BANKING: Sept 9

Sept 9 Assignment

I. Authority of BSP

i. Chapter II, Sections 4-7, GBL

ii. Subsidiaries and affiliates of banks (See Section 25, RA No. 7653);

iii. Quasi-banks (See also Section 95, RA. No 7653; Elements of Quasi Banking;
Manual of Regulations for Banks Section X234, including Subsection X234.1-
234.3)

iv. Case: Baas v. Asia Pacific Corporation, GR 128703, October 18, 2000

II. Organization, Management and Administration of Banks, QB and Trust Entities

i. Chapter III, Sections 8-13, GBL

1. Organization, Issuance of Stocks; Treasury Shares (Sections 8-10, GBL)

2. Manual of Regulations for Banks, Section X104

3. Foreign Stockholdings (Sections 11-13, GBL)

4. Foreign Banks (Section 73, GBL)

5. Foreign Bank Liberalization Act (RA 7721, as amended by RA No. 10641)

ii. Case: GSIS Family Bank v. BPI Family Bank, G.R. No. 175278. September 23,
2015.

iii. Chapter III, Sections 15-17, GBL -Board of Directors

1. Qualifications-MORB Section X141; X141.1; X141.2 (skim through)

2. Disqualifications MORB Section X143.1 (Skim through)

 Authority of BSP
i. Chapter II, Sections 4-7, GBL
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
Sec. 4. Supervisory Powers. The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. Supervision shall include the following:
4.1. The issuance of rules of, conduct or the establishment standards of
operation for uniform application to all institutions or functions covered,
taking into consideration the distinctive character of the operations of
institutions and the substantive similarities of specific functions to which such
rules, modes or standards are to be applied;
4.2.The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the Monetary
Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from
the last date of examination to determine whether an institution is conducting
its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution; or
4.6. Enforcing prompt corrective action.
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions
which under special laws are subject to Bangko Sentral supervision.
For the purposes of this Act, quasi-banks shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with recourse
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653
(hereafter the New Central Bank Act) for purposes of re-lending or purchasing of
receivables and other obligations.
Sec.5. Policy Direction; Ratios, Ceilings and Limitations. The Bangko Sentral shall
provide policy direction in the areas of money, banking and credit.
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks and
quasi-banks which shall, to the extent feasible, conform to internationally accepted
standards, including of the Bank for International Settlements (BIS). The Monetary
Board may exempt particular categories of transactions from such ratios, ceilings, and
limitations, but not limited to exceptional cases or to enable a bank or quasi-bank
under rehabilitation or during a merger or consolidation to continue in business, with
safety to its creditors, depositors and the general public.
Sec. 6. 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 the Bangko Sentral: Provided, however, That an entity authorized by the Bangko
Sentral to perform universal or commercial banking functions shall likewise have the
authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-
banking functions without Bangko Sentral authority shall be decided by the Monetary
Board. To resolve such issue, the Monetary Board may; through the appropriate
supervising and examining department of the Bangko Sentral, examine, inspect or
investigate the books and records of such person or entity. Upon issuance of this
authority, such person or entity may commence to engage in banking operations or
quasi-banking function and shall continue to do so unless such authority is sooner
surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance
with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining
department are hereby authorized to administer oaths to any such person, employee,
officer, or director of any such entity and to compel the presentation or production of
such books, documents, papers or records that are reasonably necessary to ascertain
the facts relative to the true functions and operations of such person or entity. Failure
or refusal to comply with the required presentation or production of such books,
documents, papers or records within a reasonable time shall subject the persons
responsible therefore to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without
authority from the Bangko Sentral shall be subject to appropriate sanctions under the
New Central Bank Act and other applicable laws.
Sec.7. Examination by the Bangko Sentral. The Bangko Sentral shall, when
examining a bank, have the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank.
 ii. Subsidiaries and affiliates of banks (See Section 25, RA No. 7653)
Section 25. Supervision and Examination. The Bangko Sentral shall have supervision
over, and conduct periodic or special examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates engaged in allied activities.
iii. Quasi-banks (See also Section 95, RA. No 7653; Elements of Quasi Banking;
Manual of Regulations for Banks Section X234, including Subsection X234.1-234.3)
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" is
defined as an alternative form of obtaining funds from the public, other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the
borrower's own account, for the purpose of relending or purchasing of receivables and
other obligations. These instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The Monetary Board shall
