Comrev Finals - Banking Laws

7/29/2019 Comrev Finals - Banking Laws

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General Banking Act and Other Related LawsI. Importance of Banks

Indispensable Institution

The banking system has become anindispensable institution in the modern worldand plays a vital role in the economic life of

every civilized society. Whether as mere passiveentities for the safe-keeping and saving of money oras active instruments of business and commerce,

banks have attained an ubiquitous presence amongthe people, who have come to regard them withrespect and even gratitude and, above all, trust andconfidence. In this connection, it is important thatbanks should guard against injury attributable tonegligence or bad faith on its part. As repeatedlyemphasized, since the banking business isimpressed with public interest, the trust andconfidence of the public in it is of paramountimportance.

(G.R. No. 170984. January 30, 2009.],SECURITY BANK AND TRUST COMPANY, petitioner,vs. RIZAL COMMERCIAL BANKING CORPORATION,respondent.

[G.R. No. 170987. January 30, 2009.],RIZALCOMMERCIAL BANKING CORPORATION, petitioner,vs. SECURITY BANK AND TRUST COMPANY,respondent.

2. Banks

The definition of bank varies from country tocountry.

In common law, Bank- means anyone that

carries on the business of banking.Business of Banking-means conducting

current accounts for customers, where the amountsare repayable to the customers order, and theperson also either collects cheques payable to the

customer or receives funds from the third parties tothe customers current account.

Overview of Philippines Financial System. Banksa. Universal BanksPrivate Domestic BanksGovernment BanksBranches of Foreign Banks

b. Commercial BanksPrivate Domestic BanksSubsidiaries of Foreign BanksBranches of Foreign Banksc. Thrift Banks

d. Rural and Cooperative BanksII. Non-Bank Financial Institutionsa. With quasi-banking functionsb. Without quasi-banking functionsNon-Stock Savings and Loan AssociationsPawnshopsOthers

c. Offshore Banking Unitssource : BSP

Five Persons primarily interested in the BankingSystem

1. Government2. Depositors3. Investors4. Creditors5. Borrowers

Declared Policy of the State

RA 8791, SECTION 2. Declaration of Policy. TheState recognizes the vital role of banks in providing

an environment conducive to the sustaineddevelopment of the national economy and thefiduciary nature of banking that requires highstandards of integrity and performance. Infurtherance thereof, the State shall promote andmaintain a stable and efficient banking and financialsystem that is globally competitive, dynamic andresponsive to the demands of a developing economy.

Definition of Banks under GBL

SECTION 3. Definition and Classification of Banks.3.1. "Banks" shall refer to entities

engaged in the lending of funds obtained in the formof deposits. (2a)

Nature of Banking Business

Debtor-Creditor Relationship

Fiduciary Duty

Not a trust agreement

Indispensable Institution

Impressed with public interest

Not expected to be infallible

Liability of Banks for Acts of Officers andEmployees

Primary Liability

Highest Degree of Responsibility

Respondeat Superior

Negligence of Manager

Negligence of Officers

Negligence of Tellers

Right to recover from employees

Liability for Damages

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The New Central Bank Act

Purpose

Primary Objective

Responsibilities and Functions Organizational Structure

Organizational Structure of the Monetary Board

Purpose:

Constitutional Basis: Section 20, Art. XII of 1987Constitution

Central Monetary Authority that shall function andoperate as an independent and accountable bodycorporate in the discharge of its mandatedresponsibilities concerning money, banking andcredit.

Primary Objective

Maintain Price Stability conducive to a

balanced and sustainable economy.

Responsibility of BSP(Section 3, NCBA)

1. Provide policy directions in the areas ofmoney, banking and credit

2. Supervision over operation of banks3. Exercise regulatory powers over the

operation of finance companies and non-bankfinancial institutions performing quasi-

banking functions4. Maintain price stability conducive to a

balanced and sustainable growth of economy.

5. Promote and maintain monetary stability andthe convertibility of the peso.

Organizational Structure

The Monetary Board exercises the powersand functions of the BSP, such as the conductof monetary policy and supervision of thefinancial system. Its chairman is the BSPGovernor, with five full-time members fromthe private sector and one member from theCabinet.

The Governor is the chief executive officer ofthe BSP and is required to direct andsupervise the operations and internal

administration of the BSP. A deputy governorheads each of the BSP's operating sector asfollows:Monetary Stability Sector takes charge of the

formulation and implementation of the BSPsmonetary policy, including serving the banking needsof all banks through accepting deposits, servicingwithdrawals and extending credit through therediscounting facility.

Supervision and Examination Sector enforcesand monitors compliance to banking laws to promotea sound and healthy banking system.

Resource Management Sector serves thehuman, financial and physical resource needs of the

BSP

The authority of the BSP - Section 4, GBLA. Supervisory PowersB. Policy Directions; ratios, ceilings and

limitations

Supervisory Powers

SECTION 4. Supervisory Powers. The

operations and activities of banks shall be

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subject to supervision of the Bangko Sentral."Supervision" shall include the following:4.1. The issuance of rules of conduct or

the establishment of standards of operation foruniform application to all institutions or functionscovered, taking into consideration the distinctivecharacter of the operations of institutions and thesubstantive similarities of specific functions to whichsuch rules, modes or standards are to be applied;

4.2. The conduct of examination todetermine compliance with laws and regulations ifthe circumstances so warrant as determined by the

Monetary Board;4.3. Overseeing to ascertain that laws and

regulations are complied with;4.4. Regular investigation which shall not

be oftener than once a year from the last date ofexamination to determine whether an institution isconducting its business on a safe or sound basis:Provided, That the deficiencies/irregularities found byor discovered by an audit shall be immediatelyaddressed;

4.5. Inquiring into the solvency and

liquidity of the institution; or 4.6. Enforcing prompt corrective action.

Deposit Substitutes

Section 95, New Central Bank ActAlternative form of obtaining funds from the public,other than deposits, through the issuance,endorsement, or acceptance of debt instruments forthe borrowers own account, for the purpose ofrelending or purchasing of receivables and otherobligations.

These instruments may include, but need not be

limited to:1. Bankers acceptances2. Promissory Notes3. Participations4. Certificates of Assignments5. Similar instruments with recourse and

repurchase agreements

Does the BSP still have jurisdiction overbuilding and loan associations?

Phase-out of BSP powers over building andloan associations.

Within a period of three (3) years

from the effectivity of this Act, the Bangko Sentralshall phase out and transfer its supervising andregulatory powers over building and loan associationsto the Home Insurance and Guaranty Corporationwhich shall assume the same. Until otherwiseprovided by law, building and loan associations shallcontinue to be governed by Sections 39 to 55,Chapter VI of the General Banking Act, as amended,including such rules and regulations issued pursuantthereto. Upon assumption by the Home Insurance

and Guaranty Corporation of supervising andregulatory powers over building and loanassociations, all references in Sections 39 to 55 ofthe General Banking Act, as amended, to the BangkoSentral and the Monetary Board shall be deemed torefer to the Home Insurance and GuarantyCorporation and its board of directors, respectively.

What is the coverage of the authority of the BSPto set policy directions?

Policy Directions, Section 5 GBL -

SECTION 5. Policy Direction;Ratios, Ceilings and Limitations. TheBangko Sentral shall provide policy directionin the areas of money, banking and credit.

Authority to set ratios, ceilings and limitations?

The Monetary Board may prescribe ratios,ceilings, limitations, or other forms ofregulation on the different types of accountsand practices of banks and quasi-banks whichshall, to the extent feasible, conform tointernationally accepted standards, including

those of the Bank for InternationalSettlements (BIS). The Monetary Board mayexempt particular categories of transactionsfrom such ratios, ceilings and limitations, butnot limited to exceptional cases or to enablea bank or quasi-bank under rehabilitation orduring a merger or consolidation to continuein business with safety to its creditors,depositors and the general public.

What is the legal definition of Currency ?NCBA, SECTION 49. Definition of

Currency. The word "currency" is hereby defined,for purposes of this Act, as meaning all Philippine

notes and coins issued or circulating in accordancewith the provisions of this Act.

NCBA, SECTION 48. The Peso. The unitof monetary value in the Philippines is the "peso,"which is represented by the sign "P."

The peso is divided into one hundred (100)equal parts called "centavos," which are representedby the sign "c."

Exclusive Power to issue CurrencyThe BSP has the exclusive power and

authority to issue the national currency. BSPs notes

and coins are issued against, and in amounts not

exceeding, the assets of the BSP. All notes and coinsissued by the BSP are fully guaranteed by thegovernment and are considered legal tender for allprivate and public debts.

Legal Basis of the power to issue the nationalcurrency?

NCBA, SECTION 50. Exclusive IssuePower. The Bangko Sentral shall have the solepower and authority to issue currency, within the

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territory of the Philippines. No other person orentity, public or private, may put intocirculation notes, coins or any other object ordocument which in the opinion of the MonetaryBoard, might circulate as currency, norreproduce or imitate the facsimiles of BangkoSentral notes without prior authority from theBangko Sentral.

