Reviewer

for Quiz in Banking [ July 29,2015] associations and (3) private development banks
o Thrift Banks Act (RA 7906)
Q: What is the preamble in GBL [2000] Cooperative banks organized by cooperatives to provide financial and
A: SECTION 2. Declaration of Policy. The State recognizes the vital role of banks in credit services to cooperatives
providing an environment conducive to the sustained development of the national o Cooperative Code (RA 6938)
economy and the fiduciary nature of banking that requires high standards of integrity o Membership of a cooperative bank shall include ONL Y cooperative
and performance. In furtherance thereof, the State shall promote and maintain a and federations of cooperatives
stable and efficient banking and financial system that is globally competitive, dynamic Islamic Banks promote socio-economic development in autonomous region
and responsive to the demands of a developing economy by performing banking and investment function based on Islamic concept of
banking
Q: What are the financial allies of the banks? o Islamic Bank RA 6848
A: Following are financial allied enterprises: o Subject to the principles and rulings of Islamic Sharia
1. Leasing companies Others banks:
2. Banks o Philippine Veterans- provide government depository to veterans for
3. Investment houses appreciation of grateful nation (RA 3518)
4. Financing companies o Land bank of the Philippines finance distribution of estate to resale
5. Credit card companies to small landholders (RA 3844)
6. Financial institutions o Development Bank of Philippines provide credit facilities for
7. Companies in stock brokerage and foreign exchange dealership development in agriculture, commerce and industry DBP was
8. Insurance companies previously named as Rehabilitation Finance Corporation (RFC)
9. Holding company provided that the equities of the entity is confined o Non-stock savings and loan associations non- stock, non-profit
under universal bank BSP regulation corporation engage in accumulation of savings of its members and
loans to meet its members needs Confines exclusive membership
Q: What are the classes of banks and cannot transact business with the general public
A: Classification of Banks (CUT-RICO-NQU) Quasi-banks engaged in borrowing of funds through issuance of deposit
Universal Banks large commercial banks that can do both commercial and substitute for purpose of relending or purchasing receivables and other
investment banking obligations
o They have the power of both commercial bank and investment house Offshore Banks deals with transaction with foreign currencies in receiving
o Have the power to invest in non-allied enterprises funds from external sources and utilization of such
Commercial banks general powers incident of corporation and can perform o Governed by PD 1034
commercial banking o
o Does not have the power to invest in non- allied enterprises Q: Provide for Section 4: Supervisory and Regulatory Powers of the BSP
Rural banks banks that promote rural development A: SECTION 4. Supervisory Powers. The operations and activities of banks shall be
o They can extend loan or advances to primarily meet the normal subject to supervision of the Bangko Sentral. "Supervision" shall include the
credit needs of farmers, fishermen and their families following:
o Can also deposit in private banks more than the amount prescribed 4.1. The issuance of rules of conduct or the establishment of standards of
by Single Borrowers Limit in case there are no government banks operation for uniform application to all institutions or functions
o Rural Banks Act (RA 7353) covered, taking into consideration the distinctive character of the
Thrift banks encourages the industry, frugality and accumulation of savings operations of institutions and the substantive similarities of specific
of the public functions to which such rules, modes or standards are to be applied;
o To make it within easy reach to the people the credit facilities at 4.2. The conduct of examination to determine compliance with laws and
reasonable cost regulations if the circumstances so warrant as determined by the
o Includes: (1) savings and mortgage bank, (2) stock savings and loan Monetary Board;
AKD BANKING 2015 1

 4.3. Overseeing to ascertain that laws and regulations are complied with; act which render him unfit for the position. In determining whether an individual is fit
4.4. Regular investigation which shall not be oftener than once a year from and proper to hold the position of a director or officer of a bank, regard shall be given
the last date of examination to determine whether an institution is to his integrity, experience, education, training, and competence
conducting its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be Q: What is the Bank of International Settlement?
immediately addressed; A: Established on 17 May 1930, the Bank for International Settlements (BIS) is the
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or world's oldest international financial organisation. The BIS has 60 member
4.6. Enforcing prompt corrective action. (n) central banks, representing countries from around the world that together make
up about 95% of world GDP.
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions The head office is in Basel, Switzerland and there are two representative offices:
which under special laws are subject to Bangko Sentral supervision. (2-Ca) in the Hong Kong Special Administrative Region of the People's Republic of
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the China and in Mexico City.
borrowing of funds through the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as defined in Section 95 of Republic The mission of the BIS is to serve central banks in their pursuit of monetary and
Act No. 7653 (hereafter the "New Central Bank Act") for purposes of relending or financial stability, to foster international cooperation in those areas and to act as
purchasing of receivables and other obligations. a bank for central banks.

