banking laws reviewer-partyduh notes

Balamban, Loyola, Machado, Menguito, Paniagua, Vibandor, Villareal

1 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.



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.

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

Bank’s 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



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 latter’s 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.

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 bank’s 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.



- 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.

- 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.

- 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

A. Authority from Bangko Sentral ng Pilipinas

- 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.



B. Determination by the Monetary Board

- The Monetary Board shall decide the determination of whether a person or entity is performing banking or quasi-banking functions.

a. To resolve such issue through inspection, investigation and examination.

b. Upon issuance of this authority banking operations shall continue to do so unless such authority is revoked, suspended or annulled by BSP.

c. Existence of a victim is not necessary to determine whether an entity is in illegal banking.

C. Authority of Supervising and Examining Department

- Department head and examiners are authorized to: a. To administer oaths to any person such as officer or director. b. To compel the presentation or production of books, documents, papers

or records that are reasonably necessary to ascertain the facts relative to the true functions and operation of entity.

c. Failure or refusal to comply with the required presentation within reasonable time shall subject the person responsible for penal sanctions 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,

managing partner, general manager, corporate secretary, treasurer or in-house counsel.

- Sec 12, Rule 14 of Rules of Court: Service upon a private juridical entity. When the defendant is a foreign private juridical entity, service may be on its resident agent designated in accordance with law.

B. Strict Compliance is Necessary

- Basic is the rule that a strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation.

- The officer upon who services is made must be one who is named in the statute otherwise service is insufficient.

- The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in action against it.

- Serving of summons on a branch manager is invalid, as stated in the case of BPI vs. Spouses Santiago, the service of summons on BPI’s Branch Manager did not bind the corporation for the branch manager is not included in the enumeration of the statute of the persons whom service of summons can be validly be made in behalf of corporation. Such service is void.



CHAPTER 2 Organization, Management and Administration of Banks, Quasi-Banks and Trust Entities

I. Organization of Banks

A. Conditions

The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions: (SPC)

1. That the entity is a stock corporation.

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 bank’s 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

TYPE OF BANK

AMOUNTS

(In Million Pesos)

Universal Banks 4950.0

Commercial Banks 2400.0

Thrift banks

- With head office within

Metro Manila 325.0

- With head office outside

Metro Manila 52.0

Rural Banks

- within Metro Manila 26.0

- cities of Cebu and Davao 13.0

- In 1st, 2nd & 3rd class cities and

first class municipalities 6.5

- in 4th, 5th & 6th class cities and in

2nd, 3rd & 4th class



municipalities 3.9

- in 5th & 6th class municipalities 2.6

2. At least 25% of the total authorized capital stock shall be subscribed by the subscribers

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 stated above. (25% subscribed and 25% of the subscribed shall be paid and shall not be less than the minimum)

D. Incorporators/Subscribers/Proposed Directors (I/S/PD)

I, S & PD - Must be Persons of integrity and of good credit standing in the business community.

S - Must have adequate financial strength to pay for their proposed subscriptions in the bank.

I, S & PD – must not have been convicted of any crime involving moral turpitude

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 loans to banks.

*** A bank may be organized with not less than five (5) nor more thank (15) incorporators. In excess of 15 may be listed among the original subscribers in the Articled of Incorporation.

E. Bank Branches

1. Universal or Commercial banks may open branches or other offices within or outside the Philippines prior approval of the Bangko Sentral.

2. Branching by all other banks shall be governed by pertinent laws.

*** A bank may use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or of its investment house units. *** A bank shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though business had all been conducted in the head office. *** A bank and its branches shall be treated as one unit.

II. Stockholdings

A. Treasury Stocks

The GBL provides that no bank shall:

Purchase or acquire shares of its own capital stock

Accept its own shares as security for a loan Exception:

When authorized by the Monetary Board. (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 private sale.)

B. Foreign Stockholdings

Section 11, GBL

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.

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.

“controlling stockholders” – individuals holding more that 50% of the voting stock of the corporate stockholders of the bank.

Commercial bank – at least 60% of voting stock shall be owned by Filipino citizens.

Any thrift bank – at least 40% of voting stock shall be owned by Filipino citizens.

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 own and hold such capital stock.

*** Control test is applied in determining the nationality of banks.

C. Acquisition of Voting Stock in a Domestic Bank

Section 73, GBL

D. Family Groups or Related Interests

Is formed when:

Stockholdings of individuals related to each other within 4th degree or consanguinity

or affinity, legitimate or common-law; or

Two or more corporations owned and controlled by the same family or same group of persons. *** such situations must be fully disclosed in all transactions by such corporations or related groups of persons with bank.

III. Board of Directors



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 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 institution’s 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.

IV. Fit and Proper Rule

A. 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



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

executed by the corporate secretary has been submitted attesting the said directors were 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 be 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. ** one past due obligation to the bank where he/she is a director or office; at least two obligation with other banks or financial institution) *** 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 office, a partnership where a director or his spouse is the managing or general partner, a corporation, association or firms wholly owned or majority of the capital stocks are owned by the director or his spouse.

4. Persons who have been convicted by a court for offenses involving dishonesty or breach of trust.

5. Directors and officers of closed banks/quasi-banks/trust entities pending their clearance by the Monetary Board

6. Directors disqualified for failure to observe their duties and responsibilities prescribed under existing regulations.

