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BANKING LAWS OF THE PHILIPPINES

2. New Central Bank Act R.A 7653 - established
the Banko Sentral ng Pilipinas (BSP) as the
Banking Laws – Laws Governing Banks country's independent central monetary
authority.
1. GBL – General Banking Law or known as the R.A
with the maintenance of price stability explicitly
8791 - AN ACT PROVIDING FOR THE
stated as its primary objective.
REGULATION OF THE ORGANIZATION AND
OPERATIONS OF BANKS, QUASI-BANKS, TRUST
- It is in relation to the Article 2, section
ENTITIES AND FOR OTHER PURPOSES
19 of the 1987 Constitution “the State
Primary purpose: it promotes stable and efficient shall develop a self-reliant and
banking system that is globally competitive, dynamic, independent national economy
and responsive to the demands of a developing effectively controlled by the Filipinos
economy – must always be developing and progressive

Who are Interested Parties in the Business of Banking?

- It plays a significant role in fulfilling the
• Government: The government has a significant constitutional mandate, as it pertains to
interest in regulating and overseeing the banking sector the development and independent
to ensure financial stability, consumer protection, and national economy.
adherence to laws and regulations.
- It reaffirms the independence of the
• Depositors: Depositors are individuals or
central bank, promotion of economic
entities that entrust their money to banks. They have an
growth, and monetary policy and
interest in the safety and security of their deposits.
economic stability.
• Investors: Investors may include shareholders
of banks or individuals who invest in banking SPECIAL BANKS
instruments, such as bonds or stocks, with the aim of - These banks are the small banks or rural banks
earning a return on their investment. spread across the country.
• Creditors: These are entities or individuals who
extend credit to banks or have claims against them. - It can be classified into two (2)
They are concerned with the bank's ability to meet its
financial obligations.  Rural – Bario or low-class municipalities
 Urban – City or high-class municipalities
• Borrowers: Borrowers are individuals or
businesses that seek loans and credit facilities from Example of bank laws:
banks. They are interested in obtaining favorable 1. Rural Banks act 7353 of 1992- enacted to
lending terms and conditions. promote comprehensive rural development
GENERAL BANKING LAW through the establishment of a rural
banking system designed to make the
- Promote and maintain a stable and efficient needed credit available and readily
banking and financial system that is globally accessible
competitive, dynamic and responsive to the
demands of the developing economy. - It is also in relation to the Article 2 section 21 of
the 1987 Constitution, which talks about the
promotion of the rural development and
agrarian reform.
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BANKING LAWS OF THE PHILIPPINES
As it talks about Financial Inclusion and People's  Upon the order of a competent court in
Participation and Access to Credit and Economic cases of bribery or dereliction of duty of
Participation for the development of the public officials.
locality.

2. Private development bank act 4093 - to  When the money deposited is the subject
engage in medium and long terms loan for matter of litigation.
economic development.
5. P.D No 679 – Unclaimed Balances Act
The primary objectives of this law are to
facilitate economic growth, encourage - AN ACT REQUIRING BANKS, TRUST
investment, and support industries through CORPORATIONS, AND BUILDING AND LOAN
the establishment of private development ASSOCIATIONS, TO TRANSFER UNCLAIMED
banks. BALANCES HELD BY THEM TO THE TREASURER
OF THE PHILIPPINES AND FOR OTHER PURPOSES
3. R.A 7906 - AN ACT PROVIDING FOR THE
REGULATION OF THE ORGANIZATION AND
OPERATIONS OF THRIFT BANKS, AND FOR 6. R.A 3591 – Philippine Deposit Insurance
OTHER PURPOSES Corporation Act. – also known as the PDIC,
serves as an insurance for clients of the
OTHER GOVERNING LAWS AND THEIR bank if the bank were to get bankrupt.
EFFECTS: and that the deposit/law states that you will
be entitled to 500k of compensation.
4. R.A 1405 – Secrecy of bank deposits
law/bank secrecy law – completely - PDIC exists to protect depositors by providing
confidential but there are exceptions. deposit insurance coverage for the depositing
public and help promote financial stability.
- N ACT PROHIBITING DISCLOSURE OF OR
It also maintains confidence in the country's
INQUIRY INTO, DEPOSITS WITH ANY BANKING
banking system by ensuring that depositors'
INSTITUTION AND PROVIDING PENALTY
funds are safeguarded.
THEREFOR.

