BANK REGULATIONS

Group 6

TOPICS:

1. Ownership of banks
2. Foreign stockholdings
3. BSP Circulars on Ownership
4. Directors and Officers
5. Dividends, Treasury Shares AND Risk-based Capital
6. Branch Banking
7. Regulations of Banking Hours and Days
8. Special Purpose Vehicle Act
9. RA 7721 (AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN
BANKS IN THE PHILIPPINES AND FOR OTHER PURPOSES)

(INTRO) The banking sector is one of the most heavily regulated sectors. The regulations imposed by
the state on banks are due to the nature of its business that is impressed with public interest. These
regulations are also brought about by the extent of its reach and effect not only on depositors but also on the
other group of persons or entities. ……

Examples of Regulatory Issuances/Circulars of BSP

Examples of Regulatory Issuances of PDIC

1. Regulatory Issuance 1999-01 (Revised Reportorial Requirements of the Philippine Deposit

Insurance Corporation)
2. Regulatory Issuance 2004-01 (Posting of PDIC Bulletin No. 2004-04)
3. Regulatory Issuance 2005-02 (PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and
Anomalies Committed in Banks)
4. Regulatory Issuance 2006-01 (Record Keeping of Bank Deposits)
5. Regulatory Issuance 2009-01 (Rules & Regulations on Advertisement of PDIC Membership and
Deposit Insurance Coverage)
6. Regulatory Issuance 2009-02 (Regulations on the Use or Issuance of Statements on Deposit
Insurance Coverage)
7. Regulatory Issuance 2009-03 (Determination of Beneficial Ownership of Legitimate Deposits)
8. Regulatory Issuance 2009-04 (Use of PDIC Seal)
9. Regulatory Issuance 2009-05 (Rules & Regulations on Examination of Banks)
10. Regulatory Issuance 2010-01 (Revised Rules and Regulations on Assessment of Member Banks)
11. Regulatory Issuance 2011-01 (Unsafe and/or Unsound Banking Practices)
12. Regulatory Issuance 2011-02 (Rules and Regulations Governing Deposit Accounts or Transactions
Excluded from the Coverage of Deposit Insurance)
13. Regulatory Issuance 2011-03 (Rules Governing Requests for Reconsideration of Denied Deposit
Insurance Claims)
14. Regulatory Issuance 2015-01 (Computerized Records of Bank Deposits)

I. OWNERSHIP OF BANKS

The Manual of Regulations for Banks and the Guidelines for the Establishment of Banks issued by
the BSP contain the following provisions regarding ownership:

1. At least 25% of the total authorized capital stock shall be subscribed by the subscribers of the proposed
bank, and at least 25% of such subscription shall be paid-up, provided that in no case shall the paid-up
capital be less than the minimum required.

2. The stockholding of an individual, family, corporation or business group in any bank shall be subject to
the following limits:

a. Foreign and non-banking corporations may own or control up to 40% of the voting stock of a
domestic bank: Provided, that the aggregate foreign-voting stocks owned by the foreign individuals
and non-bank corporations in a domestic bank shall not exceed 40% of the outstanding voting stock
of the bank. The percentage of foreign-owned voting stock in a bank shall be determined by the
citizenship of the individual stockholders in that bank.
b. A Filipino individual and a domestic non-bank corporation may each own up to 40% of the voting
stock of a domestic bank. There shall be no aggregate ceiling on the ownership by such individuals
and corporations in a domestic bank.
 c. The citizenship of the corporation which is a stockholder of a bank shall follow the citizenship of the
controlling stockholders of the corporation. For purposes hereof, the term “controlling stockholders”
shall refer to the individuals holding more than 50% of the voting stock of the corporate stockholders
of the bank.

3. At least 60% voting stock of any commercial bank shall be owned by Filipino citizens. For any thrift
bank, at least 40% of its voting stock shall be owned by Filipino citizens. Subject to Section 4 of RA
7353, all of the capital stock of any rural bank shall be fully owned and held, directly or indirectly, by
Filipino citizens or corporations, associations or cooperatives qualified under the Philippines laws to
own and hold such capital stock.

