BANKING Q&A sales of goods to satisfy the seemingly

irreconcilable interests of a seller, who refuses

1. Policy of State regarding banking
Section 2. Declaration Of Policy. - The State
recognizes the vital role of banks providing an
environment conducive to the sustained
development of the national economy and the
fiduciary nature of banking that requires high
standards of integrity and performance.
In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and
responsive to the demands of a developing
economy. (GBL of 2000)
2. Traditional Banking
• The bank acts as intermediary between those who
have money and those who have little
• Vehicle for sustained economic development
3. How does BSP monitor currency?
(GBL) Section 50. Exclusive Issue Power. - The Bangko
Sentral shall have the sole power and authority to issue
currency, within the territory of the Philippines.
No other person or entity, public or private, may
put into circulation notes, coins or any other object or
document which, in the opinion of the Monetary Board,
might circulate as currency, nor reproduce or imitate the
facsimiles of Bangko Sentral notes without prior authority
from the Bangko Sentral.
The Monetary Board may issue such regulations
as it may deem advisable in order to prevent the
circulation of foreign currency or of currency substitutes
as well as to prevent the reproduction of facsimiles of
Bangko Sentral notes.
The Bangko Sentral shall have the authority to
investigate, make arrests, conduct searches and
seizures in accordance with law, for the purpose of
maintaining the integrity of the currency.
Violation of this provision or any regulation issued
by the Bangko Sentral pursuant thereto shall constitute
an offense punishable by imprisonment of not less than
five (5) years but not more than ten (10) years. In case
the Revised Penal Code provides for a greater penalty,
then that penalty shall be imposed.
(NCBA) Section 50. The BSP shall have the sole power
and authority to issue currency within the territory of the
Philippines.
4. How does Letter of Credit operate?
• Nature
to part with his goods before he is paid, and a
buyer, who wants to have control of the goods
before paying
▪ The buyer will apply for a letter of
credit in the issuing bank to issue a
letter of credit
▪ The issuing bank can authorize
seller to draw drafts and engage to
pay them upon presentment with the
tender of documents
▪ The seller will then send the goods
to the carrier
o Through a LOC, the bank merely substitutes its
own promise to pay for one of its customers who
in return promises to pay the bank the amount
stated in the LOC plus the credit or commitment
fees mutually agreed upon
• Steps
a) The buyer will apply for a letter of credit in the
issuing bank
b) The seller will then send the goods to the carrier
and he will make a draft, called bill of exchange
c) Seller will present the draft and the necessary
documents, such as bill of lading to issuing
bank to receive the payment
d) While the goods are in transit, it shall be owned
by issuing bank
e) When the goods arrived at the port of the buyer,
the buyer will pay the corresponding payment
and also gain the documents
f) Since the buyer gain the documents, he can
now acquire the delivered goods
• Characteristics (as distinguished from accessory
contracts)
o The engagement of issuing bank to pay seller
once the draft and the required shipping
documents are presented to it
o This arrangement assures seller of prompt
payment
o Independence principle – bank determines
compliance with letter of credit only by
examining shipping documents presented; it is
precluded from determining whether the main
contract is actually accomplished or not
• Contracts
There are three contracts:
a) buyer-seller
b) buyer-bank
c) seller-bank

o Letter of credit – financial device developed by • Parties

merchants as convenient mode of dealing with

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 a) Buyer – who procures the LOC and obliges
himself to reimburse the issuing the bank upon
receipt of the documents of title
b) Bank – who issues the LOC undertakes to pay
the seller upon receipt of the draft and proper
documents of titles and to surrender the
documents to the buyer upon reimbursement
c) Seller – who in compliance with the contract of
sale ships the goods to the buyer and delivers
the documents of title and draft to the issuing
bank to recover payment
*The number of parties may be increased
5. How are banks classified? (Sec. 3, GBL, a-g)
a) Universal banks – licensed by BSP; large
commercial banks that can do both
commercial and investment banking
b) Commercial banks – possess general
******
powers incident of a corporation and can
perform commercial banking
c) Thrift banks, composed of: (i) Savings and
mortgage banks, (ii) Stock savings and loan
associations, and (iii) Private development banks,
as defined in the Republic Act No. 7906
(hereafter the "Thrift Banks Act")
– encourages the industry, frugality and
accumulation of savings of the public; to
meet needs for capital, personal or
investment credit; to provide short-term
working capital
d) Rural banks, as defined in Republic Act No.
73S3 (hereafter the "Rural Banks Act") – banks
that promote rural development; to make
needed credit readily available or accessible
in rural areas (merchants, farmers,
fishermen and their families)
e) Cooperative banks, as defined in Republic Act
No 6938 (hereafter the "Cooperative Code") –
organized by cooperatives to provide
financial and credit services to cooperatives;
majority shares owned by cooperatives
*Cooperatives – organization composed of
small producers and consumers who
voluntarily join together to form business
enterprise which they own and control
f) Islamic banks as defined in Republic Act No.
6848, otherwise known as the "Charter of Al
Amanah Islamic Investment Bank of the
Philippines" – promote socio economic
development in Autonomous region by
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performing banking and investment function
based on Islamic concept of banking;
subject to the principles and ruling of Islamic
Shari’a
g) Other classifications of banks as
determined by the MB of the BSP
o Philippine Veterans Bank – created to
provide government depository to
veterans for appreciation of grateful
nation (RA 3518)
o Land bank of the Philippines – finance
distribution of estate to resale to small
landholders (RA 3844)
o Development Bank of Philippines –
provide credit facilities for development in
agriculture, commerce and industry. DBP
was previously named as Rehabilitation
Finance Corporation (RFC).
h) Non-stock savings and loan
associations – nonstock, non-profit
corporation engage in accumulation of
savings of its members and loans to meet
its members’ needs. Confines exclusive
membership and cannot transact business
with the general public.
i) Quasi-banks – engaged in borrowing of
funds through issuance of deposit substitute
for purpose of relending or purchasing
receivables and other obligations
j) Offshore Banks – deals with transaction
with foreign currencies in receiving funds
from external sources and utilization of such.
(Governed by PD 1034)
6. Powers of a Universal Bank (Sec. 23, GBL)
a) Powers authorized for a commercial bank
b) Powers of an investment house
c) Power to invest in non allied enterprises
d) Power to engage in quasi banking
7. Powers of a Commercial Bank (Sec. 29, GBL)
a) Power to engage in quasi banking
b) General powers incident to corporations
c) All such powers as may be necessary to
carry on the business of commercial banking
such as:
▪ accepting drafts and issuing letters of
credit;
 ▪ discounting and negotiating promissory
notes, drafts, bills of exchange, and
other evidences of debt;
▪ accepting or creating demand deposits;
▪ receiving other types of deposits and
deposit substitutes;
▪ buying and selling foreign exchange
and gold or silver bullion; acquiring
marketable bonds and other debt
securities;
▪ extending credit, subject to such rules
as the MB may promulgate. These
rules may include the determination of
bonds and other debt securities eligible
for investment, the maturities and
aggregate amount of such investment.
8. Quasi-banking (Sec. 4/6, GBL)
o Entities engaged in the borrowing of funds
through the issuance, endorsement or
assignment with recourse or acceptance of
deposit substitutes as defined in Sec. 95 of
RA 7653 (New Central Bank Act) for
purposes of re-lending or purchasing of
receivables and other obligations.
• Elements
a. Borrowing funds for the borrower’s account
b. Twenty or more lenders at any one time
c. Methods of borrowing are issuance,
endorsement or acceptance of debt
instruments
o Purpose: For relending and purchasing
receivables
▪ Borrowing – all forms of obtaining or raising
funds
▪ For the borrower’s own account –
assumption of liability in one’s own
capacity
▪ Relending – refer to the extension of loans
by an institution with antecedent borrowing
transactions
Section 6. Authority to Engage in Banking and
Quasi-Banking Functions. - No person or entity shall
engage in banking operations or quasi-banking
functions without authority from the Bangko Sentral:
.Provided, however, That an entity authorized by the
Bangko Sentral to perform universal or commercial
banking functions shall likewise have the authority to
engage in quasi-banking functions.
The determination of whether a person or entity is
performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by
the Monetary Board.
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To resolve such issue, the Monetary Board may;
through the appropriate supervising and examining
department of the Bangko Sentral, examine, inspect
or investigate the books and records of such person
or entity. Upon issuance of this authority, such
person or entity may commence to engage in
banking operations or quasi-banking function and
shall continue to do so unless such authority is
sooner surrendered, revoked, suspended or
annulled by the Bangko Sentral in accordance with
this Act or other special laws.
9. Regulatory and Supervisory Powers of BSP
• Supervisory (Sec. 4, GBL)
Operations and activities of banks shall be subject to
supervision of BSP. Supervision shall include the
following: (REO-ISC)
a) Issuance of rules of conduct or SOP for uniform
application to al institutions covered
b) Conduct examination to determine compliance
with laws and regulation
c) Overseeing to ascertain law and regulation are
complied with
d) Regular investigation. Not oftener than once a
year to determine whether there is business is
conducted on a safe or sound basis.
Deficiencies immediately addressed
e) Inquiring into solvency and liquidity
f) Enforcing prompt corrective action
o BSP shall have supervision over the
operations of and exercise regulatory powers
over:
1. Quasi-banks
2. Trust entities
3. Other financial institutions
• Phase out of BSP powers over building and loan
associations
o Within period of 3 years, BSP shall phase
out and transfer supervising and regulatory
power over building and loan associations to
Home Insurance and Guaranty Corporation
• Policy direction; rations, ceiling and limitations
o BSP shall provide policy direction in areas of
money, banking and credit
o MB shall prescribe ratios, ceilings,
limitations in different accounts of banks to
confirm to internationally accept standards
including Bank for International Settlement
o MB may exempt particular categories of
transactions from such rations, ceilings to:
▪ Exceptional cases
▪ Enable a bank under rehabilitation or
during merger or consolidation to
continue business with safety
**BSP as watchdog of depositors