Q: What is the Function of the Monetary Board Q: What are the conditions for Organization of a bank:
A: The Bangko Sentral shall provide policy direction in the areas of money, banking A: SECTION 8. Organization. The Monetary Board may authorize the organization
and credit. (n) For this purpose, the Monetary Board may prescribe ratios, ceilings, of a bank or quasi-bank subject to the following conditions:
limitations, or other forms of regulation on the different types of accounts and 8.1. That the entity is a stock corporation (7);
practices of banks and quasi-banks which shall, to the extent feasible, conform to 8.2. That its funds are obtained from the public, which shall mean twenty (20) or
internationally accepted standards, including those of the Bank for International more persons (2-Da); and
Settlements (BIS). The Monetary Board may exempt particular categories of 8.3. That the minimum capital requirements prescribed by the Monetary Board for
transactions from such ratios, ceilings and limitations, but not limited to exceptional each category of banks are satisfied. (n)
cases or to enable a bank or quasi-bank under rehabilitation or during a merger or No new commercial bank shall be established within three (3) years from the
consolidation to continue in business with safety to its creditors, depositors and the effectivity of this Act. In the exercise of the authority granted herein, the Monetary
general public. Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
Q: What is the job/role of the BSP as vanguard of depositor: incorporate an assessment of the bank's ownership structure, directors and senior
A: SECTION 7. Examination by the Bangko Sentral. The Bangko Sentral shall, when management, its operating plan and internal controls as well as its projected
examining a bank, have the authority to examine an enterprise which is wholly or financial condition and capital base.
majority-owned or controlled by the bank.
Q: Can the Bank acquire its own shares? How?
Q: What is the fit and proper rule? A: SECTION 10. Treasury Stocks. No bank shall purchase or acquire shares of its
A: SECTION 16. Fit and Proper Rule. To maintain the quality of bank management own capital stock or accept its own shares as a security for a loan, except when
and afford better protection to depositors and the public in general, the Monetary authorized by the Monetary Board: Provided, That in every case the stock so
Board shall prescribe, pass upon and review the qualifications and disqualifications of purchased or acquired shall, within six (6) months from the time of its purchase or
individuals elected or appointed bank directors or officers and disqualify those found acquisition, be sold or disposed of at a public or private sale.
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
AKD BANKING 2015 2

Q: Can a Foreign Individual invest in local banks? How? A: SECTION 15. Board of Directors. The provisions of the Corporation Code to the
A: SECTION 11. Foreign Stockholdings. Foreign individuals and non-bank contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
corporations may own or control up to forty percent (40%) of the voting stock of a (15) members of the board of directors of bank, two (2) of whom shall be
domestic bank. This rule shall apply to Filipinos and domestic non-bank independent directors.
corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by An "independent director" shall mean a person other than an officer or employee
the citizenship of the individual stockholders in that bank. The citizenship of the of the bank, its subsidiaries or affiliates or related interests. (n)
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of Non-Filipino citizens may become members of the board of directors of a bank to
incorporation the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)

Q: What does RA 7721 provide for foreign investors in local banks? The meetings of the board of directors may be conducted through modern
A: REPUBLIC ACT NO. 7721 . AN ACT LIBERALIZING THE ENTRY AND SCOPE OF technologies such as, but not limited to, teleconferencing and video-conferencing
OPERATIONS OF FOREIGN BANKS IN THE PHILIPPINES AND FOR OTHER
PURPOSES Q: Discuss Regulations of Banks owned by Family Groups and Related Interests
A. SECTION 12. Stockholdings of Family Groups or Related Interests. Stockholdings
SECTION 1. Declaration of Policy. The State shall develop a self-reliant and of individuals related to each other within the fourth degree of consanguinity or
independent national economy effectively controlled by Filipinos and encourage, affinity, legitimate or common-law, shall be considered family groups or related
promote, and maintain a stable, competitive, efficient, and dynamic banking and interests and must be fully disclosed in all transactions by such an individual with
financial system that will stimulate economic growth, attract foreign investments, the bank.
provide a wider variety of financial services to Philippine enterprises, households
and individuals, strengthen linkages with global financial centers, enhance the SECTION 13. Corporate Stockholdings. Two or more corporations owned or
country's competitiveness in the international market and serve as a channel for controlled by the same family group or same group of persons shall be considered
the flow of funds and investments into the economy to promote industrialization. related interests and must be fully disclosed in all transactions by such
corporations or related groups of persons with the bank
Pursuant to this policy, the Philippine banking and financial system is hereby
liberalized to create a more competitive environment and encourage greater Q: May an elective official be a director of a bank? Are there exceptions, if any.
foreign participation through increase in ownership in domestic banks by foreign A: SECTION 19. Prohibition on Public Officials. Except as otherwise provided in the
banks and the entry of new foreign bank branches. Rural Banks Act, no appointive or elective public official, whether full-time or part-
time shall at the same time serve as officer of any private bank, save in cases
In allowing increased foreign participation in the financial system, it shall be the where such service is incident to financial assistance provided by the government
policy of the State that the financial system shall remain effectively controlled by or a government-owned or controlled corporation to the bank or unless otherwise
Filipinos provided under existing laws

