QuestionsQuestions (FED PNP CIRCULAR NO. 10)
The Act is titled “The General Banking Law of 2000.” It declares that banks have a vital role in the national economy and that banking is fiduciary in nature, requiring high standards of integrity and performance, to maintain a stable, efficient, and globally competitive banking and financial system.
“Banks” are entities engaged in lending funds obtained in the form of deposits. Banks are classified into: (1) Universal banks, (2) Commercial banks, (3) Thrift banks (including savings and mortgage banks, stock savings and loan associations, and private development banks under RA 7906), (4) Rural banks (under RA 7353), (5) Cooperative banks (under RA 6870), (6) Islamic banks (under RA 6848), and (7) other classifications as determined by the Monetary Board.
Supervision includes issuance of rules/standards, examinations to determine compliance, overseeing compliance, regular investigation (not more than once a year from the last examination), inquiry into solvency and liquidity, and enforcing prompt corrective action. It also gives Bangko Sentral supervision over quasi-banks, trust entities, and other supervised financial institutions under special laws.
Quasi-banks are entities engaged in borrowing of funds through the issuance/endorsement/assignment with recourse or acceptance of deposit substitutes (as defined in the New Central Bank Act) for purposes of relending or purchasing receivables and other obligations.
No person or entity may engage in banking operations or quasi-banking functions without authority from the Bangko Sentral. The Monetary Board determines whether a person/entity is performing these functions without authority, including by examination of books and records. Authority allows commencement unless later surrendered, revoked, suspended, or annulled.
During examination of a bank, Bangko Sentral may examine an enterprise that is wholly or majority-owned or controlled by the bank.
Conditions include: (1) the entity is a stock corporation; (2) its funds are obtained from the public—meaning 20 or more persons; and (3) it satisfies the minimum capital requirements prescribed by the Monetary Board.
Yes. No new commercial bank shall be established within three (3) years from the effectivity of RA 8791. The Monetary Board must consider capability in financial resources, technical expertise, integrity, and the bank licensing process includes assessment of ownership structure, directors/senior management, operating plan and internal controls, and projected financial condition and capital base.
Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. This applies to Filipinos and domestic non-bank corporations as well. The effective foreign-voting percentage depends on the citizenship of individual stockholders, and corporate citizenship follows the citizenship of controlling stockholders.
Stockholdings of individuals related within the fourth degree of consanguinity or affinity (legitimate or common-law) must be fully disclosed in transactions with the bank. Two or more corporations owned or controlled by the same family groups or persons are considered related interests and must likewise be fully disclosed in transactions.
A bank’s board must have at least five (5) and not more than fifteen (15) members, with two (2) independent directors. An independent director is one who is not an officer/employee of the bank, its subsidiaries/affiliates, or related interests.
The Monetary Board prescribes, reviews, and disqualifies individuals elected/appointed as directors or officers. After due notice, it may disqualify, suspend, or remove any director/officer who commits or omits an act that renders them unfit. It considers integrity, experience, education/training, and competence.
Except as the Monetary Board may otherwise prescribe, total loans/credit accommodations/guarantees to any person or entity must not exceed 20% of the bank’s net worth at any time. The limit may increase by additional 10% if the additional liabilities are adequately secured by trust receipts, shipping documents, warehouse receipts, or similar documents covering readily marketable, non-perishable goods with full insurance.
Excluded are: (a) loans secured by obligations of Bangko Sentral or Philippine Government; (b) loans fully guaranteed by the government as to principal and interest; (c) loans covered by assignment of deposits maintained in the lending bank and held in the Philippines; (d) letters of credit to the extent covered by margin deposits; and (e) other loans the Monetary Board specifies as non-risk items.
Directors/officers cannot borrow from the bank or become guarantors/indorsers/sureties for loans from the bank to others, nor incur contractual liability to the bank, except with written approval of a majority of all directors excluding the concerned director. Dealings must be on terms not less favorable than those offered to others. The Monetary Board may regulate limits; outstanding loans to each stockholder/director/officer and related interests are limited to the amount equivalent to their unencumbered deposits and book value of paid-in capital contribution, excluding loans secured by assets deemed non-risk by the Monetary Board. The limits do not apply to cooperative banks’ loans to cooperative shareholders.
Loans/credit accommodations against real estate cannot exceed: (1) 75% of the appraised value of the real estate security, plus (2) 60% of the appraised value of insured improvements.
After foreclosure (judicial or extrajudicial), the mortgagor/debtor may redeem within one year by paying the amount due under the mortgage deed with interest as specified and all bank costs/expenses from sale and custody minus income derived. The purchaser may take possession immediately upon confirmation of the sale, but redemption rights remain effective. Petitions to enjoin foreclosure require a bond conditioned to pay damages the bank may suffer. Juridical persons in extrajudicial foreclosure have redemption rights until but not after registration of the foreclosure sale certificate with the Register of Deeds, within three (3) months from foreclosure, whichever is earlier.