R.A.

8791 GENERAL BANKING LAW OF 2000

TOPICS

1. Banks

Definition
Nature of business
Authority to incorporate and operate
Classification of Banks

2. Functions of Banks

Deposit Function
Loan Function
Other functions
Prohibited Acts

3. Ownership of Banks

Foreign Ownership
Filipino Stockholdings
Stockholdings of Family Groups and related interest

4. Directors and Officers

Composition of Board
Meetings
Qualifications

5. Liquidity and Security

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6. Ownership of real property

7. Trust Operations of Banks

Prior Authority
Trust Business
Powers
Separation of Trust Business of Bank

RA 8791 – GENERAL BANKING LAW OF 2000

An Act Providing for the Regulation of and Organization and Operations of Banks, Quasi-banks,
Trust Entities and for other purposes.

The General Banking Law of 2000 (GBL) is the law that generally governs the regulation, organization
and operation of banks, quasi-banks, and other quasi-entities. It primarily governs Universal Banks[1]
(UB) and Commercial Banks[2] (CB), and has suppletory application to Thrift Banks (which is primarily
governed by RA 7906, the Thrift Banks Act), Rural Banks (primarily governed by RA 7353, the Rural
Banks Act), and Cooperative Banks (primarily governed by RA 6938, the Cooperative Code).[3]

1. Banks

1. Definition

Banks are entities engaged in the lending of funds obtained in the form of deposits from the public.[4]
This is usually referred to as “core-banking functions” of mobilizing savings (through deposit-taking)
and allocating resources (through lending).

GBL requires that banks are stock corporations and its funds are obtained from the public, i.e. deposits
of twenty (20) or more persons.[5]

In Bañas v. Asia Pacific Finance Corp.,[6] the Supreme Court said that an investment company that engages
solely in investing, reinvesting, or trading in securities is not engaged in banking. “An investment
company refers to any issuer which is or holds itself out as being engaged or proposes to engage
primarily in the business of investing, reinvesting or trading in securities. As defined in Revised
Securities Act, securities shall include commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any
manner conveyed to another with or without recourse, such as promissory notes. Clearly, the
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transaction between petitioners and respondent was one involving not a loan but purchase of
receivables at a discount, well within the purview of ‘investing, reinvesting or trading in securities’
which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute
a violation of the General Banking Act.”

In Republic v. Security Credit and Acceptance Corporation,[7] the Court said that “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. It is conceded that a total of 59,463 savings account deposits
have been made by the public with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefore.
It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of
the General Banking Act.”

Banks must also be contrasted from “quasi-banks” (QB). The la er 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 Sec. 95 RA 7653, the New Central Bank Act) for purposes of
relending or purchasing of receivables and other obligations. (last part of Sec. 4) Since this is an
inherent power of UBs and CBs, they do not require separate licensing or authorization for this
purpose.

1. Nature of Business

Section 2 of GBL provides that “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.” This consequently means that a bank shall
be subject to heavy and close supervision and/or regulation by the Bangko Sentral ng Pilipinas,[8] and that
it must exercise utmost diligence in the handling of deposits.[9]

To promote and maintain a stable and efficient banking and financial system, there are special rules that
govern banks. Because it is indispensable to the national interest, any strike or lockout involving banks,
if unse led after seven (7) calendar days shall be reported by the Bangko Sentral to the Secretary of Labor
who has two options: (1) he may assume jurisdiction over the dispute or decide it or (2) certify the same
to the National Labor Relations Commission for compulsory arbitration. The law allows the President of
the Philippines, at any time, to intervene and assume jurisdiction over such labor dispute in order to
se le or terminate the same.[10]

1. Authority to incorporate and operate

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GBL provides that a bank or quasi-bank cannot be incorporated without authority from the BSP. The law
states that “the Securities and Exchange Commission shall not register the articles of incorporation of
any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under its seal.”[11]

In addition, an entity performing banking and quasi-banking function cannot also operate without a
certificate of authority from the BSP.[12]

1. Classification of Banks

Section 3.2 of the GBL classifies banks into:

1. 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.[13]
2. 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, such as
accepting drafts and issuing le ers 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.[14]

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.[15]

1. Thrift Banks – banks that include savings and mortgage banks, private development banks, and stock
savings and loan associations.
2. Cooperative Banks – banks that primarily provide financial, banking and credit services to cooperative
organizations and their members.[16]
3. Islamic Banks – Charter of Al Amanah Islamic Investment Bank of the

Philippines.[17]

vii. Other classification of banks as determined by the Monetary Board (MB) of the BSP.

