CHAPTER 6: Foreign Banks and Trust Operations
granted to a foreign bank shall be equally
I. Foreign Banks
A. Transacting Business in the Philippines
 Entry of foreign banks in the Philippines through
the establishment of branches shall be governed
by the provisions of Foreign Banks Liberalization
Act or R.A. 7721
 The conduct of offshore banking business in the
Philippines shall be governed by the provisions of
PD 1034 or The Offshore Banking System Decree
OFFSHORE BANKING: Conduct of banking
Transactions in foreign currencies involving the
receipt of funds from external sources and the
utilization of such funds.
OFFSHORE BANKING UNIT: Branch, Subsidiary or
Affiliate of a foreign banking corporation which is
duly authorized by the BSP to transact offshore
banking business in the Philippines.
*Foreign Corporations doing business in the PH are
required to obtain a license. (Corporation Code)
B. Acquisition of Voting Stock in a Domestic
Bank (RULES)
 Within 7 years from effectivity of the GBL and
subject to guidelines issued pursuant to RA 7721,
the MB may authorize a foreign bank to acquire
up to 100% of the voting stock of only 1 bank
organized under Philippine Laws
 Within the same period, the MB may authorize
any foreign bank, which prior to effectivity of the
GBL availed itself of the privilege to acquire up to
60% of the voting stock of a bank under RA 7721
and Thrift Banks Act, to further acquire voting
shares of such bank to the extent necessary for it
to own 100% voting stock thereof.
 The MB shall adopt measures necessary to
ensure that at all time the control of 70% of the
resources or assets of the entire banking system
is held by banks which are at least majority-
owned by Filipinos
 Any of the foregoing right, privilege or incentive
enjoyed by and extended under the same
conditions to banks organized under Philippine
Laws.
C. Local Branches of Foreign Bank
 In case a foreign bank has more than 1 branch in
the Philippines, all such branches shall be treated
as 1 unit for the purpose of GBL and all
references to the Philippine Branches of foreign
banks shall be held to refer to such units.
D. Head Office Guarantee
 The head office of Philippine Branches of a
foreign bank shall fully guarantee the prompt
payment of all liability of it Philippine branch to
provide effective protection of the interests of
the depositors and other creditors of its
branches.
 Residents and Philippine Citizens who are
creditors of a branch in the Philippines of a
Foreign Bank shall have preferential right to the
assets of such branch in accordance with existing
laws.
E. Summons and Legal Process (How Courts
obtain jurisdiction over foreign banks)
 Summons and Legal Process served upon the
Philippine agent or head of any foreign bank
designated to accept service thereof shall give
jurisdiction to the courts over the bank. Service
of notices on such agent or head shall be binding
upon the bank he represents as if it was made
upon the bank itself.
 If the authority of such agent is revoked, or
should he become mentally incompetent or
otherwise unable to accept service while
exercising such authority, it shall be the duty of
the bank to name and designate a replacement
promptly and to file with the SEC a duly
authenticated nomination of such agent.
 In the absence of the agent or head or if there is
no person authorized by the bank upon whom
service of summons, processes and all legal
 notices may be made, it may be made upon the
BSP Deputy Governor in charge of the
supervising and examining departments and
such is effective as if made upon the bank or its
duly authorized agent or head.
 In case of service for the bank upon the BSP
Deputy Governor in charge of the supervising
and examining departments, it shall register and
transmit by mail to the president or secretary of
the bank at its head or principal office a copy of
the summons, process or notice duly certified by
him.
 The sending of such copy of the summons,
process or notice is a necessary part of the
services and shall complete the service. The
registry receipt of mailing shall be prima facie
evidence of transmission of the summons
process or notice. Costs incurred shall be paid in
advance by the party at whose instance the
service is made
F. Laws Applicable
 In all matters not specifically covered by special
provisions applicable only to a foreign bank or its
branches and other offices in the Philippines, any
foreign bank licensed to do business in the
Philippines shall be bound by the provisions of
GBL, all other laws, rules and regulations
applicable to banks organized under the law of
the Philippines of the same class. EXCEPT those
that provide for the creation, formation,
organization or dissolution of corporations or for
the fixing of the relations, liabilities,
responsibilities or duties of stockholders,
members, directors or officers of corporations to
each other to the corporation.
G. Revocation of License of a Foreign Bank
 The MB may revoke the license to transact
business in the Philippines of any foreign bank if
it finds that it is insolvent or in imminent danger
thereof or its continuance in business will involve
probable loss to those transacting business with
it.
 After the revocation of its license, it shall be
unlawful for such foreign bank to transact
business in the Philippine unless its license is
renewed or reissued.
