The Legal Framework of the

Philippine Banking System

Atty. Elmore O. Capule

General Counsel
Bangko Sentral ng Pilipinas
 URL: www.bsp.gov.ph
E-mail: [email protected]

BANGKO SENTRAL NG PILIPINAS

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 Outline
 History of Banking
 World History
 Philippine History
 The Philippine Financial System
 The Philippine Banking System
 Banks- definition
 Role of Banks in the Economy
 Bank Deposits
 Business Model of Banks
 Importance of Banks

BANGKO SENTRAL NG PILIPINAS

 Outline
 Classification of Banks
o
Universal Banks
o
Commercial Banks
o
Thrift or Savings Banks
o
Rural Banks
o
Cooperative Banks
o
Islamic Bank
o
Foreign Bank
 Organization of Banks
 Capitalization
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 Outline
 Capital Adequacy Ratio (Basle III)
 Directors and Officers
 Fit and Proper Rule
 Qualification and Disqualification
 Loans
 Foreclosure of real estate
 DOSRI
 Single Borrower’s Limit (SBL)
 Unsafe or Unsound Banking Practices
 Trust Operations

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 History of Banking

The Hammurabi Code (1,800 B.C.) of the

Babylonians already included regulations on
banking. BANGKO SENTRAL NG PILIPINAS
 Origin of the word “Bank”

The name bank derives from the Italian word banca

"desk/bench", used during the Renaissance by
Florentine bankers, who used to make their
transactions above a desk covered by a green
tablecloth. BANGKO SENTRAL NG PILIPINAS
 The Templar Knights were
considered the biggest
bankers during the Middle
Ages.

They issued the earliest form

of “letters of credit” for
Pilgrims.

BANGKO SENTRAL NG PILIPINAS

 Spanish Period (1521-1898 )

Gold,
 silver and copper coins serve as functional currency
A Royal Mint was established in 1857


Coins minted in Mexico, Spain and other South American countries.



Colonial Government functioned as a central bank insofar as controlling money in circulation



No banking law, minimal supervision of banking institutions



Spanish Civil Code and Code of Commerce



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 Active Banks during the Spanish
Period

1. Hong Kong and Shanghai Banking Corporation

(HSBC)
2. Banco Peninsular Ultamarino (Spanish bank)
3. El Banco Español Filipino de Isabel (Bank of
Philippine Islands or BPI today)
4. Monte de Piedad
5. Chartered Bank of India, Australia, and China
(now known as Standard Chartered Bank)

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 American Period (1899-1941)

Act No. 52 was passed by the First Philippine Commission providing for the regular inspection and examination of banks.
The Philippine Coinage Act (1903) and Philippine Gold Standard Fund Act (1904)
Division of Currency, Bureau of Insular Treasury
Manila Clearing House.
Department of Finance and National Treasury oversaw the monetary system.

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Japanese Occupation (1942-1945)

Military
Peso Notes (“Mickey Mouse” Money) by the Japanese Military Administration.
Only Japanese and Philippine Banks allowed to operate
Japanese Southern Development Bank acted as the fiscal agent, issue military notes,
take custody of clearing balances of banks and receive deposits from banks.

BANGKO SENTRAL NG PILIPINAS

 Philippine Republic (1946 to present)

Economic
 “magna carta”, containing the master plan for reconstruction and rehabilitation of the Philippine Economy.
Institution
 to administer both the banking and the monetary system.
Central Bank Act (Republic Act No. 265) took effect on June 15, 1948.


General Banking Act (Republic Act No. 337) took effect on January 3, 1949


BANGKO SENTRAL NG PILIPINAS

 The New Central Bank Act of 1993 [R.A. No.
7653]) took effect on July 3, 1993.
 The General Banking Law of 2000 (RA No.
8791) took effect on June 13, 2000.

