General Banking Law (R.A.

8791)

State Policy

The State recognizes the vital role of banks in providing an

environment conducive to the sustained development of the national
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote
and maintain a stable and efficient banking and financial system that is
globally competitive, dynamic and responsive to the demands of a
developing economy.

Banks (Definition)

1. "Banks" shall refer to entities engaged in the lending of funds obtained

in the form of deposits. (GBL)
2. A moneyed institute founded to facilitate the borrowing, lending and
safe-keeping of money and to deal, in notes, bills of exchange, and
credits.
3. An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and
borrower, is a bank.
4. Any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but
one of these functions is exercised.
5. A financial institution with power to issue its promissory notes intended
to circulate as money (known as bank notes); or to receive the money
of others on general deposit, to form a joint fund that shall be used by
the institution for its own benefi t, for one or more of the purposes of
making temporary loans and discounts, of dealing in notes, foreign and
domestic bills of exchange, coin bullion, credits, and the remission of
money; or with both these powers, and with the privileges, in addition
to these basic powers, of receiving special deposits, and making
collection for the holders of negotiable paper, if the institution sees fi t
to engage in such business. In funding these businesses, the bank
invests the money that it holds in trust of its depositors.

Classifications of Banks
 1. Universal banks - Universal banks are large commercial banks licensed
by the Bangko Sentral ng Pilipinas (BSP) to do both commercial and
investment banking.;
2. Commercial banks - A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be
necessary to carry on the business of commercial banking, such as
accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and other
evidences of debt; accepting or creating demand deposits; receiving
other types of deposits and deposit substitutes; buying and selling
foreign exchange and gold or silver bullion; acquiring marketable
bonds and other debt securities; and extending credit, subject to such
rules as the Monetary Board may promulgate. These rules may include
the determination of bonds and other debt securities eligible for
investment, the maturities and aggregate amount of such investment.;
3. Thrift banks, composed of:
a. Savings and mortgage banks,
b. Stock savings and loan associations, and
c. Private development banks, as defined in the Thrift Banks Act
(Republic Act No. 7906).
4. Rural banks, as defined in the Rural Banks Act (Republic Act No.
7353);
5. Cooperative banks, as defined in the Cooperative Code (Republic Act
No. 6938);
6. Islamic banks as defined in the Charter of Al Amanah Islamic
Investment Bank of the Philippines (Republic Act No. 6848); and
7. Other classifications of banks as determined by the Monetary Board of
the Bangko Sentral ng Pilipinas. (Section 3, GBL)

Jurisdiction of the Bangko Sentral ng Pilipinas

The operations and activities of banks shall be subject to supervision of the

Bangko Sentral. "Supervision" shall include the following:

1. The issuance of rules of conduct or the establishment of standards of

operation for uniform application to all institutions or functions
covered, taking into consideration 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;
2. The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the
Monetary Board;
 3. Overseeing to ascertain that laws and regulations are complied with;
4. Regular investigation which shall not be oftener than once a year from
the last date of examination to determine whether an institution is
conducting its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
5. Inquiring into the solvency and liquidity of the institution; or
6. Enforcing prompt corrective action; and
7. Supervision over the operations of and exercise regulatory powers over
quasi-banks, trust entities and other financial institutions which under
special laws are subject to Bangko Sentral supervision.
8. Other powers
a. To administer oath to any such person, employee, officer or
director of any such entity.
b. To compel the presentation or production of such books,
documents, papers or records that are reasonably necessary to
ascertain the facts relative to the true functions and operations
of such person or entity.
c. The BSP shall also have the authority to examine an enterprise
which is wholly or majority-owned or controlled by the bank that
is under examination.
d. To issue certificate of authority to register, an indispensable
requirement when registering articles of incorporation with the
Securities and Exchange Commission.
i. Requirements for issuance of Certificate:
1. All requirement of existing laws and regulations to
engage in business are complied with.
2. The public interest and economic conditions, both
general and local justify the authorization
3. The amount of capital, the financing, organization,
direction, and administration, as well as the integrity
of the organizers and administrators reasonably
assure the safety of deposits and the public interest.
ii. Requirements for Registration of banks with BSP and SEC
1. That the entity is a stock corporation
2. s are obtained from the public , which shall mean 20
or more persons
3. That the minimum capital requirements prescribed
by the monetary board for each category of banks
are satisfied

Restrictions on ownership
 At least 25% of the toal authorized capital stock shall be subscribed by
the subscribers of the proposed bank, and at least 25% of such
subscription shall be paid up, provided that in no case shall the paid-up
capital be less than the minimum required capital stated above.

