Banking Law Issues

GENERAL BANKING
LAW

Topics
1. Banks
a. Nature of business
b. Authority to incorporate and
operate
c. Classification of Banks

6. Ownership of Real Property

7. Loan to Banks
a. Loans without collateral

2. Functions of Banks
a. Deposit Function
b. Loan Function
c. Other functions
d. Prohibited Acts

3. Ownership of Banks
a. Foreign Ownership
b. Filipino Stockholdings
c. Stockholdings of Family Groups
and related interests

4. Directors and Officers

a. Composition of Board
b. Meetings
c. Qualifications

5. Liquidity and Security

b. Emergency Loans

8. Conservatorship
a. Grounds
b. Powers of Conservatorship
9.

Receivership and Liquidation

a. Grounds
b. Duties of Receiver
c. Close Now-Hear Later Scheme

d. Effect of Receivership and

Liquidation
10.

Trust Operations of Banks

a. Prior Authority
b. Trust Business
c. Powers

d. Separation of Trust Business of

Banks

Objectives
General

Objective:

To be familiarized with the provisions of

the General Banking Law of 2000, and

Basel I, II, and III, as well as
jurisprudence involving the said laws.

Objectives
At

the end of the report, the participants must

be able to:
Discuss the policy behind the GBL;
Define, classify and differentiate banks;
Identify and discuss the core and other banking

functions;
Discuss and apply the rules on ownership of banks;
Describe and evaluate the management of banks;
and
Discuss and apply the rules on conservatorship,
receivership, liquidation, and trust operation of
banks

GENERAL BANKING LAW

R.A.

8791
AN ACT PROVIDING FOR THE
REGULATION OF THE
ORGANIZATION AND
OPERATIONS OF BANKS, QUASIBANKS, TRUST ENTITIES AND
FOR OTHER PURPOSES
Short Title: General Banking Law of
2000

1. Banks
A. Definition
B. Nature of business
C. Authority to incorporate and operate
D. Classification of Banks

A. Definition
Banks

are entities engaged

in:
the lending of funds
obtained in the form of

deposits from the public. (Sec.

3.1, GBL)
Requirements:

(Sec. 8,

GBL)
Stock corporation
Funds obtained from public

Problem
SA

Corp. is an investment company;

It established 74 branches throughout
the Philippines;
It managed to induce the public to open
59,463 savings deposit accounts with an
aggregate deposit of P1,689,136.74;
It loans out the money of its customers,
collects the interest and charges a
commission to both lender and borrower;
Is SA Corp. a bank?

Answer
Yes.
Sec. 2, GBL.
Republic v. Security

Credit and
Acceptance Corporation.
Funds were derived from the public;
Lent out the deposit to persons;
Violation - engaging in banking
without securing the administrative
authority required in Republic Act No.
337.

A. Definition
Quasi-banks

(QB) refer to entities

engaged in the borrowing of funds
through the issuance, endorsement
or assignment with recourse or
acceptance of deposit substitutes for
purposes of relending or purchasing
of receivables and other obligations.
(Sec. 4, GBL)
Quasi-banking function is an inherent
power of Universal Banks and

B. Nature of Business
Policy (Sec. 2, GBL)
The State recognizes the vital role of

banks in providing an environment

conducive to the sustained development
of the national economy and the
fiduciary nature of banking that requires
high standards of integrity and
performance.

B. Nature of Business
Rule

on Strikes and Lockouts (Sec. 22,

GBL)
If unsettled after seven (7) calendar days, Bangko

Sentral reports to the Secretary of Labor who has

two options:
(1) assumption jurisdiction
(2) certify to NLRC for compulsory arbitration.

