CHAPTER ONE: BANK AND THE BUSINESS OF BANKING

I.
Declared Policy of the State. Read Section 2 of Republic Act 8791 (General Banking
Law of 2000)
II.
Definition of Banks.
a. Banks are defined under the GBL as entities engaged in the lending of funds
obtained in the form of deposits. (Note: banks may engage in other activities
allowed by law)
b. Other definitions: (I only included two out of the four given by Dizon)
i. Moneyed institute founded to facilitate the borrowing, lending and safekeeping of money and to deal, in notes, bills of exchange, and credits.
ii. An investment company which loans out the money of its customers,
collects the interest and charges a commission to both the lender and
borrower, is a bank.
III. Nature of the Banking Business.
a. Debtor-Creditor Relationship. Read Article 1980 of the Civil Code of the
Philippines. The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. The bank is the debtor and the
depositor is the creditor.
b. Fiduciary Duty. Banks are required to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Thus, the banks fiduciary duty
imposes upon it a higher level of accountability.
c. Not a Trust Agreement. The fiduciary nature of banking does not convert the
contract between the bank and its depositors from a simple loan to a trust
agreement, whether expressed or implied. The law simply imposes on the bank a
higher standard of integrity and performance in complying with its obligations
under the contract of simple loan, beyond those required of non-bank debtors under
a similar contract of simple loan. The law allows the banks to offer the lowest
possible interest rate to depositors while charging the highest possible interest rate
on their own borrowers
d. Indispensible Institution. Banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude, and most
of all, confidence.
e. Impressed with Public Trust. The business of banking is imbued with public
interest. The stability of the banks largely depends on the confidence of the people
in the honesty and efficiency of banks.
f. Degree of Diligence. The law imposes on banks high standards in view of the
fiduciary nature of banking more than that of a good father of a family. BUT the
same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with their
depositors. (Note: Diligence extends to Financial institutions)
g. Treatment of Accounts with Meticulous Care. BUT there is no law mandating
banks to call up their clients whenever their representatives withdraw significant
amounts from their accounts.
h. Duty to Keep Records. A bank has a fiduciary duty to keep efficiently a record of
its transactions with its depositors.
i. Banks are Not Gratuitous Bailees. Banks are run for gain, and they solicit
deposits in order that they can use the money for that very purpose.
j. Banks are Not Expected to be Infallible.
k. Dealing with Registered Lands.
i. Banks should exercise more care and prudence in dealing even with
registered lands, than private individuals, for their business is one affected

with public interest. Absent good faith, banks would be denied the protective
mantle of land registration statute.
ii. Banks have access to more facilities in confirming the identity of their
judgment debtors. It should act more cautiously, especially if some
uncertainty had been reported by the appraiser tasked to make verifications.
The uncertainty should not be treated as flimsy matter.
iii. Case 1: The act of X Bank of entrusting to C the owners duplicate
certificate entrusted to it by A without even notifying A and absent any prior
investigation on the veracity of Cs claim and character is a patent failure to
foresee the risk created by the act.
iv. Case 2: A bank which accepted a property as mortgage despite the existence
of structures and occupants other than the mortgagor showed the banks
negligence.
v. Case 3: Thus, while it is true, x x x that a person dealing with registered
lands need not go beyond the certificate of title, it is likewise a well-settled
rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard, and claim that he acted in good
faith under the belief that there was no defect in the title of the vendor or
mortgagor.
l. Banks may Exclude Persons in their Premises. Banks may impose reasonable
conditions or limitations to access by non-employees to its premises and records,
such as the exclusion of non-employees from the working areas for employees,
even absent any imminent or actual unlawful aggression on or an invasion of its
properties or usurpation thereof, provided that such limitations are not contrary to
the law.
m. Charging of Interest for Loans. The charging of interest for loans forms a very
essential and fundamental element of the banking business. In fact, it may be
considered to be the very core of the bankings existence or being.
IV.

Liability for Acts of Officers and Employees

- degree of responsibility, care and trustworthiness expected on banks employees
and officials-greater than those ordinary clerks and employees

**Banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees:
1. exercise high standard of performance and insure that its employees will do
likewise.
2. bank is liable for the wrongful acts of its officers done in the interest of the
bank or in their dealins as bank representatives but not for the acts outside the
scope of their authority.
A. Negligence of a Manager
-bank is liable for the negligence or the misdeed of its branch manager
B. Negligence of Officers
GEN RULE: a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment
- if a corporation knowingly permits its officers, or any other agent, to perform acts
within the scope of apparent authority- be estopped from denying such authority.
C. Negligence of Tellers
- high degree of diligence in insuring that they return the passbook only to the depositor
or his authorized authority. Failure to do so, they will clothe that unauthorized person

presumptive ownership of the passbook, facilitating unauthorized withdrawals by that

person.
- NOTE: appropriation of money by a teller is not estafa since juridical possession
remains with the bank; teller only material possession(felony: qualified theft- abuse
of confidence)
D. Right to Recover from Employees
- banks may recover from its employees for any payments made in view of the latters
negligent or criminal acts
E. Liability for Damages
- concurrence of injury to the plaintiff and legal responsibility by the person causing it
- to award tort damages- an individual must be injured in the contemplation of law; thus
there must be breach before damages may be awarded and the breach of duty should be
the proximate cause of the injury.
1. Actual and Compensatory Damages
a. when the obligation is breached- consists in the payment of a sum of money, i.e.
loan or forbearance then the interest due would be that which may have been stipulated in
writing. The interest due itself shall earn legal interest from the time it is judicially
demanded= 12% per annum to be computed from default.
b. not constituting a loan or forbearance an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum.
c. when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest whether the case falls under (a) or (b), shall be 12%
per annum from such finality until satisfaction.
2. Exemplary Damages
- law allows this by way of example for the public good
3. Moral Damages
GEN RULE- corporation (artificial being) is not entitled to moral damages
BUT- for breach of fiduciary duty required of a bank, a corporate client may claim
such damages when its good reputation is besmirched by such breach, asn social
humiliation results therefrom.
F. Respondeat Superior, Diligence in the Selection and Supervision of Employees
A bank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the
selection and supervision of emnployees is NOT a complete defense in culpa contractual,
unlike in culpa aquiliana.
1.) Whose authority is needed in order for an entity to engage in banking or quasi-banking
functions?
Bangko Sentral
2.) What agency of the government determines whether an entity or person is performing
banking or quasi-banking functions without authority from the Bangko Sentral? How?
Monetary Board. The board through the supervision of the BSP examine, inspect, or
investigate the books and records of such person or entity.
Note: Existence of a victim actually injured is not necessary in determining whether an
entity is engaged in illegal banking.
3.)What is the scope of the authority of the Supervising and Examining Department?

a.) to administer oath to any such person, employee, officer or director of any such entity.
b.) to compel the presentation or production of such books, documents, papers or records
that are reasonably necessary to ascertain the facts relative to the true functions and
operations of such person or entity.
4.) What is the extension of the examining powers?
The BSP shall also have the authority to examine an enterprise which is wholly or majorityowned or controlled by the bank that is under examination.(this additional authority is available
only when the subject is a bank.)
5.) What is the Certificate of Authority to Register?
It is a certificate issued by the Monetary Board, which is an indispensable requirement
when registering articles of incorporation with the Securities and Exchange Commission.
6.) What are the requirements for the issuance of such certificate?
Evidence showing that:
1.) all requirement of existing laws and regulations to engage in business are complied
with.
2.) the public interest and economic conditions, both general and local justify the
authorization
3.) the amount of capital, the financing, organization, direction, and administration, as
well as the integrity of the organizers and administrators reasonably assure the safety of
deposits and the public interest.
7.)How may summons be served to a bank?
a.) Sec. 11. Service upon domestic private juridical entity.
When the defendant is a corporation, partnership or association organized under the laws
of the Philippines with a juridical personality, service may be made on the president,
managing partner, general manager, corporate secretary, treasurer, or in-house counsel.
(Rule 14, Section 11 of the Rules of Court.)
b.) Sec. 12. Service upon foreign private juridical entity.
When the defendant is a foreign private juridical entity which has transacted business in
the Philippines, service may be made on its resident agent designated in accordance with
law for that purpose, or, if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines. (Sec. 12.
Rule 14)
8.) Strict compliance is necessary with the mode of service to confer jurisdiction of the court
over a corporation. The officer upon whom service is served must be one who is named in the
statutes; otherwise, the service is insufficient. What is the purpose of this rule?
To render reasonably certain that the corporation receive will prompt and proper notice
in an action against it.

Note: Service of summons on a bank manager is invalid.

A case should not be dismissed simply because an original summons was wrongfully done.
It is not pertinent whether the summons is designated as an original or an alias summon as long
as it has adequately served its purpose.
CHAPTER 2: ORGANIZATION MANAGEMENT AND ADMINISTRATION OF BANKS,
QUASI-BANKS AND TRUST ENTITIES
(provision halos to kc ganun din un book parang codal)
ORGANIZATION
Conditions: (SPC)
That the entity is a stock corporation
That its funds are obtained from the public , which shall mean 20 or more persons
That the minimum capital requirements prescribed by the monetary board for each category
of banks are satisfied
Capabilities:
In terms of financial resources and technical expertise and integrity
Licensing process shall incorporate and accessment of
1. The banks ownership structure
2. Directors and senior management
3. Its operation plan, and
4. Internal controls, as well as
5. Its projected financial condition and capital base
Capital Requirements
Required minimum capital (prescribed by the monetary board)
TYPE OF BANK

AMOUNT
(Million)
4950
2400

Universal
commercial
Thrift
Head office in manila
325
Head office outside Mla 52
Rural
Within Mla
26
Cities of cebu and 13
davao
1st, 2nd, 3rd class cities 6.5
and
1st
class
municipalities
4th, 5th, 6th class cities 2.6
and 2nd, 3rd, 4th class
municipalities
At least 25% of the toal authorized capital stock shall be subscribed by the subscribers of the
proposed bank, and at least 25% of such subscription shall be paid up, provided that in no
case shall the paid-up capital be less than the minimum required capital stated above. ~Sec
13 Corporation Code
Incorporators/ Subscribers

Incorporators
/Subscribers
&
Proposed Directors
Must be persons of
integrity and of good
credit standing in the
business community

Subscribers
Must
have
adequate financial
strength to pay for
their
proposed
subscription
in
bank

Must not have been

convicted of any crime
involving
moral
turpitude, not officers
or
employees
of
government
agency
charged
with
supervision of loan
A bank may be organized with not less than 5 nor more than 15 incorporators
In excess of 15, to be listed among original subscribers in Articles of incorporation
Branches
Universal and commercial within ot outside Philippines upon prior approval by BSP
All other banks governed by pertinent laws
A bank authorized to establish branches or other offices shall be responsible for all
business conducted in such branches and offices to the same extent and in the same
manner as though such business had all been conducted in the head office.
Bank + branches + other offices = 1 unit
STOCKHOLDINGS
Treasury Stocks
GBL provides no bank shall:
1. Purchase or acquire shares of its own capital stock; or
2. Accept its own shares as a security for a loan EXCEPT WHEN AUTHORIZED BY
MONETARY BOARD > stock purchased shall be sold within 6 months from time of
purchase
At common law, a corporation has no lien upon the shares of stockholders for any
indebtedness to the corporation and there is no statute creating such lien.
Foreign Stockholdings
GBL provides
Foreign individuals and non-bank corporations may own or control up to 40% of the voting
stock of a domestic bank. > apply to Filipino and domestic non-bank corporations
The percentage of foreign-owned voting stocks in a bank shall be determined by the
citizenship of the individual stockholders in that bank.
Controlling stockholders individuals holding more than 50% of the voting stock of the
corporate stockholders of the bank
Voting stock: commercial 60%; thrift 40%; rural bank fully owned and held by Filipino
Determining nationality of bank control test is applied
Acquisition of Voting Stock in a Domestic Bank

GBL provides:
Sec. 73. Acquisition of Voting Stock in a Domestic Bank. Within seven (7) years from the
effectivity of this act and subject to guidelines issued pursuant to the Foreign Banks
Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one
hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of
the Republic of the Philippines.
Within the same period, the Monetary Board may authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the
voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to
further acquire voting shares such bank to the extent necessary for it to own one hundred
percent (100%) of the voting stock thereof.
In the exercise of the authority, the Monetary Board shall adopt measures as may be necessary
to ensure that at all times the control of seventy percent (70%) of the resources or assets of the
entire banking system is held by banks which are at least majority-owned by Filipinos.
Any right, privilege or incentive granted to a foreign bank under this Section shall be equally
enjoyed by and extended
Family Groups or Related Interest
Sec.12. Stockholdings of Family Groups of Related Interests. Stockholdings of individuals
related to each other within the fourth degree of consanguinity or affinity, legitimate or
common-law, shall be considered family groups or related interests and must be fully disclosed
in all transactions by such corporations or related groups of persons with the bank. .
Sec. 13. Corporate Stockholdings. - Two or more corporations owned or controlled by the same
family group or same group of persons shall be considered related interests and must be fully
disclosed in all transactions by such corporations or related group of persons with the bank.
BOARD OF DIRECTORS
Number of Directors
There shall be at leasr 5 and maximum of 15 members of board of directors of bank, 2 of
whom shall be independent directors
Corporation Code: Sec. 10. Number and qualifications of incorporators. - Any number of
natural persons not less than five (5) but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may form a private corporation for any
lawful purpose or purposes. Each of the incorporators of s stock corporation must own or be
a subscriber to at least one (1) share of the capital stock of the corporation.
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.
Independent director a person other than an officer or employee of the bank, it subsidiaries
or affiliates or related interests
Specific qualifications on independent director (see banking book page 58)
Directors of Merged or Consolidated Banks
Number of directors must not exceed 21
Meetings
May be conducted through modern technologies

