Regulation of Thrift Banks in the Philippines

Policy and definitions

Section 2 declares State policy to: recognize the role of the private sector and encourage private enterprise and needed investments; promote economic development and expand industrial and agricultural growth; encourage establishing more private thrift banks to meet capital, personal and investment credit, and medium- and long-term loans for Filipino entrepreneurs; place medium- and long-term credit within easy reach of people at reasonable cost; encourage thrift, frugality, and accumulation of savings; and regulate and supervise thrift bank activities to maintain sound, stable, and efficient operations and curtail or prevent acts prejudicial to the public interest.
Section 3 defines “Thrift banks” to include savings and mortgage banks, private development banks, and stock savings and loans associations organized under existing laws, and any banking corporation organized for: accumulating depositor savings and investing them in loans secured by securities (including bonds, mortgages on real estate and insured improvements, chattel mortgage, and other securities), or in loans for personal/household finance (secured or unsecured) and financing for homebuilding/home development; investing in readily marketable and debt securities; investing in commercial papers and accounts receivables, drafts, bills of exchange, acceptances, or notes arising from commercial transactions; and other investments and loans determined by the Monetary Board for national economic objectives; providing short-term working capital and medium- and long-term financing to businesses in agriculture, services, industry, and housing; and providing diversified financial and allied services for its chosen market, especially small and medium enterprises and individuals.
Section 3 defines “Monetary Board” as the Monetary Board of the Bangko Sentral ng Pilipinas.
Section 3 defines “Bangko Sentral” as the Bangko Sentral ng Pilipinas created under Republic Act No. 7653.

Organization and authorization requirements

A thrift bank must be organized as a stock corporation, under Section 4.
The Monetary Board must fix the minimum paid-up capital of thrift banks at an amount it considers necessary for safe and sound operations, taking into account Act development thrusts and protection of the general public, under Section 4.
No thrift bank may be organized without a certificate of authority from the Monetary Board, under Section 4.
Under Section 5, the Securities and Exchange Commission may not register the articles of incorporation of any bank or any amendment thereto unless accompanied by the Monetary Board’s certificate of authority under its official seal.
The Monetary Board may not issue the certificate of authority unless satisfied from evidence that: all requirements of existing laws and regulations to engage in the proposed business have been complied with; public interest and general and local economic conditions justify authorization; and capital, financing organization, direction and administration, and the integrity and responsibility of organizers and administrators reasonably assure safety of the public’s entrustment, under Section 5.
Under Section 5, the Securities and Exchange Commission may not register a thrift bank’s bylaws or any amendments unless accompanied by the Monetary Board certificate that bylaws/amendments are in accordance with law.
Under Section 6, the Monetary Board may pass upon and review the qualifications of persons elected or appointed as bank directors and officers and disqualify unfit persons, and must prescribe qualifications for directors and officers for this purpose.
For thrift banks established after the Act’s effectivity, Section 7 requires that at least a majority of the board of directors be citizens of the Philippines.

Ownership, capital adequacy, and solvency

Section 8 requires that for thrift banks established after approval of the Act, at least forty percent (40%) of the voting stock be owned by citizens of the Philippines.
Section 8 provides a merger/consolidation exception: when a new bank results from merger or consolidation of existing thrift banks with foreign holdings, foreign holdings in the resulting bank shall not be increased, but may be reduced and, once reduced, shall not be increased thereafter beyond sixty percent (60%) of the voting stock.
Section 8 determines foreign-owned voting stock by the citizenship of individual stockholders and, for corporate stockholders, by the citizenship of each stockholder in those corporations.
Section 8 exempts thrift bank stockholdings from any ownership ceiling for ten (10) years from effectivity of the Act, notwithstanding any provision of existing laws to the contrary.
Under Section 9, the combined capital accounts of each thrift bank must not be less than an amount equal to ten percent (10%) of its risk assets, where risk assets are defined as total assets minus specified non-risk/deductible items.
Section 9 defines deductible/non-risk assets to include: cash on hand; amounts from the Bangko Sentral; evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral, and other evidences fully guaranteed by the Republic; loans covered by hold-out on, or assignment of, deposits maintained in the lending bank and held in the Philippines; and other non-risk items the Monetary Board may authorize to be deducted.
The Monetary Board must prescribe the manner of determining total assets for purposes of Section 9.
When a bank’s capital accounts are deficient, Section 9 requires the Monetary Board, after considering a report of the appropriate supervising department on solvency, to: limit or prohibit distribution of net profits and require part or all of net profits to increase capital accounts until the minimum is met.
Section 9 further allows the Monetary Board, after the same report and if the deficiency justifies it, to restrict or prohibit new investments of any sort (except purchases of evidences of indebtedness included under Section 9(c)) until the minimum capital ratio is restored.
Section 9 allows temporary relief: where full compliance with the net worth to risk asset ratio cannot be achieved in the process of merger or consolidation, the Monetary Board may, at its discretion, temporarily relieve the bank from full compliance under conditions it may prescribe.

