General Banking Law of 2000

Authority of Bangko Sentral ng Pilipinas

The operations and activities of banks are subject to supervision by the Bangko Sentral ng Pilipinas (Section 4).
“Supervision” includes rules/standards for uniform application, examinations, ensuring compliance, regular investigation, solvency and liquidity inquiry, and enforcing prompt corrective action (Section 4).
The Bangko Sentral also supervises quasi-banks, trust entities, and other financial institutions covered by special laws subject to Bangko Sentral supervision (Section 4).
“Quasi-banks” are entities engaged in borrowing funds through the issuance, endorsement/assignment with recourse, or acceptance of deposit substitutes (as defined in Section 95 of Republic Act No. 7653) for purposes of relending or purchasing receivables and other obligations (Section 4).

Bank Classification and Definitions

“Banks” are entities engaged in the lending of funds obtained in the form of deposits (Section 3).
Banks are classified into:
- Universal banks
- Commercial banks
- Thrift banks
- Rural banks
- Cooperative banks
- Islamic banks
- Other classifications determined by the Monetary Board (Section 3).
Thrift banks are those defined in Republic Act No. 7906; rural banks are those defined in Republic Act No. 7353; cooperative banks are those defined in Republic Act No. 69a8; Islamic banks are those defined in Republic Act No. 6848 (Section 3).

Policy Direction, Ratios, and Entry

The Bangko Sentral provides policy direction in money, banking, and credit (Section 5).
The Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on different types of accounts and practices, conforming to internationally accepted standards (including those of the Bank for International Settlements (BIS)), to the extent feasible (Section 5).
The Monetary Board may exempt particular categories of transactions from these ratios/ceilings/limitations, including exceptional cases or when needed for a bank under rehabilitation or during a merger/consolidation to continue business safely for creditors, depositors, and the public (Section 5).
No person or entity may engage in banking operations or quasi-banking functions without authority from the Bangko Sentral (Section 6).
The Monetary Board decides whether a person or entity is performing banking or quasi-banking functions without authority and may examine/inspect/investigate books and records through the appropriate department (Section 6).
Once authority is granted, operations may begin and continue unless authority is surrendered, revoked, suspended, or annulled in accordance with this Act or other special laws (Section 6).
Department heads and examiners may administer oaths and compel production/presentation of books and records reasonably necessary to ascertain true functions and operations; failure/refusal within a reasonable time subjects responsible persons to penal sanctions under the New Central Bank Act (Section 6).
Persons/entities performing banking or quasi-banking without authority are subject to sanctions under the New Central Bank Act and other applicable laws (Section 6).
The law requires that the Monetary Board may authorize organization of a bank or quasi-bank only if the entity is a stock corporation, funds are obtained from the public meaning twenty (20) or more persons, and minimum capital requirements are satisfied (Section 8).
No new commercial bank shall be established within three (3) years from the effectivity of this Act (Section 8).
The bank licensing process must assess ownership structure, directors and senior management, operating plan and internal controls, projected financial condition, and capital base (Section 8).

Corporate Governance and Capital Rules

The Monetary Board may prescribe rules on stock types, terms, and rights to ensure compliance with capital/equity laws; banks must issue par value stocks only (Section 9).
A bank may not purchase/acquire shares of its own capital stock or accept its own shares as security for a loan except when authorized by the Monetary Board (Section 10).
If authorized to acquire its own stock, the bank must sell/dispose of the stock within six (6) months from the time of purchase/acquisition (Section 10).
Foreign individuals and non-bank corporations may own/control up to forty percent (40%) of the voting stock of a domestic bank, and the same rule applies to Filipinos and domestic non-bank corporations (Section 11).
The citizenship of individuals determines the percentage of foreign-owned voting stocks; for corporations, citizenship follows the citizenship of controlling stockholders, regardless of place of incorporation (Section 11).
Stockholdings by individuals related within the fourth degree of consanguinity or affinity (legitimate or common-law) are “family groups or related interests” and must be fully disclosed in transactions with the bank (Section 12).
Two or more corporations owned/controlled by the same family groups or group of persons are “related interests” and must be fully disclosed in transactions by such corporations/related persons with the bank (Section 13).
The Securities and Exchange Commission shall not register a bank’s articles of incorporation or amendments unless accompanied by a certificate of authority issued under Monetary Board seal (Section 14).
The Monetary Board shall issue the certificate only when satisfied that existing legal/regulatory requirements are complied with, public interest and economic conditions justify authorization, and the amount of capital, financing, organization, direction/administration, and integrity/responsibility of organizers/administrators reasonably assure deposit safety and public interest (Section 14).
The SEC shall not register by-laws (or amendments) of any bank unless accompanied by a certificate of authority from the Bangko Sentral (Section 14).
Board of directors of a bank must have at least five (5) and at most fifteen (15) members, with two (2) independent directors; an independent director is one other than an officer/employee of the bank, its subsidiaries/affiliates, or related interests (Section 15).
Non-Filipino citizens may be directors to the extent of foreign participation in equity (Section 15).
Board meetings may be conducted through modern technologies such as teleconferencing and video-conferencing (Section 15).
The Monetary Board shall prescribe, pass upon, and review qualifications/disqualifications of bank directors or officers and disqualify those found unfit (Section 16).
After due notice, the Monetary Board may disqualify, suspend, or remove any bank director/officer who commits or omits an act rendering him unfit (Section 16).
Fit-and-proper determination considers integrity, experience, education, training, and competence (Section 16).
In merger or consolidation, the number of directors shall not exceed twenty-one (21) (Section 17).
The Monetary Board may regulate payment of compensation/allowances/fees/bonuses/stock options/profit sharing/fringe benefits only in exceptional cases when circumstances warrant, including when under comptrollership or conservatorship, when conducting business unsafely/unsoundly, or when in an unsatisfactory financial condition (Section 18).