determine what specific instruments shall be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided, however, That deposit substitutes of
commercial, industrial and other non-financial companies for the limited purpose of
financing their own needs or the needs of their agents or dealers shall not be covered
by the provisions of Section 94 of this Act.
X234.1 Elements of quasi-banking - The essential elements of quasi-banking are:
a. Borrowing funds for the borrowers own account;
b. Twenty (20) or more lenders at any one (1) time;
c. Methods of borrowing are issuance, endorsement, or acceptance of debt
instruments of any kind, other than deposits, such as acceptances, promissory notes,
participations, certificates of assignments or similar instruments with recourse, trust
certificates, repurchase agreements, and such other instruments as the Monetary
Board may determine; and
d. The purpose of which is
(1) relending, or
(2) purchasing receivables or other obligations.
X234.2 Definition of terms and phrases. The following terms and phrases shall be
understood as follows:
a. Borrowing shall refer to all forms of obtaining or raising funds through any of the
methods and for any of the purposes provided in Subsec. X234.1 whether the
borrowers liability thereby is treated as real or contingent.
b. For the borrowers own account shall refer to the assumption of liability in ones
own capacity and not in representation, or as an agent or trustee, of another.
c. Purchasing of receivables or other obligations shall refer to the acquisition of claims
collectible in money, including interbank borrowings or borrowings between financial
institutions, or of acquisition of securities, of any amount and maturity, from domestic
or foreign sources.
d. Relending shall refer to the extension of loans by an institution with antecedent
borrowing transactions. Relending shall be presumed, in the absence of express
stipulations, when the institution is regularly engaged in lending.
e. Regularly engaged in lending shall refer to the practice of extending loans, advances,
discounts or rediscounts as a matter of business, as distinguished from isolated lending
transactions.
X234.3 Transactions not considered quasi-banking. The following shall not
constitute quasi-banking:
a. Borrowing by commercial, industrial and other non-financial companies through any
of the means listed in Subsec. X234.1 hereof, for the limited purpose of financing their
own needs or the needs of their agents or dealers; and
b. The mere buying and selling without recourse of instruments mentioned in Subsec.
X234.1: Provided, That:
(1) The institution buying and selling without recourse shall indicate in
conspicuous print on its instrument the phrase without recourse, sans recourse or
words of similar import that will convey the absence of liability or guarantee by
said institution; and
(2) In the absence of the phrase without recourse, sans recourse or words of
similar import, the instrument so issued, endorsed or accepted, shall automatically
be considered as falling within the purview of these regulations: Provided, further,
 That any of the following practices or practices similar and/or tantamount thereto
in connection with a without recourse transaction is hereby prohibited:
(a) Issuance of postdated checks by a financial intermediary, whether for its
own account or as an agent of the debt instrument issuer, in payment of the
debt instrument, sold, assigned or transferred without recourse; or
(b) Issuance by a financial intermediary of any form of guaranty on sale
transactions or on negotiations or assignment of debt instruments without
recourse; and
(c) Payment with its own funds by a financial intermediary which assigned,
sold or transferred the debt instrument without recourse, unless the financial
intermediary can show that the issuer has with the said financial intermediary
funds corresponding to the amount of the obligation.
II. Organization, Management and Administration of Banks, QB and Trust Entities
i. Chapter III, Sections 8-13, GBL
1. Organization, Issuance of Stocks; Treasury Shares (Sections 8-10, GBL)
3. Foreign Stockholdings (Sections 11-13, GBL)
CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS
AND TRUST ENTITIES
Section 8. Organization. - The Monetary Board may authorize the organization of a
bank or quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall mean twenty (20) or
more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the effectivity
of this Act. In the exercise of the authority granted herein, the Monetary Board shall
take into consideration their capability in terms of their financial resources and
technical expertise and integrity. The bank licensing process shall incorporate an
assessment of the bank's ownership structure, directors and senior management, its
operating plan and internal controls as well as its projected financial condition and
capital base.
Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and
regulations on the types of stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance with laws and regulations
governing capital and equity structure of banks; Provided, That banks shall issue par
value stocks only.
Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own
capital stock or accept its own shares as a security for a loan, except when authorized
by the Monetary Board: Provided, That in every case the stock so purchased or
acquired shall, within six (6) months from the time of its purchase or acquisition, be
sold or disposed of at a public or private sale. (24a)
Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic bank.
This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa) The