o A bank may be organized with not less than 5 nor more than 15
incorporators
o In excess of 15, to be listed among original subscribers in Articles
of incorporation

Treasury stock restrictions

o provides no bank shall Purchase or acquire shares of its own
capital stock; or accept its own shares as a security for a loan,
except when authorized by the monetary board, stock purchased
shall be sold within 6 months from time of purchase. At common
law, a corporation has no lien upon the shares of stockholders for
any indebtedness to the corporation and there is no statute
creating such lien.
Foreign ownership limitations
1. Foreign individuals and non-bank corporations may own or control
up to 40% of the voting stock of a domestic bank. Applies to Filipino
and domestic non-bank corporations
2. The percentage of foreign-owned voting stocks in a bank shall be
determined by the citizenship of the individual stockholders in that
bank.
3. Controlling stockholders individuals holding more than 50% of the
voting stock of the corporate stockholders of the bank
4. Voting stock: commercial 60%; thrift 40%; rural bank fully
owned and held by Filipino
5. Determining nationality of bank control test (shares belonging to
corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine
nationality. Under the liberal Control Test, there is no need to
further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which
is at least 60% Filipino-owned is considered as Filipino.)

Receivership

Receivership is equivalent to an injunction to restrain the bank in any

way. Thus, the appointment of a receiver operates to suspend the authority
of the bank and its directors and officers over its property and effects.
Grounds for Receivership

1. If the MB finds that the institution:

a. is unable to pay its liablities as they become due in the

ordinary course of business
b. has insufficient realizable assets, as determined by the BSP,
to meet its liabilities
c. cannot continue in business without involving probable
losses to its depositors or creditors, or
d. 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.
-For a quasi-bank, any person of recognized competence in
banking or finance may be designated as receiver, for banks
(all classifications) the Philippine Deposit Insurance Corporation
(PDIC) is appointed as receiver.

Principles in Receivership

1. Close now hear later scheme - No prior hearing is necessary in

appointing a receiver and in closing the bank. It is enough that
subsequent judicial review is provided for. Indeed, to require such
previous hearing would not only be impractical but would tend to
defeat the very purpose of the law when it invested the Monetary
Board with such authority.
2. Absence of examination or investigation - The absence of an
examination before the closure of a bank did not mean that there was
no basis for the closure order. Needless to say, the decision of the MB
and BSP, like any other administrative body, must have something to
support itself and its findings of fact must be supported by substantial
evidence.

Functions of a Receiver

a. Immediately gather and take charge of all the assets and liabilities of
the institution, administer the same for the benefit of its creditors;
b. Exercise the general powers of a receiver;
c. Determine as soon as possible, but not late than 90 days from
takeover, whether the institution can be rehabilitated or otherwise
placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors, and the general
public subject to the prior approval of the Monetary Board.
Prohibited Acts of the Board of Directors of banks during
receivership

a. Refusing to turn over the banks record and assets to the designated
receivers;
b. Tampering with bank records;
c. Appropriating for himself or another party, or destroying or causing
misappropriation and destruction of the banks assets;
d. Paying out or permitting or causing to be paid out any fund of said
bank; and
e. Transferring or permitting or causing to be transferred any securities or
property of said bank.

Loan Restrictions
1. Single Borrower Limit - The rules seek to protect a bank from
making excessive loans to a single borrower by prohibiting it from
lending beyond a specified ceiling. The current limit is 25% of the
net worth of the bank concerned. The ceiling is subject to possible
increase by an additional 10% provided the additional liabilities of
any borrower are adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, non-
perishable goods which must be fully covered by insurance.
2. DOSRI Rule (Director, Officer, Stockholder and their Related Interest)
- No director or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, borrow from
such bank nor shall he become a guarantor, indorser or surety for
loans from such bank to others, or in any manner be an obligor or
incur any contractual liability to the bank except with the written
approval of the majority of all the directors of the bank, excluding
the director concerned: Provided, That such written approval shall
not be required for loans, other credit accommodations and
advances granted to officers under a fringe benefit plan approved
by the Bangko Sentral. The required approval shall be entered upon
the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral.
a. Related Interest:
 i. Spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of
a director, officer or stockholder of the bank;
ii. Partnership of which a director, officer or stockholder or
his spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, is
a general partner;
iii. Co-owner with the director, officer, stockholder or his
spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of
the property or interest or right mortgaged, pledged or
assigned to secure the loans or credit accommodations,
except when the mortgage, pledge or assignment
covers only said co-owners undivided interest;
iv. Corporation, association, or firm of which a director or
officer of such corporation, association or firm, except
(1) where the securities of such corporation, association
or firm are listed and traded in the big board or
commercial and industrial board of domestic stock
exchanges less than fifty percent (50%) of the voting
stock thereof is owned by any one person or by persons
related to each other within the third degree of
consanguinity or affinity; or (2) where the director,
officer or stockholder of the lending bank sits as a
representative of the bank in the board of directors of
such corporation: Provided, That the bank
representative shall not have any equity interest in the
borrower corporation except for the minimum shares
required by law, rules and regulations, or by the by-laws
of the corporation: Provided, further, That the borrowing
corporation under (1) or (2) is not among those
mentioned in Items (e) and (f) hereof;
v. Corporation, association or firm of which any or a group
of directors, officers, stockholders of the lending bank
and/or their spouses or relatives within the first degree
of consanguinity or affinity, or relative by legal adoption
hold/own more than twenty percent (20%) of the
subscribed capital of such corporation, or of the equity
of such association or firm;
vi. Corporation, association of firm wholly or majority-
owned or controlled by any related entity or a group of
 related entities mentioned in Items (b), (d) and (e)
hereof.