The Monetary Board may issue suchregulations as it may deem advisable in order toprevent the circulation of foreign currency or ofcurrency substitutes as well as to prevent the

reproduction of facsimiles of Bangko Sentral notes.The Bangko Sentral shall have the authority

to investigate, make arrests, conduct searches andseizures in accordance with law, for the purpose ofmaintaining the integrity of the currency.

Violation of this provision or of any regulationissued by the Bangko Sentral pursuant thereto shallconstitute an offense punishable by imprisonment ofnot less than five (5) years but not more than ten(10) years. In case the Revised Penal Code providesfor a greater penalty, then that penalty shall be

imposed

Who bears liability for banks and notes issued?

SECTION 51. Liability for Notes and Coins. Notes and coins issued by the Bangko Sentral shallbe liabilities of the Bangko Sentral and may be issuedonly against, and in amounts not exceeding, theassets of the Bangko Sentral. Said notes and coinsshall be a first and paramount lien on all assets ofthe Bangko Sentral.

The Bangko Sentral's holdings of its ownnotes and coins shall not be considered as part of itscurrency issue and, accordingly, shall not form part

of the assets or liabilities of the Bangko Sentral.

Legal tender

Who guarantees legal tender?SECTION 52. Legal Tender Power. All

notes and coins issued by the Bangko Sentral shall befully guaranteed by the Government of the Republicof the Philippines and shall be legal tender in thePhilippines for all debts, both public and private:Provided, however, That, unless otherwise fixed bythe Monetary Board, coins shall be legal tender inamounts not exceeding Fifty pesos (P50.00) fordenominations of Twenty-five centavos and above,

and in amounts not exceeding Twenty pesos(P20.00) for denominations of Ten centavos or less.

Checks as legal tender?Section 60. Legal Character. Checks

representing demand deposits do not have legaltender power and their acceptance in the payment ofdebts, both public and private, is at the option of thecreditor: Provided, however, That a check which hasbeen cleared and credited to the account of the

creditor shall be equivalent to a delivey to thecreditor of cash in an amount equal to the amountcredited to his account.Article 1249, Civil Code

- Payment of debts in money to be made in thecurrency stipulated, if not possible, then inthe currency which is legal tender in thePhilippines.

- Article 1250. In case an extraordinaryinflations or deflation of the currencystipulated should supervene, the value of thecurrency at the time of the establishment ofthe obligation shall be the basis of payment,unless there is an agreement to the contrary.

CurrencySECTION 53. Characteristics of the

Currency. The Monetary Board, with the approvalof the President of the Philippines, shall prescribe thedenominations, dimensions, designs, inscriptions andother characteristics of notes issued by the BangkoSentral: Provided, however, That said notes shallstate that they are liabilities of the Bangko Sentraland are fully guaranteed by the Government of the

Republic of the Philippines. Said notes shall bear thesignatures, in facsimile, of the President of thePhilippines and of the Governor of the BangkoSentral.

Similarly, the Monetary Board, with theapproval of the President of the Philippines, shallprescribe the weight, fineness, designs,denominations and other characteristics of the coinsissued by the Bangko Sentral. In the minting ofcoins, the Monetary Board shall give fullconsideration to the availability of suitable metals

and to their relative prices and cost of minting.* There are about 15.74 billion pieces of coinsvalued at P17.09 billion and 2.12 billion pieces of

notes valued at P 511.63 billion that had been issuedas of 31 May 2010.

Monetary Stabilization

Domestic

International

Guiding Principle on Monetary Stabilization ?SECTION 61. Guiding Principle. The

Monetary Board shall endeavor to control anyexpansion or contraction in monetary aggregateswhich is prejudicial to the attainment or maintenanceof price stability.

Monetary Aggregates Money supply

Why is it necessary to control money supply?

Relation between money and prices is

historically associated with the quantitytheory of money. There is strong empiricalevidence of a direct relation between long-term price inflation and money-supplygrowth, at least for rapid increases in theamount of money in the economy.

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Zimbabwe -rapid increases in its moneysupply also saw rapid increases in prices(hyperinflation).

The policy may mean two things:1. Increasing money supply during recession

to stimulate spending; or2. Restricting it during inflation to curtail

spending.

Inflation Targeting: The BSP's Approach toMonetary Policy

Three Important Tools to achieve Price Stability1. Discount Policy2. Open Market Operations3. Reserve Requirements

Discount PolicyBSP is empowered to extend loans and

advances to banking institutions to influence thevolume of credit consistent with the price stabilityobjective. (Section 81, NCBA)The Monetary Board shall fix the interest andrediscount rates to be charged by the BSP on itscredit operations. Interests and rediscount rates shallbe applied to all banks of the same categoryuniformly and without discrimination.

*If BSP wants to increase money supply, it reopensthe rediscount window by reducing interest on loans.

*BSP wants to decrease money, it closes therediscount window or charges very high interest rates

for rediscounted notes

Open Market Operations (section 90, NCBA)The BSP may buy and sell in the open market

(a) evidence of indebtedness issued directly by thegovernment or its political subdivisions; and (b) bygovernment instrumentalities and fully guaranteed bythe government.

*If BSP wants to increase money supply, it buysgovernment securities.*If BSP wants to decrease money supply, it sellsgovernment securities.

Reserve RequirementsTo control the volume of money created bythe credit operations of the banking system, all banksoperating in the Philippines shall be required tomaintain reserves against deposit liabilities.

Where a certain percentage of the deposit isset aside and cannot be lent out.

Monetary Stabilization

International Monetary StabilizationSECTION 64. International Monetary

Stabilization. The Bangko Sentral shall exercise itspowers under this Act to preserve the internationalvalue of the peso and to maintain its convertibilityinto other freely convertible currencies primarily for,although not necessarily limited to, current paymentsfor foreign trade and invisibles.

SECTION 65. International Reserves. Inorder to maintain the international stability andconvertibility of the Philippine peso, the BangkoSentral shall maintain international reserves

adequate to meet any foreseeable net demands onthe Bangko Sentral for foreign currencies.

In judging the adequacy of the internationalreserves, the Monetary Board shall be guided by theprospective receipts and payments of foreignexchange by the Philippines. The Board shall givespecial attention to the volume and maturity of theBangko Sentral's own liabilities in foreign currencies,to the volume and maturity of the foreign exchangeassets and liabilities of other banks operating in thePhilippines and, insofar as they are known or can be

estimated, the volume and maturity of the foreignexchange assets and liabilities of all other personsand entities in the Philippines.

Classification of Banks

Relevant provisions of the Banking Law (RA8791)1. Section 3.2 (Classification of Banks)2. Section 4 (Supervisory Powers of BSP)3. Sections 23-28 (Operations of Universal

Banks)4. Sections 29-32 (Operations of

Commercial Banks)

5. Section 71 (Other Banking Laws)

The Monetary Board, in its Resolution No.2154 dated December 15, 2000, approved thefollowing regulations implementing Section 3 andother related sections of R.A. No. 8791 or theGeneral Banking Law of 2000 classified Banks asfollows:

a. Universal banks (UBs);b. Commercial banks (KBs);c. Thrift banks (TBs), as defined in Republic

Act (R.A.) No. 7906, which shall be composed of:(i) Savings and mortgage banks, (ii) Stock

savings and loan associations, and

(iii) Private development banks;d. Rural banks (RBs), as defined in R. A. No.7353;

e. Cooperative banks (Coop Banks), asdefined in R. A. No. 6938; and

f. Islamic banks (IBs), as defined in R. A.No. 6848.

Powers and Authority of different class of banks

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- See finals 2

Power and Authority of a Rural Bank

Rationale (section 1, RA 7353)

Principal purpose

(1) accept current or checking accounts:Provided, That such RB has net assets of at least P5million;

(2) accept savings and time deposits;(3) act as trustee over estates or propertiesof farmers and merchants;

(4) act as official depository of municipal,

city or provincial funds in the municipality, city orprovince where it is located;

(5) sell domestic drafts; and(6) invest in allied undertakings.

Power and Authority of Cooperative BanksA Coop Bank shall be organized primarily to

provide financial and credit services to cooperativesand may perform any or all of the services offered byRBs.

