PARTYDUH NOTES Banking PDF

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PARTY-‐DUH NOTES for Banking Laws & Jurisprudence © 2009

BANKING LAWS & JURISPRUDENCE and the bank agrees to pay the depositor on demand. (Consolidated
Bank and Trust Corporation vs. Court of Appeals)
CHAPTER 1 • Bank deposits are in the nature of irregular deposits. They are really
loans because they earn interest. (Serrano vs. Central Bank of the
Philippines)

B. Fiduciary Duty
I. DECLARED POLICY OF THE STATE “fiduciary nature of banking which requires high standards
of integrity and performance.”
• Treat the accounts of its depositors with meticulous care, always having
“The State recognizes the vital role of banks in providing for
in mind the fiduciary nature of their relationship.
an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that requires • Requires banks to assume a degree of diligence higher than that of a
high standards of integrity and performance. In furtherance good father of a family
thereof, the State shall promote and maintain a stable and efficient • Higher level of accountability than that expected of a depositor.
banking system that is globally competitive, dynamic and
responsive to the demands of a developing economy. “ (Section 2 C. Not a Trust Agreement
of RA 8791, General Banking Law of 2000) The fiduciary nature of a bank-depositor relationship does
not convert the contract between the bank and its depositors from a
II. DEFINITION OF BANKS simple loan to a trust agreement, whether express or implied.
• Failure by the bank to pay the depositor is failure to pay a simple loan,
Banks are entities engaged in the lending of funds obtained in the form and not a breach of trust.
of deposits.
• Banks do not accept deposits to enrich depositors but to earn money for
-‐ A moneyed institute founded to facilitate the borrowing, lending and
themselves.
self-keeping of money and to deal, in notes, bills of exchange, and
credits.
D. Indispensable Institution
-‐ An investment company which loans out the money of its
Plays a vital role in the economic life of every civilized
customers, collects the interest and charges a commission to both nation.
lender and borrower, is a bank. • Banks have become an ubiquitous presence among the people, who
-‐ Any person engaged in the business carried on by banks of have come to regard them with respect and even gratitude, and most of
deposit, of discount, or of circulation is doing a banking business, all, confidence.
although but one of these functions is exercised.
E. Impressed with Public Interest
III. NATURE OF BANKING BUSINESS The stability of banks largely depends on the confidence
of the people in the honesty and efficiency of banks.
A. Debtor- Creditor Relationship • In every case, the depositor expects the bank to treat his account with
Art. 1980. Fixed, savings, and current deposits of money the utmost fidelity, whether such account consist only of a few hundred
in banks and similar institutions shall be governed by the provisions pesos or of millions. The bank must record every single transaction
concerning loan. accurately, down to the last centavo, and as promptly as possible. This
• The contract between the bank and its depositor is governed by the
has to be done if the account is to reflect at any given time the amount
provisions of the Civil Code on simple loan… The bank is the debtor
and the depositor is the creditor. The depositor lends the bank money
Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

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of the money the depositor can dispose of as he sees fit, confident that office of any director or officer responsible therefor, without prejudice to
the bank will deliver it as and to whomever he directs. their criminal liability.
F. Degree of Diligence I. Banks are not Gratuitous Bailees

The law imposes on banks high standards in view of the Banks are run for gain, and they solicit deposits in order
fiduciary nature of banking. that they can use the money for that very purpose.
• The bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their J. Banks not Expected to be Infallible
relationship. (Simex Internationsl vs. Court of Appeals) However, it must bear the blame for not discovering
• Degree of diligence higher than that of a good father of a family, as mistakes if there are established procedures and the same have
not been followed.
prescribed by Section 2 of the GBL.
• Same higher degree of diligence is not expected to be exerted by banks K. Dealing with Registered Lands
in commercial transactions that do not involve their fiduciary relationship Banks should exercise more care and prudence in dealing
with their depositors. with registered lands, than private individuals, for their business is
• Diligence extends to financial institutions: one affected with public interest.
o A government financial institution, like banks, is expected to • The rule that persons dealing with registered lands can rely solely on
exercise greater care and prudence in the dealings, including the certificate of title does not apply to banks.
those involving registered lands. • Judicial notice is taken of the standard practice for banks, before
o Due diligence required of banks extend even to persons, or approving a loan, to send representatives to the premises of the land
institutions, regularly engaged in the business of lending offered as collateral and to investigate who the real owners thereof are.
money secured by real estate mortgages. A mortgagee-bank must exercise due diligence before entering into said
contracts.
G. Treatment of Accounts with Meticulous Care • Any investigation previously conducted on the property offered as
In every case, the depositor expects the bank to treat his collateral does not preclude a bank from considering information on the
account with the utmost fidelity, whether such account consist only same property as security for a subsequent loan. (Sps. Omengan vs.
of a few hundred pesos or of millions. Philippine National Bank)
• A blunder on the part of the bank, such as the dishonor of a check
without good reason, can cause the depositor not a little embarrassment L. Banks may Exclude Persons in their Premises
if not also financial loss perhaps even civil and criminal litigation. Banks are mandated to exercise a higher degree of
• No law mandating banks to call up their clients whenever their diligence in the handling of its affairs than that expected of an
representatives withdraw significant amounts from their accounts. ordinary business enterprise.
• Banks may impose reasonable conditions or limitations to access by
H. Duty to Keep Records non-employees to its premises and records, such as the exclusion of
A bank has a fiduciary duty to keep efficiently a record of non-employees from the working areas for employees, even absent any
its transactions with its depositors. Banks shall have a true and imminent or actual unlawful aggression on or an invasion of its
accurate account, record or statement of their daily transactions, properties or usurpation thereof, provided that such limitations are not
particularly those referring to their deposit liabilities.
contrary to the law.
• Making of any false entry or the willful omissionof entries is a ground for
the imposition of administrative sanctions and the disqualification from M. Charging of Interest for Loans

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Very essential and fundamental element of the banking Banks may recover from its employees for any payment
business; it may be considered to be the very core of the banking made in view of the latter’s negligent or criminal acts.
existence or being. • “Whoever pays for the damages caused by his dependents or
employees may recover from the latter what he has paid or delivered in
IV. LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES satisfaction of the claim.”
By the very nature of their work the degree of responsibility, care E. Liability for Damages
and trustworthiness expected of their employees and officials are far greater
There must be a breach before damages may be awarded
than those of ordinary clerks and employees. Banks are expected to
and the breach of such duty should be the proximate cause of the
exercise the highest degree of diligence in the selection and supervision of
injury.
their employees.
• A bank is liable for the wrongful acts of its officers done in the interest of
1. Actual and Compensatory Damages
the bank or in their dealings as bank representatives but not for acts
(1) when the obligation is breached, and it consists
outside the scope of their authority.
in the payment of a sum of money, the interest
due should be that which may have been
A. Negligence of Manager
stipulated in writing. It shall itself earn interest
The bank, as an employer, is liable. Confidence in the
banking system, which necessarily includes reliance on bank from the time it is judicially demanded. In the
managers, is vital in the economic life of our society. absence of stipulation, interest must be 12% per
annum.
B. Negligence of Officers (2) may be imposed at the discretion of the court at
A bank will be held liable for the negligence of its officers the rate of 6% per annum.
or agents when acting within the course and scope of their (3) When the judgement of the court awarding a sum
employment. of money becomes final and executor, the rate of
• If a corporation knowingly permits its officer, or any other agent, to
legal interest whether the case falls under (1) or
perform acts within the scope of an apparent authority, holding him out
(2), shall be 12% per annum from such finality
to the public as possessing power to do those acts, the corporation will,
until satisfaction.
as against any person who has dealt in good faith with the corporation
through such agent, be stopped from denying such authority. 2. Exemplary Damages
Law allows the grant of exemplary damages by way of
C. Negligence of Tellers example for the public good. The public relies on the banks’
Bank’s tellers must exercise a high degree of diligence in fiduciary duty to observe the highest degree of diligence.
insuring that they return the passbook only to the depositor or his
authorized representative. The tellers know, or should know, that 3. Moral Damages
the rules on savings account provide that any person in possession As a general rule, a corporation is not entitled to moral
of the passbook is presumptively its owner. damages, because it cannot experience physical suffering and
• Appropriation of money by a teller is not estafa. If the teller appropriates mental anguish. However, for the breach of fiduciary duty
the money for his personal gain, and since he occupies a position of required of a bank, a coporate client may claim such damages
confidence, the felony of qualified theft would be committed. when its good reputation is besmirched by such breach, and
social humiliation results therefrom.
D. Right to Recover from Employees • In culpa contractual or breach of contract, moral damages are
recoverable only if the defendant has acted fraudulently or in bad faith,

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or is found guilty of gross negligence amounting to bad faith, or in § See section 29 of GBL and chapter 4 for
wanton (reckless) disregard of his contractual obligations. discussion of operations.
• Banks may not be held responsible in the absence of bad faith, malice, b. Universal Banks (U)
-‐ They are large banks licensed by Bangko Sentral ng Pilipinas
or wanton attitude. The law affords no remedy for damages resulting
to do both commercial and investment banking.
from an act which does not amount to a legal injury or wrong. -‐ In addition to the powers of commercial bank, a universal bank
(DAMNUM ABSQUE INJURIA) can exercise the powers of an investment house as well as
§ INJURY- illegal invasion of a legal right invest in non-allied enterprises.
§ DAMAGE- the loss, hurt, or harm which results from -‐ A universal bank may perform the functions of an investment
the injury either directly (through a sepatate and distinct department or
within the unit if the bank) or indirectly (through a separate
• Depositor may recover moral damages even if the bank’s negligence
subsidiary investment house). In either case, the underwriting
may not have been attended with bad faith, if the former suffered mental of equity securities or securities dealing will be subject to
anguish, serious anxiety, embarrassment and humiliation. Moral pertinent laws, as well as applicable regulations of the SEC.
damages are not meant to enrich a complainant at the expense of the
defendant. It is only intended to alleviate the moral suffering she has c. Thrift Banks (T)
undergone. -‐ Aside from the powers conferred on it by other laws, a thrift
bank namely a savings and mortgage bank, a stock savings
F. Respondeat Superior, Diligence in the Selection and and loan association or a private development bank.
-‐ Recognize the indispensable role of the private sector, to
Supervision of Employees
encourage private enterprise and to provide incentives to
o Banks is bound by the negligence of its employees under the needed investment.
principle of repondeat superior or command responsibility. -‐ The following are powers of a thrift bank:
o The defense of exercising the required diligence in the a. Grant loans, whether secured or not
selection and supervision of employees is not a complete b. Invest marketable bonds and other debt securities
defense in culpa contractual, unlike in culpa aquiliana. c. Issue domestic letters of credit
d. Extend credit facilities to private and government
employees
Classification of Banks (CUT-RICO) e. Extend credit against the security of jewelry or other
precious stones.
a. Commercial Bank/s (C) f. Accept savings and time deposits
-‐ Exercise the general powers incident to a corporations g. Rediscount paper with the Land Bank of the
-‐ Shall have all powers as may be necessary to carry on Philippines, Development Bank of the Philippines and
business of commercial banking: other GOCC
a. Accepting drafts and issuing letters of credit h. Accept foreign currency deposits as provided under
b. Discounting and negotiating promissory notes, drafts, Foreign Currency Deposit Act
bills of exchange and other evidence of debt i. Act as correspondent for other financial institutions
c. Accepting or creating demand deposits j. Purchase, hold and convey real estate as specified in
d. Receiving other types of deposits and deposits sections 51 and 52 of GBL
substitute k. Offer other banking services as provided in section 53
e. Buying and selling foreign exchange and gold or silver of GBL.
bullion, acquiring marketable bonds and other debt -‐ Thrift banks may perform such services only upon prior
securities approval of Monetary Board.
f. Extending credit, subject to such rules as the -‐
Monetary Board may promulgate d. Rural Banks (R)

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-‐ Recognizes the need to promote comprehensive rural 3. Offshore Banks
development with the end view of attaining acquitable -‐ Refers to the conduct of banking transactions in foreign
distribution of opportunities, income and wealth. currencies involving the receipt of funds from external sources
-‐ Encourages and assists in the establishment of rural banking and the utilization of such funds.
system designed to make needed credit available and readily
accessible in the rural areas on the reasonable terms. Authority to Engage in Banking and Quasi-Banking Functions
-‐ Loans or advances extended by rural banks shall be primarily A. Authority from Bangko Sentral ng Pilipinas
for the purpose of meeting the normal credit needs of farmers, -‐ No person or entity shall engage in banking operations or
fishermen or farm families as well as the normal credit needs quasi-banking functions without authority from BSP.
of cooperatives and merchants. -‐ An entity authorized by the BSP to perform universal or
e. Islamic (I) commercial banking the functions shall likewise have the
-‐
RA 6848 created the Al-Amanah Islamic Investment Bank of authority to engage in quasi-banking functions.
the Philippines. The domicile and place of business is in -‐ According to the provisions of the Corporation Code that: (a.)
Zamboanga City. no article of incorporation or amendment to articles of
-‐ Primary purpose of the Islamic Bank is to promote and incorporation of banks, banking and quasi-banking institution…
accelerate the socio-economic development of the xxx governed by special laws shall be accepted by the
Autonomous Region by performing banking, financing and Commission unless accompanied by a favorable
investment operations. recommendation of the appropriate government agency to the
f. Cooperative (C) effect that such articles or amendment is in accordance with
-‐ Organized by the majority shares of which is owned and law; (b.) the SEC shall not accept for filing the by-laws or any
controlled by cooperatives primarily to provide financial and amendment thereto of any bank, banking institution… xxx
credit services to cooperatives. unless accompanied by a certificate of the appropriate
-‐ May perform all the functions of rural bank. government agency to the effect that such by-laws or
-‐ Membership of cooperative bank shall include only cooperative amendments are in accordance with law.
and federations of cooperative. B. Determination by the Monetary Board
g. Other Banks (O) -‐ The Monetary Board shall decide the determination of whether
-‐ The Monetary Board is authorized to make other classification a person or entity is performing banking or quasi-banking
of banks, as it may deem proper. functions.
-‐ Philippine Veterans Bank, Land Bank of the Philippines a. To resolve such issue through inspection,
Development Bank of the Philippines is considered to be investigation and examination.
Government-Owned Banks. b. Upon issuance of this authority banking operations
-‐ shall continue to do so unless such authority is
OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 3 revoked, suspended or annulled by BSP.
1. Non-Stock Savings and Loan Associations c. Existence of a victim is not necessary to determine
-‐ Is a non-stock, non-profit corporation engaged in the business whether an entity is in illegal banking.
of accumulating engaged in the business of accumulating the C. Authority of Supervising and Examining Department
savings of its members and using such accumulations for -‐ Department head and examiners are authorized to:
loans to members to service the needs of households by a. To administer oaths to any person such as officer or
providing long-term financing for home building and director.
development and for personal finance. b. To compel the presentation or production of books,
2. Quasi-Banks documents, papers or records that are reasonably
-‐ Refers to entities engaged in the borrowing of funds through necessary to ascertain the facts relative to the true
the issuance, endorsement or assignment with recourse or functions and operation of entity.
acceptance of deposit substitutes for purposes of relending or c. Failure or refusal to comply with the required
purchasing of receivables and other obligations. presentation within reasonable time shall subject the

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person responsible for penal sanctions provided in the -‐ The purpose is to render it reasonably certain that the
NCBA (New Central Bank Act). corporation will receive prompt and proper notice in action
D. Extension of Examining Powers against it.
-‐ BSP shall have the authority to examine an enterprise, which is -‐ Serving of summons on a branch manager is invalid, as stated
wholly, or majority owned or controlled bank. This is available in the case of BPI vs. Spouses Santiago, the service of
only when BSP is examining a bank. summons on BPI’s Branch Manager did not bind the
E. Certificate of Authority to Register corporation for the branch manager is not included in the
-‐ The SEC shall not register the articles of incorporation of any enumeration of the statute of the persons whom service of
bank or any amendment unless accompanied by a certificate summons can be validly be made in behalf of corporation.
of authority issued by Monetary Board under its seal. Such service is void.
-‐ Such certificate shall not be issued unless the Monetary Board
is satisfied from the evidence submitted to it: (RPC)
a. All Requirements of existing laws and regulations to
engage in business for which the applicant is
proposed to be incorporated have been complied
with.
b. Public Interest and economic conditions both general
and local, justify the authorization.
c. Amount of Capital, financing, organization, direction
and administration as well as the integrity and
responsibility of the organizers and administrators
reasonably assure the safety of deposits and public
interest.
-‐ The SEC shall not register the by-laws of any bank unless
accompanied by a certificate of authority from BSP.
Service of Summons Upon Banks

A. Service under the Rules of Court
-‐ Sec 11, Rule 14 of Rules of Court: Service upon domestic
private juridical entity. When the defendant is a corporation,
service may be made on the president, managing partner,
general manager, corporate secretary, treasurer or in-house
counsel.
-‐ Sec 12, Rule 14 of Rules of Court: Service upon a private
juridical entity. When the defendant is a foreign private juridical
entity, service may be on its resident agent designated in
accordance with law.
B. Strict Compliance is Necessary
-‐ Basic is the rule that a strict compliance with the mode of
CHAPTER 2
service is necessary to confer jurisdiction of the court over a Organization, Management and Administration of Banks,
corporation. Quasi-Banks and Trust Entities
-‐ The officer upon who services is made must be one who is
named in the statute otherwise service is insufficient.

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I. Organization of Banks C. Capital Requirements
1. Minimum capital prescribed by the Monetary Board
A. Conditions
AMOUNTS
The Monetary Board may authorize the organization of a bank or
quasi-bank subject to the following conditions: (SPC) TYPE OF BANK (In Million Pesos)
1. That the entity is a stock corporation.
Universal Banks 4950.0
2. That its funds are obtained from the public, which shall mean
twenty (20) or more persons. Commercial Banks 2400.0
3. That the minimum capital requirements prescribed by the
Thrift banks
Monetary Board for each category of banks are satisfied.
- With head office within
Metro Manila 325.0
B. Capabilities
The Monetary Board shall take into consideration their capability in - With head office outside
terms of their financial resources and technical expertise and Metro Manila 52.0
integrity. (FTI)
Rural Banks
The bank licensing process shall incorporate an assessment of: - within Metro Manila 26.0
a. The bank’s ownership structure
b. Directors and senior management - cities of Cebu and Davao 13.0
c. Its operating plan - In 1st, 2nd & 3rd class cities
d. Internal control and
e. Its projected financial condition and capital base first class municipalities 6.5
- in 4th, 5th & 6th class cities
and in
2nd, 3rd & 4th class
municipalities 3.9
- in 5th & 6th class
municipalities 2.6
2. At least 25% of the total 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 be the
paid-up capital be less than the minimum required capital stated
above. (25% subscribed and 25% of the subscribed shall be paid and
shall not be less than the minimum)
D. Incorporators/Subscribers/Proposed Directors (I/S/PD)

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• I, S & PD - Must be Persons of integrity and of good credit standing in the • The percentage of foreign-owned voting stocks shall be determined
business community. by the citizenship of the individual stockholders.
• S - Must have adequate financial strength to pay for their proposed • The citizenship of the corporation which is a stockholder in a bank
subscriptions in the bank. shall follow the citizenship of the controlling stockholders of the
• I, S & PD – must not have been convicted of any crime involving moral corporation, irrespective of the place of incorporation.
turpitude “controlling stockholders” – individuals holding more that
• I, S & PD – unless otherwise allowed by law, are not offices and employees 50% of the voting stock of the corporate stockholders of
of a government agency, instrumentality, department or office charged with the bank.
the supervision of, or granting of loans to banks. • Commercial bank – at least 60% of voting stock shall be owned by
Filipino citizens.
*** A bank may be organized with not less than five (5) nor more thank (15) • Any thrift bank – at least 40% of voting stock shall be owned by
incorporators. In excess of 15 may be listed among the original subscribers in the Filipino citizens.
Articled of Incorporation. • Rural bank – 100% shall be owned and held, directly or indirectly,
by Filipino citizens or corporations, associations or cooperatives
E. Bank Branches qualified under the Philippine laws to own and hold such capital
stock.
1. Universal or Commercial banks may open branches or other offices within
or outside the Philippines prior approval of the Bangko Sentral. *** Control test is applied in determining the nationality of banks.
2. Branching by all other banks shall be governed by pertinent laws.
*** A bank may use any or all of its branches as outlets for the presentation and/or C. Acquisition of Voting Stock in a Domestic Bank
sale of the financial products of its allied undertaking or of its investment house units. Section 73, GBL
*** A bank shall be responsible for all business conducted in such branches and
offices to the same extent and in the same manner as though business had all been D. Family Groups or Related Interests
conducted in the head office. Is formed when:
th
*** A bank and its branches shall be treated as one unit. • Stockholdings of individuals related to each other within 4 degree
or consanguinity or affinity, legitimate or common-law; or
• Two or more corporations owned and controlled by the same family
II. Stockholdings or same group of persons.
A. Treasury Stocks *** such situations must be fully disclosed in all transactions by
The GBL provides that no bank shall: such corporations or related groups of persons with bank.
• Purchase or acquire shares of its own capital stock
• Accept its own shares as security for a loan
Exception: III. Board of Directors
When authorized by the Monetary Board.
(The stock so purchases or acquired shall, within A. Number of Directors
six months from the time of its purchase or acquisition, be At least five (5), and a maximum of fifteen (15) members of the
sold or disposed of at a public or private sale.) board of directors of bank, two (2) or whom shall be independent directors.
B. Foreign Stockholdings “Independent Director” – a person other than an officer or employee of the
Section 11, GBL bank, its subsidiaries or affiliates or related interests.
• Foreign individuals and non-bank corporations may own or control 1. Is not or has not been an officer or employee of the bank/quasi-
up to 40% of the voting stocks of a domestic bank. This rule shall bank/trust entity, its subsidiaries or affiliates or related interests during
apply to Filipinos and domestic non-bank corporations. the past three years counted from the date of his election;

