PHILIPPINE DEPOSIT INSURANCE CORPORATION(RA 3591)

Definition (S1): PDIC is a government instrumentality created to promote and safeguard the
interests of the depositing public by providing insurance coverage on all insured deposits and
helping maintain a sound and stable banking system. (Sec1)

State Policy (S2): To strengthen the mandatory insurance coverage system to generate, preserve,
maintain faith and confidence in the country’s banking system, and protect it from illegal
schemes and machinations.
- While being a government instrumentality with corporate powers, it shall enjoy fiscal
and administrative autonomy

BOARD OF DIRECTORS shall be composed of 7 members (S3).

1. Sec. of Finance- ex officio chairman w/o compensation
2. Governor of BSP- ex officio member w/o compensation
3. President of the Corporation- Vice Chairman
 Shall serve in a full-time basis for 6 years
4. 4 members from private sector
 Term: 6 years subject to 1 reappointment
 First 2 appointees, term: 3 years
Quorum: 4 members shall constitute a quorum
- All decisions of the BOD shall require the concurrence of at least 4 members
Qualifications
a. Good moral character
b. Unquestionable integrity and responsibility
c. Of known probity and patriotism
d. Of recognized competence in economics, banking and finance, law, management
administration or insurance
e. At least 35 years of age

Note: During their tenure or term of office and for a period of 1 year thereafter, the appointive
members of the Board shall be disqualified from holding any office, position or employment in
any insured bank.

GROUNDS FOR REMOVAL

Any appointive member of the Board of Directors may be removed by the President of the
Philippines on the following grounds:
a. Physical or mental incapacity that he/she cannot properly discharge his/her duties and
responsibilities, which lasted for more than 6 months;
b. Guilty of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the Corporation;
c. No longer possesses the qualifications
d. Does not meet the standards for performance based on the evaluation by the
Governance Commission

 Any member of the BOD shall disclose his/her interest to the board and shall recuse from
meeting when the matter is taken up.

Powers of the BOD:

1. Approve and issue rules and regulations
2. Act as a policy making body to oversee the management, operations and administration
of the Corporation
 3. Establish a human resource management
4. Approve a compensation structure
5. Appoint, establish the rank, fix remuneration, benefits including health care services and
medical benefits
6. Approve policy on local and foreign travels
7. Adopt an annual budget and authorize expenditures
8. Approve the target level of the DIF
9. Review the organizational set-up of the Corporation
10. Design, adopt and revise an early separation plan
11. Promote and sponsor the local or foreign training or study of personnel

DEFINITION OF TERMS (S5):

ASSET- movable, immovable, tangible or intangible resources or properties over which a bank
has an established or equitable interest, including the proceeds of the sale of its bank and branch
licenses subject to the approval of the BSP
ASSET DISTRIBUTION PLAN- plan of distribution of the assets of a closed bank to its
creditors, based on its estimated realizable value as of a certain cut-off date prepared in
accordance with the Rules on Concurrence and Preference of Credits under the CC or other laws.
- May be partial or final
(g) DEPOSIT- the unpaid balance of money or its equivalent received by a bank in the usual
course of business and for which it has given or is obliged to give credit to a commercial,
checking, savings, time or thrift account, evidenced by a passbook, certificate of deposit, or other
evidence of deposit issued in accordance with the BSP rules and regulations and other applicable
laws, together with such other obligations of a bank, which, consistent with banking usage and
practices, the BOD shall determine and prescribe by regulations to be deposit liabilities of the
bank.
 Any obligation of a bank which is payable at the office the bank which is payable at the
office of the bank located outside of the Philippines shall NOT be considered as a
DEPOSIT or shall not be included as part of the TOTAL DEPOSIT or of INSURED
DEPOSIT.
 Any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside of the Philippines may elect to include for insurance its
deposit obligations payable only at such branch.
Q: What is the risk insured against?
Ans. Closure of the bank.

DEPOSITS COVERED:
1. Savings Accounts
2. Time Deposits
3. Deposits in acceptable foreign currencies
XPN:
a) TRUST FUNDS as it was expressly excluded from the term “deposit” under RA 7400
b) MONEY MARKET PLACEMENT as it is not included in the term “deposit”

 Nature of the Coverage: Compulsory. Deposit liabilities of any bank or banking

institution which is engaged in the business of receiving deposits or which thereafter may
engage in the business of receiving deposits shall be insured with the PDIC.

DEPOSITS EXCLUDED FROM COVERAGE:

1. Investment Products such as bonds and securities, trust accounts and other similar
instruments;
 2. Deposit accounts or transactions which are fictitious or fraudulent as determined by the
Corporation;
3. Deposit accounts or transactions constituting/ emanating from , unsafe or unsound
banking practice/s
4. Deposits that are determined to be proceeds of an unlawful activity as defined under
RA 9160

 Actions taken by the Corporation shall be final and executory, and may only be
restrained or set aside by the Court of Appeals, upon appropriate petition for certiorari
on the ground that the action was taken in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction.