Power and Authority of Islamic Bank

In addition to the general powers incident tocorporations and those provided in otherlaws, as well as in Circular No. 105, insofaras they are not inconsistent or incompatiblewith the provisions of R.A. No. 6848, an IBmay perform any or all of the followingservices:(1) open savings accounts for safekeeping or

custody with no participation in profit and lossesexcept unless otherwise authorized by the accountholders to be invested;

(2) accept investment account placements

and invest the same for a term with the IBs funds inIslamically permissible transactions on participationbasis;

(3) accept foreign currency deposits frombanks, companies, organizations and individuals,including foreign governments;

(4) buy and sell foreign exchange;

(5) act as correspondent of banks andinstitutions to handle remittances or any fundtransfers;

(6) accept drafts and issue letters of creditor letters of guarantee, negotiate notes and bills of

exchange and other evidence of indebtedness underthe universally accepted Islamic financialinstruments;

(7) act as collection agent insofar as thepayment orders, bills of exchange or othercommercial documents are exclusive of riba or

interest prohibitions;(8) provide financing with or without

collateral by way of leasing, sale and leaseback, orcost plus profit sales arrangement;

(9) handle storage operations for goods orcommodity financing secured by warehouse receiptspresented to the Bank;

(10) Issue shares for the account ofinstitutions and companies assisted by the Bank inmeeting subscription calls or augmenting their capitaland or fund requirements as may be allowed by law;

(11) Undertake various investments in alltransactions allowed by the Islamic Sharia in such away that shall not permit the haram (forbidden), norforbid the halal (permissible);

(12) Act as an official government depository,

or its branches, subdivisions and instrumentalitiesand of government-owned or controlled corporations,particularly those doing business in the autonomousregion;

Universal Banks

Licensed by the BSP to do both commercialand investment banking

Authority to exercise1. Powers authorized for a commercial

bank

2. Powers of an investment house asprovided in existing laws3. Power to invest in non-allied

enterprises

Difference between UB and KB see finals 2

Allied and Non- Allied Enterprises

Those entities that enhance the business ofbanking

Allied Enterprises> Financial (Leasing companies,

Banks, Investment Houses,

Financing Companies, Credit CardCompanies, Financial Institutions cateringto small and medium scale industries

including venture capital corporation,securities dealership, Foreign exchangedealership/brokerage, insurancecompanies, holding company)

Allied Non-FinancialActivities that do not involve money matters such as:1. Warehouse companies2. Storage companies3. Safety Deposit Companies4. Management Mutual Funds

5. Management corporations6. Computer services7. Insurance agencies/brokerages

8. Home Building and Home Development9. Drying and Milling Companies10. Service Bureaus organized to perform for andin behalf of banks11. Philippine Clearing House Corporation,Philippine Central Depositary Inc.,

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12. Such other activities to be determined by theBSP

Non-Allied Enterprises

Physically productive activities (agriculture,mining, quarrying, manufacturing, etc.)

Industrial Parks and/or Industrial Estates

Financial and Commercial Complex Projects

Such other categories as the Monetary Board

may determine

Minimum Total Investment for Allied and Non-Allied Enterprises (Sections 24-32, GBL) seefinals 2

Definition of Net Worth

Section 24. GBLNet Worth shall mean the total of the

unimpaired paid in capital including paid in surplus,retained earnings, undivided net profit, net ofvaluation reserves and other adjustments as may berequired by BSP.

Examples of Universal Banks in RPAllied BankBanco De OroBank of Philippine IslandsPhilippine National BankRCBCUCPBSecurity Bank

Examples of Commercial Banks

Asia United Bank

BDO Private Bank

Philippine Bank of Communications

Examples of Rural Banks

Rural Bank of Altavas

Rural Bank of Kalibo

Rural Bank of Baguio

Rural Bank of Maragondon

Maranao Rural Bank

Cooperative Banks

Definition (Section 100, RA 6938)

Functions

Other Banks

Islamic Bank (Republic Act 6848) Offshore Banks (PD 1034)

Government Owned Banks

Organization, Management and Administrationof Banks, Quasi-Banks and Trust Entities

Organization of BanksAuthority to engage in BankingOrganizationStockholdings

Board of DirectorsFit and Proper RuleDirectors of merged or consolidated banksCompensation and other benefits of directorsand officers

Organization, Management and Administrationof Banks, Quasi-Banks and Trust EntitiesSections 8 22, 56, 58 64, RA 8791 (GBL of2000)

Organization of Banks

ConditionsCapabilitiesCapital requirements

Conditions1. stock corporation only2. par value stocks only

CapabilitiesAsessment of the following : ownership

structure; directors and senior management;

operating plan, internal controls; and theprojected financial condition and capital base.

Subscription- 25% of the authorized capital

subscribed- of which 25% has been paid- Paid up capital be not less than what

the law requires and in no case shall the paid-incapital be less than the minimum capitalrequirement ( note: section 13, CorporationCode of Philippines and BSP Basic Guidelines inOperating Banks)

Incorporators/Subscribers- persons of integrity and of goodstanding in the business community;

- not previously convicted of anycrime involving moral turpitude;

- Not less than 5 but not more than15; 21 in case of merger and consolidation.

II. Stockholdings

Treasury sto cks (section 20, GBL)

Foreign stockholdings (section 11, GBL)

Family Groups or Related Interests(section 12, GBL)

Treasury stocks

No bank shall:1. Purchase or acquire shares of its own capital

stock;2. Accept its own shares as security for a loan

Except when authorized by the MB. Provided further,shares so purchased or acquired shall within 6months from the time of its purchase or acquisition

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shall be sold or disposed of at a public or privatesale.

Foreign stockholdings (section 12, GBL )

Constitutional basis (Article XII, section 10)Rules:

1. Foreign individuals and non-bankcorporations may own up to 40% of thevoting stocks of a domestic bank. Provided,that aggregate foreign voting stocks ownedby them shall not exceed 40% of the

outstanding voting stock.2. A Filipino individual and a domestic non-bank

corporation may each own up to 40% of thevoting stock of a domestic bank. No rule onaggregate ceiling.

Commercial Banks 60% owned by Filipinocitizens

Thrift Banks 40% at least owned by Filipinocitizens

Rural Banks wholly owned by Filipinos

Family Groups or related interests (sections 12and 13, GBL)

- Stockholdings of individuals related to eachother within the 4th degree of consanguinityor affinity, legitimate or common law shall beconsidered family groups or related interests.Must be fully disclosed in all transactions.

- 2 or more corporations owned or controlled

by the same family group or group of personsshall be considered related interests. Must befully disclosed.

*There is no limit on the number of sharesthat can be owned by the same family orrelated interest without prejudice to the 40%restriction on nationality.

III. Board of Directors

Number of Directors at least 5, maximum

of 15. two of whom shall be independentdirectors (not an officer or employee)

Number consistent with section 10,Corporation Code

Merger or consolidation maximum of 21

Meetings may be conducted thru moderntechnologies (note: SEC Rule and section 25of Corporation Code)

Incorporators/subscribers and proposeddirectors and officers must be persons ofintegrity and of good credit standing in thebusiness community. Subscribers must haveadequate financial strength to pay for theirproposed subscription.

Incorporators/Subscribers/Directors andOfficers must not have been convicted of anycrime involving moral turpitude.

At least 2/3 of the members of the Board ofDirectors of any commercial bank shall beFilipino citizens;

At least a majority of the members of theBoard of Directors of any thrift bank shall beFilipino citizens;

All members of the Board of a rural bankshall be Filipino citizens.

Compensation and other benefits may beregulated by BSP in exceptional cases:(1) Bank is under comptrollership or

conservatorship;(2) Bank is found to be conducting business

in an unsafe or unsound manner (section 56,GBL)

(3) Bank is found to be in unsatisfactoryfinancial condition.

Fit and Proper Rule

MB to issue rules and regulations todetermine qualifications and disqualificationsof bank directors or officers and disqualify

those unfit. Factors to consider integrity, experience,

education, training and competence.

Rules on disqualification

Fit and Proper Rule

Rules on Disqualification (Permanent andTemporary)(BSP Circular no.513 s. 2006)

Disqualifications/Prohibitions under theCorporation Code (section 27, CorporationCode)

Disqualification/Prohibitions under the NewCentral Bank Act (Sections 9, 27)

Disqualification/Prohibition under the PDIC(Section 17, Philippine Deposit InsuranceCorporation Law)

Disqualification/Prohibition under RA 7353(Rural Bank) Section 5

Disqualification/Prohibition under Appendix38, MORB on Cooperative Banks

Prohibition on Public Officials

V. Banking Days and Hours

Section 19, GBL

All working Days (M-F); six hours a day

Sat.,Sundays, Holidays 3 hours a day

Notice to the BSP; changes in banking days

or hours shall not be made oftener than onceevery 30 days, except during emergencies(state of emergency in area/public calamity)

VI. Automated Teller Machines

Banks may establish off site ATMs, subject tothe conditions provided by BSP Rules andRegulations (Section X156 of the MORB asamended by Circular no.500 s. 2005)

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VII. Independent Aud

MB may require banks to engage the servicesof an Independent Auditor to be chosen bythe bank from a list of certified publicaccountants acceptable to the MB.

VII. Financial Statement

Submission of FS to BSP to show the actualfinancial condition of the financial institution

To be published at least once every quarter. In a newspaper of general circulation where

the principal office or branch is located.