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2. Is not a director or officer of the related companies of the institution’s 1. The Monetary Board shall prescribe, pass upon and review the
majority stockholder; qualifications and disqualifications of individuals elected or appointed
3. Is not a majority shareholder of the institution, any of its related bank directors and disqualify those unfit.
companies, or of its majority shareholder; 2. After due notice to the board of directors of the bank, the Monetary
4. Is not a relative within the fourth degree of consanguinity or affinity, Board may disqualify, suspend or remove any bank director or officer
legitimate or common-law of any director, officer or majority shareholder who commits or omits an act which render him unfit for the position
or the bank/quasi-bank/trust entity, or any of its related companies; 3. CITEE – integrity, experience, education, training and competence – of
5. Is not acting as a nominee or representative of any director or an individual shall be considered.
substantial shareholder or the bank/quasi-bank/ trust entity, any of its
related companies or any of its substantial shareholders; and B. Disqualifications
6. Is free from any business or other relations with the institution or a. Permanently disqualified from being directors:
any of its major stockholders which could materially interfere with the 1. Persons who have been convicted by final judgment of a court for
exercise of his judgment. offenses involving dishonesty or breach of trust;
2. Persons who have been convicted by final judgment of a court
sentencing them to serve a maximum term of imprisonment of
more than six years;
B. Directors of Merged or Consolidated Banks 3. Persons who have been convicted by final judgment of the court for
In the case of a bank merger or consolidation, the number of directors violation of banking laws, rules and regulations;
shall not exceed twenty-one. 4. Persons who have been judicially declared insolvent, spendthrift, or
incapacitated to contract;
5. Directors, officers or employees of closed banks, quasi-banks/trust
C. Meetings entities who were found to be culpable for such institutions closure
May be conducted through: as determined by the monetary board.
• Teleconferencing 6. Directors and officers of banks, quasi-bank and trust entities found
• Video-conferencing by the monetary board as administratively liable for violation of
*** Banks shall include in their bylaws a provision that meetings of board of banking laws, rules and regulations where a penalty of removal
directors shall be held only within the Philippines. from office is imposed, and which finding of the monetary board has
become final and executory;
D. Compensation and other Benefits of Directors and Officers 7. Directors and officers of banks, quasi-banks and trust entities or
The Monetary Board may regulate the payment by the bank to its directors any person found by the monetary board to be unfit for the position
and officers or compensation, allowance, etc. only in exceptional cases such of directors or officers because they were found administratively
as: (CUU) liable by another government agency for violation of banking laws,
1. When a bank is under comptrollership or conservatorship; rules and regulations or any offense/violation involving dishonesty
2. When a bank is found by the Monetary Board to be conducting business or breach or trust and which finding of said government agency has
in an unsafe or unsound manner; become final and executory.
3. When a bank is found by the Monetary Board to be in an
unsatisfactory financial condition. b. Temporarily disqualified from being directors:
1. Persons who full refuse to fully disclose the extent of their business
interest or any material information to the appropriate supervising and
examining department when required pursuant to a provision of law;
IV. Fit and Proper Rule 2. Directors who have been absent or who have not participated for
whatever reasons on more than 50% of all meetings, both regular and
A. Powers of the Monetary Board special, of the board of directors during their incumbency, and directors
The GBL provides for the following rules: who failed to physically attend for whatever reasons in at least 25% of
all boar meeting in any year, except that when a notarized certification

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executed by the corporate secretary has been submitted attesting the laws, rules and regulations where a penalty of suspension from office or
said directors were given the agenda materials prior to the meeting and fine is imposed, regardless whether the finding of the monetary board
that their decisions thereon were submitted for deliberations and were final and executory or pending appeal before the appellate court,
taken up in actual board meeting, said directors shall be present in the unless execution is restrained by court. The disqualification is in effect
board meeting. This disqualification applies only for purposes of the during the period of suspension or so long as the fine is not fully paid.
immediately succeeding election;
3. Persons who are delinquent in the payment of their obligations. C. Disqualifications/Prohibitions under the Corporation Code
** one past due obligation to the bank where he/she is a director or Sec. 27, Corporation Code
office; at least two obligation with other banks or financial institution)
*** obligations shall include all borrowings obtained by: a director, D. Disqualifications/Prohibitions under the NCBA
spouse or child of the director, any person person whose loan proceeds Disqualification Sec. 9, NCBA
were used for the benefit of a director or office, a partnership where a Prohibitions Sec. 27, NCBA
director or his spouse is the managing or general partner, a corporation,
association or firms wholly owned or majority of the capital stocks are E. Disqualification/Prohibition under the PDIC Law
owned by the director or his spouse. Sec. 17 PDIC Law
4. Persons who have been convicted by a court for offenses involving
dishonesty or breach of trust. F. Disqualification/Prohibition under RA 7353
5. Directors and officers of closed banks/quasi-banks/trust entities pending Sec. 5, RA 7353
their clearance by the Monetary Board
6. Directors disqualified for failure to observe their duties and G. Disqualification/Prohibition under Appendix 38, Manual of Regulations
responsibilities prescribed under existing regulations. for Banks
7. Directors who failed to attend the special seminar for board of directors.
This disqualification applies until the director concerned has attended H. Prohibitions on Public Officials
such seminar; Sec 19, GBL
8. Persons dismissed from employment for cause, until they have cleared
themselves of involvement in the alleged irregularity.
9. Those under preventive suspension V. Banking Days and Hours
10. Persons with derogatory records as certified by the judiciary, NBI, PNP,
etc. for irregularities that would adversely affect the integrity of A. Number of Days and Hours
director/officer, until they have cleared themselves or after the lapse of The GBL provides for the following guidelines:
five years from the time of the complaint. 1. Banks shall transact business on all working days for at least six hours
11. Directors and officers of banks, quasi-bank and trust entities found by a day. Banks may open for business on Saturdays, Sundays, or
the monetary board as administratively liable for violation of banking holidays for at least three hours a day.
laws, rules and regulations where a penalty of removal from office is 2. Banks which opt to open on days other than working days shall report to
imposed, and which finding of the monetary board is pending appeal the Bangko Sentral the additional days during which they or their
before the appellate court, unless execution is restrained by court. branches or offices shall transact business.
12. Directors and officers of banks, quasi-banks and trust entities or any 3. Working days mean Mondays to Fridays, except if such days are
person found by the monetary board to be unfit for the position of holidays.
directors or officers because they were found administratively liable by
another government agency for violation of banking laws, rules and B. Rules and Regulations
regulations or any offense/violation involving dishonesty or breach or
trust and which finding of said government agency is pending appeal 1. All banks shall observe for the conduct of their business a regular
before the appellate court, unless execution is restrained by court. banking week five days (Mondays – Fridays), except when such days
13. Directors and officers of banks, quasi-bank and trust entities found by are holidays.
the monetary board as administratively liable for violation of banking

11

a. For servicing deposits and withdrawals, banks may remain open c. For branches of banks, the closure has the prior approval of their
beyond the minimum six hours, even before 8:00am or after respective head offices.
8:00pm.
b. For purposes other than servicing deposits and withdrawals, banks
may open beyond the minimum six hours but in no case shall such VI. Automated Teller Machines
banking hours start earlier than 8:00am nor extend beyond 8:00
pm. A. Off-Site Automated Teller Machines (ATMs)
c. Branches of banks at any international airport or major fish port are Banks may establish off-site ATMs, subject to the following conditions:
allowed on flexible baking hours within a twenty-four hour period 1. Banks shall submit a report to the appropriated department of the BSP
which shall in no case be less than six hours per day. on ATMs which they establish;
d. The banking days and hours selected for each of the offices of 2. ATMs shall be installed in centers of activity like supermarkets, etc.
banks shall be reported in writing to the appropriate supervising Provided, that security measures shall be adopted.
and examining department of the BSP. Provided, that the change in 3. Only banks which have shown general compliance with laws, rules and
banking days and hours shall not be made oftener than once every regulations shall be allowed to open off-site ATMs.
thirty days, except during emergencies. B. Mobile ATMs
e. Notice on changes in banking days and hours shall be given Banks may also establish mobile ATM, subject to the following conditions:
through the fastest means of communication, at least seven days 1. The mobile ATMs should be allowed to visit only centers of activity as
before the intended effectivity in banking hours or days. mentioned in Item A(2) above and should confine their itinerary to Metro
f. In case the bank has to pen outside or close during the banking Manila until further notice;
hours or days reported to the BSP due to an emergency, a written 2. The bank shall secure insurance coverage or adopt a self-insurance
report submitted within 24 hours from opening or closing will scheme to protect itself against losses of whatever nature in its
suffice. immobile ATM operations;
3. The bank shall notify the supervising and examining department of the
2. Subject to compliance with other relevant laws, banks may opt to BSP of the actual date a mobile ATM becomes operational and when no
observe a banking week in excess of five days after reporting to the longer in operation.
BSP the additional days during which such banks or their branches or
offices shall transact business for at least three hours each day.
3. Without the need of approval from BSP, banks are allowed to close on VII. Independent Auditor
certain days in celebration of important historical and/or religious event The following are the rules with respect to financial audit of banks:
in the locality where the banks operate: Provided, that said closure has
the prior approval of the banker’s association in the locality: Provided 1. The Monetary Board may require a bank, quasi-bank or trust entity to
further, that said closure will only be allowed in the municipality or city engage the services of an independent auditor to be chosen by the bank,
where the festivities are centered. quasi-bank or trust entity concerned from a list of certified public accountants
4. Banks shall submit either individually or through their head offices, to acceptable to the Monetary Board.
the appropriate supervising and examining department of the BSP a 2. The term of the engagement shall be prescribed by the Monetary Board
prior notice of their intended closure on account of a special local which may either be on a continuing basis where the auditor shall act as
festivity, together with a copy of the resolution of the local bankers resident examiner, or on the basis of special engagements, but in any case,
association approving said closure, at least two days after the date of the independent auditor shall be responsible to the bank’s, quasi-bank’s or
said resolution. trust entity’s board of directors. A copy of the report shall be furnished to the
5. The required notice shall be supported by certification that: Monetary Board.
a. On the date of temporary closure, the bank and/or branch will 3. The Monetary Board may also direct the board of directors of a bank, quasi-
maintain a skeletal force to handle “out-of-town” clearing items bank, trust entity and/or the individual members thereof, to conduct, either
b. The notice of the bank’s closure and the reason thereof shall be personally or by a committee created by the board, an annual balance sheet
posted conspicuously in the bank’s premises audit of the bank, quasi-bank or trust entity to review the internal audit and

12

control system of the bank, quasi-bank or trust entity and to submit a report a. Cause of the strike/lockout and bank management’s position on its
of such audit. legality;
b. Bank operations affected.
VIII. FINANCIAL STATEMENTS
XI. Laws Governing Other Types of Banks
A. Publication of Financial Statements:
The following are rules regarding publication of financial statements: Sec. • Thrift banks – Thrift Banks Act
61, GBL • Rural Bank – Rural Banks Act
• Cooperative – Cooperative Code
** Every bank, quasi-bank or trust entity, shall publish a statement of its • Islamic Banks – special laws
financial condition
** GBL shall likewise apply to thrift banks, rural banks and cooperative banks insofar
• such terms understandable to the layman as they are not in conflict.
• in such frequency as may be prescribed by the Bangko Sentral
• in English or Filipino ** GBL shall govern for purposes of prescribing the minimum ratio which the net worth
• at least once every quarter in a newspaper or general circulation in the of a thrift bank must bear to its total risk assets.
place where the bank is located
** 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
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.
IX. Publication of Capital Stock
A bank, quasi-bank or trust entity shall shot 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.
X. Settlement of Disputes
A. Unsettled Labor Disputes

Any strike or lockout involving banks, if unsettled after seven calendar days
shall be reported by the Bangko Sentral to the Secretary of Labor who may
assume jurisdiction over the dispute and decide it or certify the same to the
NLRC for compulsory arbitration. However, the President may intervene and
assume jurisdiction over such labor dispute in order to settle or terminate the
same.
B. Reports of Strike and Lockouts
The bank shall disclose the following pertinent information on the

strike/lockout:

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• Fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed
on the basis of the amount of overdrawing or fines in amounts as may be
determined by the Monetary Board, but not to exceed P30,000 a day for
each violation whichever is lower.
CHAPTER 3
Technical overdrawings arising from “force posting” in clearing checks shall
Deposit Function of Banks be debited banks under “Returned Checks and Other Cash Items Not in Process of
Collection” which is part of “Other Assets” in the Statement Condition. Items to be
lodged under this account shall consist only of in-clearing checks which may result in
• Kinds of Deposits “technical overdrawn” accounts and shall immediately reversed in the following day.
The checks lodged under “Returned Checks etc.” shall either be returned or honored
1) Demand Deposits – all those liabilities of the Bangko Sentral and of other banks the following day before clearing. The items to be used as cover for honored checks
which are denominated in Philippine currency and are subject to payment in legal should only consist of any of the following:
tender upon demand by the presentation of (depositor’s) checks. • Cash
• Cashier’s, Manager’s or Certified Checks
• Universal and Commercial banks may create or accept demand deposits • Bank Drafts
subject to withdrawal by check WITHOUT prior authority from BSP. • Postal Money Orders
• Thrift Bank, Rural Bank, Cooperative Bank may create or accept demand • Treasury Warrants
deposits subject to withdrawal by check WITH prior authority from BSP. • Duly funded “On us” checks
• Fund transfers or credit memos within the same bank representing proceeds
Manner of making the deposit of loans granted under existing regulations
NOTE:
In Philippine Bank of Commerce vs CA the Supreme Court observed: Peso demand deposit accounts maintained by foreign correspondent banks with
commercial banks shall NOT be subject to the above-mentioned regulations
In the ordinary and usual course of banking operations, current account PROVIDED:
deposits are accepted by the bank on the basis of deposit slips prepared and signed • The maintenance of non-resident correspondent bank’s peso checking
by the depositor, or the latter’s agent or representative, who indicates therein the accounts and overdrawings therefrom are covered by reciprocal
current account number to which the deposit is to be credited, the name of the arrangement
depositor or current account holder, the name of the deposit and the amount of the • Temporary overdrawings are covered within 15 days from the date
deposit either in cash or checks. The deposit slip has an upper portion or stub, which overdrawings are incurred
is detached and given to the depositor or his agent; the lower portion is retained by • Such accounts are credited only through foreign exchange inward
the bank. In some instances however, the deposit slips are prepared in duplicate by remittance
the depositor. The original of the deposit slip is retained by the bank, while the
duplicate copy is returned or given to the depositor. DRAWINGS AGAINST UNCOLLECTED DEPOSITS (DAUDs) shall be
PROHIBITED except when the drawings are made against uncollected deposits
Regulations on Temporary Overdrawings and Drawings against Uncollected Deposits representing manager’s/cashier’s/treasurer’s checks, treasurer warrants, postal
(DAUD) money orders and duly funded “on us” checks which may be permitted at the
discretion of each bank.
TEMPORARY OVERDRAWINGS against current account SHALL NOT BE
ALLOWED, UNLESS caused by normal bank charges and other fees incidental to Current Accounts of Banks Officers and Employees
handling such accounts.
The following officers and employees of banks are PROHIBITED from
Violation: maintaining demand deposits or current accounts with the banking office in which
they are assigned:

14

• All officers 1. That the check may not be encashed but only deposited in the bank
• Employees of the bank’s cash department/ cash units 2. That the check may be negotiated only once – to one who has an account
• Other employees who have direct and immediate responsibility in the with a bank
handling of transactions and/or records pertaining to demand deposits or 3. That the act of crossing the check serves as a warning to the holder that the
current accounts. check has been issued for a definite purpose so that such holder must
• Includes spouses and relatives within second degree of consanguinity and inquire if the check has been received pursuant to that purpose.
affinity
Cashier’s Check – is really the bank’s own check and may be treated as a promissory
Check – is a bill of exchange drawn on a bank payable on demand. note with the bank as the maker.
• Fixed savings and current deposits of money shall be governed by the • In New Pacific Timber and supply Co. Inc. vs Señeris – cashier check is
provision so simple loan deemed as cash
Duty of Banks to honor checks Set-off

• Banks are bound to honor checks to the extent of the amount of his (the • A bank may debit the personal account of a depositor for an amount
depositor) deposits. erroneously credited to the depositor’s sole proprietorship account because
• Failure of the bank to honor – entitles the drawer to substantial damages the latter being a sole proprietorship has no separate and distinct personality
without any proof of actual damages from the depositor.
• Banks must ensure that the amount of the check should be paid only to its • Art. 1980 and Art. 1278 of the Civil Code
designated payee. The fact that the drawee bank did not discover the • The law imposes a duty of diligence on the collecting bank to scrutinize
irregularity seasonably constitutes negligence. checks deposited with it, for the purpose of determining their genuineness
and regularity.
Responsibility of Drawer • Crossing of the check with the phrase “Payee’s Account Only” is a warning
• The drawer must personally keep track of his available balance in the bank. that the check should be deposited only in the account of the payee. It is the
duty of the bank to ascertain it.
Duty of Banks to Know Signatures
• A bank is bound to know the signatures of its customers Relationship of payee or holder and the bank
• If it pays a forged check, it must be considered as making the payment out • Principal and agent.
of its own funds and cannot ordinarily charge the amount so paid to the • The bank which receives such paper for collection is the agent of the payee
account of the depositor whose name was forged. or holder.
Banks are under no obligation to make part payment on a check, up to only the Encashment of checks
amount of the drawer’s funds. • Banking business requires that the one who first cashes and negotiates the
check must take some precautions to learn whether or not it is genuine.
Banks are under no duty to make up deficiency from the savings account. If a
depositor has 2 accounts with a bank, an open account and a savings account, and 2) Savings Deposits
draws a check upon the open account for more money than the account contains.
Servicing deposits
Checks do not have legal tender power and their acceptance in the payment of debts • Banks may be authorized by the BSP to solicit and accept deposits outside
is at the option of the creditor. their bank premises, subject to ff: conditions:
1. The financial condition of the banks is sound and the operations
Effects if a cross check and the quality of the management thereof could reasonably assure
the safety of the funds which may be entrusted to its deposit
In State Investment House vs IAC, the SC enumerated the different effects collectors and/or agents
of crossing a check: 2. Proposed area is clearly defined

15

3. Solicitation shall be only confined within a locality where there are
NO BANKS IN OPERATION or where it can be established that Withdrawals
the deposit potentials in the said locality are still untapped • Banks are prohibited from issuing or accepting withdrawal slips without
4. Institute and maintain following minimum safeguards: requiring depositors concerned to present their passbooks except for banks
§ Deposit solicitors shall be initially bonded for at least authorized by BSP.
P1,000 subject to the increase thereof to approximate their
daily collections NOTE: There is now law mandating banks to call up their clients whenever their
§ Deposit solicitors shall be provided with proper representatives withdraw significant amounts from their accounts.
identification cards with photograph and signature,
certified by appropriate officer of the bank 3) Negotiable Order of Withdrawal (NOW) Accounts
§ Secure adequate insurance coverage for funds
§ Deposit slips shall be in booklet form, prenumbered and in NOW accounts – interest bearing accounts that combine the payable on demand
triplicate (3) copies. The original issued to the depositor, feature of checks and investment feature of savings account.
second used for posting reference and third retained in the • Universal/Commercial Bank may offer NOW accounts WITHOUT prior
booklet. authority of the monetary board
§ All collections shall be turned over to the cashier at the • Thrift/Rural/Cooperative Bank may offer UPON prior approval of the
end of each day accompanied by a COLLECTION monetary board.
SUMMARY REPORT which shall contain the following
information. Rules on servicing NOW accounts
• Date • Prior to or simultaneous with the opening of a NOW account, the bank shall
• Name and address of the depositors inform the depositor of its terms and conditions
• Deposit slip no.s • Banks shall be responsible for the proper identification of its depositors and
• Amount of deposit require 2 specimen signatures and such other pertinent information
• Savings account and passbook numbers • Deposit shall be covered by deposit slips in duplicate duly validated and
• Name and signature of solicitor rendering the initialed by the teller received the deposit
report • NOW accounts shall be kept and maintained separately from the regular
§ Depositors shall be required to accomplish a SIGNATURE savings deposits
CARD when opening an account – used as a reference in • Blank NOW forms shall be prenumbered and shall be controlled as in the
checking the genuineness and authenticity of signatures in case of unissued blank checks
withdrawals • A bank statement shall be sent to each depositor at the end of each month
§ Deposits/withdrawals shall be recorded by the bookkeeper for confirmation of balances
or any ledger clerk • Banks must use the form prescribed by the present rules for NOW accounts.
§ At the end of each month, depositors shall be advised IN
WRITING if the balances of their deposits. Advise slips
4) Time Deposits – one the payment of which cannot legally be required within such
shall NEVER be handcarried by the solicitor themselves
a specified number of days.
§ Place of assignments of banks solicitors shall be rotated at
least quarterly. • Time deposits shall be issued for a specific period of term
• Authority shall be automatically granted to any accredited banking institution
to accept SPECIAL TIME DEPOSITS from the Agrarian Reform Fund
Individual and Joint accounts
Commission with interest lower than the rate allowed on time deposits
accepted from the general public.
Joint account – may be an “and” account or an “and/or” account
• “And” account – signature of BOTH co-depositor are required for withdrawal
Rules regarding issuance of Certificates of Time Deposit (CTD)
• “And/or” account – either one of the co-depositors may deposit and withdraw
• Negotiable Certificates on Time Deposit (NCTD)
from the account without the knowledge, consent and signature of the other.

