REGULATION OF

COMMERCIAL
BANKS
THE GENERAL BANKING LAW
OF 2000
(RA 8791)
CONCEPT OF GENERAL
BANKING ACT
▪ It 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
standard of integrity and performance.
▪ It also promotes and maintains a stable and efficient banking and financial system that is
globally competitive, dynamic and responsive to the demands of a developing economy
OWNERSHIP
▪ Foreign individuals may own or control up to 40% of the voting stock of a domestic 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.
▪ The percentage of foreign-owned voting stocks in a bank shall be determined by the individual
stockholders in that bank.
▪ A corporation in a bank may only own 40% of the bank, except:
▪ A universal bank can own up to 100% of a thrift bank.
▪ A corporation whose shares are listed in the stock exchange (public-listed entities) can own up to 60% of the
bank.
▪ If the corporation is in existence for 10 years, it can own up to 60% of the bank. The privilege can only be
exercised once.
▪ Under Foreign Bank Liberalization Law (RA 7721), the monetary board may authorize foreign banks to
operate in the Philippines.
CLASSIFICATION OF BANKS
UNIVERSAL BANKS
▪ Universal Banks – Primarily governed by the General Banking Law. They can exercise the
powers of an investment house and invest in non-allied enterprises and have the highest
capitalization. Non-allied transaction shall not exceed 25% of the investee.
▪ The powers of universal banks are:
1. Has the authority to exercise the powers of a commercial bank.
2. To act as an investment house (a corporation that sells and guarantees sale of securities and shares of
stocks).
3. To engage in a non-allied undertaking – which is not related to all to banking (e.g., realty)
▪ BSP Circular No. 854, Oct. 9, 2014 prescribes the capitalization:
▪ Head office only – Php 3 Billion
▪ Up to 10 branches – Php 6 Billion
▪ More than 100 branches – Php 20 Billion
COMMERCIAL BANKS
▪ Commercial Banks – Ordinary banks governed by the General Banking Law which have a
lower capitalization requirement than universal banks and can neither exercise the powers of
an investment house not invest in non-allied enterprises.
▪ It also has powers necessary to carry out on the business of commercial banking, however, it
may not invest in non-allied undertakings.
▪ Allied undertakings are those activities or entities which enhance or complement banking.
▪ Prescribed capitalizations are:
▪ Head office only – Php 2 Billion
▪ Up to 10 branches – Php 4 Billion
▪ 11 – 100 branches – Php 10 Billion
▪ More than 100 branches – Php 15 Billion
THRIFT BANKS
▪ Thrift Banks – These are:
a. Savings and mortgage banks
b. Stock savings and loan associations
c. Private development banks
▪ Governed by Thrift Banks Act (RA 7906).
▪ Capitalization:
▪ Head office in NCR: ▪ Head office outside NCR:
▪ Head office only – Php 500 Million ▪ Head office only – Php 200 Million
▪ Up to 10 branches – Php 750 Million ▪ Up to 10 branches – Php 300 Million
▪ 11 to 50 branches – Php 1 Billion ▪ 11 to 50 branches – Php 400 Million
▪ More than 50 branches – Php 2 Billion ▪ More than 50 branches – Php 800 Million
THRIFT BANKS
▪ Can only be stockholder in allied undertakings.
LIMIT ON EQUITY
INVESTMENT
▪ Universal bank – not to exceed 50% of the bank’s net worth.
▪ Commercial and thrift bank – not to exceed 35% of bank’s net worth.
▪ All banks shall not invest on single equity more than 25% of bank’s net worth.
GENERAL POWERS AND
FUNCTIONS OF A BANK
1. Accepting drafts and issuing letters of credit
2. Discounting and negotiating promissory notes, drafts, bills of exchange and other instrument
evidencing debt
3. Accepting or creating demand deposits, receiving other types of deposit and deposit substitutes
4. Buying and selling FOREX and gold or silver bullion
5. Acquiring marketable bonds and other debt securities
6. Extending credit
7. Determination of bonds and other debt securities eligible for investment including maturities and
aggregate amount of such investment, subject to such rules as the Monetary Board may promulgate.
8. And all other powers necessary to carry on the business
QUASI-BANKS AND TRUST
ENTITIES
QUASI-BANK
▪ Quasi-bank are 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.
▪ Quasi-banks do not accept deposits.
TRUST ENTITIES
▪ Trust entities are entities engaged in trust business that act as a trustee or administer any trust
or hold property in trust or on deposit for the use, benefit, or behalf of others
REGULATION ON BANK
ACTIVITIES
STIPULATION ON INTERESTS
▪ The rate of interest is governed by law on obligations and contracts—they can freely stipulate
the percentage of interest.
▪ In the absence of stipulation in writing, the interest payable on any transactions involving
money claims, the imposable interest is 6% per year.
SINGLE BORROWER’S LIMIT
1. The total amount of loans, credit accommodations and guarantees that the bank could grant
should at no time exceed 25% of the bank’s net worth.
2. The total amount of loans, credit accommodations and guarantees may be increased by an
additional 10% of the net worth of such bank provided that additional liabilities are
adequately secured by trust receipt, shipping documents, warehouse receipts and other
similar documents which must be fully covered by an insurance.
3. Loans and other credit accommodations secured by real estate mortgage shall not exceed
75% of the appraised value of the real estate security plus 60% of the appraised value of the
insured improvements. Chattel mortgage (intangible property) such as patents, trademarks,
etc. shall not exceed 75% of the appraised value of the security
SINGLE BORROWER’S LIMIT
4. Loans being contractual, the period of payment may be subject to stipulation by the parties.
In the case of amortization, the amortization schedule has no fixed period as it depends on
the project to be financed such that if it was capable of raising revenues, it should be at least
once a year with a grace period of 3 years if the project to be financed is not that profitable
which could be deferred up to 5 years if the project was not capable of raising revenues.
5. Loans granted to DOSRI:
▪ Director
▪ Officer
▪ Stockholder, having at least 1% ownership over the bank
▪ Related interests, such as DOS’s spouses, their relatives within the first degree whether by
consanguinity or affinity, partnership whereby DOS is a partner or a corporation where DOS owns at
least 20%.
OTHER CLASSIFICATION OF
BANKS
OTHER CLASSIFICATION OF
BANKS
▪ Thrift Banks - These are a) Savings and mortgage banks; b) Stock savings and loan
associations; and c) Private development banks.
▪ Rural Banks - These are mandated to make needed credit available and readily accessible in
the rural areas on reasonable terms.
▪ Cooperative Banks - Banks whose majority shares are owned and controlled by cooperatives
primarily to provide financial and credit services to cooperatives. It shall include cooperative
rural banks.
▪ 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.
ISSUES IN CONSUMER LOANS
▪ Subprime Lender - A finance company that lends to high-risk customers.
▪ Loan Sharks - Subprime lenders that charge unfairly exorbitant rates to desperate, subprime
borrowers (e.g., five-six).
ROLE OF BSP IN BANK’S
FINANCIAL DISTRESS
ROLE OF BSP IN BANK’S
FINANCIAL DISTRESS
Conservatorship Receivership Liquidation
Grounds 1. Continuing inability 1. Inability to pay liabilities as 1. Insolvency
they fall due
to pay liabilities as 2. Assets are less than its liabilities 2. Bank cannot be
they fall due 3. Cannot continue business rehabilitated
without causing damage
2. Unwillingness to 4. Violation of a cease and desist
maintain condition of order
5. “Bank holiday” for more than
liquidity 30 days

