Law Summary
Regulation of Non-Bank Financial Intermediaries
- Non-bank financial intermediaries (excluding insurance companies) are subject to Monetary Board regulation.
- Regulatory measures may cover minimum fund size, marketing methods, terms and maturities, and fund usage.
- Entities performing quasi-banking functions are subject to further regulation under banking laws.
Classification of Banking Institutions
- Banks are classified into:
- Commercial banks
- Thrift banks (savings and mortgage banks, stock savings and loan associations, private development banks)
- Rural banks
- Specialized government banks (Development Bank of the Philippines, Land Bank) are regulated separately.
- The Monetary Board may define classifications for new banking types.
Establishment of Branches and Offices
- Banks require prior Monetary Board approval to open branches, agencies, or extension offices nationwide.
- This prevails over any contrary law regarding government or private banks.
Issuance of Bank Stocks
- Banking institutions are prohibited from issuing no-par value stock.
- The Monetary Board regulates stock types, terms, and rights to ensure equity permanence.
Ownership and Equity Restrictions
- Corporations primarily owning equity in thrift or rural banks may own majority shares with Monetary Board approval.
- Guidelines control such investments and require compliance with ownership limits on individuals and groups.
- Parent companies owning banks must not engage in activities prohibited to the invested bank.
Equity Investment Limitations
- The Monetary Board may limit equity investments in banks and non-bank quasi-banking intermediaries to promote market competition.
Board of Directors Citizenship and Public Officials
- At least two-thirds of bank directors must be Filipino citizens.
- Public officials cannot simultaneously serve as bank officers, except when related to government financial assistance.
- In bank mergers, director limits can be temporarily exceeded to include directors from merging entities.
Foreign Bank Investments
- Foreign banks without Philippine branches may invest in local financial companies with Monetary Board approval but must maintain minority ownership.
- Investments in domestic banks by foreign entities are subject to limits ensuring minority holdings.
- International financial organizations of which the Philippines is a member are exempted.
Commercial Bank Powers and Investments
- Commercial banks may perform banking operations including accepting deposits, issuing credits, discounting notes, and foreign exchange dealings.
- Permitted to invest in readily marketable bonds and debt securities under Monetary Board rules.
Equity Investments by Commercial Banks
- Allowed to invest in allied undertakings (e.g., warehousing, leasing, mutual fund management) with the following limits:
- Total equity investments not exceeding 25% of net worth.
- Maximum 15% net worth investment per enterprise.
- Investments must remain minority holdings unless otherwise provided.
- Investments in other banks deducted from net worth for regulatory calculations.
Expanded Commercial Banking Authority
- Monetary Board may authorize banks to operate with expanded powers including investment house functions and non-allied equity investments.
- Investment limits under expanded authority include:
- Up to 50% of net worth in equities.
- 15% net worth limit per enterprise.
- 35% equity and voting stock limit in a single non-allied enterprise.
- Investments subject to bank capability and past performance.
- Central Bank may examine wholly or majority-owned subsidiaries.
- Restrictions on concentration of economic power apply.
Capital Adequacy and Risk Asset Ratio
- Banks must maintain combined capital accounts of at least 10% of risk assets with specified deductions.
- Monetary Board may lower minimum ratio to no less than 5%, applied uniformly.
- Deficient capital requires profit retention and investment restrictions until compliance.
- Temporary relief may be granted in mergers or consolidations.
Single Borrower Loan Limits
- Loans to any borrower shall not exceed 15% of the bank’s unimpaired capital and surplus, excluding secured loans.
- Additional 15% possible if adequately secured by insured, marketable staples.
- Definition of liabilities includes direct and indirect obligations, and those involving related entities.
- Loan accommodations among banks are subject to the same limits.
Savings and Mortgage Banks Activities and Investments
- Authorized to accumulate savings and invest in bonds, commercial papers, account receivables, loans secured by real estate or personal property, and home financing.
- May issue domestic letters of credit.
- Permitted to lend money secured by jewelry and precious stones with regulation.
- Can invest in allied undertakings similar to commercial banks but with specified investment limits.
- May issue mortgage and chattel mortgage certificates for financing purposes.
Loan Security and Foreclosure Provisions
- Loans against real estate must not exceed 70% of appraised value plus improvements.
- Title must be held by mortgagor.
- Mortgagors have a one-year redemption right after foreclosure sales.
- Loans on chattel security must not exceed 50% of appraised value.
- Monetary Board may adjust security requirements and loan maturities.
Effective Date
- The amendments take effect upon approval.