**Specifically, BSP is at the vanguard of ensuring
transparency such that even highlights of the Monetary
Board meeting on policy rates are regularly released to
the public.
10. Degree of Diligence
CASE: Simex Int’l v CA
• The depositor expects the bank to treat his account
with the utmost fidelity whether such account
consists only of a few hundred pesos or of millions.
The bank must record every single transaction
accurately, down to the last centavo, and as
promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the
bank, such as the dishonour of a check without good
reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.
• The point is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that
relationship. What is especially deplorable is that,
having been informed of its error in not crediting the
deposit in question to the petitioner, the respondent
bank did not immediately correct it but did so only
one week later or twenty-three days after the deposit
was made. It bears repeating that the record does
not contain any satisfactory explanation of why the
error was made in the first place and why it was not
corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for
the imposition of exemplary damages.
11. Operations of Banks
• Banking Days and Hours (Sec. 21, GBL)
o At least 6 hours a day on working days (Mon-Fri
o except holidays)
o May open in Saturdays, Sundays and holidays
for
o 3 hours (to report to BSP)
o For purposes of deposits and withdrawals, bank
can extend beyond or early of 8AM and 8PM
o If it is for other purposes, they can exceed 6
hours minimum but not extend beyond or early
of 8AM and 8PM
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o Banks in airports or major fish ports can open
24hours
o Changes in banking days and hours can be
made once every 30 days except during
emergencies
• ATMs (Offsite and Mobile)
o Banks may establish off-site ATMS provided that
there is report on BSP and adequate security
measures. They are installed only in centers of
activity
o Mobile ATMS are allowed to visit places with
large crowds of people provided it has adequate
security
12. Fit and Proper Rule
Section 16. Fit and Proper Rule. - To maintain the
quality of bank management and afford better
protection to depositors and the public in general
the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of
individuals elected or appointed bank directors or
officers and disqualify those found unfit. After due
notice to the board of directors of the bank, the
Monetary Board may disqualify, suspend or remove
any bank director or officer who commits or omits
an act which render him unfit for the position. In
determining whether an individual is fit and proper
to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience,
education, training, and competence.
• Powers of MB against Directors:
a. Review qualifications and DQs of directors
b. After due notice, may disqualify, suspend or
remove director
c. Fit and proper rule shall be determine by -
integrity, experience, education, training,
competence of the director
• Permanent Disqualifications of Directors
a) Convicted by final judgment involving
dishonesty or breach of trust
b) Convicted by final judgment with a maximum
imprisonment term of more than 6 years
c) Convicted by final judgment for violation of
banking laws
d) Persons judicially declared insolvent,
incapacitated to contract
e) Persons responsible for bank’s closure
f) Administratively liable for violation of banking
laws with penalty of removal from office
g) Unfit for position
• Temporary Disqualifications of Directors
a) Persons who refuse to fully disclose the extent of
their business interest to the appropriate
supervising and examining department when
 required pursuant to a provision of law or of a
circular, memorandum or rule or regulation of the
BSP.
▪ This disqualification shall be in effect as long
as the refusal persists
b) Directors who have been absent or who have
not participated for whatever reasons in more
than fifty percent (50%) of all meetings, both
regular and special, of the board of directors
during their incumbency, or any twelve (12)
month period during said incumbency. This
disqualification applies for purposes of the
succeeding election;
c) Persons who are delinquent in the payment of
their obligations
d) Persons convicted for offenses involving
dishonesty, breach of trust or violation of
banking laws but whose conviction has not yet
become final and executory;
e) Directors and officers of closed banks/quasi-
banks/trust entities pending their clearance by
the Monetary Board;
f) Directors disqualified for failure to
observe/discharge their duties and
responsibilities prescribed under existing
regulations. This disqualification applies until
the lapse of the specific period of
disqualification or upon approval by the
Monetary Board on recommendation by the
appropriate supervising and examining
department of such directors’
election/reelection;
g) Directors who failed to attend the special
seminar for board of directors. This
disqualification applies until the director
concerned had attended such seminar;
h) Persons dismissed/terminated from
employment for cause. This disqualification
shall be in effect until they have cleared
themselves of involvement in the alleged
irregularity;
i) Those under preventive suspension
j) Persons with derogatory records with the
National Bureau of Investigation (NBI), court,
police, interpol and monetary authority (central
bank) of other countries (for foreign directors
and officers) involving violation of any law, rule
or regulation of the Government or any of its
instrumentalities adversely affecting the
integrity and/or ability to discharge the duties of
a bank/quasi bank/trust entity director/officer
k) Directors and officers of banks, quasi-banks
and trust entities found by the MB as
administratively liable for violation of banking
laws where a penalty of removal from office is
imposed, and which the finding of the MB is
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pending appeal before the appellate court,
unless execution or enforcement thereof is
restrained by the court
l) Directors and officers of banks, quasi-banks
and trust entities or any person found by the
MB to be unfit for the position of directors or
officers because they were found
administratively liable for violation of banking
laws or any offense involving dishonesty or
breach of trust, and which the finding of the
government agency is pending appeal before
the appellate court, unless execution or
enforcement thereof is restrained by the court
m) Directors and officers of banks, quasi-banks
and trust entities found by the MB as
administratively liable for violation of banking
laws where a penalty of suspension from office
or fine is imposed, regardless whether the
finding of the MB is final and executor or
pending appeal before the appellate court,
unless execution or enforcement thereof is
restrained by the court
• Disqualifications under Corporation Code
o Convicted by final judgment of an offense
punishable by imprisonment for more than 6
years or
o Violation of Code committed within 5 years
prior to the date of his election or appointment
• Disqualifications under NCBA (Sec. 9, NCBA)
o NCBA also provides DQ for members of MB
that is connected with bank under supervision or
examination of BSP
Section 9. Disqualifications. - In addition to the
disqualifications imposed by Republic Act No. 6713,
a member of the Monetary Board is disqualified from
being a director, officer, employee, consultant,
lawyer, agent or stockholder of any bank, quasi-
bank or any other institution which is subject to
supervision or examination by the Bangko Sentral, in
which case such member shall resign from, and
divest himself of any and all interests in such
institution before assumption of office as member of
the Monetary Board.
The members of the Monetary Board coming
from the private sector shall not hold any other
public office or public employment during their
tenure.
No person shall be a member of the
Monetary Board if he has been connected directly
with any multilateral banking or financial institution or
has a substantial interest in any private bank in the
Philippines, within one (1) year prior to his
appointment; likewise, no member of the Monetary
Board shall be employed in any such institution
within two (2) years after the expiration of his term
 except when he serves as an official representative
of the Philippine Government to such institution.
Section 27. Prohibitions. - In addition to the
prohibitions found in Republic Act Nos. 3019 and
6713, personnel of the Bangko Sentral are hereby
prohibited from:
(a) being an officer, director, lawyer or agent,
employee, consultant or stockholder, directly or
indirectly, of any institution subject to
supervision or examination by the Bangko
Sentral, except non-stock savings and loan
associations and provident funds organized
exclusively for employees of the Bangko Sentral,
and except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving
any gift, present or pecuniary or material benefit
for himself or another, from any institution
subject to supervision or examination by the
Bangko Sentral;
(c) revealing in any manner, except under orders
of the court, the Congress or any government
office or agency authorized by law, or under
such conditions as may be prescribed by the
Monetary Board, information relating to the
condition or business of any institution. This
prohibition shall not be held to apply to the
giving of information to the Monetary Board or
the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing,
to receive such information; and
(d) borrowing from any institution subject to
supervision or examination by the Bangko
Sentral shall be prohibited unless said
borrowings are adequately secured, fully
disclosed to the Monetary Board, and shall be
subject to such further rules and regulations as
the Monetary Board may prescribe: Provided,
however, That personnel of the supervising and
examining departments are prohibited from
borrowing from a bank under their supervision or
examination.
• Disqualifications under PDIC Law
o No person shall serve as a director, officer,
employee of an insured bank who has been
convicted of any criminal offenses involving
dishonesty or breach of trust (except with the
written consent of PDIC)
• Disqualifications under Rural Banks Act
o GR: Public officials cannot also be an officer in
any private bank unless position is incidental to
office
o Exception: Under this Act, an appointive or
elective public official may be a director, officer,
consultant or employee in the bank
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13. Regulation in Family Group Interest
• Family groups or related interest must be fully
disclosed in all transactions of the individual
Section 12. Stockholdings of Family Groups of
Related Interests. - Stockholdings of individuals
related to each other within the fourth degree of
consanguinity or affinity, legitimate or common-law,
shall be considered family groups or related
interests and must be fully disclosed in all
transactions by such corporations or related groups
of persons with the bank.
14. Who is an Independent Director?
Section 15. An "independent director" shall mean a
person other than an officer or employee of the bank,
its subsidiaries or affiliates or related interests.
15. Can an elective official serve in a bank?
Section 19. Prohibition on Public Officials. - Except
as otherwise provided in the Rural Banks Act, no
appointive or elective public official whether full-time
or part-time shall at the same time serve as officer
of any private bank, save in cases where such
service is incident to financial assistance provided
by the government or a government owned or
controlled corporation to the bank or unless
otherwise provided under existing laws.
16. DOSRI Rule
• Restriction on Bank Exposure to Directors,
Officers, Stockholder and Related Interests
o GR: No DOSRI of any bank, shall, directly or
indirectly, for himself or as the representative or
agent of others, borrow from such bank nor
shall he become a guarantor, indorser or surety
for loans from such bank to others, or in any
manner be an obligor or incur any contractual
liability to the bank
o Exception: When there is a written
approval of the majority of all directors
of the bank excluding the DOSRI
concerned
o Such written approval is not required if it
is under a fringe benefit plan approved
by BSP
• Directors
o Include those who are names in the Articles of
Incorporation
 o Duly elected in subsequent meetings of the subject to the limitations of the preceding
stockholders Section. (25a)
o Elected to fill vacancies in the Board of
Directors

