GENERAL BANKING LAW OF 2000 (Republic Act No.

8791)
Course Outline by Atty. W. Francis G. Borja

I.

TITLE AND CLASSIFICATION OF BANKS A. Section 1. Title The General Banking Law of 2000 Section 2. Declaration of Policy 1) Vital role of banks in providing an environment conducive to the sustained development of the national economy; 2) Fiduciary nature of banks (based on strict confidence) that requires high standards of integrity and performance); 3) Degree of diligence required of banks Cases: PCIBank vs. CA (350 SCRA 446 [2001]) BPI vs. CA (326 SCRA 641 [2000]) Phil. Bank of Commerce vs. CA (269 SCRA 695 [1997]) Simex Intl vs. CA (183 SCRA 408 [183 SCRA 408]) Devt. Bank vs. CA (331 SCRA 267) [2000]) Canlas vs. CA (326 SCRA 415 [2000]) Ibaan Rural Bank vs. CA (321 SCRA 88 [2000]) Reyes vs. CA (GR No. 118492, August 15, 2001) C. Section 3. Definition and Classification of Banks 1) Universal Banks 2) Commercial Banks Thrift Banks (Thrift Banks Act RA No. 7906) Savings and mortgage banks Stock savings and loan associations Private development banks Rural Banks (Rural Banks Act RA No. 7353) Cooperative Banks (Cooperative Code RA No.6938) Islamic Banks (Charter of Al Amanah Islamic Investment Bank No. 6848)

B.

3)

4) 5) 6) of the Phils. RA

II.

AUTHORITY OF THE BANGKO SENTRAL A. Section 4. Supervisory Powers

1) Issuance of rules of conduct or the establishment of standards of operation for banks; 2) Conduct of examination to determine compliance with laws and regulations; 3) Overseeing to ascertain that laws and regulations are complied with; 4) Regular investigation (not oftener than once a year) to check whether an institution is conducting business on a safe or sound basis; 5) Inquiring into the solvency and liquidity of the institution; and 6) Enforcing prompt corrective action. B. Section 5. Policy Direction; Ratios, Ceilings and Limitations The BSP shall provide policy direction in the areas of: C. D. III. Money; Banking; and Credit Section 6. Authority to Engage in Banking and Quasi-Banking Functions Section 7. Examination by the Bangko Sentral

ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES A. Section 8. Organization Preconditions for the organization of a bank or quasi-bank:

1) 2) 3) satisfied. B. C. D.

Entity must be a stock corporation; Its funds are obtained from the public (20 or more persons); and Minimum capital requirements prescribed by the Monetary Board Section 9. Issuance of Stocks Section 10. Treasury Stocks Section 11. Foreign Stockholdings Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank.

Grandfather Rule

 E. F. G.

Please note liberalization of entry of foreign banks Section 12. Stockholdings of Family Groups or Related Interests Section 13. Corporate Stockholdings Section 14. Certificate of Authority to Register The SEC shall not register the articles of incorporation (AOI) of any bank unless accompanied by a certificate of authority (COA) issued by the Monetary Board after complying with certain requirements. The SEC shall not register the by-laws of any bank unless accompanied by a certificate of authority (COA) from the Bangko Sentral. H. Section 15. Board of Directors Not less than five (5) but not more than fifteen (15) members, two (2) of whom must be independent directors.

Circular) I.

Please note definition of independent directors (CB

Section 16. Fit and Proper Rule Cases: Busuego vs. CA (204 SCRA 473 [1999]) PCIBank vs. CA (350 SCRA 446 [2001]) - liability of banks for torts of officers

J.

Section 17. Directors of Merged or Consolidated Banks -- not to exceed twenty-one (21)

K. L.

Section 18. Compensation and Other Benefits of Directors Section 19. Prohibition on Public Officials No appointive or elective public official, whether full-time or parttime shall at the same time serve as officer of any private bank. EXCEPTION: Service to the bank by the public official is incident to the financial assistance provided by the government or a GOCC to the bank or unless provided by existing laws.

M. N.

Section 20. Bank Branches Section 21. Banking Days and Hours All working days (meaning Mondays to Fridays except if such days are holidays) for at least six (6) hours a day Banks may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day but they must report to the BSP the same.

O.

