Key definitions and covered institutions
- Section 3(a) defines “Savings and loan association” as a corporation engaged in accumulating members’ or stockholders’ savings and using those accumulations, together with its capital (in stock corporations), for loans and/or investment in securities of productive enterprises or in government securities and those of political subdivisions, instrumentalities, or corporations.
- Section 3(b) defines the “Monetary Board” as the Monetary Board of the Central Bank of the Philippines.
- Section 3(c) defines the “Central Bank” as the Central Bank of the Philippines.
Organization forms and mandatory limits
- Section 4(a) requires a savings and loan association to be organized either as a stock or non-stock corporation.
- Section 4(b) sets the minimum fully paid-up capital for a stock corporation at PHP 100,000 and authorizes it to receive deposits from and extend loans to the general public.
- Section 4(b) allows conversion of a non-stock corporation operating for at least three years into a stock corporation with paid-up capital of PHP 50,000.
- Section 4(c) requires non-stock associations to confine membership to a well-defined group and to transact business only with member-depositors: deposits accepted only from members and loans granted only to those member-depositors.
- Section 4(d) prohibits charging any entrance fees of any kind without prior approval of the Monetary Board.
- Section 4(d) limits total entrance fees in all cases to 1% of the amount deposited, contributed, or otherwise paid in by the particular shareholder, stockholder, or member.
Powers granted and restrictions imposed
Section 5 requires savings and loan associations to be incorporated under the Corporation Law and to exercise additional powers listed in the Act whenever applicable.
Section 5(a) authorizes loans not exceeding the amount deposited by the borrower plus:
- the borrower’s four month’s salary or regular income for a permanent employee or wage earner; or
- 70% of the fair value of property acceptable as collateral on first mortgage.
Section 5(a) prohibits any loan from having a maturity date of more than one year.
Section 5(a) authorizes, for borrowers who are permanent employees or wage earners, the treasurer, cashier, or paymaster of the employing office to make deductions from salary/wages/income pursuant to the loan terms, to remit deductions to the savings and loan association, and to collect a reasonable service fee as authorized by rules of the Monetary Board.
Section 5(a) states that deposits made by an association to a bank do not constitute a loan.
Section 5(b) authorizes charging interest within limits allowed by law and collecting necessary fees incidental to loan grant, as regulated by the Monetary Board.
Section 5(c) authorizes discounting with recourse commercial papers and accounts receivable, subject to rules the Monetary Board approves.
Section 5(d) allows investment of funds in sound non-speculative enterprises and in bonds, securities, and other obligations issued by the Government of the Philippines or political subdivisions, instrumentalities, or corporations—including government-owned or controlled corporations—subject to Monetary Board rules.
Section 5(e) allows member-depositors to participate in profits/dividends based on deposits on the date dividends are declared.
Section 5(f) permits borrowing or incurring obligations up to 5% of total assets from specified public lending institutions and certain private lending institutions other than another savings and loan association that the Monetary Board approves; the Monetary Board may raise the ceiling up to 10% of total assets in meritorious cases.
Section 6(a) prohibits an association from having or carrying on its books for any person any demand, commercial, or checking account, or any credit withdrawable upon presentation of a negotiable check or draft.
Section 6(b) prohibits advertising or representing itself to the public as a bank (commercial or savings) or as a trust company.
Section 6(c) prohibits publishing or causing publication of advertisements that misrepresent shares, stock, investment certificates, or the rights of investors or depositors, or that claim to do business prohibited by law.
Pre-approval requirement and naming restrictions
- Section 7 requires that articles of incorporation and by-laws of a proposed savings and loan association must not be filed with the Securities and Exchange Commissioner unless attached with a certificate of Monetary Board approval.
- Section 7 exempts savings and loan associations duly incorporated or registered prior to approval of the Act and actually existing and operating as such from the certificate-attachment requirement.
- Section 7 requires existing associations to submit an information sheet to the Central Bank within 60 days after approval of the Act in a form prescribed by the Monetary Board.
- Section 7 requires existing associations to comply with the requirements of Sections eight and nine not later than one year from approval of the Act.
- Section 7 prohibits any person or entity from holding itself out as doing business as a savings and loan association or using the term “savings and loan association” or any title tending to give the public the impression it is engaged in savings and loan operations unless authorized under the Act.
Licensing for creation, hearing, and refusal
Section 8 requires submission of the articles of incorporation, a copy of proposed by-laws, and a signed application requesting approval to the Monetary Board.
Section 8 requires the application to be signed by a majority and verified by one of the directors.
Section 8 requires the application to state:
- names and addresses of incorporators, directors, and officers, including a statement of character, experience, and general fitness to engage in savings and loan business;
- an itemized statement of estimated receipts and expenditures for the first year;
- a showing that formation promotes public convenience and advantage;
- any other matters the Monetary Board may require.
Section 8 imposes a filing fee of PHP 200 to the Superintendent of Banks with each application for approval of proposed articles of incorporation and by-laws.
Section 8 imposes a reduced filing fee of PHP 5 for non-stock savings and loan associations.
