Reviewer General Banking Law PDF

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GENERAL BANKING LAW (R. NO. 8791), LAW ON SECRECY OF DEPOSITS AND RELATEDLAWSBANKS - entities engaged in the lending of funds obtained in the form of deposits from the public - Must be stock corporations and funds are obtained from the public (min. of 20 depositors) - Banking is fiduciary in nature ...

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GENERAL BANKING LAW (R.A. NO. 8791), LAW ON SECRECY OF DEPOSITS AND RELATED LAWS BANKS - entities engaged in the lending of funds obtained in the form of deposits from the public - Must be stock corporations and funds are obtained from the public (min. of 20 depositors) - Banking is fiduciary in nature that requires high standards of integrity and performance  Requirements after SEC Application: Certificate of Incorporation, Cert. of Authority fr. BSP Investment Company  If engaged solely in investing, reinvesting or trading in securities – not engaged in banking  If loans out the money of its customers, collects interests and charges a commission to both ender and borrower – engaged in banking Quasi Banks – engaged in borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purpose of relending or purchasing of receivables Deposit Substitutes – alternative forms of obtaining funds from the public, other than deposits, through the issuance, endorsement or acceptance of debt instruments for the borrower’s own account for the purpose of relending or purchasing of receivables and other obligations Consequences of nature of business: 1. Subject to heavy and close supervision and / or regulation by the Bangko Sentral ng Pilipinas 2. Required to exercise utmost diligence in handling of deposits 3. Any strike or lockout involving banks, if unsettled after 7 calendar days, shall be reported by BSP to Sec. of Labor, 2 options a. May assume jurisdiction over and decide the dispute b. Certify to NLRC for compulsory arbitration 4. President may intervene and assume jurisdiction over such labor dispute Authority to Incorporate and Operate - Articles of Incorporation filed with the Securities and Exchange Commission accompanied by the favorable recommendation (certificate of authority) of the BSP Classification of Banks 1. Universal Banks - have authority to exercise, in addition to the powers and functions of commercial banks, powers of an investment house and the power to invest in non-allied enterprises. 2. Commercial Banks - banks that are given all such power necessary to engage in commercial banking in addition to general corporate powers; commercial banking includes the power to accept drafts, issue letters of credits, discounting and negotiation of negotiable instruments and evidence of debt, accept and create demand deposits and the like. 3. Rural banks - banks that are created to make needed, credit available and readily accessible/ in the rural areas for the purpose of promoting comprehensive rural development o Public officers can be directors 4. Thrift banks - include savings and mortgage banks, private development banks, and stock savings and loan associations 5. Cooperative banks - banks that primarily provide financial, banking and credit services to cooperative organizations and their members 6. Islamic Banks 7. Banks determined by Monetary Board of the BSP  

Only universal bank and commercial banks can create and accept demand deposits without separate authority from the Monetary Board while others must Only universal banks may act as an investment house

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Only universal banks and commercial banks may be involved in quasi-banking function Incorporators of banks are natural persons, exception: rural banks can be organized or established by cooperatives and corporations primarily organized to hold equities Rural Banks must be wholly owned by Filipinos while other banks require 40% Filipino ownership of voting stocks Public offering of shares is necessary for domestic banks seeking authority to act as universal bank while there is no such requirement for other banks

Functions of Banks  Basic Function: Deposit Function and Loan Function  Universal banks and commercial banks (as well as other banks depending on the type of bank and/or the corresponding authority given by the Monetary Board) may also exercise any of the following functions:  Receive in custody funds, documents and valuable objects;  Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities;  Make collections and payments other for the account of others and erform such other services for their customers as are not incompatible with banking business  Upon prior approval of MB, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts  Rent out safety deposit boxes Prohibited Acts  Banks are prohibited from engaging in insurance business.  Outsourcing of functions are generally prohibited. Example: A bank cannot hire another company to accept deposits. (to maintain utmost diligence) DEPOSIT FUNCTION - Simple Loan – fixed, savings and current deposits of money in banks (Bank is the debtor while the depositor is the creditor) Consequences: 1. Bank can make use as its own the money deposited 2. Third persons who may have a right to the money deposited cannot hold the bank responsible unless there is a court order or garnishment. 3. No Liability for estafa even if the bank failed to return the amount deposited 4. Bank has the right to compensation, it can set off deposits with the indebtedness of the depositor that are due and demandable Depositors 1. Minors: can open bank accounts which should be savings or time deposits, at least seven years of age, able to read and write and have sufficient discretion and not disqualified by other capacity.  Parents may nevertheless deposit for their minor children and guardians for their wards Kinds of Deposits 1. Demand Depositschecking account/current account – liabilities of banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by presentation of checks subject to: a. Only universal or commercial bank can accept or create demand deposits, other banks with prior approval of Monetary Board

b. Temporary withdrawing against current accounts shall not be allowed unless caused by normal bank charges and other fees incidental to handling such accounts c. Drawings against uncollected deposits are generally prohibited 2. Savings Account – most common type evidenced by passbook a. A bank is negligent if it allows the withdrawal without requiring the presentation of a passbook 3. Negotiable Order of Withdrawal (NOW) Accounts – interest-bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings accounts, checking account with interest 4. Time Deposit – account with fixed term Interests – demand, savings, NOW accounts, time deposits and deposit substitutes shall not be subject to interest ceilings 

