COMMERCIAL BANKS

COMMERCIAL BANKS

• Commercial Banks grants mainly short term loans. It

extended loans to traders and merchants for the transport of
their goods in both domestic and international trade as well
as to finance the holding of inventories during the brief
period required for their sale.
• Traditionally the term commercial bank was applied to an
institution that accepted demand deposits (also known as
current or checking account) subject to withdrawal by
check
 ORDINARY COMMERCIAL
BANKS

• Commercial Banks is now available not only to

existing commercial banks including government
owned banks and Philippine branches of foreign banks,
but also to other types of banks henceforth so
authorized by Monetary Board of the Bangko Sentral
after they have met the terms and conditions laid down
by law and administrative regulations.
 PRESENT POWER OF
COMMERCIAL BANKS
• Accepting of drafts
• Issuing letters of credits
• Discounting and negotiating promissory notes, drafts, bills of
exchange and other evidences of debts
• Receiving deposits including negotiable order of withdrawal
accounts.
• Buying and selling foreign exchange and gold or silver bullions.
• Lending money against personal securities and against mortgages on
improved real state (land and building) and insured improvements
thereon.
 ORGANIZATION AND
CAPITALIZATION
• The incorporators shall also adopt a code of By- Laws
which shall contain among other things the key officers who
will manage the affairs of the bank the different working
and standing committees and the members thereof the time
date and place of regular and special meetings of the board
of directors and officers.
• Articles of Incorporation and Code of By- Laws shall
accompany the application and other paper/documents.
• The operation of a commercial bank are handled by a
number of departments such as cash, loans and discounts,
collection, trust, foreign, money market, accounting,
auditing, legal, administrative departments, and such
departments necessary to attain the bank objectives.
• The most common officers are chairman, president,
executive vice president, senior vice-president, vice
president, treasurer, controller or controller, cashier,
accountant and manager.
 DEPOSIT OPERATION

• A commercial bank is authorized to accept or create

demand deposits subject to withdrawal by check.
• Demand deposits also known as current accounts or
checking account accounts do not earn interest.
• The minimum period of time deposit is thirty days
• A commercial bank may also offer NOW accounts.
These are a special type of savings deposit which can
be withdrawn by means of a Negotiable Order of
Withdrawal (NOW). This type of deposit is offered
only to natural persons.
 BORROWING OPERATIONS
• A commercial bank may borrow from the Bangko Sentral
and other government and private financial institutions to
augment its working capital and loanable funds.
• Borrowing from the Bangko Senttral may take the form of
rediscounting and direct advance
• Rediscounting- this is a mode of borrowing whereby the
bank assigns in favor of the Bangko Sentral the eligible
borrowers papers in accordance with established guidelines,
terms and conditions.
 DIRECT ADVANCE OR LOAN

• As a lender of last resort, the Bangko Sentral may grant direct

advances to a commercial bank in times of emergency or
when it can no longer be allowed to rediscount its eligible
borrowers papers.
• Any paper, irrespective of maturity, eligible for rediscounting
purposes shall also be acceptable security for direct advance.
 DEPOSIT SUBSTITUTE
OPERATIONS
• It is also known as quasi bank or money market.
The elements of quasi banking are the following:
• Borrowing Funds for the borrower’s own account
• Twenty or more lenders at any one time
• Methods of borrowing are issuance, endorsement or acceptance of
debt instruments of any kind.
• The purpose maybe for relending, or purchasing of receivables and
other obligations.
 FEATURES OF NEGOTIABLE
PROMISSORY NOTE
• Negotiable promissory note acquired by a commercial bank in
connection with its quasi banking functions shall not be negotiated by
mere delivery and endorsement if they do not conform with the
following provision:
• The present value and maturity value must be indicated to enable the
parties to determine the cost or yield of the borrowing or placement.
• The date of issuance shall be indicated, including the maturity period
or word “demand” if it is demand instrument
• The payee maybe identified by his trust account or deposit
account number in both negotiable and non negotiable
instruments.
• Securities which are the subject of a repurchase agreement
or certificate of assignment with recourse shall be fully
described on the face on the said instrument.
• The instrument shall also provide for the payment of
liquidated damages, in addition to stipulated interest in case of
default by the maker or issuer as well as attorney’s fees and
costs of collection in case of suit.
• A conspicuous notice at the lower portion of the instrument
must be shown that the transaction is not insured by the
Philippines Deposit Insurance Corporation.
• The corporate name of the issuer shall be prominently
indicated on the instrument and below shall be a designation
of the instrument such as “Promissory note” or “ Repurchase
Agreement”
• Each instrument shall be serially pre-numbered.
• The copy of the instrument delivered to the payee shall
bear the word “original” and the copies retained by the
issuer shall be identified as “duplicate” or “file copy” as
the case may be.
• Only security paper with adequate safeguards against
alteration or falsification shall be used.
 OTHER BORROWINGS

• Except as maybe authorized by existing laws no private bank, whether

or not performing quasi-banking functions, shall borrow any fund or
money from the government or any of its entities, through the issuance
or sale of its acceptances, notes, or other evidences of debt.
• A commercial bank may issue short and long term commercial papers,
including bonds, in accordance with law, rules and regulations being
enforced by the Bangko Sentral and Securities and Exchange
Commission.
• In the case of bonds issued by banks, said bonds must have the
following features:
• The trust agreement and the name of the trustee must be indicated on the
face of the bond certificate issued.
• The bond registration number assigned by the Securities and Exchange
Commission and the expiry date, if any, shall be indicated, stamped on
the face of the bond certificate issued.
• Bonds may be issued at the face value, at a discount or premium but
their lowest denomination shall be 20,000 pesos.
• The minimum term of the bonds shall be four years without optional
redemption before the fourth year.
• The bonds shall not be subject to the interest ceiling prescribed by the
Monetary Board.
 LENDING OPERATIONS

• Loans granted by a commercial banks may be classified as follows.