 Within Philippines must be stated in by laws

Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them by
law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of corporate business, and
every decision of at least a majority of the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
Compensation and other Benefits of Directors and Officers
Sec. 18. Compensation and Other Benefits of Directors and Officers. To protect the finds of
depositors and creditors the Monetary Board may regulate the payment by the bark to its
directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing
and fringe benefits only in exceptional cases and when the circumstances warrant, such as but
not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or
unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial
condition.
FIT AND PROPER RULE
Powers of the Monetary Board
Sec. 16. Fit and Proper Rule. - To maintain the quality of bank management and afford better
protection to depositors and the public in general the Monetary Board shall prescribe, pass upon
and review the qualifications and disqualifications of individuals elected or appointed bank
directors or officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits or omits an act which render him
unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director or
officer of a bank, regard shall be given to his integrity, experience, education, training, and
competence.
Disqualifications
Circular 513 series of 2006 (see book p 61)
Corporation Code

o Sec. 27. Disqualification of directors, trustees or officers. - No person convicted by final

judgment of an offense punishable by imprisonment for a period exceeding six (6) years,
or a violation of this Code committed within five (5) years prior to the date of his election
or appointment, shall qualify as a director, trustee or officer of any corporation.
NCBA Provision- Sec 9 and 27 (see book p 65)
PIDC law sec 17 (p67)
RA 7353 sec 5 (p67)
Appendix 38, Manual of Regulations of Banks Sec. 10 (p67)

Prohibition on Public Officials (RA 7353)

Sec. 5. All members of the Board of Directors of the rural bank shall be citizens of the
Philippines at the time of their assumption to office: Provided, however, That nothing in this Act
shall be construed as prohibiting any appointive or elective public official from serving as
director, officer, consultant or in any capacity in the bank.
BANKING DAYS AND HOURS
Sec. 21. Banking Days and Hours. Unless otherwise authorized by the Bangko Sentral in the
interest of the banking public, all banks including their branches and offices shall transact
business on all working days for at least six (6) hours a day. In addition, banks or any of their
branches or offices may open for business on Saturdays, Sundays or holidays for at least three
(3) hours a day: Provided, That banks which opt to open on days other than working days shall
report to the Bangko Sentral the additional days during which they or their branches or offices
shall transact business.
For purposes of this Section, working days shall mean Mondays to Fridays, except if such
days are holidays.
Rules and Regulations
Circular 500 (See book page 69)
AUTOMATED TELLER MACHINES
Off-site ATMs
Conditions:
1. Submit report to appropriate department of BSP
2. Installed only in center of activity > adequate internal control and security measures shall
be adopeted and submitted to BSP
3. Only banks which have shown general compliance
Mobile ATMs
Conditions:
1. Visit only centers of activity confined within Manila
2. Secure insurance coverage or self-insurance scheme
3. Inform BSP of actual date a Mobile ATM becomes operational
Independent Auditor
Sec. 58. Independent Auditor. - The Monetary Board may require a bank, quasi-bank or trust
entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or
trust entity concerned from a list of certified public accountants acceptable to the Monetary
Board. The term of the engagement shall be as prescribed by the Monetary Board which may
either be on a continuing basis where the auditor shall act as resident examiner, or on the basis
of special engagements; but in any case, the independent auditor shall be responsible to the
banks, quasi-banks or trust entitys board of directors. A copy of the report shall be furnished

to the Monetary Board. The Monetary Board may also direct the board of directors of a bank,
quasi-bank, trusty entity and/or the individual members thereof; to conduct, either personally or
by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or
trust entity to review the internal audit and control system of the bank, quasi-bank or trust entity
and to submit a report of such audit
Financial Statements
Sec. 60. Financial Statements. Every bank, quasi-bank or trust entity shall submit to the
appropriate supervising and examining department of the Bangko Sentral financial statements
in such form and frequency as may be prescribed by the Bangko Sentral. Such statements,
which shall be as of a specific date designated by the Bangko Sentral, shall show thee actual
financial condition of the institution submitting the statement, and of its branches, offices,
subsidiaries and affiliates, including the results of its operations, and shall contain such
information as may be required in Bangko Sentral regulations.
SEC 61. Publication of Financial Statements. - Every bank, quasi-bank or trust entity, shall
publish a statement of its financial condition, including those of its subsidiaries and affiliates, in
such terms understandable to the layman and in such frequency as may be prescribed Bangko
Sentral, in English or Filipino, at least once every quarter in a newspaper of general circulation
in the city or province where the principal office, in the case of a domestic institution or the
principal branch or office in the case of a foreign bank, is located, but if no newspaper is
published in the same province, then in a newspaper published in Metro Manila or in the nearest
city or province.
The Bangko Sentral may by regulation prescribe the newspaper where the statements prescribed
herein shall be published. .
The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or
trust entity in public places it may determine, lieu of the publication required in the preceding
paragraph, when warranted by the circumstances.
Additionally, banks shall make available to the public in such form and manner as the Bangko
Sentral may prescribe the complete set of its audited financial statements as well as such other
relevant information including those on enterprises majority-owned or controlled by the bank,
that will inform the public of the true financial condition of a bank as of any given time. .
In periods of national and/or local emergency or of imminent panic which directly threaten
monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its
members, in special cases and upon application of the bank, quasi-bank or trust entity, may
allow such bank, quasi-bank or trust entity to defer for a stated period of time the publication of
the statement of financial condition required herein.
Sec. 62. Publication of Capital Stock. A bank, quasi-bank or trust entity incorporated under
the laws of the Philippines shall not publish the amount of its authorized or subscribed capital
stock without indicating at the same time and with equal prominence, the amount of its capital
actually paid up.
No branch of any foreign bank doing business in the Philippines shall in any way announce the
amount of the capital and surplus of its head office, or of the bank in its entirety without
indicating at the same time and with equal prominence the amount of the capital, if any,
definitely assigned to such branch, such fact shall be stated in, and shall form part of the
publication.
Sec. 63. Settlement of Disputes. The provisions of any law to the contrary notwithstanding, the
Bangko Sentral shall be consulted by other government agencies or instrumentalities in actions
or proceedings initiated by or brought before them involving controversies in banks, quasi-

banks or trust entities arising out of and involving relations between and among their directors,
officers or stockholders, as well as disputes between any or all of them and the bank, quasi-bank
or trust entity of which they are directors, officers or stockholders.
Sec. 22. Strikes and Lockouts. - The banking industry is hereby declared as indispensable to the
national interest and, notwithstanding the provisions of any law to the contrary, any strike or
lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the
Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the dispute or
decide it or certify the same to the National Labor Relations Commission for compulsory
arbitration. However, the President of the Philippines may at any time intervene and assume
jurisdiction over such labor dispute in order to settle or terminate the same.
Reports of Strikes and Lockouts
Apprise deputy governor of the supervision and examination sector of BSP
Disclose: cause and bank managements position on its legality; and bank operations
affected
Laws governing other types of banks
Sec. 71. Other Banking Laws. The organization, the ownership and capital requirements,
powers, supervision and general conduct of business of thrift banks, rural banks and cooperative
banks shall be governed by the provisions of the Thrift Banks Act, the Rural Banks Act, and the
Cooperative Code, respectively.
The organization, ownership and capital requirements, powers, supervision and general
conduct of business of Islamic banks shall be governed by special laws.
The provisions of this Act, however, insofar as they are not in conflict with the provisions of
the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise apply to
thrift banks, rural banks, and cooperative banks, respectively. However, for purposes of
prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk
assets, the provisions of Section 33 of this Act shall govern.
Chapter 3: Deposit Functions of Banks
I. Kinds of Deposits.
A. Demand Deposits.
- demand deposits all those liabilities of the BSP and of other banks which are denominated in
Philippine currency and are subject to payment in legal tender upon demand by the presentation
of depositors checks.
- A Universal and Commercial Bank may accept or create demand deposits subject to
withdrawal by check without prior authority from the BSP.
- A Thrift/Rural/Cooperative Bank may accept or create demand deposits upon prior authority
from the BSP.
1. Temporary Overdrawings; Drawings against Uncollected Deposits.
- temporary overdrawings against current account shall not be allowed, unless caused by normal
bank charges and other fees incidental to handling such accounts.
- technical overdrawings arising from force posting in clearing checks shall be debited by
banks under Returned Checks and other Cash Items Not In Process of Collection which is

part of other assets. Checks lodged under Returned Checks etc shall either be returned or
honored the following day before clearing. The items to be used as cover for the honored checks
should be limited to the following:
a. Cash;
b. Cashiers/Managers/Certified Checks;
c. bank drafts;
d. postal money orders;
e. treasury warranties;
f. duly funded on us checks; and
g. fund transfers/credit memos within the same bank representing proceeds of loans granted
under existing regulations.
- drawings against uncollected deposits shall be prohibited except when made against
uncollected deposits representing managers, cashiers or treasurers checks, treasury warrants,
postal money orders and duly funded on us checks which may be permitted at the discretion
of each bank.
2. Current Accounts of Bank Officers and Employees
- The following bank officers and employees are prohibited from maintaining demand deposits
or current accounts with the banking office in which they are assigned.
a. All officers;
b. employees of the banks cash departments/cash units.
c. other employees who have direct and immediate responsibility in the handling of transactions
and/or records pertaining to demand deposits or current accounts.
d. the spouses and relatives within the second degree of consanguinity and affinity of the
officers and employees covered by the prohibition.
e. business interests of all the above mentioned wherein they own a majority of the stock.
3. Checks.
- A check is a bill of exchange drawn on a bank, payable on demand. It is a written order
addressed to the bank by a person having money in their hands requesting them to pay on
presentment, to a person named therein or to bearer or order a named sum of money.
- by virtue of the contract of deposit between banker and depositor, banker agrees to pay checks
drawn by the depositor provided that the depositor had money in the hands of the bank.
4. Duty of the Bank to Honor Checks.
- where that bank possesses funds of a depositor, it is bound to honor his checks to the extent of
the amount of his deposits.

- failure to do so entitles the drawer to substantial damages without any proof of actual
damages.
- a bank is not liable for its refusal to pay a check on account of insufficient funds even if
deposit may be made later in the day.
5. Responsibilities of Drawer.
- keep track of his available balance in the bank and not rely on the bank to notify him of the
necessity to fund certain checks he previously issued.
6. Duty of Banks to Know Signature
- a bank is bound to know the signatures of its customers and if it pays a forged check, it must
be considered as making the payment out of its own funds and cannot ordinarily charge the
amount to the account of the depositor whose name was forged.
7. No obligation to make partial payment
- a bank is under no obligation to make a partial payment on a check up to only the amount of
the drawers funds, where the check is drawn for an amount larger than what the drawer has on
deposit.
8. No duty to make up the deficiency from other accounts.
- where a depositor has two accounts, an open and a savings account, and draws a check upon
the open account for more than the account contains, the bank may refuse to pay the check as it
has no duty to make up the deficiency from the savings account.
9. Legal Character of Checks representing Demand Deposits.
- they do not have legal tender power and their acceptance is at the option of the creditor, unless
such check has been cleared and credited to the account of the creditor, then it shall be
equivalent to a delivery to the creditor of cash equal to that credited to his account.
B. Savings Deposits
1. Servicing deposits outside bank premises.
- banks may be authorized to solicit and accept deposits outside their bank premises subject to
conditions.
a. financial condition of the bank is sound and the operations and the quality of management
could reasonably assure the safety of the funds which may be entrusted to its deposit collectors
or solicitors.
b. proposed area is clearly defined
c. confined within a locality where there are no other banks in operation or the deposit potential
of the said locality is still untapped.
d. applicant bank shall institute then following minimum safeguards.
1. all deposit solicitors shall be bonded for at least Php 1000 subject to increase
approximate to their daily collections.

2. proper identification cards, worn at all times by the deposit solicitors

3. adequate insurance coverage for the funds in transit.
4. deposit slips in booklet form, prenumbered in triplicate copies and in three colors
original copy to the depositor, second copy for posting reference and third copy to be
retained in the booklet.
5. all collections shall be turned over to the cashier at the end of each day with a a
Collection Summary Report.
6. depositors shall always be required to accomplish a signature card when opening an
account, which shall be used in checking the authenticity of signatures.
7. transactions shall be recorded by the bookkeeper or any ledger clerk on the same day
such are accepted and the passbooks of the depositors shall be returned not later than the
following business day.
8. at end of each month, advise depositors in writing of their account balance.
9. places of assignment of bank solicitors shall be rotated at least quarterly.
2. Withdrawals
- banks are prohibited from issuing/accepting withdrawal slips or any other similar instruments
designed to effect withdrawals of savings deposits without requiring the presentation of
passbooks and accomplishment of the necessary withdrawal slips, except for banks authorized
by the BSP to adopt the no passbook withdrawal system.
- no law mandating banks to call their clients when their representatives withdraw from their
accounts.
C. Negotiable order of Withdrawal (NOW) Accounts
1. Authority to accept NOW accounts
- NOW Accounts are interest bearing deposit accounts that combine the payable on demand
feature of checks and investment feature of savings accounts.
- Universal and Commercial bansk may offer NOW accounts without prior approval of BSP
- Thrift, Rural and Commercial banks may offer the same with need of prior BSP approval
2. Rules on Servicing NOW Accounts.
a. prior or simultaneous with opening of a NOW account, bank shall inform depositor of the
terms and conditions.
b. bank shall be responsible for the proper identification of its depositors and require 2
specimen signatures and other pertinent information.
c. deposits shall be covered by deposit slips in duplicate duly validated and initialed by the
receiving teller, copy furnished to the depositor
d. NOW accounts shall be kept and maintained separately from the regular savings deposits.

e. Blank NOW forms shall be prenumbered and controlled as in the case of unissued blank
checks.
f. bank statement shall be sent to each depositor at end of month for confirmation of balances.
g. banks must use the form prescribed by present rules on NOW accounts.
D. Time Deposits
- one the payment of which cannot be legally required within a specified number of days.
1. Term of time deposits
- shall be issued for a specific period or term
2. Special time deposits.
- authority shall automatically be granted to any accredited bank which may participate in the
supervised credit program to accept speciakl time deposits from the Agrarian Reform Fund
Comission with interest at a lower rate than those allowed on time deposits.
- exempt from the legal reserve requirements
3. Certficates of Time Deposit
a. Negotiable Certificates of Time Deposit
1. Universal and Commercial bank may issue without prior authority from BSP
2. Thrift, Rural and Cooperative Bank may issue with prior approval of BSP.
b. Non-negotiable Certificates of Time Deposit
- all may issue without need of BSP approval.
E. Deposit Substitute Operations (Quasi-banking functions)
- essential elements of quasi banking
1. Borrowing funds for the borrowers own account.
2. Twenty or more lenders at any one time;
3. methods of borrowing are issuance, endorsement, or acceptance of debt instruments of
any kind, other than deposits, such as acceptances, promissory notes, participations,
certificates of assignments or similar instruments with recourse, trust certificates, repurchase
agreements, and such other instruments as the Monetary Board may determine; and
4. the purpose of which is relending or purchasing receivables or other obligations.
F. Foreign Currency Deposits
1. Authority to deposit foreign currencies
- any person may deposit foreign currency in Philippine banks designated by the BSP for the
purpose of such deposits.
- may deposit foreign currencies which are acceptable as part of the international reserve,
except those which are required by the BSP to be surrendered.

