GENERAL BANKING LAW Banking Law Issues - PowerPoint Presentation

Slide1

GENERAL BANKING LAW

Banking Law IssuesSlide2

Topics

1. Banks

a. Nature of business b. Authority to incorporate and operate c. Classification of Banks2. Functions of Banks a. Deposit Function b. Loan Function c. Other functions d. Prohibited Acts3. Ownership of Banks a. Foreign Ownership b. Filipino Stockholdings c. Stockholdings of Family Groups and related interests4. Directors and Officers a. Composition of Board b. Meetings c. Qualifications5. Liquidity and Security

6. Ownership of Real

Pr

operty

7. Loan to Banks

a. Loans without collateral

b. Emergency Loans

8. Conservatorship

a. Grounds

b. Powers of Conservatorship

9. Receivership and Liquidation

a. Grounds

b. Duties of Receiver

c. Close Now-Hear Later Scheme

d. Effect of Receivership and Liquidation

10. Trust Operations of Banks

a. Prior Authority

b. Trust Business

c. Powers

d. Separation of Trust Business of BanksSlide3

Objectives

General Objective:

To be familiarized with the provisions of the General Banking Law of 2000, and Basel I, II, and III, as well as jurisprudence involving the said laws. Slide4

Objectives

At the end of the report, the participants must be able to:

Discuss the policy behind the GBL;

Define, classify and differentiate banks;Identify and discuss the core and other banking functions;Discuss and apply the rules on ownership of banks;Describe and evaluate the management of banks; andDiscuss and apply the rules on conservatorship, receivership, liquidation, and trust operation of banksSlide5

GENERAL BANKING LAW

R.A. 8791

AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

Short Title: General Banking Law of 2000Slide6

1. Banks

A. Definition

B. Nature of business

C. Authority to incorporate and operateD. Classification of BanksSlide7

A. Definition

Banks are entities engaged in:

the lending of funds

obtained in the form of deposits from the public. (Sec. 3.1, GBL)Requirements: (Sec. 8, GBL)Stock corporationFunds obtained from publicSlide8

Problem

SA Corp. is an investment company;

It established 74 branches throughout the Philippines;

It managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74;It loans out the money of its customers, collects the interest and charges a commission to both lender and borrower;Is SA Corp. a bank? Slide9

Answer

Yes.

Sec. 2, GBL.

Republic v. Security Credit and Acceptance Corporation.Funds were derived from the public;Lent out the deposit to persons;Violation - engaging in banking without securing the administrative authority required in Republic Act No. 337.Slide10

A. Definition

“Quasi-banks” (QB) refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivables and other obligations. (Sec. 4, GBL)

Quasi-banking function is an inherent power of Universal Banks and Commercial Banks. Slide11

B. Nature of Business

Policy (Sec. 2, GBL)

“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.” Slide12

B. Nature of Business

Rule on Strikes and Lockouts

(Sec. 22, GBL)

If unsettled after seven (7) calendar days, Bangko Sentral reports to the Secretary of Labor who has two options: (1) assumption jurisdiction(2) certify to NLRC for compulsory arbitration. The President of the Philippines may, at any time, intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same.REASON: INDISPENSABLE TO NATIONAL INTERESTSlide13

C. Authority to Incorporate and Operate

TO INCORPORATE: Articles of Incorporation must be accompanied by a certificate of authority issued by the MB, under its seal.

TO OPERATE: Certificate of authority from the BSPSlide14

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide15

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide16

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide17

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide18

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide19

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide20

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide21

Prudential Measures

Reserve Requirements

Single Borrower’s Limit

Lending Restrictions to Bank Insiders (DORSI)Loan-Loss ProvisionsDeposit InsuranceEquity Investment LimitsCapital AdequacyBSP – Lender of last resortSlide22

D. Classification of Banks

i

.

Universal Banks (UB) – banks that have the authority to exercise, in addition to the powers authorized for a commercial bank, the powers of an investment house and the power to invest in non-allied enterprises. (Sec. 23)E.g. BDO Unibank, Inc., BPI, RCBC, SBC, Union Bank, UCPB, Al-Amanah, DBP, LBP, ANZ Banking, HSBCSlide23

D. Classification of Banks

ii.

Commercial Banks

(CB) – banks that have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking. (Sec. 29)E.g. Bank of Commerce, Citibank, Maybank Phil., PBC, Veterans, BDO Private BankSlide24

D. Classification of Banks

iii.

Rural Banks

– banks that are created to make needed credit available and readily accessible in the rural areas for purposes of promoting comprehensive rural development. R.A. No. 7353E.g.Providence Rural Bank, Rural Bank of Gattaran, Claveria Rural Bank, Rural Bank of Sanchez Mira, Rural Bank of Cauayan, Golden Rural Bank of the Philippines, Banco AgriculaSlide25

D. Classification of Banks

iv.

Thrift Banks

– banks that include: savings and mortgage banks, private development banks, and stock savings and loan associations.E.g.Allied Savings Bank, Bank of Makati, BPI Direct Savings Bank, Century Savings Bank, Express Savings Bank, Malayan Bank, Win BankSlide26

D. Classification of Banks

v.