UNIVERSAL BANKS COMMERCIAL BANKS

As to Powers

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1. The powers authorized for a

Commercial Bank;
2. The powers of an investment house BSP Circular 271 (2002)

as provided in existing laws; (1) invest in the equities of allied

enterprises;
and
(2) purchase, hold and convey real estate;
3. The power to invest in non-allied
enterprises as provided in the GBL. (3) receive in custody funds, documents
(Sec. 23) and valuable objects;
4. THE GENERAL POWERS
(4) act as financial agent;
INCIDENT TO CORPORATIONS,
5. ALL SUCH POWERS AS MAY BE (5) make collections and payments for the
NECESSARY TO CARRY ON THE
account of others;
BUSINESS OF COMMERCIAL
BANKING, SUCH AS ACCEPTING (6) act as managing agent, adviser,
DRAFTS AND ISSUING LETTERS consultant or administrator of investment
OF CREDIT; DISCOUNTING AND
NEGOTIATING PROMISSORY management/advisory/-consultancy
NOTES, DRAFTS, BILLS OF accounts;
EXCHANGE, AND OTHER
EVIDENCES OF DEBT; (7) rent out safety deposit boxes; and
6. SUBJECT TO SUCH RULES AS THE
(8) engage in quasi-banking functions.
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)

As to Equity Investments

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A UB MAY INVEST IN THE EQUITIES A CB MAY INVEST ONLY IN THE

OF EQUITIES

ALLIED (EITHER FINANCIAL OR OF ALLIED ENTERPRISES (EITHER

NON-FINANCIAL) AND NON-ALLIED
ENTERPRISES. (SEC. 24) FINANCIAL OR NON-FINANCIAL).
(SEC.
EXCEPT AS THE MB MAY OTHERWISE
PRESCRIBE: 30)

THE TOTAL INVESTMENT EXCEPT AS THE MB MAY OTHERWISE

IN EQUITIES OF ALLIED PRESCRIBE:

AND NON-ALLIED THE TOTAL INVESTMENT IN

EQUITIES OF
ENTERPRISES SHALL NOT
ALLIED ENTERPRISES SHALL NOT
EXCEED 50% OF THE NET WORTH;
AND EXCEED 35% OF THE NET WORTH OF
THE
THE EQUITY INVESTMENT IN ANY
ONE ENTERPRISE, WHETHER ALLIED BANK; AND
OR NON-ALLIED, SHALL NOT
THE EQUITY INVESTMENT IN ANY
EXCEED 25% OF THE NET WORTH OF
THE BANK (SEC. 24) ONE

ENTERPRISE SHALL NOT EXCEED 25%

OF

THE NET WORTH OF THE BANK. (SEC

Equity Investments in Financial Allied

Enterprises

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A UB CAN OWN UP TO A KB MAY OWN UP TO 100% OF THE

100% OF THE EQUITY IN… EQUITY OF

A THRIFT BANK, A THRIFT BANK OR

A RURAL BANK OR A RURAL BANK. (SEC. 31)

A FINANCIAL ALLIED WHERE THE EQUITY INVESTMENT

OF A CB IS IN OTHER FINANCIAL
ENTERPRISE. (SEC. 25) ALLIED

ENTERPRISES, INCLUDING ANOTHER

COMMERCIAL BANK, SUCH

INVESTMENT SHALL REMAIN A

MINORITY HOLDING IN THAT

ENTERPRISE. (SEC. 31)

Equity Investments in Non-Financial Allied Enterprises

A UB OR CB MAY OWN UP TO ONE A UB OR CB MAY OWN UP TO ONE

HUNDRED PERCENT (100%) OF THE HUNDRED PERCENT (100%) OF THE

EQUITY IN A NON-FINANCIAL EQUITY IN A NON-FINANCIAL

ALLIED ENTERPRISE. (SEC. 26 AND ALLIED ENTERPRISE. (SEC. 26 AND 32)
32)