VIII. Publication of Capital Stock

Must indicate as well paid-in capital

IX. Settlement of Disputes*Settlement of disputes shall be consulted with theBSP

X. Strikes and Lockouts

Unsettled Labor Disputes

Reports of Strikes and Lockouts

Deposit Functions of BanksI. Kinds of Deposits

II. Administration of DepositsIII. Nature of Bank DepositsIV. Duties of Banks

I. Kinds of Deposits

Demand Deposits

Savings Deposits

Negotiable Order of Withdrawal (NOW)Account

Time Deposits

Deposit Substitute Operations (Quasi-

Banking Operations) Foreign Currency Deposits

Anonymous and Numbered Accounts

Demand Deposits

Temporary Overdrawings against uncollecteddeposits

Current Accounts of Bank officers/employees

Checks

Duty of banks to honor checks

Responsibility of Drawer

Duty of banks

Legal Character of checks

Cross Checks/Cashiers Checks

Savings Deposits

Servicing of deposits outside of bankpremises

Individual and Joint Accounts

Withdrawals

Negotiable Order of Withdrawal Accounts

Definition

Rules on servicing

Time Deposits

Definition

Time

Special Time Deposits

Quasi-Banking Operations

Essential elements

Foreign Currency Deposits Authority to deposit foreign currencies

Authority to accept deposit foreigncurrencies

II. Administration of Deposits

Specimen Signature

Minors and Corporations as Depositors

Time of payment of deposit substitutes

Treatment of matured timedeposits/deposit substitutes

Clearing cut-off time

Nature of Deposits

Irregular Deposits

Investments, Loans and other Functions ofBanks - Sections 34 53, RA 8791

1. Investment Powers of Banks2. Loan Functions3. Limits on Loans, Credit Accomodations

and Guarantees4. Restrictions on Bank Exposure to

Directors, Officers, Stockholders andtheir Related Interests

5. Securities on Loans and other creditaccomodations

6. Real Estate Mortgage

7. Other Banking Services

Investment Powers of Banks - Rule on EquityInvestments of Universal and CommercialBanksAllied and Non-Allied Enterprises

Those entities that enhance the business ofbanking

Allied Enterprises> Financial (Leasing companies,

Banks, Investment Houses,Financing Companies, Credit CardCompanies, Financial Institutions catering

to small and medium scale industries

including venture capital corporation,securities dealership, Foreign exchangedealership/brokerage, insurancecompanies, holding company)

Allied Non-Financial

Activities that do not involve money matters

such as:1. Warehouse companies2. Storage companies

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3. Safety Deposit Companies4. Management Mutual Funds5. Management corporations6. Computer services7. Insurance

agencies/brokerages8. Home Building and Home

Development9. Drying and Milling Companies10. Service Bureaus organized to

perform for and in behalf ofbanks

11. Philippine Clearing HouseCorporation, Philippine Central

Depositary Inc.,12. Such other activities to be

determined by the BSP

Non-Allied Enterprises

Physically productive activities (agriculture,

mining, quarrying, manufacturing, etc.)

Industrial Parks and/or Industrial Estates

Financial and Commercial Complex Projects

Such other categories as the Monetary Boardmay determine

Net Worth



Loan Functions of Banks

A loan contract is not a consensual contractbut a real contract. It is perfected only upon

the delivery of the object of the contract. A contract of loan involves a reciprocal

obligation, wherein the obligation or promiseof each party is the consideration for that ofthe other.

[G.R. No. 133632. February 15, 2002.]BPI INVESTMENT CORPORATION, petitioner, vs.HON. COURT OF APPEALS and ALS MANAGEMENT &DEVELOPMENT CORPORATION, respondents.

SECTION 39.Grant and Purpose of Loans and

Other Credit Accommodations. A bankshall grant loans and other creditaccommodations only in amounts and for the

periods of time essential for the effectivecompletion of the operations to be financed.Such grant of loans and other creditaccommodations shall be consistent with safeand sound banking practices. (75a)

The purpose of all loans and other creditaccommodations shall be stated in the applicationand in the contract between the bank and theborrower. If the bank finds that the proceeds of theloan or other credit accommodation have been

employed, without its approval, for purposes otherthan those agreed upon with the bank, it shall havethe right to terminate the loan or other creditaccommodation and demand immediate repaymentof the obligation

SECTION 40. Requirement for Grant of

Loans or Other Credit Accommodations. Before granting a loan or other credit

accommodation, a bank must ascertain thatthe debtor is capable of fulfilling hiscommitments to the bank.Toward this end, a bank may demand from

its credit applicants a statement of their assets andliabilities and of their income and expenditures andsuch information as may be prescribed by law or byrules and regulations of Monetary Board to enablethe bank to properly evaluate the credit applicationwhich includes the corresponding financialstatements submitted for taxation purposes to theBureau of Internal Revenue. Should such statementsprove to be false or incorrect in any material detail,the bank may terminate any loan or other credit

accommodation granted on the basis of saidstatements and shall have the right to demandimmediate repayment or liquidation of the obligation.

In formulating rules and regulations underthis Section, the Monetary Board shall recognize thepeculiar characteristics of microfinancing, such ascash flow-based lending to the basic sectors that arenot covered by traditional collateral. (76a)

What happens when borrower submits falsestatements to bank?

Bank may terminate the loan

Demand immediate repayment or liquidationof the obligation

Article 1198, Civil Code of the Philippines(Debtor loses the right to make use of theperiod)

Rationale for stringent rules in granting loansThe bank invests the money that it holds in

trust of its depositors. For this reason, we have heldthat the business of a bank is one affected withpublic interest, for which reason the bank shouldguard against loss due to negligence or bad faith. Inapproving the loan of an applicant, the bank concernsitself with proper informations regarding its debtors.The petitioner, as a bank and a financial institutionengaged in the grant of loans, is expected to

ascertain and verify the identities of the persons ittransacts business with.

G.R. No. 147800. November 11, 2003.]UNITED COCONUT PLANTERS BANK,

petitioner, vs. TEOFILO C. RAMOS, respondent.

The business of a bank is one affected withpublic interest, for which reason the bankshould guard against loss due to negligenceor bad faith. In approving the loan of an

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applicant, the bank concerns itself withproper [information] regarding its debtors."Any investigation previously conducted onthe property offered by petitioners ascollateral did not preclude PNB fromconsidering new information on the sameproperty as security for a subsequent loan.[G.R. No. 161319. January 23, 2007.]SPS. EDGAR AND DINAH OMENGAN,

petitioners, vs. PHILIPPINE NATIONAL BANK, HENRYM. MONTALVO AND MANUEL S. ACIERTO, *respondents.

Continuing power of the BSP to regulate banks

SECTION 41. Unsecured Loans or OtherCredit Accommodations. The MonetaryBoard is hereby authorized to issue suchregulations as it may deem necessary withrespect to unsecured loans or other creditaccommodations that may be granted by

banks. (n)SECTION 42. Other Security Requirements

for Bank Credits. The Monetary Board may, by

regulation, prescribe further security requirements towhich the various types of bank credits shall besubject, and, in accordance with the authoritygranted to it in Section 106 of the New Central BankAct, the Board may by regulation, reduce themaximum ratios established in Sections 36 and 37 ofthis Act, or, in special cases, increase the maximumratios established therein.

SECTION 43. Authority to Prescribe Terms

and Conditions of Loans and Other CreditAccommodations. The Monetary Boardmay, similarly, in accordance with theauthority granted to it in Section 106* of

the New Central Bank Act, and taking intoaccount the requirements of the economy forthe effective utilization of long-term funds,prescribe the maturities, as well as relatedterms and conditions for various types ofbank loans and other credit accommodations.Any change by the Board in the maximummaturities shall apply only to loans and othercredit accommodations made after the dateof such action.

The Monetary Board shall regulate theinterest imposed on microfinance borrowersby lending investors and similar lenders, suchas, but not limited to, the unconscionable

rates of interest collected on salary loans andsimilar credit accommodations.This section of RA 7653 authorizes the

Monetary Board to issue such regulations as it maydeem necessary with respect to the maximumpermissible maturities of the loans and investmentswhich the banks may make, and the kind and

amount of security to be required against the varioustypes of credit operations of the banks.

Authority to impose amortization schedule forpayment of loans and other creditaccomodationsSection 44, RA 8791

SECTION 44. Amortization on Loans andOther Credit Accommodations. The amortizationschedule of bank loans and other creditaccommodations shall be adapted to the nature ofthe operations to be financed.

In case of loans and other creditaccommodations with maturities of more than five

(5) years, provisions must be made for periodicamortization payments, but such payments must bemade at least annually: Provided, however, Thatwhen the borrowed funds are to be used for purposeswhich do not initially produce revenues adequate forregular amortization payments therefrom, the bankmay permit the initial amortization payment to bedeferred until such time as said revenues aresufficient for such purpose, but in no case shall theinitial amortization date be later than five (5) yearsfrom the date on which the loan or other credit

accommodation is granted. (79a)In case of loans and other creditaccommodations to microfinance sectors, theschedule of loan amortization shall take intoconsideration the projected cash flow of the borrowerand adopt this into the terms and conditionsformulated by banks. (n)

Interest Rate for payment of loan

Escalation and De-escalation Clause

Unilateral increase of rates

Iniquitous, Unconscionable andExorbitant Interest Rates

Article 1253 of the New Civil Code provides that, ifthe debt produces interest, payment of the principalshall not be deemed to have been made until theinterests have been covered.

To hold that bank debtors should not payinterest on their loans would be anathema to thenature of any bank's business. The charging ofinterest for loans forms a very essential andfundamental element of the banking business. Infact, it may be considered to be the very core of thebanking's existence or being.

G.R. No. 159748. July 31, 2007.]SPOUSES VIRGILIO AND DIGNA ANASTACIO-

CALINA, petitioners, vs. DEVELOPMENT BANK OF THE

PHILIPPINES, respondent

The charging of interest for loans forms a very

essential and fundamental element of the bankingbusiness, which may truly be considered to be at thevery core of its existence or being. It is inconceivablefor a bank to grant loans for which it will not chargeany interest at all.