BANGKO SENTRAL NG PILIPINAS

 Financial System

BANGKO SENTRAL NG PILIPINAS

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 The Philippine Financial System
As of 15 June 2016
  Head Branches Total
Office

Banks 622 10,227 10,849

UBs and KBs 41 6,053 6,094
Foreign 21 117 138
Thrift Banks  66  2,064 2,130
Rural and Coop  515  2,110  2,625
Non-Bank Financial Inst.      
With QB Function 10 81 91
Without QB Function 5,598 10,865 16,463
Offshore Banking Units 3  0 3
Total Banks and NBFIs  6,233  21,173 27,406

Combined Assets 15 June 2016 Source: http://www.bsp.gov.ph/banking/pbs_new/1.1.htm

Php 12.205 Trillion (March 2016)

Deposits at 6.2 Trillion (December 2015)
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 Financial System
 “ The financial system is the system that enables
lenders and borrowers to exchange funds”.

Deposits
Deposit substitutes
Personal equity Loans, investments
Contribution (stocks), in equities
Bonds,Notes/Commercial Or bonds,
Papers/borrowings)

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What happens when credit stops?

“Credit has the ability to build

a modern economy, but lack
of credit has the ability to
destroy it, swiftly and
absolutely” – Ben Bernanke,
Federal Reserve Bank, attributed in Too
Big to Fail movie.

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 Banking System (Sec. 3, RA No. 8791)
 Universal Banks (a.k.a. Expanded Commercial Banks)
 Commercial Banks
 Thrift Banks (RA 7906)
 Savings and mortgage bank
 Stock savings and loan associations
 Private Development Banks
 Rural Banks (RA 7353 as amended by RA 10574)
 Cooperative Banks
 Islamic bank (Al Amanah RA 6848)
 Foreign Banks (RA No. 7721 as amended by 10641)
BANGKO SENTRAL NG PILIPINAS
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 Non-banks Financial
Intermediaries/Institutions
 Insurance companies
 Investment houses
 Finance companies and Lending Investors
 Securities dealers and brokers
 Pawnshops
 Non-stock savings and loan association (NSSLA)
 Building and loan association
 Government Non-Bank Institutions (GSIS, SSS,
PDIC, NDC, Pag-Ibig).
 Cooperatives (credit)
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 Definition of a Bank

“Bank" refers to an entity engaged in the

lending of funds obtained in the form of
deposits. (Section 3.1, General Banking Act, R.A. No. 8791,
Definition of Banks)

Two-fold aspect of banking:

Borrowing (Deposit taking)

Lending of funds (granting of loans)

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Using an ATM card to withdraw cash from your
savings account through an Automated Teller
Machine is the most common form of banking
transaction.
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 Republic Act No. 8791
The General Banking Law of 2000

To fashion a legal framework so that the

banking system can adequately meet currently
emerging issues associated with deregulation
and increasing globalization and the
challenges that lie ahead in the 21st century.

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Republic Act No. 8791
 Declaration of Policy

Section 2. 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. In
furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and
responsive to the demands of a developing
economy.
BANGKO SENTRAL NG PILIPINAS
 Core Banking
Function
(Financial Intermediation)

Banks shall refer to entities engaged in the lending

of funds obtained in the form of deposits (Sec. 3.1,
R.A. No. 8791).

No person or entity can engaged in banking

operations without authority from the Bangko
Sentral. Violators will be subject to criminal
sanctions.
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 Banking vs. Quasi-banking
Deposit – the money and checks placed in a bank.

Deposit Substitute – an alternative form of obtaining

funds from the public, other than deposits, through
the issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for the
purpose of relending or purchasing of receivables
and other obligations, or financing their own needs or
the needs of their agent or dealer.

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 Financial Intermediary
 Deposits are pooled together by the Banking
System and then granted in the form of loans to fuel
business and domestic consumption
75.4%
Corporate

11.5% SMEs

13.1% Consumer

BANGKO SENTRAL NG PILIPINAS

 Fiduciary
 Done through Trust Functions
 Assist investors to take exposures in debt and
securities as investments
 Funds are invested in various outlets
 Financial advisory services
 These funds fund productive activities

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 Capital market participant

 Universal banks have powers of an investment

house
 Can be issuer or originator of securities
 Can be underwriter, securities custodian, fund
manager or investor

BANGKO SENTRAL NG PILIPINAS

 Concept of Bank Deposit

A “bank deposit” is a loan under Civil Law.

