Government Banking Institution

The Philippine government has been active in banking business. The role of the government in
the banking system is to supplement the credit facilities of the private financial institutions. There are
areas of the economy where the private banks have been reluctant to operate not because of huge
investments but due to poor economic returns. In other cases, viability is not even certain. For these
reasons, the government had to established banks with special lending programs like the socio-
economic development of the small farmers, the Moslems regions, and the rural areas, among others.
The government is responsible primarily to render services while the private financial institutions
operate basically for profit.

Philippine National Bank

The present authority, powers, and operations of the Philippine National Bank (PNB) are
governed by Executive Order No. 80. The present authorized capital stock of the bank is P10 billion,
divided into 100 million common shares at a par value of 100 per share. The government’s paid-up
subscription is P2 billion. (The latest authorized capital stock of the Bank is ₱70,000,000,040 divided into
1,750,000,001 Common Shares with a par value of ₱40.00 per share.)

The operations and affairs of the PNB are governed by a board of directors consisting of nine
members (currently consisting 15 members) who are elected annually by the stockholders. The bank’s
chief executive is the president who is elected among the members of the board of directors with the
advice and consent of the President of the Philippines. The bank’s president must be at least 40 years
old, of good moral character and reputation, with at least ten years previous experience in banking with
recognized competence in economics, finance, management, government administration, law,
agriculture, or industry.

Corporate power means the power and authority of a Business Entity, under the terms of its
Governing Documentation and applicable law, to enter into, and become bound by, the terms of any
particular transaction.

Corporates powers. The PNB is a universal or expanded commercial bank with the following corporate
powers:

1. To engage in the business of commercial banking by – accepting drafts, issuing letters of credits,
discounting and negotiating promissory notes (and drafts, bill of exchange, and other evidences of
debts), receiving deposits, buying and selling foreign exchange and gold or silver bullions, acting as
financial agent, financial personal leasing, and lending money against personal security or against
securities consisting of personal property or first mortgage on improved real estate and the insured
improvements thereon.

2. To accept and execute trusts and to carry on a general trust business.

3. To hold, own, purchase, acquire, sell, mortgage, dispose of or otherwise invest or reinvest in high-
grade stocks, bonds, debentures, securities, and other evidences of indebtedness of the other
corporations and of the government or its instrumentalities, which are issued for or in connection with
any project or enterprise.
4. To organize and incorporate investments and/or development financing subsidiaries.

5. To issue in the Philippines or in a foreign country for purposes of increasing its capital or generating
funds, all types of bonds, promissory notes, debentures, certificates of indebtedness or other debt
instruments.

6. To guarantee foreign loans or credit accommodations extended directly by foreign firms or person to
domestic borrowers for capital investments purposes.

7. To engage or participate in the development of secondary markets for government securities and
short, medium and long-term papers.

8. To invest in the shares of stock of allied undertakings, such as warehousing companies, leasing
companies, storage companies, safe deposit box companies, trust companies engaged in the
management of mutual funds.

9. To borrow money, or incur indebtedness or contract obligations in connection with its banking
operations.

10. To engage in the warehousing of rice, corn, and other grains, copra, sugar, tobacco, cotton, and
other basic commodities as well as oil, gasoline and other petroleum products.

11. To act as official government depository with full authority to maintain deposits of the government,
its branches, subdivisions and instrumentalities, including government-owned or controlled
corporations.

12. To prescribe its by-laws.

13. To adopt and use a seal.

14. To make contracts.

15. To sue and to be sued.

16. To acquire, own and hold real and personal property necessary to carry on its business, introduce
improvements thereon, and to sell, mortgage or otherwise dispose of such property and improvements
in accordance with the policies of the board of directors.

17. To exercise the general powers of corporations as provided for existing laws, as well as such
incidental powers as may be necessary to carry on and engage in its business.

Banking Operations in General

Philippine National Bank is authorized –

1. To purchase, discount, or negotiate promissory notes, drafts, bills of exchange and other evidences of
debt issued or drawn for agricultural, export, industrial, commercial, and other allied purposes with
collaterals which may be required by the banks.

2. To grant loans on, or to discount notes secured by, harvested and stored crops.
3. To grant loans for the production of rice, corn, and other grains, cotton, hemp, coconut, sugar,
banana, tobacco, and maguey, and other agricultural crops.

