Topical Outline Gen - Banking Law Absin Escabarte
Topical Outline Gen - Banking Law Absin Escabarte
TOPICAL OUTLINE
R.A. 8791
AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS,
QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES
GENERAL BANKING LAW
1. The State recognizes the vital role of banks in providing an environment conducive
to the sustained development of the National Economy.
- The bank plays either a passive or an active role:
Passive – as a depositary of your millions.
Active – it conducts not only banking and lending activities but more importantly
it helps in the conduct of day to day transactions of several businesses. Banks
are considered as trusted partners of business entities.
- Banks play a vital role in the economic life of the country and for the sustained
development of the country.
Imagine if there are no banks, how would we facilitate our transactions as
individuals, as business entities and as a country in general?
SAMPLE CASE 1
Principle: Banks are liable for the wrongful and tortuous acts of their employees so long as those
acts were done in the course of the latter’s employment. The bank’s liability is not merely
vicarious but PRIMARY, and so, the defense of due diligence in the selection and supervision of
its employees is NOT A VALID DEFENSE.
FACTS: Ford was assessed of percentage taxes. It drew an account with Citibank and
deposited the check to PCI Bank. Ford was surprised when it received a demand letter. The CIR did
not receive any payment at all and Ford was compelled to pay the CIR. An investigation was
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conducted and it was found out that there was a syndicate involving employees of Ford, PCI Bank
and Citibank.
HELD: The Court decided against PCI Bank because PCI Bank is expected to exercise the
highest degree of diligence and should not have allowed itself to easily fall for the machinations of the
Ford employee without checking first with Ford. Likewise, Citibank failed to notice that at the back of
the check, there were no verifications/ initials. And so, Citibank was not able to discover that those
were not the same checks that were issued by Ford, as the checks presented were those that have
been replaced by the syndicate.
SAMPLE CASE 2
Principle: In every case, the depositor expects the bank to treat his account with utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible.
FACTS: Respondent Valenzuela opened a savings account with Petitioner Prudential Bank. It
availed of the Bank’s service of automatic transfer of funds from his savings account to his current
account. When respondent deposited a check, it did not reflect immediately in his account. The check
was deposited on June 1. However, the bank failed to have it reflected in his account. It was only
reflected on June 24. It was posted 23 days after the check was deposited. Valenzuela issued a check
against Legaspi in payment of jewelries. Legaspi subsequently endorsed the said check to Lhuiller.
Lhuiller went to his bank and there he found out that the check was dishonored for insufficiency of
funds. He checked with the bank and inquired why his check was dishonored. It was there that he
found out that it was only after 23 days that the check was posted.
HELD : Yes. The Court said that it is not enough for the bank to say sorry because that mistake
should not have been committed had the bank exercised that degree of care expected of them. The
misposting of checks shows on the part of the bank the lack of care and supervision. Since the bank
is an entity impressed with public interest, the accounts of the depositors should be treated with
meticulous care.
1. Universal Banks;
2. Commercial Banks;
3. Thrift Banks (3):
- Savings and Mortgage Banks
- Stock Savings and Loan Associations
- Private Development Banks
4. Rural Banks (as defined in “Rural bank Act”);
- Basically, rural banks cater to those in the countryside, in the rural areas.
- Their primary function is to extend loans or credits to farmers, fisher folks
etc.
5. Cooperative Banks (as defined in “Cooperative Code”);
- These banks cater to cooperatives. They extend loans and assistance to
cooperatives.
6. Islamic Banks (as defined in “Charter of Al Amanah Islamic Investment Bank of the
Philippines”).
- These banks cater to our Muslim brothers and sisters.
7. Other classifications of banks as determined by the Monetary Board of the BSP.
SAMPLE PROBLEM
Violation - engaging in banking without securing the authority (banking franchise) from the BSP.
“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)
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
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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
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
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
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
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
1st : There is solidary liability between the 2 banks because CB was not able to supervise properly
the operations of the OB in the sense that it allowed OB to continue its transaction when such bank
should have been under chronic reserve deficiency because of its unpaid advances and emergency
loans from BSP and as a result, the BSP required the OB to put in additional collaterals.