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Anonymous Accounts are prohibited. Exception: Foreign currency deposits which may be numbered account however, necessary measures should be undertaken by the bank to record and establish the true identity of the depositor Joint Accounts may be the subject of a survivorship agreement (transferring the balance to the survivor upon the death of one of them)

Secrecy of Bank Deposits - All deposits including investments in bonds issued by the Phil. Gov’t are considered absolutely confidential and may not be examined, inquired or looked into by any person, government official, bureau or office. Exceptions: 1. Written permission of the depositor or investor 2. Impeachment cases 3. Upon order of a competent court of: a. Bribery or dereliction of duty of public officials b. Money deposited or invested is the subject of litigation c. Involving unexplained wealth under the Anti-Graft and Corrupt Practices Act d. With probable cause of money laundering  Court order is not even necessary when offense is: i. Kidnapping for ransom ii. Under Comprehensive Dangerous Drugs Act iii. Hijacking, destructive arson and murder, those perpetrated by terrorists against non-combatant persons and similar targets 4. Upon inquiry by the Comm. of Internal Revenue for determining the net estate of a deceased depositor 5. Disclosure to the Phil. Treasurer for dormant deposits for at least 10 years under Unclaimed Balances Act 6. Order of Court of Tax Appeals, examination by law enforcement officers in terrorism cases under Human Security Act of 2007 Exception don’t apply to foreign currency deposits, exception for such are: 1. With written consent of depositor (Foreign Currency Deposits Act) 2. Section 11 of Anti-Money Laundering Act 3. Section 27 and 28 of Human Security Act   

Non-disclosure without court order of any information relative to the funds or properties of its clients is also required Inquiry into bank deposits allowable and must be premised on the fact that the money deposited in the account is itself the subject of the action. The admission of testimonial (ad testificandum) and documentary (duces tecum) evidence relative to respondent’s security bank account served no other purpose than to establish

the existence of such account, its nature, and the amount kept in it, hence an impermissible inquiry. GARNISHMENT – issued to all banks which is a technique used to recover money from people with substantial outstanding debts - Bank accounts may be garnished by the creditors of the depositor however, amount of deposit is actually not disclosed - Ask the manager of all banks of the accused has a sufficient amount to pay his debt and withdraw such if it has deposited fund and the bank should respond to 

Deposits exempt from garnishment: Foreign Currency Deposits and those exempt under the Rules of Civil Procedure

DEPOSIT INSURANCE - All deposits in banks are insured with the Philippine Deposit Insurance Corporation or PDIC. Deposit – unpaid balance of money or its quivalent received by a bank in the usual course of business and for which it has given r is obliged to give credit to a commercial, checking, savings, time or thrift account or issued in accordance with BSP rules and regulations  In any negotiable certificate of deposit, owner or holder shall be recognized as a depositor only if his name is registered as owner/holder thereof in the books of the issuing bank Insured Deposit – mount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of closure but not to exceed P500,000.00  Maximum deposit insurance may be adjusted provided that the 1. Monetary Board determined that there is a condition that threatens the monetary and financial stability of the banking system that may have systemic consequences 2. Adjustments is proved by a unanimous vote of the Board of Directors of PDIC chaired by Sec. of Finance 3. Approved by the President of the Phil. Deposits not covered by insurance: 1. Amount in excess of insured deposit of P500,000.00 2. Deposit payable outside the Phil 3. Investment products such as bonds and securities, trust accounts 4. Deposit accounts or transaction which are unfounded or that are fictitious or fraudulent 5. Deposit accounts or transaction constituting, and/or emanating from, unsafe and unsound banking practice 6. Proceeds of an unlawful activity as defined in Anti-Money Laundering Law 7. Resulted from splitting of deposit – deposited or balance of more than P500,000.00 under the name of persons is broken down and transferred to two or more accounts in the name of persons or entities who have no beneficial ownership in the transferred deposits in their names within 120 days immediately preceding or during a bankdeclared bank holiday or immediately preceding a closure order issued by the Monetary Board for the purpose of availing the maximum deposit insurance coverage 8. Money placements by the head office of a foreign bank in its branch in the Phil. (only one entity)   

A joint account shall be insured separately from any individually-owned deposit account Account held jointly by 2 or more natural persons or juridical persons, maximum insured shall be divided into as many equal shares as there are individuals, juridical persons or entities, unless been stipulated by them Account held by a juridical person/entity jointly with one or more natural persons, maximum insured deposit shall be presumed to belong entirely to such juridical person/entity

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The aggregate (combination/collection) of the interest of each owner over several joint accounts shall likewise be subject to the maximum insured deposit Proceeds of the insurance shall be paid by the PDIC whenever the insured bank is closed on account of insolvency Liability of the PDIC for insured deposits rests upon the existence of deposits with insured bank, not on the negotiability or non-negotiability of the certificates evidencing these deposits Claim must be filed within 2 years from actual takeover by the receiver

