AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED SEVEN HUNDRED TWENTY, OTHERWISE KNOWN AS THE "RURAL BANKS' ACT"

• Number: Presidential Decree No. 122
• Sections: 13

Preamble

WHEREAS, there were pending before Congress prior to the

promulgation of Proclamation No. 1081, dated September 21, 1972, urgent

banking measures proposing amendments to Republic Act No. 720, as

amended, entitled "The Rural Banks' Act" which are essential to the

national development program of the Government;

WHEREAS, an extensive survey and study of the banking and

credit system had been undertaken for the purposes of assessing its

adequacy in Philippine economic growth, and of facilitating the

savings-investment process in development; and

WHEREAS, the result of the survey was an integrated set of

recommendations which were accepted, with modifications by the monetary

authorities, and made the basis of this Decree to enable rural banks to

service the credit needs of small farmers and merchants in rural

communities more effectively;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of the Armed Forces of the Philippines, and pursuant

to Proclamation No. 1081, dated September 21, 1972, and General Order

No. 1, dated September 22, 1972, as amended, and in order to effect the

desired changes and reforms in the social, economic, and political

structure of our society, do hereby order and decree the amendment of

Republic Act No. 720, as amended, as follows:

Section 1

SECTION 1. Section four of Republic Act Numbered Seven

hundred twenty is hereby amended to read as follows:

"SEC. 4. No Rural Bank shall be operated without a

Certificate of Authority of the Monetary Board of the Central Bank.

Rural Bunks shall be organized in the form of stock corporations. Duly

established cooperatives and corporations primarily organized to hold

equities in Rural Banks within a defined region, provided any such

corporation is at least partly owned by residents of that particular

region, may organize a Rural Bank and/or subscribe to the shares of

stock of any Rural Bank. With the prior approval of the Monetary Board,

the extent of the equity investment in any Rural Bank of corporations

contemplated under this section shall not be subject to any Limitation,

the provisions of existing laws to the contrary, notwithstanding. One

hundred per cent of the capital stock of any Rural Bank shall be owned

and held directly or indirectly by citizens of the Philippines: Provided,

however, That if said subscription of private shareholders to the

capital stock of a Rural Bank cannot be secured or is not available, the

Development Bank of the Philippines, on representation of the said

private shareholders, and upon approval of the Monetary Board of the

Central Bank, shall subscribe to the capital stock of such Rural Bank,

which shall be paid in full at the time of subscription, in an amount

equal to the fully paid subscribed capital of the private shareholders

but not exceeding one million pesos: Provided, further, That

such shares of stock subscribed lay the Development Bank of the

Philippines may be sold at any time at par to private individuals who

arc citizens of the Philippines: Provided, finally, That in the

sale of shares of stock subscribed by the Development Bank of the

Philippines, the registered stockholders shall have the right of

pre-emption within one year from the date of offer in proportion to

their respective holdings, but in the absence of such buyer, preference,

however, shall lie given to residents of the locality or province where

the Rural Bank is located. All members of the Board of Directors of the

Rural Bank shall be citizens of the Philippines: Provided, however,

That no full-time appointive or elective public official shall at the

same time serve as officer, director, legal counsel or consultant of any

Rural Bank except in cases where such service is incident to financial

assistance provided by the Government or a government-owned or

controlled corporation to the bank."

Section 2

SEC. 2. Section five of the same Act is hereby amended to

read as follows:

"SEC. 5. Loans or advances extended by Rural Banks,

organized and operated under this Act, shall be primarily for the

purpose of meeting the normal credit needs of any small farmer or farm

family owning or cultivating, in the aggregate, not more than fifty

hectares of land dedicated to agricultural production as well as the

normal credit needs of cooperatives and small merchants. For the

purposes of this Act, a small merchant shall be one whose capital

investment does not exceed fifty thousand pesos. In the granting of

loans, the Rural Bank shall give preference to the application of

farmers and merchants whose cash requirements are small.

"Loans may be granted by Rural Banks on the security of lands

without Torrens titles where the owner of private property can show five

years or more of peaceful, continuous and uninterrupted possession in

the concept of an owner; or of portions of friar land estates or other

lands administered by the Bureau of Lands that are covered by sales

contracts and the purchasers have paid at least five years installment

thereon without the necessity of prior approval and consent by the

Director of Lands; or of portions of other estates under the

administration of the Land Authority or other governmental agency which

are likewise covered by sales contracts and the purchasers have paid at

least five (5) years installment thereon, without the necessity of prior

approval and consent of the Land Authority or corresponding

governmental agency; or of homesteads or free patent lands pending the

issuance of titles but already approved, the provisions of any law or

regulations to the contrary notwithstanding; Provided, That

when the corresponding titles arc issued the same shall be delivered to

the register of deeds of the province where such lands are situated for

the annotation of the encumbrance: Provided, further, That in

the case of lands pending homestead or free patent titles, copies of

notices for the presentation of the final proof shall also be furnished

the creditor rural bank, and, if the borrower applicants fail to present

the final proof within thirty (30) days from date of notice, the

creditor rural bank may do so for them at their expense: Provided,

furthermore, That the applicant for homestead or free patent has

already made improvements on the land and the loan applied for is to be

used for further development of the same or for other productive

economic activities: Provided, finally. That the appraisal and

verification of the status of a land is the full responsibility of the

rural bank and any loan granted on any land which shall be found later

to be within the forest zone shall be for the sole account of the rural

bank to the exclusion of the Central Bank counterpart.