[G.R. No. 128833. April 20, 1998.]

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[G.R. No. 139290. May 19, 2006.]TRADE & INVESTMENT DEVELOPMENT

CORPORATION OF THE PHILIPPINES (FormerlyPhilippine Export & Foreign Loan GuaranteeCorporation, petitioner, vs. ROBLETT INDUSTRIALCONSTRUCTION CORPORATION, ROBERTO G.ABIERA and LETICIA ABIERA, and PARAMOUNTINSURANCE CORPORATION, respondents.

Article 1229 of the Civil Code provides:The judge shall equitably reduce the penalty

when the principal obligation has been partly or

irregularly complied with by the debtor. Even if therehas been no partial performance, the penalty mayalso be reduced by the courts if it is iniquitous orunconscionable.

In several cases, we have ruled that

stipulations authorizing iniquitous orunconscionable interests are contrary tomorals, if not against the law. In Medel v.Court of Appeals, we annulled a stipulated5.5% per month or 66% per annum interest

on a P500,000.00 loan and a 6% per monthor 72% per annum interest on a P60,000.00loan, respectively, for being excessive,iniquitous, unconscionable and exorbitant. InRuiz v. Court of Appeals, we declared a 3%monthly interest imposed on four separateloans to be excessive. In both cases, theinterest rates were reduced to 12% perannum.

[G.R. No. 168940. November 24, 2009.]SPS. ISAGANI CASTRO and DIOSDADA

CASTRO, petitioners, vs. ANGELINA DE LEON TAN,SPS. CONCEPCION T. CLEMENTE and ALEXANDER C.CLEMENTE, SPS. ELIZABETH T. CARPIO and ALVIN

CARPIO, SPS. MARIE ROSE T. SOLIMAN and ARVINSOLIMAN and JULIUS AMIEL TAN, respondents.

Limits on Loan Functions and other CreditAccomdations

Single Borrowers LimitRules and Regulations issued by the BSP (Manual onRegulations of Banks)

General Rule on Single Borrowers Limit:Consistent with national interest, the total

amount of loans, credit accommodations and

guarantees that may be extended by a bank to any

person, partnership, association, corporation or otherentity shall at no time exceed twenty five percent(25%) of the net worth of such bank. The basis fordetermining compliance with the single borrowerslimit (SBL) is the total credit commitment of the bankto or on behalf of the borrower.

The total amount of loans, creditaccommodations and guarantees prescribed in thefirst paragraph may be increased by an additional tenpercent (10%) of the net worth of such bank:

Provided, That the additional liabilities are adequatelysecured by trust receipts, shipping documents,warehouse receipts or other similar documentstransferring or securing title covering readilymarketable, non-perishable goods which must befully covered by insurance.



Inclusions on SBL(a) the direct liability of the maker or

acceptor of paper discounted with or sold to suchbank and the liability of a general endorser, draweror guarantor who obtains a loan or other creditaccommodation from or discounts paper with or sells

papers to such bank;(b) in the case of an individual who owns or

controls a majority interest in a corporation,

partnership, association or any other entity, theliabilities of said entities to such bank;(c) in the case of a corporation, all liabilities

to such bank of all subsidiaries in which suchcorporation owns or controls a majority interest; and

(d) in the case of a partnership, associationor other entity, the liabilities of the members thereofto such bank

Even if a parent corporation, partnership, association,entity or an individual who owns or controls amajority interest in such entities has no liability tothe bank, the liabilities of subsidiary corporations or

members of the partnership, association, entity orsuch individual shall be combined under certaincircumstances, including but not limited to any of thefollowing situations:

(a) the parent corporation, partnership,association, entity or individual guarantees therepayment of the liabilities;

(b) the liabilities were incurred for theaccommodation of the parent corporation or anothersubsidiary or of the partnership or association orentity or such individual; or

(c) the subsidiaries though separate entitiesoperate merely as departments or divisions of a

single entity.

Exclusions to SBL:(a) loans and other credit accommodations

secured by obligations of the Bangko Sentral

or of the Philippine Government;(b) loans and other credit accommodations fully

guaranteed by the government as to thepayment of principal and interest;

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(c) loans and other credit accommodationssecured by U.S. treasury notes and othersecurities issued by central governments andcentral banks of foreign countries with thehighest credit quality given by any twointernationally accepted rating agencies;

(d) loans and other credit accommodations to theextent covered by the hold-out on orassignment of, deposits maintained in thelending bank and held in the Philippines;

(e) loans, credit accommodations andacceptances under letters of credit to the

extent covered by margin deposits;(f) and other loans or credit accommodations

which the Monetary Board may from time totime specify as non-risk items.

Restrictions on Bank Exposure to Directors,Officers, Stockholders and their RelatedInterests (DOSRI)

SECTION 36. Restriction on Bank Exposureto Directors, Officers, Stockholders and Their RelatedInterests. No director or officer of any bank shall,

directly or indirectly, for himself or as therepresentative or agent of others, borrow from suchbank nor shall he become a guarantor, indorser orsurety for loans from such bank to others, or in anymanner be an obligor or incur any contractual liabilityto the bank except with the written approval of themajority of all the directors of the bank, excludingthe director concerned: Provided, That such writtenapproval shall not be required for loans, other creditaccommodations and advances granted to officersunder a fringe benefit plan approved by the BangkoSentral. The required approval shall be entered uponthe records of the bank and a copy of such entryshall be transmitted forthwith to the appropriate

supervising and examining department of the BangkoSentral.

*Dealings of a bank with any of its directors, officersor stockholders and their related interests shall beupon terms not less favorable to the bank than thoseoffered to others.

After due notice to the board of directors ofthe bank, the office of any bank director or officerwho violates the provisions of this Section may bedeclared vacant and the director or officer shall besubject to the penal provisions of the New CentralBank Act.

The Monetary Board may regulate theamount of loans, credit accommodations andguarantees that may be extended, directly orindirectly, by a bank to its directors, officers,stockholders and their related interests, as well asinvestments of such bank in enterprises owned orcontrolled by said directors, officers, stockholdersand their related interests. However, the outstandingloans, credit accommodations and guarantees whicha bank may extend to each of its stockholders,

directors, or officers and their related interests, shallbe limited to an amount equivalent to their respectiveunencumbered deposits and book value of their paid-in capital contribution in the bank: Provided,however, That loans, credit accommodations andguarantees secured by assets considered as non-riskby the Monetary Board shall be excluded from suchlimit: Provided, further, That loans, creditaccommodations and advances to officers in the formof fringe benefits granted in accordance with rules asmay be prescribed by the Monetary Board shall notbe subject to the individual limit.

Banks were not created for the benefit oftheir directors and officers; they cannot usethe assets of the bank for their own benefit,except as may be permitted by law. Congresshas thus deemed it essential to imposerestrictions on borrowings by bank directorsand officers in order to protect the public,

especially the depositors. Hence, when thelaw prohibits directors and officers of bankinginstitutions from becoming in any manner an

obligor of the bank (unless with the approvalof the board), the terms of the prohibitionshall be the standards to be applied todirectors' transactions such as those involvedin the present case.[G.R. No. 178429. October 23, 2009.]JOSE C. GO, petitioner, vs. BANGKO

SENTRAL NG PILIPINAS, respondent.

Related Interests as defined by the BSPCIRCULAR NO. 423 s.2004:

Related Interest shall refer to any of thefollowing:(1) Spouse or relative within the first degree of

consanguinity or affinity, or relative by legaladoption, of a director, officer or stockholder of thebank;(2) Partnership of which a director, officer, orstockholder of a bank or his spouse or relative withinthe first degree of consanguinity or affinity, orrelative by legal adoption, is a general partner;(3) Co-owner with the director, officer, stockholderor his spouse or relative within the first degree ofconsanguinity or affinity, or relative by legaladoption, of the property or interest or rightmortgaged, pledged or assigned to secure the loansor other credit accommodations, except when themortgage, pledge or assignment covers only said co-

owner's undivided interest;4) Corporation, association, or firm of which adirector or officer of the bank, or his spouse is also adirector or officer of such corporation, association orfirm, except (a) where the securities of such

corporation, association or firm are listed and tradedin the big board or commercial and industrial boardof domestic stock exchanges and less than fiftypercent (50%) of the voting stock thereof is ownedby any one person or by persons related to each

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other within the first degree of consanguinity oraffinity; or (b) where the director, officer orstockholder of the bank sits as a representative ofthe bank in the board of directors of suchcorporation: Provided, That the bank representativeshall not have any equity interest in the borrowercorporation except for the minimum shares requiredby law, rules and regulations, or by the by-laws ofthe corporation: Provided, further, that the borrowingcorporation is not among those mentioned in itemse(5), e(6), e(7) and e(8) of this Section;

(5) Corporation, association or firm of whichany or a group of directors, officers,stockholders of the lending bank and/or theirspouses or relatives within the first degree ofconsanguinity or affinity, or relative by legaladoption, hold or own at least twenty percent(20%) of the subscribed capital of suchcorporation, or of the equity of suchassociation or firm;

6. Corporation, association or firmwholly or majority-owned or controlled byany related entity or a group of related

entities mentioned in Items e(2), e(4)and e(5) of this Section.