2. Authority of Banks to accept foreign currency deposits.

1. accept deposits and foreign currencies in trust; numbered accounts for recording and
servicing said deposits are allowed.
2. issue certificates to evidence such deposits
3. to discount said certificates.
4. accept said deposits as collateral for loans subject to such rules and regulations
5. to pay interest in foreign currency on such deposits
3. Foreign currency cover requirements
- depositary banks shall
a. maintain at all times a 100% foreign currency cover for their liabilities
b. of which cover at least 15% shall be in the form of foreign currency deposit with the BSP.
c. and the balance in the form of foreign currency loans or securities, which shall be of short
term maturities and readily marketable,
d. such foreign currency loans may include loans to domestic enterprises which are export
oriented or registered with the Board of Investments, subject to limitations imposed by the
Monetary Board.
e. Except as the Monetary Board may otherwise prescribe or allow, the foreign currency cover
shall be in the same currency as that of the corresponding foreign currency liability.
f. BSP may pay interest on the foreign currency deposit and if requested shall exchange the
foreign currency notes and coins into foreign currency instruments drawn on its depositary
banks.
Depositary banks qualified by the Monetary Board for expanded foreign currency deposit are
exempt from the 15% cover requirement stated in (b) and may extend foreign currency loans to
any domestic enterprise without the limits prescribed regarding maturity and marketability and
such loans shall be eligible for purposes of the 100% foreign currency cover prescribed.
4. withdrawability and transferability of Foreign Currency Deposits.
- no restriction on such except those arising from the contract between the depositor and bank.
G. Anonymous and Numbered Accounts.
- anonymous accounts and those under fictitious names should not be allowed or kept. In case
where such is allowed, banks/non-bank financial institutions should ensure that the client is
identified in an official or other identifying documents.
Revised Penal Code:
Art. 178. Using fictitious name and concealing true name. The penalty of arresto mayor and
a fine not to exceed 500 pesos shall be imposed upon any person who shall publicly use a
fictitious name for the purpose of concealing a crime, evading the execution of a judgment or
causing damage.
Any person who conceals his true name and other personal circumstances shall be punished by
arresto menor or a fine not to exceed 200 pesos.

Civil Code:
Art. 379. The employment of pen names or stage names is permitted, provided it is done in
good faith and there is no injury to third persons. Pen names and stage names cannot be
usurped.
Art. 380. Except as provided in the preceding article, no person shall use different names and
surnames.
- Please see also CA 142 as amended by RA 6085.
II. Administration of Deposits
A. Specimen Signatures, ID Photos
All banking institution are required to set a minimum of three (3) specimen signatures
to be simultaneously required from each of their depositors and to update the specimen
signatures of their depositors every (5) years or sooner, at the discretion of the bank.
BSP Circular No. 564, Series of 2007 provides for the list of valid identification cards as
follows:
i. Clients who engage in a financial transaction with the covered institutions for the first
time shall be required to present the original and submit a copy of at least two valid photobearing identification documents issued and signed by an official authority. Valid IDs include
the following
Passport
Drivers license
Professional Regulations Commission (PRC) ID
National Bureau of Investigation(NBI) clearance
Police clearance
Postal ID
Voters ID
Barangay certification
Government Service and Insurance System(GSIS) e-Card
Social Security System(SSS) card
Philhealth card
Senior Citizen Card
Overseas Workers Welfare Administration (OWWA) ID
OFW ID
Seamans Book
Alien Certification of Registration/Immigrant Certificate of Registration
Government office ID [e.g. Armed Forces of the Philippines (AFP), Home Development
Mutual Fund (HDMF) IDs]
Certification from the National Council for the Welfare of Disable Persons (NCWDP)
Department of Social Welfare and Development (DSWD) Certification.
Other valid IDs issued by the Government and its instrumentalities
ii. Students who are beneficiaries of an OFW and who are not yet of voting age shall also be
required to present two IDs. Other IDs may include birth certificate, library ID, and
membership IDs duly issued by any association or organization within the college or university
and signed by the pertinent authority issuing the ID.

iii. Banks and non-bank financial institution shall require their clients to submit clear copies of
the two valid IDs on a one-time basis only, or at the commencement of a business relationship.
They shall require their clients to submit an updated photo and other relevant information
whenever the need for it arises.
iv. Financial transactions may include remittances, among others, as falling under the definition
of transaction.
B. Minors and Corporations as Depositors
1. Minors
Minors are vested with special capacity and power, in their own right and in their own
names, to make savings or time deposits with and withdraw the same as well as receive interest
thereon from banking institutions, without the assistance of their parents or guardians, provided
the following requirements requisites are met:
1. at least seven years of age,
2. able to read and write,
3. have sufficient discretion, and
4. not otherwise disqualified by any other incapacity.
Parents may nevertheless deposit for their minor children and guardian for their wards.
Deposits in the Thrift Banks
Minors in their own rights and in their own names may make deposits and withdraw the
same, and may receive dividends and interest: Provided however, That, if any guardian shall
give notice in writing to any thrift bank not to make payments of deposits, dividends, or interest
to the minor of whom he is the guardian, then such payment shall be made only to the guardian.
2. Corporations
Corporations may open bank accounts as follows:
(i)
Incorporation Stage In case the payment of subscription is in cash, the
Securities and Exchange Commission requires a Bank Certificate of deposit
Of paid-up capital notarized in place where signed.
(ii) Post Incorporation In opening a bank account, the Board of Directors
Issues a resolution authorizing the signatories and specifying the depositary
bank.
C. Time of Payment of Interest on Time Deposits/Deposit Substitutes
Interest or yield on time deposit/deposit substitute may be paid at maturity or upon
withdrawal or in advance: Provide, However, The interest or yield paid in advance shall not
exceed the interest for one (1) year.
D. Treatment of Matured Time Deposits/Deposit Substitutes.
(i)
A time deposit not withdraw or renewed on its due date shall be treated as a saving
deposit and shall earn interest from maturity to the date of actual withdrawal or renewal at a rate
applicable to saving deposits.
(ii) A deposit substitute instrument no withdrawn or renewed on its maturity date shall from
said date become payable on demand and shall earn an interest or yield from maturity to actual
withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15)
days.
E. Clearing Cut-off Time

As a general rule, all deposits and withdrawals during regular banking hours shall be
credited or debited to deposit liability accounts on the date receipt or payment thereof:
Provided, however, That a bank may set a clearing cut-off time for its head office not earlier
than two (2)hours before the start of clearing at the BSP, and not earlier than three and one half
(3-1/2) hours before the start of clearing branches, agencies and extension office doing business
in the Philippines, after which time, deposits received shall be booked as hereinafter provided:
Provided, further, that banks which are located in areas where there are no BSP
regional/clearing arrangements may set a clearing cut-off time not earlier that two (2) hours
before the start of their local clearing after which time deposits received shall be booked
likewise as hereinafter provided.
F. Booking of Cash Deposits.
Cash deposits received after the selected clearing cut-off time until the close of the
regular banking hours shall be booked as deposits on the day of receipt.
G. Booking of Non-cash Deposits
Deposits checks including on us checks, managers/cashiers/treasurers check and
demand drafts, which are drawn against the depository bank and all its offices, as well as
treasury warrants and postal money orders, received after the selected clearing cut-off time until
the close of the regular banking hours, may, at the option of the bank, be booked as deposits on
the day of the receipt.
H. Booking of Deposits After Regular Banking Hours.
Deposits, whether cash or non-cash, received after the close of the regular banking hours
shall be treated as contingent accounts of the day of receipt and shall be booked as deposits the
following banking day.
I. Average Daily Balance
i. Banks may impose and collect service charges and/or maintenance fees on savings and
demands deposits accounts, whether active or dormant, the fall below the required minimum
monthly average daily balance (ADB), subject to the following conditions.
a) the imposition of such charges or fees is clearly stated among the terms and conditions of the
deposit;
b) the rate or amount of such charges of fees is properly disclosed among the terms and
conditions of the deposits;
c) the deposit account balances have fallen below the required minimum monthly ADB for
dormant accounts and for at least two (2) consecutive months for active amounts;
d) the required minimum monthly ADB of deposits are properly disclosed among the terms and
conditions of the deposits; and
e) in the case of charges and fees for dormant accounts or dormancy fee, the period of
dormancy shall be properly disclosed among the terms and conditions of the deposit, and that
the depositors shall be informed by registered mail with return card on his last known address at
least (60) days prior to the imposition of dormancy fee.
ii. Any change in the terms and conditions for the imposition of service charges and/or
maintenance fee, e.g., increase in the amount of such charges and fees or increase in the
required minimum monthly ADB of deposits, shall take effect only after due notice in the
depositor; Provided, That information by regular mail, statement of account messages,
electronic mail, courier delivery and/or other alternative modes of communication on the
depositors last known address at least sixty (60) days prior to implementation shall be
considered sufficient notice: Provided, further, That failure of the depositor to manifest or
register his objection to the new service charges and maintenance fees or any change in their

terms and conditions in writing within thirty (30) days from receipt of written notice of
amendment shall be deemed to constitute acceptance of such changes.
iii. Banks shall likewise post said information on their respective websites, automated teller
machines (ATM) on screen messages, and in conspicuous places within the bank premises and
other places near the banks own ATM at least sixty (60) days prior to implementation.
CHAPTER 4: Investments, Loans, and other Functions of Banks
Powers of a Universal Bank
1. The powers authorized to a commercial bank
2. The powers of an investment house
3. The power to invest in non-allied enterprises
A universal bank may:
- Invest in the equities of allied and non-allied enterprises; allied enterprises may be
financial or non-financial
- Own up to 100% of the equity in a thrift bank, rural bank or any allied financial
enterprise
- Own up to 100% of the equity in a non-financial allied enterprise
- Invest in equities of non-allied enterprise
- Invest in equities of quasi-banks
Powers of a Commercial Bank
1. The general powers incident to corporations
2. 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; and accepting and
creating demand deposits, among others.
* Letters of credit: an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance
with the conditions specified in the credit; it is the engagement of the bank to pay the
seller once the draft and the required shipping documents are presented to it.
Generally, there are 3 parties: 1) the buyer, who procures LOC and obliges himself to
reimburse the issuing bank; 2) the bank issuing the LOC; and 3) the seller who ships the
goods to the buyer.
A commercial bank may:
- Invest only in equities of allied enterprises, which may be financial or non-financial
- Own up to 100% of allied financial enterprises
- Own up to 100% of allied nonfinancial enterprises
Limit on Loans, Credit Accommodations and Guarantees
Single Borrowers Limit: shall not exceed 20% of the net worth of such bank
Except: - as the Monetary Board may otherwise prescribe
- deposits of rural banks with government owned and controlled financial institutions

Restriction on Bank Exposure to Directors, Officers, Stockholders, and their Related

Interests (DOSRI)
Limits of Loans:
1) The Monetary Board may regulate the amount of loans, credit accommodations and
guarantees that may be extended by a bank to its DOSRI as well as investments of
such bank in the enterprises owned and controlled by its DOSRI
2) The outstanding loans, credit accommodations, and guarantees which a bank may
extend to its DOSRI shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the
bank.
Except with the written approval of the majority of all the directors of the bank, excluding
the director concerned, no director or officer of any bank shall:
1. directly or indirectly, borrow from such bank
2. become a guarantor, indorser, surety for loans from such bank to others
3. in any manner be an obligor or incur any contractual liability to the bank
Directors include those: 1) named as such in the articles of incorporation, 2) duly elected in the
meetings of stockholders, 3) elected to fill the vacancies in the board of directors.
Officers include those: 1) whose duties are defined by the by-laws or are generally known to be
officers of the bank (i.e. president, evp, senior vp, general manager, secretary, treasurer) and 2)
who performs functions of management (i.e. chairman, vice-chairman)
Stockholders are any stockholder in the books of the bank, quasi-bank, or trust entity, whose
stockholdings in the same, individually or collectively, amount to ONE PERCENT or more of
the total subscribed capital stock of the bank, quasi-bank, or trust entity.
their Related Interests
1) spouse or relative within the first degree of consanguinity or affinity, or relative by legal
adoption, of a director, officer or stockholder of a bank
2) Partnership of which DOSRI is a partner
3) Co-owner with DOSRI of the property, interest, or right mortgaged, pledged or assigned
to secure the loans or credit accommodations
4) Corporations or associations of which DOSRI is also a director or officer
5) Corporations, associations or firms of which DOSRI owns at least 20% of the subscribed
capital
6) Corporations, associations or firms wholly or majority-owned and controlled by DOSRI
Grant and Purpose of Loans and Other Credit Accommodations (LOCA)
A. Amount and Purpose of Loans
Banks shall grant only in amounts and for periods of time essential for the
effective completion of the operation.
The purpose shall be stated in the contract between the bank and borrower.
If the proceeds were used other than the purpose stated, banks may terminate the
LOCA and demand immediate payment of the obligation.
B. Requirements for Grant of Loan