 BSP shall take necessary action to protect the
creditors of such foreign banks and the public.
The provisions of the NCBA on sanctions and
penalties are likewise applicable
II. Entry of Foreign Banks (RA 7721)
A. Modes of Entry (Sec. 2)
 By acquiring, purchasing or owning up to 60% of
the voting stock of an existing bank
 By investing in up to 60% of the voting stock of a
new banking subsidiary incorporated under
Philippine laws
 By establishing branches with full banking
authority; Provided:
 A FB may avail only 1 mode of entry
Provided further,
 A FB or a Philippine Corporation may
own up to 60% voting stock of only 1
domestic bank or new banking
subsidiary
B. Guidelines for Approval (Sec 3); The MB Shall:
 Ensure geographic representations and
complementation
 Consider strategic trade and investment
relationships between the Philippines and the
country of incorporation of the FB
 Study the demonstrated capacity, global
reputation for financial innovations and stability
in a competitive environment of the applicant
 See to it that reciprocity rights are enjoyed by the
Philippine banks in the applicant’s country
 Consider willingness to fully share their
technology
*Only those among the top 150 FB in the world or the
top 5 in their country of origin as of the date of
application shall be allowed entry.
 C. Capital Requirements (Sec. 4)
 Locally Incorporated Subsidiaries: Equal to that
prescribed by the MB for domestic banks of the
same category
 Foreign Bank Branches: FB seeking entry
pursuant to section 2(iii) shall permanently
assign capital not less than the USD equivalent of
210 Million Pesos at the exchange rate on the
date of the effectivity of RA 7721 (FB is entitled
to 3 branches) (additional 3 by inwardly remitting
USD equivalent to 35 Million Pesos per branch)
*The total number of branches shall not exceed 6.
D. Board of Directors (Sec. 7)
 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
III. Trust Operations
A. Authority to Engage in Trust Business
TRUST BUSINESS: 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.
 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 behoof of others. Such corporation is
referred to as a ”Trust Entity”
 The cardinal principle common to all trust and
other fiduciary relationships is FIDELITY. A bank
authorized to engage in trust and fiduciary
business is under no obligation, either legal or
moral, to accept any such business being offered
nor has it the right to accept if the same is
contrary to law, rules and regulations, public
order and public policy.
B. Conduct of Trust Business
 A trust entity shall administer funds or property
under its custody with diligence that a prudent
man would exercise in the conduct of an
enterprise of a like character and with similar
aims.
 No trust entity shall, for the account of the
trustor or beneficiary of the trust, purchase or
acquire property from or sell, transfer, assign or
lend money, or property or purchase debt
instruments of, any of the departments,
directors, officers, stockholders, or employees of
the trust entity, relatives within the first degree
of consanguinity or affinity of their related
interests UNLESS 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.
 The MB shall promulgate rules and regulations
necessary to prevent circumvention of the
foregoing prohibition or the evasion of
responsibility therein imposed on a trust entity.
C. Registration of Articles of Incorporation and
By-Laws of a Trust Entity
The SEC shall not register the Articles of
Incorporation and by-laws or any amendment
thereto of any trust entity, unless accompanies by a
certificate of authority issued by the BSP.
 Must be accompanied by a favorable
recommendation of the appropriate government
agency to thee effect that such articles or
amendment is in accordance with law (Section
17 of the Corporation Code)
 SEC shall not accept for filing, the by-laws or any
amendment thereto unless accompanied by a
certificate of the appropriate government
agency to the effect that such by-laws or
amendments are in accordance with law.
(Section 46 of the Corporation Code)
 D. Minimum Capitalization
 A trust entity before it can engage in trust or
other fiduciary business, shall comply with the
minimum paid-in capital requirement
determined by the MB.
E. Powers of a Trust Entity
 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 executor of any will when it is named as
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.
 ESTABLISH and MANAGE common trust funds
subject to such rules and regulations as may be
prescribed by the MB
F. Transactions Requiring Prior Authority
A trustee or fiduciary shall not undertake any of the
following transactions for the account of a client
UNLESS prior to its execution:
 It has been fully disclosed and specifically
authorized in writing by:
o The client
o The Beneficiary
o Other Party-In-Interest
o Court of Competent Jurisdiction
o Other Competent Authority
 LEND, SELL, TRANSFER or ASSIGN money or
property to any of the departments, directors,
officers, stockholders or employees of the
trustee or fiduciary or relatives with the first
degree of consanguinity or affinity, or the related
interest of such D, O, and S; or to any corporation
where the trustee or fiduciary owns at least 50%
of the subscribed capital or voting stock in its
own right and not as trustee nor in a
representative capacity.
