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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
BANKING LAWS & JURISPRUDENCE
CHAPTER 1
I. DECLARED POLICY OF THE STATE
The State recognizes the vital role of banks in providing for an environment
conducive to the sustained development of the national economy and the fiduciary
nature of banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable and efficient
banking system that is globally competitive, dynamic and responsive to the
demands of a developing economy. (Section 2 of RA 8791, General Banking Law
of 2000)
II. DEFINITION OF BANKS
Banks are entities engaged in the lending of funds obtained in the form of deposits.
- A moneyed institute founded to facilitate the borrowing, lending and self-keeping of
money and to deal, in notes, bills of exchange, and credits.
- An investment company which loans out the money of its customers, collects the
interest and charges a commission to both lender and borrower, is a bank.
- Any person engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions is
exercised.
III. NATURE OF BANKING BUSINESS
A. Debtor- Creditor Relationship
Art. 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning loan.
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand.
(Consolidated Bank and Trust Corporation vs. Court of Appeals)
Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. (Serrano vs. Central Bank of the Philippines)
B. Fiduciary Duty
fiduciary nature of banking which requires high standards of integrity and
performance.
Treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
Requires banks to assume a degree of diligence higher than that of a good father of a
family
Higher level of accountability than that expected of a depositor.
C. Not a Trust Agreement
The fiduciary nature of a bank-depositor relationship does not convert the
contract between the bank and its depositors from a simple loan to a trust agreement,
whether express or implied.
Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of
trust.
Banks do not accept deposits to enrich depositors but to earn money for themselves.
D. Indispensable Institution
Plays a vital role in the economic life of every civilized nation.
Banks have become an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude, and most of all, confidence.
E. Impressed with Public Interest
The stability of banks largely depends on the confidence of the people in the
honesty and efficiency of banks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consist only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
the money the depositor can dispose of as he sees fit, confident that the bank will deliver it
as and to whomever he directs.
F. Degree of Diligence
The law imposes on banks high standards in view of the fiduciary nature of
banking.
The bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. (Simex Internationsl vs.
Court of Appeals)
Degree of diligence higher than that of a good father of a family, as prescribed by Section
2 of the GBL.
Same higher degree of diligence is not expected to be exerted by banks in commercial
transactions that do not involve their fiduciary relationship with their depositors.
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Diligence extends to financial institutions:
o A government financial institution, like banks, is expected to exercise greater
care and prudence in the dealings, including those involving registered lands.
o Due diligence required of banks extend even to persons, or institutions, regularly
engaged in the business of lending money secured by real estate mortgages.
G. Treatment of Accounts with Meticulous Care
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consist only of a few hundred pesos or of
millions.
A blunder on the part of the bank, such as the dishonor of a check without good reason,
can cause the depositor not a little embarrassment if not also financial loss perhaps even
civil and criminal litigation.
No law mandating banks to call up their clients whenever their representatives withdraw
significant amounts from their accounts.
H. Duty to Keep Records
A bank has a fiduciary duty to keep efficiently a record of its transactions
with its depositors. Banks shall have a true and accurate account, record or statement
of their daily transactions, particularly those referring to their deposit liabilities.
Making of any false entry or the willful omissionof entries is a ground for the imposition of
administrative sanctions and the disqualification from office of any director or officer
responsible therefor, without prejudice to their criminal liability.
I. Banks are not Gratuitous Bailees
Banks are run for gain, and they solicit deposits in order that they can use
the money for that very purpose.
J. Banks not Expected to be Infallible
However, it must bear the blame for not discovering mistakes if there are
established procedures and the same have not been followed.
K. Dealing with Registered Lands
Banks should exercise more care and prudence in dealing with registered
lands, than private individuals, for their business is one affected with public interest.
The rule that persons dealing with registered lands can rely solely on the certificate of title
does not apply to banks.
Judicial notice is taken of the standard practice for banks, before approving a loan, to
send representatives to the premises of the land offered as collateral and to investigate
who the real owners thereof are. A mortgagee-bank must exercise due diligence before
entering into said contracts.
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Any investigation previously conducted on the property offered as collateral does not
preclude a bank from considering information on the same property as security for a
subsequent loan. (Sps. Omengan vs. Philippine National Bank)
L. Banks may Exclude Persons in their Premises
Banks are mandated to exercise a higher degree of diligence in the handling
of its affairs than that expected of an ordinary business enterprise.
Banks may impose reasonable conditions or limitations to access by non-employees to its
premises and records, such as the exclusion of non-employees from the working areas for
employees, even absent any imminent or actual unlawful aggression on or an invasion of
its properties or usurpation thereof, provided that such limitations are not contrary to the
law.
M. Charging of Interest for Loans
Very essential and fundamental element of the banking business; it may be
considered to be the very core of the banking existence or being.
IV. LIABILITY FOR ACTS OF OFFICERS AND EMPLOYEES
By the very nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials are far greater than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence in the selection
and supervision of their employees.
A bank is liable for the wrongful acts of its officers done in the interest of the bank or in
their dealings as bank representatives but not for acts outside the scope of their authority.
A. Negligence of Manager
The bank, as an employer, is liable. Confidence in the banking system,
which necessarily includes reliance on bank managers, is vital in the economic life of
our society.
B. Negligence of Officers
A bank will be held liable for the negligence of its officers or agents when
acting within the course and scope of their employment.
If a corporation knowingly permits its officer, or any other agent, to perform acts within the
scope of an apparent authority, holding him out to the public as possessing power to do
those acts, the corporation will, as against any person who has dealt in good faith with the
corporation through such agent, be stopped from denying such authority.
C. Negligence of Tellers
Banks tellers must exercise a high degree of diligence in insuring that they
return the passbook only to the depositor or his authorized representative. The tellers
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know, or should know, that the rules on savings account provide that any person in
possession of the passbook is presumptively its owner.
Appropriation of money by a teller is not estafa. If the teller appropriates the money for his
personal gain, and since he occupies a position of confidence, the felony of qualified theft
would be committed.
D. Right to Recover from Employees
Banks may recover from its employees for any payment made in view of the
latters negligent or criminal acts.
Whoever pays for the damages caused by his dependents or employees may recover
from the latter what he has paid or delivered in satisfaction of the claim.
E. Liability for Damages
There must be a breach before damages may be awarded and the breach of
such duty should be the proximate cause of the injury.
1. Actual and Compensatory Damages
(1) when the obligation is breached, and it consists in the payment of a
sum of money, the interest due should be that which may have
been stipulated in writing. It shall itself earn interest from the time it
is judicially demanded. In the absence of stipulation, interest must
be 12% per annum.
(2) may be imposed at the discretion of the court at the rate of 6% per
annum.
(3) When the judgement of the court awarding a sum of money
becomes final and executor, the rate of legal interest whether the
case falls under (1) or (2), shall be 12% per annum from such
finality until satisfaction.
2. Exemplary Damages
Law allows the grant of exemplary damages by way of example for the
public good. The public relies on the banks fiduciary duty to observe the highest
degree of diligence.
3. Moral Damages
As a general rule, a corporation is not entitled to moral damages, because it
cannot experience physical suffering and mental anguish. However, for the
breach of fiduciary duty required of a bank, a coporate client may claim such
damages when its good reputation is besmirched by such breach, and social
humiliation results therefrom.
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In culpa contractual or breach of contract, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith, or is found guilty of gross negligence
amounting to bad faith, or in wanton (reckless) disregard of his contractual obligations.
Banks may not be held responsible in the absence of bad faith, malice, or wanton attitude.
The law affords no remedy for damages resulting from an act which does not amount to a
legal injury or wrong. (DAMNUM ABSQUE INJURIA)
INJURY- illegal invasion of a legal right
DAMAGE- the loss, hurt, or harm which results from the injury
Depositor may recover moral damages even if the banks negligence may not have been
attended with bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation. Moral damages are not meant to enrich a complainant at
the expense of the defendant. It is only intended to alleviate the moral suffering she has
undergone.
F. Respondeat Superior, Diligence in the Selection and Supervision of Employees
o Banks is bound by the negligence of its employees under the principle of
repondeat superior or command responsibility.
o The defense of exercising the required diligence in the selection and supervision
of employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.
Classification of Banks (CUT-RICO)
a. Commercial Bank/s (C)
- Exercise the general powers incident to a corporations
- Shall have all powers as may be necessary to carry on business of commercial
banking:
a. Accepting drafts and issuing letters of credit
b. Discounting and negotiating promissory notes, drafts, bills of exchange
and other evidence of debt
c. Accepting or creating demand deposits
d. Receiving other types of deposits and deposits substitute
e. Buying and selling foreign exchange and gold or silver bullion, acquiring
marketable bonds and other debt securities
f. Extending credit, subject to such rules as the Monetary Board may
promulgate
See section 29 of GBL and chapter 4 for discussion of
operations.
b. Universal Banks (U)
- They are large banks licensed by Bangko Sentral ng Pilipinas to do both
commercial and investment banking.
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- In addition to the powers of commercial bank, a universal bank can exercise the
powers of an investment house as well as invest in non-allied enterprises.
- A universal bank may perform the functions of an investment either directly
(through a sepatate and distinct department or within the unit if the bank) or
indirectly (through a separate subsidiary investment house). In either case, the
underwriting of equity securities or securities dealing will be subject to pertinent
laws, as well as applicable regulations of the SEC.
c. Thrift Banks (T)
- Aside from the powers conferred on it by other laws, a thrift bank namely a
savings and mortgage bank, a stock savings and loan association or a private
development bank.
- Recognize the indispensable role of the private sector, to encourage private
enterprise and to provide incentives to needed investment.
- The following are powers of a thrift bank:
a. Grant loans, whether secured or not
b. Invest marketable bonds and other debt securities
c. Issue domestic letters of credit
d. Extend credit facilities to private and government employees
e. Extend credit against the security of jewelry or other precious stones.
f. Accept savings and time deposits
g. Rediscount paper with the Land Bank of the Philippines, Development
Bank of the Philippines and other GOCC
h. Accept foreign currency deposits as provided under Foreign Currency
Deposit Act
i. Act as correspondent for other financial institutions
j. Purchase, hold and convey real estate as specified in sections 51 and
52 of GBL
k. Offer other banking services as provided in section 53 of GBL.
- Thrift banks may perform such services only upon prior approval of Monetary
Board.
- A. Authority from Bangko Sentral ng Pilipinas
d. Rural Banks (R)
- Recognizes the need to promote comprehensive rural development with the end
view of attaining acquitable distribution of opportunities, income and wealth.
- Encourages and assists in the establishment of rural banking system designed to
make needed credit available and readily accessible in the rural areas on the
reasonable terms.
- Loans or advances extended by rural banks shall be primarily for the purpose of
meeting the normal credit needs of farmers, fishermen or farm families as well as
the normal credit needs of cooperatives and merchants.
e. Islamic (I)
- RA 6848 created the Al-Amanah Islamic Investment Bank of the Philippines. The
domicile and place of business is in Zamboanga City.
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-
Primary purpose of the Islamic Bank is to promote and accelerate the socio-
economic development of the Autonomous Region by performing banking,
financing and investment operations.
f. Cooperative (C)
- Organized by the majority shares of which is owned and controlled by
cooperatives primarily to provide financial and credit services to cooperatives.
- May perform all the functions of rural bank.
- Membership of cooperative bank shall include only cooperative and federations
of cooperative.
g. Other Banks (O)
- The Monetary Board is authorized to make other classification of banks, as it
may deem proper.
- Philippine Veterans Bank, Land Bank of the Philippines Development Bank of the
Philippines is considered to be Government-Owned Banks.
-
OTHER CLASSIFICATION OF BANKS OTHER THAN MENTIONED IN SECTION 3
1. Non-Stock Savings and Loan Associations
- Is a non-stock, non-profit corporation engaged in the business of accumulating
engaged in the business of accumulating the savings of its members and using
such accumulations for loans to members to service the needs of households by
providing long-term financing for home building and development and for
personal finance.
2. Quasi-Banks
- Refers to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes
for purposes of relending or purchasing of receivables and other obligations.
3. Offshore Banks
- Refers to the conduct of banking transactions in foreign currencies involving the
receipt of funds from external sources and the utilization of such funds.
Authority to Engage in Banking and Quasi-Banking Functions
- No person or entity shall engage in banking operations or quasi-banking
functions without authority from BSP.
- An entity authorized by the BSP to perform universal or commercial banking the
functions shall likewise have the authority to engage in quasi-banking functions.
- According to the provisions of the Corporation Code that: (a.) no article of
incorporation or amendment to articles of incorporation of banks, banking and
quasi-banking institution xxx governed by special laws shall be accepted by
the Commission unless accompanied by a favorable recommendation of the
appropriate government agency to the effect that such articles or amendment is
in accordance with law; (b.) the SEC shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution xxx unless accompanied
by a certificate of the appropriate government agency to the effect that such by-
laws or amendments are in accordance with law.
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B. Determination by the Monetary Board managing partner, general manager, corporate secretary, treasurer or in-house
- The Monetary Board shall decide the determination of whether a person or entity counsel.
is performing banking or quasi-banking functions. - Sec 12, Rule 14 of Rules of Court: Service upon a private juridical entity. When
a. To resolve such issue through inspection, investigation and the defendant is a foreign private juridical entity, service may be on its resident
examination. agent designated in accordance with law.
b. Upon issuance of this authority banking operations shall continue to do B. Strict Compliance is Necessary
so unless such authority is revoked, suspended or annulled by BSP. - Basic is the rule that a strict compliance with the mode of service is necessary to
c. Existence of a victim is not necessary to determine whether an entity is confer jurisdiction of the court over a corporation.
in illegal banking. - The officer upon who services is made must be one who is named in the statute
C. Authority of Supervising and Examining Department otherwise service is insufficient.
- Department head and examiners are authorized to: - The purpose is to render it reasonably certain that the corporation will receive
a. To administer oaths to any person such as officer or director. prompt and proper notice in action against it.
b. To compel the presentation or production of books, documents, papers - Serving of summons on a branch manager is invalid, as stated in the case of BPI
or records that are reasonably necessary to ascertain the facts relative vs. Spouses Santiago, the service of summons on BPIs Branch Manager did not
to the true functions and operation of entity. bind the corporation for the branch manager is not included in the enumeration of
c. Failure or refusal to comply with the required presentation within the statute of the persons whom service of summons can be validly be made in
reasonable time shall subject the person responsible for penal sanctions behalf of corporation. Such service is void.
provided in the NCBA (New Central Bank Act).
D. Extension of Examining Powers
- BSP shall have the authority to examine an enterprise, which is wholly, or
majority owned or controlled bank. This is available only when BSP is examining
a bank.
E. Certificate of Authority to Register
- The SEC shall not register the articles of incorporation of any bank or any
amendment unless accompanied by a certificate of authority issued by Monetary
Board under its seal.
- Such certificate shall not be issued unless the Monetary Board is satisfied from
the evidence submitted to it: (RPC)
a. All Requirements of existing laws and regulations to engage in
business for which the applicant is proposed to be incorporated have
been complied with.
b. Public Interest and economic conditions both general and local, justify
the authorization.
c. Amount of Capital, financing, organization, direction and administration
as well as the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits and public
interest.
- The SEC shall not register the by-laws of any bank unless accompanied by a
certificate of authority from BSP.

Service of Summons Upon Banks

A. Service under the Rules of Court
- Sec 11, Rule 14 of Rules of Court: Service upon domestic private juridical entity.
When the defendant is a corporation, service may be made on the president,

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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

2. That its funds are obtained from the public, which shall mean twenty (20) or
more persons.
3. That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied.

B. Capabilities
The Monetary Board shall take into consideration their capability in terms of their
financial resources and technical expertise and integrity. (FTI)

The bank licensing process shall incorporate an assessment of:

a. The banks ownership structure
b. Directors and senior management
c. Its operating plan
d. Internal control
e. Its projected financial condition and capital base

C. Capital Requirements
1. Minimum capital prescribed by the Monetary Board
AMOUNTS
TYPE OF BANK (In Million Pesos)
Universal Banks 4950.0
Commercial Banks 2400.0
Thrift banks
- With head office within
CHAPTER 2 Metro Manila 325.0
Organization, Management and Administration of Banks, Quasi-Banks - With head office outside
and Trust Entities Metro Manila 52.0
Rural Banks
- within Metro Manila 26.0
- cities of Cebu and Davao 13.0
I. Organization of Banks - In 1st, 2nd & 3rd class cities
and
A. Conditions
The Monetary Board may authorize the organization of a bank or quasi-bank subject first class municipalities 6.5
to the following conditions: (SPC) - in 4th, 5th & 6th class cities
1. That the entity is a stock corporation. and in
2nd, 3rd & 4th class

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municipalities 3.9 Accept its own shares as security for a loan

Exception:
- in 5th & 6th class
When authorized by the Monetary Board.
municipalities 2.6
(The stock so purchases or acquired shall, within six months from
the time of its purchase or acquisition, be sold or disposed of at a public or
2. At least 25% of the total authorized capital stock shall be subscribed by the subscribers
private sale.)
of the proposed bank, and at least 25% of such subscription shall be paid-up, provided
that in no case shall be the paid-up capital be less than the minimum required capital
B. Foreign Stockholdings
stated above. (25% subscribed and 25% of the subscribed shall be paid and shall not be
Section 11, GBL
less than the minimum)
Foreign individuals and non-bank corporations may own or control up to 40% of the
voting stocks of a domestic bank. This rule shall apply to Filipinos and domestic non-
bank corporations.
The percentage of foreign-owned voting stocks shall be determined by the citizenship
of the individual stockholders.
D. Incorporators/Subscribers/Proposed Directors (I/S/PD) The citizenship of the corporation which is a stockholder in a bank shall follow the
I, S & PD - Must be Persons of integrity and of good credit standing in the business citizenship of the controlling stockholders of the corporation, irrespective of the place
community. of incorporation.
S - Must have adequate financial strength to pay for their proposed subscriptions in the bank. controlling stockholders individuals holding more that
50% of the voting stock of the corporate stockholders of the bank.
I, S & PD must not have been convicted of any crime involving moral turpitude
Commercial bank at least 60% of voting stock shall be owned by Filipino citizens.
I, S & PD unless otherwise allowed by law, are not offices and employees of a government
agency, instrumentality, department or office charged with the supervision of, or granting of Any thrift bank at least 40% of voting stock shall be owned by Filipino citizens.
loans to banks. Rural bank 100% shall be owned and held, directly or indirectly, by Filipino citizens
or corporations, associations or cooperatives qualified under the Philippine laws to
*** A bank may be organized with not less than five (5) nor more thank (15) incorporators. In excess of own and hold such capital stock.
15 may be listed among the original subscribers in the Articled of Incorporation.
*** Control test is applied in determining the nationality of banks.
E. Bank Branches

1. Universal or Commercial banks may open branches or other offices within or outside the C. Acquisition of Voting Stock in a Domestic Bank
Philippines prior approval of the Bangko Sentral. Section 73, GBL
2. Branching by all other banks shall be governed by pertinent laws.
D. Family Groups or Related Interests
*** A bank may use any or all of its branches as outlets for the presentation and/or sale of the financial Is formed when:

th
products of its allied undertaking or of its investment house units. Stockholdings of individuals related to each other within 4 degree or consanguinity
*** A bank shall be responsible for all business conducted in such branches and offices to the same or affinity, legitimate or common-law; or
extent and in the same manner as though business had all been conducted in the head office. Two or more corporations owned and controlled by the same family or same group of
*** A bank and its branches shall be treated as one unit. persons.

*** such situations must be fully disclosed in all transactions by such corporations or
II. Stockholdings related groups of persons with bank.

