SPECIAL COMMERCIAL LAWS

General Banking Act and Classifications of Banks in the Philippines

Banking Lecture – 8 November 2021

Cory Aquino Administration (1986-1992)

1987 Constitution
Sec. 20, Article XII:
- The Congress shall establish
- Until the congress…. (page 1)

Role of Central Bank to be created by Congress

- A central monetary authority
- The only government agency:
o To provide policy direction in areas of money, banking, and credit
o Supervision over banks and exercise regulatory powers over finance companies and
other institutions performing similar functions.

Sec. 21, Article XII:

- Foreign loans may only be incurred… (page 3)
- Rationale: Reaction to the effect of the 1983 Pres. Marcos Debt Moratorium vs. Foreign Bank
Lenders of the country – Government and private

Sec. 22, Article XII:

- Acts which circumvent….. (page 3)

RA 7653 – Central Banking Charter (1994) amended Act 265 (1948)

RA 11211 – New Central Banking Act (19 February 2019) ameded RA 7653 (Ramos Charter)

RA 8791 – General Banking Act (2000) amended Act 331 (1948)

RA 9160 – Anti-Money Laundering Law (2001)

RA 9302 – Philippine Deposit Insurance Corporation as amended

RA 10167 (2012) amended AMLA Law

RA 10365 (2013) amended AMLA Law

RA 10846 – PDIC Law (June 2016)

The Bangko Sentral ng Pilipinas

New Central Bank Logo
- The logo employs a photorealistic rendering of a Philippine eagle in flight, signifying its
strenght of leadership and foresight that the BSP provides in the financial sector and the
economy.

BSP Charter or New Central Banking Act amended by RA 11211 (2019) Salient Provisions
1. Capitalization of BSP: P200 Billion (from P50 Billion)
SPECIAL COMMERCIAL LAWS
General Banking Act and Classifications of Banks in the Philippines

2. The Monetary Board and Powers

3. The Goverrnor and Powers
4. The Deputy Governors and Powers
5. The Regulation of Banks
6. The Granting of Loans to Banks
7. The Liabilities of Banks
- To the public
- To the BSP
- To PDIC

Closure of Banks-when and how

A. Letter of commitment
B. Prompt corrective action status – PCA
C. Conservatorship
D. Receivership
E. Closure
F. Liquidation
G. Decided Cases

The Salient Provisions of Bangko Sentral Act RA 7653 and RA 11211

General Provisions
1. Capitalization – P200 Billion
2. The Monetary Board Functions
3. The Composition of Monetary Board
Article 2. 7 members; 5 members must come from the private sector with a term of 6 years while 3
years for the other 3.

Powers of the Monetary Board

Section 15
1. To issue rules and regulations which must be reported to the President of the Philippines and
Congress within 15 days from promulgation
The citizenry does not have the power to look at the loans the Philippine government is
contracting.
2. Direct the management and operations of the BSP with legal units under the direction
supervision and regulation of the Monetary Board

Price Stability – control of inflation

Monetary policy – availability of peso
Monetary stability – convertibility of the peso value in the international market so that current payments
abroard are assured
Vested with fiscal and administrative autonomy
Exercise sole supervision of all banks: DBP vs. COA, G.R. No. 88435, 373 SCRA 356, 16 January
2012

Powers of BSP vs. COA

DBP vs. COA
SPECIAL COMMERCIAL LAWS
General Banking Act and Classifications of Banks in the Philippines

This case raises the issue of supremacy of the BSP circular for compliance by all banks in the
Philippines over the prohibitions of COA. This case involves the collision of 2 Constitutional
provisions for the BSP as the Central Monetary authority of the country tasked with supervision over
all banks and the COA mandate as a Constitutional Commission in Article IX, Sections 1 and 2
whereby the Commission on Audit is the mandated consittutional body tasked with exclusive jurisdiction
to “define the scope of the audit and examination of all accounts pertaining to the revenue, receipts of
and expenditures of government agencies and instrumentalities including GOCCs.