 Statement of assets and liabilities

Statement of income and expenditures
Other requirements prescribed by law to ascertain borrowers ability to pay

Microfinancing Loans- small loans granted to basic sectors like the poor and lowincome households for their microenterprises and small businesses
C. Reason for Stringent Rules in Granting Loans
The business of a bank is one affected with public interest, for which reason the
bank should guard against loss due to negligence or bad faith. From the nature of
its business, it is expected to ascertain and verify the identities of the persons it
transacts business.
D. Unsecured Loans and Other Credit Accommodations
The Monetary Board (MB) is authorized to issue such regulations as it may deem
necessary with respect to unsecured LOCA that may be granted by banks.
E. Other Security Requirements for Bank Cradits
The MB shall, by regulation, prescribe further security requirements and reduce or,
in special cases, increase the established maximum ratio.
F. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations
The MB shall prescribe related terms and conditions for various types of bank
LOCA, and regulate the interest imposed on microfinance borrowers.
G. Amortization on Loans and Other Credit Accommodations
> Amortization schedule of bank LOCA shall be adapted to the nature of the operation
> In case of LOCA with maturities of more than 5years, provisions shall be made for
periodic amortization payments, but the same must be made annually.
> When the borrowed funds are to be used for purposes which do not initially produce
revenues adequate for regular amortization payments therefrom, the bank may
permit the initial amortization payment to be deferred until revenues are sufficient
for such purpose, but in no case shall the initial amortization date be later than
5years from the date on which the LOCA is granted.
> In case of LOCA to microfinance sectors, the schedule of loan amortization shall
take into consideration the project cash flow of the borrower and adopt this into the
terms and conditions formulated by banks.
H. Escalation Clause; when allowable
> Parties may agree that the rate of the interest agreed upon be increased in the event
that the maximum rate of interest is increased by the MB: provided that there is also
a stipulation that the interest would be reduced in the event that the maximum rate
of interest is reduced. The same shall take effect on or after the date the maximum
interest rate is increased or decreased. The de-escalation clause is an indispensable
requisite to the validity and enforceability of an escalation clause in the contract.
This rule is to prevent the one-sidedness in favor of the lender.
*Exception to the Rule:

> If the creditor unilaterally and actually decreased the interest charges whenever the
maximum rate of interest is reduced by law or the MB.
I. Unilateral Increase of Rates
> The unilateral determination and imposition of increased rates is violative of the
principle of mutuality of contracts under Article 1308of the Civil Code. One-sided
impositions are void.
J. Iniquitous, Unconscionable and Exorbitant Interest
> Notwithstanding the inexistence of the Usury Law, Iniquitous, Unconscionable and
Exorbitant Interests are against public policy; hence, void.
> 5.5% per month, 26-35% per annum, are held to be Iniquitous, Unconscionable and
Exorbitant.
K. Effect of Void Interest Rate
> Since it is void, it is as if there was no express contract thereon. In such case, the
court will fix a more reasonable and equitable rate. In most cases, the court
reduced it to 12% per annum.
L. Prepayment of LOCA
> The borrower may at anytime prior to the maturity date prepay, in whole or in part,
the unpaid balance, subject to the terms and conditions of the contract.
M. Development Assistance Incentives
> The Bangko Sentral shall provide for incentives to banks extending loans to
finance educational institutions, cooperatives, hospitals and other medical services,
socialized or low-cost housing, local government units and other activities with
social content.
N. Renewal or Extension of LOCA
> The MB may, by regulation, prescribe the conditions and limitations extension or
renewals of LOCA.
O. Banks cannot extend Peso Loans to Non-Residents
> This is to curb speculation in the foreign exchange market and to further reinforce
the memorandum that peso deposits should be funded from inward foreign
exchange remittance.
P. Provisions for Losses and Write-Offs
> Debts on which interest is past due and unpaid, unless the same are well-secured
and in the process of collection shall be considered bad debts. The MB shall fix the
amount of reserves for bad debts or doubtful accounts or other contingencies.
Writing off LOCA shall be subject to regulations issued by the MB.

TRUTH IN LENDING
DISCLOSURE: Any creditor shall furnish to each other to whom credit is extended, prior to the
consummation of the transaction, a statement in writing setting forth the ff.:
1.
2.
3.
4.

The cash price or delivered price of the property or service to be acquired;

The amounts, if any, to be credited as down payment and/or trade-in;
The difference between the amounts set forth under clauses 1 and 2;
The charges, individually itemized , which are paid to or be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
5. The total amount to be financed;
6. The finance charge1 expressed in terms of pesos and centavos;
7. The percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.
RATIONALE: Protect users from lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interest rates from the loaned amount, and the like.
PENALTY: CIVIL= P100 or in the amount equal to twice the finance charged required by
such creditor in connection with such transaction, whichever is greater, except that such liability
shall not exceed P2000 on any credit transaction.
CRIMINAL= FINE by not less P1K or more than P5K or imprisonment for more than
6 months, nor more than one year or both.
NOTE:
*pursuant to TRUTH LENDING ACT, violation shall not affect the validity or enforceability of
any contract or transactions.
*SC held that the lender cannot charge those that are not stipulated in the promissory notes
(Consolidated Bank and Trust Co. vs. CA)
*no punishment or penalty shall apply to the Philippine Government or agency or any political
subdivision thereof.
* Courts have the authority to strike down or modify provisions in the promissory notes that
grant lenders unrestrained power to increase interest rates, penalties and other charges at the
latters sole discretion and without giving prior notice to or securing the borrowers consent.

FORECLOSURE OF REAL ESTATE MORTGAGE

Sec, 47 of the GBL provides:
(i)

In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on

real estate which is security for any loan or other credit accommodation granted, the
mortgagor or debtor whose real property has been sold for the full or partial payment
of his obligation shall have the right within one year after the sale of the real estate,
to redeem the property by paying the amount due under the mortgage deed, with

Interest, fees, service charges, discounts and such other charges incident to the extension of credit as the
board may, by regulation, prescribe.

interest thereon at the rate specified in the mortgage, and all the cost and expenses
incurred by the bank or institution from the sale and custody of said property less the
income derived therefrom.
(ii)

However, the purchaser at the auction sale concerned whether in a judicial or

extrajudicial foreclosure, shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law.

NOTE:
* the one year period is to be reckoned from the date of the registration of the sale; action for
annulment of the mortgage does not toll the running of the period to redeem the foreclosed
property
*Real property may be mortgaged to aliens, both individuals and corporations (R.A. No. 133 as
amended by R.A. 4882)
*demand before foreclosure is essential; if not, the loans had not yet become due and
demandable
* right of redemption may be extended by agreement
* estoppel- the bank consented to the extension of redemption period if it had time to object but
did not.
*exercise of the right of redemption, if exercised after the prescriptive period is not really
redemption but a repurchase. DISTINCTION: Redemption is by force of law; the purchaser is
bound to accept the redemption. No such obligation imposed in repurchase.
QUESTION: Whether an alien-owned bank can acquire ownership of residential lot by virtue of
a deed of transfer as settlement of a debt.
Ans: NO. The purpose of the Constitution is to place and keep in the hands of the people the
ownership of private lands in order not to endanger the security of the nation. If leased for 50
years, permissible.
*Offer to repurchase is not a waiver to question the sale
* no right to repurchase if the sale is invalid
* preferred status of bank, not impaired in case the borrower is under rehabilitation
* after consolidation title in the buyers name, writ of possession becomes a matter of right and
its issuance is merely a ministerial function
Major investments
Banks are reviewed by the Monetary Board (MB) as to their major acquisitions and
investments.
A. Ceiling on Investment- The total investment in a real estate and improvements, including
bank equipment shall not exceed 50% of combined capital accounts.

What constitutes total investment? 1. All real estate and equipment necessary for the banks
immediate use in the transaction of its business (i.e. bank premises, land, buildings, real
properties, equipment and other chattels) and 2. Equity investment of the bank in another
corporation engaged primarily in real estate
B. Banks can acquire, hold or convey Real estate by way of satisfaction of claims under the
following circumstances:
1. Those which shall be mortgaged to it in good faith by way of security of debts.
2. Those which shall be conveyed to it in satisfaction of debts
3. Those which the bank shall purchase at sales under judgments, decrees, mortgages,
or trust deeds held by it, and those which the bank shall purchase to secure debts due
it.
Any real property acquired or held under these circumstances must be disposed of within
5 years or as may be prescribed by the MB. Nevertheless, the bank may continue to hold
the property subject to the 50% limitation on total investment.
Other Banking Services.

The bank may also act as: (CFCML)

1. Custodian of valuable objects (i.e. documents, funds)
2. Financial agent (buy and sell shares, evidences of indebtedness, securities)
3. Collector of payments
4. Managing agent, adviser, consultant of investment management upon prior
approval of MB
5. Lessor of safety deposit boxes
The funds, securities, and other effects received by a bank as a depository or as an agent shall
be separate from the banks assets and liabilities.
The contract for a Safety Deposit Box is a special kind of deposit since the full
possession and control over the box is not given to the renter. (Guard key is with the bank;
renters key is with the renter). Bank is not liable in case loss attributable to joint renters who
each has one renter key. Either one could open it without the other. Since it is a contract, duties
may be defined by the parties.
The relation created here is that of a bailor and a bailee, the bailment being for hire and
mutual benefit. A customer deposited his collection of stamps and the bank placed them at the
lowest level of the safety deposit boxes. The bank knew of a flood and the possibility of it
seeping through the deposit boxes. Bank failed to give notice of such event. The stamps
deposited were damaged. Is the Bank liable? Yes. The bank failed to exercise reasonable care
and prudence expected of a good father of a family.
The Bangko Sentral shall have full authority in the regulation of electronic transactions.

Subject to approval of the MB, banks may outsource all information technology systems and
processes except for inherent banking functions. XIV. Banks may also outsource other functions
as may be approved by the MB. Refer to our latest assignment on the nature of functions which
a bank may outsource.
Credit Card Transactions
A. Definition of terms
Credit card- any card, plate or credit device existing for the purpose of obtaining money,
property, labor, or services on credit.
Credit card receivables- total outstanding balance of credit card holders.
Minimum amount due- Minimum amount that the credit card holder needs to pay on or
before the payment due date for a particular cycle
Default or delinquency- non-payment of any amount less than the minimum amount due
within two cycle dates
Acceleration clause-provision giving the right to the bank to demand the obligation in
full in case of default or non-payment
B. There must be a risk management system which shall cover the organizational set-up, records
and reports, accounting, policies and procedures and internal control.
C. Minimum Requirements, Basks must ascertain the applicants credit standing, financial
capability (i.e. net take home pay, net monthly receipts of a business of the applicant, net worth
or cash flow)
D. Some examples on types of information to be disclosed: Non-finance charges, percentage of
interest, payment scheme, methods of determining the balance and the interest, and other fees.
E. Finance charges shall refer to interest charged to the cardholder.
F. Banks shall keep strictly confidential the data on the cardholder or consumer except:
1. With consent
2. release, submission or exchange of customer info with other financial institutions
3. upon order of the court
4. disclosure to collection agencies of the bank
5. disclosure to third party service solely for the assistance and service to the bank
6. disclosure to insurance companies solely for the purpose of preventing loss and fraud

G. Offsets- pursuant to Arts. 1278 to 1290 of the NCC, the use of a persons credit card will
subject his deposits with the bank to offset any amount due and payable on his credit card which
have not yet been paid.
H. Unfair Collection Practices

Banks may resort to all reasonable and legally permissible means to collect amounts due them.
The following constitute a violation:
1. use of threat of violence or other criminal means
2. use of obscenities, insults, profane language
3. disclosure of the names
4. threat to take any action which cannot be legally taken
5. communicating a credit info which is false
6. any false representation or deceptive means
7. making contact at inconvenient times (10pm-6am)
I. Additional deposits does not increase credit limit.
J. Contracts between banks and cardholders are contracts of adhesion because their terms are
prepared by only one party.
One price tag Requirement
Every retailer is required to display a price tag to indicate the price. It must be written clearly.
Must include VAT if vatable.
Practices which must be considered relative to the mode of payment.
1. When the consumer pays in cash, he shall pay only the price indicated in the price tag.
2. when through a credit card, only the price in the tag price.
3. when retailer offers the consumer an option to pay in cash, card, or on instalment, the same is
allowed provided the payment options shall be disclosed by way of a separate info but not in the
price tag
4. Cash price tag and regular price tag on each product or service is not allowed
5. Cash price tag and card price tag is also not allowed
Surcharging by retailers is not allowed.
Extra charge, or additional charge over and above the price tag
Chapter 5: PROHIBITED TRANSACTIONS AND CESSATION OF BANKING
BUSINESS
I. Prohibited Transactions
A. Prohibition to Act as Insurer
-A bank shall not directly engage in insurance business as the insurer. The term doing
insurance business or transacting an insurance business,shall include:
a. making or promising to make, as insurer, any insurance contract;
b. making or proposing any contract of suretyship as a vocation

c. doing any kind of business, including a reinsurance business

d. doing or proposing to do any business in substance
B. Prohibited Acts
1. No director, officer, employee or agent of any bank shall
a. Make false entries in any bank report or statement or participate in any
fraudulent transaction
b. Without order of a court of competent jurisdiction, disclose to any unauthorized
person any information relative to the funds or properties in the custody of the bank
c. Accept gifts, fees or commissions or any other form of remuneration in
connection with the approval of a loan, or other credit accommodation from said bank
d. Overvalue or aid in overvaluing any security for the purpose of influencing in
any way the actions of the ban or any bank; or
e. Outsource inherent banking functions. (Sec.55, GBL)
2. No borrower of a bank shall
a. Fraudulently overvalue property offered as security for a loan, etc
b. Furnish fake or make misrepresentation of material facts
c. Attempt to defraud the said bank
d. Offer any director, officer, employee or agent of a bank, any gift, fee,
commission etc in order to influence such persons in approving loan and the like.
3. No examiner, officer or employee of the BSP shall commit any of the foregoing act or
aid in the commission of the same.
4. Consistent with the Banks Secrecy Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in the conduct of its business involving
bank deposits.
C. Prohibition Against Outsourcing Certain Banking Function
(Section 55, GBL)
II. Conducting Business In an Unsafe or Unsound Manner
III. Prohibition on Dividend Declaration
-No bank or quasi-bank shall declare dividends greater than its accumulated net profits
then on hand, deducting therefrom its losses and bad debts.
Note: (Section 43 of the Corporation Code)
IV. Unauthorized Advertisement or Business Representation
V. Placement Under Conservatorship
A. (Section 67 of the GBL)
B. Grounds for Appointment of Conservator
-Whenever on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board (MB) finds that a bank or a quasi-bank
is in a state of:

1. continuing inability, or
2. unwillingness to maintain a condition of liquidity deemed adequate to protect
the interest of depositors and creditors,
MB shall appoint a conservator as the MB shall deem necessary to:
1. take charge of the assets, liabilities and management thereof;
2. reorganize management;
3. collect all monies and debts due said institution, and
Exercise all powers necessary to restore its viability.
LIQUIDITY- the ability of an asset to be converted into cash quickly and
without any price discount. A corporation is liquid if it has ready access to
cash.
SOLVENCY- the condition that exists when liabilities amount to less tan
total assets, thus providing the ability to pay debts. The test of insolvency
is measured by determining whether the realizable assets of a bank are less
than its liabilities.
C. Qualifications of Conservator
-competent
-konowledgeable in bank operations and management
D. Period of Conservatorship
-does not exceed one (1) year
E. Remuneration
F.
G. Expenses of Conservatorship
-shall be borne by the bank or the quasi-bank concerned
H. Terminations of Conservatorship
-MB is satisfied that the institution can continue to operate on its own
-MB shall, on the basis of the report of the C or its own findings, determine that the
continuance thereof would involve probable loss to its depositors or creditors
I. Final and Executory
-actions of MB; except on petition for certiorari
J. Exclusive Power to Appoint
-vested exclusively with the MB
K. Not a Precondition
L. Powers of Conservatorship cannot Impair the Obligations of Contracts
VI. Cessation of Banking Business
A. Voluntary Liquidation
-written notice of L shall be sent to MBB before such liquidation is undertaken, and the
MB has the right to intervene and take such steps as may be necessary to protect the
interests of creditors

-voluntary L may be undertaken by the bank itself through its board of directors, by a
trustee appointed by the bank, or by a receiver appointed to the bank upon voluntary
dissolution of a bank pursuant to the Corporation Code
-no voluntary dissolution of a bank shall be undertake without prior approval of the MB
(accompanied by a L plan, written notice shall be sent to MB before actual L)
B. Receivership and Involuntary Liquidation
(Section 69 of the GBL)
1. Grounds for Receivership and Liquidation
- if the MB finds that the institution:
a. is unable to pay its liablities as they become due in the ordinary course of
business
b. has insufficient realizable assets, as determined by the BSP, to meet its
liabilities
c. cannot continue in business without involving probable losses to its depositors
or creditrs, or
d. has willfully violated a cease and desist order that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the
institution.
-For a quasi-bank, any person of recognized competence in banking or finance
may be desinated as receiver.
2. Current and Complete Examination Not Necessary
-The absence of an examination before the closure of a bank did not mean that
there was no basis for the closure order. Needless to say, the decision of the
MB and BSP, like any other administrative body, must have something to
support itself and its findings of fact must be supported by substantial
evidence. But it is clear under R.A. No 7653 that the basis need not arise from
an examination as required by the old law. (Rural Bank of San Miguel, Inc. vs.
Monetary Board)
3. Procedures
-The receiver shall immediately:
a. Gather and take charge of all the assets and liabilities of the institution,
b. Administer the same for the benefit of its creditors, and
c. Exercise the general powers of a receiver under the Revise Rules of Court,
but
d. Shall not, with the exception of the administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of
the institution.
-The receiver may deposit or place the funds of the institution in nonspeculative investments.
-The receiver shall determine ASAP but not later than ninety (90) days from
take over, whether the institution may be rehabilitated or otherwise placed in
such a condition so that it may be permitted to resume business with safety
to its depositors and creditors and the general public.
-Any determination for the resumption of business of the institution shall be
subject to the approval of the MB.
4. PROHIBITED ACTS:

Any director or officer of bank declared insolvent or plaed under receivership by the Monetary
Board shall not commit any of the ff. acts:
a. Refusing to turn over the banks record and assets to the designated receivers;
b. Tampering with bank records;
c. Appropriating for himself or another party, or destroying or causing misappropriation and
destruction of the banks assets;
d. Paying out or permitting or causing to be paid out any fund of said bank; and
e. Transferring or permitting or causing to be transferred any securities or property of said
bank.
5. WHEN INSTITUTION CANNOT BE REHABILITATED
If the receiver determines that the institution cannot be rehabilitated or permitted to
resume business, the Monetory Board shall notify in writing the board of directors of its
findings and direct the receiver to proceed with the liquidation of the institution.
The receiver shall:
1. File ex parte with the proper RTC, and without requirement of prior notice or any
other action, a petition for assistance in the liquidation plan adopted by the Philippine
Deposit Insurance Corp. for general application to all closed banks.
a. In case of quasi banks, the liquidation plan shall be adopted by the Monetory
Board.
2. Convert the assets of the institutions to money, dispose of the same to creditors and
other parties, for the purpose of paying the debts of such institution in accordance with
the rules on concurrence and preference of credit under the Civil Code of the
Philippines.
3.
6. FINAL AND EXECUTORY
As in the case of conservatorship:
The actions of the Monetary Board shall be final and executor, and may not be restrained
or set aside by the court except on petition for certiorari on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
WHO WILL FILE: Stockholders of record representing the majority of the capital stock
within 10 days from the receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.
7. EXCLUSIVE POWER TO APPOINT vested exclusively with the Monetory Board.
C. CLOSE NOW HEAR LATER SCHEME
The law does not contemplate prior notice and hearing before a bank may be directed to
stop operations and placed under receivership.
A previous hearing nor due process demand that the correctness of Monetary Boards
Resolution to stop operation and proceed to liquidation of first adjudged before making
the resolution effective.
CLOSE NOW HEAR LATER SCHEME is grounded on practical and legal
considerations to prevent unwarranted dissipation of the banks assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders and the general
public.

D. EFFECT OF FILING FOR PETITION FOR REVIEW

The banks liquidator is allowed to continue receiving collectibles and receivables or
paying offs creditors claims and other transactions pertaining to normal operations of a
bank. i.e. prosecution of suits against debtors for collection and for foreclosure of
mortgages.
E. REASON BEHIND RECEIVERSHIP AND INVOLUNTARY LIQUIDATION
It is a valid exercise of police power to protect the depositors, creditors, stockholders and
the general public. Due to the nature of banks transactions and functions, a fiduciary
relationship is created between the banking institutions and their depositors.
F. EFFECTS OF RECEIVERSHIP AND LIQUIDATION
1. Retention of Juridical Personality
- which can sue and be sued through its liquidator.
LIMITATION: The prosecution and action must be done through the liquidator.
2. Not liable to Pay interest
- a banking institution has been declared insolvent and subsequently closed by the BSP cannot
be held liable to pay interest on bank deposits which accrued during the period when bank is
actually closed and non-operational.
3. Assets are deemed under Custodia Legis
- and shall, from the moment of such receivership or liquidation, be exempt from any order or
garnishment, levy, attachment or execution.
4. Stay of execution
- is warranted if a bank was placed under receivership. The assets of the insolvent banking
institution are held in trust for equal benefit of all creditors, and after its insolvency, one cannot
obtain an advantage or a preference over another by an attachment, execution or otherwise.
5. Restriction of Banks Capacity to act
- Restriction in relation to its property.
- The bank would not be able to do NEW BUSINESS, i.e. to grant new loans or to accept new
deposits.
However, the receiver of the bank is obliged to collect debts owing to the bank which debts
form part of the assets of the bank.
6. Exclusive Jurisdiction of Liquidation Court
- pertains only to the adjudication of claims against the bank. It does not cover the reverse
situation where it is the bank which files a claim against another person or legal entity.
VII. DISPOSITION AND DISTRIBUTION OF ASSETS
A. Distribution of Assets
In case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings,
including a reasonable expenses and fees of the receiver to be allowed by the court, the
receiver shall pay debts of such institution, under order of the court, in accordance with
the rules on concurrence and preference of credit as provided in the Civil Code.
B. DISPOSITION OF REVENUES AND EARNINGS

All revenues and earnings realized by the receiver in winding up the affairs and
administering the assets of any bank or quasi-bank shall be used to pay the costs,
expenses mentioned in ITEM A above salaries of such personnel whose employment is
rendered necessary in the discharge of the liquidation together with the other additional
expenses caused by.

C. DISPOSITION OF BANKING FRANCHISE

The Bangko Sentral may, if public interest so requires, award to an institution, upon such
terms and conditions as the Monetary Board may approve, the banking franchise of a
bank under liquidation to operate in the area where said bank or its branches were
previously operating. Provided, that whatever proceeds may be realized from such award
shall be subject to the appropriate exclusive disposition of the Monetary Board.

D. LIABILITIES
The bank is bound by the acts, or failure to act of the receiver. At the same time, the
receiver is liable to the bank for the culpable or negligent failure to collect the assets of
such bank and to safeguard said assets.
Chapter 6 Foreign Banks and Trust Operations
I.
Foreign Banks
A. Transacting Business in the Philippines
The entry of foreign banks in the Philippines though the establishment of branches shall be
governed by the provisions of the Foreign Banks Liberalization Act.
The conduct of offshore banking business in the Philippines shall be governed by the provisions
of the Offshore Banking System Decree.
Offshore Banking refers to the conduct of banking transactions in foreign currencies involving
the receipt of funds from external sources and the utilization of such funds.
Offshore Banking Unit means a branch, subsidiary or affiliate of a foreign banking corporation
which is duly authorized by the Bangko Sentral ng Pilipinas to transact offshore banking
business in the Philippines.
*Foreign corporations doing business in the Philippines are required to obtain a license as
provided in sec. 133 of the Corporation Code.
B. Acquisition of Voting Stock in a Domestic Bank
Foreign Banks are allowed entry in the Philippines subject to the following rules:
a) within 7 years from the effectivity of the GBL and subject to the guidelines issued
pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a
foreign bank to acquire up to 100% of the voting stock of only 1 bank organized under
the laws of the Philippines.
b) Within the same period, the Monetary Board may authorized any foreign bank, which
prior to the efffectivity of GBL availed itself to the privilege to acquire up to 60% if the

voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks
Act, to further acquire voting shares of such bank to the extent necessary for it to own
100% of the voting stock thereof.
c) In the exercise of this authority, the Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control of 70% of the resources or assets of the
entire banking system is held by banks which are at least majority-owned by Filipinos.
d) Any of the foregoing right, privilege, or incentive granted to a foreign bank shall be
equally enjoyed by and extended under the same conditions to banks organized under the
laws of the Philippines.
C. Local Branches of Foreign Banks
In the case of a foreign bank which has more than 1 branch in the Philippines, all such branches
shall be treated as 1 unit for the purpose of the GBL.

D. Head Office Guarantee

Head office shall fully guarantee the prompt payment of all liabilities of its Philippine
Branch
Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a
foreign bank shall have preferential rights to the assets of such branch in accordance with
existing laws.
E. Summons and Legal Process
Courts obtain jurisdiction over foreign banks as follows:
a) Summons and legal process served upon the Philippine agent or head of any foreign bank
designated to accept service thereof shall give jurisdiction to the courts over such bank,
and service of notices on such agent or head shall be as binding upon the bank which he
represents.
b) Should the authority of such agent or head to accept service of summons and legal
processes for the bank or notice to it be revoked, or should such agent or head become
mentally incompetent or otherwise unable to accept the service while exercising such
authority, it shall be the duty of the bank to name and designate promptly another agent
or head upon whom service of summons and processes in legal proceedings against the
bank and of notices affecting the bank may be made, and to file with the Securities and
Exchange Commission a duly authenticated nomination of such agent.
c) In the absence of the agent or head or should there be no person authorized by the bank
upon whom service of summons, processes and all legal notices may be made, service of
summons, processes and legal notices may be made upon the Bangko Sentral Deputy
Governor In-Charge of the Supervising and examining departments and such service
shall be as effective as if made upon the bank or its duly authorized agent or head.
d) In case of service for the bank upon the Bangko Sentral Deputy Governor In-charge of
the supervising and examining departments, the said Deputy Governor shall register and
transmit by mail to the president or the secretary of the bank at its head or principal office
a copy, duly certified by him, of the summons, process, or notice.

e) The sending of such copy of the summons, processes, or notice shall be a necessary part
of the services and shall complete the service. The registry receipt of mailing shall be
prima facie evidence of the transmission of the summons, process, or notice.
F. Laws Applicable
In all matters not specifically covered by special provisions applicable only to a foreign bank or
its branches and other offices in the Philippines, any foreign bank licensed to do business in the
Philippines shall be bound by the provisions of GBL, all other laws, rules and regulations
applicable to banks organized under the laws of the Philippines of the same class, except those
that provide for the creation, formation, organization, or dissolution of corporations or for the
fixing of the relations, liabilities, responsibilities, or duties of stockholders, members, directors,
or officers of corporations to each other or to the corporation.
G. Revocation of License of a Foreign Bank
The Monetary Board may revoke the license to transact business in the Philippines of any
foreign bank, if it finds that the foreign bank is insolvent or in imminent danger thereof or that
its continuance in business will involve palpable loss to those transacting business with it.
After the revocation of such license, it shall be unlawful for any such foreign bank to transact
business in the Philippines unless its license is renewed or reissued.

