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BANKING: Sept 9

Sept 9 Assignment

I. Authority of BSP

i. Chapter II, Sections 4-7, GBL

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

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

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

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

i. Chapter III, Sections 8-13, GBL

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

2. Manual of Regulations for Banks, Section X104

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

4. Foreign Banks (Section 73, GBL)

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

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

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

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

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


Authority of BSP For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks
i. Chapter II, Sections 4-7, GBL
and quasi-banks which shall, to the extent feasible, conform to internationally
CHAPTER II accepted standards, including of the Bank for International Settlements (BIS). The
AUTHORITY OF THE BANGKO SENTRAL Monetary Board may exempt particular categories of transactions from such ratios,
ceilings, and limitations, but not limited to exceptional cases or to enable a bank or
Sec. 4. Supervisory Powers. The operations and activities of banks shall be subject to quasi-bank under rehabilitation or during a merger or consolidation to continue in
supervision of the Bangko Sentral. Supervision shall include the following: business, with safety to its creditors, depositors and the general public.
4.1. The issuance of rules of, conduct or the establishment standards of Sec. 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or
operation for uniform application to all institutions or functions covered, entity shall engage in banking operations or quasi-banking functions without
taking into consideration the distinctive character of the operations of authority from the Bangko Sentral: Provided, however, That an entity authorized by
institutions and the substantive similarities of specific functions to which the Bangko Sentral to perform universal or commercial banking functions shall
such rules, modes or standards are to be applied; likewise have the authority to engage in quasi-banking functions.
4.2.The conduct of examination to determine compliance with laws and The determination of whether a person or entity is performing banking or quasi-
regulations if the circumstances so warrant as determined by the Monetary banking functions without Bangko Sentral authority shall be decided by the Monetary
Board; Board. To resolve such issue, the Monetary Board may; through the appropriate
supervising and examining department of the Bangko Sentral, examine, inspect or
4.3. Overseeing to ascertain that laws and regulations are complied with;
investigate the books and records of such person or entity. Upon issuance of this
4.4. Regular investigation which shall not be oftener than once a year from authority, such person or entity may commence to engage in banking operations or
the last date of examination to determine whether an institution is quasi-banking function and shall continue to do so unless such authority is sooner
conducting its business on a safe or sound basis: Provided, That the surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance
deficiencies/irregularities found by or discovered by an audit shall be with this Act or other special laws.
immediately addressed;
The department head and the examiners of the appropriate supervising and
4.5. Inquiring into the solvency and liquidity of the institution; or examining department are hereby authorized to administer oaths to any such person,
employee, officer, or director of any such entity and to compel the presentation or
4.6. Enforcing prompt corrective action. production of such books, documents, papers or records that are reasonably
necessary to ascertain the facts relative to the true functions and operations of such
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions person or entity. Failure or refusal to comply with the required presentation or
production of such books, documents, papers or records within a reasonable time
which under special laws are subject to Bangko Sentral supervision.
shall subject the persons responsible therefore to the penal sanctions provided under
For the purposes of this Act, quasi-banks shall refer to entities engaged in the the New Central Bank Act.
borrowing of funds through the issuance, endorsement or assignment with recourse
Persons or entities found to be performing banking or quasi-banking functions
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653
without authority from the Bangko Sentral shall be subject to appropriate sanctions
(hereafter the New Central Bank Act) for purposes of re-lending or purchasing of
under the New Central Bank Act and other applicable laws.
receivables and other obligations.
Sec.7. Examination by the Bangko Sentral. The Bangko Sentral shall, when
Sec.5. Policy Direction; Ratios, Ceilings and Limitations. The Bangko Sentral shall
examining a bank, have the authority to examine an enterprise which is wholly or
provide policy direction in the areas of money, banking and credit.
majority-owned or controlled by the bank.
(2) purchasing receivables or other obligations.

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

Section 25. Supervision and Examination. The Bangko Sentral shall have X234.2 Definition of terms and phrases. The following terms and phrases shall be
supervision over, and conduct periodic or special examinations of, banking understood as follows:
institutions and quasi-banks, including their subsidiaries and affiliates engaged in
a. Borrowing shall refer to all forms of obtaining or raising funds through any of the
allied activities.
methods and for any of the purposes provided in Subsec. X234.1 whether the
borrowers liability thereby is treated as real or contingent.

iii. Quasi-banks (See also Section 95, RA. No 7653; Elements of Quasi Banking; b. For the borrowers own account shall refer to the assumption of liability in ones
Manual of Regulations for Banks Section X234, including Subsection X234.1-234.3) own capacity and not in representation, or as an agent or trustee, of another.

Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" is c. Purchasing of receivables or other obligations shall refer to the acquisition of
defined as an alternative form of obtaining funds from the public, other than deposits, claims collectible in money, including interbank borrowings or borrowings between
through the issuance, endorsement, or acceptance of debt instruments for the financial institutions, or of acquisition of securities, of any amount and maturity, from
borrower's own account, for the purpose of relending or purchasing of receivables domestic or foreign sources.
and other obligations. These instruments may include, but need not be limited to,
bankers acceptances, promissory notes, participations, certificates of assignment and d. Relending shall refer to the extension of loans by an institution with antecedent
similar instruments with recourse, and repurchase agreements. The Monetary Board borrowing transactions. Relending shall be presumed, in the absence of express
shall determine what specific instruments shall be considered as deposit substitutes stipulations, when the institution is regularly engaged in lending.
for the purposes of Section 94 of this Act: Provided, however, That deposit e. Regularly engaged in lending shall refer to the practice of extending loans,
substitutes of commercial, industrial and other non-financial companies for the advances, discounts or rediscounts as a matter of business, as distinguished from
limited purpose of financing their own needs or the needs of their agents or dealers isolated lending transactions.
shall not be covered by the provisions of Section 94 of this Act.

X234.3 Transactions not considered quasi-banking. The following shall not


X234.1 Elements of quasi-banking - The essential elements of quasi-banking are: constitute quasi-banking:
a. Borrowing funds for the borrowers own account; a. Borrowing by commercial, industrial and other non-financial companies through
b. Twenty (20) or more lenders at any one (1) time; any of the means listed in Subsec. X234.1 hereof, for the limited purpose of financing
their own needs or the needs of their agents or dealers; and
c. Methods of borrowing are issuance, endorsement, or acceptance of debt
instruments of any kind, other than deposits, such as acceptances, promissory notes, b. The mere buying and selling without recourse of instruments mentioned in Subsec.
participations, certificates of assignments or similar instruments with recourse, trust X234.1: Provided, That:
certificates, repurchase agreements, and such other instruments as the Monetary (1) The institution buying and selling without recourse shall indicate in
Board may determine; and conspicuous print on its instrument the phrase without recourse, sans recourse
d. The purpose of which is or words of similar import that will convey the absence of liability or guarantee
by said institution; and
(1) relending, or
(2) In the absence of the phrase without recourse, sans recourse or words of No new commercial bank shall be established within three (3) years from the
similar import, the instrument so issued, endorsed or accepted, shall effectivity of this Act. In the exercise of the authority granted herein, the Monetary
automatically be considered as falling within the purview of these regulations: Board shall take into consideration their capability in terms of their financial
Provided, further, That any of the following practices or practices similar and/or resources and technical expertise and integrity. The bank licensing process shall
tantamount thereto in connection with a without recourse transaction is hereby incorporate an assessment of the bank's ownership structure, directors and senior
prohibited: management, its operating plan and internal controls as well as its projected financial
condition and capital base.
(a) Issuance of postdated checks by a financial intermediary, whether for its
own account or as an agent of the debt instrument issuer, in payment of the Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and
debt instrument, sold, assigned or transferred without recourse; or regulations on the types of stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance with laws and regulations
(b) Issuance by a financial intermediary of any form of guaranty on sale
governing capital and equity structure of banks; Provided, That banks shall issue par
transactions or on negotiations or assignment of debt instruments without
value stocks only.
recourse; and
Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own
(c) Payment with its own funds by a financial intermediary which assigned,
capital stock or accept its own shares as a security for a loan, except when authorized
sold or transferred the debt instrument without recourse, unless the
by the Monetary Board: Provided, That in every case the stock so purchased or
financial intermediary can show that the issuer has with the said financial
acquired shall, within six (6) months from the time of its purchase or acquisition, be
intermediary funds corresponding to the amount of the obligation.
sold or disposed of at a public or private sale. (24a)

Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations


II. Organization, Management and Administration of Banks, QB and Trust Entities may own or control up to forty percent (40%) of the voting stock of a domestic bank.
This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa)
i. Chapter III, Sections 8-13, GBL The percentage of foreign-owned voting stocks in a bank shall be determined by the
1. Organization, Issuance of Stocks; Treasury Shares (Sections 8-10, GBL) citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
3. Foreign Stockholdings (Sections 11-13, GBL) controlling stockholders of the corporation, irrespective of the place of incorporation.
(n)
CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
AND TRUST ENTITIES individuals related to each other within the fourth degree of consanguinity or affinity,
legitimate or common-law, shall be considered family groups or related interests and
Section 8. Organization. - The Monetary Board may authorize the organization of a must be fully disclosed in all transactions by such corporations or related groups of
bank or quasi-bank subject to the following conditions: persons with the bank. (12-Ba)
8.1 That the entity is a stock corporation (7); Section 13. Corporate Stockholdings. - Two or more corporations owned or
8.2 That its funds are obtained from the public, which shall mean twenty (20) or controlled by the same family group or same group of persons shall be considered
more persons (2-Da); and related interests and must be fully disclosed in all transactions by such corporations
or related group of persons with the bank. (12-Ba)
8.3 That the minimum capital requirements prescribed by the Monetary Board
for each category of banks are satisfied. (n)
2. Manual of Regulations for Banks, Section X104
Sec. X104 (2008 - X167) Business Name banks and/or their advertising agencies shall incorporate in their contract/
agreement for time and space with media the condition that such
a. UBs/KBs. Only a bank that is granted universal/commercial banking authority may
contract/agreement for time and space can be cancelled/ terminated immediately
represent itself to the public as such in connection with its business name.
whenever the client bank is directed by the BSP to desist or discontinue the particular
b. TBs. TBs may be allowed to adopt and use any name: Provided, That the words A advertisement in question.
Thrift Bank, A Savings Bank, A Private Development Bank or A Stock Savings and Loan
g. Responsibility for compliance with the above rules and regulations rests with the
Association, as the case may be, are affixed after its business name.
bank officers or directors who caused the approval or placement of such
c. RBs/Coop Banks. RBs/Coop Banks may adopt a corporate name or use a business advertisement.
name/style with the word Rural or Coop, as the case may be. Said banks may also
adopt a name without such words: Provided, That the identifying phrase, A
Cooperative Bank or A Rural Bank, as the case may be, is affixed after its business 4. Foreign Banks (Section 73, GBL)
name: Provided, further, That where the name of the bank is shown on letterheads,
billboards and other advertising materials, the size of the letters of such phrase shall Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years
be at least one-half () the size of the business name. (As amended by CL Nos. 2008- from the effectivity of this act and subject to guidelines issued pursuant to the
053 dated 21 August 2008 and 2008-007 dated 21 January 2008) Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to
acquire up to one hundred percent (100%) of the voting stock of only one (1) bank
organized under the laws of the Republic of the Philippines. Within the same period,
the Monetary Board may authorize any foreign bank, which prior to the effectivity of
X104.1 (2008-X607) Bank Advertisements. The following rules and regulations
this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting
shall govern bank advertisements. a. No bank shall publish, issue or distribute in any
stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to
form, any advertisement that shall degrade, deprecate or otherwise prejudice other
further acquire voting shares such bank to the extent necessary for it to own one
banking and financial institutions.
hundred percent (100%) of the voting stock thereof. In the exercise of the authority,
b. No bank shall publish, issue or distribute in any form of advertisement (in the Monetary Board shall adopt measures as may be necessary to ensure that at all
newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any times the control of seventy percent (70%) of the resources or assets of the entire
other medium) or allow itself to be used/ mentioned in any form of advertisement banking system is held by banks which are at least majority-owned by Filipinos. Any
unless such advertisement is in pursuance of its business or investment. right, privilege or incentive granted to a foreign bank under this Section shall be
equally enjoyed by and extended under the same conditions to banks organized
c. No bank shall place or cause to be placed any advertisement tending to mislead a
under the laws of the Republic of the Philippines. (Secs. 2 and 3, RA 7721
depositor into believing that he will get more in benefits than what the bank is legally
authorized to give. No bank advertisement shall contain any false claim or
exaggerated representation as to its liquidity, solvency, resources, deposits and 5. Foreign Bank Liberalization Act (RA 7721, as amended by RA No. 10641)
banking services.
REPUBLIC ACT NO. 7721
d. No bank advertisement shall give the impression that the bank is engaged in a
business other than banking. AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS
IN THE PHILIPPINES AND FOR OTHER PURPOSES.
e. Banks shall inform their depositors and other clients by advertisement or
publication of the termination of benefits previously advertised or publicized. SECTION 1. Declaration of Policy. The State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos and encourage,
f. Banks shall discontinue any advertisement whenever the same is deemed promote, and maintain a stable, competitive, efficient, and dynamic banking and
unethical/unwarranted or violative of the provisions of these regulations. The client financial system that will stimulate economic growth, attract foreign investments,
provide a wider variety of financial services to Philippine enterprises, households and be equal to that prescribed by the Monetary Board for domestic banks of the same
individuals, strengthen linkages with global financial centers, enhance the country's category.
competitiveness in the international market and serve as a channel for the flow of
funds and investments into the economy to promote industrialization. "(ii) For Foreign Bank Branches Foreign banks that shall be authorized to establish
branches pursuant to Section 2(hi) of this Act shah permanently assign capital of an
Pursuant to this policy, the Philippine banking and financial system is hereby amount not less than the minimum capital required for domestic banks of the same
liberalized to create a more competitive environment and encourage greater foreign category. The permanently assigned capital shall be inwardly remitted and converted
participation through increase in ownership in domestic banks by foreign banks and into Philippine currency.
the entry of new foreign bank branches.
"The foreign bank branch may open up to five (5) sub-branches as may be approved
In allowing increased foreign participation in the financial system, it shall be the by the Monetary Board. Locally incorporated subsidiaries of foreign banks pursuant
policy of the State that the financial system shall remain effectively controlled by to Section 2(h) of this Act shall have the same branching privileges as domestic banks
Filipinos. of the same category.

