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

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 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.”

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;”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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.”

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repealed.

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.”

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.”

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.”

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.”

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