A. Treasury Stocks
The GBL provides that no bank shall: III. Board of Directors
Purchase or acquire shares of its own capital stock
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A. Number of Directors
At least five (5), and a maximum of fifteen (15) members of the board of directors of
bank, two (2) or whom shall be independent directors.
Independent Director a person other than an officer or employee of the bank, its A.
subsidiaries or affiliates or related interests.
1. Is not or has not been an officer or employee of the bank/quasi-bank/trust entity, its
subsidiaries or affiliates or related interests during the past three years counted from the
date of his election;
2. Is not a director or officer of the related companies of the institutions majority
stockholder;
3. Is not a majority shareholder of the institution, any of its related companies, or of its
majority shareholder;
4. Is not a relative within the fourth degree of consanguinity or affinity, legitimate or
common-law of any director, officer or majority shareholder or the bank/quasi-bank/trust
entity, or any of its related companies;
5. Is not acting as a nominee or representative of any director or substantial shareholder
or the bank/quasi-bank/ trust entity, any of its related companies or any of its substantial
shareholders; and
6. Is free from any business or other relations with the institution or any of its major
stockholders which could materially interfere with the exercise of his judgment.
B. Directors of Merged or Consolidated Banks
In the case of a bank merger or consolidation, the number of directors shall not exceed
twenty-one.
C. Meetings
May be conducted through:
Teleconferencing
Video-conferencing
*** Banks shall include in their bylaws a provision that meetings of board of directors shall be
held only within the Philippines.
D. Compensation and other Benefits of Directors and Officers
The Monetary Board may regulate the payment by the bank to its directors and officers or
compensation, allowance, etc. only in exceptional cases such as: (CUU)
1. When a bank is under comptrollership or conservatorship;
2. When a bank is found by the Monetary Board to be conducting business in an unsafe or
unsound manner;
3. When a bank is found by the Monetary Board to be in an unsatisfactory financial
condition.
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IV. Fit and Proper Rule
Powers of the Monetary Board
The GBL provides for the following rules:
1. The Monetary Board shall prescribe, pass upon and review the qualifications and
disqualifications of individuals elected or appointed bank directors and disqualify those
unfit.
2. 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
3. CITEE integrity, experience, education, training and competence of an individual shall
be considered.
B. Disqualifications
a. Permanently disqualified from being directors:
1. Persons who have been convicted by final judgment of a court for offenses involving
dishonesty or breach of trust;
2. Persons who have been convicted by final judgment of a court sentencing them to
serve a maximum term of imprisonment of more than six years;
3. Persons who have been convicted by final judgment of the court for violation of
banking laws, rules and regulations;
4. Persons who have been judicially declared insolvent, spendthrift, or incapacitated to
contract;
5. Directors, officers or employees of closed banks, quasi-banks/trust entities who were
found to be culpable for such institutions closure as determined by the monetary
board.
6. Directors and officers of banks, quasi-bank and trust entities found by the monetary
board as administratively liable for violation of banking laws, rules and regulations
where a penalty of removal from office is imposed, and which finding of the monetary
board has become final and executory;
7. Directors and officers of banks, quasi-banks and trust entities or any person found by
the monetary board to be unfit for the position of directors or officers because they
were found administratively liable by another government agency for violation of
banking laws, rules and regulations or any offense/violation involving dishonesty or
breach or trust and which finding of said government agency has become final and
executory.
b. Temporarily disqualified from being directors:
1. Persons who full refuse to fully disclose the extent of their business interest or any
material information to the appropriate supervising and examining department when
required pursuant to a provision of law;
2. Directors who have been absent or who have not participated for whatever reasons on
more than 50% of all meetings, both regular and special, of the board of directors during
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

their incumbency, and directors who failed to physically attend for whatever reasons in at
least 25% of all boar meeting in any year, except that when a notarized certification C. Disqualifications/Prohibitions under the Corporation Code
executed by the corporate secretary has been submitted attesting the said directors were Sec. 27, Corporation Code
given the agenda materials prior to the meeting and that their decisions thereon were
submitted for deliberations and were taken up in actual board meeting, said directors shall D. Disqualifications/Prohibitions under the NCBA
be present in the board meeting. This disqualification applies only for purposes of the Disqualification Sec. 9, NCBA
immediately succeeding election; Prohibitions Sec. 27, NCBA
3. Persons who are delinquent in the payment of their obligations.
** one past due obligation to the bank where he/she is a director or office; at least two E. Disqualification/Prohibition under the PDIC Law
obligation with other banks or financial institution) Sec. 17 PDIC Law
*** obligations shall include all borrowings obtained by: a director, spouse or child of the
director, any person person whose loan proceeds were used for the benefit of a director or F. Disqualification/Prohibition under RA 7353
office, a partnership where a director or his spouse is the managing or general partner, a Sec. 5, RA 7353
corporation, association or firms wholly owned or majority of the capital stocks are owned
by the director or his spouse. G. Disqualification/Prohibition under Appendix 38, Manual of Regulations for Banks
4. Persons who have been convicted by a court for offenses involving dishonesty or breach
of trust. H. Prohibitions on Public Officials
5. Directors and officers of closed banks/quasi-banks/trust entities pending their clearance Sec 19, GBL
by the Monetary Board
6. Directors disqualified for failure to observe their duties and responsibilities prescribed
under existing regulations. V. Banking Days and Hours
7. Directors who failed to attend the special seminar for board of directors. This
disqualification applies until the director concerned has attended such seminar; A. Number of Days and Hours
8. Persons dismissed from employment for cause, until they have cleared themselves of The GBL provides for the following guidelines:
involvement in the alleged irregularity. 1. Banks shall transact business on all working days for at least six hours a day. Banks may
9. Those under preventive suspension open for business on Saturdays, Sundays, or holidays for at least three hours a day.
10. Persons with derogatory records as certified by the judiciary, NBI, PNP, etc. for 2. Banks which opt to open on days other than working days shall report to the Bangko
irregularities that would adversely affect the integrity of director/officer, until they have Sentral the additional days during which they or their branches or offices shall transact
cleared themselves or after the lapse of five years from the time of the complaint. business.
11. Directors and officers of banks, quasi-bank and trust entities found by the monetary board 3. Working days mean Mondays to Fridays, except if such days are holidays.
as administratively liable for violation of banking laws, rules and regulations where a
penalty of removal from office is imposed, and which finding of the monetary board is B. Rules and Regulations
pending appeal before the appellate court, unless execution is restrained by court.
12. Directors and officers of banks, quasi-banks and trust entities or any person found by the 1. All banks shall observe for the conduct of their business a regular banking week five days
monetary board to be unfit for the position of directors or officers because they were found (Mondays Fridays), except when such days are holidays.
administratively liable by another government agency for violation of banking laws, rules a. For servicing deposits and withdrawals, banks may remain open beyond the minimum
and regulations or any offense/violation involving dishonesty or breach or trust and which six hours, even before 8:00am or after 8:00pm.
finding of said government agency is pending appeal before the appellate court, unless b. For purposes other than servicing deposits and withdrawals, banks may open beyond
execution is restrained by court. the minimum six hours but in no case shall such banking hours start earlier than
13. Directors and officers of banks, quasi-bank and trust entities found by the monetary board 8:00am nor extend beyond 8:00 pm.
as administratively liable for violation of banking laws, rules and regulations where a c. Branches of banks at any international airport or major fish port are allowed on
penalty of suspension from office or fine is imposed, regardless whether the finding of the flexible baking hours within a twenty-four hour period which shall in no case be less
monetary board final and executory or pending appeal before the appellate court, unless than six hours per day.
execution is restrained by court. The disqualification is in effect during the period of d. The banking days and hours selected for each of the offices of banks shall be
suspension or so long as the fine is not fully paid. reported in writing to the appropriate supervising and examining department of the
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BSP. Provided, that the change in banking days and hours shall not be made oftener
than once every thirty days, except during emergencies.
e. Notice on changes in banking days and hours shall be given through the fastest
means of communication, at least seven days before the intended effectivity in
banking hours or days.
f. In case the bank has to pen outside or close during the banking hours or days
reported to the BSP due to an emergency, a written report submitted within 24 hours
from opening or closing will suffice.
2. Subject to compliance with other relevant laws, banks may opt to observe a banking week
in excess of five days after reporting to the BSP the additional days during which such
banks or their branches or offices shall transact business for at least three hours each
day.
3. Without the need of approval from BSP, banks are allowed to close on certain days in
celebration of important historical and/or religious event in the locality where the banks
operate: Provided, that said closure has the prior approval of the bankers association in
the locality: Provided further, that said closure will only be allowed in the municipality or
city where the festivities are centered.
4. Banks shall submit either individually or through their head offices, to the appropriate
supervising and examining department of the BSP a prior notice of their intended closure
on account of a special local festivity, together with a copy of the resolution of the local
bankers association approving said closure, at least two days after the date of said
resolution.
5. The required notice shall be supported by certification that:
a. On the date of temporary closure, the bank and/or branch will maintain a skeletal
force to handle out-of-town clearing items
b. The notice of the banks closure and the reason thereof shall be posted
conspicuously in the banks premises
c. For branches of banks, the closure has the prior approval of their respective head
offices.
VI. Automated Teller Machines
A. Off-Site Automated Teller Machines (ATMs)
Banks may establish off-site ATMs, subject to the following conditions:
1. Banks shall submit a report to the appropriated department of the BSP on ATMs which
they establish;
2. ATMs shall be installed in centers of activity like supermarkets, etc. Provided, that security
measures shall be adopted.
3. Only banks which have shown general compliance with laws, rules and regulations shall
be allowed to open off-site ATMs.
B. Mobile ATMs
Banks may also establish mobile ATM, subject to the following conditions:
10
1. The mobile ATMs should be allowed to visit only centers of activity as mentioned in Item
A(2) above and should confine their itinerary to Metro Manila until further notice;
2. The bank shall secure insurance coverage or adopt a self-insurance scheme to protect
itself against losses of whatever nature in its immobile ATM operations;
3. The bank shall notify the supervising and examining department of the BSP of the actual
date a mobile ATM becomes operational and when no longer in operation.
VII. Independent Auditor
The following are the rules with respect to financial audit of banks:
1. The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of
an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a
list of certified public accountants acceptable to the Monetary Board.
2. The term of the engagement shall be prescribed by the Monetary Board which may either be
on a continuing basis where the auditor shall act as resident examiner, or on the basis of
special engagements, but in any case, the independent auditor shall be responsible to the
banks, quasi-banks or trust entitys board of directors. A copy of the report shall be furnished
to the Monetary Board.
3. The Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity
and/or the individual members thereof, to conduct, either personally or by a committee created
by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review
the internal audit and control system of the bank, quasi-bank or trust entity and to submit a
report of such audit.
VIII. FINANCIAL STATEMENTS
A. Publication of Financial Statements:
The following are rules regarding publication of financial statements: Sec. 61, GBL
** Every bank, quasi-bank or trust entity, shall publish a statement of its financial condition
such terms understandable to the layman
in such frequency as may be prescribed by the Bangko Sentral
in English or Filipino
at least once every quarter in a newspaper or general circulation in the place where the
bank is located
** In periods of national and/or local emergency or of imminent panic which directly threaten monetary
and banking stability, the Monetary Board, by a vote of at least five of its members, in special cases and
upon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity
to defer for a stated period of time the publication of the statement of financial condition required herein.
IX. Publication of Capital Stock
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

A bank, quasi-bank or trust entity shall shot publish the amount of its authorized or subscribed
capital stock without indicating at the same time and with equal prominence, the amount of its
capital actually paid-up.

X. Settlement of Disputes

A. Unsettled Labor Disputes

Any strike or lockout involving banks, if unsettled after seven calendar days shall be reported
by the Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the dispute
and decide it or certify the same to the NLRC for compulsory arbitration. However, the
President may intervene and assume jurisdiction over such labor dispute in order to settle or
terminate the same.

B. Reports of Strike and Lockouts

The bank shall disclose the following pertinent information on the strike/lockout:
a. Cause of the strike/lockout and bank managements position on its legality;
b. Bank operations affected.

XI. Laws Governing Other Types of Banks

Thrift banks Thrift Banks Act

Rural Bank Rural Banks Act
Cooperative Cooperative Code
Islamic Banks special laws

** GBL shall likewise apply to thrift banks, rural banks and cooperative banks insofar as they are not in
conflict.

** GBL shall govern for purposes of prescribing the minimum ratio which the net worth of a thrift bank
must bear to its total risk assets.

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Thrift Bank, Rural Bank, Cooperative Bank may create or accept demand deposits subject to
withdrawal by check WITH prior authority from BSP.

Manner of making the deposit

In Philippine Bank of Commerce vs CA the Supreme Court observed:

In the ordinary and usual course of banking operations, current account deposits are accepted
by the bank on the basis of deposit slips prepared and signed by the depositor, or the latters agent or
representative, who indicates therein the current account number to which the deposit is to be credited,
the name of the depositor or current account holder, the name of the deposit and the amount of the
deposit either in cash or checks. The deposit slip has an upper portion or stub, which is detached and
given to the depositor or his agent; the lower portion is retained by the bank. In some instances
however, the deposit slips are prepared in duplicate by the depositor. The original of the deposit slip is
retained by the bank, while the duplicate copy is returned or given to the depositor.

Regulations on Temporary Overdrawings and Drawings against Uncollected Deposits (DAUD)

TEMPORARY OVERDRAWINGS against current account SHALL NOT BE ALLOWED,

UNLESS caused by normal bank charges and other fees incidental to handling such accounts.

Violation:
Fine of one-tenth of one percent (1/10 of 1%) per day of violation, computed on the basis of
the amount of overdrawing or fines in amounts as may be determined by the Monetary Board,
but not to exceed P30,000 a day for each violation whichever is lower.