7. Corporation, association or firm whichowns or controls directly or indirectlywhether singly or as part of a group ofrelated interest at least twenty percent(20%) of the subscribed capital of asubstantial stockholder of the lending bank orwhich controls majority interest of the bankpursuant to Subsection X303.1 of theMOR.8. Corporation, association or firm in

which the lending bank and/or itsparent/subsidiary holds or owns at least twenty

percent (20%) of the subscribed capital ofsuch corporation, or in the equity of suchassociation or firm, or has an existing managementcontract or any similar arrangement with the

lending bank or its parent/subsidiary.

Securities on Loans and Other CreditAccomodations

SECTION 37. Loans and Other Credit

Accommodations Against Real Estate. Except asthe Monetary Board may otherwise prescribe, loansand other credit accommodations against real estateshall not exceed seventy-five percent (75%) of theappraised value of the respective real estate security,

plus sixty percent (60%) of the appraised value ofthe insured improvements, and such loans may bemade to the owner of the real estate or to hisassignees. (78a)

SECTION 38. Loans and Other CreditAccommodations on Security of Chattels andIntangible Properties. Except as the MonetaryBoard may otherwise prescribe, loans and othercredit accommodations on security of chattels andintangible properties, such as, but not limited to,

patents, trademarks, trade names, and copyrightsshall not exceed seventy-five percent (75%) of theappraised value of the security, and such loans andother credit accommodations may be made to thetitle-holder of the chattels and intangible propertiesor his assignees.

Real Estate MortgageSECTION 47. Foreclosure of Real Estate

Mortgage. In the event of foreclosure, whetherjudicially or extrajudicially, of any mortgage on realestate which is security for any loan or other credit

accommodation granted, the mortgagor or debtorwhose real property has been sold for the full orpartial payment of his obligation shall have the rightwithin one year after the sale of the real estate, toredeem the property by paying the amount dueunder the mortgage deed, with interest thereon atthe rate specified in the mortgage, and all the costsand expenses incurred by the bank or institution fromthe sale and custody of said property less the incomederived therefrom. However, the purchaser at theauction sale concerned whether in a judicial or

extrajudicial foreclosure shall have the right to enterupon and take possession of such propertyimmediately after the date of the confirmation of theauction sale and administer the same in accordancewith law. Any petition in court to enjoin or restrainthe conduct of foreclosure proceedings institutedpursuant to this provision shall be given due courseonly upon the filing by the petitioner of a bond in anamount fixed by the court conditioned that he willpay all the damages which the bank may suffer bythe enjoining or the restraint of the foreclosureproceeding.

Notwithstanding Act 3135, juridical persons

whose property is being sold pursuant to anextrajudicial foreclosure, shall have the rightto redeem the property in accordance withthis provision until, but not after, theregistration of the certificate of foreclosuresale with the applicable Register of Deedswhich in no case shall be more than three (3)months after foreclosure, whichever isearlier. Owners of property that has beensold in a foreclosure sale prior to theeffectivity of this Act shall retain theirredemption rights until their expiration. (78a)

Other Banking Services

SECTION 53. Other Banking Services. Inaddition to the operations specifically authorized inthis Act, a bank may perform the following services:

53.1. Receive in custody funds, documentsand valuable objects;

53.2. Act as financial agent and buy andsell, by order of and for the account of theircustomers, shares, evidences of indebtedness and alltypes of securities;

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53.3. Make collections and payments forthe account of others and perform such otherservices for their customers as are not incompatiblewith banking business;

53.4. Upon prior approval of the MonetaryBoard, act as managing agent, adviser, consultant oradministrator of investmentmanagement/advisory/consultancy accounts;

Prohibited Transactions of Banks

Conservatorship

Cessation of Banking Business

Deposit Insurance

Prohibited Transactions of Banks1. Prohibited to act as insurer2. Conducting business in an unsafe or unsound

manner3. Prohibition on Dividend Declaration4. Unauthorized advertisement or business

representation

1. Prohibition to act as insurer (Section 54,RA 8791 GBL)Bank shall not directly engage in insurance

business as insurer, e.g., making or proposing tomake as insurer any contract of insurance; making or

proposing to make any contract of suretyship; doingany kind of reinsurance business; and, doing orproposing to do any business in substance equivalentto the foregoing.

2. Conducting business in an unsafe or unsoundmanner

Monetary Board to consider the following

circumstances :a.) Has resulted in or may result inmaterial loss or damage , or abnormalrisk or danger to the safety, stability,liquidity or solvency of the bank;b.) Act or omission has resulted or mayresult in material loss or damage tothe bank, BSP or public in general;c.) Unwarranted benefit, advantage or

preference to any bankd.) Entering into any contract ortransaction manifestly and grosslydisadvantageous to the bank.

Whenever a bank, quasi-bank or trust entitypersists in conducting its business in anunsafe or unsound manner, the MonetaryBoard may, without prejudice to theadministrative sanctions provided in Section37 of the New Central Bank Act, take actionunder Section 30 of the same Act and/orimmediately exclude the erring bank fromclearing, the provisions of law to the contrarynotwithstanding.

Section 30 of the NCBA Receivershipand liquidation

Section 37 of the NCBA Administrativesanction and fines

Prohibition on Dividend Declaration -

Section 57, RA 8791 (NCBA) Section 43,Corporation Code

SECTION 57. Prohibition on DividendDeclaration. No bank or quasi-bank shall declaredividends greater than its accumulated net profitsthen on hand, deducting therefrom its losses and baddebts. Neither shall the bank nor quasi-bank declaredividends, if at the time of declaration:

57.1 Its clearing account with the BangkoSentral is overdrawn; or

57.2 It is deficient in the required liquidityfloor for government deposits for five (5) or moreconsecutive days; or

57.3 It does not comply with the liquiditystandards/ratios prescribed by the Bangko Sentral forpurposes of determining funds available for dividend

declaration; or57.4 It has committed a major violation as

may be determined by the Bangko Sentral.

4. Prohibition on unauthorized advertisement orbusiness representation:

SECTION 64. Unauthorized Advertisement orBusiness Representation. No person,

association, or corporation unless duly authorizedto engage in the business of a bank, quasi-bank,trust entity, or savings and loan association asdefined in this Act, or other banking laws, shalladvertise or hold itself out as being engaged in the

business of such bank, quasi-bank, trust entity, orassociation, or use in connection with its businesstitle, 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 ortransact in any manner the business of any suchbank, corporation or association.

Prohibited acts of :A. Director, officer, employee or agent of any

bank (section 55.1, GBL)B. Borrower of Bank (section 55.2, GBL)C. Examiner, officer or employee of the BSP or

any other (section 55.3 GBL in relation tosections 34, 35, 36 of the New Central BankAct)

Making false entries in any bank report, orparticipating in any fraudulent transaction

Violation of RA 1405

Accepting gifts, fees or commission inconsideration of approving any credit facility

Over valuing any security

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Outsource inherent bank functions to

prevent violations of confidentialityobligations

Prohibited acts of borrower Fraudulently over valuing any property for

credit facility Furnishing false or make misrepresentations

Attempt to defraud a bank

Offering any director, officer or employee anygift, fee or commission

*Same Prohibitions apply to examiner, officer oremployee of the BSP

*The making of false reports or misrepresentation orsuppression of material facts by personnel of theBangko Sentral ng Pilipinas shall constitute fraud andshall be subject to the administrative and criminalsanctions provided under the New Central Bank Act.

ConservatorshipGoverning Law Section 67, RA 8791 in relation to

Sections 29 and 30

SECTION 67. Conservatorship. Thegrounds and procedures for placing a bank underconservatorship, as well as, the powers and duties ofthe conservator appointed for the bank shall begoverned by the provisions of Section 29 and the

last two paragraphs of Section 30 of the New CentralBank Act: Provided, That this Section shall also applyto conservatorship proceedings of quasi-banks.

Who is a conservator and what are his powers?

Powers of Conservator

1.) Take charge of the assets, liabilities andthe management of the bank;

2.) Reorganize the management;3.) Collect all monies and debts due;4.) Exercise all powers necessary to restore

the viability of the bank;

Grounds for appointment of a ConservatorBank or a quasi-bank is in a state of:1.) Continuing inability; or2.) Unwillingness to maintain a condition of

liquidity deemed adequate to protect theinterest of depositors and creditors.

QualificationsCompetent and knowledgeable in bank operationsand management

*Period of conservatorship shall not exceed one (1)year

Grounds for Termination:

1. MB is satisfied that the institution cancontinue to operate on its own and theconservatorship is no longer necessary;

2. MB, based on the report of the conservatoror its own findings determine that thecontinuance in business of the institutionwould involve probable loss to its depositorsor creditors, in which case liquidation andreceivership shall apply

Actions of the MB shall be final and executoryand may not be restrained or set aside by thecourt except on Certiorari.

Certiorari may only be filed by thestockholders of record.

Conservator cannot impair the obligations ofcontracts

- Power is not unilateral- Remedy is to bring actions in court

G.R. No. 115849. January 24, 1996.]FIRST PHILIPPINE INTERNATIONAL BANK

(Formerly Producers Bank of the Philippines)and MERCURIO RIVERA, petitioners, vs. COURTOF APPEALS, CARLOS EJERCITO, in substitutionof DEMETRIO DEMETRIA, and JOSE JANOLO,respondents.