Section 9 requires the Monetary Board, upon receipt of an application, to give written notice to each existing association with hearing details.
Section 9 requires the hearing to be held not less than 10 days after mailing of notice.
Section 9 permits any person to appear at the hearing in person or by agent or attorney, and to orally or in writing show cause why the application should not be approved.
Section 9 requires the Monetary Board, after public hearing, to endorse approval to the Securities and Exchange Commissioner if requirements of the Act are complied with and no valid reasons exist for disapproval.
Section 10 authorizes the Monetary Board to refuse to approve the application if:
- the corporation is to be formed for business other than legitimate savings and loan business; or
- the association’s financial program is unsound; or
- the area is adequately served by one or more existing associations.
Annual licensing, branches, and agents
Section 11 requires every association to procure a license to transact business from the Monetary Board before transacting any business.
Section 11 authorizes the Monetary Board, after due notice and hearing, to revoke or suspend a license for any period it determines where solvency is imperiled by losses or irregularities, or where the association fully violates provisions of the Act or any regulation issued thereunder.
Section 12(a) prohibits opening, maintaining, or operating a branch without first applying for and obtaining a license from the Monetary Board.
Section 12(b) requires a branch license application in the form required by the Monetary Board, including:
- an itemized statement of estimated receipts and expenditures of the branch for the first year or such longer period as required; and
- a showing that operation promotes public convenience and advantage.
Section 12(b) requires payment of a filing fee of PHP 50 to the Monetary Board with each branch license application.
Section 12(c) requires the Monetary Board to conduct a public hearing not earlier than 10 days after notice thereof and to issue a branch license only if satisfied that:
- the operation is in the interest of the association;
- the area where the branch is to be located is not adequately served by one or more existing associations; and
- public convenience and advantage will be promoted.
Section 13 prohibits acting as an agent or salesman or operating an agency for an association without a Monetary Board license.
Section 13 provides that no license is required for a collector, but prohibits any person from holding himself out or acting as a collector unless authorized in writing by the association.
Corporate governance qualifications and controls
Section 14 disqualifies any person as a director unless he is:
- a member for non-stock associations; or
- an owner in his own right of stocks with an aggregate par value of at least PHP 5,000 for stock associations.
Section 15 requires all officers and employees with access to money or negotiable securities, or who issue stock/shares in the regular discharge of duties, to furnish a good and sufficient bond before entering duty.
Section 15 mandates bonds in a form and amount prescribed by the Monetary Board to indemnify against:
- loss of money or securities due to dishonesty; and
- loss arising from dishonest issue of stock or shares.
Section 16 prohibits any director, officer, or employee from receiving from the association, and prohibits the association from paying, any commission, emolument, gratuity, or reward based on the volume/number of loans made or based on interest or fees collected.
Section 16(a) allows payment or receipt of salaries of directors, officers, and employees.
Section 16(b) allows commissions to agents whether or not based on volume/number of loans or on interest/fees collected.
Section 16(c) allows bonuses to officers or employees when based on profits, not on volume/number of loans or on interest/fees collected.
Section 17 prohibits an officer/director/employee from acquiring certificates or shares issued by the association with which he is connected by any method other than:
- investing directly with the association; or
- gift, bequest, or descent; or
- purchase not exceeding PHP 3,000 at any one time.
Section 17 requires prior Monetary Board and Central Bank Auditor approval for any other mode of acquisition.
Lending limitations and liability rules
Section 18(a) prohibits an association from committing to make loans exceeding the total of:
- cash available for loan purposes;
- cash readily realizable upon sale or redemption of permissible investment made by the association; and
- credit available for loan purposes from government or private financing institutions.
Section 18(b) prohibits making any loan directly or indirectly to any director, officer, or employee of the association, either for himself or as agent or partner of another.
Section 18(c) prohibits making loans to any corporation where a majority of the stock is owned or controlled directly or indirectly, collectively by one or more of the directors or officers.
Section 18(d) prohibits lending any of the association’s funds on the security of its own stock.
Section 19 requires that for each loan, the borrower must execute a written note or other obligation expressing a rate of interest.
Section 20 prohibits the association from making or purchasing any loan or investment not authorized or permitted under the Act.
Section 20 imposes personal liability on any director, officer, or employee who knowingly makes or purchases unauthorized loans/investments or knowingly consents to them, for the full amount of the loan or investment.
Investment limits and reserve requirements
Section 21(a) caps bonds and securities at 10% of total assets at any one time.
Section 21(b) caps real property at 5% of total assets at any one time.
Section 21(c) caps furniture, fixtures, furnishings, equipment, and leasehold improvements for offices at 10% of aggregate paid-up capital.
Section 22 requires every savings and loan association to create a withdrawable share reserve equal to 3% of the aggregate par value of the outstanding shares.
Section 22 requires non-stock associations to set withdrawable share reserves at 3% of aggregate capital contributions of members.
Section 23 prohibits paying dividends or distributing profits if the association’s withdrawable share reserve is less than, or would be reduced below, the amount required in Section 22.
Reporting and disclosure duties
- Section 24 requires each association to furnish to the Monetary Board and mail to each investor a copy of its financial statement within 60 days after the close of its fiscal year.