Technical overdrawings arising from force posting in clearing checks shall be debited banks
under Returned Checks and Other Cash Items Not in Process of Collection which is part of Other
Assets in the Statement Condition. Items to be lodged under this account shall consist only of in-
clearing checks which may result in technical overdrawn accounts and shall immediately reversed in
the following day. The checks lodged under Returned Checks etc. shall either be returned or honored
CHAPTER 3 the following day before clearing. The items to be used as cover for honored checks should only consist
Deposit Function of Banks of any of the following:
Cash
Cashiers, Managers or Certified Checks
Bank Drafts
Kinds of Deposits
Postal Money Orders
Treasury Warrants
1) Demand Deposits all those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippine currency and are subject to payment in legal tender upon demand by the Duly funded On us checks
presentation of (depositors) checks. Fund transfers or credit memos within the same bank representing proceeds of loans granted
under existing regulations
Universal and Commercial banks may create or accept demand deposits subject to withdrawal NOTE:
by check WITHOUT prior authority from BSP. Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks
shall NOT be subject to the above-mentioned regulations PROVIDED:
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
The maintenance of non-resident correspondent banks peso checking accounts and
overdrawings therefrom are covered by reciprocal arrangement
Temporary overdrawings are covered within 15 days from the date overdrawings are incurred
Such accounts are credited only through foreign exchange inward remittance
DRAWINGS AGAINST UNCOLLECTED DEPOSITS (DAUDs) shall be PROHIBITED except when
the drawings are made against uncollected deposits representing managers/cashiers/treasurers
checks, treasurer warrants, postal money orders and duly funded on us checks which may be
permitted at the discretion of each bank.
Current Accounts of Banks Officers and Employees
The following officers and employees of banks are PROHIBITED from maintaining demand
deposits or current accounts with the banking office in which they are assigned:
All officers
Employees of the banks cash department/ cash units
Other employees who have direct and immediate responsibility in the handling of transactions
and/or records pertaining to demand deposits or current accounts.
Includes spouses and relatives within second degree of consanguinity and affinity
Check is a bill of exchange drawn on a bank payable on demand.
Fixed savings and current deposits of money shall be governed by the provision so simple loan
Duty of Banks to honor checks
Banks are bound to honor checks to the extent of the amount of his (the depositor) deposits.
Failure of the bank to honor entitles the drawer to substantial damages without any proof of
actual damages
Banks must ensure that the amount of the check should be paid only to its designated payee.
The fact that the drawee bank did not discover the irregularity seasonably constitutes
negligence.
Responsibility of Drawer
The drawer must personally keep track of his available balance in the bank.
Duty of Banks to Know Signatures
A bank is bound to know the signatures of its customers
If it pays a forged check, it must be considered as making the payment out of its own funds
and cannot ordinarily charge the amount so paid to the account of the depositor whose name
was forged.
Banks are under no obligation to make part payment on a check, up to only the amount of the drawers
funds.
13
Banks are under no duty to make up deficiency from the savings account. If a depositor has 2 accounts
with a bank, an open account and a savings account, and draws a check upon the open account for
more money than the account contains.
Checks do not have legal tender power and their acceptance in the payment of debts is at the option of
the creditor.
Effects if a cross check
In State Investment House vs IAC, the SC enumerated the different effects of crossing a
check:
1. That the check may not be encashed but only deposited in the bank
2. That the check may be negotiated only once to one who has an account with a bank
3. That the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that such holder must inquire if the check has been received
pursuant to that purpose.
Cashiers Check is really the banks own check and may be treated as a promissory note with the
bank as the maker.
In New Pacific Timber and supply Co. Inc. vs Seeris cashier check is deemed as cash
Set-off
A bank may debit the personal account of a depositor for an amount erroneously credited to
the depositors sole proprietorship account because the latter being a sole proprietorship has
no separate and distinct personality from the depositor.
Art. 1980 and Art. 1278 of the Civil Code
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with
it, for the purpose of determining their genuineness and regularity.
Crossing of the check with the phrase Payees Account Only is a warning that the check
should be deposited only in the account of the payee. It is the duty of the bank to ascertain it.
Relationship of payee or holder and the bank
Principal and agent.
The bank which receives such paper for collection is the agent of the payee or holder.
Encashment of checks
Banking business requires that the one who first cashes and negotiates the check must take
some precautions to learn whether or not it is genuine.
2) Savings Deposits
Servicing deposits
Banks may be authorized by the BSP to solicit and accept deposits outside their bank
premises, subject to ff: conditions:
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
1. The financial condition of the banks is sound and the operations and the quality of the
management thereof could reasonably assure the safety of the funds which may be
entrusted to its deposit collectors and/or agents
2. Proposed area is clearly defined
3. Solicitation shall be only confined within a locality where there are NO BANKS IN
OPERATION or where it can be established that the deposit potentials in the said
locality are still untapped
4. Institute and maintain following minimum safeguards:
Deposit solicitors shall be initially bonded for at least P1,000 subject to the
increase thereof to approximate their daily collections
Deposit solicitors shall be provided with proper identification cards with
photograph and signature, certified by appropriate officer of the bank
Secure adequate insurance coverage for funds
Deposit slips shall be in booklet form, prenumbered and in triplicate (3)
copies. The original issued to the depositor, second used for posting
reference and third retained in the booklet.
All collections shall be turned over to the cashier at the end of each day
accompanied by a COLLECTION SUMMARY REPORT which shall contain
the following information.
Date
Name and address of the depositors
Deposit slip no.s
Amount of deposit
Savings account and passbook numbers
Name and signature of solicitor rendering the report
Depositors shall be required to accomplish a SIGNATURE CARD when
opening an account used as a reference in checking the genuineness and
authenticity of signatures in withdrawals
Deposits/withdrawals shall be recorded by the bookkeeper or any ledger
clerk
At the end of each month, depositors shall be advised IN WRITING if the
balances of their deposits. Advise slips shall NEVER be handcarried by the
solicitor themselves
Place of assignments of banks solicitors shall be rotated at least quarterly.
Individual and Joint accounts
Joint account may be an and account or an and/or account
And account signature of BOTH co-depositor are required for withdrawal
And/or account either one of the co-depositors may deposit and withdraw from the account
without the knowledge, consent and signature of the other.
Withdrawals
14
Banks are prohibited from issuing or accepting withdrawal slips without requiring depositors
concerned to present their passbooks except for banks authorized by BSP.
NOTE: There is now law mandating banks to call up their clients whenever their representatives
withdraw significant amounts from their accounts.
3) Negotiable Order of Withdrawal (NOW) Accounts
NOW accounts interest bearing accounts that combine the payable on demand feature of checks and
investment feature of savings account.
Universal/Commercial Bank may offer NOW accounts WITHOUT prior authority of the
monetary board
Thrift/Rural/Cooperative Bank may offer UPON prior approval of the monetary board.
Rules on servicing NOW accounts
Prior to or simultaneous with the opening of a NOW account, the bank shall inform the
depositor of its terms and conditions
Banks shall be responsible for the proper identification of its depositors and require 2
specimen signatures and such other pertinent information
Deposit shall be covered by deposit slips in duplicate duly validated and initialed by the teller
received the deposit
NOW accounts shall be kept and maintained separately from the regular savings deposits
Blank NOW forms shall be prenumbered and shall be controlled as in the case of unissued
blank checks
A bank statement shall be sent to each depositor at the end of each month for confirmation of
balances
Banks must use the form prescribed by the present rules for NOW accounts.
4) Time Deposits one the payment of which cannot legally be required within such a specified
number of days.
Time deposits shall be issued for a specific period of term
Authority shall be automatically granted to any accredited banking institution to accept
SPECIAL TIME DEPOSITS from the Agrarian Reform Fund Commission with interest lower
than the rate allowed on time deposits accepted from the general public.
Rules regarding issuance of Certificates of Time Deposit (CTD)
Negotiable Certificates on Time Deposit (NCTD)
o Universal/Commercial Banks may issue WITHOUT prior approval of BSP
o Thrift/Rural/Cooperative Banks may issue UPON THE PRIOR approval of BSP
Non-Negotiable Certificates of Time Deposit
o Bank may issue long-term non-negotiable tax-exempt certificates to time deposit
without prior approval of the BSP
5) Deposit Substitute Operations (Quasi-Banking Functions)
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
Elements:
1. Borrowing funds for the borrowers own account
2. 20 or more lenders at any one time
3. Methods of borrowing are issuance, endorsement or acceptance of debt instruments of any
kind
4. Purpose of which is relending or purchasing receivables or other obligations
NOTE:
1. Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and
for any purposes provided in no.4 above
2. Purchasing receivables or other obligations shall refer to the acquisition of claims collectible in
money
3. Relending shall refer to the extension of loans by an institution with antecedent borrowing
transactions. Relending is presumed when the institution is regularly engaged in lending
4. Regularly engaged in lending shall refer to the practice of extending loans, advances,
discounts or rediscounts as a matter of business
6) Foreign Currency Deposits
Authority to deposit foreign currencies
- Any person may deposit with such Phil. Banks in good standing.
Authority of Banks to accept foreign currency deposits:
Banks designated by Central Bank shall have the authority to:
1. Accept Deposits and to accept foreign currencies in trust. Numbered accounts for
recording and servicing of said deposits are allowed.
2. Issue certificates to evidence such deposits.
3. Discount said certificates
4. Accept said deposits as collateral for loans subject to such rules and regulations
5. Pay interest in foreign currency on such deposits
Foreign Currency Cover Requirements:
Depository banks shall:
1. Maintain at all times a 100% foreign currency cover for their liabilities
2. Of which cover at least 15% shall be in the form of foreign currency deposit with the Central
Bank
3. The balance in the form of the foreign currency loans or securities, which loan or securities
shall be of short-term maturities and readily marketable
4. Such foreign currency loans may include loans to domestic enterprises which are export-
oriented or registered with the Board of Investments
5. Foreign Currency cover shall be in the same currency as that of the corresponding foreign
currency deposit liability
15
6. Central Bank may pay interest on the foreign currency deposit and if requested shall exchange
the foreign currency notes and coins into foreign currency instruments drawn on its depository
banks.
Depository banks on account of networth, resources, past performance or other pertinent criteria, have
been qualified by the Monetary board to function under an expanded foreign currency deposit system
shall be exempt in no.2 above.
There is no restriction on the withdrawal by the depositor of his deposit or on the transferability of the
same abroad EXCEPT those arising from the contract bet. the depositor and the bank.
7) Anonymous and Numbered Accounts should not be allowed
In case where numbered accounts are allowed, banks or financial institutions should ensure
that the client is identified in an official or other identifying documents.
Related Laws:
Art 178 RPC
Art 379, Art 380 of Civil Code
Commonwealth Act 142 as amended by Republic Act No. 6085
Administration of Deposits
All banking institutions are required to set a minimum of 3 specimen signatures to be
simultaneously required from each of their depositors and to update the specimen signatures of their
depositors every 5 years or sooner.
BSP Circular No. 564 Series of 2007 provides for a valid list of identification cards
Students who are beneficiaries of an OFW and not on voting age shall be required of 2 valid ID
The requirement on presenting 2 valid IDs shall on 1 time basis only or at the commencement
of business relationship.
Financial transactions may include remittances
Minors are vested with special capacity and power to make savings or time deposits with and
withdraw the same as well as receive interest thereon.
Requirements:
At least 7 years of age
Able to read and write
Sufficient discretion
Not otherwise disqualified by any other incapacity
If a guardian shall give notice in writing to any thrift bank not to make payments of deposits
dividends or interest to the minor of whom he is the guardian, then such payment shall be made only to
the guardian.
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
Corporations may open bank accounts as follows:
1) Incorporation Stage
2) Post Incorporation
Interest or yield on time deposit/deposit substitute may be paid at the maturity or upon withdrawal
or in advance PROVIDED, it shall not exceed the interest in 1 year.
A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and
shall earn interest from maturity to the date of actual withdrawal or renewal at a rate applicable to
savings deposits.
Deposit substitute instrument not withdrawn or renewed on its maturity date shall from said date
become payable on demand and shall earn an interest or yield from maturity to actual withdrawal or
renewal at a rate applicable to a deposit substitute with a maturity of 15 days.
III. Survivorship Agreement
All deposits and withdrawals during regular banking hours shall be credited or debited to deposit
liability accounts on the day receipt or payment thereof.
Provided:
That a bank may set clearing cut-off time for its head office not earlier than 2 hours before the start
of clearing at BSP and not earlier than 3 hours before the start of clearing of all its branches,
agencies and extension offices
Provided further:
That banks which are located in areas where there are no BSP regional/clearing arrangements
may set a clearing cut-off time not earlier than 2 hours before the start of their local clearing after which
time deposits received shall be booked likewise as hereinafter provided.
Cash deposits received after the selected clearing cut-off time shall be booked s deposits on the
day of receipt.
IV. Nature of Bank Deposits
Deposits on checks including on us checks etc. may be booked as deposits on the day of receipt.
Deposits received after the close of the regular banking hours shall be booked as deposits the
following banking day.
Banks impose and collect service charges on savings and demands deposits that fall below the
required minimum monthly average daily balance (ADB) subject to ff: conditions:
The imposition of such charges is clearly stated among the terms and conditions of the
depositor
The rate or amount of such charges or fees is properly disclosed among the terms and
conditions of the deposit
The deposit account balances have fallen below the required minimum monthly ADB for
dormant account and for at least 2 consecutive months for active accounts
The required minimum monthly ADB of deposits are properly disclosed among the terms and
conditions of the deposit.
16
Any change in the terms and conditions for the imposition of service charges and/or
maintenance fees shall take effect only after due notice to the depositor.
PROVIDED
Information by regular mail, electronic mail, statement of account messages or alternative
modes of communication on the depositors last known address at least 60 days prior to
implementation shall be considered sufficient notice.
PROVIDED FURTHER
Failure of the depositor to manifest or register his objection to the new service within 30 days
from receipt shall be deemed acceptance of such changes
Banks shall likewise post said information on their respective websites, ATM on-screen
messages and in conspicuous places within the bank premises at least 60 days prior to
implementation.
- when joint (and several) owners of a deposit agree that either of them could withdraw any part
or the whole of said account during the lifetime of both and the balance, if any, upon the death
of either, belonged to the survivor.
- an ALEATORY CONTRACT (Art. 1790), by which the mutual agreement of the joint depositors
permitting either of them to withdraw the whole deposit during their lifetime and transferring the
balance to the survivor upon the death of one of them.
Survivorship agreement not invalid per se but may be violative of law, such instances:
- a mere cloak to hide an inofficious donation
- to transfer property in fraud of creditors
- to defeat the legitime of a forced heir
A. Nature
1. Fixed, savings and current deposits of money in banks and similar institutions are the true
deposits and are considered simple loans.
2. Irregular deposits in nature for they are really loans because they earn interest.
- In reality: depositor is the creditor while bank is the debtor.
- Failure of the bank to honor the time deposit is failure to pay its obligation as a
debtor and not a breach of trust arising from a depositorys failure to return the
subject matter of the deposit.
3. The relationship between the depositor and the Savings and Loan Association is that of
creditor and debtor.
- Bank has the obligation to return the amount deposited, however, it has no
obligation to return or deliver the same money that was deposited. (Principle of Non-
Fungible)
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009
- Failure of the bank the amount deposited will not constitute estafa through
misappropriation but it will only give rise to civil liability.
4. The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan.
5. A bank ultimately acquires ownership of the deposits but such ownership is coupled with a
corresponding obligation to pay the depositor an equal amount on demand.
- A bank does not have unilateral right to freeze the accounts of depositor based on
its mere suspicion, granting such rights would open the floodgates of public distrust in
banking industry. (BPI Family Bank vs. Franco)
B. Set-Off
General Rule: When a depositor is indebted to a bank, and the debts are mutual, the bank may
apply the deposit or such portion thereof as may be necessary to the payment of the debt due
it by the depositor.
Exception:
- There is no express agreement.
- The deposit is not specifically applicable to some other particular purpose.
V. Duties of Banks
A. Meticulous Care
- Knowing the signatures of its clients.
- Depositors are not estopped from questioning wrongful withdrawals, even if they failed to
question those errors in the statements sent by the bank to them for verification.
B. Payment to Proper Party
- The bank has no right to pay to persons other than those in whose favor the obligation was
constituted or whose right or authority to receive payment is indisputable.
- Payment made by the debtor (bank) to the wrong party does not extinguish the obligation as
to the creditor (depositor) who is without fault or negligence, even if the 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.
C. In Case of Death of Depositor
National Internal Revenue Code provides:
If a bank has knowledge of death of a person, who maintained a bank
deposit account alone, it shall not allow any withdrawal from the said
deposit account, UNLESS the Commissioner has certified the taxes
imposed thereon by this title have been paid: Provided, however, that the
administrator of the estate or any one of the heirs of decedent may upon
authorization by the Commissioner, withdraw an amount not exceeding
P20,000 without the said certification.
VI. Secrecy of Bank Deposits
17
A. Purposes
1. To give encouragement to the people to deposit their money in banking institutions.
2. To discourage private hoarding so that the same may be utilized by banks in authorized
loans to assist in the economic development of the country.
B. Privacy
- Civil Code provides that every person shall respect the dignity, personality, privacy and
peace of mind of his neighbors and the other persons and punishes as actionable torts
several acts for meddling and prying into the privacy of another.
- It also holds public officer or employee or any private individual liable for damages for any
violation of the rights and liberties of another person, and recognizes the privacy of letters and
other private communications.
C. Absolute Confidentiality
- All deposits of whatever nature with banks or banking institutions in the Philippines are
considered as of an absolutely confidential nature and may not be examined, inquired or
looked into by any person, government official, bureau or office.
1. Prohibition against inquiry into or disclosure of deposits under republic Act No. 8367 (An
Act Providing for the Regulation of the Organization and Operation of Non-Stock Savings
and Loan Associations) all deposits of whatever nature are considered absolutely
confidential in nature EXCEPT, (1) upon written permission of the depositor; (2) in cases
of impeachment; (3) upon order of a competent court in cases of bribery or dereliction of
duty of public officials; and (4) in cases where the money deposited or invested is the
subject matter of litigation.
2. Foreign Currency Deposits
- All foreign currency deposits are of an absolutely confidential in nature EXCEPT, upon
the written permission of the depositors.
- It shall be exempt from attachment, garnishment or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever.
3. Confidentiality of Deposits in Islamic Banks
- All deposits of whatever nature are confidential EXCEPT:
1. inspection by the banks auditor
2. upon written permission by the depositor
3. in cases where the money deposited or the transaction concerned is the subject
matter of a court order
VII. Exceptions to Secrecy of Deposits
A. Exceptions to the Bank Secrecy Law:
1. Upon written permission of the depositor
2. In cases of impeachment
3. Upon order of a competent court in cases of bribery or dereliction of duty of public officials
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4. In cases where the money deposited or invested is the subject matter of litigation
B. Garnishment
- A legal proceeding by which the officer may levy on debts due the judgment obligor and other
credits, including bank deposits, financial interests, royalties, commissions and other personal
property not capable of manual delivery in the possession or control of third parties.
- Levy shall be made by serving NOTICE upon the person owing such debts or having in his
possession or control such credits to which the judgment obligor is entitled.
- The garnishment shall cover only such amount as will satisfy the judgment and all lawful fees.
Property exempt from execution/garnishment:
1. Family home or the homestead in which he resides.
2. Ordinary tools and implements personally used in his trade, employment or livelihood.
3. Three horses, or (3) cows, or (3) carabaos, or there beasts of burden necessarily used by
him in his ordinary occupation.
4. Necessary clothing and articles for ordinary personal use, excluding jewelry.
5. Household furnitures and utensils used for housekeeping not exceeding P100,000.
6. Provisions for individual or family use sufficient for four months.
7. Professional libraries and equipment not exceeding P300,000 in value.
8. One fishing boat and accessories not exceeding the total value of P100,000 and by the
lawful use of which he earns his livelihood as fisherman.
9. Salaries, wages or earnings within the four months preceding the levy as are necessary
for the support of his family.
10. Lettered gravestones.
11. Monies benefits, privileges or annuities accruing or in any manner growing out of any life
insurance.
12. The right to receive legal support or money or property obtained as such support or any
pension or gratuity from the Government.
13. Properties especially exempt by law.
C. Secrecy and Exemption from Attachment and Garnishment of Foreign Currency Deposits
cannot be used as Device for Wrongdoing
D. Graft and Corruption
- The Anti-Graft Law directs in mandatory terms that bank deposits shall be taken into
consideration in its enforcement, notwithstanding any provision of law to the contrary.
E. Authority to Inquire into Bank Deposits under the Anti-Money laundering Act
- AMLC may inquire into or examine any particular deposit r investment with any banking
institution or non-bank financial institution upon order of any competent court in cases of
violation, when it has established that:
a. there is probable cause that the deposits or investments are related to an unlawful
activity; or
b. a money laundering offense
F. Periodic or Special Examination
18
- BSP may inquire into or examine any deposit or investment with any banking institutions or
non-bank financial institution when the examination is made in the course of a periodic or
special examination, in accordance with the rules of examination of BSP.
- If authorized by the Monetary Board to satisfy a reasonable ground to believe that a bank
fraud or serious irregularity has been or is being committed and that it is necessary to look into
the deposit to establish such fraud or irregularity.
- Examination made by an independent auditor hired by the bank to conduct its regular audit
provide that the examination is for audit purposes only and the results thereof shall be for the
exclusive use of the bank.
G. In Camera Inspection by the Ombudsman
- Section 15(8) of republic Act No. 6770 (The Ombudsman Act of 1989) provides as one of the
powers of the Ombudsman:
(8) Administer oaths, issue subpoena and subpoena duces tecum, and
take
testimony in any investigation or inquiry, including the power to
examine and have access to bank accounts and records.
- Before in camera inspection may be allowed, there must be a pending case before a court of
competent jurisdiction. The account must clearly be identified. The bank personnel and the
account holder must be notified to be present during the inspection and such inspection may
cover only the account identified in the pending case.
H. Preliminary Attachment
- Section 10, Rule 57 of the Rules of Court is compatible with the law on secrecy of bank
deposits because it provides an exception in cases where the money deposited or invested is
the subject matter of the litigation.
I. Disclosure of Dormant Accounts
- Section 2 of Act No. 3996 (An Act Requiring Banks and Banking Institutions of Every Kind to
Transfer Unclaimed Balances held by them to the Insular Treasury and for Other Purposes)
o All banks shall forward to the Insular Treasurer a statement under oath of their
respective managing officers, of all credits and deposits held by them in favor of
persons known to be dead, or who have not made further deposits or withdrawals
during the preceding ten years or more, arranged in alphabetical order according to
the names of depositors.
o Upon receipt by the Insular Treasurer, it shall publish the same once a week for three
consecutive weeks in at least two newspapers of general circulation in the locality
where the bank or banks are situated.
J. Authority of the Commissioner of Internal Revenue to Inquire into Deposits
- Section 6 of the 1997 National Internal Revenue Code provides:
(F) Authority of the Commissioner to inquire into Bank Deposit Accounts.
Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special
laws, the Commissioner is hereby authorized to inquire into the bank deposits of:
(1) a decedent to determine his gross estate; and
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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

(2) any taxpayer who has filed an application for compromise of his tax ii. Publicly-listed universal or commercial bank- 100% of voting stock of only
liability under Sec. 204(A)(2) of this Code by reason of financial one other universal or commercial bank
incapacity to pay his tax liability. Financial Allied Undertakings
K. Waiver by DOSRI a. Leasing companies- bank investment of shares shall be
limited only in cases of conversion of outstanding loan
Section 26 (NCBA). Bank Deposits and Investments. Any obligations into equity
director, officer or stockholder who, together with his related b. Banks
interest, contracts a loan or any form of financial accommodation c. Investing houses
from: (1) his bank; or (2) from a bank: (a) which is a subsidiary of a d. Financing companies
bank holding company of which both his bank and the lending bank e. Credit Card companies
are subsidiaries; or (b) in which a controlling proportion of the f. Financial institutions catering to small and medium scale
shares is owned by the same interest that owns a controlling industries
proportion of the shares of his bank, in excess of 5% of the capital g. Companies engaged in stock brokerage/securities
and surplus of the bank, or in the maximum amount permitted by dealership
law, whichever is lower, shall be required by the lending bank to h. Companies engaged in foreign exchange
waive the secrecy of his deposits of whatever nature in all banks in dealership/brokerage
the Philippines. i. In addition:
i. Insurance companies
j. Holding companies - investment of shares shall be limited
Chapter 4 only in cases of conversion of outstanding loan obligations
into equity
Investments, Loans and Other Functions of Banks
D. Equity Investments of a universal Bank in Non-allied Enterprises up to 100%
i. Examples of Non Finacial Allied undertakings
I. Operations of Universal Banks Warehousing companies
Storage companies
A. Powers of a Universal Banks Safe deposit box companies
i. Powers authorized for a commercial bank Companies engaged in management of mutual funds but not in the
ii. Powers of an investment house mutual funds themselves
iii. Power to invest in a non-allied enterprise
Corporations engaged in any activity similar to management of
mutual funds
B. Equity Investments of a Universal Bank
Companies engaged in providing computer services
i. May invest in the equities of allied and non-allied enterprise as may be
Insurance Agencies/brokerages
determined by the monetary board
Companies engaged in home building and development
May either by financial or non-financial
a. Total investment in equities of allied and non-allied Companies providing drying and/or milling facilities for agricultural
enterprise should not exceed 50% of the net worth of the crops
bank Service bureaus for outsourcing services
b. Equity investment should not exceed 25% of net worth Those declared by the Monetary Board
c. Net worth- totatl of unimpaired paid-in capital as may be
required by BSP E. Equity Investments of a Universal Bank in Non-Allied enterprise shall not exceed
35% of total equity and voting stock
C. Equity of Investments of a universal Bank n Financial Allied Enterprises
i. Can own up to 100% of equity in a thrift bank, rural bank or a financial F. Investments in Non-Allied or Non-Related Undertakings only Universal banks may
allied enterprise invest

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PARTY-DUH NOTES for Banking Laws & Jurisprudence 2009

ii. Characteristics what sets it apart from other accessory contracts is the
i. Examples of non-Allied undertakings engagement of the issuing bank to pay the seller once the draft and the
Enterprise engaged in physically productive activities in required shipping documents are presented to it.
a. Agriculture Independence Principle assures the seller of prompt payment,
b. Mining and quarrying independent of any breach of the main sales contract.
c. Manufacturing iii. Intertwined Relationships 3 distinct but intertwined relationships

st
d. Public utilities 1 contract relationship links the party applying for LOC and the
e. Construction party for whose benefit LOC is issued

nd
f. Wholesale trade 2 contract relationship between the accounting party and the
g. Community and Social services issuing bank. Accounting party applies for LOC and agrees to
ii. Industrial park/real estate projects reimburse the bank for amounts paid by that bank.

iii. Financial and commercial complex projects in connection with the rd
3 contract relationship between the issuing bank and
Governments privtization program beneficiary. Pay certain monies to the beneficiary to support the
iv. Others declared by Monetary Board contract.
iv. Parties 3 parties, may be increased in most cases of international trade.
G. Equity Investments in Quasi-Banks to promote competitive conditions in financial Buyer procures LOC and obliges himself to reimburse the issuing
markets, may own up to 40 % equity investments, also applicable in the case of back upon receiptof documents of title
commercial banks Bank issuing LOC and undertakes to pay the seller upon receipt
of the draft and proper documents of titles and to surrender the
II. Operations of Commercial Banks documents to the buyer upon reimbursement
Seller in compliance with the contract of sale ships the goods to
A. Powers of Commercial Banks the buyers and delivers the documents of title and draft to the
i. General powers incident to corporaton issuing bank to recover payment
ii. Powers necessary to carry out commercial banking
Accepting drafts and issuing LOC C. Equity Investments of a Commercial Bank may invest only in the equities of allied
Negotiating promissory notes, bills of exchange and other enterprise (financial or non-financial) as may be determined by the Monetary Board
evidences of debt i. Total investment in equities shall not exceed 35% of the net worth
Accepting or creating demand deposits ii. Equity investment in any one enterprise shall not 25% net worth
Receiving other types of deposits and deposit substitutes
Buying and selling foreign exchange, gold and silver bullion; D. Equity Investments of a Commercial Bank in Financial Allied Enterprises
acquiring marketable bonds and other debt securities i. May own up to 100% equity ONLY of thrift bank or rural bank
Extending credit ii. Other financial allied enterprises minority holding