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o Universal/Commercial Banks may issue WITHOUT prior approval Foreign Currency Cover Requirements:
of BSP Depository banks shall:
o Thrift/Rural/Cooperative Banks may issue UPON THE PRIOR 1. Maintain at all times a 100% foreign currency cover for their liabilities
approval of BSP 2. Of which cover at least 15% shall be in the form of foreign currency deposit
• Non-Negotiable Certificates of Time Deposit with the Central Bank
o Bank may issue long-term non-negotiable tax-exempt certificates to 3. The balance in the form of the foreign currency loans or securities, which
time deposit without prior approval of the BSP loan or securities shall be of short-term maturities and readily marketable
4. Such foreign currency loans may include loans to domestic enterprises
5) Deposit Substitute Operations (Quasi-Banking Functions) which are export-oriented or registered with the Board of Investments
5. Foreign Currency cover shall be in the same currency as that of the
Elements: corresponding foreign currency deposit liability
1. Borrowing funds for the borrower’s own account 6. Central Bank may pay interest on the foreign currency deposit and if
2. 20 or more lenders at any one time requested shall exchange the foreign currency notes and coins into foreign
3. Methods of borrowing are issuance, endorsement or acceptance of debt currency instruments drawn on its depository banks.
instruments of any kind
4. Purpose of which is relending or purchasing receivables or other obligations Depository banks on account of networth, resources, past performance or other
pertinent criteria, have been qualified by the Monetary board to function under an
NOTE: expanded foreign currency deposit system shall be exempt in no.2 above.
1. Borrowing shall refer to all forms of obtaining or raising funds through any of
the methods and for any purposes provided in no.4 above There is no restriction on the withdrawal by the depositor of his deposit or on the
2. Purchasing receivables or other obligations shall refer to the acquisition of transferability of the same abroad EXCEPT those arising from the contract bet. the
claims collectible in money depositor and the bank.
3. Relending shall refer to the extension of loans by an institution with
antecedent borrowing transactions. Relending is presumed when the 7) Anonymous and Numbered Accounts – should not be allowed
institution is regularly engaged in lending
4. Regularly engaged in lending shall refer to the practice of extending loans, In case where numbered accounts are allowed, banks or financial
advances, discounts or rediscounts as a matter of business institutions should ensure that the client is identified in an official or other identifying
documents.
6) Foreign Currency Deposits Related Laws:

• Art 178 RPC
Authority to deposit foreign currencies • Art 379, Art 380 of Civil Code
- Any person may deposit with such Phil. Banks in good standing. • Commonwealth Act 142 as amended by Republic Act No. 6085
Authority of Banks to accept foreign currency deposits: • Administration of Deposits

• Banks designated by Central Bank shall have the authority to:
1. Accept Deposits and to accept foreign currencies in trust. All banking institutions are required to set a minimum of 3 specimen signatures to
Numbered accounts for recording and servicing of said deposits are be simultaneously required from each of their depositors and to update the specimen
allowed. signatures of their depositors every 5 years or sooner.
2. Issue certificates to evidence such deposits.
3. Discount said certificates • BSP Circular No. 564 Series of 2007 provides for a valid list of identification
4. Accept said deposits as collateral for loans subject to such rules cards
and regulations • Students who are beneficiaries of an OFW and not on voting age shall be
5. Pay interest in foreign currency on such deposits required of 2 valid ID

17

• The requirement on presenting 2 valid IDs shall on 1 time basis only or at Cash deposits received after the selected clearing cut-off time shall be booked s
the commencement of business relationship. deposits on the day of receipt.
• Financial transactions may include remittances
Deposits on checks including “on us” checks etc. may be booked as deposits on
Minors are vested with special capacity and power to make savings or time the day of receipt.
deposits with and withdraw the same as well as receive interest thereon.
Requirements: Deposits received after the close of the regular banking hours shall be booked as
• At least 7 years of age deposits the following banking day.
• Able to read and write
• Sufficient discretion Banks impose and collect service charges on savings and demands deposits that fall
below the required minimum monthly average daily balance (ADB) subject to ff:
• Not otherwise disqualified by any other incapacity
conditions:
• The imposition of such charges is clearly stated among the terms and
If a guardian shall give notice in writing to any thrift bank not to make payments
conditions of the depositor
of deposits dividends or interest to the minor of whom he is the guardian, then such
• The rate or amount of such charges or fees is properly disclosed among the
payment shall be made only to the guardian.
terms and conditions of the deposit
Corporations may open bank accounts as follows: • The deposit account balances have fallen below the required minimum
1) Incorporation Stage monthly ADB for dormant account and for at least 2 consecutive months for
2) Post Incorporation active accounts
• The required minimum monthly ADB of deposits are properly disclosed
Interest or yield on time deposit/deposit substitute may be paid at the maturity or among the terms and conditions of the deposit.
upon withdrawal or in advance PROVIDED, it shall not exceed the interest in 1 year.
Any change in the terms and conditions for the imposition of service charges
A time deposit not withdrawn or renewed on its due date shall be treated as a and/or maintenance fees shall take effect only after due notice to the depositor.
savings deposit and shall earn interest from maturity to the date of actual withdrawal PROVIDED
or renewal at a rate applicable to savings deposits. Information by regular mail, electronic mail, statement of account messages
Deposit substitute instrument not withdrawn or renewed on its maturity date shall or alternative modes of communication on the depositor’s last known address at
from said date become payable on demand and shall earn an interest or yield from least 60 days prior to implementation shall be considered sufficient notice.
maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute PROVIDED FURTHER
with a maturity of 15 days. Failure of the depositor to manifest or register his objection to the new
service within 30 days from receipt shall be deemed acceptance of such changes
All deposits and withdrawals during regular banking hours shall be credited or
debited to deposit liability accounts on the day receipt or payment thereof. Banks shall likewise post said information on their respective websites, ATM
Provided: on-screen messages and in conspicuous places within the bank premises at
That a bank may set clearing cut-off time for its head office not earlier than 2 least 60 days prior to implementation.
hours before the start of clearing at BSP and not earlier than 3½ hours before the
start of clearing of all its branches, agencies and extension offices III. Survivorship Agreement
Provided further:
That banks which are located in areas where there are no BSP regional/clearing -‐ when joint (and several) owners of a deposit agree that either of them could
arrangements may set a clearing cut-off time not earlier than 2 hours before the start withdraw any part or the whole of said account during the lifetime of both
of their local clearing after which time deposits received shall be booked likewise as and the balance, if any, upon the death of either, belonged to the survivor.
hereinafter provided. -‐ an ALEATORY CONTRACT (Art. 1790), by which the mutual agreement of
the joint depositors permitting either of them to withdraw the whole deposit
during their lifetime and transferring the balance to the survivor upon the
death of one of them.

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- The deposit is not specifically applicable to some other particular
• Survivorship agreement not invalid per se but may be violative of law, such purpose.
instances: V. Duties of Banks
- a mere cloak to hide an inofficious donation
- to transfer property in fraud of creditors A. Meticulous Care
- to defeat the legitime of a forced heir - Knowing the signatures of its clients.
- Depositors are not estopped from questioning wrongful withdrawals, even if
IV. Nature of Bank Deposits they failed to question those errors in the statements sent by the bank to
them for verification.
A. Nature
B. Payment to Proper Party
1. Fixed, savings and current deposits of money in banks and similar - The bank has no right to pay to persons other than those in whose favor
institutions are the true deposits and are considered simple loans. the obligation was constituted or whose right or authority to receive payment
2. Irregular deposits in nature for they are really loans because they earn is indisputable.
interest. - Payment made by the debtor (bank) to the wrong party does not extinguish
- In reality: depositor is the creditor while bank is the debtor. the obligation as to the creditor (depositor) who is without fault or
- Failure of the bank to honor the time deposit is failure to pay its negligence, even if the debtor acted in utmost good faith and by mistake as
obligation as a debtor and not a breach of trust arising from to the person of the creditor or through error induced by fraud of a third
a depository’s failure to return the subject matter of the deposit. person.
3. The relationship between the depositor and the Savings and Loan
Association is that of creditor and debtor. C. In Case of Death of Depositor
- Bank has the obligation to return the amount deposited, however, National Internal Revenue Code provides:
it has no obligation to return or deliver the same money that was “If a bank has knowledge of death of a person, who
deposited. (Principle of Non-Fungible) maintained a bank deposit account alone, it shall not
- Failure of the bank the amount deposited will not constitute estafa allow any withdrawal from the said deposit account,
through misappropriation but it will only give rise to civil liability. UNLESS the Commissioner has certified the taxes
4. The contract between the bank and its depositor is governed by the imposed thereon by this title have been paid: Provided,
provisions of the Civil Code on simple loan. however, that the administrator of the estate or any one
5. A bank ultimately acquires ownership of the deposits but such ownership is of the heirs of decedent may upon authorization by the
coupled with a corresponding obligation to pay the depositor an equal Commissioner, withdraw an amount not exceeding
amount on demand. P20,000 without the said certification.”
- A bank does not have unilateral right to freeze the accounts of
depositor based on its mere suspicion, granting such rights would VI. Secrecy of Bank Deposits
open the floodgates of public distrust in banking industry. (BPI
Family Bank vs. Franco) A. Purposes
1. To give encouragement to the people to deposit their money in banking
B. Set-Off institutions.
2. To discourage private hoarding so that the same may be utilized by
General Rule: When a depositor is indebted to a bank, and the debts are banks in authorized loans to assist in the economic development of the
mutual, the bank may apply the deposit or such portion thereof as may be country.
necessary to the payment of the debt due it by the depositor.
B. Privacy
Exception: - Civil Code provides that “every person shall respect the dignity, personality,
- There is no express agreement. privacy and peace of mind of his neighbors and the other persons” and

19

punishes as actionable torts several acts for meddling and prying into the - A legal proceeding by which the officer may levy on debts due the
privacy of another. judgment obligor and other credits, including bank deposits, financial
- It also holds public officer or employee or any private individual liable for interests, royalties, commissions and other personal property not capable of
damages for any violation of the rights and liberties of another person, and manual delivery in the possession or control of third parties.
recognizes the privacy of letters and other private communications. - Levy shall be made by serving NOTICE upon the person owing such debts
or having in his possession or control such credits to which the judgment
C. Absolute Confidentiality obligor is entitled.
- All deposits of whatever nature with banks or banking institutions in the - The garnishment shall cover only such amount as will satisfy the judgment
Philippines are considered as of an absolutely confidential nature and may and all lawful fees.
not be examined, inquired or looked into by any person, government official,
bureau or office. • Property exempt from execution/garnishment:
1. Family home or the homestead in which he resides.
1. Prohibition against inquiry into or disclosure of deposits under republic 2. Ordinary tools and implements personally used in his trade,
Act No. 8367 (An Act Providing for the Regulation of the Organization employment or livelihood.
and Operation of Non-Stock Savings and Loan Associations) – all 3. Three horses, or (3) cows, or (3) carabaos, or there beasts of burden
deposits of whatever nature are considered absolutely confidential in necessarily used by him in his ordinary occupation.
nature EXCEPT, (1) upon written permission of the depositor; (2) in 4. Necessary clothing and articles for ordinary personal use, excluding
cases of impeachment; (3) upon order of a competent court in cases of jewelry.
bribery or dereliction of duty of public officials; and (4) in cases where 5. Household furnitures and utensils used for housekeeping not exceeding
the money deposited or invested is the subject matter of litigation. P100,000.
6. Provisions for individual or family use sufficient for four months.
2. Foreign Currency Deposits 7. Professional libraries and equipment not exceeding P300,000 in value.
- All foreign currency deposits are of an absolutely confidential in nature 8. One fishing boat and accessories not exceeding the total value of
EXCEPT, upon the written permission of the depositors. P100,000 and by the lawful use of which he earns his livelihood as
- It shall be exempt from attachment, garnishment or any other order or fisherman.
process of any court, legislative body, government agency or any 9. Salaries, wages or earnings within the four months preceding the levy
administrative body whatsoever. as are necessary for the support of his family.
10. Lettered gravestones.
3. Confidentiality of Deposits in Islamic Banks 11. Monies benefits, privileges or annuities accruing or in any manner
- All deposits of whatever nature are confidential EXCEPT: growing out of any life insurance.
1. inspection by the bank’s auditor 12. The right to receive legal support or money or property obtained as such
2. upon written permission by the depositor support or any pension or gratuity from the Government.
3. in cases where the money deposited or the transaction 13. Properties especially exempt by law.
concerned is the subject matter of a court order
C. Secrecy and Exemption from Attachment and Garnishment of Foreign
VII. Exceptions to Secrecy of Deposits Currency Deposits cannot be used as Device for Wrongdoing
A. Exceptions to the Bank Secrecy Law:
1. Upon written permission of the depositor D. Graft and Corruption
2. In cases of impeachment - The Anti-Graft Law directs in mandatory terms that bank deposits shall be
3. Upon order of a competent court in cases of bribery or dereliction of taken into consideration in its enforcement, notwithstanding any provision of
duty of public officials law to the contrary.
4. In cases where the money deposited or invested is the subject matter of
litigation E. Authority to Inquire into Bank Deposits under the Anti-Money laundering Act
B. Garnishment

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- AMLC may inquire into or examine any particular deposit r investment with o All banks shall forward to the Insular Treasurer a statement under
any banking institution or non-bank financial institution upon order of any oath of their respective managing officers, of all credits and
competent court in cases of violation, when it has established that: deposits held by them in favor of persons known to be dead, or who
a. there is probable cause that the deposits or investments are related have not made further deposits or withdrawals during the preceding
to an unlawful activity; or ten years or more, arranged in alphabetical order according to the
b. a money laundering offense names of depositors.
o Upon receipt by the Insular Treasurer, it shall publish the same
F. Periodic or Special Examination once a week for three consecutive weeks in at least two
- BSP may inquire into or examine any deposit or investment with any newspapers of general circulation in the locality where the bank or
banking institutions or non-bank financial institution when the examination is banks are situated.
made in the course of a periodic or special examination, in accordance with J. Authority of the Commissioner of Internal Revenue to Inquire into Deposits
the rules of examination of BSP. - Section 6 of the 1997 National Internal Revenue Code provides:
- If authorized by the Monetary Board to satisfy a reasonable ground to (F) Authority of the Commissioner to inquire into Bank Deposit
believe that a bank fraud or serious irregularity has been or is being Accounts. – Notwithstanding any contrary provision of Republic Act No.
committed and that it is necessary to look into the deposit to establish such 1405 and other general or special laws, the Commissioner is hereby
fraud or irregularity. authorized to inquire into the bank deposits of:
- Examination made by an independent auditor hired by the bank to conduct
its regular audit provide that the examination is for audit purposes only and (1) a decedent to determine his gross estate; and
the results thereof shall be for the exclusive use of the bank. (2) any taxpayer who has filed an application for
compromise of his tax liability under Sec. 204(A)(2)
G. In Camera Inspection by the Ombudsman of this Code by reason of financial incapacity to pay
- Section 15(8) of republic Act No. 6770 (The Ombudsman Act of 1989) his tax liability.
provides as one of the powers of the Ombudsman: K. Waiver by DOSRI
(8) Administer oaths, issue subpoena and subpoena
duces tecum, and take “Section 26 (NCBA). Bank Deposits and
testimony in any investigation or inquiry, Investments. – Any director, officer or stockholder
including the power to who, together with his related interest, contracts
examine and have access to bank accounts and a loan or any form of financial accommodation
records. from: (1) his bank; or (2) from a bank: (a) which is
- Before in camera inspection may be allowed, there must be a pending case a subsidiary of a bank holding company of which
before a court of competent jurisdiction. The account must clearly be both his bank and the lending bank are
identified. The bank personnel and the account holder must be notified to be subsidiaries; or (b) in which a controlling
present during the inspection and such inspection may cover only the proportion of the shares is owned by the same
account identified in the pending case. interest that owns a controlling proportion of the
shares of his bank, in excess of 5% of the capital
H. Preliminary Attachment and surplus of the bank, or in the maximum
- Section 10, Rule 57 of the Rules of Court is compatible with the law on amount permitted by law, whichever is lower,
secrecy of bank deposits because it provides an exception “ in cases where shall be required by the lending bank to waive the
the money deposited or invested is the subject matter of the litigation.” secrecy of his deposits of whatever nature in all
banks in the Philippines.”
I. Disclosure of Dormant Accounts
- Section 2 of Act No. 3996 (An Act Requiring Banks and Banking
Institutions of Every Kind to Transfer Unclaimed Balances held by them to
the Insular Treasury and for Other Purposes)

21

Chapter 4 h. Companies engaged in foreign
exchange dealership/brokerage
Investments, Loans and Other Functions of Banks i. In addition:
i. Insurance companies
j. Holding companies - investment of
I. Operations of Universal Banks shares shall be limited only in cases of
conversion of outstanding loan
A. Powers of a Universal Banks obligations into equity
i. Powers authorized for a commercial bank
ii. Powers of an investment house D. Equity Investments of a universal Bank in Non-allied Enterprises –
iii. Power to invest in a non-allied enterprise up to 100%
i. Examples of Non Finacial Allied undertakings
B. Equity Investments of a Universal Bank • Warehousing companies
i. May invest in the equities of allied and non-allied • Storage companies
enterprise as may be determined by the monetary board • Safe deposit box companies
• May either by financial or non-financial • Companies engaged in management of mutual
a. Total investment in equities of allied and funds but not in the mutual funds themselves
non-allied enterprise – should not • Corporations engaged in any activity similar to
exceed 50% of the net worth of the bank management of mutual funds
b. Equity investment – should not exceed • Companies engaged in providing computer
25% of net worth services
c. Net worth- totatl of unimpaired paid-in
• Insurance Agencies/brokerages
capital as may be required by BSP
• Companies engaged in home building and
development
C. Equity of Investments of a universal Bank n Financial Allied
• Companies providing drying and/or milling
Enterprises
facilities for agricultural crops
i. Can own up to 100% of equity in a thrift bank, rural
bank or a financial allied enterprise • Service bureaus for outsourcing services
ii. Publicly-listed universal or commercial bank- 100% of • Those declared by the Monetary Board
voting stock of only one other universal or commercial
bank E. Equity Investments of a Universal Bank in Non-Allied enterprise –
• Financial Allied Undertakings shall not exceed 35% of total equity and voting stock
a. Leasing companies- bank investment of
shares shall be limited only in cases of F. Investments in Non-Allied or Non-Related Undertakings – only
conversion of outstanding loan Universal banks may invest
obligations into equity
b. Banks i. Examples of non-Allied undertakings
c. Investing houses • Enterprise engaged in physically productive
d. Financing companies activities in
e. Credit Card companies a. Agriculture
f. Financial institutions catering to small b. Mining and quarrying
and medium scale industries c. Manufacturing
g. Companies engaged in stock d. Public utilities
brokerage/securities dealership e. Construction
f. Wholesale trade

22

g. Community and Social services seller once the draft and the required shipping documents
ii. Industrial park/real estate projects are presented to it.
iii. Financial and commercial complex projects in connection • “Independence Principle” – assures the seller of
with the Government’s privtization program prompt payment, independent of any breach of
iv. Others declared by Monetary Board the main sales contract.
iii. Intertwined Relationships – 3 distinct but intertwined
G. Equity Investments in Quasi-Banks – to promote competitive relationships
st
conditions in financial markets, may own up to 40 % equity • 1 contract relationship – links the party applying
investments, also applicable in the case of commercial banks for LOC and the party for whose benefit LOC is
issued
II. Operations of Commercial Banks nd
• 2 contract relationship – between the
accounting party and the issuing bank.
A. Powers of Commercial Banks Accounting party applies for LOC and agrees to
i. General powers incident to corporaton reimburse the bank for amounts paid by that
ii. Powers necessary to carry out commercial banking bank.
Accepting drafts and issuing LOC rd
• • 3 contract relationship – between the issuing
• Negotiating promissory notes, bills of exchange bank and beneficiary. Pay certain monies to the
and other evidences of debt beneficiary to support the contract.
• Accepting or creating demand deposits iv. Parties – 3 parties, may be increased in most cases of
• Receiving other types of deposits and deposit international trade.
substitutes • Buyer – procures LOC and obliges himself to
• Buying and selling foreign exchange, gold and reimburse the issuing back upon receiptof
silver bullion; acquiring marketable bonds and documents of title
other debt securities • Bank – issuing LOC and undertakes to pay the
• Extending credit seller upon receipt of the draft and proper
documents of titles and to surrender the
documents to the buyer upon reimbursement
B. Issuance of Letters of Credit • Seller – in compliance with the contract of sale
i. Nature - developed by merchants as a convenient and ships the goods to the buyers and delivers the
relatively safe mode of dealing with sales of goods to documents of title and draft to the issuing bank to
satisfy the seemingly irreconcilable interests of a seller, recover payment
who refuses to part with his goods before he is paid and a
buyer who wants to have control of the goods before C. Equity Investments of a Commercial Bank – may invest only in the
paying equities of allied enterprise (financial or non-financial) as may be
• The buyer may be required to contract a bank to determined by the Monetary Board
issue a letter of credit in favor of the seller so i. Total investment in equities – shall not exceed 35% of the
that, by virtue of the letter of credit, the issuing net worth
bank can authorize the seller to draw drafts and ii. Equity investment in any one enterprise – shall not 25%
engage to pay them upon presentment net worth
simultaneously with the tender of documents
required by the letter of credit. D. Equity Investments of a Commercial Bank in Financial Allied
Enterprises
ii. Characteristics – what sets it apart from other accessory i. May own up to 100% equity ONLY of thrift bank or rural
contracts is the engagement of the issuing bank to pay the bank
ii. Other financial allied enterprises – minority holding

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B. Inclusion to the Limit
E. Equity Investments of a Commercial Bank in Non- Financial Allied i. Prescribed Ceilings shall include:
Enterprises - may own up to 100% of the equity in a non-financial • Direct liability of the maker or acceptor of paper
allied enterprise discounted with or sold to such bank and liability
of a general indorser, drawer or guarantor who
obtains a loan or other credit accommodation
III. Risk- Based Capital • Liabilities of individuals who own or control a
majority interest in a corporation
A. Minimum Ratio – minimum ratio which the net worth of a bank must • Corporation- all liabilities to such bank of all
bear to its total risk assets shall be determined by the Monetary subsidiaries
Board • Partnership – liabilities of the members
i. On the basis of the net worth and risk assets of a bank ii. Control of majority interest or Controlling interest – when
and its subsidiaries parent owns directly of indirectly through subsidiaries
ii. Monetary Board shall conform to internationally accepted more than one half of the voting power of an enterprise
standards in the exercise of such authority iii. Even if a parent corporation who owns a majority interest
iii. Alter or suspend compliance with such ratio for a has no liabilities, Monetary Board may prescribe
maximum period of 1 year combination of liabilities in certain situations
iv. Ratio shall be applied uniformly to banks of the same
category C. Exclusion to the Limit – Loans and other accommodations -
i. Secured by obligations of BSP or of the Philippine
B. Effect of Non-Compliance Government
i. Monetary Board may limit r prohibit the distribution of net • Reason: The state undoubtedly is always solvent
profits by such bank and may require that all of the net ii. Fully guaranteed by the government as to payment of
profits be used to increase the capital accounts of the pricipal and Interest
bank until minimum requirement is reached iii. Covered by assignment of deposits maintained in the
ii. Restrict or prohibit the acquisition of major assets and the lending bank and held in the Philippines
making of new investments by the bank until the minimum iv. Under letters of credit to the extend covered by margin
required ratio has been restored deposits
v. Specified by Monetary Board as non-risk items
IV. Limit on Loans, Credit Accomodation And Guarantees D. Bank Guarantee – irrevocable commitment of a bank binding itself
A. Single Borrowers Limit to pay a sum of money in the event of non-performance of a
i. Shall not exceed 20% if Net Worth of the Bank contract by a third party. Distinct from principal debt or contract.
• Exceptions: Subject to such limits.
a. Reasons of national interest
b. Deposits of Rural Banks with E. Contingent Accounts are also subject to such limits
government-owned or controlled
financial institutions are exempted F. Assignment of Credits – agreement by virtue of which the owner of
c. May be increased by 10% provided the a credit by a legal cause, transfers his credit and its accessory
additional liabilities of any borrower are rights to an assignee.
adequately secured by securing titles
G. No Pacto Commissorio in Assignment of Deposits
• As amended by Circular no. 425, SBL must not
exceed 23%, still subject to such exceptions

