NINETEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
]
SENATE
S.B. No. 1147
M Senate
0? tljp
’22 AUG 15 A 9 36
RKCEIVEO BY:
Introduced by SEN. WIN GATCHALIAN
AN ACT
AUTHORIZING LOCAL GOVERNMENT UNITS 
TO ENGAGE IN BANKING ACTIVITIES AND OTHER FINANCIAL 
TRANSACTIONS WITH PRIVATE UNIVERSAL AND/OR COMMERCIAL
BANKS
EXPLANATORY NOTE
While local government units (LGUs) are empowered under the Local 
Government Code to create indebtedness, and avail of credit facilities to 
finance local infrastructure and other socio-economic projects, existing 
Department of Finance (DOF) Circulars1 limit its ability to deposit and 
maintain government funds with qualified Government Financial Institutions 
(GFIs) and banks such as the Land Bank of the Philippines, Development 
Bank of the Philippines, Philippine Postal Savings Bank, A1 Amanah Islamic 
Investment Bank of the Philippines, United Coconut Planters Bank, and the 
Philippine Veterans Bank.
LGUs are only allowed to transact with private Universal and 
Commercial Banks (UCBs) if the following circumstances exist: (1) the 
aforementioned six (6) GFIs and banks cannot provide the required banking 
products and services; (2) the six (6) GFIs and banks, or their collection
1 Department of Finance Circular No. 01, Series of 2017, dated May 11, 2017, amending 
Department Circular No. 001, Series of 2015, dated June 1, 2015.


facilities, are not accessible within a twenty (20) - kilometer radius; or (3) there 
are security and safety risks. If any of these circumstances exists, the LGUs 
must likewise comply with procedural requirements to avail of the exemption 
to transact with private UCBs. They have to undergo layers of paperwork that 
are too bureaucratically restrictive and detrimental to innovative practices 
and causing delay in the delivery of local public services.
More importantly, LGUs are prevented from benefitting from better 
banking and financial services that can be expected from GFIs if there is 
competition from private UCBs. Note that 43,6182 LGUs serve as a captive 
market for these six (6) GFIs and banks wherein for the first half of 2020 
alone, the LGUs’ domestic loan applications for approval by the Monetary 
Board amounted to Php 25.1 Billion.3 This captive-market paradigm 
theoretically restricts innovation in products and processes of these GFIs and 
banks, as against UCBs which compete in an open market. GFIs tend to offer 
less competitive and innovative products, technology-innovations, and 
services, to the detriment of their primary client: the LGUs and their 
constituencies.
Accordingly, this measure primarily seeks to provide the LGUs with 
authority and power of choice in selecting the banks which offer the best 
financial products, technology, and services for their constituents. Even with 
the passage of this measure, the LGUs, nonetheless, can still be subjected to 
the existing DOF and BSP rules and regulations in terms of their banking 
transactions to align with national monetary and fiscal policies. The passage
of this bill is thus earnestly sought to implement a more/genmine local fiscal 
autonomy. 
/ 
/
m GATCHALIAN
2 https://www.dbm.gov.ph/index.php/secretary-s-corner/press-releases/list-of-press- 
releases /1327-fy-2019-internal-revenue-allotment-shares-of-lgus-adjusted-to-include- 
15-new-barangays
3 https://business.inquirer.net/310259/bsp-oks-more-loans-in-q3-for-governments- 
pandemic-response


NINETEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session
]
SENATE
S.B. No1147
Senate
of tijc ^rrr?tar2>
’22 AUG 15 A 9 37
Rl-CEIVcOSV
Introduced by SEN. WIN GATCHALIAN
AN ACT
AUTHORIZING LOCAL GOVERNMENT UNITS 
TO ENGAGE IN BANKING ACTIVITIES AND OTHER FINANCIAL 
TRANSACTIONS WITH PRIVATE UNIVERSAL AND/OR COMMERCIAL
BANKS
Be it enacted by the Senate and the House of Representatives of the 
Philippines in Congress assembled:
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SECTION 1. Short Title. - This Act shall be known as the “LGU
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Authority to Bank Act”
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SEC. 2. Declaration of Policy. - It is a declared policy of the State to
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ensure that local government units enjoy genuine and meaningful local
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autonomy to enable them to attain their fullest development as self-reliant
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communities and make them more effective partners in the attainment of
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national development goals.
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As part of the government’s efforts to strengthen local autonomy, fiscal
10 
responsibility shall be shared by the national government with the local
11 
government units. Thus, all those currently exercising authority over the
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financial affairs, transactions, and operations of the local government units
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shall continue developing innovative programs to strengthen the fiscal