Loan is a contract where one party delivers to

another money and the latter acquires ownership
but obligation to pay. There is a creditor-debtor
relationship.

Relationship between bank and depositor is

contractual. Contract is law between the parties.

BANGKO SENTRAL NG PILIPINAS

 Types of Bank Deposit
1. Demand Deposits – Checking accounts
2. Savings Deposit –payment upon demand.
3. Negotiable Order of Withdrawal Accounts – interest-bearing
savings deposits accounts that combine the payable on demand
feature of checks and investment feature of savings accounts.
4. Time Deposits – Deposit for a specific period of time
5. Long Term Negotiable Certificates of Deposit – interest bearing
negotiable certificates of deposit with a minimum maturity of five (5)
years.

BANGKO SENTRAL NG PILIPINAS

 Secrecy of Bank Deposits
 Peso Deposit (RA No. 1405)
 Foreign Currency Deposit (RA 6426)
 Bank deposits (including investments in government securities/bonds) are considered
as confidential and cannot be opened except under instances provided for by law.

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 Financial Intermediation

Loans
Deposits

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Basic Business Model

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Interest on loans
+
Earnings on placements
– deposit interest
=
Income of Bank

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Capital + Governance
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 Importance of Banks
 The banking system is an indispensable
institution in the modern world and plays a vital
role in the economic life of every civilized nation.
 People come to regard them with respect,
gratitude and most of all confidence.
 Even the humble wage earner has not hesitated
to entrust his life’s savings to the bank of his
choice knowing it will be safe in its custody and
will even earn some interest for him.
 For business entities, the bank is a trusted and
active associate that help in running its affairs.
(SIMEX vs. CA, 183 SCRA 360)
BANGKO SENTRAL NG PILIPINAS
 Banks are affected with public interest
because they receive funds from the general
public in the form of deposits (“other people’s
money”)
 Banks are under obligation to treat with
meticulous care and utmost fidelity their
accounts.
 It is the government’s responsibility to protect
depositors (CBP vs. CA, 288 SCRA 302)

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 Banking business is properly the subject of
reasonable regulation under the police power of
the state because of its nature and relation to the
fiscal affairs of the people and the revenues of
the state (CBP vs. CA, 208 SCRA 652)

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 Banks are classified into:

(a) Universal banks;

(b) Commercial banks;
(c) Thrift banks;
(d) Rural banks;
(e) Cooperative banks;
(f) Islamic banks;
(g) Other classifications (Sec. 3.2,
General Banking Act).

BANGKO SENTRAL NG PILIPINAS

 Let’s identify:
Commercial or Universal Bank?

BANGKO SENTRAL NG PILIPINAS

 Let’s identify:
Commercial or Universal Bank?

BANGKO SENTRAL NG PILIPINAS

 Universal Banks

 Powers of an investment house

 Powers to invest in non-allied enterprise
 Can own up to 100% of the equity of thrift, rural
allied or non-financial allied
 If publicly listed, can own up to 100% of one
universal or commercial bank

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 Commercial Banks

 Accepting drafts and issuing LCs

 Discounting and negotiating PNs, drafts, bills of
exchange
 Demand deposits
 Receiving deposits and deposit substitutes
 Buying and selling FXs and gold or silver bullions
 Acquiring marketable bonds and other debt
securities
 Invest only in allied enterprises, which may be
financial or non-financial
BANGKO SENTRAL NG PILIPINAS
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 Financial Allied Undertakings

leasing companies; banks; investment

companies; financing companies; credit
card companies; companies engaged in
stock brokerage or securities dealership;
forex dealership or brokerage

BANGKO SENTRAL NG PILIPINAS

 Non-financial Allied Undertakings

warehouse companies; storage companies;

safe deposit box companies; management of
mutual funds; providing computer services;
insurance agencies; service bureaus

BANGKO SENTRAL NG PILIPINAS

Thrift or Savings Bank

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 Thrift Banks

BANGKO SENTRAL NG PILIPINAS

 Thrift Banks
 Accumulating savings of depositors and
investing them with capital loans with security
 Financing homebuilding and development
 Providing short term capital, medium and long
term financing to business engaged in
agriculture, services, industry and housing
 Providing diversified financial and allied services
for the chosen market, particularly small and
medium enterprises and invidividuals

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 Cooperative Bank

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 Cooperative Banks

A cooperative bank is one organized the

majority shares of which is owned and
controlled by cooperatives primarily to provide
financial and credit services to cooperatives.
The term "cooperative bank" shall include
cooperative rural banks.

