JANUARY 18, 2017 MORTEJO, JENNIFER

The last time we met, we talked about the fit and proper rule under Section 16. And in connection with that
section is the Circular No. 296 dated September 17, 2001 (Medyo taas siya so dili na nako i-incorporate diri
ha). The BSP has prescribed additional qualifications to the Members of the Board of Directors of banks and
quasi-banks. And not all the prescribed additional qualifications, they can pass upon the qualifications of
specific members of the Board. In determining whether an individual is fit and proper to hold the position of a
director or officer of a bank, regard shall be given to the integrity, experience, education, training, and
competence of the person.

So, how does the BSP had qualifications? For instance, they can require that Members of the Board must attend
certain types of training or seminars and that the Members of the Board of the bank pay for the consequence.
The consequence is if you do not attend these trainings, you are not fit and so you can be removed as a Director
if you still continue to serve in the Board of the bank without the requisite training. That is the example of fit
and proper rule.

Let us say one of the Directors of the bank is a well-known private lender. He is engaged in the 5-6 business. He
lends out 5 pesos on Monday and on Friday, it becomes 6 pesos. Suppose the BSP sends operatives and they are
successful of borrowing money from this person. Then the BSP can suspend or remove that Board Director.

Any other examples of how the BSP implements the fit and proper rule? The provision goes this way,
SECTION 16. Fit and Proper Rule. To maintain the quality of bank management and afford better protection to
depositors and the public in general, the Monetary Board shall prescribe, pass upon and review the qualifications and
disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit.

After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank
director or officer who commits or omits an act which render him unfit for the position.

In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be
given to his integrity, experience, education, training, and competence. (9-Aa)

This is a very important provision. Remember, the BSP acts even before it gives the concerned Director a
chance to argue his case. They suspend you first and when you complain, thats the time theyll listen. Why?
Because banking is a privilege and the welfare of the banking public is paramount compared to the welfare of
the members of the Board. That is why the Government acts first and then hears later.

Alright, I told you about the leeway that is given banks if they merge or they consolidate. But the maximum
number has been increased from the maximum number of directors of a corporation in the Corporation Code.
Section 17 now provides:
SECTION 17. Directors of Merged or Consolidated Banks. In the case of a bank merger or consolidation, the number
of directors shall not exceed twenty-one (21). (13a)

So for mergers and consolidation, the corporation maximum limit of 15 has been stretched to 21. That is in
order to encourage mergers and consolidations. A more capitalized bank, the less probability or possibility that
its going to be bankrupt and the more services it can offer to the public. That is the reasoning. If the egos of the
Directors are what prevent the merger, then this law accommodates all of them in the Board of Directors
because the number has been increased to 21.

Other ways that BSP controls the bank so that its Directors will not abuse, by way of getting compensation and
other benefits that is deleterious to the bank and the banking public.
SECTION 18. Compensation and Other Benefits of Directors and Officers. To protect the funds of depositors and
creditors, the Monetary Board may regulate the payment by the bank to its directors and officers of compensation, allowance,
 fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant,
such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n)

Father (referring to 18.1): it is still the conservator that controls. The conservator has power to counteract a
resolution, (of the more?), paying the compensation of Directors or officers.
(Referring to 18.3): Ah. That is very general, when it is found to be in an unsatisfactory financial condition.

Now, universal bank and a commercial bank are distinguished by the type of businesses that they can enter into.
Commercial banks can only enter into allied businesses but a universal bank can enter into non-allied
businesses. And the list is given as to these businesses in the Manual of Regulations for Banks (MORB), as
amended by BSP Circular No. 263 (dili nako ma-search pero naa ko nakita sa MORB na same sa gi-
enumerate ni Father),

Sec. X377 Financial Allied Undertakings - With prior BSP approval, banks may invest in equities of the following financial
allied undertakings, subject to the limits prescribed under Sec. X378:
a. Leasing companies including leasing of stalls and spaces in a commercial establishment: Provided, That bank investment
in/acquisition of shares of such leasing company shall be limited/applicable only in cases of conversion of outstanding loan
obligations into equity;
b. Banks;
c. IHs;
d. Financing companies;
e. Credit card companies;
f. FIs catering to small and medium scale industries including venture capital corporation (VCC), subject to the provisions of
Sec. X379 and its subsections;
g. Companies engaged in stock brokerage/securities dealership; and
h. Companies engaged in foreign exchange dealership/brokerage.