UNCLAIMED BALANCES - Deposits that have become dormant for a period of 10 years may be escheated in favor of the government - Include credits or deposits of money, bullion (gold/silver bars), security or other evidence of indebtedness of any kind and interest thereon with banks, buildings, and loan assoc. and trust assoc. - Notice to the depositor of the unclaimed balance must be done first, thereafter, the bank is required to report (sworn statement) to the Phil. Treasurer its existence who will then inform the SolGen who will then initiate the proper escheat (reversion of property to state) proceedings in court. Phil. Treasurer shall then deposit such to the credit of the Gov’t to be used as the Congress may direct. - Publication of the list of unclaimed balances is required to safeguard the right of the depositors, their heirs and successors in interest to due process LOAN FUNCTION Basic Rules/Restrictions: 1. Grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operations to be financed 2. Consistent with safe and sound banking practices 3. Before granting, bank must ascertain that the debtor is capable of fulfilling his commitments to the bank Payments: 1. Amortization schedule shall be adapted to the nature of the operations to be financed 2. If with maturities of more than 5 years, provisions must be made for periodic amortization payments, but such payments must be made at least annually 3. A borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance subject to such reasonable terms and conditions as may be agreed upon between the bank and its borrower SINGLE BORROWER’S LIMIT Ceiling – total amount of loans, credit accommodations and guarantees that may be extended by a bank shall at no time exceed 25% of the net worth of such bank - Basis for determining is the total credit commitment of the bank to the borrower - Total amount may be increased by an additional 10% of the net worth provided that additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance DOSRI ACCOUNTS – restrictions (not total prohibition) are imposed on borrowings and security arrangement by Directors, Officers, and Stockholders of the bank directors, officers, stockholders and their Related Interest Requisites: (NCBA) 1. Borrower is a DOSRI

2. Contracts a loan or any form of financial accommodation guarantor 3. From: a. his bank or b. bank that is a subsidiary of a bank holding company of which both his bank and lending bank are subsidiaries c. bank in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank 4. such is in excess of 5% of the capital and surplus of the lending bank or in the maximum amount permitted by law, whichever is lower Restrictions: (GBL) 1. account should be upon written approval of the majority of all the directors of the lending bank excluding the director concerned 2. terms not less favorable to the bank than those offered to others 3. resolution approving the loan shall be entered in the records of the bank and a copy of the entry shall be transmitted forthwith to the supervising and examination sector of the BSP 4. monetary board may regulate the amount that may be extended, as well as investments in enterprises owned or controlled by DOSRI. The manual of Regulations for Banks provide that the aggregate is 15% of the total loan portfolio of the bank or 100% of the combined capital accounts whichever is lower 5. shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank. Ceilings don’t apply to those secured by assets considered by Monetary Board as non-risk items, under a fringe benefit plan approved by the BSP and extended by cooperative banks to its cooperative stockholders. Restrictions: (NCBA) 1. borrower is required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks 2. accounts are subject to examination but information obtained shall be held strictly confidential and may be used by examiners only in connection with the supervisory and examination responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit account Collaterals - loan shall not exceed 75% of the appraised value of the real property plus 60% of the appraised value of the improvement or 75% of the appraised value of the chattel Foreclosure or Mortgage - Redemption Period for Natural Persons – shall have the right within one year (from the date of registration of the cert. of sale with the Register of Deeds) after the sale of the real estate, to redeem the property - Redemption Pd. For Juridical Persons – not after the registration of the registration of the certificate of foreclosure sale with the proper Register of Deeds which in no case more than 3 months after foreclosure, whichever is earlier - Redemption Price – amount due under the mortgage deed, with interest and all the costs and expenses incurred from the sale and custody of said property less the income derived therefrom - Purchaser – have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law - Injunction and Bond – any petition shall be given due course only upon the filing by the petitioner of a bond in an amount fized by the court conditioned that he will pay all the damages which the bank may suffer by enjoining or the restraint of the foreclosure proceeding Prohibited Acts of Borrowers:

1. Fraudulently overvalue property offered as security or a loan or other credit accommodation from the bank 2. Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing or increasing the loan or other credit accommodation or extending the period thereof 3. Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation 4. Offer any director, officer, employee or agent of a bank any gift, fee, commission or any other form of compensation in order to influence such persns into approving a loan or other credit accommodation application OWNERSHIP OF BANKS Foreign Ownership a. Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank. b. The percentage of foreign-owned voting: stocks in a bank shall be determined by the citizenship of the individual stockholder 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. Controlling stockholders refer to individuals holding more than fifty percent (50%) of voting stock of the corporate stockholder of the bank Foreign Banks - Foreign banks are not subject to the 40% limitation prescribed under Section 11 of GBL. The law prescribes 60% as the maximum foreign bank equity. GBL allows beyond 60% limit with...