U.P.

LAW BOC BANKING COMMERCIAL LAW

BANKING
COMMERCIAL LAW

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U.P. LAW BOC BANKING
A. THE NEW
CENTRALBANK ACT
[R.A. 7653, as amended by R.A. 11211]
The section numbers hereinafter generally
pertain to RA 7653, unless otherwise indicated.
1. State Policies
The State shall maintain a central monetary
authority that shall:
1. Function and operate as an independent
and accountable body corporate in the
discharge of its mandated responsibilities
concerning money, banking and credit;
2. Enjoy fiscal and administrative
autonomy, while being a government-
owned corporation
- Considering its unique functions and
responsibilities. [Sec. 1]
2. Creation of the Bangko
Sentral ng Pilipinas
Created by the NCBA, the Bangko Sentral ng
Pilipinas (BSP) is the independent central
monetary authority of the Philippines.
Capitalization of the BSP
The BSP has a capitalization of P200B
subscribed by the Government. [Sec. 2, as
amended]
The BSP as transferee of Philippine Central
Bank powers
All powers, duties and functions vested by law
in the Central Bank of the Philippines not
inconsistent with the NCBA were deemed
transferred to the BSP. All references to the
Central Bank of the Philippines in any law or
special charters shall be deemed to refer to the
BSP. [Sec. 136]
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3. Responsibility and Primary
Objective of BSP
The BSP is an independent central monetary
authority, which replaced the Central Bank of
the Philippines and shares the same functions,
but is a new entity altogether.
Nature of the BSP
b. A central monetary authority;
c. An independent and accountable body;
and
d. A government-owned corporation that
enjoys fiscal and administrative autonomy.
[Secs. 1 and 2]
Primary Objective and Other
Responsibilities of the BSP
a. Primary objectives
1. To maintain price stability conducive to
a balanced and sustainable economic
growth;
2. To promote and maintain monetary
stability and the convertibility of the
peso;
3. To promote financial stability and
closely work with the National
Government;
4. To oversee the payment and
settlement systems in the Philippines;
and
5. To promote broad and convenient
access to high quality financial services
and consider the interest of the general
public.
b. Other responsibilities
1. Provides policy directions in the areas
of money, banking, and credit;
2. Supervises operations of banks;
3. Regulates the operations of finance
companies and non-bank financial
institutions performing quasi-banking
functions. [Sec. 3]
U.P. LAW BOC BANKING
Salient Features of the BSP Under the
NCBA
a. Assurance of BSP independence by
providing for the majority of the members
of the Monetary Board (MB) to come from
the private sector. [Sec. 6]
b. The BSP now concentrates on monetary
policy, and has phased out its fiscal
agency functions and its responsibilities in
respect of finance companies without
quasi-banking functions, which in the past,
had distracted the old Central Bank from
its primary function. The latter has been
assumed by the Securities and Exchange
Commission. [Secs. 3, 129, & 130]
c. Provides safeguards to ensure that, unlike
the old Central Bank which sustained
huge losses, the BSP would have a
positive net income position by the
following provisions:
1. Capitalization of P200B; [Sec. 2, as
amended]
2. Maintenance of positive net foreign
asset position; [Sec.71]
3. Charging interests on all loans and
advances to banks; [Sec. 85]
4. Authority to collect interests on loans
and advances to closed financial
institutions; [Sec. 85] and
5. Prohibition against acquisition of
shares, including by collateral, nor
participate in neither ownership nor
management of enterprises, nor
engage in development banking or
financing. [Sec. 128]
Exception: Whenever the MB, by a vote of at
least 5 of its members, deems an acquisition or
investment to be necessary to qualify or as
required for membership in international and
regional organizations; or determines that
investing in and/or operating an enterprise will
be consistent with the effective fulfillment of its
mandate and will not constitute any conflict of
interest.
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4. Corporate Powers
The BSP is authorized:
a. To adopt, alter, and use a corporate seal
which shall be judicially noticed;
b. To lease or own real and personal property
and to sell or otherwise dispose of the
same;
c. To sue and be sued;
d. To do and perform ay and all things that
may be necessary or proper to carry out the
purposes of the act
Moreover, the BSP may:
a. Acquire and hold such assets and incur
such liabilities in connection with its
operations authorized by the provisions of
the NCBA, or as are essential to the proper
conduct of such operations
b. Compromise, condone or release, in whole
or in part, any claim of or settled liability to
the BSP, regardless of the amount
involved, under such terms and conditions
as may be prescribed by the MB to protect
the interests of the BSP. [Sec. 5]
5. Operations of the BSP
Authority to obtain data and
information
The BSP shall have the authority to request
from government offices and instrumentalities,
or government-owned or controlled
corporations, any data which it may require for
the proper discharge of its functions and
responsibilities.
Power to Issue a Subpoena
The BSP through the Governor or in his
absence, a duly authorized representative shall
have the power to issue a subpoena for the
production of the books and records for the
aforesaid purpose.
Those who refuse the subpoena without
justifiable cause, or who refuse to supply the
BSP with data requested or required, shall be
subject to punishment for contempt in
U.P. LAW BOC BANKING
accordance with the provisions of the Rules of
Court.
Data on Individual Firms
Data on individual firms, other than banks,
gathered by the Department of Economic
Research and other departments or units of the
BSP shall not be made available to any person
or entity outside of the BSP whether public or
private.
Exception: under order of the court or under
such conditions as may be prescribed by the
MB.
Collective data on firms may be released to
interested persons or entities.
In the case of banks, provisions of Sec. 27 shall
apply. [Sec. 23]
Supervision and Examination
The BSP shall have supervision over, and
conduct periodic or special examinations of:
i. Banking institutions
ii. Quasi-banks
iii. Their subsidiaries engaged in allied
activities
- A subsidiary is a corporation more than
50% of the voting stock of which is
owned by a bank or quasi-bank
iv. Their affiliates engaged in allied
activities
- An affiliate is a corporation the voting
stock of which:
▪ To the extent of 50% or less, is
owned by a bank or quasi-bank; or
▪ Is related or linked to such
institution or intermediary through
common stockholders or such
other factors as may be determined
by the MB.
The department heads and the examiners of
the supervising and/or examining departments
are hereby authorized:
1. To administer oaths to any director, officer,
or employee of any institution under their
respective supervision or subject to their
examination
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2. To compel the presentation of all:
 Books, documents, papers or records
necessary in their judgment to
ascertain the facts relative to the true
condition of any institution
 Books and records of persons and
entities relative to or in connection with
the operations, activities or
transactions of the institution under
examination
Note: These powers are subject to the
provision of existing laws protecting or
safeguarding the secrecy or confidentiality of
bank deposits as well as investments of private
persons, natural or juridical, in debt instruments
issued by the Government.
Restraining orders and injunctions
The provisions of Rule 58 (Preliminary
Injunction) of the Rules of Court insofar as they
are applicable and not inconsistent with the
provisions of this Section 25 of the NCBA shall
govern the issuance and dissolution of the
restraining order or injunction.
General Rule: No restraining order or
injunction shall be issued by the court enjoining
the BSP from examining any institution subject
to supervision or examination by the BSP.
Exception: There is convincing proof that the
action of the BSP is plainly arbitrary and made
in bad faith and the petitioner or plaintiff files
with the clerk or judge of the court in which the
action is pending a bond executed in favor of
the BSP, in an amount to be fixed by the court.
[Sec. 25]
Bank deposits and investments
Any director, officer or stockholder who,
together with his related interest, contracts a
loan or any form of financial accommodation
from:
1. His bank; or
2. From a bank:
a. Which is a subsidiary of a bank holding
company of which both his bank and
the lending bank are subsidiaries; or
U.P. LAW BOC BANKING
b. In which a controlling proportion of the
shares is owned by the same interest
that owns a controlling proportion of
the shares of his bank
i. In excess of five percent (5%) of
the capital and surplus of the bank,
or
ii. In the maximum amount permitted
by law, whichever is lower
shall be required by the lending bank to
waive the secrecy of his deposits of
whatever nature in ALL banks in the
Philippines.
Any information obtained from an
examination of his deposits shall be held
strictly confidential and may be used by
the examiners only in connection with their
supervisory and examination responsibility
or by the BSP in an appropriate legal action
it has initiated involving the deposit
account. [Sec. 26]
Prohibitions
Personnel of the BSP are 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 BSP, except non-stock savings and
loan associations and provident funds
organized exclusively for employees of the
BSP, and except as otherwise provided in
the NCBA;
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 BSP;
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 MB, 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
MB or the Governor of the BSP, or to any
person authorized by either of them, in
writing, to receive such information;
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d. borrowing from any institution subject to
supervision or examination by the BSP
shall be prohibited unless said borrowings
are adequately secured, fully disclosed to
the MB, and shall be subject to such further
rules and regulations as the MB may
prescribe: Provided, however, That
personnel of the supervising and
examining departments are prohibited from
borrowing from a bank under their
supervision or examination.
In addition to the prohibitions in RA 3019 and
RA 6713.
Examination and fees
Examination
The supervising and examining department
head, personally or by deputy, shall examine
the books of every banking institution:
a. Once in every 12 months, and
b. At such other times as the MB by an
affirmative vote of 5 members, may
deem expedient
Provided, That there shall be an interval of at
least 12. months between annual
examinations.
The bank concerned shall afford to the head of
the appropriate supervising and examining
departments and to his authorized deputies full
opportunity to examine its books, cash and
available assets and general condition at any
time during banking hours when requested to
do so by the BSP
Provided, however, That none of the reports
and other papers relative to such examinations
shall be open to inspection by the public
Exception: Insofar as such publicity is
incidental to the proceedings hereinafter
authorized or is necessary for the prosecution
of violations in connection with the business of
such institutions.
Fees
Banking and quasi-banking institutions which
are subject to examination by the BSP shall
pay to the BSP an annual fee [Sec. 28]
U.P. LAW BOC BANKING
Within the first 30 days of each
When
year
A percentage, prescribed by
the MB, of its average total
assets during the preceding
year
Amount - As shown on its end-of-
month balance sheets,
AFTER deducting cash
on hand and amounts
due from banks
6. Monetary Board (MB); Powers
and Functions
The MB is the body through which the powers
and functions of the BSP are exercised. [Sec.
6]
Powers and Functions:
a. Issue rules and regulations it considers
necessary for the effective discharge of the
responsibilities and exercise of the powers
vested in it;
b. Direct the management, operations, and
administration of the BSP, reorganize its
personnel and issue such rules and
regulations as it may deem necessary or
desirable for this purpose;
c. Establish a human resource management
system which governs the selection, hiring,
appointment, transfer, promotion, or
dismissal of all personnel;
d. Adopt an annual budget for and authorize
such expenditures by the BSP as are in the
interest of the effective administration and
operations of the BSP in accordance with
applicable laws and regulations; and
e. Indemnify its members and other officials of
the BSP.
General Rule: Includes costs and expenses
reasonably incurred by personnel of the
departments performing supervision and
examination functions in connection with any
civil or criminal action, suit or proceeding, to
which any of them may be made a party by
reason of the performance of their
functions or duties
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Exception: Unless such members or other
officials are found to be liable for willful violation
of the NCBA, performed in evident bad faith or
with gross negligence. [Sec. 15]
7. How The BSP Handles Banks
In Distress
WHEN BANKS ARE IN DISTRESS
Liquidity is the ability of an asset to be
converted into cash. An entity is liquid when it
is able to pay its liabilities when they fall due.
Illiquidity occurs when the bank is not liquid. It
means that the bank cannot meet its current
liabilities.
Illiquidity is handled by conservatorship.
Insolvency
When the actual market value of assets is
insufficient to pay its liabilities, not considering
capital stock and surplus which are not
liabilities for such purpose. An entity is
insolvent when it is unable to meet current and
long-term obligations.
1. In contrast, a bank is solvent when current
assets are more than current liabilities,
providing the ability to pay debts. It is also
solvent when it is able to meet its long-term
obligations/liabilities.
2. Insolvency is handled by receivership
and/or closure.
Conservatorship
Grounds for Appointment of a Conservator
Whenever, on the basis of a report submitted
by the appropriate supervising or examining
department, the MB finds that a bank or quasi-
bank is:
1. In a state of continuing inability; or
2. Unwillingness to maintain a condition of
liquidity deemed adequate to protect
the interest of depositors and creditors.
[Sec. 29]
U.P. LAW BOC BANKING
Requisites for Placement of a Bank under
Conservatorship
