Amendment of Philippine National Bank Act

Policy purpose and declared changes

Section 1 authorizes the amendments to explain certain provisions, increase the stability of the institution, and extend its powers.

Creation, corporate powers, domicile

Section 1 creates a bank known as the Philippine National Bank, whose short title is the National Bank.
Section 1 places the National Bank’s principal domicile and place of business in the city of Manila.
Section 2 provides that, upon organization, the National Bank is a body corporate with power:
- To prescribe by-laws.
- To adopt and use a seal.
- To make contracts.
- To sue and be sued.
- To exercise powers granted in the Act and incidental powers necessary to carry on banking business within the Act’s limits.
- To exercise general powers in the Corporation Law to the extent not inconsistent or incompatible with the Act.

Capital structure and subscription payments

Section 3 sets the National Bank’s capital at twenty million pesos (Philippine currency), divided into two hundred thousand shares at par value of one hundred pesos each.
Section 3 fixes the payment schedule for shares subscribed from the passage of the Act until January 31, 1917:
- Sixty per cent at the time of subscription.
- Ten per cent on or before January 31, 1918.
- Ten per cent on or before January 31, 1919.
- Ten per cent on or before January 31, 1920.
- Ten per cent on or before January 31, 1921.
Section 3 directs that shares subscribed after January 31, 1917 must be paid in the form and manner prescribed by the board of directors.
Section 4 requires the Government to purchase one hundred and one thousand shares at par, with payment to be made under Section 5.
Section 4 permits ninety-nine thousand shares to be offered to provincial and municipal governments or the public at a price not below par, as the board of directors determines.
Section 4 vests the voting power of all stock owned and controlled by the Government of the Philippine Islands exclusively in a committee consisting of:
- the Governor-General,
- the President of the Senate, and
- the Speaker of the House of Representatives.

Government funding and transfer from Agricultural Bank

Section 5 appropriates funds from the Insular Treasury not otherwise appropriated for the Government’s purchase payments for one hundred and one thousand shares.
Section 5 directs that the capital and surplus of the Agricultural Bank of the Philippine Islands be applied primarily for the payment.
Section 5 prohibits the Auditor from setting up any sum on the books until necessary to make the authorized payment(s).
Section 6 mandates that all assets and liabilities of the Government Agricultural Bank of the Philippine Islands (created under Act No. 1865, as amended) be transferred to the National Bank.
Section 6 provides that the transfer of assets represented by the capital and net profits shall operate as part payment for the Government’s one hundred and one thousand shares.
Section 6 treats the transfer as taking place upon the National Bank’s inauguration under Section 9, after which:
- the National Bank is subrogated to the Agricultural Bank’s rights, actions, and obligations; and
- the Agricultural Bank is deemed abolished.
Section 7 requires that any loan or credit account transferred from the Agricultural Bank that the National Bank’s board finds upon demand after maturity to be uncollectible shall be redeemed by the Government as to principal and interest, becoming the Government’s property.
Section 7 authorizes renewal of such credits for a period not exceeding five years by agreement between the Insular Treasurer and the National Bank without losing the guaranty benefit.
Section 7 appropriates Insular Treasury funds to make such payments from time to time.

Sale of remaining shares and inauguration

Section 8 restricts public sale of shares: shares must not be sold to the public if doing so would cause the portion of capital stock held by private investors to equal or exceed the portion owned by the Government.
Section 9 requires the National Bank to be inaugurated within one hundred and eighty days from passage of the Act.
Section 9 empowers the Governor-General to fix inauguration by proclamation upon certification by:
- the Insular Auditor, and
- the president of the bank that the institution is ready to begin operations.

