*Law on Secrecy of Bank Deposits (R.A. No.
1405, as amended) Where the plaintiff is fishing for information so it can determine the culpability of private respondent and the amount of
PURPOSE (1) To give encouragement to the people to deposit their money in banking institutions and to discourage private
hoarding; and (2) So that the people’s money may be properly utilized by banks in authorized loans to assist in the economic
development of the country. (Sec. 1)
The absolute confidentiality rule in R.A. No. 1405 actually aims at protection from unwarranted inquiry or investigation if
the purpose of such inquiry or investigation is merely to determine the existence and nature, as well as the amount of the
deposit in any given bank account. (China Banking Corp. v. Ortega, 1973)
PROHIBITED ACTS (1) No person, government official, bureau or office may examine, inquire into or look into such
deposits; and (2) No official or employee of any banking institution may disclose to any unauthorized person any
information concerning said deposits. (Sec. 3)
DEPOSITS COVERED Banks or banking institutions in the Philippines are hereby considered as of an absolutely
confidential nature and may not be examined. [N.B. The confidentiality of foreign currency deposits is governed by the
Foreign Currency Deposit Act.]
Includes investments in bonds issued by the Philippine Government, its political subdivisions and its instrumentalities,
regardless of the currency of denomination. (Sec. 2)
Under the RA 1405, bank deposits are statutorily protected or recognized zones of privacy. (People v. Estrada, G.R. No.
164368, April 2, 2009; Marquez v. Desierto, G.R. No. 135882, June 27, 2001, 359 SCRA 772; Ople v. Torres, G.R. No.
107737. October 1, 1999, 316 SCRA 43)
The term deposits as used in RA 1405 is to be understood broadly and not limited only to accounts which give rise to a
creditor-debtor relationship between the depositor and the bank.
If the money deposited under an account may be used by banks for authorized loans to third persons, then such account,
regardless of whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the category of
accounts which the law precisely seeks to protect for the purpose of boosting the economic development of the country.
Considering the use of the phrase “of whatever nature” RA 1405 applies not only to money which is deposited but also to
those which are invested. Thus, the protection afforded by RA 1405 extends to trust accounts. (Ejercito v. Sandiganbayan
(Special Division), 2006)
EXCEPTIONS (1) Upon written permission of the depositor; (2) In cases of impeachment; (3) Upon order of a competent
court in cases of: (a) Bribery; (b) Dereliction of duty of public officials; or (4) Where the money deposited or invested is the
subject matter of the litigation. (Sec. 2)
By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands,
chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant.
(Mathay v. Consolidated Bank and Trust Company, 1974).
We note with approval the difference between the "subject of the action" from the "cause of action." We also find
petitioner's definition of the phrase "subject matter of the action" is consistent with the term "subject matter of the
litigation," as the latter is used in the Bank Deposits Secrecy Act.
damages it can recover from the latter. It does not seek recovery of the very money contained in the deposit. The subject
matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private respondent as a result of the
latter's alleged failure to inform the former of the discrepancy; but it is not the P999,000.00 deposited in the drawer's
account. By the terms of R.A. No. 1405, the "money deposited" itself should be the subject matter of the litigation. (Union
Bank v. Court of Appeals, 1999) The exception applies to cases of concealment of illegally acquired property in anti-graft
cases. The inquiry into illegally acquired property – or property NOT
"legitimately acquired" – extends to cases where such property is concealed by being held by or recorded in the name of
other persons. (Banco Filipino v. Purisima, 1988)
The exception even extends to cases of concealment of illegally acquired property not involving anti-graft cases as long as
money deposited was the subject matter of litigation. (Mellon Bank, N.A. v. Magsino, 1990)
OTHER EXCEPTIONS (1) Upon order of a competent court in cases of unexplained wealth under Sec. 8 of RA 3019 or
the AntiGraft and Corrupt Practices Act (PNB v. Gancayco, 1965; Banco Filipino v. Purisima, 1988; Marquez v. Desierto,
2001) (2) When inquiry is conducted under the authority of the Commissioner of Internal Revenue into the bank accounts of
the following: (a) A decedent in order to determine his gross estate (b) Any taxpayer who has filed an application for
compromise of his tax liability, which application shall include a written waiver of his privilege under RA 1405 or under
other general or special laws
Note: Information obtained from banks and financial institutions may be furnished to a foreign tax authority pursuant to an
existing convention or agreement. (Sec. 6(F), NIRC, as amended by RA 10021)
(3) Upon order of a competent court in cases under the Anti-Money Laundering Act of 2001 (RA 9160, hereinafter
“AMLA”), when there is probable cause that the deposits or investments involved are in any way related to an unlawful
activity or a money laundering offense, except that no court order required if: (a) Funds or property involved consists of
investments; or (b) Said investments are related to: (i) Kidnapping for ransom (ii) Unlawful activities under Comprehensive
Drugs Act of 2002 (RA 9165); (iii) Hijacking and other violations under RA 6235; and (iv) Destructive arson and murder,
including those perpetrated by terrorists against non-combatants and similar targets. (v) BSP inquiry or examination in the
course of its periodic or special examination of the bank (Sec. 11, AMLA).
Disclosure of certain information about bank deposits which have been dormant for at least 10 years, to the Treasurer of the
Philippine in a sworn statement,
a copy of which is posted in the bank premises. (Sec. 2, Unclaimed Balances Law [Act No. 3926, as amended]) (vi) The
PDIC and/or the BSP can inquire into or examine deposit accounts and all information related thereto in case there is a
finding of unsafe and unsound banking practice (Sec. 8, paragraph 8, R.A. 3591, as amended by R.A. 9576).
NOT CONSIDERED AS EXCEPTIONS (1) In 1981, PD 1792 added the following grounds when the bank can be
compelled to reveal the amount of a depositor: “made in the course of a special or general examination of a bank and is
specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank
fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such
fraud or irregularity,” or “made by an independent auditor hired by the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank.” However, Sec. 135
of RA 7653 or the New Central Bank Act expressly repealed PD 1792 thereby reverting RA 1405 to its version prior to the
promulgation of the Decree. Thus, Villanueva says that these two instances are excluded from the enumeration of exceptions
to the secrecy of bank deposits (VILLANUEVA, Commercial Law Review, opinion). Morales, however, notes that with the
enactment of the AMLA, exception (i) has been substantially resurrected (see items 4 and 6 of “Other exceptions” above).
While there is no similar development of exception (ii), the exclusion of independent auditors from the coverage of the
Secrecy of Bank Deposits Law finds basis in Opinion No. 243 (s. 1975) of then Secretary of Justice Pedro Tuason.