1. There must be a report submitted by the
appropriate supervising or examining
department of the BSP;
2. There must be a finding that the bank or
quasi-bank falls under either of the grounds
for conservatorship; and
3. The Board of Directors must be informed in
writing of the order of the MB directing
conservatorship. [Sec. 29]
Duration: Shall not exceed 1 year [Sec. 29]
Expenses
The expenses attendant to the conservatorship
shall be borne by the bank or quasi-bank
concerned. [Sec. 29]
Grounds for Termination of
Conservatorship by the MB
a. When the MB is satisfied that the institution
can continue to operate on its own and the
conservatorship is no longer necessary; or
b. When, on the basis of the report of the
conservator or of its own findings, the MB
determines that the continuance in
business of the institution would involve
probable loss to its depositors or creditors
Effect: The bank or quasi-bank would then be
placed under receivership. [Sec. 29]
Effects of Conservatorship
1. Bank/Quasi-bank retains juridical
personality;
2. Not a precondition to the designation of a
receiver [Sec. 30]; and
3. Perfected transactions cannot be
repudiated. [First Philippine International
Bank v. CA, G.R. No. 115849 (1996)]
Qualifications of a Conservator
The conservator should be competent and
knowledgeable in bank operations and
management. [Sec. 29]
The designation of a conservator shall be
vested exclusively in the MB. [Sec. 30]
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Note: The conservator is a natural person to be
appointed by the MB. In contrast, the receiver
is generally the Philippine Deposit Insurance
Corporation (PDIC).
Powers and Duties of a Conservator
a. To take charge of the assets, liabilities, and
the management of the institution;
b. To reorganize the management;
c. To collect all monies and debts due said
institution;
d. To exercise all powers necessary to restore
its viability;
e. To report and be responsible to the MB;
and
f. To overrule or revoke the actions of the
previous management and board of
directors of the bank or quasi-bank. [Sec.
29]
Note: That the management of the bank is still
with its board of directors and management.
However, the conservator may revoke their
actions. In contrast, in receivership, the
receiver takes over the management of the
bank.
The Conservator Cannot Repudiate
Perfected Contracts
The powers of the conservator of a bank must
be related to the preservation of the assets of
the bank, the reorganization of the
management and the restoration of viability.
Such powers cannot extend to the post-facto
repudiation of perfected transactions,
otherwise they would infringe against the non-
impairment clause of the Constitution. [First
Philippine International Bank v. CA, G.R. No.
115849 (1996)]
Remuneration
General Rule: The conservator shall receive
remuneration in an amount not to exceed 2/3
of the salary of the president of the institution in
1 year, payable in 12 equal monthly payments.
Exception: A conservator appointed by the MB
connected with the BSP. Said conservator shall
not be entitled to receive any remuneration or
emolument. [Sec. 29]
U.P. LAW BOC BANKING
Closure
Should the MB find that any of the grounds for
receivership is applicable to a bank or quasi-
bank, the Monetary Board may:
1. Forbid the institution from doing
business in the Philippines; and
2. Designate the PDIC as receiver of the
banking institution.
Note: This is done summarily and without need
for prior hearing. [Sec. 30]
Close Now, Hear Later Scheme
Sec. 30 of the NCBA does not contemplate
prior notice and hearing before a bank may be
directed to stop operations and placed under
receivership.
a. It is enough that such action is made
subject of a subsequent judicial review.
b. The rationale behind the scheme is to
protect public interest. [Central Bank vs.
CA and Triumph Savings Bank, G.R. No.
76118(1993)]
In other words, when there is a ground for
closure and receivership, such closure may
be effected without notice and hearing. The
validity of closure may be challenged
afterwards.
Receivership
Concept
The MB may summarily and without need for
prior hearing close a banking institution and
place it under receivership.
Receivership is equivalent to an injunction to
restrain the bank in any way. Thus, the
appointment of a receiver operates to suspend
the authority of the bank and of its directors and
officers over its property and effects.
[Villanueva v. CA, G.R. No. 114870 (1995)]
Receivership refers to the stage within which
the PDIC manages the affairs of the closed
bank and preserves its assets for the benefit of
creditors. [Sec. 10(a), (b), RA 9302]
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Requisites
a. Report of the head of the supervising or
examining department involving the bank;
b. Finding of the MB of the existence of any of
the grounds for receivership;
c. Decision of the MB to forbid the institution
from doing business, which decision may
be done summarily and without need for
prior hearing; and
d. Notice in writing to the Board of Directors
informing the institution of the order of the
MB. [Sec. 30]
Grounds for Receivership
Whenever the MB finds that a bank or quasi-
bank:
1. Has notified the BSP or publicly announced
a unilateral closure, or has been dormant
for at least 60 days or in any manner has
suspended the payment of its
deposit/deposit substitute liabilities, or is
unable to pay its liabilities as they become
due in the ordinary course of business. This
shall not include inability to pay caused by
extraordinary demands induced by
financial panic in the banking community;
2. Has insufficient realizable assets, as
determined by the BSP, to meet its
liabilities;
3. Cannot continue in business without
involving probable losses to its depositors
or creditors; or
4. Has willfully violated a cease-and-desist
order under Sec. 37 that has become final,
involving acts or transactions which
amount to fraud or a dissipation of the
assets of the institution.
In which the MB may, summarily and without
need for prior hearing, forbid the institution
from doing business in the Philippines and
designate the PDIC as receiver in the case of
banks AND direct the PDIC to proceed with
the liquidation of the closed bank pursuant to
Sec. 30 and RA 3591. [Sec. 30, as amended
by RA 11211].
The MB shall notify, in writing, through the
receiver, the Board of Directors of the closed
bank of its decision.
U.P. LAW BOC BANKING
Effect of the MB Decision
General Rule: The actions of the MB taken
under Secs. 29-30 shall be final and
executory, and may not be restrained or set
aside by the court [Sec. 30, as amended by RA
11211].
Exception: On petition for certiorari on the
ground that the action taken was in excess of
jurisdiction or with grave abuse of discretion.
Requisites of the petition
a. Filed by the stockholders of record
representing the majority of the capital
stock.
b. Filed within 10 days from receipt by the
BOD of the institution of the order directing
receivership, liquidation or
conservatorship.
Who Acts as Receiver
1. If a banking institution: the PDIC
2. If a quasi-bank or non-stock savings and
loan association: any person of recognized
competence in banking, credit or finance
may be designated by the BSP as receiver
[Sec. 30]
Note: The authority of the MB to summarily and
without need for prior hearing forbid the bank
or quasi-bank from doing business in the
Philippines may also be exercised over non-
stock savings and loan associations, based on
the same grounds.
Who Appoints Receivers
The appointment of a receiver shall be vested
exclusively in the MB. [Sec. 30]
Conservatorship vis-à-vis Receivership
The designation of a conservator is not a
precondition to the designation of a receiver.
[Sec. 30]
Liquidation
Concept
Liquidation refers to the recovery and
conversion of assets into cash for distribution
to all creditors in accordance with the rules on
concurrence and preference of credits.
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Kinds of Liquidation
A. Involuntary liquidation
B. Voluntary liquidation
The Stockholders and the Board of Directors
can decide to liquidate a bank in accordance
with the procedure under the Corporation
Code.
However, as an additional requirement, written
notice of the liquidation should be sent to the
MB before the liquidation is undertaken.
Further, the MB shall have the right to intervene
and take such steps as may be necessary to
protect the interests of creditors. [Sec. 68,
General Banking Law of 2000 (GBL) (RA
8791)]
Grounds for Liquidation
See Grounds for Receivership above. [Sec.
30, as amended by RA 11211]
After the designation of the receiver, the MB
may, summarily and without need for prior
hearing, direct the PDIC to proceed with the
liquidation of the closed bank pursuant to
Sec. 30 and RA 3591. [Sec. 30, as amended
by RA 11211]
- Should the receiver determine that the
institution cannot be rehabilitated or
permitted to resume business
The MB shall notify, in writing, through the
receiver, the Board of Directors of the closed
bank of its decision.
Effect of the MB Decision
see Effect of the MB Decision under
receivership
Effects of Liquidation
1. Retention of juridical personality;
2. Suspension of operations/stoppage of
business;
3. Assets are deemed in custodia legis, i.e.,
exempt from garnishment, levy or
execution;
4. Stay of execution of judgment to prevent
depletion of bank assets;
U.P. LAW BOC BANKING
5. Bank is not liable to pay interest on
deposits which accrued during the period of
suspension of operation;
6. Restriction of bank’s capacity to do new
business (new loans, deposits) but with
obligation to collect pre-existing debts;
a. It cannot take new deposits or grant
new loans.
b. However, it can collect pre-existing
debts.
7. Deposits do not become preferred credits.
8. Administrative sanctions on
supervised entities
Without prejudice to the criminal sanctions
provided in Secs. 34, 35, and 36, the MB may,
at its discretion, impose administrative
sanctions upon any bank or quasi-bank, their
directors and/or officers.
Resignation or termination from office shall not
exempt such director or officer from
administrative or criminal sanctions.
Grounds for imposition & Administrative
sanctions imposed
(a) Any willful violation of its charter or by-laws;
(b) Willful delay in the submission of reports or
publications thereof as required by law,
rules and regulations;
(c) Any refusal to permit examination into the
affairs of the institution;
(d) Any willful making of a false or misleading
statement to the MB or the appropriate
supervising and examining department or
its examiners;
(e) Any willful failure or refusal to comply with,
or violation of, any banking law or any
order, instruction or regulation issued by
the MB, or any order, instruction or ruling
by the Governor; or
(f) Any commission of irregularities, and/or
conducting business in an unsafe or
unsound manner as may be determined by
the MB, the following administrative
sanctions, whenever applicable:
i. Fines in amounts as may be
determined by the MB to be
appropriate, but in no case to exceed
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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 quasi-bank;
ii. Suspension of rediscounting privileges
or access to BSP credit facilities;
iii. Suspension of lending or foreign
exchange operations or authority to
accept new deposits or make new
investments;
iv. Suspension of interbank clearing
privileges; and/or
v. Revocation of quasi-banking license.
The administrative sanctions need not be
applied in the order of their severity. [Sec. 37]
9. Rules on bank deposits and
investments by directors,
officers, stockholders and
their related interests
Any director, officer or stockholder who,
together with his related interest, contracts a
loan or any form of financial accommodation
from:
(1) His bank; or
(2) From a bank:
a. Which is a subsidiary of a bank holding
company of which both his bank and
the lending bank are subsidiaries; or
b. In which a controlling proportion of the
shares is owned by the same interest
that owns a controlling proportion of the
shares of his bank
i. In excess of five percent (5%) of
the capital and surplus of the bank,
or
ii. In the maximum amount permitted
by law, whichever is lower
shall be required by the lending bank to waive
the secrecy of his deposits of whatever
nature in ALL banks in the Philippines.
Any information obtained from an examination
of his deposits shall be held strictly
confidential and may be used by the
examiners only in connection with their
U.P. LAW BOC BANKING
supervisory and examination responsibility or
by the BSP in an appropriate legal action it has
initiated involving the deposit account. [Sec.
26]
10. Supervision and regulation
of bank operations
a. Loans and other credit
accommodations
The rediscounts, discounts, loans and
advances which the BSP is authorized to
extend to banking institutions shall be used to
influence the volume of credit consistent with
the objective of price stability.
Normal Credit Operations
The BSP may normally and regularly carry on
the following credit operations with banking
institutions operating in the Philippines:
(a) Commercial Credits - The BSP may
rediscount, discount, buy and sell bills,
acceptances, promissory notes and other
credit instruments with maturities of not
more than one hundred eighty (180) days
from the date of their rediscount, discount
or acquisition by the BSP and resulting
from transactions related to:
i. The importation, exportation,
purchase or sale of readily saleable
goods and products, or their
transportation within the
Philippines; or
ii. The storing of non-perishable
goods and products which are duly
insured and deposited, under
conditions assuring their
preservation, in authorized bonded
warehouses or in other places
approved by the Monetary Board.
(b) Production Credits - The BSP may
rediscount, discount, buy and sell bills,
acceptances, promissory notes and other
credit instruments having maturities of not
more than three hundred sixty (360)
days from the date of their rediscount,
discount or acquisition by the BSP and
resulting from transactions related to the
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production or processing of agricultural,
animal, mineral, or industrial products.
1. Documents or instruments acquired in
accordance with this subsection shall
be secured by a pledge of the
respective crops or products
2. Provided, however, That the crops or
products need not be pledged to
secure the documents if the original
loan granted by the BSP is secured by
a lien or mortgage on real estate
property seventy percent (70%) of the
appraised value of which equals or
exceeds the amount of the loan
granted.
(c) Other credits - Special credit instruments
not otherwise rediscountable under the
immediately preceding subsections (a) and