Equity Investments in QBs

TO PROMOTE COMPETITIVE TO PROMOTE COMPETITIVE

CONDITIONS IN FINANCIAL CONDITIONS IN FINANCIAL
MARKETS, THE MB MAY FURTHER MARKETS, THE MB MAY FURTHER
LIMIT TO 40% EQUITY INVESTMENTS LIMIT TO 40% EQUITY INVESTMENTS
OF UBS AND OF UBS AND

CBS IN QBS. (SEC. 28) CBS IN QBS. (SEC. 28)

Equity Investments in Non-Allied Enterprises

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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

1. Deposit Function

1. Nature of the Function

Deposit is one of the core banking functions. While the function is referred to as deposit, it is strictly
“simple loan” where the bank is the debtor and the depositor is the creditor. 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).

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.[18] Bank officers cannot also be held liable
for estafa if they authorized the use of the money deposited by the depositor.[19] 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.[20]

In San Carlos Milling Co., Ltd v. BPI, the Court declared that “banks are run for gain, and they solicit
deposits in order that they can use the money for that very purpose.” For the same reason, it has been
held that “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.”[21] Conversely, the depositor has every right to apply his deposit in a bank
against his loan from such bank.[22]

1. Kinds of Deposits

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The basic types of deposit are demand deposits, savings account, time deposits, and NOW
account.

1. Demand deposits are those liabilities of banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by presentation of checks. In here, no interest is
paid by the bank because the depositor can take out his funds any time. It is called demand deposit
because the depositor can withdraw the money he deposited on the very same day.
2. Savings Account, which is the most common type of deposit, is usually evidenced by a passbook.
Under the fine print, if you deposit today, you cannot withdraw the amount until 60 days later. Bank
pays an interest rate, but not as high as time deposits.
3. Time Deposit is an account with fixed term. The interest rate is stipulated depending on the number
of days. During this period, the money deposited cannot be withdrawn. It has a higher rate of
interest than saving account.
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.

NB: A bank other than a UB or CB cannot accept or create demand deposits except upon prior
approval of, and subject to such conditions and rules as may be prescribed by the Monetary Board.[23]

Moreover, the bank is under the obligation to treat deposit accounts of it depositors with meticulous
care. It must bear the blame for failing to discover the mistake of its employees despite the established
procedure requiring bank papers to pass through bank personnel whose duty it is to check and
countercheck them for possible errors.[24] As a business affected with public interest and because of the
nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous
case, always having in mind the fiduciary nature of their relationship.[25]

Note on Safety Deposit Boxes: In the case of rent of safety deposit box, 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 is not given to the renters. The prevailing rule is that the
relation between the bank renting out and the renter is that of bailer and bailee the bailment being for
hire and mutual benefit.[26]

1. Loan Function

1. Basic Rules and Restrictions: A bank shall grant loans and other credit accommodations only in
amounts and for the periods of time essential for the effective completion of the operations to be
financed, consistent with safe and sound banking practices. The bank must ascertain before granting
the load or other credit accommodation the ability of the debtor to fulfill his commitment.

1. Risk-Based Capital Ratio: The MB shall prescribe the minimum ratio which the net worth of a bank
must bear to its total risk assets which may include contingent accounts (i.e. net worth : total risk
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assets).[27] The risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to
risk-weighted assets, shall not be less than 10% for both solo basis (head office plus branches) and
consolidated basis (parent bank plus subsidiary financial allied undertakings, but excluding
insurance companies). The ratio shall be maintained daily.[28]

iii. Single Borrower’s Limit (SBL): Except as the MB may otherwise prescribe for reasons of national
interest, the total amount of loans, credit accommodations and guarantees as may be defined by the MB
that may be extended by a bank to any person, partnership, association, corporation or other entity shall
at no time exceed 25% of the net worth of such bank.[29] The basis for determining compliance with SBL
is the total credit commitment of the bank to the borrower.[30]

GBL provides that, unless the MB prescribes otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the preceding paragraph 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-perishable goods which must
be fully covered by insurance.[31]

