General Banking Law of 2000 (RA 8791)

General Banking Law of 2000 (RA No. 8791)

• Banks engage in lending funds, obtained from the public, in the form of deposits.
• Public means having 20 or more lenders.

19-Lender Rule

• Borrowing from up to 19 lenders is regular lending activity.
• Borrowing from 20 or more lenders triggers quasi-banking regulations.
• Quasi-banking involves taking money from a large number of people for lending or investment, and is subject to regulation.

Illegal Banking

• Engaging in illegal banking results in civil and criminal liabilities.
• These liabilities are imposed on corporations, their officers, and directors.
• The General Banking Act (GBA) and Central Bank Act (CBA) provide this information.

Requirements for Granting a Banking License (Sec. 8)

• The entity must be organized as a stock corporation.
• Funds must be obtained from the public.
• Minimum capital requirements prescribed by the Monetary Board is necessary for each bank category.
• To register the by-laws of any bank with the SEC, a Certificate of Authority from the BSP is necessary.
• The entity should have at least five directors, with a maximum of fifteen.
• The ownership of a stock corporation is divided into shares of stock.
• Stock corporations can distribute dividends to their shareholders from surplus profits.

Classifications of Banks (Sec. 3.2)

• Universal Banks (UBs) are the largest, most complex banks, authorized for a wide range of financial activities and have the highest capital requirements.
• Commercial Banks (KBs) offer a broad range of services, including accepting deposits, making loans and providing payment services ; they have lower minimum capital requirements than UBs but higher than TBs and RBs.
• Thrift Banks (TBs) focus on savings and lending, often to specific sectors, and possess lower minimum capital requirements than commercial banks.
• Rural Banks (RBs) serve rural communities, providing basic banking services, including deposit-taking and lending to farmers and small businesses; they have the lowest minimum capital requirements.

Universal Banks

• Giants of the Philippine banking industry, offering the broadest range of financial services.
• BDO Unibank is the largest bank in the Philippines based on assets.
• Metropolitan Bank & Trust Company (Metrobank) is another major player with a wide network.
• Bank of the Philippine Islands (BPI) is one of the oldest banks in the country.
• China Banking Corporation (China Bank) is a significant player in the commercial banking space.

Commercial Banks

• Philippine National Bank (PNB) is a significant commercial bank with a long history.
• Security Bank Corporation is a well-known commercial bank.
• Union Bank of the Philippines is known for innovative banking solutions.
• Rizal Commercial Banking Corporation (RCBC) is a prominent commercial bank with a strong presence.

Thrift Banks

• Philippine Savings Bank (PSBank) focuses on consumer and retail banking.
• BPI Family Savings Bank is a subsidiary of BPI, specializing in savings and loan products.

Domestic Banks vs. Foreign Banks

• Domestic Banks are incorporated and primarily owned by Filipino citizens/corporations.
• They are subject to the full range of regulations imposed by the BSP and are focused on serving the local market.
• Domestic banks possess extensive branch networks across the country.
• Foreign Banks are incorporated and primarily owned by entities based in other countries.
• They are also regulated by the BSP.
• Foreign banks have a broader focus, serving local and international clients and may specialize in corporate or investment banking.
• Foreign banks may have established a presence in the Philippines, but their branch networks are not as extensive as domestic banks.

Board of Directors of Domestic Banks

• There must be at least five directors, and no more than fifteen.
• At least two members must be "independent directors" who are not officers, employees, or related to the bank.

Foreign Ownership in Domestic Banks

• Non-Filipino citizens or foreigners can be elected as directors of a domestic bank to the extent of their actual foreign equity.
• Foreign individuals and non-bank corporations can own or control up to 40% of the voting stock of a domestic bank.

Control Test Theory in Foreign Ownership

• The percentage of foreign-owned voting stocks is determined by the citizenship of individual stockholders.
• The citizenship of a corporate stockholder follows citizenship of the controlling stockholders.

Foreign Officers in Domestic Banks

• Non-Filipino citizens/foreigners cannot be appointed as officers of a domestic bank.
• The Anti-Dummy Law restricts foreign involvement in the management, operation, and control of banking and finance businesses.

Nature of Bank Funds and Bank Deposits

• Bank deposits are governed by the law on loans.
• A creditor and debtor relationship is created between the bank and its depositors.