In addition, UBs may invest in the following as financial allied undertakings:

(1) Insurance companies; and
(2) Holding company: Provided, That the investments of such holding company are confined to the equities of allied
undertakings and/or non-allied undertakings of UBs allowed under BSP regulations.

The Monetary Board may declare such other activities as financial allied undertakings of banks.

The determination of whether the corporation is engaged in a financial allied undertaking shall be based on its primary
purpose as stated in its articles of incorporation and the volume of its principal business.

The non-financial allied enterprises are also listed, these are:

Xxx
UBs/KBs and TBs may invest in equities of the following non-financial allied undertakings:
(1) Warehousing companies;
(2) Storage companies;
(3) Safe deposit box companies;
(4) Companies primarily engaged in the management of mutual funds but not
in the mutual funds themselves;
(5) Management corporations engaged or to be engaged in an activity similar to the management of mutual funds;
(6) Companies engaged in providing computer services;
(7) Insurance agencies/brokerages;
(8) Companies engaged in home building and home development;
(9) Companies providing drying and/or milling facilities for agricultural crops such as rice and corn;
(10) Service bureaus, organized to perform for and in behalf of banks and NBFIs the services allowed to be outsourced
 enumerated in Sec. X169: Provided, That data processing companies may be allowed to invest up to forty percent (40%) in
the equity of service bureaus;
(11) Philippine Clearing House Corporation (PCHC), Philippine Central Depository, Inc. and Fixed Income Exchange; and
(12) Such other similar activities as the Monetary Board may declare as nonfinancial allied undertakings of banks.

UBs may further invest in health maintenance organizations (HMOs).

Commercial banks, if they engage in allied businesses, these businesses are open to be examined by BSP
examiners. If universal banks engage in non-allied banking enterprises, these enterprises are also open to be
examined by the BSP.

Alright, what is an SBL? Section 35 of the General Banking Law provides for it. An SBL is called a Single
Borrowers Limit. It regulates the total amount of loans, credit accommodations and guarantees that may be
extended by a bank to any person, partnership, association, corporation or other entity. The Rules seek to protect
a bank from making excessive loans to a single borrower by prohibiting it from lending beyond the specified
ceiling. The current ceiling is 20% of the net worth of the bank concerned, subject to possible increase by an
additional 10% under certain conditions.

Example, you are a Corporation and you just have won the bid to revise, rebuild and enlarge Manila
International Airport. And based on the stipulations and pointers approved by the NEDA, you will bid 60 billion
pesos at present expense. Now, the capital needed for a mini-bank is not even 10 billion pesos. Where will you
borrow 60 billion pesos? That is when banks will organize themselves into syndication. Several banks come
together and they will lend you, let us say of that amount. The bank that lends the biggest amount will be
called the lead bank. What is the function of the lead bank? The lead bank holds the collateral for and in
behalf of the syndication. Lain man kaayo na paminawon ang sindikato, but a syndication is a way to hurdle the
limitations of Single Borrowers Limit. A bank cannot lend more than 20% of its net worth but banks would like
to lend to these kinds of projects. Why? Because these are public utilities, you can almost forecast the earnings
of public utilities. So, they will lend and sometimes they will even borrow in order to be able to lend.

So, the type of documentation that is needed is considerable if you do have many banks involved. And to reduce
the agreement into contract, the lawyers have to cooperate and do the work. Because when the bankers sit
down, they make agreements and then lawyers have to reduce it into contract language. So the rule is more than
20% of the net worth of the bank cannot be lend out to just one single borrower. And that single borrower is not
necessarily an individual. It can be a partnership, association, corporation or recognizable business interest.
(whole provision)
SECTION 35. Limit on Loans, Credit Accommodations and Guarantees.
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit
accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed twenty percent (20%) of the net worth of such
bank. The basis for determining compliance with single-borrower limit is the total credit commitment of the bank to the
borrower.

35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations and guarantees
prescribed in the preceding paragraph may be increased by an additional ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse
receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which
must be fully covered by insurance.