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i. Pacto commisorio – automatic appropriation of the • Corporation, association or firm of which those
pledged or mortgaged property by the creditor in payment mentioned persons own more than 50% of total
of the loan upon its maturity subscribed capital stock
V. Restriction on Bank Exposure to Directors, Officers, Stockholders and E. Related Interests

st
their Related Interests i. Spouse/Relative within 1 degree of consanguinity or
affinity, relative by legal adoption of a director, officer or
A. Approval and Other Requirements stockholder of the bank
i. No director or officer of any bank shall: ii. Partnership of which a director, officer, or stockholder of a
st
• Directly or indirectly for himself or as an agent of bank or Spouse/Relative within 1 degree of
others borrow from such bank consanguinity or affinity, relative by legal adoption
• Become a guarantor, indorser or surety for loans iii. Co-owner of the property or interest or right mortgaged
from such bank iv. Corporation, association, or firm of which a director or
• An obligor who would incur contractual liability to officer of the bank, or his spouse is also a director or
the bank officer of such corporation, association or firm, except:
• Exception: written approval of the majority of all • Securities are listed and traded in the big board
the directors of the bank of domestic stock exchange and less than 50% of
ii. Approval shall be entered upon the records of the bank voting stock is owned by 1 person or by persons
st
iii. Dealing shall be upon terms not less favorable to the bank related to each other within 1 degree of
than those offered to others consanguinity or affinity
• Director, officer or stockholder sits as a
B. Directors representative of the bank in the board of
i. Named as such in the articles of incorporation directors of such corporation
ii. Duly elected in subsequent meetings of stockholders a. Provided that the bank representative
iii. Elected to fill the vacancies shall not have any equity interest in the
borrower corporation except for the
C. Officers minimum shares required by law
i. President, EVP, SVP, General Manager, Secretary, b. Provided that the borrowing corporation
treasurer, trust officer and others whose duties as such is not among those mentioned in items
are defined in the by-laws or are generally known to be 5,6,7 and 8 below
officers of the bank v. Corporation, association or firm of which any or a group of
ii. Chairman, Vice-chairman or any other position of the directors, officers, stockholders of the lending bank and/or
boardwho also performs functions of management such as their spouses or relatives within the first degree of
those ordinarily performed by regular officers consanguinity or affinity, or relative by legal adoption, hold
or own at least 20% of the subscribed capital of such
D. Stockholder – corporation, or of the equity of such association or firm
i. Any stockholder of record in the books acting personally or vi. Corporation, association or firm wholly or majority-owned
through an attorney-in-fact or controlled by any related entity or a group of related
ii. Any other person duly authorized by him or through a entities mentioned in Items 2, 4, and 5
trustee vii. Corporation, association or firm which owns or controls
st
• His spouse/ relative within 1 degree of directly or indirectly whether singly or as part of a group of
consanguinity or affinity or legal adoption related interest at least 20% of the subscribed capital of a
• Partnership in which stockholder/spouse/relative substantial stockholder of the lending bank or which
is a general partner controls majority interest of the bank

25

viii. Corporation, association or firm in which the lending bank • The Following LOGs to GOCCs where RP owns
and/or its parent/subsidiary holds or owns at least 20% of 20% of capital stock shall be excluded from the
the subscribed capital of such corporation, or in the equity 30% ceiling on unsecured loans
of such association or firm, or has an existing a. LOGs for infrastructure projects
management contract or any similar arrangement with the consistent with the Medium-term
lending bank or its parent/subsidiary Development Plan duly certified as such
by the Secretary of Socio-Economic
F. Effect of Violation – After due notice of the board of directors the Planning
office of the violator may be declared vacant and subject to penal b. LOGs granted to financial institutions in
provisions in the New Central Bank Act the lending programs
c. LOGs to provide rediscounting facilities
G. Limits of Loans for loans granted to agricultural sector,
and micro, small and medium
i. Regulated by Monetary Board enterprises
ii. Outstanding loans shall be limited to an amount equivalent • Pursuant to RA 7653 and independence under
to their respective unencumbered deposits and book value the Constritution, BSP shall be considered and
of their paid-in capital contribution in the bank independent entity of the RP and any LOG of the
BSP shall be considered
H. Exclusions to the Limit a. Non-risk
i. Those secured by assets considered as non-risk by the b. Not subject to any ceiling
Monetary Board. • LGUs shall be considered separate from the RP
ii. Those in the form of fringe benefits granted in accordance and other governement entities, hence not a
with rules prescribed by the Monetary Board related interest of the RP
iii. Those extended by a cooperative bank to its cooperative • A director who acts as a government
shareholders representative in the lending institution shall not
be excluded in the deliberation and determination
I. Applicabilty of DOSRI Rules and Regulations to Government of directors in cases of LOGs to borrowing
Borrowings government entity other than RP
i. Circular 547 – DOSRI Rules and Regulations shall also
apply to loans, other credit accommodations, and/or
guarantees granted to the National Government of the VI. Loans and Other Credit Accomodations
Philippines, its political subdivisions and instrumentalities
as well as government-owned or controlled corporations A. Loans and Other Credit Accomodations against Real Estate – shall
• Such loans, other credit accommodations, and/or not exceed 75% of the appraised value of the respective real estate
guarantee (LOG) to RP must be considered as security, plus 60% of the appraised value of the insured
i. Non-risk improvements, such loans be made to the owner of the real estate
ii. Not subject to any ceiling or to his assignees
i. Exception: As otherwise prescribed by the Monetary
• LOG to a GOCC or Corporations where RP owns Board
20% of subscribed capital stock shall be B. Loans and Other Credit Accommodations on Security of Chattels
considered indirect borrowings of RP and shall and Intangible Properties – shall not exceed 75% of the appraised
form part of the individual ceiling as well as the value of the security and the same may be made to the title holder
aggregate ceiling or his assignment
i. Exception: As otherwise pescribed by the Monetary Board

26

C. Joint and Solidary Agreement – JSA is indubitably a surety not a ii. In funding businesses imposed upon a banking
guaranty. An agreement where parties consent to be jointly and corporation, the bank invests the money that it holds in
severally liable. Should be taken contra proferentum against the trust of its depositors
party who may have cause any ambiguity therein. iii. Provided by GBL
D. Effect of Surety Agreement – strictly construed against the creditor, D. Unsecured Loans or Other Credit Accomodations – Monetary
every doubt is resolved in favor of the solidary debtor. Board is authorized to issue regulations necessary with respect to
unsecured Loans or Other credit accommodations
i. A Bank cannot hold a surety liable for loans obtained in
excess of the amount or beyond the period stipulated in E. Other Security Requirements for Bank Credits – Monetary Board
the original agreement, absent any clear stipulation that he may prescribe security requirements to which the various types of
has waived his right to be notified or to give consent. bank credits shall be subject, the same may reduce and increase
• Reason: Fundamental Rules of fair play require maximum ratios
the creditor to obtain consent of surety to any
material alteration in the principal agreement. F. Authority to Prescribe Terms and conditions of Loans and Other
Credit Accommodations
VII. Grant and Purpose of Loans and Other Credit Accomodations
i. Sec. 43 of GBL – Monetary Board has the authority
A. Amount and purpose of Loan granted in Sec 106 of the new Central Bank Act to
i. A bank shall grant loans and other credit accommodations prescribe the maturities and conditions for various types of
only in amounts and periods of time essential for the bank loans and other credit accommodations
effective completion of the operations to be financed. ii. Sec. 106 of NCBA – Monetary Board may issue such
• It should be consistent with safe and sound regulation necessary with respect to maximum permissible
banking practice maturities maturities of loans and investments and the
ii. Purpose must be stated in the application kind and amount of security required against various types
iii. Bank shall have the right to terminate the loan and of credit operations of the banks
demand immediate repayment of the obligation if it finds
that the proceeds of the loan have been employed for G. Amortization on Loans and Other Credit Accommodations
purposes other than those agreed upon without the bank’s i. Amortization schedule shall be adapted to the nature of
approval the operations to be financed
ii. Loans and other credit accommodations with maturities of
B. Requirement for Grant of Loans or Other Accomodations – before more than 5 years – payments must be made periodically
granting a loan, the bank must ascertain that the debtor is capable and at least annually
of fulfilling his commitments through: iii. Borrowed funds used for purposes which do not initially
i. Statement of assets and liabilities produce revenues for regular amortization payments - The
ii. Statemement of income and expenditure bank may permit that initial amortization be deferred until
iii. Other information prescribed by Monetary Board funds are sufficient, but said payment should not be later
than 5 years from the date on which the loan is granted
• Also see 1198 of Civil Code iv. Loans and credit accommodations to Microfinance sectors
– schedule shall take into consideration projected cash
C. Reason for Stringent Rules in Granting Loans flow of borrower and adopt terms and conditions
i. A bank is one affected with public interest for which formulated by banks
reason the bank should guard against loss due to
negligence or bad faith H. Escalation clause; stipulation that the rate of interest may increase (escalation)
AND decrease (de-escalation) if the applicable maximum interest rate is

27

increased/decreased by the Monetary Board (PD 1684: Amendment to the Usury
Law). Adjustment takes effect on or after MB increases/decreases rate. O. Banks Cannot Extend Peso Loans to Non-Residents; (1) to curb undue
speculation in the foreign exchange market and (2) to reinforce the memorandum that
Purpose of mandating de-escalation clause: peso deposits should be funded from inward ForEx remittance.
prevent one-sidedness in favor of the lender.
(Art 1308, NCC: contract must bind both parties; validity or compliance cannot be P. Provisions for Losses and Write-Offs; sec. 49, GBL; MB may fix the amount of
left to the will of one.) reserves for bad debts or doubtful accounts or other contingencies (interest is past
due). Write-offs likewise subject to regulations by MB.
Exception: If there is no de-escalation clause, escalation clause is still valid if creditor
unilaterally and actually decreased the interest charges whenever the rate is VIII. Truth in Lending
changed by MB. In this case, parties are on equal footing, thus preventing the evil
proscribed by PD 1684. A. Policy; to protect citizens from lack of awareness of the true cost of credit, full
Cessante ratione legis cessat ipsa lex. (Llorin v. CA) disclosure is assured
B. Disclosure; creditor shall furnish in a clear statement in writing:
*Usury Law has since been lifted by Central Bank Circular 905 1. cash price/delivered price of property or service
2. amounts credited as down-payment
I. Unilateral Increase of Rates; even if the Usury Law was lifted, one-sided 3. difference bet. amounts in 1 and 2
impositions do not have the force of law bec. it violates the principle of mutuality of 4. charges, individually itemized, not incident to the extension of credit
contracts. 5. total amount to be financed
6. finance charge in terms of pesos and centavos
J. Iniquitous, Unconscionable and Exorbitant Interests; if the court finds a rate 7. percentage/simple annual rate on the outstanding unpaid balance
iniquitous, unconscionable and exorbitant, it should be VOID bec. it is contrary to
morals (Art 1409 NCC: those contra bonus mores are inexistent and void from the C. Definitions
beginning). Rate shall be reduced by court. i. Credit; any loan, mortgage, deed of trust, advance, discount; conditional sales
contract; contract to sale/contract of sale; rental-purchase contracts; contract for hire,
Medel v. CA: 5.5% per month or 66% per annum is IUE bailment or leasing of property; any option, demand, lien, pledge or other claim
Cuaton v. Salud: 10% per month is IUE. against property or money; purchase/acquisition of credit; any transaction having a
Reduction to 12% per annum is fair and reasonable. similar purpose or effect.
Dio v. Virgilio: 120% per annum is IUE.
Reduction legally called for in rates of interest and penalty. ii. Finance charge; interest, fees, service charges, discounts, charges to the extension
of credit as the MB may regularly prescribe
K. Effect of Void Interest Rate;
as if there was no express contract bet. parties iii. Creditor; any person engaged in the business of extending credit who requires the
payment of a finance charge as an incident to this extension
L. Prepayment of Loans and Other Credit Accommodations; sec. 45, GBL: borrower
may prepay unpaid balance of bank loans at any time prior to the agreed maturity D. Penalties for Failure to Disclose
date, subject to reasonable terms and conditions agreed upon by bank and borrower. 1. Civil; P100 or 2x finance charged. Limit is P2000.
2. Criminal; if willfully violated, fine of P1,000-P5,000 and/or 6mos-1yr imprisonment
M. Development Assistance Incentives; sec. 46, GBL; Bangko Sentral shall give
incentives to banks that have activities with social content (extending loans to finance E. Effect of Violation; violation shall NOT affect validity and enforceability of contract
educational institutions, coops, hospitals, LGUs, low-cost housing).
F. Exemption of Government; no punishment sa Phil. Gov’t, agencies and political
N. Renewal or Extension of Loans and Other Credit Accommodations; sec. 48, GBL; subdivisions
MB may prescribe the conditions and limitations where a bank may grant extensions
or renewals of its loans and other credit accommodations. G. Required Disclosures on Consumer Loans not under Open-End Credit Plan

28

1. amount of credit debtor will have actual use of Limpin v. IAC: Right of Redemption exists only in the case of the extrajudicial
2. charges, individually itemized, not part of the finance charge foreclosure of the mortgage. No such right is recognized in a judicial foreclosure
3. total amounts financed in 1 and 2 except only where the mortgagee in the PNB or other bank. Right may be exercised
4. finance charge expressed in pesos and centavos within a period of 1 year, counted from the date of registration.
5. effective interest rate
6. simple annual rate (percentage of finance charge to the total amount to be Equity of Redemption is the right of the mortgagor to extinguish the mortgage and
financed) retain ownership of the property by paying the secured debt within the 90-day period
7. default or delinquency charges payable for late payments after the judgment becomes final (Rule 68, CivPro).
8. descrip of security interest and a clear identification of property where security
interest relates C. Right of Redemption may be Extended by Agreement; the right to redemption must
be exercised within specified time limits but if agreed upon by the parties, it may be
H. Exempted Transaction; extension of credits for business and commercial extended.
purposes, and sa Gov’t, agencies and instrumentalities, juridical entities or to
GOCCs. D. Estoppel; if a bank had time to object and did not, its silence can be construed as
having consented to the extension of the redemption period. Estoppel arises when
IX. Foreclosure of Real Estate Mortgage one, by his own silence when he ought to speak out, intentionally or thru culpable
negligence, induces another to believe that certain facts exist.
A. Procedure
If property was foreclosed judicially or extrajudicially, the mortgagor may redeem the E. Redemption of foreclosed property after the Prescriptive Period;
real property sold for full/partial payment of his obligations within one year after the Right to redeem becomes functus officio on the date of its expiry.
sale by paying amount due in mortgage deed, with interest at the rate specified. All Exercise after this period in not redemption but repurchase.
costs and expenses incurred by the bank from sail is derived therefrom. Redemption is by force of law and the purchaser is bound to accept redemption.
Repurchase imposes no such obligation. He may or may not re-sell the property after
Purchaser at the auction sale has right to enter and take possession of that property expiration, and he is not bound by bid price bec after all, the property already belongs
immediately after the date of confirmation of the auction sale. However, sec. 7 of Act to him as owner.
No 3135 (An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Rent Estate Mortgages) provides that if property was registered under the
Mortgage Law, purchaser must first furnish a bond in an amount equivalent to the
use of property for 12mos. Such bond must be approved by court and court must
thereafter issue a writ of possession addressed to the sheriff where property is W/N alien-owned bank can acquire ownership of residential lot by deed of transfer as
situated. settlement of debt.
NO. Its acquisition jeopardizes the purpose of the Constitution to keep in the
If property was foreclosed by banks, purchaser is not required to set up a bond. hands of the people the ownership over private lands.
If property to be foreclosed is owned by juridical persons, right to redeem 3months HOWEVER, a lease of a parcel of land for 50 years in favor of an alien corp
after foreclosure. is registerable. A lease, unlike a sale, does not involve the transfer of dominion over
If real property is mortgaged to alien individuals or corporations, in no case shall the land.
actual possession exceed 5years.
Redemption period counted from the date of registration of certificate of sale XI. Other Banking Services; acting as depositary or agent
with the Register of Deeds. 1. receive in custody funds, docs, and valuable objects
Private lands may only be transferred to individuals, corporations, or associations 2. act as financial agent, buy and sell shares, evidence of indebtedness, all types of
qualified to acquire or hold land of public domain. Exception: thru hereditary securities
succession. 3. make collections and payments and other services not incompatible with banking
business for their customers
B. Equity of Redemption v. Right of Redemption 4. upon approval by MB, act as managing agent, adviser, consultant or administration
of investment mgmt accts.

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5. rent out safety deposit boxes
Subject to prior approval by MB, banks may outsource all IT systems and processes
A. Safety Deposit Box except for inherent banking functions.
1. Special Kind of Deposit; cannot be a contract of lease bec full and absolute Those that may not be outsourced:
possession and control of the safety deposit box (SDB) is not given to the renters. those affecting the ability of of the bank to ensure the fit of tech services deployed to
Guard key remains with the bank without which renters could not open the bank. meet its strategic and business objectives;
Bank could not likewise open the box without the renter’s key. strategic planning for the use of IT;
determination of system formalities;
If renter duplicated the key for joint access, bank is NOT liable to either of the joint change mgmt inclusive of quality assurance and testing;
renters in case of loss attributable to either of them. service level and contract mgmt
If a bank was not aware of an agreement bet joint renters that articles shall only be security policy and administration
withdrawn from SDB ONLY upon the joint signatures of both parties, and there is no
evidence to prove that loss was due to the fraud and negligence of the bank, the bank XIII. Outsourcing Of Other Functions
is NOT liable. Subject to prior approval of the MB, banks may outsource data imaging, storage,
retrieval and other related systems, clearing and processing of checks, printing of
2. Bailor and Bailee; bank deposit statements, other activities det by the MB.
The relation between a bank and its SDB customer with respect to the
contents of the box is that of a bailor and bailee, the bailment being for hire and Banks may outsource:
mutual benefit. • credit card services
• printing of bank loan statements and other non-deposit records, bank forms,
3. Duties May Be Defined By The Parties and promotional materials
The parties may, by special contract, define their respective duties or • credit investigation and collection
provide for increasing or limiting the liability of the deposit company, provided that it is • processing of export, import and other trading transactions
not violative of law or public policy. It must clearly appear that there actually was a • transfer agent services for debt and equity securities
special contract, in order to differentiate from implied ordinary obligations. • property appraisal
Doubtful words will not enlarge or restrict the liability of the company. • property mgmt services
Company cannot also exempt itself from liability for loss of the contents by its own
• messenger, courier and postal services
fraud or negligence, and if a provision of the contract says so, such provision will be
• security guard services
held ineffective for the purpose.
• vehicle service contracts
If a collection of stamps were in an SDB at the lowest row, and floodwater entered the • janitorial services
bank’s premises thus damaging the stamps, THE BANK IS GUILTY OF • public relations services
NEGLIGENCE, and must compensate the renter. Bank was aware of the floods and it • procurement services
also knew that floodwaters inundate the room where said SDB is located. It should • temporary staffing
have notified the SDB renter, opened and retrieved the stamps so as to save from • legal services from local legal counsel
further deterioration. • Provided, that they do not include servicing/handling bank deposits or other
Art.1170: Those who, in the performance of their obligations are guilty of fraud, inherent banking functions.
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
XII. Electronic Transactions

BSP has full authority to regulate the use of electronic devices (e.g. computers) for
recording, storing, and transmitting data in connection with the operation of banks.
(sec 59, GBL)

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Chapter 5 influence such persons to approve a loan or other credit
accommodation
Prohibited Transactions and Cessation of Banking
Business c. No examiner, officer or employee of the Bangko Sentral or of any
department, bureau, office, branch or agency of the government
A. Prohibition to Act as Insurer; examples: that is assigned to supervise, examine, assist or render technical
a. Making, or proposing to make, as insurer any insurance contract; assistance t any bank shall-
b. Making or proposing to make, as surety any contract of suretyship • Commit any of the aforementioned acts or aid in the
as a vocation and not as merely incidental; commission of the same
c. Doing any kind of business within the meaning of the Insurance • Furnishing false or misrepresent or suppress material
Code; facts by personnel of BSP shall constitute fraud and
d. Doing any business similar to aforementioned in a manner shall be subject to administrative and crimina sanctions
designed to evade the provisions of Insurance Code provided under the New Central Bank Act
• Profit is immaterial to constitute the doing or transacting d. Consistent with the Banks Secrecy Law, no bank shall employ
of an insurance business. casual or nonregular personnel or lengthy probationary personnel
in the conduct of it business involving bank deposits
B. Prohibited Acts
a. No Director, officer, employee, or agent of any bank shall- FOORD
• Make false entries in any bank report or statement or C. Prohibition Against Outsourcing Certain Banking Functions –
participate in any fraudulent transaction causing a. Outsourcing inherent banking functions – any contract between the
damage to the bank or any person bank and a service provider for the latter to supply manpower to
• Disclose to any unauthorized person any information service deposit transactions of the bank.
relative to funds in the custody of the bank without order b. Banks cannot outsource management functions unless authorized
of a court of competent jurisdiction by the Monetary board when circumstances justify
• Accept any for of remuneration or commission in c.
connection with approval of loan or other credit III. Prohibition on Dividend Declaration
accommodation *No bank or quasi-bank shall declare dividends greater than its accumulated net
• Overvalue or aid in overvaluing any security for the profits then on hand, deducting therefrom its losses and bad debts
purpose of influencing the actions of the bank *Neither shall bank nor quasi-bank declare dividends, if at the time of declaration:
• Outsource inherent baking functions – to ensure 1. Its clearing account with the Bangko Sentral is overdrawn; or
secrecy of bank deposits
2. It is deficient in the required liquidity floor for government deposits for 5 or
b. No borrower shall – FOFA more consecutive days; or
• Fraudulently overvalue property offered as security for a
loan or other credit accommodation 3. It does not comply with the liquidity standards/ratios prescribed by the
• Furnish false or misrepresent or suppress material facts Bangko Sentral for purposes of determining funds available for dividend
to botain, renew, increase or extend the period of a loan declaration; or
or other credit accommodation
• Attempt to defraud a bank in the event of a court action 4. It has committed a major violation as may be determined by the Bangko
to recover a loan or other credit accommodations
Sentral.
• Offer any gift or any form of compensation to any
director, officer, employee or agent of a bank in order to
IV. Unauthorized Advertisement or Business Representation

