GENERAL BANKING
LAW & RELATED LAWS
(R.A. NO. 8791 AND OTHER LAWS)
WHAT ARE BANKS? CONSEQUENCES OF NATURE OF
BANKS
• "Banks shall refer to entities engaged in • Banks are subject to heavy and close
the lending of funds obtained in the form of supervision and/or regulation by the Bangko
deposits. - Sec. 3.1, General Banking Law Sentral ng Pilipinas;
• They are required to exercise utmost
• A "bank" is an entity regularly engaged in diligence in the handling of deposits;
the lending of funds obtained in the form of • There are special rules on strikes and
deposits from the public. lockouts.
ORGANIZATION OF BANKS CLASSIFICATION OF BANKS
The Monetary Board may authorize the • Universal Banks
organization of a bank or quasi-bank subject • Commercial Banks
to the following conditions: • Thrift Banks
• That the entity is a stock corporation; • Rural Banks
• That its funds are obtained from the public, • Other classification of banks as
which shall mean twenty (20) or more determined
persons; and
• That the minimum capital requirements RURAL BANKS
prescribed by the monetary board for each • Banks primarily engaged in countryside
category of banks are satisfied. lending and in lending to farmers and
agricultural enterprises.
NATURE OF BANKS
The State recognizes the vital role of banks • Banks that are created to make needed
in providing an environment conducive to credit available and readily accessible in the
the sustained development of the national rural areas for the purpose of promoting
economy and the fiduciary nature of comprehensive rural development.
banking that requires high standards of
integrity and performance. In furtherance • Rural Banks are governed by R.A. 7353,
thereof, the State shall promote and as amended, otherwise known as the
maintain a stable and efficient banking and Rural Bank Act of 1992
financial system that is globally competitive,
dynamic and responsive to the demands of • Loans and advances extended by rural
a developing economy. - Sec. 2, General banks organized and operated under the
Banking Law Rural Bank Act shall be primarily for the
purpose of meeting the normal credit needs
of farmers, fishermen or farm families
owning or cultivating land dedicated to
agricultural production as well as the normal
credit needs of cooperatives and • Islamic Banks are governed by R.A. No.
merchants. - Sec. 6, Rural Bank Act 6848, otherwise known as The Charter of
the Al-Amanah Islamic Investment Bank of
THRIFT BANKS the Philippines.
• A bank primarily engaged in extending
banking services to small and medium COMMERCIAL BANKS
enterprises and individuals. With prior • Banks primarily engaged in extending
monetary board approval, it may open banking services to small and medium
current and checking accounts and enterprises and individuals. It may open
engaged in quasi - banking operations. current and checking accounts and invest in
the equities of allied undertakings. It may
• Thrift banks provide short-term working also engage in quasi-banking operations.
capital, medium- and long-term financing, to
business engaged in agriculture, services, • Banks that are given all such power
industry and housing. - Sec. 3(a)(2),Thrift necessary to engage in commercial banking
Banks Act in addition to general corporate powers;
commercial banking includes the power to
•Thrift banks are governed by R.A. No. accept drafts, issue letters of credit,
7906, otherwise known as the Thrift Banks discounting and negotiation of negotiable
Act of 1995. instruments and evidence of debt, accept
and create demand deposits and the like.
COOPERATIVE BANKS
• Cooperatives which have joined together UNIVERSAL BANKS
in accordance with the Cooperative Act of • Commercial banks which can exercise the
the Philippines. powers of an investment house and invest
in non - allied enterprises.
• Banks that primarily provide financial,
banking and credit services to cooperative • Banks that have the authority to exercise,
organizations and their members. in addition to the powers and functions of
commercial banks, powers of an investment
• Cooperative Banks are governed by R.A. house and the power to invest in non - allied
No. 9520, otherwise known as the enterprises.
Philippine Cooperative Code of 2008.