7. Directors who failed to attend the special seminar for board of directors. This disqualification applies until the director concerned has attended such seminar;

8. Persons dismissed from employment for cause, until they have cleared themselves of involvement in the alleged irregularity.

9. Those under preventive suspension 10. Persons with derogatory records as certified by the judiciary, NBI, PNP, etc. for

irregularities that would adversely affect the integrity of director/officer, until they have cleared themselves or after the lapse of five years from the time of the complaint.

11. 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 is 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 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 is pending appeal before the appellate court, unless execution is restrained by court.

13. 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 suspension from office or fine is imposed, regardless whether the finding of the monetary board final and executory or pending appeal before the appellate court, unless execution is restrained by court. The disqualification is in effect during the period of suspension or so long as the fine is not fully paid.

C. Disqualifications/Prohibitions under the Corporation Code

Sec. 27, Corporation Code

D. Disqualifications/Prohibitions under the NCBA

Disqualification Sec. 9, NCBA Prohibitions Sec. 27, NCBA

E. Disqualification/Prohibition under the PDIC Law

Sec. 17 PDIC Law F. Disqualification/Prohibition under RA 7353

Sec. 5, RA 7353

G. Disqualification/Prohibition under Appendix 38, Manual of Regulations for Banks

H. Prohibitions on Public Officials

Sec 19, GBL

V. Banking Days and Hours

A. Number of Days and Hours

The GBL provides for the following guidelines: 1. Banks shall transact business on all working days for at least six hours a day. Banks may

open for business on Saturdays, Sundays, or holidays for at least three hours a day. 2. Banks which opt to open on days other than working days shall report to the Bangko

Sentral the additional days during which they or their branches or offices shall transact business.

3. Working days mean Mondays to Fridays, except if such days are holidays.

B. Rules and Regulations

1. All banks shall observe for the conduct of their business a regular banking week five days

(Mondays – Fridays), except when such days are holidays. a. For servicing deposits and withdrawals, banks may remain open beyond the minimum

six hours, even before 8:00am or after 8:00pm. b. For purposes other than servicing deposits and withdrawals, banks may open beyond

the minimum six hours but in no case shall such banking hours start earlier than 8:00am nor extend beyond 8:00 pm.

c. Branches of banks at any international airport or major fish port are allowed on flexible baking hours within a twenty-four hour period which shall in no case be less than six hours per day.

d. The banking days and hours selected for each of the offices of banks shall be reported in writing to the appropriate supervising and examining department of the



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 banker’s 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 bank’s closure and the reason thereof shall be posted

conspicuously in the bank’s 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:

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 bank’s, quasi-bank’s or trust entity’s 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



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 management’s 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.



CHAPTER 3 Deposit Function of Banks

Kinds of Deposits

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 presentation of (depositor’s) checks.

Universal and Commercial banks may create or accept demand deposits subject to withdrawal by check WITHOUT prior authority from BSP.

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 latter’s 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 the following day before clearing. The items to be used as cover for honored checks should only consist of any of the following:

Cash

Cashier’s, Manager’s or Certified Checks

Bank Drafts

Postal Money Orders

Treasury Warrants

Duly funded “On us” checks

Fund transfers or credit memos within the same bank representing proceeds of loans granted under existing regulations

NOTE:

Peso demand deposit accounts maintained by foreign correspondent banks with commercial banks shall NOT be subject to the above-mentioned regulations PROVIDED:



The maintenance of non-resident correspondent bank’s 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 manager’s/cashier’s/treasurer’s 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 bank’s 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 drawer’s funds.

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.

Cashier’s Check – is really the bank’s 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 Señeris – 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 depositor’s 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 “Payee’s 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:



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

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)



Elements:

1. Borrowing funds for the borrower’s 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

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.



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.

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 3½ 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.

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.

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 depositor’s 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.

III. Survivorship Agreement

- 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

IV. Nature of Bank Deposits

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 depository’s 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)



- 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

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 bank’s 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



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

- 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



(2) any taxpayer who has filed an application for compromise of his tax liability under Sec. 204(A)(2) of this Code by reason of financial incapacity to pay his tax liability.

K. Waiver by DOSRI “Section 26 (NCBA). Bank Deposits and Investments. – Any director, officer or stockholder who, together with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or (2) from a bank: (a) which is a subsidiary of a bank holding company of which both his bank and the lending bank are subsidiaries; or (b) in which a controlling proportion of the shares is owned by the same interest that owns a controlling proportion of the shares of his bank, in excess of 5% of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the Philippines.”

Chapter 4 Investments, Loans and Other Functions of Banks

I. Operations of Universal Banks

A. Powers of a Universal Banks i. Powers authorized for a commercial bank ii. Powers of an investment house iii. Power to invest in a non-allied enterprise

B. Equity Investments of a Universal Bank

i. May invest in the equities of allied and non-allied enterprise as may be determined by the monetary board

May either by financial or non-financial a. Total investment in equities of allied and non-allied

enterprise – should not exceed 50% of the net worth of the bank

b. Equity investment – should not exceed 25% of net worth c. Net worth- totatl of unimpaired paid-in capital as may be

required by BSP

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

allied enterprise

ii. Publicly-listed universal or commercial bank- 100% of voting stock of only one other universal or commercial bank