(MORALES, The Philippine General Banking Law, opinion) (2) It used to be believed that the RA 1405 did not apply to the
Ombudsman, on account of his authority under Sec. 15(8) of RA 6770 or the Ombudsman Act of 1989 to “examine and
have access to bank accounts and records.” However, the SC in Marquez v. Desierto (G.R. No.135882, June 27, 2001) and
Ombudsman v. Ibay (G.R. No. 137538, September 3, 2001) restricted the Ombudsman’s power as follows: “[B]before an
in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of
competent jurisdiction. The bank personnel and the account holder must be notified to be present during the inspection,
and such inspection may cover only the account identified in the pending case.” (Morales, The Philippine General Banking
Law)
“Further, it is interesting to note that the Secretary of Justice in his Opinion No. 13 (s. 1987) concluded that the Presidential
Commission on Good Government can compel banks to disclose or produce bank records without violating the bank secrecy
laws.” (Morales, The Philippine General Banking Law)
“Moreover, under Sec. 1(d) of RA 6382 (1990), which created the Davide Commission that conducted a fact finding
investigation of the failed coup d’ etat of December 1989, the commission had the power to ‘ask the Monetary board to
disclose information on and/or grant authority to examine bank deposits, trust finds, or banking transactions in the name of
and/or utilized by a person, natural or juridical, under investigation by the Commission, in any bank or banking institution in
the Philippines, when the Commission has reasonable ground to believe that said deposits, trust or investment funds, or
banking transactions have been used in support of furtherance of the objectives of the coup d’ etat.’” (Morales, The
Philippine General Banking Law)
Notwithstanding the exceptions enumerated by law, the prevailing policy on the matter is to preserve the absolute
confidentiality enjoyed by bank deposits.
Indeed, by force of statute, all bank deposits are absolutely confidential, and that nature is unaltered even by the legislated
exceptions referred to above. There is disfavor towards construing these exceptions in such a manner that would authorize
unlimited discretion on the part of the government or of any party seeking to enforce those exceptions and inquire into bank
deposits. If there are doubts in upholding the absolutely confidential nature of bank deposits against affirming the authority
to inquire into such accounts, then such doubts must be resolved in favor of the former. Such a stance would persist unless
Congress passes a law reversing the general state policy of preserving the absolutely confidential nature of Philippine bank
accounts. (Republic v. Eugenio, 2008)
It is conceded that while the fundamental law has not bothered with the triviality of specifically addressing privacy rights
relative to banking accounts, there, nevertheless, exists in our jurisdiction a legitimate expectation of privacy governing such
accounts. The source of this right of expectation is statutory, and it is found in R.A. No. 1405, otherwise known as the Bank
Secrecy Act of 1955. (BSB Group, Inc., v. Go, 2010)
Subsequent statutory enactments have expanded the list of exceptions to this policy yet the secrecy of bank deposits still lies
as the general rule, falling as it does within the legally recognized zones of privacy. There is, in fact, much disfavor to
construing these primary and supplemental exceptions in a manner that would authorize unbridled discretion, whether
governmental or otherwise, in utilizing these exceptions as authority for unwarranted inquiry into bank accounts. It is then
perceivable that the present legal order is obliged to conserve the absolutely confidential nature of bank deposits.
GARNISHMENT OF DEPOSITS General rule: The prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment (China Banking
Corporation v. Ortega, 1973; Philippine Commercial and Industrial Bank v. Court of Appeals, 1991)
“…the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its
being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if the existence of the
deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within
the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the
expedient of converting their assets into cash and depositing the same in a bank.” (China Banking Corporation v. Ortega,
1973)
Exception: Foreign Currency Deposits – The foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (Sec.
8, Foreign Currency Deposit Act)
CONFIDENTIALITY OF FOREIGN CURRENCY DEPOSITS General rule: Foreign currency deposits are
confidential.
Exceptions: (1) Upon written permission of the depositor (Sec. 8, Foreign Currency Deposit Act ; Intengan vs CA ; 2002)
(2) Upon order of a competent court in cases of violation of the Anti-Money Laundering Act of 2001 [as in the case of peso
deposits, supra] (3) During Bangko Sentral’s periodic or special examinations [as in the case of peso deposits, supra], and
(4) Disclosure of the Treasurer of the Philippines when the unclaimed balances law applies (Act 3936, as amended by PD
679) (5) BSP/PDIC inquiry if there is a finding of unsafe and unsound banking practice (as in the case of peso deposits,
supra) (6) In Salvacion vs. CB (1997), where a Filipino child was raped by a foreigner, the SC allowed, pro hac vice,
garnishment of foreign currency deposits stating: “If we rule that the questioned Section 113 of CB Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or
any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen
aggrieved by a foreign guest.”
PENALTIES FOR VIOLATION OF R.A. No. 1405 Imprisonment of not more than 5 years or a fine of not more than
P20,000 or both, in the discretion of the court. (Sec. 5)
*Philippine Deposit Insurance Corporation Act (R.A. No. 3591, as amended)
BASIC POLICY Promote and safeguard the interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits (Sec. 1, as amended)
CONCEPT OF INSURED DEPOSITS Insured deposit means the amount due to any bona fide depositor for legitimate
deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of closure, but not to
exceed 500,000 or its equivalent in foreign currency (Sec. 4(g), as amended)
LIABILITY OF DEPOSITORS
DEPOSIT LIABILITIES REQUIRED TO BE INSURED WITH PDIC The deposit liabilities of any bank or banking
institution, which is engaged in the business of receiving deposits on the effective date of this Act, or which thereafter may
engage in the business of receiving deposits, shall be
insured with the PDIC (Sec. 5)
Notes: (1) ’Bank’ and ‘Banking Institution’ shall include banks, commercial banks, savings bank, mortgage banks, rural
banks, development banks, cooperative banks, stock savings and loan associations and branches and agencies in the
Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines (Sec. 4(b),
as amended) (2) ‘Deposit’ means the unpaid balance of money or its equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or
issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other
obligations of a bank, which, consistent with banking usage and practices, the Board of Directors shall determine and
prescribe by regulations to be deposit liabilities of the bank (Sec. 4(f), as amended). (3) What is not considered a deposit?
Any obligation of a bank which is payable at the office of the bank located outside of the Philippines (Sec. 4(f), as
amended).
COMMENCEMENT OF LIABILITY Liability commences upon the approval of application.
DEPOSIT ACCOUNT NOT ENTITLED TO PAYMENT
The PDIC shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented,
recorded or booked as deposit by the bank: (1) Investment products such as bonds and securities, trust accounts, and other
similar instruments; (2) Unfunded, fictitious or fraudulent deposit accounts or transactions; (3) Deposits accounts or
transactions constituting, and/or emanating from, unsafe and unsound banking practice/s, as determined by the PDIC, in
consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the PDIC
against such deposit accounts or transactions; and (4) Deposits that are determined to be the proceeds of an unlawful activity
as defined under Republic Act 9160, as amended.
Notes: ‘Unlawful Activity’ refers to any act or omission or series or combination thereof involving or having direct relation
to following: (1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as
amended; (2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of Republic Act No. 9165, otherwise known as the
Comprehensive Dangerous Act of 2002; (3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as
amended, otherwise known as the Anti-Graft and Corrupt Practices Act; (4) Plunder under Republic Act No. 7080, as
amended; (5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as
amended; (6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; (7) Piracy on the high
seas under the Revised Penal Code, as amended and Presidential under the Revised Penal Code, as amended and Presidential
Decree No. 532; (8) Qualified theft under Article 310 of the Revised penal Code, as amended; (9) Swindling under Article
315 of the Revised Penal Code, as amended; (10) Smuggling under Republic Act Nos. 455 and 1937; (11) Violations under
Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; (12) Hijacking and other violations
under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended,
including those perpetrated by terrorists against non-combatant persons and similar targets; (13) Fraudulent practices and
other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; (14) Felonies or
offenses of a similar nature that are punishable under the penal laws of other countries (Sec. 3(i) of R.A. 9160, as amended).