 PURCHASE or ACQUIRE property or debt
instruments from any of the departments, D, O,
S or E of the trustee or fiduciary or relatives
within the first degree of consanguinity or affinity
or the related interest of such D, O, and S; or to
any corporation where the trustee or fiduciary
owns at least 50% of the subscribed capital or
voting stock in its own right and not as trustee
nor in a representative capacity.
 INVEST in equities of, or in securities
underwritten by the trustee or fiduciary or a
corporation in which the trustee or fiduciary
owns at least 50% of the subscribed capital or
voting stock in its own right and not as a trustee
nor in a representative capacity.
 SELL, TRANFER, ASSIGN or LEND money or
property from one trust account to another trust
account EXCEPT where the investment is allowed
by the MB
G. Deposit for the faithful Performance of Trust
Duties
 BEFORE TRANSACTING TRUST BUSINESS, every
trust entity shall deposit with the BSP as security
for the faithful performance of its trust duties,
cash or securities approved by the MB in an
amount equal to not less than 500,000 or such
higher amount as may be fixed by the MB
 The MB shall require every trust entity to
INCREASE THE AMOUNT of its cash or securities
on deposit with the BSP whenever in its
judgment such increase is necessary by reason of
the trust business of such entity.
 THE PAID-IN CAPITAL AND SURPLUS of such
entity must be at least equal to the amount
 required to be deposited with the BSP in
accordance with the above provisions.
*Should the capital and surplus FALL BELOW said
amount, the MB shall have the same authority
granted to it under the provisions Section 34(3) of
the GBL
 A trust entity so long as it shall continue to be
solvent and comply with laws or regulations shall
have the right to collect interest earned on such
securities deposited with the BSP and from time
to time with the approval of the BSP, to exchange
the securities for others.
*If the trust entity fails to comply with any law or
regulation, the BSP shall retain such interest on the
securities deposited with it for the benefit of rightful
claimants.
 All claims arising out of the trust business of a
trust entity shall have priority over all other
claims as regards to cash or securities deposited.
 The MB may not permit the cash or securities
deposited in accordance with the provisions of
this section to be reduced below the minimum
amount until the depositing entity shall
discontinue its trust business and shall satisfy the
MB that it has complied with all its obligation in
connection with such business.
IV. Bond of Certain Persons for the Faithful
Performance of Duties
A. Bond Requirements
 Before an executor, administrator, guardian,
trustee, receiver or depositary appointed by the
court enters upon the execution of his duties, he
shall, upon order of the court file a bond in such
sum as the court may direct.
 Upon the application of any executor,
administrator, guardian, trustee, receiver,
depositary or any other person in interest, the
court may, after notice and hearing, order that
the subject matter of the trust or any part
thereof be deposited with a trust entity.
 Upon presentation of proof to the court that the
subject matter of the trust has been deposited
with a trust entity, the court may order that the
bond given by such persons for the faithful
performance of their duties be reduced to such
sums as it may deem proper.
 The reduced bond shall be sufficient to secure
adequately the proper administration and care
of any property remaining under the control of
such persons and the proper accounting for such
property. Property deposited with any trust
entity in conformity with the above provision
shall be held by such entity under the orders and
direction of the court.
B. Exemption of Trust Entity from Bond
Requirement
 No bond or other security shall be required by
the court from a trust entity for the faithful
performance of its duties as court appointed
trustee, executor, administrator, guardian,
receiver or depositary. HOWEVER the court may
upon proper application with it showing special
cause therefor, require the trust entity to post a
bond or other security for the protection of funds
or property confided to such entity.
V. Operations of Trust Entity
A. Separation of Trust Business from General
Business
 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.
 All moneys, properties, or securities given by a
bank IN ITS CAPACITY AS TRUSTEE, FIDUCIARY OR
INVESTMENT MANAGER shall be kept physically
 separate and distinct from the assets of its other
businesses and shall be under the joint custody
of at least 2 persons.
 One shall be an officer of the trust or
investment management department,
designated for that purpose by the board of
directors
 The investment of each trust, other fiduciary or
investment management shall be kept physically
separate from those of other trust, other
fiduciary or investment management accounts,
and adequately identified as the assets or
property of the relevant account.
B. Investment Limitations of a Trust Entity
 Unless otherwise directed by the instrument
creating the trust, the lending and investment of
funds and other assets acquired by the trust
entity as E, A, G, T, R or D of the estate of any
MINOR OR OTHER INCOMPETENT PERSON shall
be limited to loans or investments as may be
prescribed by Law, MB or any court of competent
jurisdiction.
