AMENDING REPUBLIC ACT NUMBERED THREE HUNDRED AND THIRTY-SEVEN, ENTITLED "THE GENERAL BANKING ACT."

• Number: Presidential Decree No. 71
• Sections: 35

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. 337, entitled "The General

Banking Act", which are vital 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;

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 for this Decree to effect reforms in the banking

system, and to render monetary and credit policies more responsive to the

requirements of economic development;

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

Philippines, by virtue of the powers vested in me 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. 337, as follows:

Section 1

SECTION 1. Section two of the Republic Act No. 337, is

hereby amended to read as follows:

"SEC. 2. Only entities duly authorized by the Monetary Board

of the Central Bank may engage in the lending of funds obtained from the public

through the receipt of deposits of any kind, and all entities regularly

conducting such operations shall be considered as banking institutions and shall

be subject to the provisions of this Act, of the Central Bank Act, and of other

pertinent laws. The terms 'banking institution' and "bank''', as used in this

Act, are synonymous and interchangeable and specifically include commercial

banks, savings banks, mortgage banks, development banks, rural banks, stock

savings and loan associations, and branches and agencies in the Philippines of

foreign banks hereinafter called Philippine branches,

"The Monetary Board may regulate the activities of the persons and entities

which act as agents of banks. In no case may the Monetary Board authorize the

drawing of checks against deposits not maintained in banks or branches or

agencies thereof."

Section 2

SEC. 2. The same Act is hereby amended by adding the

following sections after section two thereof, which read as follows:

"SEC. 2-A. The following entities shall not be considered as

banking institutions but shall be subject to regulation by the Monetary Board

which may include, but need not be limited to, the imposition of net worth to

risk assets ratios, reserve requirements, and interest rate ceilings:

"(a) Entities regularly engaged in the lending of funds or purchasing of

receivables or other obligations with funds obtained from the public through the

issuance, endorsement, or acceptance of debt instruments of any kind for their

own account, or through the issuance of certificates of assignment or similar

instruments with recourse, trust certificates, or of repurchase agreements,

whether any of these means of obtaining funds from the public is done on a

regular basis or only occasionally; "b) Entities regularly engaged in the

lending of funds which receive deposits only occasionally; and

"(c) Trust companies, building and loan associations, and non-stock savings

and loan associations, but such non-deposit accepting entities shall continue to

be supervised and regulated by the Monetary Board under the pertinent provisions

of this Act, and/or Republic Act Nos. 265 and 3779.

"SEC. 2-B. The operations and activities of non-bank

financial intermediaries, except insurance companies, shall be subject to

regulation by the Monetary Board which may include, but need not be limited to,

the imposition of constraints covering the (a) Minimum size of funds received,

(b) Methods of marketing and distribution, (c) Terms and maturities of funds

received, and (d) Uses of funds: Provided, however, That, if such

entities are found by the Central Bank to be performing quasi-banking functions,

they may be further subject to regulation under Section Two-A of this Act.

"SEC. 2-C. The Monetary Board may, at its discretion,

prescribe control ratios, ceilings, limitations, or other forms of regulation on

the different types of contingent accounts of banking institutions and non-bank

financial intermediaries performing quasi-banking functions.

"SEC. 2-D. For purposes of Sections Two, Two-A, Two-B, and

Two-C the following definition of terms shall apply:

"(a) 'Public' shall mean twenty or more lenders;

"(b) 'Quasi-Banking Functions' shall mean borrowing funds, for the

borrowers's own account, through the issuance, endorsement or acceptance of debt

instruments of any kind other than deposits, or through the issuance of

participations, certificates of assignment, or similar instruments with

recourse, trust certificates, or of repurchase agreements, from twenty or more

lenders at any one time, for purposes of relending or purchasing of receivables

and other obligations: Provided, however, That commercials, industrial,

and other non-financial companies, which borrow funds through any of these means

for the limited purpose of financing their own needs or the needs of their

agents or dealers, shall not be considered as performing quasi-banking

functions;

"(c) 'Financial intermediaries shall mean persons or entities whose principal

functions include the lending, investing or placement of funds or evidences of

indebtedness or equity deposited with them, acquired by them, or otherwise

coursed through them, either for their own account or for the account of

others;

"(d) 'Regulation' shall mean the issuance of rules of conduct or the

establishment of modes or standards of operations for uniform application to all

institutions or functions covered, taking into consideration in determining such

coverage the distinctive character of the operations of institutions and the

substantive similarities of specific functions to which such rules, modes, or

standards are to be applied: Provided, That, if the circumstances so

warrant as determined by the Monetary Board, any of these institutions may be

subject to special examination; and

"(e) Supervision shall include not only the issuance of rules, but also the

overseeing to ascertain that regulations are complied with, investigating, or

examining to determine whether an institution is conducting its business on a

sound financial basis, and inquiring into the solvency and liquidity of the

institution;"

Section 3

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

read as follows:

"SEC. 4. The determination of whether a person or an entity

is (a) performing banking or quasi-banking functions or (b) engaged in other

types of financial intermediation shall be decided by the Monetary Board subject

to judicial review. The Board may, through the appropriate supervising

department of the Central Bank, examine, inspect or investigate the books and

records of such person or entity for the purpose of resolving the

question."