Q: Discuss Banks owned by Family Group. EXCEPTION: RA 7353 Sec. 5. All members of the Board of Directors of the rural
A: SECTION 12. Stockholdings of Family Groups or Related Interests. Stockholdings bank shall be citizens of the Philippines at the time of their assumption to office:
of individuals related to each other within the fourth degree of consanguinity or Provided, however, That nothing in this Act shall be construed as prohibiting any
affinity, legitimate or common-law, shall be considered family groups or related appointive or elective public official from serving as director, officer, consultant or
interests and must be fully disclosed in all transactions by such an individual with the in any capacity in the bank.
bank
Q: Distinguish Universal Bank from Commercial Bank
Q: Who is an independent director? Why is it required in a Bank? A: SECTION 23. Powers of a Universal Bank. A universal bank shall have the
authority to exercise, in addition to the powers authorized for a commercial bank
AKD BANKING 2015 3

 in Section 29, the powers of an investment house as provided in existing laws and 4. Companies engaged in management of mutual funds and not funds
the power to invest in non-allied enterprises as provided in this Act. itself
5. Computer services
SECTION 29. Powers of a Commercial Bank. A commercial bank shall have, in 6. Home building and development
addition to the general powers incident to corporations, all such powers as may be 7. Service bureaus
necessary to carry on the business of commercial banking, such as accepting drafts 8. PCHC
and issuing letters of credit; discounting and negotiating promissory notes, drafts,
bills of exchange, and other evidences of debt; accepting or creating demand Q: Discuss how Universal Banks can invest in non-allied sources
deposits; receiving other types of deposits and deposit substitutes; buying and A: Equity investment of Universal Bank in Non-allied enterprise - Equity investment
selling foreign exchange and gold or silver bullion; acquiring marketable bonds in a single non-allied enterprise shall not exceed 35% in total equity or voting
and other debt securities; and extending credit, subject to such rules as the stock
Monetary Board may promulgate. These rules may include the determination of Investments in non-allied enterprises
bonds and other debt securities eligible for investment, the maturities and Universal bank may invest in equity of enterprise of eligibles:
aggregate amount of such investment. 1. Enterprises engaged in agriculture, mining, quarrying, manufacturing,
public utilities
Q: Discuss how Universal Banks can invest in financial allied sources 2. Industrial parks
A: Equity investments of Universal bank in Financial Allied enterprise 3. Commercial project with government privatization program
1. Universal bank can own 100% of the equity in a thrift, rural bank or financial Equity investment in Quasi-banks universal bank can only invest up to 40%
allied enterprise in equity of quasi-banks
2. Publicly-listed universal or commercial bank may own 100% of voting stock
of another universal or commercial bank Q: Discuss the SINGLE-BORROWER LIMIT
3. If not publicly-list then only 49% own A: SECTION 35. Limit on Loans, Credit Accommodations and Guarantees
4. Following are financial allied enterprises: 35.1 Except as the Monetary Board may otherwise prescribe for reasons of
Leasing companies national interest, the total amount of loans, credit accommodations and guarantees
Banks as may be defined by the Monetary Board that may be extended by a bank to any
Investment houses person, partnership, association, corporation or other entity shall at no time
Financing companies exceed twenty percent (20%) of the net worth of such bank. The basis for
Credit card companies determining compliance with single-borrower limit is the total credit commitment
Financial institutions of the bank to the borrower.
Companies in stock brokerage and foreign exchange dealership
Insurance companies Total amount of loans, credits accommodation and guarantees extended to any
Holding company provided that the equities of the entity is confined person, partnership or corporation shall not exceed 20% of net worth of bank
under universal bank BSP regulation In Circular 425 of 2004 of BSP, the SBL was increased to 25%
Exceptions to SBL:
Q: Discuss how Universal Banks can invest in non-financial allied sources 1. MB may otherwise prescribe for reasons of national interest
A: Equity investments of universal bank in non-financial allied enterprise 2. Deposit of rural banks with GOC financial institutions such as LB,
Universal bank may own up to 100% of equity in non-financial allied DBP and PNB
Examples are: Basis for determining SBL is the total credit commitment of bank to borrower
1. Warehousing companies Loans - to all accounts under loan portfolio
2. Storage Credit accommodations - to credit and market risk exposure of banks arising
3. Safe deposit box from accommodation other than the loan

AKD BANKING 2015 4

 Total credit commitment - include loans, credit accommodation, deferred 2. Credit accommodation to finance importation of rice or corn up to
letters of credit less margin deposits and guarantees 100% net worth of bank
Total credit commitment can be increased by 10% provided additional Must be approved by NEDA
liabilities are secured by trust receipts, shipping documents or readily 3. Loans and credit accommodation guaranteed by Industrial Guarantee
marketable goods and Loan Fund
Readily marketable goods articles of commerce, agriculture or industry as 4. Liabilities of commercial paper issuer for commercial paper held by
constant dealings in ready market and price is easily ascertainable and UB as firm underwriter. Only 180 days and not exceed 5% from
disposable normal SBL
Parent corporation s total credit commitment shall also include its 5. Loans and credit accommodations covered by international or regional
subsidiaries if it guarantees, accommodate or subsidiary is merely a institutions where Philippines is shareholder such as ADB
department of it 6. Loans and credit accommodations with valuation reserves provided
Wholesale lending of government banks shall not exceed 35% of net worth to that bank has no unbooked valuation reserves
participating financial institutions 7. Loans and credit accommodations as a result of underwriting
PFI institutions for relending to end-user borrowers agreement of debt securities not exceeding 30 days
The end-user borrower shall be subject to the 25% SBL Inclusion to Limit
In municipalities where there are no government banks, deposits of rural and o The following shall be included
coop banks in private banks shall not be subject to SBL 1. Maker, acceptor of paper discounted and general indorser, drawer
Deposit in private depository bank used by thrift, rural and coop banks, with or guarantor
authority to accept demand deposits, after being cleared, shall be 2. Individual who controls majority interest in corporation
exempted from SBL 3. In case of corporation, all liabilities to such bank of all subsidiaries it
has majority interest
Bank guarantee irrevocable commitment of a bank binding to pay a sum of
4. Partnership, liabilities of members
money in event of non-performance of third party
o Also includes parent coporations with majority interest
Credit Risk Transfer arrangement that allows the bank to transfer the credit
risk associated with its loan or other credit accommodation to a third Exclusion to limit
1. Loans and credit accommodations secured by BSP or RP. State is
party
always solvent
Control of majority interest or controlling interest parent owns, directly or
2. Loans and credit accommodations guaranteed by government
indirectly through its subsidiaries, more than half of voting power
3. Loans and credit accommodations covered by assigned of deposits
ofenterprise
by lending bank
o Even if less than half of said voting power, it shall still have
4. Loans and credit accommodations under letters of credit covered by
controlling interest if:
margin deposits
1. Agreement with investors
5. Loans and credit accommodations determined by MB as non-risk
2. Govern financial and operations
items
3. Can appoint majority of directors