(b) may be eligible for rediscounting in
accordance with rules and regulations
which the BSP shall prescribe. Whenever
necessary, the BSP shall provide funds
from non-inflationary sources: Provided,
however, That the MB shall prescribe
additional safeguards for disbursing these
funds.
(d) Advances [Sec. 82]
Special Credit Operation
The BSP may extend loans and advances to
banking institutions for a period of not more
than 7 days without any collateral for the
purpose of providing liquidity to the banking
system in times of need. [Sec. 83]
Emergency Credit Operation
In periods of national and/or local emergency
or of imminent financial panic which directly
threaten monetary and banking stability, the
MB may, by a vote of at least 5 of its members,
authorize the BSP to grant extraordinary loans
or advances to banking institutions.
While such loans or advances are outstanding,
the debtor institution shall not, except upon
prior authorization by the MB, expand the total
volume of its loans or investments. [Sec. 84]
U.P. LAW BOC BANKING
b. Selective Regulation
i. Margin requirements against letters of
credit
The MB may at any time prescribe minimum
cash margins for the opening of letters of credit,
and may relate the size of the required margin
to the nature of the transaction to be financed.
[Sec. 105]
ii. Required security against bank loans
The MB may issue such regulations as it may
deem necessary with respect to the maximum
permissible maturities of the loans and
investments which the banks may make, and
the kind and amount of security to be required
against the various types of credit operations of
the banks. [Sec. 106]
iii. Portfolio ceilings
The MB may place an upper limit on the
amount of loans and investments which the
banks may hold, or may place a limit on the rate
of increase of such assets within specified
periods of time. The MB may apply such limits
to the loans and investments of each bank or
to specific categories thereof.
In no case shall the MB establish limits which
are below the value of the loans or investments
of the banks on the date on which they are
notified of such restrictions. The restrictions
shall be applied to all banks uniformly and
without discrimination. [Sec. 107]
iv. Minimum capital ratios
The MB may prescribe minimum ratios which
the capital and surplus of the banks must bear
to the volume of their assets, or to specific
categories thereof, and may alter said ratios
whenever it deems necessary. [Sec. 108]
11. Rate of exchange
a. Rate of Exchange
The MB shall:
a. Determine the exchange rate policy of the
country;
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b. Determine the rates at which the BSP shall
buy and sell spot exchange;
c. Establish deviation limits from the effective
exchange rate or rates as it may deem
proper;
d. Determine the rates for other types of
foreign exchange transactions by the BSP,
including purchases and sales of foreign
notes and coins. [Sec. 74]
Limitation: The margins between the effective
exchange rates and the rates established by
the MB may not exceed the corresponding
margins for spot exchange transactions by
more than the additional costs or expenses
involved in each type of transactions. [Sec. 74]
b. Purchases and Sales of Foreign
Currency
The BSP may:
a. Buy and sell foreign notes and coins, and
documents and instruments of types
customarily employed for the international
transfer of funds;
b. Engage in future exchange operations; and
c. In order to maintain the convertibility of the
Peso, at the request of any banking
institution operating in the Philippines, buy
any quantity of foreign exchange offered,
and sell any quantity of foreign exchange
demanded, by such institution, Provided,
the foreign exchange offered or demanded
is freely convertible to gold or USD. [Sec.
70]
Limitations: It may only transact with the
following entities and persons:
a. Banking institutions operating in the
Philippines;
b. The government, its political subdivisions
and instrumentalities;
c. Foreign or international financial
institutions;
d. Foreign governments and their
instrumentalities; and
e. Other entities or persons authorized by the
MB to act as foreign exchange dealers
under the rules and regulations prescribed
by the MB. [Sec. 70]
U.P. LAW BOC BANKING
c. Acquisition of Inconvertible Currencies
General Rule: The BSP shall avoid the
acquisition and holding of currencies which are
not freely convertible.
Exception: The acquisition of such currencies
in an amount exceeding the minimum balance
necessary to cover current demand for said
currencies only when and to the extent that
such acquisition is considered by the MB to be
in the national interest.
d. In Times of Crises
The MB may exercise its emergency
restrictions on exchange operations
 These restrictions may be exercised by a
majority vote of the entire MB, i.e. 5 votes.
 The vote must be approved by the
President.
The restrictions the BSP may choose to impose
are:
a. Temporary suspension or restriction of
sales of exchange by the BSP;
b. Subjecting all transactions in gold and
foreign to license by the BSP; or
c. Requiring that any foreign exchange
thereafter obtained by any person
residing in or any entity operating in the
Philippines be delivered to the BSP or to
an agent bank, at effective exchange
rates. [Sec. 74]
These restrictions do not apply to Foreign
Currency Deposits under RA 6426.
B. LAW ON SECRECY OF
BANK DEPOSITS
[RA 1405, as Amended]
The section numbers hereinafter generally
pertain to RA 1405, unless otherwise indicated.
1. Purpose
i. To encourage the people to deposit
their money in banking institutions;
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ii. To discourage private hoarding; [Sec.
1]
iii. To encourage the people to deposit
their money in banks; and
iv. To discourage private hoarding, so that
the funds can be used by the bank to
grant loans to assist in economic
development.
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. [BSP Group, Inc. v. Go,
G.R. No. 168644 (2010)]
2. Prohibited Acts
a. Examination, inquiry, or looking into
deposits and investments in Philippine
government bonds by persons,
government officials, bureaus, or offices;
[Sec. 2]
b. Disclosure by banking institutions' officials
or employees to unauthorized persons
regarding information about covered
deposits and investments. [Sec. 3]
3. Deposits and Investments
Covered
General Rule
All peso deposits of whatever nature with
banks or banking institutions in the Philippines
are considered as of an absolutely confidential
nature. [Sec. 2]
Also covered are investments in bonds issued
by the Government of the Philippines, its
political subdivisions and its instrumentalities,
whether denominated in pesos or foreign
currency. Note that investments in bonds in
foreign currency are still covered by RA 1405.
The Foreign Currency Deposit Act does not
cover those investments.
U.P. LAW BOC BANKING
Labelling RA 1405 as the Law on Secrecy of
Bank Deposits is less than accurate. To be
more accurate, RA 1405 should be called the
Law on Secrecy of Bank Deposits and
Investments in Government Bonds.
Deposits and Funds Covered by
Other Laws on Confidentiality
i. Foreign currency deposits, which are
governed by the Foreign Currency
Deposit Act
ii. Funds placed in a bank not in the
nature of a deposit by private
individuals or entities. These may also
not be disclosed, under Subsec. 55.1 of
the General Banking Law of 2000.
Trust Accounts
The term "deposits" is to be understood broadly
and not limited to accounts giving rise to
creditor-debtor relations between the bank and
depositor. The deposit of money which may be
used by banks for authorized loans to 3rd
persons also falls under RA 1405. Therefore,
trust accounts are also covered. [Ejercito v. SB
Special Division, G.R. Nos. 157294-95 (2006)]
But see Morales, The Philippine General
Banking Law (Annotated) (2017), pp. 220-221.
Construction of Confidentiality
By force of statute, all bank deposits are
absolutely confidential, and that nature is
unaltered even by the legislated exceptions.
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 confidentiality.
[Republic v. Eugenio, G.R. No. 174629 (2008)]
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Zones of Privacy
Under the RA 1405, bank deposits are
statutorily protected or recognized zones of
privacy. [People v. Estrada, G.R. No. 164368
(2009); Marquez v. Desierto, G.R. No. 135882
(2001); Ople v. Torres, G.R. No. 127685
(1998)]
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,
G.R. No. 168644 (2010)]
4. Exceptions
Deposits:
a. Upon written permission of the depositor;
b. In cases of impeachment;
c. Upon order of competent court in cases of
bribery and dereliction of duty;
d. In cases where the money deposited or
invested is the subject matter of litigation.
If the case is for the recovery of money as a
result of failure to inform regarding improper
crediting, the money in the account is not the
subject matter of litigation. This is because the
amount sought to be recovered is different from
the amount that is already in the account. By
the terms of RA 1405, the ‘money deposited’
itself should be the subject matter of the
litigation. [Union Bank v. Court of Appeals,
G.R. No. 134699 (1999)]
In contrast, where the case is for the recovery
of amounts converted by the depositors, the
amount sought to be recovered is exactly the
money that is supposedly in the account. If the
case necessarily involves inquiring into the
whereabouts of the illegally acquired amount,
this falls under the exceptions to bank secrecy
under RA 1405. [Mellon Bank, N.A. v. Magsino,
G.R. No. 71479 (1990)]
U.P. LAW BOC BANKING
Other Exceptions
The Commissioner of Internal Revenue
can inquire into the bank accounts of the
following taxpayers:
i. A decedent in order to determine
his gross estate; or
ii. A taxpayer who has filed an
application to compromise his tax
liability on the ground of financial
incapacity; [NIRC, Sec. 6(f)]
iii. A taxpayer, information on whose
account is requested by a foreign
tax authority.
b. Unexplained wealth under Sec. 8 of the
Anti-Graft and Corrupt Practices Act (RA
3019). [PNB v. Gancayco, G.R. No. L-
18343 (1965); Banco Filipino v. Purisima,
G.R. No. L-56429 (1988); Marquez v.
Desierto, G.R. No. 135882 (2001)]
c. Inquiry by the Anti-Money Laundering
Council under the AMLA (RA 9160, the
Anti-Money Laundering Act of 2001, as
amended) after obtaining a court order,
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 [Sec. 11, AMLA,
see infra], except that no court order is
required if the covered investments are
related to:
1. Kidnapping for Ransom [RPC];
2. Dangerous Drugs [2002
Comprehensive Dangerous Drugs
Act];
3. Hijacking and other violations of RA
6235;
4. Destructive arson and murder;
5. Felonies similar to (i) to (iv) above
which are punishable under the penal
laws of other countries; and
6. Terrorism and conspiracy to commit
terrorism under the Human Security
Act of 2007.
d. BSP inquiry or examination in the course of
its periodic or special examination of the
bank. [Sec. 11, AMLA]
1. 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
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the bank premises. [Sec. 2, Unclaimed
Balances Law, Act No. 3926, as
amended by PD 679]
2. 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, RA 3591, as amended by
RA 9576].
Not necessarily an exception: Power of the
Ombudsman to “examine and have access to
bank accounts and records” under Sec. 15[8]
of RA 6770. [Morales, The Philippine General
Banking Law (Annotated) (2017) citing
Marquez v. Desierto, infra]
5. Garnishment of Deposits,
Including Foreign 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, G.R. No. L-34964 (1973); Philippine
Commercial and Industrial Bank v. Court of
Appeals, G.R. No. 84526 (1991)]
In the garnishment of deposits to insure
satisfaction of a judgment, there is no real
inquiry, 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,
G.R. No. L-34964 (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, FCDA – Foreign Currency
Deposit Act]
U.P. LAW BOC BANKING
6. Penalties for Violation
Any violation of this law will subject offender
upon conviction, to an imprisonment of not
more than five years or a fine of not more than
twenty thousand pesos or both, in the
discretion of the court. [Sec.5]
C. GENERAL BANKING
LAW OF 2000 (GBL)
The section numbers hereinafter generally
pertain to RA 8791, unless otherwise indicated.
1. Definition and classification
of banks
a. Definition of Banks
"Banks" shall refer to entities engaged in the
lending of funds obtained in the form of
deposits. [Subsec. 3.1]
How Banks are Structured
Generally, banks are stock corporations.
However, cooperative banks may also be
formed under the Cooperative Code.
N.B. Note that under RA 10641, qualified
foreign banks, with MB approval, may now
enter the local banking system, through any of
the following modes:
1. Acquiring, purchasing, or owning up to
100% of the voting stock of an existing
domestic bank;
2. Investing in up to 100% of the voting
stock of a new banking subsidiary
incorporated under the laws of the
Philippines; or
3. Establishing branches with full banking
authority.
However, the foreign bank must be
established, reputable, and financially sound.
Further, it must be widely-owned and publicly
listed in the country of origin.
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Classification of Banks
Universal Bank (UB)
As the name implies, a universal bank has the
most banking power, as it has the same powers
as a commercial bank, plus the powers:
 To operate an investment house, whether
as an integral unit or as a subsidiary.
 In turn, an investment house underwrites
securities either on firm underwriting (good
as sold) or best efforts (excess to be
returned to the issuer)
 To invest in non-allied enterprises
Commercial Bank (KB)
Has the powers defined in Secs. 29. and 53,
infra.
Thrift Bank
Thrift banks are banks that focus on basic
banking services for their clients, with an
emphasis on individuals and small businesses.
Thrift banks are primarily governed by RA
7906, the Thrift Banks Act.
Thrift banks include:
 Savings and mortgage banks;
 Savings and loan associations; and
 Private development banks.
Rural Banks
These are banks that are formed for the
purpose of providing adequate credit facilities
to farmers and merchants, or to cooperatives
of such farmers and merchants and in general,
the people of the rural communities.
They are primarily governed by RA 7353 (Rural
Banks Act).
Cooperative Banks
These are banks organized as cooperatives
under RA 6938, the Cooperative Code.
Islamic Banks
There is currently only one Islamic Bank in the
Philippines, the Al-Amanah Islamic Bank,
which aims to provide banking under the
Shari’a principles governing banking.
U.P. LAW BOC BANKING COMMERCIAL LAW