BANGKO SENTRAL NG PILIPINAS

 Cooperatives
Rep. Act No. 9520 (Cooperative Code of 2008)

A cooperative is a duly registered association of

persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful common
social or economic end, making equitable contributions
to the capital required and accepting a fair share of the
risks and benefits of the undertaking in accordance
with universally accepted cooperative principles.

BANGKO SENTRAL NG PILIPINAS

These are Rural banks

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 Rural Banks

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 Purposes of Rural Banks
Rep. Act No. 7353 (Rural Banks Act of 1992)

Promote comprehensive rural development.

Rural Banks make needed credit available and
readily accessible in the rural areas on reasonable
terms. 

Extend loans and advances primarily for the

purpose of meeting the normal credit needs of
farmers, fishermen, or farm families,
cooperatives, merchants.

BANGKO SENTRAL NG PILIPINAS

 Islamic Bank
 Al Amanah Islamic Investment Bank
 Based on Islamic concept of banking
 Based on the basic principles and rulings of Sharia
 Do not involve interest (riba) which is prohibited
(usury).

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 Islamic Banking and Finance

 Prohibits the undertaking or financing of

antisocial & unethical businesses (e.g.
gambling, prostitution, alcoholic liquor,
nightclubs and narcotics)
 Prohibits interest or a fixed pre-determined
rate of return or riba (Principle of Risk-
Sharing)
 Requires compliance with Shari’ah (based on
equitable distribution of wealth)

BANGKO SENTRAL NG PILIPINAS

Conventional vs. Islamic Banking

BANGKO SENTRAL NG PILIPINAS

 What is in a name?

 For Thrift and Rural banks, the word “Savings or

Thrift” and “Rural”, respectively, must be included
in the bank name as required under the Manual of
Regulations for Banks

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 Foreign Banks

BANGKO SENTRAL NG PILIPINAS

Some New Foreign Banks

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 Foreign Banks
Rep. Act No. 7721 and 10641

One formed, organized or existing under any

laws other than those of the Philippines and
whose laws allow Filipino corporations to do
business in its own country or state.

BANGKO SENTRAL NG PILIPINAS

 Foreign Banks

Modes of Entry for Foreign Banks

1. By acquiring, purchasing or owning up to 60% of

the voting stock of an existing bank;

2. By investing in up to 60% of the voting stock of a

new banking subsidiary incorporated under the laws
of the Philippines;

3. By establishing branches with full banking authority.

BANGKO SENTRAL NG PILIPINAS

 Organization of Banks or Quasi-Banks

(1) That the entity is a stock corporation;

(2) Its funds are obtained from the public, which

shall mean twenty (20) or more persons; and

(3) That the minimum capital requirements

prescribed by the Monetary Board for each
category of banks are satisfied. (Sec. 8)

BANGKO SENTRAL NG PILIPINAS

Minimum Capitalization for Banks

 
Required
Bank Category Minimum
  Capitalization
 
UBs Php  
  Head Office Only   3.00 billion
  Up to 10 branches   6.00 billion
  11 to 100 branches   15.00 billion
  More than 100 branches   20.00 billion
       
KBs    
  Head Office Only   2.00 billion
  Up to 10 branches   4.00 billion
  11 to 100 branches   10.00 billion
  More than 100 branches   15.00 billion