2nd: There was a constructive trust created between him and CB in the sense that when the CB
required OB to put in additional collaterals, the collaterals were from depositors’ money which includes
his time deposits. Since he was not paid, CB is liable under constructive trust for failure to return.
ISSUE: Whether or not Serrano can recover.
HELD: No. They are loans because they earned interest and all kinds of deposits under
savings or current are to be treated as loans to be covered by the laws of Loans. So, failure to return
the deposit is just like failure of the bank to pay loan. It is not a breach of trust because deposits in the
banks are not governed by Contract of Deposits that if you are not able to return the thing deposited,
you are liable.
KINDS OF DEPOSIT
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.
In computing the 25%, you have to consider the total credit commitment of the bank.
The total credit commitment shall include all types of loans, such as housing loan, car
loan, letters of credit perhaps, or any other kind of loan. So, all credit commitments.
If the borrower is an individual, you consider not only this individual’s loan from the bank
but you consider the loan of a corporation wherein this individual is a majority stockholder
as well. Example he is a majority stockholder of Corporation A. That is Individual plus
Corporation A. In no case shall the total (Individual + Corp A) exceed 25%.
In the case of a corporation, all liabilities to such bank of all subsidiaries in which such
corporation owns or controls a majority interest. So, again, example Company A has two
subsidiaries, B and C. So, for purposes of determining whether it exceeds the 25% limit,
consider not only the loans to Company A but also to the subsidiaries B and C. [A+B+C]
- Let’s say 25% of the net worth of the bank is 25M. If the parent company has obtained
a loan of 10M and the other subsidiary 10M, so, 20M in all. Even if the parent
company has not obtained loan but only the subsidiaries, the loan is still imputed to
the parent company. Because it’s not only the corporation but includes also all of its
subsidiaries.
- What is the reason? Trust receipts, shipping documents, warehouse receipts and
other similar documents are easier to dispose. Meaning less risky.
There are exclusions where in the loan and credit accommodations which are not
covered or not included in the computation of 25%. What are those loans which are
excluded? Those considered as non-risk.
a. loans and other credit accommodations secured by obligations of the Bangko Sentral
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or of the Philippine Government:
- Treasury shares. Again, the government is not expected to go bankrupt.
b. loans and other credit accommodations fully guaranteedby the government as to the
payment of principal and interest;
c. loans and other credit accommodations covered by assignment of deposits
maintained in the lending bank and held in the Philippines;
d. loans, credit accommodations and acceptances under letters of credit to the extent
covered by margin deposits; and
e. other loans or credit accommodations which the Monetary Board may from time to
time, specify as non-risk items.
So,
- 10M loan is secured by treasury bonds issued by the government = excluded
- 1M of the LC is covered by a margin deposit = excluded
- 10M, the 5M is covered by hold-out agreement = the 5M deposit (under the hold- out
agreement) is excluded. The exposure is the remaining amount, the other 5M.
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
Do you remember the discussion we had with New Central Bank Act? There
was also a provision regarding DOSRI that if a DOSRI obtained a loan or credit
accommodation from his bank or other bank wherein a subsidiary has the same parent
with the lending bank and the bank in which he is a director, what is the requirement
under the act?
- There must be a WAIVER OF SECRECY OF BANK DEPOSITS.
- In addition to that, this is the requirement under the General Banking Law.
EXCEPTIONS:
1. Fringe benefits, like when the DOSRI obtained cash advances, loans from the ban
by way of transportation allowance, travel allowance…that is not included. So,
meaning even if I have no cash deposit, I can obtain cash advances or loans but
those loans or cash advances are needed for my travel representation allowance,
under a fringe benefit plan approved by the BSP like car loan, housing program…etc.
Other than those items, those not covered by the fringe benefit plan approved by
BSP, you must comply with the requirements.
2. Loans and credit accommodations which are secured by assets considered again
as non-risk.
Take note of two things, (1) the requirements [written approval + waiver of secrecy] and
(2) the individual limit.
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
Proivision of GBL applies to Filipinos and domestic non-bank corporations.
individual equity participation should not exceed 40% of the voting shares
4. An entity does not have a banking franchise but it obtained funds from the public by accepting
deposits. The funds obtained from the public are loaned out to its members with interest.