EXTENT OF LIABILITY The liability of the Corporation is to the extent of the insured deposit (Sec.14).
Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section 30 of R.A. 7653, payment of
the insured deposits on such closed bank shall be made by the PDIC as soon as possible either (1) by cash or (2) by making
available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of such
depositor (Sec. 14).
Note: Insured deposit shall not exceed 500,000 (Sec. 4(g), as amended).
DETERMINATION OF INSURED DEPOSIT The determination of insured deposits shall commence upon the PDIC’s
actual takeover of the closed bank (Sec. 16(a), as amended).
The amount of the insured deposit shall be determined according to such regulations as the Board of Directors may
prescribe, In determining such amount due to any depositor, there shall be added together all deposits in the bank maintained
in the same right and capacity for his benefits either in his own name or in the name of others (Sec. 4(g), as amended).
Note: The PDIC may require proof of claims to be filed before paying the insured deposits, and that in any case where the
PDIC is not satisfied as to the viability of a claim for an insured deposit, it may require final determination of a court of
competent jurisdiction before paying such claim (Sec. 14)
Notice and publication requirement (1)The PDIC shall give notice to the depositors of the closed bank of the insured
deposits due them by whatever means deemed appropriate by the Board of Directors. (2)The PDIC shall publish the notice
once a week for at least three (3) consecutive weeks in a newspaper of general circulation or, when appropriate, in a
newspaper circulated in the community or communities where the closed bank or its branches are located (Sec. 16(a), as
amended).
CALCULATION OF LIABILITY
Per depositor, per capacity rule In determining the amount due to any depositor, there shall be added together all deposits in
the bank maintained in the same right and capacity for his benefits either in his own name or in the name of others (Sec.
4(g), as amended)
Joint accounts A joint account regardless of whether the conjunction 'and,' 'or,' 'and/or' is used, shall be insured separately
from any individually-owned deposit account (Sec. 4(g), as amended).
If the account is held by two or more natural persons or two or more juridical persons.
General rule: The maximum insured deposit shall be divided into as many equal shares as there are individuals or juridical
persons (Sec. 4(g), as amended).
Exception: Unless a different sharing is stipulated in the document of deposit (Sec. 4(g), as amended).
If the account is held by a juridical person or entity jointly with one or more natural persons The maximum insured deposits
shall be presumed to belong entirely to such juridical person or entity (Sec. 4(g), as amended).
Note: The aggregate of the interest of each co-owner over several joint accounts, whether owned by the same or different
combinations of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of
P500,000.00 (Sec. 4(g), as amended).
Mode of payment
Payment of the insured deposits on such closed bank shall be made by the PDIC as soon as possible either: (1) by cash; (2)
by making available to each depositor a transferred deposit in another insured bank in an amount equal to insured deposit of
such depositor (Sec. 14)
Note: ‘Transfer Deposit’ means a deposit in an insured bank made available to a depositor by the PDIC as payment of
insured deposit of such depositor in a closed bank and assumed by another insured bank (Sec. 4(h), as amended).
Effect of Payment of Insured Deposit
Discharge from liability to the depositor The PDIC shall be discharged from liability upon payment under Sec. 14, i.e.: (1)
Payment of an insured deposit to any person by the PDIC; (2) Payment of a transferred deposit to any person by the new
bank or by an insured bank in which a transferred deposit has been made available (Sec.16(b), as amended)
Subrogation to all the rights of the depositor The PDIC, upon payment of any depositor as provided for in Section 14 shall
be subrogated to all rights of the depositor against the closed bank to the extent of such payment. Such subrogation shall
include the right on the part of the PDIC to receive the same dividends and payments from the proceeds of the assets of such
closed bank and recoveries on account of stockholders liability as would have been payable to the depositor on a claim for
the insured deposits.
BUT the depositor shall retain his claim for any uninsured portion of his deposit (Sec. 15).
Payment of insured deposits as preferred credit under Art. 2244 of the Civil Code All payments by the PDIC of insured
deposits in closed banks partake of the nature of public funds, and as such, must be considered a preferred credit similar to
taxes due to the National Government in the order of preference under Article 2244 of the New Civil Code (Sec. 15)
Failure to settle claim of insured depositor General rule: Failure to settle the claim within six (6) months from the date of
filing of claim for insured deposit shall, upon conviction, subject the directors, officers or employees of the PDIC
responsible for the delay to imprisonment from six (6) months to one (1) year.
Exceptions: (1)Such failure was not due to grave abuse of discretion, gross negligence, bad faith, or malice of the directors,
officers or employees; or (2)The validity of the claim requires the resolution of issues of facts and or law by another office,
body or agency including the case mentioned in the first proviso or by PDIC together with such other office, body or
agency.
Failure of depositor to claim insured deposits All rights of the depositor against the PDIC with respect to the insured deposit
shall be barred: (1)If he fails to claim the insured deposits within two (2) years from actual takeover of the closed bank by
the receiver; or (2)If he does not enforce his claim filed with the corporation within two (2) years after the two-year period
to file a claim.
BUT all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC
may have become subrogated, shall thereupon revert to the depositor.
Thereafter, the PDIC shall be discharged from any liability on the insured deposit (Sec. 16(e), as amended).
*UP Review Materials
A Bangko Sentral ng Pilipinas briefer on the Anti-Money Laundering Act of 2001
1. What is money laundering?
Money laundering is an act or series or combination of acts whereby proceeds of an unlawful activity, whether in cash,
property or other assets, are converted, concealed or disguised to make them appear to have originated from legitimate
sources. One way of laundering money is through the financial system.
Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act of 2001 (AMLA), as amended, defined money
laundering as a scheme whereby proceeds of an unlawful activity are transacted or attempted to be transacted, thereby
making them appear to have originated from legitimate sources.
2. What has the Philippine government done to curb money laundering?
The government enacted Republic Act (R.A.) No. 9160 (The Anti-Money Laundering Act of 2001), which took effect on 17
October 2001. Certain provisions of AMLA were amended by R.A. No. 9194 (An Act Amending R.A. 9160) effective 23
March 2003. It has also issued the Revised Implementing Rules and Regulations (RIRR) implementing R.A. No. 9160, as
amended.
3. What are considered unlawful activities under the AMLA, as amended?
There are 14 unlawful activities or predicate crimes covered by the AMLA. These are, in the order enumerated in the law:
Kidnapping for ransom Drug offenses Graft and corrupt practices
Plunder Robbery and extortion Jueteng and masiao Piracy on the high seas Qualified theft Swindling Smuggling Electronic
Commerce crimes Hijacking, destructive arson and murder, including those perpetrated against non-combatant persons
(terrorist acts) Securities fraud
Felonies or offenses of a similar nature punishable under penal laws of other countries
4. How is money laundered through the financial system?
Placement – involves initial placement or introduction of the illegal funds into the financial system. Financial institutions are
usually used at this point.
Layering – involves a series of financial transactions during which the dirty money is passed through a series of procedures,
putting layer upon layer of persons and financial activities into the laundering process. Ex. wire transfers, use of shell
corporations, etc.