percentage of foreign-owned voting stocks in a bank shall be determined by the
citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation.
(n)
Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or affinity,
legitimate or common-law, shall be considered family groups or related interests and
must be fully disclosed in all transactions by such corporations or related groups of
persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or more corporations owned or controlled
by the same family group or same group of persons shall be considered related
interests and must be fully disclosed in all transactions by such corporations or related
group of persons with the bank. (12-Ba)
2. Manual of Regulations for Banks, Section X104
Sec. X104 (2008 - X167) Business Name
a. UBs/KBs. Only a bank that is granted universal/commercial banking authority may
represent itself to the public as such in connection with its business name.
b. TBs. TBs may be allowed to adopt and use any name: Provided, That the words A
Thrift Bank, A Savings Bank, A Private Development Bank or A Stock Savings and Loan
Association, as the case may be, are affixed after its business name.
c. RBs/Coop Banks. RBs/Coop Banks may adopt a corporate name or use a business
name/style with the word Rural or Coop, as the case may be. Said banks may also adopt
a name without such words: Provided, That the identifying phrase, A Cooperative Bank
or A Rural Bank, as the case may be, is affixed after its business name: Provided,
further, That where the name of the bank is shown on letterheads, billboards and other
advertising materials, the size of the letters of such phrase shall be at least one-half
() the size of the business name. (As amended by CL Nos. 2008-053 dated 21 August
2008 and 2008-007 dated 21 January 2008)
X104.1 (2008-X607) Bank Advertisements. The following rules and regulations shall
govern bank advertisements. a. No bank shall publish, issue or distribute in any form,
any advertisement that shall degrade, deprecate or otherwise prejudice other banking
and financial institutions.
b. No bank shall publish, issue or distribute in any form of advertisement (in
newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any
other medium) or allow itself to be used/ mentioned in any form of advertisement
unless such advertisement is in pursuance of its business or investment.
c. No bank shall place or cause to be placed any advertisement tending to mislead a
depositor into believing that he will get more in benefits than what the bank is legally
authorized to give. No bank advertisement shall contain any false claim or exaggerated
representation as to its liquidity, solvency, resources, deposits and banking services.
d. No bank advertisement shall give the impression that the bank is engaged in a
business other than banking.
e. Banks shall inform their depositors and other clients by advertisement or publication
of the termination of benefits previously advertised or publicized.
f. Banks shall discontinue any advertisement whenever the same is deemed
unethical/unwarranted or violative of the provisions of these regulations. The client
banks and/or their advertising agencies shall incorporate in their contract/ agreement
for time and space with media the condition that such contract/agreement for time
and space can be cancelled/ terminated immediately whenever the client bank is
directed by the BSP to desist or discontinue the particular advertisement in question.
g. Responsibility for compliance with the above rules and regulations rests with the
bank officers or directors who caused the approval or placement of such
advertisement.
4. Foreign Banks (Section 73, GBL)
Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years
from the effectivity of this act and subject to guidelines issued pursuant to the Foreign
Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire
up to one hundred percent (100%) of the voting stock of only one (1) bank organized
under the laws of the Republic of the Philippines. Within the same period, the
Monetary Board may authorize any foreign bank, which prior to the effectivity of this
Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock
of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further
acquire voting shares such bank to the extent necessary for it to own one hundred
percent (100%) of the voting stock thereof. In the exercise of the authority, the
Monetary Board shall adopt measures as may be necessary to ensure that at all times
the control of seventy percent (70%) of the resources or assets of the entire banking
system is held by banks which are at least majority-owned by Filipinos. Any right,
privilege or incentive granted to a foreign bank under this Section shall be equally
enjoyed by and extended under the same conditions to banks organized under the laws
of the Republic of the Philippines. (Secs. 2 and 3, RA 7721
5. Foreign Bank Liberalization Act (RA 7721, as amended by RA No. 10641)
REPUBLIC ACT NO. 7721
AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS
IN THE PHILIPPINES AND FOR OTHER PURPOSES.
SECTION 1. Declaration of Policy. The State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos and encourage,
promote, and maintain a stable, competitive, efficient, and dynamic banking and
financial system that will stimulate economic growth, attract foreign investments,
provide a wider variety of financial services to Philippine enterprises, households and
individuals, strengthen linkages with global financial centers, enhance the country's
competitiveness in the international market and serve as a channel for the flow of
