GENERAL BANKING LAW • Banks primarily engaged in countryside lending and in
Republic Act No. 8791 lending to farmers and agricultural enterprises. (Riguera)
Definition of “Bank”
• “Banks” shall refer to entities engaged in the lending of
funds obtained in the form of deposits. (Sec. 3, RA No. 8791)
• A “bank” is an entity REGULARLY ENGAGED in the
lending of funds obtained in the form of deposits.(Riguera)
Nature of Banks
• 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. In
furtherance thereof, the State shall promote and maintain a
stable and efficient banking and financial system that
is globally competitive, dynamic and responsive to the
demands of a developing economy. (Sec. 2, RA No. 8791)
• Banks have a fiduciary nature because their functions
involves trust, that is, trust by the depositor that their money
will be safely kept by the bank until the need to withdraw the
same arises.
Consequences of the Nature of Banks
• Banks are subject to heavy and close supervision and/or
regulation by the Bangko Sentral ng Pilipinas (BSP);
• They are required to exercise utmost diligence in the
handling of deposits;
• There are special rules on strikes and lockouts.
(Sundiang, Sr. and Aquino)
Classification of Banks
• Universal Banks
• Commercial Banks
• Thrift Banks
• Cooperative Banks
• Islamic Banks
• Other Banks
(RA No. 8791)
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. (Sundiang, Sr.
and Aquino)
• Loans or advances extended by rural banks organized and
operated under this Act shall be primarily for the purpose of
meeting the credit needs of famers, fishermen or farm families
owning or cultivating land dedicated to agricultural production
as well as the normal credit needs of cooperatives and
merchants. (Sec. 6, RA No. 7353)
Thrift Banks
• A bank primarily engaged in extending banking services
to small and medium enterprises and individuals. With prior
monetary board approval, it may open current and checking
accounts and engaged in quasi – banking operations. (Riguera)
Cooperative Banks
• Cooperatives which have joined together in
accordance with the Cooperative Act of the Philippines.
(Riguera)
• Banks that primarily provide financial, banking and
credit services to cooperative organizations and their
members. (Sundiang, Sr. and Aquino)
Islamic Banks
• Banks which provides banking service in accordance with
Islam. In Islam, the collection or receipt of interest is
forbidden. The funds placed by account holders are invested in
transactions and enterprises which are permissible under
Islam. Islamic Banks are more like investment banks than
standard banks. (Riguera)
Commercial Banks
• Banks primarily engaged in extending banking services
to small and medium enterprises and individuals. It may
open current and checking accounts and invest in the
equities of allied undertakings. It may also engage in quasi
– banking operations. (Riguera)
• 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 credit, discounting and negotiation of
negotiable instruments and evidence of debt, accept and create
demand deposits and the like. (Sundiang, Sr. and Aquino)