Integration – the money is once again made available to the criminal with the occupational and geographic origin obscured
or concealed. The laundered funds are now integrated back into the legitimate economy through the purchase of properties,
businesses and other investments.
5. Why is Money Laundering a problem?
Money laundering allows criminals to preserve and enjoy the proceeds of their crimes, thus providing them with the
incentives and the means to continue their illegal activities. At the same time, it provides them the opportunity to appear in
public like legitimate entrepreneurs. Organized crime, through money laundering, is known to have the capacity to
destabilize governments and undermine their financial systems. It is thus a threat to national security.
6. What are the salient features of the law?
It criminalizes money laundering, meaning it makes money laundering a crime, and provides penalties for its commission,
including hefty fines and imprisonment. It states clearly the determination of the government to prevent the Philippines from
becoming a haven for money laundering, while ensuring to preserve the integrity and confidentiality of good bank accounts.
It creates an Anti-Money Laundering Council (AMLC) that is tasked to oversee the implementation of the law and to act as
a financial intelligence unit to receive and analyze covered and suspicious transaction reports. It establishes the rules and the
administration process for the prevention, detection and prosecution of money laundering activities.
It relaxes the bank deposit secrecy laws authorizing the AMLC and the Bangko Sentral ng Pilipinas access to deposit and
investment accounts in specific circumstances.
It requires covered institutions to report covered and suspicious transactions and to cooperate with the government in
prosecuting offenders. It also requires them to know their customers and to safely keep all records of their transactions. It
carries provisions to protect innocent parties by providing penalties for causing the disclosure to the public of confidential
information contained in the covered and suspicious transactions.
It establishes procedures for international cooperation and assistance in the apprehension and prosecution of money
laundering suspects.
7. What is the Anti-Money Laundering Council (AMLC)? What are its powers?
The AMLC is the Philippines’ financial intelligence unit, which is tasked to implement the AMLA. It is composed of the
Governor of the Bangko Sentral ng Pilipinas (BSP) as Chairman & the Commissioner of the Insurance Commission (IC) and
the Chairman of the Securities and Exchange Commission (SEC) as members. The AMLC is authorized to:
Require and receive covered or suspicious transaction reports from covered institutions.
Issue orders to determine the true identity of the owner of any monetary instrument or property that is the subject of a
covered or suspicious transaction report, and to request the assistance of a foreign country if the Council believes it is
necessary.
Institute civil forfeiture and all other remedial proceedings through the Office of the Solicitor General.
Cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering
offenses.
Investigate suspicious transactions, covered transactions deemed suspicious, money laundering activities and other
violations of the AMLA.
Secure the order of the Court of Appeals to freeze any monetary instrument or property alleged to be the proceeds of
unlawful activity.
Implement such measures as may be necessary and justified to counteract money laundering.
Receive and take action on any request from foreign countries for assistance in their own anti-money laundering operations.
Develop educational programs to make the public aware of the pernicious effects of money laundering and how they can
participate in bringing the offenders to the fold of the law.
Enlist the assistance of any branch of government for the prevention, detection and investigation of money laundering
offenses and the prosecution of offenders. In this connection, the AMLC can require intelligence agencies of the government
to divulge any information that will facilitate the work of the Council in going after money launderers.
Impose administrative sanctions on those who violate the law, and the rules, regulations, orders and resolutions issued in
connection with the enforcement of the law.
8. What are the covered institutions?
Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other
institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP)
Insurance companies, holding companies and all other institutions supervised or regulated by the Insurance Commission
(IC)
Securities dealers, brokers, pre-need companies, foreign exchange corporations, investment houses, trading advisers, as well
as other entities supervised or regulated by the Securities and Exchange Commission (SEC)
9. What are the Customer Identification Requirements – KYC (Know Your Customer Rule)?
Covered institutions shall:
Establish and record the true identity of their clients based on official documents. In case of individual clients, maintain a
system of verifying the true identity of their clients.
In case of corporate clients, require a system verifying their legal existence and organizational structure, as well as the
authority and identification of all persons purporting to act in their behalf.
Establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for
verifying and recording the true and full identify of their customers.
10. What are the Record-Keeping Requirements?
All covered institutions shall:
Maintain and safely store all records of all their transactions for five years from the transaction dates;
Ensure that said records/files contain the full and true identity of the owners or holders of the accounts involved in the
covered transactions and all other identification documents;
Undertake the necessary adequate measures to ensure the confidentiality of such files;
Prepare and maintain documentation, in accordance with client identification requirements, on their customer accounts,
relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the
AMLC and/or the courts to establish an audit trail for money laundering;
Maintain and safely store all records of existing and new accounts and of new transactions for 5 years from October 17,
2001 or from the dates of the accounts or transactions, whichever is later;
Anent closed accounts, preserve and safely store the records on customer identification, account files and business
correspondence for at least 5 years from the dates they were closed;
If a money laundering case based on any record kept by the covered institution has been filed in court, retain said files until
it is confirmed that the case has been finally resolved or terminated by the court; and
Retain records as originals in such forms as are admissible in court
11. What are covered transactions?
Transaction in cash or other equivalent monetary instruments involving a total amount in excess of P500,000.00 within one
business day.
12. What are suspicious transactions?
Transactions, regardless of the amount involved, where the following circumstances exist:
a. there is no underlying legal or trade obligation, purpose or economic justification;
b. the client is not properly identified;
c. the amount involved is not commensurate with the business or financial capacity of the client;
d. taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to
avoid being the subject of reporting requirements under the Act;
e. any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s
past transactions with the covered institution;
f. the transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has
been committed; or
g. any transaction that is similar or analogous to the foregoing.
13. What are the reporting requirements?
Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five working days
from occurrence thereof, unless the Supervision Authority (the Bangko Sentral ng Pilipinas, the Securities and Exchange
Commission, or the Insurance Commission) prescribes a longer period not exceeding ten working days.
Should a transaction be determined to be both a covered transaction and a suspicious transaction, it shall be reported as
suspicious transaction.
14. How is reporting done?
The reports on covered and/or suspicious transactions shall be accomplished in the prescribed formats and submitted within
five business days from occurrence of the transactions in a secured manner to the AMLC in electronic form, either via
diskettes, leased lines, or through internet facilities. The corresponding hard copy for suspicious transactions shall be sent to
AMLC at the 5th Floor EDPC Building, Bangko Sentral ng Pilipinas Complex, Manila, Philippines. All pawnshops should
coordinate with the AMLC thru tel. nos. 523-4421, 521-5662 or 302-3979 on reporting requirements, procedures and
deadlines.
15. Are there sanctions for failure to report covered or suspicious transactions and non-compliance with R.A. 9160, as
amended?
Sanctions/penalties shall be imposed on pawnshops that will fail to comply with the provisions of R.A. 9160, as amended.
16. What are the sanctions for failure to report covered or suspicious transactions?
Any person, required to report covered and suspicious transactions failed to do so will be subjected to penalty of 6 months to
4 years imprisonment or a fine of not less than P100,000.00 but not more than P500,000.00, or both.