18. Single Borrower’s Limit (SBL Rule)

• Officers
• General Rule:
o President, EVP, Senior VP, VP, Gen. Manager,
o Total amount of loans, credit accommodation
Secretary, Trust Officer, Treasurer and other
and guarantees extended by a bank to any
mentioned as officers of the bank as stated in
person, partnership or corporation shall not
the by-laws
exceed 20% of net worth of bank
o Chairman, Vice-Chairman or any other position
o In Circular 425 of 2004 of BSP, the SBL was
who performs function of the management
increased to 25%
• Stockholders
• Exceptions to SBL:
o Any stockholder of record in the books of the
a) MB may otherwise prescribe for reasons of
bank/quasi bank/trust entity, acting personally or
national interest
through an attorney-in-fact; or any other person
b) Deposit of rural banks with GOC financial
duly authorized by him
institutions such as LB, DBP and PNB
• Related Interests
o Spouse or relative within 1st degree of
** Basis for determining SBL is the total credit
consanguinity or affinity, or relative by legal
commitment of bank to borrower
adoption, of a DOS. Including the partnership,
co-ownership of DOSRIs
o Corporations where the above mentioned owns
19. Micro-financing (Circular No. 272)
20% of subscribed capital, then the prohibition
shall apply
o Can also be less than 50% if the DOS sits as
• Microfinancing loans are small loans granted to the
representative of the bank in the board of such
basic sectors, as defined in the Social Reform and
corporation
Poverty Alleviation Act of 1997 (Republic Act 8425),
and other loans granted to the poor and low-income
households for their microenterprises and small
17. Could a bank acquire real estate?
businesses so as to enable them to raise their
income levels and improve their living standards.
Section 52. Acquisition of Real Estate by Way
of Satisfaction of Claims. - Notwithstanding the
• These loans are granted on the basis of the
limitations of the preceding Section, a bank may
borrowers’ cash flow and are typically unsecured.
acquire, hold or convey real property under the
following circumstances:
• The maximum principal amount of microfinance
loans shall not exceed P150,000. This is equivalent
52.1. Such as shall be mortgaged to it in good
to the maximum capitalization of microenterprise
faith by way of security for debts;
under R.A. 8425.
52.2. Such as shall be conveyed to it in
• The interest rate shall not be lower than the
satisfaction of debts previously contracted in the
prevailing market rates to enable the lending
course of its dealings, or
institution to recover the financial and operational
costs incidental to this type of microfinance lending.
52.3. Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure
20. Secrecy of Bank Deposits
debts due it.
• Purpose
Any real property acquired or held under the
circumstances enumerated in the above
(1) Give encouragement to the people to deposit
paragraph shall be disposed of by the bank
their money in banking institution and
within a period of five (5) years or as may be
(2) Discourage private hoarding of depositors so that
prescribed by the Monetary Board: Provided,
could be used in economic development of the
however, That the bank may, after said period,
country
continue to hold the property for its own use,

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• RA 1405 – Bank Secrecy Law
Section 2. All deposits of whatever nature with banks or
banking institutions in the Philippines including
investments in bonds issued by the Government of the
Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an
absolutely confidential nature and may not be examined,
inquired or looked into by any person, government
official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases where
the money deposited or invested is the subject matter of
the litigation.
Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose to any
person other than those mentioned in Section two hereof
any information concerning said deposits.
• RA 8367 - Revised Non-Stock Savings and Loan
Association Act of 1997
o General rule: Prohibits inquiry or disclosure of
deposits
o Exception:
(1) Upon written permission of depositor
(2) In cases of impeachment,
(3) Upon order of competent court in cases of
bribery or dereliction of duty of public official
(4) In cases where the money deposited or
invested is the subject matter of the litigation
o It shall also apply to foreign currency deposits
with the only exception of written permission
o In Islamic banks that only exceptions are: (1)
inspection of bank auditor, (2) written
permission by depositor (3) subject matter of
litigation
• Other Exceptions
o Accounts can be garnished to insure
satisfaction of judgment as there is no real
inquiry and some disclosure are merely
incidental
o Congress not intended for debtors to escape
o General exemption against garnishment shall
not apply to foreign transients
o CASE: Salvacion v Central Bank: Foreign
currency deposits of a foreigner who was
convicted of crime of rape may be garnished to
satisfy judgment
o Under RA 1405 and Anti-Money Laundering
Act the secrecy of deposits do not apply
o BSP can also inquire in deposits for periodic
and special examinations
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o Ombudsman has the “In-Camera Inspection”
power to look into deposits provided that there
is pending case is court and 1.) the account
must be properly identified 2.) inspection limited
to the subject matter
o CIR can also look into deposits to determine
gross estate of a decedent or he has applied for
compromise tax liability
• RA 8791 – General Banking Law
Section 55. Prohibited Transactions.
55.1. No director, officer, employee, or agent of any
bank shall -
(b) Without order of a court of competent
jurisdiction, disclose to any unauthorized person any
information relative to the funds or properties in the
custody of the bank belonging to private individuals,
corporations, or any other entity: Provided, That with
respect to bank deposits, the provisions of existing
laws shall prevail
21. Bank of International Settlements (BIS)
• The Bank for International Settlements in Basel,
Switzerland, provides guidelines to use in
determining asset risk weights.
▪ For example, assets such as currency and coins
have a zero risk weight, while riskier assets like
debentures might have a risk weight of 100%.
TIER 1 (Core Capital)
• Core measure of a bank's financial capital strength
from a regulator's point of view.
• It consists of the Core Capital: common
stock/shareholder’s equity and disclosed reserves,
but may include non-cumulative preferred stock
• Tier 1 capital is considered by banking regulators to
be the most stable and reliable form of bank capital.
• Tier 1 capital includes equity capital and disclosed
reserves, where equity capital includes financial
instruments that cannot be redeemed by the holder.
• The Tier 1 capital ratio is the ratio of a bank's core
equity capital to its total risk-weighted assets.
▪ Risk-weighted assets are the total of all assets
held by the bank that are weighted for credit
risk according to a formula determined by the
banking regulators.
TIER 2 (Supplementary Capital)
• Includes all other capital such as the ff:
▪ Undisclosed Reserves - These reserves occur
when a bank has made a profit but the profit
 has not appeared in the bank’s normal retained
profits or in the bank’s general reserves.