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No person, association, or corporation unless duly authorized to engaged in doctrine of implied authority, the conservator cannot do either. [First
the business of a bank, quasi-bank, trust entity, or association, or use in connection
with its business title, the word or words “bank”, “banking”, “banker”, “quasi-bank”, Philippine International Bank v. CA, 252 SCRA 255 (1986)]
“quasi-banking”, “quasi-banker”, “savings and loan association”, “trust corporation”,
“trust company”, or words of similar import or transact any manner the business of *LIQUIDITY- the ability of an asset to be converted into cash quickly and without any
any such bank, corporation or association.
price discount. A corporation is liquid if it has ready access to cash.
V. Placement Under Conservatorship

*SOLVENCY- the condition that exists when liabilities amount to less than total
A. Governing Law
assets, thus providing the ability to pay debts. The test of insolvency is measured by
“The grounds and procedures for placing a bank under conservatorship,
determining whether the realizable assets of a bank are less than its liabilities.
as well as, the powers and duties of the conservator appointed for the bank
shall be governed by the provisions Section 29 and the last two paragraphs
C. Qualifications of Conservator
of Section 30 of the New Central Bank Act: Provided, That this Section shall
The conservator should be competent and knowledgeable in bank
also apply to conservatorship proceeding of quasi-banks.” (Section 67 of the
operations and management.
GBL)
D. Period of Conservatorship
B. Grounds for appointment of conservator
The conservatorship shall not exceed one (1) year.
• The Monetary Board may appoint a conservator whenever it finds that a
bank or a quasi-bank is in a state of (1) continuing inability or (2)
E. Remuneration
unwillingness to maintain a condition of liquidity deemed adequate to protect
the interest of depositors and creditors. [Section 29, RA 7653]
• The conservator shall receive remuneration to be fixed by the Monetary
Board in an amount not to exceed two-thirds of the salary of the president of
*POWERS OF THE CONSERVATOR
the institution in 1 year, payable in 12 equal monthly payments.
1. Take charge of the assets, liabilities and management of the bank or quasi-
bank • If any time within one-year period, the conservatorship is terminated on the
2. Reorganize the management ground that the institution can operate on its own, the conservator shall
3. Collect all monies and debts due said institution
receive the balance of the remuneration which he would have received up to
4. Exercise all powers necessary to restore its viability
the end of the year; but if the conservatorship is terminated on other
grounds, the conservator shall not be entitled to such remaining balance.
• The conservator has the power to overrule or revoke the actions of the
• The Monetary Board may appoint a conservator connected with the Bangko
previous management and board of directors of the bank or quasi-bank.
Sentral, in which case he shall not be entitled to receive any remuneration or
• Section 28-A of RA No. 265 merely gives the conservator the power to
emolument from the Bangko Sentral during the conservatorship.
revoke contracts that are deemed to be defective under existing law (i.e.,
void, voidable, unenforceable, or rescissible); hence, the conservator merely
F. Expenses of Conservatorship
takes the place of a bank’s board of directors. What the board of directors
cannot do, such as repudiating a contract validly entered into under the
Shall be borne by the bank or quasi-bank concerned.

32
G. Termination of conservatorship • Powers must be related to the “(preservation of) the assets of the bank, (the
• The Monetary Board shall terminate the conservatorship when it is satisfied reorganization of) the management thereof and (the restoration of) its
that the institution can continue to operate on its own and the viability. Such power cannot extend to the post-facto repudiation of perfected
conservatorship is no longer necessary. transactions, otherwise they would infringe against the non-impairment
• The conservatorship shall likewise be terminated should the Monetary Board clause of the Constitution.
determine that the continuance in business of the institution would involve • Law merely gives the conservator power to revoke contracts that are, under
probable loss to its depositors or creditors, in which case proceedings for existing law, deemed to be defective.
receivership and liquidation shall be pursued. [Section 29, RA 7653]
VI. Cessation of Banking Business
A. Voluntary Liquidation
H. Final and Executory B. Receivership and Involutary Liquidation
C. Close Now Hear Later Scheme
• Actions of Monetary Board shall be final and executory, and may not be D. Effect of Filing a Petition for Review
restrained or set aside by the court except on petition for certiorari on the E. Reasons Behind Receivership and Involuntary Liquidation
ground that the action taken was in excess of jurisdiction or with such grave F. Effects of Receivership and Liquidation
abuse of discretion as to amount to lack or excess of jurisdiction.
• Petition for certiorari may only be filed by the stockholders of record
presenting the majority of the capital stock within 10 days from receipt by the A. Voluntary Liquidation
board of directors of the institution of the order directing receivership, 1. request for approval of voluntary dissolution, attaching a
liquidation or conservatorship. liquidation plan therein.
(written notice of liquidation shall be sent to the Monetary Board
I. Exclusive Power to Appoint prior to such liquidation.)
2. dissolution in accordance with the Corporation Code
Designation of conservator is vested exclusively with the Monetary Board. 3. liquidation undertaken by the bank itself through its Board of Directors
either (a) by a trustee or (b) by a receiver appointed to the bank.
J. Not a Precondition
Grounds for Receivership and Liquidation
Designation of conservator is not a precondition to the designation of a The MB may, summarily & w/o prior hearing, FORBID institution from
receiver. doing business if the institution:
a. is unable to pay liabilities
K. Powers of Conservator Cannot Impair the Obligations of Contracts. b. has insufficient assets, as determined by BSP

33

c. will involve probable loss to depositors or creditors dissolved * insolvent * in imminent danger of insolvency * has
d. has willfully violated a cease & desist order involving acts or forfeited corporate rights
transactions which amount to fraud or a dissipation of assets
(50T-200T fine or 2-10Y imprisonment) Sec. 175: General Powers of a Receiver.
For quasi-banks, any person of recognized competence in banking or 1. bring and defend actions in own name
finance may be designated as receiver. 2. take possession of property in controversy
3. receive rent, collect debts, and compound for such
The receiver shall immediately 4. make transfers
1. gather all assets and liabilities
2. administer assets and liabilities for the creditors A receiver is
3. exercise general powers under the Rules of Court - an indifferent person between the parties to a cause
4. determine W/N bank may be rehabilitated or resume business w/in 90 days - not the agent or representative of either
* But he shall NOT (except for administrative expenses) pay or - but an officer of the court
transfer any asset of the institution.
Prohibited Acts
If the receiver determines that the bank cannot be rehabilitated, the Any director or officer of a bank declared insolvent or placed under
MB shall notify the board of directors of its findings in writing and receivership by the MB shall not
direct the receiver to proceed with the liquidation. 1. refuse to turn over the bank records
The receiver shall file with the RTC a petition for assistance in the 2. tamper with bank records
liquidation. 3. destroy or cause misappropriation of the bank's assets
4. receive any deposti, collection of loans, or receivables
Current and Complete Examination Not Necessary before the closure of a bank 5. pay out any funds of the bank
R.A. 7653 (1993) provides that only a REPORT of the head of 6. transfer securities or property
supervising or examining department is necessary.
The word "report" is clearly different from "examination." A report is In the case of conservatorship,
"something that gives information" or "a detailed account". An 1. the actions of the MB shall be final and executory
examination is "a search, investigation or scrutiny." 2. may be set aside by a petition for certiorari filed by the
stockholders of record within 10 days
Rural Bank of San Miguel Inc. v. Monetary Board
The closure of a bank may be considered as an exercise of police power.
Close Now Hear Later Scheme (p. 213, MemAid)
Sec. 174 of the Code of CivPro: A receiver may be appointed if the 1. Sec 29 of the Central Bank Act does NOT contemplate prior notice and
corporation is hearing.

34

The assailed actions should precede the filing of the case. 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
2. Purpose is to PREVENT unwarranted dissipation of the bank's assets costs, fees and expenses mentioned in Item A above salaries of such personnel
and as a valid exercise of police power to protect the depositors. whose employment is rendered necessary in the discharge of the liquidation together
3. The bank is given full opportunity to prove arbitrariness and bad with other additional expenses caused thereby. The balance of revenues and
earnings, after the payment of all said expenses, shall form part of the assets
faith in placing the bank under receivership. available for payment to creditors.
* The absence of an examination does not mean that there is no basis
C. Disposition of Banking Franchise
for the closure order. The purpose of RA 7653 is to make the closure
of a bank summary and expeditious in order to protect public interest. 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
Effects of Receivership and Liquidation (p. 214, MemAid) 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
1. Retention of Juridical Personality realized from such award shall be subject to the appropriate exclusive disposition of
2. Suspension of Operations /Stoppage of Business the Monetary Board.
3. Assets deemed in custodia legis and shall be exempt from
D. Liabilities
garnishment, levy, attachment or execution
4. Execution of judgment is warranted The bank is bound by the acts, or failure to act, of the receiver. At the same
5. Bank is NOT liable to pay interest on deposits that accrue during time, the receiver is liable to the bank for culpable or negligent failure to collect the
assets of such bank and to safeguard said assets.
the period of suspension
6. But BSP shall collect interest on all loans and advances
7. Bank cannot do new business
8. Deposits do not become preferred credits
VII. Disposition and Distribution of Assets CHAPTER 6

A. Distribution of Assets Foreign Banks & Trust Operations
In case of liquidation of a bank or quasi-bank, after payment of the cost of
proceedings, including reasonable expenses and fees of the receiver to be allowed by Offshore banking – refers to the conduct of banking transactions in foreign currencies
the court, the receiver shall pay the debts of such institution, under order of the court, involving the receipt of funds from external sources and utilization of such funds.
in accordance with the rules on concurrence and preference of credit as provided in
the Civil Code. Offshore banking unit – means a branch, subsidiary or affiliate of a foreign banking
*Current account and savings account are not preferred credits in cases involving corporation which is a duly authorized by the BSP to transact offshore banking
the insolvency and liquidation of a bank, where there are various creditors and it business in the Philippines.
becomes necessary to ascertain the preference of various credits. These deposits are
essentially mercantile contracts and should, therefore, be governed by the provisions • Entry of foreign banks in the Philippines are governed by Foreign Banks
of the Code of Commerce. Liberalization Act (RA 7721)
B. Disposition of Revenues and Earnings

35

• The conduct of offshore banking shall be governed by Offshore Banking Residents and citizens of the Phil. who are creditors of a branch in the Phil. of a
System Decree (PD 1034) foreign bank shall have preferential rights to the assets of such branch in accordance
with existing laws.
NOTE: Foreign Corp. doing business in the Philippines are required to obtain a
license. Sec. 133 of Corporation Code • Sec 20 of GBL applies to a universal or commercial bank duly established
and organized as a Phil. corporation in accordance with Sec 8 of GBL and
• Foreign Corp. doing business in the Philippines without license are barred authorized to establish branches within or outside the Phil.
from accessing our courts. It is ipso facto incapacitated to bring an action. • Home Office Guarantee is clearly for protection of the interests of the
• A license is necessary if its transacting or doing business in the Philippines depositors and other creditors of local branches of a foreign bank.
• By securing a license, the foreign entity would give an assurance that it will • The foreign bank cannot use the principle for a reserve purpose, to extend
abide by the decisions of our courts, even adverse to it. the liability of a client to the foreign bank’s Phil. branch to its head office.
• Purpose of the statute is to compel a foreign corporation desiring to do • Off-setting or compensation of loans with Phil. branch using dollar accounts
business within the state to submit itself to the jurisdiction of the courts of the with a foreign bank cannot be effected unless otherwise stated in the
state. contract.
Foreign Banks are allowed to entry in the Philippines subject to the ff: rules:
1. Within 7 years from the effectivity of GBL and subject to guidelines issued III. Trust Operations
pursuant to the RA 7721, the Monetary Board may authorize a foreign bank
to acquire up to a 100% of the voting stock of only 1 bank organized under A. Authority to Engage in Trust Business
Phil. Laws. -‐ Trust Business refers to any activity resulting from a trustor-trustee
relationship involving the appointment of a trustee for the
2. Within the same period, the Monetary Board may authorize any foreign administration, holding, management of funds and/or properties of
bank, which prior to the effectivity of GBL availed itself of the privilege to the trustor for the use or advantage of the beneficiaries.
acquire up to 60% of the voting stock of a bank under RA 7721 and the Thrift -‐ Only stock corporation or a person duly authorized by the Monetary
Banks Act, to further acquire voting shares of such bank to the extent Board to engage in trust business shall act as a trustee or
necessary for it to own 100% of voting stock thereof. administer any trust or hold property in trust or on deposit for the
use or benefit of others.
-‐ The cardinal principle common to all trust and other fiduciary
3. In the exercise of this authority, the Monetary Board shall adopt measures relationships is fidelity.
as may be necessary to ensure that at all times the control of 70% of the -‐ A bank authorized to engage in trust and fiduciary business is
resources and assets of the entire banking system is held by banks which under no obligation, either legal or moral, to accept such business
are at least majority-owned by Filipinos. being offered.
4. Any of the foregoing right, privilege or incentive granted to a foreign bank B. Conduct of Trust Business
shall be equally enjoyed by and extended under the same conditions to -‐ A trust entity shall administer the funds or property under its
banks organized under the Phil. laws. custody with the diligence that prudent man would exercise in the
conduct of an enterprise of a like character and similar aims.
In case of a foreign bank which has more than 1 branch in the Phil, all such -‐ No trust entity shall, for the account of the trustor or the beneficiary
branches shall be treated as on unit for the purpose of GBL and all references to the of the trust, unless the transaction is specifically authorized by the
Philippine branches of foreign banks shall be held to refer to such units.(Sec 74 GBL) trustor and the relationship of the trustee and the other party
involved in the transaction is fully disclosed to the trustor or
The head office of the foreign bank shall fully guarantee the prompt payment of beneficiary.
all the liabilities of its Phil. Banks. (Sec 75 GBL)
C. Registration of Articles of Incorporation and By-Laws of a Trust Entity

36

-‐ The SEC shall not register the articles of incorporation and by-laws account except where the investment is allowed by
or any amendment of any trust entity, unless accompanied by a Monetary Board.
certificate of authority issued by BSP.
G. Deposit for the Faithful Performance of Trust Duties
D. Minimum Capitalization -‐ Before transacting trust business, every trust entity shall deposit
-‐ A trust entity, before it can change in trust or other fiduciary with the BSP as security for the faithful performance of its trust
business, shall comply with the minimum paid-in capital duties approved by the Monetary Board in an amount equal to not
requirement determined by the Monetary Board. less than Php500, 000.00.
-‐ Monetary Board shall require every trust entity to increase the
E. Powers of Trust Entity amount of its cash or securities on deposit with BSP.
1. Act as trustee on any mortgage or bond issued by any municipality, -‐ The paid-in capital and surplus of such entity must be at least equal
corporation or any bodily politic and to accept and execute any trust to the amount required to be deposited with the BSP in accordance
consistent with law; with the above provisions.
2. Act under the order or appointment of any court as guardian, -‐ A trust entity so long as it shall continue to be solvent and comply
receiver or trustee or depositary of the estate of any minor and as with laws or regulations shall have the rights to collect the interest
receiver and depositary of any moneys paid into court by parties earned on such securities deposited with BSP and to exchange the
and legal proceedings and of property. securities for others.
3. Act as the executor of any will when it is named the executor. -‐ All claims arising out of the trust business of a trust entity shall have
4. Act as administrator of the estate of any deceased person with the priority over all other claims as regards the cash or securities
will annexed or as administrator of the estate of any deceased deposited as above provided.
person when there is no will.
5. Accept and execute any trust for the holding, management and IV. Bond of Certain Persons for the Faithful Performance of Duties
administration of any estate, real or personal and the rents, issues
and profits. A. Bond Requirements
6. Establish and manage common trust funds, subject to such rules -‐ Before an executor, administrator etc. appointed by the court enters
and regulations as may be prescribed by the Monetary Board. upon the execution of his duties, upon order of the court, file a bond
in such sum, as the court may direct.
F. Transactions Requiring Prior Authority -‐ Upon the application of any executor, administrator etc. the court
-‐ A trustee or fiduciary shall not undertake any of the following may, after notice and hearing, order that subject matter of the trust.
transactions for the account of a client, unless prior to its execution. -‐ Upon presentation of the proof to the court that the subject matters
o Lend, sell, transfer or assign money or property to any of of the trust has been deposited with a trust entity.
the departments, directors, officers, stockholders, or -‐ The reduced bond shall be sufficient to secure adequately the
employees of the trustee or fiduciary or to any corporation proper administration and care of any property remaining under the
where the trustee owns at least 50% of the subscribed or control of such property.
voting stock.
o Purchase or acquire property or debt instruments from any B. Exemption of Trust Entity from Bond Requirement
the DOSRI or to any corporation where the trustee or -‐ No bond or other security shall be required by the court from a trust
fiduciary owns at least 50% of the subscribed capital or entity for the faithful performance of its duties as court appointed
voting stock. trustee, executor etc.
o Invest in equities or in securities underwritten by the
trustee or fiduciary or a corporation in which the trustee or V. Operations of Trust Entity
fiduciary owns at least 50% of the subscribed capital or
voting stock. A. Separation of Trust Business from General Business
o Sell, transfer, assign or lend money or property from one -‐ The trust business and all funds received by any trust entity as
trust or fiduciary account to another trust or fiduciary executor, administrator etc. shall be kept separate and distinct from

37

the general business including all other funds, properties and o Shall purchase under judgments, decrees, mortgages or
assets of such trust entity. trust deeds held by it and such as it shall purchase to
-‐ All moneys, properties or securities received by a bank in its secure debts due it.
capacity as trustee, fiduciary or investment manager shall be kept • Any real property acquired or held under the circumstances
physically separate and distinct from the assets of its other enumerated above shall be disposed of by the bank within a
business and shall be under the joint custody of at least 2 persons. period of 5 years provided, that the bank continue to hold the
property for its own use, subject to the following limitations:
B. Investment Limitations of a Trust Entity o The total investment in such real estate and
-‐ Unless otherwise directed by the instrument creating the trust, the improvements including equipment shall not exceed
lending and investment of funds and other assets acquired by a 50% of combined capital accounts
trust entity shall be limited to loans or investments as may be o The equity investment of a bank in another
prescribed by laws, the Monetary Board or any court of competent corporation engaged primarily in real estate shall be
jurisdiction. considered as part of the total investment in real
-‐ Assets received in trust or in other fiduciary capacity shall be estate, unless otherwise provided by the Monetary
administered in accordance with the terms of the instrument Board.
creating the trust or other fiduciary relationship.
D. Investments of Non-Trust Funds
Limitations: -‐ Investments of funds other than trust funds of a trust entity which is
-‐ Evidence of indebtedness of the RP and of the BSO and any other a bank, financing company or an investment house shall be
evidence of indebtedness or obligations the servicing and governed by the relevant provisions of the GBL and other
repayment of which are fully guaranteed by the RP. applicable laws.
-‐ Loans fully guaranteed by the RP as to the payment of principal
and interest. E. Sanctions and Penalties
-‐ Loans fully secured by a holdout on, assignment or pledge of -‐ A trust entity or any of its officers and directors found to have
deposits maintained either with the bank proper or other banks. willfully violated any pertinent provisions of the GBL shall be subject
-‐ Loans fully secured by real estate or chattels in accordance with to sanctions and penalties.
pertinent laws.
F. Exemption of Trust Assets from Claims
Required Specific Derivatives: -‐ No assets held by a trust entity in its capacity as trustee shall be
-‐ Transaction to be entered in to subject to any claims other than those of the parties interested in
-‐ Borrower’s name the specific trusts
-‐ Amount Involved -‐ Property held by the insolvent debtor as a trustee of an express or
-‐ Collateral security/ies implied trust shall be excluded from the insolvency proceedings.
C. Real Estate Acquired by a Trust Entity G. Establishment of Branches of a Trust Entity

-‐ Unless otherwise specifically directed by the trustor or the nature of -‐ Ordinary business of a trust entity shall be transacted at the place
the trust, real estate acquired by a trust entity in whatever manner of business specified in its articles of incorporation.
and for whatever purpose shall likewise be governed by the
relevant provisions of the GBL. H. Advertisement of Services
-‐ The following circumstances may acquire, hold or convey real -‐ Trust entities shall advertise their services in a dignified manner
property: and enter such business only when demand for such service is
o Mortgaged to in good faith by way of security for debts evident, when specially equipped to render such service and upon
o Conveyed to it in satisfaction of debts previously full appreciation to the responsibilities involved.
contracted on the course of its dealings.
I. Money Government

38

-‐ Banks may receive or hold as trustee, agent, administrator,
financial manager or other similar capacity, any fund or money from
the government and government entities, provided, that
government-owned banks may received or hold as trustee the
following:
o Funds of local government units which are expected to be
available for investment purposes for a relatively long
period of time, provided, that the amounts held in trust or
otherwise managed/advised for and in behalf of LGU shall
be invested only in government.
o Funds of government and government entities which are
authorized by special laws to be placed in trust.