funds and investments into the economy to promote industrialization.
Pursuant to this policy, the Philippine banking and financial system is hereby liberalized
to create a more competitive environment and encourage greater foreign participation
through increase in ownership in domestic banks by foreign banks and the entry of
new foreign bank branches.
In allowing increased foreign participation in the financial system, it shall be the policy
of the State that the financial system shall remain effectively controlled by Filipinos.
SEC. 2. Modes of Entry. The Monetary Board may authorize foreign banks to operate
in the Philippine banking system through any one of the following" modes of entry: (i)
by acquiring, purchasing or owning up to one hundred percent (100%) of the voting
stock of an existing bank; (ii) by investing in up to one hundred percent (100%) of the
voting stockof a new banking subsidiary incorporated under the laws of the Philippines;
or (iii) by establishing branches with full banking authority.
SEC. 3. Guidelines for Approval. In approving entry applications of foreign banks, the
Monetary Board shall: (i) ensure geographic representation and complementation; (ii)
consider strategic trade and investment relationships between the Philippines and the
country of incorporation of the foreign bank; (iii) study the demonstrated capacity,
global reputation for financial innovations and stability in a competitive environment
of the applicant; (iv) see to it that reciprocity rights are enjoyed by Philippine banks in
the applicants country; and (v) consider willingness to fully share their technology.
"Only established, reputable and financially sound foreign banks shall be allowed entry
in accordance with Section 2 of this Act. The foreign bank applicant must be widely-
owned and publicly-listed in its country of origin, unless the foreign bank applicant is
owned and controlled by the government of its country of origin.
"In the exercise of this authority, the Monetary Board shall adopt such measures as
may be necessary to ensure that the control of at least sixty percent (60%) of the
resources or assets of the entire banking system is held by domestic banks which are
majority-owned by Filipinos.
SEC. 4. Capital Requirements. (i) For Locally Incorporated Subsidiaries The
minimum capital required for locally incorporated subsidiaries of foreign banks shall
be equal to that prescribed by the Monetary Board for domestic banks of the same
category.
"(ii) For Foreign Bank Branches Foreign banks that shall be authorized to establish
branches pursuant to Section 2(hi) of this Act shah permanently assign capital of an
amount not less than the minimum capital required for domestic banks of the same
category. The permanently assigned capital shall be inwardly remitted and converted
into Philippine currency.
"The foreign bank branch may open up to five (5) sub-branches as may be approved by
the Monetary Board. Locally incorporated subsidiaries of foreign banks pursuant to
Section 2(h) of this Act shall have the same branching privileges as domestic banks of
the same category.
Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall
guarantee prompt payment of all liabilities of its Philippine branches.
REPEALED Sec. 6. Entrants under Section 2(iii). Foreign banks shall be allowed entry
under Section 2 (iii) within five (5) years from the effectivity of this Act. During this
period, six (6) new foreign banks shall be allowed entry under Section 2(iii) upon the
approval of the Monetary Board. An additional four (4) foreign banks may be allowed
entry on recommendation of the Monetary Board, subject to compliance with Sections
2, 3, 4, and 5 of this Act, upon approval of the President as the national interest may
require.
Sec. 7. Board of Directors. Non-Filipino citizens may become members of the Board
of Directors of a bank to the extent of the foreign participation in the equity of said
bank.
SEC. 8. Equal Treatment. Foreign banks authorized to operate under Section 2 of this
Act, shall perform the same functions, enjoy the same privileges, and be subject to the
same limitations imposed upon a Philippine bank of the same category. The single
borrowers limit of a foreign bank branch shall be aligned with that of a domestic bank.
"The foreign banks shall guarantee the observance of the rights of their employees
under the Constitution.
"Any right, privilege or incentive granted to foreign banks or their subsidiaries or
affiliates under this Act, shall be equally enjoyed by and extended under the same
conditions to Philippine banks.
SEC. 9. Participation in Foreclosure Proceedings.Foreign banks which are authorized
to do banking business in the Philippines through any of the modes of entry under
Section 2 hereof shall be allowed to bid and take part in foreclosure sales of real
property mortgaged to them, as well as to avail of enforcement and other proceedings,
and accordingly take possession of the mortgaged property, for a period not exceeding
five (5) years from actual possession: Provided, That in no event shall title to the
property be transferred to such foreign bank. In case said bank is the winning bidder,
it shall, during the said five (5)-year period, transfer its rights to a qualified Philippine
national, without prejudice to a borrowers rights under applicable laws. Should the
bank fail to transfer such property within the five (5)-year period, it shall be penalized
one half (1/2) of one percent (1%) per annum of the price at which the property was
foreclosed until it is able to transfer the property to a qualified Philippine national.
Sec. 10. Transitory Provisions. Foreign banks which are already authorized to do