4. To grant medium-term and long-term loans and advances against security of real estate and/or other
acceptable assets for the establishment, rehabilitation or expansion of agricultural, export, industrial,
and other productive enterprises.

5. To grant loans against personal security, or against security consisting of personal property or first
mortgage on improved real estate and the insured improvements thereon.

6. To make loans to any branch, subdivision, or agency of the government, including government-owned
and/or controlled corporations, which loans shall be for productive, revenue or socio-economic projects
as established in the development programs of the government.

Land Bank of the Philippines

The creation and operation of Land Bank of the Philippines (LBP) is authorized under the Code of
Agrarian Reforms. LBP aims to provide timely and adequate financial support in all phases involved in
the execution of the needed agrarian reforms ostensibly to free tenant-farmers from the clutches of
landlordism.

The authorized capital stock of the bank is P3 billion, divided into 180 million common shares
with a par value of P10 per share, which shall be fully subscribed by the government, and 120 million
preferred shares with a par value of P10 per share shall be non-voting. (The authorized capital stock of
LBP is P200 billion, divided by 2 million common shares with par value of P100 per share.)

The board of directors which directs the affairs and business of the bank, consists of seven
members (currently consisting 8 members), composed of the Secretary of Finance as chairman, the
president of the banks as vice-chairman, the secretary of agrarian reform and the secretary of labor as
ex-officio members. The board member who represents agrarian reform beneficiaries is appointed by
the President of the Philippines, while the two remaining members are elected by stockholders in their
annual meeting.

A director of the bank, whether elected or appointed must be natural-born citizen of the
Philippines, not less than 35 years of age, of good moral character and has attained proficiency,
expertise, and recognized competence in one or more fields; banking, finance, economics, law,
agriculture, agrarian reform, and business management. No director, stockholder or employee of any
other bank is eligible for election or appointment as member of the board of the bank. The chief
executive of the bank is known as the president who is chosen by the board of directors with the
consent and advice of the President of the Philippines.

Corporate powers. Like PNB, LBP is also universal or expanded commercial bank with the following
corporate powers;

1. To prescribe, repeal, and alter its own by-laws to determine its operating policies and to issue such
rules and regulations as may be necessary.

2. To adopt, alter, and use a corporate seal.

3. To hold, purchase, acquire, and own real and personal property, introduce necessary improvements
thereon to enhance and develop their social and economic values, and to sell, mortgage or otherwise
dispose of the same.

4. To sue and to be sued, make contracts, negotiate, and secure loans from both local and foreign
sources.

5. To grant short-, medium- and long-term loans and advances against security of real estate and/or
other acceptable assets for the establishment, development or expansion of agricultural, industrial,
home building or home financing projects and other productive enterprises.

6. To grant loans to farmers’ cooperatives/associations to facilitate production, marketing of crops and

acquisitions of essential commodities.

7. To finance and/or guarantee the acquisition of farm lots transferred to tenant-farmers in accordance
with existing laws and related rules and regulations.

8. To underwrite, hold, own, purchase, acquire, sell, mortgage, dispose of or otherwise invest or re-
invest in stock, bonds, debentures, securities, and other evidences of indebtedness of other
corporations and of the government or its instrumentalities, which are issued for or in connection with
any project or enterprises.

9. To guarantee acceptances, credits, loans, transactions or obligations of any person, co-partnership,

association or corporation in favor of any financing or banking institutions, whether foreign or domestic,
provided the proceeds of such acceptances, credits, loans, transactions or obligations are utilized or
allocated for the development and/or expansion of agricultural and industry.

10. To borrow from, or rediscount notes, bills of exchange and other commercial papers with the
Bangko Sentral.

11. To act as trustee, or administer any trust in accordance with existing laws, rules and regulations
governing trust corporations.

12. To exercise the general power of corporations embodied in the Corporation Code and other
pertinent laws, insofar as they are not conflict with the law creating Land Bank of the Philippines.

The LBP is also authorized to accept demand, savings, and time deposits. It also administers the
Special and Agricultural Guarantee Funds, among others, which take care of claims, specifically of
tenant-farmers, arising from various obligations of LBP.