- It aims to protect the confidentiality and

secrecy of bank deposits. This law is intended to HIERARCHY OF CITIES OR MUNICIPALITIES
promote trust and confidence in the country's - According to Republic Act No. 7160, also known
banking system by safeguarding the privacy of as the Local Government Code of 1991,
individuals' financial transactions and provides a framework for the classification of
information. municipalities in the Philippines. It classifies
municipalities into four income classes, which
- EXCEPTIONS: can be further categorized into urban and rural
municipalities. The distinctions based on R.A.
 When the depositor gives written 7160 are as follows:
permission for the disclosure.
A. First-Class Municipality:
 In cases of impeachment.
- These municipalities have an annual income
within the highest range.
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BANKING LAWS OF THE PHILIPPINES
- They are generally urbanized and have depending on their level of urbanization and population
significant economic activity. density.
Some municipalities may fall into transition categories,
- They provide a wide range of public services such as "Newly Created" or "Rapidly Urbanizing," which
and infrastructure. can affect their status and entitlements.

- Their annual income may be subject to specific

Moreover, it is important to note that the Local
financial qualifications set by the Department of
Government Code and the specific income
Finance.
thresholds for each class may change over time
as economic conditions and the cost of living
B. Second-Class Municipality: evolve. The classification of municipalities is
subject to regular review and adjustment by the
- Second-class municipalities also have a Department of Finance and the Department of
relatively high annual income. the Interior and Local Government.

- They are typically more urbanized than lower - FOR A SPECIFIC ANNUAL INCOME
classes. RANGE/THRESHOLD OF THESE MUNICIPALITIES,
YOU MAY REFER TO
- They provide a good level of public services but
PRESIDENTIAL DECREE NO. 465, May
may not be as developed as first-class
municipalities. 20, 1974

C. Third-Class Municipality:
PRIMARY FUNCTION OF BANKS
- These municipalities have a moderate annual
Banks – provides huge income in the economy
income.
- For persons interested in banking business,
- They may be semi-urban or semi-rural in such as the government or other people.
character. - It is primarily covered by GBL
- For Depositors
- They offer basic public services and may have - For Investors
limited resources for extensive development.
(above is ATTY B NOTES; below is based on research)
D. Fourth-Class Municipality: The primary function of banks in the Philippines, as
governed by banking laws, is to serve as financial
- Fourth-class municipalities have a lower annual intermediaries or act as a link and provide various
income compared to the higher classes. banking and financial services to the public. The primary
functions of banks in the Philippines, as outlined in the
- They may be predominantly rural in character. General Banking Law (Republic Act No. 8791), include:

1. Acceptance of Deposits: Banks provide a safe

- They often have fewer resources, and public
place for individuals and businesses to deposit
services may be more basic.
their funds. They offer various types of deposit
accounts, such as savings accounts, checking
accounts, and time deposits, where customers
can store their money securely.
NOTE: In addition to the income classification,
municipalities can also be categorized as urban or rural,
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BANKING LAWS OF THE PHILIPPINES
2. Lending and Credit Provision: Banks extend NOTE: These functions are essential in supporting the
credit and loans to individuals and businesses, economic and financial activities of the country and
helping them meet their financial needs, contribute to the stability and growth of the Philippine
whether for personal, business, or investment financial system.
purposes.

3. Facilitating Payments and Transfers: Banks

offer payment and transfer services, allowing NATURE OF BANKS
customers to make transactions, transfer funds,
and pay bills. This includes check clearing, - Banks are imbued with public trust, interest,
electronic funds transfer, and other payment and confidence.
mechanisms. - Public interest – it involves money, by which
belongs to the people and must be handled
4. Currency Issuance: Banks, including the central with the highest degree of care
bank (Bangko Sentral ng Pilipinas), have the UTMOST RESPONSIBILITY must be exercised.
authority to issue and regulate the circulation of
currency within the country.
Fiduciary Relationship
5. Custody and Safekeeping: Banks provide safe - It is the trust and confidence between parties
deposit boxes and custodial services for
customers to store valuable items, documents, Q: What does the bank must do to maintain
and securities securely. fiduciary relationship?

6. Foreign Exchange Services: Banks facilitate A: In handling the accounts of the depositors,
foreign exchange transactions, helping the bank must exercise utmost diligence on the
individuals and businesses with international money of depositors
trade and foreign currency conversion.