SEC. 2. Modes of Entry. The Monetary Board may authorize foreign banks to Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall
operate in the Philippine banking system through any one of the following" modes of guarantee prompt payment of all liabilities of its Philippine branches.
entry: (i) by acquiring, purchasing or owning up to one hundred percent (100%) of the
voting stock of an existing bank; (ii) by investing in up to one hundred percent (100%) REPEALED Sec. 6. Entrants under Section 2(iii). Foreign banks shall be allowed
of the voting stockof a new banking subsidiary incorporated under the laws of the entry under Section 2 (iii) within five (5) years from the effectivity of this Act. During
Philippines; or (iii) by establishing branches with full banking authority. this period, six (6) new foreign banks shall be allowed entry under Section 2(iii) upon
the approval of the Monetary Board. An additional four (4) foreign banks may be
SEC. 3. Guidelines for Approval. In approving entry applications of foreign banks, allowed entry on recommendation of the Monetary Board, subject to compliance
the Monetary Board shall: (i) ensure geographic representation and with Sections 2, 3, 4, and 5 of this Act, upon approval of the President as the national
complementation; (ii) consider strategic trade and investment relationships between interest may require.
the Philippines and the country of incorporation of the foreign bank; (iii) study the
demonstrated capacity, global reputation for financial innovations and stability in a Sec. 7. Board of Directors. Non-Filipino citizens may become members of the
competitive environment of the applicant; (iv) see to it that reciprocity rights are Board of Directors of a bank to the extent of the foreign participation in the equity of
enjoyed by Philippine banks in the applicants country; and (v) consider willingness to said bank.
fully share their technology. SEC. 8. Equal Treatment. Foreign banks authorized to operate under Section 2 of
"Only established, reputable and financially sound foreign banks shall be allowed this Act, shall perform the same functions, enjoy the same privileges, and be subject
entry in accordance with Section 2 of this Act. The foreign bank applicant must be to the same limitations imposed upon a Philippine bank of the same category. The
widely-owned and publicly-listed in its country of origin, unless the foreign bank single borrowers limit of a foreign bank branch shall be aligned with that of a
applicant is owned and controlled by the government of its country of origin. domestic bank.