However, RA 11439 (An Act Providing for the
Regulation and Organization of Islamic Banks)
was enacted in the recent past. This law
expressly authorizes the BSP to license more
Islamic banks and permit conventional banks to
open Islamic windows or units.
Other banks as classified by the BSP
This includes Land Bank of the Philippines, the
Philippine Veteran’s Bank, and Development
Bank of the Philippines.
2. Distinction of banks from
Quasi-banks and trust entities
Deposit-Substitute Taking or Quasi-
Banking
Deposit-substitute taking or quasi-banking is
an alternative form of obtaining funds from the
public, other than deposits, through the
issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for
the purpose of relending or purchasing of
receivables and other obligations.
These instruments may include, but need not
be limited to, bankers’ acceptances,
promissory notes, participations, certificates of
assignment and similar instruments with
recourse, and repurchase agreements.

Banks Quasi- Trust Deposit substitute (like deposits) are with

Banks Entities recourse to the quasi-banks (just like deposits
Entities Entities Entities are with recourse to the banks).
engaged in engaged in engaged in
taking taking deposit trust Trust entities (Manual of Regulation for
deposits and substitutes business Banks) are:
lending and lending that act as a a. Trust departments of banks perform trust
these funds these funds to trustee or and other fiduciary functions; or
to their own their own administer b. Stand-alone trust corporations, authorized
borrowers. borrowers or any trust or by the BSP to engage in trust and other
purchasing hold fiduciary functions under the GBL.
[Subsec. 3.1] receivables property in
(which makes trust or on
them the deposit for 3. Bank Powers and Liabilities
creditors of the use,
the obligors of benefit, or Corporate Powers
the behoof of Aside from the banking powers, banks,
receivables) others [Sec. generally being in the form of stock
[Sec. 4] 79] corporations, also have all the powers a stock
corporation has. [See Sec. 35 of the Revised
Quasi-banks refer to entities engaged in the Corporation Code]
borrowing of funds called “deposit substitutes”
(i.e., “quasi-deposits”) as defined in Section 95 The exception is cooperative banks, which are
of the “New Central Bank Act” for purposes of in the form of a cooperative, and have all the
relending those funds or purchasing of powers of a cooperative under the Cooperative
receivables and other obligations. Code.
 Unlike banks, quasi-banks do not accept
deposits but take deposit substitutes. Granting of loans; security requirement
 Deposit substitutes are not insured with the The GBL no longer requires credit to be
PDIC. secured only by traditional security devices
(such as a real estate mortgage or a pledge),
in order to accommodate a different security
arrangement for microfinancing. This is in
contrast to the General Banking Act it replaced,