• As to collateral
a) Secured loans- these loans are secured by real estate mortgage.
b) Unsecured loans- these loans are granted personal security
• As to purpose
a) Agricultural- these loans are granted to finance, agricultural,
production and related activities, purchase of farm machinery,
equipment and implements and work animals including but not
limited to the establishment and operation of poultry, piggery,
livestock, and fishery products.
Commercial- These loans are granted to finance to purchase of
goods, commodities or merchandise for resale.
Industrial- these loans are granted to finance the purchase and
processing of raw materials and manufacture of goods
including the marketing of such goods.
Real state- These loans are granted to finance and refinance
the construction, acquisition, expansion and improvements of
urban and rural properties.
Others- these loans are granted for purposes other than
agricultural, commercial, industrial and real state.’
• As to accounting treatment
Demand loans- These loans are granted without fixed maturity
dates but which become due and payable upon call or demand at
the option of the lending bank.
Bills discounted- these loans are those in the interest of which is
collected in advance or discounted from the face of covering
promissory note.
Time loans- these loans are payable on the fixed date or within a
specified period of time. Usually more than one year
 MISCELLANEOUS PROVISIONS ON
LENDING

• The total liabilities of any person, company, corporation or

firm to a commercial banks shall at no time exceed 15% of
the unimpaired capital and surplus of such bank.
• The total outstanding direct credit accommodations to each
of the bank directors, officers, stockholders and their related
interest shall not exceed.
• The total outstanding borrowings of a director officers, or
stockholder, whether direct or indirect shall not exceed
15% of the total portfolio of the bank or 100% of the
combined capital accounts.
• Each bank shall set aside an amount equivalent to at least
25% of its loanable funds for agricultural in general of
which the amount equivalent to at least 10% of the
loanable funds shall be made available for agrarian reform
credit.
• A commercial bank may grant loans under the supervised credit
financing programs of the government, such as the industrial guarantee
and loan fund which caters to the credit beeds of small and medium
size industries.
• At least 75% of total deposits accumulated by branches, agencies,
extension offices and head office of a commercial bank in a particular
region.
• The banks investment in real state, equipment and other chattels which
are used in its operations and properly classified as fixed assets shall
not exceed 50% of its paid-in capital and surplus.
• Assets acquired in settlements of loans shall be disposed of within five
years from the date of their acquisition by the banks.
 TRUST COMPANIES

• A commercial bank may engage in trust operations or trust

business which refers in administration, holding and
management by a trustee of funds or property, for the use,
benefit or advantage of the trustor of the beneficiaries.
• However before the bank can engage in trust operations it
must comply with the following requirements:
• It is authorized in its articles of incorporation to be engage in
trust companies.
• Before transacting trust business, the bank shall deposit with
Bangko Sentral cash or eligible government securities
amounting to at least P250,000 as a security for the faithful
performance of trust duties.
• OTHER OPERATIONS
• A commercial bank can finance export and import
requirements through the letters of credits and other
instruments generally used in international transaction and
foreign exchange dealings.
• It may engage in the sale of government, securities
such as bonds, security bills and other debt instruments
which the government may be issued from time to
time.
• Upon prior authority it may also collect taxes, custom
duties, and other government levies as a form of
assistance to the Bureau of International Revenue and
Bureau of Customs.
• It is authorized to participate in clearing operations which
have been transferred from Bangko Sentral to the Philippines
Clearing House Corporation, where the clearing of checks and
settlement of interbank balances pass through.
• As part of its authority to engage in foreign exchange
transactions, a commercial bank can also act as a dealer (buy
and sell) and foreign currencies which form part of our
international reserves.
 EXPANDED COMMERCIAL BANKS

• It was commonly known as commercial banks which

emerged in the introduction of financial reforms in 1980.
• The investment house operation may be discharged by the
expanded commercial banks. Either in house that is
establishing a separate department therefore in bank or
through the establishment of separate subsidiary.
• May directly or indirectly exercise the function of an
investment house subject only to a certain condition
 ORGANIZATION AND
CAPITALIZATION
• An expanded commercial bank is organized like ordinary
commercial bank except that the minimum paid in capital of
the former before it starts operations is P1.5 billion.
• EQUITY INVESTMENT
• An expanded commercial bank may invest in the equity of
other commercial institution performing quasi banking
functions. (money market operations)
• It can invest in the non financial allied like warehousing
and storage companies.
• The banks investment or its wholly or majority owned
subsidiary in any single non allied undertakings shall not
exceed 35% of the total subscribed capital stock nor shall
it exceed 35% of the voting stock of that enterprise.
• The bank total equity investment in and outstanding loans
to, any single enterprise whether allied or not allied shall
not at anytime exceed at 15% of the net worth of the
investing bank.
• UNDERWRITING AND DEALERSHIP IN
SECURITIES
• Underwriting is an act or process of guaranteeing the
distribution and sales of securities of any kind of issued by
another corporation.
• Types of underwriting investment
• Guaranteed basis
• Best effort basis
 DEALERSHIP

• Dealership is distinguished from the brokerage in

that the latter refers to the act performed by a person
or institution whereby it arranges the meeting of the
seller and a buyer of securities
THANK YOU