banking business in the Philippines through any of the modes of entry under Section 2
hereof may apply to change their original mode of entry.
Foreign banks operating through branches in the Philippines upon the effectivity of this
Act shall retain their original privilege upon entry to establish a limited number of sub-
branches. However, the previous restriction on the locations of such additional
branches is hereby lifted.
The existing Philippine branches of foreign banks shall comply within one (1) year from
the effectivity of this Act with the minimum capital requirements as prescribed under
Section 4(ii) of this Act, unless otherwise extended by the Monetary Board.
Sec. 11. Separability Clause. If any provision of this Act is declared unconstitutional,
the same shall not affect the validity of the other provisions not affected thereby.
SEC. 12. Applicability of Other Banking Laws. The provisions of Republic Act No. 7653,
otherwise known as the New Central Bank Act and the provisions of Republic Act No.
8791, otherwise known as The General Banking Law of 2000, insofar as they are
applicable and not in conflict with any provision of this Act, shall apply to banks
authorized pursuant to this Act.
SEC. 13. Rule-Making Powers of the Monetary Board of the Bangko Sentral ng Pilipinas
and Compliance Reports. The Monetary Board is hereby authorized to issue such
rules and regulations as may be needed to implement "the provisions of this Act. On
or before May 30 of each year, the Monetary Board shall file a written report to
Congress and its respective Banks Committees, on the developments in the
implementation of this Act. The implementing rules and regulations of this Act shall be
published in at least two (2) newspapers of general circulation.
Sec. 14. Amendment and Repeal of Inconsistent Laws. Sections 11, 12, 12-A, 12-B,
13, 14-A, 21-B, and 68 of Republic Act No. 337, as amended, otherwise known as the
General Banking Act: Sections 4 and 5 of Republic Act No. 7353, otherwise known as
the Rural Banks Act; Sections 4 and 14 of Republic Act No. 3779, as amended, otherwise
known as the Savings and Loan Association Act; and Section 4 of Republic Act No. 4093,
as amended, otherwise known as the Private Development Banks Act insofar as they
are inconsistent with this Act, are hereby repealed or modified accordingly.
Sec. 15. Effectivity Clause. This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) national newspapers of general
circulation.
Approved: May 18, 1994
iii. Chapter III, Sections 15-17, GBL -Board of Directors
Section 15. Board of Directors. - The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15)
members of the board or directors of a bank, two (2) of whom shall be independent
directors. An "independent director" shall mean a person other than an officer or
employee of the bank, its subsidiaries or affiliates or related interests. (n) Non-Filipino
citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721) The meetings of the
board of directors may be conducted through modern technologies such as, but not
limited to, teleconferencing and video-conferencing. (n)
Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
afford better protection to depositors and the public in general the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found
unfit. After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an
act which render him unfit for the position. In determining whether an individual is fit
and proper to hold the position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and competence. (9-Aa)
Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank merger
or consolidation, the number of directors shall not exceed twenty-one (21). (l3a)
1. Qualifications-MORB Section X141; X141.1; X141.2 (skim through)
Sec. X141 Definition and Qualifications of Directors; Responsibilities and Duties of
Board of Directors. For purposes of this Section, the following shall be the definition
and qualifications, responsibilities and duties of directors and board of directors,
respectively.
X141.1 Definition/limits
a. Definition of directors. Directors shall include:
 (1) directors who are named as such in the articles of incorporation;
shareholder of the bank or any of the said concerned entities.
(2) directors duly elected in subsequent meetings of the stockholders; and
The foregoing terms and phrases used in Items (1) to (6) of this Section shall have
(3) those elected to fill vacancies in the board of directors.
the following meaning:
b. Limits on the number of the members of the board of directors. Pursuant to Sections
15 and 17 of R.A. No. 8791, there shall be at least five (5), and a maximum of fifteen
(15) members of the board of directors of a bank at least two (2) of whom shall be
independent directors: Provided, That in case of a bank/QB/ trust entity merger or
consolidation, the number of directors may be increased up to twenty-one (21).
An independent director shall mean a person who
(1) Is not or has not been an officer or employee of the bank, its subsidiaries or
affiliates or related interests during the past three (3) 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 stockholder of the institution, any of its related companies, or
of its majority shareholders;
(4) Is not a relative within the fourth degree of consanguinity or affinity, legitimate
or common-law of any director, officer or majority shareholder of the bank or any
of its related companies;
(5) Is not acting as a nominee or representative of any director or substantial
shareholder of the bank, any of its related companies or any of its substantial
shareholders; and