"In the exercise of this authority, the Monetary Board shall adopt such measures as "The foreign banks shall guarantee the observance of the rights of their employees
may be necessary to ensure that the control of at least sixty percent (60%) of the under the Constitution.
resources or assets of the entire banking system is held by domestic banks which are "Any right, privilege or incentive granted to foreign banks or their subsidiaries or
majority-owned by Filipinos. affiliates under this Act, shall be equally enjoyed by and extended under the same
SEC. 4. Capital Requirements. (i) For Locally Incorporated Subsidiaries The conditions to Philippine banks.
minimum capital required for locally incorporated subsidiaries of foreign banks shall SEC. 9. Participation in Foreclosure Proceedings.Foreign banks which are
authorized to do banking business in the Philippines through any of the modes of
entry under Section 2 hereof shall be allowed to bid and take part in foreclosure sales Sec. 14. Amendment and Repeal of Inconsistent Laws. Sections 11, 12, 12-A, 12-B,
of real property mortgaged to them, as well as to avail of enforcement and other 13, 14-A, 21-B, and 68 of Republic Act No. 337, as amended, otherwise known as the
proceedings, and accordingly take possession of the mortgaged property, for a period General Banking Act: Sections 4 and 5 of Republic Act No. 7353, otherwise known as
not exceeding five (5) years from actual possession: Provided, That in no event shall the Rural Banks Act; Sections 4 and 14 of Republic Act No. 3779, as amended,
title to the property be transferred to such foreign bank. In case said bank is the otherwise known as the Savings and Loan Association Act; and Section 4 of Republic
winning bidder, it shall, during the said five (5)-year period, transfer its rights to a Act No. 4093, as amended, otherwise known as the Private Development Banks Act
qualified Philippine national, without prejudice to a borrowers rights under insofar as they are inconsistent with this Act, are hereby repealed or modified
applicable laws. Should the bank fail to transfer such property within the five (5)-year accordingly.
period, it shall be penalized one half (1/2) of one percent (1%) per annum of the price
at which the property was foreclosed until it is able to transfer the property to a Sec. 15. Effectivity Clause. This Act shall take effect fifteen (15) days after its
qualified Philippine national. publication in the Official Gazette or in two (2) national newspapers of general
circulation.
Sec. 10. Transitory Provisions. Foreign banks which are already authorized to do
Approved: May 18, 1994
banking business in the Philippines through any of the modes of entry under Section
2 hereof may apply to change their original mode of entry.
iii. Chapter III, Sections 15-17, GBL -Board of Directors
Foreign banks operating through branches in the Philippines upon the effectivity of
this Act shall retain their original privilege upon entry to establish a limited number of
Section 15. Board of Directors. - The provisions of the Corporation Code to the
sub-branches. However, the previous restriction on the locations of such additional
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
branches is hereby lifted.
(15) members of the board or directors of a bank, two (2) of whom shall be
The existing Philippine branches of foreign banks shall comply within one (1) year independent directors. An "independent director" shall mean a person other than an
from the effectivity of this Act with the minimum capital requirements as prescribed officer or employee of the bank, its subsidiaries or affiliates or related interests. (n)
under Section 4(ii) of this Act, unless otherwise extended by the Monetary Board. Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721) The
Sec. 11. Separability Clause. If any provision of this Act is declared unconstitutional, meetings of the board of directors may be conducted through modern technologies
the same shall not affect the validity of the other provisions not affected thereby. such as, but not limited to, teleconferencing and video-conferencing. (n)
SEC. 12. Applicability of Other Banking Laws. The provisions of Republic Act No. Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
7653, otherwise known as the New Central Bank Act and the provisions of Republic afford better protection to depositors and the public in general the Monetary Board
Act No. 8791, otherwise known as The General Banking Law of 2000, insofar as they shall prescribe, pass upon and review the qualifications and disqualifications of