5. Can a commercial bank engage in quasi-banking even without approval of the BSP?
Answer: Yes, because it says here (in the law) – to receive other types of deposits and
deposit substitutes. Remember that quasi-banking is “receiving, obtaining funds from
the public through issuance of deposit substitutes.” In short, that is quasi-banking.
So, yes, it is within the powers of a commercial bank.
1. The relationship between the bank and the depositor is not that of a deposit, but one that is
called “irregular deposit,” which is actually a CREDITOR-DEBTOR RELATIONSHIP, the
creditor being the depositor and the debtor being the bank. This is because the bank is not
required to return the very same currency bill that was deposited. The deposits are considered
as loans or mutuum.
Answer: True
A. Ceiling on Investments
- must not exceed 50% of combined capital accounts. Investments includes equity
investments of the bank in another corporation engaged primarily in real estate, unless
otherwise provided by the Monetary Board (MB).
B. A bank may acquire, hold or convey real property under the following circumstance:
a. Such as shall be mortgaged to it in good faith by way of security for debts;
b. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of
dealings; or
c. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held
by it and such as it shall purchase to secure debts due it.
Note: Any real property acquired or held under the circumstances enumerated shall be disposed of
by the bank within a period of 5 years or as may be prescribed by the MB. After said, period, the bank
may continue to hold the property for its own use, subject to limitations mentioned.
FACTS: A bank teller misappropriated the amount of money in his custody. To avoid
prosecution, he mortgaged his property to the bank to answer for the amount. Upon his failure
to pay, the bank brought action to foreclose the mortgage. At the auction sale, there being no
bidders, the bank bidded for the property. Register of Deeds refused to register the sale in
bank’s favor on ground that bank being an alien cannot acquire the lands.
ISSUE: WON China Bank can acquire ownership of the lot.
HELD: If mortgage was executed in favor of the bank in the course of an ordinary banking
transaction, alien bank would have personality to bid at the public auction, if there are no
bidders. On the other hand, if the mortgage was not within the normal banking transaction, it
must be prohibited from bidding. It is clear that the mortgage here is not within normal banking
transactions. Therefore, China Bank had no personality to bid.
FACTS: Petitioner and Pugaos rented a safety deposit box from Security Bank, and signed a
contract of lease with conditions that: bank is not a depositary of the contents and has neither
the possession nor control of the same; bank has no interest in said contents and assumes
no liability in connection therewith. Safety deposit box had two keyholes: one for guard key
which remained with bank and the other for the renter’s key and can be opened only with the
use of both keys. Certificates of title that were placed inside the box were gone when the box
was opened in the presence of bank representative. Loss of certificate caused damages for
the petitioner, and for which claim is made upon the bank
HELD: 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 was
not given to the renters. The prevailing rule is that the relation between the bank renting out
and the renter is that of bailor and bailee, the bailment being for hire and mutual benefit.
Section 72 of the General Banking Act (Now Sec. 53) provides that banking institutions may
receive in custody of funds documents and valuable objects and rent safety deposit boxes as
depositaries or as agents. Since the function of renting safety deposit boxes is still found
within the parameters of contract of deposit, any stipulation exempting the depositary from
any liability arising from loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy. Bank is liable for damages since it
is not correct to assert that it had neither control nor possession of the contents of the box
since it was located within its premise and under its absolute control.
Banks cannot employ casual or non-regular personnel in the conduct of its business involving
bank deposits
The act or omission has resulted or may result in material loss or damage or abnormal
risk to the institution's depositors, creditors, investors, stockholders or to the Bangko
Sentral or to the public in general;
The act or omission has caused any undue injury, or has given any unwarranted
benefits, advantage or preference to the bank or any party in the discharge by the
director or officer of his duties and responsibilities through manifest partiality, evident
bad faith or gross inexcusable negligence; or
The act or omission involves entering into any contract or transaction manifestly and
grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the
director or officer profited or will profit thereby.