Cooperative Banks

– banks that primarily provide financial, banking and credit services to cooperative organizations and their members. (Sec. 100, R.A. 6938 as amended by R.A. 9520)E.g. Cooperative Bank of Cagayan, Coop of Bulacan, Coop of La Union, Coop of BoholSlide27

D. Classification of Banks

vi.

Islamic Banks

– Charter of Al Amanah Islamic Investment Bank of the Philippines. (R.A. 6848)E.g. Al-Amanah Islamic Investment Bank of the PhilippinesSlide28

D. Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

As to Powers1. The powers authorized for a Commercial Bank;2. The powers of an investment house

as provided in existing laws;

and

3. The power to invest in non-allied enterprises as provided in the GBL. (Sec. 23)

1. THE GENERAL POWERS INCIDENT TO CORPORATIONS,

2. ALL SUCH POWERS AS MAY BE NECESSARY TO CARRY ON THE BUSINESS OF COMMERCIAL BANKING, SUCH AS ACCEPTING DRAFTS AND ISSUING LETTERS OF CREDIT; DISCOUNTING AND NEGOTIATING PROMISSORY NOTES, DRAFTS, BILLS OF EXCHANGE, AND OTHER EVIDENCES OF DEBT;

3. SUBJECT TO SUCH RULES AS THE MB MAY PROMULGATE. THESE RULES MAY INCLUDE THE DETERMINATION OF BONDS AND OTHER DEBT SECURITIES ELIGIBLE FOR INVESTMENT, THE MATURITIES AND AGGREGATE AMOUNT OF SUCH INVESTMENT. (SEC. 29

)Slide29

Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

As to Equity Investments A UB MAY INVEST IN THE EQUITIES OF ALLIED (EITHER FINANCIAL OR NON-FINANCIAL) AND NON-ALLIED ENTERPRISES. (SEC. 24) EXCEPT AS THE MB MAY OTHERWISE PRESCRIBE: THE TOTAL INVESTMENT IN EQUITIES OF ALLIED AND NON-ALLIED ENTERPRISES SHALL NOT EXCEED 50% OF THE NET WORTH; AND THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE, WHETHER ALLIED OR NON-ALLIED, SHALL NOT EXCEED 25% OF THE NET WORTH OF THE BANK (SEC. 24)

A CB MAY INVEST ONLY IN THE EQUITIES OF ALLIED ENTERPRISES (EITHER FINANCIAL OR NON-FINANCIAL). (SEC. 30)

EXCEPT AS THE MB MAY OTHERWISE

PRESCRIBE:

THE TOTAL INVESTMENT IN EQUITIES OF ALLIED ENTERPRISES SHALL NOT EXCEED 35% OF THE NET WORTH OF THE BANK; AND

THE EQUITY INVESTMENT IN ANY ONE ENTERPRISE SHALL NOT EXCEED 25% OF THE NET WORTH OF THE BANK.Slide30

Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Financial Allied Enterprises  A UB CAN OWN UP TO 100% OF THE EQUITY IN… A THRIFT BANK,A RURAL BANK OR

A FINANCIAL ALLIED

ENTERPRISE. (SEC. 25)

A KB MAY OWN UP TO 100% OF THE EQUITY OF A THRIFT BANK OR A RURAL BANK. (SEC. 31)

WHERE THE EQUITY INVESTMENT OF A CB IS IN OTHER FINANCIAL ALLIED ENTERPRISES, INCLUDING ANOTHER COMMERCIAL BANK, SUCH INVESTMENT SHALL REMAIN A MINORITY HOLDING IN THAT ENTERPRISE. (SEC. 31)

 Slide31

Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Non-Financial Allied EnterprisesA UB OR KB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THEEQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)A UB OR KB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE

EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)Slide32

Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in QBs  TO PROMOTE COMPETITIVE CONDITIONS IN FINANCIAL MARKETS, THE MB MAY FURTHER LIMIT TO 40% EQUITY INVESTMENTS OF UBS ANDCBS IN QBS. (SEC. 28)

A UB OR CB MAY OWN UP TO ONE HUNDRED PERCENT (100%) OF THE

EQUITY IN A NON-FINANCIAL ALLIED ENTERPRISE. (SEC. 26 AND 32)Slide33

Classification of Banks

UNIVERSAL BANKS

COMMERCIAL BANKS

Equity Investments in Non-Allied Enterprises THE EQUITY INVESTMENT OF A UB, OR OF ITS WHOLLY OR MAJORITY-OWNED SUBSIDIARIES, IN A SINGLE NON-ALLIED ENTERPRISE 1. shall not exceed 35% of the totalequity in that enterprise nor2. shall it exceed 35% of the voting

stock in that enterprise. (Sec. 27)

 Slide34

2. Functions of Banks

A. Deposit Function

B. Loan Function

C. Other functionsD. Prohibited ActsSlide35

A. Deposit Function

Simple Loan

Fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan (Article 1980, Civil Code of the Philippines).Slide36

Problem

A deposited in Bank X;

Bank used the money;

A would like to withdraw but the Bank cannot pay;Is the Bank liable for estafa? Slide37

Answer

No.

