Banks Nature & Classification

• The General Banking Law of 2000 (RA 8791) governs the operations of banks, quasi-bank and other financial institutions under the supervision of the BSP in the Philippines
• Declaration of Policy (Sec. 2, RA 8791)


  The State recognizes the vital role of banks 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.
• Banks


  Entities engaged in the lending of funds obtained in the form of deposits from public (Sec. 3, RA 8791)
• Quasi-banks


  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
• Nature of Banking Business

  • Fiduciary in nature that requires high standards of integrity and performance (Sec. 2, RA 8791)
  • Subject to heavy and close supervision and regulation by the BSP
  • Debtor-creditor relationship
  • Business of borrowing and lending money
  • Indispensable institution
  • Not a trust agreement – failure to pay depositor is failure to pay a simple loan and not a breach of trust
  • Dealings with registered land – must not rely solely on the certificate of title as compared to an individual
  • Charging of interest for loans – must not be usurious
  • Impressed with public interest
  • Fiduciary duty - it is required to exercise utmost diligence in handling deposits
  • Banks may exclude persons in their premises
  • Liable for acts of Officers and Employees
  • Strikes and lock-outs
  • Includes duty to keep true record
  • Regularly deals with registered land
  • Employs reasonable security measures
• Authority to Engage in Banking and Quasi-Banking Functions (Sec. 6)

  • No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral
  • A bank or quasi-bank cannot also operate without a certificate of authority from the BSP
  • A bank or quasi-bank cannot be incorporated without authority from the BSP. The AIO filed with the SEC shall be accompanied by the recommendation of the BSP, otherwise, it shall not be accepted or approved
• Classifications of Banks (Sec. 3.2)

  • Universal banks
  • Commercial banks
  • Thrift banks (Savings and mortgage banks, Stock savings and loan associations, Private development banks)
  • Rural banks
  • Cooperative banks
  • Islamic banks
  • Other classifications as determined by the Monetary Board of the Bangko Sentral ng Pilipinas
• Universal Bank


  Banks that have authority to exercise, in addition to the powers and functions of commercial banks, power of an investment house and the power to invest in non-allied enterprises
• Commercial Bank


  Given all the powers necessary to engage in commercial banking in addition to general corporate powers; commercial banking includes the power to accept drafts, issue letters of credit, discounting or negotiation of negotiable instruments and evidence of debt, accept and create demand deposit account and the like
• Rural Bank


  Created to make credit available and readily accessible in the rural areas for the purpose of promoting comprehensive rural development
• Thrift Bank


  Includes savings and mortgage banks, private development banks and stock savings and loan association
• Cooperative Bank


  Primarily provide financial, banking and credit services to cooperative organizations and their members
• Islamic Bank


  Promote socio-economic development in ARMM
• Other Bank Classifications


  • Land Bank of the Philippines
  • Veterans Bank
  • Development Bank of the Philippines
• Offshore Banking


  A branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the BSP to transact offshore banking business in the Philippines
• Functions of Banks


  • Deposit Function
  • Lending/Loan Function
  • Payment Function
  • Other Functions
• Deposit Function


  Refers to those functions that allow a bank to receive money from the public with the obligation of returning an equal amount of the same kind and quality
• Deposit


  The unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given, or is obliged to give credit to a commercial, checking, savings, time or thrift account or issued in accordance with BSP rules and regulations and other laws (PDIC Law, Sec. 4(f))
• Characteristics and Nature of Bank Deposits


  • Not a regular deposit contract – it is a contract of loan
  • Loans made to the bank - all kinds of bank deposits are to be covered by the law on loans
  • Form part of the generic funds of bank – the ownership of the amount deposited was transmitted to the Bank upon perfection of the contract an it can make use of the
• Functions of Banks


  • Deposit Function
  • Lending/Loan Function
  • Payment Function
  • Other Functions
• Deposit


  The unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given, or is obliged to give credit to a commercial, checking, savings, time or thrift account or issued in accordance with BSP rules and regulations and other laws
• Characteristics and nature of Bank Deposits