E. Equity Investments of a Commercial Bank in Non- Financial Allied Enterprises - may

B. Issuance of Letters of Credit
i. Nature - developed by merchants as a convenient and relatively safe mode
of dealing with sales of goods to satisfy the seemingly irreconcilable
interests of a seller, who refuses to part with his goods before he is paid and
a buyer who wants to have control of the goods before paying
The buyer may be required to contract a bank to issue a letter of
credit in favor of the seller so that, by virtue of the letter of credit,
the issuing bank can authorize the seller to draw drafts and engage
to pay them upon presentment simultaneously with the tender of
documents required by the letter of credit.
own up to 100% of the equity in a non-financial allied enterprise
III. Risk- Based Capital
A. Minimum Ratio minimum ratio which the net worth of a bank must bear to its total
risk assets shall be determined by the Monetary Board
i. On the basis of the net worth and risk assets of a bank and its subsidiaries
ii. Monetary Board shall conform to internationally accepted standards in the
exercise of such authority
iii. Alter or suspend compliance with such ratio for a maximum period of 1 year
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iv. Ratio shall be applied uniformly to banks of the same category
B. Effect of Non-Compliance
i. Monetary Board may limit r prohibit the distribution of net profits by such
bank and may require that all of the net profits be used to increase the
capital accounts of the bank until minimum requirement is reached
ii. Restrict or prohibit the acquisition of major assets and the making of new
investments by the bank until the minimum required ratio has been restored
IV. Limit on Loans, Credit Accomodation And Guarantees
A. Single Borrowers Limit
i. Shall not exceed 20% if Net Worth of the Bank
Exceptions:
a. Reasons of national interest
b. Deposits of Rural Banks with government-owned or
controlled financial institutions are exempted
c. May be increased by 10% provided the additional liabilities
of any borrower are adequately secured by securing titles
As amended by Circular no. 425, SBL must not exceed 23%, still
subject to such exceptions
B. Inclusion to the Limit
i. Prescribed Ceilings shall include:
Direct liability of the maker or acceptor of paper discounted with or
sold to such bank and liability of a general indorser, drawer or
guarantor who obtains a loan or other credit accommodation
Liabilities of individuals who own or control a majority interest in a
corporation
Corporation- all liabilities to such bank of all subsidiaries
Partnership liabilities of the members
ii. Control of majority interest or Controlling interest when parent owns
directly of indirectly through subsidiaries more than one half of the voting
power of an enterprise
iii. Even if a parent corporation who owns a majority interest has no liabilities,
Monetary Board may prescribe combination of liabilities in certain situations
C. Exclusion to the Limit Loans and other accommodations -
i. Secured by obligations of BSP or of the Philippine Government
Reason: The state undoubtedly is always solvent
ii. Fully guaranteed by the government as to payment of pricipal and Interest
iii. Covered by assignment of deposits maintained in the lending bank and held
in the Philippines
iv. Under letters of credit to the extend covered by margin deposits
21
v. Specified by Monetary Board as non-risk items
D. Bank Guarantee irrevocable commitment of a bank binding itself to pay a sum of
money in the event of non-performance of a contract by a third party. Distinct from
principal debt or contract. Subject to such limits.
E. Contingent Accounts are also subject to such limits
F. Assignment of Credits agreement by virtue of which the owner of a credit by a legal
cause, transfers his credit and its accessory rights to an assignee.
G. No Pacto Commissorio in Assignment of Deposits
i. Pacto commisorio automatic appropriation of the pledged or mortgaged
property by the creditor in payment of the loan upon its maturity
V. Restriction on Bank Exposure to Directors, Officers, Stockholders and their Related
Interests
A. Approval and Other Requirements
i. No director or officer of any bank shall:
Directly or indirectly for himself or as an agent of others borrow
from such bank
Become a guarantor, indorser or surety for loans from such bank
An obligor who would incur contractual liability to the bank
Exception: written approval of the majority of all the directors of the
bank
ii. Approval shall be entered upon the records of the bank
iii. Dealing shall be upon terms not less favorable to the bank than those
offered to others
B. Directors
i. Named as such in the articles of incorporation
ii. Duly elected in subsequent meetings of stockholders
iii. Elected to fill the vacancies
C. Officers
i. President, EVP, SVP, General Manager, Secretary, treasurer, trust officer
and others whose duties as such are defined in the by-laws or are generally
known to be officers of the bank
ii. Chairman, Vice-chairman or any other position of the boardwho also
performs functions of management such as those ordinarily performed by
regular officers
D. Stockholder
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i. Any stockholder of record in the books acting personally or through an
attorney-in-fact
ii. Any other person duly authorized by him or through a trustee
st
His spouse/ relative within 1 degree of consanguinity or affinity or
legal adoption
Partnership in which stockholder/spouse/relative is a general
partner
Corporation, association or firm of which those mentioned persons
own more than 50% of total subscribed capital stock
E. Related Interests
st
i. Spouse/Relative within 1 degree of consanguinity or affinity, relative by
legal adoption of a director, officer or stockholder of the bank
ii. Partnership of which a director, officer, or stockholder of a bank or
st
Spouse/Relative within 1 degree of consanguinity or affinity, relative by
legal adoption
iii. Co-owner of the property or interest or right mortgaged
iv. Corporation, association, or firm of which a director or officer of the bank, or
his spouse is also a director or officer of such corporation, association or
firm, except:
Securities are listed and traded in the big board of domestic stock
exchange and less than 50% of voting stock is owned by 1 person
st
or by persons related to each other within 1 degree of
consanguinity or affinity
Director, officer or stockholder sits as a representative of the bank
in the board of directors of such corporation
a. Provided that the bank representative shall not have any
equity interest in the borrower corporation except for the
minimum shares required by law
b. Provided that the borrowing corporation is not among
those mentioned in items 5,6,7 and 8 below
v. Corporation, association or firm of which any or a group of directors, officers,
stockholders of the lending bank and/or their spouses or relatives within the
first degree of consanguinity or affinity, or relative by legal adoption, hold or
own at least 20% of the subscribed capital of such corporation, or of the
equity of such association or firm
vi. Corporation, association or firm wholly or majority-owned or controlled by
any related entity or a group of related entities mentioned in Items 2, 4, and
5 the Secretary of Socio-Economic Planning
vii. Corporation, association or firm which owns or controls directly or indirectly
whether singly or as part of a group of related interest at least 20% of the
subscribed capital of a substantial stockholder of the lending bank or which
controls majority interest of the bank
viii. Corporation, association or firm in which the lending bank and/or its
parent/subsidiary holds or owns at least 20% of the subscribed capital of
22
such corporation, or in the equity of such association or firm, or has an
existing management contract or any similar arrangement with the lending
bank or its parent/subsidiary
F. Effect of Violation After due notice of the board of directors the office of the violator
may be declared vacant and subject to penal provisions in the New Central Bank Act
G. Limits of Loans
i. Regulated by Monetary Board
ii. Outstanding loans shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital
contribution in the bank
H. Exclusions to the Limit
i. Those secured by assets considered as non-risk by the Monetary Board.
ii. Those in the form of fringe benefits granted in accordance with rules
prescribed by the Monetary Board
iii. Those extended by a cooperative bank to its cooperative shareholders
I. Applicabilty of DOSRI Rules and Regulations to Government Borrowings
i. Circular 547 DOSRI Rules and Regulations shall also apply to loans, other
credit accommodations, and/or guarantees granted to the National
Government of the Philippines, its political subdivisions and instrumentalities
as well as government-owned or controlled corporations
Such loans, other credit accommodations, and/or guarantee (LOG)
to RP must be considered as
i. Non-risk
ii. Not subject to any ceiling
LOG to a GOCC or Corporations where RP owns 20% of
subscribed capital stock shall be considered indirect borrowings of
RP and shall form part of the individual ceiling as well as the
aggregate ceiling
The Following LOGs to GOCCs where RP owns 20% of capital
stock shall be excluded from the 30% ceiling on unsecured loans
a. LOGs for infrastructure projects consistent with the
Medium-term Development Plan duly certified as such by
b. LOGs granted to financial institutions in the lending
programs
c. LOGs to provide rediscounting facilities for loans granted
to agricultural sector, and micro, small and medium
enterprises
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Pursuant to RA 7653 and independence under the Constritution,
BSP shall be considered and independent entity of the RP and any
LOG of the BSP shall be considered
a. Non-risk
b. Not subject to any ceiling
LGUs shall be considered separate from the RP and other
governement entities, hence not a related interest of the RP
A director who acts as a government representative in the lending
institution shall not be excluded in the deliberation and
determination of directors in cases of LOGs to borrowing
government entity other than RP
VI. Loans and Other Credit Accomodations
A. Loans and Other Credit Accomodations against Real Estate shall not exceed 75%
of the appraised value of the respective real estate security, plus 60% of the
appraised value of the insured improvements, such loans be made to the owner of
the real estate or to his assignees
i. Exception: As otherwise prescribed by the Monetary Board
B. Loans and Other Credit Accommodations on Security of Chattels and Intangible
Properties shall not exceed 75% of the appraised value of the security and the
same may be made to the title holder or his assignment
i. Exception: As otherwise pescribed by the Monetary Board
C. Joint and Solidary Agreement JSA is indubitably a surety not a guaranty. An
agreement where parties consent to be jointly and severally liable. Should be taken
contra proferentum against the party who may have cause any ambiguity therein.
D. Effect of Surety Agreement strictly construed against the creditor, every doubt is
resolved in favor of the solidary debtor.
i. A Bank cannot hold a surety liable for loans obtained in excess of the
amount or beyond the period stipulated in the original agreement, absent
any clear stipulation that he has waived his right to be notified or to give
consent.
Reason: Fundamental Rules of fair play require the creditor to
obtain consent of surety to any material alteration in the principal
agreement.
VII. Grant and Purpose of Loans and Other Credit Accomodations
A. Amount and purpose of Loan
23
i. A bank shall grant loans and other credit accommodations only in amounts
and periods of time essential for the effective completion of the operations to
be financed.
It should be consistent with safe and sound banking practice
ii. Purpose must be stated in the application
iii. Bank shall have the right to terminate the loan and demand immediate
repayment of the obligation if it finds that the proceeds of the loan have been
employed for purposes other than those agreed upon without the banks
approval
B. Requirement for Grant of Loans or Other Accomodations before granting a loan, the
bank must ascertain that the debtor is capable of fulfilling his commitments through:
i. Statement of assets and liabilities
ii. Statemement of income and expenditure
iii. Other information prescribed by Monetary Board
Also see 1198 of Civil Code
C. Reason for Stringent Rules in Granting Loans
i. A bank is one affected with public interest for which reason the bank should
guard against loss due to negligence or bad faith
ii. In funding businesses imposed upon a banking corporation, the bank invests
the money that it holds in trust of its depositors
iii. Provided by GBL
D. Unsecured Loans or Other Credit Accomodations Monetary Board is authorized to
issue regulations necessary with respect to unsecured Loans or Other credit
accommodations
E. Other Security Requirements for Bank Credits Monetary Board may prescribe
security requirements to which the various types of bank credits shall be subject, the
same may reduce and increase maximum ratios
F. Authority to Prescribe Terms and conditions of Loans and Other Credit
Accommodations
i. Sec. 43 of GBL Monetary Board has the authority granted in Sec 106 of
the new Central Bank Act to prescribe the maturities and conditions for
various types of bank loans and other credit accommodations
ii. Sec. 106 of NCBA Monetary Board may issue such regulation necessary
with respect to maximum permissible maturities maturities of loans and
investments and the kind and amount of security required against various
types of credit operations of the banks
G. Amortization on Loans and Other Credit Accommodations
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i. Amortization schedule shall be adapted to the nature of the operations to be
financed
ii. Loans and other credit accommodations with maturities of more than 5 years
payments must be made periodically and at least annually
iii. Borrowed funds used for purposes which do not initially produce revenues
for regular amortization payments - The bank may permit that initial
amortization be deferred until funds are sufficient, but said payment should
not be later than 5 years from the date on which the loan is granted
iv. Loans and credit accommodations to Microfinance sectors schedule shall
take into consideration projected cash flow of borrower and adopt terms and
conditions formulated by banks
H. Escalation clause; stipulation that the rate of interest may increase (escalation) AND decrease
(de-escalation) if the applicable maximum interest rate is increased/decreased by the Monetary Board
(PD 1684: Amendment to the Usury Law). Adjustment takes effect on or after MB increases/decreases
rate.
Purpose of mandating de-escalation clause:
prevent one-sidedness in favor of the lender.
(Art 1308, NCC: contract must bind both parties; validity or compliance cannot be left to the will of
one.)
Exception: If there is no de-escalation clause, escalation clause is still valid if creditor unilaterally and
actually decreased the interest charges whenever the rate is changed by MB. In this case, parties are
on equal footing, thus preventing the evil proscribed by PD 1684.
Cessante ratione legis cessat ipsa lex. (Llorin v. CA)
*Usury Law has since been lifted by Central Bank Circular 905
I. Unilateral Increase of Rates; even if the Usury Law was lifted, one-sided impositions do not have the
force of law bec. it violates the principle of mutuality of contracts.
J. Iniquitous, Unconscionable and Exorbitant Interests; if the court finds a rate iniquitous,
unconscionable and exorbitant, it should be VOID bec. it is contrary to morals (Art 1409 NCC: those
contra bonus mores are inexistent and void from the beginning). Rate shall be reduced by court.
Medel v. CA: 5.5% per month or 66% per annum is IUE
Cuaton v. Salud: 10% per month is IUE.
Reduction to 12% per annum is fair and reasonable.
Dio v. Virgilio: 120% per annum is IUE.
Reduction legally called for in rates of interest and penalty.
K. Effect of Void Interest Rate;
as if there was no express contract bet. parties
24
L. Prepayment of Loans and Other Credit Accommodations; sec. 45, GBL: borrower may prepay unpaid
balance of bank loans at any time prior to the agreed maturity date, subject to reasonable terms and
conditions agreed upon by bank and borrower.
M. Development Assistance Incentives; sec. 46, GBL; Bangko Sentral shall give incentives to banks
that have activities with social content (extending loans to finance educational institutions, coops,
hospitals, LGUs, low-cost housing).
N. Renewal or Extension of Loans and Other Credit Accommodations; sec. 48, GBL; MB may prescribe
the conditions and limitations where a bank may grant extensions or renewals of its loans and other
credit accommodations.
O. Banks Cannot Extend Peso Loans to Non-Residents; (1) to curb undue speculation in the foreign
exchange market and (2) to reinforce the memorandum that peso deposits should be funded from
inward ForEx remittance.
P. Provisions for Losses and Write-Offs; sec. 49, GBL; MB may fix the amount of reserves for bad debts
or doubtful accounts or other contingencies (interest is past due). Write-offs likewise subject to
regulations by MB.
VIII. Truth in Lending
A. Policy; to protect citizens from lack of awareness of the true cost of credit, full disclosure is assured
B. Disclosure; creditor shall furnish in a clear statement in writing:
1. cash price/delivered price of property or service
2. amounts credited as down-payment
3. difference bet. amounts in 1 and 2
4. charges, individually itemized, not incident to the extension of credit
5. total amount to be financed
6. finance charge in terms of pesos and centavos
7. percentage/simple annual rate on the outstanding unpaid balance
C. Definitions
i. Credit; any loan, mortgage, deed of trust, advance, discount; conditional sales contract; contract to
sale/contract of sale; rental-purchase contracts; contract for hire, bailment or leasing of property; any
option, demand, lien, pledge or other claim against property or money; purchase/acquisition of credit;
any transaction having a similar purpose or effect.
ii. Finance charge; interest, fees, service charges, discounts, charges to the extension of credit as the
MB may regularly prescribe
iii. Creditor; any person engaged in the business of extending credit who requires the payment of a
finance charge as an incident to this extension
D. Penalties for Failure to Disclose
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1. Civil; P100 or 2x finance charged. Limit is P2000.
2. Criminal; if willfully violated, fine of P1,000-P5,000 and/or 6mos-1yr imprisonment
E. Effect of Violation; violation shall NOT affect validity and enforceability of contract
F. Exemption of Government; no punishment sa Phil. Govt, agencies and political subdivisions
G. Required Disclosures on Consumer Loans not under Open-End Credit Plan
1. amount of credit debtor will have actual use of
2. charges, individually itemized, not part of the finance charge
3. total amounts financed in 1 and 2
4. finance charge expressed in pesos and centavos
5. effective interest rate
6. simple annual rate (percentage of finance charge to the total amount to be financed)
7. default or delinquency charges payable for late payments
8. descrip of security interest and a clear identification of property where security interest relates
H. Exempted Transaction; extension of credits for business and commercial purposes, and sa Govt,
agencies and instrumentalities, juridical entities or to GOCCs.
IX. Foreclosure of Real Estate Mortgage
A. Procedure
If property was foreclosed judicially or extrajudicially, the mortgagor may redeem the real property sold
for full/partial payment of his obligations within one year after the sale by paying amount due in
mortgage deed, with interest at the rate specified. All costs and expenses incurred by the bank from
sail is derived therefrom.
Purchaser at the auction sale has right to enter and take possession of that property immediately after
the date of confirmation of the auction sale. However, sec. 7 of Act No 3135 (An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to Rent Estate Mortgages) provides that
if property was registered under the Mortgage Law, purchaser must first furnish a bond in an amount
equivalent to the use of property for 12mos. Such bond must be approved by court and court must
thereafter issue a writ of possession addressed to the sheriff where property is situated.
If property was foreclosed by banks, purchaser is not required to set up a bond.
If property to be foreclosed is owned by juridical persons, right to redeem 3months after foreclosure.
If real property is mortgaged to alien individuals or corporations, in no case shall actual possession
exceed 5years.
Redemption period counted from the date of registration of certificate of sale with the Register
of Deeds.
Private lands may only be transferred to individuals, corporations, or associations qualified to acquire or
hold land of public domain. Exception: thru hereditary succession.
B. Equity of Redemption v. Right of Redemption
25
Limpin v. IAC: Right of Redemption exists only in the case of the extrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee in the
PNB or other bank. Right may be exercised within a period of 1 year, counted from the date of
registration.
Equity of Redemption is the right of the mortgagor to extinguish the mortgage and retain ownership of
the property by paying the secured debt within the 90-day period after the judgment becomes final (Rule
68, CivPro).
C. Right of Redemption may be Extended by Agreement; the right to redemption must be exercised
within specified time limits but if agreed upon by the parties, it may be extended.
D. Estoppel; if a bank had time to object and did not, its silence can be construed as having consented
to the extension of the redemption period. Estoppel arises when one, by his own silence when he ought
to speak out, intentionally or thru culpable negligence, induces another to believe that certain facts
exist.
E. Redemption of foreclosed property after the Prescriptive Period;
Right to redeem becomes functus officio on the date of its expiry.
Exercise after this period in not redemption but repurchase.
Redemption is by force of law and the purchaser is bound to accept redemption.
Repurchase imposes no such obligation. He may or may not re-sell the property after expiration, and he
is not bound by bid price bec after all, the property already belongs to him as owner.
W/N alien-owned bank can acquire ownership of residential lot by deed of transfer as settlement of
debt.
NO. Its acquisition jeopardizes the purpose of the Constitution to keep in the hands of the
people the ownership over private lands.
HOWEVER, a lease of a parcel of land for 50 years in favor of an alien corp is registerable. A
lease, unlike a sale, does not involve the transfer of dominion over the land.
XI. Other Banking Services; acting as depositary or agent
1. receive in custody funds, docs, and valuable objects
2. act as financial agent, buy and sell shares, evidence of indebtedness, all types of securities
3. make collections and payments and other services not incompatible with banking business for their
customers
4. upon approval by MB, act as managing agent, adviser, consultant or administration of investment
mgmt accts.
5. rent out safety deposit boxes
A. Safety Deposit Box
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1. Special Kind of Deposit; cannot be a contract of lease bec full and absolute possession and control of security policy and administration
the safety deposit box (SDB) is not given to the renters. Guard key remains with the bank without which
renters could not open the bank. Bank could not likewise open the box without the renters key. XIII. Outsourcing Of Other Functions
Subject to prior approval of the MB, banks may outsource data imaging, storage, retrieval and other
If renter duplicated the key for joint access, bank is NOT liable to either of the joint renters in case of related systems, clearing and processing of checks, printing of bank deposit statements, other activities
loss attributable to either of them. det by the MB.
If a bank was not aware of an agreement bet joint renters that articles shall only be withdrawn from SDB
ONLY upon the joint signatures of both parties, and there is no evidence to prove that loss was due to Banks may outsource:
the fraud and negligence of the bank, the bank is NOT liable. credit card services
printing of bank loan statements and other non-deposit records, bank forms, and promotional
2. Bailor and Bailee; materials
The relation between a bank and its SDB customer with respect to the contents of the box is credit investigation and collection
that of a bailor and bailee, the bailment being for hire and mutual benefit. processing of export, import and other trading transactions
transfer agent services for debt and equity securities
3. Duties May Be Defined By The Parties property appraisal
The parties may, by special contract, define their respective duties or provide for increasing or property mgmt services
limiting the liability of the deposit company, provided that it is not violative of law or public policy. It must
messenger, courier and postal services
clearly appear that there actually was a special contract, in order to differentiate from implied ordinary
security guard services
obligations.
Doubtful words will not enlarge or restrict the liability of the company. Company cannot also vehicle service contracts
exempt itself from liability for loss of the contents by its own fraud or negligence, and if a provision of the janitorial services
contract says so, such provision will be held ineffective for the purpose. public relations services
procurement services
If a collection of stamps were in an SDB at the lowest row, and floodwater entered the banks premises temporary staffing
thus damaging the stamps, THE BANK IS GUILTY OF NEGLIGENCE, and must compensate the legal services from local legal counsel
renter. Bank was aware of the floods and it also knew that floodwaters inundate the room where said Provided, that they do not include servicing/handling bank deposits or other inherent banking
SDB is located. It should have notified the SDB renter, opened and retrieved the stamps so as to save functions.
from further deterioration.
Art.1170: Those who, in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.