II. FOREIGN STOCKHOLDINGS

a. Individuals and non-banks

Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock of a
domestic bank.

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 stockholders 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 50% of the voting stock of the
corporate stockholder of the bank.

Situations:

1. X bank has an outstanding capital stock of 1M divided into 1M shares which are all voting shares.
600K of the shares belong to the Filipino Natural Persons while the 400K shares belong to the foreign
individuals and non-bank corporations. This equity structure complies with the nationalization law
under Section 11 of the GBL because the participation of foreigners is limited to 40% of the voting
stocks.

2. Suppose the ownership of outstanding stocks of X bank referred to in problem (1) are divided as
follows: 400K shares – Filipino Natural Persons, 400k – Foreign Natural Persons and 200K shares –
B corporation.

On the other hand, B corporation is a corporation incorporated in the Philippines with 500K
outstanding voting shares. 300K of these shares are owned by the Filipino Natural persons while the
balance of 200K shares belongs to Foreign individuals.

Under the circumstances, the 200K shares in X bank owned by B corporation shall be considered as
shares belonging to Filipino Citizens because the controlling stockholders (owning 60%) are Filipinos.
Thus, X BANK COMPLIES WITH Section 11 of the GBL.

3. The same conclusion results in problem (2) even is B Corporation was incorporated in another
country because Section 11 provides that the citizenship of the corporation shall follow the citizenship
of the controlling stockholders of the corporation “irrespective of the place of incorporation.”

4. The reverse is true in problem (2) if only 200K outstanding shares in B Corporation belong to the
Filipinos, that is, 40% of the voting stocks in B Corporation. In this instance, the 200K shares
 belonging to B Corporation in X bank shall be considered as equity participation of foreigners. Hence,
60% of the voting stocks in X Bank belong to foreigners (400K owned by foreign individuals plus
200K owned by B Corporation) while 40% belongs to Filipinos. Section 11 not therefore complies
with.

b. Foreign Banks

Foreign banks are not subject to the 40% limitations prescribed under Section 11 of the GBL. The
limit under RA 7721 for foreign banks is 60% of the voting stocks. However, section 73 of the GBL limits the
acquisition beyond the limit within a period of 7 years from the effectivity of the GBL.

Within that 7-year period, with prior authority from the Monetary Board, foreign banks may acquire
100% of the voting stocks of an existing bank or invest in up to 100% of the voting stocks if a new subsidiary.

III. BSP CIRCULAR ON OWNERSHIP

Date Issued: 08.15.2000

Number: 0256

CIRCULAR NO. 256

Series of 2000

Pursuant to Monetary Board Resolution No. 1233 dated July 21, 2000, the following rules and regulations
are hereby issued to implement Section 11 of Republic Act No. 8791, "The General Banking Law of 2000".

Section 1. Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of
the voting stock of a domestic bank: Provided, That the aggregate foreign owned voting stocks owned by
foreign individuals and non-bank corporations in a domestic bank shall not exceed forty percent (40%) of
the outstanding voting stock of the bank. The percentage of foreign-owned voting stocks in a bank shall be
determined by the citizenship of the individual stockholders in that bank.

Section 2. A Filipino individual and a domestic non-bank corporation may each own up to forty percent
(40%) of the voting stock of a domestic bank. There shall be no aggregate ceiling on the ownership by such
individuals and corporations in a domestic bank.

Section 3. The citizenship of the corporation which is a stockholder of a bank shall follow the citizenship of
the controlling stockholders of the corporation, irrespective of the place of incorporation. For purposes
hereof, the term "controlling stockholders" shall refer to individuals holding more than fifty percent (50%) of
the voting stock of the corporate stockholder of the bank.

Section 4. The right of Philippine corporations, however, under Section 8 of Republic Act No. 7721 (Act
Liberalizing the Entry of Foreign Banks), to wit:

"x x x
Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act, shall
be equally enjoyed by and extended under the same conditions to Philippine banks. Philippine corporations
whose shares of stocks are listed in the Philippine Stock Exchange or are of long standing for at least ten
(10) years shall have the right to acquire, purchase or own up to sixty percent (60%) of the voting stock of a
domestic bank."

shall continue to be in force and effect.