35.3. The above prescribed ceilings shall include: (a) 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;
(b) 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;
 (c) 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
(d) in the case of a partnership, association or other entity, the liabilities of the members thereof to such bank.

35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or controls a majority interest in
such entities has no liability to the bank, the Monetary Board 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: (a) the parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities;
(b) 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
(c) the subsidiaries though separate entities operate merely as departments or divisions of a single entity.

35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:
(a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the Philippine Government;
(b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest;
(c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the
Philippines;
(d) loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and (e)
other loans or credit accommodations which the Monetary Board may from time to time, specify as non-risk items.

35.6. 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 limits as herein prescribed.

35.7. Certain types of contingent accounts of borrowers may be included among those subject to these prescribed limits as
may be determined by the Monetary Board. (23a)

Alright, we already talked about DOSRI. What is DOSRI again? Directors, officers, stockholders, related
interests (e.g. asawa sa officer sa banko). You have to read the BSP Circular No. 170 because related
interests is the most complicated. It traces corporate relations and it also traces relationship by consanguinity
and affinity. So, what are the formalities required to be observed by a Director or officer of a bank who wishes
to borrow from such bank? (Section 36)
a. The borrowing must be with the written approval of the majority of all the directors of the bank,
excluding the director or officer concerned;
Remember, the corporation law is a self-dealing provision. When a corporation enters into an agreement
with a Director, the Directors presence must not be included in the determination of the quorum. His
vote must not be necessary to make the majority vote that is required for approval.

b. Such approval must be entered upon the records of the bank;

That is the minutes of the Board meeting in which the approval was given. Remember, the BSP has
access to all the minutes of the Boards meetings. Now why is it necessary to state it must be the Board
of Directors that must approve the DOSRI loan? It is necessary because most banks, to facilitate faster
approval of loans, they have thresholds. Example, some loans just require approval of the Executive
Committee. Some smaller loans just require the approval of a VP. Now, if the loan of a DOSRI falls
within that amount that just requires the approval of the Executive Committee, is that sufficient? The
answer is no matter how small the loan, if it is a DOSRI loan, it must be approved by the Board of
Directors. To be safe, corporate secretaries makes all the members of the Board sign the DOSRI loan
approval. And then the minutes itself must also be signed by everybody because it is stated that the
approval must be recorded in the minutes of the Board meeting in which the approval was made. Again,
let me remind you, the formalities are more important than the legality itself.

c. A copy of such entry shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral;
 Under the New Central Bank Act, what is required is that the DOSRI must waive his/her right to secrecy
of bank deposits. Now, tagaan kag problem sa BAR Examination (had to include this one kay murag
importante): naay tiguwang 84 years old, grandmother diay sa Executive VP sa bangko. Wa kahibalo
ang Executive VP nga nisud ang tiguwang sa bangko kay manghuwam syag kwarta kay magpabuhat na
siya sa iyang mausoleum. Kadaut lang, pag-examine sa bangko, wa sila magkasinabot kay bungol2 na
ang tiguwang. Tawgon dayon nila ang Executive VP para siya nalang ang magco-signatory sa loan sa
tiguwang ug nisugot pud ang Executive VP ug nipirma dayon siya. What has happened? You have a
DOSRI loan and the formalities have not yet been complied with and theyve already released the loan.
Thats a violation. Another example, kung manager ka sa branch, officer na ka. Unya nag-emergency
loan ka kay na-caesarian imong asawa. Deretso lang dayon unya release, DOSRI na.

d. Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be
upon terms not less favorable to the bank than those offered to others;

e. It shall be limited to an amount equivalent to their respective unencumbered deposits and book value of
their paid-in capital contribution in the bank;
What is the meaning of an unencumbered deposits? How is a deposit encumbered? Ug nakahuwam
na diay ka sa una unya ang imong security sa imong gihuwam kay ang imo ra sad deposits. So mu-sign
ka ug non-withdrawal agreement. You cannot withdraw your bank deposit for as long as your loan is
outstanding. Now mu-DOSRI pa ka, muhuwam na sad ka usab, di na to iapil sa value nga imong
mahuwam because it is already encumbered. That is the meaning of unencumbered deposits.