Financial Allied Undertakings a. Leasing companies- bank investment of shares shall be

limited only in cases of conversion of outstanding loan obligations into equity

b. Banks c. Investing houses d. Financing companies e. Credit Card companies f. Financial institutions catering to small and medium scale

industries g. Companies engaged in stock brokerage/securities

dealership h. Companies engaged in foreign exchange

dealership/brokerage i. In addition:

i. Insurance companies j. Holding companies - investment of shares shall be limited

only in cases of conversion of outstanding loan obligations into equity

D. Equity Investments of a universal Bank in Non-allied Enterprises – up to 100%

i. Examples of Non Finacial Allied undertakings

Warehousing companies

Storage companies

Safe deposit box companies

Companies engaged in management of mutual funds but not in the mutual funds themselves

Corporations engaged in any activity similar to management of mutual funds

Companies engaged in providing computer services

Insurance Agencies/brokerages

Companies engaged in home building and development

Companies providing drying and/or milling facilities for agricultural crops

Service bureaus for outsourcing services

Those declared by the Monetary Board

E. Equity Investments of a Universal Bank in Non-Allied enterprise – shall not exceed 35% of total equity and voting stock

F. Investments in Non-Allied or Non-Related Undertakings – only Universal banks may

invest



i. Examples of non-Allied undertakings

Enterprise engaged in physically productive activities in a. Agriculture b. Mining and quarrying c. Manufacturing d. Public utilities e. Construction f. Wholesale trade g. Community and Social services

ii. Industrial park/real estate projects iii. Financial and commercial complex projects in connection with the

Government’s privtization program iv. Others declared by Monetary Board

G. Equity Investments in Quasi-Banks – to promote competitive conditions in financial

markets, may own up to 40 % equity investments, also applicable in the case of commercial banks

II. Operations of Commercial Banks

A. Powers of Commercial Banks

i. General powers incident to corporaton ii. Powers necessary to carry out commercial banking

Accepting drafts and issuing LOC

Negotiating promissory notes, bills of exchange and other evidences of debt

Accepting or creating demand deposits

Receiving other types of deposits and deposit substitutes

Buying and selling foreign exchange, gold and silver bullion; acquiring marketable bonds and other debt securities

Extending credit

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.

ii. Characteristics – what sets it apart from other accessory contracts is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it.

“Independence Principle” – assures the seller of prompt payment, independent of any breach of the main sales contract.

iii. Intertwined Relationships – 3 distinct but intertwined relationships

1st contract relationship – links the party applying for LOC and the

party for whose benefit LOC is issued

2nd

contract relationship – between the accounting party and the issuing bank. Accounting party applies for LOC and agrees to reimburse the bank for amounts paid by that bank.

3rd

contract relationship – between the issuing bank and beneficiary. Pay certain monies to the beneficiary to support the contract.

iv. Parties – 3 parties, may be increased in most cases of international trade.

Buyer – procures LOC and obliges himself to reimburse the issuing back upon receiptof documents of title

Bank – issuing LOC and undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement

Seller – in compliance with the contract of sale ships the goods to the buyers and delivers the documents of title and draft to the issuing bank to recover payment

C. Equity Investments of a Commercial Bank – may invest only in the equities of allied

enterprise (financial or non-financial) as may be determined by the Monetary Board i. Total investment in equities – shall not exceed 35% of the net worth ii. Equity investment in any one enterprise – shall not 25% net worth

D. Equity Investments of a Commercial Bank in Financial Allied Enterprises

i. May own up to 100% equity ONLY of thrift bank or rural bank ii. Other financial allied enterprises – minority holding

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

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



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

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 –



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

His spouse/ relative within 1st 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

i. Spouse/Relative within 1st 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

Spouse/Relative within 1st 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 or by persons related to each other within 1

st 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

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

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 the Secretary of Socio-Economic Planning

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



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

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 bank’s 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



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

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



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. Gov’t, 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 Gov’t, 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

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



1. Special Kind of Deposit; cannot be a contract of lease bec full and absolute possession and control of 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 renter’s key. If renter duplicated the key for joint access, bank is NOT liable to either of the joint renters in case of loss attributable to either of them. 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 the fraud and negligence of the bank, the bank is NOT liable. 2. Bailor and Bailee; The relation between a bank and its SDB customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. 3. Duties May Be Defined By The Parties The parties may, by special contract, define their respective duties or provide for increasing or limiting the liability of the deposit company, provided that it is not violative of law or public policy. It must clearly appear that there actually was a special contract, in order to differentiate from implied ordinary obligations. Doubtful words will not enlarge or restrict the liability of the company. Company cannot also exempt itself from liability for loss of the contents by its own fraud or negligence, and if a provision of the contract says so, such provision will be held ineffective for the purpose. If a collection of stamps were in an SDB at the lowest row, and floodwater entered the bank’s premises thus damaging the stamps, THE BANK IS GUILTY OF NEGLIGENCE, and must compensate the renter. Bank was aware of the floods and it also knew that floodwaters inundate the room where said SDB is located. It should have notified the SDB renter, opened and retrieved the stamps so as to save 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

security policy and administration XIII. Outsourcing Of Other Functions

Subject to prior approval of the MB, banks may outsource data imaging, storage, retrieval and other related systems, clearing and processing of checks, printing of bank deposit statements, other activities det by the MB. Banks may outsource:

credit card services

printing of bank loan statements and other non-deposit records, bank forms, and promotional materials

credit investigation and collection

processing of export, import and other trading transactions

transfer agent services for debt and equity securities

property appraisal

property mgmt services

messenger, courier and postal services

security guard services

vehicle service contracts

janitorial services

public relations services

procurement services

temporary staffing

legal services from local legal counsel

Provided, that they do not include servicing/handling bank deposits or other inherent banking

functions.