 Assets received in trust shall be administered in
accordance with the terms of the instrument
creating the trust or other fiduciary relationship.
 When a trustee is granted discretionary
powers in the investment disposition of trust
funds and unless otherwise specifically
enumerated in the agreement and directed
in writing by the client, court of competent
jurisdiction or other competent authority,
loans and investments of the fund shall be
limited to the ff:
 Evidence of indebtedness of the
Philippines and of BSP any other
evidence of indebtedness or
obligations the servicing and
repayment of which are FULLY
GUARANTEED by Philippines or loans
against such government securities.
 Loans FULLY GUARANTEED by the
Philippines as to the payment of
principal and interest
 Loans FULLY SECURED BY A HOLD-
OUT on, ASSIGNMENT or pledge of
deposits maintained either with the
bank proper or other banks, or of
deposit substitutes of the bank, or of
mortgage and chattel mortgage
bonds issued by the trustee or
fiduciary.
 Loans FULLY SECURED by real estate
or chattels in accordance with
pertinent laws.
 The requires specific directives shall contain the
following information:
 Transaction to be entered into
 Borrower’s Name
 Amount Involved
 Collateral Securities if any
C. Real Estate Acquired by a Trust Entity
 Unless otherwise specifically directed by the
trustor or the nature of the trust, REAL ESTATE
ACQUIRED BY A TRUST ENTITY in whatever
manner and for whatever purpose shall be
governed by the relevant provisions of the GBL.
 It may acquire, hold or convey real property
under the following circumstances:
 It is mortgaged to it in good faith by way of
security for debts
 It is conveyed to it in satisfaction of debts
previously contracted in the course of its
dealings
 It purchased 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 these
circumstance shall be disposed by the bank within 5
years or as may be prescribed by the MB PROVIDED:
the bank may after said period continue to hold the
property for its own use subject to the following
limitations:
 The total investments in such real estates and
improvements thereof including equipment
 shall not exceed 50% of combined capital
accounts.
 The Equity investment of a bank in another
corporation engaged primarily in real estate
shall be considered as part of the total
investment in real estate, unless otherwise
provided by the MB.
D. Investment of Non-Trust Funds
 Investment of funds OTHER THAN TRUST FUNDS
OF A TRUST ENTITY which is a bank, financing
company or an investment house shall be
governed by the relevant provisions of the GBL
and other applicable laws.
E. Sanctions and Penalties
 A trust entity or nay of its officers and directors
FOUND TO HAVE WILFULLY VIOLATED any
pertinent provisions of the GBL shall be subject
to sanctions and penalties
F. Exemption of Trust Assets from Claims
 No assets held by a trust entity in its capacity as
trustee shall be subject to any claims other than
those of the parties interest in the specific trusts
 Property held by the insolvent debtor as a
trustee of an express or implied trust shall be
excluded from the insolvency proceedings.
G. Establishment of Branches of a Trust Entity
 The ordinary business of a trust entity shall be
transacted at the place of business specified in its
articles of incorporation
 Such trust entity may with prior approval from
the MB establish branches in the Philippines and
said entity shall be responsible for all business
conducted in such branches to the same extent
and in the same manner as though such business
had all been conducted in the head office
 The trust entity and its branches shall be treated
as one unit
H. Advertisement of Services
 Trust entities shall advertise their services in a
DIGNIFIED MANNER and enter such business
ONLY WHEN
 Demand for such service is evident
 Specially equipped to render such service
 Upon full appreciation of the
responsibilities involved.
 They shall be ready and willing to give full
disclosure of the services being offered and shall
conduct their dealing with transparency
 Harmonious relationship shall likewise be
pursued with other professions to achieve the
common goal of mutual service to the public and
protection of its interest.
I. Money of Government
 Banks MAY NOT RECEIVE or HOLD as trustee,
agent, administrator, financial manager or other
similar capacity, any fund or money from the
government and government entities.
 PROVIDED HOWEVER that government-owned
banks may receive or hold as trustee, agent,
administrator, financial manager or other similar
capacity, the following
 Funds of LGUs which are expected to be
available for investment purposes for a
relatively long period of time. PROVIDED
FURTHER:
o Amounts held in trust or otherwise
managed/advised for and in behalf of
LGUs shall be invested ONLY IN
GOVERNMENT SECURITIES,
specifically evidences of
indebtedness of the National
Government, the BSP and other
evidences of indebtedness or
obligations of government entities,
the servicing and repayment of which
are fully guaranteed by the National
government
 Funds of government and government
entities which are authorized by special laws
to be placed in trust.