BANGKO SENTRAL NG PILIPINAS

 Minimum Capitalization for Banks

 
Required
Bank Category Minimum
  Capitalization
 
TBs  Php  
Head Office in National Capital Region
  Head Office Only   500 million
  Up to 10 branches   750 million
  11 to 50 branches   1.00 billion
  More than 50 branches   2.00 billion
Head Office in all Other Areas Outside NCR
  Head Office Only   200 million
  Up to 10 branches   300 million
  11 to 50 branches   400 million
  More than 50 branches   800 million

BANGKO SENTRAL NG PILIPINAS

Minimum Capitalization for Banks
 
Required
Bank Category  Minimum
Capitalization
 
RBs and Coop Banks  Php  
Head Office in National Capital Region
  Head Office Only   50 million
  Up to 10 branches   75 million
  11 to 50 branches   100 million
  More than 50 branches   200 million
Head Office in all Other Areas Outside NCR
(All Cities up to 3rd class municipalities)
  Head Office Only   20 million
  Up to 10 branches   30 million
  11 to 50 branches   40 million
  More than 50 branches   80 million
Head Office in all Other Areas Outside NCR
(4th class to 6th class municipalities)
  Head Office Only   10 million
  Up to 10 branches   15 million
  11 to 50 branches   20 million
  More than 50 branches
BANGKO  
SENTRAL NG PILIPINAS 40 million
 Bank of International Settlements (BIS)

 The world's oldest international financial

organization (17 May 1930).
 60 member central banks, representing countries
from around the world that together make up about
95% of world GDP.
 Head office is in Basel, Switzerland
 Mission is to serve central banks in their pursuit of
monetary and financial stability, to foster
international cooperation in those areas and to act
as a bank for central banks.
BANGKO SENTRAL NG PILIPINAS
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 Basel III
 In December 2010, the Basel Committee on Banking
Supervision (BCBS) introduced a set of reforms
otherwise known as the Basel III.
 The standards include strengthening the definition of
regulatory capital and introducing capital buffers to
enable banks to withstand economic and financial
shocks.
 BCBS does not have authority to enforce
recommendations.
 Sec. 34 of RA No. 8791 authorizes the MB to
prescribe the risk based capital adequacy framework
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Capital Adequacy Ratio (CAR)

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 Expressed as a percentage of qualifying capital
to risk weighted assets.
 Risk-weighted asset (RWA) is a bank's assets or
off-balance-sheet exposures, weighted according
to risk (receivables)
 It is an indicator of a bank’s ability to absorb a
reasonable amount of loss. The minimum CAR
requirement is a means to protect bank’s
depositors and promote stability in the banking
system at the same time
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 Risk Weighed Assets (RWA) –
Illustration
 Cash, Guaranteed by Philippine Government, Gold
bullion, cash of foreign government which forms
part of reserves – 0%
 Checks and other cash items, claims guaranteed
by foreign banks or private local corporations with
highest ratings – 20%
 Housing secured by first mortgage – 50%
 SMEs – 75%
 Claims on LGUs – 100%
 NPLs – 120%
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 BASEL 3 Capital

Core Tier 1 Capital (ideal is common and surplus)

opaid-up common stock
opaid-up perpetual and non-cumulative preferred stock

ocommon stock dividends distributable

operpetual and non-cumulative preferred stock dividends distributable

osurplus

osurplus reserves

oundivided profits (for domestic banks only)

ominority interest in the equity of subsidiary financial allied undertakings which

are less than wholly-owned subject to certain conditions

Hybrid Tier 1 (HT1) –
oPerpetual preferred stock and perpetual UnSD with prior BSP approval and
subject to certain conditions

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 BASEL 3 Capital

Upper Tier 2 Capital –

opaid-up perpetual and cumulative preferred stock
opaid-up limited life redeemable preferred stock issued with condition on the

redemption
operpetual and cumulative preferred stock dividends distributable

olimited life redeemable preferred stock with the replacement requirement upon

redemption dividends distributable

oappraisal increment reserve – bank premises, as authorized by MB

onet unrealized gains on underwritten listed equity securities purchased subject to

certain conditions
ogeneral loan loss provision

owith prior BSP approval, UnSD with a minimum original maturity of at least

10 years subject to certain conditions

odeposit for common stock subscription

odeposit for perpetual and non-cumulative preferred stock subscription

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 BASEL 3 Capital

Lower Tier 2 Capital –

opaid-up limited life redeemable preferred stock without the

replacement requirement upon redemption

olimited life redeemable preferred stock without the replacement

requirement upon redemption dividends distributable

oUnSD with a minimum original maturity of at least 5 years

subject to certain conditions

odeposit for perpetual and cumulative preferred stock

subscription

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 Risk Based Capital Requirements

 The risk-based capital ratio of a bank - 10%.