17. Are there confidentiality restrictions on the reporting of covered transaction and/or suspicious transaction?
When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers and
employees, are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity,
the media, the fact that a covered or suspicious transaction report was made, the contents thereof, or any other information in
relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail,
or other similar devices. In case of violation thereof, the concerned officer, and employee, of the covered institution, or
media shall be held criminally liable.
18. What are the other offenses punishable under the AMLA, as amended?
a. Failure to keep records is committed by any responsible official or employee of a covered institution who fails to maintain
and safely store all records of transactions for 5 years from the dates the transactions were made or when the accounts were
closed. The penalty is 6 months to 1 year imprisonment or a fine of not less than P100,000.00 but not more than
P500,000.00, or both.
b. Malicious reporting is committed by any person who, with malice or in bad faith, reports or files completely unwarranted
or false information regarding a money laundering transaction against any person. The penalty is 6 months to 4 years
imprisonment and a fine of not less than P100,000.00 but not more than P500,000.00. The offender is not entitled to the
benefits of the Probation Law.
c. Breach of Confidentiality. For this offense, the penalty is 3 to 8 years imprisonment and a fine of not less than
P500,000.00 but not more than P1 million. In case the prohibited information is reported by media, the
responsible reporter, writer, president, publisher, manager, and editor-in-chief are held criminally liable.
d. Administrative offenses. The AMLC, after due investigation, can impose fines from P100,000.00 to P500,000.00 on
officers and employees of covered institutions or any person who violates the provisions of the AMLA, as amended, the
Implementing Rules and Regulations, and orders and resolutions issued pursuant thereto.
First published in bsp.gov.ph on March 14, 2006.
Banking Law of 2000* (R.A. No. 8791)
POLICY
To 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. (Sec. 2)
DEFINITION AND CLASSIFICATION OF BANKS Banks shall refer to entities engaged in the lending of funds
obtained in the form of deposits. (Sec. 3.1, GBL)
CORE BANKING FUNCTIONS (1) Taking of deposits from the public (2) Lending out these funds (Morales, The
Philippine GBL Annotation).
CLASSIFICATION OF BANKS (1) Universal Banks (UB) – These used to be called expanded commercial banks and their
operations are primarily governed by the GBL. They can exercise the powers of an investment house and invest in non-
allied enterprises. They have the highest capitalization requirement. (2) Commercial Banks (KB) – These are ordinary or
regular commercial banks, as distinguished from a universal bank. They have a lower capitalization requirement than a UB
and cannot exercise the powers of an investment house and invest in non-allied enterprises. (3) Thrift Banks – These are: (a)
Savings and mortgage banks; (b) Stock savings and loan associations; and (c) Private development banks (Sec. 3.2)
Note: The term ‘thrift banks’ also refers to any banking corporation organized for the following purposes:
(1) Accumulating the savings of depositors and investing them, together with capital loans secured by bonds, mortgages in
real estate and insured improvements thereon, chattel mortgage, bonds and other forms of security or in loans for personal or
household finance, whether secured or unsecured, or in financing for homebuilding and home development; in readily
marketable and
debt securities; in commercial papers and accounts receivables, drafts, bills of exchange, acceptances or notes arising out of
commercial transactions; and in such other investments and loans which the Monetary Board may determine as necessary in
the furtherance of national economic objectives; (2) Providing short-term working capital, medium- and long-term
financing, to businesses engaged in agriculture, services, industry and housing; and (3) Providing diversified financial and
allied services for its chosen market and constituencies especially for small and medium enterprises and individuals.
(Sec.3(a), R.A. 7906)
(4) Cooperative Banks – These are banks organized primarily to make financial and credit services available to cooperatives
and their members. It may perform any or all of the services offered by a rural bank, including the operation of an FCDU
subject to certain conditions. (Morales, The Philippine GBL Annotation)
Note: A cooperative bank is one organized for the primary purpose of providing a wide range of financial services to
cooperatives and their members. (Art. 23(i), R.A. 9520)
(5) Islamic Banks – These are banks the business dealings and activities of which are subject to the basic principles and
rulings of Islamic Shari’a. The Al Amanah Islamic Investment Bank of the Philippines, which was created by RA 6848, is
the only Islamic bank in the country at this time.
Note: Islamic Bank refers to the Al-Amanah Islamic Investment Bank of the Philippines, created under R.A. 6848. (See Sec.
44(1) and Sec. 2, R.A. 6848)
(6) Rural Banks – Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms
and which are primarily governed by the Rural Banks Act of 1992 (RA 7353) (7) Other Classifications of Banks – As
determined by the Monetary Board, i.e., Philippine Veterans Bank (RA 3518), Landbank of the Philippines (RA 3844),
Development Bank of the Philippines (RA 85)
DISTINCTIONS BETWEEN BANKS, QUASI-BANKS AND TRUST ENTITIES
AS OPPOSED TO QUASI-BANKS Quasi-banks (QB) refer to entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance of depositsubstitute instruments, for purposes of relending
the funds so borrowed or using them to purchase receivables and other obligations. (last paragraph of Sec. 4)
The term “deposit substitutes” is defined as funds obtained from the public, other than deposits, through the issuance,
endorsement, or acceptance of depositsubstitute instruments for the borrower's own account, for the purpose of relending or
purchasing of receivables and other obligations. It includes banker’s acceptances, promissory notes, participations,
certificates of assignment and similar instruments with recourse, and repurchase agreements. (Sec. 95, New Central Bank
Act, hereinafter “NCBA”)
AS OPPOSED TO TRUST ENTITIES A Trust Entity is a stock corporation or a person duly authorized by the Monetary
Board to engage in trust business. (Sec. 79, GBL)
A Trust Business is any activity resulting from trusteeship involving the ppointment of a trustee by a trustor for the
administration, holding, and management of funds and/or properties of the trustor by the trustee for the use, benefit or
advantage of the trustor or of beneficiaries.
BANK POWERS AND LIABILITIES
Apart from its general powers as a stock corporation, it can: (1) Exercise all the powers specified in Sec. 29 (2) Provide the
other banking services in Sec 53 (3) Purchase, hold, and convey real estate under Secs. 51 and 52 (Morales, The Philippine
GBL Annotation)
CORPORATE POWERS General powers incident to corporations (1) To sue and be sued in its corporate name; (2)
Succession by its corporate name for the period stated in the AOI and the certificate of incorporation (3) To adopt and use a
corporate seal (4) To amend its AOI (5) To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal them (6) To issue or sell stocks to subscribers and to sell treasury stocks. (7) To purchase, receive, take or grant,
hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by law and the Constitution (8) To enter into merger or consolidation (9) To
make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: provided that no corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity (10) To establish pension, retirement, and other plans for the benefit
of its directors, trustees, officers and employees (11) To exercise such other powers as may be essential or necessary to carry
out its purposes as stated in the AOI. (Sec. 36, Corporation Code)
BANKING AND INCIDENTAL POWERS
Commercial Bank Universal Bank Powers Powers Corporate powers Section 29 GBL Corporate powers Section 29 GBL
Banking and Incidental Powers Section 29 GBL Banking and Incidental Powers Sec 23 GBL Power to invest in allied
enterprise ( financial or non-financial Sec 30 GBL Power to invest in allied enterprise ( financial or non-financial Sec 24
GBL Power to invest in Non-allied enterprises – (Sec. 24, GBL)
Powers of an investment house (Sec. 23, GBL
All such powers as may be necessary to carry on the business of commercial banking (Sec. 29)
(1) Accepting drafts – By accepting a draft, a bank creates a “banker’s acceptance”, which is a negotiable time draft or bill
of exchange drawn on and accepted by a commercial bank. This is different from “trade acceptance”, which is accepted by
the buyer. (Morales, The Philippine GBL Annotation) (2) Issuing letters of credit (3) Discounting and negotiating
promissory notes, drafts, bills of exchange, and other evidence of debt (4) Accepting or creating demand deposits
Deposit function General rule: Only a Universal Bank (UB) Commercial Bank (KB) can accept or create demand deposits.