(6) Is not retained as professional adviser, consultant, agent or counsel of the
institution, any of its related companies or any of its substantial shareholders,
either in his personal capacity or through his firm; is independent of management
and free from any business or other relationship, has not engaged and does not
engage in any transaction with the institution or with any of its related companies
or with any of its substantial shareholders, whether by himself or with other
persons or through a firm of which he is a partner or a company of which he is a
director or substantial shareholder, other than transactions which are conducted
at arms length and could not materially interfere with or influence the exercise of
his judgment.
An independent director of a bank can be elected as an independent director of its: (a)
parent or holding company; (b) subsidiary or affiliate; (c) substantial shareholder; or
(d) other related companies, or vice-versa: Provided, That he is not a substantial
(a) Parent is a corporation which has control over another corporation directly or
indirectly through one (1) or more intermediaries.
(b) Subsidiary means a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one (1) or more
intermediaries by a bank.
(c) Affiliate is a juridical person that directly or indirectly, through one (1) or more
intermediaries, is controlled by, or is under common control with the bank or its
affiliates.
(d) Related interests as defined under Sections 12 and 13 of R.A. No. 8791 shall
mean individuals related to each other within the fourth degree of consanguinity
or affinity, legitimate or common law, and two (2) or more corporations owned or
controlled by a single individual or by the same family group or the same group of
persons.
(e) Control exists when the parent owns directly or indirectly through subsidiaries
more than one-half of the voting power of an enterprise unless, in exceptional
circumstance, it can be clearly demonstrated that such ownership does not
constitute control. Control may also exist even when ownership is one-half or less
of the voting power of an enterprise when there is:
i. power over more than one-half of the voting rights by virtue of an
agreement with other stockholders; or
ii. power to govern the financial and operating policies of the enterprise under
a statute or an agreement; or
iii. power to appoint or remove the majority of the members of the board of
directors or equivalent governing body; or
iv. power to cast the majority votes at meetings of the board of directors or
equivalent governing body; or
v. any other arrangement similar to any of the above.
(f) Related company means another company which is: (a) its parent or holding
company; (b) its subsidiary or affiliate; or (c) a corporation where a bank or its
 majority stockholder own such number of shares that will allow/enable him to
elect at least one (1) member of the board of directors or a partnership where
such majority stockholder is a partner.
(g) Substantial or major shareholder shall mean a person, whether natural or
juridical, owning such number of shares that will allow him to elect at least one (1)
member of the board of directors of a bank or who is directly or indirectly the
registered or beneficial owner of more than ten percent (10%) of any class of its
equity security.
(h) Majority stockholder or majority shareholder means a person, whether natural
or juridical, owning more than fifty percent (50%) of the voting stock of a bank.
Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank: Provided, That pursuant
to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the
directors must be residents of the Philippines.
The meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and videoconferencing as
long as the director who is taking part in said meetings can actively participate in the
deliberations on matters taken up therein: Provided, That every member of the board
shall participate in at least fifty percent (50%) and shall physically attend at least
twenty-five percent (25%) of all board meetings every year: Provided, further, That in
the case of a director who is unable to physically attend or participate in board
meetings via teleconferencing or videoconferencing, the corporate secretary shall
execute a notarized certification attesting that said director was given the agenda
materials prior to the meeting and that his/ her comments/decisions thereon were
submitted for deliberation/discussion and were taken up in the actual board meeting,
and that the submission of said certification shall be considered compliance with the
required fifty percent (50%) minimum attendance in board meetings.
X141.2 Qualifications of a director
A director shall have the following minimum qualifications:
a. He shall be at least twenty-five (25) years of age at the time of his election or
appointment;
b. He shall be at least a college graduate or have at least five (5) years experience
in business;
c. He must have attended a special seminar on corporate governance for board of
directors conducted or accredited by the BSP: Provided, That incumbent directors
as well as those elected after 17 September 2001 must attend said seminar on or
before 30 June 2003 or within a period of six (6) months from date of election for
those elected after 30 June 2003, as the case may be; and
d. He must be fit and proper for the position of a director of the bank. In
determining whether a person is fit and proper for the position of a director, the
following matters must be considered: integrity/probity, competence, education,
diligence and experience/training.
The foregoing qualifications for directors shall be in addition to those required or