Page 311 of 450

U.P. LAW BOC BANKING
which requires all loans to be generally secured
by traditional security devices.
Banking Powers and Incidental
Powers
A commercial bank shall have, in addition to
the general powers incident to stock
corporations, all such powers as may be
necessary to carry on the business of
commercial banking such as:
1. Accepting Drafts;
General rule: Only a UB and a KB can
accept or create demand deposits [Sec. 33]
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 MB. [Sec. 33]
Fixed, savings, and current deposits of
money in banks and similar institutions
shall be governed by the provisions
concerning simple loan. [Art. 1980, NCC]
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 account; 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. [Fulton Iron Works Co. v. China
Banking Corporation, G.R. No. 32576
(1930)]
No duty to set-off
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
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has the option [but not the obligation] to
exercise. [BPI v. CA and Eastern Plywood,
G.R. No. 104612 (1994)]
2. Issuing letters of credit;
3. Discounting and negotiating
promissory notes, drafts, bills of
exchange, and other evidences of debt;
4. Accepting or creating demand
deposits;
5. Receiving other types of deposits and
deposit substitutes;
Types of Deposits
a. Time or Fixed 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 or
Checking 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 (2012)]
d. Negotiable Order of Withdrawal
Accounts – Interest-bearing
deposit accounts that combine the
payable on demand feature of
checks and investment feature of
savings accounts [Sec. 221,
Manual of Regulations for Banks]
6. Buying and selling foreign exchange
and gold or silver bullion;
7. Acquiring marketable bonds and other
debt securities; and
8. Extending credit.
“Know your customer” rule
Before granting a loan or other credit
accommodation, a bank must ascertain that the
U.P. LAW BOC BANKING
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 (2017)]
In addition to the operations specifically
authorized in the GBL, a bank may perform
the following services:
(1) Receive in custody funds, documents and
valuable objects;
(2) Act as financial agent and buy and sell, by
order of and for the account of its
customers, shares, evidences of
indebtedness and all types of securities;
(3) Make collections and payments for the
account of others and perform such other
services for its customers as are not
incompatible with banking business;
(4) Upon prior approval of the MB, act as
managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy
accounts; and
(5) Rent out safety deposit boxes. [Sec. 53]
4. Diligence required of banks in
view of fiduciary nature of
banking
The banking industry is impressed with public
interest. As such, the highest degree of
diligence and standards of integrity and
performance are required. Under Section 1001
of the Manual of Regulations for Banks, banks
must adhere to the highest service standards,
Page 313 of 450
COMMERCIAL LAW
and embrace a culture of fair and responsible
dealings in the conduct of their business.
 Banks must treat depositors’ accounts with
meticulous care;
 Banks must always to have in mind the
fiduciary nature of its relationship with their
depositors and other clients. [Metrobank v.
Rosales, G.R. No. 183204 (2014);
Comsavings Bank v. Sps. Capistrano, G.R.
No. 170942 (2013); Equitable Banking v.
Special Steel Products, G.R. No. 175350
(2012)]
Notwithstanding the degree of diligence
required, a bank is not expected to be infallible.
[Prudential Bank vs. CA, G.R. No. 125536
(2000)]
Failure on the part of the bank to satisfy the
degree of diligence required of banks may
warrant the award of damages.
Examples when a bank is deemed to be
negligent:
 When the bank fails to credit funds
deposited to the depositor’s account
[Simex v. CA, G.R. No. 88013 (1990)];
 When the bank itself fails to follow its own
rules and procedures on withdrawals [BPI
v. IAC, G.R. No. L-66826 (1988)];
 When the bank simply relies on the face of
SPAs before lending P200K [RBCI v.
Melecio-Yap, G.R. No. 178451 (2014)];
 When the teller loses the passbook
[Consolidated Bank v. CA, G.R. No.
114286 (2011)];
 When the bank fails to compare the
signatures on the withdrawal slip and
signature cards. [PNB v. Pike, G.R. No.
157845 (2005)]
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:
 For disbursing funds to a dishonest
employee despite the employee’s failure to
strictly abide by the bank’s internal
procedure. [Philippine Bank of Commerce
v. CA, G.R. No. 97626 (1997)]
U.P. LAW BOC BANKING
 Allowing the execution of a mortgage on
parcels of land as security for a loan not
owned by the prospective borrower.
[Canlas v. CA, G.R. No. 112160 (2000)]
 Crediting the deposit in favor of another
depositor, a check where the signature of
the drawer was forged. [Westmont Bank v.
Ong, G.R. No. 132560 (2002)].
5. Nature of Bank Funds and
Bank Deposits
The deposit is a contract of loan with the bank
being lent money by the depositor. Under the
Civil Code provisions on loan, this means that
the money deposited with the bank becomes
its property, which it is free to use, subject to
the condition that the depositor can demand
repayment, in the form of withdrawals, at any
time.
Quasi-deposits
 Funds placed with bank (as deposit
substitutes), but which are not in the nature
of a deposit
 Must be on a with recourse basis
 As UB and KB no longer have to apply for
authority to accept deposit substitutes, this
may now be considered a core banking
function of those banks.
Creditor-Debtor Relationship
The relationship between a depositor and a
bank is that of a creditor and debtor in relation
to the bank’s deposit functions [Gullas vs. PNB,
G.R. No. L-43191, (1935)] and not that of
depositor and depositary.
The relationship being contractual in nature,
mandamus is therefore not an available
remedy. [Maclaring Lucman vs. Alimatar
Malawi, G.R. No. 159794 (2006)]
Simple Loan
The contract between the bank and its
depositor is governed by the provisions of the
NCC on simple loan. [Consolidated Bank and
Trust Corporation vs. CA, G.R. No. 138569
(2003)].
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 Current and savings deposits are loans to
a bank because the bank can use the same
and they earn interest. [BPI vs. CA, G.R.
No. 104612 (1994)]
 Money deposited is commingled with other
money constituting a common fund.
Irregular Deposits
Bank deposits are in the nature of irregular
deposits. Therefore, Art. 1287 of the Civil
Code, which prohibits compensation when one
of the debts arises from depositum, does NOT
apply. [Serrano vs. Central Bank, G.R. No. L-
30511 (1980)]
6. Grant of Loans and Security
Requirements
Ratio of net worth to total risk
assets
Concept: 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]
General rule: A bank must conform to the risk-
based capital ratio prescribed by the 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]
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 (2017)]
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.
U.P. LAW BOC BANKING
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 Republic of the Philippines and the BSP
and any other evidences of indebtedness
or obligations the servicing and repayment
of which are fully guaranteed by the
Republic of the Philippines, until the
minimum required capital ratio has been
restored. [Sec. 34]
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. [Subsec. 35.1]
Exceptions
1. The MB otherwise prescribes for reasons
of national interest. [Subsec. 35.1] 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 re-
lending to end-user borrowers: separate
limit of 35% net worth. [Sec. 362.f, Manual
of Regulations for Banks]
Increase of Limit
The MB 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.
[Subsec. 35.2]
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
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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 (2017)]
Basis for Determining Compliance
The basis for determining compliance with the
SBL is the total credit commitment of the bank
to the borrower. [Subsec. 35.1]
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. [Subsec. 35.3]
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. [Sec. 362.f, Manual of
Regulations for Banks]
U.P. LAW BOC BANKING
Exclusions from the Ceiling (Non-Risk
Loans)
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 MB as non-risk items [Sec.
35.5]
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. [Subsec. 35.4]
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. [Subsec. 35.6]
Restrictions on bank exposure to
directors, officers, stockholders,
and their related interests
General rule [Sec. 36]: 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
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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 [Sec. 36]:
1. Valid insider lending;
2. Loans, credit accommodations and
guarantees extended by a cooperative
bank to its cooperative shareholders.
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;
Exception: Not required where 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; and
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]
Exceptions [Sec. 36, GBL]:
1. Non-risk items; and
2. Loans in the form of fringe benefits.
Waiver of Bank Secrecy
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 (2017)]
U.P. LAW BOC BANKING
Prohibited acts of borrowers
No borrower of a bank shall:
(1) Fraudulently overvalue property offered as
security for a loan or other credit
accommodation from the bank;
(2) Furnish false or make misrepresentation or
suppression of material facts for the purpose
of obtaining, renewing, or increasing a loan
or other credit accommodation or extending
the period thereof;
(3) Attempt to defraud the said bank in the event
of a court action to recover a loan or other
credit accommodation; or
(4) Offer any director, officer, employee or
agent of a bank any gift, fee, commission, or
any other form of compensation in order to
influence such persons into approving a loan
or other credit accommodation application.
[Sec. 55.2]
Floating interest rates and
Escalation Clauses
Floating Interest Rates
The rate of interest chargeable on availments
under the BSP liquidity window to banks shall
be the rate equivalent to the reference rate for
ninety (90) days determined and announced by
the BSP for floating rate loans, plus or minus a
rate to be determined by the BSP on the basis
of the prevailing monetary situation.
The additional or discount rate established for
any given time shall be made public by the BSP
and applied uniformly to all borrowers during
that period.
The additional rate to be imposed over and
above the reference rate shall not be less than
two (2) percentage points, with the applicable
additional rate to be determined by the BSP on
the basis of the prevailing monetary situation.
[Sec. 284, Manual of Regulations for Banks]
Escalation Clause
Parties to an agreement pertaining to a loan or
forbearance of money, goods or credits may
Page 317 of 450
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stipulate that the rate of interest agreed upon
may be increased in the event that the
applicable maximum rate of interest is
increased by the Monetary Board.
Provided That:
(1) Such stipulation shall be valid only if there
is also a stipulation in the agreement that
the rate of interest agreed upon shall be
reduced in the event that the applicable
maximum rate of interest is reduced by law
or by the Monetary Board; and
(2) The adjustment in the rate of interest
agreed upon shall take effect on or after the
effectivity of the increase or decrease in the
maximum rate of interest. [Sec. 305,
Manual of Regulations for Banks]
7. Penalties for violations
Fine, imprisonment
Unless otherwise herein provided, the violation
of any of the provisions of the GBL shall be
subject to Sections 34, 35, 36 and 37 of the
NCBA. [Sec.66]
Refusal to make reports or permit for
examination
Any officer, owner, agent, manager, director or
officer-in-charge of any institution subject to the
supervision or examination by the BSP within
the purview of the NCBA who, being required
in writing by the MB or by the head of the
supervising and examining department
willfully refuses to file the required report or
permit any lawful examination into the affairs
of such institution shall be punished by:
(1) A fine of not less than Fifty thousand pesos
(P50,000) nor more than One hundred
thousand pesos (P100,000); or
(2) Imprisonment of not less than one (1) year
nor more than five (5) years; or
(3) Both fine and imprisonment, in the
discretion of the court. [Sec. 34, NCBA]
False Statement
The willful making of a false or misleading
statement on a material fact to the MB or to
the examiners of the BSP shall be punished by:
U.P. LAW BOC BANKING
(1) A fine of not less than One hundred
thousand pesos (P100,000) nor more than
Two hundred thousand pesos (P200,000);
or
(2) Imprisonment of not more than five (5)
years;
(3) Both fine and imprisonment, at the
discretion of the court. [Sec. 35, NCBA]
Proceedings Upon Violation of This Act and
Other Banking Laws, Rules, Regulations,
Orders or Instructions
Whenever a bank or quasi-bank, or whenever
any person or entity willfully violates this Act
or other pertinent banking laws being
enforced or implemented by the Bangko
Sentral or any order, instruction, rule or
regulation issued by the Monetary Board, the
person or persons responsible for such
violation shall unless otherwise provided in this
Act be punished by:
(1) A fine of not less than Fifty thousand pesos
(P50,000) nor more than Two hundred
thousand pesos (P200,000); or
(2) Imprisonment of not less than two (2) years
nor more than ten (10) years; or
(3) Both fine and imprisonment at the
discretion of the court.