Management Conflicts, Branching, and Operations

Except as otherwise provided in the Rural Banks Act, no appointive or elective public official may at the same time serve as officer of any private bank, unless service is incident to government financial assistance to the bank or unless otherwise provided under existing laws (Section 19).
Universal or commercial banks may open branches or offices within or outside the Philippines only with prior approval of the Bangko Sentral (Section 20).
Other banks’ branching is governed by pertinent laws (Section 20).
A bank may, with prior approval of the Monetary Board, use its branches as outlets for presentation/sale of financial products of allied undertaking or investment house units (Section 20).
A bank and its branches/offices are treated as one unit; the bank is responsible for business conducted in branches/offices as if conducted in the head office (Section 20).
Banks (including branches/offices) must transact business on all working days for at least six (6) hours a day, unless otherwise authorized by the Bangko Sentral; banks may open on Saturdays/Sundays/holidays for at least three (3) hours a day (Section 21).
Working days mean Mondays to Fridays except if such days are holidays (Section 21).
Strikes or lockouts involving banks that remain unsettled after seven (7) calendar days must be reported by the Bangko Sentral to the Secretary of Labor, who may assume jurisdiction, decide the dispute, or certify it to the National Labor Relations Commission for compulsory arbitration; the President may intervene at any time to settle or terminate (Section 22).

Banking Operations and Equity Investment Limits

A universal bank may exercise, in addition to commercial bank powers under Section 29, investment house powers under existing laws and the power to invest in non-allied enterprises under this Act (Section 23).
Equity investments of a universal bank in allied and non-allied enterprises must not exceed fifty percent (50%) of net worth in total and must not exceed twenty-five percent (25%) of net worth in any one enterprise, unless the Monetary Board prescribes otherwise (Section 24).
“Net worth” means total unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments required by the Bangko Sentral (Section 24).
Acquisition of universal bank equity interests is subject to prior Monetary Board approval and guidelines for such investments (Section 24).
A universal bank may own up to one hundred percent (100%) equity in a thrift bank, a rural bank, or a financial allied enterprise (Section 25).
A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the voting stock of only one (1) other universal or commercial bank (Section 25).
A universal bank may own up to one hundred percent (100%) equity in a non-financial allied enterprise (Section 26).
Equity investment of a universal bank (or its wholly/majority-owned subsidiaries) in a single non-allied enterprise cannot exceed thirty-five percent (35%) of the total equity in that enterprise and cannot exceed thirty-five percent (35%) of the voting stock in that enterprise (Section 27).
To promote competitive conditions, the Monetary Board may limit universal banks’ equity investments in quasi-banks to forty percent (40%), and this rule applies to commercial banks (Section 28).
A commercial bank has powers necessary for commercial banking, including accepting drafts and issuing letters of credit; discounting/negotiating notes/drafts/bills of exchange and other evidences of debt; accepting/creating demand deposits; receiving deposits and deposit substitutes; buying/selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit subject to Monetary Board rules (Section 29).
A commercial bank may invest only in equities of allied enterprises (financial or non-financial), subject to limits of thirty-five percent (35%) of net worth total and twenty-five percent (25%) of net worth per enterprise unless Monetary Board prescribes otherwise (Section 30).
Acquisition of allied equity investments by a commercial bank requires prior Monetary Board approval and guidelines (Section 30).
A commercial bank may own up to one hundred percent (100%) equity of a thrift bank or a rural bank (Section 31).
For other financial allied enterprises (including another commercial bank), the commercial bank’s equity holding must remain a minority holding (Section 31).
A commercial bank may own up to one hundred percent (100%) equity in a non-financial allied enterprise (Section 32).