Development Bank of the Philippines

The Development Bank of the Philippines (DBP), formerly known as Rehabilitation Finance
Corporation, was created under Republic Act No. 85 (repealed by Executive Order No. 81), to provide
credit facilities for the rehabilitation and development and expansion of agriculture and industry, the
reconstruction of property damaged by war and the broadening and diversification of the national
economy, and to promote the establishment of private development banks in provinces and cities.
 The bank is capitalized at P5 billion, divided into 50 million shares with a par value at P100 per
share. The bank’s capital stock is fully subscribed by the government of the Republic of the Philippines.
(The latest capital stock of the bank shall be P35 billion, divided into 350 million shares with a par value
at P100 per share.)

The affairs and business of DBP are directed, including the exercise of its powers and
management pf its properties, by a board of directors consisting of a chairman and eight other members
(currently consisting 9 members) appointed by the President of the Philippines. The chairman and four
members of the board to be designated by the President of the Philippines shall render full time service
to the bank.

No person shall be appointed chairman or member of the board of governor unless he is of good
moral character and unquestionable integrity and be of recognized competence in economics,
agriculture, industry, finance and/or banking. The chairman of the board is the chief executive officer of
DBP.

Corporate powers. The DBP has the following corporate powers:

1. To grant loans for home building or home financing projects and for the rehabilitation, the
establishment or development of any agricultural and/or industrial enterprise, including public utilities,
mining, livestock industry and fishing, whether offshore or inland.

2. To purchase preferred redeemable shares of stock, securities other than shares of stock, and
obligations of, and to grant loans to, any agricultural and industrial enterprise for the purpose of
financing fixed and operation capital requirements.

3. To grant loans to provincial city, and municipal governments for the rehabilitation, construction or
reconstruction of public markets, waterworks, toll bridges, slaughterhouses, for cadastral surveys and
other self-liquidating or income-producing activities to insure payment of the loan.

4. To grant loans to cooperative associations to facilitate productions, the marketing of crops, and the
acquisition of essential commodities.

5. To grant loans to individual employees in a government owned or controlled corporation or private

corporation engaged in the development and/or expansion of agriculture or industry, for the purpose of
buying shares of stock directly from such corporation where they are employed for the purpose of
enabling them to participate in the ownership and to share in the profits thereof.

6. To underwrite, purchase, own, sell, mortgage or otherwise dispose stocks, bonds, debentures,
securities and other evidences of indebtedness issued for or in connection with any project or enterprise
of self-liquidating purposes.

7. To accept and manage trust funds and properties and carry on the business of trust corporation.

8. To organize, establish, and operate subsidiary corporations whenever necessary to better achieve
DBP’s objectives.

9. To issue bonds, debenture, securities, collaterals, and other obligations and/or the renewal or the
refunding of the same.
10. To adopt, alter, and use corporate seal; to make contracts; to borrow money; to issue or own real
and personal property; and to sell, mortgage or otherwise dispose of the same; to sue and to be sued; to
employ such officers and employees as may be necessary to carry out the business of the bank; and
otherwise, to do and perform any and all things that may be necessary or proper to carry out the
purposes of the bank.

11. To subscribe out its funds to the capital stock of private provincial and city government banks
created under Republic Act No. 4092, as amended.

12. To guarantee acceptance credits, loans, transactions, or obligations of any person, copartner ship,
association or corporation in favor of any financing or banking institution, whether foreign or domestic,
provided the proceeds of such acceptance credits, loans, or obligations are utilized or allocated for the
development and/or expansion of agriculture or industry.

13. To issue performance bonds or guarantee to secure the performance of the contracts funded in
foreign currency by international financial institution, provided such contractors are domestic entities,
enterprises or corporations, the majority of the capital which is owned by the citizens of the Philippines.

14. To guarantee or counter-guarantee performance bonds or guarantees issued by Philippine or foreign

banking and financial institutions, for approved contracts abroad, or for foreign currency funded
domestic contracts, in favor of Philippine contractors, provided such contractors are domestic entities,
enterprises or corporations, majority of the capital of which is owned by citizens of the Philippines.

Al-Amanah Islamic Investment Bank of the Philippines

Al-Amanah Islamic Investment Bank of the Philippines was created under Presidential Decree
No. 246 for the purpose of promoting and accelerating the socio-economic growth and development of
Mindanao, particularly the economically depressed provinces of Cotabato, Lanao del Sur, Lanao del
Norte, Zamboanga del Sur, Zamboanga del Norte, and Sulu.