Lending powers and loan limitations

Section 10 authorizes real estate mortgage loans not exceeding fifty per cent of the National Bank’s capital and surplus plus amounts realized from the sale of real estate bonds under Sections 12 and 13.
Section 10 limits such real estate mortgage loans:
- secured by first mortgages on farm lands in the Philippines; and
- in no case exceeding sixty per cent of the actual value of the land, including permanent improvements integral to agricultural development.
Section 10 permits mortgages to require the mortgagor to insure buildings and improvements to full value in the National Bank’s name.
Section 10 sets mortgage due date range:
- not less than one year from date of mortgage, and
- not more than thirty years from date of mortgage.
Section 10 allows payment either in one time or installments; if the due date is five years or more, principal and interest must be payable in equal installments of not more than one year each.
Section 10 requires that loans secured by real estate are made for the purpose of promoting agriculture.
Section 10 requires loan applications to be in writing and under oath, containing:
- a detailed description of the real estate,
- an appraisal at reasonable market value, and
- a full statement of the purposes for which the loan is desired.
Section 10 makes it unlawful to use loan proceeds (or any part) for any purpose other than those set out in the application; violation authorizes rescission of the contract and foreclosure.
Section 11 authorizes additional lending activities:
- (A) Purchase or discount promissory notes, drafts, and bills of exchange for agricultural, industrial, or commercial purposes (or proceeds used or to be used for such purposes).
- (B) Loans on, or discounts secured by, harvested and stored crops with a cap of seventy per centum of market value on the loan date.
- (B) Requires insured crops by the mortgagor for the National Bank’s benefit for their entire market value.
- (B) Requires additional security or refund of a part of the loan if crop value diminishes, as the bank deems necessary.
- (B) Sets crop-loan term for three months, subject to up to three months’ extension in the bank’s discretion.
- (C) Installment loans to agriculturists on standing crops not exceeding three-fifths of estimated value of crops (rice, hemp, copra, sugar, tobacco, corn, maguey, etc.), with optional additional real estate mortgages, chattel mortgages (including on live stock, machinery, and implements), or personal bonds with surety satisfactory to the bank.
- (D) Loans to provincial and municipal governments and other Philippine government branches/subdivisions on promissory notes guaranteed by the Central Government, shown by endorsement of the Secretary of Finance approved by the Governor-General, or purchase of bonds lawfully issued by such governments and subdivisions.
- (E) Advances or discounts for agricultural, manufacturing, industrial, or commercial purposes with maturities not exceeding one year, renewable from year to year in the bank’s discretion.

Real estate bonds and redemption mechanics

Section 12 authorizes real estate bond issuance in any sum not to exceed ninety per cent of the amount of real estate loans held by the bank under Section 10.
Section 12 requires bonds to be:
- engraved,
- signed by the bank president,
- authenticated by the Insular Auditor,
- binding the bank to pay principal on the named date with interest payable semiannually at a rate fixed by the board of directors.
Section 12 mandates bond payment in gold coin of the United States for bondholders, with an option for holders resident in the Philippines to receive lawful money of the Philippine Islands or gold coin of the United States at the bank’s option.
Section 12 limits outstanding real estate bonds falling due on any date: they must never exceed the real estate notes under Section 10 falling due on that same date or earlier.
Section 12 makes bonds receivable by the Insurance Commissioner under Section 178 of Act No. 2427.
Section 12 makes bonds receivable as security in customs and internal revenue transactions where security is required, and in all cases where statute requires security in dealings with the Government.
Section 12 exempts the bonds from all taxes levied or assessed by the Government of the Philippine Islands or its departments/subdivisions.
Section 12 requires the related real estate farm securities against which bonds are issued to be deposited with the Treasurer of the Philippine Islands, and bonds must bear on their face the Treasurer’s certificate in the prescribed form.
Section 12 protects outstanding bonds from later changes: changes in Act or later laws do not affect bonds outstanding when the changes occur, nor holders’ rights.
Section 12 sets payment place: principal and interest are payable in Manila or New York at the option of the holder, except as later provided.
Section 13 provides that board resolutions determine bond amounts, form, times, and periods of issuance.
Section 13 requires bonds to be redeemable at par on or before maturity and subject to redemption by lot on the bank-designated date.
Section 13 mandates a premium redemption rule for bonds chosen by lot that have not been outstanding for at least three-fourths of the period issued: such bonds must be retired with a premium of five per centum of par.
Section 13 states redemption consequences:
- selected bonds stop bearing interest beginning on the withdrawal date; and
- selection by lot must occur at least one hundred days before withdrawal.
Section 13 requires publication and notification:
- serial numbers must be published for not less than three months in two daily newspapers of general circulation in the Philippine Islands; and
- notification must be given by the Bureau of Insular Affairs at least three months before redemption.
Section 14 authorizes the board, at the holder’s request, to authorize payment of interest on any bond at the bank’s branches/agencies in Philippine municipalities or in the United States.