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

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:



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 bank’s 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.

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



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

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



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

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



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.



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.

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 bank’s 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.



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.

- 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.



- Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship.

Limitations:

- Evidence of indebtedness of the RP and of the BSO and any other evidence of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the RP.

- Loans fully guaranteed by the RP as to the payment of principal and interest. - Loans fully secured by a holdout on, assignment or pledge of deposits maintained

either with the bank proper or other banks. - Loans fully secured by real estate or chattels in accordance with pertinent laws. Required Specific Derivatives:

- Transaction to be entered in to - Borrower’s name - Amount Involved - Collateral security/ies

C. Real Estate Acquired by a Trust Entity

- Unless otherwise specifically directed by the trustor or the nature of the trust, real estate acquired by a trust entity in whatever manner and for whatever purpose shall likewise be governed by the relevant provisions of the GBL.

- The following circumstances may acquire, hold or convey real property: o Mortgaged to in good faith by way of security for debts o Conveyed to it in satisfaction of debts previously contracted on the course of

its dealings. o Shall purchase under judgments, decrees, mortgages or trust deeds held by

it and such as it shall purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated above 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.

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.

E. Sanctions and Penalties

- A trust entity or any of its officers and directors found to have willfully violated any pertinent provisions of the GBL shall be subject to sanctions and penalties.

F. Exemption of Trust Assets from Claims

- No assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts

- Property held by the insolvent debtor as a trustee of an express or implied trust shall be excluded from the insolvency proceedings.

G. Establishment of Branches of a Trust Entity

- Ordinary business of a trust entity shall be transacted at the place of business specified in its articles of incorporation.

H. Advertisement of Services

- Trust entities shall advertise their services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation to the responsibilities involved.

I. Money Government

- Banks may receive or hold as trustee, agent, administrator, financial manager or other similar capacity, any fund or money from the government and government entities, provided, that government-owned banks may received or hold as trustee the following:

o Funds of local government units which are expected to be available for investment purposes for a relatively long period of time, provided, that the amounts held in trust or otherwise managed/advised for and in behalf of LGU shall be invested only in government.

o Funds of government and government entities which are authorized by special laws to be placed in trust.

Chapter 7 BSP

I. Creation, Responsibilities and Corporate Powers of the BSP a. Declared Policy of the State



The central bank while being a government owned corporation, shall enjoy fiscal and administrative autonomy.

b. Responsibility and primary objective of the BSP

The responsibility of BSP is to provide policy directions in the area of banking, money and credit.

It shall have supervision over the operation of banks.

It has regulatory powers over the operations of banks, finance companies, quasi-banks.

To maintain price stability conducive to a balanced and sustainable growth of the economy.

To promote and maintain monetary stability and convertibility of peso. c. Corporate powers of the BSP (SCP-SPAL)

1. Adopt, alter and use a corporate seal which shall be judicially noticed; 2. Enter into contracts; 3. Lease or own personal and real property; 4. Sue and be sued; 5. Do and perform all things that may be necessary or proper to carry out the

purposes of the NCBA; 6. Acquire and hold assets and liabilities; 7. Compromise, condone, or release, in whole or in part, any claim of or settled

liability to the BSP. II. Authority of the BSP; Supervisory Powers

1. The operation so banks shall be subject to the supervision of the BSP, which includes:

a. The issuance of rules and conduct or the establishment of standards of operation for uniform application to all institutions or functions covered;

b. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant;

c. Overseeing to ascertain that laws and regulations are complied with; d. Regular investigation which shall not be oftener than once a year from the date of

last examination; e. Inquiring into the solvency and liquidity of the institution; f. Enforcing prompt corrective action.

2. It shall also exercise regulatory powers and supervision over: quasi banks, trust entities and financial institutions.

III. Monetary Board

A. Composition The monetary board is composed of 7 members appointed by the President for a term of 6 years.

B. Qualifications of the members of the Monetary Board: a. Natural born citizens of the Philippines; b. At least 35 years of age, with the exception of governor who shall be 40; c. Good moral character; d. Unquestionable integrity; e. Known probity and patriotism;

f. Recognized competence in social and economic discipline. C. Disqualifications of the members:

a. Disqualifications imposed by “A code of conduct and ethical standards for public officials or employees”

b. Being a director, officer, employee, consultant, lawyer, agent or stockholder of any bank, quasi bank, or any other institution which is subject to supervision or examination by the BSP;

c. Members coming from the private sector shall not hold any other public office or employment;

d. Person is connected directly with any multilateral banking or financial institution;

e. Has a substantial interest in any private bank, within 1 year prior to his appointment;

f. No member of the MB shall be employed in any such institution within 2 years after the expiration of his term except when he serves as an official representative of the government.

D. Grounds for removal of monetary board: a. If he is physically or mentally incapacitated that he cannot properly

discharge his duties and responsibilities and such incapacity has lasted for more than 6 months;

b. Member is guilty of acts of fraudulent or illegal character; c. If member no longer possess the qualifications enumerated in B.

E. Meetings, quorums, decisions and proceedings of the MB: a. MB shall meet at least once a week. b. Presence of 4 members shall constitute a quorum. In all cases governor or

his designated alternate shall constitute the 4. c. Unless otherwise provided, all decisions of the MB shall require the

concurrence of at least 4 members.

