REPUBLIC ACT NO. 7721 - AN
ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS IN
THE PHILIPPINES AND FOR OTHER PURPOSES
Section 1. Declaration of Policy. — The State shall develop a
self-reliant and independent national economy effectively controlled by
Filipinos and encourage, promote, and maintain a stable, competitive,
efficient, and dynamic banking and financial system that will stimulate
economic growth, attract foreign investments, provide a wider variety
of financial services to Philippine enterprises, households and
individuals, strengthen linkages with global financial centers, enhance
the country's competitiveness in the international market and serve as
a channel for the flow of funds and investments into the economy to
promote industrialization.
Pursuant to this policy, the Philippine banking and financial system is
hereby liberalized to create a more competitive environment and
encourage greater foreign participation through increase in ownership
in domestic banks by foreign banks and the entry of new foreign bank
branches.
In allowing increased foreign participation in the financial system, it
shall be the policy of the State that the financial system shall remain
effectively controlled by Filipinos.
Sec. 2. Modes of Entry. — The Monetary Board may
authorize foreign banks to operate in the Philippine banking system
through any of the following modes of entry: (i) by acquiring,
purchasing or owning up to sixty percent (60%) of the voting stock of
an existing bank; (ii) by investing in up to sixty percent (60%) of the
voting stock of a new banking subsidiary incorporated under the laws of
the Philippines; or (iii) by establishing branches with full banking
authority: provided, that a foreign bank may avail itself of only one
(1) mode of entry: provided, further, that a foreign bank or a
Philippine corporation may own up to a sixty percent (60%) of the
voting stock of only one (1) domestic bank or new banking subsidiary.
Sec. 3. Guidelines for Approval. — In approving
entry applications of foreign banks, the Monetary Board shall: (i)
ensure geographic representation and complementation; (ii) consider
strategic trade and investment relationships between the Philippines
and the country of incorporation of the foreign bank; (iii) study the
demonstrated capacity, global reputation for financial innovations and
stability in a competitive environment of the applicant; (iv) see to it
that reciprocity rights are enjoyed by Philippine banks in the
applicant's country; and (v) consider willingness to fully share their
technology.
Only those among the top one hundred fifty (150) foreign banks in the
world or the top five (5) banks in their country of origin as of the
date of application shall be allowed entry in accordance with Sec. 2
(ii) and (iii) hereof.
In the exercise of this authority, the Monetary Board shall adopt such
measures as may be necessary to: (i) ensure that at all times the
control of seventy percent (70%) of the resources or assets of the
entire banking system is held by domestic banks which are at least
majority-owned by Filipinos; (ii) prevent a dominant market position by
one bank or the concentration of economic power in one or more
financial institutions, or in corporations, participations,
partnerships, groups or individuals with related interests; and (iii)
secure the listing in the Philippine Stock Exchange of the shares of
stocks of banking corporations established under Sec. 2(i) and (ii)
of this Act: provided, that said banking corporations shall establish
stock option plans for their officers and employees as the resources or
assets of these corporations may allow in the best business judgment of
their respective boards of directors, pursuant to the Corporation Code
of the Philippines.
To qualify to establish a branch or a subsidiary, the foreign bank
applicant must be widely-owned and publicly-listed in its country of
origin, unless the foreign bank applicant is owned by the government of
its country of origin.
Sec. 4. Capital Requirements. — (i) For Locally
Incorporated Subsidiaries. — The minimum capital required for locally
incorporated subsidiaries of foreign banks shall be equal to that
prescribed by the Monetary Board for domestic banks of the same
category.
(ii) For Foreign Bank Branches. — Foreign banks
seeking entry pursuant to Sec. 2 (iii) of this Act shall permanently
assign capital of not less than the U.S. dollar equivalent of Two
hundred ten million pesos (P210,000,000.00) at the exchange rate on the
date of the effectivity of this Act, as ascertained by the Monetary
Board. The permanently assigned capital shall be inwardly remitted and
converted into Philippine currency. The foreign bank shall be
entitled to three (3) branches.
The foreign bank may open three (3) additional branches in locations
designated by the Monetary Board by inwardly remitting and converting
into Philippine currency as permanently assigned capital, the U.S.
dollar equivalent of Thirty-five million pesos (P35,000,000.00) per
additional branch at the exchange rate on the date of the effectivity
of this Act, as ascertained by the Monetary Board. The total
number of branches for each new foreign bank entrant shall not exceed
six (6).
For purposes of meeting the prescribed capital ratios, the term
"capital" shall include permanently assigned capital plus "net due to
head office, branches and subsidiaries and offices outside the
Philippines" in the ratio prescribed by law or as may be prescribed by
the Monetary Board: provided, that in all cases, the permanently
assigned capital and fifteen percent (15%) of "net due to" required to
comply with prescribed capital ratios shall be inwardly remitted and
converted to Philippine currency: provided, further, that amounts
invested in productive enterprises or utilized by Philippine companies
for export activities, shall not be subject to conversion into
Philippine currency: provided, finally, that the Monetary Board shall
monitor the effective use of the "net due to" funds. Whenever
there results "net due from head office" outside the Philippines, this
shall be deducted from the capital accounts for purposes of determining
the required capital ratios.