Section 4

SEC. 4. Section five of the same Act is hereby amended by

adding the following subsection after subsection (e) thereof, which reads as

follows:

"(f) 'Unimpaired Capital and Surplus', 'Combined Capital Accounts', and 'Net

Worth', which terms shall mean, for the purposes of this Act, the total of the

unimpaired paid-in capital, surplus, and undivided profits, net of such

valuation reserves as may be required by the Central Bank."

Section 5

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

read as follows:

"SEC. 6. No person, association, or corporation not

conducting the business of a commercial banking corporation, trust corporation,

savings and mortgage bank, development bank, rural bank, savings and loan

association, or building and loan association, as defined in this Act, or other

banking laws, shall advertise or hold itself out as being engaged in the

business of such bank, corporation, or association, or use in connection with

its business title the word or words 'bank,' 'banking,' 'banker,' 'building and

loan association,' 'savings and loan association,' 'trust corporation,' 'trust

company,' or words of similar import, or solicit or receive deposits of money

for deposit, disbursement, safekeeping, or otherwise, or transact in any manner

the business of any such bank, corporation or association, without having first

complied with the provisions of this Act or other banking laws. For any

violation of the provisions of this section by a corporation, the officers and

directors thereof shall be jointly and severally liable. Any violation of the

provisions of this section shall be punished by a fine of five hundred pesos for

each day during which such violation is continued or repeated, and in default of

the payment thereof, subsidiary imprisonment as prescribed by

law."

Section 6

SEC. 6. The same Act is further amended by adding the

following sections immediately after Section six thereof, which reads as

follows:

"SEC. 6-A. For purposes of uniformity, simplicity, and

equality of treatment, banking institutions shall be classified into the

following general categories: (a) Commercial banks, (b) Thrift banks, composed

of (1) Savings and mortgage banks, (2) Stock savings and loan associations, and

(3) Private development banks, and (c) Regional unit banks composed of rural

banks. Specialized and unique government banks, such as the Development Bank of

the Philippines and the Land Bank, are not covered by this classification, but

shall be subject to supervision and regulation by the Central Bank pursuant to

the provisions of Section Twenty-Five of Republic Act No. 265.

"The Monetary Board shall determine the proper classification of other types

of banking institutions that may be established after the approval of this

Act.

"SEC. 6-B. With prior approval of the Monetary Board,

commercial banks and thrift banks may establish branches, agencies, or extension

offices, on a nationwide basis, but rural banks shall remain as regional unit

banks.

"Notwithstanding the provisions of any law to the contrary, no government or

private bank may open branches, agencies, or extension offices without prior

approval of the Monetary Board.

"SEC. 6-C. The hours during which all banks, including their

branches, agencies, and extension offices, shall transact business shall not be

less than six (6) hours a day to be selected by the banking institution

concerned between eight o'clock in the morning and eight o'clock in the evening,

which time shall be reported to the Monetary Board: Provided, That

banks may, at their discretion and after prior notice to the Monetary Board,

remain open beyond the minimum six (6) hours and for as long as they find it

necessary even before eight o'clock in the morning or after eight o'clock in the

evening for the purpose of servicing deposits and withdrawals: Provided,

finally, That other banking services may be extended beyond the minimum six

hours: Provided, finally, That the additional hours during which any of

these other banking services may be conducted may be limited by regulation of

the Monetary Board.

"SEC. 6-D. The Monetary Board may, at its discretion, in

specific cases where the circumstances so warrant, require a bank to engage the

services of an independent auditor to be chosen by the bank concerned from a

list of certified public accountants acceptable to the Monetary Board. The terms

of the engagement shall be as prescribed by the Monetary Board which may cither

be on a continuing basis where the auditor shall act as resident examiner, or on

the basis of special engagements, but in any case, the independent auditor shall

be responsible not only to the bank's board of directors, but to the Monetary

Board as well; Provided, That nothing in this section shall be

understood to preclude the Monetary Board from directing the board of directors

of banking institutions and/or the individual members thereof, to conduct,

either personally or by a committee created by the board, an annual balance

sheet audit of the bank, to review the internal audit and control system of the

bank, and to submit a report of such audit.

"SEC. 6-E. The banking industry is hereby declared as

indispensable to the national interest and, notwithstanding the provisions of

any law to the contrary, any strike or lockout involving banks, if unsettled

after seven (7) calendar days, shall be reported by the Central Bank to the

President of the Philippines who shall immediately certify the same to the

appropriate court, government agency or commission for resolution. In accordance

with the provisions of Section one hundred six of Republic Act No. 265, as

amended, the Monetary Board may, at its discretion, modify or set aside the

penalties for reserve deficiencies accruing during the entire period, or part

thereof, of any bank strike or lockout, or of any national emergency affecting

bank operations."

Section 7

SEC. 7. The same Act is further amended by adding the

following section after Section nine thereof, which reads as follows:

"SEC. 9-A. In order to maintain the quality of bank

management and afford better protection to depositors and the public in general,

the Monetary Board may pass upon and review the qualifications of persons who

are elected or appointed bank directors and officers and disqualify those found

unfit. The Monetary Board shall prescribe the qualifications of bank directors

and officers for purposes of this section."

Section 8

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

read as follows:

"SEC. 12. At least seventy per cent (70%) of the voting

stock of any banking institution which may be established after the approval of

this Act shall be owned by citizens of the Philippines, except where a new bank

is established as a result of: (a) The local incorporation of any of the

existing branches or agencies of foreign banks in the Philippines pursuant to

Section sixty-eight of this Act or (b) The consolidation of existing banks in

any of which there are foreign-owned voting stocks at the time of

consolidation.

