CHAPTER 2:
BANK
ORGANIZATION
BANK ORGANIZATION
• it provides the basic information about
establishing a bank, including pertinent
laws, rules and regulations.
GENERAL ASPECTS IN ESTABLISHING BANKS
1. ECONOMIC JUSTIFICATION 2. SELECTION OF
FOR BANKS STOCKHOLDERS
ascertain the degree of should ascertain they are of good
competition in the business, the moral character, adequate knowledge
degree of risk, potential customers, in the business of banking, equipped
availability of manpower, the with the necessary capital, known in
businesses and products within the the community as honest and
locale, the habits and custom of righteous citizens and are both willing
people, and such other matters and able to contribute the banks
which will contribute to the bank's success.
successful operation.
3. DETERMINATION Of THE KIND 4. DETERMINATION Of THE AMOUNT OF
OF BANK TO BE FORMED CAPITAL TO BE RAISED
depends on the economic survey; depends on the type of bank. They
income of the community, business must be aware that at least the
and industries, the population of the minimum requirements should be met.
place and number of banks and These are to cover organizational
factors which lead to a decision on expenses; to carry on operations which
the size of the organization to be will require current capital; to provide
set up. for acquisition of fixed assets and
include enough room for the initial cost
of operation.
ORGANIZATION, MANAGEMENT, AND
ADMINISTRATION
The New General Banking Act (RA 8791) requires that all banks shall
be established as corporations. With the exception of building and
loan associations, all banking institutions shall be stock
corporations and shall without exception issue par value stocks.
Provisions of the New Central Bank Act:
Sec. 8. Organization. The Monetary Board may authorize the
organization of the bank or quasi-bank subject to the following
conditions:
8.1. That an entity is a stock corporation;
8.2 That its funds are obtained from the public, which shall mean twenty (20
more persons;
8.3. That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
Sec. 9. Issuance of Stock. The Monetary Board may prescribe rules
and regulations on the type of stocks a bank may issue; including
the terms thereof and rights appurtenant thereof to determine
compliance with the laws and regulations governing capital and
equity structure of banks, provided, that banks shall issue par
value stock only.
Sec. 10. Treasury Stocks. No Bank shall purchase or acquire of its
own capital stock or accept its shares as a security for loan,
except when the stock so Foreign Stockholdings. Foreign
individuals and non-bank corporations may own or control up to
forty percent (40%) of voting stock of a domestic bank. This rule
shall apply to Filipinos and Domestic non-bank corporations.
The percentage of foreign-owned voting stocks in a bank shall be
determined by the citizenship of the individual stockholders in that bank.
The citizenship of the corporation which is a stockholder in a bank shall
follow the citizenship of the controlling stockholders of the corporation,
irrespective of the place of incorporation.
Sec. 11. Meetings. The Monetary Board shall meet at least once a week.
The Board may be called to a meeting by the Governor of the Bangko
Sentral or by two (2) other members of the Board.
Sec. 12. Stockholdings of Family groups or Related Interest. Stockholdings
of individuals related to each other within the fourth degree of
consanguinity or affinity, legitimate or common law, shall be considered
family groups transactions by such an individual with the bank.
Sec. 13. Corporate Stockholdings. Two or more corporations owned or
controlled by the same family group or same group of persons shall be
considered related interest and must be fully disclosed in all transactions by
such corporations or related groups of persons with the bank.
Sec. 14. Certificate of Authority to register. The Securities and Exchange
Commission shall not register the articles of incorporation of any bank, or
any amendment thereto, unless accompanied by a certificate of authority
issued by the Monetary Board, under its seal. Such certificate shall not be
issued unless the Monetary Board is satisfied from the evidence submitted
to it:
14.1. That all requirements of existing laws and regulations to engage in the
business for which the applicant is proposed to be incorporated have been
complied with;
14.2. That the public interest and economic conditions, both general and local
justify the authorization:
14.3. That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers
and administrators reasonably assure the safety of deposits and the public
interest.
The Securities and Exchange Commission shall no register the by-
laws of any bank, or any amendment thereto, unless accompanied by
a certificate.
Sec. 15. Board of Directors. The provisions of the Corporation Code to
the contrary notwithstanding, there shall be at least five (5), and a
maximum of fifteen (15) members of the board of directors of a bank,
two (2) of whom shall be independent directors. An "independent
directors" shall mean a person other than an officer or employee of
the bank, its subsidiaries or affiliates, or related interests. Non-
Filipino citizens may become member of the board of directors of a
bank to the extent of the foreign participation in the equity of said
bank. The meetings of the board of directors may be conducted
through modern technologies such as, but not limited to,
teleconferencing and video-conferencing. Furthermore, in conformity
with the Corporation Code and the Basic Guidelines in establishing
banks, the following points must also be taken into account:
a.) That there should be not less than five (5) nor more than fifteen (15)
incorporators. In case there are more than fifteen (15) persons initially
interested in organizing and investing in proposed bank, the excess may be
listed among the original subscribers in the Articles of Incorporation;
b.) That at least twenty five percent (25%) of the total authorized capital
stock shall be subscribed by the subscribers of the proposed bank and at
least twenty five percent (25%) of such subscription shall be paid- up,
provided that in no case shall the paid-up capital be less than the minimum
required capital;
c.) That a majority of the incorporators are resident of the Philippines;
d.) Incorporators must possess the capacity to contract, which means that
they must be of majority age, and are competent to enter into contractual
obligations; and
e.) That the number of members of the board of directors of the bank shall
not be less than five (5) nor more than fifteen (15) and shall always be in
odd number and at least two (2) of the directors are "independent
directors".