Universal Banks
• Commercial banks which can exercise the powers of an
investment houseand invest in non – allied enterprises.
(Riguera)
• Banks that have the 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.
You can visit the BSP Directory to determine the
classifications of existing banks in the Philippines:
www.bsp.gov.ph/banking/directory.asp?
BankName=&InstitutionTypeID=2&submit=Find
Functions of Banks
• Deposit Function
• Loan Function
• Other Functions
Other Functions
Generally, universal banks and commercial banks 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;
• Upon prior approval of the Monetary Board, act as managing
agent, adviser, consultant or administrator of investment
management / advisory / consultancy accounts;
• Rent out safety deposit boxes.
Deposit Function
• A bank deposit is not actually a deposit under Article 1962
of the Civil Code since safekeeping is not the purpose of the
agreement. Fixed, savings, and current deposits of money in
banks shall be governed by the provisions of simple loan (Art.
1980, Civil Code). A person who receives a loan of money or
any other fungible thing acquires the ownership thereof (Art.
1953, Civil Code). (Riguera)
• The bank can use as its own the money deposited. Said
amount is not being held in trust for the depositor nor is it
being kept for safekeeping (Tang Tion Tick v. American
Apeothecaries, 65 Phil. 414).
• Third persons who may have a right to the money deposited
cannot hold the bank responsible unless there is a court order
or garnishment. The duty of the bank is to its creditor –
depositor and not to third persons (Fulton Iron Works v.
Chinabank, 55 Phil. 208).
• The officers of the bank cannot be held liable for estafa if
they authorized the use of the money deposited by the
depositor (Guingona v. City Fiscal of Manila, 128 SCRA
577).
• The bank has the right to compensation. It can set off the
deposits with the indebtedness of the depositor that are due
and demandable (Gullas v. PNB, 63 Phil. 519).
Loan Function
• A bank shall 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.
• Such grant of loans and other credit accommodations shall
be consistent with safe and sound banking practices.
• Before granting a loan or other credit accommodation, a
bank must ascertain that the debtor is capable of fulfilling
his commitments to the bank.
Single Borrower’s Limit
CEILING – the total amount of loans, credit accommodations
and guarantees that may be 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 single borrower’s limit is the total credit commitment
of the bank to the borrower.
The ceiling may be increased by 10% subject to Sec.
35.2 of the GeneralbBanking Law.
(Sundiang, Sr. and Aquino)
Prohibited Acts
• Banks are prohibited from engaging in insurance business.
• Outsourcing of functions is generally prohibited.
(Sundiang, Sr. and Aquino)
Bancassurance
• The presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such banks duly licensed by the BSP or any of
its branches (Sec. 375, Insurance Code of the Philippines).
Kinds of Deposits
• Savings Account
• Time Deposit
• Demand Deposit or Current Account
• Joint “And/Or” Account
Savings Account
• The most common form of savings where the purpose is for
the depositor to save his money or for convenience. Since in
practice, the money may be withdrawn at any time, the interest
paid by the back is minimal. (Riguera)
• Banks are prohibited from issuing / accepting withdrawal
slips or any other similar instruments designed to effect
withdrawals of savings deposit without requiring the
depositors concerned to present their passbooks and
accomplishing the necessary withdrawal slips, except for
banks authorized by the BSP to adopt the no passbook
withdrawal system (Sec.X214, Manual of Regulations for
Banks).
Time Deposit
• A deposit made for a fixed period and which may not be
preterminated prior to the maturity date unless a
pretermination penalty is paid. The interest paid is
consequently higher than a savings account. (Riguera)
• An account with a fixed term. (Sundiang, Sr. and Aquino)
Demand Deposit / Current Account
All those 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 the
following rules:
• Generally, only a universal bank or a commercial bank can
accept or create demand deposits.
• A bank other than a universal bank or a commercial bank
cannot accept deposits except upon prior approval of the
Monetary Board.
• Temporary overdrawing against current accounts shall not
be allowed unless caused by normal bank charges and other
fees incidental to handling such accounts.
• Drawing against uncollected deposits are generally
prohibited.
(Sundiang, Sr. and Aquino)
Joint “And/Or” Account
• Whenever two or more persons open an account, the same
may be an “or” account or an “and” account. (Sundiang, Sr.
and Aquino)
• An “or” account requires only the signature of either account
holders for withdrawals. An “and” account requires the
signatures of all account holders.
• Joint accounts may be subject of a survivorship agreement
whereby the co – depositors agree to permit either of them to
withdraw the whole deposit during their lifetime and
transferring the balance to the survivor upon the death of one
of them. (Sundiang, Sr. and Aquino)
• Under the National Internal Revenue Code (NIRC), the bank
shall not allow a withdrawal from a joint account if it has
knowledge of the death of an account holder, unless the
Commissioner has certified that the estate taxes has been
paid. For this purpose, all withdrawal slips shall contain
a statement to the effect that all of the joint depositors are still
living at the time of the withdrawal by one of the joint
depositors and such statement shall be under oath by the said
depositors.
• Account holders of joint accounts are presumed co – owners
of the same. Such presumption, however, may be overturned
by contrary evidence.
(Riguera)
Other Accounts
• An “in trust for” account is not a trust account but an
ordinary savings account. Hence, the bank was not liable
when it allowed the withdrawal of the account holder without
the consent of the heirs (Goyanko v. UCPB).
• A “custodial” account on the other hand is an account under
the name of the beneficiary and he or she is entitled to the
same once he or she reaches the proper age.
• Anonymous accounts, accounts under fictitious names, and
all other similar accounts shall be absolutely prohibited,
except peso and foreign currency non – checking deposit
accounts, which may be “numbered accounts” (Sec. 9(a), RA
No. 9160).
Unclaimed Balances

• Deposits that have become dormant for a period of 10

years may be escheated in favor of the government.

• Unclaimed balances includes credits or deposits of money,

bullion, security or other evidences of indebtedness of any
kind, and interest thereon in favor of any person known to be
dead or who has not made further deposits or withdrawals
during the preceding 10 years or more.

(Sundiang, Sr. and Aquino)

• Initially, there should be notice to the depositor of the

unclaimed balance.

• Thereafter, the bank is required to report to the Treasurer of

the Philippines the existence of such deposits. The
Treasurer will inform the Solicitor General who will then
initiate the proper escheat proceedings in Court.

• Publication is also required to safeguard the rights of

interested parties.

• Such unclaimed balances, together with the increase and

proceeds thereof, shall be deposited with the Treasurer to the
credit of the Philippine Government to be used as Congress
may direct.

(Sundiang, Sr. and Aquino)

End