TERMS TO NOTE
ISLAMIC BANKS
• Banks which provides banking service in • Quasi-Banking Operation / Function -
accordance with Islam. In Islam, the the term means borrowing funds, for the
collection or receipt of interest is forbidden. borrower's own account, through the
The funds placed by account holders are issuance, endorsement or acceptance of
invested in transactions and enterprises debt instruments of any kind other than
which are permissible under Islam. Islamic deposits, or through the issuance of
Banks are more like investment banks than participations, certificates, or of repurchase
standard banks. agreements, from twenty or more
certificates, lenders at any one time, for
purposes of relending or purchasing of (7) insurance agencies / brokerages,
receivables and other similar obligations. - (8) companies engaged in home building
Sec. 2(c), P.D. No. 1738 and home development,
(9) companies providing drying and/or
• Investment House - Any enterprise which milling facilities for agricultural crops
engages in the underwriting of securities of such as rice and corn,
other corporations. - Sec. 2, Investment (10) service bureaus organized to
Houses Law perform for and in behalf of banks and
non-bank financial institutions the
• Allied Undertaking / Enterprise - May services allowed by law to be
either be financial or non-financial allied outsourced,
undertakings. (11) Philippine Clearing House
Corporation (PCHC), Philippine Central
• Financial Allied Undertakings / Depository Inc. and Fixed Income
Enterprises: Exchange,
(1) leasing companies, (12) companies engaged in merchant
(2) banks, acquiring businesses, and
(3) investment houses, (13) such other activities as the Monetary
(4) financing companies, Board may declare as non-financial
(5) credit card companies, allied undertakings of banks. These also
(6) financial institutions catering to small include health maintenance
and medium scale industries including organizations (HMOs) that universal
venture capital, banks may invest in.
(7) companies engaged in stock brokerages
/ securities dealership, and • Non-Allied Undertakings / Enterprises:
(8) companies engage in foreign exchange (1) enterprises engaged in physically
brokerage / dealership. These also productive activities in agriculture,
include insurance companies and mining and quarrying, manufacturing,
holding companies that universal banks public utilities, construction, wholesale
may invest in. trade, and community and social
services following the industrial
Non-Financial Allied Undertakings / groupings in the Philippine Standard
Enterprises: Industrial Classification (PSIC),
(1) warehousing companies, (2) industrial park projects and/or
(2) storage companies, industrial estate developments,
(3) safe deposit box companies, (3) financial and commercial complex
(4) companies primarily engaged in the projects (including land development
management of mutual funds but not in and buildings constructed thereon)
the mutual funds themselves, arising from or in connection with the
(5) management corporations engaged or Government's privatization program,
to be engaged in any activity similar to (4) such other broad categories as the
the management of mutual funds, Monetary Board may declare as
(6) companies engaged in providing appropriate.
computer services,
FUNCTIONS OF BANKS quality. - Art. 1953, Civil Code of the
• Deposit Function Philippines
• Loan Function
• Other Functions • A bank deposit is not actually a deposit
under Article 1962 of the Civil Code since
OTHER FUNCTIONS safekeeping is not the purpose of the
In addition to operations specifically agreement.
authorized in the General Banking Law, a
bank may perform the following services as • A deposit is constituted from the moment a
depositary or as an agent: person receives the thing belonging to
another, with the obligation of safely
• Receive in custody funds, documents and keeping it and of returning the same. If the
valuable objects; safekeeping of the thing delivered is not the
principal purpose of the contract, there is no
• Act as financial agent and buy and sell, by deposit but some other contract. - Art. 1962,
order of and for the account of their Civil Code of the Philippines
customers, shares, evidences of
indebtedness and all types of securities; • The bank can use as its own the money
deposited. Said amount is not being held in
• Make collections and payments for the trust for the depositor nor is it being kept for
account of others and perform such other safekeeping.
services for their customers as are not
incompatible with banking business; • Third persons who may have a right to the
money deposited cannot hold the bank
• Upon prior approval of the Monetary responsible unless there is a court order or
Board, act as managing agent, adviser, garnishment. The duty of the bank is to its
consultant or Administrator of investment creditor-depositor and not to third persons.
management/advisory/consultancy
accounts. • The officers of the bank cannot be held
liable for estafa if they authorized the use of
• Rent out safety deposit boxes. the money deposited by the depositor.