The President of the Philippines may, at any time,

intervene and assume jurisdiction over such labor

dispute in order to settle or terminate the same.
REASON:

INDISPENSABLE TO NATIONAL
INTEREST

C. Authority to Incorporate
and Operate
TO INCORPORATE: Articles of

Incorporation must be accompanied

by a certificate of authority issued
by the MB, under its seal.
TO OPERATE: Certificate of authority
from the BSP

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank
Insiders (DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

Prudential Measures
Reserve

Requirements
Single Borrowers Limit
Lending Restrictions to Bank Insiders
(DORSI)
Loan-Loss Provisions
Deposit Insurance
Equity Investment Limits
Capital Adequacy
BSP Lender of last resort

D. Classification of
Banks
i.

Universal Banks (UB) banks that

have the authority to exercise, in
addition to the powers authorized for
a commercial bank, the powers of an
investment house and the power to
invest in non-allied enterprises. (Sec.
23)
E.g. BDO Unibank, Inc., BPI, RCBC,
SBC, Union Bank, UCPB, Al-Amanah,
DBP, LBP, ANZ Banking, HSBC

D. Classification of
Banks
ii.

Commercial Banks (CB) banks that

have, in addition to the general
powers incident to corporations, all
such powers as may be necessary to
carry on the business of commercial
banking. (Sec. 29)
E.g.
Bank of Commerce, Citibank, Maybank
Phil., PBC, Veterans, BDO Private Bank

D. Classification of
Banks
iii.

Rural Banks banks that are created to

make needed credit available and readily
accessible in the rural areas for purposes of
promoting comprehensive rural
development. R.A. No. 7353
E.g.
Providence Rural Bank, Rural Bank of
Gattaran, Claveria Rural Bank, Rural Bank of
Sanchez Mira, Rural Bank of Cauayan,
Golden Rural Bank of the Philippines, Banco
Agricula

D. Classification of
Banks
iv.

Thrift Banks banks that include:

savings and mortgage banks,

private development banks, and
stock savings and loan associations.

E.g.
Allied

Savings Bank, Bank of Makati,

BPI Direct Savings Bank, Century
Savings Bank, Express Savings Bank,
Malayan Bank, Win Bank

D. Classification of
Banks
v.

Cooperative Banks banks that

primarily provide financial, banking and
credit services to cooperative
organizations and their members. (Sec.
100, R.A. 6938 as amended by R.A.
9520)
E.g.
Cooperative Bank of Cagayan, Coop of
Bulacan, Coop of La Union, Coop of
Bohol

D. Classification of
Banks
vi.

Islamic Banks Charter of Al

Amanah Islamic Investment Bank of
the Philippines. (R.A. 6848)
E.g.
Al-Amanah Islamic Investment Bank
of the Philippines

D. Classification of
Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

As to Powers
1. The powers authorized for a Commercial Bank;
2. The powers of an investment house
as provided in existing laws;
and
3. The power to invest in non-allied enterprises as
provided in the GBL. (Sec. 23)

1. THE GENERAL POWERS INCIDENT TO

CORPORATIONS,
2. 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;
3. SUBJECT TO SUCH RULES AS THE MB MAY
PROMULGATE. THESE RULES MAY INCLUDE
THE DETERMINATION OF BONDS AND
OTHER DEBT SECURITIES ELIGIBLE FOR
INVESTMENT,
THE
MATURITIES
AND
AGGREGATE
AMOUNT
OF
SUCH
INVESTMENT. (SEC. 29)

Classification of Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

As to Equity Investments
A UB MAY INVEST IN THE
EQUITIES
OF
ALLIED
(EITHER
FINANCIAL OR NON-FINANCIAL) AND
NON-ALLIED ENTERPRISES. (SEC. 24)
EXCEPT AS THE MB MAY
OTHERWISE PRESCRIBE:
THE TOTAL INVESTMENT IN
EQUITIES OF ALLIED AND NON-ALLIED
ENTERPRISES SHALL NOT EXCEED 50%
OF THE NET WORTH; AND THE EQUITY
INVESTMENT IN ANY ONE ENTERPRISE,
WHETHER ALLIED OR NON-ALLIED,
SHALL NOT EXCEED 25% OF THE NET
WORTH OF THE BANK (SEC. 24)