Make false entries in any bank report or statement or participate in any fraudulent transaction,
thereby affecting the financial interest of, or causing damage to, the bank or any person;
Without order of a court of competent jurisdiction, disclose to any unauthorized person any
information relative to the funds or properties in the custody of the bank belonging to private
individuals, corporations, or any other entity: Provided, that with respect to bank deposits, the
provisions of existing laws shall prevail;
Accept gifts, fees, or commissions or any other form of remuneration in connection with the
approval of a loan or other credit accommodation from said bank;
Overvalue or aid in overvaluing any security for the purpose of influencing in any way the
actions of the bank or any bank; or
Fraudulently overvalue property offered as security for a loan or other credit accommodation
from the bank;
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Furnish false or make misrepresentation or suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other credit accommodation or extending the
period thereof;
Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other
form of compensation in order to influence such persons into approving a loan or other credit
accommodation application.
Dividend Declaration
Independent Auditor
MB may require a bank, quasi-bank or trust entity to engage the services of an independent
auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board.
Term of the engagement shall be as prescribed by the MB which may either be on a continuing
basis where the auditor shall act as resident examiner, or on the basis of special engagements;
In either case, the independent auditor shall be responsible to the bank's, quasi-bank's or trust
entity's board of directors.
The Monetary Board may also direct the board of directors of a bank, quasi-bank, trusty entity
and/or the individual members thereof; to conduct, either personally or by a committee created by
the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review the
internal audit and control system of the bank, quasi-bank or trust entity and to submit a report of
such audit. (6-Da)
BSP has full authority to regulate the use of electronic devices, such as computers, and processes
for recording, storing and transmitting information or data in connection with the operations of a
bank; quasi-bank or trust entity, including the delivery of services and products to customers by
such entity.
Every bank, quasi-bank or trust entity shall submit to BSP financial statements (FS) in such form
and frequency as may be prescribed thereof and be published at least once every quarter in a
newspaper of general circulation.
For Domestic Banks - in the city or province where the principal office is located.
For Foreign Banks - in the city or province where the principal branch is located.
Note:
If no newspaper is published in the same province, then in a newspaper published in Metro
Manila or in the nearest city or province.
The Monetary Board may allow the posting of the financial statements of a bank, quasi-
bank or trust entity in public places it may determine, lieu of the publication required when
warranted by the circumstances.
In periods of national and/or local emergency or of imminent panic which directly threaten
monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its
members, in special cases and upon application of the bank, quasi-bank or trust entity,
may allow such bank, quasi-bank or trust entity to defer for a stated period of time the
publication of the statement of financial condition required herein
The FS shall show thee actual financial condition of the institution submitting the
statement, and of its branches, offices, subsidiaries and affiliates, including the results of
its operations, and shall contain such information as may be required in Bangko Sentral
regulations. (n)
Additionally, banks shall make available to the public in such form and manner as the
Bangko Sentral may prescribe the complete set of its audited financial statements as well
as such other relevant information including those on enterprises majority-owned or
controlled by the bank, that will inform the public of the true financial condition of a bank
as of any given time.
A domestic bank, quasi-bank or trust shall not publish its authorized or subscribed capital
stock without indicating with equal prominence, the amount of its capital actually paid up.
No branch of any foreign bank doing business in the Philippines shall in any way announce
the amount of the capital and surplus of its head office, or of the bank in its entirety without
indicating with equal prominence the amount of the capital, if any, definitely assigned to
such branch.
FOREIGN BANKS
I. Governing Rules
a. Entry of foreign banks under FBLA may be through any of the following modes:
1. Acquiring, purchasing, or owning a maximum of 60% voting equity of a domestic bank’
2. Investing in the voting stock of a new banking subsidiary locally incorporated to a max
of 60%
3. Establishing branches with full banking authority with a required to inward remittance
of a minimum capital of 210 million in foreign exchange.
However, entry were restricted to banks among top150 foreign banks worldwide or to banks
in the top5 in their country origin.