Note: Exception to E, par. C. 1. Sec. 61 GBL, Publication of financial statements. In periods of

national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, MB may by a vote of 5 of its members, may allow such bank xxx, to defer for a stated period of time the publication xxx.

2. Sec. 28, NCBA, Examinations and fees. Examination shall be conducted every year, and at such other times as the MB by an affirmative vote of 5 of its members, may deem expedient and to make a report on the same to the MB.

3. Sec. 72 NCBA, Emergency Restrictions on Exchange operations. Xxx The MB with the concurrence of at least 5 of its members and with the approval of the president, may temporarily suspend or restrict sales of exchange by the BSP, and may subject all transactions in gold and foreign exchange to be delivered to the BSP.



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

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



a. BS shall have the sole power and authority to issue currency within the territory of the Philippines.

b. MB may issue regulations as it may deem advisable in order to prevent the circulation of foreign currency or of currency substitutes.

c. The BS shall have the authority to investigate, make arrests, conduct searches and seizures for the purpose of maintaining the integrity of the currency.

B. Liabilities for notes and coins a. Notes and coins issued by the BS shall be liabilities of the BS and may be issued

only against, and in amounts not exceeding the assets of the bankgo sentral. b. The bangko sentral’s holding of its own notes and coins shall not be considered

as part of its currency issue and shall not form part of the assets and liabilities of the BS.

C. Legal tender power. All notes and coins issued by the BS shall be fully guaranteed by the government and shall be legal tender in the Philippines for all debts, both public and private.

D. Replacement of currency unfit for circulation. The BS shall withdraw from circulation and shall demonetize all notes and coins which for any reason are unfit for circulation and shall replace them by adequate notes and coins.

E. Retirement of old notes and coins. a. BS shall replace notes which are more than 5 years old and coins which are

more than 10 years old. b. Notes and coins which are called for replacement shall remain legal tender within

one year from the date of call. III. Domestic Monetary Stabilization

A. Action when abnormal movements occur in the monetary aggregates, credit or price level a. MB shall take such remedial measures and submit to the president and the

congress and make public a detailed report of the xxx. b. Whenever:

i. The monetary aggregates, or the level of the credit, increases or decreases by more than 15 percent.

ii. The cost of living index increases by more than 10 percent, in relation to the level existing at the end of the corresponding month of the preceding year.

iii. Even though the circumstances have not been reached when in its judgment the circumstances so warrant.

IV. International Monetary Stabilization

A. To preserve the international value of the peso and to maintain its convertibility into other freely convertible currencies. BS shall maintain international reserves adequate to meet any foreseeable demands on the BS for foreign currencies.

B. The board shall give special attention to the volume and maturity of the BS owns liabilities in foreign currencies, to the volume and maturity of the foreign exchange assets and liabilities of other banks operating in the country.

C. Action when the international stability of the peso is threatened: a. Whenever:

i. The international reserves of the BS falls to a level which the MB considers inadequate to meet prospective net demands on the BS for foreign currencies.

ii. The international reserve appears to be in danger of falling to such a level

iii. The international reserve is falling as a result of payment or remittances abroad, which in the opinion of the MB is contrary to national welfare.

The monetary board shall:

Take such remedial measures as are appropriate

Submit to the president and congress reports regarding the nature and cause of the decline, remedial measure already taken, remedies proposed and the character and cooperation required from other government agencies

V. Operations in gold and foreign exchange

A. Purchases and sales of gold a. BS may buy and sell gold in any form b. Purchases and sale of gold shall be made in the national currency

B. Purchases and sales of foreign exchange a. BS may buy and sell foreign notes and coins, customarily employed for the

international transfer of funds. b. BS may buy and sell foreign exchange transactions with the following entities

only: i. Banks operating in the Philippines ii. Government iii. Foreign or international financial institutions iv. Foreign government v. Other entities or persons which the MB authorized as foreign exchange

dealers C. BS shall at all times maintain a net positive foreign asset position so that its gross foreign

exchange assets always exceed its gross foreign liabilities. VI. Regulation of foreign exchange operations of the banks

A. Information on exchange operations a. Banks shall report to the BS the volume and composition of their purchases of

gold and foreign exchange each day. VII. Loans to bank and other financial institutions

A. Authorized type of credit operations a. Commercial credits – BS may buy, sell, rediscount, discount xxx with maturities

of not more than 180 days from the date of their purchase, discount, rediscount by the BS.

b. Production credits – same; having maturities of not more than 360 days from the date of the same.

c. Other credits d. Advances - BS may grant advances against the following kinds of collateral:

i. Gold coins or bullion;



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. C. First Tranche. The amount of the 1

st 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.

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 BS’s 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 borrower’s 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,



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 gov’t.

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.

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



2. Copy of sworn statement shall be posted in a conspicuous place in said

establishments 3. BLT shall immediately before filing statement, communicate with person with

unclaimed balance. 4. Sol-Gen shall commence action in behalf of People of the Philippines in the RTC

where BLT is located. 5. Summons shall be made to president, cashier or managing officer of defendant

BLT 6. Clerk of Court shall also issue a notice 7. Notice shall be published 8. Any interested person may become a party 9. Hearing

a. Unclaimed – court shall render judgment in favor of government 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 fraction upon continuance of default. Immunity from suit 1. BLT which shall make any deposit of unclaimed balances with the Treasurer of the

Philippines. 2. Defended by the Sol-Gen without cost Service and Maintenance Fees on Dormant Accounts 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 conditions of the deposit. Reclassification

All unclaimed balances reported to the Treasurer of the Philippines must first be reclassified or transferred from the deposit/liability to the liability account due to the Treasurer of the Philippines before being turned over. Unclaimed deposit liabilities shall no longer be covered by reserves required of deposit liabilities. Escheats Under the Rules of Court

1. When a person dies intestate with no heir, Sol-Gen in behalf of Philippines may

file with RTC of province of residence praying that estate of deceased by declared escheated.