  • Not a regular deposit contract – it is a contract of loan
  • Loans made to the bank - all kinds of bank deposits are to be covered by the law on loans
  • Form part of the generic funds of bank – the ownership of the amount deposited was transmitted to the Bank upon perfection of the contract an it can make use of the amount deposited for its banking operation
• Types of Deposit Accounts (as to purpose)


  • Current Deposit Account
  • Savings Deposit Account
  • Trust Account
  • Negotiable Order of Withdrawal Accounts (NOW-Accounts)
• Types of Deposit Accounts (as to demandability)


  • Demand Deposits
  • Fixed/Time/Term Deposits
• Types of Deposit Accounts (as to account ownership)


  • Individual/Single Account
  • Joint account ("And" Account)
  • Joint account ("And/or" Account)
  • Survivorship Agreement
• Types of Deposit Accounts (as to currency denomination)


  • Peso Denominated Deposits
  • Foreign Currency Deposits
• Administration of Deposits


  • Specimen Signatures, ID Photos
  • Time of payment of interest on Time Deposits/Deposit Substitute
  • Treatment of Matured Time Deposits/Deposit Substitute
  • Clearing Cut-off Time
  • Booking of Cash Deposit
  • Booking of Non-Cash Deposit – ("on us", Checks, drafts, etc)
  • Average Daily Balance
• Foreign Currency Deposits


  Any person, natural or juridical, may deposit with Philippine Banks in good standing, as may, upon application, be designated by the BSP for the purpose, foreign currencies which are acceptable as part of the international reserve, except those which are required by the BSP to be surrendered
• Exemption from Attachment or Garnishment of Foreign Currency Deposits


  • General Rule: Foreign currency deposits are exempt from attachment, garnishment, and other court order and processes
  • Exceptions: 1) Probable cause is established that the deposit involved are in any way related to money laundering, 2) To ensure satisfaction of a judgment
• Special Rules on Depositors (Minors)


  They can open bank accounts in their own right provided that: a) They are at least 7 years old, b) They are able to read and write and have sufficient discretion, c) They are not otherwise disqualified by any other incapacity, d) It should only be savings or time deposit
• Special Rules on Depositors (Deposit by parents)


  Parents may nevertheless deposit for their minor children and guardian for their wards
• Special Rules on Depositors (Married women)


  They are allowed to open bank accounts without the assistance of their husbands
• Deposit Substitutes


  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 re-lending or purchasing of receivables and other obligations
• Types of Loans and Credits

  • Salary-Based General Purpose Consumption Loan
  • Credit Card Operations
  • Agricultural Loans
  • Microfinance
  • Interbank loans
  • Commercial credit
  • Real estate loan
  • Investments
  • Trading products
• Salary-Based General Purpose Consumption Loan

  Refer to unsecured loans for a broad range of consumption purposes, granted to individuals mainly on the basis of regular salary, pension or other fixed compensation, where repayment would come from such future cashflows, either through salary deductions, debits from the borrower's account, mobile repayments, pay-through collections, over-the-counter payments or other type of payment arrangement agreed upon by the borrower and lender
• Credit Card

  Refers to any card or other credit device, including its virtual representation, intended for the purpose of obtaining money, property, goods or services on credit
• Agricultural Loans


  • Agriculture and Fisheries Projects with Long Gestation Period are entitled to longer grace periods in repaying the loan based on the economic life of the project
  • Agricultural Value Chain Financing Framework
• Microfinance


  • The poor needs access to variety of appropriate financial services that are convenient, flexible and reasonably priced
  • The poor has the capability to pay he loans, pay the real cost of loans, generate savings and avail complementary financial services
  • Microfinance institutions must subscribe to performance standards, best practices to ensure greater outreach and sustainability
• Interbank loans


  • Interbank call loan
  • Interbank term loan
  • Borrowings evidenced by deposit substitutes
  • Purchases of receivables with recourse
• Other types of loans and credits


  • Commercial credit
  • Real estate loan
  • Investments
  • Trading products