II.
Entry of Foreign Banks
RA No. 77 21- An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in
the Philippines and For Other Purposes
Sec.1 Declaration of the 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 and the entry of new foreign
bank branches.
Sec. 2 Modes of Entry- a) by acquiring, purchasing or owning up to 60% of the voting stock
of an existing bank; b) by investing in up to 60% of the voting stock of a new banking
subsidiary incorporated under the laws of the Philippines; or c) by establishing branches
with full banking authority: provided, that a foreign bank may avail itself of only one (1)
mode of entry. Further, that a foreign bank or a Philippine corporation may own up to a 60%
of the voting stock of only one (1) domestic bank or new banking subsidiary.

Sec.3 guidelines for approval.- a) shall ensure geographic representation and

complementation; b) consider strategic trade and investment relationships between the
Philippines and the country of incorporation of the foreign bank; c) study the demonstrated
capacity, global reputation for financial innovations and stability in a competitive
environment of the applicant; d) see to it that reciprocity rights are enjoyed by Philippine
banks in the applicants country; e) consider willingess to fully share their technology.

Only those among the top 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 b and c hereof.
Sec. 4 Capital requirements- a) for locally incorporated subsidiaries- minimum capital
required shall be equal to that prescribed by the Monetary Board for domestic banks of the
same category.
b)For foreign bank branches- capital of NOT LESS than the U.S. Dollar equivalent of 210
Million pesos at the exchange rate on the date of the effectivity of this act. The foreign bank
shall be entitled to three more branches with permanently assigned capital of the U.S. Dollar
equivalent of 35 Million Pesos per additional branch.
Sec. 5- Head office guarantee- *mentioned earlier
Sec. 6- Entrants under section 2- Foreign banks shall be allowed entry under sec.2 c, within
5 years from the effectivity of the act. During this period, 6 new foreign banks shall be
allowed entry under sec.2 c upon the approval of the Monetary Board. An additional 4
foreign banks may be allowed entry on recommendation of the Monetary Board, subject to
compliance with the previous sections of this act, upon approval by the President as the
national interest may require.
Sec.7- 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.
Note: for the full text of the Act, see book pages 271-276
III. Trust Operation
A. Authority to engage in Trust Business
Trust Business refers to any activity resulting from a trustee-trustee relationship (trusteeship)
involving the appointment of a trustee by a trustor for the administration, holding, management
of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the
trustor or of others called beneficiaries.
The cardinal principle common to all trust and other fiduciary relationships is fidelity.
Under the Civil Code on trusts:
Trustor- a person who establishes a trust
Trustee- one in whom confidence is reposed as regards property for the benefit of another
person
Beneficiary- the person for whose benefit the trust has been created
Trusts may be express or implied. Express trusts are created by the intention of the trustor or of
the parties. Implied trusts are created by operation of law.

B. Conduct of trust business.

The following shall be observed in the conduct of trust business:

a) a trust entity shall administer the funds or property under its custody with the diligence
that a prudent man would exercise in the conduct of an enterprise of a like character and
with similar aims.
b) No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase
or acquire property from, or sell, transfer, assign, or lend money or property to, or
purchase debt instruments of, any of the departments, directors, officers, stockholders, or
employees of the trust entity, relatives within the first degree of consanguinity or affinity,
unless the transaction is specifically authorized by the trustor and the relationship of the
trustee and the other party involved is fully disclosed to the trustor or beneficiary.
C. Registration of Articles of Incorporation and By-Laws of a Trust Entity
The SEC shall not register the articles of incorporation and by-laws or any amendment thereto,
of any trust entity, unless accompanied by a certificate of authority issued by the Bangko
Sentral.
A) no articles. Shall be approved by the SEC unless accompanied by a favorable
recommendation of the appropriate government agency to the effect that such articles or
amendment is in accordance with law.
B) The SEC shall not accept for filing the by-laws or any amendment thereto... unless
accompanied by a certificate of the appropriate government agency to the effect that such
by-laws or amendments are in accordance with law.
D. Minimum Capitalization
A trust entity before engaging in such business must comply with the minimum paid-in
capital requirement determined by the Monetary Board.
E. Powers of a Trust Entity (in addition the general powers incident to corporations)
1) act as trustee on any mortgage or bond issued by any instrumentality and to accept and
execute any trust consistent with law
2) act under the order or appointment of any court as guardian, receiver, trustee or
depositary of the estate of any minor or other incompetent person, and as receiver and
depositary of any moneys and of properties brought into court by parties
3) acts as the executor of any will when it is named the executor thereof
4) acts as administrator of the estate of any deceased person
5) accept and execute any trust for the holding, management, and administration of any
estate, real or personal, and the rents, issues and profits thereof; and
6) establish and manage common trust funds
F. Transactions Requiring Prior Authority
A trustee or fiduciary shall not undertake such transactions, unless prior to its execution,
such transaction has been fully disclosed and authorized by the client, beneficiary, party-ininterest, court of competent jurisdiction or other competent authority:
1) lend, sell transfer or assign money or property to any of the departments, directors,
officers, stockholders or employees of the trustee or fiduciary or relatives within the 1 st
degree of consanguinity or affinity, or the related interest of such directors, officers and
stockholders; or to any corporation where the trustee owns at least 50% of the subscribed
capital or voting stock in its own right and not as trustee nor in a representative capacity;
2) purchase or acquire property or debt instruments from any of the departments, directors,
officers. . . xxx (same in #1)

3) invest in equities of, or in securities underwritten by the trustee or fiduciary or a

corporation in which the trustee owns at least 50% of the subscribed capital or voting
stock
4) Sell, transfer, assign or lend money or property from one trust or fiduciary account except
where the investment is allowed by the Monetary Board.
G. Deposit for the Faithful Performance of Trust Duties
1) Before transacting trust business, every trust entity shall deposit with BSP as security for
the faithful performance of its trust duties, cash or securities approved by the Monetary
Board in an amount of P500,000.00 or such higher amount as may be fixed by the
Monetary Board
2) The Monetary Board shall require every trust entity to increase the amount of its
cash/securities on deposit with BSP whenever necessary
3) The paid-in capital and surplus of such entity must be at least equal to the amount
required to be deposited with the BSP in accordance with the above provisions. Should
the capital and surplus fall below said amount, the Board may limit or prohibit the
distribution of net profits by such bank and may require that part or all of the profits be
used to increase the capital accounts until the minimum requirement has been met.
4) A trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the right to collect the interest earned on such securities deposited
with the BSP and to exchange the securities for others.
5) All claims arising out of the trust business of a trust entity shall have priority over all
other claims as regards the cash or securities deposited as above provided.
IV. Bond of Certain Persons for the Faithful Performance of Duties
A. Bond Requirements
1) Before an executor, administrator, guardian, trustee, receiver, depositary (. . .)
appointed by the court enters upon the execution of his duties, he shall, upon order of
the court, file a bond in such sum, as the court may direct.
2) Upon the application of any executor, administrator, . . . the court may, after notice
and hearing, order that the subject matter of the trust or any part thereof be deposited
with a trust entity
3) Upon presentation of proof to the court that the subject matter of the trust has been
deposited, the court may order that the bond given be reduced to such sums as it may
deem proper.
4) The reduced bond shall be sufficient to secure adequately the proper administration
and care of any property remaining under the control of such persons and the proper
accounting for such property.
B. Exemption of Trust Entity from the Bond Requirement
No bond or other security shall be required by the court from a trust entity as court
appointed trustee, executor, administrator . . . however, the court may require the trust
entity to post a bond or other security for the protection of funds or property confided to
such entity
V. Operations of Trust Entity
A. Separation of Trust Business from General Business
The trust business and all funds, properties or securities received by any trust entity
as executor, administrator . . . shall be kept SEPARATE and DISTINCT from the
general business including all other funds, properties and assets of such trust entity.
The accounts shall likewise be separate.

All moneys, properties or securities received by such bank as wells as investment

of each trust shall be kept physically separate and distinct from the assets of its
other business and shall be under the joint custody of at least 2 persons designated
by the board of directors.
B. Investment Limitations of a Trust Entity
Unless otherwise directed by the instrument creating the trust, the funds and other
assets acquired by a trust entity shall be limited to loans or investments as may be
prescribed by law, the Monetary Board or any court of competent jurisdiction.
Assets received in trust or in other fiduciary capacity shall be administered in
accordance with the terms of the instrument creating the trust. Loans and
investments of the fund shall be limited to:
1) Evidences of indebtedness of the Phils. And of the BSP and other evidences of
indebtedness or obligations the servicing and repayment of which are fully
guaranteed by the Republic
2) Loans fully guaranteed by the Republic as to the payment of the principal and
interest
3) Loans fully secured by a hold-out on, assignment or pledge of deposits
maintained either with the bank proper or other banks, or of deposit substitutes
of the bank, or of mortgage, chattel mort. Issued by the trustee
4) Loans fully secured by real estate or chattels in accordance with pertinent laws
Required specific directives:
1) The transaction to be entered into
2) The borrowers name
3) Amount involved
4) Collateral securities, if any.
C. Real Estate Acquired by a Trust Entity
Such real estate shall be governed by the provisions of GBL, under the following
circumstances:
1) Such as shall be mortgaged to it in good faith by way of security for debts;
2) Such as shall be conveyed to it in satisfaction of debts previously contracted in
the course of its dealings; or
3) Such as its shall purchase at sales under judgments, decrees, mortgages or trust
deeds held by it and such as it shall purchase to secure debts due it.
Any realty shall be disposed of by the bank within a period of 5 years or as may be
prescribed by the Monetary Board, PROVIDED that the bank continue to hold the
property for its own use subject to the ff limitations:
1) The total investment in such real estate and improvements shall not exceed 50% of
combined capital accts
2) The equity investment of a bank in another corporation shall be considered as part of
the total investment in real estate
D. Investment of Non-trust Funds
shall be governed by GBL and other applicable laws
E. Sanctions and Penalties
Trust entity or any of its officers found to have willfully violated the provisions of
GBL shall be subject to sanctions and penalties
F. Exemption of Trust Assets from Claims

No assets held by a trust entity in its capacity as trustee shall be subject to any
claims other than those of the parties interested in the specific trusts. Property held
by the insolvent debtor as trustee shall be excluded from the insolvency
proceedings.
G. Establishment of Branches of a Trust Entity
Ordinary business -> shall be transacted at the place of business specified in the
articles of incorporation
Trust entity shall be responsible for all business conducted in such branches as
though such business had all been conducted in the head office.
H. Advertisement of Services
Trust entities shall advertise their services in a dignified manner and enter such
business only when demand for such service is evident, when specially equipped to
render such service and upon full appreciation of the responsibilities involved.

I. Money of Government
Banks may not receive or hold as trustee, agent, administrator, . . . any fund or
money from the Government and its entities, PROVIDED that government-owned
banks may receive or hold as trustee the following:
1) Funds of LGUS which are expected to be available for investment purposes for
a relatively long period of time
2) Funds of government and government and government entities which are
authorized by special laws to be placed in trust.
CHAPTER 7 The Bangko Sentral ng Pilipinas

I.

Creation, responsibilities and corporate powers of the BSP

A. Declared Policy of the State
The State shall maintain a central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its mandated responsibilities
concerning money, banking and credit.
In line with this policy, and considering its unique functions and responsibilities, the
central monetary authority established under this Act, while being a government-owned
corporation, shall enjoy fiscal and administrative autonomy.

B. Creation of the BSP: mandated by Sec. 20 Art. 12, !987 Consitution

BSP - an independent central monetary authority, which shall be a body corporate (Sec. 2,
NCBA).

Capital Requirements: Fifty Billion Pesos, fully subscribed by the Government of the
Philippines.
Ten Billion of which shall be fully paid for by the Government upon the effectivity of this
Act and the balance to be paid for within a period of two (2) years from the effectivity of this
Act in such manner and form as the Government, through the Secretary of Finance and
Secretary of Budget and Management, may thereafter determine

Principal Place of Business: Metro Manila, but may maintain branches, agencies and
correspondents in such other places as the proper conduct of its business may require.(Sec.
4, NCBA).

C. Responsibility and Primary Objective of the BSP

1. to provide policy directions in the areas of money, banking, and credit

2. to supervise over the operations of banks
3. exercise such regulatory powers as provided in this Act and other pertinent laws over the
a. operations of finance companies and non-bank financial institutions performing
quasi-banking functions; and
b. institutions performing similar function
4. to maintain price ability conducive to a balanced and sustainable growth of the economy,
which is the primary objective of the Bangko Sentral.
5. to promote and maintain monetary stability and the convertibility of the peso.
Jurisprudence: Busuego v. CA
The Supreme Court ruled that It must be remembered that the Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government
agency charged with the responsibility of administering the monetary, banking and credit
system of the country and is granted the power of supervision and examination over banks and
non-bank financial institutions performing quasi-banking functions of which savings and loan
associations

D. Corporate Powers of the BSP

Bangko Sentral is hereby authorized to: SCP-SPAL

1. adopt, alter, and use a corporate seal which shall be judicially noticed;
2. enter into contracts;

3. lease or own real and personal property, and to sell or otherwise dispose of the
same;
4. sue and be sued;
5. do and perform any and all things that may be necessary or proper to carry out the
purposes of this Act.
6. acquire and hold such assets and incur such liabilities in connection with its
operations authorized by the provisions of this Act, or as are essential to the proper
conduct of such operations.
7. compromise, condone or release, in whole or in part, any claim of or settled
liability to the Bangko Sentral, regardless of the amount involved, under such
terms and conditions as may be prescribed by the Monetary Board to protect the
interests of the Bangko Sentral.
Jurisprudence: Power to prosecute:
CENTRAL BANK; NO POWER TO PROSECUTE VIOLATORS OF BANKING LAWS.
Although the Central Bank and its respondent officials may have the duty under the Central
Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet
We find nothing in said laws that imposes a clear, specific duty on the former to do the actual
prosecution of the latter. The Central Bank is a government corporation created principally to
administer the monetary and banking system of the Republic, not a prosecution agency like the
fiscal's office. Being an artificial person, the Central Bank is limited to its statutory powers and
the nearest power to which prosecution of violators of banking laws may be attributed is its
power to sue and be sued. But this corporate power of litigation evidently refers to civil cases
only.
Moreover, it does not appear from the law that only the Central Bank or its respondent
officials can cause the prosecution of alleged violations of banking laws. Said violations
constitute a public offense, the prosecution of which is a matter of public interest and hence,
anyone even private individuals can denounce such violations before the prosecuting
authorities. Since Perez himself could cause the filing of criminal complaints against those
allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy
remedy in the ordinary course of law, which makes mandamus against respondents improper.
(Perez v. Monetary Board).