Sec. 16. Fit and Proper Rule. To maintain the quality of bank management
and afford better protection to depositors and the public in general, the
Monetary Board shall prescribe, pass upon review the qualifications and
disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend, or remove any bank director or officer who commits or omits an
act which render him unfit for the position. In determining whether an individual is
fit and proper to hold the position of a director or officer of a bank, regard shall be
given to hid integrity, experience, education, training, and competence.
Sec. 17. Directors of Merged or Consolidated Banks. In the case of a bank
merger or consolidation, the number of directors shall not exceed twenty-
one (21).
Sec. 18. Compensation and Other benefits of Directors and Officers. To
protect the funds of depositors and creditors, the Monetary Board may regulate
the payment by the bank of its directors and officers of compensation,
allowances, fees, bonuses, stock options, profits sharing, and fringe benefits
only in exceptional cases and when the circumstances warrant, such as;
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be in an
unsatisfactory financial condition.
Sec. 19. Prohibition on Public Officials. Except as otherwise provided in the Rural
Banks Act, no appointive or elective public officials, whether full-time or part-
time, shall at the same time serve as officer of any private bank, save in case
where such service is incident to financial assistance provided by the government
or a government owned or controlled corporation to the bank or unless otherwise
provided under existing laws.
Sec. 20. Bank Branches. Universal or commercial banks may open branches or
other offices within or outside the Philippines upon prior approval of the Bangko
Sentral. Branching by all other banks shall be governed by pertinent laws. A bank
may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sales of the financial products of
its allied undertaking or if its investment house units. A bank authorized to
established branches or other offices shall be responsible for all business
conducted in such branches and offices to the same extent and in the same
manner as though such business had all been conducted in the head office. A
bank and its branches and offices shall be treated as one unit.
Sec. 21. Banking Days and Hours. Unless otherwise authorized by the
Bangko Sentral in the interest of the banking public, all banks including
their branches and offices shall transact business on all working days for
at least six (6) hours a day. In addition, banks or any of their branches or
offices may open for business on weekends or holidays for at least three
(3) hours a day, provided, that banks which opt to open on days other
than working days shall report to the Bangko Sentral the additional days
during which they or their branch or offices shall transact business.
Sec. 22. Strikes and Lockouts. The banking industry is hereby declared as
indispensable to the national interest and notwithstanding the provisions of
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any law to
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after seven (7) calendar
condimentum. Proin odio days shall be reported by the Bangko Sentral to the
odio.
Secretary of Labor who may assume jurisdiction over the dispute or decide
it or certify the same to the National Labor Relations Commission for
compulsory arbitration. However, the President of the Philippines may at
any time intervene and assume jurisdiction over such labor dispute in order
to settle of terminate the same.
LICENSING OF FOREIGN BANKS
Sec. 72. Transacting Business in the Philippines. The entry of
foreign banks in the Philippines through the establishment of
branches shall governed by the provisions of the Foreign Banks
Liberalization Ant. The conduct of offshore banking unit in the
Philippines shall be governed by Presidential Decree No. 1034,
known as "Offshore Banking System Decree".
Sec. 73. Acquisition of Voting Stock in a Domestic Bank. The
Monetary Board may authorized the foreign bank to acquire up to
100% of the voting stock of only one (1) bank organized under the
laws of the Republic of the Philippines. Remy
Marsh
Sec. 74. Local Branches of Foreign Banks. In the case of foreign
banks which have more than one (1) branch in the Philippines, all
such branches shall be treated as one (1) unit for the purpose of
this Act, and all references to the Philippines branches of foreign
banks shall be held to refer to such units.
Sec. 75. Head Office Guarantee. The head office of such
branches shall fully guarantee the prompt payment of all
liabilities of its Philippine branch. Residents and citizens of
the Philippines who are creditors of a branch in the
Philippines of a foreign bank shall have preferential rights to
the asset of such branch in accordance with existing laws.
Sec. 76. Summon and Legal Process. Summons and legal
foreign process served upon the Philippine agent or head of
any foreign bank designated to accept service there of shall
give jurisdiction to the courts over such bank. and service
of notice on such agent or head shall be as binding upon the
bank which he represents as if made upon the bank itself.
Sec. 77. Laws Applicable. Any foreign bank licensed to do business in the
Philippines shall be bound by the provision of this act, all other laws, rules,
and regulations applicable to banks organized under the laws of the
Philippines of same class, except those that provide for the creation,
formation, organization or dissolution of corporations or for fixing of the
relations, liabilities, responsibilities, or duties of stockholders, members,
directors, or officers of corporation to each other or to the corporation.
Sec. 78. Revocation of License of a Foreign Bank. If it finds that the foreign
bank is insolvent or in imminent danger thereof or that its continuance in
business will involve probable loss to those transacting business with it. After
the revocation of its license, it shall be unlawful for any such foreign bank to
transact business in the Philippines unless its license is renewed or reissued.
WHY BANKS ARE ESTABLISHED AS CORPORATIONS
A corporation is formed by a number of persons who pool in their
resources to enter a business for profit.
Banks, which by their nature, deal in large amount of capital.
Furthermore, loans are given out for long durations in some
instances and only an entity with a long tenure could be beneficial
in such case.
A corporation then meets the test of its perpetual life.
The risk of an investor is also limited to the extent of his
contribution in the business, and above all a corporation's charter
represents a tripartite contract among the state, the stockholders,
and the bank.
ROLE OF REGULATORY GOVERNMENT BODIES IN BANK ORGANIZATION
The role of the regulatory government bodies' organization is to
facilitate the processing and approval of pertinent documents to
make the organization legal.
The Security and Exchange Commission, for its part, also examine
the papers to see to it that all requirements are met before issuing
the certificate of incorporation.
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