Law Summary

Chapter I: Title and Definitions

Overview

The Act is titled “The General Banking Act” and regulates banks and banking institutions in the Philippines.

Key Definitions

• Banking Institution: Duly authorized entities engaging in the lending of funds obtained from the public via deposits, bonds, or securities.
• Exemptions: Insurance companies are exempt but must provide information to the Central Bank.

Important Provisions

• Only authorized entities may engage in banking activities.
• Entities occasionally receiving deposits are subject to Central Bank regulation.
• The Monetary Board decides on the banking character of activities.

Penalties

• Violations regarding the use of banking terms without authorization may incur fines of ₱500 per day, with potential subsidiary imprisonment.

Chapter II: Establishment of Domestic Banks

Overview

Domestic banks must be organized as stock corporations, and specific regulations apply to their establishment.

Requirements

• No Par Value Stock: Banking institutions cannot issue stock without par value.
• Certification: Articles of incorporation require a certificate from the Monetary Board confirming compliance with laws and public interest.

Ownership and Governance

• 60% of capital stock must be owned by Filipino citizens.
• Two-thirds of board members must be Filipino citizens.

Chapter III: Licensing of Foreign Banks

Overview

Foreign banks must obtain licenses to operate in the Philippines.

Licensing Requirements

• Foreign banks must have a license from the Securities and Exchange Commissioner.
• The Monetary Board assesses the public interest and solvency of the foreign bank before issuing a license.

Penalties

• Officers conducting unauthorized activities may face imprisonment of 1 to 10 years and fines of ₱1,000 to ₱10,000.

Chapter IV: Commercial Banking Corporations

Overview

Defines commercial banks and outlines their powers and limitations.

Powers and Limitations

• Commercial banks can accept deposits, issue letters of credit, and lend money against various securities.
• Loans on real estate must not exceed 70% of total savings deposits.

Capital Requirements

• Capital accounts must equal at least 15% of total assets.

Liabilities

• Borrowers’ liabilities to banks cannot exceed 15% of unimpaired capital and surplus.

Chapter V: Savings and Mortgage Banks

Overview

Establishes the purpose and operations of savings and mortgage banks.

Operations

• These banks accumulate savings and invest them primarily in secured loans.

Capital Requirements

• Must maintain capital equal to 15% of total assets after deducting certain assets.

Loan Limitations

• Specific types of loans are allowed, including loans for agricultural development and real estate.

Chapter VI: Building and Loan Associations

Overview

Defines building and loan associations and their operational scope.

Operational Guidelines

• Must encourage savings and provide loans secured by real estate.
• Cannot make loans for certain types of properties without Monetary Board approval.

Loan Limitations

• Loans to any one borrower cannot exceed 10% of total assets for associations with assets over ₱100,000.

Chapter VII: Trust Corporations

Overview

Establishes the function and regulations governing trust corporations.

Powers

• Act as trustees, executors, and guardians under court appointment.
• May conduct commercial banking activities, maintaining separation from trust business.

Financial Requirements

• Must deposit a minimum of ₱250,000 with the Central Bank as security for trust duties.

Chapter VIII: Branches and Agencies of Foreign Banks

Overview

Outlines the operational framework for foreign bank branches in the Philippines.

Liability Management

• All branches considered a unit; liabilities must be guaranteed by the head office.
• Monetary Board can require additional capital assignment to meet minimum requirements.

Chapter IX: General Provisions

Overview

Covers general operational rules and restrictions for banking institutions.

Prohibitions

• Banks cannot engage in insurance business or guarantee loans.
• Directors and officers have restrictions on borrowing from their institutions.

Penalties

• Violations may result in fines, imprisonment, or dissolution of corporations.

Chapter X: Final Provisions

Overview

Details the transition of authority to the Central Bank and repeals previous laws.

Transition of Authority

• All regulatory powers previously held by the Bank Commissioner are transferred to the Central Bank.

Repeal of Previous Laws

• Repeals various sections of the Code of Commerce and previous Acts that are inconsistent with the new law.

Key Takeaways

• Regulatory Authority: The Central Bank and Monetary Board are central to regulating banking activities.
• Banking Definition: Clear definitions are provided for what constitutes a banking institution.
• Capital and Ownership: Strict ownership and capital requirements are enforced, particularly for domestic banks.
• Foreign Banks: Foreign banks must comply with specific licensing and operational requirements to protect depositors.
• Penalties: Significant liabilities and penalties are imposed for non-compliance with the Act's provisions.

This summary encapsulates the key elements of Republic Act No. 337, providing a structured overview of its provisions and implications for banking in the Philippines.