Professional Documents
Culture Documents
The General Banking Law of 2000 (GBL) is the law that generally governs the regulation,
organization and operation of banks, quasi-banks, and other quasi-entities. It primarily
governs Universal Banks[1] (UB) and Commercial Banks[2] (CB), and has suppletory
application to Thrift Banks (which is primarily governed by RA 7906, the Thrift Banks Act),
Rural Banks (primarily governed by RA 7353, the Rural Banks Act), and Cooperative Banks
(primarily governed by RA 6938, the Cooperative Code).[3]
Banks
Definition
Banks are entities engaged in the lending of funds obtained in the form of deposits from the
public.[4] This is usually referred to as core-banking functions of mobilizing savings
(through deposit-taking) and allocating resources (through lending).
GBL requires that banks are stock corporations and its funds are obtained from the public,
i.e. deposits of twenty (20) or more persons.[5]
In Baas v. Asia Pacific Finance Corp.,[6] the Supreme Court said that an investment
company that engages solely in investing, reinvesting, or trading in securities is not
engaged in banking. An investment company refers to any issuer which is or holds
itself out as being engaged or proposes to engage primarily in the business of
investing, reinvesting or trading in securities. As defined in Revised Securities
Act, securities shall include commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another with or without
recourse, such as promissory notes. Clearly, the transaction between petitioners
and respondent was one involving not a loan but purchase of receivables at a
discount, well within the purview of investing, reinvesting or trading in
securities which an investment company, like ASIA PACIFIC, is authorized to
perform and does not constitute a violation of the General Banking Act.
In Republic v. Security Credit and Acceptance Corporation,[7] the Court said that
an investment company which loans out the money of its customers, collects the
interest and charges a commission to both lender and borrower, is a bank. It is
conceded that a total of 59,463 savings account deposits have been made by the
public with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation
deemed suitable therefore. It is clear that these transactions partake of the
nature of banking, as the term is used in Section 2 of the General Banking
Act.
Banks must also be contrasted from quasi-banks (QB). The latter refer to
entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes (as defined in Sec.
95 RA 7653, the New Central Bank Act) for purposes of relending or purchasing of
receivables and other obligations. (last part of Sec. 4) Since this is an inherent
power of UBs and CBs, they do not require separate licensing or authorization for
this purpose.
Nature of Business
Section 2 of GBL provides that the State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the
fiduciary nature of banking that requires high standards of integrity and performance. This
consequently means that a bank shall be subject to heavy and close supervision and/or
regulation by the Bangko Sentral ng Pilipinas,[8] and that it must exercise utmost diligence
in the handling of deposits.[9]
To promote and maintain a stable and efficient banking and financial system, there are
special rules that govern banks. Because it is indispensable to the national interest, any
strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported
by the Bangko Sentral to the Secretary of Labor who has two options: (1) he may assume
jurisdiction over the dispute or decide it or (2) certify the same to the National Labor
Relations Commission for compulsory arbitration. The law allows the President of the
Philippines, at any time, to intervene and assume jurisdiction over such labor dispute in
order to settle or terminate the same.[10]
Authority to incorporate and operate
GBL provides that a bank or quasi-bank cannot be incorporated without authority from the
BSP. The law states that 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.[11]
In addition, an entity performing banking and quasi-banking function cannot
also operate without a certificate of authority from the BSP.[12]
Classification of Banks
Section 3.2 of the GBL classifies banks into:
Universal Banks (UB) banks that have the authority to exercise, in addition to the powers
authorized for a commercial bank, the powers of an investment house and the power to
invest in non-allied enterprises.[13]
Commercial Banks (CB) banks that have, in addition to the general powers incident to
corporations, all such powers as may be necessary to carry on the business of commercial
banking, such as accepting drafts and issuing letters of credit; discounting and negotiating
promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit substitutes; buying
and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and
other debt securities; and extending credit, subject to such rules as the Monetary Board may
promulgate.[14]
iii. Rural Banks banks that are created to make needed credit available and readily
accessible in the rural areas for purposes of promoting comprehensive rural development.
[15]
Thrift Banks banks that include savings and mortgage banks, private development banks,
and stock savings and loan associations.
Cooperative Banks banks that primarily provide financial, banking and credit services to
cooperative organizations and their members.[16]
Islamic Banks Charter of Al Amanah Islamic Investment Bank of the
Philippines.[17]
vii. Other classification of banks as determined by the Monetary Board (MB) of the BSP.
As to Powers
As to Equity Investments
For purposes of maintaining liquidity and security, GBL and the New Central Bank Act
provide regulations relating to loans and other matters:
The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must
bear to its total risk assets which may include contingent accounts.[42]
The law imposes limits on loans, credit accommodations and quarantees that may be
extended by banks.