 Common Equity Tier (CET) 1 ratio – 6%
 Tier 1 capital ratios - 7.5%
 Capital conservation buffer (comprised of CET1
capital – 2.5% (X115, MORB)

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The international benchmark (BIS)
CET I - 4.5%
Tier 1- 6%
CAR - 8%

For 2014, Philippine U/KBs’ consolidated figures

CAR - 16.66 %
Tier 1 - 14.65%
CET 1 - 14.48%

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 Moratorium (x102.2 MORB)

There shall be an indefinite moratorium on the

establishment of new banks, except in cities and
municipalities where there are no existing
banking offices.
The general moratorium on the licensing of new
TBs and RBs is partially lifted to allow the entry
of microfinance-oriented banks*

*Microfinance-oriented bank – is a bank that provides financial services

and caters primarily to the credit needs of the basic or disadvantaged
sectors such as farmers, peasants, etc. Microfinance loans are granted on
the basis of the borrower’s cash flow and are typically unsecured (x102.3,
MMORB).
BANGKO SENTRAL NG PILIPINAS
 Directors

 At least five (5), and a maximum of fifteen (15),

with at least two (2)* independent directors.
 An "independent director" shall mean a person
other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests.
 Non-Filipino citizens may become members of the
board of directors of a bank to the extent of the
foreign participation in the equity of said bank.

BANGKO SENTRAL NG PILIPINAS

 Fit and Proper Rule

 The Monetary Board shall prescribe, pass upon

and review the qualifications and
disqualifications of individuals elected or
appointed bank directors or officers and disqualify
those found unfit.
 After due notice to the board of directors of the
bank, the Monetary Board may disqualify,
suspend or remove any bank director or
officer who commits or omits an act which
render him unfit for the position.
BANGKO SENTRAL NG PILIPINAS
 Fit and Proper Rule

In determining whether an individual is fit and proper

to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience,
education, training, and competence.

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 Qualifications (Sec. 143.2, MORB)

 21 years of age
 College graduate or at least 5 years experience
in banking and trust
 Fit and proper for the position

BANGKO SENTRAL NG PILIPINAS

 Disqualification
Permanent
 Convicted of final judgment of a crime involving
dishonesty, breach of trust
 Convicted of final judgment for violation of banking
laws
 Judicially declared insolvent, spendthrift or
incapacitated to act
 Responsible for closure of a bank
 Found by MB to be administratively liable for
violation of banking laws and penalty of removal is
imposed

BANGKO SENTRAL NG PILIPINAS

 Disqualification
Permanent

 Administratively found liable by another

government agency for violation of banking
laws or any offense/violation involving
dishonesty or breach of trust, and which finding
of said government agency has become final
and executory.

BANGKO SENTRAL NG PILIPINAS

 Disqualification
Temporary(x143.1 b)

 Refuse to disclose business interest

 Directors who are absent/not participated for
more than 50% of meeting for a 12 month period
or physically fails to attend 25%
 Delinquent in paying their obligations
 Convicted of offense involving dishonesty, breach
of trust or violation of banking law, but not yet
final.