Circulating notes: limits and backing

Section 15 authorizes the National Bank to issue circulating notes.
Section 15 caps total circulating notes: they must never exceed the paid-up capital stock and surplus plus the amount of gold coin of the United States held in the bank’s vaults or ordered to Treasury of the Philippine Islands, or held in specified United States solvent banks or a Federal Reserve Bank.
Section 15 declares that securities described in Section 11, subsection (A) and the proceeds thereof must be held inviolable for payment and redemption of circulating notes.
Section 15 makes circulating notes payable on demand to the bearer in lawful money of the Philippine Islands.
Section 15 requires the bank at all times to hold at least thirty-three and one-third per cent of total circulating notes issued and outstanding and not covered by gold coin, measured in lawful money of the Philippine Islands.
Section 15 restricts the required sum to use only for redeeming circulating notes.
Section 15 additionally authorizes circulating notes issued against gold coin up to the full value of the gold coin, with the gold coin restricted to redemption use only.
Section 15 gives the bank the privilege to redeem such notes in lawful money of the Philippine Islands.
Section 15 exempts circulating notes from all taxes levied or assessed by the Philippine Government or its departments/subdivisions.
Section 15 requires the circulating notes to be receivable by the Philippine Government in payment of all taxes, dues, or other claims due or owing to the Government, and to be redeemed on demand in lawful money at the Central Office in Manila.

Deposits and deposit interest ceiling

Section 16 authorizes the National Bank to receive deposits of:
- funds of the Insular Government,
- the provinces and municipalities,
- the Postal Savings Bank,
- associations and corporations, and
- private persons.
Section 16 makes it obligatory for Insular, provincial, and municipal governments to make their deposits in the National Bank.
Section 16 sets an interest ceiling on deposits: the bank’s interest shall not exceed four per centum per annum.
Section 16 authorizes the Secretary of Finance, when in the public interest, to cause public funds deposits in other legally authorized banks or institutions, under terms and conditions the Secretary determines.

Governance: board, appointment, terms, compensation

Section 17 establishes a board of directors consisting of:
- the president (chief executive and board chairman),
- one vice-president,
- five members elected under applicable rules.
Section 17 empowers the president:
- to make loans on commercial paper not exceeding four months and not exceeding fifty thousand pesos in any one case, while requiring reporting of each such loan to the board at its next session;
- to make contracts with board advice and consent;
- to report weekly to the board main facts about operations during the preceding week and suggest changes in rates of discount, exchange, or policy; and
- to furnish information upon request of the Secretary of Finance or the Governor-General about bank operations.
Section 18 provides that the president is appointed by the Governor-General with the consent of the Philippine Senate, removable for cause by the same procedure.
Section 18 provides the vice-president is appointed and removable under the same Governor-General with Senate consent procedure.
Section 18 provides that the five remaining directors are elected and may be removed in accordance with Act Numbered Fourteen hundred and fifty-nine (Corporation Law).
Section 18 allows the president, with board authorization, to delegate duties/functions to any bank officer.
Section 19 requires other officers and employees be appointed and removed by the president, with a board approval requirement for those receiving more than two thousand pesos per annum.
Section 19 removes officers/employees from coverage of the Civil Service Law, and fixes duties and compensations by the president with board approval.
Section 19 authorizes additional compensation for president/vice-president when performing other officers’ duties only after a board resolution, but that resolution takes effect only after written approval by the Governor-General and the presiding officers of both Houses of the Philippine Legislature; board orders may be modified or repealed only with the same approvals each time.
Section 20 requires the president, before assuming office, to furnish a bond of not less than two hundred and fifty thousand pesos.
Section 20 requires the vice-president to furnish bond of one hundred thousand pesos for faithful performance.
Section 21 requires officers and employees, as required by the board, to furnish fidelity bonds in forms/amounts prescribed by the board.
Section 21 deems bonded officers/employees public officers/employees for the limited purpose of applying Act Numbered Twenty-four hundred and thirty-six (fidelity fund).
Section 27 sets tenure and compensation:
- president term: six years, salary twenty-four thousand pesos per year;
- vice-president term: six years, salary twelve thousand pesos per year, but receives president salary when acting in the president’s stead;
- five elected board members: one-year term and per diems of twenty pesos for each meeting actually attended.
Section 28 requires stockholders to meet on the first Tuesday after the first Monday in March each year to elect the five directors.
Section 28 provides voting entitlement: each stockholder or authorized proxy has votes equal to shares registered in the name as of January 31 immediately preceding, owned on the election date.