1. DORSI Accounts: GBL imposes restrictions (not total prohibition) on borrowings and security
arrangement by directors, officers, and stockholders of the bank. These restrictions apply when the
loan or financial accommodation of DORSI is in excess of 5% of the capital and surplus of the lending
bank or in the maximum amount permi ed by law, whichever is lower. The GENERAL RULE is: a
director or officer of any bank shall neither, directly or indirectly, for himself or as the representative
or agent of others, borrow from such bank; nor 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. The
EXCEPTION is when there is a wri en approval of the majority of all the directors of the bank,
excluding the director concerned. The required approval shall be entered upon the records of the
bank and a copy of such entry shall be transmi ed forthwith to the appropriate supervising and
examining department of the BSP.[32]
2. Limits on loans and other credit accommodations (collaterals): 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.[33]
Those against “security of cha els and 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 cha els and intangible properties or his assignees.[34]

NB: The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders.[35]

1. Foreclosure of Mortgage: In the event of foreclosure, whether judicially or extrajudicially, 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 the rate specified in the
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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 therefrom. However, the purchaser at the auction
sale concerned whether in a judicial or extrajudicial 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 extrajudicial
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 3 months after foreclosure, whichever is earlier. Owners of property that has
been sold in a foreclosure sale prior to the effectivity of the GBL shall retain their redemption rights until
their expiration.[36]

1. Loan to Banks

The guiding principle for loan on banks is enunciated in Section 81 of NCBA which reads, “The
rediscounts, discounts, loans and advances which the BSP is authorized to extend to banking institutions
under the provisions of the present article of this Act shall be used to influence the volume of credit
consistent with the objective of price stability.”

1. Other Functions

UB and CB may also exercise any of the following functions:

1. Receive in custody funds, documents and valuable objects;

2. 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;

1. Upon prior approval of the MB, act as managing agent, adviser, consultant of administrator of
investment management/advisory/consultancy accounts; and
2. Rent out safety deposit boxes.

1. Prohibited Acts
2. GBL prohibits banks from directly engaging in insurance business as insurer.[37]
3. Directors, officers, employees, or agents of any bank are prohibited from:

(1) Making false entries in any bank report or statement or participating in any fraudulent transaction,
thereby affecting the financial interest of, or causing damage to, the bank or any person;

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(2) Without order of a court of competent jurisdiction, disclosing 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;

(3) Accepting 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;

(4) Overvaluing or aiding the overvaluing of any security for the purpose of influencing in any way the
actions of the bank or any bank; or

(5) Outsourcing inherent banking functions.[38]

iii. Outsourcing per BSP Circular 268 (2000)

Section 2.1 Outsourcing of inherent banking functions shall refer to any

contract between the bank and a service provider for the la er to supply the manpower to service the
deposit transactions of the former.

Section 2.2 Banks cannot outsource management functions except as may be authorized by the Monetary
Board when circumstances justify.

Section 3. Outsourcing of Information Technology Systems/Processes. Subject to prior approval of the

MB, banks may outsource all information technology systems and processes except for functions
excluded in Section 3.1.

Section 3.1 Functions affecting the ability of the bank to ensure the fit of

technology services deployed to meet its strategic and business objectives

and to comply with all pertinent banking laws and regulations may not be outsourced. Subject to prior
approval of the MB, consultants and/or service providers may be engaged to provide assistance/support.

Section 4. Outsourcing of Other Banking Functions.

Section 4.1 Subject to prior approval of the MB, banks may outsource data

imaging, storage, retrieval and other related systems; clearing and processing of checks not included in
the Philippine Clearing House System; printing of bank deposit statements.

Section 4.2. Banks may outsource credit card services; printing of bank

loan statements and other non-deposit records, bank forms and promotional materials; credit
investigation and collection; processing of export, import and other trading transactions; transfer agent
services for debt and equity securities; property appraisal; property management services; messenger,
courier and postal services; security guard services; vehicle service contracts; janitorial services.

Section 5. Service Providers. When allowed by law and under this circular,

banks may enter into outsourcing contracts only with service providers with demonstrable technical and
financial capability commensurate to the services to be rendered.

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1. Prohibited Transactions of Borrowers of Bank: borrowers of banks are prohibited from –

2. Fraudulently overvaluing property offered as security for a loan or other credit accommodation from
the bank;
3. Furnishing false or misrepresenting or suppressing material facts for the purpose of obtaining,
renewing, or increasing a loan or other credit accommodation or extending the period thereof;
4. A empting to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
5. Offering 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.[39]

3. Ownership of Banks
4. Foreign Ownership[40]

As to their stockholdings, foreign individuals and non-bank corporations may own or control up
to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and
domestic non-bank corporations.