2. Order for hearing shall not be more than 6 months after entry of order, copy of order be published in news paper of General circulation for 6 successive weeks.

3. Hearing – the person died intestate, seized real or personal property in the Philippines leaving no heir and no cause to show contrary, court shall adjudge the estate of deceased after paying debts and charges shall escheat.

4. Claim to estate – People entitled to such estate claims within 5 years from the date of the judgment

The State as an Heir of a Decedent The State shall inherit the decedent’s estate in default of persons entitled to succeed: Article 1011

In default of persons entitled to succeed the State shall inherit the whole estate Article 1012

In order that the state may take possession of the property mentioned, the pertinent provisions of the Rules of Court must be observed.

Art. 1013.

After the payment of debts and charges, the personal property shall be assigned to the municipality or city where the deceased last resided in the Philippines, and the real estate to the municipalities or cities, respectively, in which the same is situated.

If the deceased never resided in the Philippines, the whole estate shall be assigned to the respective municipalities or cities where the same is located.

Such estate shall be for the benefit of public schools, and public charitable institutions and centers, in such municipalities or cities. The court shall distribute the estate as the respective needs of each beneficiary may warrant.

The court, at the instance of an interested party, or on its own motion, may order the establishment of a permanent trust, so that only the income from the property shall be used. (956a)

Art. 1014.

If a person legally entitled to the estate of the deceased appears and files a claim thereto with the court within five years from the date the property was delivered to the State, such person shall be entitled to the possession of the same, or if sold the municipality or city shall be accountable to him for such part of the proceeds as may not have been lawfully spent.



Trust Receipts Policy

1. To encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade

2. Provide for regulation of trust receipts transactions in order to assure the protection of the rights and enforcement of obligations of the parties involved therein

3. Declare the misuse of goods or proceeds realized from the sale as a criminal offence ESTAFA

Definition Entrustee – any person having or taking possession of goods, documents or instruments under a trust receipt transaction. Or any of his successors in interest. Entruster – any person holding title over the goods, documents or instruments subject of a trust receipt transaction. Or any of his successors in interest. 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 latter’s 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. Other purposes:

1.) Goods or documents a. Sell the goods or procure their sale b. Manufacture or process goods for sale c. Load, unload, ship, transship

2.) Instruments

a. Sell or procure their sale or exchange b. Deliver them to a principal c. Effect consummation d. Effect presentation and collection

There are two situations in a trust receipt transaction:

1. Money received under obligation to deliver it (entregarla) 2. Merchandise received under the obligation to return it

(devolvera)

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 for the loan obligation.

Spouses Vintola vs. Insular Bank of Asia and America explained the nature and usage. Transaction involves a loan feature represented by the Letter of Credit and security feature which is in the covering trust receipt.

* 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 Trust receipt may be denominated in any foreign currency acceptable provided that in the case denominated in foreign currency, payment shall be made in Philippine currency equivalent to it.

Rights of Entruster



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 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 upon default or failure of entrustee to comply with any of the terms and conditions of the trust receipt.

3. Proceeds shall be applied a. To the payment of the expenses b. To the payment of expenses of re-taking, keeping and storing of goods c. Satisfaction of entrustee’s indebtedness

4. Entrustee shall receive any surplus but shall be liable to entruster for any deficiency

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.

Obligations of the Entrustee

1. Hold the goods in trust for the entruster and dispose of them strictly in accordance with the terms of the rust receipt

2. Receive the proceeds in trust for the entruster and turn over the same to the entruster

3. Insure the goods for their total value against loss and other casualties 4. Keep goods separate and capable of identification as property of entruster 5. Return the goods in the event of a non-sale or demand of the entruster 6. Observe all other terms and conditions of the trust receipt

Liability for Loss The risk of Loss shall be borne by the entrustee, irrespective of whether or not it was due to the fault of the entrustee. Rights of Purchaser for Value and Good Faith Innocent purchaser for value acquires goods free from entruster’s security interest. Violation of Trust Receipts Law Although is it malum prohibitum, the intent to misuse or misappropriate the goods should be proved. Because the Law punishes the dishonesty and abuse of confidence.

Application Applies to items:

1. Destined for sale 2. Processed as a component of a product ultimately sold 3. Used to repair and maintain equipment in business

Penalty Failure of Entrustee to turn over proceeds of the sale of goods covered by the trust receipt shall constitute the crime of ESTAFA.

CHAPTER 10 DEPOSIT INSURANCE Roles of PDIC

1) It shall ensure the deposits of all banks which are entitled to the benefits of insurance and which shall have to powers granted by law 2) It shall promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits 3) PDIC shall be entitled to the free use of Philippine mail in the same manner as the other offices of the national government

Powers of PDIC as a corporate Body

1) to adopt and use a corporate seal 2) to have succession until dissolved by an Act of Congress 3) to make contracts 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 under the laws of the Philippines. b)no attachment or execution shall be issued against PDIC or its property before final judgment in any suit, action or proceeding in any court c) The Board of Directors shall designate an agent upon whom service of process may be made in any province or city jurisdiction in which any insured bank is located



5) to appoint its board of directors such officers and employees as are not otherwise provided 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 6) to prescribe by laws not inconsistent with law 7) to exercise all powers specifically granted by law 8) to conduct examination of banks 9) act as a receiver 10) to prescribe such rules and regulations as it may deem necessary to carry out the provisions of the PDIC law. 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 officers 12) to compromise, condone or release in whole or in part, any claim or settled liability to PDIC regardless of the amount involved.

