al must be entered in the records of the bank< and 3c4 a cop" of the entr" of such appro!al shall be transmitted to the appropriate department of the B .. 9. Wai!er of secrec" of deposits of &hate!er nature in all banks in the .hilippines b" the borro&er. 1o &ai!er is re-uired if the related interests are the borro&er. =. *he ceiling%limitation as to loans are follo&ed. C. +nformation obtained from e)amination is strictl" confidential. :. Loans e)tended to DO ,+ shall be limited to an amount e-ui!alent to their respecti!e unencumbered deposits and book !alue of their paid-in capital contribution in the bank( unless the" are5 3a4 loans( credit accommodations( and guarantees secured b" assets considered as non-risk b" the 6onetar" Board( 3b4 loans( credit accommodations( and ad!ances to officers in the form of fringe benefits( and 3c4 cooperati!e banks &ith regard to their cooperati!e shareholders. ;. hould there be a !iolation of the DO ,+ rules( after due notice to the board of directors of the bank( the office of an" bank officer or director &ho !iolated the rules ma" be declared !acant and the erring director or officer sub7ected to the penal pro!isions of the 1e& #entral Bank $ct.

cop"rights4 shall not e)ceed :=@ of the appraised !alue of the securit" 3 ec. 8;4. *he 6onetar" Board is hereb" authori2ed to issue such regulations as it ma" deem necessar" &ith respect to5 314 unsecured loans or other credit accommodations< 324 further securit" re-uirements to &hich the !arious t"pes of bank credits shall be sub7ect and reduce the ma)imum ratios or in special cases( increase the ma)imum ratios established therein< 384 prescribe the maturities( as &ell as related terms and conditions for !arious t"pes of bank loans and other credit accommodations. ection 99. *he amorti2ation schedule of bank loans and other credit accommodations shall be adapted to the nature of the operations to be financed. ection 9=. $ borro&er ma" at an" time prior to the agreed maturit" date prepa"( in &hole or in part( the unpaid balance of an" bank loan and other credit accommodation( sub7ect to such reasonable terms and conditions as ma" be agreed upon bet&een the bank and its borro&er. ection 9C. *he Bangko entral shall pro!ide incenti!es to banks &hich( &ithout go!ernment guarantee( e)tend loans to finance educational institutions cooperati!es( hospitals and other medical ser!ices( sociali2ed or lo&cost housing( local go!ernment units and other acti!ities &ith social content. O*N#&S2I" OF &#AL "&O"#&T3 >?1?,$L ,BL?5 $ bank cannot ac-uire and o&n real propert". ,ationale5 Banks are not engaged in the business of ac-uiring and possessing real propert". $lso( banks must maintain li-uidit" at all times to enable it to perform its functions. *hus( banks must as much as possible retain onl" assets that are easil" marketable. ?D#?.*+O1 5 1. $s shall be necessar" for its o&n use in the conduct of its business( pro!ided5 a. *he total in!estment in such real estate and impro!ements shall not e)ceed =A@ of the combined capital accounts< and b. the e-uit" in!estment of a bank in another corporation engaged primaril" in real estate shall be considered as part of the bankEs total in!estment in real estate( unless other&ise pro!ided b" the 6onetar" Board 3 ec. =14. 2. $s mortgaged to it in good faith b" &a" of securit" for debts( con!e"ed to it in satisfaction of a debt pre!iousl" contracted in the course of its dealings( and such as it shall purchase at forced sales or to secure debts< pro!ided( ho&e!er( that propert" ac-uired under such circumstances shall be disposed of b" the bank &ithin a period of = "ears< pro!ided that the bank ma" after said period continue to hold the propert" for its o&n use( sub7ect to 314 3 ec. =24.

&ules on a(ount of secured loans 1. *hose secured b" real estate shall not e)ceed :=@ of the appraised !alue of the real estate securit"( plus CA@ of the appraised !alue of the insured impro!ements 3 ec. 8:4. 2. *hose secured b" chattels and intangible properties 3such as patents( trademarks( trade names and

&UL#S ON FO&#CLOSU&# OF A &#AL #STAT# MO&T%A%# B3 A MO&T%A%##-BANK A44lication, Fudicial or e)tra7udicial foreclosure JU$ICIAL #5T&AJU$ICIAL ,ight of redemption Within 1 "ear from registration of the foreclosure sale 3e)ception to ,ule C;4 1. Mortgagor is a natural person / Within one "ear after the registration of sale &ith the ,egister of Deeds 3Sec. 1(3) SC Cir. AM No. 99-10-054 2. Mortgagor is a juridical person / $t an" time before the registration of the certificate of foreclosure sale &hich in no case shall be more than 8 months after foreclosure( &hiche!er is earlier. ,edemption price5 Amount due under the mortgage deed G interest G all the cost and e)penses incurred b" the bank or institution from the sale and custod" of the propert" less the deri!ed income (Sec 78 !nion "an# $s. CA% &' 13(0)8% *une +5% +001) ,ight of purchaser to possess propert"5 +mmediatel" after the date of the confirmation of the auction sale. *o en7oin or restrain the conduct of foreclosure proceedings( the petitioner must file a bond conditioned that he &ill pa" all the damages &hich the bank ma" suffer b" the in7unction 3 ec. 9:4. H $ bank ma" be bound b" an agreement pro!iding for a longer redemption period 3+baan ,ural Bank !s. #$( 821 #,$ ;84< thus( con!erting it to con!entional redemption or b" estoppel if the e)tension &as unilaterall" made.