39

Chapter 7 2. It shall also exercise regulatory powers and
supervision over: quasi banks, trust entities and
BSP financial institutions.
III. Monetary Board
A. Composition
I. Creation, Responsibilities and Corporate Powers of the BSP The monetary board is composed of 7 members appointed by the
a. Declared Policy of the State President for a term of 6 years.
The central bank while being a government owned corporation, B. Qualifications of the members of the Monetary Board:
shall enjoy fiscal and administrative autonomy. a. Natural born citizens of the Philippines;
b. Responsibility and primary objective of the BSP b. At least 35 years of age, with the exception of governor
• The responsibility of BSP is to provide policy directions in the who shall be 40;
area of banking, money and credit. c. Good moral character;
• It shall have supervision over the operation of banks. d. Unquestionable integrity;
• It has regulatory powers over the operations of banks, finance e. Known probity and patriotism;
f. Recognized competence in social and economic
companies, quasi-banks.
discipline.
• To maintain price stability conducive to a balanced and
C. Disqualifications of the members:
sustainable growth of the economy.
a. Disqualifications imposed by “A code of conduct and
• To promote and maintain monetary stability and convertibility
ethical standards for public officials or employees”
of peso.
b. Being a director, officer, employee, consultant, lawyer,
c. Corporate powers of the BSP (SCP-SPAL)
agent or stockholder of any bank, quasi bank, or any other
1. Adopt, alter and use a corporate seal which shall be judicially
institution which is subject to supervision or examination
noticed;
by the BSP;
2. Enter into contracts;
c. Members coming from the private sector shall not hold any
3. Lease or own personal and real property;
other public office or employment;
4. Sue and be sued;
d. Person is connected directly with any multilateral banking
5. Do and perform all things that may be necessary or proper to
or financial institution;
carry out the purposes of the NCBA;
e. Has a substantial interest in any private bank, within 1
6. Acquire and hold assets and liabilities;
year prior to his appointment;
7. Compromise, condone, or release, in whole or in part, any
f. No member of the MB shall be employed in any such
claim of or settled liability to the BSP.
institution within 2 years after the expiration of his term
II. Authority of the BSP; Supervisory Powers
except when he serves as an official representative of the
1. The operation so banks shall be subject to the
government.
supervision of the BSP, which includes:
D. Grounds for removal of monetary board:
a. The issuance of rules and conduct or the establishment of
a. If he is physically or mentally incapacitated that he cannot
standards of operation for uniform application to all institutions
properly discharge his duties and responsibilities and such
or functions covered;
incapacity has lasted for more than 6 months;
b. The conduct of examination to determine compliance with laws
b. Member is guilty of acts of fraudulent or illegal character;
and regulations if the circumstances so warrant;
c. If member no longer possess the qualifications
c. Overseeing to ascertain that laws and regulations are complied
enumerated in B.
with;
E. Meetings, quorums, decisions and proceedings of the MB:
d. Regular investigation which shall not be oftener than once a
a. MB shall meet at least once a week.
year from the date of last examination;
b. Presence of 4 members shall constitute a quorum. In all
e. Inquiring into the solvency and liquidity of the institution;
cases governor or his designated alternate shall constitute
f. Enforcing prompt corrective action.
the 4.

40

c. Unless otherwise provided, all decisions of the MB shall connection with any criminal or civil action, made by the
require the concurrence of at least 4 members. reason if his official duties.
Note: Exception to E, par. C. G. Responsibility of the members of the MB and BSP:
1. Sec. 61 GBL, Publication of financial statements. a. If anyone of them wilfully violates NCBA or is guilty of
In periods of national and/or local emergency or negligence, abuse or acts malfeasance and misfeasance
of imminent panic which directly threaten or fails to exercise extraordinary diligence in the
monetary and banking stability, MB may by a performance of his duties shall be held liable for any loss
vote of 5 of its members, may allow such bank or injury suffered by the BSP
xxx, to defer for a stated period of time the b. Similar responsibility shall also apply to members, officers,
publication xxx. and employees of the BSP for:
2. Sec. 28, NCBA, Examinations and fees. i. Disclosure of any information of a confidential
Examination shall be conducted every year, and nature, unless such disclosure is in connection
at such other times as the MB by an affirmative with the performance of the official functions of
vote of 5 of its members, may deem expedient the BSP
and to make a report on the same to the MB. ii. The use of such information for personal gain or
3. Sec. 72 NCBA, Emergency Restrictions on to the detriment of the government.
Exchange operations. Xxx The MB with the IV. The governor and deputy governor
concurrence of at least 5 of its members and with A. The governor shall be the Chief executive officer of the BS with the
the approval of the president, may temporarily following powers and duties:
suspend or restrict sales of exchange by the 1. Prepare the agenda for the meetings
BSP, and may subject all transactions in gold and and to submit for the consideration of the board
foreign exchange to be delivered to the BSP. policies and measures which is necessary to
4. Sec. 84 NCBA, Emergency loans and advances. carry out the purpose of NCBA;
In periods of national and/or local imminent 2. Execute and administer policies
financial panic, MB may by a vote of 5 of its approved by the board;
members authorize the BSP to grant 3. Direct and supervise the operations and
extraordinary loans or advances to banks secure internal administration of the BS.
by assets xxx. 4. Appoint and fix the remunerations and
d. BSP shall maintain and preserve a complete record of the other emoluments of personnel below the rank of
proceedings and deliberations of the MB. dept. Head.
F. Scope of authority of the Monetary Board: (IDEA-I) 5. Render opinions, decisions, or rulings,
a. Issue rules and regulations it considers necessary for the which shall be final and executory until reversed
effective discharge of the responsibilities and exercise of or modified by the MB.
the powers vested upon the MB; 6. Exercise such other powers as may be
b. Direct the management, operations, and administration of vested in him
the BS, reorganize its personnel, and issue such rules and B. Emergencies
regulations as it may deem necessary and convenient for a. In case of emergencies, the governor, with the
such purpose; concurrence of 2 members of MB, may decide any matter
c. Establish a human resource management system which or take any action within the authority of the MB.
shall govern the selection, hiring, appointment, transfer, b. The governor shall submit a report to the president and
promotion or dismissal of all personnel. the congress within 72 hours after the action has been
d. Adopt an annual budget for and authorize such taken.
expenditures by the BS; c. Governor shall submit his action to the Mb for ratification.
e. Indemnify its members and other official of the BS against C. Limitations on outside interests of the governor and the full time
all costs and expenses reasonably incurred by them in members of the board

41

a. Limit their professional activities to those pertaining Chapter 8
directly to their position with the bangko sentral.
b. Not accept any other employment, whether public or Currency, Monetary stabilization and Functions of the BSP
private, remunerated or ad honorem, with the exceptions
of the positions in eleemosynary, civic, cultural and
religious organizations or whenever by designation of the I. The unit of monetary value
president, the governor or the full time member is tasked A. The peso. All monetary obligations shall be settled in the Philippine
to represent the interest of the government. currency which is the legal tender in the Philippines. However, the
V. Director, Officer or stockholder and Related Interest parties may agree otherwise.
A. Contracting loans B. Currency as all Philippine notes and coins issued or circulating in
a. Any director, officer, or stockholder who together with his accordance with the provisions of the NCBA.
related interest, contracts a loan or any other form of C. A currency has value because people are willing to accept it in
financial accommodation from his bank or a bank, shall be exchange for goods and services and in payment for debts.
required by the lending bank to waive the secrecy of his II. Issue of means of payment
deposits A. Exclusive Issue Power
b. Any information obtained from an examination of his a. BS shall have the sole power and authority to issue currency
deposits shall be held strictly confidential and may be within the territory of the Philippines.
used by the examiners in connection with their supervisory b. MB may issue regulations as it may deem advisable in order to
and examination responsibility. prevent the circulation of foreign currency or of currency
substitutes.
c. The BS shall have the authority to investigate, make arrests,
conduct searches and seizures for the purpose of maintaining
the integrity of the currency.
B. Liabilities for notes and coins
a. Notes and coins issued by the BS shall be liabilities of the BS
and may be issued only against, and in amounts not exceeding
the assets of the bankgo sentral.
b. The bangko sentral’s holding of its own notes and coins shall
not be considered as part of its currency issue and shall not
form part of the assets and liabilities of the BS.
C. Legal tender power. All notes and coins issued by the BS shall be fully
guaranteed by the government and shall be legal tender in the
Philippines for all debts, both public and private.
D. Replacement of currency unfit for circulation. The BS shall withdraw
from circulation and shall demonetize all notes and coins which for any
reason are unfit for circulation and shall replace them by adequate
notes and coins.
E. Retirement of old notes and coins.
a. BS shall replace notes which are more than 5 years old and
coins which are more than 10 years old.
b. Notes and coins which are called for replacement shall remain
legal tender within one year from the date of call.
III. Domestic Monetary Stabilization
A. Action when abnormal movements occur in the monetary aggregates,
credit or price level

42

a.
MB shall take such remedial measures and submit to the a. BS may buy and sell foreign notes and coins, customarily
president and the congress and make public a detailed report employed for the international transfer of funds.
of the xxx. b. BS may buy and sell foreign exchange transactions with the
b. Whenever: following entities only:
i. The monetary aggregates, or the level of the credit, i. Banks operating in the Philippines
increases or decreases by more than 15 percent. ii. Government
ii. The cost of living index increases by more than 10 iii. Foreign or international financial institutions
percent, in relation to the level existing at the end of iv. Foreign government
the corresponding month of the preceding year. v. Other entities or persons which the MB authorized as
iii. Even though the circumstances have not been foreign exchange dealers
reached when in its judgment the circumstances so C. BS shall at all times maintain a net positive foreign asset position so that
warrant. its gross foreign exchange assets always exceed its gross foreign
IV. International Monetary Stabilization liabilities.
A. To preserve the international value of the peso and to maintain its VI. Regulation of foreign exchange operations of the banks
convertibility into other freely convertible currencies. BS shall maintain A. Information on exchange operations
international reserves adequate to meet any foreseeable demands on a. Banks shall report to the BS the volume and composition of
the BS for foreign currencies. their purchases of gold and foreign exchange each day.
B. The board shall give special attention to the volume and maturity of the VII. Loans to bank and other financial institutions
BS owns liabilities in foreign currencies, to the volume and maturity of A. Authorized type of credit operations
the foreign exchange assets and liabilities of other banks operating in a. Commercial credits – BS may buy, sell, rediscount, discount
the country. xxx with maturities of not more than 180 days from the date of
C. Action when the international stability of the peso is threatened: their purchase, discount, rediscount by the BS.
a. Whenever: b. Production credits – same; having maturities of not more than
i. The international reserves of the BS falls to a level 360 days from the date of the same.
which the MB considers inadequate to meet c. Other credits
prospective net demands on the BS for foreign d. Advances - BS may grant advances against the following
currencies. kinds of collateral:
ii. The international reserve appears to be in danger of i. Gold coins or bullion;
falling to such a level ii. Securities representing obligations of the BS or of
iii. The international reserve is falling as a result of other domestic institutions;
payment or remittances abroad, which in the opinion iii. Credit instruments
of the MB is contrary to national welfare. iv. Utilized portions of advances in current amount
The monetary board shall: covered by regular over draft agreements related to
• Take such remedial measures as are appropriate operations xxx.
• Submit to the president and congress reports v. Negotiable treasury bills, certificates of indebtedness,
regarding the nature and cause of the decline, notes and other negotiable obligations of the
remedial measure already taken, remedies government
proposed and the character and cooperation vi. Negotiable bonds
required from other government agencies VIII. Emergency loans and advances
V. Operations in gold and foreign exchange A. When granted
A. Purchases and sales of gold a. In periods of national and/or local emergency or of imminent
a. BS may buy and sell gold in any form financial panic which directly threaten monetary and banking
b. Purchases and sale of gold shall be made in the national stability.
currency b. Even during normal periods, for the purpose of assisting a
B. Purchases and sales of foreign exchange bank in a precarious financial condition or under serious

43

financial pressures brought by unforeseen events, provided the b. Same; issued by government instrumentalities fully guaranteed
bank is not insolvent. by the government
B. Limits c. The evidence of indebtedness must be freely negotiable and
a. It shall not exceed the sum of 50 % of total deposits and regularly serviced and must be available to the general public.
deposit substitutes of the banking institution and shall be XI. Composition of BS’s portfolio
disbursed in 2 or more tranches. A. At least once every month the MB shall review the portfolio of the BS in
st
C. First Tranche. The amount of the 1 tranche shall be limited to twenty- relation to its future credit policy. In reviewing the portfolio, MB shall
five percent of the total deposit and deposit substitutes of the institution take into consideration whether a sufficiently large part of the portfolio
and shall be secured by government securities to the extent of their consists of assets with early maturities, in order that a contraction in BS
applicable loan values and other unencumbered first class collaterals. credit may be effected promptly whenever the national monetary policy
This may be increased if the circumstances warrant such increase as to so requires.
be determined by the MB. XII. Bank reserves
D. Second Tranche. The MB may release a subsequent tranche by a vote A. Reserve requirements
of 5 of its members, with the condition that the principal stockholders of a. In order to control the volume of money created by the credit
the institution: operations of the banking system, banks are required to
a. Furnish an acceptable undertaking to indemnify and hold maintain reserves against their deposit liabilities. The required
harmless from suit a conservator whose appointment may be reserves of each bank shall be proportional to the volume of its
necessary at any time; deposit liabilities and shall ordinarily take the form of a deposit
b. To provide additional security, which the MB would warrant as in the BS. Reserve requirements shall be applied to all banks
adequate to supplement the assets tendered by the banking of the same category uniformly and w/o discrimination.
institution. b. The MB may exempt from reserve requirements deposit and
E. Shares as collateral. The prohibition with respect to the BS with respect deposit substitutes with remaining maturities of two years or
to them not allowed to acquire shares of any kind and accept them as more, as well as interbank borrowings.
collateral, and shall not participate in the management of any enterprise, c. BS shall not pay interest on the reserves maintained with it,
either directly or indirectly, does not apply when they receive such unless the MB decides otherwise as warranted by the
shares as a result of a foreclosure proceeding. Provided they disposed circumstances.
of the same within one year from its acquisition. B. Deposit substitutes are alternative form of obtaining funds from the
IX. Credit Terms public, other than deposits, through the issuance, endorsement, or
A. Interest and rediscount. BSP has the power to charge interests and acceptance of debt instruments for the borrower’s own account, for the
rediscounts on all loans and advances it extends. purpose of relending or purchasing of receivables and other obligations.
B. MB may prescribe, within the general powers granted to it under the Provided that, commercial, industrial and non-financial companies for
NCBA, additional conditions which the institution must satisfy. the limited purpose of financing their own needs shall not be covered by
C. Provisional advances to the National Government. The BS may make this provision.
provisional interests to the government with or without interest, provided C. Required reserves against peso deposits. The MB may fix and alter the
that: minimum reserve ratios to peso deposits, as well as to deposit
a. It must be repaid before the end of 3 months and extendible by substitutes, which each bank and quasi bank may maintain.
another 3 months as the MB may allow. D. Increase in Reserve requirements. Whenever in the opinion of the MB it
b. Shall not in their aggregate, exceed the 20 % of the average becomes necessary to increase the reserve requirements, the increase
annual income of the borrower for the last three preceding shall be made in a gradual manner and shall not exceed 4 % points in
fiscal years. any thirty day period. Banks shall be notified of such increase.
X. Open Market Operations for the Account of the BS E. Computation of reserves. The reserve position of each bank shall be
A. Purchases and sales of government securities. The BS may buy and calculated daily on the basis of the amount of its liability accounts
sell in the open market for its own account: against which reserves are required to be maintained.
a. Evidence of indebtedness issued by the government F. Reserve Deficiencies. Whenever the reserve position of any bank is
below the required minimum, the bank shall pay to the BS 1/10 of one

44

percent per day on the amount of deficiency or the prevailing 91 day stabilize the value of the said securities in order thereby to promote
Treasury bill whichever is higher. The banks may, however, offset any investment in government obligations.
reserve deficiency with any excess reserves which they may hold on XV. Functions as financial advisor of the government
other days. A. Before undertaking any credit operation abroad, the government must
a. If the reserve deficiency is chronic, the MB may limit or prohibit secure the advice of the MB on the monetary implications of the
the making of new loans or investments by the institution and contemplated action.
may require that part or all of the net profits be assigned to B. The opinion of the MB shall be based on the gold and foreign exchange
surplus. resources and obligations of the nation and on the effects of the
b. The MB may set aside the reserve deficiency in case of a proposed operation on the balance of payments and on monetary
strike or lockout affecting a bank, or of a national emergency aggregates.
affecting operations of banks or quasi banks. XVI. Privileges
G. Interbank Settlements A. The BS shall be exempt for a period of 5 years from the approval of the
a. The BS shall establish facilities for interbank clearing. NCBA from all taxes.
b. The deposit reserves maintained by the banks shall be the B. The exemption shall apply to all property of the BS, to the resources,
basis for the clearing of checks and the settlement of interbank receipts, expenditures, profits and income of the BS, as well as to all
balances. contracts, deed, documents and transactions related to the conduct of
c. Any bank which incurs on overdrawing in its deposit account the business of the BS.
with the BS shall fully cover said overdraft, including the C. The BS shall also be exempted from custom duties, a) the importation
interest thereon, at a rate of letter F. and exportation by the BS of notes and coins, and of gold and other
H. Exemption from attachment and other purposes metals to be used for purposes authorized under the NCBA, b)
a. Deposits maintained by the banks with the BS as part of their importation of equipment needed for bank note production, minting of
reserve requirements shall be exempt from attachment, coins, metal refining and other security printing operations.
garnishment, or any other order or process of any court issued D. The civil service law shall also apply to the appointments in the BS
to satisfy the claim of a party other than the government. except those which are policy-determining, primarily confidential, and
XIII. Functions as banker of the government highly technical. Provided that no qualification requirements for
A. The BS shall act as a banker of the government. positions in the BS shall be imposed other than those set by the MB.
B. The BS shall represent the government in all dealings, negotiations and Officers and employees shall not engage directly or indirectly in partisan
transactions with the IMF. activities or take part in any election except to vote.
C. Bs shall also represent the government in other financial institutions.
D. The BS shall be the official depository of the government, and as a
general policy, their cash balances should be deposited with the BS,
with only minimum working balances to be held by the government
owned banks, and other banks, subject to such rules and regulations as
the MB may prescribe.
E. The BS shall open a general cash account for the Treasurer of the
Philippines, in which the liquid funds of the government shall be
deposited.
XIV. The marketing and Stabilization of securities for the account of the
gov’t.
A. The securities stabilization fund shall be administered by the BS for the
account of the government. The operations shall consist of purchases
and sales, in the open market, of bonds and other evidence of
indebtedness issued or fully guaranteed by the government. The
purpose of these operations shall be to increase the liquidity and

45

CHAPTER 9 a. Unclaimed – court shall render judgment in favor of
government declaring unclaimed balances escheated
UNCLAIMED BALANCES AND TRUST RECEIPTS to Government, to be deposited to Treasure to the
credit of the Government
Unclaimed Balance Penalties
Refusal to make and file a sworn statement, 500 pesos a month for
Credits or deposits or other evidence of indebtedness of an kind each month or fraction upon continuance of default.
with banks, loan associations and trust corporations (BLT) in favor of any Immunity from suit
person known to be dead or who has not made further deposits or 1. BLT which shall make any deposit of unclaimed balances with the
withdrawals during the preceding ten years or more. Treasurer of the Philippines.
2. Defended by the Sol-Gen without cost
Unclaimed balance and increase in proceeds shall be deposited
with the Treasurer of the Philippines to be used as National Assembly may Service and Maintenance Fees on Dormant Accounts
direct.
Banks may impose service or maintenance fees on dormant or
Escheat inactive accounts provided that period of dormancy must first be properly
Reversion of land held under feudal tenure to the manor in the disclosed among the terms and conditions of the deposit.
absence of legal heirs or claimants
Reclassification
Procedure
1. Every January of every odd year, all BLT shall forward to All unclaimed balances reported to the Treasurer of the Philippines
Treasurer a statement under oath of managing officers af all must first be reclassified or transferred from the deposit/liability to the liability
credits and deposits held by them in favor of persons known to account due to the Treasurer of the Philippines before being turned over.
be dead, or who have not made further deposits or withdrawals Unclaimed deposit liabilities shall no longer be covered by reserves required
during the preceding ten years or more. It shall include: of deposit liabilities.
a. Names and addresses of persons with unclaimed
balance Escheats Under the Rules of Court
b. Amount and date
c. Date of Death 1. When a person dies intestate with no heir, Sol-Gen in behalf of
d. Interest due Philippines may file with RTC of province of residence praying
that estate of deceased by declared escheated.
2. Copy of sworn statement shall be posted in a conspicuous 2. Order for hearing shall not be more than 6 months after entry
place in said establishments of order, copy of order be published in news paper of General
3. BLT shall immediately before filing statement, communicate circulation for 6 successive weeks.
with person with unclaimed balance. 3. Hearing – the person died intestate, seized real or personal
4. Sol-Gen shall commence action in behalf of People of the property in the Philippines leaving no heir and no cause to
Philippines in the RTC where BLT is located. show contrary, court shall adjudge the estate of deceased after
5. Summons shall be made to president, cashier or managing paying debts and charges shall escheat.
officer of defendant BLT 4. Claim to estate – People entitled to such estate claims within 5
6. Clerk of Court shall also issue a notice years from the date of the judgment
7. Notice shall be published
8. Any interested person may become a party The State as an Heir of a Decedent
9. Hearing

46

The State shall inherit the decedent’s estate in default of persons Trust Receipts
entitled to succeed:
Article 1011 Policy
In default of persons entitled to succeed the State shall inherit the
whole estate 1. To encourage and promote the use of trust receipts as an
Article 1012 additional and convenient aid to commerce and trade
In order that the state may take possession of the property 2. Provide for regulation of trust receipts transactions in order to
mentioned, the pertinent provisions of the Rules of Court must be assure the protection of the rights and enforcement of
observed. obligations of the parties involved therein
3. Declare the misuse of goods or proceeds realized from the
sale as a criminal offence ESTAFA
Art. 1013. Definition
Entrustee – any person having or taking possession of goods,

After the payment of debts and charges, the personal property shall documents or instruments under a trust receipt transaction. Or any of his
be assigned to the municipality or city where the deceased last successors in interest.
resided in the Philippines, and the real estate to the municipalities
or cities, respectively, in which the same is situated. Entruster – any person holding title over the goods, documents or
instruments subject of a trust receipt transaction. Or any of his successors in
If the deceased never resided in the Philippines, the whole estate interest.
shall be assigned to the respective municipalities or cities where
the same is located. Security Instrument – property interest in goods, documents or
instruments to secure performance of some obligations or entrustee
Such estate shall be for the benefit of public schools, and public
Trust Receipt – written or printed document signed by the entrustee
charitable institutions and centers, in such municipalities or cities.
in favor of entruster containing terms and conditions substantially complying
The court shall distribute the estate as the respective needs of each
with provisions of Trust Receipts Law
beneficiary may warrant.
Trust Receipt Transaction
The court, at the instance of an interested party, or on its own
motion, may order the establishment of a permanent trust, so that Any transaction by and between an entruster and an entrustee
only the income from the property shall be used. (956a) whereby the entruster who owns or holds absolute title or security interests
over certain specified goods, documents or instruments releases the same
Art. 1014. to the possession of the entrustee upon the latter’s execution and delivery to
the entruster of a signed document called a trust receipt.
If a person legally entitled to the estate of the deceased appears
A trust receipt binds the entrustee to hold the designated goods,
and files a claim thereto with the court within five years from the
documents or instruments in trust for the entruster and to sell or otherwise
date the property was delivered to the State, such person shall be
dispose of them with the obligation to turn over the proceeds to the entruster
entitled to the possession of the same, or if sold the municipality or
to the extent of the amount owing to the entruster.
city shall be accountable to him for such part of the proceeds as
may not have been lawfully spent.
Other purposes:
1.) Goods or documents
a. Sell the goods or procure their sale