DEPOSIT FUNCTION • The bank has the right to compensation. It
• Fixed, savings, and current deposits of can set off the deposits with the
money in banks and similar institutions shall indebtedness of the depositor that are due
be governed by the provisions of simple and demandable.
loan. - Art. 1980, Civil Code of the
Philippines LOAN FUNCTION
• A bank shall grant loans and other credit
• A person who receives a loan of money or accommodations only in amounts and for
any fungible thing acquires ownership the periods of time essential for the effective
thereof, and is bound to pay to the creditor completion of the operations to be financed.
an equal amount of the same kind and
• Such grant of loans and other credit PROHIBITION AGAINST OUTSOURCING
accommodations shall be consistent with OF INHERENT BANKING FUNCTION
safe and sound banking practices. No bank shall outsource inherent banking
functions such as:
• Before granting a loan or other credit • Taking deposits from the public;
accommodation, a bank must ascertain that • Granting of loans and extensions;
the debtor is capable of fulfilling his • Managing of risk exposures; and
commitments to the bank. • General management.
SINGLE BORROWER'S LIMIT WHAT IS OUTSOURCING?
• Consistent with national interest, the total • Outsourcing shall refer to any contractual
amount of loans, credit accommodations arrangement between a bank and a
and guarantees that may be extended by a qualified service provider for the latter to
bank to any person, partnership, perform designated activities on a
association, corporation or other entity shall continuing basis on behalf of the bank. -
at no time exceed twenty-five percent (25%) Sec. X162.2, Manual of Regulations for
of the net worth of such bank. The basis for Banks
determining compliance with the single
borrower's limit (SBL) is the total credit KINDS OF DEPOSITS
commitment of the bank to or on behalf of • Savings Account
the borrower. - Sec. 35.1, General Banking • Time Deposit
Law, as increased by the BSP • Demand Deposit or Current Account
• Joint Account
• The total amount of loans, credit
accommodations and guarantees SAVINGS DEPOSIT
prescribed in the first paragraph may be • The most common form of savings where
increased depending on the given the purpose is for the depositor to save his
circumstance. - Sec. money or for convenience. Since in
35.2, General Banking Law, as improved by practice, the money may be withdrawn at
the BSP any time, the interest paid by the back is
minimal.
PROHIBITED TO ACT AS INSURER
• A bank shall not directly engage in • Banks are prohibited from issuing /
insurance business as the insurer. - Sec. accepting withdrawal slips or any other
54, General Banking Law similar instruments designed to effect
withdrawals of savings deposit without
• Bancassurance: The presentation and requiring the depositors concerned to
sale to bank customers by an insurance present their passbooks and accomplishing
company of its insurance products within the necessary withdrawal slips, except for
the premises of the head office of such banks authorized by the BSP to adopt the
banks duly licensed by the BSP or any of its no passbook withdrawal system - Sec.X214,
branches. - Sec. 375, Insurance Code of the Manual of Regulations for Banks
Philippines
TIME DEPOSIT
A deposit made for a fixed period and which
may not be preterminated prior to the
maturity date unless a pretermination
penalty is paid. The interest paid is
consequently higher than a savings
account.
DEMAND DEPOSIT / CURRENT
ACCOUNT
• Otherwise known as a checking account.
• "Demand deposits" means all those
liabilities of the Bangko Sentral and of other
banks which are denominated in Philippine
currency and are subject to payment in legal
tender upon demand by the presentation of
checks. - Section 58, New Central Bank Act
• Generally, only a universal bank or a
commercial bank can accept or create
demand deposits. A bank other than a
universal bank or a commercial bank cannot
accept deposits except upon prior approval
of the Monetary Board.
• Temporary overdrawing against current
accounts shall not be allowed unless
caused by normal bank charges and other
fees incidental to handling such accounts.
JOINT ACCOUNTS
• Whenever two or more persons open an
account, the same may be an "or" account
or an "and" account. An "or" account
requires only the signature of either account
holders for withdrawals. An "and" account
requires the signatures of all account
holders.
• Account holders of joint accounts are
presumed co - owners of the same. Such
presumption, however, may be overturned
by contrary evidence.