XII. Electronic Transactions

BSP has full authority to regulate the use of electronic devices (e.g. computers) for recording, storing,
and transmitting data in connection with the operation of banks. (sec 59, GBL)

Subject to prior approval by MB, banks may outsource all IT systems and processes except for inherent
banking functions.
Those that may not be outsourced:
those affecting the ability of of the bank to ensure the fit of tech services deployed to meet its strategic
and business objectives;
strategic planning for the use of IT;
determination of system formalities;
change mgmt inclusive of quality assurance and testing;
service level and contract mgmt
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Chapter 5
Prohibited Transactions and Cessation of Banking Business
A. Prohibition to Act as Insurer; examples:
a. Making, or proposing to make, as insurer any insurance contract;
b. Making or proposing to make, as surety any contract of suretyship as a vocation and
not as merely incidental;
c. Doing any kind of business within the meaning of the Insurance Code;
d. Doing any business similar to aforementioned in a manner designed to evade the
provisions of Insurance Code
Profit is immaterial to constitute the doing or transacting of an insurance
business.
B. Prohibited Acts
a. No Director, officer, employee, or agent of any bank shall- FOORD
Make false entries in any bank report or statement or participate in any
fraudulent transaction causing damage to the bank or any person
Disclose to any unauthorized person any information relative to funds in
the custody of the bank without order of a court of competent jurisdiction
Accept any for of remuneration or commission in connection with approval
of loan or other credit accommodation
Overvalue or aid in overvaluing any security for the purpose of influencing
the actions of the bank
Outsource inherent baking functions to ensure secrecy of bank deposits
b. No borrower shall FOFA
Fraudulently overvalue property offered as security for a loan or other
credit accommodation
Furnish false or misrepresent or suppress material facts to botain, renew,
increase or extend the period of a loan or other credit accommodation
Attempt to defraud a bank in the event of a court action to recover a loan
or other credit accommodations
Offer any gift or any form of compensation to any director, officer,
employee or agent of a bank in order to influence such persons to approve
a loan or other credit accommodation
c. No examiner, officer or employee of the Bangko Sentral or of any department,
bureau, office, branch or agency of the government that is assigned to supervise,
examine, assist or render technical assistance t any bank shall-
Commit any of the aforementioned acts or aid in the commission of the
same
27
Furnishing false or misrepresent or suppress material facts by personnel
of BSP shall constitute fraud and shall be subject to administrative and
crimina sanctions provided under the New Central Bank Act
d. Consistent with the Banks Secrecy Law, no bank shall employ casual or nonregular
personnel or lengthy probationary personnel in the conduct of it business involving
bank deposits
C. Prohibition Against Outsourcing Certain Banking Functions
a. Outsourcing inherent banking functions any contract between the bank and a
service provider for the latter to supply manpower to service deposit transactions of
the bank.
b. Banks cannot outsource management functions unless authorized by the Monetary
board when circumstances justify
c.
III. Prohibition on Dividend Declaration
*No bank or quasi-bank shall declare dividends greater than its accumulated net profits then on hand,
deducting therefrom its losses and bad debts
*Neither shall bank nor quasi-bank declare dividends, if at the time of declaration:
1. Its clearing account with the Bangko Sentral is overdrawn; or
2. It is deficient in the required liquidity floor for government deposits for 5 or more consecutive
days; or
3. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for
purposes of determining funds available for dividend declaration; or
4. It has committed a major violation as may be determined by the Bangko Sentral.
IV. Unauthorized Advertisement or Business Representation
No person, association, or corporation unless duly authorized to engaged in the business of a
bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or
words bank, banking, banker, quasi-bank, quasi-banking, quasi-banker, savings and loan
association, trust corporation, trust company, or words of similar import or transact any manner the
business of any such bank, corporation or association.
V. Placement Under Conservatorship
A. Governing Law
The grounds and procedures for placing a bank under conservatorship, as well as, the
powers and duties of the conservator appointed for the bank shall be governed by the
provisions Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act:
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Provided, That this Section shall also apply to conservatorship proceeding of quasi-banks.
(Section 67 of the GBL)
B. Grounds for appointment of conservator
The Monetary Board may appoint a conservator whenever it finds that a bank or a quasi-bank
is in a state of (1) continuing inability or (2) unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors. [Section 29, RA 7653]
*POWERS OF THE CONSERVATOR
1. Take charge of the assets, liabilities and management of the bank or quasi-bank
2. Reorganize the management
3. Collect all monies and debts due said institution
4. Exercise all powers necessary to restore its viability
The conservator has the power to overrule or revoke the actions of the previous management
and board of directors of the bank or quasi-bank.
Section 28-A of RA No. 265 merely gives the conservator the power to revoke contracts that
are deemed to be defective under existing law (i.e., void, voidable, unenforceable, or
rescissible); hence, the conservator merely takes the place of a banks board of directors.
What the board of directors cannot do, such as repudiating a contract validly entered into
under the doctrine of implied authority, the conservator cannot do either. [First Philippine
International Bank v. CA, 252 SCRA 255 (1986)]
*LIQUIDITY- the ability of an asset to be converted into cash quickly and without any price discount. A
corporation is liquid if it has ready access to cash.
*SOLVENCY- the condition that exists when liabilities amount to less than total assets, thus providing
the ability to pay debts. The test of insolvency is measured by determining whether the realizable assets
of a bank are less than its liabilities.
C. Qualifications of Conservator
The conservator should be competent and knowledgeable in bank operations and
management.
D. Period of Conservatorship
The conservatorship shall not exceed one (1) year.
28
E. Remuneration
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount
not to exceed two-thirds of the salary of the president of the institution in 1 year, payable in 12
equal monthly payments.
If any time within one-year period, the conservatorship is terminated on the ground that the
institution can operate on its own, the conservator shall receive the balance of the
remuneration which he would have received up to the end of the year; but if the
conservatorship is terminated on other grounds, the conservator shall not be entitled to such
remaining balance.
The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which
case he shall not be entitled to receive any remuneration or emolument from the Bangko
Sentral during the conservatorship.
F. Expenses of Conservatorship
Shall be borne by the bank or quasi-bank concerned.
G. Termination of conservatorship
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution
can continue to operate on its own and the conservatorship is no longer necessary.
The conservatorship shall likewise be terminated should the Monetary Board determine that
the continuance in business of the institution would involve probable loss to its depositors or
creditors, in which case proceedings for receivership and liquidation shall be pursued. [Section
29, RA 7653]
H. Final and Executory
Actions of Monetary Board shall be final and executory, and may not be restrained or set aside
by the court except on petition for certiorari on the ground that the action taken was in excess
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of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
Petition for certiorari may only be filed by the stockholders of record presenting the majority of
the capital stock within 10 days from receipt by the board of directors of the institution of the
order directing receivership, liquidation or conservatorship.
I. Exclusive Power to Appoint
Designation of conservator is vested exclusively with the Monetary Board.
J. Not a Precondition
Designation of conservator is not a precondition to the designation of a receiver.
K. Powers of Conservator Cannot Impair the Obligations of Contracts.
Powers must be related to the (preservation of) the assets of the bank, (the reorganization of)
the management thereof and (the restoration of) its viability. Such power cannot extend to the
post-facto repudiation of perfected transactions, otherwise they would infringe against the non-
impairment clause of the Constitution.
Law merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective.
VI. Cessation of Banking Business
A. Voluntary Liquidation
B. Receivership and Involutary Liquidation
C. Close Now Hear Later Scheme
D. Effect of Filing a Petition for Review
E. Reasons Behind Receivership and Involuntary Liquidation
F. Effects of Receivership and Liquidation
29
A. Voluntary Liquidation
1. request for approval of voluntary dissolution, attaching a
liquidation plan therein.
(written notice of liquidation shall be sent to the Monetary Board
prior to such liquidation.)
2. dissolution in accordance with the Corporation Code
3. liquidation undertaken by the bank itself through its Board of Directors
either (a) by a trustee or (b) by a receiver appointed to the bank.
Grounds for Receivership and Liquidation
The MB may, summarily & w/o prior hearing, FORBID institution from
doing business if the institution:
a. is unable to pay liabilities
b. has insufficient assets, as determined by BSP
c. will involve probable loss to depositors or creditors
d. has willfully violated a cease & desist order involving acts or
transactions which amount to fraud or a dissipation of assets
(50T-200T fine or 2-10Y imprisonment)
For quasi-banks, any person of recognized competence in banking or
finance may be designated as receiver.
The receiver shall immediately
1. gather all assets and liabilities
2. administer assets and liabilities for the creditors
3. exercise general powers under the Rules of Court
4. determine W/N bank may be rehabilitated or resume business w/in 90 days
* But he shall NOT (except for administrative expenses) pay or
transfer any asset of the institution.
If the receiver determines that the bank cannot be rehabilitated, the
MB shall notify the board of directors of its findings in writing and
direct the receiver to proceed with the liquidation.
The receiver shall file with the RTC a petition for assistance in the
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liquidation.
Current and Complete Examination Not Necessary before the closure of a bank
R.A. 7653 (1993) provides that only a REPORT of the head of
supervising or examining department is necessary.
The word "report" is clearly different from "examination." A report is
"something that gives information" or "a detailed account". An
examination is "a search, investigation or scrutiny."
Rural Bank of San Miguel Inc. v. Monetary Board
The closure of a bank may be considered as an exercise of police power.
Sec. 174 of the Code of CivPro: A receiver may be appointed if the
corporation is
dissolved * insolvent * in imminent danger of insolvency * has
forfeited corporate rights
Sec. 175: General Powers of a Receiver.
1. bring and defend actions in own name
2. take possession of property in controversy
3. receive rent, collect debts, and compound for such
4. make transfers
A receiver is
- an indifferent person between the parties to a cause
- not the agent or representative of either
- but an officer of the court
Prohibited Acts
Any director or officer of a bank declared insolvent or placed under
receivership by the MB shall not
1. refuse to turn over the bank records
2. tamper with bank records
30
3. destroy or cause misappropriation of the bank's assets
4. receive any deposti, collection of loans, or receivables
5. pay out any funds of the bank
6. transfer securities or property
In the case of conservatorship,
1. the actions of the MB shall be final and executory
2. may be set aside by a petition for certiorari filed by the
stockholders of record within 10 days
Close Now Hear Later Scheme (p. 213, MemAid)
1. Sec 29 of the Central Bank Act does NOT contemplate prior notice and hearing.
The assailed actions should precede the filing of the case.
2. Purpose is to PREVENT unwarranted dissipation of the bank's assets
and as a valid exercise of police power to protect the depositors.
3. The bank is given full opportunity to prove arbitrariness and bad
faith in placing the bank under receivership.
* The absence of an examination does not mean that there is no basis
for the closure order. The purpose of RA 7653 is to make the closure
of a bank summary and expeditious in order to protect public interest.
Effects of Receivership and Liquidation (p. 214, MemAid)
1. Retention of Juridical Personality
2. Suspension of Operations /Stoppage of Business
3. Assets deemed in custodia legis and shall be exempt from
garnishment, levy, attachment or execution
4. Execution of judgment is warranted
5. Bank is NOT liable to pay interest on deposits that accrue during
the period of suspension
6. But BSP shall collect interest on all loans and advances
7. Bank cannot do new business
8. Deposits do not become preferred credits
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VII. Disposition and Distribution of Assets

A. Distribution of Assets

In case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings,

including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall
pay the debts of such institution, under order of the court, in accordance with the rules on concurrence
and preference of credit as provided in the Civil Code.
*Current account and savings account are not preferred credits in cases involving the insolvency
and liquidation of a bank, where there are various creditors and it becomes necessary to ascertain the
preference of various credits. These deposits are essentially mercantile contracts and should, therefore,
be governed by the provisions of the Code of Commerce.
B. Disposition of Revenues and Earnings

All revenues and earnings realized by the receiver in winding up the affairs and administering
the assets of any bank or quasi-bank shall be used to pay the costs, fees and expenses mentioned in
Item A above salaries of such personnel whose employment is rendered necessary in the discharge of
the liquidation together with other additional expenses caused thereby. The balance of revenues and
earnings, after the payment of all said expenses, shall form part of the assets available for payment to
creditors.

C. Disposition of Banking Franchise

The Bangko Sentral may, if public interest so requires, award to an institution, upon such terms
and conditions as the Monetary Board may approve, the banking franchise of a bank under liquidation
to operate in the area where said bank or its branches were previously operating; Provided, That
whatever proceeds may be realized from such award shall be subject to the appropriate exclusive
disposition of the Monetary Board.

D. Liabilities

The bank is bound by the acts, or failure to act, of the receiver. At the same time, the receiver
is liable to the bank for culpable or negligent failure to collect the assets of such bank and to safeguard
said assets.

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CHAPTER 6
Foreign Banks & Trust Operations
Offshore banking refers to the conduct of banking transactions in foreign currencies involving the
receipt of funds from external sources and utilization of such funds.
Offshore banking unit means a branch, subsidiary or affiliate of a foreign banking corporation which is
a duly authorized by the BSP to transact offshore banking business in the Philippines.
Entry of foreign banks in the Philippines are governed by Foreign Banks Liberalization Act (RA
7721)
The conduct of offshore banking shall be governed by Offshore Banking System Decree (PD
1034)
NOTE: Foreign Corp. doing business in the Philippines are required to obtain a license. Sec. 133 of
Corporation Code
Foreign Corp. doing business in the Philippines without license are barred from accessing our
courts. It is ipso facto incapacitated to bring an action.
A license is necessary if its transacting or doing business in the Philippines
By securing a license, the foreign entity would give an assurance that it will abide by the
decisions of our courts, even adverse to it.
Purpose of the statute is to compel a foreign corporation desiring to do business within the
state to submit itself to the jurisdiction of the courts of the state.
Foreign Banks are allowed to entry in the Philippines subject to the ff: rules:
1. Within 7 years from the effectivity of GBL and subject to guidelines issued pursuant to the RA
7721, the Monetary Board may authorize a foreign bank to acquire up to a 100% of the voting
stock of only 1 bank organized under Phil. Laws.
2. Within the same period, the Monetary Board may authorize any foreign bank, which prior to the
effectivity of GBL availed itself of the privilege to acquire up to 60% of the voting stock of a
bank under RA 7721 and the Thrift Banks Act, to further acquire voting shares of such bank to
the extent necessary for it to own 100% of voting stock thereof.
3. In the exercise of this authority, the Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control of 70% of the resources and assets of the
entire banking system is held by banks which are at least majority-owned by Filipinos.
32
4. Any of the foregoing right, privilege or incentive granted to a foreign bank shall be equally
enjoyed by and extended under the same conditions to banks organized under the Phil. laws.
In case of a foreign bank which has more than 1 branch in the Phil, all such branches shall be
treated as on unit for the purpose of GBL and all references to the Philippine branches of foreign banks
shall be held to refer to such units.(Sec 74 GBL)
The head office of the foreign bank shall fully guarantee the prompt payment of all the liabilities of
its Phil. Banks. (Sec 75 GBL)
Residents and citizens of the Phil. who are creditors of a branch in the Phil. of a foreign bank shall
have preferential rights to the assets of such branch in accordance with existing laws.
Sec 20 of GBL applies to a universal or commercial bank duly established and organized as a
Phil. corporation in accordance with Sec 8 of GBL and authorized to establish branches within
or outside the Phil.
Home Office Guarantee is clearly for protection of the interests of the depositors and other
creditors of local branches of a foreign bank.
The foreign bank cannot use the principle for a reserve purpose, to extend the liability of a
client to the foreign banks Phil. branch to its head office.
Off-setting or compensation of loans with Phil. branch using dollar accounts with a foreign
bank cannot be effected unless otherwise stated in the contract.
III. Trust Operations
A. Authority to Engage in Trust Business
- Trust Business refers to any activity resulting from a trustor-trustee relationship
involving the appointment of a trustee for the administration, holding, management of
funds and/or properties of the trustor for the use or advantage of the beneficiaries.
- Only stock corporation or a person duly authorized by the Monetary Board to engage
in trust business shall act as a trustee or administer any trust or hold property in trust
or on deposit for the use or benefit of others.
- The cardinal principle common to all trust and other fiduciary relationships is fidelity.
- A bank authorized to engage in trust and fiduciary business is under no obligation,
either legal or moral, to accept such business being offered.
B. Conduct of Trust Business
- A trust entity shall administer the funds or property under its custody with the
diligence that prudent man would exercise in the conduct of an enterprise of a like
character and similar aims.
- No trust entity shall, for the account of the trustor or the beneficiary of the trust, unless
the transaction is specifically authorized by the trustor and the relationship of the
trustee and the other party involved in the transaction is fully disclosed to the trustor
or beneficiary.
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C. Registration of Articles of Incorporation and By-Laws of a Trust Entity
- The SEC shall not register the articles of incorporation and by-laws or any
amendment of any trust entity, unless accompanied by a certificate of authority issued
by BSP.
D. Minimum Capitalization
- A trust entity, before it can change in trust or other fiduciary business, shall comply
with the minimum paid-in capital requirement determined by the Monetary Board.
E. Powers of Trust Entity
1. Act as trustee on any mortgage or bond issued by any municipality, corporation or
any bodily politic and to accept and execute any trust consistent with law;
2. Act under the order or appointment of any court as guardian, receiver or trustee or
depositary of the estate of any minor and as receiver and depositary of any moneys
paid into court by parties and legal proceedings and of property.
3. Act as the executor of any will when it is named the executor.
4. Act as administrator of the estate of any deceased person with the will annexed or as
administrator of the estate of any deceased person when there is no will.
5. Accept and execute any trust for the holding, management and administration of any
estate, real or personal and the rents, issues and profits.
6. Establish and manage common trust funds, subject to such rules and regulations as
may be prescribed by the Monetary Board.
F. Transactions Requiring Prior Authority
- A trustee or fiduciary shall not undertake any of the following transactions for the
account of a client, unless prior to its execution.
o Lend, sell, transfer or assign money or property to any of the departments,
directors, officers, stockholders, or employees of the trustee or fiduciary or to
any corporation where the trustee owns at least 50% of the subscribed or
voting stock.
o Purchase or acquire property or debt instruments from any the DOSRI or to
any corporation where the trustee or fiduciary owns at least 50% of the
subscribed capital or voting stock.
o Invest in equities or in securities underwritten by the trustee or fiduciary or a
corporation in which the trustee or fiduciary owns at least 50% of the
subscribed capital or voting stock.
o Sell, transfer, assign or lend money or property from one trust or fiduciary
account to another trust or fiduciary account except where the investment is
allowed by Monetary Board.
G. Deposit for the Faithful Performance of Trust Duties
- Before transacting trust business, every trust entity shall deposit with the BSP as
security for the faithful performance of its trust duties approved by the Monetary
Board in an amount equal to not less than Php500, 000.00.
33
- Monetary Board shall require every trust entity to increase the amount of its cash or
securities on deposit with BSP.
- The paid-in capital and surplus of such entity must be at least equal to the amount
required to be deposited with the BSP in accordance with the above provisions.
- A trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the rights to collect the interest earned on such securities
deposited with BSP and to exchange the securities for others.
- All claims arising out of the trust business of a trust entity shall have priority over all
other claims as regards the cash or securities deposited as above provided.
IV. Bond of Certain Persons for the Faithful Performance of Duties
A. Bond Requirements
- Before an executor, administrator etc. appointed by the court enters upon the
execution of his duties, upon order of the court, file a bond in such sum, as the court
may direct.
- Upon the application of any executor, administrator etc. the court may, after notice
and hearing, order that subject matter of the trust.
- Upon presentation of the proof to the court that the subject matters of the trust has
been deposited with a trust entity.
- The reduced bond shall be sufficient to secure adequately the proper administration
and care of any property remaining under the control of such property.
B. Exemption of Trust Entity from Bond Requirement
- No bond or other security shall be required by the court from a trust entity for the
faithful performance of its duties as court appointed trustee, executor etc.
V. Operations of Trust Entity
A. Separation of Trust Business from General Business
- The trust business and all funds received by any trust entity as executor,
administrator etc. shall be kept separate and distinct from the general business
including all other funds, properties and assets of such trust entity.
- All moneys, properties or securities received by a bank in its capacity as trustee,
fiduciary or investment manager shall be kept physically separate and distinct from
the assets of its other business and shall be under the joint custody of at least 2
persons.
B. Investment Limitations of a Trust Entity
- Unless otherwise directed by the instrument creating the trust, the lending and
investment of funds and other assets acquired by a trust entity shall be limited to
loans or investments as may be prescribed by laws, the Monetary Board or any court
of competent jurisdiction.
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- Assets received in trust or in other fiduciary capacity shall be administered in E. Sanctions and Penalties
accordance with the terms of the instrument creating the trust or other fiduciary - A trust entity or any of its officers and directors found to have willfully violated any
relationship. pertinent provisions of the GBL shall be subject to sanctions and penalties.

Limitations: F. Exemption of Trust Assets from Claims

- Evidence of indebtedness of the RP and of the BSO and any other evidence of - No assets held by a trust entity in its capacity as trustee shall be subject to any claims
indebtedness or obligations the servicing and repayment of which are fully other than those of the parties interested in the specific trusts
guaranteed by the RP. - Property held by the insolvent debtor as a trustee of an express or implied trust shall
- Loans fully guaranteed by the RP as to the payment of principal and interest. be excluded from the insolvency proceedings.
- Loans fully secured by a holdout on, assignment or pledge of deposits maintained
either with the bank proper or other banks. G. Establishment of Branches of a Trust Entity
- Loans fully secured by real estate or chattels in accordance with pertinent laws. - Ordinary business of a trust entity shall be transacted at the place of business
specified in its articles of incorporation.
Required Specific Derivatives:
- Transaction to be entered in to H. Advertisement of Services
- Borrowers name - Trust entities shall advertise their services in a dignified manner and enter such
- Amount Involved business only when demand for such service is evident, when specially equipped to
- Collateral security/ies render such service and upon full appreciation to the responsibilities involved.