BANGKO SENTRAL NG PILIPINAS

 Pending clearance with the MB of those
previously with a closed bank
 Failure to observe/discharge their responsibilities
and duties under existing regulations
 Failure to attend special seminar for directors
 Dismissed from employment for cause until
they are cleared or 5 years from notice that they
were disqualified (Cir 584, series of 2007)

BANGKO SENTRAL NG PILIPINAS

 Fit and Proper Rule

Section 19. Prohibition on Public Officials. –

Except as otherwise provided in the Rural Banks
Act*, no appointive or elective public official whether
full-time or part-time shall at the same time serve as
officer of any private bank, save in cases where such
service is incident to financial assistance provided by
the government or a government owned or
controlled corporation to the bank or unless
otherwise provided under existing laws.
* Already repealed by RA 10574

BANGKO SENTRAL NG PILIPINAS

 Loans

General Guidelines in the Grant of Loans

 Banks can only grant loans and other credit
accommodations in amounts and for the periods of
time essential for the effective completion of the
operations to be financed.
The grant of loans and other credit
accommodations should be consistent with safe and
sound banking practices;

BANGKO SENTRAL NG PILIPINAS

 Loans

General Guidelines in the Grant of Loans

The bank must ascertain that the borrower, co-maker,
endorser, surety and guarantor are financially capable of
fulfilling commitments to the bank.
The bank shall ascertain the purpose(s) of the loan or

other credit accommodation. The proceeds shall be

utilized only for the purpose(s) stated in the application
and contract.
The bank shall require the loans to be secured (real

estate mortgage, chattel mortgage, pledge, etc.).

BANGKO SENTRAL NG PILIPINAS
 Loans

“Know Your Customer” and other anti-money

laundering rules;

Disclosure requirements – Truth in Lending Act (R.A.

No. 3765), to determine true cost of credit, ex., interest
rate, finance charges, effective interest rate, poster
requirement, down-payment and amount to be financed.

BANGKO SENTRAL NG PILIPINAS

 Loans

BANGKO SENTRAL NG PILIPINAS

 Loans

The loan shall not exceed 70% of the appraised

value of the real property plus 60% of appraised
value of improvements; or 70% of appraised value
of personal property (Percentages may be modified
by the Monetary Board).

Other Requirements for secured loans

-Insurance of collateral and registration of
mortgage with the Register of Deeds.

BANGKO SENTRAL NG PILIPINAS

 Foreclosure

For natural persons – right to redeem the

foreclosed property within one (1) year after the
sale;

For juridical persons – right of redemption

commences from the date of foreclosure sale until
registration of the certificate of sale, but no case
more than three (3) months from the foreclosure
sale.

BANGKO SENTRAL NG PILIPINAS

 DOSRI

General Policy: Avoid “insider lending”

Level lending field between insiders and

outsiders, i.e., avoid preferential terms

DOSRI ceilings: aggregate limit and

individual limits

BANGKO SENTRAL NG PILIPINAS

 DOSRI

Directors, Officers, Stockholders and their

Related Interests
General Policy: Avoid “insider lending”
Level lending field between insiders and
outsiders, i.e., avoid preferential terms
DOSRI ceilings: aggregate limit and
individual limits
BANGKO SENTRAL NG PILIPINAS
 DOSRI

Requirements:

 General Policy on Self-Dealing Transactions –

dealings of a bank with any of its DOSRI should
be in the regular course of business and upon
terms not less favorable to the bank than those
offered to others;

BANGKO SENTRAL NG PILIPINAS

 DOSRI

Requirements:

Approval Requirement – written approval of

the MAJORITY of all members of the bank’s
board of directors, excluding the director
concerned.
Reportorial Requirement – the approval by the
board of directors shall be entered upon the
records of the bank and a copy of the entry be
transmitted to the BSP
BANGKO SENTRAL NG PILIPINAS
 DOSRI

Requirements:

Ceiling Requirement – amount of borrowing

shall be limited to an amount equivalent to the
DOSRI’s unencumbered deposits and book value
of their paid-in capital contribution in the bank.

BANGKO SENTRAL NG PILIPINAS

 Single Borrowers Limit

To prevent the bank from making excessive

loans and other credit accommodations to a
single borrower or corporate group.

Imposing loan limits is a measure to deter

banks from concentrating their resources to
one (1) borrower.

BANGKO SENTRAL NG PILIPINAS

 Single Borrowers Limit

20% total loan portfolio; additional 10%

for exceptional cases/transactions (secured
trade credits);

25% each for Oil and PPP loans.