Administrative Sanctions on Banks and
Quasi-banks
Without prejudice to the criminal sanctions
against the culpable persons provided in
Sections 34, 35, and 36 of the NCBA, the MB
may, at its discretion, impose upon any bank or
quasi-bank, their directors and/or officers, the
following administrative sanctions, whenever
applicable:
(a) fines in amounts as may be determined by
the MB to be appropriate, but in no case to
exceed 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 quasi-bank;
(b) suspension of rediscounting privileges or
access to BSP credit facilities;
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(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. [Sec.
37, NCBA]
Such administrative sanction may be imposed
for:
(1) Any willful violation of its charter or bylaws,
willful delay in the submission of reports or
publications thereof as required by law,
rules and regulations;
(2) Any refusal to permit examination into the
affairs of the institution; any willful making
of a false or misleading statement to the
MB or the appropriate supervising and
examining department or its examiners;
(3) Any willful failure or refusal to comply with,
or violation of, any banking law or any
order, instruction or regulation issued by
the MB, or any order, instruction or ruling
by the BSP Governor; or
(4) Any commission of irregularities, and/or
conducting business in an unsafe or
unsound manner as may be determined by
the MB.
Suspension or removal of director
or officer
If the offender is a director or officer of a bank,
quasi-bank or trust entity, the MB may also
suspend or remove such director or officer.
[Sec.66]
Dissolution of bank
The bank itself may be dissolved by quo
warranto proceedings instituted by the Solicitor
General. [Sec. 66]
U.P. LAW BOC BANKING
D. PHILIPPINE DEPOSIT
INSURANCE
CORPORATION ACT
[R.A. 3591(“PDIC Charter”), as amended]
1. Basic Policy
The Philippine Deposit Insurance
Corporation (“PDIC”) shall, as a basic policy,
promote and safeguard the interests of the
depositing public by providing insurance
coverage on all insured deposits and helping
maintain a sound and stable banking system.
[Sec. 1, PDIC Charter, as amended by R.A. No.
10846]
2. Powers and functions of the
PDIC; prohibitions
Board of Directors
The powers and functions of PDIC shall be
vested in, and exercised by, a Board of
Directors which shall be composed of 7
members as follows:
(a) The Secretary of Finance shall be the ex
officio chairman of the Board without
compensation
(b) The Governor of the Bangko Sentral ng
Pilipinas (“BSP”) who shall be ex officio
member of the Board without
compensation. [PDIC Charter, as amended
by R.A. No. 9302]
(c) The President of PDIC
• The President of PDIC shall be
appointed by the President of the
Philippines from a shortlist prepared by
the Governance Commission for
Government Owned or Controlled
Corporations (“GOCCs”), pursuant to
R.A. 10149
• The President of PDIC shall serve on a
full-time basis for a term of 6 years.
• The President of PDIC shall also serve
as the Vice Chairman of the Board.
[PDIC Charter, as amended by R.A.
No. 10846]
(d) 4 members from the private sector
Page 319 of 450
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a. The members are to be appointed by
the President of the Philippines from a
shortlist prepared by the Governance
Commission for GOCCs pursuant to
R.A. 10149.
• The appointive directors shall serve
for a term of 6 years unless sooner
removed for cause and shall be
subject to only 1 reappointment:
Provided, That –
(1) Of those first appointed, the
first 2 appointees shall serve
for a period of 3 years
(2) The appointive director shall
continue to hold office until
the successor is appointed.
• An appointive director may be
nominated by the Governance
Commission for GOCCs for
reappointment by the President
(3) Only if one obtains a
performance score of above
average or its equivalent or
higher in the immediately
preceding year of tenure as
appointive director
(4) Based on the performance
criteria for appointive
directors of PDIC. [Sec. 3,
PDIC Charter, as amended
by R.A. No. 10846]
Appointment to any vacancy shall be only for
the unexpired term of the predecessor
pursuant to R.A. 10149. [PDIC Charter, as
amended by R.A. No. 10846]
Powers and Functions of PDIC
(a) PDIC shall be entitled to the free use of
Philippine mail in the same manner as the
other offices of the national government.
(b) The Board of Directors shall appoint
examiners who shall have power, on behalf
of PDIC, to examine any insured bank or
any bank making application to become an
insured bank
• Each such examiner shall have power
to make a thorough examination of all
the affairs of the bank
• In doing so the examiner shall have
power:
U.P. LAW BOC BANKING
(5) To administer oaths;
(6) To examine and take and preserve the
testimony of any of the officers and agents
thereof; and
(7) To compel the presentation of books,
documents, papers, or records necessary
in his judgment to ascertain the facts
relative to the condition of the bank
• The examiner shall make a full and
detailed report of the condition of the
bank to PDIC.
(c) The Board of Directors shall appoint claim
agents who shall have power to
investigate and examine all claims for
insured deposits and transferred deposits.
Each claim agent shall have power –
• To administer oaths; and
• To examine under oath and take and
preserve the testimony of any person
relating to such claims.
(d) PDIC may appoint or hire persons or
entities of recognized competence in
forensic and fraud investigations as its
agents to conduct investigations on
frauds, irregularities and anomalies
committed in banks, based on:
• Reports of examination conducted by
PDIC and BSP; or
• Complaints from depositors or from
other government agency.
(e) PDIC shall have access to reports of
examination made by, and reports of
condition made to the BSP or its
appropriate supervising departments,
Provided That –
• PDIC shall use the reports and findings
under similar terms and conditions
prescribed by applicable laws on the
BSP.
[Sec. 10, PDIC Charter, as amended by R.A.
7400, R.A. 9302, and R.A. 10846]
Prohibitions
Personnel of PDIC are hereby prohibited from:
a. Being an officer, director, consultant,
employee or stockholder, directly or
indirectly, of any bank or banking institution
except as otherwise provided in the PDIC
Charter;
• Exception: Members of the Board of
Directors and other personnel of PDIC may
Page 320 of 450
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become directors and officers of any bank
and banking institution and of any entity
related to such institution –
1. In connection with financial assistance
extended by PDIC to such institution;
and
2. When in the opinion of the Board, it is
appropriate to make such a designation
to protect the interest of PDIC
3. Receiving any gift or thing of value from
any officer, director or employee
thereof:
4. Revealing in any manner, except under
order of the court or authorized herein
in such condition or business of any
such institution.
• The prohibition shall not be held to apply to
the giving of information to the Board of
Directors or to any person authorized by
neither of them in writing to receive such
information. [Sec. 10, PDIC Charter, as
amended by R.A. 7400 and R.A. 10846]
Prohibition on Borrowing
From Institutions under Examination
Borrowing from the particular bank or banking
institution in which they are assigned, or are
conducting an examination by the ff. is
prohibited:
• Examiners; and
• Other personnel of the examination
departments of PDIC
From Institutions Undergoing any Action
General Rule: All personnel of other
departments, offices or units of PDIC shall
likewise be prohibited from borrowing from any
bank or banking institution during the period of
time that a transaction of such institution with
the corporation is being:
1. Evaluated,
2. Processed; or
3. Acted upon by such personnel
Exception: Certain personnel may be
exempted from the prohibition, as the Board
may, at its discretion, indicate the position
levels or functional groups to which the
prohibition is applicable.
U.P. LAW BOC BANKING
From Any Institution
Borrowing by all full-time personnel of PDIC
from any bank or banking institution shall be:
a) Secured and disclosed to the Board; and
b) Subject to such further rules and
regulations as the Board may prescribe.
[Sec. 10, PDIC Charter, as amended by
R.A. 7400 and R.A. 10846]
3. Concept of insured deposits
Insured Deposit
The term “insured deposit” means the amount
due to any bona fide depositor for legitimate
deposits in an insured bank as of the date of
closure but not to exceed P500,000.00. [Sec.
5(j)]
Adjusting the Maximum Deposit Insurance
Cover
The maximum deposit insurance coverage is
Five hundred thousand pesos (P500,000.00).
However, in case of a condition that threatens
the monetary and financial stability of the
banking system that may have systemic
consequences, as defined in Section 22 of the
PDIC Charter, as determined by the Monetary
Board, the maximum deposit insurance cover
may be adjusted –
• In such amount,
• For such a period, and/or
• For such deposit products,
- As may be determined by a
unanimous vote of the Board of
Directors in a meeting called for the
purpose, chaired by the Secretary of
Finance
- Subject to the approval of the
President of the Philippines. [Sec.5(j)]
4. Liability to depositors
Deposit liabilities required to be
insured with the PDIC
General Rule: The deposit liabilities of any
bank shall be insured with PDIC. [Sec. 6, PDIC
Charter, as amended by R.A. 10846]
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Note: Definition of “deposit” under Sec. 5(g)
Foreign currency deposits are also insured by
PDIC pursuant to R.A. 6426 (“An act instituting
a foreign currency deposit system in the
Philippines, and for other purposes”).
Depositors may receive payment in the same
currency in which the insured deposit is
denominated. [Sec. 9, R.A. 6426]
Exception: Deposits in overseas branches of
local banks are not insured with PDIC, as PDIC
insurance only covers deposits in banks
located in the Philippines.
However, any insured bank with a branch
outside the Philippines, subject to the approval
of the Board of Directors, may elect to include
for insurance its deposit obligations payable at
such branch. [Sec. 5 (g), PDIC Charter, as
amended by R.A. 9576 and R.A. 10846]
Commencement of liability
PDIC shall commence the determination of
insured deposits due the depositors of a closed
bank upon its actual takeover of the closed
bank.
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: Provided, That –
a. PDIC shall publish the notice once a week
for at least three (3) consecutive weeks in
a newspaper of general circulation; or
b. When appropriate, it shall be published in a
newspaper circulated in the community or
communities where the closed bank or its
branches are located. [Sec. 18, R.A. 9302]
Deposit accounts not entitled to
payment
PDIC shall not pay deposit insurance for the
following accounts or transactions:
a. Investment products such as bonds and
securities, trust accounts, and other similar
instruments;
U.P. LAW BOC BANKING
b. Deposit accounts or transactions which are
fictitious or fraudulent, as determined by
PDIC;
c. Deposit accounts or transactions
constituting, and/or emanating from,
unsafe and unsound banking practice/s
a. As determined by PDIC, in consultation
with the BSP;
b. After due notice and hearing, and
publication of a cease and desist order
issued by PDIC against such deposit
accounts or transactions; and
d. Deposits that are determined to be the
proceeds of an unlawful activity as defined
under the Anti-Money Laundering Act
(Republic Act 9160, as amended). [Sec.
5(g), PDIC Charter, as amended by R.A.
9576 and R.A. 10846]
Funds placed in the Manila Branch by the head
office or the latter’s other offshore branches are
not third-party deposits that are insurable with
PDIC, since the Manila Branch and its head
office and such other branches comprise only
one juridical entity; hence, there is no
depositary-depositor relationship between or
among them [PDIC v. Citibank, N.A., 669
SCRA 191 (2012)].
Extent of liability
PDIC covers only the risk of a bank closure
ordered by the Monetary Board. Thus, bank
losses due to theft, fire, closure by reason of
strike or existence of public disorder, revolution
or civil war, are not covered by PDIC.
Determination of insured deposits
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 or her benefit either in
his or her own name or in the name of others.
[Sec. 5(j)]
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In PDIC v. Gidwani, 867 SCRA 581 (2018),
Gidwani used his helpers and rank-and-file
employees to create several deposit accounts
ostensibly held by them but actually beneficially
owned by him, for the purpose of increasing his
deposit insurance cover. The Supreme Court
held that “the entitlement to a deposit insurance
is based not on the number of bank accounts
held, but on the number of beneficial owners.”
In this case, there was only one beneficial
owner of the several bank accounts (namely,
Gidwani); hence, he was only entitled to
P250,000 (then the maximum deposit
insurance cover under the PDIC Charter) for all
the deposit accounts.
Note: No owner/holder of any passbook,
certificate of deposit or other evidence of
deposit shall be recognized as a depositor
entitled to the rights provided in the PDIC
Charter unless the same is determined by
PDIC to be an authentic document or record of
the issuing bank. [Sec. 5(j)]
Calculation of liability
i. Per depositor, per capacity rule
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 or her benefit either in
his or her own name or in the name of others.
[Sec. 3, R.A. 9576]
ii. 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: Provided, That –
U.P. LAW BOC BANKING COMMERCIAL LAW