Exception: Banks other than a UB or KB with prior approval of, and subject to such conditions and rules as may be
prescribed by the Monetary Board (Sec. 33, GBL)
Presumption of ownership of deposits It is presumed that money deposited in a bank account belongs to the person in whose
name the deposit account is opened.
A depositor is presumed to be the owner of funds standing in his name in a bank deposit; and where a bank is not chargeable
with notice that the money deposited in such account is the property of some other person than the depositor, the bank is
justified in paying out the money to the depositor or upon his order, and cannot be liable to any other person as the true
owner. (Fultron Iron Works Co. v. China Banking Corporation, 1930)
A bank is under no duty or obligation to make an application or set-off against the deposit accounts of a borrower. To apply
the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option (but not the obligation) to
exercise. (BPI v. CA, 1994)
The rent of safety deposit boxes is a special kind of deposit and cannot be characterized as an ordinary contract of lease
because the full and absolute possession and control of the deposit box is not given to the
renters. The prevailing rule is that the relation between the bank renting out and the renter is that of bailor and bailee the
bailment being for hire and mutual benefit. (CA Agro-industrial Dev. Corp. v. CA, 1983)
(5) Receiving other types of deposits and deposit substitutes
Types of Deposits
(a) Time Deposit – Interest rate stipulated depending on the number of days. During this period, the money deposited may
not be withdrawn without incurring penalty. High interest rates. (b) Savings Deposit – Bank pays an interest rate, but not as
high as time deposits. (c) Demand Deposits/Current Accounts - No interest is paid by the bank because the depositor can
take out his funds any time. It is called demand deposit because the depositor can withdraw the money he deposited on the
very same day when he deposited it or at any time thereafter. (Villanueva, Commercial Law Review, opinion)
(6) Buying and selling foreign exchange and gold or silver bullion (7) Acquiring marketable bonds and other debt securities
(8) Extending credit
Loan Function
“Know your customer” rule Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is
capable of fulfilling its commitments to the bank. (Sec. 40)
The bank may demand from its credit applicants a statement of their assets and liabilities and of their income and
expenditure and such information as may be prescribed by law or by rules and regulations of MB to enable the bank to
properly evaluate the credit application which includes the corresponding financial statements submitted for taxation
purposes to the BIR. (Sec. 40)
Credit enhancement
If the borrower is less than creditworthy, third persons may enhance his credit by providing guarantees and other security
devices in favor of the bank. (Morales, The Philippine General Banking Law, opinion)
A bank cannot lend pesos to a nonresident (BSP Circular No. 22; Sec. 22, Manual of Regulations on Foreign Exchange
Transactions). (Morales, The Philippine GBL Annotation)
If there is material misrepresentation, the bank may: (a) Terminate any loan or other credit accommodation granted on the
basis of said statements; and (b) Shall have the right to demand immediate repayment or liquidation of the obligation (Sec.
40) (c) Limit on loans, credit accommodations and guarantees Real estate General rule: Shall not exceed
75% of the appraised value of the respective real estate security, plus 60% of the appraised value of the insured
improvements, and such loans may be made to the owner of the real estate or to his assignees Exception: The Monetary
Board otherwise prescribes (Sec. 37) Security of chattels and intangible properties (patents, trademarks, trade names, and
copyrights) General rule: Shall not exceed 75% of the appraised value of the security, and such loans and other credit
accommodations may be made to the titleholder of the chattels and intangible properties or his assignees
Exception: The Monetary Board
otherwise prescribes (Sec. 38)
Grant of loans (a) Only in amounts and for the periods of time essential for the effective completion of the operations to be
financed; and (b) Consistent with safe and sound banking practices. (Sec. 39)
Purpose of loans Purpose must be stated in the application and in the contract between the bank and the borrower. (Sec. 39)
Effect of usage of loan proceeds for purposes other than those agreed upon with the bank
The bank shall have the right to terminate the loan or other credit accommodation and demand immediate repayment of the
obligation. (Sec. 39)
Amortization on loans and other credit accommodations (a) In case of loans and other credit accommodations with
maturities of more than 5 years, provisions must be made for periodic amortization payments, but such payments must be
made at least annually: Provided, however, That when the borrowed funds are to be used for purposes which do not initially
produce revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization
payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the initial
amortization date be later than 5 years from the date on which the loan or other credit accommodation is granted. (b) In case
of loans and other credit accommodations to microfinance sectors, the schedule of loan amortization shall take into
consideration the projected
cash flow of the borrower and adopt this into the terms and conditions formulated by banks. (Sec. 44)
All are subject to such rules as the Monetary Board may promulgate. (Sec. 29, GBL)
DILIGENCE REQUIRED OF BANKS Banks should observe diligence that is higher than that expected from a good father
of a family.
Notwithstanding the degree of diligence required, a bank is not expected to be infallible (Prudential Bank vs. CA, 2000).
FIDUCIARY NATURE OF BANKS
(1) Failure on the part of the bank to satisfy the degree of diligence required of banks may warrant the award of damages. (2)
Under Sec. 2, the degree of diligence is “high standards of integrity and performance” and no longer “highest degree of
diligence” as was decided prior to the effectivity of the General Banking Law of 2000 but also (mistakenly) even thereafter.
In numerous cases, the Supreme Court has held that the highest degree of diligence and care is expected from banks (Simex
International v. CA [1990]; Philippine Bank of Commerce v. CA [1997]; Westmont Bank v. Ong [2002]; Solidbank v.
Spouses Tan [2003]; Samsung Construction v. FEBTC [2004]; Citibank, N.A. v. Spouses Cabamongan [2006]; Philippine
Savings Bank v. Chowking Food Corporation [2008]; Bank of America NT &SA v. Philippine Racing Club [2009].
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 every case, 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 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 failure to duly credit him his deposits as soon as they are made, can cause the depositor not a
little embarrassment if not
financial loss and perhaps even civil and criminal litigation (Simex International v. CA, 1990). Banks are expected to
exercise the highest degree of diligence in the selection and supervision of their employees (PCI Bank v. CA, 2001).
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the
trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more
than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected (Phil. Savings
Bank v. Chowking Food Corporation, 2008).
The banking business is so impressed with public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost
diligence (Bank of America NT&SA v. Phil. Racing Club, 2009).