The conduct of offshore banking business in the Philippines shall be governed by the
provisions of the Presidential Decree No. 1034, otherwise known as the "Offshore Banking
System Decree." (14a)
b. GBL 2000 introduced the following amendments:
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1. Within 7 years from its effectivity, foreign banks may be allowed to own up to 100%
equity of one domestic bank as a mode of entry;
2. Other foreign individuals and non-bank corporations may only own up to 40% of voting
stock of domestic bank, where such nationality will be traced through the grandfather
rule to determine foreign ownership of domestic bank;
3. However, at least 60% of thrift banks may be-foreign owned.
c. RA 10641 (amending FBLA) authorized the MB to authorize foreign banks to:
1. Acquire, purchase or own up to 100% of the voting stock of an existing bank;
2. Invest up to 100% of the voting stock of anew domestic banking subsidiary; or
3. Establish branches with full banking authority.
HOWEVER: RA 10641 mandates the MB to ensure that control of at least 60% of the
resources or assets of the entire Philippine banking system is held by domestic banks that
are majority-owned by Filipinos
ALSO: Only foreign banks widely owned and publicly listed in their country of origin may
be allowed to enter the Philippines: UNLESS, such foreign bank is owned and controlled
by the government of its country of origin.
TRUST OPERATIONS
Answer: For ownership of real assets the ceiling for investment must not exceed 50% of combined
capital accounts and such investments includes equity investments of the bank in another corporation
engaged primarily in real estate, unless otherwise provided by the Monetary Board (MB) pursuant to
Sec. 51 of RA 8791 otherwise known as the General Banking Law of 2000.
(1) A bank may acquire, hold or convey real property in any manner as it could.
(2) Any real property acquired or held under the ordinary course of banking business shall be
disposed of by the bank within a period of 5 years or as may be prescribed by the MB. After said
period, the bank definitely cannot continue to hold the property for its own use.
As provided by Sec. 52 of the General Banking Law, bank may acquire, hold or convey real
property under the following circumstance:
After the holding period of 5 years where the acquired real property must be disposed of, the
properties not disposed shall be subjected to the 50% ceiling, thus the bank can continue to
hold the property provided it does not exceed the ceiling.
Answer: C
Other banking services are enumerated under Section 53 of the General Banking Law.
However, Bank acting as an insurer is prohibited under the Section 54 of the same law.
Q4. Banks cannot employ casual or non-regular personnel in the conduct of its business involving
bank deposits as consistent with the provisions of:
Answer: Consistent with the provisions of Republic Act No. 1405, otherwise known as the
Banks Secrecy Law, no bank shall employ casual or non-regular personnel or too lengthy
probationary personnel in the conduct of its business involving bank deposits. (Section 55.4
of GBL)
The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or trust
entity in public places as it may determine in lieu of the publication required, when warranted by the
circumstances.
Answer: True. Section 61 of the General Banking Law provides that the Monetary Board may
allow the posting of the financial statements of a bank, quasi-bank or trust entity in public
places it may determine, lieu of the publication required when warranted by the circumstances.
Answer: A bank may be placed under conservatorship whenever, on the basis of a report
submitted by the appropriate supervising or examining department, the MB finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of
liquidity and it deemed adequate to protect the interest of depositors and creditors, the MB
may appoint a conservator with such powers as the MB shall deemed necessary.
Q2. The powers that may be conferred to the conservator are such powers as may be necessary for
the following purposes, except:
To place the funds of the institution in non-speculative investments is not under the powers
of a conservator but of the receiver as provided under the New Central Bank Act.
Answer: Same with domestic banks, foreign banks are allowed to bid and take part in
foreclosure sales of real property mortgaged to them, and take possession thereof for a period
not exceeding 5 years. provided that the title shall not be transferred to the foreign bank and
within the 5-year period, transfer its rights to a qualified Philippine national.
Q4. Before transacting trust business, every trust entity shall deposit with BSP, as security for the
faithful performance of its trust duties, cash or securities approved by the MB in an amount equal to
or not less than ______________ or such higher amount as may fixed by the MB. (answer in figures)
1st Statement: The ordinary business of a trust entity shall be transacted at the place of business
specified in its articles of incorporation.
2nd Statement: trust entity and its branches shall not be treated as one unit.
Section 93 of the General banking Law of 2000 provides that the ordinary business of a trust
entity shall be transacted at the place of business specified in its articles of incorporation. and
that the trust entity and its branches shall be treated as one unit.
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