A CB MAY INVEST ONLY IN THE

EQUITIES OF ALLIED ENTERPRISES
(EITHER
FINANCIAL
OR
NONFINANCIAL). (SEC. 30)
EXCEPT AS THE MB MAY
OTHERWISE
PRESCRIBE:
THE TOTAL INVESTMENT IN
EQUITIES OF ALLIED ENTERPRISES
SHALL NOT EXCEED 35% OF THE NET
WORTH OF THE BANK; AND
THE EQUITY INVESTMENT IN
ANY ONE ENTERPRISE SHALL NOT
EXCEED 25% OF THE NET WORTH OF
THE BANK.

Classification of Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Financial Allied Enterprises

A UB CAN OWN UP TO 100% OF
THE EQUITY IN
A THRIFT BANK,
A RURAL BANK OR
A FINANCIAL ALLIED
ENTERPRISE. (SEC. 25)

A KB MAY OWN UP TO 100% OF

THE EQUITY OF A THRIFT BANK
OR A RURAL BANK. (SEC. 31)
WHERE THE EQUITY INVESTMENT
OF A CB IS IN OTHER FINANCIAL
ALLIED ENTERPRISES, INCLUDING
ANOTHER COMMERCIAL BANK,
SUCH INVESTMENT SHALL REMAIN
A MINORITY HOLDING IN THAT
ENTERPRISE. (SEC. 31)

Classification of Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Non-Financial Allied Enterprises

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

Classification of Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in QBs

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

Classification of Banks
UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Non-Allied Enterprises

THE EQUITY INVESTMENT OF A
UB, OR OF ITS WHOLLY OR
MAJORITY-OWNED SUBSIDIARIES,
IN A SINGLE NON-ALLIED
ENTERPRISE
1. shall not exceed 35% of the
total
equity in that enterprise nor
2. shall it exceed 35% of the
voting
stock in that enterprise. (Sec. 27)

2. Functions of Banks
A. Deposit Function
B. Loan Function
C. Other functions
D. Prohibited Acts

A. Deposit Function
Simple Loan
Fixed, savings and current deposits of

money in banks and similar institutions

shall be governed by the provisions
concerning simple loan (Article 1980,
Civil Code of the Philippines).

Problem
A

deposited in Bank X;
Bank used the money;
A would like to withdraw but the
Bank cannot pay;
Is the Bank liable for estafa?

Answer
No.
Guingona

v. City Fiscal of Manila, 128

SCRA 577
Since the bank is the borrower, it can
make use as its own the money
deposited, and the amount is not
held in trust for the depositor nor is
it kept for safekeeping. (Tang Tiong
Tick v. American Aphothecaries, 65
Phil. 414)

Problem
A

deposited in Bank X;
B alleges that the money deposited
by A belongs to him;
A withdraws from the bank;
Is Bank X liable?

Answer
No.
Third

persons who may have the

right to the money deposited cannot
hold the bank responsible unless
there is a court order or
garnishment, since the duty of the
bank is to the creditor-depositor and
not to third persons.
Fulton Iron Work v. Chinabank, 55
Phil. 208

Problem
A

deposits in Bank X;
Bank X loans out money to A;
If A defaults in payment, can Bank X
off of the deposits in its hands for
the payment of As indebtedness?

Answer
Yes.
A

bank has a right of set off of the

deposits in its hands for the payment
of any indebtedness to it on the part
of a depositor. Gullas v. PNB, 1935

Kinds of Deposit
1.

Demand deposits

The depositor can take out his funds any

time.
No interest is paid by the bank
The depositor can withdraw the money
he deposited on the very same day.

Kinds of Deposit
2.

Savings Account

Evidenced by a passbook
Has interest rate, but not as high as time

deposits.
3.

Time Deposit

Has a fixed term

Money deposited cannot be withdrawn

within a certain period

Has a higher rate of interest than saving
account.