Requisites for DOSRI rules to apply

a) The borrower is a director, officer or any stockholder of a bank;

b) He contract a loan or any form of financial accommodation;
c) The loan or financial accommodation is from: a. his bank, or b. a
bank that is a subsidiary of a bank holding company of which
both his bank and lending bank are subsidiaries, c. a bank in
which a controlling proportion of the shares is owned by the
same interest that owns a controlling proportion of the shares of
his bank; and
d) The loan or financial accommodation of the director, officer or
stockholder, singly or with that of his related interest, is in excess
of 5% of the capital and surplus of the lending bank or in the
maximum amount permitted by law, whichever is lower.
3. Loans against Real Estate - Unless otherwise prescribed by the MB,
loans and other credit accommodations against real estate shall
not exceed 75% of the appraised value of the respective real estate
security, plus 60% of the appraised value of the insured
improvements, and such loans may be made to the owner of the
real estate or to his assignees.
4. Loans Against chattels and other intangible properties - shall not
exceed 75% of the appraised value of the security, and such loans
and other credit accommodations may be made to the title-holder
of the chattels and intangible properties or his assignees. The limit
on loans, credit accommodations and guarantees shall not apply to
loans, credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders.
5. Foreclosure of Real Estate Mortgage - In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate
which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been
sold for the full or partial payment of his obligation shall have
the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage
deed, with interest thereon at rate specified in the mortgage, and all
the costs and expenses incurred by the bank or institution
from the sale and custody of said property less the income derived
there from. However, the purchaser at the auction sale concerned
 whether in a judicial or extra-judicial foreclosure shall have the right
to enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in
court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given
due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding. Notwithstanding Act
3135, juridical persons whose property is being sold pursuant to
an extra judicial foreclosure, shall have the right to redeem
the property in accordance with this provision until, but not
after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is earlier. Owners
of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until
their expiration.

Secrecy of Bank Deposits (R.A. 1405, AN ACT PROHIBITING

DISCLOSURE OF OR INQUIRY INTO, DEPOSITS WITH ANY BANKING
INSTITUTION AND PROVIDING PENALTY THEREFOR)

General Rule - All deposits of whatever nature with banks or banking

institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office.

Exceptions:
a) when the examination is made in the course of a special or general
examination of a bank and is specifically authorized by the Monetary
Board after being satisfied that there is reasonable ground to believe
that a bank fraud or serious irregularity has been or is being
committed and that it is necessary to look into the deposit to establish
such fraud or irregularity
b) when the examination is made by an independent auditor hired by the
bank to conduct its regular audit provided that the examination is for
audit purposes only and the results thereof shall be for the exclusive
use of the bank, or upon written permission of the depositor,
c) in cases of impeachment,
 a. it is necessary that there be an order issued by the
impeachment court or by its authorized officer.
d) upon order of a competent court in cases of bribery or dereliction of
duty of public officials,
e) in cases where the money deposited or invested is the subject matter
of the litigation.
a. General requirements
i. there must be a court order;
ii. the order must be issued by a competent court specifically
directing the bank concerned to disclose the required
information; and
iii. the bank should check and satisfy itself that the deposits
or investment in government bonds being inquired into are
either the subject of a case of bribery or dereliction of duty
of public officials, or of a case where the deposit or
investment itself is the subject matter of the litigation. If
these requirements are not met, there would be basis for
the bank to request the court to excuse compliance with
the court order.