Diligence Required of Banks

• Banks must exercise more diligence than a good father of a family due to the fiduciary nature of their relationship with depositors.
• Banks must exercise the highest degree of diligence.
• They must observe high standards of integrity because business is imbued with public interest.

Other Services Banks May Render (Section 53)

• Banks can receive in custody funds, documents, and valuable objects.
• Banks can act as financial agents and can buy and sell shares, evidences of indebtedness, and all types of securities by order.
• Banks can make collections/payments for the account of others.
• With prior approval, they can act as a managing agent, adviser, consultant, or administrator of investment accounts.
• Banks can rent out safety deposit boxes.

Legal Relationship with Safety Deposit Box Clients

• The relationship between a bank and its safety deposit box clients is that of a bailee and bailor.
• A contract for the use of SDB is a special kind of deposit.
• The bank must exercise the diligence of a good father of a family.

Core Function of Banks

• Banks act as intermediaries between savers (depositors) and borrowers.
• Banks collect deposits and lend those funds to individuals, businesses, and governments.
• Banks earn income primarily through the interest they charge on loans, which is greater than interest paid on deposits.
• Granting loans is a fundamental part of a bank's operation.

Single Borrower's Limit (SBL)

• The total amount of loans, credit accommodations, and guarantees a bank extends shall not exceed 25% of the net worth of such bank.

DOSRI (Directors, Officers, Stockholders, and Related Interests) Rules and Regulations

• No director or officer of any bank can directly or indirectly borrow from such bank.
• They cannot become a guarantor, endorser, or surety for loans from such bank, unless approved with the majority of the directors.
• DOSRI regulations set limits on the amount of loans extended to DOSRI borrowers, expressed as a percentage of the bank’s capital.
• Banks must report DOSRI loans to regulatory authorities like the BSP.
• DOSRI transactions must be conducted at "arm's length," with terms comparable to those offered to unrelated borrowers.

Legal Effects of Non-Compliance with DOSRI Rules

• Upon due notice, the office of any bank director or officer violating these provisions may be declared vacant.
• The director/officer will be subject to the penal provisions of the New Central Bank Act.
• The loan transaction is valid but without prejudice to criminal prosecution against the erring DOSRI.

Mortgage

• A mortgage is a loan secured by real property.
• The borrower (mortgagor) pledges the property as collateral to the lender (mortgagee).
• Should the borrower fail to repay the loan the lender can foreclose on the property to recover debt.

Foreclosure of Mortgage by Banks

• The ordinary execution sale occurs when a bank sues for failure to pay an unsecured personal loan, obtains a court judgement, levies/seizes land, conducts a public auction with the proceeds going to pay the judgement to the bank and any remaining funds are given to the debtor.
• The judicial foreclosure sale occurs in cases where secured loans default payments, China Bank files a lawsuit for judicial foreclosure, the court issues a judgement of foreclosure, the sheriff conducts a public auction under court supervision and use the proceeds are used to pay the mortgage debt, court costs, and related expenses with any remaining funds going to the debor.
• The Extrajudicial Foreclosure sale occurs hen a bank takes action following procedures of Act No. 3135, to publish notices of the sale ina newpaper and publicly post notices, a public auction is conducted by the sheriff and the proceeds are used to pay mortgage debt and expenses with any remaining funds going to the debtor.

Right of Redemption in Relation to Mortgage

• This represents the mortgagor's prerogative to reacquire the mortgaged property after the foreclosure sale; this is conditioned on the payment of the redemption price within a legally defined period.
• The right exists only in cases of an extrajudicial foreclosure of real estate mortgage.

Equity of Redemption

• Represents the right of the mortgagor to avoid divestment of real property ownership by paying the mortgage debt fixed by the court, within a period of 90-120 days from entry of judgement; default results in an auction to satisfy judgement with judicial confirmation of the sale.
• When the mortgagee is a bank, equity of redemption provides one year to redeem after court confirmation of property sale order.

Redemption Price with Bank Mortgagee Under General Banking Law

• The law stipulates for redemption the amount due under mortgage deed, interest rates, all costs/expenses incurred by bank from sale/custody, minus earned income.

Redemption Period Reduction

• Three-month real property redemption is allowed following foreclosure/registration certificate provided the mortgagor is juridical, the foreclosure is extrajudicial and the mortgagee is a bank.