insured deposit. [Sec. 19, PDIC Charter, as

Holder of Account Division of
Maximum Insured
Deposit
If the account is held GR: The maximum
jointly by two or more insured deposit shall
natural persons, or by be divided into as
two or more juridical many equal shares
persons or entities as there are
individuals, juridical
persons or entities.
EX: Unless a different
sharing is stipulated
in the document of
deposit
If the account is held The maximum
by a juridical person insured deposit shall
or entity jointly with be presumed to
one or more natural belong entirely to
persons such juridical person
or entity.
amended by R.A. 10846]
iv. Effect of payment of insured deposits
PDIC, upon payment of any depositor, 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 PDIC to receive the same dividends and
payments from the –
1. Proceeds of the assets of such closed
bank; and
2. Recoveries on account of stockholders’
liability, as would have been payable to the
depositor on a claim for the insured
deposits.
Note: However, such depositor shall retain his
claim for any uninsured portion of his deposit.
[Sec. 20, PDIC Charter, as amended by R.A.
10846]

The aggregate of the interest of each co-owner v. Payment of insured deposits as

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. 5(j)]
iii. Mode of payment
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 PDIC as soon as possible either:
(a) by cash; or
(b) by making available to each depositor a
transferred deposit in another insured bank
in an amount equal to insured deposit of
such depositor.
Provided, however, That PDIC, in its discretion,
may:
1. Require proof of claims to be filed before
paying the insured deposits; and
2. Require final determination of a court of
competent jurisdiction before paying such
claim, in any case where PDIC is not
satisfied as to the viability of a claim for an
preferred credit
All payments by PDIC of insured deposits in
closed banks –
1. Partake of the nature of public funds; and
2. 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
a. This preference shall be likewise
effective upon liquidation
proceedings already commenced
and pending as of the approval of
the PDIC Charter, where no
distribution of assets has been
made [Sec. 20, PDIC Charter, as
amended by R.A. 10846].
b. Note: Taxes due to the National
Government are ranked 9th out of
the 14 enumerated ordinary
preferred credits under Art. 2244
Implications of Status as Ordinary
Preferred Credit
(1) Ordinary preferred credits enjoy a
preference, excluding the credits that are

Page 323 of 450

U.P. LAW BOC BANKING
later in order, but only as against the value
of the property not otherwise subjected to
any special preferred credit.
(2) Does not create a lien on specific property;
(3) Creates rights in favor of certain creditors
to have the free property of the debtor
applied in accordance with an order of
preference. [Art. 2244, NCC; Somera]
vi. Failure to settle claim of insured
depositor
General Rule: The 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 PDIC responsible for the delay,
to imprisonment from six (6) months to one
year, where such failure was due to –
1. Grave abuse of discretion,
2. Gross negligence,
3. Bad faith, or
4. Malice
Exception: The six-month period shall not
apply if the validity of the claim requires the
resolution of issues of facts and or law –
1. By another office, body or agency; or
2. By PDIC together with such other office,
body or agency [Sec. 19, PDIC Charter, as
amended by R.A. 10846]
vii. Failure of depositor to claim insured
deposits
If the depositor in the closed bank shall fail to
claim his insured deposits with PDIC within
two (2) years from actual takeover of the
closed bank by the receiver, or does not
enforce his claim filed with the corporation
within two (2) years after the two-year
period to file a claim:
(a) All rights of the depositor against
PDIC with respect to the insured deposit
shall be barred;
(b) However, all rights of the depositor against
the closed bank and its shareholders or the
receivership estate to which PDIC may
have become subrogated, shall thereupon
revert to the depositor.
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COMMERCIAL LAW
(c) Thereafter, PDIC shall be discharged from
any liability on the insured deposit. [Sec.
18, R.A. 9302]
Note: PDIC may waive the
abovementioned two-year period.
(a) Examination of banks and deposit
accounts
Power to Conduct Examination of Banks
PDIC, as a corporate body, shall have the
power to conduct examination of banks with
prior approval of the Monetary Board,
Provided, That –
- No examination can be conducted within
twelve (12) months from the last
examination date;
- However, PDIC may conduct a special
examination, in coordination with the BSP,
as the Board of Directors:
a. By an affirmative vote of a majority
of all of its members; and
b. If there is a threatened or
impending closure of a bank [Sec.
9(8), PDIC Charter, as amended by
R.A. 9576 and R.A. 10846]
Power to Inquire into Deposit Accounts
PDIC and/or the BSP, may inquire into or
examine deposit accounts and all information
related thereto
1. In case there is a finding of unsafe or
unsound banking practice
2. Notwithstanding the provisions of:
a. Republic Act No. 1405, as amended
b. Republic Act No. 6426, as amended,
c. Republic Act No. 8791, and
d. Other laws
To avoid overlapping of efforts, the
examination of banks and deposit accounts
shall maximize the efficient use of the relevant
reports, information, and findings of the BSP,
which it shall make available to PDIC. [Sec.
9(8), PDIC Charter, as amended by R.A. 9576
and R.A. 10846]
U.P. LAW BOC BANKING
Refusal to Permit Examination
Any unjustified refusal to permit examination
and audit of the deposit records or the affairs of
the institution shall, at the discretion of the
court, be punished by imposing upon any
director, officer, employee or agent of a bank:
(a) The penalty of imprisonment of not less
than six (6) years but not more than twelve
(12) years; or
(b) A fine of not less than Fifty thousand pesos
(P50,000.00) but not more than Two million
pesos (P2,000,000.00); or
(c) Both imprisonment and the fine. [Sec.
26(f)(1)(b), PDIC Charter, as amended by
R.A. 10846]
(b) Prohibition against splitting of
deposits
Splitting of Deposits
Occurs whenever a deposit account with an
outstanding balance of more than the statutory
maximum amount of insured deposit,
maintained under the name of natural or
juridical persons, is broken down and
transferred into two or more accounts –
In the name/s of natural or juridical persons or
entities who have no beneficial ownership on
transferred deposits in their names;
Either:
- Within one hundred twenty (120) days
immediately preceding a bank holiday; or
- During a bank-declared bank holiday, or
- Within one hundred twenty (120) days
immediately preceding a closure order
issued by the Monetary Board of the BSP
for the purpose of availing of the maximum
deposit insurance coverage. [Sec.
26(f)(1)(e), PDIC Charter, as amended by
R.A. 10846]
Penalty for Splitting of Deposits
The splitting of deposits or creation of fictitious
or fraudulent loans or deposit accounts shall, at
the discretion of the court, be punished by
imposing upon any director, officer, employee
or agent of a bank:
(a) The penalty of imprisonment of not less
than six (6) years but not more than twelve
(12) years; or
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COMMERCIAL LAW
(d) A fine of not less than Fifty thousand pesos
(P50,000.00) but not more than Two million
pesos (P2,000,000.00); or
(e) Both imprisonment and the fine. [Sec.
26(f)(1)(e), PDIC Charter, as amended by
R.A. 10846]
(c) Prohibition against issuances of
temporary restraining orders
The actions of the Board of Directors of PDIC,
namely, determining and prescribing, by
regulations, what are considered as deposit
liabilities of the bank under Section 5(g) shall
be final and executory. [Sec.5(g), PDIC
Charter, as amended by R.A. No. 10846]
Such actions may only be restrained or set
aside by the Court of Appeals, upon
appropriate petition for certiorari on the ground
that –
a. The action was taken in excess of
jurisdiction; or
b. The action was taken with such grave
abuse of discretion as to amount to a lack
or excess of jurisdiction.
The petition for certiorari may only be filed
within thirty (30) days from notice of denial of
claim for deposit insurance. [Sec.5(g), PDIC
Charter, as amended by R.A. No. 10846]
5. Concept of bank resolution
Definition
The term resolution refers to the actions
undertaken by PDIC under Section 11 of the
PDIC Charter to:
a. Protect depositors, creditors and the DIF;
b. Safeguard the continuity of essential
banking services or maintain financial
stability; and
c. Prevent deterioration or dissipation of bank
assets. [Sec.5(s), PDIC Charter, as
amended by R.A. No. 10846]
U.P. LAW BOC BANKING
Grounds for the Resolution of a Bank
PDIC, in coordination with the BSP may
commence the resolution of a bank under the
PDIC Charter upon:
(a) Failure of prompt corrective action as
declared by the Monetary Board; or
(f) Request by a bank to be placed under
resolution. [Sec. 11(a), PDIC Charter, as
amended by R.A. 10846]
The Role of the PDIC in Bank Resolution
PDIC shall:
A. Inform the bank of its eligibility for entry into
resolution. [Sec. 11(a), PDIC Charter, as
amended by R.A. 10846]
B. Have the authority to inquire and monitor
the status of banks under prompt corrective
action. [Sec. 11(b), PDIC Charter, as
amended by R.A. 10846]
C. Determine whether the bank may be
resolved through the purchase of all its
assets and assumption of all its liabilities,
or merger or consolidation with, or its
acquisition, by a qualified investor
a. Within a period of one hundred eighty
(180) days from a bank's entry into
resolution
b. Through the affirmative vote of at least
five (5) members of the PDIC Board.
[Sec. 11(e), PDIC Charter, as amended
by R.A. 10846]
Note: If PDIC determines that the bank
may not be resolved, the Monetary
Board may act in accordance with
Section 30 of Republic Act No. 7653 or
the New Central Bank Act. [Sec. 11(i),
PDIC Charter, as amended by R.A.
10846]
The Role of the BSP in Bank Resolution
The BSP shall:
a. Inform PDIC of the initiation of prompt
corrective action on any bank; and
b. Be authorized to share with PDIC all
information, agreements or documents,
including any order of the Monetary Board,
in relation to the prompt corrective action.
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COMMERCIAL LAW
Failure of Prompt Corrective Action
PDIC, its duly authorized officers or
employees, may examine, inquire or look
into the deposit records of a bank when
there is a failure of prompt corrective action as
declared by the Monetary Board due to capital
deficiency.
However, such authority may not be exercised
when such failure is due to grounds other than
capital deficiency.
For this purpose, banks their officers and
employees are hereby mandated to disclose
and report deposit account information in said
bank to PDIC or its duly authorized officers and
employees. [Sec. 11(c), PDIC Charter, as
amended by R.A. 10846]
Obligations of the Bank Undergoing
Resolution
The stockholders, directors, officers or
employees of the bank shall have the following
obligations:
(1) Ensure bank compliance with the terms
and conditions prescribed by PDIC for the
resolution of the bank;
(2) Cause the engagement, with the consent of
PDIC, of an independent appraiser or
auditor for the purpose of determining the
valuation of the bank consistent with
generally accepted valuation standards;
(3) Ensure prudent management and
administration of the bank's assets,
liabilities and records; and
(4) Cooperate with PDIC in the conduct or
exercise of any or all of its authorities under
the PDIC Charter and honor in good faith
its commitment or undertaking with PDIC
on the resolution of the bank. [Sec. 11(d),
PDIC Charter, as amended by R.A. 10846]
6. Role of the PDIC in relation to
banks in distress
Closure and takeover
Whenever a bank is ordered closed by the
Monetary Board, the Corporation shall:
(1) Be designated as receiver; and
U.P. LAW BOC BANKING
(2) Proceed with the takeover and liquidation
of the closed bank in accordance with the
PDIC Charter.
For this purpose, banks closed by the Monetary
Board shall no longer be rehabilitated. [Sec. 12,
PDIC Charter, as amended by R.A. No. 10846]
Designation of PDIC as Receiver
Upon the designation of PDIC as receiver of a
closed bank, it shall:
(1) Serve a notice of closure to the highest-
ranking officer of the bank present in the
bank premises; or
(2) Post the notice of closure in the bank
premises or on its main entrance, in the
absence of such officer.
Closure and Takeover of Bank
The closure of the bank shall be deemed
effective upon the service of the notice of
closure.
Thereafter, the receiver shall takeover the
bank and exercise the powers of the receiver
as provided in the PDIC Charter. [Sec.14(a),
PDIC Charter, as amended by R.A. No. 10846]
Conservatorship
Grounds for Appointment of a Conservator
Whenever, on the basis of a report submitted
by the appropriate supervising or examining
department, the Monetary Board finds that a
bank or quasi-bank is:
a) In a state of continuing inability; or
b) Unwilling to maintain a condition of liquidity
deemed adequate to protect the interest of
depositors and creditors. [Sec. 29, R.A.
7653, as amended]
The designation of a conservator shall be
vested exclusively in the Monetary Board.
[Sec. 30, R.A. 7653, as amended]
Qualifications of a Conservator
The conservator should be:
(1) Competent and knowledgeable in bank
operations and management;
(2) A natural person to be appointed by the
Monetary Board. In contrast, the receiver is
Page 327 of 450
COMMERCIAL LAW
generally the PDIC. [Sec. 29, R.A. 7653, as
amended]
Note: The designation of a conservator is not a
precondition to the designation of a receiver.
[Sec. 30, R.A. 7653, as amended]
Receivership
Grounds
The Monetary Board may summarily, and
without need for prior hearing, forbid the
institution from doing business in the
Philippines and designate the PDIC as
receiver of the banking institution whenever –
Upon report of the head of the supervising or
examining department, the Monetary Board
finds that a bank or quasi-bank:
(a) Is unable to pay its liabilities as they
become due in the ordinary course of
business: Provided, That this shall not
include inability to pay caused by
extraordinary demands induced by
financial panic in the banking community;
(b) Has insufficient realizable assets, as
determined by the BSP, to meet its
liabilities; or
(c) Cannot continue in business without
involving probable losses to its depositors
or creditors; or
(d) Has willfully violated a cease and desist
order under Section 37 of the New Central
Bank Act that has become final, involving
acts or transactions which amount to fraud
or a dissipation of the assets of the
institution; in which cases,
Note: For a quasi-bank, any person of
recognized competence in banking or
finance may be designated as receiver.
[Sec. 30, R.A. 7653, as amended]
Specific Powers of the PDIC as Receiver
In addition to the powers of a receiver provided
under existing laws (see Sec. 30, R.A. 7653),
PDIC, as receiver of a closed bank, is
empowered to:
(1) Represent and act for and on behalf of the
closed bank;
U.P. LAW BOC BANKING
(2) Gather and take charge of all the assets,
records and affairs of the closed bank, and
administer the same for the benefit of its
creditors;
(3) Convert the assets of the closed bank to
cash or other forms of liquid assets, as far
as practicable;
(4) Bring suits to enforce liabilities of the
directors, officers, employees, agents of
the closed bank and other entities related
or connected to the closed bank or to
collect, recover, and preserve all assets,
including assets over which the bank has
equitable interest;
(5) Appoint or hire persons or entities of
recognized competence in banking,
finance, asset management or remedial
management, as its deputies, assistants or
agents, to perform such powers and
functions of PDIC as receiver of the closed
bank, or assist in the performance thereof;
(6) Appoint or hire persons or entities of
recognized competence in forensic and
fraud investigations;
(7) Pay accrued utilities, rentals and salaries of
personnel of the closed bank for a period
not exceeding three (3) months, from
available funds of the closed bank;
(8) Collect loans and other claims of the closed
bank and for this purpose, modify,
compromise or restructure the terms and
conditions of such loans or claims as may
be deemed advantageous to the interests
of the creditors of the closed bank;
(9) Hire or retain private counsel as may be
necessary;
(10) Borrow or obtain a loan, or mortgage,
pledge or encumber any asset of the closed
bank, when necessary to preserve or
prevent dissipation of the assets, or to
redeem foreclosed assets of the closed
bank, or to minimize losses to its depositors
and creditors;
(11) If the stipulated interest rate on
deposits is unusually high compared with
prevailing applicable interest rates, PDIC
as receiver, may exercise such powers
which may include a reduction of the
interest rate to a reasonable rate: Provided,
That any modifications or reductions shall
apply only to earned and unpaid interest;
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(12) Utilize available funds of the bank,
including funds generated by the receiver
from the conversion of assets to pay for
reasonable costs and expenses incurred
for the preservation of the assets, and
liquidation of, the closed bank, without
need for approval of the liquidation court;
For banks with insufficient funds, PDIC is
authorized to advance the foregoing costs
and expenses, and collect payment, as and
when funds become available.
(13) Charge reasonable fees for the
liquidation of the bank from the assets of
the bank: Provided, That payment of these
fees, including any unpaid advances under
the immediately preceding paragraph, shall
be subject to approval by the liquidation
court;
(14) Distribute the available assets of the
closed bank, in cash or in kind, to its
creditors in accordance with the Rules on
Concurrence and Preference of Credits
under the Civil Code or other laws;
(15) Dispose records of the closed bank that
are no longer needed in the liquidation in
accordance with guidelines set by the PDIC
Board of Directors, notwithstanding the
laws on archival period and disposal of
records; and
(g) Exercise such other powers as are inherent
and necessary for the effective discharge
of the duties of PDIC as receiver.
[Sec.13(b), PDIC Charter, as added by
R.A. No. 10846]
Liquidation
The receiver is authorized to adopt and
implement, without need of consent of the
stockholders, board of directors, creditors or
depositors of the closed bank, any or a
combination of the following modes of
liquidation:
(a) Conventional liquidation; and
(h) Purchase of assets and/or assumption of
liabilities [Sec.13(a), PDIC Charter, as
amended by R.A. No. 10846]
U.P. LAW BOC BANKING
The placement of a bank under liquidation shall
have the following effects:
(1) On the corporate franchise or existence:
Upon placement by the Monetary Board of
a bank under liquidation, it shall continue
as a body corporate until the termination of
the winding-up period under Section 16 of
the PDIC Charter.
- The receiver shall represent the closed
bank in all cases by or against the
closed bank and prosecute and defend
suits by or against it.
- In no case shall the bank be reopened
and permitted to resume banking
business after being placed under
liquidation.
(2) On the powers and functions of its
directors, officers and stockholders:
The powers, voting rights, functions and
duties, as well as the allowances,
remuneration and perquisites of the
directors, officers, and stockholders of such
bank are terminated upon its closure.
- Accordingly, the directors, officers, and
stockholders shall be barred from
interfering in any way with the assets,
records, and affairs of the bank.
- The receiver shall exercise all
authorities as may be required to
facilitate the liquidation of the closed
bank for the benefit of all its creditors.
(3) On the assets: Upon service of notice of
closure as provided in Section 14 of the
PDIC Charter, all the assets of the closed
bank shall he deemed in custodia legis in
the hands of the receiver, and as such,
these assets may not be subject to
attachment, garnishment, execution, levy
or any other court processes.
- A judge, officer of the court or any
person who shall issue, order, process
or cause the issuance or
implementation of the garnishment
order, levy, attachment or execution,
shall be liable under Section 27 of the
PDIC Charter.
- Collaterals securing the loans and
advances granted by the BSP shall not
be included in the assets of the closed
bank for distribution to other creditors;
Page 329 of 450
COMMERCIAL LAW
o The proceeds in excess of the
amount secured shall be
returned by the BSP to the
receiver.
- Any preliminary attachment or
garnishment on any of the assets of the
closed bank existing at the time of
closure shall not give any preference to
the attaching or garnishing party.
- Upon motion of the receiver, the
preliminary attachment or garnishment
shall be lifted and/or discharged.
(4) On labor relations: Notwithstanding the
provisions of the Labor Code, the
employer-employee relationship between
the closed bank and its employees shall be
deemed terminated upon service of the
notice of closure of the bank in accordance
with the PDIC Charter.
- Payment of separation pay or benefits
provided for by law shall be made from
available assets of the bank in
accordance with the Rules on
Concurrence and Preference of Credits
under the Civil Code or other laws.
(5) On contractual obligations: The receiver
may cancel, terminate, rescind or repudiate
any contract of the closed bank
- If the contract is not necessary for the
orderly liquidation of the bank; or
- If the contract is grossly
disadvantageous to the closed bank; or
- For any ground provided by law.
(6) On interest payments: The liability of a
bank to pay interest on deposits and all
other obligations as of closure shall cease
upon its closure by the Monetary Board
without prejudice to the first paragraph of
Section 85 of Republic Act No. 7653 (the
New Central Bank Act).
- Thw receiver shall have the authority,
without need for approval of the
liquidation court, to assign, as payment
to secured creditors, the bank assets
serving as collaterals to their respective
loans up to the extent of the
outstanding obligations, including
interest as of date of closure of the
hank, as validated by the receiver.
- The valuation of the asset shall be
based on the prevailing market value of
U.P. LAW BOC BANKING COMMERCIAL LAW