4. Cast majority vote on meetings
Q: Discuss Applicability of DOSRI Rules and Regulations
Subsidiary corporation where more than 50% of the voting stock is owned
A: SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and
by a parent corporation
Their Related Interests. No director or officer of any bank shall, directly or
Bill of exchange drawn in good faith against actually existing values drawn
indirectly, for himself or as the representative or agent of others, borrow from
by a seller on the purchase for the price of commodity sold
such bank nor shall he become a guarantor, indorser or surety for loans from such
Commercial paper owned by person negotiating the same paper arising from bank to others, or in any manner be an obligor or incur any contractual liability to
business transaction the bank except with the written approval of the majority of all the directors of the
Exclusion from SBL: bank, excluding the director concerned: Provided, That such written approval shall
1. Discount bills of exchange and discount commercial paper not be required for loans, other credit accommodations and advances granted to
AKD BANKING 2015 5

 officers under a fringe benefit plan approved by the Bangko Sentral. The required 3. LGU due to full autonomy in their propriety function
approval shall be entered upon the records of the bank and a copy of such entry 4. Director who acts as government
shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral. Q: Discuss Microfinancing
Restriction on Bank Exposure to Directors, Officers, Stockholder and related interests A: CIRCULAR NO. 272 [Series of 2001 ] Pursuant to Monetary Board Resolution No.
(DOSRI) 40 dated January 11, 2001, the following guidelines shall be observed in
No DOSRI can directly or indirectly borrow from such bank or become a implementing the provisions of Sections 40, 43 and 44 of the General Banking Law
guarantor, indorser or surety for loan of 2000 with respect to microfinancing loans:
Exception is when there is a written approval of the majority of all directors 1. Microfinancing loans are small loans granted to the basic sectors, as defined in
of the bank excluding the DOSRI concerned the Social Reform and Poverty Alleviation Act of 1997 (Republic Act 8425), and
Such approval is not required if it is under a fringe benefit plan approved by other loans granted to the poor and low-income households for their
BSP microenterprises and small businesses so as to enable them to raise their
Directors include those named in incorporations, elected or filled income levels and improve their living standards. These loans are granted on
Officers shall include any person who performs function of management the basis of the borrowers cash flow and are typically unsecured.
Stockholder stockholder of record in the books of the bank 2. The maximum principal amount of microfinance loans shall not exceed
st P150,000. This is equivalent to the maximum capitalization of microenterprise
Related interest includes souse or relative within 1 degree or by legal
adoption. This includes partnership, co-ownership of DOSRIs under R.A. 8425.
Corporations where the above mentioned owns 20% of subscribed capital,
then the prohibition shall apply Q: Can the Bank acquire Real Estate:
Can also be less than 50% if the DOS sits as representative of the bank in the A: SECTION 51. Ceiling on Investments in Certain Assets. Any bank may acquire
board of such corporation 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
Effect of violation : The director or officer who violates may be declared vacant improvements thereof, including bank equipment, shall not exceed fifty percent
and subject to penal provisions of NCBA Limit on loans : MB can limit the valid (50%) of combined capital accounts: Provided, further, That the equity investment
loan given to DOSRI provided that it shall be based on their unencumbered of a bank in another corporation engaged primarily in real estate shall be
deposits and book value of their paid in capital contribution considered as part of the bank's total investment in real estate, unless otherwise
provided by the Monetary Board. (25a)
Exclusion to Limit:
Loans and credit accommodations considered as non-risk SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims.
Loans and credit accommodations to officers in for of fringe benefits Limit Notwithstanding the limitations of the preceding Section, a bank may acquire, hold
on loans and credit accommodations shall not apply on those extended by or convey real property under the following circumstances:
coop bank to its coop shareholders 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
Applicability of DOSRI Rules and Regulation to Government Borrowings: contracted in the course of its dealings; or
Circular 547 of 2006 provides that DOSRI rules shall also apply to loans and 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or
credit accommodations granted to RP , subdivisions, instrumentalities and trust deeds held by it and such as it shall purchase to secure debts due it.
GOCCs
Exceptions would be: Any real property acquired or held under the circumstances enumerated in the
1. Loans and credit accommodations that are non-risk and not subject to above paragraph shall be disposed of by the bank within a period of five (5) years
ceiling or as may be prescribed by the Monetary Board: Provided, however, That the bank
2. Those made by BSP may, after said period, continue to hold the property for its own use, subject to the
limitations of the preceding Section. (25a)
AKD BANKING 2015 6