Supervision, audit, inspection, and confidentiality

Section 23 makes the Insular Auditor ex officio auditor of the National Bank.
Section 23 requires the Insular Auditor to examine the bank books and report at least once each year to the Governor-General through the Secretary of Finance and to the board.
Section 23 provides that the bank reimburses the cost of examination and report.
Section 24 subjects the National Bank to inspection by the Insular Treasurer for solvency under manner provided by law.
Section 25 prohibits the Secretary of Finance, Insular Treasurer, and Insular Auditor from owning any National Bank stock or becoming indebted to the National Bank directly or indirectly in any sum.
Section 26 prohibits inspection/investigation officers from revealing inspection details or information on custodial funds, current accounts, or deposits of private individuals/corporations/entities, except to the Governor-General, the Secretary of Finance, and the board of directors, or by order of a court of competent jurisdiction.
Section 22 designates the Attorney-General as attorney for the National Bank and authorizes delegation to the fiscal of the city of Manila or any provincial fiscal in specific cases, subject to board power to employ additional attorneys.

Branches, agencies, and reporting

Section 30 authorizes establishing branches or agencies in the United States of America and other countries at board-determined points.
Section 30 assigns those agencies functions to receive/transmit/disburse:
- Philippine Government funds payable in the United States,
- United States Government funds placed on deposit with or entrusted to them,
- funds of individuals/firms/companies/corporations doing business with the Philippines or having interests therein,
- and business permitted by U.S. law with the Federal Reserve Bank of the district, including deposit and discount business if permitted by U.S. law and under board instructions.
Section 31 authorizes branch banks in provincial capitals and municipalities where board judgment finds required by industrial, commercial, or agricultural movement.
Section 31 provides that branch agents/officers/employees are appointed and removed under Section 19 and must furnish bond fixed by the board.
Section 31 authorizes, with prior authorization of the Secretary of the Interior, the appointment of provincial or municipal treasurers as agents/cashiers/tellers, requiring them to furnish bond and receive additional compensation determined by the bank.
Section 31 provides treasurer-removal grounds and authority: such appointees are removable both as bank agents/cashiers/tellers and as provincial/municipal treasurers by the Governor-General for violation of the Act/by-laws or instructions from the bank.
Section 32 authorizes branch banks to exercise powers conferred by the board.
Section 33 requires branch banks to:
- make detailed daily reports of transactions to the Central Office in Manila; and
- submit to periodic examination by an examiner designated by the board.

Loan transfer, prohibited insider lending, and real estate

Section 34 allows the National Bank to take over and extend on just terms for up to five years the loans outstanding at the time of passage held by private banks with government funds deposited in those banks, but:
- the loans taken over must not exceed one million five hundred thousand pesos; and
- such loans are not subject to restrictions elsewhere in the Act concerning the amount of capital used for specific purposes in that case.
Section 34 imposes a duty on the Insular Treasurer to keep on deposit with the National Bank a sum equivalent to the total taken-over loans for a time not exceeding five years.
Section 35 prohibits the National Bank from granting loans:
- to members of the board of directors; or
- to agents of the branch banks.
Section 36 authorizes the bank to purchase and own real estate necessary for carrying on its business and to hold real estate acquired in collection of debts.
Section 36 requires sale of real estate acquired in collection of debts within five years from acquisition.
Section 37 authorizes the bank to erect bonded warehouses for depositing pledged goods in provincial capitals or municipalities where commercial/industrial/agricultural importance requires it.