Section 5. This circular supersedes the provisions of Subsection X126.1 of the Manual of Regulations for
Banks insofar as inconsistent herewith.

This circular shall take effect immediately.

IV. DIRECTORS AND OFFICERS

CIRCULAR NO. 296

Series of 2001

A. Composition of Board of Directors

(1) There shall be at least 5, and a maximum of 15 members of the board of directors of a bank, 2 of
whom shall be independent directors. However, in case of merged or consolidated banks, the
maximum number of directors is 21.

(2) An independent director shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests.

(3) Non-Filipino Citizen may become members of the Board of Directors of a bank to the extent of the
foreign participation in the equity of said bank.

(4) The BSP Guidelines for the Establishment of Banks provide the following rules on directors and
officers:

a. The incorporators/subscribers and proposed directors and officers must be persons of integrity
and of good credit standing in the business community. The subscribers must have adequate
financial strength to pay for their proposed subscriptions in the bank.

b. The incorporators/subscribers and proposed directors and officers must not haven been
convicted of any crimes involving moral turpitude, and unless otherwise allowed under the
provisions of existing laws are not officers or employees of a government agency,
instrumentality, department or office charged with the supervision of, or the granting of loans to
banks.

c. A bank may be organized with no less than 5 nor more than 15 incorporators. In case there are
more than 15 persons initially interested in organizing and investing in the proposed bank, the
excess may be listed among the original subscribers in the Articles of Incorporation.
 d. The number of members of the board of directors of the bank shall not be less than 5 nor more
than 15 and shall always be in odd numbers and at least 2 of the directors are “independent
director.” An independent director shall mean a person other than an officer or employee of the
bank, its subscribers or affiliates or related interests.

e. At least 2/3 of the members of the board of directors of any commercial bank shall be Filipino
citizens; at least a majority of the members of the board of directors of any thrift bank shall be
Filipino citizens; and all members of the board of directors of a rural bank shall be Filipino
citizens…

An independent director shall mean a person who –

 Is not or has not been an officer or employee of the bank/quasi-bank/trust entity, its subsidiaries or
affiliates or related interests during the past three (3) years counted from the date of his election;
 Is not a director or officer of the related companies of the institution’s majority stockholder;
 Is not a majority shareholder of the institution, any of its related companies, or of its majority
shareholder;
 Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any
director, officer or majority shareholder of the bank/quasi-bank/ trust entity, or any of its related
companies;
 Is not acting as a nominee or representative of any director or substantial shareholder of the bank/quasi-
bank/trust entity, any of its related companies or any of its substantial shareholders; and,
 Is free from any business or other relationship with the institution or any of its major stockholders which
could materially interfere with the exercise of his judgment, i.e., has not engaged and does not engage
in any transaction with the institution, any of its related companies or any of its substantial shareholders,
whether by himself or with other persons or through a firm of which he is a partner or a company of
which he is a director or substantial shareholder, other than transactions which are conducted at arm’s
length and could not materially interfere or influence with the exercise of his judgments.
 Non-Filipino citizens may become members of the board of directors of a bank/quasi-bank/ trust entity
to the extent of the foreign participation in the equity of said bank/quasi-bank/ trust entity: Provided,
That pursuant to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the
directors must be residents of the Philippines.

B. RULE ON PUBLIC OFFICIALS UNDER THE GBL

The law provides that no appointive or elective public official, whether full-time or part-time shall at the
same time serve as officer of any private bank, save In cases 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.

By way of exception, Section 5 of the Rural Banks Act of 1992 provides that nothing in the said Act “shall
be construed as prohibiting any appointive or elective official from serving as director, officer, consultant or
in any capacity in the bank.
DOCTRINE OF APPARENT AUTHORITY

The Doctrine of Apparent Authority in Corporation Law also finds application in banks. The Doctrine
with reference to banks, was laid down in Prudential Bank vs. Court of Appeals, where the Supreme Court
reiterated the rule that the principal is liable for the acts if its agents. A bank is liable for the wrongful acts of
its officers done in the interest of bank or in the course of dealings of the officers done in the interest of the
bank or in the course of dealings of the officers in their representative capacity but not for acts outside the
scope of their authority. A bank holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds they may thus be enable to perpetrate in the apparent scope of their employment; nor
will it be permitted to shrink its responsibility for such frauds, even though no benefit may accrue to the bank
therefrom.