 entirety of relevant sections and other provisions of the Manual of Regulations for
Q: Discuss the Confidentiality Rule in All Bank Transactions Banks. An amended Section X162.2 on the Prohibition against outsourcing of inherent
A: SECTION 55. Prohibited Transactions. banking functions. No bank shall outsource functions such as:
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as 1. Services normally associated with placement of deposits and withdrawals
the Banks Secrecy Law, no bank shall employ casual or nonregular personnel or including the recognition based on recording of movements in the deposit
too lengthy probationary personnel in the conduct of its business involving bank accounts;
deposits 2. Granting of loans and extension of other credit exposures
3. Position taking and market risk taking activities
REPUBLIC ACT NO.1405 - AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY 4. Managing of risk exposures; and
INTO, DEPOSITS WITH ANY BANKING INSTITUTION AND PROVIDING PENALTY 5. Strategic decision making
THEREFOR
Q: What is the degree of diligence required of Banks to be exercised?
SECTION 1. It is hereby declared to be the policy of the Government to give A: The time-honored, and still current, judicial doctrine on the degree of bank
encouragement to the people to deposit their money in banking institutions and to diligence is that every bank, in dealing with the public must exercise the highest
discourage private hoarding so that the same may be properly utilized by banks in degree of diligence, the highest degree of care or extra-ordinary diligence. The
authorized loans to assist in the economic development of the country. diligence of an ordinary prudent man, or ordinary diligence, is not enough. The
reasons for the strict and highest standard required are the following: (1) the
SECTION 2. All deposits of whatever nature with banks or banking institutions in business of banking is so impressed with public interest; (2) trust and confidence of
the Philippines including investments in bonds issued by the Government of the the public in general is of paramount interest, and (3) the fiduciary nature of its
Philippines, its political subdivisions and its instrumentalities, are hereby function.
considered as of an absolutely confidential nature and may not be examined, With particular reference to deposits, the doctrine is a bank is under obligation to
inquired or looked into by any person, government official, bureau or office, except treat the accounts of its depositors with meticulous care, always having in mind the
upon written permission of the depositor, or in cases of impeachment, or upon fiduciary nature of their relationship, whether such account consists only of a few
order of a competent court in cases of bribery or dereliction of duty of public hundred pesos or of millions of pesos.
officials, or in cases where the money deposited or invested is the subject matter of
the litigation. The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the account of its depositors with
SECTION 3. It shall be unlawful for any official or employee of a banking institution meticulous care, always having in mind the fiduciary nature of their relationship.
to disclose to any person other than those mentioned in Section two hereof any In the recent case of Philippine National Bank vs. Court of Appeals, we held that a
information concerning said deposits. bank is under obligation to treat the accounts of its depositors with meticulous care
whether such account consists only of a few hundred pesos or of millions of pesos.
Q: What is the purpose of the GBL? Responsibility arising from negligence in the performance of every kind of obligation
A: The GBL of 2000 as well as improving market access, upgraded the rules governing is demandable. While petitioners negligence in this case may not have been attended
the operation of the BSP to conform to international banking standards. The aim was with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and
to promote and maintain a stable and efficient banking and financial system that is humiliation.
globally competitive, dynamic, and responsive to the demands of a developing
economy Hence we ruled that the offended party in said case was entitled to recover
reasonable moral damages.
ADDITIONAL QUESTIONS FOR MIDTERM REVIEW
Q: What is the nature of the depositor bank relationship?
Q: What are the functions that a bank can outsource? A: SECTION 2. Declaration of Policy. The State recognizes the vital role of banks in
A: BSP Circular 765, pursuant to the Money Board Resolution No. 1179 dated July 19, providing an environment conducive to the sustained development of the national economy
2012, approved the revisions to the outsourcing framework of banks, amending the
AKD BANKING 2015 7

and the fiduciary nature of banking that requires high standards of integrity and deposit to another account and the delayed posting of the same x x x is a clear proof of lack
performance. of supervision on the part of the bank x x x while it may true that the banks negligence in
It is impressed with public interest where the trust and confidence of the public in dishonoring the properly funded check x x x might not have been attended with malice and
general is of paramount importance such that: bad faith, x x x nevertheless, it is the result of lack of due care and caution expected of an
employee of a firm engaged in so sensitive and accurately demanding task as banking.
1. The appropriate standard of diligence must be very high, if not the highest,
degree of diligence; highest degree of care (PCI Bank vs. CA, 350 SCRA 446, Q: When a bank grants a securitized or collateralized loan, what is the duty of
PBCom vs. CA, G.R. No.121413, 29 Jan. 2001) the bank in relation to the Certificate of Title?
>> This applies only to cases where banks are acting in their fiduciary capacity, that is, A: It is the duty of the bank to confirm that the COT provided by the person applying for a

as depository of the deposits of their depositors (Reyes vs. CA, G.R. No.118492, 15 Aug. loan is clean, by comparing the title submitted to that which is in the Register of Deeds, in
2001) order to verify the existence of tax liens, and/or adverse claims that may be attached to the
title. The bank also has the duty to register the mortgage/lien obtained by the person
2. Subject to reasonable regulation under the police power of the state applying for the same, in order to bind the land.