Section 22. Strikes and Lockouts

Banking industry is hereby declared as indispensable to the national interest. Notwithstanding the provisions of any law to the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the BSP to the Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the NLRC for compulsory arbitration. HOWEVER: The President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same. NOTE: Labor Code Provision (Article 263 [g]) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest, the Secretary of Labor and Employment may assume jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory arbitration. Such assumption or certification shall have the effect of automatically enjoining the intended or impending strike or lockout as specified in the assumption or certification order. If one has already taken place at the time of assumption or certification, all striking or locked out employees shall immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike or lockout. The Secretary of Labor and Employment or the Commission may seek the assistance of law enforcement agencies to ensure the compliance with this provision as well as with such orders as he may issue to enforce the same. IV. DEPOSITS, LOANS AND OTHER OPERATIONS OPERATIONS OF UNIVERSAL BANKS / COMMERCIAL BANKS A. Sections 23-32

PROVISIONS APPLICABLE TO ALL BANKS, QUASI-BANKS AND TRUST ENTITIES B. Section 33. Acceptance of Demand Deposits 4

A bank other than a universal or commercial bank 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. 1. Types of Deposits (a) Time Deposit Interest rate stipulated depending on the number of days which may be 30, 60, 90, 180, 360 or 540 days. During this period, the money deposited cannot be withdrawn (generally). The banks use this money to lend to others. That is why in such accounts, the depositors are paid high interest rates as compensation for the use of the money by the bank. Savings Deposit Interest at, say, 8%. Under the fine prints, if you deposit today, you cannot withdraw the amount not until 60 days later. The bank can lend out such funds; that is why it pays interest on such deposits. Demand Deposits or Current Accounts No interest is paid by the bank because the depositor can take out his funds anytime. It is called demand deposit because the depositor can withdraw the money he deposited on the very same day when he deposited it.

(b)

(c)

2.

Relationship Between Bank and Depositor -- the relationship between the bank and the depositor is that of a debtor (bank) and creditor (depositor): SIMPLE LOAN Cases: Moran vs. CA (230 SCRA 799 [1994]) Serrano vs. Central Bank (96 SCRA 96 [1980]) People vs. Ong (204 SCRA 942 [1991])

3.

Obligation of Banks to Depositors Cases: MetroBank vs. CA (237 SCRA 726 [1994]) PCIBank vs. CA (269 SCRA 695 [1997])

4.

Right of Set-Off on Deposit for Outstanding Loan Cases: BPI vs. CA (232 SCRA 302 [1994])

C. D.

Section 34. Risk-Based Capital Section 35. Limit on Loans, Credit Accommodations and Guarantees 1. Concept of Single Borrowers Limit (SBL) 20% of net worth of the bank PROVIDED: May be increased by an additional 10% if 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. 2. Please check BSP Manual of Regulations For SBL purposes, loans, other credit accommodations and guarantees shall exclude the following: Secured by obligations of the BSP or of the Philippine Government; Fully guaranteed by the government as to the payment of principal and interest; Covered by assignment of deposits maintained in the lending bank and held in the Philippines; Under letters of credit to the extent covered by margin deposits; and Those which the Monetary Board may, from time to time, specify as non-risk items (Sec. 35.5, GBL)

E.

Section 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests (DOSRI). To be discussed separately

F. Estate

Section 37. Loans and Other Credit Accommodations Against Real Shall not exceed 75% of the appraised value of the respective real estate security, plus 60% of the appraised value of the insured improvements.

G.

Section 38. Loans and Other Credit Accommodations on Security of Chattels and Intangible Properties

 H.

Shall not exceed 75% of the appraised value of the security and Purpose of Loans and Other Credit

Section 39. Grant Accommodations

The purpose of the loan/credit accommodation shall be stated in the application and in the contract between the bank and the borrower. If proceeds applied to other purposes without banks consent, bank shall have the right to terminate the loan/credit accommodation and demand immediate repayment of the obligation.

I.

Section 40. Requirements for Grant of Loans or Other Credit Accommodations Bank may demand from client: 1) statement of assets and liabilities; 2) income statement and expenditures; 3) financial statements submitted to the BIR for taxation purposes. Note KYC Principle and AMLA

J. K.

Section 41. Unsecured Loans or Other Credit Accommodations Section 42. Other Security Requirements for Bank Credits Cases: Security Bank vs. Cuenca (341 SCRA 781 [2000]) JSS Practice State Investment House vs. CA (G.R. No. 112590, July 12, 2001) -Unconscionable Penalty Charges PNB vs. CA (238 SCRA 20 [1994]) Escalation Clause Almeda vs. CA (256 SCRA 292 [1996]) PNB vs CA (259 SCRA 174 [1996]) Florendo vs. CA (265 SCRA 678 [1996]) Security Bank vs. RTC (263 SCRA 483 [1996])

L. M. N.

Section 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations Section 44. Amortization on Loans and Other Credit Accommodations Section 45. Prepayment of Loans and Other Credit Accommodations A borrower may pre-terminate anytime the unpaid balance of any loan/credit accommodation subject to terms and conditions agreed upon with the bank.

O. P.

Section 46. Development Assistance Incentives Secton 47. Foreclosure of Real Estate Mortgage 7

 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 (1) year (for individual mortgagor) 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 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 extra-judicial 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. SPECIAL RULE ON JURIDICAL MORTGAGOR: 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 three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. prior to registration of COS or three (3) months from auction sale, whichever comes first Case: Union Bank vs. CA (G.R. No. 134068, June 25, 2001)

Q.

Section 48. Renewal or Extension of Loans and Other Credit Accommodations Section 49. Provisions for Losses and Write-Offs

R.