Section 36 says, The Monetary Board shall define the term "related interests" and its definition is found in BSP
Circular No. 170.
(whole provision)
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. No
director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from
such bank nor shall he become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an obligor
or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required
approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate
supervising and examining department of the Bangko Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less
favorable to the bank than those offered to others.

After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions of
this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank
Act.

The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in
enterprises owned or controlled by said directors, officers, stockholders and their related interests. However, the outstanding
loans, credit accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and
their related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their
paid-in capital contribution in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may be prescribed
by the Monetary Board shall not be subject to the individual limit.

The Monetary Board shall define the term "related interests."

 The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and
guarantees extended by a cooperative bank to its cooperative shareholders. (83a)

Loan includes financial accommodation and shall refer to transactions which involve the grant, renewal or
extension of increase of any loan (BSP Circular No.170). You have heard of a credit-line. Bank grants to a
corporation the credit-line, that is a loan. But it is called a line because it is at the option of the borrower when it
activates.

Also under DOSRI, there is a special credit limit against real estate. Section 37 says,
SECTION 37. Loans and Other Credit Accommodations Against Real Estate. Except as the Monetary Board may
otherwise prescribe, loans and other credit accommodations against real estate shall not exceed seventy-five percent (75%) of
the appraised value of the respective real estate security, plus sixty percent (60%) of the appraised value of the insured
improvements, and such loans may be made to the owner of the real estate or to his assignees. (78a)

Except as the Monetary Board may otherwise prescribe so, the Monetary Board can modify this one.
But then Section 42 says,
SECTION 42. Other Security Requirements for Bank Credits. The Monetary Board may, by regulation, prescribe further
security requirements to which the various types of bank credits shall be subject, and, in accordance with the authority granted
to it in Section 106 of the New Central Bank Act, the Board may by regulation, reduce the maximum ratios established in
Sections 36 and 37 of this Act, or, in special cases, increase the maximum ratios established therein. (78)

So this is very generous, diba? 75% of the appraised value of the security.

Sections 40, 43 and 44 are about microfinancing. This is implemented by BSP Circular No. 272 dated January
30, 2001 and BSP Circular No. 273 dated February 27, 2001.

Date Issued: 01.30.2001

CIRCULAR NO. 272

Series of 2001

Pursuant to Monetary Board Resolution No. 40 dated January 11, 2001, the following guidelines shall be observed in
implementing the provisions of Sections 40, 43 and 44 of the General Banking Law of 2000 with respect to microfinancing
loans:
1. Microfinancing loans are small loans granted to the basic sectors, as defined in the Social Reform and Poverty
Alleviation Act of 1997 (Republic Act 8425), and other loans granted to the poor and low-income households for their
microenterprises and small businesses so as to enable them to raise their income levels and improve their living
standards. These loans are granted on the basis of the borrowers cash flow and are typically unsecured.

2. The maximum principal amount of microfinance loans shall not exceed P150,000. This is equivalent to the maximum
capitalization of microenterprise under R.A. 8425.

3. The schedule of loan amortization shall take into consideration the projected cash flow of the borrowers which is adopted
into the terms and conditions formulated. Hence, microfinance loans may be amortized on a daily, weekly, bi-monthly or
monthly basis, depending on the cash flow conditions of the borrowers.

4. Interest on such microfinancing loans shall be reasonable and just as may be determined by management to be consistent
with its credit policies. The interest rate shall not be lower than the prevailing market rates to enable the lending institution to
recover the financial and operational costs incidental to this type of microfinance lending.

5. In cases of microfinancing loans which meet the criteria in Items 1 to 3 of this Circular, a bank may not require from its
credit applicants, a statement of assets and liabilities, and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit
application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal
Revenue, as prescribed under Section 40 of R.A. 8791.
 6. Microfinance loans shall be considered compliance with required loans to small and medium enterprises required under R.A.
6977.