"The computation of the minimum percentage of Filipino-owned voting stocks

required herein shall be governed by the provisions of the second paragraph of

Section twelve-A of this Act. The Monetary Board may, if the national interest

so requires, set a higher percentage of Filipino-owned voting stocks in banking

institutions that may be established after the approval of this

Act."

Section 9

SEC. 9. The same Act is further amended by adding the

following sections after Section twelve thereof, which read as follows:

"SEC. 12-A. The percentage of foreign-owned voting stocks in

any domestic bank existing upon the effectivity of this Act, if such percentage

is in excess of thirty per cent (30%) of the voting stock of the bank, shall not

be increased, but may be reduced, and, once reduced, shall not be increased

thereafter beyond thirty per cent (30%) of the voting stock of the bank. If the

percentage of the foreign-owned voting stocks existing upon the effectivity of

this Act is less than thirty per cent (30%) of the voting stock of the bank,

this percentage may be increased up to thirty per cent (30%) of the voting stock

of the bank with prior approval of the Monetary Board. These limitations on the

increase of the percentage of foreign-owned voting stocks shall also apply to a

merged or constituent bank arising from the merger or consolidation of domestic

banks with foreign-owned voting stocks, and to a bank which has been established

as a result of the local incorporation of a branch or agency of a foreign bank

pursuant to Section sixty-eight of this Act.

"Provided, however, That the Monetary Board may, with the approval

of the President of the Philippines, increase the percentage of foreign-owned

voting stocks in any domestic bank prescribed in the preceding paragraph from

thirty per cent (30%) to forty per cent (40%).

"The percentage of foreign-owned voting stocks in a bank shall be determined

by the citizenship of the individual stockholders in that bank. In the case of

corporations owning bank shares, the citizenship of each stockholders in that

corporation shall be the basis of computing the percentage. In case the

percentage of foreign-owned voting stocks in any domestic bank increases beyond

that allowed under the first paragraph of this section due to: (a) A change in

the citizenship of any stockholder of the bank or of any stockholder of a

corporation owning shares of stock in that bank, and (b) A transfer to

foreigners of Filipino-owned voting stocks in a corporation owning shares in the

bank, the Monetary Board may, at its discretion, direct the bank concerned to

take steps, within a reasonable period of time, to reduce the percentage of

foreign-owned voting stocks in the bank to the original level before the

increase.

"Upon the effectivity of this Act, any sale or other forms of transfer of

ownership of foreign-owned voting stocks in any domestic bank to other

foreigners of entities with foreign-owned voting stocks, which sale shall raise

the total of foreign-owned voting stocks thus sold or transferred from the

effective date of this Act to more than forty per cent (40%) of the bank's

voting stock, shall be subject to prior approval of the Central Bank.

"Banks with foreign-owned voting stocks shall report to the Central Bank any

sale or other forms of transfer of ownership of these stocks for purposes of

determining compliance with the limitations on the percentage of foreign-owned

voting stocks in domestic banks.

"SEC. 12-B. The total voting stocks which any corporation,

including its wholly or majority-owned subsidiaries, may own in any bank shall

not exceed thirty per cent (30%) of the voting stock of that bank. In the case

of a corporation which is wholly-owned, or the majority of the voting stock of

which is owned by any one person or by persons related to each other within the

third degree of consanguinity or affinity, that corporation may own not more

than twenty per cent (20%) of the voting stock of any bank. However, the

aggregate corporate holdings in any single bank shall be without limit:

Provided, That if two or more corporations are owned or controlled by

the same group of persons, the aggregate voting stocks which these corporations

may own in any single bank shall not exceed thirty per cent (30%) of the voting

stock of that bank. Provided, further, That if these corporations are

owned or controlled by one person or groups of persons related to each other

within the third degree of consanguinity or affinity, the aggregate voting

stocks shall not exceed twenty per cent (20%) of the voting stock of that

bank.

"Any corporation owning more than thirty per cent (30%) of the voting stock

of any bank upon the effectivity of this Act shall not increase such equity

holdings in that bank, but these holdings may be reduced, and, once reduced,

shall not be increased thereafter beyond thirty per cent (30%) of the voting

stock of the bank.

"Banks shall report to the Central Bank any sale or other forms of transfer

of ownership of their shares of stock by and between corporations or individuals

and corporations, for purposes of determining compliance with the limitations on

bank equity holdings of corporations.

"For purposes of this section, the term 'Corporation' shall include

partnerships, cooperatives and associations.

"SEC. 12-C. Corporations formed to hold equities of rural

banks may only own equities in rural banks located within a particular region,

as may be defined by the Central Bank, to the extent allowed by the preceding

section. Any corporation organized to hold equities of rural banks must be

partly owned by residents of the particular region where the rural bank or banks

in which the equities are held are located.

"SEC. 12-D. In order to promote the diffusion of bank

ownership, especially of commercial banks, no new commercial bank shall be

licensed to operate if the stockholdings of any person or persons related to

each other within the third degree of consanguinity or affinity, constitute more

than twenty per cent (20%) of the voting stock of the new bank. This limitation,

as well as the limitations established under Section twelve-B of this Act, shall

apply at all times to individual and corporate equity holdings in commercial

banks that may be established hereafter.

"Any person or persons with relations as specified in Section twelve-D of

this Act, or any corporation which is wholly-owned or the majority of the voting

stock of which is owned by such person or persons, owning more than twenty per

cent (20%) of the voting stock of any bank upon the effectivity of this Act

shall not increase these equity holdings in that bank, but these holdings may be

reduced, and, once reduced, shall not be increased thereafter beyond twenty per

cent (20%) of the voting stock of the bank."