C. Real Estate Acquired by a Trust Entity I. Money Government

- Unless otherwise specifically directed by the trustor or the nature of the trust, real - Banks may receive or hold as trustee, agent, administrator, financial manager or
estate acquired by a trust entity in whatever manner and for whatever purpose shall other similar capacity, any fund or money from the government and government
likewise be governed by the relevant provisions of the GBL. entities, provided, that government-owned banks may received or hold as trustee the
- The following circumstances may acquire, hold or convey real property: following:
o Mortgaged to in good faith by way of security for debts o Funds of local government units which are expected to be available for
o Conveyed to it in satisfaction of debts previously contracted on the course of investment purposes for a relatively long period of time, provided, that the
its dealings. amounts held in trust or otherwise managed/advised for and in behalf of
o Shall purchase under judgments, decrees, mortgages or trust deeds held by LGU shall be invested only in government.
it and such as it shall purchase to secure debts due it. o Funds of government and government entities which are authorized by
Any real property acquired or held under the circumstances enumerated above special laws to be placed in trust.
shall be disposed of by the bank within a period of 5 years provided, that the
bank continue to hold the property for its own use, subject to the following
limitations:
o The total investment in such real estate and improvements including
equipment shall not exceed 50% of combined capital accounts
o The equity investment of a bank in another corporation engaged
primarily in real estate shall be considered as part of the total
investment in real estate, unless otherwise provided by the Monetary
Board. Chapter 7
BSP
D. Investments of Non-Trust Funds
- Investments of funds other than trust funds of a trust entity which is a bank, financing
company or an investment house shall be governed by the relevant provisions of the
GBL and other applicable laws. I. Creation, Responsibilities and Corporate Powers of the BSP
a. Declared Policy of the State
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The central bank while being a government owned corporation, shall enjoy fiscal and f. Recognized competence in social and economic discipline.
administrative autonomy. C. Disqualifications of the members:
b. Responsibility and primary objective of the BSP a. Disqualifications imposed by A code of conduct and ethical standards for
The responsibility of BSP is to provide policy directions in the area of banking, public officials or employees
money and credit. b. Being a director, officer, employee, consultant, lawyer, agent or stockholder
It shall have supervision over the operation of banks. of any bank, quasi bank, or any other institution which is subject to
It has regulatory powers over the operations of banks, finance companies, quasi- supervision or examination by the BSP;
banks. c. Members coming from the private sector shall not hold any other public
To maintain price stability conducive to a balanced and sustainable growth of the office or employment;
economy. d. Person is connected directly with any multilateral banking or financial
To promote and maintain monetary stability and convertibility of peso. institution;
c. Corporate powers of the BSP (SCP-SPAL) e. Has a substantial interest in any private bank, within 1 year prior to his
1. Adopt, alter and use a corporate seal which shall be judicially noticed; appointment;
2. Enter into contracts; f. No member of the MB shall be employed in any such institution within 2
3. Lease or own personal and real property; years after the expiration of his term except when he serves as an official
4. Sue and be sued; representative of the government.
5. Do and perform all things that may be necessary or proper to carry out the D. Grounds for removal of monetary board:
purposes of the NCBA; a. If he is physically or mentally incapacitated that he cannot properly
6. Acquire and hold assets and liabilities; discharge his duties and responsibilities and such incapacity has lasted for
7. Compromise, condone, or release, in whole or in part, any claim of or settled more than 6 months;
liability to the BSP. b. Member is guilty of acts of fraudulent or illegal character;
II. Authority of the BSP; Supervisory Powers c. If member no longer possess the qualifications enumerated in B.
1. The operation so banks shall be subject to the supervision of the E. Meetings, quorums, decisions and proceedings of the MB:
BSP, which includes: a. MB shall meet at least once a week.
a. The issuance of rules and conduct or the establishment of standards of operation b. Presence of 4 members shall constitute a quorum. In all cases governor or
for uniform application to all institutions or functions covered; his designated alternate shall constitute the 4.
b. The conduct of examination to determine compliance with laws and regulations if c. Unless otherwise provided, all decisions of the MB shall require the
the circumstances so warrant; concurrence of at least 4 members.
c. Overseeing to ascertain that laws and regulations are complied with; Note: Exception to E, par. C.
d. Regular investigation which shall not be oftener than once a year from the date of 1. Sec. 61 GBL, Publication of financial statements. In periods of
last examination; national and/or local emergency or of imminent panic which directly
e. Inquiring into the solvency and liquidity of the institution; threaten monetary and banking stability, MB may by a vote of 5 of
f. Enforcing prompt corrective action. its members, may allow such bank xxx, to defer for a stated period
2. It shall also exercise regulatory powers and supervision over: quasi of time the publication xxx.
banks, trust entities and financial institutions. 2. Sec. 28, NCBA, Examinations and fees. Examination shall be
III. Monetary Board conducted every year, and at such other times as the MB by an
A. Composition affirmative vote of 5 of its members, may deem expedient and to
The monetary board is composed of 7 members appointed by the President for a make a report on the same to the MB.
term of 6 years. 3. Sec. 72 NCBA, Emergency Restrictions on Exchange operations.
B. Qualifications of the members of the Monetary Board: Xxx The MB with the concurrence of at least 5 of its members and
a. Natural born citizens of the Philippines; with the approval of the president, may temporarily suspend or
b. At least 35 years of age, with the exception of governor who shall be 40; restrict sales of exchange by the BSP, and may subject all
c. Good moral character; transactions in gold and foreign exchange to be delivered to the
d. Unquestionable integrity; BSP.
e. Known probity and patriotism;
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4. Sec. 84 NCBA, Emergency loans and advances. In periods of
national and/or local imminent financial panic, MB may by a vote of
5 of its members authorize the BSP to grant extraordinary loans or
advances to banks secure by assets xxx.
d. BSP shall maintain and preserve a complete record of the proceedings and
deliberations of the MB.
F. Scope of authority of the Monetary Board: (IDEA-I)
a. Issue rules and regulations it considers necessary for the effective discharge
of the responsibilities and exercise of the powers vested upon the MB;
b. Direct the management, operations, and administration of the BS,
reorganize its personnel, and issue such rules and regulations as it may
deem necessary and convenient for such purpose;
c. Establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion or dismissal of all
personnel.
d. Adopt an annual budget for and authorize such expenditures by the BS;
e. Indemnify its members and other official of the BS against all costs and
expenses reasonably incurred by them in connection with any criminal or
civil action, made by the reason if his official duties.
G. Responsibility of the members of the MB and BSP:
a. If anyone of them wilfully violates NCBA or is guilty of negligence, abuse or
acts malfeasance and misfeasance or fails to exercise extraordinary
diligence in the performance of his duties shall be held liable for any loss or
injury suffered by the BSP
b. Similar responsibility shall also apply to members, officers, and employees
of the BSP for:
i. Disclosure of any information of a confidential nature, unless such
disclosure is in connection with the performance of the official
functions of the BSP
ii. The use of such information for personal gain or to the detriment of
the government.
IV. The governor and deputy governor
A. The governor shall be the Chief executive officer of the BS with the following powers
and duties:
1. Prepare the agenda for the meetings and to submit for the
consideration of the board policies and measures which is
necessary to carry out the purpose of NCBA;
2. Execute and administer policies approved by the board;
3. Direct and supervise the operations and internal
administration of the BS.
4. Appoint and fix the remunerations and other emoluments
of personnel below the rank of dept. Head.
5. Render opinions, decisions, or rulings, which shall be final
and executory until reversed or modified by the MB.
6. Exercise such other powers as may be vested in him
36
B. Emergencies
a. In case of emergencies, the governor, with the concurrence of 2 members of
MB, may decide any matter or take any action within the authority of the MB.
b. The governor shall submit a report to the president and the congress within
72 hours after the action has been taken.
c. Governor shall submit his action to the Mb for ratification.
C. Limitations on outside interests of the governor and the full time members of the
board
a. Limit their professional activities to those pertaining directly to their position
with the bangko sentral.
b. Not accept any other employment, whether public or private, remunerated or
ad honorem, with the exceptions of the positions in eleemosynary, civic,
cultural and religious organizations or whenever by designation of the
president, the governor or the full time member is tasked to represent the
interest of the government.
V. Director, Officer or stockholder and Related Interest
A. Contracting loans
a. Any director, officer, or stockholder who together with his related interest,
contracts a loan or any other form of financial accommodation from his bank
or a bank, shall be required by the lending bank to waive the secrecy of his
deposits
b. Any information obtained from an examination of his deposits shall be held
strictly confidential and may be used by the examiners in connection with
their supervisory and examination responsibility.
Chapter 8
Currency, Monetary stabilization and Functions of the BSP
I. The unit of monetary value
A. The peso. All monetary obligations shall be settled in the Philippine currency which is the
legal tender in the Philippines. However, the parties may agree otherwise.
B. Currency as all Philippine notes and coins issued or circulating in accordance with the
provisions of the NCBA.
C. A currency has value because people are willing to accept it in exchange for goods and
services and in payment for debts.
II. Issue of means of payment
A. Exclusive Issue Power
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a. BS shall have the sole power and authority to issue currency within the territory i. The international reserves of the BS falls to a level which the MB
of the Philippines. considers inadequate to meet prospective net demands on the BS for
b. MB may issue regulations as it may deem advisable in order to prevent the foreign currencies.
circulation of foreign currency or of currency substitutes. ii. The international reserve appears to be in danger of falling to such a
c. The BS shall have the authority to investigate, make arrests, conduct searches level
and seizures for the purpose of maintaining the integrity of the currency. iii. The international reserve is falling as a result of payment or remittances
B. Liabilities for notes and coins abroad, which in the opinion of the MB is contrary to national welfare.
a. Notes and coins issued by the BS shall be liabilities of the BS and may be issued The monetary board shall:
only against, and in amounts not exceeding the assets of the bankgo sentral. Take such remedial measures as are appropriate
b. The bangko sentrals holding of its own notes and coins shall not be considered Submit to the president and congress reports regarding the nature
as part of its currency issue and shall not form part of the assets and liabilities of and cause of the decline, remedial measure already taken,
the BS. remedies proposed and the character and cooperation required
C. Legal tender power. All notes and coins issued by the BS shall be fully guaranteed by the from other government agencies
government and shall be legal tender in the Philippines for all debts, both public and V. Operations in gold and foreign exchange
private. A. Purchases and sales of gold
D. Replacement of currency unfit for circulation. The BS shall withdraw from circulation and a. BS may buy and sell gold in any form
shall demonetize all notes and coins which for any reason are unfit for circulation and shall b. Purchases and sale of gold shall be made in the national currency
replace them by adequate notes and coins. B. Purchases and sales of foreign exchange
E. Retirement of old notes and coins. a. BS may buy and sell foreign notes and coins, customarily employed for the
a. BS shall replace notes which are more than 5 years old and coins which are international transfer of funds.
more than 10 years old. b. BS may buy and sell foreign exchange transactions with the following entities
b. Notes and coins which are called for replacement shall remain legal tender within only:
one year from the date of call. i. Banks operating in the Philippines
III. Domestic Monetary Stabilization ii. Government
A. Action when abnormal movements occur in the monetary aggregates, credit or price level iii. Foreign or international financial institutions
a. MB shall take such remedial measures and submit to the president and the iv. Foreign government
congress and make public a detailed report of the xxx. v. Other entities or persons which the MB authorized as foreign exchange
b. Whenever: dealers
i. The monetary aggregates, or the level of the credit, increases or C. BS shall at all times maintain a net positive foreign asset position so that its gross foreign
decreases by more than 15 percent. exchange assets always exceed its gross foreign liabilities.
ii. The cost of living index increases by more than 10 percent, in relation to VI. Regulation of foreign exchange operations of the banks
the level existing at the end of the corresponding month of the A. Information on exchange operations
preceding year. a. Banks shall report to the BS the volume and composition of their purchases of
iii. Even though the circumstances have not been reached when in its gold and foreign exchange each day.
judgment the circumstances so warrant. VII. Loans to bank and other financial institutions
IV. International Monetary Stabilization A. Authorized type of credit operations
A. To preserve the international value of the peso and to maintain its convertibility into other a. Commercial credits BS may buy, sell, rediscount, discount xxx with maturities
freely convertible currencies. BS shall maintain international reserves adequate to meet of not more than 180 days from the date of their purchase, discount, rediscount
any foreseeable demands on the BS for foreign currencies. by the BS.
B. The board shall give special attention to the volume and maturity of the BS owns liabilities b. Production credits same; having maturities of not more than 360 days from the
in foreign currencies, to the volume and maturity of the foreign exchange assets and date of the same.
liabilities of other banks operating in the country. c. Other credits
C. Action when the international stability of the peso is threatened: d. Advances - BS may grant advances against the following kinds of collateral:
a. Whenever: i. Gold coins or bullion;

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ii. Securities representing obligations of the BS or of other domestic
institutions;
iii. Credit instruments
iv. Utilized portions of advances in current amount covered by regular over
draft agreements related to operations xxx.
v. Negotiable treasury bills, certificates of indebtedness, notes and other
negotiable obligations of the government
vi. Negotiable bonds
VIII. Emergency loans and advances
A. When granted
a. In periods of national and/or local emergency or of imminent financial panic
which directly threaten monetary and banking stability.
b. Even during normal periods, for the purpose of assisting a bank in a precarious
financial condition or under serious financial pressures brought by unforeseen
events, provided the bank is not insolvent.
B. Limits
a. It shall not exceed the sum of 50 % of total deposits and deposit substitutes of
the banking institution and shall be disbursed in 2 or more tranches.
st
C. First Tranche. The amount of the 1 tranche shall be limited to twenty-five percent of the
total deposit and deposit substitutes of the institution and shall be secured by government
securities to the extent of their applicable loan values and other unencumbered first class
collaterals. This may be increased if the circumstances warrant such increase as to be
determined by the MB.
D. Second Tranche. The MB may release a subsequent tranche by a vote of 5 of its
members, with the condition that the principal stockholders of the institution:
a. Furnish an acceptable undertaking to indemnify and hold harmless from suit a
conservator whose appointment may be necessary at any time;
b. To provide additional security, which the MB would warrant as adequate to
supplement the assets tendered by the banking institution.
E. Shares as collateral. The prohibition with respect to the BS with respect to them not
allowed to acquire shares of any kind and accept them as collateral, and shall not
participate in the management of any enterprise, either directly or indirectly, does not
apply when they receive such shares as a result of a foreclosure proceeding. Provided
they disposed of the same within one year from its acquisition.
IX. Credit Terms
A. Interest and rediscount. BSP has the power to charge interests and rediscounts on all
loans and advances it extends.
B. MB may prescribe, within the general powers granted to it under the NCBA, additional
conditions which the institution must satisfy.
C. Provisional advances to the National Government. The BS may make provisional interests
to the government with or without interest, provided that:
a. It must be repaid before the end of 3 months and extendible by another 3 months
as the MB may allow.
b. Shall not in their aggregate, exceed the 20 % of the average annual income of
the borrower for the last three preceding fiscal years.
38
X. Open Market Operations for the Account of the BS
A. Purchases and sales of government securities. The BS may buy and sell in the open
market for its own account:
a. Evidence of indebtedness issued by the government
b. Same; issued by government instrumentalities fully guaranteed by the
government
c. The evidence of indebtedness must be freely negotiable and regularly serviced
and must be available to the general public.
XI. Composition of BSs portfolio
A. At least once every month the MB shall review the portfolio of the BS in relation to its
future credit policy. In reviewing the portfolio, MB shall take into consideration whether a
sufficiently large part of the portfolio consists of assets with early maturities, in order that a
contraction in BS credit may be effected promptly whenever the national monetary policy
so requires.
XII. Bank reserves
A. Reserve requirements
a. In order to control the volume of money created by the credit operations of the
banking system, banks are required to maintain reserves against their deposit
liabilities. The required reserves of each bank shall be proportional to the volume
of its deposit liabilities and shall ordinarily take the form of a deposit in the BS.
Reserve requirements shall be applied to all banks of the same category
uniformly and w/o discrimination.
b. The MB may exempt from reserve requirements deposit and deposit substitutes
with remaining maturities of two years or more, as well as interbank borrowings.
c. BS shall not pay interest on the reserves maintained with it, unless the MB
decides otherwise as warranted by the circumstances.
B. Deposit substitutes are alternative form of obtaining funds from the public, other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the
borrowers own account, for the purpose of relending or purchasing of receivables and
other obligations. Provided that, commercial, industrial and non-financial companies for
the limited purpose of financing their own needs shall not be covered by this provision.
C. Required reserves against peso deposits. The MB may fix and alter the minimum reserve
ratios to peso deposits, as well as to deposit substitutes, which each bank and quasi bank
may maintain.
D. Increase in Reserve requirements. Whenever in the opinion of the MB it becomes
necessary to increase the reserve requirements, the increase shall be made in a gradual
manner and shall not exceed 4 % points in any thirty day period. Banks shall be notified of
such increase.
E. Computation of reserves. The reserve position of each bank shall be calculated daily on
the basis of the amount of its liability accounts against which reserves are required to be
maintained.
F. Reserve Deficiencies. Whenever the reserve position of any bank is below the required
minimum, the bank shall pay to the BS 1/10 of one percent per day on the amount of
deficiency or the prevailing 91 day Treasury bill whichever is higher. The banks may,
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however, offset any reserve deficiency with any excess reserves which they may hold on
other days.
a. If the reserve deficiency is chronic, the MB may limit or prohibit the making of
new loans or investments by the institution and may require that part or all of the
net profits be assigned to surplus.
b. The MB may set aside the reserve deficiency in case of a strike or lockout
affecting a bank, or of a national emergency affecting operations of banks or
quasi banks.
G. Interbank Settlements
a. The BS shall establish facilities for interbank clearing.
b. The deposit reserves maintained by the banks shall be the basis for the clearing
of checks and the settlement of interbank balances.
c. Any bank which incurs on overdrawing in its deposit account with the BS shall
fully cover said overdraft, including the interest thereon, at a rate of letter F.
H. Exemption from attachment and other purposes
a. Deposits maintained by the banks with the BS as part of their reserve
requirements shall be exempt from attachment, garnishment, or any other order
or process of any court issued to satisfy the claim of a party other than the
government.
XIII. Functions as banker of the government
A. The BS shall act as a banker of the government.
B. The BS shall represent the government in all dealings, negotiations and transactions with
the IMF.
C. Bs shall also represent the government in other financial institutions.
D. The BS shall be the official depository of the government, and as a general policy, their
cash balances should be deposited with the BS, with only minimum working balances to
be held by the government owned banks, and other banks, subject to such rules and
regulations as the MB may prescribe.
E. The BS shall open a general cash account for the Treasurer of the Philippines, in which
the liquid funds of the government shall be deposited.
XIV. The marketing and Stabilization of securities for the account of the govt.
A. The securities stabilization fund shall be administered by the BS for the account of the
government. The operations shall consist of purchases and sales, in the open market, of
bonds and other evidence of indebtedness issued or fully guaranteed by the government.
The purpose of these operations shall be to increase the liquidity and stabilize the value of
the said securities in order thereby to promote investment in government obligations.
XV. Functions as financial advisor of the government
A. Before undertaking any credit operation abroad, the government must secure the advice
of the MB on the monetary implications of the contemplated action.
B. The opinion of the MB shall be based on the gold and foreign exchange resources and
obligations of the nation and on the effects of the proposed operation on the balance of
payments and on monetary aggregates.
XVI. Privileges
A. The BS shall be exempt for a period of 5 years from the approval of the NCBA from all
taxes.
39
B. The exemption shall apply to all property of the BS, to the resources, receipts,
expenditures, profits and income of the BS, as well as to all contracts, deed, documents
and transactions related to the conduct of the business of the BS.
C. The BS shall also be exempted from custom duties, a) the importation and exportation by
the BS of notes and coins, and of gold and other metals to be used for purposes
authorized under the NCBA, b) importation of equipment needed for bank note production,
minting of coins, metal refining and other security printing operations.
D. The civil service law shall also apply to the appointments in the BS except those which are
policy-determining, primarily confidential, and highly technical. Provided that no
qualification requirements for positions in the BS shall be imposed other than those set by
the MB. Officers and employees shall not engage directly or indirectly in partisan activities
or take part in any election except to vote.
CHAPTER 9
UNCLAIMED BALANCES AND TRUST RECEIPTS
Unclaimed Balance
Credits or deposits or other evidence of indebtedness of an kind with banks, loan
associations and trust corporations (BLT) in favor of any person known to be dead or who has
not made further deposits or withdrawals during the preceding ten years or more.
Unclaimed balance and increase in proceeds shall be deposited with the Treasurer of
the Philippines to be used as National Assembly may direct.
Escheat
Reversion of land held under feudal tenure to the manor in the absence of legal heirs
or claimants
Procedure
1. Every January of every odd year, all BLT shall forward to Treasurer a statement
under oath of managing officers af all credits and deposits held by them in favor
of persons known to be dead, or who have not made further deposits or
withdrawals during the preceding ten years or more. It shall include:
a. Names and addresses of persons with unclaimed balance
b. Amount and date
c. Date of Death
d. Interest due
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3. Hearing the person died intestate, seized real or personal property in the
2. Copy of sworn statement shall be posted in a conspicuous place in said Philippines leaving no heir and no cause to show contrary, court shall adjudge
establishments the estate of deceased after paying debts and charges shall escheat.
3. BLT shall immediately before filing statement, communicate with person with 4. Claim to estate People entitled to such estate claims within 5 years from the
unclaimed balance. date of the judgment
4. Sol-Gen shall commence action in behalf of People of the Philippines in the RTC
where BLT is located. The State as an Heir of a Decedent
5. Summons shall be made to president, cashier or managing officer of defendant
BLT The State shall inherit the decedents estate in default of persons entitled to succeed:
6. Clerk of Court shall also issue a notice Article 1011
7. Notice shall be published In default of persons entitled to succeed the State shall inherit the whole estate
8. Any interested person may become a party Article 1012
9. Hearing In order that the state may take possession of the property mentioned, the pertinent
a. Unclaimed court shall render judgment in favor of government provisions of the Rules of Court must be observed.
declaring unclaimed balances escheated to Government, to be
deposited to Treasure to the credit of the Government

Penalties
Refusal to make and file a sworn statement, 500 pesos a month for each month or Art. 1013.
fraction upon continuance of default.
Immunity from suit After the payment of debts and charges, the personal property shall be assigned to
1. BLT which shall make any deposit of unclaimed balances with the Treasurer of the the municipality or city where the deceased last resided in the Philippines, and the
Philippines. real estate to the municipalities or cities, respectively, in which the same is situated.
2. Defended by the Sol-Gen without cost
If the deceased never resided in the Philippines, the whole estate shall be assigned to
Service and Maintenance Fees on Dormant Accounts the respective municipalities or cities where the same is located.
Banks may impose service or maintenance fees on dormant or inactive accounts
provided that period of dormancy must first be properly disclosed among the terms and Such estate shall be for the benefit of public schools, and public charitable institutions
conditions of the deposit. and centers, in such municipalities or cities. The court shall distribute the estate as
the respective needs of each beneficiary may warrant.
Reclassification
The court, at the instance of an interested party, or on its own motion, may order the
All unclaimed balances reported to the Treasurer of the Philippines must first be establishment of a permanent trust, so that only the income from the property shall be
reclassified or transferred from the deposit/liability to the liability account due to the Treasurer used. (956a)
of the Philippines before being turned over. Unclaimed deposit liabilities shall no longer be
covered by reserves required of deposit liabilities.
Art. 1014.
Escheats Under the Rules of Court
If a person legally entitled to the estate of the deceased appears and files a claim
1. When a person dies intestate with no heir, Sol-Gen in behalf of Philippines may thereto with the court within five years from the date the property was delivered to the
file with RTC of province of residence praying that estate of deceased by State, such person shall be entitled to the possession of the same, or if sold the
declared escheated. municipality or city shall be accountable to him for such part of the proceeds as may
2. Order for hearing shall not be more than 6 months after entry of order, copy of not have been lawfully spent.
order be published in news paper of General circulation for 6 successive weeks.
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Trust Receipts a. Sell or procure their sale or exchange

b. Deliver them to a principal
Policy c. Effect consummation
d. Effect presentation and collection
1. To encourage and promote the use of trust receipts as an additional and
convenient aid to commerce and trade There are two situations in a trust receipt transaction:
2. Provide for regulation of trust receipts transactions in order to assure the 1. Money received under obligation to deliver it (entregarla)
protection of the rights and enforcement of obligations of the parties involved 2. Merchandise received under the obligation to return it
therein (devolvera)
3. Declare the misuse of goods or proceeds realized from the sale as a criminal
offence ESTAFA Trust receipt is a separate and independent security transaction intended to aid in
financing importers whereby the imported goods are held as security by the lending institution
Definition for the loan obligation.