Powers and lending limitations

Under Section 10, thrift banks may, in addition to powers granted by the Act and existing laws, do the following:
- Accept savings and time deposits.
- Open current or checking accounts, provided the thrift bank has net assets of at least Twenty million pesos (P20,000,000), and the thrift bank may directly clear its demand deposit operations with the Bangko Sentral and the Philippine Clearing House Corporation.
- Act as correspondent for other financial institutions.
- Act as collection agent for government entities, including but not limited to the Bureau of Internal Revenue, Social Security System, and Bureau of Customs.
- Serve as official depository of national agencies and of municipal, city, or provincial funds in the municipality, city, or province where the thrift bank is located, subject to Monetary Board guidelines.
- Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the Development Bank of the Philippines, and other government-owned or controlled corporations, with those institutions specifying acceptable paper and the rediscount rate.
- Issue mortgage and chattel mortgage certificates, buy and sell them for its own account or for others, or accept and receive them in payment or as amortization of its loan.
Section 10 restricts mortgage and chattel mortgage certificates to: national currency only; and exclusively for financing equipment loans, mortgage loans for acquisition of machinery and fixed installations, conservation/enlargement/improvement of productive properties, and real estate mortgage loans for (1) construction/acquisition/expansion/improvement of rural and urban properties; (2) refinancing similar loans and mortgages; and (3) other purposes authorized by the Monetary Board.
Section 10 requires thrift banks to coordinate amounts and maturities of certificates with loans to ensure adequate cash receipts for principal and interest at due dates; it must accept its own certificates at least at actual issue price in prepayment of loans, provided the certificate maturity is not later than the payment due date absent prepayment.
Section 10 permits purchase, hold, and convey real estate under conditions governing commercial banks under Section 25 of Republic Act No. 337.
Under Section 10, thrift banks may engage in quasi-banking and money market operations; open domestic letters of credit; extend credit facilities to private and government employees with salary/wage deductions permitted for a borrower who is a permanent employee or wage earner, authorizing the treasurer, cashier, or paymaster of the employing office to deduct and remit deductions and collect a reasonable service fee despite contrary existing laws.
Section 10 permits extending credit against jewelry, precious stones, and similar articles subject to Monetary Board rules and regulations.
Section 10 allows other banking services as provided in Section 72 of Republic Act No. 337 and Republic Act No. 6426, as amended.
Section 10 requires prior Monetary Board approval for thrift bank performance of services under subsections (b), (d), (e), (g), and (i).
Section 10 clarifies that nothing precludes a thrift bank, with prior Monetary Board approval, from performing commercial banking services or operating under an expanded banking authority, or exercising applicable powers incident to a corporation, consistent with the Act and Bangko Sentral regulations.
Under Section 11, direct indebtedness to thrift banks is limited, except as the Monetary Board may otherwise prescribe, with exclusions for: loans secured by Bangko Sentral obligations; loans fully guaranteed by the government; loans covered by hold-out on/assignment of deposits maintained and held in the Philippines; and other non-risk loans/credits specified by the Monetary Board, which may not exceed fifteen percent (15%) of unimpaired capital and surplus at any time.
Section 11 further provides that total indebtedness of any borrower may amount to an additional fifteen percent (15%) of unimpaired capital and surplus if the additional indebtedness finances subdivision or housing development, medium- and low-income borrowers, and agriculture on a fully secured basis.
Section 11 defines “indebtedness” to include direct liability of the maker/acceptor of paper discounted with or sold to such bank, and liability of indorser/drawer/guarantor who obtains a loan from or discounts paper sold under his guaranty; it includes partnership members’ liabilities and, for corporations, liabilities of all subsidiaries where the corporation owns or controls a majority interest.
Section 11 authorizes the Monetary Board to prescribe combination of liabilities under circumstances including, but not limited to: parent guarantees repayment; liabilities were incurred for accommodation of the parent or another subsidiary or of the partnership/association; or subsidiaries operate as departments/divisions of a single entity.
Section 11 excludes from “money borrowed” for purposes of this Section: discount of bills drawn in good faith against actually existing values; and discount of commercial and business paper actually owned by the person negotiating it.
Section 11 allows certain contingent liabilities to be included among total liabilities as the Monetary Board determines.
Under Section 11, loan accommodations granted by thrift banks to any other bank, and deposits maintained by them in banks licensed to do business in the Philippines, are subject to the loan limit of any single borrower as prescribed.