Section 10

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

to read as follows;

"SEC. 13. At least two-thirds of the members of the board of

directors of any bank or banking institution which may be established after the

approval of this Act shall be citizens of the Philippines: Provided,

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

serve as officer, director, legal counsel, or consultant of any private bank,

except in cases where such service is incident to financial assistance

provided by the Government or by a government-owned or controlled

corporation to the bank: Provided, further, That in the case of a bank

merger or consolidation duly approved by the Monetary Board, the limitation on

the number of directors in a corporation, as provided for in Section

twenty-eight of the Corporation Law (Act No. 1459), shall not be applied so that

membership in the new board may include up to the total number of directors

provided for in the respective articles of incorporation of the merging

or consolidating banks."

Section 11

SEC. 11. The same Act is hereby amended by adding the

following section immediately after Section fourteen thereof, which reads as

follows:

"SEC. 14-A. Foreign banking institutions without branches in

the Philippines, including (a) their wholly or majority owned subsidiaries, and

(b) their holding companies having majority holdings in such foreign banking

institutions, may invest, with prior approval of the Monetary Board, in equities

of local companies engaged in financial allied undertakings under the same

restrictions imposed on domestic banks of the same category, as

provided for in Sections twenty-one-A and thirty-one of this Act, or in

other banking laws. In any case, the aggregate holdings of voting stocks of all

foreign entities in any single domestic financial enterprise shall remain a

minority participation in that enterprise.

"With prior approval of the Central Bank, these foreign entities may also

purchase foreign-owned equities in domestic banks: Provided, That their

aggregate holdings of voting stocks shall remain at all times a minority in the

local bank.

"Equity investment of foreign non-bank corporations, excluding the wholly or

majority-owned subsidiaries of foreign banking institutions and their holding

companies referred to in this section, in domestic non-financial undertakings

need not be subject to the above limitations except as may otherwise be

provided for by special laws.

"The foregoing limitations shall not apply either to international or

regional inter-governmental financial organizations and their subsidiaries of

which the Philippines is a member."

Section 12

SEC. 12. Section twenty of the same Act is hereby amended to

read as follows:

"SEC. 20. A commercial banking corporation shall be any

corporation which accepts or creates demand deposits subject to withdrawal by

check. Upon the effectivity of this Act, only commercial banks may accept or

create demand deposits subject to withdrawal by check: Provided, That

any other bank, which has been heretofore authorized by the Central Bank to

accept demand deposits, may continue accepting demand deposits at the discretion

of the Monetary Board."

Section 13

SEC. 13. Section twenty-one of the same Act is hereby

amended to read as follows:

"SEC. 21. A commercial banking corporation, in addition to

the general powers incident to corporations, shall have all such powers as shall

be necessary to carry on the business of commercial banking, by accepting drafts

and issuing letters of credit, by discounting and negotiating promissory notes,

drafts, bills of exchange, and other evidences of debts; by receiving deposits;

by buying and selling foreign exchange and gold or silver bullion, and by

lending money against personal security or against securities consisting of

personal property or first mortgages on improved real estate and the insured

improvements thereon. No loan on the security of real estate shall have a

maturity in excess of fifteen years, except loans for home building or home

development, which may have maturities up to twenty years. Loans on real estate

security of over one year maturity for real estate, personal, and commercial

purposes, or1 for the refinancing of similar loans, shall not exceed fifty per

cent (50%) of the total savings and time deposits of the bank.

"Nothing in this section shall be construed as preventing a commercial bank

from accepting real estate security in order to protect itself from loss on

account of a loan previously contracted in good faith, nor shall there be

included in the foregoing limitations loans made on the security of real estate

arising out of the sale of property owned by such bank.

"Commercial banks may acquire high-grade bonds and other evidences of

indebtedness. Except in exceptional circumstances, however, the Monetary Board

shall not permit commercial banks to invest in securities having maturities

greater than three years from the date of acquisition by the bank an amount in

excess of twenty per cent (20%) of its total deposits."

Section 14

SEC. 14. The same Act is hereby amended by adding the

following section after Section twenty-one thereof, which reads as follows:

"SEC. 21-A. Commercial banks, including Government banks and

foreign banks with existing local branches, may invest in equities of the

following allied undertakings: warehousing companies, leasing companies, storage

companies, safe deposit box companies, companies engaged in the management of

mutual funds but not in the mutual funds themselves, banks other than rural

banks, and such other similar activities as the Monetary Board may declare as

appropriate from time to time: Provided, That (a) the total investment

in equities shall not exceed twenty-five per cent (25%) of the net worth of the

bank, (b) the equity investment in any one enterprise shall not exceed fifteen

per cent (15%) of the net worth of the bank, (c) the total equity investment of

the bank in any single enterprise shall remain a minority holding in that

enterprise, except where the enterprise is not a financial intermediary, and (d)

the equity investment in other banks shall be deducted from the investing bank's

net worth for purposes of computing the prescribed ratio of net worth to risk

assets. Equity investments shall not be permitted in non-related activities.

"Where the allied undertaking is a wholly or majority-owned subsidiary of the

bank, it may be subject to examination by the Central Bank.