The bank aims to provide credit, commercial, development, and savings banking facilities at
reasonable terms, primarily to the people of Muslim provinces of Mindanao, principally the provinces of
North Cotabato, Maguindanao, Sultan Kudarat, Lanao del Sur, Lanao del Norte, Sulu, Basilan,
Zamboanga del Norte, Zamboanga del Sur, and Palawan, for the establishment, acquisition,
development, and expansion of agricultural, commercial, and industrial enterprises thereat.

The operation of the bank is based on the Islamic concept of banking following the no-interest
and partnership principles. The bank’s authorized capital stock is P100 million, divided into 1,000,000
shares with a par value of P100 per share. (The latest authorized capital stock is P1 billion, divided into
P10 million shares with a par value of P100 per share.)

No director, stockholder, or employee of any other bank is eligible as member of the board of
directors of AAIIBP. Also, no full-time appointive or elective public official shall at the same time serve as
officer, director, legal counsel or consultant of the bank, expect in cases where such service is in the
exercise or the stockholder’s right, of the government, or is incident to the financial assistance provided
by the government, its agencies or instrumentalities.
Corporate powers. The AAIIBP has the following corporate powers:

1. To prescribe its by-laws.

2. To adopt, alter, and use a corporate seal.

3. To make contracts, to sue and be sued.

4. To accept savings and time deposits, and open current/checking accounts.

5. To borrow money, to own real or personal property and to sell, mortgage or otherwise dispose of the
same.

6. To employ such officers and personnel, preferably from the Muslim population in Mindanao and
Palawan as maybe necessary to carry its business.

7. To establish such branches and agencies in the dominantly Muslim provinces in Mindanao and
Palawan, and such other correspondent officers in other areas as may be necessary for the proper
conduct of its business.

8. To grant loans for the establishment, acquisition, development and expansion of any agricultural,
commercial and/or industrial enterprises, including public utilities, mining, livestock and poultry and
fishing, whether offshore or inland.

9. To invest in equities of allied undertakings which pertinent laws and the Bangko Sentral may
authorize.

10. To carry in trust business in accordance with the laws, rules and regulations governing trust
corporations.

11. To issue bonds, debentures, securities, collaterals and/or the renewal or refinancing of the same, to
be used by the bank in its lending operations for industrial and agricultural projects that will promote
the economic development of the region.

12. To exercise such incidental powers as may be necessary to carry on its business, and to exercise
further the general powers mentioned in the Corporate Code and the General Banking Act, insofar, as
they are not inconsistent with the law creating PAB.

Loans and Investments. PAB is authorized –

1. To purchase or discount promissory notes, drafts, and bills of exchange issued or drawn for
agricultural, commercial or industrial purposes, with securities required by the bank, or the proceeds of
which will be used for such purposes.

2. To grant loans or to discount noted secured by harvested or stored crops.

3. To grant loans to agriculturist on installment, for the propagation of standing crops considered natural
products of the Philippines, such as rice, corn, copra, sugar and tobacco.

4. To grant loans to provincial, city, and municipal governments and to any other branch or subdivision
of the Republic of the Philippines, on promissory notes guaranteed by the national, government, or to
purchase bonds lawfully issued by such provincial city, and municipal governments and other branches
of the government.

5. To grant loans to cooperative associations against the security of acceptable assets of the association
and/or the individual members thereof.

6. To grant loans to small farmers, merchants and traders against the security of land without Torrens
titles, subjects to existing laws, rules and regulations on the matter.

7. To grant loans to employees in the government service or in private industry, and to acquire stocks in
corporations and industries, subject to existing laws, rules and regulations on the matter.

8. To rediscount paper with the Bangko Sentral, PNB, or other banks, including their branches or
agencies.

9. To make advances or discounts paper for agricultural, manufacturing, industrial or commercial

purposes.

Miscellaneous Matters

These government banks are subject to various requirements of law which are generally
applicable to government offices and banking institutions, such as the following:

1. The transactions of government banks are subject to audit by representative of the Commission on
Audit.

2. The recruitment and employment of their officers and operating personnel, subject to certain
exceptions, are governed by existing civil rules and regulations.

3. Like private banking institutions, these government banks are subject to the supervision and
regulation of the Central Bank for which they pay the required fees for the purpose.

4. In the conduct of their day-to-day business, the Bangko Sentral requires, in addition to meeting the
goals and objectives of the respective charters, that their operations should be geared towards the
nation objectives desired to be attained under the various economic development programs of the
government.