Accordingly, a banking corporation is liable to innocent third persons where the representation is
made in the course of its business by an agent acting within the general scope of his authority even though,
in the particular case, the agent is secretly abusing his authority and attempting to perpetrate fraud upon his
principal or some other person, for his own ultimate benefit.

The application of these principles is necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith
will be eroded where banks do not exercise strict case in the selection and supervision of its employees,
resulting in prejudice to their depositors.

OTHER REGULATIONS

The basic concerns of banks in their operation are liquidity and security. Liquidity is a primary concern
because banks must always have sufficient capital to guard against operating losses. There must always be
sufficient funds for the withdrawal to be made by its depositors. Security requires involvement in activities
that will not unduly expose the bank and the funds that it is holding for the public, to undue risks.

While a banking institution is a private enterprise, every depositor is in a sense an investor. Since a
bank’s stability and trustworthiness affect the economic life of the community it serves, its solvency is a matter
of public concern affecting the general welfare of the state.

Certainly regulatory provisions in the GBL as well as the New Central Bank Act are geared towards
the purpose of maintaining liquidity and security. Thus:

(1) 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.
(2) The law imposes limits on loans, credit accommodations and guarantees that may be extended by
banks.
(3) Limitations is placed on the bank’s exposure to directors, officers, stockholders, and their related
interest (DOSRI Accounts)
(4) The law imposes restrictions on the value of collaterals on loans.
(5) The Monetary Board may provide for restriction on unsecured loans.
(6) The Monetary Board may prescribe the maturities and other terms and condition for various types of
loans and accommodations.
(7) The law provides restrictions on dividend declarations.
V. DIVIDENS, TREASURY SHARES AND RISK-BASED CAPITAL

A. DIVIDENDS

The law provides that no bank or quasi-bank shall declare dividends greater than its accumulated
net profit then on hand, deducting therefrom its losses and bad debts. Neither shall the bank nor quasi-
bank declare dividends, if at the time of declaration:

(1) It clearing account with the Bangko Sentral is overdrawn; or

(2) It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive
days; or
(3) It does not comply with the liquidity standards/ratios prescribed by the Banko Sentral for purposes
of determining funds available for dividend declarations; or
(4) Is has committed a major violation as may be determined by the Bangko Sentral.

B. TREASURY SHARES

Banks cannot purchase or acquire shares of its own capital stock (to become treasury shares) or accept
its own shares as a security for a loan, except when authorized by the Monetary Board. In every case, the
stock so purchased or acquired shall, within six (6) months from the time of its purchased or acquisition, be
sold or disposed of at a public or private sale.

C. RISK-BASED CAPITAL

The bank as an ongoing business concern has an incentive to take on too much risk. “Risky assets may
provide the bank with higher earnings when they pay off; but if they do not pay off and the bank fails,
depositors are left holding the bag.” Bank regulations that restrict banks from holding risky assets are direct
means of making banks avoid too much risks. “Bank regulations also promote diversification, which reduces
risks by limiting the amount of loans in particular categories or to individual borrowers. Requirements that
banks have sufficient capital are another way to change the bank’s incentives to take on less risk. When a
bank is forced to hold a large amount of equity capital, the bank has more to lose if it fails and is thus more
likely to pursue less risky activities.”

Under Section 43 of the GBL provides:

Section 34. Risk-Based Capital. - 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.