"The foreclosure of mortgages covering loans granted by rural

banks shall be exempt from the publication in newspapers now required by

law where the total amount of loan, including interests due and unpaid,

does not exceed three thousand pesos (P3,000.00). It shall be

sufficient publication in such cases if the notices of foreclosure are

posted in at least three of the most conspicuous public places in the

municipality and barrio where the land mortgaged is situated during the

period of sixty days immediately preceding the public auction. Proof of

publication as required herein shall be accomplished by affidavit of the

sheriff or officer conducting the foreclosure sale and shall be

attached with the records of the case: Provided, That when a

homestead or free patent land is foreclosed, the homesteader or tree

patent holder, as well as their heirs shall have the right to redeem the

same within two years from the date of foreclosure in case of a land

not covered by a Torrens title or two years from the date of the

registration of the foreclosure in the case of a laud covered by a

Torrens title: Provided, finally, That in case of borrowers who

are mere tenants the produce corresponding to their share may be

accepted as security."

Section 3

SEC. 3. Section six of the same Act is hereby amended to

read as follows:

"SEC. 6. With the view to insuring balanced rural

economic growth and expansion, Rural Banks may, within limits and

conditions fixed by the Monetary Board, devote a portion of their

loanable funds to meeting the normal credit needs of small business

enterprises whose capital investment does not exceed fifty thousand

pesos and of essential rural enterprises or industries, other than those

which are strictly agricultural in nature."

Section 4

SEC. 4. Section seven of the same Act is hereby amended to

read as follows:

"SEC. 7. To provide supplemental capital to any Rural

Bank until it has accumulated enough capital of its own or stimulate

private investments in Rural Banks, the Development Bank of the

Philippines shall, upon certification of the Monetary Board which shall

be final, of the existence of such need, subscribe within thirty days to

capital stock of any Rural Bank from time to time in an amount equal to

the total equity investment of the private shareholders which shall be

paid in full at the time of subscription but not exceeding one million

pesos: Provided, however, That shares of stock issued to the

Development Bank of the Philippines, pursuant to this section, may, at

any time, be paid off at par and retired in whole or in part if, in the

opinion of the Monetary Board, the Rural Bank has accumulated enough

capital strength to permit retirement of such shares; or if an offer is

received from private sources, to replace the equity investments of the

Development Bank of the Philippines with an equivalent investment or

more in the common stock of such Bank. In case of such retirement of

stock or replacement of equity investments of the Development Bank of

the Philippines, the registered private shareholders of the Rural Bank

shall have the right of pre-emption within one year from date of offer

in proportion to their respective holdings.

"Stock held by the Development Bank of the Philippines, under

the terms of this section, shall be made preferred only as to assets

upon liquidation and without the power to vote and shall share in

dividend distributions not exceeding two per cent thereof without

preference: Provided, however, That if such stock of the

Development Bank of the Philippines is sold to private shareholders, the

same shall be converted into common stock of the class provided for in

Section nine."

Section 5

SEC. 5. Section ten of the same Act is hereby amended to

read as follows:

"SEC. 10. The power to supervise the operation of any

Rural Bank by the Monetary Board of the Central Bank as herein

indicated, shall consist in placing limits to the maximum credit allowed

any individual borrower; in prescribing the interest rate; in

determining the loan period and loan procedures; in indicating the

manner in which technical assistance shall be extended to Rural Banks;

in imposing a uniform accounting system and manner of keeping the

accounts and records of the Rural Banks; in undertaking regular credit

examination of the Rural Banks; in instituting periodic surveys of loan

and lending procedures, audits, test-check of cash and other

transactions of the Rural Banks; in conducting training courses for

personnel of Rural Banks; and, in general, in supervising the business

and corporate operations of the Rural Banks.

"The director of the Department of the Central Bank designated

by the Monetary Board to supervise Rural Banks shall have the power to

enforce the laws, orders, instructions, rules and regulations

promulgated by the Monetary Board applicable to Rural Banks; to require

Rural Banks, their directors, officers and agents to conduct and manage

the affairs of the Rural Bank in a lawful and orderly manner; and, upon

proof that the Rural Bank or its board of directors or officers arc

conducting and managing the affairs of the bank in a manner contrary to

laws, orders, instructions, rules and regulations promulgated by the

Monetary Board or in a manner substantially prejudicial to the interests

of the government, depositors or creditors, to take over the management

of such bank when specifically authorized to do so by the Monetary

Board after due hearing until a new board of directors and officers are

elected and qualified without prejudice to the prosecution of the

persons responsible for such violations under the provisions of Sections

thirty-two, thirty-three and thirty-four of Republic Act Numbered Two

hundred sixty-five, as amended (The Central Bank Act).