▪ Revaluation Reserves - These are created

when a bank revalues an asset and the
increase in value is recognized. A simple
example may be where a bank owns the land
and building of its headquarters and carry them
on their books at their acquisition cost many
years ago. A current appraisal would show a
large increase in the value of the asset that
could be added to a revaluation reserve.

▪ General Provisions - These are created when a

company is aware that it is more likely than not
that a loss may have occurred but is not sure
of the extent of the loss. Under pre-IFRS
accounting rules and standards, general
provisions were commonly created to
acknowledge losses that were anticipated in
the future. Since these events did not
represent actual incurred losses, banking
regulators often allowed the bank to count
them as capital.

▪ Hybrid Instruments - These financial

instruments have some characteristics of both
debt and stockholders' equity. Provided that
these are similar to equity in that they are
capable of taking losses on the face value
without causing a liquidation of the bank, they
may be counted as capital. Preferred stocks
are hybrid instruments.

▪ Subordinated Term Debt - This is debt that

ranks lower in liquidation preference than the
bank’s depositors.

9|MELGAR

BANKING Q&A (Part 2)
1. BSP Incentives for Rural Banks
**BSP provides for incentive packages for
bigger/successful banks to buy/acquire
smaller/collapsing/weak banks
Problem: Rural banks now are collapsing
Ratio: Banking industry is impressed with public
interest. The people invest money in banks
knowing that their money is in safe hands. Any
bad news regarding banks will affect all other
banks. It is a vehicle for sustained economic
development (Sec. 2, GBL)
- Bank Run = any news that a bank is being
mismanaged (cannot withdraw your money), it
will trigger people to shy away from banks
Reason: Avoid bad news. Why? It is contagious.
Example: According to GBL, in the event of a Strike,
it shall be attended by the DOLE WITH PRIORITY
a) Circular No. 237 Series of 2000 (Merger &
Consolidation of Banks in general)
• Merger – is the absorption of one or more
corporations by another existing corporation,
which retains its identity and takes over the
rights, privileges, franchises, and properties, and
assumes all the liabilities and obligations of the
absorbed corporation(s) in the same manner as
if it had itself incurred such liabilities or
obligations. The absorbing corporation
continues its existence while the life or lives of
the other corporation(s) is/or are terminated.
• Consolidation – is the union of two or more
corporations into a single new corporation,
called the consolidated corporation, all the
constituent corporations thereby ceasing to exist
as separate entities. The consolidated
corporation shall thereupon and thereafter
possess all the rights, privileges, immunities,
franchises and properties, and assume all the
liabilities and obligations of each of the
constituent corporations in the same manner as
if it had itself incurred such liabilities or
obligations.
10 | M E L G A R
• Subject to BSP’s approval, entities may avail
of the ff incentives:
a. Revaluation of bank premises, improvements and bank
equipments of the institutions: Provided, That such revaluation
shall be based on fair valuation of the property conducted by a
reputable appraisal company which shall be subject to review and
approval by the Bangko Sentral;
b. Unbooked valuation reserves based upon the Bangko
Sentral examination and other capital adjustments resulting from
the merger or consolidation may be booked on staggered basis
over a maximum period of five (5) years;
c. Exemption from the 20% and 30% limitations on voting
stockholdings in the new or surviving institution of any person or
persons related to each other within the third degree of
consanguinity or affinity, or corporations, respectively: Provided,
That this shall be allowed only if the bank that is being merged is
distressed AS MAY BE DETERMINED BY THE MONETARY
BOARD: Provided, further, That whenever any of the
stockholders exceed the 20% and 30% ceilings, their holdings
shall not be increased, but may be reduced and once reduced,
shall not thereafter be increased beyond the 20% and/or 30%
ceilings;
d. If by reason of merger or consolidation, the resulting bank
is unable to comply fully with the prescribed net worth to risk
assets ratio, the Monetary Board may, at its discretion,
temporarily relieve the bank from full compliance with this
requirement under such conditions as it may prescribe;
e. Amortization of goodwill up to a maximum period of forty
(40) years if there are compelling reasons to extend for this long,
otherwise the amortization period shall not be longer than ten (10)
years;
f. Conversion or upgrading of the existing head offices,
branches and/or other offices of the merged or absorbed
institutions into branches of the new or surviving financial
institutions;
g. Condonation of liquidated damages and/or penalties on
loan arrearages to the Bangko Sentral of rural banks which are
parties to the merger or consolidation: Provided, That loan
arrearages of rural banks to the Bangko Sentral are paid in full or
shall be covered by a plan of payment payable on an equal
monthly amortization schedule over a period not exceeding ten
(10) years;
h. Relocation of branches/offices may be allowed within one
(1) year from date of merger or consolidation in cases where the
merger or consolidation resulted in duplication of branches/offices
in a service area, or in such other cases/circumstances as may be
prescribed by the Monetary Board.
i. Outstanding penalties in legal reserve deficiencies and
interest on overdrafts with the Bangko Sentral as of the date of
the merger or consolidation may be paid in installments over a
period of one (1) year;
j. Rediscount ceiling of 150% of adjusted capital accounts
for a period of one (1) year, reckoned from the date of merger or
consolidation provided the merged/consolidated bank meets the
 required net worth to risk assets ratio and all of the other
requirements for rediscounting;
k. Commercial banks whose total outstanding real estate
loans exceed 20% of total loan portfolio may be given a period of
one (1) year within which to comply with the prescribed 20% ratio
reckoned from the date of merger or consolidation;
l. Restructuring/plan of payment of past due obligations of
the proponents with the Bangko Sentral as of the date of
merger/consolidation over a period not exceeding ten (10) years;
m. In the case of rural banks, grant of access to the
rediscounting window of the BSP for a period of two (2) years
from the date of merger or consolidation even if its past due ratio
exceeds 25% of loan portfolio but not exceeding 30% provided
the merged/consolidated bank meets all the other requirements.
During said period of two (2) years, its rediscounting limit per
application may also be increased to an amount equivalent to the
total of the rediscounting limit per application of each of the
constituent banks before merger or consolidation;
n. Subject to approval of the Monetary Board concurrent
officerships between a merged or consolidated bank/financial
institution and another bank/financial institution may be allowed.
Likewise, with prior approval of the Monetary Board, concurrent
directorships may be allowed in cases where a bank acquires
shares of stock of another bank for the purpose of merging or
consolidating the two (2) banks regardless of whether the banks
belong to the same category or both have quasi-banking
functions;
o. Subject to the other requirements on the establishment of
branches, the merged/consolidated rural bank may be allowed to
establish a branch each in Cebu City and Davao City if it has put
up the minimum capital requirement for these places;
p. Grant of automatic extension of five (5) years for
retirement of government preferred shares to be reckoned from
the date of merger/consolidation;
q. Training of officers and staff of the merging or
consolidating rural banks by the Bangko Sentral;
r. Any right or privilege granted a merging bank under a
rehabilitation program previously approved by the Monetary
Board or under any special authority granted by the Monetary
Board shall continue to be in effect.
“The foregoing incentives may also be granted in cases of
purchases or acquisitions of majority or all of the outstanding
shares of stocks of a bank
b) Consolidated Program for Rural Banks (CPRB)
• Purposes
o To promote mergers and consolidations
among rural banks;
o To bring about a less-fragmented banking
system by enabling them to improve
financial strength, enhance viability,
strengthen management, and governance
11 | M E L G A R
o To help small lenders “expand at a lower
cost, as well as extend more services to our
underserved and unserved clients”
• CPRB – It is a progressive incentive program
jointly conceptualized by the BSP, the Philippine
Deposit Insurance Corp. (PDIC), and the Land
Bank of the Philippines (Landbank). These
parties have yet to sign the memorandum of
agreement for CPRB’s effectivity
• Requirement: Proponents should be at least 5
rural banks -- which shall preferably be located
in the same region -- and that the resulting bank
should have a capital of at least P100 million
• Currently, there are 512 RBs operating across
the country.
❖ In support of CPRB, the Countryside Financial
Institutions Enhancement Program (CFIEP),
consistent with its mandate to improve the
countryside financial institutions’ long-term
sustainability and viability, will set aside PhP25
million to fund the implementation of the
program. On its part, the BSP will observe full
flexibility in granting regulatory and other
incentives allowable under existing banking laws
and regulations including BSP Circular No. 237,
as amended.
** The CPRB would be available for 2 years from
the signing of the memorandum of agreement
(MOA) containing the terms and conditions, as well
as other arrangements in implementing the
program.
c) Strengthening Program for Rural Banks (SPRB)
• Ratio: “There are a lot of banks in the
community where there’s one or two additional
banks that are not of the same financial
conditions that need to be absorbed”
• Purposes
o To strengthen the thrift and rural banking
industry to effectively serve the countryside
and improve the delivery of financial
services to rural communities
o To provide incentives for “white knight”
investors to acquire smaller banks and
encourage consolidation within the sector
that caters to the most sensitive segment of
the economy