Universal/Non-Universal Deposit and Capital Safety Rules

A bank other than a universal or commercial bank cannot accept or create demand deposits except upon prior approval of the Monetary Board and subject to prescribed conditions (Section 33).
The Monetary Board shall prescribe a minimum risk-based capital ratio: the net worth of a bank must bear to its total risk assets (including contingent accounts) (Section 34).
The Monetary Board may require determination of the ratio using a bank’s and its subsidiaries’ net worth and risk assets and prescribe the composition and manner of determining net worth and total risk assets (Section 34).
The Monetary Board must conform to internationally accepted standards (including BIS) to the extent feasible, and may alter or suspend compliance for a maximum period of one (1) year and apply the ratio uniformly to banks of the same category (Section 34).
If a bank fails to comply, the Monetary Board may limit or prohibit distribution of net profits, require use of part/all net profits to increase capital accounts until the minimum is met, and restrict/prohibit acquisition of major assets and new investments except readily marketable evidences of indebtedness of the Republic of the Philippines and the Bangko Sentral and other fully guaranteed evidences of indebtedness/obligations, until the capital ratio is restored (Section 34).
For mergers/consolidations or banks under rehabilitation under a program approved by the Bangko Sentral, the Monetary Board may temporarily relieve full compliance under conditions it prescribes (Section 34).
Prior to effectivity of the Monetary Board rules authorized under this provision, specified prior provisions and rules continue to be in force (Section 34).