47

b. Manufacture or process goods for sale
c. Load, unload, ship, transship Currency
2.) Instruments Trust receipt may be denominated in any foreign currency

a. Sell or procure their sale or exchange acceptable provided that in the case denominated in foreign currency,
b. Deliver them to a principal payment shall be made in Philippine currency equivalent to it.
c. Effect consummation
d. Effect presentation and collection Rights of Entruster
There are two situations in a trust receipt transaction: 1. Entitled to proceeds from the sale released under a trust
1. Money received under obligation to deliver receipt to the entrustee to the extent of the amount owing to
it (entregarla) the entruster or as appears in the trust receipt or return of the
2. Merchandise received under the obligation goods incase of a non-sale
to return it (devolvera) 2. May cancel the trust and take possession of the goods subject
of the trust receipt upon default or failure of entrustee to
Trust receipt is a separate and independent security transaction comply with any of the terms and conditions of the trust receipt.
intended to aid in financing importers whereby the imported goods are held 3. Proceeds shall be applied
as security by the lending institution for the loan obligation. a. To the payment of the expenses
b. To the payment of expenses of re-taking, keeping and
Spouses Vintola vs. Insular Bank of Asia and America explained storing of goods
the nature and usage. c. Satisfaction of entrustee’s indebtedness
4. Entrustee shall receive any surplus but shall be liable to
Transaction involves a loan feature represented by the entruster for any deficiency
Letter of Credit and security feature which is in the covering trust
receipt. • Trust receipts partake of the nature of a
conditional sale since the importer
* Trust Receipt – document in which is expressed a security becomes absolute owner of the imported
transaction where the lender having no prior title to the goods and not having merchandise as soon as he has paid its
possession lends his money to the borrower who has possession on security price. Ownership shall be vested only
of the goods which the borrower is privileged to sell with an agreement to upon payment of the full amount.
pay all or part of the proceeds to the lender.
• Entruster shall not be responsible as
principal or as vendor under any sale or
Form of Trust Receipts contract to sell made by the entrustee.
Need not be in a particular form. But must contain: Obligations of the Entrustee
1. Description of the goods, document or instrument
subject to trust receipt 1. Hold the goods in trust for the entruster and dispose of them
2. Total invoice value of the goods and amount of the strictly in accordance with the terms of the rust receipt
draft 2. Receive the proceeds in trust for the entruster and turn over
3. Undertaking of the entrustee to: the same to the entruster
a. Hold in trust for the entruster 3. Insure the goods for their total value against loss and other
b. Dispose of them in manner provided by trust casualties
receipt 4. Keep goods separate and capable of identification as property
c. Turn over proceeds of sale of goods of entruster

48

5. Return the goods in the event of a non-sale or demand of the
entruster Roles of PDIC
6. Observe all other terms and conditions of the trust receipt
1) It shall ensure the deposits of all banks which are entitled to the benefits
Liability for Loss of insurance and which shall have to powers granted by law
2) It shall promote and safeguard the interests of the depositing public by
The risk of Loss shall be borne by the entrustee, irrespective of way of providing permanent and continuing insurance coverage on all
whether or not it was due to the fault of the entrustee. insured deposits
3) PDIC shall be entitled to the free use of Philippine mail in the same
Rights of Purchaser for Value and Good Faith manner as the other offices of the national government
Innocent purchaser for value acquires goods free from entruster’s Powers of PDIC as a corporate Body
security interest.
1) to adopt and use a corporate seal
Violation of Trust Receipts Law 2) to have succession until dissolved by an Act of Congress
3) to make contracts
Although is it malum prohibitum, the intent to misuse or 4) to sue and be sued, complain and defend, in any court of law in the Phil.
misappropriate the goods should be proved. Because the Law punishes the a) all suits of civil nature to which the corporation shall be part shall
dishonesty and abuse of confidence. deemed to arise under the laws of the Philippines.
b)no attachment or execution shall be issued against PDIC or its
Application property before final judgment in any suit, action or proceeding in any court
c) The Board of Directors shall designate an agent upon whom
Applies to items: service of process may be made in any province or city jurisdiction in which
1. Destined for sale any insured bank is located
2. Processed as a component of a product ultimately 5) to appoint its board of directors such officers and employees as are not
sold otherwise provided by the law to define their duties, fix their compensation,
3. Used to repair and maintain equipment in business require bonds of them and fix penalty thereof and to dismiss such officers
and employees for cause
Penalty 6) to prescribe by laws not inconsistent with law
7) to exercise all powers specifically granted by law
Failure of Entrustee to turn over proceeds of the sale of goods 8) to conduct examination of banks
covered by the trust receipt shall constitute the crime of ESTAFA. 9) act as a receiver
10) to prescribe such rules and regulations as it may deem necessary to
carry out the provisions of the PDIC law.
11) PDIC may establish its own provident fund which shall consist of
contributions made both by it and by its officers and employees to a common
fund for the payment of benefits to such officers
12) to compromise, condone or release in whole or in part, any claim or
settled liability to PDIC regardless of the amount involved.
CHAPTER 10
Composition
DEPOSIT INSURANCE
1) Secretary of finance – ex officio chairman w/o compensation
2) governor of BSP – ex officio member of the Board w/o compensation

49

3) President of PDIC – appointed by the president of the Philippines – for a -‐ Adequacy of its capital structure
term of 6years – shall also serve as Vice Chairman of the Board -‐ Future earning prospects
4) 2 members from the private sector – for 6 years w/o reappointment by the -‐ General character of its management
President -‐ Convenience and needs of the community to be
Disqualification of Appointive members – disqualified from holding any office, served by the bank and whether or not its corporate
position, or employment in any insured bank powers are within the purposes of the PDIC
Quorum -‐ The term deposit, unpaid balance of money or its
i) presence of three (3) members shall constitute a quorum equivalent received by a bank in its usual course of
ii) secretary of finance and governor of the banking sentral may each business and for which it has given or its obliged to
designate a representative give credit
iii) Chairman of the board – unable to attend – president shall act as
chairman B) Statutory Liability of PDIC
PDIC governed primarily by the provisions of the special law creating it. The liability of
Per Diem – Secretary of Finance shall fix the rate of per diem for every board meeting the PDIC for insured deposits therefore is statutory and such liability rests upon the
existence of deposits with the insured bank.
Authority of the Board
Borrowing from Banks
1) to issue rules and regulations as it considers necessary for the effective
discharge of its responsibilities
Borrowing from any bank or banking institution by examiners and other
2) to direct the management, operation and administration of PDIC personnel of the examination departments of PDIC shall be prohibited only
3) to establish human resources management with respect to the particular institution in which they are assigned.
4) to appoint, establish the rank, fix the remuneration, approve local and
XIII. Receivership
foreign training of, and remove any officer or employee for a cause, subject
to pertinent civil service laws. A. Appointment
5) to adopt an annual budget a. Appoint PDIC as receiver
6) to approval the methodology for determining the level and amount of b. “receiver” includes a receiver, commission, person or other
provisioning for insurance and financial assistance losses which shall
establish reasonable levels of deposit insurance reserves agency charged by law with the duty to take charge of the
assets and liabilities of a bank which has been forbidden
Officers from doing business
1) President
B. Powers
2) VP a. Control, manage and administer the affairs of the closed
3) Bank Examiners bank
4) Claim agents i. Powers, functions and duties, as well as all
5) Investigators
allowances, remunerations and perquisites of the
Deposit insurance coverage directors, officers, and stockholders of such bank
are suspended
A) Deposit Liabilities
i) deposit liabilities of any bank or banking institution which is ii. Provisions of the Articles of Incorporation are
engaged in the business of receiving shall be insured with the PDIC deemed suspended
. iii. Assets deemed in custodial egis in the hands of the
ii) factors considered
-‐ Financial history and condition of the bank
receiver

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iv. From the time the closed bank is placed under such deposit shall be divided into as many equal shares as there
receivership, assets shall not be subject to are individuals, unless a diff. sharing is stipulated in the
attachment, garnishment, execution, levy or any document of deposit
court processes. e. Account held by a juridical person or entity jointly – the
b. In addition to the powers of a receiver, PDIC is empowered maximum insured deposit shall be presumed to belong
to: entirely to such juridical person or entity
i. Bring suit to enforce liabilities to or recoveries of f. Aggregate of the interests – maximum insured deposit of
the closed bank PhP 250,000
ii. Appoint or hire persons to perform such powers B. Proof of Claims
and functions of PDIC as receiver or liquidator of a. PDIC, in its discretion, may require proof of claims to be
the closed bank filed before paying the insured deposits.
iii. Suspend or terminate the employment of officers b. It may require the final determination of a court of
and employees of the closed bank competent jurisdiction before paying such claim
C. Suits Filed by the PDIC C. Settlement Period and Penalties in Case of Failure to Settle
a. In cases or actions filed by the PDIC, payment of all docket a. Failure to settle the claim due to grave abuse of discretion,
and other court fees shall be deferred until the action is gross negligence, bad faith or malice – imprisonment from 6
terminated with finality. months to 1 year
D. Distribution of Assets b. Upon payment of any depositor, PDIC shall be subrogated
to the rights of the depositor against the closed bank to the
XIV. Payment of Insure Deposits extent of such payment
A. Manner of Payment c. Subrogation shall include the right to receive the same
a. Payment of the insured deposits made by PDIC dividends from the proceeds of the assets of such closed
i. By cash bank and recoveries on account of stockholders’ liability as
ii. By making available to each depositor a transferred would have been payable to the depositor on a claim for
deposit in another insured bank in an amount equal the insured deposits
to insured deposit of such depositor D. Notice
b. “transfer deposit” means a deposit in an insured bank made a. PDIC shall commence the determination of insured deposits
available to a depositor by PDIC as payment of insured due the depositors of a closed bank upon its actual takeover
deposit of such depositor in a closed bank and assumed by of the closed bank and give notice
another insured bank b. Publish the notice once a week for at least 3 consecutive
c. Joint account insured separately from any individually-‐ weeks
owned deposit account E. Discharge
d. Account held jointly by 2 or more natural persons, or by 2 or a. Payment of an insured deposit to any person shall discharge
more juridical persons or entities, the maximum insured PDIC
F. Recognition of Owner

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G. Withholding of Payment interests of the community OR severe financial climate
a. PDIC may withhold payment of such portion of the insured exists which threatens the stability of a number of banks
deposit of any depositor in a closed bank as may be possessing significant resources
required to provide for the payment of any liability of such b. Reopening and resumption of operations of the closed bank
depositor as a stockholder of the closed bank, or of any shall be subject to the prior approval of the Monetary Board
liability of such depositor to the closed bank or its receiver B. PDIC may provide acquiring control of, merging or consolidating
H. Prescription with or acquiring the assets of an insured bank in danger of closing
a. If the depositor in the closed bank shall fail to claim his in order to prevent such closing or of a closed insured bank in order
insured deposits within 2 years from actual takeover of the to restore to normal operations
closed bank by the receiver, or does not enforce his claim C. Prior to the exercise of these powers, PDIC shall determine that
within 2 years after the 2-‐year period to file a claim, all actual payoff and liquidation thereof will be more expensive than
rights of the depositor with respect to the insured deposit the exercise of its power
shall be barred D. When the MB has determined that there are systematic
XV. Investment By PDIC consequences of a probable failure or closure of an insured bank,
A. Money of PDIC not otherwise employed shall be invested in PDIC may grant financial assistance to such insured bank in such
obligations of the Philippines amount as may be necessary to prevent its failure or closure and/or
a. It shall not sell or purchase any such obligations for its own restore the insured bank to viable operations
account and in its own right and interest, at any one time a. Systemic risk – possibility that failure of one bank to settle
aggregating in excess of P100,000 without the approval of net transactions with other banks will trigger a chain
the Insurance Commissioner reaction, depriving other banks of funds leading to a general
B. The banking or checking accounts of PDIC shall be kept with the shutdown of normal clearing and settlement activity
Central Bank of the Philippines, with the Philippine National Bank, E. PDIC may not use these authorities to purchase the voting or
or with any other bank designated as depository or fiscal agent of common stock of an insured bank
the Philippine Government F. Financial assistance may take the form of equity or quasi-‐equity of
XVI. Extension Of Loans the insured bank as may be deemed necessary by the Board of
A. If an insured bank is in danger of closing, PDIC is authorized to make Directors
loans to, or purchase the assets of, or assume liabilities of, or make XVII. Borrowings
deposits in, such insured bank, upon such terms and condition as A. PDIC is authorized to borrow from the BSP
the Board of Directors may prescribe when it is essential to provide B. When the funds of the PDIC are not sufficient to provide for an
the adequate banking service in the community or maintain emergency or urgent need to attain the purposes of the PDIC law, it
financial stability in the economy is likewise authorized to borrow money, obtain loans or arrange
a. Extend financial assistance to, assume liabilities of, credit lines or other credit accommodations from any bank
purchase the assets of an insured bank if PDIC finds that the designated as depository or fiscal agent of the Phil. Govt.
resumption of operations of such bank is vital to the XVIII. Issuance of Banks

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With the approval of the President, PDIC is authorized to issue bonds, Anti-Money Laundering
debentures, and other obligations for the settlement of insured
deposits in closed banks as well as for financial assistance
a. Board of Directors to determine the interests rates and Money Laundering - a crime whereby the proceeds of an unlawful activity are
transacted thereby making them appear to have originated from legitimate sources.
maturity
b. PDIC to provide appropriate reserves for the redemption or 3 Steps of accomplishing:
retirement of obligation
1. Placement – inserts money into a legitimate financial institutions
XIX. Reports and Audit 2. Layering – sending money through various financial transactions to
XX. Miscellaneous change its form
A. Signs 3. Integration – money re-enters the mainstream economy in legitimate-
looking form
a. Every insured bank shall display at each place of business
maintained by it a sign that its deposits are insured by PDIC Policies of AMLA
b. Board may exempt from this requirement advertisements
1. Protect and preserve integrity and confidentiality of bank accounts
which do not relate to deposits
2. Ensure that Philippines shall no be used as money laundering site
B. Merger or Consolidation of Insured Banks 3. Extend cooperation in transnational investigations and prosecutions
a. No insured bank shall
i. merge or consolidate with any noninsured bank or Institutions Covered
institution, or convert into a noninsured bank 1. Banks and other institutions supervised and regulated by BSP
ii. assume liability to pay any deposits made in, or 2. Insurance Committees
similar liabilities of, any noninsured bank or 3. Securities, dealers, etc.
4. Mutual funds, common-trust funds and other similar entities
institution 5. Foreign Exchange corporations and other similar entities
iii. transfer assets to any noninsured bank in 6. Entities administering or dealing with currencies regulated by SEC
consideration of the assumption of liabilities for any
Covered Suspicious Transactions
portion of the deposits made in such insured bank
TRO and Injunction 1. Cash or equivalent monetary instrument exceeding P500,000 within 1
A. No court, except the CA, shall issue any TRO, preliminary injunction banking day
2. Regardless of amount:
or preliminary mandatory injunction against PDIC
a. No underlying legal or trade obligation
B. SC may issue a restraining order or injunction when the matter is of b. Client is not properly identified
extreme urgency involving a constitutional issue c. Amount is not commensurate with business or financial
C. Any restraining order or injunction issued in violation of the capacity of client
d. Client’s transaction is structured in order to avoid being subject
foregoing is void and of no force and effect and any judge who has of reporting requirements
issued the same shall suffer the penalty of suspension of at least 60 e. Deviation from the profile of the client and/or client’s past
days without pay transactions with institution
f. Transaction is related to an unlawful activity
g. Any analogous transactions
Chapter 11

53

4. File complaints with DOJ or Ombudsman
Unlawful Activities 5. Investigation
6. Apply before CA for freezing any property alleged to be proceeds of
1. Kidnapping for Ransom unlawful activity
2. DDA 7. Implement measures necessary to counteract money laundering
3. Anti-Graft and Corrupt Practices Act 8. receive and take action in respect of any request for foreign assistance
4. Plunder 9. develop educational programs
5. Robbery and extortion 10. Enlist assistance of any branch of governemtn
6. Jueteng 11. Impose administrative sanctions for violation of rules
7. Piracy 12. Establish by a secretariat headed by Executive director appointed by
8. Qualified Theft Council
9. Swindling
10. Smuggling Prevention of Money Laundering; Customer Identification Requirements and
11. Violations of Electronic Commerce Act Record keeping
12. Hi-jacking
13. Violations of Securities Regulation Code Customer Identification
14. Other felonies of similar nature
1. Institutions shall establish and record true identity of its clients based on
Money Laundering Offense official documents
2. Maintain a system of verifying true identity of their clients
1. Person transacting or attempts to transact any monetary instrument 3. Anonymous accounts, accounts under fictitious names are prohibited
purporting to the proceeds of any unlawful activity 4. Peso and foreign currency non-checking numbered accounts shall be
2. Performs or failure to perform any act as a result of which he facilitates allowed
the offense mentioned in (1)
3. Failure to disclose as required by AMLC Freezing of Monetary Instrument or Property
Jurisdiction The CA upon application ex parte by AMLC after determination of probable

cause
RTC – private persons
Sandiganbayan – Public Officers Freeze period shall be for 20 days unless extended by the court
Public Officers and private persons in conspiracy
Authority to Inquire Bank Deposits
AMLC Composition
To complete legal measures to prevent money laundering, the AMLC may
1. Governor of BSP – Chairman inquire into or examine any particular deposit or investment with any banking
2. Commissioner of Insurance Commission – member institution or non-bank financial institution upon order of any competent court incases
3. Chairman of SEC - member of violation, it must be established that:
1. There is probable cause that deposits are related to unlawful activity or
Functions of AMLC Money laundering offense
1. Require and receive covered or suspicious transaction from covered No court order:
institutions 1. Kidnapping for Ransom
2. Issue orders addressed to appropriate Supervising Authority or covered 2. DDA
institution to determine true identity of the owner of questioned property 3. Hi-Jacking
3. Institute civil forfeiture through Sol-Gen 4. Destructive Arson and murder

54

3. Concealed, removed, converted or transferred to prevent from being
BSP may inquire into or examine any deposit when examination is made in found
the course of a periodic or special examination. 4. Located outside the Philippines or has been placed or brought outside
the jurisdiction of the court
Republic vs. Eugenio 5. Commingled with other monetary instruments or property belonging to
offender or third persons rendering the same difficult to identifyor
Sec. 11 of RA 9194 allows AMLC to inquire into bank accounts without segregated for purposes of forfeiture
having to obtain a judicial order in cases where there is probable cause
that deposits or investments are related to: Mutual Assistance Among States
1. Kidnapping for Ransom Request for Assistance from Foreign State

2. DDA
3. Hi-Jacking Principle of mutuality and reciprocity shall be at all times recognized.
4. Destructive Arson and murder
Powers of AMLC to act on request for assistance from a foreign State
When court order is required, there is no provision which provides that
specifically authorizes such court may be issues ex parte, this silence does 1. AMLC may execute a request for assistance from a foreign State by:
not preclude the ex parte issuance of the bank inquiry order as it is not a. Tracking down, freezing, restraining and seizing assets to be
prohibited. proceeds of any unlawful activity
b. Giving information needed by the foreign state
A Bank inquiry is not a search warrant or warrant of arrest as it contemplates c. Applying for an order of forfeiture of such property
a direct object but not the seizure of persons or property.
Obtaining assistance from Foreign States
Because of Bank Secrecy Act, the confidentiality of bank deposits remains a
basic state policy in the Philippines. Subsequent laws such as AMLA may 1. AMLC may make a request to any foreign State for assistance in:
have added exceptions to the Bank Secrecy Act yet the secrecy of Bank a. Tracking down, freezing, restraining and seizing assets alleged
deposits still lies as the general rule. to be proceeds of any unlawful activity
b. Obtaining information that it needs relating to covered
transactions
Forfeiture c. Enter any premises belonging to persons named in said
request
Civil Forfeiture d. Applying for order of forfeiture
Limitations
When there is a covered transaction report made, and the court has ordered
the seizure of any property related to said report, the Revised Rules of Court on civil May refuse to comply with any request for assistance where the action
forfeiture applies. sought by the request contravenes any provision of the Constitution or the execution
of a request is likely to prejudice the national interest of Philippines unless a treaty so
Payment in Lieu of Forfeiture provides.
Court may, instead of enforcing the order of forfeiture, order the convicted Requirements for Requests for Mutual Assistance from foreign States
offender to pay an amount equal to the value when order cannot be enforced
because: 1. Confirm that investigation or prosecution is being conducted in respect
1. Property cannot, with due diligence be located of a money launderer named therein or that he has been convicted of
2. Substantially altered, destroyed, diminished in value or otherwise any money laundering offense
rendered worthless through an act attributable to the offender

55

2. State the grounds on which any person is being investigated or taken to obtain the true identity of the persons on whose behalf an
prosecuted for money laundering or details of his conviction account is opened
3. Give sufficient particulars as to identity of said person 3. Anonymous accounts or accounts under fictitious names should not be
4. Give particulars sufficient to identify any covered institution believed to kept or allowed, unless provided by law
have information 4. Identity of clients should be reviewed at least every other year
5. Ask from covered institution any information of assistance 5. All records to be maintained for at least 5 years
6. Specify manner in which material is to be produced 6. Special attention to all complex, unusual large transactions and all
7. Give particulars n issuance of writs, or orders needed by the requesting unusual patterns of transactions which have no apparent or visible
State lawful purpose
8. Contain information as may assist in execution of request 7. Other suspicious transactions
8. Should avoid transactions with criminals
Authentication of Documents 9. Programs against money laundering should be developed
a. Internal policies and procedures and controls
Authenticated if: b. Ongoing employee training program
1. Signed or certified by a judge, magistrate or equivalent officer c. Audit function to test the system
in or of the requesting State
2. Authenticated by the oath or affirmation of a witness or sealed
with official or public seal
Extradition
Philippines shall negotiate for the inclusion of money laundering offenses

among extraditable offenses in all future treaties.
Prohibitions Against Political Harassment
1. AMLA shall not be used for political persecution or harassment or as an

instrument to hamper competition in trade and commerce
2. May not be filed to the prejudice of a candidate for an electoral office
during an election period.
Powers of Congressional Oversight Committee
The Power to promulgate its own rules, to oversee the implementation of

