GBL Reporting Notes

GENERAL BANKING LAW (RA 8791)
1. Definition and Classification of Banks

BANKS refer to entities engaged in the lending of funds obtained in the form of deposits (Sec. 3.1)
-
Refer to entities engaged in lending of funds obtained from the public through the receipt of
deposits of any kind and all entities regularly conducting such operations
Elements of Banks:
a) Engaged in lending of funds (allocating resources)
b) Obtained in the form of deposits (mobilizing savings)
c) Authorized by the Monetary Board
d) Deposits obtained from the public (20 or more lenders)
Distinctions of Banks from Quasi-Banks
Basic distinction: Quasi-Banks do not accept deposits but rather accept merely deposit
substitutes
QUASI-BANKS entities engaged in the borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of
receivables and other obligations
Deposit Substitutes alternative form of obtaining funds from the public, other than the deposits through the
issuance, acceptance of debt instruments for the borrowers own account for the purpose of relending or
purchasing receivables and other obligations (Sec. 95, NCBA)
This may include:
a. Bankers acceptances
b. Promissory notes
c. Participations
d. Certificates of assignments and similar instruments with recourse
e. Repurchase agreements
Classification of Banks:
1. Universal Banks
o Primarily governed by the GBL and they have the powers of commercial bank; they can
exercise the powers of an investment house and the power to invest in non-allied
enterprises; they have the highest capitalization requirement
Investment House: any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in
underwriting of securities of another person or enterprise, including securities of the government and its instrumentalities
Underwriting securities process of guaranteeing distribution and sale within the Philippines of securities of the government
and its instrumentalities
2. Commercial Banks
o Ordinary banks governed by the GBL which have a lower capitalization requirement;
cannot exercise powers of investment house nor invest in non-allied enterprises
3. Thrift Banks (RA 7906) may exercise most of the powers and functions of a commercial bank
except that they cannot open current or check accounts without prior Monetary Board approval
and cannot issue letters of credit
o Savings and mortgage banks
o Stock savings and loan associations
o Private development banks
4. Rural Banks (RA 733)

o Mandated to make needed credit available and readily accessible in the rural areas on
reasonable terms governed primarily by the Rural Banks Act
5. Cooperative Banks (RA 6938)
o Whose majority shares are owned and controlled by cooperatives primarily to provide
financial and credit services to cooperatives
6. Islamic Banks (RA 6848)
o Whose business dealings & activities are subject to both principles and rulings of Islamic
Shariah such as Al Amanah Islamic Investment Bank of the Philippines
7. Other classifications of Banks as the Monetary Board may determine
Universal Banks vs. Commercial Banks
UNIVERSAL BANKS
COMMERCIAL BANK
As to Powers
o
o
o
Powers
authorized
for
a
Commercial Bank
Powers of an Investment House
Power to invest in Non-Allied
Enterprises
Sec. 53 (GBL)
o Receive in custody funds, documents
and valuable objects
o Act as a financial agent & buy and sell,
by order of and for the account of their
customers,
shares,
evidence
of
indebtedness & all types of securities
o Make collections and payments for the
account of others and perform such
other services for their customers as are
not
incompatible
with
banking
business
o Upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant
or
administrator
of
investment
management/advisory/consultancy
accounts
o Rent our safety deposit boxes
o
o
General
powers
incident
to
corporations
All such powers as may be
necessary to carry on business of
commercial banking
- Accepting drafts and issuing
letters of credit
- Discounting
&
negotiating
promissory notes, drafts, bills
of exchange, & other evidence
of debt
- Accepting or creating demand
deposits
- Receiving other types of
deposits
and
deposit
substitutes
- Buying
&
selling
foreign
exchange & gold or silver
bullion
- Acquiring marketable bonds
and other debt securities
- Extending credit, subject to
rules
promulgated
by
Monetary Board
BSP Circular 271 (2002)

(1) invest in the equities of allied enterprises;
(2) purchase, hold and convey real estate;
(3) receive in custody funds, documents and
valuable objects;
(4) act as financial agent;
(5) make collections and payments for the
account of others;
(6) act as managing agent, adviser, consultant
or administrator of investment
management/advisory/-consultancy accounts;
(7) rent out safety deposit boxes; and
(8) engage in quasi-banking functions.
As to Capitalization Requirement
P3 billion (Head Office only)
P6 billion (up to 10 branches)
P15 billion (11-100 branches)
P20 billion (more than 100 branches)
P2 billion (Head Office only)

P4 billion (up to 10 branches)
P10 billion (11-100 branches)
P15 billion (more than 100 branches)
As to Equity Investments
*acquisition of such equity/equities shall be subject to the approval of the Monetary Board
Invest
in
equities
of
Allied
(Financial or Non-Financial) and
Non-Allied Enterprises
Total
investment
of
equities
(allied or non-allied) shall not
exceed 50% of the net worth of
the bank
Equity investment in any one

enterprise shall not exceed 25%
of the net worth of the bank
Can
only
invest
in
Allied
(Financial or Non-Financial)
Enterprises
Total investment of equities in

allied enterprises shall not exceed
35% of the net worth of the bank
Equity investment in any one

enterprise shall not exceed 25%
of the net worth of the bank
As to Equity Investments in Financial Allied Enterprises
Can own up to 100% of the equity

of thrift bank, rural bank or a
financial allied enterprise

of thrift bank or rural bank
Where the equity investment is in

other financial allied enterprise,
including
another
commercial
bank, such investment shall
remain a minority holding in that
enterprise
As to Equity Investments in Non-Financial Allied Enterprises

in a non-financial allied enterprise

in a non-financial allied enterprise
As to Equity Investments in Non-Allied Enterprises
Equity investment of a universal