prescribed under R.A. No. 8791 and other existing applicable laws and regulations.
2. Disqualifications MORB Section X143.1 (Skim through)
X143.1 Persons disqualified to become directors. Without prejudice to specific
provisions of law prescribing disqualifications for directors, the following are
disqualified from becoming directors:
a. Permanently disqualified
Directors/officers/employees permanently disqualified by the Monetary Board from
holding a director position:
(1) Persons who have been convicted by final judgment of a court for offenses
involving dishonesty or breach of trust such as, but not limited to, estafa,
embezzlement, extortion, forgery, malversation, swindling, theft, robbery,
falsification, bribery, violation of B.P. Blg. 22, violation of Anti-Graft and Corrupt
Practices Act and prohibited acts and transactions under Section 7 of R.A. No. 6713
(Code of Conduct and Ethical Standards for Public Officials and Employees);
(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 (6) 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 who were found to be culpable
for such institutions closure as determined by the Monetary Board;
 (6) Directors and officers of banks 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; or
(7) Directors and officers of banks 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
of trust, and which finding of said government agency has become final and
executory.
b. Temporarily disqualified
Directors/officers/employees disqualified by the Monetary Board from holding a
director position for a specific/ indefinite period of time. Included are:
(1) Persons who refuse to fully disclose the extent of their business interest or any
material information to the appropriate department of the SES when required
pursuant to a provision of law or of a circular, memorandum, rule or regulation of
the BSP. This disqualification shall be in effect as long as the refusal persists;
(2) Directors who have been absent or who have not participated for whatever
reasons in more than fifty percent (50%) of all meetings, both regular and special,
of the board of directors during their incumbency, and directors who failed to
physically attend for whatever reasons in at least twenty-five percent (25%) of all
board meetings in any year, except that when a notarized certification executed
by the corporate secretary has been submitted attesting that said directors were
given the agenda materials prior to the meeting and that their comments/
decisions thereon were submitted for deliberation/discussion and were taken up
in the actual board meeting, said directors shall be considered present in the board
meeting. This disqualification applies only for purposes of the immediately
succeeding election;
(3) Persons who are delinquent in the payment of their obligations as defined
hereunder:
(a) Delinquency in the payment of obligations means that an obligation of a
person with a bank where he/she is a director or officer, or at least two (2)
obligations with other banks/FIs, under different credit lines or loan contracts,
are past due pursuant to Sec. X306;
(b) Obligations shall include all borrowings from a bank obtained by:
(i) A director or officer for his own account or as the representative or
agent of others or where he/she acts as a guarantor, endorser or surety
for loans from such FIs;
(ii) The spouse or child under the parental authority of the director or
officer;
(iii) Any person whose borrowings or loan proceeds were credited to the
account of, or used for the benefit of a director or officer;
(iv) A partnership of which a director or officer, or his/her spouse is the
managing partner or a general partner owning a controlling interest in
the partnership; and
(v) A corporation, association or firm wholly-owned or majority of the
capital of which is owned by any or a group of persons mentioned in the
foregoing Items (i), (ii) and (iv);
This disqualification shall be in effect as long as the delinquency persists.
(4) Persons who have been convicted by a court for offenses involving dishonesty
or breach of trust such as, but not limited to, estafa, embezzlement, extortion,
forgery, malversation, swindling, theft, robbery, falsification, bribery, violation of
B.P. Blg. 22, violation of Anti-Graft and Corrupt Practices Act and prohibited acts
and transactions under Section 7 of R.A. No. 6713, violation of banking laws, rules
and regulations or those sentenced to serve a maximum term of imprisonment of
more than six (6) years but whose conviction has not yet become final and
executory;
(5) Directors and officers of closed banks pending their clearance by the Monetary
Board;
(6) Directors disqualified for failure to observe/discharge their duties and
responsibilities prescribed under existing regulations. This disqualification applies
until the lapse of the specific period of disqualification or upon approval by the
Monetary Board on recommendation by the appropriate department of the SES
of such directors election/reelection;
(7) Directors who failed to attend the special seminar for board of directors
required under Item c of Subsec. X141.2. This disqualification applies until the
director concerned had attended such seminar;
(8) Persons dismissed/terminated from employment for cause. This
disqualification shall be in effect until they have cleared themselves of
involvement in the alleged irregularity or upon clearance, on their request, from
the Monetary Board after showing good and justifiable reasons, or after the lapse
of five (5) years from the time they were officially advised by the appropriate
department of the SES of their disqualification;