Q: Reconcile the situation where in a combination account (deposit and Q: Reconcile the law on secrecy of bank deposits and survivorship agreements with
current/checking account), an officer of the bank is not alert enough to transfer regard to deposit accounts.
funds from the deposit account to the current account which leads to the A: A survivorship agreement is an aleatory contract supported by a lawful consideration -
dishonoring of the check issued by the depositor in BP 22 cases. the mutual agreement of the joint depositors permitting either of them to withdraw the
A: In PNB vs. CA & Pujol the depositor opened a checking account together with a savings whole during their lifetime, and transferring the balance to the survivor upon the death of
account under what is known as Combination Deposit Plan or Combo Account under one of them. But while the survivorship agreement is per se not contrary to law, its
which checks drawn against the checking account shall be charged automatically against operation or effect may be violative of law where it is shown that such agreement is a mere
the savings account. The operation and effectivity of the automatic transfer arrangement cloak to hide an inofficious donation to transfer property in fraud of creditors, or to defeat
(ATA) was however subject to the submission of certain documents, like business permit the legitime of a forced heir.
and the like. Notwithstanding the non-submission of the documentary requirements the
bank staff already stamped on the passbook Combo Deposit Plan which led depositor to Section 97, NIRC provide that If a bank has knowledge of the death of a person, who has a
believe that the ATA was already in effect. Depositor then issued two checks which the deposit account with it alone or jointly with another, it must not allow any withdrawal from
bank dishonored for insufficiency of funds. In the suit for damages against the bank, the said account, unless the Commissioner of Internal Revenue certified that the estate tax
Court ruled that PNB was in estoppel, i.e., estopped to deny the existence and perfection of thereon has been paid.
the ATA because by stamping Combo Deposit Plan on the passbook, depositor was led
to believe that the ATA was already effective. The Court ruled that a bank is under Considering that the joint account is co-owned by the depositors, there is a presumption
obligation to treat the accounts of its depositors with meticulous care whether such account that they owned it equally or in 50/50 shares, in which case, the transfer of the remaining
consists a few hundred pesos or millions of pesos. The Court continued that while the balance of the whole deposit to the surviving co-depositor/s upon death of the other co-
banks negligence may not have been attended by malice or bad faith, nevertheless it depositor pursuant to their Survivorship Agreement is a transfer made by the said depositor
caused serious anxiety, embarrassment and humiliation to the depositor which entitled her in contemplation of death, as provided under Section 85(B) of the 1997 Tax Code, viz:
to moral damages.
(B) Transfer in Contemplation of Death To the extent of any interest therein of which
In Prudential Bank vs. CA & Valenzuela, 7 depositor maintained current and savings the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or
accounts with automatic transfer arrangement. The bank misposted depositors check intended to take effect in possession or enjoyment at or after death, or of which he has at
deposit to the savings account for P35,993.48 made on June 1, 1988 to another account. any time made a transfer, by trust or otherwise, under which he has retained for his life or
The mistake was corrected and credited only on June 24, or after 23 days. In the meantime, for any period which does not in fact end before his death (1) the possession or enjoyment
a check issued by the depositor was dishonored for insufficiency of funds. In awarding of, or the right to the income from the property, or (2) the right, either alone or in
damages in favor of the depositor, the Court ruled that the misposting of plaintiffs check conjunction with any person, to designate the person who shall possess or enjoy the

AKD BANKING 2015 8

property or the income therefrom; except in case of a bona fide sale for an adequate and prevent circumvention of this prohibition or the evasion of the responsibility herein
full consideration in money or moneys worth. imposed on a trust entity