"The management of the Rural Bank by the Central Bank shall be

without expense to the Rural Bank except such as is actually necessary

for its operation, pending the election and qualification of a new board

of directors and officers to take the place of those responsible for

the violations or acts contrary to the interests of the government,

depositors or creditors."

"The director and the examiners of the Department of the Central

Bank charged with the supervision of Rural Banks are hereby authorized

to administer oaths to any director, officer or employee of any Rural

Bank or to any voluntary witness and to compel the presentation of all

books, documents, papers or records necessary in his or their judgment

to ascertain the facts relative to the true condition of any Rural Bank

or to any loan."

Section 6

SEC. 6. A new section is hereby added after Section eleven

of the same Act to read as follows:

"SEC. 11-A. Rural Banks may invest in equities of allied

undertakings, except banks, as may be approved by the Monetary Board: Provided,

That (1) the total investment in equities shall not exceed twenty-five

per cent of the net worth of the Rural Bank; (2) the equity investment

in any single enterprise shall be limited to fifteen per cent of the net

worth of the Rural Bank, and (3) the equity investment of the Rural

Bank in any single enterprise shall remain a minority holding in that

enterprise except where the enterprise is not a financial intermediary: Provided,

further, That where such allied undertaking is a wholly or

majority-owned subsidiary of a Rural Bank, the same may be subject to

examination by the Central Bank: Provided, finally, That equity

investments shall not be permitted in non-related activities."

Section 7

SEC. 7. Section thirteen of the same Act is hereby amended

to read as follows:

"SEC. 13. In an emergency or when a financial crisis is

imminent, the Central Bank may give a loan to any Rural Bank against

assets of the Rural Bank which may be considered acceptable by a

concurrent vote of at least five members of the Monetary Board."

"In normal times, the Central Bank may rediscount against paper

evidencing a loan granted by a Rural Bank to any of its customers which

can be liquefied within a period of three hundred sixty days: Provided,

however, That for the purpose of implementing a nationwide program

of agricultural and industrial development, Rural Banks are hereby

authorized, under such terms and conditions as the Central Bank shall

prescribe, to borrow, on a medium or long-term basis, funds that the

Central Bank or any other government financing institution shall borrow

from the International Bank for Reconstruction and Development or other

international or foreign lending institutions for the specific purpose

of financing the above-stated agricultural and industrial program.

Repayment of loans obtained by the Central Bank of the Philippines or

any other government financing institution from said foreign lending

institutions under this section shall be guaranteed by the Republic of

the Philippines."

Section 8

SEC. 8. Section sixteen of the same Act is hereby amended to

read as follows:

"SEC. 16. Any city or municipal judge in his capacity as

notary public, ex officio shall administer the oath to or acknowledge

the instruments of any Rural Bank and its borrowers or mortgagors, free

from all charges, fees and documentary stamp tax, collectible under

existing laws, relative to any loan or transaction not exceeding five

thousand pesos."

Section 9

SEC. 9. Section seventeen of the same Act is hereby amended

to read as follows:

"SEC. 17. Any register of deeds shall accept from any

Rural Bank and its borrowers or mortgagors for registration, free from

all charges, fees, and documentary stamp tax, collectible under existing

laws, any instrument, whether voluntary or involuntary, relating to

loans or transactions extended by a Rural Bank in an amount not

exceeding five thousand pesos: Provided, however, That charges,

if any, shall only be collectible on the amount in excess of five

thousand pesos; and that in instruments related to assignments of

several mortgages consolidated in a single deed, charges or fees, if

any, shall be levied only on the amount in excess of five thousand pesos

of the consideration in the assignment of each mortgage."

Section 10

SEC. 10. Section eighteen of the same Act is hereby amended

to read as follows:

"SEC. 18. Any Rural Bank organized under this Act may,

pursuant to regulations promulgated for the purpose by the Monetary

Board, be required to contribute to the Central Bank an annual fee to

help defray the cost of maintaining the appropriate supervising

department within the Central Bank in an amount to be determined by the

Monetary Board but in no case to exceed one twentieth of one per cent

(1/20 of 1%) of its average total assets during the preceding year, as

shown on its end-of-month balance sheets, after deducting its cash on

hand and amounts due from banks, including the Central Bank."

Section 11

SEC. 11. Section twenty-seven of the same Act is hereby

amended to read as follows:

"SEC. 27. The provisions of Republic Acts Numbered Two

hundred and sixty-five as amended, and Three hundred thirty-seven, as

amended, insofar as they are applicable and not in conflict with any

provision of this Act, are hereby made a part of this Act."

Section 12

SEC. 12. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the

year of Our Lord, nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Executive Secretary