The Constitution provides page 11

General Banking Act (RA 8791) – 15 November 2021

- The General Banking Law was amended on 12 April 2000
- Radical amendment of the General Banking Act of 1949 as follows:
o Declaration of policy on fiduciary nature of banking which requires high standards of
integrity and performance.
- Role of state to promote a stable and efficient banking and financial system that is globally
and competitively responsive.

Definition of Banks
Sec. 3. Banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.
Central Bank of the Philippines vs. Citytrust Banking Corporation, G.R. No. 141835, 4 February
2009
- Banks are mandated to observe high standards of fiduciary duty to its depositors.
- The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan.
- Article 1980 of the Civil Code expressly provides that “savings, deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan.”
- There is a debtor-creditor relationship between the bank and its depositor.
- The bank is the debtor and the depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand.

Contribution by the Supreme Court

1. Simex International vs. CA, Associated Bank, 183 SCRA 360 (1997)
Banking system is an indispensable institution in the economic life of the country.
2. Sandejas vs. Ignacio Jr., 541 SCRA 61 (2007)
Banks should guard against injury attributable to negligence or bad faith on its part.
3. Security Bank vs. RCBC, 557 SCRA 407, 30 January 2009
Banking business is imbued with public interest.
4. Gonzales vs. PCIB, 643 SCRA 180, 23 February 2011
Extraordinary diligence is required from banks.
5. BDO-EPCI vs. JAPRL Development Corp., G.R. No. 179901, 14 April 2008
Why are banks deemed as imbued with public interest? Thru granting of loans
SPECIAL COMMERCIAL LAWS
General Banking Act and Classifications of Banks in the Philippines

Classification of Banks
Under the General Banking Act:
1. Universal Bank
2. Commercial Bank
3. Thrift Bank
4. Rural Bank
5. Cooperative Bank
6. Islamic Bank
7. Other classification of banks as determined by Monetary Board

Foreign Banks
18 May 1994 (under the administration of President Ramos)
Purpose:
- Create competitive banking
- Encourage sounder banking practice; and
- Economic Liberalization

Applicable Laws
- The General Banking Law of 2000
- Foreign Banks Liberalization Law
- Amendments under RA 10641
- Corporate Code of the Philippines

Examples of Foreign Banks

Bank of America
Standard Chartered Bank
Citibank
HSBC

Important Provisions
Sec. 72. Transacting business in the Philippines
The entry of foreign banks in the Philippines through establishment of branches shall

Foreign Banks: Interpellation and Salient Points

1. How is Filipino depositors are protected from the closure of foreign banks with headquarters in the
Philippines?
RA 6426 – An act constituting foreign deposit units in the Philippines.
2. How many foreign banks came in the Philippines under RA 7721?
3. Offshore banking unit is not a foreign bank. At present, there is only one OBU in the Philippines
They cannot get the money of the Filipino deposits. Inwardly deposited to the bank. Intended to
augment foreign residents of that foreign bank to have the luxury. They cannot source it from the
people; they cannot operate here. Works as a conduit. OBUs cannot get the money of the Filipino
deposits.
4. They had to get the deposits of the Filipinos.
5. Foreclosure proceedings: it can participate but they cannot own property here in the Philippines. It
opens up some areas of concern. It is not true foreclosure proceedings; Ex. Agcaoili and Associates
and (??) Bank.
SPECIAL COMMERCIAL LAWS
General Banking Act and Classifications of Banks in the Philippines

6. It would appear that they have deeper pockets, but in fact they’re not.
7. In the banking sector, they are being prepared for the entry of ASEAN Banks in the Philippines.
8. Erap case: Impeachment transmitted by Sen. Villar (relate to General Banking Act)
9. Check if you will be dealing with foreign banks in the provinces and find out the protection.

Islamic Banking in the Philippines

Islamic Banks: Interpellation and Salient Points

1. The clientele that is being entertained. If you are not a Muslim but a Filipino, can you maintain an
account in the Islamic Bank? AAIIBP opens its doors to Muslims and non-Muslims
2. Islamic banks do not charge interest rates.

Rural Banks Interpellation

Rural banks backed up by bigger banks (piggy-backed)