Effects 1. Juridical personality 1. Juridical personality 1. Juridical personality

is retained is retained is retained
2. Perfected 2. Suspension of 2. Perfected
transactions cannot operation transactions cannot
be repudiated 3. Assets deemed in be repudiated
custodia legis
PHILIPPINE DEPOSIT
INSURANCE CORPORATION
ACT (RA 3591, AS AMENDED)
PDIC LAW
▪ Insured deposit means the amount due to any depositor for legitimate deposits in an insured
bank net of any obligation of the depositor to the insured bank as of the date of closure, but not
to exceed Php 500,000 or its equivalent in foreign currency.
▪ The deposit liabilities of any bank or banking institution, which is engaged in the business of
receiving deposits shall be insured by the PDIC.
LIABILITY OF PDIC
▪ The liability of PDIC is to the extent of the insured deposit.
▪ Whenever an insured bank shall have been closed by the Monetary Board, payment of the
insured deposits on such closed bank shall be made by the PDIC as soon as possible, either (1)
by cash or (2) by making available to each depositor a transferred deposit in another insured
bank in an amount equal to insured deposit of such depositor.
▪ The determination of insured deposits shall commence upon the PDIC’s actual takeover of the
closed bank (receivership or liquidation).
▪ In determining such amount due to any depositor, there shall be added together all deposits in
the bank maintained in the same right and capacity for his benefits either his own name or in
the name of others.
▪ A joint account regardless of whether the conjunction “and”, “or”, “and/or” is used, shall be
insured separately from any individually-owned deposit accounts.