7. Investment Services: Banks offer various DIFFERENT KINDS OF DILIGENCE (new Civil Code of the
investment products and services, such as Philippines)
managing investment portfolios, selling
investment products, and providing financial 1. Diligence of a Good Father of a Family
advisory services. (Diligentia Boni Patris Familias)
- Or known as the ordinary diligence, it is a
8. Financial Intermediation: Banks act as diligence that is sufficient or proportionate care
intermediaries between those who have surplus for the circumstance/s.
funds (deposits) and those who need funds
(borrowers). They play a crucial role in “Utmost Diligence”- in banking refers to the
allocating capital in the economy. highest level of care, attention, and
responsibility that a bank must exercise in its
dealings with customers, their assets, and their
9. Risk Management: Banks provide various financial transactions. It is a legal and ethical
financial instruments and services to manage standard that requires banks to take all
financial risks, such as insurance, hedging, and reasonable steps to protect the interests and
derivative products. rights of their customers. Utmost diligence is a
fundamental principle of the banking industry,
and it is often enshrined in various banking laws
and regulations.
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BANKING LAWS OF THE PHILIPPINES
big role in international trade and currency
conversion
2. Extraordinary Diligence:
- This is the highest degree of care, and is usually 6. Risk management – helps people to manage
exercised by common carriers. There is an financial risks, such as INSURANCE
element of “PUBLIC”

3. Special Diligence: # For in-depth information, proceed to the

- This is a level of diligence required for the abovementioned R.A
nature of a performance or an act. It depends
on the standard of care relevant or needed to
their expertise or job. PRINCIPLES AND ESSENTIAL ELEMENTS
It may also sometimes refer to being required OF BANKS
by law. - The Supreme Court has ruled that banks are
mandated 2 ESSENTIAL/FUNDAMENTAL
(CONTINUATION TO THE NATURE OF BANKS) elements of banks

- Under the banking laws of the Philippines, the 1. Treat all clients with utmost diligence,
nature of banks in the Philippines, as outlined in fidelity, and meticulous care
the General Banking Law (Republic Act No.
8791) 2. Record all transactions with accuracy and
prompt.
1. Financial intermediaries – banks serve as a
link between people who have funds to
deposit, and to those who need funds Banks are mandated to comply with
(borrowers)
It facilitates economic growth and the Fundamental Obligations
development
1. Treat their client’s accounts with utmost fidelity
and meticulous care.
2. Legal Entities - they have the legal capacity
to enter into contracts, acquire assets, and 2. To record all transactions accurately and
assume liabilities. promptly

3. Deposit-Taking: banks accept various types POLICE POWER REGULATION

of deposits and these deposits are subject
to specific terms and conditions defined by - Banks are subject to reasonable regulations
the bank. under the police power of the state

Ex. Savings account, checking accounts, etc. Reasoning: so that the state may be able to
regulate banks immediately even without
4. Lending and Credit Provision – check the investigation.
primary function It is to prevent the fear from the public
due to imbalance of circulation of money, in
which case, from an error which may occur and
5. Foreign exchange services – foreign be prolonged resulting to panic.
currency exchange transactions, it plays a
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BANKING LAWS OF THE PHILIPPINES
It is also subject to other existing rules estate, serves as collateral to secure the
and regulations. repayment of the loan. If the borrower fails to
repay the loan as agreed, the lender can take
ownership of the property through a legal
NOTE: 7 days strikeout/lock out is the limit, and must process called foreclosure and sell it to recover
immediately report to the Banko Sentral ng Pilipinas. the outstanding debt.

As it is imbued with public interest, trust, and Chattel Mortgage:

confidence, so it needs to be fixed immediately. A chattel mortgage is a legal agreement where
movable personal property (chattels), such as
machinery, equipment, vehicles, or inventory, is
CLASSIFICATION OF BANKS used as collateral to secure a loan. Unlike real
estate mortgages, which involve real property
1. Universal Banks – these banks are primarily (land and buildings), a chattel mortgage is used
governed by the GBL. to secure loans related to movable assets. If the
- It exercises the powers of investment house, borrower defaults on the loan, the lender can
and invest in not allied enterprises. take possession of and sell the chattels to
recover the debt.
2. Commercial Banks – these are ordinary banks,
governed by the GBL. Real Estate Mortgage:
A real estate mortgage, also known simply as a
- It has lower capitalization requirement and can mortgage, is a specific type of mortgage where
neither exercise power of an investment house, real property, typically land and buildings, is
and not allied enterprises. used as collateral to secure a loan. It is the most
common form of mortgage and is often used in
- They primarily engage in receiving deposits, real estate transactions. If the borrower fails to
extending loans, and other financial services. meet the terms of the loan, the lender can
foreclose on the real estate property and sell it
- They serve as DEPOSIT-TAKING and LENDING to recoup the outstanding debt.
institutions/banks. (purely transactional and for
circulation only.) - The mortgage consists of Movable property and
Immovable property.
3. Thrift Banks – these banks primarily engage in
savings, stock savings, loan associations and a. Movable property – properties that are not
Mortgage banks. (to small & medium-sized permanently attached to land and can be
enterprises [SMEs]) easily moves, transferred from one place to
another.
- Ex. Private development banks that are
governed by the Thrift Banks act. these are cars, jewelries which are
Mortgage chattel
These are small banks, businesses that has
mortgage or collateral (loan w/ mortgage) NOTE: Mortgage chattel is a type of
mortgage that is secured by personal
Mortgage: property or known as chattel property
A mortgage is a legal agreement between a which includes movable and tangible
borrower (mortgagor) and a lender (mortgagee) properties or assets, such as vehicles or
in which the borrower pledges real property as others.
security for a loan. The property, typically real
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BANKING LAWS OF THE PHILIPPINES
b. Immovable property – properties that are deposits and providing long term financing for
permanently attached to it. housing and real estate projects.
these are lands, buildings, trees, plants, or
Real Estate Mortgage, also known as REM 8. Foreign Banks – these are international Banks
that are allowed to establish branch offices in
4. Rural Banks – these are smaller banks that the Philippines and subject to regulatory
primarily serve rural or agricultural approval.
communities for farmers to gain the capital
needed to start for farming. - They serve financial services to clients, including
multinational corporations.
- Mandated to serve or provided: Needed Credit
available & Ready and Accessible. 9. Government Banks – it refers to the Directly
- It is governed by the R.A 7353 or the Rural owned or controlled by the government, such
Banks Act of 1992 as the Land Bank of the Philippines and the
Development Bank of the Philippines.

5. Cooperative Banks – banks organized, owned,

NOTE: each bank types are subject to the regulatory
controlled and operated by cooperatives.
requirements and operational limitations as defined by
the BANK SENTRAL NG PILIPINAS.
- Primary objective is to provide financial services
such as saving and credit services to its
members – and as a member you are entitled to
Q: if you deposited in a bank, what kind of contract
privileges.
arises from that transaction?
- Governed by R.A 6938
A: Contract of Loan, as it is a transaction between
6. Islamic Banks – banks that its business and
activities are limited and subject to the basic you (Creditor – depositor) and the Bank (debtor)
principle and rulings of the Islamic shari’ah NOTE: Contract of Mutuum - In Simple Loan or
Court Mutuum, the lender delivers to the borrower money or
other consumable thing upon the condition that the
- provide financial services that adhere to Islamic latter shall pay the same amount of the same kind and
banking and finance principles, such as profit- quality.
and-loss sharing and avoidance of interest
(usury).

- It is an islamic investment bank

According to the Law of Obligations and
- It is governed by the R.A 6848 Contracts of the Philippines
NOTE: they have their own rules and regulation
as they are given autonomy in accordance with
- Contract of Mutuum: This contract, also known as a
the Constitution and the Local government
simple loan, is an agreement where one party (the
Code of 1991, as Amended or R.A 7160
lender or mutuante) transfers ownership of a non-
fungible, consumable object to another party (the
OTHER BANK CLASSIFICATIONS ALSO
borrower or mutuario) who is obligated to return an
INCLUDES:
object of the same kind and quality. The borrower is
obligated to return the same quantity of the item lent,
7. Savings and Mortgage banks – which are
and the lender acquires the right to demand its return
specialized to engage in attracting savings
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BANKING LAWS OF THE PHILIPPINES
after a certain period or when stipulated in the
contract.

KEY CHARACTERISTICS OF THIS CONTRACT:

1. Ownership Transfer: In this contract, the lender

transfers ownership of the object to the
borrower. The borrower is considered the
owner of the property lent during the term of
the loan.

2. Non-Fungible and Consumable Object:

Mutuum involves the lending of a specific, non-
fungible object that is typically consumed or
used up over time. This differentiates it from
other types of loans.

3. Obligation to Return: The borrower is obligated

to return the same quantity and quality of the
object lent. This distinguishes it from other
contracts, such as the commodatum, where the
borrower is required to return the same object
lent.

4. Demand for Return: The lender has the right to

demand the return of the property lent after a
specific period or when stipulated in the
contract. The lender becomes the owner again
once the item is returned.

P.S: for in-depth information regarding this contract, do

check Civil Code of the Philippines R.A. No.386