Entrustee any person having or taking possession of goods, documents or Spouses Vintola vs. Insular Bank of Asia and America explained the nature and
instruments under a trust receipt transaction. Or any of his successors in interest. usage.

Entruster any person holding title over the goods, documents or instruments subject Transaction involves a loan feature represented by the Letter of Credit and
of a trust receipt transaction. Or any of his successors in interest. security feature which is in the covering trust receipt.

Security Instrument property interest in goods, documents or instruments to secure
performance of some obligations or entrustee
Trust Receipt written or printed document signed by the entrustee in favor of
entruster containing terms and conditions substantially complying with provisions of Trust
Receipts Law
Trust Receipt Transaction
Any transaction by and between an entruster and an entrustee whereby the entruster
who owns or holds absolute title or security interests over certain specified goods, documents
or instruments releases the same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a signed document called a trust receipt.
A trust receipt binds the entrustee to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of them with the obligation
to turn over the proceeds to the entruster to the extent of the amount owing to the entruster.
* Trust Receipt document in which is expressed a security transaction where the
lender having no prior title to the goods and not having possession lends his money to the
borrower who has possession on security of the goods which the borrower is privileged to sell
with an agreement to pay all or part of the proceeds to the lender.
Form of Trust Receipts
Need not be in a particular form. But must contain:
1. Description of the goods, document or instrument subject to trust receipt
2. Total invoice value of the goods and amount of the draft
3. Undertaking of the entrustee to:
a. Hold in trust for the entruster
b. Dispose of them in manner provided by trust receipt
c. Turn over proceeds of sale of goods
Currency

Other purposes: Trust receipt may be denominated in any foreign currency acceptable provided that in
1.) Goods or documents the case denominated in foreign currency, payment shall be made in Philippine currency
a. Sell the goods or procure their sale equivalent to it.
b. Manufacture or process goods for sale
c. Load, unload, ship, transship Rights of Entruster

2.) Instruments
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1. Entitled to proceeds from the sale released under a trust receipt to the entrustee
to the extent of the amount owing to the entruster or as appears in the trust Application
receipt or return of the goods incase of a non-sale
2. May cancel the trust and take possession of the goods subject of the trust receipt Applies to items:
upon default or failure of entrustee to comply with any of the terms and 1. Destined for sale
conditions of the trust receipt. 2. Processed as a component of a product ultimately sold
3. Proceeds shall be applied 3. Used to repair and maintain equipment in business
a. To the payment of the expenses
b. To the payment of expenses of re-taking, keeping and storing of goods Penalty
c. Satisfaction of entrustees indebtedness
4. Entrustee shall receive any surplus but shall be liable to entruster for any Failure of Entrustee to turn over proceeds of the sale of goods covered by the trust
deficiency receipt shall constitute the crime of ESTAFA.

Trust receipts partake of the nature of a conditional sale

since the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. Ownership
shall be vested only upon payment of the full amount.

Entruster shall not be responsible as principal or as vendor

under any sale or contract to sell made by the entrustee. CHAPTER 10
Obligations of the Entrustee
DEPOSIT INSURANCE

1. Hold the goods in trust for the entruster and dispose of them strictly in
Roles of PDIC
accordance with the terms of the rust receipt
2. Receive the proceeds in trust for the entruster and turn over the same to the
1) It shall ensure the deposits of all banks which are entitled to the benefits of insurance and
entruster
which shall have to powers granted by law
3. Insure the goods for their total value against loss and other casualties
2) It shall promote and safeguard the interests of the depositing public by way of providing
4. Keep goods separate and capable of identification as property of entruster
permanent and continuing insurance coverage on all insured deposits
5. Return the goods in the event of a non-sale or demand of the entruster
3) PDIC shall be entitled to the free use of Philippine mail in the same manner as the other
6. Observe all other terms and conditions of the trust receipt
offices of the national government
Liability for Loss
Powers of PDIC as a corporate Body
The risk of Loss shall be borne by the entrustee, irrespective of whether or not it was
1) to adopt and use a corporate seal
due to the fault of the entrustee.
2) to have succession until dissolved by an Act of Congress
3) to make contracts
Rights of Purchaser for Value and Good Faith
4) to sue and be sued, complain and defend, in any court of law in the Phil.
a) all suits of civil nature to which the corporation shall be part shall deemed to arise
Innocent purchaser for value acquires goods free from entrusters security interest.
under the laws of the Philippines.
b)no attachment or execution shall be issued against PDIC or its property before final
Violation of Trust Receipts Law
judgment in any suit, action or proceeding in any court
c) The Board of Directors shall designate an agent upon whom service of process
Although is it malum prohibitum, the intent to misuse or misappropriate the goods
may be made in any province or city jurisdiction in which any insured bank is located
should be proved. Because the Law punishes the dishonesty and abuse of confidence.
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5) to appoint its board of directors such officers and employees as are not otherwise provided Officers
by the law to define their duties, fix their compensation, require bonds of them and fix penalty
thereof and to dismiss such officers and employees for cause 1) President
6) to prescribe by laws not inconsistent with law 2) VP
7) to exercise all powers specifically granted by law 3) Bank Examiners
8) to conduct examination of banks 4) Claim agents
9) act as a receiver 5) Investigators
10) to prescribe such rules and regulations as it may deem necessary to carry out the
provisions of the PDIC law. Deposit insurance coverage
11) PDIC may establish its own provident fund which shall consist of contributions made both
by it and by its officers and employees to a common fund for the payment of benefits to such A) Deposit Liabilities
officers i) deposit liabilities of any bank or banking institution which is engaged in the business
12) to compromise, condone or release in whole or in part, any claim or settled liability to PDIC of receiving shall be insured with the PDIC .
regardless of the amount involved. ii) factors considered
- Financial history and condition of the bank
Composition - Adequacy of its capital structure
- Future earning prospects
1) Secretary of finance ex officio chairman w/o compensation - General character of its management
2) governor of BSP ex officio member of the Board w/o compensation - Convenience and needs of the community to be served by the bank and
3) President of PDIC appointed by the president of the Philippines for a term of 6years whether or not its corporate powers are within the purposes of the PDIC
shall also serve as Vice Chairman of the Board - The term deposit, unpaid balance of money or its equivalent received by
4) 2 members from the private sector for 6 years w/o reappointment by the President a bank in its usual course of business and for which it has given or its
Disqualification of Appointive members disqualified from holding any office, position, or obliged to give credit
employment in any insured bank
Quorum B) Statutory Liability of PDIC
i) presence of three (3) members shall constitute a quorum PDIC governed primarily by the provisions of the special law creating it. The liability of the PDIC for
ii) secretary of finance and governor of the banking sentral may each designate a insured deposits therefore is statutory and such liability rests upon the existence of deposits with the
representative insured bank.
iii) Chairman of the board unable to attend president shall act as chairman
Borrowing from Banks
Per Diem Secretary of Finance shall fix the rate of per diem for every board meeting
Borrowing from any bank or banking institution by examiners and other personnel of the
Authority of the Board examination departments of PDIC shall be prohibited only with respect to the particular
institution in which they are assigned.
1) to issue rules and regulations as it considers necessary for the effective discharge of its
XIII. Receivership
responsibilities
2) to direct the management, operation and administration of PDIC A. Appointment
3) to establish human resources management a. Appoint PDIC as receiver
4) to appoint, establish the rank, fix the remuneration, approve local and foreign training of, b. receiver includes a receiver, commission, person or other agency charged
and remove any officer or employee for a cause, subject to pertinent civil service laws.
5) to adopt an annual budget by law with the duty to take charge of the assets and liabilities of a bank
6) to approval the methodology for determining the level and amount of provisioning for which has been forbidden from doing business
insurance and financial assistance losses which shall establish reasonable levels of deposit B. Powers
insurance reserves
a. Control, manage and administer the affairs of the closed bank
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i. Powers, functions and duties, as well as all allowances,
remunerations and perquisites of the directors, officers, and
stockholders of such bank are suspended
ii. Provisions of the Articles of Incorporation are deemed suspended
iii. Assets deemed in custodial egis in the hands of the receiver
iv. From the time the closed bank is placed under such receivership,
assets shall not be subject to attachment, garnishment, execution,
levy or any court processes.
b. In addition to the powers of a receiver, PDIC is empowered to:
i. Bring suit to enforce liabilities to or recoveries of the closed bank
ii. Appoint or hire persons to perform such powers and functions of
PDIC as receiver or liquidator of the closed bank
iii. Suspend or terminate the employment of officers and employees of
the closed bank
C. Suits Filed by the PDIC
a. In cases or actions filed by the PDIC, payment of all docket and other court
fees shall be deferred until the action is terminated with finality.
D. Distribution of Assets
XIV. Payment of Insure Deposits
A. Manner of Payment
a. Payment of the insured deposits made by PDIC
i. By cash
ii. By making available to each depositor a transferred deposit in
another insured bank in an amount equal to insured deposit of such
depositor
b. transfer deposit means a deposit in an insured bank made available to a
depositor by PDIC as payment of insured deposit of such depositor in a
closed bank and assumed by another insured bank
c. Joint account insured separately from any individually-owned deposit
account
d. Account held jointly by 2 or more natural persons, or by 2 or more juridical
persons or entities, the maximum insured deposit shall be divided into as
44
many equal shares as there are individuals, unless a diff. sharing is
stipulated in the document of deposit
e. Account held by a juridical person or entity jointly the maximum insured
deposit shall be presumed to belong entirely to such juridical person or
entity
f. Aggregate of the interests maximum insured deposit of PhP 250,000
B. Proof of Claims
a. PDIC, in its discretion, may require proof of claims to be filed before paying
the insured deposits.
b. It may require the final determination of a court of competent jurisdiction
before paying such claim
C. Settlement Period and Penalties in Case of Failure to Settle
a. Failure to settle the claim due to grave abuse of discretion, gross negligence,
bad faith or malice imprisonment from 6 months to 1 year
b. Upon payment of any depositor, PDIC shall be subrogated to the rights of
the depositor against the closed bank to the extent of such payment
c. Subrogation shall include the right to receive the same dividends from the
proceeds of the assets of such closed bank and recoveries on account of
stockholders liability as would have been payable to the depositor on a
claim for the insured deposits
D. Notice
a. PDIC shall commence the determination of insured deposits due the
depositors of a closed bank upon its actual takeover of the closed bank and
give notice
b. Publish the notice once a week for at least 3 consecutive weeks
E. Discharge
a. Payment of an insured deposit to any person shall discharge PDIC
F. Recognition of Owner
G. Withholding of Payment
a. PDIC may withhold payment of such portion of the insured deposit of any
depositor in a closed bank as may be required to provide for the payment of
any liability of such depositor as a stockholder of the closed bank, or of any
liability of such depositor to the closed bank or its receiver
H. Prescription
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a. If the depositor in the closed bank shall fail to claim his insured deposits
within 2 years from actual takeover of the closed bank by the receiver, or
does not enforce his claim within 2 years after the 2-year period to file a
claim, all rights of the depositor with respect to the insured deposit shall be
barred
XV. Investment By PDIC
A. Money of PDIC not otherwise employed shall be invested in obligations of the
Philippines
a. It shall not sell or purchase any such obligations for its own account and in
its own right and interest, at any one time aggregating in excess of P100,000
without the approval of the Insurance Commissioner
B. The banking or checking accounts of PDIC shall be kept with the Central Bank of the
Philippines, with the Philippine National Bank, or with any other bank designated as
depository or fiscal agent of the Philippine Government
XVI. Extension Of Loans
A. If an insured bank is in danger of closing, PDIC is authorized to make loans to, or
purchase the assets of, or assume liabilities of, or make deposits in, such insured
bank, upon such terms and condition as the Board of Directors may prescribe when
it is essential to provide the adequate banking service in the community or maintain
financial stability in the economy
a. Extend financial assistance to, assume liabilities of, purchase the assets of
an insured bank if PDIC finds that the resumption of operations of such bank
is vital to the interests of the community OR severe financial climate exists
which threatens the stability of a number of banks possessing significant
resources
b. Reopening and resumption of operations of the closed bank shall be subject
to the prior approval of the Monetary Board
B. PDIC may provide acquiring control of, merging or consolidating with or acquiring
the assets of an insured bank in danger of closing in order to prevent such closing or
of a closed insured bank in order to restore to normal operations
C. Prior to the exercise of these powers, PDIC shall determine that actual payoff and
liquidation thereof will be more expensive than the exercise of its power
D. When the MB has determined that there are systematic consequences of a probable
failure or closure of an insured bank, PDIC may grant financial assistance to such
45
insured bank in such amount as may be necessary to prevent its failure or closure
and/or restore the insured bank to viable operations
a. Systemic risk possibility that failure of one bank to settle net transactions
with other banks will trigger a chain reaction, depriving other banks of funds
leading to a general shutdown of normal clearing and settlement activity
E. PDIC may not use these authorities to purchase the voting or common stock of an
insured bank
F. Financial assistance may take the form of equity or quasi-equity of the insured bank
as may be deemed necessary by the Board of Directors
XVII. Borrowings
A. PDIC is authorized to borrow from the BSP
B. When the funds of the PDIC are not sufficient to provide for an emergency or urgent
need to attain the purposes of the PDIC law, it is likewise authorized to borrow
money, obtain loans or arrange credit lines or other credit accommodations from
any bank designated as depository or fiscal agent of the Phil. Govt.
XVIII. Issuance of Banks
With the approval of the President, PDIC is authorized to issue bonds, debentures, and
other obligations for the settlement of insured deposits in closed banks as well as for
financial assistance
a. Board of Directors to determine the interests rates and maturity
b. PDIC to provide appropriate reserves for the redemption or retirement of
obligation
XIX. Reports and Audit
XX. Miscellaneous
A. Signs
a. Every insured bank shall display at each place of business maintained by it a
sign that its deposits are insured by PDIC
b. Board may exempt from this requirement advertisements which do not
relate to deposits
B. Merger or Consolidation of Insured Banks
a. No insured bank shall
i. merge or consolidate with any noninsured bank or institution, or
convert into a noninsured bank
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ii. assume liability to pay any deposits made in, or similar liabilities of,
any noninsured bank or institution
iii. transfer assets to any noninsured bank in consideration of the
assumption of liabilities for any portion of the deposits made in
such insured bank
TRO and Injunction
A. No court, except the CA, shall issue any TRO, preliminary injunction or preliminary
mandatory injunction against PDIC
B. SC may issue a restraining order or injunction when the matter is of extreme
urgency involving a constitutional issue
C. Any restraining order or injunction issued in violation of the foregoing is void and of
no force and effect and any judge who has issued the same shall suffer the penalty
of suspension of at least 60 days without pay
Chapter 11
Anti-Money Laundering

Money Laundering - a crime whereby the proceeds of an unlawful activity are transacted thereby
making them appear to have originated from legitimate sources.

3 Steps of accomplishing:

1. Placement inserts money into a legitimate financial institutions

2. Layering sending money through various financial transactions to change its form
3. Integration money re-enters the mainstream economy in legitimate-looking form

Policies of AMLA

1. Protect and preserve integrity and confidentiality of bank accounts

2. Ensure that Philippines shall no be used as money laundering site
3. Extend cooperation in transnational investigations and prosecutions

Institutions Covered

1. Banks and other institutions supervised and regulated by BSP

2. Insurance Committees
3. Securities, dealers, etc.
4. Mutual funds, common-trust funds and other similar entities
5. Foreign Exchange corporations and other similar entities
6. Entities administering or dealing with currencies regulated by SEC

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Covered Suspicious Transactions AMLC Composition

1. Cash or equivalent monetary instrument exceeding P500,000 within 1 banking day 1. Governor of BSP Chairman
2. Regardless of amount: 2. Commissioner of Insurance Commission member
a. No underlying legal or trade obligation 3. Chairman of SEC - member
b. Client is not properly identified
c. Amount is not commensurate with business or financial capacity of client Functions of AMLC
d. Clients transaction is structured in order to avoid being subject of reporting
requirements 1. Require and receive covered or suspicious transaction from covered institutions
e. Deviation from the profile of the client and/or clients past transactions with 2. Issue orders addressed to appropriate Supervising Authority or covered institution to
institution determine true identity of the owner of questioned property
f. Transaction is related to an unlawful activity 3. Institute civil forfeiture through Sol-Gen
g. Any analogous transactions 4. File complaints with DOJ or Ombudsman
5. Investigation
Unlawful Activities 6. Apply before CA for freezing any property alleged to be proceeds of unlawful activity
7. Implement measures necessary to counteract money laundering
1. Kidnapping for Ransom 8. receive and take action in respect of any request for foreign assistance
2. DDA 9. develop educational programs
3. Anti-Graft and Corrupt Practices Act 10. Enlist assistance of any branch of governemtn
4. Plunder 11. Impose administrative sanctions for violation of rules
5. Robbery and extortion 12. Establish by a secretariat headed by Executive director appointed by Council
6. Jueteng
7. Piracy Prevention of Money Laundering; Customer Identification Requirements and Record keeping
8. Qualified Theft
9. Swindling Customer Identification
10. Smuggling
11. Violations of Electronic Commerce Act 1. Institutions shall establish and record true identity of its clients based on official
12. Hi-jacking documents
13. Violations of Securities Regulation Code 2. Maintain a system of verifying true identity of their clients
14. Other felonies of similar nature 3. Anonymous accounts, accounts under fictitious names are prohibited
4. Peso and foreign currency non-checking numbered accounts shall be allowed
Money Laundering Offense
Freezing of Monetary Instrument or Property
1. Person transacting or attempts to transact any monetary instrument purporting to the
proceeds of any unlawful activity The CA upon application ex parte by AMLC after determination of probable cause
2. Performs or failure to perform any act as a result of which he facilitates the offense
mentioned in (1) Freeze period shall be for 20 days unless extended by the court
3. Failure to disclose as required by AMLC
Authority to Inquire Bank Deposits
Jurisdiction
To complete legal measures to prevent money laundering, the AMLC may inquire into or
RTC private persons examine any particular deposit or investment with any banking institution or non-bank financial
Sandiganbayan Public Officers institution upon order of any competent court incases of violation, it must be established that:
Public Officers and private persons in conspiracy 1. There is probable cause that deposits are related to unlawful activity or Money laundering
offense
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2. Substantially altered, destroyed, diminished in value or otherwise rendered worthless

No court order: through an act attributable to the offender
1. Kidnapping for Ransom 3. Concealed, removed, converted or transferred to prevent from being found
2. DDA 4. Located outside the Philippines or has been placed or brought outside the jurisdiction of
3. Hi-Jacking the court
4. Destructive Arson and murder 5. Commingled with other monetary instruments or property belonging to offender or third
persons rendering the same difficult to identifyor segregated for purposes of forfeiture
BSP may inquire into or examine any deposit when examination is made in the course of a
periodic or special examination. Mutual Assistance Among States

Republic vs. Eugenio Request for Assistance from Foreign State

Sec. 11 of RA 9194 allows AMLC to inquire into bank accounts without having to obtain Principle of mutuality and reciprocity shall be at all times recognized.
a judicial order in cases where there is probable cause that deposits or investments are
related to: Powers of AMLC to act on request for assistance from a foreign State

1. Kidnapping for Ransom 1. AMLC may execute a request for assistance from a foreign State by:
2. DDA a. Tracking down, freezing, restraining and seizing assets to be proceeds of any
3. Hi-Jacking unlawful activity
4. Destructive Arson and murder b. Giving information needed by the foreign state
c. Applying for an order of forfeiture of such property
When court order is required, there is no provision which provides that specifically authorizes
such court may be issues ex parte, this silence does not preclude the ex parte issuance of the Obtaining assistance from Foreign States
bank inquiry order as it is not prohibited.
1. AMLC may make a request to any foreign State for assistance in:
A Bank inquiry is not a search warrant or warrant of arrest as it contemplates a direct object a. Tracking down, freezing, restraining and seizing assets alleged to be proceeds of
but not the seizure of persons or property. any unlawful activity
b. Obtaining information that it needs relating to covered transactions
Because of Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy c. Enter any premises belonging to persons named in said request
in the Philippines. Subsequent laws such as AMLA may have added exceptions to the Bank d. Applying for order of forfeiture
Secrecy Act yet the secrecy of Bank deposits still lies as the general rule. Limitations

Forfeiture
Civil Forfeiture
When there is a covered transaction report made, and the court has ordered the seizure of any
property related to said report, the Revised Rules of Court on civil forfeiture applies.
Payment in Lieu of Forfeiture
Court may, instead of enforcing the order of forfeiture, order the convicted offender to pay an
amount equal to the value when order cannot be enforced because:
1. Property cannot, with due diligence be located
May refuse to comply with any request for assistance where the action sought by the request
contravenes any provision of the Constitution or the execution of a request is likely to prejudice the
national interest of Philippines unless a treaty so provides.
Requirements for Requests for Mutual Assistance from foreign States
1. Confirm that investigation or prosecution is being conducted in respect of a money
launderer named therein or that he has been convicted of any money laundering offense
2. State the grounds on which any person is being investigated or prosecuted for money
laundering or details of his conviction
3. Give sufficient particulars as to identity of said person
4. Give particulars sufficient to identify any covered institution believed to have information
5. Ask from covered institution any information of assistance
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6. Specify manner in which material is to be produced 8. Should avoid transactions with criminals
7. Give particulars n issuance of writs, or orders needed by the requesting State 9. Programs against money laundering should be developed
8. Contain information as may assist in execution of request a. Internal policies and procedures and controls
b. Ongoing employee training program
Authentication of Documents c. Audit function to test the system