7. In view of the unique characteristics of microfinance loans, i.e., small unsecured and based on cash flow of borrowers, these
loans may be exempted from rules and regulations which may be issued by the Monetary Board with respect to unsecured loans
under Section 41 of the General Banking Law of 2000, provided that the bank has:
(1) well-defined standards, credit policies and procedures for microfinance loans which are in conformity with microfinance
international best practices;
(2) specific measures to be undertaken to ensure collection such as close supervision of borrowers projects and operations;
and
(3) Loan Portfolio and Other Risk Assets Review System required under X302 of the Manual of Regulations for Banks which
would serve as:
a) An adequate loan tracking system that allows daily monitoring of the status of loan releases, collection and arrearages, any
restructuring or refinancing;
b) A regular monitoring of past due loans and portfolio at risk.

8. In the implementation of this Circular, bank should be guided by the attached Notes on Microfinance.

This Circular shall take effect immediately.

These loans are granted on the basis of the borrowers cash flow and are typically unsecured This is a
statutory exception to the general statutory rule that banks cannot lend without security.
This is justified with its small amounts lend to housewives who organize themselves into a ___with other
housewives. 3 mo kabuok. You look after each other. You are responsible for each other. Mubayad gani ang isa,
pangutan-on dayon sa bangko ug kumusta naman imong mga kauban. Its not justified to hire for a person who
will monitor these borrowers kay gagmay ra man ni sila. So this is encouraged by the Government. The whole
idea now is to further expand the money allotted by the Government to microfinancing.

Date Issued: 02.27.2001

CIRCULAR NO. 273
Series of 2001
The Monetary Board, in its Resolution No. 147 dated 25 January 2001 approved the partial lifting of the general moratorium on
the licensing of new thrift and rural banks to allow the entry of microfinance-oriented banks, as follows:

Section 1. Microfinance-oriented banks may be established on a very selective basis, preferably in places not fully served by
existing rural banks or in areas not fully serviced by microfinance-oriented banks, subject to the following additional criteria (in
addition to standard licensing requirements):
1. That the microfinance-oriented bank to be established shall either be a thrift bank or a rural bank;

2. That the capital of the microfinance-oriented banks to be established should be owned by private persons, multilateral
entities or a combination thereof;

3. That in the case of a rural bank to be established as a microfinance bank, the minimum paid-in capital shall be P5 million or
the applicable existing capitalization requirement for a new rural bank, whichever is higher. The capitalization requirement
under existing regulations shall apply to thrift banks;

4. That the organizers must have the capacity to engage in microfinancing, which may be indicated by the following:
a. At least twenty percent (20%) of the paid-in capital of the proposed bank must be owned by persons or entities with track
record in microfinancing.
b. Majority of the members of the board of directors have experience in microfinancing with at least one member having actual
banking experience.
c. The proposed bank must have as a minimum, an adequate loan tracking system that allows daily monitoring of loan releases,
collection and arrearages, and any restructuring and refinancing.
 5. In addition to the requirements for the establishment of banks, in general, the application for authority to establish a
microfinance-oriented bank must be accompanied by the following documents:
a. A vision and mission statement with clear expression of the commitment to reach low-income clients.
b. A written manual of operations, which shall include the administrative and credit program systems and procedures. The
Manual must be consistent with the core principles, characteristics and features of microfinance, attached as Annex A.

6. At least fifty percent (50%) of the banks gross loan portfolio at all times shall consist of microfinance loans as defined
under existing Bangko Sentral ng Pilipinas regulations.

Section 2. The requirement that the President, Chief Operating Officer or General Manager of a rural or thrift bank must have
at least two (2) years experience in banking and/or finance may be substituted with microfinance experience in cases of officers
of a microfinance organization applying for authority to establish, or convert into a rural or thrift bank provided that the
concerned officer is a college graduate.

Section 3. Subject to the standard branching requirements, microfinance-oriented banks are also hereby exempted from the
general moratorium on the establishment of bank branches. After one year of profitable operations, a microfinance-oriented
bank may apply for establishment of a branch but the Monetary Board may require additional capital to be put up for every
branch in addition to the minimum capital of the thrift bank/rural bank.

Section 4. Existing microfinance organizations applying for authority to establish, or convert into a rural or thrift bank may be
allowed to also convert their existing branches/offices into branches of the bank proposed to be established by simultaneously
applying for authority for the purpose. However, the standard requirements for the establishment of branches, particularly the
capitalization requirement, have to be complied with. Moreover, there must be a showing that the area is not fully served by any
existing rural bank.

This Circular shall take effect immediately.

