Law Summary
Authority and Supervisory Powers of Bangko Sentral ng Pilipinas
- Bangko Sentral (BSP) supervises all banks and quasi-banks, including trust entities.
- Supervision includes rule-making, examination, investigation, enforcing compliance, and corrective action.
- Quasi-banks borrow through deposit substitutes for relending/purchasing receivables.
- BSP prescribes policy directions, ratios, ceilings on bank operations consistent with international standards.
- No person/entity may engage in banking/quasi-banking without BSP authority; Monetary Board decides unauthorized operations.
- BSP officers can examine and administer oaths related to bank activities.
Organization and Management of Banks, Quasi-Banks, and Trust Entities
- Banks/quasi-banks must be stock corporations with funds from 20+ persons meeting minimum capital requirements.
- New commercial banks cannot be established within 3 years of the Act.
- Monetary Board regulates stock issuance, treasury shares, foreign ownership (max 40%), and disclosures of family/related group holdings.
- SEC cannot register bank articles/bylaws without Monetary Board certificate.
- Board of directors: minimum 5, maximum 15 members, including at least 2 independent directors.
- Fit and proper rule enforced to ensure integrity and competence; Monetary Board can disqualify or remove unfit directors/officers.
- Compensation of directors/officers regulated especially in unsound financial conditions.
- Public officials generally prohibited from holding banking office simultaneously.
- Branch operations allowed with BSP approval, treated as a single unit.
- Banks required to transact on all working days; weekend/holiday operations subject to BSP reporting.
- Labor disputes in banking are under special regulations and government intervention available.
Powers and Operations of Universal and Commercial Banks
- Universal banks authorized to perform commercial banking, investment house powers, and invest in allied/non-allied enterprises.
- Limitations on equity investments; total investment capped at 50% of net worth for universal banks; 35% for commercial banks.
- Ownership rules allow 100% ownership in thrift, rural, financial or non-financial allied enterprises under conditions.
- Non-allied investment limits and restrictions to promote competition.
- Commercial banks possess powers to issue credit, accept deposits, trade foreign exchange, and invest in bonds.
General Banking Operations and Regulations
- Restriction on banks other than universal/commercial from creating demand deposits without prior BSP approval.
- BSP prescribes risk-based capital requirements harmonizing with international standards.
- Single borrower limits set at 20% net worth; conditions for increases with security.
- Limits on loans and credit accommodations to directors, officers, stockholders, and related interests.
- Loan purposes must be stated; misapplication grounds for termination.
- Banks must assess borrower capability; falsification leads to termination and demand for repayment.
- Security requirements on loans against real estate, chattels, and intangibles set.
- Rules on loan maturities, amortization schedules including provisions for microfinance sectors.
- Prepayment permitted with reasonable terms.
- Incentives for loans to social and developmental sectors.
- Foreclosure process with redemption rights for mortgagors up to one year post-sale.
- Conditions for renewal, extension, loss provisions, and write-offs regulated.
- Major investments subject to Monetary Board review.
- Limitations on bank investments in real estate and acquisition by way of satisfaction of claims with disposal timelines.
- Banks may perform ancillary services (custody, agency, collections, safety deposit boxes) under BSP regulation.
- Banks prohibited from direct insurance operations.
- Prohibitions on fraudulent transactions, conflict of interest, and improper outsourcing.
- Unsafe or unsound business operations defined; BSP empowered to take corrective actions.
- Dividend declarations limited by accumulated profits and liquidity requirements.
- Requirement for independent auditors; reports to Monetary Board.
- BSP regulates electronic transactions and requires submission and publication of financial statements.
- Rules on unauthorized banking advertisements and business representations.
Penalties and Enforcement
- Violations subject to New Central Bank Act sanctions.
- Monetary Board may suspend/remove erring directors/officers and dissolve corporations.
- Conservatorship, receivership, and involuntary liquidation processes governed by New Central Bank Act.
- Penalties for unauthorized transactions after insolvency including refusal to deliver assets and tampering.
Specific Provisions for Other Types of Banks
- Thrift, rural, cooperative, and Islamic banks governed by their respective laws, supplemented by this Act where consistent.
Foreign Banks
- Entry and operations governed by Foreign Banks Liberalization Act and Offshore Banking System Decree.
- Foreign ownership of domestic banks up to 100% permitted within 7 years subject to Filipino majority control of assets.
- Foreign banks' branches treated as single units; head office guarantees liabilities.
- Jurisdiction and service of process rules for foreign banks established.
- License revocation procedures for insolvency or probable loss.
Trust Operations
- Only authorized corporations/persons may engage in trust business.
- Trust entities must exercise prudence, avoid conflicts of interest, and disclose related party transactions.
- SEC registration conditioned on Monetary Board's certificate; minimum capitalization required.
- Powers include acting as trustee, executor, guardian, administrator, and managing common trust funds.
- Trust entities must deposit security with BSP and keep trust assets separate.
- Bonds required for fiduciaries except for trust entities which are generally exempt.
- Trust investment and real estate acquisition regulated.
- Sanctions for willful violation; trust assets exempt from claims other than for parties interested in the trust.
- Branch establishment requires BSP approval.
Final Provisions
- BSP's supervisory powers over building and loan associations to be phased out.
- Repealing clause nullifies inconsistent prior laws and amendments.
- Separability clause maintains validity of parts unaffected by invalid provisions.
- Effectivity set upon publication.