are applicable and not in conflict with any provision of this Act, shall apply to banks individuals elected or appointed bank directors or officers and disqualify those found
authorized pursuant to this Act. unfit. After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an
SEC. 13. Rule-Making Powers of the Monetary Board of the Bangko Sentral ng
act which render him unfit for the position. In determining whether an individual is fit
Pilipinas and Compliance Reports. The Monetary Board is hereby authorized to
and proper to hold the position of a director or officer of a bank, regard shall be given
issue such rules and regulations as may be needed to implement "the provisions of
to his integrity, experience, education, training, and competence. (9-Aa)
this Act. On or before May 30 of each year, the Monetary Board shall file a written
report to Congress and its respective Banks Committees, on the developments in the Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank
implementation of this Act. The implementing rules and regulations of this Act shall merger or consolidation, the number of directors shall not exceed twenty-one (21).
be published in at least two (2) newspapers of general circulation. (l3a)
1. Qualifications-MORB Section X141; X141.1; X141.2 (skim through) either in his personal capacity or through his firm; is independent of
management and free from any business or other relationship, has not engaged
Sec. X141 Definition and Qualifications of Directors; Responsibilities and Duties of
and does not engage in any transaction with the institution or with any of its
Board of Directors. For purposes of this Section, the following shall be the definition
related companies or with any of its substantial shareholders, whether by
and qualifications, responsibilities and duties of directors and board of directors,
himself or with other persons or through a firm of which he is a partner or a
respectively.
company of which he is a director or substantial shareholder, other than
X141.1 Definition/limits transactions which are conducted at arms length and could not materially
interfere with or influence the exercise of his judgment.
a. Definition of directors. Directors shall include:
An independent director of a bank can be elected as an independent director of its: (a)
(1) directors who are named as such in the articles of incorporation; parent or holding company; (b) subsidiary or affiliate; (c) substantial shareholder; or
(d) other related companies, or vice-versa: Provided, That he is not a substantial
(2) directors duly elected in subsequent meetings of the stockholders; and
shareholder of the bank or any of the said concerned entities.
(3) those elected to fill vacancies in the board of directors.
The foregoing terms and phrases used in Items (1) to (6) of this Section shall have
b. Limits on the number of the members of the board of directors. Pursuant to the following meaning:
Sections 15 and 17 of R.A. No. 8791, there shall be at least five (5), and a maximum of
(a) Parent is a corporation which has control over another corporation directly or
fifteen (15) members of the board of directors of a bank at least two (2) of whom
indirectly through one (1) or more intermediaries.
shall be independent directors: Provided, That in case of a bank/QB/ trust entity
merger or consolidation, the number of directors may be increased up to twenty-one (b) Subsidiary means a corporation more than fifty percent (50%) of the voting
(21). stock of which is owned or controlled directly or indirectly through one (1) or
more intermediaries by a bank.
An independent director shall mean a person who
(c) Affiliate is a juridical person that directly or indirectly, through one (1) or
(1) Is not or has not been an officer or employee of the bank, its subsidiaries or
more intermediaries, is controlled by, or is under common control with the bank
affiliates or related interests during the past three (3) years counted from the
or its affiliates.
date of his election;
(d) Related interests as defined under Sections 12 and 13 of R.A. No. 8791 shall
(2) Is not a director or officer of the related companies of the institutions
mean individuals related to each other within the fourth degree of consanguinity
majority stockholder;
or affinity, legitimate or common law, and two (2) or more corporations owned
(3) Is not a majority stockholder of the institution, any of its related companies, or controlled by a single individual or by the same family group or the same
or of its majority shareholders; group of persons.

