1. Definition and Classification of Banks

Banks

Entities engaged in the lending of funds obtained in the form of deposits. (GBL, Sec. 3.1)¹

Note: Banks have a primary franchise from the Securities and Exchange Commission (SEC) and a secondary banking franchise from the BSP. Its corporate powers are exercised within its banking license.

Elements

• Engaged in lending of funds
• Obtained in the form of deposits

How Banks are Structured

General Rule: Banks are corporations. (Sec. 8[a])² However, cooperative banks may also be formed under the Cooperative Code, but it has to secure a secondary franchise from the BSP to engage in banking. (RA 9520, Sec. 23[i])³

Universal Banks

In addition to the powers authorized for a commercial bank in Section 29⁴, they shall have the authority to exercise the powers of an investment house as provided in existing laws and the power to invest in non-allied enterprises as provided in this Act. (Sec. 23)⁵

Investment House

It is an intermediary between security issuers and investors. It engages in underwriting of securities, among other things. (PD 129, Sec. 2)⁶

Non-allied enterprises

They are non-bank related activities (e.g., agriculture, mining, manufacturing, public utilities, etc.). (MORB – Manual of Regulations for Banks, Appendix 19)⁷

Commercial Banks

They shall have, in addition to the general powers incident to corporations:

• All such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit;
• Discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt;
• Accepting or creating demand deposits;
• Receiving other types of deposits and deposit substitutes;
• Buying and selling foreign exchange and gold or silver bullion;
• Acquiring marketable bonds and other debt securities; and
• Extending credit, subject to such rules as the Monetary Board may promulgate. (Sec. 29)⁸

Unlike Universal Banks, Commercial Banks can invest only in allied enterprises (bank-related activities), which may be financial or non-financial. (Secs. 30⁹, 31, and 32)

Thrift Banks

They are organized for the purpose of, among other things, accumulating the savings of depositors and investing them, together with capital, in loans and other permitted investments, including financing for homebuilding and home development. (RA 7906 - Thrift Banks Act, Sec. 3[a][1]) They may also provide short-term working capital and medium- and long-term financing to businesses engaged in agriculture, services, industry and housing. (RA 7906 - Thrift Banks Act, Sec. 3[a][2])¹⁰

They include savings and mortgage banks, private development banks, and stock savings and loans associations organized under existing laws. (Id.)

Rural Banks

Banks which are designed to make needed credit available and readily accessible in the rural areas on reasonable terms. (RA No. 7353 - Rural Banks Act, Sec. 2¹¹)

Cooperative Banks

Once organized, the majority shares of which is owned and controlled by cooperatives, primarily to provide financial and credit services to cooperatives and their members. (RA 9520 – Philippine Cooperative Code, Art. 99)¹²

Islamic Banks

Al-Amanah Islamic Investment Bank was established under RA 6848 to promote and accelerate socio-economic development of the Autonomous Region by performing banking, financing, and investment operations and to establish and participate in agricultural, commercial, and industrial ventures based on the Islamic concept of banking. (RA 6848 – Charter of the Al-Amanah Islamic Investment Bank of the Philippines, Sec. 3)¹³

Islamic banking is based on the Islamic concept of banking: risk sharing rather than speculation. Essentially, this is based on basic principles and rulings of Sharia, or Islamic law. interest (riba) is prohibited. (RA 11439 – An Act Providing for the Regulation and Organization of Islamic Banks, Sec. 2[a][4])¹⁴

Note: There are two existing laws on Islamic Banks, (1) RA No. 6848¹⁵, and (2) R.A. No. 11439¹⁶. The latter law is a legal framework which allows the creation of Islamic banks in the Philippines.

Foreign Banks

A foreign bank is a banking corporation formed, organized or existing under any law other than those of the Republic of the Philippines. (RA 11232 – Revised Corporation Code, Sec. 140)¹⁷

Foreign banks are allowed to enter the Philippine banking system under any of the following modes:

• Acquiring, purchasing, or owning up to 100% of the voting stock of an existing bank;
• Investing in up to 100% of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or
• Establishing branches with full banking authority. (RA 10641 – An Act Allowing the Full Entry of Foreign Banks in the Philippines, Sec. 2)¹⁸

Other Classification of Banks as determined by the Monetary Board (Sec. 3)¹⁹