Kinds of Deposit
4. Negotiable Order of Withdrawal
(NOW) Account is an interest-bearing
deposit account that combines the payable
on demand feature of checks and
investment feature of savings accounts.

5. Other Account is one that may be

opened by one individual or by two or more
persons. Whenever two or more persons
open an account, the same may be an
and/or account or an and account.

Kinds of Deposit
Safety

Deposit Boxes

Special kind of deposit

Not an ordinary contract of lease
Bailer and bailee

Loan Function
Basic

Rules and Restrictions

Risk-Based Capital Ratio
Single Borrowers Limit
DORSI Restrictions

Single Borrowers Limit

Not

exceed 25% of the net worth of bank

Basis: total credit commitment of the
bank to the borrower
GBL provides that the total amount of
loans, etc. may be increased by an
additional 10% of the net worth of such
bank provided:
The additional liabilities of any borrower are

adequately secured
Sec.

35.2

DORSI Account
GENERAL

RULE:

CANNOT BECOME AN OBLIGOR OF THE BANK.

cannot borrow from bank;

cannot become a guarantor, indorser or

surety for loans from such bank to

others;

DORSI Account
EXCEPTION:
written approval of the majority of all the

directors
entered upon the records of the bank
copy of such entry transmitted to BSP.
Such written approval shall not be required
for loans, other credit accommodations and
advances granted to officers under a fringe
benefit plan approved by the BSP.

DORSI Account
Individual

lending ceiling =

insiders unencumbered deposit + book

value of his paid-in capital contribution

Aggregate

Ceiling =

Whichever is lower between 15% of

the total loan portfolio and 100% of

combined capital accounts
Unsecured

portion of the loan =

It should not exceed 30% of the loan of

the insider

Limits on Loans and

other CA
real

estate (collateral)

not exceed 75% of its appraised value

plus 60% of the appraised value of the

insured improvements,
Chattels

and intangibles (collateral)

not exceed 75% of the appraised value

of the security

Foreclosure of Mortgage
Debtor

has the right to redeem real

property within 1 year from sale
of real estate.

Right

to take possession by the

purchaser from date of confirmation
of auction sale.

Other Functions
UB

and CB may also exercise any of the following

functions:
i. Receive in custody funds, documents and valuable objects;
ii. Act as financial agent and buy and sell, by order of and for

the account of their customers, shares, evidences of

indebtedness and all types of securities;
iii. Make collections and payments for the account of others
and perform such other services for their customers as are
not incompatible with baking business;
iv. Upon prior approval of the MB, act as managing agent,
adviser, consultant of administrator of investment
management/advisory/consultancy accounts; and
v. Rent out safety deposit boxes.

Prohibited Acts
Engaging

in insurance

Directors,

Officers, Employees,

Agents
Borrowers

of Banks

3. Ownership of Banks
A. Foreign Ownership
B. Filipino Stockholdings
C. Stockholdings of Family Groups and
Related Interests

Foreign Ownership
Foreign

stockholdings

Up to 40% of the voting stock of

domestic banks
Foreigners - total equity participation
Corporate stockholder citizenship is
determined by citizenship of controlling
stockholders

Filipino Ownership
Filipino

stockholdings

Section 11 of the GBL applies to Filipinos

and domestic non-bank corporations.

individual equity participation should not
exceed 40% of the voting shares

Family Groups and Related

Interests
No

prohibition

Full

disclosure

4. Directors and
Officers
A. Composition of Board
B. Meetings
C. Qualifications

Composition of BOD
At

least five (5), and a maximum of

fifteen (15) members of the BOD of
bank, two (2) of whom shall be
independent directors.
Non-Filipino (restriction, equity

participation)
Public Officials (prohibition)

Meetings
conducted

through modern
technologies
E.g. teleconferencing and video-

conferencing.

Qualifications
Fit

and Proper Rule

integrity,
experience,
education,
training, and
competence