Sections 40, 43 and 44:

SECTION 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit
accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.

Toward this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and
expenditures and such information as may be prescribed by law or by rules and regulations of Monetary Board to enable the
bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation
purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the
bank may terminate any loan or other credit accommodation granted on the basis of said statements and shall have the right to
demand immediate repayment or liquidation of the obligation.

In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of
microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (76a)

SECTION 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations. The
Monetary Board may, similarly, in accordance with the authority granted to it in Section 106 of the New Central Bank Act, and
taking into account the requirements of the economy for the effective utilization of long-term funds, prescribe the maturities, as
well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board
in the maximum maturities shall apply only to loans and other credit accommodations made after the date of such action.

The Monetary Board shall regulate the interest imposed on microfinance borrowers by lending investors and similar lenders,
such as, but not limited to, the unconscionable rates of interest collected on salary loans and similar credit accommodations.

SECTION 44. Amortization on Loans and Other Credit Accommodations. The amortization schedule of bank loans and
other credit accommodations shall be adapted to the nature of the operations to be financed.

In case of loans and other credit accommodations with maturities of more than five (5) years, provisions must be made for
 periodic amortization payments, but such payments must be made at least annually: Provided, however, That when the borrowed
funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom,
the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such
purpose, but in no case shall the initial amortization date be later than five (5) years from the date on which the loan or other
credit accommodation is granted. (79a)

In case of loans and other credit accommodations to microfinance sectors, the schedule of loan amortization shall take into
consideration the projected cash flow of the borrower and adopt this into the terms and conditions formulated by banks. (n)

You will come to a question, covered by Section 45; can a bank prohibit a borrower from prepaying a loan? Let
us say the loan is 5 years. After he got the loan, he won the lotto in year 2. He went to the bank and offered to
pay his loan so that he could also get the title to his property which was used as a security for his loan. Can the
bank prohibit him from prepaying his loan? The answer is NO. Section 45 says,
SECTION 45. Prepayment of Loans and Other Credit Accommodations. A borrower may at any time prior to the agreed
maturity date prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to such
reasonable terms and conditions as may be agreed upon between the bank and its borrower. (80a)

Some banks impose prepayment penalty. A prepayment penalty entered into at the time the loan is taken is
fairly reasonable. But if you negotiate that at the time you already had money, medyo taas2 na. But the bank can
never prohibit you from prepaying your loan. That is the same thing universally.

Can a bank acquire real estate? The rules for acquisition by the bank of real estate are found in Sections 51 and
52 of the General Banking Law.
SECTION 51. Ceiling on Investments in Certain Assets. Any bank may acquire real estate as shall be necessary for its
own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That
the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's
total investment in real estate, unless otherwise provided by the Monetary Board. (25a)
50% of combined capital accounts - that is the limit for the investment of the bank in real property. Included
in that is lending out to corporations primarily in real estate. BSP included that because of the big abuse which
has happened before in the earlier rubbles of real estate. For example, there is a bank and then naay mag-
develop diri ug condominium, Euro Towers. Pahuwamon na nimo ug kwarta. Pagtukod nila naa silay very good
collateral, kana ra sad ilang gitukod. So the bank is already exposed to that corporation that is engaged in real
property. Now, natukod na pero wa pa man nabaligya ang mga units. Kanang Euro Towers, ngadto na nila i-
direct kanang ilang gibaligyaan ug units na ngadto manghulam sa bangko para naa silay ikabayad sa units.
Unya ingnon sad nila ang bangko na pahuwama baya na ha kay di mi makabayad ninyo ug dili ninyo
pahulmon. So what has happened? The same set of asset is already twice placed in jeopardy. That is why the
BSP now says that the limit of 50% of your capital account for purposes of acquisition of real property includes
your exposure to real estate companies. That the equity investment of a bank in another corporation engaged
primarily in real estate shall be considered as part of the bank's total investment in real estate , unless otherwise
provided by the Monetary Board.

SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. Notwithstanding the limitations of the
preceding Section, a bank may acquire, hold or convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank
within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after
said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. (25a)
Now that the banks can be 100% foreign-owned, they can even foreclose all properties even if they are foreign-
owned. So they can now own property out of foreclosure sales.