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autonomy of local government units and further wean them off their 
traditional dependence on the national government for fund support.
Towards this end, the State recognizes the indispensable role of the 
private banking sector in developing and introducing innovative products and 
services that LGUs may use to attain their full potential.
SEC. 3. Definition of Terms. - For purposes of this Act, the following 
terms shall be defined as follows:
a) “Universal Banhf’ shall refer to an entity engaged in the lending of 
funds obtained in the form of deposits and has the authority to 
exercise, in addition to the powers authorized for a commercial bank 
as defined in Sec. 3(b) of this Act, the powers of an investment house 
as provided in existing laws, the power to invest in non-allied 
enterprises as provided in Republic Act No. 8791 or the General 
Banking Act of 2000, and under the Bangko Sentral ng Pilipinas 
Manual of Regulations of Banks (BSP MORB), the power to own up 
to one hundred percent (100%) of the equity in a Thrift Bank, a Rural 
Bank, a financial allied enterprise, or a non-financial allied 
enterprise, and in case of publicly-listed UBs, the power to own up to 
100% of the voting stock of only one (1) other Universal Bank or 
Commercial Bank.
b) “Commercial Banl^’ shall refer to an entity engaged in the lending of 
funds obtained in the form of deposits and 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 
evidences 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. These rules may 
include the determination of bonds and other debt securities eligible


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for investment, the maturities and aggregate amount of such
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investment. Commercial Banks, as provided for under the BSP-
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MORB, may also exercise or perform any or all of the following: (a)
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invest in the equities of allied enterprises as provided in Sections 31
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and 32 of R.A. No. 8791; (b) purchase, hold and convey real estate as
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specified under Sections 51 and 52 of R.A. No. 8791; (c) receive in
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custody funds, documents and valuable objects; (d) act as financial
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agent and buy and sell, by order of and for the account of their
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customers, shares, evidences of indebtedness and all types of
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securities; (e) make collections and payments for the account of
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others and perform such other services for their customers as are not
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incompatible with banking business; (f) upon prior approval of the
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Monetary Board, act as managing agent, adviser, consultant or
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administrator of investment management/advisory/consultancy
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accounts; (g) rent out safety deposit boxes; and (h) engage in quasi-
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banking functions.
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c) '‘Government Financial Institution” (GFI) shall refer to financial
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institutions or corporations in which the government directly or
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indirectly owns majority of the capital stock and which are either: (1)
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registered with or directly supervised by the Bangko Sentral ng
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Pilipinas; or are (2) collecting or transacting funds or contributions
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from the public and thereafter placing them in financial instruments
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or assets such as deposits, loans, bonds and equity, as defined under
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Section 3(m) of Republic Act no. 10149 or the GOCC Governance Act
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of 2011.
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SEC. 4. Authority of Local Government Units (LGUs) to Engage in
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Banking Activities and Other Financial Transactions with Preferred
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Private Universal Commercial Banks or Government Financial
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Institutions. - LGUs shall be authorized to engage in banking and other
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financial transactions with their preferred banking or financial institution,
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whether it is a private Universal and/or Commercial Bank (UCB), or a
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qualified Government Financial Institution (GFI); Provided that the private


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UCB has a high compliance rating as set by the Bangko Sentral ng Pilipinas 
(BSP).
SEC. 5. Provision of a Regulatory Framework. - The Department of 
Finance (DOF), through the Bureau of Local Government Finance (BLGF), and 
the BSP, independently or jointly, shall provide for the regulatoiy framework 
under which LGUs shall be authorized to enter into banking and other 
financial transactions with their preferred UCB or GFI, in compliance with the 
declared policies of this Act.
SEC. 6. Implementing Rules and Regulations. - The DOF, assisted 
by the BLGF, and the BSP shall issue rules and regulations as may be 
necessaiy to implement the provisions of this Act within ninety (90) days from 
its effectivity.
SEC. 7. Separability Clause. - If any part, section or provision of this 
Act is declared invalid or unconstitutional, the other parts thereof not affected 
thereby shall remain in full force and effect.
SEC. 8. Repealing Clause. - All laws, acts, presidential decrees, 
executive orders, administrative orders, rules and regulations, or parts 
thereof inconsistent with or contrary to the provisions of this Act are hereby 
modified, amended, or repealed accordingly.
SEC. 9. Effectivity Clause. - This Act shall take effect fifteen (15) days 
after its publication in the Official Gazette or in a newspaper of general 
circulation.
Approved,