For purposes of this Section, the Monetary Board may require such ratio be determined on the basis
of the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk assets of banks and their subsidiaries:
Provided, That in the exercise of this authority, the Monetary Board shall, to the extent feasible conform to
internationally accepted standards, including those of the Bank for International Settlements(BIS), relating to
risk-based capital requirements: Provided further, That it may alter or suspend compliance with such ratio
whenever necessary for a maximum period of one (1) year: Provided, finally, That such ratio shall be applied
uniformly to banks of the same category.
 In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such bank and may require that part or all of the net profits be used
to increase the capital accounts of the bank until the minimum requirement has been met The Monetary
Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of new investments
by the bank, with the exception of purchases of readily marketable evidences of indebtedness of the Republic
of the Philippines and of the Bangko Sentral and any other evidences of indebtedness or obligations the
servicing and repayment of which are fully guaranteed by the Republic of the Philippines, until the minimum
required capital ratio has been restored.

In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by the Bangko Sentral, Monetary Board may temporarily relieve the surviving bank, consolidated
bank, or constituent bank or corporations under rehabilitation from full compliance with the required capital
ratio under such conditions as it may prescribe.

Before the effectivity of rules which the Monetary Board is authorized to prescribe under this
provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall continue to be in force. (22a)

VI. BRANCH BANKING

Banks are allowed under the law to open branches. These branches are not separate entities but
they have certain privileges under the law. “The idea of a bank does not presuppose that it shall be kept at
one house or confined to one place; but it shall be one entire corporation, represented by a many integral or
constituent parts as may be considered necessary for the transaction of its business. These parts must,
however, be inferior or subordinates, and they must under the control and direction of a superior or governing
head.

Section 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 sale of the financial products of its allied undertaking or of its investment house
units. A bank authorized to establish 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.

VII. BANKING DAYS AND HOURS

Section 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 Saturdays, Sundays 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 branches or offices shall transact business. For purposes of this Section, working days shall mean
Mondays to Fridays, except if such days are holidays.
VIII. SPECIAL PURPOSE VEHICLE ACT (SPV)

Banks are only allowed under Section 52 of the GBL to retain real properties for a period of five (5)
years. It will be subject to sanctions if it will not be able to dispose of the real properties. The problem is that
in times where there are only limited buyers of properties, banks may not be able to comply with the
requirement even if they have every intention of doing so or even need to make such disposition. In many
instances, even if there are buyers, banks may not be able to offer very attractive prices because of the taxes
and expenses involved. The result is that is that banks are burdened with too many undisposed assets which
cannot be put into productive use in the meantime.

To meet these problems relating to assets holding, Congress passed RA no. 9182, otherwise known
as The “The Special Purpose Vehicle Act of 2002.” The SPV Act authorizes, for a limited period, the
organization of “Special Purpose Vehicle (SPV)” which will hold, manage and dispose non-performing loans
and non-performing assets of banks and financial institutions. The transfer of the assets and loans to the
SPV is tax free and the transfer to buyers is also tax free. In addition to share subscriptions, investment in
the SPV is also made through the issuance of Investment Unit Instrument (IVI).

IX. RA 7791

REPUBLIC ACT NO. 7721.

AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS IN THE
PHILIPPINES AND FOR OTHER PURPOSES.

SECTION 1. Declaration of Policy. — The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos and encourage, promote, and maintain a stable, competitive,
efficient, and dynamic banking and financial system that will stimulate economic growth, attract foreign
investments, provide a wider variety of financial services to Philippine enterprises, households and
individuals, strengthen linkages with global financial centers, enhance the country's competitiveness in the
international market and serve as a channel for the flow of funds and investments into the economy to
promote industrialization.

Pursuant to this policy, the Philippine banking and financial system is hereby liberalized to create a more
competitive environment and encourage greater foreign participation through increase in ownership in
domestic banks by foreign banks and the entry of new foreign bank branches.

In allowing increased foreign participation in the financial system, it shall be the policy of the State that the
financial system shall remain effectively controlled by Filipinos.

Sec. 2. Modes of Entry. — The Monetary Board may authorize foreign banks to operate in the Philippine
banking system through any of the following modes of entry: (i) by acquiring, purchasing or owning up to sixty
percent (60%) of the voting stock of an existing bank; (ii) by investing in up to sixty percent (60%) of the voting
stock of a new banking subsidiary incorporated under the laws of the Philippines; or (iii) by establishing
branches with full banking authority: Provided, That a foreign bank may avail itself of only one (1) mode of
entry: Provided, further, That a foreign bank or a Philippine corporation may own up to a sixty percent (60%)
of the voting stock of only one (1) domestic bank or new banking subsidiary.