Loans, Credit, and Insider Exposure Limits

Loans/credit accommodations/guarantees extended by a bank to any person/partnership/association/corporation/other entity cannot exceed twenty percent (20%) of the bank’s net worth unless the Monetary Board prescribes otherwise for reasons of national interest (Section 35.1).
The basis for single-borrower limit is the bank’s total credit commitment to the borrower (Section 35.1).
The ceiling may be increased by an additional ten percent (10%) of net worth if additional liabilities are adequately secured by trust receipts shipping documents, warehouse receipts, or similar documents transferring/securing title to readily marketable, non-perishable goods fully covered by insurance (Section 35.2).
The ceilings include direct liability of makers/acceptors of paper discounted or sold; and liabilities of general indorsers/drawers/guarantors who obtain loans or discount/sell paper to the bank (Section 35.3(a)).
The ceilings include liabilities of entities owned/controlled by a majority-interest individual and liabilities of subsidiaries where the corporation owns/controls majority interest, and member liabilities for partnerships/associations/entities (Section 35.3(b)-(d)).
The Monetary Board may prescribe combination of liabilities under circumstances including: guarantees by parent/partner/individual; liabilities incurred to accommodate another subsidiary; or separate entities operating as mere departments/divisions (Section 35.4).
Certain credits are excluded from these ceilings, including loans secured by Bangko Sentral or Philippine Government obligations; loans fully guaranteed by government as to principal/interest; loans covered by assignment of deposits in the lending bank held in the Philippines; and loans/credit accommodations under letters of credit to the extent covered by margin deposits, plus other non-risk items specified by the Monetary Board (Section 35.5).
Loans/credit accommodations, deposits with, and usual guarantees by a bank to other banks or non-bank entities, locally or abroad, are subject to the limits (Section 35.6).
Certain contingent accounts of borrowers may be included among subject limits as determined by the Monetary Board (Section 35.7).
No director or officer may, directly or indirectly, borrow from the bank, become guarantor/indorser/surety for loans from the bank to others, or incur contractual liability to the bank except with written approval of a majority of all directors excluding the concerned director (Section 36).
Written approval is not required for loans/credit accommodations/advances to officers under a fringe benefit plan approved by the Bangko Sentral (Section 36).
Approval must be entered into the bank records and a copy transmitted forthwith to the Bangko Sentral’s appropriate supervising/examining department (Section 36).
Bank dealings with directors/officers/stockholders and related interests must be on terms not less favorable than those offered to others (Section 36).
After due notice, the office of a director/officer who violates this section may be declared vacant and the person is subject to penal provisions of the New Central Bank Act (Section 36).
The Monetary Board may regulate the amount extended by banks to directors/officers/stockholders and related interests, and bank investments in enterprises owned/controlled by them (Section 36).
The outstanding loans/credit accommodations/guarantees extended to each stockholder/director/officer and related interests must be limited to an amount equivalent to the person’s respective unencumbered deposits and book value of paid-in capital contribution in the bank (Section 36).
Loans/credit accommodations/guarantees secured by assets considered non-risk by the Monetary Board are excluded from this limit (Section 36).
Loans/credit accommodations/advances to officers as fringe benefits granted under Monetary Board rules are not subject to the individual limit (Section 36).
The Monetary Board defines “related interests” (Section 36).
The limits in this section do not apply to loans/credit accommodations/guarantees extended by a cooperative bank to its cooperative shareholders (Section 36).
Loans/credit accommodations against real estate must not exceed seventy-five percent (75%) of the appraised value of the real estate security plus sixty percent (60%) of the appraised value of insured improvements, unless Monetary Board otherwise prescribes (Section 37).
Loans/credit accommodations on security of chattels and intangible properties (patents, trademarks, trade names, copyrights, etc.) must not exceed seventy-five percent (75%) of the appraised value of the security, unless Monetary Board otherwise prescribes (Section 38).
Banks must grant loans/credit accommodations only in amounts and for periods essential to effectively complete the financed operations, consistent with safe and sound banking practices (Section 39).
The purpose of all loans/credit accommodations must be stated in the application and contract; if proceeds are employed for purposes other than those approved, the bank may terminate and demand immediate repayment (Section 39).
Before granting, a bank must ascertain the debtor’s capability to fulfill commitments; it may demand statements of assets/liabilities and income/expenditures and other information prescribed by law/rules, including corresponding tax financial statements submitted to the Bureau of Internal Revenue (Section 40).
If statements prove false or incorrect in any material detail, the bank may terminate and demand immediate repayment or liquidation (Section 40).
Monetary Board rules under this section must recognize microfinance characteristics, including cash flow-based lending to basic sectors not covered by traditional collateral (Section 40).
The Monetary Board is authorized to issue regulations on unsecured loans/credit accommodations granted by banks (Section 41).
The Monetary Board may prescribe further security requirements for bank credits and, under authority in the New Central Bank Act, may reduce maximum ratios in Sections 36 and 37 or increase them in special cases (Section 42).
The Monetary Board may prescribe loan maturities and related terms/conditions for various types of loans, and any change to maximum maturities applies only to loans made after the action (Section 43).
The Monetary Board shall regulate interest imposed on microfinance borrowers by lending investors/similar lenders, including unconscionable rates collected on salary loans and similar credit accommodations (Section 43).
Loan amortization must be adapted to the nature of the financed operation; for maturities of more than five (5) years, periodic amortization payments must be made at least annually (Section 44).
If borrowed funds initially produce no revenues adequate for regular amortization, the bank may defer the initial amortization payment, but the initial amortization date must not be later than five (5) years from grant (Section 44).
For microfinance sectors, amortization scheduling must consider projected cash flow and adopt it into banks’ terms/conditions (Section 44).
A borrower may prepay at any time before agreed maturity, in whole or part, the unpaid balance subject to reasonable terms and conditions agreed with the bank (Section 45).
The Bangko Sentral provides incentives to banks that extend loans (without government guarantee) to finance educational institutions, cooperatives, hospitals/medical services, socialized/low-cost housing, local government units, and other social-content activities (Section 46).
In foreclosure of any real estate mortgage (judicially or extrajudicially), the mortgagor/debtor may redeem within one year after sale by paying the amount due under the mortgage deed plus interest at the mortgage rate and the bank’s sale/custody costs and expenses less income derived from the property (Section 47).
After confirmation of the auction sale, the purchaser (judicial or extrajudicial) may enter upon and take possession and administer the property in accordance with law (Section 47).
A petition to enjoin/restrain foreclosure proceedings proceeds only if the petitioner files a bond in an amount fixed by the court conditioned on payment of damages the bank may suffer (Section 47).
Juridical persons whose property is sold under extrajudicial foreclosure retain redemption rights under this section until, but not after, registration of the foreclosure certificate of sale with the proper Register of Deeds, which in no case is more than three (3) months after foreclosure, whichever is earlier (Section 47).
Owners whose property was sold in a foreclosure sale prior to effectivity retain redemption rights until expiration (Section 47).
The Monetary Board may prescribe conditions/limitations for extensions or renewals by regulation (Section 48).
Debts due a bank with interest past due/unpaid for such period as determined by the Monetary Board are considered bad debts unless well-secured and in the process of collection (Section 49).
The Monetary Board may fix, by regulation or order in a specific case, amounts of reserves for bad debts/doubtful accounts/other contingencies (Section 49).
Writing off of loans/credit accommodations/advances and other assets is subject to Monetary Board regulations (Section 49).