- Section 24 requires the financial statement to show, in the form and detail the Monetary Board requires, the amount and character of assets and liabilities at the end of the preceding fiscal year.
- Section 24 allows associations to publish the financial statement in lieu of mailing in a newspaper of general circulation in the city or town where principal and branch offices are located.
- Section 24 authorizes the Monetary Board to require publication of other information necessary to protect investors.
Monetary Board control and take-over powers
Section 25 authorizes the Monetary Board, after finding violations or unsafe or injurious practices, or insolvency, to order discontinuance of violations and conformity with law, addressed to the association.
Section 26 authorizes the Monetary Board to demand and take possession of an association’s property, business, and assets if:
- the association fails to comply with the Section 25 order within the time specified;
- the Monetary Board determines the association is in an unsafe condition or conducting business in an unsafe or injurious manner rendering further operations hazardous to the public or investors;
- the Monetary Board finds that assets are impaired such that, after deducting all liabilities other than to its investors, they do not equal or do exceed the sum of the value of outstanding shares and investment certificates and the par value of outstanding stock;
- the association refuses to submit books, papers, and accounts for inspection by the Monetary Board or examiners; or
- any officer refuses to be examined upon oath concerning the affairs of the association.
Section 27 authorizes the Monetary Board to retain possession until the association resumes business with Monetary Board consent and under conditions imposed, or until affairs are liquidated.
Section 27 provides that liquidation is governed by the Central Bank Act for liquidation of banks.
Supervisory powers and examinations
Section 28(a) requires the Monetary Board to ensure that capital, financing, direction, administration, and the integrity, responsibility, and ability of organizers, administrators, directors, and officers reasonably assure safety of interests entrusted by the public and members/stockholders.
Section 28(b) empowers supervision through limits on maximum credit to individuals, determining loan period and procedures, imposing uniform accounting systems, instituting periodic surveys, audits, test checks, and training courses when necessary.
Section 28(c) authorizes at least annual and whenever necessary inspections/examinations/investigations, with or without prior notice, but requiring fairness and reasonable opportunity to present the association’s side.
Section 28(c) authorizes the examiners to seize books and records with receipts, make markings/notations to show examination and verification, and padlock or seal vaults and similar containers and prohibit opening without authority during the investigation.
Section 28(d) authorizes suspension after proper notice and hearing for violation of law, unsafe and unsound practices, or insolvency.
Section 28(d) authorizes management take-over after due hearing where the association, its board, or officers manage affairs contrary to laws, Monetary Board orders, instructions, rules, or regulations, or in a manner substantially prejudicial to government, depositors, or creditors; it also requires election and qualification of a new board and officers without prejudice to prosecution.
Section 28(d) provides that Monetary Board management has no expense to the association except expenses actually necessary for operation pending election/qualification.
Section 28(e) requires the Monetary Board to require accountable officers and employees to post bonds for faithful performance in reasonable sums with sureties the Monetary Board approves.
Section 28(f) authorizes the Monetary Board, after notice and hearings, to decide controversies on rights or obligations of the association, directors, officers, stockholders, and members under its charter and to enforce them by order.
Section 28(g) empowers the Monetary Board to fix by rules or in specific cases by order, after notice and hearing, limits of loanable funds, amounts for investment and discounting, and reserves for withdrawals and contingencies.
Section 28(h) authorizes the Monetary Board to issue rules and regulations for proper implementation, effective administration, and advisory assistance to interested parties to carry out the Act’s intents and purposes.
Section 28(i) authorizes the Monetary Board to conduct investigations, take remedial measures, impose disciplinary action, and exercise powers under Republic Act Numbered Two hundred sixty-five, known as the Central Bank Act, for enforcement of this legislation.
Penalties and court-assisted discontinuance
- Section 29(a) punishes any owner, agent, manager, or other officer in charge who, after being required in writing by the Monetary Board or Superintendent of Banks to comply with Act requirements, willfully fails to comply with any lawful examination by a fine not more than PHP 10,000 or imprisonment not more than two years, or both, at the discretion of the court.
- Section 29(b) punishes willful false statements made to the Monetary Board, Superintendent of Banks, or their examiners by a fine not exceeding PHP 15,000, or imprisonment up to three years, or both, at the court’s discretion.
- Section 29(c) punishes willful violations of the Act or any order, instruction, rule, or regulation legally issued by the Monetary Board by a fine not more than PHP 5,000, or imprisonment not more than one year, or both, at the court’s discretion.
- Section 29(d) requires that when an association persists in violating its charter or by-laws or any law or Monetary Board orders/instructions/rules/regulations, or persists in carrying on business in an unlawful or unsafe manner, the board, through the Solicitor General, shall file in the Court of First Instance a petition to compel discontinuance of the violations or practices.
- Section 29(d) authorizes the Monetary Board, with court approval, to take action deemed necessary to compel discontinuance, including directing the Superintendent of Banks to liquidate the institution if necessary.
Effectivity and approval
- Section 30 provides that the Act takes effect upon approval.
- The Act was approved June 22, 1963.