Sec. 3. Guidelines for Approval. — In approving entry applications of foreign banks, the Monetary Board
shall: (i) ensure geographic representation and complementation; (ii) consider strategic trade and investment
relationships between the Philippines and the country of incorporation of the foreign bank; (iii) study the
demonstrated capacity, global reputation for financial innovations and stability in a competitive environment
of the applicant; (iv) see to it that reciprocity rights are enjoyed by Philippine banks in the applicant's country;
and (v) consider willingness to fully share their technology.

Only those among the top one hundred fifty (150) foreign banks in the world or the top five (5) banks in their
country of origin as of the date of application shall be allowed entry in accordance with Section 2 (ii) and (iii)
hereof.

In the exercise of this authority, the Monetary Board shall adopt such measures as may be necessary to: (i)
ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking
system is held by domestic banks which are at least majority-owned by Filipinos; (ii) prevent a dominant
market position by one bank or the concentration of economic power in one or more financial institutions, or
in corporations, participations, partnerships, groups or individuals with related interests; and (iii) secure the
listing in the Philippine Stock Exchange of the shares of stocks of banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That said banking corporations shall establish stock option plans for
their officers and employees as the resources or assets of these corporations may allow in the best business
judgment of their respective boards of directors, pursuant to the Corporation Code of the Philippines.

To qualify to establish a branch or a subsidiary, the foreign bank applicant must be widely-owned and publicly-
listed in its country of origin, unless the foreign bank applicant is owned by the government of its country of
origin.

Sec. 4. Capital Requirements. — (i) For Locally Incorporated Subsidiaries. —The minimum capital
required for locally incorporated subsidiaries of foreign banks shall be equal to that prescribed by the
Monetary Board for domestic banks of the same category.

(ii) For Foreign Bank Branches. — Foreign banks seeking entry pursuant to Section 2 (iii) of this Act shall
permanently assign capital of not less than the U.S. dollar equivalent of Two hundred ten million pesos
(P210,000,000.00) at the exchange rate on the date of the effectivity of this Act, as ascertained by the
Monetary Board. The permanently assigned capital shall be inwardly remitted and converted into Philippine
currency. The foreign bank shall be entitled to three (3) branches.

The foreign bank may open three (3) additional branches in locations designated by the Monetary Board by
inwardly remitting and converting into Philippine currency as permanently assigned capital, the U.S. dollar
equivalent of Thirty-five million pesos (P35,000,000.00) per additional branch at the exchange rate on the
date of the effectivity of this Act, as ascertained by the Monetary Board. The total number of branches for
each new foreign bank entrant shall not exceed six (6).

For purposes of meeting the prescribed capital ratios, the term "capital" shall include permanently assigned
capital plus "net due to head office, branches and subsidiaries and offices outside the Philippines" in the ratio
prescribed by law or as may be prescribed by the Monetary Board: Provided, That in all cases, the
permanently assigned capital and fifteen percent (15%) of "net due to" required to comply with prescribed
capital ratios shall be inwardly remitted and converted to Philippine currency: Provided, further, That amounts
invested in productive enterprises or utilized by Philippine companies for export activities, shall not be subject
to conversion into Philippine currency: Provided, finally, That the Monetary Board shall monitor the effective
use of the "net due to" funds. Whenever there results "net due from head office" outside the Philippines, this
shall be deducted from the capital accounts for purposes of determining the required capital ratios.

Sec. 5. Head Office Guarantee. — The head office of foreign bank branches shall guarantee prompt
payment of all liabilities of its Philippine branches.
Sec. 6. Entrants under Section 2(iii). — Foreign banks shall be allowed entry under Section 2 (iii) within
five (5) years from the effectivity of this Act.During this period, six (6) new foreign banks shall be allowed
entry under Section 2(iii) upon the approval of the Monetary Board.An additional four (4) foreign banks may
be allowed entry on recommendation of the Monetary Board, subject to compliance with Sections 2, 3, 4, and
5 of this Act, upon approval of the President as the national interest may require.