Thus, upon the death of the co-depositors, the 50% share of the deceased co-depositor in Q: Discuss the powers of a trust entity.
the deposit shall be included in computing the value of his gross estate. Hence, the funds in A: SECTION 83. Powers of a Trust Entity. A trust entity, in addition to the general
the joint deposit account cannot be withdrawn by the surviving co-depositor/s unless the powers incident to corporations, shall have the power to:
Commissioner has certified that the taxes imposed thereon by Title III of the 1997 Tax 83.1 Act as trustee on any mortgage or bond issued by any municipality,
Code have been paid; Provided, however, That the administrator of corporation, or any body politic and to accept and execute any trust consistent
the estate or any one (1) of the heirs of the deceased co-depositor may, upon the with law;
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand 83.2 Act under the order or appointment of any court as guardian, receiver,
pesos (P20,000.00) without the said certification. trustee, or depositary of the estate of any minor or other incompetent person,
and as receiver and depositary of any moneys paid into court by parties to any
Section 97 does not apply when there is a survivorship agreement between the co- legal proceedings and of property of any kind which may be brought under the
depositors and it is known to the bank. jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
Q: Provide the exceptions to RA 1405 (Secrecy of Bank Deposits) 83.4 Act as administrator of the estate of any deceased person, with the will
A: Section 2 of RA 1405 provides: All deposits of whatever nature with banks or annexed, or as administrator of the estate of any deceased person when there is
banking institutions in the Philippines including investments in bonds issued by the no will;
Government of the Philippines, its political subdivisions and its instrumentalities, are 83.5. Accept and execute any trust for the holding, management, and
hereby considered as of an absolutely confidential nature and may not be examined, administration of any estate, real or personal, and the rents, issues and profits
inquired or looked into by any person, government official, bureau or office, except thereof; and
upon written permission of the depositor, or in cases of impeachment, or upon order 83.6. Establish and manage common trust funds, subject to such rules and
of a competent court in cases of bribery or dereliction of duty of public officials, or in regulations as may be prescribed by the Monetary Board.
cases where the money deposited or invested is the subject matter of the litigation.
Q: Discuss duties of trust entities to minor beneficiaries.
Q: Discuss the duties of a Trust Entity A: Testamentary Trust - As its name implies, it is a trust whereby the trustor
A: SECTION 79. Authority to Engage in Trust Business. Only a stock corporation or a transfers his property in trust through his will and testament and this is to take effect
person duly authorized by the Monetary Board to engage in trust business shall act as a only upon his death. It is a part of the will and testament itself and is not a separate
trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or legal document.
behoof of others. For purposes of this Act, such a corporation shall be referred to as a trust This is for clients who intend to accumulate all their assets as may be allowed by law
entity. into one fund to be managed by a competent and responsible trustee, specially if the
SECTION 80. Conduct of Trust Business. A trust entity shall administer the funds or trustor feels that he will be survived by heirs who would still be minors, or who are
property under its custody with the diligence that a prudent man would exercise in the incapacitated or not competent to manage their own affairs or the properties they
conduct of an enterprise of a like character and with similar aims. No trust entity shall, for stand to inherit from the trustor. This prevents the unnecessary division of the
the account of the trust or or the beneficiary of the trust, purchase or acquire property from, trustors estate and the consequent loss of earning power through unwise
or sell, transfer, assign or lend money or property to, or purchase debt instruments of, any management or dissipation. Depending on how it is drafted, the testamentary trust
of the departments, directors, officers, stockholders, or employees of the trust entity, can also minimize or avoid a second tax on the family estate as it is transferred from
relatives within the first degree of consanguinity or affinity, or the related interests, of such the surviving spouse to the children.
directors, officers and stockholders, unless the transaction is specifically authorized by the
trust or and the relationship of the trustee and the other party involved in the transaction is Living or Inter Vivos Trust
fully disclosed to the trust or or beneficiary of the trust prior to the transaction. The This trust, which is created by a trust agreement, starts to operate during the lifetime
Monetary Board shall promulgate such rules and regulations as may be necessary to of the trustor. Under this arrangement, the trustor transfers assets to a trustee for the
latter to manage as the trust agreement dictates. The functions and authorities to be
AKD BANKING 2015 9

exercised by the trustee are defined in the trust agreement. These would include : (1) future payments be made by it in cash or certified check. The petitioner complained
the scope or extent of the trustees investment powers; (2) the beneficiaries; (3) the to the respondent bank. Investigation disclosed that the sum of P100,000.00
terms and conditions under which the income and/or principal of the trust is to be deposited by the petitioner on May 25, 1981, had not been credited to it. The error
paid or to be disposed of ultimately. was rectified only a month after, and the dishonored checks were paid after they
were re-deposited. The petitioner then filed a complaint in the then Court of First
Q: Discuss a TRUST BOND. Instance of Rizal against the bank for its gross and wanton negligence.
A: SECTION 85. Bond of Certain Persons for the Faithful Performance of Duties.
Before an executor, administrator, guardian, trustee, receiver or depositary appointed by Issue: Whether or not the bank can be held liable for negligence by reason of its
the court enters upon the execution of his duties, he shall, upon order of the court, file a unjustified dishonor of a check
bond in such sum, as the court may direct. Upon the application of any executor,
administrator, guardian, trustee, receiver, depositary or any other person in interest, the Held: The depositor expects the bank to treat his account with the utmost fidelity
court may, after notice and hearing, order that the subject matter of the trust or any part whether such account consists only of a few hundred pesos or of millions. The bank
thereof be deposited with a trust entity. Upon presentation of proof to the court that the must record every single transaction accurately, down to the last centavo, and as
subject matter of the trust has been deposited with a trust entity, the court may order that promptly as possible. This has to be done if the account is to reflect at any given time
the bond given by such persons for the faithful performance of their duties be reduced to the amount of money the depositor can dispose of as he sees fit, confident that the
such sums as it may deem proper: Provided, however, That the reduced bond shall be bank will deliver it as and to whomever he directs. A blunder on the part of the bank,
sufficient to secure adequately the proper administration and care of any property such as the dishonour of a check without good reason, can cause the depositor not a
remaining under the control of such persons and the proper accounting for such property. little embarrassment if not also financial loss and perhaps even civil and criminal
Property deposited with any trust entity in conformity with this Section shall be held by litigation.
such entity under the orders and direction of the court
Article 2205 of the Civil Code provides that actual or compensatory damages
may be received (2) for injury to the plaintiff s business standing or commercial
CASES credit. There is no question that the petitioner did sustain actual injury as a result of
1. SIMEX INTERNATIONAL (MANILA) V. CA the dishonored checks and that the existence of the loss having been established
A bank may be held liable for damages by reason of its unjustified dishonor of a absolute certainty as to its amount is not required. 7 Such injury should bolster all
check, which caused damage to its clients credit standing. The bank must record the more the demand of the petitioner for moral damages and justifies the
every single transaction accurately, down to the last centavo, and as promptly as examination by this Court of the validity and reasonableness of the said claim.
possible. This has to be done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit, confident that the bank will 2. BPI CASES
deliver it as and to whomever he directs. The bank is a fiduciary of the depositors BPI vs FRANCO Court of Appeals, GR No. 123498, November 23, 2007
money. Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00.
The said amount used to open these accounts is traceable to a check issued by
Facts: Simex International is a private corporation engaged in the exportation of Tevesteco. The funding for the P2,000,000.00 check was part of the P80,000,000.00
food products. It buys these products from various local suppliers and then sells debited by BPI from FMICs account (with a deposit of P100,000,000.00) and credited
them abroad to the Middle East and the United States. Most of its exports are to Tevestecos account pursuant to an Authority to Debit which was allegedly forged
purchased by the petitioner on credit. Simex was a depositor of the Far East Savings as claimed by FMIC.
Bank and maintained a checking account in its branch in Cubao, Quezon City which Tevesteco effected several withdrawals already from its account amounting to
issued several checks against its deposit but was surprised to learn later that they P37,455,410.54 including the P2,000,000.00 paid to Franco.
had been dishonored for insufficient funds. As a consequence, several suppliers sent Franco issued two checks which were dishonoured upon presentment for payment
a letter of demand to the petitioner, threatening prosecution if the dishonored check due to garnishment of his account filed by BPI.
issued to it was not made good and also withheld delivery of the order made by the BPI claimed that it had a better right to the amounts which consisted of part of the
petitioner. One supplier also cancelled the petitioners credit line and demanded that money allegedly fraudulently withdrawn from it by Tevesteco and ending up in
AKD BANKING 2015 10