Hence, the conservator merely takes theplace of a bank's board of directors. What the saidboard cannot do such as repudiating a contractvalidly entered into under the doctrine of impliedauthority the conservator cannot do either.Ineluctably, his power is not unilateral and he cannotsimply repudiate valid obligations of the Bank. Hisauthority would be only to bring court actions toassail such contracts as he has already done so in

the instant case. A contrary understanding of the lawwould simply not be permitted by the Constitution.Neither by common sense. To rule otherwisewould be to enable a failing bank to becomesolvent, at the expense of third parties, bysimply getting the conservator to unilaterallyrevoke all previous dealings which had one wayor another come to be considered unfavorableto the Bank, yielding nothing to perfectedcontractual rights nor vested interests of thethird parties who had dealt with the Bank.

CESSATION OF BANKING BUSINESSGoverning Laws:

CHAPTER VI. Cessation of Banking Business, RA8791, SECTIONS 68, 69 and 70Sections 30, 31, 32, and 33 of the New Central BankAct

WHENMAY A RECEIVER BE APPOINTED ?SECTION 30. Proceedings in Receivership

and Liquidation. Whenever, upon report of thehead of the supervising or examining department,

the Monetary Board finds that a bank or quasi-bank:

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(a) is unable to pay its liabilities as theybecome due in the ordinary course of business:Provided, That this shall not include inability topay caused by extraordinary demands induced byfinancial panic in the banking community;

(b) has insufficient realizable assets, asdetermined by the Bangko Sentral, to meet itsliabilities; or

(c) cannot continue in business withoutinvolving probable losses to its depositors orcreditors; or

(d) has willfully violated a cease and

desist order under Section 37 that has becomefinal, involving acts or transactions which

amount to fraud or a dissipation of the assetsof the institution

WHERE BANK IS UNDER RECEIVERSHIP/LIQUIDATION

When a bank is declared insolvent and placedunder receivership, the Central Bank, through theMonetary Board, determines whether to proceed withthe liquidation or reorganization of the financially

distressed bank. A receiver, who concurrentlyrepresents the bank, then takes control andpossession of its assets for the benefit of the bank'screditors.

A liquidator meanwhile assumes the role ofthe receiver upon the determination by the MonetaryBoard that the bank can no longer resume business.His task is to dispose of all the assets of the bankand effect partial payments of the bank's obligationsin accordance with legal priority.

In both receivership and liquidationproceedings, the bank retains its juridical personalitynotwithstanding the closure of its business and mayeven be sued as its corporate existence is assumed

by the receiver or liquidator.

The receiver or liquidator meanwhile acts not only forthe benefit of the bank, but for its creditors as well.

In Provident Savings Bank vs. Court ofAppeals, we further stated that: When a bank isprohibited from continuing to do business by theCentral Bank and a receiver is appointed for suchbank, that bank would not be able to do newbusiness, i.e., to grant new loans or to accept newdeposits. However, the receiver of the bank is in factobliged to collect debts owing to the bank, whichdebts form part of the assets of the bank. Thereceiver must assemble the assets and pay the

obligation of the bank under receivership, and takesteps to prevent dissipation of such assets.Accordingly, the receiver of the bank is obliged tocollect pre-existing debts due to the bank, and inconnection therewith, to foreclose mortgagessecuring such debts.

[G.R. No. 135706. October 1, 2004.]SPS. CESAR A. LARROBIS, JR. and VIRGINIA

S. LARROBIS, petitioners, vs. PHILIPPINE VETERANSBANK, respondent.

Effect of Appointment of a Receiver

The appointment of a receiver operates to suspendthe authority of the bank and of its directors andofficers over its property and effects, such authoritybeing reposed in the receiver, and in this respect, thereceivership is equivalent to an injunction to restrainthe bank officers from intermeddling with theproperty of the bank in any way. (65 Am. Jur. 2dReceivers, 146 [1963]. In a nutshell, the insolvencyof a bank and the consequent appointment of a

receiver restrict the bank's capacity to act, especiallyin relation to its property.

G.R. No. 114870. May 26, 1995.]MIGUELA R. VILLANUEVA, RICHARD R.

VILLANUEVA, and MERCEDITA VILLANUEVA-TIRADOS, petitioners, vs. COURT OF APPEALS,CENTRAL BANK OF THE PHILIPPINES,ILDEFONSO C. ONG, and PHILIPPINE VETERANSBANK, respondents.

WHO MAY BE APPOINTED AS RECEIVER ?

The Monetary Board may summarily andwithout need for prior hearing forbid the institutionfrom doing business in the Philippines and designatethe Philippine Deposit Insurance Corporation asreceiver of the banking institution.

For a quasi-bank, any person of recognizedcompetence in banking or finance may be designedas receiver. (Section 30, NCBA)

WHO MAY APPOINT A RECEIVERSection 30, NCBA:

"The designation of a conservator under Section 29of this Act or the appointment of a receiver under

this section shall be vested exclusively with theMonetary Board. Furthermore, the designation of aconservator is not a precondition to the designationof a receiver."

WHAT ARE THE POWERS OF RECEIVER ?Congress itself has recognized that a bank

receiver only has powers of administration. Section30 of the New Central Bank Act expressly providesthat "[t]he receiver shall immediately gather andtake charge of all the assets and liabilities of theinstitution, administer the same for the benefit of itscreditors, and exercise the general powers of areceiver under the Revised Rules of Court but shall

not, with the exception of administrativeexpenditures, pay or commit any act that will involvethe transfer or disposition of any asset of theinstitution . . .

[G.R. No. 162270. April 6, 2005.]ABACUS REAL ESTATE DEVELOPMENT

CENTER, INC., petitioner, vs. THE MANILABANKING CORPORATION, respondent.

Rationale for appointment of a Receiver

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This is consistent with the purpose ofreceivership proceedings, i.e., to receive collectiblesand preserve the assets of the bank in substitution ofits former management, and prevent the dissipationof its assets to the detriment of the creditors of thebank.

[G.R. No. 135706. October 1, 2004.]SPS. CESAR A. LARROBIS, JR. and

VIRGINIA S. LARROBIS, petitioners, vs.PHILIPPINE VETERANS BANK, respondent.

What is the responsibility of Receiver

The receiver shall determine as soon aspossible, but not later than ninety (90) days fromtake over, whether the institution may berehabilitated or otherwise placed in such a conditionso that it may be permitted to resume business withsafety to its depositors and creditors and the generalpublic: Provided, That any determination for theresumption of business of the institution shall besubject to prior approval of the Monetary Board.(section 30, NCBA)

What is responsibility of receiver in case bankcannot be rehabilitated ?If the receiver determines that the institution

cannot be rehabilitated or permitted to resumebusiness in accordance with the next precedingparagraph, the Monetary Board shall notify in writingthe board of directors of its findings and direct thereceiver to proceed with the liquidation of theinstitution. The receiver shall:(1) file ex parte with the proper regional trialcourt, and without requirement of prior notice orany other action, a petition for assistance in theliquidation of the institution pursuant to a liquidationplan adopted by the Philippine Deposit Insurance

Corporation for general application to allclosed banks. In case of quasi-banks, the liquidationplan shall be adopted by the Monetary Board.

Upon acquiring jurisdiction, the court shall, uponmotion by the receiver after due notice,adjudicate disputed claims against the institution,assist the enforcement of individual liabilities ofthe stockholders, directors and officers, and decideon other issues as may be material to implement

the liquidation plan adopted. The receivershall pay the cost of the proceedings from theassets of the institution.

(2) convert the assets of the institutions to

money, dispose of the same to creditors andother parties, for the purpose of paying the debtsof such institution in accordance with the rules onconcurrence and preference of credit under theCivil Code of the Philippines and he may, in thename of the institution, and with the assistance ofcounsel as he may retain, institute such

actions as may be necessary to collect andrecover accounts and assets of, or defend anyaction against, the institution. The assets of an

institution under receivership or liquidationshall be deemed in custodia legis in the hands ofthe receiver and shall, from the moment theinstitution was placed under such receivershipor liquidation, be exempt from any order of

garnishment, levy, attachment, or execution.

Rules in distribution of Assets RA 7653 /NCBA

SECTION 31. Distribution of Assets. Incase of liquidation of a bank or quasi-bank, afterpayment of the cost of proceedings, including

reasonable expenses and fees of the receiver to beallowed by the court, the receiver shall pay the debtsof such institution, under order of the court, inaccordance with the rules on concurrence andpreference of credit as provided in the Civil Code.

SECTION 32. Disposition of Revenues andEarnings. All revenues and earnings realized bythe receiver in winding up the affairs andadministering the assets of any bank or quasi-bankwithin the purview of this Act shall be used to pay the

costs, fees and expenses mentioned in the precedingsection, salaries of such personnel whoseemployment is rendered necessary in the dischargeof the liquidation together with other additionalexpenses caused thereby. The balance of revenuesand earnings, after the payment of all said expenses,shall form part of the assets available for payment tocreditors."