Investments, Real Estate, and Banking Services

The Monetary Board shall establish criteria for reviewing major acquisitions or investments by a bank, including corporate affiliations/structures exposing the bank to undue risks or hindering effective supervision (Section 50).
Investment ceiling: a bank’s total investment in real estate and improvements (including bank equipment) may not exceed fifty percent (50%) of combined capital accounts, unless otherwise provided by the Monetary Board (Section 51).
Equity investment in another corporation engaged primarily in real estate is treated as part of the bank’s total real estate investment unless otherwise provided by the Monetary Board (Section 51).
Notwithstanding the preceding section, a bank may acquire/hold/convey real property:
- Mortgaged to it in good faith as security for debts;
- Conveyed to it in satisfaction of debts previously contracted in its dealings;
- Purchased at sales under judgments/decrees/mortgages/trust deeds held by it or purchased to secure debts due it (Section 52).
Real property acquired/held under these circumstances must be disposed of within five (5) years or as prescribed by the Monetary Board; after that period, the bank may continue holding for its own use subject to the real estate limitations in the preceding section (Section 52).
A bank may perform other banking services including custody of funds/documents/valuable objects; acting as financial agent and buying/selling securities by order and for customer account; collections and payments for customers and other services not incompatible with banking business; managing/advising/consultancy/administration of investment management/advisory/consultancy accounts upon prior Monetary Board approval; and renting safety deposit boxes (Section 53.1-53.5).
For the services under Sections 53.1, 53.2, 53.3, and 53.4, the bank must act as depositary or agent and must keep received funds/securities/effects separate from the bank’s own assets and liabilities (Section 53).
The Monetary Board may regulate these operations to ensure they do not endanger depositors and other creditors (Section 53).
If a bank/quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or suspends payment of deposit liabilities continuously for more than thirty (30) days, the Monetary Board may summarily and without prior hearing close the institution and place it under receivership of the Philippine Deposit Insurance Corporation (Section 53).
A bank may not directly engage in insurance business as insurer (Section 54).

Prohibited Acts and Conduct Standards

No director/officer/employee/agent of a bank shall:
- Make false entries in bank reports/statements or participate in fraudulent transactions affecting bank/other persons’ financial interests or causing damage;
- Without court order, disclose to unauthorized persons information relative to funds/properties in the bank’s custody belonging to private individuals/corporations/other entities (with respect to bank deposits, existing laws prevail);
- Accept gifts/fees/commissions or other remuneration in connection with loan/credit approval;
- Overvalue or aid in overvaluing security to influence bank actions; or
- Outsource inherent banking functions (Section 55.1).
No borrower shall:
- Fraudulently overvalue property offered as security;
- Furnish false/misrepresent/suppress material facts to obtain/renew/increase a loan/credit accommodation or extend its period;
- Attempt to defraud the bank in court actions to recover; or
- Offer directors/officers/employees/agents gifts/fees/commissions/compensation to influence loan approval (Section 55.2).
No examiner/officer/employee of the Bangko Sentral or assigned government department/bureau/office/branch/agency may commit or aid in any prohibited act under this section (Section 55.3).
False reports or misrepresentation or suppression of material facts by personnel of the Bangko Sentral constitutes fraud and is subject to administrative and criminal sanctions under the New Central Bank Act (Section 55.3).
No bank shall employ casual or non-regular personnel or too lengthy probationary personnel in the conduct of business involving bank deposits, consistent with Republic Act No. 1405 (Section 55.4).
For assessing “unsafe or unsound” conduct (for acts/omissions not otherwise prohibited), the Monetary Board considers whether the act/commission has resulted or may result in material loss/damage, abnormal risk/danger to safety/stability/liquidity/solvency; whether it has caused material loss/damage or abnormal risk to depositors/creditors/investors/stockholders/the Bangko Sentral/the public; whether it caused undue injury or unwarranted benefits/advantage/preference through manifest partiality, evident