bank or of its wholly or majorityowned subsidiaries, in single nonallied enterprise shall not exceed
35% of the total equity in that
enterprise nor shall it exceed 40%
of the voting stock
of that
enterprise
As to Equity Investments in Quasi-Banks
Monetary Board may further limit

to 40% equity investments
Monetary Board may further limit to 40%

equity investments
Distinctions of Banks from Trust Entities
BANKS
Refer to entities engaged in
the lending of funds in the
form of deposits from the
public
TRUST ENTITIES
Engaged in the business of
holding,
managing
funds
and/or property of the trustor
for the benefit of the trustee
Trust agreement is entered into
between trustor & trust entity
covering the terms & conditions of

the trust
TRUST ENTITY Stock Corporation or a person duly authorized by the Monetary Board to engage
in trust business and act as trustee or administer any trust or hold property in trust or on deposit for the
use, benefit or in behalf of others
SEC will register the articles of incorporation or by-laws or any amendment thereto of a trust
entity only if accompanied by certificate of authority from BSP
Trust Operations:
Trust products and services range from simple custodianship and safekeeping to
corporate mortgage trust indentures to complex estate planning and employee
benefit administration and fund management
These assets are managed or invested by the trust institution in accordance with
the trust or investment management agreement signed with the investor or owner
of the assets
(1) Corporate powers

General powers incident to corporations (Sec 36, Corporation Code)
1. To sue and be sued in its corporate name;
property, including securities and bonds of other
corporations, as the transaction of the lawful
business of the corporation may reasonably and
2. Of succession by its corporate name for the
necessarily require, subject to the limitations
period of time stated in the articles of
prescribed by law and the Constitution;
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals,
or public policy, and to amend or repeal the same
in accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell stocks to
subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and
to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
8. To enter into merger or consolidation with

other corporations as provided in this Code;
9. To make reasonable donations, including those
for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes:
Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political
party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes
as
stated
in
the
articles
of
incorporation.
(2) Banking and incidental powers

All such powers as may be necessary to carry on the business of commercial banking (Sec 29)
a. Accepting drafts
b. Issuing letters of credit
c. Discounting and negotiating promissory notes, bills of exchanges, and other evidence of debt
d. Accepting or creating demand deposits
d. Diligence required of banks
Section 2 of GBL prescribes the statutory diligence required from banks that banks must observe high
standards of integrity and performance in servicing their depositors.
PBC v. CA
The degree of diligence required of banks is more than that of a good father of a family where the fiduciary
nature of their relationship with their depositors is concerned.
In other words, the aforesaid higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with their depositors.
e. Nature of bank funds and bank deposits
The prevailing policy on the matter is to preserve the absolute confidentiality enjoyed by bank
deposits.
f. Stipulation on interests (Sec 43)
The Monetary Board may prescribe the maturities for various types of loans and other credit
accommodations. Any change by the Board in the maximum maturities shall apply only to loans and other
credit accommodations made after the date of such action.
g. Grant of loans and security requirements
(1) Ratio of net worth to total risk assets
The minimum ration which the net worth of a bank must bear to its total risk assets which may include
contingent accounts (Sec 34)
GENERAL RULE: A bank must conform to the risk-based capital ratio prescribed by the MB
EXCEPTIONS
The MB may alter or suspend compliance for a period of 1 year.
a. In case of a bank merger or consolidation
b. When a bank is under rehabilitation under a program approved by the BSP
(2) Single borrowers limit (SBL)
GENERAL RULE:
The total amount of loans, credit accommodations and guarantees extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed 25% of the net worth of such
bank (as increased by BSP Circular 425). The basis for determining compliance with the SBL is the total
credit commitment of the bank to the borrower. (Sec. 35, GBL)
EXCEPTIONS
1. The MB may otherwise prescribes for reasons of national interest (Sec 35.1)
2. Wholesale lending activities of government banks t participating institutions for relending to enduser borrowers: separate limit of 35% net worth (BSP Circular No.425, March 25,2004)
Exclusions from the ceiling:
1. Loans secured by the obligations of the Bangko Sentral or of the government.
2. Loans fully guaranteed by the government.
3. Loans covered by assignment of deposits in the lending bank and held in the Philippines.
4. Letters of credit covered by margin deposits
5. Non-risk items specified by the Monetary Board.
(3) Restrictions on bank exposure to DOSRI (directors, officers, stockholders and their related
interests)
GENERAL RULE
No director or officer of any bank
a. shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such
banks, nor
b. shall become a guarantor, endorser or surety for loans from such bank to others, or in any manner
be an obligor or incur any contractual liability to the bank
EXCEPTIONS
1. Valid insider lending (Sec 36)
2. Loans, credit accommodations extended by a cooperative bank to its cooperative shareholders
(Sec 36)

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GENERAL BANKING LAW (RA 8791)

1. Definition and Classification of Banks

4. Rural Banks (RA 733)

BSP Circular 271 (2002)

P2 billion (Head Office only)

Equity investment in any one

Total investment of equities in

Equity investment in any one

As to Equity Investments in Financial Allied Enterprises

Can own up to 100% of the equity

Can own up to 100% of the equity

Where the equity investment is in

As to Equity Investments in Non-Financial Allied Enterprises

Can own up to 100% of the equity

Can own up to 100% of the equity

As to Equity Investments in Non-Allied Enterprises

Equity investment of a universal

As to Equity Investments in Quasi-Banks

Monetary Board may further limit

Monetary Board may further limit to 40%

Distinctions of Banks from Trust Entities

covering the terms & conditions of

(1) Corporate powers

8. To enter into merger or consolidation with

(2) Banking and incidental powers

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