SECTION 33. Disposition of Banking Franchise. The Bangko Sentral may, if public interest sorequires, award to an institution, upon such termsand 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 brancheswere previously operating: Provided, That whateverproceeds may be realized from such award shall besubject to the appropriate exclusive disposition of theMonetary Board."

DEPOSIT INSURANCE - Governing LawRepublic Act 3591 as amended by Republic Act7400 and RA 9302

ROLE OF THE PDIC1. Insure the deposits of all banks which are

entitled to the benefits of insurance andwhich shall have all the powers granted by

law2. It shall serve as a basic policy, promote andsafeguard the interests of the depositingpublic by way of providing permanent andcontinuing insurance coverage on all insureddeposits

Organization of the PDICThe Board of Directors shall have the authority:

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1. To prepare and issue rules andregulations as it considers necessary forthe effective discharge of its responsibilities;

2. To direct the management,operations and administration of theCorporation;

3. To appoint, establish the rank, fix theremuneration and remove any officer oremployee of the Corporation for cause,

subject to the Civil Service and pertinentcompensation laws; and

4. To authorize such expenditures bythe Corporation as are in the interest of theeffective administration and operation of theCorporation."

Board of Directors which shall be composed offive (5) members as follows:

(a) The Secretary of Finance who shall bethe ex officio Chairman of the Board withoutcompensation.

(b) The Governor of the Central Bank,

who shall be the ex officio member of the Boardwithout compensation.(c) The President of the Corporation, who

shall be appointed by the President of thePhilippines from either the Government or private

sector to serve on a full-time basis for a termof six (6) years. The President shall also serve asvice chairman of the Board.(d) Two (2) members from the private sector, tobe appointed for a term of six (6) years withoutreappointment from the President of the

Philippines: Provided, That of those firstappointed, the first appointee shall serve a period oftwo (2) years.

*No person shall be appointed as member of theBoard unless he be of good moral character and ofunquestionable integrity and responsibility, and whois of recognized competence in economics, bankingand finance, law, management administration orinsurance, and shall be at least thirty-five (35) yearsof age. For the duration of their tenure or term inoffice and for a period of one year thereafter, theappointive member of the Board shall be disqualifiedfrom holding any office, position or employment inany insured bank.

* The Philippine Deposit Insurance Corporation(PDIC) was created by law and, as such, is governedprimarily by the provisions of the special law creatingit. The liability of the PDIC for insured depositstherefore is statutory and, under Republic ActNo. 3591, as amended, such liability rests uponthe existence of deposits with the insured bank,not on the negotiability or non-negotiability ofthe certificates evidencing these deposits.

The authority for this conclusion finds supportin decisions by American state courts applying their

respective bank guaranty laws. The fact that thecertificates state that the certificates are insured byPDIC does not ipso facto make the latter liable forthe same should the contingency insured againstarise. As stated earlier, the deposit liability of PDIC isdetermined by the provisions of R.A. No. 3591, andstatements in the certificates that the same areinsured by PDIC are not binding upon the latter.

[G.R. No. 118917. December 22, 1997.]PHILIPPINE DEPOSIT INSURANCE

CORPORATION, petitioner, vs. COURT OFAPPEALS, ROSA AQUERO, GERARD YU, ERIC YU,

MINA YU, ELIZABETH NGKAION, MERLYCUESCANO, LETICIA TAN, FELY RUMBANA,LORNA ACUB, represented by their Attorney-in-Fact, JOHN FRANCIS COTAOCO, respondents.

* In order that a claim for deposit insurancewith the PDIC may prosper, the law requires that acorresponding deposit be placed in the insured bank.*Personal Filing of claims is required by the PDIC

*Maximum Deposit Insurance for each depositor isP500,000.00, regardless of the number of accountsthe depositor has in the closed bank.

To carry out the purposes of this Act, thepermanent insurance fund shall be Three billionpesos (P3,000,000,000.00).

The Deposit Insurance Fund shall be thecapital account of the Corporation and shallprincipally consist of the following: (i) the PermanentInsurance Fund; (ii) assessment collections, subjectto the charges enumerated in Section 6 (d), (iii)reserves for insurance and financial assistancelosses; and (iv) retained earnings: Provided; That thereserves for insurance and financial assistance losses

and retained. earnings shall be maintained at areasonable level to ensure capital adequacy:Provided, further, That the Corporation may, withintwo (2) years from the passage of this Act, and everyfive (5) years thereafter, conduct a study on theneed to adjust the amount of the PermanentInsurance Fund, insurance cover, assessment rateand assessment base, and thereafter make thenecessary recommendation to Congress. For thispurpose, the Corporation may hire the services ofactuarial consultants to determine, among others,the affordability of assessment rates, analysis andevaluation of insurance risk, and advisability ofimposing varying assessment rates or insurance

cover of different bank categories."

DEPOSIT INSURANCE HOW SETTLEDSEC. 14. Whenever an insured bank

shall have been closed by the Monetary Boardpursuant to Section 30 of R.A. 7653, payment of theinsured deposits on such closed banks shall be madeby the Corporation as soon as possible either (1) bycash or (2) by making available to each depositor atransferred deposit in another insured bank in an

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amount equal to insured deposit of such depositor:Provided, however, That the Corporation, in itsdiscretion, may require proof of claims to be filedbefore paying the insured deposits, and that in anycase where the Corporation is not satisfied as to theviability of a claim for an insured deposit, it mayrequire final determination of a court of competentjurisdiction before paying such claim: Provided,further, That failure to settle the claim, within six (6)months from the date of filing of claim for insureddeposit, where such failure was due to grave abuseof discretion, gross negligence, bad faith, or malice,

shall, upon conviction, subject the directors, officersor employees of the Corporation responsible for thedelay, to imprisonment from six (6) months to one(1) year: Provided, furthermore, That the period shallnot apply if the validity of the claim requires theresolution of issues of facts and or law by anotheroffice, body or agency including the case mentionedin the first proviso or by the Corporation togetherwith such other office, body or agency." S

* The Corporation shall commence thedetermination of insured deposits due the depositorsof a closed bank upon its actual takeover of theclosed bank. The Corporation shall give notice to thedepositors of the closed bank of the insured depositsdue them by whatever means deemed appropriate bythe Board of Directors: Provided, That theCorporation shall publish the notice once a week forat least three (3) consecutive weeks in a newspaperof general circulation or, when appropriate, in anewspaper circulated in the community orcommunities where the closed bank or its branchesare located

FINANCING COMPANIES

INVESTMENT COMPANIES

GOVERNING LAWREPUBLIC ACT NO. 8556AN ACT AMENDING REPUBLIC ACT NO. 5980, ASAMENDED, OTHERWISE KNOWN AS THE FINANCINGCOMPANY ACT

FINANCING COMPANIES

Rationale/State Policy It is hereby declared to be the policy of theState to regulate and promote the activities offinancing and leasing companies to place their

operations on a sound, competitive, stable andefficient basis as other financial institutions, torecognize and strengthen their critical role inproviding medium and longterm credit forinvestments in capital goods and equipment

especially by small and medium enterprisesparticularly in the countryside and to curtail andprevent acts or practices prejudicial to the publicinterest so that they may be in a better position toextend efficient service in a fair manner to the

general public and to industry, commerce andagriculture and thereby more fully contribute to thesound development of the national economy.

WHAT ARE FINANCING COMPANIES'Financing companies' hereinafter called companies,are corporations, except banks, investments houses,savings and loan associations, insurance companies,cooperatives, and other financial institutionsorganized or operating under other special laws,which are primarily organized for the purpose ofextending credit facilities to consumers and to

industrial, commercial, or agricultural enterprises, bydirect lending or by discounting or factoringcommercial papers or accounts receivable, or bybuying and selling contracts, leases, chattelmortgages, or other evidences of indebtedness, or byfinancial leasing of movable as well as immovableproperty;

Jurisprudence

G.R. No. 99433. June 19, 2001.]

PROJECT BUILDERS, INC., GALICANO A. CALAPATIA,JR., and LEANDRO ENRIQUEZ, petitioners, vs. THECOURT OF APPEALS and INDUSTRIAL FINANCECORPORATION, respondents.SYNOPSIS

Petitioner corporation, developer-builder ofJovan Condominium, and respondent corporationentered into an agreement whereby it was agreedthat respondent corporation would increase petitionercorporation's credit line to P5,000,000.00 againstwhich said petitioner would discount and assigntwenty contracts to sell with accounts receivable fromits condominium unit buyers to respondentcorporation with recourse to assignor and on a non-

collection basis. To secure compliance with the termsand conditions of the agreement, petitionersexecuted a Deed of Real Estate Mortgage in favor ofrespondent corporation. When petitioners defaultedin the payment of installments, the real estatemortgage was extrajudicially foreclosed andrespondent was the highest bidder at the auctionsale. The foreclosed property was redeemed a yearlater, but after application of the redemptionpayment, respondent corporation claimed that therewas still a deficiency in the amount of P1,323,053.08.Hence, respondent corporation filed a collection suitagainst petitioners. Petitioners denied liability. Afterthe joinder of issues, the trial court dismissed the

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Comrev Finals - Banking Laws