Allied investments and permissible activities

Under Section 12, subject to Monetary Board guidelines, thrift banks may invest in equities of allied undertakings.
Section 12 limits equity investment totals to: total equity investments not exceeding twenty-five percent (25%) of net worth; equity investment in any single enterprise limited to fifteen percent (15%) of net worth; equity investment must remain a minority holding; and equity investments in other banks are governed like commercial bank investments and are deducted from the investing bank’s net worth for computing the ratio in Section 9.
Section 12 prohibits equity investments in non-related activities.
Section 12 authorizes the Monetary Board to subject wholly- or majority-owned subsidiaries arising from allied activities to examination.
Under Section 12, equity investments include institutions engaged in: banking and financing; warehousing and other post-harvesting activities; fertilizer and agricultural chemical and pesticides distribution; farm equipment distribution; trucking and transportation of agricultural products; marketing of agricultural products; leasing; and other undertakings determined by the Monetary Board.

Supervision and examination powers

Section 13 provides that the Monetary Board’s supervision power includes: placing limits to maximum credit to individual borrowers; indicating the manner of technical assistance to thrift banks; imposing a uniform accounting system and manner of keeping accounts and records; instituting periodic surveys of loans and lending procedures; conducting audits and test-check of cash and other transactions; conducting training courses for thrift bank personnel; and generally supervising thrift bank business operations.
Section 13 empowers the Bangko Sentral to enforce laws, orders, instructions, rules, and regulations applicable to thrift banks.
Section 13 requires thrift banks and their directors, officers, and agents to conduct and manage affairs of the thrift bank in a lawful and orderly manner.
If a thrift bank or its board/officers manage affairs contrary to Monetary Board laws/orders/instructions/rules/regulations or in a manner substantially prejudicial to government depositors, creditors, or the general public, Section 13 authorizes the appointment of a conservator pursuant to Section 29 of Republic Act No. 7653, without prejudice to prosecution under Sections 36 and 37 of Republic Act No. 7653.
Section 13 authorizes directors and examiners of the Bangko Sentral department charged with supervising thrift banks to administer oaths and compel presentation of books, documents, papers, or records needed to ascertain the true conditions of any thrift bank or any loan.

Incentives and public notices

Section 14 provides that reserve requirements imposed on thrift banks by the Monetary Board enjoy equitable preferential terms over those imposed on commercial banks.
Section 14 authorizes the Monetary Board to change reserve differentials to stimulate economic growth in the countryside and promote national economic development.
Section 15 gives thrift banks unrestricted branching right within the region, free from any assessment or surcharges for setting up a branch, subject to coordination with the Bangko Sentral to ensure qualified personnel, control, and procedures to operate the branch.
Section 16 provides that, subject to Monetary Board approval, a thrift bank may publish its statement of condition in a newspaper of general circulation or post it in the most conspicuous area of its premises and specified public locations (municipal building, municipal public market, barangay hall, and barangay public market where applicable).

Exemptions and regulated transactions

Section 17 exempts all thrift banks—created or organized under the Act or in operation as of the Act’s effectivity—from all taxes, fees, and charges of whatever nature except corporate income taxes and local taxes, fees, and charges for five (5) years counted from: the date of commencement of operations for thrift banks created under the Act; and the date of effectivity of the Act for existing thrift banks.
Section 18 exempts foreclosure of mortgage covering loans granted by thrift banks and executions of judgments involving real properties from publication requirements when the loan amount excluding unpaid interest does not exceed One hundred thousand pesos (P100,000) or such amount as the Monetary Board may prescribe based on prevailing economic conditions and the nature of service of customers served.
Under Section 18, sufficient publication occurs if notice of foreclosure and execution of judgment is posted in specified locations (thrift bank premises, municipal building, municipal public market, barangay hall, and barangay public market where applicable) within sixty (60) days immediately preceding the public auction.
Section 18 requires proof of publication through an affidavit of the sheriff or officer conducting the foreclosure or execution, attached to the case records.
Section 18 allows a thrift bank to foreclose lands mortgaged to it under the condition that the lands are covered under Republic Act No. 6657.
Section 19 provides that metropolitan, municipal, or municipal circuit trial court judges in their capacity as notary public ex officio administer oaths or acknowledge instruments for thrift banks and their borrowers/mortgagors free of charges, fees, and documentary stamp tax collectible under existing laws for loans or transactions not exceeding Fifty thousand pesos (P50,000) or such amount as the Secretary of Finance may prescribe upon recommendation of the Monetary Board.
Section 20 requires that registers of deeds accept from thrift banks and their borrowers/mortgagors, free from charges, fees, and documentary stamp tax collectible under existing laws, any voluntary or involuntary instrument relating to loans or transactions not exceeding Fifty thousand pesos (P50,000).
Section 20 provides that charges collectible apply only to the amount in excess of Fifty thousand pesos (P50,000).
Section 20 treats consolidation of assignments of several mortgages in a single deed by levying only on the amount in excess of Fifty thousand pesos (P50,000) of the consideration in the assignment of each mortgage, or such amount the Secretary of Finance may prescribe upon recommendation of the Monetary Board.