Guingona

v. City Fiscal of Manila, 128 SCRA 577Since the bank is the borrower, it can make use as its own the money deposited, and the amount is not held in trust for the depositor nor is it kept for safekeeping. (Tang Tiong Tick v. American Aphothecaries, 65 Phil. 414)Slide38

Problem

A deposited in Bank X;

B alleges that the money deposited by A belongs to him;

A withdraws from the bank;Is Bank X liable?Slide39

Answer

No.

Third persons who may have the right to the money deposited cannot hold the bank responsible unless there is a court order or garnishment, since the duty of the bank is to the creditor-depositor and not to third persons.

Fulton Iron Work v. Chinabank, 55 Phil. 208Slide40

Problem

A deposits in Bank X;

Bank X loans out money to A;

If A defaults in payment, can Bank X off of the deposits in its hands for the payment of A’s indebtedness?Slide41

Answer

Yes.

“A bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor.”

Gullas v. PNB, 1935Slide42

Kinds of Deposit

1.

Demand deposits

The depositor can take out his funds any time. No interest is paid by the bank The depositor can withdraw the money he deposited on the very same day.Slide43

Kinds of Deposit

2.

Savings Account

Evidenced by a passbookHas interest rate, but not as high as time deposits.3. Time Deposit Has a fixed term Money deposited cannot be withdrawn within a certain period Has a higher rate of interest than saving account.Slide44

Kinds of Deposit

4.

Negotiable Order of Withdrawal (NOW) Account

is an interest-bearing deposit account that combines the payable on demand feature of checks and investment feature of savings accounts. 5. Other Account is one that may be opened by one individual or by two or more persons. Whenever two or more persons open an account, the same may be an “and/or account” or an “and” account.Slide45

Kinds of Deposit

Safety Deposit Boxes

Special kind of deposit

Not an ordinary contract of lease Bailer and baileeSlide46

Loan Function

Basic Rules and Restrictions

Risk-Based Capital Ratio

Single Borrower’s LimitDORSI RestrictionsSlide47

Single Borrower’s Limit

Not exceed 25% of the net worth of bank

Basis: total credit commitment of the bank to the borrower

GBL provides that the total amount of loans, etc. may be increased by an additional 10% of the net worth of such bank provided:The additional liabilities of any borrower are adequately securedSec. 35.2Slide48

DORSI Account

GENERAL

RULE:

CANNOT BECOME AN OBLIGOR OF THE BANK.cannot borrow from bank; cannot become a guarantor, indorser or surety for loans from such bank to others; Slide49

DORSI Account

EXCEPTION:

written

approval of the majority of all the directorsentered upon the records of the bank copy of such entry transmitted to BSP. Such written approval shall not be required for loans, other credit accommodations and advances granted to officers under a fringe benefit plan approved by the BSP.Slide50

DORSI Account

Individual lending ceiling =

insider’s unencumbered deposit + book value of his paid-in capital contribution

Aggregate Ceiling =Whichever is lower between 15% of the total loan portfolio and 100% of combined capital accountsUnsecured portion of the loan =It should not exceed 30% of the loan of the insiderSlide51

Limits on Loans and other CA

real estate

(collateral)

not exceed 75% of its appraised value plus 60% of the appraised value of the insured improvements,Chattels and intangibles (collateral)not exceed 75% of the appraised value of the securitySlide52

Foreclosure of Mortgage

Debtor has the right to redeem real property

within 1 year from sale of real estate

.Right to take possession by the purchaser from date of confirmation of auction sale.Slide53

Other Functions

UB and CB may also exercise any of the following functions

:

i. Receive in custody funds, documents and valuable objects;ii. 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;iii. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with baking business;iv. Upon prior approval of the MB, act as managing agent, adviser, consultant of administrator of investment management/advisory/consultancy accounts; andv. Rent out safety deposit boxes. Slide54

Prohibited Acts

Engaging in insurance

Directors, Officers, Employees, Agents

Borrowers of Banks Slide55

3

. Ownership of Banks

A. Foreign Ownership

B. Filipino StockholdingsC. Stockholdings of Family Groups and Related InterestsSlide56

Foreign Ownership

Foreign stockholdings

Up to 40% of the voting stock of domestic banks

Foreigners - total equity participationCorporate stockholder – citizenship is determined by citizenship of controlling stockholdersSlide57

Filipino Ownership

Filipino stockholdings

Section 11 of the GBL applies to Filipinos and domestic non-bank corporations.

individual equity participation should not exceed 40% of the voting sharesSlide58

Family Groups and Related Interests

No prohibition

Full disclosure Slide59

4

. Directors and Officers

A. Composition of Board

B. MeetingsC. QualificationsSlide60

Composition of BOD

At

least five (5), and a maximum of fifteen (15) members of the

BOD of bank, two (2) of whom shall be independent directors.Non-Filipino (restriction, equity participation)Public Officials (prohibition)Slide61

Meetings

conducted

through modern

technologies E.g. teleconferencing and video-conferencing.Slide62

Qualifications

Fit and Proper Rule

integrity,

experience, education, training, and competence