"The authority of commercial banks, the majority of the voting stock of which

is owned by foreigners and/or foreign entities, and any bank which may be

established as a result of the local incorporation of a branch of a foreign bank

pursuant to Section sixty-eight of this Act, to invest in equities of banks,

shall be limited to the purchase of foreign-owned equities in local

banks."

Section 15

SEC. 15. Section twenty-two of the same Act is hereby

amended to read as follows:

"SEC. 22. The combined capital accounts of each commercial

bank shall not be less than an amount equal to ten per cent (10%) of its risk

assets which is defined as its total assets minus the following assets:

"(a) Cash on hand;

"(b) Amount due from the Central Bank;

"(c) Evidences of indebtedness of the Republic of the Philippines and of the

Central Bank, and any other evidences of indebtedness or obligations the

servicing and repayment of which are fully guaranteed by the Republic of the

Philippines;

"(d) Loans to the extent covered by hold-out on, or assignment of, deposits

maintained in the lending bank and held in the Philippines;

"(e) Loans or acceptances under letters of credit to the extent covered by

margin deposits; and

"(f) Other non-risk items which the Monetary Board may, from time to time,

authorize to be deducted from total assets.

"The Monetary Board shall prescribe the manner of determining the total

assets of banking institutions for the purposes of this section, but contingent

accounts shall not be defined as being included among total assets.

"Whenever the capital accounts of a bank are deficient with respect to the

requirements of this Act, the Monetary Board, after considering a report of the

appropriate supervising department on the state of solvency of the institution

concerned, shall limit or prohibit the distribution of net profits and shall

require that part or all of net profits be used to increase the capital accounts

of the institution until the minimum requirement has been met. The Monetary

Board may, furthermore, after considering the aforesaid report of the

appropriate supervising department and if the amount of the deficiency justifies

it, restrict or prohibit the making of new investments of any sort by the bank,

with the exception of purchases of readily marketable evidences of indebtedness

included under subsection (c) of this section, until the minimum required

capital ratio has been restored.

"Where in the process of a bank merger or consolidation, the merged or

constitutions bank may not be able to comply fully with the net worth to risk

assets ratio herein prescribed, the Monetary Board may, at its discretion,

temporarily relieve the bank from full compliance with this requirement under

such conditions as it may prescribe."

Section 16

SEC. 16. Section twenty-three of the same Act is hereby

amended to read as follows:

"SEC. 23. Except as the Monetary Board may otherwise

prescribe, the total liabilities of any person, company, corporation or firm, to

a commercial banking corporation For money borrowed, excluding (a) loans secured

by obligations of the Central Bank or of the Philippine Government, {b) loans

fully guaranteed by the Government as to the payment of principal and interest,

(c) loans to the extent covered by hold-out on, or assignment of, deposits

maintained in the lending bank and held in the Philippines, (d) loans and

acceptances under letter of credit to the extent covered by margin deposits, and

(e) other loans or credits which the Monetary Board may, from time to time,

specify as non-risk assets, shall at no time exceed fifteen per cent (15%) of

the unimpaired capital and surplus of such bank.

"The total liabilities of any borrower may amount to a further fifteen per

cent (15%) of the unimpaired capital and surplus of such banking corporation

provided the additional liabilities arc adequately secured by shipping

documents, warehouse receipts or other similar documents transferring or

securing title covering readily marketable, nonperishable staples which staples

must be fully covered by insurance, and must have a market value equal to at

least one hundred and twenty-five per cent (125%) of such additional

liabilities.

"The term 'liabilities' as used herein, shall mean the direct liability of

the maker or acceptor of paper discounted with or sold to such bank and the

liability of the indorser, drawer, or guarantor who obtains a loan from or

discounts paper with or sells papers under his guaranty to such bank and shall

include in the case of liabilities of a co-partnership or association the

liabilities of the several members thereof and shall include in the case of

liabilities of a corporation all liabilities of all subsidiaries thereof in

which such corporation owns or controls a majority interest. But the discount of

bills of exchange drawn in good faith against actually existing values, and the

discount of commercial or business paper actually owned by the person

negotiating the same, shall not be considered as money borrowed, for the

purposes of this section.

"Loan accommodations granted by commercial banks to any other bank, as well

as deposits maintained by them in any bank licensed to do business in the

Philippines, shall be subject to the loan limit to any single borrower as herein

prescribed."

Section 17

SEC. 17. Section twenty-five of the same Act is hereby

amended to read as follows:

"SEC. 25. Any commercial bank may purchase, hold, and convey

real estate for the following purposes:

"(a) Such as shall be necessary for its immediate accommodation in the

transaction of its business: Provided, however, That the total

investment in such real estate and improvements thereof, including bank

equipment, shall not exceed fifty per cent (50$) of net worth: Provided,

further, That real estate used for the bank's purposes, owned by another

corporation in which the bank owns equity, shall be considered as part of the

bank's total investment in real estate;

"(b) Such as shall be mortgaged to it in good faith by way of security for

debts;

"(c) Such as shall be conveyed to it in satisfaction of debts previously

contracted in the course of its dealings;

"(d) Such as it shall purchase at sales under judgments, decrees, mortgages,

or trust deeds held by it and such as it shall purchase to secure debts due to

it.

"But no such bank shall hold the possession of any real estate under mortgage

or trust deed, or the title and possession of any real estate purchased to

secure any debt due to it, for a longer period than five

years."