The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the
individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of
incorporation.

NB: Foreign banks are not subject to the 40% limitation prescribed under Sec. 11 of the GBL. R.A. 7721
prescribes 60% are the maximum foreign bank equity. Sec. 73 of the GBL also allows the acquisition
beyond the 60% limit within a period of seven years from the effectivity of the GBL.

1. Filipino Stockholdings

Section 11 of the GBL applies to Filipinos and domestic non-bank corporations.

NB: The restriction applies on foreigners in terms of their total equity participation, while it applies to
individual equity participation to Filipinos and non-bank corporations.

1. Stockholdings of Family Groups and related interests

There is no prohibition against stockholding of family groups or related interests. What GBL
imposes is that stockholdings of individuals related to each other within the fourth degree of
consanguinity or affinity, legitimate or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such an individual with the bank.[41]

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In addition, two or more corporations owned or controlled by the same family group or same group of
persons shall be considered related interests and must be fully disclosed in all transactions by such
corporations or related groups of persons with the bank.

4. Directors and Officers

1. Composition of Board

Section 15 of the GBL provides for the composition of the BOD: “there shall be at least five (5),
and a maximum of fifteen (15) members of the board of directors of bank, two (2) of whom shall be
independent directors.

An “independent director” shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n)

Non-Filipino citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721)

Section 19 of GBL imposes a prohibition on public officials, such that no appointive or elective public
official, whether full-time or part-time shall at the same time serve as officer of any private bank, save in
cases where such service is incident to financial assistance provided by the government or a
government-owned or controlled corporation to the bank or unless otherwise provided under existing
laws.

1. Meetings

Section 15 of the GBL also provides that the meetings of the board of directors may be conducted
through modern technologies such as, but not limited to, teleconferencing and video-conferencing.

1. Qualifications

Section 16 of the GBL provides the “Fit and Proper Rule” which states that “to maintain the
quality of bank management and afford be er protection to depositors and the public in general, the
Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found unfit.”

“After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or
remove any bank director or officer who commits or omits an act which render him unfit for the
position.”

“In determining whether an individual is fit and proper to hold the position of a director or officer of a
bank, regard shall be given to his integrity, experience, education, training, and competence.”

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NB: Sec. 19 of the GBL prohibits appointive or elective public official, whether full-time or part-time,
from serving as officer of any private bank, save in cases where:

1. Such service is incident to financial assistance provided by the government or a GOCC to the bank;
2. Unless otherwise provided in the Rural Banks Act; or
3. Unless otherwise provided under existing laws.

5. Liquidity and Security

For purposes of maintaining liquidity and security, GBL and the New Central Bank Act provide
regulations relating to loans and other ma ers:

1. The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to
its total risk assets which may include contingent accounts.[42]
2. The law imposes limits on loans, credit accommodations and quarantees that may be extended by
banks.
3. Limitation is placed on bank’s exposure to DORSI.[43]
4. The law imposes restrictions on the value of collaterals on loans.
5. The law may provide for restrictions on unsecured loans.[44]
6. MB may prescribe maturities and other terms and conditions for various types of loans and
accommodations.[45]
7. The law prescribes restrictions on dividend declrations.[46]

6. Ownership of Real Property

1. Section 51 of the GBL provides that “any bank may acquire real estate as shall be necessary for its
own use in the conduct of its business.” However, “the total investment in such real estate and
improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of combined
capital accounts.” It must be noted however that “the equity investment of a bank in another
corporation engaged primarily in real estate shall be considered as part of the bank’s total investment
in real estate, unless otherwise provided by the Monetary Board.”

1. In Section 52, however, of the GBL, a bank may acquire, hold or convey real property under the
following circumstances:
2. Such as shall be mortgaged to it in good faith by way of security for debts;
3. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its
dealings; or

iii. 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.

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Any real property acquired or held under the circumstances enumerated in the above paragraph shall be
disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board.
After said period, the bank may continue to hold the property for its own use, subject to the limitations
of the preceding Section.