Anti-money Laundering act and to review or revise the implementing rules issued by
AMLC within 30 days from promulgation of said rules.
Rules and Regulations to Combat Money Laundering
1. Should take reasonable measures to establish and record the true

identity of their clients.
2. In case of doubt as to whether their purported clients or customers are
acting for themselves or for another, reasonable measures should be

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CHAPTER 12 ii. a bank as defined under Republic Act No.8791, also known as "The
General Banking Law";
SPECIAL PURPOSE VEHICLE
iii. a financing company as defined under Republic Act No. 8556, also known
A. The declared policies of the State are: as "The Financing Company Act of 1998";
i. To develop and maintain a sound financial sector for the country;
ii. To address the non-performing asset problems of the financial sector; iv. an investment house as defined in Presidential Decree No. 129, also
iii. To encourage private sector investments in non-performing assets; known as "The Investment Houses Law";
iv. To eliminate existing barriers in the acquisition of non-performing
assets; v. government financial institutions (GFIs), which for purposes of this Act,
v. To help in the rehabilitation of distressed business with the end in view shall be limited to the Philippine Deposit Insurance Corporation (PDIC), Land Bank of
of contributing to the economic value added; and the Philippines (LBP), and Development Bank of the Philippines (DBP);
vi. To improve the liquidity of the financial system which can be harnessed
to propel economic growth.
B. Definitions vi. government-owned-or-controlled-corporations (GOCCs),which for
1. ACT- Special Purpose Vehicle Act 2002 purposes of this Act, shall be limited to the National Home Mortgage Finance
2. APPRORIATE REGULATORY AUTHORITY- agency/ authority having jurisdiction Corporation (NHMFC), Home Guarantee Corporation (HGC), Home Development
over the FI’s operations which shall be the following: Mutual Fund (HDMF), Social Security System (SSS), Government Service Insurance
i. the DOF- in the case of the PDIC and GOCCs, in consultation with other System (GSIS), Trade and Investment Development Corporation (TIDCORP), Small
agencies that have primary jurisdiction over the said FIs whenever deemed Business Guarantee and Finance Corporation (SBGFC), Technology and Livelihood
appropriate by the DOF; Resource Center (TLRC), Livelihood Corporation (LIVECOR), National Development
ii. the BSP- in the case of banks which include LBP and DBP, and trust and Corporation (NDC), Quedan and Rural Credit Guarantee Corporation
quasi-banking functions of financing companies and investment houses licensed by (QUEDANCOR), National Housing Authority (NHA), and Armed Forces of the
the BSP; and Philippines- Retirement and Separation Benefits System (AFP-(RSBS); and
iii. the Commission- in the case of financing companies and investment
houses, except their trust and quasi-banking functions vii. other institutions licensed by the BSP to perform quasi-banking functions.
3. AUDITED FINANCIAL STATEMENTS- a set of financial reports consisting of
balance sheet, income statement, statement of changes in equity and cash flow 10. INVESTMENT UNITS (IUIs)- participation certificates, debt instruments or similar
statement, audited by a Commission-accredited independent CPA. instruments issued by the SPV and subscribed by Permitted Investors as provided in
4. CERTIFICATE OF ELIGIBILITY (COE)- certificate issued by the Appropriate Section 11 hereof, pursuant to an Approved Plan: Provided, That these shall not
Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing include the instruments to be issued by the SPV to the selling FIs as full or partial
of the tax exemptions and privileges. settlement of the non-performing assets transferred to the said SPV: Provided,
5. CODE- Batas Pambansa Bilang 68 otherwise known as The Corporation Code of further, That such issuances of the SPV shall not be considered as deposit
the Philippines substitutes: Provided, finally, That these shall not form part of the capital stock of the
6. COMMISSION- Securities and Exchange Commission SPV.
7. DATION IN PAYMENT (DACION EN PAGO)- payment whereby property, whether 11. NIRC- the National Internal Revenue Code of 1997, as amended.
real or personal, tangible or intangible, is alienated in favor of the creditor, which 12. NON-BANKING FINANCIAL INSTITUTIONS PERFORMING QUASI-BANKING
could either be an FI or an SPV, in satisfaction of an NPL. FUNCTIONS (NBQBs)- financing companies, investment houses and other
8. FIA- Foreign Investment Act, RA 7042, as amended. institutions licensed by the BSP to perform quasi-banking functions.
13. NON-PERFORMING ASSETS (NPAs)- consist of the Non-Performing Loans
9. FINANCIAL INSTITUTIONS (FIs)- credit-granting institutions which shall be limited (NPLs) and Real and Other Properties Owned or Acquired (ROPOAs) by the FIs
to the following: 14. NON-PERFORMING LOANS (NPLs)- loans and receivables such as mortgage
loans, unsecured loans, consumption loans, trade receivables, lease receivables,
i. the BSP; credit card receivables and all registered and unregistered security and collateral

57

instruments, including but not limited to, real state mortgages, chattel mortgages, iii. In case of NPLs, to restructure debt, condone debt and undertake other
pledges and antichresis, whose principal and/or interest have remained unpaid for at structuring debt, the SPV may reduce the principal, interest, interest rates, and the
least one hundred and eighty (180) days after they have become past due or any of period for calculating the interest, extend the time for debt repayment or relax the
the events of default under the loan agreement has occurred. conditions for debt repayment, agree to the conversion of the borrowers debt to equity
15. ROPOA- real and other properties owned or acquired by an FI in settlement of in the borrower's business, agree to a transfer of assets or claims from the borrower t
loans and receivables, including real properties, shares of stocks, and chattels repay the debtor dispose of some of the borrower's property or claims to third
formerly constituting collateral's for secured loans which have been acquired by way persons;
of dation in payment (dacion en pago) or judicial or extra-judicial foreclosure or
execution of judgement. iv. To take, transfer shares or buy shares issued by the borrower for the
purpose of business reorganization or rehabilitation of the borrower, subject to the
16. TRUE SALE- a sale wherein the selling FI transfers or sells its NPAs without provisions of the Corporation Code in respect of the rights of the shareholders of the
recourse for cash or property to an SPV with the following results: borrower company, and apply any other measures or restructuring techniques with
the approval of the Commission;
i. The transferor relinquishes effective control over the transferred NPAs;
and v. To enter into dation in payment (dation en pago) arrangements, foreclose
judicially or extra-judicially and other forms of debt settlement involving NPLs;
ii. The transferred NPAs are legally isolated and put beyond the reach of the
transferor and its creditors. vi. To spend funds to renovate, improve, complete or alter its NPAs acquired
from an FI;
C. Organization
vii. To issue equity or participation certificates or other forms of IUIs for the
An SPV shall be organized as stock corporation in accordance with Batas Pambansa purpose of acquiring, managing, improving and disposing of its NPAs acquired from
Blg. 68, otherwise known as "The Corporation Code of the Philippines" and the rules an FI;
promulgated by the Commission for purposes of registering the SPV: Provided, That
if the SPV will acquire land, at least sixty percent (60%) of its outstanding capital viii. To borrow money and issue other instruments of indebtedness for the
stock shall be owned by Philippines nationals pursuant to Republic Act No7042, as purpose of paying operational administrative costs;
amended, otherwise known as "The Foreign Investment Act".
ix. To guarantee credit, accept or intervene for honor the bills of borrowers;
D. Powers of an SPV
x. To advance funds to borrowers where required by an acquired asset or
-incorporated primarily to invest in, or acquire NPAs of FIs. any debt restructuring agreement pursuant thereto, or under any court order or
rehabilitation plan; and
-secondary powers shall be limited to the following:
xi. To entrust to third parties asset servicing company, the collection and
i. To engage third parties to manage, operate, collect and dispose of NPAs receipt of the debt payments for debts under debt restructuring business
acquired from an FI; reorganization, management and disposition of assets of the SPV in accordance with
the rules, procedures and conditions prescribed by the Commission or by the courts.
Except in the case of ROPOAs whose redemption periods have already expired, the
ii. To rent, lease, hire, pledge, mortgage, transfer, sell, exchange, usufruct, SPV shall notify the borrower and all persons holding prior encumbrances upon the
secure, securitize, collect rents and profits, and other similar acts concerning its NPAs properties or a part thereof or are actually holding the same adversely to the borrower
acquired from an FI; within fifteen (15) days from the date of the appointment of the said collection agent.

58

E. Period for Filing of Applications G. Submission of SPV Plan
• The Articles of Incorporation of the SPV, its by-laws and other documentary After the establishment of an SPV pursuant to Section 4 hereof, an SPV Plan shall be
requirements shall be filed with the Commission not beyond eighteen (18) submitted to the Commission for approval, which shall include the following:
months from the date of approval of the Implementing Rules and
Regulations (IRR) by the Congressional Oversight Committee (COC) (a) Investment policies of the SPV;
created in Section 23 of the Act.
(b) Contribution plan including the amounts and draft of subscription
• only SPVs whose applications are filed not later than the 18-month documents;
period and are subsequently approved by the Commission shall qualify
for the tax exemptions and privileges granted under the Act. (c) Features of the IUIs including the specific amounts issued and/or to be
issued;
• Registration Requirements- shall submit to the Commission the ff.
documents for incorporation: (d) timetable of issuance;
(1) Name Verification Slip, showing its proposed name which shall always (e) Rights of the holders of the IUIs;
include the acronym “SPV-AMC (Asset Management Company)” appended
thereto;
(f) Draft agreements for the appointment of trustees and agents with respect
to the IUIs and the NPLs acquired from an FI;
(2) Articles of Incorporation and By-Laws;
(g) appointment or engagement of an external auditor accredited by the
(3) Treasurer’s Affidavit/Authority to verify bank account; Commission;
(4) Bank Certificates of Deposits (notarized in the place where the bank is (h) Roles and responsibilities of the trustees, advisors, loan servicers and
located) property managers;
(5) Written undertaking to change corporate name by incorporator or (i) Draft form of financial reports of the SPV;
director;
(j) Details of distribution policies;
(6) Registration Data Sheet.
(k) Methods for the increase and decrease of future fund contribution;
F. Authorized, Subscribed And Paid-Up Capital Of the SPV
(l) Methods for the alteration or modification of the approved SPV Plan;
• An SPV shall have a minimum authorized capital stock of Five hundred
million pesos (P500, 000,000.00), with a minimum subscribed capital (m) Methods for the liquidation and distribution of assets to the holders of
stock of One hundred twenty five million pesos (P125, 000.000.00), and IUIs;
a minimum paid-up capital of Thirty-one million two hundred fifty
thousand pesos (P31, 250.00). Paid-up capital must be in the form of
cash. (n) Details of credit enhancements like guarantees or standby letters of
credit or advances that may be extended to the SPV by an entity which shall
not be the selling FI, its parent, subsidiaries or affiliates; and

59

(o) Such other documents or information as may be required by the x. Audited and Interim Financial Statements in accordance with SRC Rule
Commission. 68, as amended.
H. Approval (3) The ff. information shall be disclosed in the registration statements of an
SPV:
- Upon approval of the SPV Plan, the Commission shall issue an Approval certificate
stating that the application has been approved and that the IUIs may be issued. i. Details of SPV Plan
I. Issuance of IUIs ii. Details of credit enhancements like guarantees or standby letters of credit
(a) Registration Requirements iii. Detailed description of the assets or loan constituting the pool of assets;
or the assets or loan intended to form part of the pool of assets
(1) Any existing SRC rule or provision to the contrary notwithstanding, all
IUIs proposed to be sold or distributed within the Philippines shall be duly registered iv. Rights and obligations of the selling financial institution/s assumed by the
with the Commission. SPV
(2) Submission of Registration Statement shall include exhibits and full v. Description of any relationship or interest of the selling financial
disclosure of the ff. in the prospectus: institution’s Parent, Subsidiaries, Affiliates or stockholders, directors or
officers, with the SPV.
i. Business of the issuer
vi. Incentives and exception privileges
ii. Use of Proceeds
(4) SPV shall likewise submit a certification from the FI that the affected
iii. Risk Factors borrowers of the NPLs and all persons holding prior encumbrances upon the assets
mortgaged or pledged have been notified by registered mail of the intended transfer
of NPLs to an SPV
iv. Legal Proceedings
- borrower shall be given a period of atleast 90 days from receipt of notice to
v. Market of Securities renegotiate or restructure the loan with the FI
vi. Management’s Discussion of Financial Condition and Results of (5) SPV shall pay registration fee of 1/10 of 1% of the aggregate offering
Operation price of the IUIs subject to a diminishing fee set by the Commission.
vii. Directors and Officers (6) SPV shall cause the publication of a notice of filing of registration
statement at its expense
viii. Securities Ownership
- 2 newspapers of gen. circulation in the Philippines, once a week for two
ix. Certain Related Party Transactions consecutive weeks

60

(7) Commission may audit the financial statements, assets and other e. failed to comply with any requirement that the Commission may
information of an SPV applying for registration of an IUIs impose
(8) Upon registration statement being declared effective by the Commission, ii. The registration statement is on its face incomplete or inaccurate in any
the sale of securities subject thereto shall be commenced within two business days material respect or includes any untrue statement of a material fact or omits
and be continued until the end of the offering period or until the sale has been to state a material fact required to be stated therein
terminated by action of the issuer.
iii. The issuer, any officer, director or controlling person of the issuer, or
(9) SPV shall ensure wide dissemination of the preliminary and final person performing similar functions, or any underwriter has been convicted,
prospectuses by a competent judicial or administrative body, upon plea of guilty, or
otherwise, of an offense involving moral turpitude and/or fraud or is enjoined
(10) Written notification shall be given to the Commission within 3 business or restrained by the Commission or other competent judicial or
days from completion or termination of the offering by the issuer, including therein the administrative body for violations of securities, commodities, and other
number of securities sold. related laws.
(b) Amendments or Rejection (3) If the Commission deems it necessary, it may issue an order suspending
the offer and sale of the securities pending any investigation.
(1) Within 45 days after the date of filing of the registration statement, or at
such later date to which the issuer has consented, the Commission shall declare the (c ) Issuance of Securities to the Public Without Prior Registration
registration statement effective or rejected unless the applicant is allowed to amend
the registration statement. (1) An SPV that offers to sell or distribute its IUIs to the public within the
Philippines without prior registration shall be subject to the penalties provided under
(2) Commission may reject a registration statement and refuse registration of the SRC.
the security therunder, or revoke the effectivity of a registration statement and the
registration of the security after due notice and hearing by issuing an order to such (2) Imposition of the foregoing administrative sanctions shall be without
effect, setting forth its findings in respect thereto, if it finds that: prejudice to the filing of criminal charges against the individual responsible for the
violation.
i. The issuer:
(d) Tax treatments of IUIs
a. has been judicially declared insolvent
- Since IUIs are not considered as deposit substitutes under the Act, interests or other
b.violated any of the provisions of the Corporation Code or any monetary benefit derived from IUIs is not subject to the 20% final withholding tax
order of the Commission under the NIRC
c. has been or is engaged or is about to engaged in fraudulent -The IUI and any income arising from the IUIs shall be subject to normal income tax
transactions and/or such other applicable taxes imposed under the NIRC.
d. has made any false or misleading representation of material J. Permitted Investors

facts in any prospectus concerning the issuer or its securities
Any person may acquire or hold IUIs in an SPV in the minimum amount of Ten million
pesos (P10, 000.000.00); Provided, That an SPV shall not be authorized to acquire

61

the IUIs of another SPV: Provided, further, That the parent, subsidiaries, affiliates or - Each COE shall be valid for only 1 transfer. All subsequent transfers shall require a
stock-holders, directors, officers or any related interest of the selling FI or the parent's separate COE from the Appropriate Regulatory Authority.
subsidiaries, affiliates or stock-holders, directors, officers or any related interest shall
not acquire or hold, directly or indirectly, the IUIs of the SPV that acquired the NPAs L. Nature of Transfer – True Sale
of the FI. * Any transfer of NPAs not in the nature of True Sale as provided for in the
Act shall not qualify for tax exemptions and fee privileges granted under the Act.
K. Notice and Manner Of Transfer of Assets Provided, That GFIs and GOCCs shall be subject to existing law on the disposition of
assets: Provided further, That in the transfer of the NPLs, the provisions on
(a) Prior Notice subrogation and assignment of credits under the New Civil Code shall apply.
M. Assumption of Rights and Obligations

- No transfer of NPLs to an SPV shall take effect unless the FI concerned shall give The SPV shall assume all rights and obligations of the FI over the
prior notice, pursuant to the Rules of Court, thereof to the borrowers of the NPLs and transferred NPA
all persons holding prior encumbrances upon the assets mortgaged or pledged. Such
notice shall be in writing to the borrower by registered mail at their last known address N. Tax Exemptions and Fee Privileges
on file with the FI. The borrower and the FI shall be given a period of at most ninety The following transactions are exempt from the payment of taxes:
(90) days upon receipt of notice, pursuant to the Rules of Court, to restructure or 1. The transfer of NPL by the FI to an SPV;
renegotiate the loan under such terms and conditions as may be agreed upon by the 2. The transfer of ROPOA by the FI to an SPV;
borrower and the FIs concerned. 3. The dacion en page of the NPL by the borrower to the FI;
4. The dacion en pago of the NPL by a third party, on behalf of the borrower,
(b) Procedures on the Transfer of Assets to the SPV to the FI;
5. The transfer of NPL by the FI to an individual;
An FI that intends to transfer its NPAs to an SPV shall file an application for eligibility 6. The transfer of the ROPOA by the FI to an individual;
of said NPAs, in the prescribed format, with the Appropriate Regulatory Authority 7. The transfer of the NPL by the SPV to a third party;
having jurisdiction over its operation. Said application shall be filed for each transfer 8. The transfer of the ROPOA by the SPV to a third party;
of asset/s. 9. The dacion en pago of the NPL by a third party, on behalf of the borrower,
to the SPV;
10. The dacion en pago of the NPL by the borrower to the SPV;
(c ) Issuance of the COE 11. The transfer of the NPL by the individual to a third party; and, finally,
12. The transfer of the ROPOA by the individual to a third party.
- The transfer of NPAs from an FI to an SPV shall be subject to prior certification of
eligibility as NPA by the appropriate regulatory authority having jurisdiction over its The tax exemptions provided above shall be exempt from the payment of the
operations, which shall issue its ruling within forty-five (45) days from the date of following taxes:
application by the FI for eligibility. 1. Documentary stamp tax as may be imposed under Title VII of the NIRC;
2. Capital gains tax imposed on the transfer of lands and/or other assets
treated as capital assets as defined under Section 39(A)(1) of the NIRC;
(d) Subsequent Notice
3. Creditable withholding income taxes imposed on the transfer of land
and or buildings treated as ordinary assets pursuant to Revenue
- After the sale or transfer of the NPLs, the transferring FI shall inform the borrower in Regulation No. 2-98, as amended;
writing at the last known address of the fact of the sale or transfer of the NPLs. 4. The value-added tax as may be imposed under Title IV of the NIRC, or
gross receipts tax under Title V of the same NIRC.
(e) Subsequent Transfers
Penalties
1. Any person who violates any of the provisions of this Act, or any person
who, in a registration statement, notice, certification or plan filed under

62

this Act, makes any untruthful statement of a material fact or omits to
state any material fact required to be stated therein, shall, upon
conviction, suffer a fine of not less than Fifty thousand pesos
(P50,000.00) nor more than One million pesos (P1,000,000.00) or
imprisonment of not less than six (6) years and one (1) day nor
more than twelve (12) years, or both, in the discretion of the court,
without prejudice to the penalties provided under Sec. 18 hereof and
other applicable laws.
2. If the offender is a corporation, association, partnership or any juridical
person, the penalty shall be imposed upon the responsible officers,
as the case may be, who participated in the commission of the crime or
who shall have knowingly permitted or failed to prevent its commission.
3. If the offender is a juridical person, the court may order the suspension
or revocation of license.
4. If the offender is an alien, he shall, in addition to the penalties herein
prescribed, be deported without further proceedings after serving the
penalties herein prescribed.
5. If the offender is a public official or employee, he shall, in addition to the
penalties prescribed herein, suffer absolute or temporary
disqualification from government or public office, as the case may be.

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F. Degree of Diligence I. Banks are not Gratuitous Bailees

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Service of Summons Upon Banks

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

2. At least 25% of the total authorized capital stock shall be subscribed by

D. Incorporators/Subscribers/Proposed Directors (I/S/PD)

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

** In periods of national and/or local emergency or of imminent panic which directly

IX. Publication of Capital Stock

A. Unsettled Labor Disputes

B. Reports of Strike and Lockouts

The bank shall disclose the following pertinent information on the

Duty of Banks to honor checks Set-off

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

6) Foreign Currency Deposits Related Laws:

Authority of Banks to accept foreign currency deposits: • Administration of Deposits

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

V. Restriction on Bank Exposure to Directors, Officers, Stockholders and E. Related Interests

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

XII. Electronic Transactions

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

V. Placement Under Conservatorship

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

VII. Disposition and Distribution of Assets CHAPTER 6

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

C. Real Estate Acquired by a Trust Entity G. Establishment of Branches of a Trust Entity

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Art. 1013. Definition

Entrustee – any person having or taking possession of goods,

2.) Instruments Trust receipt may be denominated in any foreign currency

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Jurisdiction The CA upon application ex parte by AMLC after determination of probable

1. Kidnapping for Ransom Request for Assistance from Foreign State

Philippines shall negotiate for the inclusion of money laundering offenses

Prohibitions Against Political Harassment

1. AMLA shall not be used for political persecution or harassment or as an

Powers of Congressional Oversight Committee

The Power to promulgate its own rules, to oversee the implementation of

Rules and Regulations to Combat Money Laundering

1. Should take reasonable measures to establish and record the true

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

d. has made any false or misleading representation of material J. Permitted Investors

M. Assumption of Rights and Obligations

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

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