Composition

1) Secretary of finance – ex officio chairman w/o compensation 2) governor of BSP – ex officio member of the Board w/o compensation 3) President of PDIC – appointed by the president of the Philippines – for a term of 6years – shall also serve as Vice Chairman of the Board 4) 2 members from the private sector – for 6 years w/o reappointment by the President Disqualification of Appointive members – disqualified from holding any office, position, or employment in any insured bank Quorum i) presence of three (3) members shall constitute a quorum ii) secretary of finance and governor of the banking sentral may each designate a representative iii) Chairman of the board – unable to attend – president shall act as chairman

Per Diem – Secretary of Finance shall fix the rate of per diem for every board meeting Authority of the Board

1) to issue rules and regulations as it considers necessary for the effective discharge of its responsibilities 2) to direct the management, operation and administration of PDIC 3) to establish human resources management 4) to appoint, establish the rank, fix the remuneration, approve local and foreign training of, and remove any officer or employee for a cause, subject to pertinent civil service laws. 5) to adopt an annual budget 6) to approval the methodology for determining the level and amount of provisioning for insurance and financial assistance losses which shall establish reasonable levels of deposit insurance reserves

Officers

1) President 2) VP 3) Bank Examiners 4) Claim agents 5) Investigators

Deposit insurance coverage

A) Deposit Liabilities

i) deposit liabilities of any bank or banking institution which is engaged in the business of receiving shall be insured with the PDIC .

ii) factors considered - Financial history and condition of the bank

- Adequacy of its capital structure - Future earning prospects - General character of its management

- Convenience and needs of the community to be served by the bank and whether or not its corporate powers are within the purposes of the PDIC

- The term deposit, unpaid balance of money or its equivalent received by a bank in its usual course of business and for which it has given or its obliged to give credit

B) Statutory Liability of PDIC PDIC governed primarily by the provisions of the special law creating it. The liability of the PDIC for insured deposits therefore is statutory and such liability rests upon the existence of deposits with the insured bank.

Borrowing from Banks Borrowing from any bank or banking institution by examiners and other personnel of the examination departments of PDIC shall be prohibited only with respect to the particular institution in which they are assigned. XIII. Receivership

A. Appointment a. Appoint PDIC as receiver b. “receiver” includes a receiver, commission, person or other agency charged

by law with the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing business

B. Powers a. Control, manage and administer the affairs of the closed bank



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

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



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

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



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



Covered Suspicious Transactions

1. Cash or equivalent monetary instrument exceeding P500,000 within 1 banking day 2. Regardless of amount:

a. No underlying legal or trade obligation b. Client is not properly identified c. Amount is not commensurate with business or financial capacity of client d. Client’s transaction is structured in order to avoid being subject of reporting

requirements e. Deviation from the profile of the client and/or client’s past transactions with

institution f. Transaction is related to an unlawful activity g. Any analogous transactions

Unlawful Activities

1. Kidnapping for Ransom 2. DDA 3. Anti-Graft and Corrupt Practices Act 4. Plunder 5. Robbery and extortion 6. Jueteng 7. Piracy 8. Qualified Theft 9. Swindling 10. Smuggling 11. Violations of Electronic Commerce Act 12. Hi-jacking 13. Violations of Securities Regulation Code 14. Other felonies of similar nature

Money Laundering Offense

1. Person transacting or attempts to transact any monetary instrument purporting to the

proceeds of any unlawful activity 2. Performs or failure to perform any act as a result of which he facilitates the offense

mentioned in (1) 3. Failure to disclose as required by AMLC

Jurisdiction

RTC – private persons Sandiganbayan – Public Officers

Public Officers and private persons in conspiracy

AMLC Composition

1. Governor of BSP – Chairman 2. Commissioner of Insurance Commission – member 3. Chairman of SEC - member

Functions of AMLC

1. Require and receive covered or suspicious transaction from covered institutions 2. Issue orders addressed to appropriate Supervising Authority or covered institution to

determine true identity of the owner of questioned property 3. Institute civil forfeiture through Sol-Gen 4. File complaints with DOJ or Ombudsman 5. Investigation 6. Apply before CA for freezing any property alleged to be proceeds of unlawful activity 7. Implement measures necessary to counteract money laundering 8. receive and take action in respect of any request for foreign assistance 9. develop educational programs 10. Enlist assistance of any branch of governemtn 11. Impose administrative sanctions for violation of rules 12. Establish by a secretariat headed by Executive director appointed by Council

Prevention of Money Laundering; Customer Identification Requirements and Record keeping Customer Identification

1. Institutions shall establish and record true identity of its clients based on official

documents 2. Maintain a system of verifying true identity of their clients 3. Anonymous accounts, accounts under fictitious names are prohibited 4. Peso and foreign currency non-checking numbered accounts shall be allowed

Freezing of Monetary Instrument or Property

The CA upon application ex parte by AMLC after determination of probable cause Freeze period shall be for 20 days unless extended by the court Authority to Inquire Bank Deposits

To complete legal measures to prevent money laundering, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court incases of violation, it must be established that:

1. There is probable cause that deposits are related to unlawful activity or Money laundering offense



No court order: 1. Kidnapping for Ransom 2. DDA 3. Hi-Jacking 4. Destructive Arson and murder BSP may inquire into or examine any deposit when examination is made in the course of a

periodic or special examination.