Prohibited acts and penalties

Section 21 imposes penalties without prejudice to prosecution under other violated laws.
For any officer, employee, or agent of a thrift bank, Section 21 imposes a fine of not more than Ten thousand pesos (P10,000) or imprisonment of not less than six (6) months but not more than ten (10) years, or both, at the discretion of the court, for acts including making false entries in any bank report or statement affecting financial interest or causing damage; disclosing information regarding bank funds or properties of private individuals/corporations/entities without court order; accepting gifts/fees/commissions or other remuneration in connection with loan approval; overvaluing or aiding overvaluation of security to influence the bank’s action on a loan; appearing and signing as guarantor/indorser/surety for loans granted; or violating any provision of the Act.
For any applicant for a loan from or borrower of a thrift bank, Section 21 imposes the same fine/imprisonment/both penalties for misuse/misapplication/diversion of loan proceeds from declared purpose; fraudulent overvaluation of property offered as security; false or willful misinterpretation of material facts to obtain/renew/increase a loan or extend its period; attempting to defraud the bank in court action to recover a loan; offering a thrift bank officer/employee/agent gifts/fees/commissions or compensation to influence approval of a loan application; or disposing or encumbering the property offered as security.
Section 21 imposes the same fine/imprisonment/both penalties on any examiner or officer/employee of the Bangko Sentral or a government department/bureau/office/branch/agency assigned to examine, supervise, assist, or render technical service to thrift banks who connives or aids in the listed prohibited acts.
For any metropolitan, municipal, or municipal circuit trial court judge or register of deeds who demands or accepts any gift/fee/commission/compensation connected with service, or arbitrarily and without reasonable cause delays acknowledgment/administration of oath or registration of documents required, Section 21 imposes a fine of not more than One thousand pesos (P1,000) or imprisonment of not more than one (1) year, or both, at the discretion of the court.
Section 21 penalizes any bank not organized under the Act and any person/association/corporation doing banking business not authorized under the Act or existing laws that uses the words “Development Bank,” “Savings Bank,” “Mortgage Bank,” “Savings and Mortgage Bank,” or “Savings and Loan Association” as part of its name/title by imposing a fine of not less than One hundred pesos (P100) but not exceeding Thirty thousand pesos (P30,000) for each day those words are used.

General banking rules and administration

Section 22 allows minors, in their own rights and names, to make deposits, withdraw them, and receive dividends and interest.
Section 22 requires that if a guardian gives written notice to a thrift bank not to make payments of deposits/dividends/interest to the minor, payments must be made only to the guardian.
Section 23 requires deposits to be returned to depositors or their legal representatives in the manner and at the time and under conditions determined by the board of directors and stipulated in regulations conforming to law and Monetary Board regulations.
Section 24 provides that deposits in thrift banks are eligible for insurance coverage under Republic Act No. 3591, as amended.
Section 25 authorizes the Monetary Board, consistent with Section 28 of Republic Act No. 7653, to require thrift banks organized under the Act to contribute to the Bangko Sentral an annual fee in an amount determined by the Monetary Board, under Monetary Board regulations.
Section 26 authorizes the Bangko Sentral to require the services and facilities of any department or instrumentality of the government, or any officer or employee of such department/instrumentality, to carry out the Act’s objectives.
Section 27 requires the Monetary Board to submit an annual report to Congress at the end of each calendar year covering the rules and regulations it promulgated under the Act and its other actions regarding thrift banks, with explanations and recommendations on legislative actions.
Section 28 provides a parity clause: incentives granted must be enjoyed by financial institutions giving the same services for countryside lending and development on equitable terms as defined by the Monetary Board.

Separability, repeals, and applicability

Section 29 provides separability: if any provision or its application is held invalid, the remaining provisions and applications are not affected.
Section 30 repeals Republic Act No. 4093, Republic Act No. 3779 to the extent it applies to thrift banks, and Chapter 5 of Republic Act No. 337, and also repeals any law or parts of laws inconsistent with the Act.
Section 30 provides that, in matters affecting the price stability of the peso, the provisions of Republic Act No. 7653 prevail.
Section 31 applies Republic Act No. 7653 and Republic Act No. 337, as amended, to thrift banks insofar as applicable and not in conflict with the Act.
Section 32 sets effectivity: fifteen (15) days after completion of publication in the Official Gazette or in two (2) national newspapers of general circulation.