 All debts due to any bank on which interest is past due and unpaid for such period as may be determined by the Monetary Board, unless the same are well-secured and in the process of collection shall be considered bad debts within the meaning of this Section. The Monetary Board may fix, by regulation or by order in a specific case, the amount of reserves for bad debts or doubtful accounts or other contingencies. Writing off of loans, other credit accommodations, advances and other assets shall be subject to regulations issued by the Monetary Board. S. T. U. Claims A bank may acquire, hold or convey real property under the following circumstances: 1) Such as shall be mortgaged to it in good faith by way of security for debts; 2) Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or 3) 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. V. W. X. Section 53. Other banking services Section 54. Prohibition to Act as Insurer Section 55. Prohibited Transactions 1) Prohibited Transactions by Bank Directors and Officers (Sec. 55.1, GBL): No director, officer, employee, or agent of any bank shall:

Please note Section X306.5 of the BSP Manual of Regulations

Section 50. Major Investments Section 51. Ceiling on Investments in Certain Assets Section 52. Acquisition of Real Estate by Way of Satisfaction of

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 9

bank belonging to private individuals, corporations, or any other entity. PROVIDED: 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 Outsource inherent banking functions. CB Circular 268 (December 5, 2000)

2)

Upholding Secrecy of Bank Deposit Act (Sec. 55.4, GBL) Consistent with the provisions of Republic Act No. 1405, otherwise known as the Bank 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.

Y. Z. AA. BB. CC. DD. EE.

Section 56. Conducting Business in an Unsafe or Unsound Manner Section 57. Prohibition on Dividend Declaration Section 58. Independent Auditor Section 59. Authority to Regulate Electronic Transactions Section 60. Financial Statements Section 61. Publication of Financial Statements Section 62. Publication of Capital Stock Must state the amount of its capital actually paid-up For branches of foreign banks doing business in the Phils., must state also the amount of capital assigned to such branch by the head office

FF. GG. HH.

Section 63. Settlement of Disputes Section 64. Unauthorized Advertisement or Business Representation Section 65. Service Fees 10

II.

Section 66. Penalty for Violation of this Act Shall be subject to Sections 34, 35, 36 and 37 of the New

Central Bank Act V. PLACEMENT UNDER CONSERVATORSHIP A. Section 67. Conservatorship

Governed by Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act VI. CESSATION OF BANKING BUSINESS A. Section 68. Voluntary Liquidation

In case of voluntary liquidation, written notice of such liquidation shall be sent to the Monetary Board who may intervene and take the necessary steps to protect the interests of creditors B. Section 69. Receivership and Involuntary Liquidation Governed by Sections 30, 31, 32 and 33 of the New Central

Bank Act

Petitioner/Plaintiff must file with 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. C. Section 70. Penalty for Transactions After a Bank Becomes Insolvent

Punishable acts of any director/officer of any bank declared insolvent or placed under receivership: (1) (2) (3) (4) (5) (6) Refuses to turn over the banks records and assets to the designated receivers; Tampers with bank records; Appropriates for himself or for another party or destroys or causes the misappropriation and destruction of the banks assets; Receives or permits or causes to be received in said bank any deposit, collection of loans and/or receivables; Pays out or permits or causes to be paid out any funds of said bank; Transfers or permits or causes to be transferred any securities or property of said bank.

Penal provisions of the New Central Bank Act shall apply. 11

VII.

LAWS GOVERNING OTHER TYPES OF BANKS A. Section 71. Other Banking Laws 1) Thrift Banks Thrift Banks Act 2) Rural Banks Rural Banks Act 3) Cooperative Banks Cooperative Code But GBL applies (suppletorily) insofar as not inconsistent with these special laws

VIII.

FOREIGN BANKS A. Section 72. Transacting Business in the Philippines Entry of foreign banks in the Phils. is governed by the Foreign Banks Liberalization Act but GBL still applies in a suppletory manner.

B.

Section 73. Acquisition of Voting Stock in a Domestic Bank Monetary Board shall adopt measures to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by banks majority-owned by Filipinos Any right, privilege or incentive granted to a foreign bank under this Section shall be equally enjoyed by banks organized under Phil. laws

C. D.

Section 74. Local Branches of Foreign Banks Section 75. Head Office Guarantee The head office (foreign bank) shall fully guarantee the payment of all liabilities of its Philippine branches

E.

Section 76. Summons and Legal Process Summons and legal process shall be served upon the Philippine agent or head of any foreign bank designated to accept such service.

F. G.

Section 77. Laws Applicable Section 78. Revocation of License of a Foreign Bank Grounds for revocation of license: (1) Insolvency; 12

(2) (3)

Imminent danger of insolvency; and Continuance in business will involve probable loss to those transacting business with the foreign bank

IX.

TRUST OPERATIONS (Sections 79-93) Separation of Trust Business from General Business o The trust business and all funds, properties or securities received by any trust entity as executor, administrator or 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 account 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 (Section 87, GBL).

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