Section 18

SEC. 18. Section twenty-seven of the same Act is hereby

amended to read as follows:

"SEC. 27. Any commercial bank organized under the laws of

the Philippines may, with the prior approval of the Monetary Board, establish

branches in the Philippines or branches and agencies outside the Philippines,

and the bank shall be responsible for all business conducted in such branches to

the same extent and in the same manner as though such business had all been

conducted in the head office.

"For the purposes of this Act, a bank and its branches shall be treated as a

unit."

Section 19

SEC. 19. Section twenty-nine of the same Act is hereby

amended to read as follows:

"SEC. 29. A savings and mortgage bank shall be any

corporation organized for the purpose of accumulating the savings of depositors

and investing them, together with its capital, in bonds or in loans secured by

bonds, real estate mortgages, and other forms of security, as hereinafter

provided, or in loans for personal finance and long-term financing for

home building and home development."

Section 20

SEC. 20. Section thirty of the same Act is hereby amended to

read as follows:

"SEC. 30. The combined capital accounts of each savings and

mortgage bank shall not be less than an amount equal to ten per cent (10%) of

its risk assets which is defined as its total assets minus the following assets:

"(a) Cash on hand;

"(b) Amounts due from the Central Bank;

"(c) Evidences of indebtedness of the Republic of the Philippines and of the

Central Bank, and any other evidences or indebtedness or obligations the

servicing and repayment of which are fully guaranteed by the Republic of the

Philippines;

"(d) Loans to the extent covered by hold-out on, or assignment of, deposits

maintained in the lending bank and held in the Philippines; and "(e) Other

non-risk items as the Monetary Board, may, from time to time, authorize to be

deducted from total assets.

"The Monetary Board shall prescribe the manner of determining the total

assets of banking institutions for the purposes of this section, but contingent

accounts shall not be defined as being included among total assets.

"Whenever the capital accounts of a bank are deficient with respect to the

requirements of the preceding paragraph, the Monetary Board, after considering a

report of the appropriate supervising department on the state of solvency of the

institution concerned, shall limit or prohibit the distribution of net profits

and shall require that part or all of net profits be used to increase the

capital accounts of the institution until the minimum requirement has been met.

The Monetary Board may, furthermore after considering the aforesaid report of

the appropriate supervising department and if the amount of the deficiency

justifies it, restrict or prohibit the making of new investments of any sort by

the bank, with the exception of purchases of evidences of indebtedness included

under subsection (c) of this section, until the minimum required capital ratio

has been restored.

"Where, in the process of a bank merger or consolidation, the merged or

constituent bank may not be able to comply fully with the net worth to risk

assets ratio herein prescribed, the Monetary Board may, at its discretion,

temporarily relieve the bank from full compliance with this requirement under

such conditions as it may prescribe."

Section 21

SEC. 21. Subsections (a) and (b) of Section thirty-one of

the same Act is hereby amended to read as follows:

"(a) Loans with the security of their own savings deposit obligations or of

mortgage and cattle mortgage bonds which they have issued, or with the security

of savings deposit obligations of other banks doing business in the Philippines:

Provided, That clean loans for personal and household finance may be

granted, but which shall not exceed the borrower's deposit in the bank plus his

four month's salary or regular income in the case of a permanent employee or

wage earner subject to such regulations as the Monetary Board may prescribe;

"(b) Medium-term loans of the following types:

"(1) Loans for the encouragement of cattle, carabao, and other livestock

breeding, with maturities up to three years. Such loans shall be repaid in

regular installments and shall have as principal security a lien on the animals,

the bank being empowered, however, to require, in addition, real estate and

other securities to its satisfaction; Provided, however, That the

livestock need not secure the loan if the borrower constitutes a lien or

mortgage on real estate property seventy per cent (70%) of the appraised value

of which equals or exceeds the amount of the loan granted. The amount of any

such loan shall not exceed fifty per cent (50%) of the commercial value of the

animals at the time the loan is made, but similar additional loans up to fifty

per cent (50%) may be made as the value of the stock increases.

"(2) Equipment loans with maturities up to five years, for the acquisition of

fertilizers and any instruments, machinery and other movable equipment used in

the production, processing, transformation, handling or transportation of

agricultural and industrial products. Such loans shall constitute a first lien

on the assets acquired with the proceeds of the loan, the bank being empowered,

however, to require as additional security a lien or mortgage on other

properties of the debtor: Provided, That the lien on the equipment or

the assets acquired out of the proceeds of the loan need not be constituted if

the borrower executes a mortgage on real estate property seventy per cent (70%)

of the appraised value of which equals or exceeds the amount of the loan

granted."

Section 22

SEC. 22. Section thirty-one of the same Act is further

amended by adding the following subsections after subsection (i) thereof, which

reads as follows:

"(j) Equities of allied undertakings as may be approved by the Monetary Board

for savings and mortgage banks: Provided, That (1) the total investment

in equities shall not exceed twenty-five per cent (25%) of the net worth of the

bank, (2) the equity investment in any single enterprise shall not exceed

fifteen per cent (15%) of the net worth of the bank, (3) the total equity

investment of the bank in any single enterprise shall remain a minority holding

in that enterprise, except where the enterprise is not a financial intermediary,

and (4) the equity investment in other banks, if allowed by the Monetary Board,

shall be subject to the same limitations imposed on similar investment of

commercial banks and shall be deducted from the investing bank's net worth for

the purposes of computing the prescribed ratio of net worth to risk assets.

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

"Where the allied undertaking is a wholly or majority-owned subsidiary of the

bank, it may be subject to examination by the Central Bank."