BSP v. Rural Bank of San Miguel

- BSP and members of the Monetary Board should not be impleaded as parties to a case in
compliance with section 6, rule 43 of the 1997 rules of procedure.
Estoppel

Jurisprudence: The Central Bank of the Philippines is duly committed to maintain the stability
of the country's foreign exchange reserve position. Underlying this commitment, however, is the
government's strict and faithful adherence to basic principles of fairness and decency under the
Bill of Rights. Hence, CB circulars/memoranda must be implemented in a manner that would

not only safeguard or harmonize them with government programs designed to uplift or promote
the country's level of production and employment, but at the same time avoid irreparable or
grave prejudice to participants of said program.
Thus, banks/banking institutions already faithfully complied with the BSPs directives, BSP is
estopped from enforcing circulars that would deny banks or banking institution of their rights.
(Central Bank of the Philippines v. IAC)

II. Authority of the BSP

A. Supervisory powers of the BSP

* Includes: (REO-ISC)
Issuance of Rules of conduct
Conduct Examination to determine compliance with laws and regulations
Overseeing to ascertain that laws and regulations are complied with
Regular Investigation (not oftener than once a year)
Inquiring into the Solvency and liquidity of the institution
Enforcing prompt Corrective action.
* Scope:
Quasi-banks
Trust entities, and
Other financial institutions which under special laws are subject to BSP
supervision.
B. The BSP shall phase out and transfer its supervising and regulatory powers over
building and loan associations to the Home Insurance and Guaranty Corporation
which shall assume the same.
C. Policy Directions; Ratios, Ceilings and Limitations
* Shall be provided by the BSP in the areas of:
Money
Banking
Credit
* Monetary board may:
Prescribe ratios, ceilings, limitations or other forms of regulation on the
diff. types of accounts and practices of banks and quasi-banks which shall,
to the extent feasible, conform to the internationally accepted standards,
including those of the Bank for International Settlements.
Exempt particular categories of transactions from such rations, ceilings and
limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to

continue in business with safety to its creditors, depositors and the general
public.
III. The Monetary Board

- The body through which the powers and functions of the BSP are exercised.

A. Composition
Seven (7) members appointed by the President of the Philippines for a term of 6 yrs
consisted of:
1. A Chairman: Governor of the BSP;
2. A member of the cabinet to be designated by the President of the Philippines;
and
3. Five (5) members who shall come from the private sector, all of whom shall
serve fulltime.
B. Vacancies
- any vacancy in the monetary board created by death, resignation, or removal of
any member shall be filled by the appointment of a new member to complete the
unexpired period of the term of the member concerned.

C. Qualifications of members of the monetary board: (CA-CIPE)

1. Natural born Citizens of the Philippines;
2. at least 35 years of age, with the exception of the Governor who
should at least be 40 yrs of age;
3. of good moral character;
4. of unquestionable integrity;
5. of known probity and patriotism;
6. with recognized competence in social and economic disciplines.
D. Disqualifications of Monetary Board Members: (DDE-CSE)
1. Disqualifications imposed by RA No. 6713;
2. Disqualified from being a director, officer, employee, consultant,
lawyer, agent or stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or examination by the
BSP(in which case such member shall resign from, and divest himself
of any and all interests in such institution before assumption of office
as member of the Monetary Board).
3. The members of the Monetary Board coming from the private sector
shall not hold any other public office or public employment during
their tenure;
4. No person shall be a member of the Monetary Board, if he has been
connected directly with the multilateral banking or financial
institution;

5. has a substantial interest in any private bank in the Phils, within one
year prior to his appointment;
6. employed in any such institution within 2 yrs after the expiration of
his term except when he serves as an official representative of the
Philippine Government to such institution.
E. Grounds for the removal of Monetary Board Members (SIGN)
- The President may remove any member of the Monetary Board for any of the
following reasons:
1. If the member is subsequently disqualified under the provisions of
Section 8 of this Act; (this is a typo error. It should refer to Section 9 of the
NCBA)
2. If he is physically or mentally incapacitated that he cannot properly
discharge his duties and responsibilities and such incapacity has lasted for
more than six (6) months; or
3. If the member is guilty of acts or operations which are of fraudulent
or illegal character or which are manifestly opposed to the aims and interests
of the Bangko Sentral; or
4. If the member no longer possesses the qualifications specified in
Section 8 of this Act.
F. Meetings, Quorum, Decisions and Proceedings of the Monetary Board
1. The Monetary Board shall meet at least once a week. The Board may
be called to a meeting by the Governor of the Bangko Sentral or by
two (2) other members of the Board.
2. The presence of four (4) members shall constitute a quorum:
Provided, That in all cases the Governor or his duly designated
alternate shall be among the four (4).
3. Unless otherwise provided in this Act, all decisions of the Monetary
Board shall require the concurrence of at least four (4) members.

F. Meetings, Quorum, Decisions and Proceedings in Monetary Board

a.) meet at least once a week, may be called by its governor or 2 other members
b.) 4 members shall constitute quorum provided that in all cases the governor or
designated alternative shall be among the 4
c.) unless otherwise provided in NCBA, ALL DECISIONS OF THE Monetary Board
shall require concurrence of at least 4 members

Note: in the following cases, vote of at least 5 members is required:

1. Sec. 61, GBL- PUBLICATION OF FINANCIAL STATEMENT (every bank, quasi-bank

or trust entity shall publish a statement of its financial conditions, including subsidiaries
and affiliates xxx; the Bangko Sentral may prescribe the newspaper shall be published;
the monetary board may also allow posting of the financial statement in public places in
lieu of publication; banks shall make available also in setting the audited financial
statement and relevant information that will inform the public of the true financial
condition of the bank; and in periods of national or local emergency, which directly
threaten the monetary board, by a vote of at least 5 members may allow the bank to defer
financial condition required therein)
2. Sec. 28, NCBA- EXAMINATION AND FEES (the supervising and examining
department head, personally or by deputy, shall examine the books of every banking
institution once in every 12 months, and at such other times as mat be prescribed by the
monetary board by an affirmative vote of 5 members provided that there shall be an
interval of 12 months between annual examination)
3. Sec. 17, NCBA- EMERGENCY RESTRICTIONS ON EXCHANGE OPERATIONS (in
order to achieve primary objectives of the Bangko Sentral or protect international
reserves of the BS in the imminence of or during an exchange crisis take constructive
measures to combat the crisis with the concurrence of 5 members, may temporarily
restrict or suspend sales of exchange; provided that foreign currency deposits made under
RA 6426 shall be exempted from this requirement)
4. Sec. 84, NCBA- EMERGENCY LOANS AND ADVANCES (IN PERIODS OF LOCAL
AND NATIONAL EMERGENCY OR IMMINENT FINANCIAL PANIC WHICH
DIRECTLY THREATEN BANKING STABILITY, THE MONETARY BOARD may
authorize Banko Sentral to grant extraordinary loans or advances to banking institutions
secured by assets provided that debtor institution shall not except upon prior
authorization of the Board, expand the total volume of its loans. The MB may also
authorize the banko sentral to grant emergency loans for purposes os assiting the bank
with its financial condition brought by unforeseen events and ascertain that such bank is
not insolventand has assets to secure advances. The loan advanced shall not exceed 50%
of total deposits and shall be disbursed in 2 or more trances)
G. Deputy Governors may attend Meetings of the Monetary Board with right to be heard

H. Salaries of the Governor and members of the Monetary Board SHALL BE FIXED BY
THE President of the Philippines at
a sum commensurate to the importance and
responsibility attached to the position

I. Personal or Pecuniary Interest (DR-PR)- . Personal or pecuniary interest by any

member of the Monetary Board shall disclose his interest to the Board and shall retire
from the meeting when the matter is taken up. This is in order to uphold the time-honored
principle of public office as a public trust.
In addition to the requirements of RA No. 6713, any member of the Monetary Board with
personal or pecuniary interest in any matter in the agenda of the Monetary Board:
a) shall disclose his in interest to the Board; and
b) shall retire from the meeting when the matter is taken up
c) the decision taken on the matter shall be made public

d) the minutes shall reflect the disclosure made and the retirement of the member
concerned from the meetings
J. Scope of Authority of the Monetary Board (IDEA-I)
a) issue rules and regulations (the rules and regulations issued shall be reported to the
President and the Congress within fifteen (15) days from the date of their issuance)
b) direct management, operations, and administration of the Bangko Sentral, reorganize
its personnel, and issue such rules and regulations as it may deem necessary or
convenient for this purpose
c) establish human resource system (such system shall aim to establish professionalism
and excellence at all levels of the Bangko Sentral in accordance with sound principles
of management)
(i)
a compensation structure based on job evaluation studies and wage surveys
and subject to the Boards approval shall be instituted as an integral
component of the Bangko Sentrals human resources development program.
compensation and wage structure of employees whose positions fall under
salary grade 19 and below shall be in accordance with the rates prescribed
under RA No. 6758 (Compensation and Position Classification Act of 1989).

(ii)

Governor
on its recommendation, can appoint, fix the remunerations and other
emoluments, and remover personnel of the Bangko Sentral, subject to
pertinent civil service laws

Monetray Board
shall have exclusive and final authority to promote, transfer, assign, or
reassign personnel of the Bangko Sentral and these personnel actions are
deemed made in the interest of the service not disciplinary
may delegate such authority to the Governor under such guidelines as it
may determine
d) adopt an annual budget for and authorize such expenditures by the Bangko
Sentral
e) indemnify its members and other officials of the Bangko Sentral against all
costs and expenses reasonably incurred by such person in connection with any civil or
criminal action, suits, or proceedings to which he may be, or is, made a party by
reason of the performance of his functions or duties, unless he is finally adjudged in
such action or proceeding to be liable for negligence or misconduct
(i)

(ii)

in the event of a settlement or compromise, indemnification shall be

provided only in connection with such matters covered by the settlement as
to which the Bangko Sentral is advised by external counsel that the person to
be indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned action, suit
or proceeding may be paid by the Bangko Sentral in advance of the final

disposition of such action, suit or proceeding upon receipt of an undertaking

by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he
Note: The Supreme Court in the case Central Bank Employees
Association, Inc. v. Bangko Sentral ng Pilipinas and the
Executive Secretary declared the foregoing provision
[particularly item (c) unconstitutional] unconstitutional for
being violative of the equal protection clause. (see page 304)

K. Responsibility of Members of the Monetary Board, Official, Examiners, and

Employees of the Bangko Sentral

(i)

(ii)

if anyone of them willfully violate NCBA or who is guilty of negligence, abuse, or

acts of malfeasance or misfeasance of fails to exercise extraordinary diligence in the
performance of his duties shall be held liable for any loss or injury suffered by the
Bangko Sentral or other banking institutions as a result of such:
a) violation
b) negligence
c) abuse
d) malfeasance
e) misfeasance; or
f) failure to exercise extraordinary diligence (VNAMMFe)
similar responsibility shall apply to members, officers, and employees of the
Bangko Sentral for:
(a) the disclosure of any information of a confidential nature, or any
information on the discussion or resolution of the Monetary Board or about
the confidential operations of the Bangko Sentral, unless the disclosure is
in connection with the performance of official functions with the Bangko
Sentral, or is with prior authorization of the Monetary Board or the
Governor; or
(b) the use of such information for personal gain ir the detriment of the
Government, the bangko Sentral of third parties
*any data or information required to be submitted to the President and/or the
congress, or to be published under the provisions of the NCBA shall not be
considered confidential

IV. The Governor and Deputy Governors of the Bangko Sentral

A. Powers and Duties of the Governor (CEO PEDARE)

Governor
- chief exec officer of the BSP
- principal representative of the MB and the BSP
Powers and Duties:

1. prepare the agenda for the meetings of the MB and submit policies and measures which
he believes are necessary to carry out the purposes and provisions of the NBCA;
2. execute and administer the policies and measures approved by the MB;
3. direct and supervise the operations and internal administration of the Bangko Sentral;
4. appoint and fix the remunerations and other emoluments of personnel below the rank of a
department head in accordance with the position and compensation plans approved by the
MB
5. render opinions, decisions, or rulings, which shall be final and executory until reversed or
modified by the MB, on matters regarding application/enforcement of laws pertaining to
institutions supervised by the BSP and laws pertaining to quasi banks
6. exercise such powers as may be vested in him by the MB.
Powers of the Governor as Representative of Monetary Board and BSP

1. represent the MB and BSP in all dealings with other offices, agencies and
instrumentalities of the Govt and all other persons or entities, public or private,
domestic, foreign or international;
2. sign contracts entered into by the BSP, notes and securities issued by the BSP, all reports,
balance sheets, profit and loss statements, correspondence and other documents
3. represent the BS, personally or through counsel, as authorized by the MB, in any legal
proceedings, action or specialized legal studies
4. delegate his power to represent the BS as provided in 1-3 to other officers upon his own
responsibility
SEC 18, NCBA A permanent negotiator may take the place of the Governor in preliminary
discussions with any multilateral banking or financial institutions on any negotiations for the
Govt within or outside the Philippines in order to preserve the integrity and prestige of his
office.