Accounts covered
a) All DEPOSITS of whatever nature in banks and banking institutions
b) Investments in bonds issued by the government of the Philippines and
its political subdivisions and instrumentalities

Can bank accounts be garnished? Yes, it was not the intention of the
legislature to place bank deposits beyond the reach of the execution to
satisfy a final judgment. Furthermore, there is no real inquiry in an order for
garnishment and if the existence of the deposit were disclosed, the
disclosure was purely incidental to the execution process. (China Bank v.
Ortega)

Are safety deposit boxes covered? No, a safety deposit box is a special
kind of deposit where the relationship between the bank and the depositor is
that of a bailment for hire, any stipulation exempting the depositary from any
liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy.

Foreign Currency Deposit Act (R.A. 6426) the All foreign currency
deposits, are as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall
foreign currency deposits be examined, inquired or looked into by any
person, government official, bureau or office whether judicial or
administrative or legislative, or any other entity whether public or private.
Foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency
or any administrative body whatsoever.

Exception:

a) Written consent of the depositor.

b) Salvacion v. Central Bank an Americans foreign currency deposited
was garnished in order to allow the payment of damages and other
awards in court for the rape of a minor girl.

Truth in Lending Act (R.A. 3765)

Applies to creditors who extends loans, sales in installments and other

credit transactions, applies to only to credit transactions and not those
payable in full and in cash in one instance.

The following are credit transactions under the TILA:

1. Loans, mortgages, deeds of trust, advances or discounts;

2. Conditional sales contracts;
3. Contracts to sell or contracts of sale of property or services;
4. Rental-purchase contracts;
5. Contract for the hiring, bailment or leasing of property;
6. Option, demand, lien, pledge, or other claims against or for the
delivery of property or money;
7. Purchase or acquisition of any obligation arising out of any of the
aforementioned;
8. All and any transaction with similar purposes and effects as those
stated.

Purposes

1. To protect debtors from the effects of misrepresentations and

concealment of creditors;
2. To allow debtors to fully appreciate and evaluate the real cost of the
borrowing;
3. To avoid usurious interest.

TILA with regard to banks, all banks and institutions performing banking and
quasi-banking functions are required to strictly adhere to the provisions of
the TILA and shall make true and effective cost of borrowing an integral part
of every loan contract.

Creditor, in the TILA is any person engagesd in the business of extending

credit including any person who as a regular business practice, makes loans,
or sells or rents property or services as a principal or agent, who requires as
an incident to the extension of credit, the payment of finance charge.

Finance Charges, includes interest, fees, collection charges, discounts, and

such other charges incident to the extension of credit as the Board may by
regulation prescribe, and represents the amount to be paid by the debtor
incident to the extension of credit such as interest or discounts, collection
fees, credit investigation fees, attorney's fees, and other service charges.The
total finance charge represents the difference between; the aggregate
consideration (down payment plus installments) on the part of the debtor,
and the sum of the cash price and non-finance charges. Amounts advanced
by the creditor for items normally associated with the ownership of the
property or of the availment of the service purchased which are not incident
to the extension of credit. In the case of the purchase of an automobile on
credit, the creditor may advance the insurance premium as well as the
registration fee for the account of the debtor.

Items required to be disclosed, the creditor must disclose the following

to the debtor prior to the consummation of any credit:

1. Cash price;
2. Amounts credited as down payment and/or trade in;
3. Difference between the amounts in the first 2 items stated above;
4. Charges not incident to the extension of credit;
5. Total amount to be financed;
6. Finance charges; and
7. Percentage of finance charge to the amount financed.

Failure to disclose the abovementioned shall have the following

effects:

1. The contract or transaction remains valid or enforceable, subject to the

penalties
2. In case of failure to disclose to any person any information in violation
of this Act or any regulation issued thereunder - be liable to such
person in the amount of P100 or in an amount equal to twice the
finance charged required by such creditor in connection with such
transaction, whichever is the greater such liability shall not exceed
 P2,000 on any credit transaction. Action to recover such penalty may
be brought by such person within one year from the date of the
occurrence of the violation, in any court of competent jurisdiction. In
any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney's fees and
court costs as determined by the court.
3. Any person who willfully violates any provision of this Act or any
regulation issued thereunder - shall be fined by not less than P1,00 or
more than P5,000 or imprisonment for not less than 6 months, nor
more than one year or both
4. A final judgment hereafter rendered in any criminal proceeding under
this Act to the effect that a defendant has willfully violated this Act
shall be prima facie evidence against such defendant in an action or
proceeding brought by any other party against such defendant under
this Act as to all matters respecting which said judgment would be an
estoppel as between the parties thereto.
5. No punishment or penalty provided by this Act shall apply to the
Philippine Government or any agency or any political subdivision
thereof.