Francos account. BPI urges us that the legal consequence of FMICs forgery claim is in the disputed account subject of the Holdout Agreement and the interests thereon
that the money transferred by BPI to Tevesteco is its own, and considering that it was after deducting the amount due on the promissory note.
able to recover possession of the same when the money was redeposited by Franco, it
had the right to set up its ownership thereon and freeze Francos accounts. ISSUE:
Whether BPI can demand payment of the loan of P73,000.00 despite the existence of
Issue: WON the bank has a better right to the deposits in Francos account. the Holdout Agreement.
Whether or not BPI is still liable to the private respondents on the account subject of
Held: No. Significantly, while Article 559 permits an owner who has lost or has been the Holdout Agreement after its withdrawal by the heirs of Velasco.
unlawfully deprived of a movable to recover the exact same thing from the current
possessor, BPI simply claims ownership of the equivalent amount of money, i.e., the HELD:
value thereof, which it had mistakenly debited from FMICs account and credited to The deposit under the questioned account was an ordinary bank deposit; hence, it
Tevestecos, and subsequently traced to Francos account. was payable on demand of the depositor. When the ownership of a particular
Money bears no earmarks of peculiar ownership, and this characteristic is all the property is disputed, the determination by a probate court of whether that property is
more manifest in the instant case which involves money in a banking transaction gone included in the estate of a deceased is merely provisional in character and cannot be
awry. Its primary function is to pass from hand to hand as a medium of exchange, the subject of execution.
without other evidence of its title. Money, which had been passed through various The payment of the money deposited with BPI that will extinguish its obligation to the
transactions in the general course of banking business, even if of traceable origin, is creditor-depositor is payment to the person of the creditor or to one authorized by
no exception. him or by the law to receive it.
Payment made by the debtor to the wrong party does not extinguish the
BPI v. CA [G.R. No. 104612, May 10, 1994] obligation as to the creditor who is without fault or negligence, even if the
DAVIDE, JR., J. debtor acted in utmost good faith and by mistake as to the person of the
creditor, or through error induced by fraud of a third person
FACTS:
Private respondents Eastern and Lim, an officer and stockholder of Eastern, held at BPI v. Roxas GR 157833
least one joint bank account with the Commercial Bank and Trust Co. (CBTC), the Macalinao vs. BPI GR 175490
predecessor-in-interest of petitioner BPI. Sometime in March 1975, a joint checking
account ("and" account) with Lim in the amount of P120,000.00 was opened by
Mariano Velasco. When Velasco died, an Indemnity Undertaking was executed by Lim
for himself and as President and GM of Eastern, wherein one-half of the outstanding
balance was provisionally released and transferred to one of the bank accounts of
Eastern with CBTC. Later on, Eastern obtained a loan of P73,000.00 from CBTC as
"Additional Working Capital," evidenced by the "Disclosure Statement on Loan/Credit
Transaction". The loan was payable on demand with interest at 14% per annum. For
this loan, Eastern issued on the same day a negotiable promissory note which was
signed by Lim both in his own capacity and as President and General Manager of
Eastern. No reference to any security for the loan appears on the note. In addition,
Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement,"
wherein it was stated that as security for the Loan [Lim and Eastern] have offered
[CBTC] and the latter accepts a holdout on said Current Account in the joint names of
Lim and Velasco. After CBTC was merged with BPI, BPI filed a complaint against Lim
and Eastern demanding payment of the promissory note for P73,000.00. Defendants
Lim and Eastern, in turn, filed a counterclaim against BPI for the return of the balance

AKD BANKING 2015 11