Emergencies

In case of emergencies

- and it is sufficient to call for a meeting of the MB, the Gov of the BS + concurrence of 2
other Monetary Board members = decide on any matter or take any action within the
authority of the Board.
- The Gov shall submit a report to the Pres and Congress within 72 hours after the action
has been taken.
- At the soonest possible time, the Gov shall call a meeting of the MB to submit his action
for ratification.
Limitations on Outside Interests of the Gov and the Full-time Members of the Board

- limit their professional activities to those pertaining directly to their positions with the
BS.
- GR: accept no other employment, public or private, remunerated or ad horem
- EXP: positions in
o Eleemosynary
o Civic org
o Religious org
o Cultural org
o Designation of the Pres, Gov,
o Representation of a fulltime member of the interest of the Govt or other govt
agencies in matters connected with the economy/financial system of the country
Deputy Governors
- not more than three
- DUTY: assigned by the Gov and board
- DEPUTY GOV designated by the Gov shall take the place of the latter in his duties and
responsibilities when the same is absent

V. Operations of the Bangko Sentral

Research and Statistics of the BS

BS
- prepare data
o balance of Philippine payments
o statistics on the monthly movement of the monetary aggregates
o prices and other statistical series and economic studies useful for the formulation
and analysis of monetary, banking, credit and exchange policies.
- conduct economic research to guide the MB in its formulation and implementation of
policies

SCOPE and AUTHORITY OF BS TO OBTAIN DATA AND INFO

- request from GOI/GOCC data needed for the proper discharge of their office
- subpoena production of said books in case of non-compliance
- data on firms and other banks are exclusively for the purview of the BSP exp as per court
order or conditions prescribed by the MB
Scope and Supervision and Examination by the Bangko Sentral

- BS has supervision over and conduct periodic or special examinations of, banking
institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied
activities.
o SUBSIDIARY more than 50% of the voting stock is owned by the bank or quasibank
o AFFILIATE 50 % or less is owned by bank or quasi-bank
- department heads/examiners have the following supervisory authority
o administration of oaths to any director, officer, or employee of any institution
under their respective supervision or subject to their examination
o compel the presentation of all books, documents, papers or records necessary in
their judgment
Restraining Order or Injunction
- restraining orders can only be issued when there is convincing proof that the action of the
BS is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
clerk or judge of the court in which the action is pending a bond executed in favor of the
BS, in an amt fixed by the Court.
VI. Director, Officer or Stockholder, And Related Interest

A. Contracting Loans
(i)
Any director, officer or stockholder who together with his related interest,
contracts a loan or any form of financial accommodation from:
(1) his bank; or
(2) from a bank which is a subsidiary of a bank holding company of which
both his bank and the lending bank are subsidiaries, or in which a
controlling proportion of the shares is owned by the same interest that
owns a controlling proportion of the shares of his bank, in excess of five
percent (5%) of the capital and surplus of the bank, or in the maximum
amount permitted by law, whichever is lower,
shall be required by the lending bank to waive the secrecy of his deposits of whatever
nature in all banks in the Philippines.

(ii) Any information obtained from an examination of his deposits shall be held strictly
confidential and may be used by the examiners only in connection with their supervisory
and examination responsibility or by the BSP in an appropriate legal action it has initiated
involving the deposit account.

B. Prohibition Against Personnel of the Bangko Sentral

In addition to the prohibitions found in RA 3019 and 6713, personnel of the
Sentral are prohibited from (P-ORRB)

Bangko

(1) being an officer xxx, directly or indirectly, of any institution subject to

supervision or examination by the Bangko Sentral, except non-stock
savings and loan associations and provident funds organized exclusively
for employees of the Bangko Sentral, and except as otherwise provided
in the NCBA;
(2) directly or indirectly requesting or receiving any gift xxx for himself or
for another, from any institution subject to supervision or examination by
the Bangko Sentral;
(3) revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorized by law, or under such
conditions as may be prescribed by the Monetary Board, information
relating to the condition or business of any institution. This prohibition
shall not be held to apply in the giving of information to the Monetary
Board or the governor of the Bangko Sentral, or to any person authorized
by either of them, in writing, to receive such information; and
(4) borrowing from any institution subject to supervision or examination by
the Bangko Sentral shall be prohibited unless said borrowing are
adequately secured, fully disclosed to the Monetary Board, and shall be
subject to such further rules and regulations as the Monetary Board may
prescribe: Provided, however, That personnel of the supervising and
examining departments are prohibited from borrowing from a bank under
their supervision or examination (sec.27, NCBA)
VII Examination of Baking Institutions

Frequency of Examination
- once every 12months
- and as approved by the Monetary Board with the affirmative vote of 5 persons
- done by the supervising/examining board
Affording Opportunity to Examine
- Sec 28 of NBCA

Service Fees
- Bank or quasi-banks shall pay the BS within the first 30 days of each year, an annual fee in an
amount equal to a percentage as may be prescribed by the MB of its average total assets during
the preceding year as shown on its end-month balance sheets after deducting COH and amounts
due from banks.

VIII -- ADMINISTRATION
A. Operating departments of the BSP
The monetary board shall, in accordance with its authority under the NCBA, determine
and provide for such operating departments and other offices, including a public
information office, of the BSP as it deems convenient for the proper and efficient conduct
of the operations and the accomplishment of the objectives of the BSP.
(sec 38 NCBA) The functions and duties of such operating departments and other offices
shall be determined by the monetary board.
B. Required reports and publications of the BSP
Publish a general balance sheet showing the volume and composition of its assets
and liabilities as of the last working day of the month w/in 60 days after the end of
each month (except for December = to be submitted w/in 90 days after the end
thereof).
The Monetary board shall publish and submit the ff reports to the President and
Congress:
- An analysis of economic and financial developments + condition of net
international reserves and monetary aggregates (not later than 90 days after the
end of each quarter)
- The preceding years budget and profit and loss statement of the BSP showing
in reasonable detail the result of its operations (w/in 90 days after the end of
year)
- Review of the state of financial system (120 days after end of each sem)
- As soon as practicable, abnormal movements in monetary aggregates and the
general price level, and, not later than 72 hrs after they are taken, remedial
measures in response to such abnormal movements
C. Annual report of the BSP
When: before the end of March of each year
What: Annual Report on the Condition of the BSP + a review on the policies and
measures adopted by the Monetary Board during the past year + analysis of economic
and financial circumstances w/c gave rise to said policies
For whom: President and Congress
Shall also include statement of the financial condition of the BSP and statistical appendix
w/c shall present AS A MINIMUM the ff data:
1. Monthly movement of monetary aggregates and their components

2. Monthly movement of purchases and sales of foreign exchange and of the

international reserves of BSP
3. The balance of payments of the Phils
4. Monthly indices of consumer prices and of import and export prices
5. Monthly movement in summary form, of exports and imports by volume and value
6. Monthly movement of the accounts of the BSP and other banks
7. Principal data on government receipts and expenditures and on the status of the public
debt both domestic and foreign
8. Texts of major legal and admin measures adopted by the government and the
monetary board during the year w/c relate to the functions or operations of BSP or of
the financial system
The BSP SHALL PUBLISH ANOTHER VERSION OF THE ANNUAL REPORT IN
TERMS UNDERSTANDABLE TO THE LAYMAN.
FAILURE TO COMPLY with the reportorial requirements pursuant to this article w/o
justifiable reason as may be determined by the monetary board shall cause the
withholding of the salary of the personnel concerned until the requirements are complied
with (sec 40)
D. Signatures on statements
Balance sheets and other financial statements of the BSP shall be signed by officers
responsible for their preparation, by the governor, and by the auditor of the Bangko
Sentral (sec 41 NCBA)
IX PROFITS, LOSSES, AND SPECIAL ACCOUNTS
A. Fiscal year = shall begin on Jan 1 and end on Dec 31 of each year (SEC 42 NCBA)
B. Computation of profits and losses
Within the first 30 days ff the end of each year, the BSP shall determine its net profits or
losses. In the calculation of net profits, it shall make adequate allowance or establish
adequate reserves for bad and doubtful accounts (sec 43)
C. Distribution of net profits
w/in the first 60 days ff the end of each fiscal year, the monetary board shall determine
and carry out the distribution of the net profits, in accordance with the ff rule:
o 50% of the net profits shall be carried to surplus
o The remaining 50% shall revert back to the National Treasury, escept as
otherwise provided in the transitory provisions of the NCBA (sec 44)
D. Revaluation profits and losses
Section 45. Revaluation Profits and Losses. - Profits or losses arising from any
revaluation of the Bangko Sentral's net assets or liabilities in gold or foreign currencies
with respect to the Philippine peso shall not be included in the computation of the annual
profits and losses of the Bangko Sentral. Any profits or losses arising in this manner shall
be offset by any amounts which, as a consequence of such revaluations, are owed by the
Philippines to any international or regional intergovernmental financial institution of
which the Philippines is a member or are owed by these institutions to the Philippines.
Any remaining profit or loss shall be carried in a special frozen account which shall be
named "Revaluation of International Reserve" and the net balance of which shall appear
either among the liabilities or among the assets of the Bangko Sentral, depending on
whether the revaluations have produced net profits or net losses.

*The Revaluation of International Reserve account shall be neither credited nor debited for any
purposes other than those specifically authorized in this section
E. Suspense accounts
Section 46. Suspense Accounts. - Sections 43 and 43-A of Republic Act No. 265, as
amended, creating the Monetary Adjustment Account (MAA) and the Exchange
Stabilization Adjustment Account (ESAA), respectively, are hereby repealed. Amounts
outstanding as of the effective date of this Act based on these accounts shall continue to
be for the account of the Central Bank and shall be governed by the transitory provisions
of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date of this
Act of the Central Bank shall continue to be for the account of the same entity and shall
be governed by the provisions of Section 44 of Republic Act No. 265, as amended, until
otherwise provided for in accordance with the transitory provisions of this Act.
F. The auditor
Section 47. Appointment and Personnel. - The Chairman of the Commission on Audit
shall act as the ex officio auditor of the Bangko Sentral and, as such, he is empowered
and authorized to appoint a representative who shall be the auditor of the Bangko Sentral
and, in accordance with law, fix his salary, and to appoint and fix salaries and number of
personnel to assist said representative in his work. The salaries and other emoluments
shall be paid by the Commission. The auditor of the Bangko Sentral and personnel under
him may be removed only by the Chairman of the Commission.
The representative of the Chairman of the Commission must be a certified public
accountant with at least ten (10) years experience as such. No relative of any member of
the Monetary Board or the Chairman of the Commission within the sixth degree of
consanguinity or affinity shall be appointed such representative.
X. Penalty for Violation

Sec 66 of the GBL provides

Unless otherwise provided, the violation of any of the provisions of the GBL shall be
subject to Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director
or officer of a bank, quasi-bank or trust entity, the Monetary Board may also suspend or
remove such director or officer. If the violation is committed by a corporation, such corporation
may be dissolved by quo warranto proceedings instituted by the Solicitor General.

A. Penalty for refusal to make reports or permit examination

- a fine of P50,000 P100,000, or by imprisonment of 1 5 years, or both, at the
discretion of the court
B. Penalty for the willful making of a false or misleading statement on a material fact
- a fine of P100,00 P200,000, or by imprisonment of not more than 5 years, or both, at
the discretion of the court

C. Proceedings upon and penalty for violation of NCBA and other banking laws, rules,
regulations, orders or instructions
- shall unless otherwise provided in NCBA be punished by a fine of P50,000 - P200,000 or
by imprisonment of 2 10 years, or both, at the discretion of the court
- Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or
unsafe manner, the Board may, without prejudice to the penalties provided above and the
administrative sanctions provided in Sec 37 of NCBA, take action under Sec 30
(Receivership and Liquidation) of the NCBA.
D. Administrative sanctions on banks and quasi-banks (Administrative Violations: CDRFLIB)
1. Administrative Violations and Penalties
-without prejudice to the criminal sanctions
a. any willful violation of its charter or by-laws;
b. willful delay in the submission of reports or publications thereof as required by law,
rules and regulations;
c. any refusal to permit examination into the affairs of the institution;
d. any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners;
e. any willful failure or refusal to comply with, or violation of, any banking law or any
order, instruction or regulation issued by the Monetary Board, or any order, instruction or
ruling by the Governor; or
f. any commission of irregularities; and/or
g. conducting business in an unsafe or unsound manner as may be determined by the
Monetary Board
*Notes:
1. Resignation or termination from office shall not exempt such director or officer
from administrative or criminal sanctions.
2. The Monetary Board may, whenever warranted by circumstances, preventively
suspend any director or officer of a bank or quasi-bank pending an investigation: Provided,
That should the case be not finally decided by the Bangko Sentral within a period of 120 days
after the date of suspension, said director or officer shall be reinstated in his position:
Provided, further, That when the delay in the disposition of the case is due to the fault,
negligence or petition of the director or officer, the period of delay shall not be counted in
computing the period of suspension herein provided.
3. The above administrative sanctions need not be applied in the order of their severity.

2. Administrative Proceedings
(1) Whether or not there is an administrative proceeding, the Monetary Board may issue a
cease and desist order from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or
violation, which is immediately effective upon service to the institution and/or the

directors and/or officers, which is immediately effective upon service to the institution
and/or the directors and/or officers.
(2) The respondents shall be afforded an opportunity to defend their action in a hearing
before the Monetary Board or its committee chaired by any MB member upon request
made by the respondents within 5 days from their receipt of the order. If no such hearing
is requested within said period, the order shall be final.
(3) The Governor is authorized, at his discretion, to impose upon banking institutions, for
any failure to comply with the requirements of law, Monetary Board regulations, etc.
fines not in excess of P10,000 a day for each violation, the imposition of which is final
and executory until reversed, modified or lifted by the Monetary Board on appeal.