Under the doctrine of last clear chance, a bank may be held liable for loss despite the negligence of a depositor. Examples of
these cases are the following: (1) For disbursing funds to a dishonest employee despite the employee’s failure to strictly
abide with the bank’s internal procedure. (PBC v. CA, 1997) (2) Allowing the execution of a mortgage on parcels of land as
security for a loan not owned by the prospective borrower. (Canlas v. Court of Appeals, 2000) (3) Crediting the deposit in
favor of another depositor, a check where the signature of the drawer was forged. (Westmont Bank v. Ong, 2002) (4)
Encashing pre-signed checks of the depositor which were stolen by its employee. (Bank of America NT & SA v. Philippine
Racing Club, 2009)
A bank is liable to a depositor when it honored and paid on a forged check against the depositor’s account even if the bank
followed its internal procedure in preventing a faulty discharge. (Samsung Construction v. FEBTC, 2004)
In Gempesaw v. Court of Appeals (1993), a bank was held liable for damages for failing to follow its internal procedures in
paying on a forged check despite the gross negligence on the part of the depositor.
STIPULATION ON INTERESTS The Monetary Board may prescribe the maturities, as well as related terms and conditions
for various types of bank loans and other credit accommodations.
Any change by the Board in the maximum maturities shall apply only to loans and other credit accommodations made after
the date of such action.
The Monetary Board shall regulate the interest imposed on micro finance borrowers by lending investors and similar lenders
such as, but not limited to, the unconscionable rates of interest collected on salary loans and similar credit accommodations
(Sec. 43, GBL)
GRANT OF LOANS AND SECURITY REQUIREMENTS (PRUDENTIAL MEASURES)
RATIO OF NET WORTH TO TOTAL RISK ASSETS
Risk-based capital ratio The minimum ratio which the net worth of a bank must bear to its total risk assets which may
include contingent accounts [i.e. net worth: total risk assets] (Sec. 34, GBL) General rule: A bank must conform to the risk-
based capital ratio prescribed by the Monetary Board (MB).
Exceptions: The MB may alter or suspend compliance with such ratio whenever necessary for a maximum period of 1 year.
(1) In case of a bank merger or consolidation; OR (2) When a bank is under rehabilitation under a program approved by the
BSP; (Sec. 34, GBL)
Purpose A bank must not be allowed to expand the volume of its loans and investments in a manner that is disproportionate
to its net worth. (MORALES, Phil. Gen. Banking Law)
Effect of non-compliance
(1) The MB may limit or prohibit the distribution of net profits by such bank and may require that part or all of the net
profits be used to increase the capital accounts of the bank until the minimum requirement has been met.
(2) The MB may restrict or prohibit the acquisition of major assets and the making of new investments by the bank, with the
exception of purchases of readily marketable evidences of indebtedness of the RP and the BSP and any other evidences of
indebtedness or obligations the servicing and repayment of which are fully guaranteed by the RP, until the minimum
required capital ratio has been restored. (Sec. 34, GBL)
SINGLE BORROWER’S LIMIT General rule: The total loans, credit accommodations and guarantees that may be extended
by a bank to any person, partnership, association, or corporation or other entity shall at no time exceed 20% of the net worth
of such bank. (Sec. 35.1,GBL)
Exceptions: (1) The Monetary Board otherwise prescribes for reasons of national interest. (Sec. 35.1, GBL) Now, the single
borrower’s limit is 25% of the net worth of the lending bank. (2) Wholesale lending activities of government banks to
participating institutions for relending to end-user borrowers: separate limit of 35% net worth. (BSP Circular No. 425 dated
March 25, 2004)
Increase of limit The Monetary Board may increase the limit prescribed by an additional 10% of the net worth, when: (1)
The additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts
or other similar documents transferring or securing title; (2) Covering readily marketable, non-perishable goods; and
(3) Which must be fully covered by insurance (Sec. 35.2, GBL)
Purpose
To prevent the bank from making excessive loans and other credit accommodations to a single borrower or corporate group,
including guarantees for the account of such borrower or group. The bank is prohibited from… placing many eggs in the
basket of one client. [It] is a damage control mechanism [and] a device for risk amelioration. (MORALES, The Philippine
General Banking Law, Opinion) Basis for determining compliance The basis for determining compliance with the SBL is
the total credit commitment of the bank to the borrower. (Sec. 35.1, GBL)
Inclusions in the ceiling (1) The direct liability of the maker or acceptor of paper discounted with or sold to such bank and
the liability of a general indorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts
paper with or sells papers to such bank; (2) In the case of an individual who owns or controls a majority interest in a
corporation, partnership, association or any other entity, the liabilities of said entities to such bank; (3) In the case of a
corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and
(4) In the case of a partnership, association or other entity, the liabilities of the members thereof to such bank. (Sec. 35.3,
GBL)
Guidelines on the wholesale lending of government banks
(1) It shall apply only to loans granted by participating financial institutions (PFIs) on a wholesale basis for on lending to
end-user borrowers; (2) It shall apply only to loan programs funded by multilateral, international, or local development
agencies, organizations, or institutions, especially designed for wholesale lending activities of government banks; (3) The
end-user borrowers of the PFIs shall be subject to the 25% SBL, not the increased ceiling of 35%; and (4) Government
banks shall observe appropriate criteria for accrediting PFIs and for the grant/renewal of credit lines to accredited PFIs.
(BSP Circular No. 425 dated March 25, 2004)
Exclusions from the ceiling Loans and other credit accommodations (1) Secured by obligations of the BSP or of the
Philippine Government;
(2) Fully guaranteed by the government as to the payment of principal and interest; (3) Covered by assignment of deposits
maintained in the lending bank and held in the Philippines; (4) Under letters of credits to the extent covered by margin
deposits; and (5) Specified by the Monetary Board as non-risk items (Sec. 35.5, GBL)
Combination of liabilities
The MB may prescribe the combination of the liabilities of subsidiary corporations or members of the partnership,
association, entity or such individual under certain circumstances, including but not limited to any of the following
situations: (1) The parent corporation, partnership, association, entity or individual guarantees the repayment of the
liabilities; (2) The liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or (3) The subsidiaries though separate entities operate merely as
departments or divisions of a single entity. (Sec. 35.4, GBL)
Loans and other credit accommodations, deposits maintained with, and usual guarantees by a bank to any other bank or non-
bank entity, whether locally or abroad, shall be subject to the prescribed limits. (Sec. 35.6, GBL)
RESTRICTIONS ON INSIDER LENDING: BANK EXPOSURE TO DIRECTORS, OFFICERS, STOCKHOLDERS AND
THEIR RELATED INTERESTS (DOSRI) General rule: No director or officer of any bank: (1) Shall, directly or indirectly,
for himself or as the representative or agent of others, borrow from such bank, nor (2) Shall he become a guarantor,
endorser or surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability to the
bank
Exceptions: (1) Valid insider lending (Sec. 36, GBL) (2) Loans, credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders (Sec. 36, GBL)
Requirements for valid insider lending (1) In the regular course of business; (2) Upon terms not less favorable to the bank
than those offered to others; (3) There is a written approval of the majority of all the directors of the bank, excluding the
director concerned; (Except: granted to officers under a fringe benefit plan approved by the BSP; (4) The required approval
shall be entered upon the record of the bank and a copy of such entry shall be transmitted forthwith to the appropriate
supervising and examining department of the BSP; (5) Limited to an amount equivalent to the DOSRI borrower’s
unencumbered deposits and book value of his paid-in capital contribution in the bank (Sec. 36, GBL)
Exceptions: (1) Non-risk items; and (2) Loans in the form of fringe benefits.