Authenticated if:
1. Signed or certified by a judge, magistrate or equivalent officer in or of the
requesting State
2. Authenticated by the oath or affirmation of a witness or sealed with official or
public seal CHAPTER 12
SPECIAL PURPOSE VEHICLE

Extradition
A. The declared policies of the State are:
Philippines shall negotiate for the inclusion of money laundering offenses among extraditable i. To develop and maintain a sound financial sector for the country;
offenses in all future treaties. ii. To address the non-performing asset problems of the financial sector;
iii. To encourage private sector investments in non-performing assets;
Prohibitions Against Political Harassment iv. To eliminate existing barriers in the acquisition of non-performing assets;
v. To help in the rehabilitation of distressed business with the end in view of contributing to
1. AMLA shall not be used for political persecution or harassment or as an instrument to the economic value added; and
hamper competition in trade and commerce vi. To improve the liquidity of the financial system which can be harnessed to propel
2. May not be filed to the prejudice of a candidate for an electoral office during an election economic growth.
period. B. Definitions
1. ACT- Special Purpose Vehicle Act 2002
Powers of Congressional Oversight Committee 2. APPRORIATE REGULATORY AUTHORITY- agency/ authority having jurisdiction over the FIs
operations which shall be the following:
The Power to promulgate its own rules, to oversee the implementation of Anti-money i. the DOF- in the case of the PDIC and GOCCs, in consultation with other agencies that have
Laundering act and to review or revise the implementing rules issued by AMLC within 30 days from primary jurisdiction over the said FIs whenever deemed appropriate by the DOF;
promulgation of said rules. ii. the BSP- in the case of banks which include LBP and DBP, and trust and quasi-banking
functions of financing companies and investment houses licensed by the BSP; and
Rules and Regulations to Combat Money Laundering iii. the Commission- in the case of financing companies and investment houses, except their
trust and quasi-banking functions
1. Should take reasonable measures to establish and record the true identity of their clients. 3. AUDITED FINANCIAL STATEMENTS- a set of financial reports consisting of balance sheet, income
2. In case of doubt as to whether their purported clients or customers are acting for statement, statement of changes in equity and cash flow statement, audited by a Commission-
themselves or for another, reasonable measures should be taken to obtain the true accredited independent CPA.
identity of the persons on whose behalf an account is opened 4. CERTIFICATE OF ELIGIBILITY (COE)- certificate issued by the Appropriate Regulatory Authority as
3. Anonymous accounts or accounts under fictitious names should not be kept or allowed, to the eligibility of the NPL or ROPOA for purposes of availing of the tax exemptions and privileges.
unless provided by law 5. CODE- Batas Pambansa Bilang 68 otherwise known as The Corporation Code of the Philippines
4. Identity of clients should be reviewed at least every other year 6. COMMISSION- Securities and Exchange Commission
5. All records to be maintained for at least 5 years 7. DATION IN PAYMENT (DACION EN PAGO)- payment whereby property, whether real or personal,
6. Special attention to all complex, unusual large transactions and all unusual patterns of tangible or intangible, is alienated in favor of the creditor, which could either be an FI or an SPV, in
transactions which have no apparent or visible lawful purpose satisfaction of an NPL.
7. Other suspicious transactions 8. FIA- Foreign Investment Act, RA 7042, as amended.

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9. FINANCIAL INSTITUTIONS (FIs)- credit-granting institutions which shall be limited to the following:
i. the BSP;
ii. a bank as defined under Republic Act No.8791, also known as "The General Banking Law";
iii. a financing company as defined under Republic Act No. 8556, also known as "The
Financing Company Act of 1998";
iv. an investment house as defined in Presidential Decree No. 129, also known as "The
Investment Houses Law";
v. government financial institutions (GFIs), which for purposes of this Act, shall be limited to the
Philippine Deposit Insurance Corporation (PDIC), Land Bank of the Philippines (LBP), and Development
Bank of the Philippines (DBP);
vi. government-owned-or-controlled-corporations (GOCCs),which for purposes of this Act, shall
be limited to the National Home Mortgage Finance Corporation (NHMFC), Home Guarantee
Corporation (HGC), Home Development Mutual Fund (HDMF), Social Security System (SSS),
Government Service Insurance System (GSIS), Trade and Investment Development Corporation
(TIDCORP), Small Business Guarantee and Finance Corporation (SBGFC), Technology and Livelihood
Resource Center (TLRC), Livelihood Corporation (LIVECOR), National Development Corporation
(NDC), Quedan and Rural Credit Guarantee Corporation (QUEDANCOR), National Housing Authority
(NHA), and Armed Forces of the Philippines- Retirement and Separation Benefits System (AFP-
(RSBS); and
vii. other institutions licensed by the BSP to perform quasi-banking functions.
10. INVESTMENT UNITS (IUIs)- participation certificates, debt instruments or similar instruments
issued by the SPV and subscribed by Permitted Investors as provided in Section 11 hereof, pursuant to
an Approved Plan: Provided, That these shall not include the instruments to be issued by the SPV to
the selling FIs as full or partial settlement of the non-performing assets transferred to the said SPV:
Provided, further, That such issuances of the SPV shall not be considered as deposit substitutes:
Provided, finally, That these shall not form part of the capital stock of the SPV.
11. NIRC- the National Internal Revenue Code of 1997, as amended.
12. NON-BANKING FINANCIAL INSTITUTIONS PERFORMING QUASI-BANKING FUNCTIONS
(NBQBs)- financing companies, investment houses and other institutions licensed by the BSP to
perform quasi-banking functions.
13. NON-PERFORMING ASSETS (NPAs)- consist of the Non-Performing Loans (NPLs) and Real and
Other Properties Owned or Acquired (ROPOAs) by the FIs
14. NON-PERFORMING LOANS (NPLs)- loans and receivables such as mortgage loans, unsecured
loans, consumption loans, trade receivables, lease receivables, credit card receivables and all
50
registered and unregistered security and collateral instruments, including but not limited to, real state
mortgages, chattel mortgages, pledges and antichresis, whose principal and/or interest have remained
unpaid for at least one hundred and eighty (180) days after they have become past due or any of the
events of default under the loan agreement has occurred.
15. ROPOA- real and other properties owned or acquired by an FI in settlement of loans and
receivables, including real properties, shares of stocks, and chattels formerly constituting collateral's for
secured loans which have been acquired by way of dation in payment (dacion en pago) or judicial or
extra-judicial foreclosure or execution of judgement.
16. TRUE SALE- a sale wherein the selling FI transfers or sells its NPAs without recourse for cash or
property to an SPV with the following results:
i. The transferor relinquishes effective control over the transferred NPAs; and
ii. The transferred NPAs are legally isolated and put beyond the reach of the transferor and its
creditors.
C. Organization
An SPV shall be organized as stock corporation in accordance with Batas Pambansa Blg. 68, otherwise
known as "The Corporation Code of the Philippines" and the rules promulgated by the Commission for
purposes of registering the SPV: Provided, That if the SPV will acquire land, at least sixty percent (60%)
of its outstanding capital stock shall be owned by Philippines nationals pursuant to Republic Act
No7042, as amended, otherwise known as "The Foreign Investment Act".
D. Powers of an SPV
-incorporated primarily to invest in, or acquire NPAs of FIs.
-secondary powers shall be limited to the following:
i. To engage third parties to manage, operate, collect and dispose of NPAs acquired from an
FI;
ii. To rent, lease, hire, pledge, mortgage, transfer, sell, exchange, usufruct, secure, securitize,
collect rents and profits, and other similar acts concerning its NPAs acquired from an FI;
iii. In case of NPLs, to restructure debt, condone debt and undertake other structuring debt, the
SPV may reduce the principal, interest, interest rates, and the period for calculating the interest, extend
the time for debt repayment or relax the conditions for debt repayment, agree to the conversion of the
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borrowers debt to equity in the borrower's business, agree to a transfer of assets or claims from the
borrower t repay the debtor dispose of some of the borrower's property or claims to third persons;
iv. To take, transfer shares or buy shares issued by the borrower for the purpose of business
reorganization or rehabilitation of the borrower, subject to the provisions of the Corporation Code in
respect of the rights of the shareholders of the borrower company, and apply any other measures or
restructuring techniques with the approval of the Commission;
v. To enter into dation in payment (dation en pago) arrangements, foreclose judicially or extra-
judicially and other forms of debt settlement involving NPLs;
vi. To spend funds to renovate, improve, complete or alter its NPAs acquired from an FI;
vii. To issue equity or participation certificates or other forms of IUIs for the purpose of
acquiring, managing, improving and disposing of its NPAs acquired from an FI;
viii. To borrow money and issue other instruments of indebtedness for the purpose of paying
operational administrative costs;
ix. To guarantee credit, accept or intervene for honor the bills of borrowers;
x. To advance funds to borrowers where required by an acquired asset or any debt
restructuring agreement pursuant thereto, or under any court order or rehabilitation plan; and
xi. To entrust to third parties asset servicing company, the collection and receipt of the debt
payments for debts under debt restructuring business reorganization, management and disposition of
assets of the SPV in accordance with the rules, procedures and conditions prescribed by the
Commission or by the courts. Except in the case of ROPOAs whose redemption periods have already
expired, the SPV shall notify the borrower and all persons holding prior encumbrances upon the
properties or a part thereof or are actually holding the same adversely to the borrower within fifteen (15)
days from the date of the appointment of the said collection agent.
E. Period for Filing of Applications
The Articles of Incorporation of the SPV, its by-laws and other documentary requirements shall
be filed with the Commission not beyond eighteen (18) months from the date of approval of the
Implementing Rules and Regulations (IRR) by the Congressional Oversight Committee (COC)
created in Section 23 of the Act.
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only SPVs whose applications are filed not later than the 18-month period and are
subsequently approved by the Commission shall qualify for the tax exemptions and
privileges granted under the Act.
Registration Requirements- shall submit to the Commission the ff. documents for
incorporation:
(1) Name Verification Slip, showing its proposed name which shall always include the acronym
SPV-AMC (Asset Management Company) appended thereto;
(2) Articles of Incorporation and By-Laws;
(3) Treasurers Affidavit/Authority to verify bank account;
(4) Bank Certificates of Deposits (notarized in the place where the bank is located)
(5) Written undertaking to change corporate name by incorporator or director;
(6) Registration Data Sheet.
F. Authorized, Subscribed And Paid-Up Capital Of the SPV
An SPV shall have a minimum authorized capital stock of Five hundred million pesos
(P500, 000,000.00), with a minimum subscribed capital stock of One hundred twenty five
million pesos (P125, 000.000.00), and a minimum paid-up capital of Thirty-one million two
hundred fifty thousand pesos (P31, 250.00). Paid-up capital must be in the form of cash.
G. Submission of SPV Plan
After the establishment of an SPV pursuant to Section 4 hereof, an SPV Plan shall be submitted to the
Commission for approval, which shall include the following:
(a) Investment policies of the SPV;
(b) Contribution plan including the amounts and draft of subscription documents;
(c) Features of the IUIs including the specific amounts issued and/or to be issued;
(d) timetable of issuance;
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(e) Rights of the holders of the IUIs;
(f) Draft agreements for the appointment of trustees and agents with respect to the IUIs and
the NPLs acquired from an FI;
(g) appointment or engagement of an external auditor accredited by the Commission;
(h) Roles and responsibilities of the trustees, advisors, loan servicers and property managers;
(i) Draft form of financial reports of the SPV;
(j) Details of distribution policies;
(k) Methods for the increase and decrease of future fund contribution;
(l) Methods for the alteration or modification of the approved SPV Plan;
(m) Methods for the liquidation and distribution of assets to the holders of IUIs;
(n) Details of credit enhancements like guarantees or standby letters of credit or advances that
may be extended to the SPV by an entity which shall not be the selling FI, its parent,
subsidiaries or affiliates; and
(o) Such other documents or information as may be required by the Commission.
H. Approval
- Upon approval of the SPV Plan, the Commission shall issue an Approval certificate stating that the
application has been approved and that the IUIs may be issued.
I. Issuance of IUIs
(a) Registration Requirements
(1) Any existing SRC rule or provision to the contrary notwithstanding, all IUIs proposed to be
sold or distributed within the Philippines shall be duly registered with the Commission.
(2) Submission of Registration Statement shall include exhibits and full disclosure of the ff. in
the prospectus:
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i. Business of the issuer
ii. Use of Proceeds
iii. Risk Factors
iv. Legal Proceedings
v. Market of Securities
vi. Managements Discussion of Financial Condition and Results of Operation
vii. Directors and Officers
viii. Securities Ownership
ix. Certain Related Party Transactions
x. Audited and Interim Financial Statements in accordance with SRC Rule 68, as amended.
(3) The ff. information shall be disclosed in the registration statements of an SPV:
i. Details of SPV Plan
ii. Details of credit enhancements like guarantees or standby letters of credit
iii. Detailed description of the assets or loan constituting the pool of assets; or the assets or
loan intended to form part of the pool of assets
iv. Rights and obligations of the selling financial institution/s assumed by the SPV
v. Description of any relationship or interest of the selling financial institutions Parent,
Subsidiaries, Affiliates or stockholders, directors or officers, with the SPV.
vi. Incentives and exception privileges
(4) SPV shall likewise submit a certification from the FI that the affected borrowers of the NPLs
and all persons holding prior encumbrances upon the assets mortgaged or pledged have been notified
by registered mail of the intended transfer of NPLs to an SPV
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- borrower shall be given a period of atleast 90 days from receipt of notice to renegotiate or
restructure the loan with the FI
(5) SPV shall pay registration fee of 1/10 of 1% of the aggregate offering price of the IUIs
subject to a diminishing fee set by the Commission.
(6) SPV shall cause the publication of a notice of filing of registration statement at its expense
- 2 newspapers of gen. circulation in the Philippines, once a week for two consecutive weeks
(7) Commission may audit the financial statements, assets and other information of an SPV
applying for registration of an IUIs
(8) Upon registration statement being declared effective by the Commission, the sale of
securities subject thereto shall be commenced within two business days and be continued until the end
of the offering period or until the sale has been terminated by action of the issuer.
(9) SPV shall ensure wide dissemination of the preliminary and final prospectuses
(10) Written notification shall be given to the Commission within 3 business days from
completion or termination of the offering by the issuer, including therein the number of securities sold.
(b) Amendments or Rejection
(1) Within 45 days after the date of filing of the registration statement, or at such later date to
which the issuer has consented, the Commission shall declare the registration statement effective or
rejected unless the applicant is allowed to amend the registration statement.
(2) Commission may reject a registration statement and refuse registration of the security
therunder, or revoke the effectivity of a registration statement and the registration of the security after
due notice and hearing by issuing an order to such effect, setting forth its findings in respect thereto, if it
finds that:
i. The issuer:
a. has been judicially declared insolvent
b.violated any of the provisions of the Corporation Code or any order of the
Commission
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c. has been or is engaged or is about to engaged in fraudulent transactions
d. has made any false or misleading representation of material facts in any
prospectus concerning the issuer or its securities
e. failed to comply with any requirement that the Commission may impose
ii. The registration statement is on its face incomplete or inaccurate in any material respect or
includes any untrue statement of a material fact or omits to state a material fact required to be
stated therein
iii. The issuer, any officer, director or controlling person of the issuer, or person performing
similar functions, or any underwriter has been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise, of an offense involving moral turpitude
and/or fraud or is enjoined or restrained by the Commission or other competent judicial or
administrative body for violations of securities, commodities, and other related laws.
(3) If the Commission deems it necessary, it may issue an order suspending the offer and sale
of the securities pending any investigation.
(c ) Issuance of Securities to the Public Without Prior Registration
(1) An SPV that offers to sell or distribute its IUIs to the public within the Philippines without
prior registration shall be subject to the penalties provided under the SRC.
(2) Imposition of the foregoing administrative sanctions shall be without prejudice to the filing of
criminal charges against the individual responsible for the violation.
(d) Tax treatments of IUIs
- Since IUIs are not considered as deposit substitutes under the Act, interests or other monetary benefit
derived from IUIs is not subject to the 20% final withholding tax under the NIRC
-The IUI and any income arising from the IUIs shall be subject to normal income tax and/or such other
applicable taxes imposed under the NIRC.
J. Permitted Investors
Any person may acquire or hold IUIs in an SPV in the minimum amount of Ten million pesos (P10,
000.000.00); Provided, That an SPV shall not be authorized to acquire the IUIs of another SPV:
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Provided, further, That the parent, subsidiaries, affiliates or stock-holders, directors, officers or any
related interest of the selling FI or the parent's subsidiaries, affiliates or stock-holders, directors, officers
or any related interest shall not acquire or hold, directly or indirectly, the IUIs of the SPV that acquired
the NPAs of the FI.
K. Notice and Manner Of Transfer of Assets
(a) Prior Notice
- No transfer of NPLs to an SPV shall take effect unless the FI concerned shall give prior notice,
pursuant to the Rules of Court, thereof to the borrowers of the NPLs and all persons holding prior
encumbrances upon the assets mortgaged or pledged. Such notice shall be in writing to the borrower
by registered mail at their last known address on file with the FI. The borrower and the FI shall be given
a period of at most ninety (90) days upon receipt of notice, pursuant to the Rules of Court, to restructure
or renegotiate the loan under such terms and conditions as may be agreed upon by the borrower and
the FIs concerned.
(b) Procedures on the Transfer of Assets to the SPV
An FI that intends to transfer its NPAs to an SPV shall file an application for eligibility of said NPAs, in
the prescribed format, with the Appropriate Regulatory Authority having jurisdiction over its operation.
Said application shall be filed for each transfer of asset/s.
(c ) Issuance of the COE
- The transfer of NPAs from an FI to an SPV shall be subject to prior certification of eligibility as NPA by
the appropriate regulatory authority having jurisdiction over its operations, which shall issue its ruling
within forty-five (45) days from the date of application by the FI for eligibility.
(d) Subsequent Notice
- After the sale or transfer of the NPLs, the transferring FI shall inform the borrower in writing at the last
known address of the fact of the sale or transfer of the NPLs.
(e) Subsequent Transfers
- Each COE shall be valid for only 1 transfer. All subsequent transfers shall require a separate COE
from the Appropriate Regulatory Authority.
L. Nature of Transfer True Sale
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* Any transfer of NPAs not in the nature of True Sale as provided for in the Act shall not qualify
for tax exemptions and fee privileges granted under the Act. Provided, That GFIs and GOCCs shall be
subject to existing law on the disposition of assets: Provided further, That in the transfer of the NPLs,
the provisions on subrogation and assignment of credits under the New Civil Code shall apply.
M. Assumption of Rights and Obligations
The SPV shall assume all rights and obligations of the FI over the transferred NPA
N. Tax Exemptions and Fee Privileges
The following transactions are exempt from the payment of taxes:
1. The transfer of NPL by the FI to an SPV;
2. The transfer of ROPOA by the FI to an SPV;
3. The dacion en page of the NPL by the borrower to the FI;
4. The dacion en pago of the NPL by a third party, on behalf of the borrower, to the FI;
5. The transfer of NPL by the FI to an individual;
6. The transfer of the ROPOA by the FI to an individual;
7. The transfer of the NPL by the SPV to a third party;
8. The transfer of the ROPOA by the SPV to a third party;
9. The dacion en pago of the NPL by a third party, on behalf of the borrower, to the SPV;
10. The dacion en pago of the NPL by the borrower to the SPV;
11. The transfer of the NPL by the individual to a third party; and, finally,
12. The transfer of the ROPOA by the individual to a third party.
The tax exemptions provided above shall be exempt from the payment of the following taxes:
1. Documentary stamp tax as may be imposed under Title VII of the NIRC;
2. Capital gains tax imposed on the transfer of lands and/or other assets treated as capital
assets as defined under Section 39(A)(1) of the NIRC;
3. Creditable withholding income taxes imposed on the transfer of land and or buildings
treated as ordinary assets pursuant to Revenue Regulation No. 2-98, as amended;
4. The value-added tax as may be imposed under Title IV of the NIRC, or gross receipts tax
under Title V of the same NIRC.
Penalties
1. Any person who violates any of the provisions of this Act, or any person who, in a
registration statement, notice, certification or plan filed under this Act, makes any
untruthful statement of a material fact or omits to state any material fact required to be
stated therein, shall, upon conviction, suffer a fine of not less than Fifty thousand
pesos (P50,000.00) nor more than One million pesos (P1,000,000.00) or
imprisonment of not less than six (6) years and one (1) day nor more than twelve
(12) years, or both, in the discretion of the court, without prejudice to the penalties
provided under Sec. 18 hereof and other applicable laws.
2. If the offender is a corporation, association, partnership or any juridical person, the
penalty shall be imposed upon the responsible officers, as the case may be, who
participated in the commission of the crime or who shall have knowingly permitted or failed
to prevent its commission.
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3. If the offender is a juridical person, the court may order the suspension or revocation of
license.
4. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be
deported without further proceedings after serving the penalties herein prescribed.
5. If the offender is a public official or employee, he shall, in addition to the penalties
prescribed herein, suffer absolute or temporary disqualification from government or
public office, as the case may be.

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