7. Trust Operations of Banks

1. Applicable Rules

1. NB: Art 1442 of the Civil Code states that “the principles of the general law of trusts, insofar as they
are not in conflict w/ the Civil Code, the Code of Commerce, the Rules of Court and special laws
(including the GBL) are hereby adopted.”
2. Prudent Man Rule

A trust entity shall administer the funds or property under its custody with the diligence that a prudent
man would exercise in the conduct of an enterprise of a like character and with similar aims.[47]

iii. Self-Dealing Rule

The GBL provides, as a general rule, that no trust entity shall, for the account of the trustor or the
beneficiary of the trust,

1. purchase or acquire property from, or

2. sell, transfer, assign or lend money or property to, or
3. purchase debt instruments of
4. any of the departments, directors, officers, stockholders, or employees of the trust entity
5. relatives within the 1st degree of consanguinity or affinity, or the related interests, of such directors,
officers and stockholders,

Except:

1. the transaction is specifically authorized by the trustor, and

2. the relationship of the trustee and the other party involved in the transaction

is fully disclosed to the trustor or beneficiary of the trust prior to the transaction.[48]

1. Prior Authority

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Only a stock corporation or a person duly authorized by the MB to engage in trust business shall act as a
trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behalf of
others. For purposes of the GBL, such a corporation is referred to as a trust entity.[49]

1. Trust Business

A trust business is any activity resulting from a trustor-trustee relationship (trusteeship) involving the
appointment of a trustee by a trustor for the administration, holding, management of funds and/or
properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called
beneficiaries.[50]

1. Powers

A trust entity, in addition to the general powers incident to corporations, shall have the power to:

1. Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic
and to accept and execute any trust consistent with law;
2. Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the
estate of any minor or other incompetent person, and as receiver and depositary of any moneys paid
into court by parties to any legal proceedings and of property of any kind which may be brought
under the jurisdiction of the court;
3. Act as the executor of any will when it is named the executor thereof;
4. Act as administrator of the estate of any deceased person, with the will annexed, or as administrator
of the estate of any deceased person when there is no will;
5. Accept and execute any trust for the holding, management, and administration of any estate, real or
personal, and the rents, issues and profits thereof; and
6. Establish and manage common trust funds, subject to such rules and regulations as may be
prescribed by the MB.

1. Separation of Trust Business of Banks

Section 87 of the GBL requires that the trust business and all funds, properties or securities received by
any trust entity as executor, administrator, guardian, trustee, receiver, or depositary shall be kept
separate and distinct from the general business including all other funds, properties, and assets of such
trust entity. The accounts of all such funds, properties, or securities shall likewise be kept separate and
distinct from the accounts of the general business of the trust entity

8. Conservatorship

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Section 67 of the GBL provides that the grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the conservator appointed for the bank shall be
governed by the provisions of Section 29 and the last two paragraphs of Section 30 of the New Central
Bank Act: Provided, That this Section shall also apply to conservatorship proceedings of quasi-banks.

1. Grounds

Whenever, on the basis of a report submi ed by the appropriate supervising or examining department,
the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator with such powers as the Monetary Board
shall deem necessary.[51]

1. Powers of Conservatorship[52]
2. Take charge of the assets, liabilities, and the management thereof,
3. Reorganize the management,

iii. Collect all monies and debts due said institution, and

1. Exercise all powers necessary to restore its viability.

9. Receivership and Liquidation

The grounds and procedures for placing a bank under receivership or liquidation, as well as the powers
and duties of the receiver or liquidator appointed for the bank shall be governed by the provisions of
Secs. 30, 31, 32, and 33 of the NCBA: Provided, That the petitioner or plaintiff files with the clerk or judge
of the court in which the action is pending a bond, executed in favor of the BSP, in an amount to be fixed
by the court. This shall also apply to the extent possible to the receivership and liquidation proceedings
of QBs. (Sec. 69)

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Defunct or merged banks[edit]

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CitytrustSavings Bank (acquired by Bank of the Philippine Islands)