(4) Is not a relative within the fourth degree of consanguinity or affinity, (e) Control exists when the parent owns directly or indirectly through
legitimate or common-law of any director, officer or majority shareholder of the subsidiaries more than one-half of the voting power of an enterprise unless, in
bank or any of its related companies; exceptional circumstance, it can be clearly demonstrated that such ownership
does not constitute control. Control may also exist even when ownership is one-
(5) Is not acting as a nominee or representative of any director or substantial half or less of the voting power of an enterprise when there is:
shareholder of the bank, any of its related companies or any of its substantial
shareholders; and i. power over more than one-half of the voting rights by virtue of an
agreement with other stockholders; or
(6) Is not retained as professional adviser, consultant, agent or counsel of the
institution, any of its related companies or any of its substantial shareholders,
ii. power to govern the financial and operating policies of the enterprise and that the submission of said certification shall be considered compliance with the
under a statute or an agreement; or required fifty percent (50%) minimum attendance in board meetings.

iii. power to appoint or remove the majority of the members of the board of
directors or equivalent governing body; or X141.2 Qualifications of a director

iv. power to cast the majority votes at meetings of the board of directors or A director shall have the following minimum qualifications:
equivalent governing body; or
a. He shall be at least twenty-five (25) years of age at the time of his election or
v. any other arrangement similar to any of the above. appointment;

(f) Related company means another company which is: (a) its parent or holding b. He shall be at least a college graduate or have at least five (5) years experience
company; (b) its subsidiary or affiliate; or (c) a corporation where a bank or its in business;
majority stockholder own such number of shares that will allow/enable him to
c. He must have attended a special seminar on corporate governance for board
elect at least one (1) member of the board of directors or a partnership where
of directors conducted or accredited by the BSP: Provided, That incumbent
such majority stockholder is a partner.
directors as well as those elected after 17 September 2001 must attend said
(g) Substantial or major shareholder shall mean a person, whether natural or seminar on or before 30 June 2003 or within a period of six (6) months from date
juridical, owning such number of shares that will allow him to elect at least one of election for those elected after 30 June 2003, as the case may be; and
(1) member of the board of directors of a bank or who is directly or indirectly the
d. He must be fit and proper for the position of a director of the bank. In
registered or beneficial owner of more than ten percent (10%) of any class of its
determining whether a person is fit and proper for the position of a director, the
equity security.
following matters must be considered: integrity/probity, competence, education,
(h) Majority stockholder or majority shareholder means a person, whether diligence and experience/training.
natural or juridical, owning more than fifty percent (50%) of the voting stock of a
The foregoing qualifications for directors shall be in addition to those required or
bank.
prescribed under R.A. No. 8791 and other existing applicable laws and regulations.
Non-Filipino citizens may become members of the board of directors of a bank to the
2. Disqualifications MORB Section X143.1 (Skim through)
extent of the foreign participation in the equity of said bank: Provided, That pursuant
to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the X143.1 Persons disqualified to become directors. Without prejudice to specific
directors must be residents of the Philippines. provisions of law prescribing disqualifications for directors, the following are
disqualified from becoming directors:
The meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and videoconferencing as a. Permanently disqualified
long as the director who is taking part in said meetings can actively participate in the
deliberations on matters taken up therein: Provided, That every member of the board Directors/officers/employees permanently disqualified by the Monetary Board from
shall participate in at least fifty percent (50%) and shall physically attend at least holding a director position:
twenty-five percent (25%) of all board meetings every year: Provided, further, That in
(1) Persons who have been convicted by final judgment of a court for offenses
the case of a director who is unable to physically attend or participate in board
involving dishonesty or breach of trust such as, but not limited to, estafa,
meetings via teleconferencing or videoconferencing, the corporate secretary shall
embezzlement, extortion, forgery, malversation, swindling, theft, robbery,
execute a notarized certification attesting that said director was given the agenda
falsification, bribery, violation of B.P. Blg. 22, violation of Anti-Graft and Corrupt
materials prior to the meeting and that his/ her comments/decisions thereon were
Practices Act and prohibited acts and transactions under Section 7 of R.A. No.
submitted for deliberation/discussion and were taken up in the actual board meeting,
6713 (Code of Conduct and Ethical Standards for Public Officials and Employees);
(2) Persons who have been convicted by final judgment of a court sentencing board meeting. This disqualification applies only for purposes of the immediately
them to serve a maximum term of imprisonment of more than six (6) years; succeeding election;

(3) Persons who have been convicted by final judgment of the court for violation (3) Persons who are delinquent in the payment of their obligations as defined
of banking laws, rules and regulations; hereunder:

(4) Persons who have been judicially declared insolvent, spendthrift or (a) Delinquency in the payment of obligations means that an obligation of a
incapacitated to contract; person with a bank where he/she is a director or officer, or at least two (2)
obligations with other banks/FIs, under different credit lines or loan
(5) Directors, officers or employees of closed banks who were found to be
contracts, are past due pursuant to Sec. X306;
culpable for such institutions closure as determined by the Monetary Board;
(b) Obligations shall include all borrowings from a bank obtained by:
(6) Directors and officers of banks found by the Monetary Board as
administratively liable for violation of banking laws, rules and regulations where (i) A director or officer for his own account or as the representative or
a penalty of removal from office is imposed, and which finding of the Monetary agent of others or where he/she acts as a guarantor, endorser or surety
Board has become final and executory; or for loans from such FIs;