Powers of Banks to Acquire/Hold/Convey Property (Sec. 52)

• A bank may hold real property mortgaged to it as security for debts.
• A bank may hold real property conveyed to it in satisfaction of debts previously contracted.
• A bank may purchase property at sales under judgements, decrees, mortgages, or trust deeds held.

Limitations on Bank's Power to Hold/Convey Property (Sec. 52)

• Banks must sell or dispose of acquired real property within five years, or as prescribed by the Monetary Board.
• Banks may continue to hold the property for its own use, after said period, subject to limitations.

Foreign Banks and Real Property

• Foreign banks cannot own real property.
• They can bid and take part in foreclosure sales of real property mortgaged to them.
• They can take possession of the mortgaged property for a period not exceeding five years from actual possession.
• In no event title to the property be transferred to such foreign bank.
• If the bank is the winning bidder, it must transfer it's rights to a qualified Philippine national.

Banks and Insurance Business

• Banks cannot directly engage in insurance business as the insurer.
• A bank can organize a subsidiary to engage in insurance business and cross-sell to its clients.

BDO Life Assurance Company, Inc.

• BDO Unibank, Inc. (BDO) is the Parent Bank, and BDO Life Assurance Company, Inc. is the Subsidiary.
• BDO Life operates as a distinct insurance company with its own management, underwriting processes, and claims handling.
• BDO Unibank uses its branch network to cross-sell BDO Life's insurance products.
• Bank personnel may offer insurance products to BDO's depositors and loan customers, and the client is to know the insurance products is from BDO Life.

Prohibited Transactions under GBL

• No bank director, employee, or agent shall disclose private funds without a court order.
• No bank agent shall accept gifts, fees, or commissions.
• Banks shall not outsource inherent banking functions.
• Banks shall not employ casual employees in bank deposit activities.
• Banks shall not conduct business in an unsafe and unsound manner.

Bangko Sentral ng Pilipinas (BSP)

• The BSP is a GOCC acting as the independent central monetary authority of the country.
• The BSP provides policy directions in money, banking, and credit.
• The BSP supervises banks and exercises regulatory and examination powers over non-bank financial institutions.
• The BSP promotes monetary stability and the peso's convertibility.
• The BSP promotes financial stability and works closely with the National Government.

BSP as Lender of Last Resort

• The BSP can lend to banks and similar institutions in financial distress.
• The general public cannot obtain loans from the BSP.
• Banks are considered the usual lenders to the public.

Corporate Powers of the BSP

• Enters into contracts.
• The right to own real/personal property and sell the same as well to sue and be sued.

Exercise of BSP Powers and Functions

• Exercised by the Monetary Board of seven members, appointed by the President for six-year terms.

Legal Tender Power of Notes and Coins

• All notes and coins issued by the BSP have the backing of the government.
• These are legal tender in the Philippines for all debts, both public and private.
• One peso- 20 peso coins are legal tender for obligations not exceeding P1,000.
• 1 centavo- 25 centavo coins are legal tender for obligations not exceeding P100.

Secrecy of Philippine Currency Bank Deposits (RA No. 1405)

• It is unlawful to disclose or allow the examination of any information concerning Philippine currency bank deposits and investments in government securities to any person whom so ever, be it government officials or office.

Covered Parties Under the Bank Secrecy Act

• Bank officials and employees are covered under the BAnk Secrecy Act.
• Non-bank officials and employee are not covered.
• Disclosure to perform banking duties is not prohibited - it may occur with a co-worker.

Cases Where Disclosure is Legal

• The law allows disclosure if there is written permission from the depositor.
• Disclosure may occur in cases of impeachment, by order of a competent court in cases of bribery/dereliction, money deposited where litigation is underway, prosecution of unexplained wealth(plunder), the violation of the Anti-Graft and Corrupt Practices Act, Anti-Money Laundering Law violations or Garnishment of bank deposits.
• The BIR may determine taxes of the deceased/gross estates with estate tax.
• The BIR may explore bank deposits from compromise of tax liability and financial incapacity.

Subpoena of Bank Records

• Under scrutiny is the Senate's legitimate to subpoena bank deposit records for cases under investigation with the committee as well as for Estafa and/or violation of BP 2, the validation of bank records is to happen during the clarificatory process.