BANGKO SENTRAL NG PILIPINAS

 Unsafe or Unsound Banking Practices

 any action, or lack of action, which is contrary to

generally accepted standards of prudent operation,
the possible consequences of which, if continued,
would be abnormal risk, loss or damage to an
institution, its shareholders and the public.
 flexible concept which gives BSP the ability to adapt
to changing business problems and practices.

 Not otherwise prohibited by any law, rule or

regulation affecting banks, quasi-banks or trust
entities BANGKO SENTRAL NG PILIPINAS
 Guidelines (MORB, Appendix to Sec. x149 & 408, 48)

 Activities serve as guidelines.

 Not irrebutably presumed to be unsafe or unsound
 Monetary Board may now and then consider other
acts and omissions as unsafe or unsound.
 Based on the report of the Head of the Supervising
and Examining Department based on findings in an
examination or complaint.

BANGKO SENTRAL NG PILIPINAS

102
 Basic Classification of Unsafe or
Unsound Banking Practices

 Pertaining to the Grant of Loans

 Pertaining to Deposits

 Pertaining to Investments of the Bank

 Pertaining to Governance

BANGKO SENTRAL NG PILIPINAS

103
Pertaining to the Grant of Loans

o Hazardous lending and lax collection

policies
o Excessive out of territory loans
o Improper or weak loan documentation

BANGKO SENTRAL NG PILIPINAS

104
Pertaining to Deposits

o Operating with management whose policies

and practices are detrimental to the Bank
and jeopardize the safety of deposits
o Excessive reliance on high-cost deposits

BANGKO SENTRAL NG PILIPINAS

105
 Pyramiding

BANGKO SENTRAL NG PILIPINAS

106
 Pertaining to Investments of the Bank

o
Engaging in speculative and hazardous investment
policies
o Excessive volume of non-earning assets
o Improper or non-documentation of repurchase
agreements covering government securities and
commercial papers and other negotiable and non-
negotiable securities or instruments

BANGKO SENTRAL NG PILIPINAS

107
Pertaining to Governance
o Operating with inadequate capital and reserves in
relation to asset quality
o Operating in a way that produces deficit in income
o Operating with a serious lack of liquidity
o Paying excessive cash dividends
o Excessive reliance on letters of credit
o Selling participations without disclosing to the
purchasers of those participations material, non-
public information known to the bank

BANGKO SENTRAL NG PILIPINAS

108
 Pertaining to Governance
o Failure to limit, control and document contingent
liabilities
o Operating the bank with inadequate internal controls
o Failure to keep accurate and updated books and
records
o Failure to heed warnings and admonitions of the
supervisory and regulatory authorities
o Continued and flagrant violation of law, rule,
regulation or written agreement between the
institution and the BSP

BANGKO SENTRAL NG PILIPINAS

109
 Trust Operations

Only a stock corporation or a person duly

authorized by the MB may engage in trust
business.

Administer the funds or property under its

custody with the diligence that a prudent man
would exercise in the conduct of an enterprise.

BANGKO SENTRAL NG PILIPINAS

 Trust Operations

o It’s a relationship;
o Fiduciary in character;
o Pertains to property;
o involves equitable duties
imposed upon the holder
of title to the property to
deal with it for the
benefit of another; and

BANGKO SENTRAL NG PILIPINAS

 Trust Operations

oTrustor – any person who creates or establishes

a trust.
oTrustee/Trust Entity – any person who holds
legal title to the funds and/or property of a trust;
one in whom confidence is reposed as regards
property for the benefit of another person.
oBeneficiary – any person for whose benefit a
trust is created.

BANGKO SENTRAL NG PILIPINAS

 Trust Products
o Investment Management Account (Regular or
Directional)
o Living Trust (revocable or irrevocable)
o Unit Investment Trust Fund
o Management of Retirement or Provident Funds
o Other fiduciary relations (e.g. escrow)

BANGKO SENTRAL NG PILIPINAS

Thank you!

BANGKO SENTRAL NG PILIPINAS

114