A DOSRI borrower is required to waive the secrecy of his “deposits of whatever nature in all banks in the Philippines.”
(Sec. 26, NCBA)
Purpose The general policy behind DOSRI rules is to level the lending field between the “insiders” and the “outsiders”. The
objective is to prevent the bank from becoming a captive source of finance for DOSRI. (Morales, The Philippine General
Banking Law, Opinion)
LOAN-LOSS PROVISIONING The following are subject to regulation by the Monetary Board: (1) The amount of reserves
for bad debts or doubtful accounts or other contingencies; and (2) The writing off of loans, other credit accommodations,
advances and other assets. (Sec. 49, GBL)
Purpose For effective banking supervision. There is a problem of mismatch when a loan becomes non-performing. The bank
is paying interest on the money it borrowed from the depositors or other placers of funds, but is not recouping that interest
from the loan it made. Eventually, the bank may have to write off loan losses against profits. To cushion this eventuality,
the bank is required to set aside reserved for bad debts and other doubtful accounts or contingencies.
(Morales, The Philippine General Banking Law, Opinion)
To address the non-performing asset problem, RA 9182 Special Purpose Vehicle Act was passed. The Monetary Board
approved certain accounting guidelines on the sale by banks and other financial institutions for housing under the said Act.
MORALES, The Philippine GBL Annotation) [N.B. RA 9182 is no longer in effect.] RESERVES
Purposes (1) To control the volume of money created by the credit operations of the banking system, the BSP requires all
banks to maintain reserves against their deposit and deposit-substitute liabilities. (2) As a ready source of funds that will
respond to unusually large number of withdrawals or preterminations of deposits or deposit-substitutes, taking in the shape
of a bank run. (Morales, The Philippine General Banking Law, Opinion)
Unified reserve (1) Statutory or legal and liquidity reserve [N.B. The two reserves have been combined or unified: 18% for
deposits and deposit substitutes (BSP Circular No. 753 dated March 29, 2012) (a) For deposit-substitutes evidenced by
repurchase agreements covering government securities: 2% (BSP Circular No. 444 dated August 18, 2004) (b) For foreign
currency deposit units: 100% (BSP Circular No. 1389 dated April 13, 1993, as amended); 30% of this cover must be in the
form of liquid assets (BSP CircularLetter dated June 6, 1997, as cited in MORALES)
(2) Reserve: The required reserves are to be kept in the form of deposits placed in the banks’ Demand Deposit Account with
the BSP (BSP Circular No. 753 dated March 29, 2012)
The BSP shall not pay interest on the reserves maintained with it unless the Monetary Board decides otherwise as warranted
by circumstances. (Sec. 94, NCBA)
PDIC INSURANCE Banks are required to insure their deposit liabilities with the PDIC.
Partial Insurance Each depositor is a beneficiary of the insurance for a maximum amount of P500,000, or its foreign
currency equivalent in the case of an FCDU deposit. (RA 9576, 2009) Note: PDIC only insures deposit (not deposit
substitute) liabilities of a bank or banking institution (Sec.5, RA 3591, as amended) Purpose Full insurance might encourage
risky banking activities. A limited insurance of bank deposits serves to limit moral hazard.
EQUITY INVESTMENT LIMITS (ALLIED V. NON-ALLIED ENTERPRISES) This is a prudential measure by limiting
the exposure of banks in different businesses for the purpose of control, affiliation or other continuing business advantage.
General Rule UB (Sec. 24) KB (Sec. 30) Total investment in equities: (allied & nonallied enterprises) Not exceeding 50% of
the net worth of the bank (of allied enterprises) Not exceeding 35% of the net worth of the bank The equity investment in
any one enterprise: (allied/nonallied) Not exceeding 25% of the net worth of the bank (allied) Not exceeding 25% of the net
worth of the bank
Net Worth – the total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net
of valuation reserves and other adjustments
The acquisition of such equity is subject to the prior approval of the MB. The equity investment of a Universal Bank in: (1)
Financial Allied Enterprises – 100% of the equity in a thrift bank, rural bank, or financial allied enterprise. (Sec 25 GBL). A
publicly-listed UB or KN may own up to 100% of the voting stock of only one other UB or KB.
(2) Non-Financial Allied Enterprises – 100% of the equity of that enterprise (Sec 26 GBL) (3) Non-Allied Enterprises – Not
exceeding 35% of the total equity in a single non-allied enterprise not shall it exceed 35% of the voting stock in that
enterprise. (Sec 27 GBL) (4) Quasi-banks – 40% of the equity of quasi-banks (Sec 28 GBL)
The equity investment of Commercial Banks in: (1) Financial Allied enterprises – 100% of the equity of a thrift or rural
bank. (Sec 31 GBL). Where the equity investment of a KB is in other financial allied enterprises, including other KBs, such
investment shall remain a minority holding in that enterprise. (2) Non-Financial Allied enterprises – 100% of the equity of
said enterprises. (Sec 32 GBL) (3) Quasi-banks – 40% of the equity of quasi-banks. (Sec 28 GBL)
PENALTIES FOR VIOLATION Violation of any of the provisions of the GBL shall be subject to Sections 34, 35, 36 and
37 of the New Central Bank Act, unless otherwise provided under therein.
FINE/IMPRISONMENT
Criminal sanctions (1) Refusal by an institution subject to examination and supervision by the Monetary Board to file the
required report or permit any lawful examination into its affairs (Sec. 34, NCBA) (a) Fine: Not less than Fifty thousand
pesos (P50,000) nor more than One hundred thousand pesos (P100,000); or (b) Imprisonment: Not less than one (1) year nor
more than five (5) years; or (c) Both fine and imprisonment: in the discretion of the Court.
(2) Wilful making of a false or misleading statement on a material fact to the Monetary Board or to the examiners of the
Bangko Sentral (Sec. 35, NCBA) (a) Fine: Not less than One hundred thousand pesos (P100,000) nor more than One
hundred thousand pesos (P200,000); or (b) Imprisonment: Not more than five (5) years; or (c) Both fine and imprisonment,
in the discretion of the Court.
(3) Wilful violation of the NCBA and other pertinent banking laws (including the GBL) being enforced or implemented by
the Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board (Sec. 36, NCBA) (a) Fine: Not
less than Fifty thousand pesos (P50,000) nor more than One hundred thousand pesos (P200,000); or (b) Imprisonment: Not
less than two (2) years nor more than ten (10) years; or (c) Both fine and imprisonment, in the discretion of the Court.
ADMINISTRATIVE SANCTIONS (1) Wilful violation of its charter or by-laws; wilful delay in the submission of reports
or publications thereof as required by law, rules and regulations; Criminal Acts in Nos. 1 to 3 above; and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary Board (a) Fine not exceeding Thirty
thousand pesos (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature
and gravity of the violation or irregularity and the size of the bank or quasibank; or (b) Suspension of rediscounting
privileges or access to Bangko Sentral credit facilities; (c) Suspension of lending or foreign exchange operations or authority
to accept new deposits or make new investments; (d) Suspension of interbank clearing privileges; and/or (e) Revocation of
quasi-banking license.