Republic vs. Eugenio Sec. 11 of RA 9194 allows AMLC to inquire into bank accounts without having to obtain a judicial order in cases where there is probable cause that deposits or investments are related to:

1. Kidnapping for Ransom 2. DDA 3. Hi-Jacking 4. Destructive Arson and murder

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 bank inquiry order as it is not prohibited. A Bank inquiry is not a search warrant or warrant of arrest as it contemplates a direct object but not the seizure of persons or property. Because of Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the Philippines. Subsequent laws such as AMLA may have added exceptions to the Bank Secrecy Act yet the secrecy of Bank deposits still lies as the general rule.

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

2. Substantially altered, destroyed, diminished in value or otherwise rendered worthless through an act attributable to the offender

3. Concealed, removed, converted or transferred to prevent from being found 4. Located outside the Philippines or has been placed or brought outside the jurisdiction of

the court 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 Mutual Assistance Among States Request for Assistance from Foreign State

Principle of mutuality and reciprocity shall be at all times recognized. Powers of AMLC to act on request for assistance from a foreign State

1. AMLC may execute a request for assistance from a foreign State by:

a. Tracking down, freezing, restraining and seizing assets to be proceeds of any unlawful activity

b. Giving information needed by the foreign state c. Applying for an order of forfeiture of such property

Obtaining assistance from Foreign States

1. AMLC may make a request to any foreign State for assistance in: a. Tracking down, freezing, restraining and seizing assets alleged to be proceeds of

any unlawful activity b. Obtaining information that it needs relating to covered transactions c. Enter any premises belonging to persons named in said request d. Applying for order of forfeiture

Limitations 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



6. Specify manner in which material is to be produced 7. Give particulars n issuance of writs, or orders needed by the requesting State 8. Contain information as may assist in execution of request

Authentication of Documents 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

Extradition Philippines shall negotiate for the inclusion of money laundering offenses among extraditable offenses in all future treaties. Prohibitions Against Political Harassment

1. AMLA shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce

2. May not be filed to the prejudice of a candidate for an electoral office during an election period.

Powers of Congressional Oversight Committee

The Power to promulgate its own rules, to oversee the implementation of Anti-money Laundering act and to review or revise the implementing rules issued by AMLC within 30 days from promulgation of said rules. Rules and Regulations to Combat Money Laundering

1. Should take reasonable measures to establish and record the true identity of their clients. 2. In case of doubt as to whether their purported clients or customers are acting for

themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened

3. Anonymous accounts or accounts under fictitious names should not be kept or allowed, unless provided by law

4. Identity of clients should be reviewed at least every other year 5. All records to be maintained for at least 5 years 6. Special attention to all complex, unusual large transactions and all unusual patterns of

transactions which have no apparent or visible lawful purpose 7. Other suspicious transactions

8. Should avoid transactions with criminals 9. Programs against money laundering should be developed

a. Internal policies and procedures and controls b. Ongoing employee training program c. Audit function to test the system

CHAPTER 12 SPECIAL PURPOSE VEHICLE A. The declared policies of the State are:

i. To develop and maintain a sound financial sector for the country; ii. To address the non-performing asset problems of the financial sector; iii. To encourage private sector investments in non-performing assets; 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

the economic value added; and vi. To improve the liquidity of the financial system which can be harnessed to propel

economic growth.

B. Definitions

1. ACT- Special Purpose Vehicle Act 2002 2. APPRORIATE REGULATORY AUTHORITY- agency/ authority having jurisdiction over the FI’s operations which shall be the following: i. the DOF- in the case of the PDIC and GOCCs, in consultation with other agencies that have primary jurisdiction over the said FIs whenever deemed appropriate by the DOF; 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 iii. the Commission- in the case of financing companies and investment houses, except their trust and quasi-banking functions 3. AUDITED FINANCIAL STATEMENTS- a set of financial reports consisting of balance sheet, income statement, statement of changes in equity and cash flow statement, audited by a Commission-accredited independent CPA. 4. CERTIFICATE OF ELIGIBILITY (COE)- certificate issued by the Appropriate Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing of the tax exemptions and privileges. 5. CODE- Batas Pambansa Bilang 68 otherwise known as The Corporation Code of the Philippines 6. COMMISSION- Securities and Exchange Commission 7. DATION IN PAYMENT (DACION EN PAGO)- payment whereby property, whether real or personal, tangible or intangible, is alienated in favor of the creditor, which could either be an FI or an SPV, in satisfaction of an NPL. 8. FIA- Foreign Investment Act, RA 7042, as amended.



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

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



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.

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) Treasurer’s 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;



(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:

i. Business of the issuer

ii. Use of Proceeds

iii. Risk Factors

iv. Legal Proceedings

v. Market of Securities

vi. Management’s 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 institution’s 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



- 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

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:



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

* 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.



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.

banking laws reviewer-partyduh notes

Documents

bank money

bankdepositor relationship

definition of banks

consolidated bank

central bank

nature of banking business

efficiency of banks

banks of deposit