Banking Law Issues
Banking Law Issues 6. Ownership of Real Property 1. Banks a. Nature of business b. Authority to incorporate and operate c. Classification of Banks 2. Functions of Banks a. Deposit Function b. Loan Function c. Other functions d. Prohibited Acts 3. Ownership of Banks a. Foreign Ownership b. Filipino Stockholdings c. Stockholdings of Family Groups and related interests 4. Directors and Officers a. Composition of Board b. Meetings c. Qualifications 5. Liquidity and Security 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 Banks 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. 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; and Discuss and apply the rules on conservatorship, receivership, liquidation, and trust operation of banks R.A. 8791 AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASIBANKS, TRUST ENTITIES AND FOR OTHER PURPOSES Short Title: General Banking Law of 2000 A. Definition B. Nature of business C. Authority to incorporate and operate D. Classification of Banks 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 corporation Funds obtained from public 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? 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. “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. 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.” 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 INTEREST 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 BSP Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort Reserve Requirements Single Borrower’s Limit Lending Restrictions to Bank Insiders (DORSI) Loan-Loss Provisions Deposit Insurance Equity Investment Limits Capital Adequacy BSP – Lender of last resort 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, HSBC 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 Bank 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. 7353 E.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 Agricula 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 Bank 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 Bohol 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 Philippines UNIVERSAL BANKS COMMERCIAL BANKS As to Powers 1. 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) 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 NONFINANCIAL). (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. 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) UNIVERSAL BANKS COMMERCIAL BANKS Equity Investments in Non-Financial Allied Enterprises 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) 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) 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 AND CBS 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) 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 NONALLIED ENTERPRISE 1. shall not exceed 35% of the total equity in that enterprise nor 2. shall it exceed 35% of the voting stock in that enterprise. (Sec. 27) A. Deposit Function B. Loan Function C. Other functions D. Prohibited Acts 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). 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? No. Guingona v. City Fiscal of Manila, 128 SCRA 577 Since 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 TiongTick v. American Aphothecaries, 65 Phil. 414) 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? 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. 208 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? 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, 1935 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. 2. Savings Account Evidenced by a passbook Has 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. 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. Safety Deposit Boxes Special kind of deposit Not an ordinary contract of lease Bailer and bailee Basic Rules and Restrictions Risk-Based Capital Ratio Single Borrower’s Limit DORSI Restrictions 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 secured Sec. 35.2 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; EXCEPTION: written approval of the majority of all the directors entered 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. 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 accounts Unsecured portion of the loan = It should not exceed 30% of the loan of the insider 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 security 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. 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; and v. Rent out safety deposit boxes. Engaging in insurance Directors, Officers, Employees, Agents Borrowers of Banks A. Foreign Ownership B. Filipino Stockholdings C. Stockholdings of Family Groups and Related Interests Foreign stockholdings Up to 40% of the voting stock of domestic banks Foreigners - total equity participation Corporate stockholder – citizenship is determined by citizenship of controlling stockholders 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 shares No prohibition Full disclosure A. Composition of Board B. Meetings C. Qualifications 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) conducted through modern technologies E.g. teleconferencing and video-conferencing. Fit and Proper Rule integrity, experience, education, training, and competence
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