Classification of Banks
Classification of Banks
Universal banks primarily governed by the General Banking Law (GBL), can exercise the powers of an investment house and invest in non-allied enterprises and have the highest capitaliztion requirement. 2. Commercial banks ordinary banks governed by the GBL which have a lower capitalization requirements than universal banks and can neither exercise the powers of an investment house nor invest in non-allied enterprises. 3. Thrift banks these are a) Savings and mortgage banks; b) Stock savings and loan associations ; c) Private development banks, which are primarily governed by the Thrift Banks Act (RA 7906) 4. Rural banks Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of 1992 (RA 7353) 5. Cooperative banks Thoses banks organized whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938). 6. Islamic banks banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari'a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848. 7. Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.
Allied enterprises those entities which enhance or complement banking Non-financial Allied Enterprises pertains to activities that do not involve money matters (such as warehousing, safety deposit boxes) Net worth the total unimpaired paid-in surplus, retained earnings and undivided profit, net valuation reserves and other adjustments as may be required by the Bangko Sentral (Sec. 24).
FUNCTIONS OF BANKS
A. Loan Functions
Requirement for Grant of Loans Before granting a loan, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Rules: 1. A bank may demand from its applicants a statement from their assets and liabilities and of their income and expenditures and other information. 2. Should those statements prove to be false or incorrect, the bank may teminate any loan granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of obligation (Sec. 40). Limit on Loans, Credit Accomodations and Guarantees (Sec. 35) 1. Single Borrower's Limit (SBL) Rules a. The total amount of loans extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed 20% of the net worth of such bank. b. The total amount of loans may be increased by an additional 10% of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-persishable goods which must be covered by insurance. Exclusions (Non-risk loans) a. Loans secured by obligations of the Bangko Sentral or the Philippine Government. b. Loans fully guaranteed by the Government c. Loans covered by assignment of deposits maintained in the lending bank and held in the philippines d. Loans, credit accomodations and acceptances under letters of credit to the extent covered by margin deposits e. other loans or credit accomodations which the MB may specify as non-risk items
2. DOSRI Accounts (Directors, Officers, Stockholders, and Related Interests) Requisites: a) The borrower is director, officer, or any stockholder of a bank and related interest. b) He contracts a loan or any form of financial accomodation c) The loan or financial accomodation is from (1) his bank or (2) a bank that is subsidiary of a bank holding company of which both his bank and lending bank are subsidiaries, (3) 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 d) The loan or financial accomodation of the DOS, 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. Restrictions under the GBL and NCBA: a) No director or officer of any bank shall, directly or indirectly, borrow form such bank nor shall be guarantor, endorser 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 banks, excluding the director concerned. The written approval shall not be required for loans granted to officers under a fringe benefit plan approved by the Bangko Sentral. b) Dealings of a bank with any of its DOSRI shall be upon terms not less favorable to the bank than those offered to others (ARMS LENGTH RULE). c) Loans extended to DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank. Except: (1) Loans, credit accomodations, and guarantees secured by assets considered as non-risk by the Monetary Board. (2) Loans, credit accomodations, and advances to officers in the form of fringe benefits. (3) Cooperative banks with regard to their cooperative shareholders. d) The resolution approving the loan shall be entered in the records of the bank and trasmitted to the BSP. e) Waiver of secrecy of deposits of whatever nature in all banks in the Philippines by the borrower. No waiver is required if the related interest are the borrower. f) Information obtained from examination is strictly confidential. Rules on Amount of Secured Loans a) Those secured by real estate shall not exceed 75% of the appraised value of the real estate security, plus 60% of the appraised value of the insured improvements (sec 37). b) Those secured by chattels and intangible properties (such as patents, trademarks, trade names and copyrights) shall not exceed 75% of the appraised value of the security (sec 38).
B. Deposit Function
Kinds of Deposits between a Bank and its Depositor 1. As debtor-creditor a. savings b. time c. demand 2. As lessor-lessee a. Safety deposit boxes the relation between a bank renting out safety deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit has been adopted in this jurisdiction. It cannot be considered as a contract of lease because the full possession and control of the safety deposit box is not given to the renters. 3. As trustee-trustor a. a trust account 4. As bailee-bailor a. Deposit strictly for safekeeping and for specific purposes 5. As agent-principal a. deposit of check for collection b. deposit for specific purpose c. deposit for safekeeping Depositors: Minors: at least 7 years of age able to read and write not disqualified by any incapacity it should only be savings or time deposits *Parents may deposit for their children or wards (sec 1 PD 734) *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 to the guardian (sec 22, Thrift Banks Act of 1995) *Married women are allowed to open bank accounts without assistance of their husbands (RA 7192) Kinds of Deposits Demand deposits a deposit of funds that can be withdrawn without any advance notice. only a universal bank or commercial bank can accept or create demand deposits. Savings Deposits accounts that pay interest and can be withdrawn on upon demand. are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and therefore often does not incur a reserve requirement freeing up cash from the bank's vault to be lent out with interest.
Time deposits - is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. A certificate of deposit is a time-deposit product. Types of Deposit Accounts 1. Individual 2. Joint a. And account -co-ownership -The signatures of both co-depositors are required for withdrawal b. And/or account Deposit Substitutes 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 relending or purchasing of receivables and other obligations (sec 95, RA 7653).
AUTHORITY OF THE BANGKO SENTRAL SECTION 4. Supervisory Powers. - The operations and activities of banks shall be subject to supervision of the Bangko Sentral. "Supervision" shall include the following: 4.1. The issuance of rules of, conduct or the establishment 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; 4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; 4.3 Overseeing to ascertain that laws and regulations are complied with; 4.4 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; 4.5 Inquiring into the solvency and liquidity of the institution (2-D); or 4.6 Enforcing prompt corrective action. (n) The Bangko Sentral shall also have 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. (2-Ca) For the purposes of this Act, quasi-banks shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the New Central Bank Act) for purposes of re-lending or purchasing of receivables and other obligations. (2-Da) SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral: .Provided, however, That an entity authorized by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the authority to engage in quasi-banking functions. The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may; through the appropriate supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance of this authority, such person or entity may commence to engage in banking operations or quasibanking function and shall continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws. The department head and the examiners of the appropriate supervising and examining department are hereby authorized to administer oaths to any such person, employee, officer, or director of any such entity and 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. Failure or refusal to comply with the required presentation or production of such books, documents, papers or records within a reasonable time shall subject the persons responsible therefore to the penal sanctions provided under the New Central Bank Act. Persons or entities found to be performing banking or quasi-banking functions without authority from the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and other
applicable laws. (4a) SECTION 7. Examination by the Bangko Sentral. The Bangko Sentral shall, when examining a bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by the bank. (2)