Sec. 5. Head Office Guarantee. — The head office
of foreign bank branches shall guarantee prompt payment of all
liabilities of its Philippine branches.
Sec. 6. Entrants under Sec. 2(iii). — Foreign
banks shall be allowed entry under Sec. 2 (iii) within five (5)
years from the effectivity of this Act. During this period, six
(6) new foreign banks shall be allowed entry under Sec. 2(iii) upon
the approval of the Monetary Board. An additional four (4)
foreign banks may be allowed entry on recommendation of the Monetary
Board, subject to compliance with Section s 2, 3, 4, and 5 of this Act,
upon approval of the President as the national interest may require.
Sec. 7. Board of Directors. — Non-Filipino
citizens may become members of the Board of Directors of a bank to the
extent of the foreign participation in the equity of said bank.
Sec. 8. Equal Treatment. — Foreign banks
authorized to operate under Sec. 2 of this Act, shall perform the
same functions, enjoy the same privileges, and be subject to the same
limitations imposed upon a Philippine bank of the same category.
These limits include, among others, the single borrower's limit and
capital to risk asset ratio as well as the capitalization required for
expanded commercial banking activities under the General Banking Act
and other related laws of the Philippines.
The basis for computing the ratio shall be the capital of the foreign
bank branch in the Philippines.
The foreign banks shall guarantee the observance of the rights of their
employees under the Constitution.
Any right, privilege or incentive granted to foreign banks or their
subsidiaries or affiliates under this Act, shall be equally enjoyed by
and extended under the same conditions to Philippine banks.
Philippine corporations whose shares of stocks are listed in the
Philippine Stock Exchange or are of long standing for at least ten (10)
years shall have the right to acquire, purchase or own up to sixty
percent (60%) of the voting stock of a domestic bank.
Sec. 9. Development Loans Incentives. — Loans
extended by a foreign bank's majority-owned subsidiary incorporated
under the laws of the Philippines and/or a Philippine bank sixty
percent (60%) of the voting stock of which is held by a foreign bank,
to finance educational institutions, cooperatives, hospitals and other
medical services, socialized or low-cost housing, and to local
government units without national government guarantee, shall be
included for purposes of determining compliance with the provisions of
Presidential Decree No. 717, as amended.
SECTION 10. Transitory Provisions. — Foreign banks
operating through branches in the Philippines upon the effectivity of
this Act, shall be eligible for the privilege of establishing up to six
(6) additional branches under the same terms and conditions required by
Sec. 4 (ii) hereof: provided, that for any branch additional to what
is existing at the time of the effectivity of this Act, the prescribed
permanently assigned capital shall be complied with immediately:
provided, further, that a foreign bank may open three (3) branches in
the location of its choice and the next three (3) branches in locations
designated by the Monetary Board to insure balanced economic
development in all the regions.
The existing Philippine branches of foreign banks shall be given
one-and-a-half (1 ½) years from the effectivity of this Act to
comply with the minimum capital requirements as prescribed under
Sec. 4 (ii) of this Act.
SECTION 11. Separability Clause. — If any provision
of this Act is declared unconstitutional, the same shall not affect the
validity of the other provisions not affected thereby.
SECTION 12. Applicability of Other Banking Laws. —
The provisions of Republic Act No. 337, as amended, otherwise known as
the General Banking Act, insofar as they are applicable and not in
conflict with any provision of this Act, shall apply to banks
authorized pursuant to this Act.
SECTION 13. Delegation of Rule-Making Powers and
Compliance Reports. — The Monetary Board is hereby authorized to issue
such rules and regulations as may be needed to implement the provisions
of this Act after consultation with the chairpersons of the Banks
Committee of the House of Representatives and the Senate of the
Philippines. On or before May 30 of each year, the Monetary Board
shall file a written report to Congress and its respective Banks
Committees, on the developments in the implementation of this Act.
SECTION 14. Amendment and Repeal of Inconsistent
Laws. — Section s 11, 12, 12-A, 12-B, 13, 14-A, 21-B, and 68 of Republic
Act No. 337, as amended, otherwise known as the General Banking Act:
Section s 4 and 5 of Republic Act No. 7353, otherwise known as the Rural
Banks Act; Section s 4 and 14 of Republic Act No. 3779, as amended,
otherwise known as the Savings and Loan Association Act; and Sec. 4
of Republic Act No. 4093, as amended, otherwise known as the Private
Development Banks Act insofar as they are inconsistent with this Act,
are hereby repealed or modified accordingly.
SECTION 15. Effectivity Clause. — This Act shall take
effect fifteen (15) days after its publication in the Official Gazette
or in two (2) national newspapers of general circulation.
Approved: May 18, 1994
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