Section 23

SEC. 23. Section thirty-two of the same Act is hereby

amended to read as follows:

"SEC. 32. Except as the Monetary Board may otherwise

prescribe, the direct indebtedness to a savings and mortgage bank of any person,

company, corporation or firm, including in the indebtedness of the company or

firm, the indebtedness of the several members thereof, for money borrowed,

excluding (a) loans secured by obligations of the Central Bank or of the

Philippine Government, (b) loans fully guaranteed by the Government as to the

payment of principal and interest, (c) loans to the extent covered by hold-out

on, or assignment of, deposits maintained in the lending bank and held in the

Philippines, and (d) other loans or credits as the Monetary Board may, from time

to time, specify as non-risk assets, shall at no time exceed fifteen per cent

(15%) of the unimpaired capital and surplus of the bank: Provided,

however, That this limitation shall not apply to loans made under

subsection (f) of Section thirty-one.

"Loan accommodations granted by savings and mortgage banks to any other bank,

as well as deposits maintained by them in any bank licensed to do business in

the Philippines, shall be subject to the loan limit to any single borrower as

herein prescribed."

Section 24

SEC. 24. Section fifty-six of the same Act is hereby amended

to read as follows:

"SEC. 56. Any corporation formed or organized for the

purpose of acting as trustee or administering any trust or holding property in

trust or on deposit for the use, benefit, or behalf of others, shall be known as

a trust corporation or company.

"A trust company or any bank, authorized to engage in the business of a trust

company pursuant to Section fifty-seven hereof, shall administer the funds or

property under its custody with the skill, care, prudence and diligence

necessary under the circumstances then prevailing that a prudent man, acting in

like capacity and familiar with such matters, would exercise in the conduct of

an enterprise of a like character and with similar aims.

"No trust company or bank engaged in the business of a trust company shall

purchase or acquire property, for the account of the trustor or the beneficiary

of the trust, from any of the departments, directors, officers, or employees of

the trust company or bank, unless the transaction is specifically authorized by

the trustor and the relationship of the trustee and the party from whom the

property is acquired is fully disclosed to the trustor prior to the

transaction.

"The Monetary Board shall promulgate such rules and regulations as may be

necessary to prevent circumvention of this prohibition or the evasion of the

responsibility herein imposed on trust companies."

Section 24-A

SEC. 24-A. Section fifty-seven of the same Act is hereby

amended to read as follows:

"SEC. 57. A trust company may, with the approval of the

Monetary Board, do a commercial banking business but such business must be kept

separate and distinct from its trust business. All relevant provisions of

Chapter IV of this Act governing the business of commercial banking corporations

shall be held to apply to the commercial banking activities of a trust

company.

"Any banking corporation may, with the approval of the Monetary Board, be

authorized to engage in the business of a trust company, but shall be subject to

the provisions of this Chapter as regards its trust business."

Section 25

SEC. 25. Section sixty-eight of the same Act is hereby

amended lo read as follows:

"SEC. 68. In the case of a foreign bank which has more than

one branch or agency in the Philippines, all such branches and agencies shall be

treated as a unit for the purpose of this Act, and all references to Philippine

branches and agencies of foreign banks shall be held to refer to such units.

"Any foreign bank presently having branches and agencies in the Philippines

shall, within one year from the effectivity of this Act, comply with any of the

following options: (a) incorporate its branch or branches into a new bank in

accordance with Philippine laws, in which case at least sixty per cent (60%) of

the voting stock of the new bank shall be owned by citizens of the Philippines,

or (b) assign capital permanently to the local branch with the concurrent

maintenance of a 'net clue to' head office account which shall include all net

amounts due to other branches outside the Philippines, in an amount which when

added to the assigned capital shall at all time be not less than the minimum

amount of capital accounts required for domestic commercial banks under Section

twenty-two of this Act, or (c) maintain a 'net due to' head office account which

shall include all net amounts due to other branches outside the Philippines, in

an amount which shall not be less than the minimum amount of capital accounts

required for domestic commercial banks under Section twenty-two of this Act.

"The 'net due to' account under options (b) and (c) may be reduced

correspondingly if the total risk assets of the branch are reduced:

Provided, That the total of the account under option (c), and together

with the assigned capital under option (b) meets the minimum capital accounts

required under Section twenty-two of this Act: Provided, further. That

in no case shall these amounts be less than the minimum capital requirement for

new domestic commercial banks, The assigned capital and 'net due to' account may

be maintained in such types of assets and under such conditions as the Monetary

Board may prescribe.

"In case of non-compliance with any of the above options within a period of

one year from the effectivity of this Act, the local branch involved shall be

subject to the same penalties as may be imposed on a domestic commercial bank

pursuant to the provisions of Section twenty-two of this Act."

Section 26

SEC. 26. Section sixty-nine of the same Act is hereby

amended to read as follows:

"SEC. 69. After one year from the effectivity of this Act,

Philippine branches of foreign banks shall be subject to the provisions of

Sections twenty-two and thirty of this Act.

"In order to provide effective protection of the interests of the depositors

and other creditors of Philippine branches of foreign banks, the head office of

such brunches shall fully guarantee the prompt payment of all liabilities of its

Philippine branch."

Section 27

SEC. 27. Section seventy of the same Act is hereby amended

to read as follows:

"SEC. 70. After one year from the effectivity of this Act,

Philippine branches of foreign banks shall be subject to Sections twenty-three

and thirty-two of this Act.