• SPRB Module 1 - In pursuance of the policy to
promote mergers and consolidations as a
means to develop bigger and stronger rural
banks (RBs), and to further strengthen the rural
banking system, constituent RBs may, subject to
prior BSP approval, avail themselves of any or
all of the following merger or consolidation
incentives under the SPRB:
a) Conversion of the existing head offices,
branches and/or extension offices of the
merging or consolidating RBs into head
office, branches or extension offices of the
merged/consolidated RB;
b) Relocation/opening of existing/approved but
unopened branches, extension offices and/or
other banking offices of the
merged/consolidated RB within two (2) years
from date of merger or consolidation subject
to applicable requirements on relocation of
branches, extension offices and/or other
banking offices
c) Condonation of liquidated damages on past
due rediscounting/emergency loans and/or
monetary penalties for violation of BSP
issuances on rediscounting/emergency loans
of the eligible RBs as of the end of the month
immediately preceding the date of request for
loan restructuring
d) Restructuring of past due
rediscounting/emergency loans of the eligible
RBs with the BSP, subject to compliance with
the following guidelines (see full text)
e) Preferred Shares for Staggered Redemption
o The shares for staggered redemption
shall be the LBP preferred shares of
stock of the eligible RBs, representing
the rediscounting arrearages with BSP
converted into LBP equity. Repayment
arrangement should be made by the
merged or consolidated RB directly with the
LBP.
f) Rediscount ceiling of at least one hundred
fifty percent (150%) of the adjusted capital
accounts of the merged/consolidated RB for
a period of one (1) year reckoned from the
date of merger or consolidation, subject to
compliance with the existing eligibility
requirements of the BSP as provided under
Subsec. X268.3 of the Manual of Regulations
for Banks, as amended by Circular No. 648
dated 02 March 2009.
g) Waiver of monetary penalties imposed on the
eligible RBs for violation of existing laws and
BSP rules and regulations, except penalties
accruing to the other parties
o e.g. Micro, Small and Medium
Enterprises Development (MSMED)
Council Fund as provided under Section
19 of R.A. No. 6977 (Magna Carta for
Micro, Small and Medium Enterprises),
12 | M E L G A R
as amended, and Agricultural
Guarantee Fund Pool (AGFP) and
Philippine Crop Insurance Corporation
(PCIC) as provided under Section 10 of
R.A. No. 10000 (The Agri-Agra Reform
Credit Act of 2009), as of date of
merger/consolidation.
• SPRB Plus – It is a joint project between the
BSP and the Philippine Deposit Insurance
Corp. (PDIC), which acts as receiver for
shuttered banks
• Includes thrift banks and universal and
commercial banks as eligible banks as STPIs,
as well as non-bank corporations
• Opens avenues for the smaller banks’ mergers,
consolidations and acquisitions. It is not only
rural banks that are involved, but also thrift
banks and strategic third party investors or
STPIs
SPRB Plus Framework
• Program Title
o Eligible banks also include thrift banks (TBs),
in addition to rural banks (RBs), both generally
serving the same niche markets.
o Hence, the Program is renamed as
“Strengthening Program for Rural Banks Plus
(SPRB Plus)”
• Eligibility
1. Basic criteria for Eligible Banks:
a. RBs with risk based capital adequacy ratio
(RBCAR) of less than 10%; TBs with
RBCAR of less than 10% and must be
serving the countryside and/or low income
sectors
2. Basic criteria for Eligible STPIs*:
Universal and Commercial Banks (UKBs), TBs and
RBs
a. BSP CAMELS rating of at least “3”;
b. Not under BSP’s Prompt Corrective Action
(PCA); and
c. No findings of unsafe and unsound banking
practice by the BSP or PDIC.
Non-Bank Corporations
a. With strong financial condition and good
reputation
*STPIs may also be a Group