(9) Those under preventive suspension;

(10) Persons with derogatory records as certified by, or on the official files of, the
judiciary, NBI, Philippine National Police (PNP), quasi-judicial bodies, other
government agencies, international police, monetary authorities and similar
agencies or authorities of foreign countries for irregularities or violations of any
law, rules and regulations that would adversely affect the integrity of the
director/officer or the ability to effectively discharge his duties. This
disqualification applies until they have cleared themselves of the alleged
irregularities/violations or after a lapse of five (5) years from the time the
complaint, which was the basis of the derogatory record, was initiated;

(11) Directors and officers of banks 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 is pending appeal before the appellate court, unless execution or
enforcement thereof is restrained by the court;

(12) Directors and officers of banks or any person found by the Monetary Board to
be unfit for the position of director or officer 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
of trust, and which finding of said government agency is pending appeal before
the appellate court, unless execution or enforcement thereof is restrained by the
court; and

(13) Directors and officers of banks found by the Monetary Board as

administratively liable for violation of banking laws, rules and regulations where a
penalty of suspension from office or fine is imposed, regardless whether the
finding of the Monetary Board is final and executory or pending appeal before the
appellate court, unless execution or enforcement thereof is restrained by the
court. The disqualification shall be in effect during the period of suspension or so
long as the fine is not fully paid. (As amended by Circular Nos.584 dated 28
September 2007 and 513 dated 10 February 2006)