"Nothing in this Act shall be construed as restricting in any manner loans

made by the Philippine branch of a foreign bank for the account of, and with

funds supplied by, its head office or branches outside the Philippines, but the

Monetary Board may require that all such loans be reported to it in accordance

with such rules and regulations as it may issue on the

subject."

Section 28

SEC. 28. Section seventy-one of the same Act is hereby

repealed.

Section 29

SEC. 29. Section seventy-four of the same Act is hereby

amended to read as follows:

"SEC. 74. No bank or banking institution shall enter,

directly or indirectly, into any contract of guaranty or suretyship, or shall

guarantee the interest or principal of any obligation of any person,

copartnership, association, corporation or other entity. The provisions of this

section shall, however, not apply to the following: (a) borrowing of money by

banking institution through the rediscounting of receivables; (b) acceptance of

drafts or bills of exchange; (c) certification of checks; (d) transactions

involving the release of documents attached to items received for collection;

(e) letters of credit transaction, including stand-by arrangements; (f)

repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or

indorsements in favor of foreign creditors where the principal obligation

involves loans and credits extended directly by foreign firms or persons to

domestic borrowers for capital investment purposes; and (i) other transactions

which the Monetary Board may, by regulation, define or specify as not covered by

the prohibition."

Section 30

SEC. 30. Section eighty-three of the same Act is hereby

amended to read as follows:

"SEC 83. No director or officer of any banking institution

shall, either directly or indirectly, for himself or as the representative or

agent of other, borrow any of the deposits of funds of such banks, nor shall he

become a guarantor, indorser, or surety for loans from such bank to others, or

in any manner be an obligor for money borrowed from the bank or loaned by it,

except with the written approval of the majority of the directors of the bank,

excluding the director concerned. Any such approval shall be entered upon the

records of the corporation and a copy of such entry shall be transmitted

forthwith to the appropriate supervising department. The office of any director

or officer of a bank who violates the provisions of this section shall

immediately become vacant and the director or officer shall be punished by

imprisonment of not less than one year nor more than ten years and by a fine of

not less than one thousand nor more than ten thousand pesos.

"The Monetary Board may regulate the amount of credit accommodations that may

be extended, directly or indirectly, by banking institutions to their directors,

officers, or stockholders. However, the outstanding credit accommodations which

a bank may extend to each of its stockholders owning two per cent (2%) or more

of the subscribed capital stock, its directors, or its officers, shall be

limited to an amount equivalent to the respective outstanding deposits and book

value of the paid-in capital contribution in the bank.

"In addition to the conditions established in the preceding paragraph, no

director of a building and loan association shall engage in any of the

operations mentioned in said paragraphs, except upon the pledge of shares of the

association having a total withdrawal value greater than the amount

borrowed."

Section 31

SEC. 31. Section eighty-four of the same Act is hereby

amended to read as follows:

"SEC. 84. If losses have at any time been sustained by any

banking institution equal to or exceeding the undivided profits on hand, no

dividend shall be declared; and no dividend shall ever be declared by any such

bank while it continues in banking operations to an amount greater than its net

profits then on hand, deducting therefrom its losses and bad debts. All debts

due to any such bank on which interest is past due and unpaid for a period of

six months, unless the same are well secured and in process of collection, shall

be considered bad debts within the meaning of this section.

"The Monetary Board may fix, by regulation or by order in specific cases, the

amount of reserves for bad debts or doubtful accounts or other

contingencies.

"Writing-off of loans and advances with an outstanding amount of one hundred

thousand pesos or more shall require prior approval of the Monetary

Board."

Section 32

SEC. 32. The same Act is further amended by adding the

following section immediately after Section eighty-seven thereof, which reads as

follows:

"SEC. 87-A. A fine of not more than two thousand pesos or

imprisonment for not more than one year, or both, in the discretion of the

court, shall be imposed upon:

"1. Any officer, employee, or agent of any banking institution who shall

—

"(a) Make false entries in any bank report or statement thereby affecting the

financial interest of, or causing damage to, the bank or any person; or

"(b) Without order of a court of competent jurisdiction, disclose to any

unauthorized person any information relative to the funds or properties in the

custody of the bank belonging to private individuals, corporations, or any other

entity: Provided, That with respect to bank deposits, the provisions of

Republic Act numbered 1405 shall prevail; or

"(c) Accept gifts, fees or commission or any other form of remuneration in

connection with the approval of a loan from said bank; or

"(d) Overvalue or aid in overvaluing any security for the purpose of

influencing in any away the actions of the bank on any bank; or

"2. Any borrower or a banking institution who shall —

"(a) Fraudulently overvalue property offered as security for a loan from the

bank; or

"(b) Furnish false, or make willful mispresentation of, material facts for

the purpose of obtaining, renewing, or increasing a loan or extending the period

thereof; or

"(c) Attempt to defraud the said bank in the event of a court action to

recover a loan; or

"(d) Offer any officer, employee or agent of a bank any gift, fee,

commission, or any other form of compensation in order- to influence such bank

personnel into approving a loan application; or

"3. Any examiner, officer, or employee of the Central Bank of the Philippines

or of any department, bureau; office, branch or agency of the Government who is

assigned to examine, supervise, assist or render technical assistance to any

banking institution and who shall commit any of the acts enumerated in paragraph

one of this section or aid in the commission of the same."

Section 33

SEC. 33. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of November, in the year of Our

Lord, nineteen hundred and seventy-two.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR

Secretary Executive