• Mode of Entry shall either be via merger,
consolidation, acquisition via purchase of assets
and assumption of liabilities (P&A) or purchase
of controlling shares, as follows:
• Financial Assistance
o The FA shall be extended only to STPIs who
are TBs and RBs. Non-bank corporations
which are not subsidiaries of UKBs or not
part of banking groups may also be extended
FA when circumstances strongly warrant as
allowed under Section 17.d of R.A. 3591, as
amended.
FA will be a combination of:
a) Preferred Shares (PS) – intended to
provide additional capital to bring eligible
bank’s RBCAR to 10%; and
b) Direct Loan (DL) – to build up sinking fund
(SF) to provide an automatic payment
mechanism for PS
Provided however, that pursuant to Sec. 17d
of RA 3591, as amended, (the PDIC Charter),
the total cost (in present value terms) of
providing the above combination of FA (PS
and DL) should not exceed the cost of closure
of the eligible bank.
• Incentives and Regulatory Reliefs - in
addition to the incentives/regulatory reliefs
granted by BSP under the SPRB Module 1,
eligible STPIs can avail of additional
branching1 and other incentives as follows:
For Eligible STPI Universal & Commercial Banks
and Thrift Banks
a) The special branch licensing fees2 to be
waived by the BSP shall be equivalent to the
amount of capital contribution of the STPIs
to bring the eligible banks’ risk-based capital
adequacy ratio (RBCAR) to 10 percent.
Under Circular No. 728 dated 23 June 2011, a
bank applying for a branch license in restricted
13 | M E L G A R
areas shall be charged a licensing fee of P20
million for UKBs and P15 million for TBs.
Hence, if an STPI’s capital contribution in a TB
is P50 million, said STPI bank is qualified to
establish 3 branches (P50 million/P15
million=3.33 branches) in restricted areas for
free.
In case the capital contribution of an STPI in
the acquired bank is less than the amount of
branch licensing fees under Circular No. 728,
that is, P20 million for UKBs and P15 million
for TBs, the STPI can still avail of one branch
license in restricted area for free.
b) The STPI banks may be allowed, subject to
BSP approval, to convert the status of the
acquired bank from RB to TB, consistent
with the STPI’s over-all business plan and
strategy.
For Eligible STPI Rural Banks
a) In the case of RBs which are not eligible to
establish branches in Metro Manila, they can
establish branches outside Metro Manila
equivalent to the number of branches of the
acquired bank/s.
Branch processing fee applicable to RBs of
P25,000 shall be waived and the following
theoretical capital requirement under Circular
No. 738 shall not be imposed:
b) For STPI RBs which will acquire single/one
unit RBs, they are still entitled to establish 1
branch outside Metro Manila.
c) For STPI-RBs which have availed under
Module I of the SPRB, the above proposed
branching incentives for RBs under SPRB
Plus may be granted subject to the same
conditions.
For All Eligible STPIs
a) As additional premium, STPI UKBs and TBs
shall be granted one additional branching license in
restricted areas while STPI RBs shall be granted
one additional branching license in areas outside
 Metro Manila for every 3 eligible banks resolved
under the Program.
**NOTE: STPI - Strategic Third Party Investors
2. Secured and Unsecured Loans
• Secured
oHard assets backing up a transaction
oE.g. Mortgage, Pledge
• Unsecured
oWithout security
oIf w/ security, only as a Guaranty or Surety
**Bank = most suspicious lender; it will not lend
without support (requires the deed as support for the
loan); more loans = more favourable to banks
• Small collateral + Small working capital =
loan up to 60% of appraised value
o You borrow from bank
o Bank will ask for the title
o Bank will annotate/attach lien
o Prudence: Go to Register of Deeds to examine
the original title
o In default: Bank may initiate foreclosure + public
auction
3. Real & Other Property Owned/Acquired
• ROPOA or ROPA
o Banks acquire some share of stocks from
settlements of loans and/or through
foreclosure of collaterals of client borrowers
who were unable to pay their loans.
o These ROPA are normally considered as
part of the inventory of banks since these
will eventually be sold to the public
o Sale of shares of stock considered as ROPA
of the banks should also be treated as
ordinary assets, rather than capital assets.
Therefore, the sale should be subjected to
regular income tax and not to the capital
gains tax (which is considered a final tax)
**ROPOA - bank is in possession of property =
more properties less money; bank is not happy
because they need MONEY not property
• According to BIR Revenue Regulation No. 06-2004
o ROPOA refers to real and other properties
owned or acquired by a financial institution
in settlement of its loans and receivables,
including, but not limited to real properties,
shares of stock, and chattel formerly
constituting collateral for secured loans, by
way of dation in payment, judicial or extra-
14 | M E L G A R
judicial foreclosure, or execution of judgment
as of June 30, 2002; and to such real and
other properties acquired by an FI after June
30, 2002; in either case as certified by the
Appropriate Regulating Authority
o A property is deemed acquired on: date of
notarization of “deed of dacion”; date of
entry of judgment in case of judicial
foreclosure; and date of notarization of
“Sheriff’s Certificate” in case of extra-judicial
foreclosure
4. Net Worth Risk Asset Ratio
• In addition to the prescribed minimum levels of capital,
Philippine banks were required to maintain a net
worth-to-risk assets (NWRA) ratio of at least 10%.
(Sec. 22 of R. A. No. 337)
• Minimum Ratio
o MB shall prescribe minimum ratio
 It will be based on the net worth and risk assets
of banks as well as its compositions 
 It may alter compliance with ratio for a max 
period of 1 year 
o Ratio shall be uniformly applied to banks of
same category
• Effect of Non-compliance - if a bank does not
comply, the MB can:
o Limit distribution of net profits and be used to
increase capital accounts until minimum
requirement are met
o Restrict acquisition of major assets and new
investments except with purchase of readily
marketable evidence of indebtedness of RP
BSP can be other parties such as notifying
bank (inform seller), confirming bank (lend
credence to letter of credit), paying bank and
negotiating bank (discounter)
• In case of merger, rehabilitation, MB may
temporarily relieve such bank with compliance with
capital ratio
5. Bank for International Settlement
• It is an international organisation, created
pursuant to an international treaty (The Hague
Agreements of 1930). Its shareholding members are
central banks and monetary authorities.
• The mission of the BIS is to serve central banks
in their pursuit of monetary and financial stability, to
 foster international cooperation in those areas and to
act as a bank for central banks.
**It is the central bank of all banks in the world
6. Universal Banks: Power to Invest
• Highest bank in PH
• Expanded banking authority
SECTION 23. Powers of a Universal Bank. — A
universal bank shall have the authority to exercise, in
addition to the powers authorized for a commercial bank
in Section 29, the powers of an investment house as
provided in existing laws and the power to invest in
non-allied enterprises as provided in this Act. (21-B)
SECTION 24. Equity Investments of a Universal Bank.
— A universal bank may, subject to the conditions stated
in the succeeding paragraph, invest in the equities of
allied and non-allied enterprises as may be
determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and
non-allied enterprises shall not exceed fifty percent
(50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise,
whether allied or non-allied, shall not exceed
twenty-five percent (25%) of the net worth of the
bank.
"Net Worth” = total of the unimpaired paid-in capital
including paid-in surplus, retained earnings and
undivided profit, net of valuation reserves and other
adjustments as may be required by the Bangko Sentral.
SECTION 25. Equity Investments of a Universal Bank in
Financial Allied Enterprises. — A universal bank can
own up to one hundred percent (100%) of the equity in
a thrift bank, a rural bank or a financial allied enterprise.
A publicly-listed universal or commercial bank may own
up to one hundred percent (100%) of the voting stock
of only one other universal or commercial bank. (21-B;
21-Ca)
SECTION 26. Equity Investments of a Universal Bank in
Non-Financial Allied Enterprises.
— A universal bank may own up to one hundred percent
(100%) of the equity in a non-financial allied enterprise.
(21-Ba)
15 | M E L G A R
SECTION 27. Equity Investments of a Universal Bank in
Non-Allied Enterprises. — The equity investment of a
universal bank, or of its wholly or majority-owned
subsidiaries, in a single non- allied enterprise shall not
exceed thirty-five percent (35%) of the total equity in
that enterprise nor shall it exceed thirty-five percent
(35%) of the voting stock in that enterprise. (21-B)
SECTION 28. Equity Investments in Quasi-Banks. — To
promote competitive conditions in financial markets, the
Monetary Board may further limit to forty percent (40%)
equity investments of universal banks in quasi-banks.
This rule shall also apply in the case of commercial
banks. (12-E)
• Equity Investments of UB
 Allied enterprises are those which enhance or
complement banking 
 If it is a financial allied enterprise, then it involves
money matters. Otherwise it shall be non-
financial 
 Total investments in equities of allied and non-
allied enterprises shall not exceed 50% of the
net worth of the bank 
 Equity investment in any one enterprise, whether
allied or non, shall not exceed 25% 

• Equity investment of Universal Bank in Non-
Allied Enterprise
o Equity investment in a single non-allied
enterprise shall not exceed 35% in total equity or
voting stock
• Investments in Non-Allied Enterprises
 Universal bank may invest in equity of enterprise
of eligibles: 
1. Enterprises engaged in agriculture, mining,
quarrying, manufacturing, public utilities
2. Industrial parks
3. Commercial project with government
privatization program
• Equity investment in Quasi-banks – universal bank 
can only invest up to 40% in equity of quasi-banks 
7. 2 Kinds of Allied Enterprises
• Financial Allied Enterprises

o Universal bank can own 100% of the equity in a
thrift, rural bank or financial allied enterprise
 Publicly-listed universal or commercial bank may
own 100% of voting stock of another universal or
commercial bank 
  If not publicly-listed, then UB may only own 49%
• Amended Minimum Capital Requirements for
of voting stock Banks

 Following are financial allied enterprises: 
1. Leasing companies
2. Banks
3. Investment houses
4. Financing companies
5. Credit card companies
6. Financial institutions
7. Companies in stock brokerage and
foreign exchange dealership
8. Insurance companies
9. Holding company provided that the
equities of the entity is confined
under universal bank BSP
regulation

• Non-financial Allied Enterprises

o Universal bank may own up to 100% of equity in
non-financial allied
o Examples are:
1. Warehousing companies
2. Storage
3. Safe deposit box
4. Companies engaged in management of
mutual funds and not funds itself
5. Computer services
6. Home building and development
7. Service bureaus
8. PCHC

8. Organization of Banks

 MB can authorize the organization of a bank based on

the following conditions: 
2. Entity is a stock corporation (par value stocks
only)
3. Funds are obtained from the public which shall
mean twenty persons or more
4. Minimum capital requirement prescribed by MB
shall be satisfied

• MB shall take into consideration the capabilities

of the entity in terms of their financial resources,
technical expertise and integrity

 Bank licensing process shall incorporate
assessment of: 
1. Banks’ ownership structure
2. Director management
3. Operating plan
4. Internal controls
5. Projected financial condition

16 | M E L G A R

• Incorporators/Subscribers/Directors/Officers
o At least 25% of total authorized capital stock
shall be subscribed by subscribers of proposed
bank
o 25% of such subscription shall be paid-up. It
shall not be less than the minimum capital
requirement
o Incorporators/subscribers and proposed
directors and officers must be (2) persons of
integrity and 
(1) good credit standing
 Bank is organized by 5-15 people
(incorporators) 
 Cooperatives may organized a rural bank upon 
consultation with the rural banks in the area 
 Bank and its branches shall be treated as one
unit 
 Universal and commercial banks may open 
branches within or outside the Philippines upon 
prior approval of BSP 
 Other banks shall be governed by their pertinent 
laws 