(7) Directors and officers of banks or any person found by the Monetary Board to (ii) The spouse or child under the parental authority of the director or
be unfit for the position of directors or officers because they were found officer;
administratively liable by another government agency for violation of banking
(iii) Any person whose borrowings or loan proceeds were credited to the
laws, rules and regulations or any offense/violation involving dishonesty or
account of, or used for the benefit of a director or officer;
breach of trust, and which finding of said government agency has become final
and executory. (iv) A partnership of which a director or officer, or his/her spouse is the
managing partner or a general partner owning a controlling interest in
b. Temporarily disqualified
the partnership; and
Directors/officers/employees disqualified by the Monetary Board from holding a
(v) A corporation, association or firm wholly-owned or majority of the
director position for a specific/ indefinite period of time. Included are:
capital of which is owned by any or a group of persons mentioned in the
(1) Persons who refuse to fully disclose the extent of their business interest or foregoing Items (i), (ii) and (iv);
any material information to the appropriate department of the SES when
This disqualification shall be in effect as long as the delinquency persists.
required pursuant to a provision of law or of a circular, memorandum, rule or
regulation of the BSP. This disqualification shall be in effect as long as the refusal (4) Persons who have been convicted by a court for offenses involving dishonesty
persists; or breach of trust such as, but not limited to, estafa, embezzlement, extortion,
forgery, malversation, swindling, theft, robbery, falsification, bribery, violation of
(2) Directors who have been absent or who have not participated for whatever
B.P. Blg. 22, violation of Anti-Graft and Corrupt Practices Act and prohibited acts
reasons in more than fifty percent (50%) of all meetings, both regular and special,
and transactions under Section 7 of R.A. No. 6713, violation of banking laws,
of the board of directors during their incumbency, and directors who failed to
rules and regulations or those sentenced to serve a maximum term of
physically attend for whatever reasons in at least twenty-five percent (25%) of all
imprisonment of more than six (6) years but whose conviction has not yet
board meetings in any year, except that when a notarized certification executed
become final and executory;
by the corporate secretary has been submitted attesting that said directors were
given the agenda materials prior to the meeting and that their comments/ (5) Directors and officers of closed banks pending their clearance by the
decisions thereon were submitted for deliberation/discussion and were taken up Monetary Board;
in the actual board meeting, said directors shall be considered present in the
(6) Directors disqualified for failure to observe/discharge their duties and (13) Directors and officers of banks found by the Monetary Board as
responsibilities prescribed under existing regulations. This disqualification applies administratively liable for violation of banking laws, rules and regulations where
until the lapse of the specific period of disqualification or upon approval by the a penalty of suspension from office or fine is imposed, regardless whether the
Monetary Board on recommendation by the appropriate department of the SES finding of the Monetary Board is final and executory or pending appeal before
of such directors election/reelection; the appellate court, unless execution or enforcement thereof is restrained by the
court. The disqualification shall be in effect during the period of suspension or so
(7) Directors who failed to attend the special seminar for board of directors long as the fine is not fully paid. (As amended by Circular Nos.584 dated 28
required under Item c of Subsec. X141.2. This disqualification applies until the September 2007 and 513 dated 10 February 2006)
director concerned had attended such seminar;

(8) Persons dismissed/terminated from employment for cause. This


disqualification shall be in effect until they have cleared themselves of
involvement in the alleged irregularity or upon clearance, on their request, from
the Monetary Board after showing good and justifiable reasons, or after the
lapse of five (5) years from the time they were officially advised by the
appropriate department of the SES of their disqualification;

(9) Those under preventive suspension;

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

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


administratively liable for violation of banking laws, rules and regulations where
a penalty of removal from office is imposed, and which finding of the Monetary
Board is pending appeal before the appellate court, unless execution or
enforcement thereof is restrained by the court;

(12) Directors and officers of banks or any person found by the Monetary Board
to be unfit for the position of director or officer because they were found
administratively liable by another government agency for violation of banking
laws, rules and regulations or any offense/violation involving dishonesty or
breach of trust, and which finding of said government agency is pending appeal
before the appellate court, unless execution or enforcement thereof is restrained
by the court; and