Acme Savings Bank(Acquired by the Sy Group of Companies and RenamedBanco De Oro)
Far East Bank and Trust Company(acquired by Bank of the Philippine Islands)
People’s Bank and Trust Company(acquired by Bank of the Philippine Islands)
SolidBank Corporation (acquired by Metropolitan Bank and Trust Co)
G7 Bank
Insular Savings Bank(acquired by Citibank)
International Exchange Bank(acquired by Union Bank of the Philippines)
Insular Bank of Asia and America (Merged withPhilippine Commercial International Bank)
Monte de Piedad Savings Bank(acquired by Keppel Bank)
Mindanao Development Bank(Merged withEquitable Banking Corporation)
Ecology Bank(Merged withEquitable Banking Corporation)
Keppel Bank(acquired by GE Capital Finance)
Philippine Commercial International Bank(merged with Equitable Bank forming Equitable PCI
Bank and now merged with Banco De Oro)
PCIBank Savings (bought by the HSBC Group and renamed HSBC Savings Bank.)
DBS Bank Philippines Ltd. (acquired by BPI)
Equitable Banking Corporation(merged with PCI Bank forming Equitable PCI Bank and now merged
with BDO)
Prudential Bank(acquired by Bank of the Philippine Islands)
Urban Bank(forced to close then merged with Export and Industry Bank)
Allied Bank(merged with Philippine National Bank)
Banco Filipino
Export and Industry Bank
American Express Bank(Renamed BDO Elite Savings Bank)
Equitable Savings Bank(merged with BDO)
Banco Santander Central Hispano (Philippine subsidiary acquired byBanco De Oro and renamed
BDO Private Bank)
Dao Heng Bank(acquired by Banco de Oro)
1st E Bank(Philippine Branches acquired by Banco de Oro)
United Overseas Bank(66 out of 67 Branches merged with Banco De Oro)
BDO Elite Savings Bank (merged with BDO along with Equitable Savings, Equitable PCI and PCI
Capital Corp)
GE Money Bank(acquired by Banco de Oro)
Green Bank of Caraga(Acquired by East West Bank)
LBC Development Bank
Traders Royal Bank (Acquired by Bank of Commerce)
Capitol Bank (acquired by RCBC, now named as RCBC Savings Bank)
Asianbank (acquired by Metrobank)

[1] Secs. 23-28, GBL

[2] Secs. 29-32, GBL

[3]Ibid., Sec. 71

[4] Sec. 3.1

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[5] Sec. 8

[6] G.R. No. 128703, Oct. 18, 2000

[7] G.R. No. L-20583, Jan. 23, 1967

[8] Central Bank of the Phil. v. C.A., 208 SCRA 652

[9] Simex Internainoal (Manila) Inc. v. C.A., 183 SCRA 361

[10] Sec. 22

[11] Sec. 14

[12] Sec. 6

[13] Sec. 23

[14] Sec. 29

[15] R.A. No. 7353

[16] Sec. 100, R.A. 6938 as amended by R.A. 9520

[17] R.A. 6848

[18] Tang Tiong Tick v. American Aphothecaries, 65 Phil. 414

[19] Guingona v. City Fiscal of Manila, 128 SCRA 577

[20] Fulton Iron Work v. Chinabank, 55 Phil. 208

[21] Gullas v. PNB, 1935

[22] RP v. CA, 1975; Villanueva cites Serrano v. CB, 1980; Ppl v. Ong, 1991

[23] Sec. 33

[24] Metropolitan Bank and Trust Co. v. CA, 1994 and Firestone Tire v. CA, 2001

[25] PCI Bank v. CA, 1997

[26] CA Agro-industrial Dev. Corp. v. CA, 1983

[27] Sec. 33

[28] BSP CIRCULAR 280 (2001)

[29] Sec. 35.1 as increased by BSP Circular 425

[30] Ibid.

[31] Sec. 35.2

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[32] Sec. 36. Such wri en approval shall not be required for loans, other credit accommodations and
advances granted to officers under a fringe benefit plan approved by the BSP.

[33] Sec. 37.

[34] Sec. 38

[35] Sec. 36 par. 6

[36] Sec. 47

[37] Sec. 54

[38] Sec. 55.1

[39] Sec. 55.2

[40] Sec. 11

[41] Sec. 12

[42] Sec. 34

[43] See Sec. 36.

[44] Sec. 41

[45] Sec. 43

[46] Sec. 57

[47] Sec. 80 par. 1

[48] Sec. 80 par. 2

[49] Sec. 79

[50] Sec. X403[a], Manual

[51] Sec. 29, NCBA

[52] Sec. 29, NCBA

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