• Shareholdings
a) 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 the paid- up capital be less than the
minimum required capital stated in Item 1 above.
b) The stockholdings of an individual, family,
corporate or business group in any bank shall be
subject to the following limits:
i. Foreign individuals and non-bank
corporations may own or control up to forty
percent (40%) of the voting stock of a
domestic bank: Provided,
That the aggregate foreign-voting stocks owned
by the foreign individuals and non-bank
corporations in a domestic bank shall not exceed
forty percent (40%) of the outstanding voting
stock of the bank. The percentage of foreign-
owned voting stock in a bank shall be
determined by the citizenship of the individual
stockholders in that bank.
ii. A Filipino individual and a domestic non-bank
corporation may each own up to forty percent
(40%) of the voting stock of a domestic bank.
There shall be no aggregate ceiling on the
ownership by such individuals and
corporations in a domestic bank.
17 | M E L G A R
iii. The citizenship of the corporation which is a
stockholder of a bank shall follow the
citizenship of the controlling stockholders of
the corporation, irrespective of the place of
incorporation. For purposes hereof, the term
“controlling stockholders” shall refer to
individuals holding more than fifty percent
(50%) of the voting stock of the corporate
stockholders of the bank.
c) At least 60% of voting stock of any commercial
bank shall be owned by Filipino citizens. For any
thrift bank, at least 40% of its voting stock shall
be owned by Filipino citizens.
Subject to Section 4 of Republic Act. No.
7353, all of the capital stock of any rural bank
shall be fully owned and held, directly or
indirectly, by Filipino citizens or corporations,
associations or cooperatives qualified under
Philippine laws to own and hold such capital
stock.
9. Foreign Shareholdings
Section 11. Foreign Stockholdings. - Foreign
individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock
of a domestic bank. This rule shall apply to Filipinos
and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a
bank shall be determined by the citizenship of the
individual stockholders in that bank. The citizenship
of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling
stockholders of the corporation, irrespective of the
place of incorporation. (n)
o Foreign individuals and non-banks can
own 40% of voting stock of domestic
bank.(aggregate foreign voting stocks)
o A Filipino individual and domestic non- bank
may each own up to 40% of the voting stock
(no aggregate ceiling)
o Citizenship of the corporation shall follow the
citizenship of the controlling stockholders
(>50%)
o The percentage of foreign-owned voting
stocks in a bank shall be determined by
the citizenship of individual stockholders
o At least 60% of voting stock in any
commercial bank shall be owned by
Filipino citizens
o In thrift banks, it shall be at least 40%
o Rural banks, 100% Filipinos
**In determining the nationality of banks, the “control
test” is applied
 12. Exception to RA 1405 (BIR)
10. Policy-making body
• Upon order of the Commissioner of Internal Revenue
• According to Corporation Code, there shall be at in respect of the bank deposits of a decedent for the
least five and maximum of 15 board of directors of purpose of determining such decedent’s gross
bank
estate. (Sec. 6[F][1], NIRC)
 Election: President, Treasurer (director or not),
Secretary (resident citizen). Not allowed position:
President/Secretary, President/Treasurer  • Upon the order of the Commissioner of Internal
 Meetings may be conducted through modern Revenue in respect of bank deposits of a taxpayer
technologies who has filed an application for compromise of his
 Two of such shall be independent directors. tax liability by reason of financial incapacity to
pay his tax liability. (Sec. 6[f][1],NIRC)
Independent director – person other than officer or
employee of bank 
• All must be of legal age and majority of them are
residents of the Philippines

 Non-Filipino citizens may become members of
board of directors of bank up to the extent of allowed
foreign participation 
 Directors of merged or consolidated banks shall
not exceed 21
• A foreigner may be a member of the Board of
directors of a rural bank at the time of their
assumption of office

• To protect funds of depositors and creditors, MB

shall regulate payment of directors under certain
circumstances:
1. Comptrollership
2. Business in unsafe or unsound manner
3. Bank is found to be in an unsatisfactory
financial condition

11. Outsourced Services by banks

• Outsourcing of information technology

o Bank may outsource information technology
systems and processes except inherent
banking functions
o Functions that are not outsourced:
1. Strategic planning for use of IT
2. Determination of system functionalities
3. Change management inclusive of quality
assurance
4. Service level and contract management
5. Security policy and administration

• Outsourcing of other functions

 Subject to prior approval of MB, banks may
outsource data imaging, storage, retrieval and
other related systems 
 Banks may outsource credit card services 


18 | M E L G A R

BANKING Q&A (Part 3)
1. Nature of banking business
 Matter of trust
 Relationship: Debtor (bank) - Creditor (depositor)
**Bank = most regulated entity
2. Application of laws
 GBL of 2000: primary law governing banking (RA
8791 + IRR)
 Civil Code: suppletory in nature in matters related
to banking (provisions relating to ObliCon and
Credit Transactions (mutuum)
3. Special Laws &Regulations
 Manifests legislative intent only
 Manual Regulations - intended to protect the
depositor
 Ex. Holdup of banks - within 5 days, the
Investigation Division of such bank will investigate
the bank’s transactions if there are shortages,
misappropriation, collusion between the
employees or managers or dubious transactions it
must be recorded with the BSP
 Why? If it can happen in one bank, then it can
happen also to other banks
4. Degree of Diligence: Simex Int’l
 Guardian/vanguard/watchdog of the depositor’s
interest
5. Trust Entities (Chapter 6)
 Authority to engage in trust business
o Trust business – any activity resulting in
trustor-trustee relationship involving
appointment of a trustee by a trustor for the
19 | M E L G A R
administration, holding, management of funds
or properties of trustor by the trustee
o It is for the use, benefit or advantage of the
trustor or other beneficiaries
o Cardinal principle of trust and other fiduciary
relationship is fidelity
Section 79. Authority to Engage in Trust Business. -
Only a stock corporation or a person duly authorized by
the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in
trust or on deposit for the use, benefit, or behoof of
others. For purposes of this Act, such a corporation shall
be referred to as a trust entity.
 Conduct of trust business
o Trust entity shall administer the funds or
property under its custody with diligence that
a prudent man would exercise
o Trust entity – stock corporation or person
authorized by MB to engage in trust business
shall act as trustee or administer any trust or
hold property in trust
o No trust entity shall for the account of the
trustor or beneficiary,
1. Purchase, acquire, sell, property
2. Transfer or purchase money or debt
instruments from/to DORSI of trust entity
and relatives of first civil degree
3. Unless authorized by the trustor after prior
full disclosure of transaction
Section 80. Conduct of Trust Business. - A trust entity
shall administer the funds or property under its custody
with the diligence that a prudent man would exercise in
the conduct of an enterprise of a like character and with
similar aims. No trust entity shall, for the account of the
trustor or the beneficiary of the trust, purchase or acquire
property from, or sell, transfer, assign, or lend money or
property to, or purchase debt instruments of, any of the
departments, directors, officers, stockholders, or
employees of the trust entity, relatives within the first
degree of consanguinity or affinity, or the related
interests, of such directors, officers and stockholders,
unless the transaction is specifically authorized by the
trustor and the relationship of the trustee and the other
party involved in the transaction is fully disclosed to the
trustor of beneficiary of the trust prior to the transaction.
The Monetary Board shall promulgate such rules and
regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity.
 Registration of articles of incorporation and
by-laws of trust entity
 o SEC shall not register such unless accompanied
by certificate of authority from BSP
o A trust business shall start from the moment
their articles of incorporations are registered
 Minimum capitalization
o A trust entity, before engage in trust business,
shall comply with minimum paid-in capital
requirement by MB Powers of trust entity
 Powers of Trust Entity
Section 83. Powers of a Trust Entity. - A trust entity, in
addition to the general powers incident to corporations,
shall have the power to:
83.1 Act as trustee on any mortgage or bond issued by
any municipality, corporation, or any body politic and to
accept and execute any trust consistent with law;
83.2 Act under the order or appointment of any court as
guardian, receiver, trustee, or depositary of the estate of
any minor or other incompetent person, and as receiver
and depositary of any moneys paid into court by parties
to any legal proceedings and of property of any kind
which may be brought under the jurisdiction of the court;
83.3. Act as the executor of any will when it is named the
executor thereof;
83.4 Act as administrator of the estate of any deceased
person, with the will annexed, or as administrator of the
estate of any deceased person when there is no will;
83.5. Accept and execute any trust for the holding,
management, and administration of any estate, real or
personal, and the rents, issues and profits thereof; and
83.6. Establish and manage common trust funds, subject
to such rules and regulations as may be prescribed by
the Monetary Board.
 Transactions requiring prior authority
o Trustee or trust entity shall not undertake any of
the following transactions for the account of the
client unless there is prior full disclosure and
authorization by client
1. Lend, sell, transfer or assign money or
property to DOSRI of trustee, relatives of
trustee or related interest of such DOSRI
where trustee owns at least 50% of voting
stock
20 | M E L G A R
2. Purchase and acquire property or debt
instrument in the same manner
3. Invest in equities or in securities
underwritten by trustee in which trustee
has interest
4. Sell, transfer, assign or lend money or
property from one trust account to another
account
 Deposit for the faithful performance of trust
duties
o Before transacting trust business, they must
deposit to BSP for faithful performance of trust
duties an amount not less than 500k or higher
as may be fixed by BSP
o MB shall require trust entity to increase the
amount whenever the increase is necessary by
reason of trust business
o Paid-in capital and surplus of each entity must
be equal to the amount required to be deposited
in BSP
o In case it shall not meet the required paid-in
capital, the MB shall limit or prohibit distribution
of profits by trust entity until minimum
requirement is met
o Trust entity, as long as solvent and comply with
laws, shall have the right to collect interest
earned on security deposited to BSP
o If trust entity fails to comply with law, BSP shall
retain interest of securities for benefit of rightful
claimants
o All claims arising from trust business shall have
priority over all claims as regard to the security
deposited
 Bond requirement
1) Before executor, administrator, guardian,
trustee, receiver or depositary appointed by the
court enter upon execution of dues, court may
order bond
2) Upon application of such persons, after notice
and hearing, court shall order that subject matter
of trust be deposited with trust entity
3) Upon presentation of proof that subject matter
have been deposited to trust entity, court may
order that bond be given by such persons for
faithful performance
4) Reduce bond shall be sufficient to secure
adequately the proper administration of any
property