Limitation is placed on banks exposure to DORSI.[43]
The law imposes restrictions on the value of collaterals on loans.
The law may provide for restrictions on unsecured loans.[44]
MB may prescribe maturities and other terms and conditions for various types of loans and
accommodations.[45]
The law prescribes restrictions on dividend declrations.[46]
Section 51 of the GBL provides that any bank may acquire real estate as shall be
necessary for its own use in the conduct of its business. However, the total investment in
such real estate and improvements thereof, including bank equipment, shall not exceed fifty
percent (50%) of combined capital accounts. It must be noted however that the equity
investment of a bank in another corporation engaged primarily in real estate shall be
considered as part of the banks total investment in real estate, unless otherwise provided
by the Monetary Board.
In Section 52, however, of the GBL, a bank may acquire, hold or convey real property under
the following circumstances:
Such as shall be mortgaged to it in good faith by way of security for debts;
Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of
its dealings; or
iii. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above
paragraph shall be disposed of by the bank within a period of five (5) years or as may be
prescribed by the Monetary Board. After said period, the bank may continue to hold the
property for its own use, subject to the limitations of the preceding Section.
Applicable Rules
NB: Art 1442 of the Civil Code states that the principles of the general law of trusts,
insofar as they are not in conflict w/ the Civil Code, the Code of Commerce, the Rules of
Court and special laws (including the GBL) are hereby adopted.
Prudent Man Rule
A trust entity shall administer the funds or property under its custody with the diligence that
a prudent man would exercise in the conduct of an enterprise of a like character and with
similar aims.[47]
iii. Self-Dealing Rule
The GBL provides, as a general rule, that no trust entity shall, for the account of the trustor
or the beneficiary of the trust,
purchase or acquire property from, or sell, transfer, assign or lend money or property to, or
purchase debt instruments of any of the departments, directors, officers, stockholders, or
employees of the trust entity
relatives within the 1st degree of consanguinity or affinity, or the related interests, of such
directors, officers and stockholders,
Except:
the transaction is specifically authorized by the trustor, and
the relationship of the trustee and the other party involved in the transaction
is fully disclosed to the trustor or beneficiary of the trust prior to the transaction.[48]
Prior Authority
Only a stock corporation or a person duly authorized by the MB to engage in trust business
shall act as a trustee or administer any trust or hold property in trust or on deposit for the
use, benefit, or behalf of others. For purposes of the GBL, such a corporation is referred to as
a trust entity.[49]
Trust Business
A trust business is any activity resulting from a trustor-trustee relationship (trusteeship)
involving the appointment of a trustee by a trustor for the administration, holding,
management of funds and/or properties of the trustor by the trustee for the use, benefit or
advantage of the trustor or of others called beneficiaries.[50]
Powers
A trust entity, in addition to the general powers incident to corporations, shall have the
power to:
Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body
politic and to accept and execute any trust consistent with law;
Act under the order or appointment of any court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent person, and as receiver and depositary of
any moneys paid into court by parties to any legal proceedings and of property of any kind
which may be brought under the jurisdiction of the court;
Act as the executor of any will when it is named the executor thereof;
Act as administrator of the estate of any deceased person, with the will annexed, or as
administrator of the estate of any deceased person when there is no will;
Accept and execute any trust for the holding, management, and administration of any
estate, real or personal, and the rents, issues and profits thereof; and
Establish and manage common trust funds, subject to such rules and regulations as may be
prescribed by the MB.
Separation of Trust Business of Banks
Section 87 of the GBL requires that the trust business and all funds, properties or securities
received by any trust entity as executor, administrator, guardian, trustee, receiver, or
depositary shall be kept separate and distinct from the general business including all other
funds, properties, and assets of such trust entity. The accounts of all such funds, properties,
or securities shall likewise be kept separate and distinct from the accounts of the general
business of the trust entity
Conservatorship
Section 67 of the GBL provides that the grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the conservator appointed for the bank
shall be governed by the provisions of Section 29 and the last two paragraphs of Section 30
of the New Central Bank Act: Provided, That this Section shall also apply to conservatorship
proceedings of quasi-banks.
Grounds
Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem necessary.[51]
Powers of Conservatorship[52]
Take charge of the assets, liabilities, and the management thereof,
Reorganize the management,
iii. Collect all monies and debts due said institution, and
Exercise all powers necessary to restore its viability.
Receivership and Liquidation
The grounds and procedures for placing a bank under receivership or liquidation, as well as
the powers and duties of the receiver or liquidator appointed for the bank shall be governed
by the provisions of Secs. 30, 31, 32, and 33 of the NCBA: Provided, That the petitioner or
plaintiff files with the clerk or judge of the court in which the action is pending a bond,
executed in favor of the BSP, in an amount to be fixed by the court. This shall also apply to
the extent possible to the receivership and liquidation proceedings of QBs. (Sec. 69)