the collaterals as appraised by an the distribution of the assets of the

independent appraiser on an ‘as is closed bank.
where is’ basis. (12) All assets, records, and documents in
(7) On liability for penalties and surcharges the possession of the closed bank at the
for late payment and nonpayment of time of its closure are presumed held by the
taxes: From the time of closure, the closed bank in the concept of an owner.
bank shall not be liable for the payment of (13) The exercise of authority, functions,
penalties and surcharges arising from the and duties by the receiver under this Act
late payment or nonpayment of real shall be presumed to have been performed
property tax, capital gains tax, transfer tax in the regular course of business.
and similar charges. (14) Assets and documents of the closed
(8) On bank charges and fees: The receiver bank shall retain their private nature even if
may impose, on behalf of the closed bank, administered by the receiver. Matters
charges and fees for services rendered relating to the exercise by the receiver of
after bank closure, such as, but not limited the functions under this Act shall be subject
to, the execution of pertinent deeds and to visitorial audit only by the Commission
certifications. on Audit. [Sec. 13(e), PDIC Charter, as
(9) Actions pending for or against the amended by R.A. 10846]
closed bank: Except for actions pending
before the Supreme Court, actions pending
for or against the closed bank in any court
or quasi-judicial body shall, upon motion of
the receiver:
- Be suspended for a period not
exceeding one hundred eighty (180)
days;
- Referred to mandatory mediation; and
- Referred back to the court or quasi-
judicial body for further proceedings
upon termination of the mediation.
(10) Final decisions against the closed
bank: The execution and enforcement of a
final decision of a court other than the
liquidation court against the assets of a
closed bank shall be stayed. The prevailing
party shall file the final decision as a claim
with the liquidation court and settled in
accordance with the Rules on Concurrence
and Preference of Credits under the Civil
Code or other laws.
(11) Docket and other court fees:
Payment of docket and other court fees
relating to all cases or actions filed by the
receiver with any judicial or quasi-judicial
bodies shall be deferred until the action is
terminated with finality.
- Any such fees shall constitute as a first
lien on any judgment in favor of the
closed bank or in case of unfavorable
judgment, such fees shall be paid as
liquidation costs and expenses during

Page 330 of 450