 Exemption of trust entity from bond
requirement
o No bond shall be required by court from trust
entity for faithful performance
o However court may order bond for the protection
of funds or property confided
 Separation of Trust business from general
business
Section 87. Separation of Trust Business from General
Business. - The trust business and all funds, properties
or securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or depositary
shall be kept separate and distinct from the general
business including all other funds, properties, and
assets of such trust entity. The accounts of all such
funds, properties, or securities shall likewise be kept
separate and distinct from the accounts of the general
business of the trust entity. (61)
 Investment Limitations of a Trust entity
Section 88. Investment Limitations of a Trust Entity. -
Unless otherwise directed by the instrument creating the
trust, the lending and investment of funds and other
assets acquired by a trust entity as executor,
administrator, guardian, trustee, receiver or depositary of
the estate of any minor or other incompetent person
shall be limited to loans or investments as may be
prescribed by law, the Monetary Board or any court of
competent jurisdiction.
o Unless otherwise directed by instrument creating
the trust, the lending or investment of funds by
trust entity shall be limited to loans and
investment as prescribed by law, MB or court
o Assets received in trust shall be administered
with terms of the instrument creating the trust
o If trust entity is given discretionary powers to
invest, loans and investments shall be limited to:
1. Evidence of indebtedness of RP and BSP
2. Loans guarantee by government
3. Loans fully secured by hold-out on,
assignment or pledge of deposits that are
maintained
4. Loans fully secured by real estate or chattels
o The following shall be required to be given as
information
1. Transaction to be entered
2. Borrower’s name
3. Amount involved
21 | M E L G A R
4. Collateral security
 Real Estate Acquired by Trust Entity
o Trust entity may acquire real property under
following circumstances:
1. Mortgage to it in good faith by way of security
to debts
2. Conveyed to it for satisfaction of debts
previously contracted
3. Purchase at sales under judgment, decrees,
mortgages or trust deeds
o Any property acquire under circumstances shall
be disposed within 5 years
o After said period, bank can still continue to hold
property subject to limitations:
1. Total investment in real estate shall not
exceed 50% of combined capital accounts
2. Equity investment of bank in another
corporation engage in real estate shall be
considered a part of 50%
Section 89. Real Estate Acquired by a Trust Entity. -
Unless otherwise specifically directed by the trustor or
the nature of the trust, real estate acquired by a trust
entity in whatever manner and for whatever purposes,
shall likewise be governed by the relevant provisions of
Section 52 of this Act.
 Exemption of trust assets from claims
o No assets held by trust entity shall be subject to
claims other than those parties interested in
specific trusts
o Property held in trust by insolvent debtor shall
be excluded from insolvency proceedings
o Trust entity and its branches shall be treated as
one unit
o Trust entities shall advertise services in a
dignified manner
Section 92. Exemption of Trust Assets from Claims. -
No assets held by a trust entity in its capacity as trustee
shall be subject to any claims other than those of the
parties interested in the specific trusts.
 Money of government
o Banks may not receive as trustee the funds of
the government except GOCC banks
Section 93. Establishment of Branches of a Trust
Entity. - The ordinary business of a trust entity shall be
transacted at the place of business specified in its
articles of incorporation. Such trust entity may, with prior
approval of the Monetary Board, establish branches in
the Philippines and the said entity shall be responsible
for all business conducted in such branches to the same
extent and in the same manner as though such business
had all been conducted in the head office. For the
purpose of this Act, the trust entity and its branches shall
be treated as one unit.
6. Trust Entity
 Licensed as a Unibank + Trust License – before
it can act as a trust entity, the bank must have a
SEPARATE license for that purpose in addition to
the banking license
 License from MB [e.g. integrity of directors (fit &
proper rule), capital requirements]
 Different from Depositor-Bank relationship
 Regulated with utmost care
 Comply with agreement for the benefit of the
children
o Ex. Minor children (5-10y/o) = parents are afraid
of what will happen to children if they die
o Appoint = agreement with Trust Entity; get
insurance proceeds + hold it in trust for the
beneficiary (called Declaration of Trust; Trust
Agreement; Trust Indenture)
o The moment the TRUSTOR dies, proceeds will
be held in trust by the TRUSTEE for the
benefit of minors (
o Once they reach the age of majority, proceeds
will be given back to them
o Why? Unpredictability of life
 Trust – arrangement where bank is a trustee
o Ex. Estate of Juan dela Cruz = separate
personality
o When a person is alive (inter vivos transfer)
 Appoint trustee to manage property/money for
wealth creation since you have no expertise to
manage it
o Juan dela Cruz; Trustee of Juan dela Cruz
7. PDIC
 Something to hang on to when bank collapses
 BSP has already investigated background +
capitalization
22 | M E L G A R
8. Nature of Banking business
 Grant loans = mortgage
 Not enough that the bank accepts the title
 Must exercise diligence to examine authenticity
 How? Go to the RoD
9. Combo Account
 Savings + Current (checking) Account
o So that check will not bounce if amount in
Current is insufficient; amount may drawn
against Savings account
 If there is an authorization by the depositor,
failure of the bank manager to comply will hold him
liable for damages
 BP22 – failure to deposit sufficient amount within
5 days = guilty of estafa; no need for PBRD
10. Survivorship Agreement
 There is survivorship agreement when joint
owners of a deposit agree that either of them
could withdraw any part or whole of account
during lifetime of both and the balance upon
death of either belongs to the survivor
 It is an aleatory contract
o
 Survivorship agreement is per se not contrary to
law but may be violative
 Agreement can be a mere cloak to hide in
inofficious donation to transfer property in fraud
 Related to RA 1405
 History – people had so much money = afraid to
let others know; hence they keep money at home.
However, it does not help sustain economic
development
H&W Survivorship Agreement (SA)
H and/or W
**BUT for TAX purposes, SA not applicable
o Whether joint / single, in case of death + debt =
not automatically transferred
 o Bank is mandated to FREEZE the accounts until
and unless there is a tax clearance
o GR: Properties are deemed transferred from the
moment of death of the decedent
o E: Bank deposits = tax clearance is required

SEC. 97. Payment of Tax Antecedent to the Transfer

of Shares, Bonds or Rights. - There shall not be
transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos
or mortis causa, legacy or inheritance, unless a
certification from the Commissioner that the taxes fixed
in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who

maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been
paid: Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent may,
upon authorization by the Commissioner, withdraw an
amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose,
all withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors

23 | M E L G A R