Digital Bank License in the Philippines: Requirements and Capital Rules

A digital bank in the Philippines must be authorized by the Bangko Sentral ng Pilipinas (BSP) before it can operate. No person or entity may engage in banking operations without authority from the BSP, and the determination of whether an entity is performing banking functions without that authority is decided by the Monetary Board. The licensing path runs through the Monetary Board, which may authorize the organization of a bank only if the entity is a stock corporation, its funds are obtained from the public (20 or more persons), and it meets the minimum capital prescribed for its category.

What the law says about organizing a bank

Section 6 of the General Banking Law of 2000 (Republic Act No. 8791) provides that no person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral. Once authority is issued, the entity may commence banking operations and continue unless the authority is surrendered, revoked, suspended, or annulled.

Section 8 governs organization. The Monetary Board may authorize the organization of a bank subject to three conditions:

• The entity is a stock corporation;
• Its funds are obtained from the public, meaning 20 or more persons; and
• The minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied.

Under the same section, the bank licensing process must incorporate an assessment of the bank's ownership structure, directors and senior management, operating plan and internal controls, and its projected financial condition and capital base.

How digital banks fit the classification of banks

Section 3.2 of the General Banking Law classifies banks into universal banks, commercial banks, thrift banks, rural banks, cooperative banks, Islamic banks, and other classifications of banks as determined by the Monetary Board. A digital bank is licensed under that last, catch-all classification — the Monetary Board's authority to create new bank categories is what allows the BSP to recognize digital banks as a distinct type with its own requirements.

The licensing steps, in order

1. Incorporate a stock corporation. The entity must be organized as a stock corporation, with the required capital and ownership structure in place.
2. Obtain the Monetary Board's authority to organize. The Monetary Board evaluates the ownership structure, directors and senior management, operating plan, internal controls, and projected financial condition and capital base.
3. Secure the certificate of authority to register. Under Section 14, the Securities and Exchange Commission shall not register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the Monetary Board under its seal. That certificate is issued only if the Monetary Board is satisfied that all legal requirements have been complied with, that public interest and economic conditions justify the authorization, and that the capital, financing, organization, direction, administration, and the integrity and responsibility of the organizers reasonably assure the safety of deposits and the public interest.
4. Register with the SEC. With the certificate of authority in hand, the articles of incorporation may be registered. The SEC likewise cannot register the by-laws, or any amendment, without a certificate of authority from the Bangko Sentral.
5. Comply with continuing requirements. Once operating, the bank is subject to BSP supervision, including examination, reporting standards, and capital rules.

Capital and governance requirements

The General Banking Law does not fix a single peso figure for digital banks; Section 8.3 leaves the minimum capital requirements to the Monetary Board for each category of banks. Applicants must therefore confirm the current prescribed capital for the digital bank category with the BSP before filing.

Governance requirements apply across bank categories. Under Section 15, a bank's board of directors must have at least five and a maximum of fifteen members, two of whom must be independent directors. Section 16 empowers the Monetary Board to prescribe, pass upon, and review the qualifications and disqualifications of bank directors and officers, and to disqualify those found unfit — regard being given to integrity, experience, education, training, and competence.

Foreign ownership is capped: under Section 11, foreign individuals and non-bank corporations may own or control up to 40 percent of the voting stock of a domestic bank.

Ongoing obligations after licensing

A licensed digital bank does not stop complying at the point of approval. The BSP's supervisory powers under Section 4 include issuing rules of conduct, conducting examinations, overseeing compliance with laws and regulations, and enforcing prompt corrective action. Banks must also maintain an effective reporting system: under the Manual of Regulations for Banks, reports submitted to the Bangko Sentral must be complete, accurate, consistent, reliable, and timely, and the Board and Senior Management are responsible for implementing that system.

Frequently asked questions

Can a foreign company fully own a digital bank in the Philippines? No. Under Section 11 of the General Banking Law, foreign individuals and non-bank corporations may own or control up to 40 percent of the voting stock of a domestic bank.

What is the minimum capital for a digital bank in the Philippines? The General Banking Law does not set a fixed figure. Section 8.3 requires compliance with the minimum capital requirements prescribed by the Monetary Board for each category of banks, so the applicable amount is the one the BSP currently prescribes for digital banks.

Who approves a digital bank license? The Monetary Board of the Bangko Sentral ng Pilipinas. It authorizes the organization of the bank and issues the certificate of authority that the SEC requires before registering the bank's articles of incorporation.

Practical takeaways

• A digital bank needs BSP authority before operating; banking without it is subject to sanctions under the New Central Bank Act.
• The entity must be a stock corporation, must obtain funds from 20 or more persons, and must meet the Monetary Board's minimum capital for its category.
• The Monetary Board assesses ownership, directors and senior management, operating plan, internal controls, and projected financial condition before granting authority.
• The SEC cannot register a bank's articles of incorporation or by-laws without a certificate of authority from the Monetary Board.
• Foreign ownership of a domestic bank is capped at 40 percent of voting stock.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• BANGKO SENTRAL NG PILIPINAS, June 27, 2017

• REPUBLIC ACT NO. 8791 - AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 11689 - AN ACT REVISING THE CHARTER OF THE CITY OF BAGUIO

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.