Foreclosure remedies, redemption rights, and collateral sales

Section 38 grants the mortgagor a right to redeem within one year after sale of real estate from foreclosure by paying the amount fixed by the court in the order of execution, with interest at the rate specified in the mortgage, plus all costs and judicial expenses incurred by the bank for execution/sale and custody.
Section 39 authorizes the bank, when specified securities decline/depreciate, when promises securing loans/discounts are not performed, when liabilities under loans/discounts are not paid, or when bills of exchange/notes/checks are dishonored, to:
- demand additional securities, or
- declare obligations due and payable.
Section 39 allows the bank to sell/assign/transfer/deliver the whole or parts of securities or substitutes/additions/other securities/property in its possession for safekeeping, at a brokers’ board or public/private sale, at the bank’s option, without demand/advertisement/notice of any kind.
Section 39 permits the bank at public sale to itself purchase the whole or part, free from the mortgagor/pledgor’s right of redemption.
Section 39 directs application of net proceeds after collection/sale/delivery costs to pay one or more or any/all liabilities to the bank as the president deems proper, with proper rebate for interest on liabilities not then due, and return of any surplus to the mortgagor/pledgor.
Section 39 keeps the mortgagor/pledgor liable for any deficiency after such sale.
Section 40 provides that if sale proceeds do not cover the full loan amount with interest/other charges, the bank may proceed against the debtor for the difference; excess beyond full indebtedness must be paid to the debtor.

Prohibited conduct, forged instruments, fees, profits, and accounting

Section 41 makes Act No. 1754 and its amendments applicable to violations involving making/causing to be made and circulating/causing to be circulated forged notes and bonds in imitation of those of the National Bank.
Section 42 prohibits charging fees or commissions of any kind for obtaining loans.
Section 42 punishes any officer/employee/agent exacting, demanding, or receiving any fee for obtaining a loan or for using influence to obtain a loan under the Act’s penalty scheme.
Section 43 directs profit distribution after deduction of administration expenses:
- 50% of net profits/gains to a reserve for creation and maintenance; and
- remaining 50% distributed among stockholders as dividends.
Section 43 caps dividends: dividends distributed in any calendar year must not exceed 12% of paid-up capital.
Section 43 provides that if there is surplus after reserve and dividend provisions, the surplus transfers to undivided profits.
Section 44 requires dividends assigned as dividends to the shares of the Government be paid into the Insular Treasury for general funds.
Section 50 imposes a liquidity/retention requirement: the bank must keep in its vaults or with the Insular Treasury a sum in lawful money computed as:
- 33 1/3% of circulating notes outstanding not covered by gold coin as provided under Section 15 (as amended by this Act),
- 25% of demand deposits outstanding credited on its books, except specified funds deposited with solvent banks in the United States and secured by securities approved by the Insular Treasurer or deposited with solvent banks approved by the Insular Treasurer,
- 10% of certificates of fixed deposit maturing within one year from computation date, or 66 2/3% of those maturing within thirty days,
- with additional allowance: if funds subject to check with National Banks or Federal Reserve Banks of the United States exist, such funds may count toward the 25% and 10% portions up to a sum to be fixed from time to time by the Secretary of Finance with approval of the Governor-General.

Guaranteed industrial bonds

Section 51 authorizes the National Bank to guarantee bonds issued by duly incorporated companies for the erection of and addition to industrial plants or manufactories principally used for manufacture and preparation of products of the Philippines, covering principal and interest (or either).
Section 51 conditions the guarantee on approval by a committee composed of:
- the Governor-General, and
- the Presiding Officers of the two Houses of the Philippine Legislature.
Section 51 authorizes, subject to the same approval, the National Bank to purchase bonds issued by such companies engaged in manufacture or preparation of Philippine products.
Section 51 requires purchased bonds to be secured by a first mortgage or deed of trust on the company’s property.
Section 51 limits security coverage: the face value of the bonds secured by such mortgage or deed of trust must not exceed 60% of the fair value of the property securing the bonds.
Section 51 defines allowable secured property: land, buildings, machinery, and equipment of the company in the Philippines.

National character restriction and penalties

Section 46 prohibits banks not organized and transacting business under a charter granted by the Philippine Legislature expressly exempting them from the restrictions and penalties of this section, and also prohibits persons/corporations doing the business of bankers, brokers