QuestionsQuestions (Republic Act No. 720)
The short title is “Rural Banks’ Act.” The policy is to promote and expand the rural economy by providing rural communities with accessible credit facilities on reasonable terms and encouraging cooperatives, with government agencies (notably DA, DTI/Commerce and Industry, and others) providing advice on business/farm management and proper use of credit in cooperation with rural banks.
The Monetary Board of the Central Bank of the Philippines.
No. It cannot operate without a Certificate of Authority issued by the Monetary Board. It must be organized as a stock corporation.
Duly established cooperatives may organize rural banks and/or subscribe to the shares of stock of any rural bank.
At least 60% of the capital stock must be owned and held by Philippine citizens, and all members of the Board of Directors must be citizens of the Philippines.
Upon representation of the private shareholders and approval of the Monetary Board, the RFC may subscribe to the rural bank’s capital stock in an amount equal to the fully paid subscribed capital of the private shareholders, paid in full at subscription.
The shares may be sold at any time at par to Philippine citizens. Registered stockholders must be given at least a six-month option to purchase the shares in proportion to their holdings; if no buyer exists, preference is given to residents of the locality or province where the rural bank is located.
Primarily to meet the normal credit needs of small farmers or farm families owning or cultivating (in the aggregate) not more than 50 hectares dedicated to agricultural production, as well as the normal credit needs of cooperatives and small merchants.
A small merchant is one whose capital investment does not exceed PHP 25,000.
Preference is given to farmers whose cash requirements are small. For loans secured by real estate, no Torrens title shall be required.
Within limits and conditions set by the Monetary Board, rural banks may devote a portion of loanable funds to meet the normal credit needs of small business enterprises (capital investment not exceeding PHP 25,000) and essential rural enterprises or industries other than strictly agricultural ones.
Upon certification by the Monetary Board of the need, the RFC may subscribe to capital stock up to an amount equal to but not exceeding the total equity investment of the private shareholders. The shares may be paid off and retired at par if the rural bank accumulates enough capital strength or if private sources offer replacement. RFC preferred shares are preferred only as to assets upon liquidation, without voting power, and share in dividends without preference; if sold to private shareholders, the shares acquire voting rights.
Loans repayable in not more than ten years, with interest at 2% per annum, against securities offered by any stockholder or stockholders of the rural bank that the Monetary Board considers adequate.
The Monetary Board must be convinced (1) the rural bank resources are inadequate to meet legitimate credit needs of the locality, (2) there is dearth of private capital in the locality, and (3) it is not possible for stockholders to increase the rural bank’s paid-up capital.
It includes setting limits on maximum credit per borrower; prescribing interest rates; determining loan periods and loan procedures; indicating technical assistance; imposing uniform accounting and record-keeping; conducting regular credit examinations and audits/test checks; conducting periodic surveys; providing training courses; and generally supervising business operations.
Accept savings and time deposits; open current/checking accounts (when authorized by the Monetary Board); act as correspondent for other financial institutions; act as collection agent; and rediscount paper with the Philippine National Bank, RFC, or other banks/branches, subject to acceptable paper and rediscount rate specified by the Central Bank.
RA 720 penalizes, among others: false entries affecting financial interest or causing damage; disclosure of private funds/properties without court order; accepting gifts/fees/commissions in connection with loan approvals; overvaluing or aiding overvaluation of securities; and acting as guarantor/indorser/surety for bank loans. Borrowers are penalized for misuse/misapplication/diversion of loan proceeds from declared purpose; fraudulently overvaluing security; false/willful misrepresentation of material facts to obtain/renew/increase loans or extend periods; attempting to defraud the bank in court recovery; offering compensation to influence approval; and disposing or encumbering property/crops offered as security.