Banking Laws

• Banks


  Entities engaged in the lending of funds obtained in the form of deposits from the public
• Banks


  • They are required to be stock corporations
  • Their funds are obtained from the public, meaning deposits of 20 or more persons
• Investment company


  An entity that performs functions as such is not a bank
• Investment company


  If it loans out the money of its customers, collects the interests, and charges a commission to both lender and borrower, it is engaged in banking
• Quasi-banks


  Entities engaged in the borrowing funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of relending or purchasing of receivable and other obligations
• Deposit substitutes


  Alternative forms 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 purposes of relending or purchasing of receivables and other obligations
• Nature of banking business

  • It has a vital role in providing an environment conducive to the sustained national economy
  • It is fiduciary in nature that requires high standards of integrity and performance
• Incorporation and operation of banks and quasi-banks

  • A banking or quasi-banking corporation cannot be incorporated without authority from the BSP
  • An entity that is performing banking or a quasi-banking function cannot operate without a certificate of authority from the BSP
• Classifications of banks


  • Universal banks
  • Commercial banks
  • Rural banks
  • Thrift banks
  • Cooperative banks
  • Islamic banks
  • Other classifications as determined by the Monetary Board of the BSP
• Powers of different bank types

  • Universal banks
  • Commercial banks
  • Thrift banks
• Entry of foreign banks

  The Monetary Board may authorize foreign banks to operate in the Philippine banking system through acquiring, purchasing or owning up to 100% of the voting stock of an existing bank, investing in up to 100% of the voting stocks of a new banking subsidiary, or establishing branches with full banking authority
• Basic functions of banks

  • Deposit function
  • Loan function
  • Receive in custody funds, documents and valuable objects
  • Act as financial agent and buy and sell, by order of an for the account of their customers, shares, evidence of indebtedness and all types of securities
  • Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business
  • Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts
  • Rent out safety deposit boxes
• Banks are prohibited from engaging in insurance business
• Bancassurance


  An arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers
• Outsourcing of functions is generally prohibited, e.g. a bank cannot hire another company to accept deposits
• Deposit function


  Deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan (Art. 1980 of the NCC). The bank is the debtor while the depositor is the creditor.
• Depositors


  • Minors can open bank accounts if they are at least 7 years old, able to read and write, have sufficient discretion, and not otherwise disqualified
  • Married women are allowed to open bank accounts without the assistance of their husbands
• Kinds of deposits


  • Demand deposits/current account
  • Savings account
  • Negotiable order of withdrawal accounts (NOW)
  • Time deposit
  • Trust account
• Joint deposit accounts


  • "And" account - the signature of both co-depositors are required for withdrawals
  • "And/or" account - either one of the co-depositors may deposit and withdraw from the account without knowledge, consent, and signature of the other
• Anonymous accounts


  Generally prohibited, except in case of numbered accounts in foreign currency deposits where the client is identified in official or other identifying documents
• Loan function


  • Banks shall grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operations to be financed
  • Such grant of loans and other credit accommodations shall be consistent with safe and sound banking practices
  • Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank
• Loan payments


  • Amortization schedules shall be adopted to the nature of operations to be financed
  • For loans with maturities of more than 5 years, provisions must be made for periodic amortization payments, at least annually
  • A borrower may prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to reasonable terms and conditions
• Single borrower's limit


  • The total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation, or other entity shall at no time exceed 25% of the net worth of such bank
  • This limit may be increased by an additional 10% if the additional liabilities are adequately secured
  • Loans secured by real estate shall not exceed 75% of the appraised value of the real estate security plus 60% of the appraised value of the insured improvements
• DOSRI accounts


  Directors, officers, stockholders with at least 1% ownership, and their related interests
• Money laundering


  Any person knowing that any monetary instrument relates to any proceeds of unlawful activity
• Anti money laundering council

  Council responsible for anti-money laundering efforts
• Monetary instrument


  • Coins
  • Currency
  • Drafts
  • Checks
  • Securities
  • Negotiable instruments
• Unlawful activities


  • Kidnapping for ransom
  • Voyeurism
  • Plunder
  • Corrupt practices
  • Qualified theft - Position with trust and confidence
• Covered persons


  Entities required to report to AMLC within five working days
• Covered persons


  • Banks
  • Non-banks supervised and regulated by Bangko Sentral ng Pilipinas
  • Insurance companies
  • Regulated by Securities Exchange Commission
  • Jewelry and precious metals and stones in excess of 1 million pesos
  • Company service provider
• Covered Transaction


  Total amount in excess of 500,000 within one banking day
• Covered Transaction for Casinos

  5 million pesos
• Suspicious transactions


  No amount involved
• Indicators of suspicious transactions

  • No underlying legal trade obligation or economic justification
  • Client is not identified
  • Amount is not consumer rate
  • Transaction is structured
  • Transaction which deviates from client's profile
  • Transaction related to unlawful activity
  • Similar or analogous transactions
• Preventive measures


  • Customer identification
  • Record keeping - 5 years stored from the dates of transaction
• AMLC power


  • Inquire into deposit or investment
  • Freeze order - cannot use the account
  • Asset Forfeiture
• Amendments


  To prevent gray list
• Real estate brokers


  7.5 million
• Tax crimes


  25 million