Sec. 7. Board of Directors. — Non-Filipino citizens may become members of the Board of Directors of a
bank to the extent of the foreign participation in the equity of said bank.

Sec. 8. Equal Treatment. — Foreign banks authorized to operate under Section 2 of this Act, shall perform
the same functions, enjoy the same privileges, and be subject to the same limitations imposed upon a
Philippine bank of the same category. These limits include, among others, the single borrower's limit and
capital to risk asset ratio as well as the capitalization required for expanded commercial banking activities
under the General Banking Act and other related laws of the Philippines.

The basis for computing the ratio shall be the capital of the foreign bank branch in the Philippines.

The foreign banks shall guarantee the observance of the rights of their employees under the Constitution.

Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act, shall
be equally enjoyed by and extended under the same conditions to Philippine banks. Philippine corporations
whose shares of stocks are listed in the Philippine Stock Exchange or are of long standing for at least ten
(10) years shall have the right to acquire, purchase or own up to sixty percent (60%) of the voting stock of a
domestic bank.

Sec. 9. Development Loans Incentives. — Loans extended by a foreign bank's majority-owned subsidiary
incorporated under the laws of the Philippines and/or a Philippine bank sixty percent (60%) of the voting stock
of which is held by a foreign bank, to finance educational institutions, cooperatives, hospitals and other
medical services, socialized or low-cost housing, and to local government units without national government
guarantee, shall be included for purposes of determining compliance with the provisions of Presidential
Decree No. 717, as amended.

Sec. 10. Transitory Provisions. — Foreign banks operating through branches in the Philippines upon the
effectivity of this Act, shall be eligible for the
privilege of establishing up to six (6) additional branches under the same terms and conditions required by
Section 4 (ii) hereof: Provided, That for any branch additional to what is existing at the time of the effectivity
of this Act, the prescribed permanently assigned capital shall be complied with immediately: Provided, further,
That a foreign bank may open three (3) branches in the location of its choice and the next three (3) branches
in locations designated by the Monetary Board to insure balanced economic development in all the regions.

The existing Philippine branches of foreign banks shall be given one-and-a-half (1 1/2) years from the
effectivity of this Act to comply with the minimum capital requirements as prescribed under Section 4 (ii) of
this Act.

Sec. 11. Separability Clause. — If any provision of this Act is declared unconstitutional, the same shall not
affect the validity of the other provisions not affected thereby.
Sec. 12. Applicability of Other Banking Laws. — The provisions of Republic Act No. 337, as amended,
otherwise known as the General Banking Act, insofar as they are applicable and not in conflict with any
provision of this Act, shall apply to banks authorized pursuant to this Act.

Sec. 13. Delegation of Rule-Making Powers and Compliance Reports. — The Monetary Board is hereby
authorized to issue such rules and regulations as may be needed to implement the provisions of this Act after
consultation with the chairpersons of the Banks Committee of the House of Representatives and the Senate
of the Philippines. n or before May 30 of each year, the Monetary Board shall file a written report to Congress
and its respective Banks Committees, on the developments in the implementation of this Act.

Sec. 14. Amendment and Repeal of Inconsistent Laws. — Sections 11, 12, 12-A, 12-B, 13, 14-A, 21-B,
and 68 of Republic Act No. 337, as amended, otherwise known as the General Banking Act: Sections 4 and
5 of Republic Act No. 7353, otherwise known as the Rural Banks Act; Sections 4 and 14 of Republic Act No.
3779, as amended, otherwise known as the Savings and Loan Association Act; and Section 4 of Republic
Act No. 4093, as amended, otherwise known as the Private Development Banks Act insofar as they are
inconsistent with this Act, are hereby repealed or modified accordingly.

Sec. 15. Effectivity Clause. — This Act shall take effect fifteen (15) days after its publication in the Official
Gazette or in two (2) national newspapers of general circulation.

Approved: May 18, 1994