 Petition for certiorari may only be filed within 30 days from notice of denial of claim for
deposit insurance
INSURED DEPOSIT- the amount due to any bona fide depositor for legitimate deposits in
an insured bank as of date of closure but not to exceed P500, 000.
- The net amount due to any depositor for deposits in an insured bank, after deducting
offsets, less any part thereof which is in excess of P500, 000.

 There shall be added together all deposits in the bank maintained in the same
right and capacity for his or her benefit either in his or her own name or in the
name of others.

NOTE: A joint account regardless of whether the conjunction ’and’, ‘or’,

‘and/or’ is used, shall be insured separately from any individually-owned
deposit account. Provided that,

a) If 2 more natural/ 2 or more juridical persons, the maximum insured

deposit shall be divided into as many equal share as there are
individuals, juridical persons or entities, unless a different sharing is
stipulated in the document of deposit;
b) If juridical person or entity jointly with one or more natural persons,
the maximum insure deposit shall be presumed to belong entirely to
such juridical person/ entity.

 The aggregate of the interest of each co-owner over several joint accounts,
whether owned by the same or different combinations of individuals, juridical
persons or entities, shall likewise be subject to the maximum insured deposit.

 No owner/holder of any passbook, certificate of deposit or other evidence of

deposit shall be recognized unless the instrument is determined by the
Corporation to be an authentic document or record of the issuing bank.

 If there is a condition that threatens the monetary and financial stability of the
banking system that may have systematic consequences, the maximum deposit
insurance may be adjusted in such amount, for such period, and/or for such
deposit products by the unanimous vote of the BOD.

RESOLUTION- the actions undertaken by the Corporation under Section 11 of this Act to:
1. Protect depositors, creditors and the DIF;
2. Safeguard the continuity of essential banking services or maintain financial stability;
and
3. Prevent deterioration or dissipation of bank assets.
 RISK-BASED ASSESSMENT SYSTEM- method for calculating an insured bank’s
assessment on the probability that the DIF will incur a loss with respect to the bank, and
the likely amount of any such loss, based on its risk rating that takes into consideration the
following:
1. Quality and concentration of assets;
2. Categories and concentration of liabilities, both insured and uninsured, contingent and
non-contingent;
3. Capital position;
4. Liquidity position;
5. Management and governance; and
6. Other factors relevant to assessing such probability, as may be determined by the
Corporation.

TRANSFER DEPOSIT means, a deposit in an insured bank made available to a depositor by

the Corporation as payment of insured deposit of such depositor in a closed bank and
assumed by another insured bank.
TRUST FUNDS - funds held by an insured bank in a fiduciary capacity and includes without
being limited to, funds held as trustee, executor, administrator, guardian or agent.

DEPOSIT INSURANCE COVERAGE

S6. The deposit liabilities of any bank which is engaged in the business of receiving deposits as
herein defined on the effective date of this Act, or which thereafter may engage in the business of
receiving deposits, shall be insured with the Corporation.
 Whenever a bank is determined by the BSP to be capital deficient, the Corporation
may conduct an insurance risk evaluation on the bank to enable it to assess the risks
to the DIF. Such evaluation may include the determination of:
a. the fair market value of the assets and liabilities of a bank; or
b. the risk classification of a bank; or
c. Resolution modes under Section 11 of this Act, subject to such terms and
conditions as the PDIC Board may prescribe.
POWERS OF THE PDIC
1. To adopt and use a corporate seal.
2. To have succession until dissolved by an Act of Congress.
3. To make contracts.
4. To sue and be sued, complain and defend, in any court of law in the Philippines.
5. To appoint by its Board of Directors such officers and, fix their compensation, require
bonds of them and fix penalty thereof and to dismiss such officers and employees for
cause.
6. To prescribe, by its Board of Directors, by-laws not inconsistent with law, regulating the
manner in which its general business may be conducted, and the privileges granted to it
by law may be exercised and enjoyed.
7. To exercise by its Board of Directors, or duly authorized officers or agents, all powers
specifically granted by the provisions of this Act, and such incidental powers as shall be
necessary to carry on the powers so granted.
8. To conduct examination of banks with prior approval of the Monetary Board.
 No examination can be conducted within twelve (12) months from the last
examination date.
 The Corporation may, in coordination with the Bangko Sentral, conduct a
special examination as the Board of Directors, by an affirmative vote of a
 majority of all of its members, if there is a threatened or impending
closure of a bank.

 The Corporation and/or the Bangko Sentral, may inquire into or

examine deposit accounts and all information related thereto in case
there is a finding of unsafe or unsound banking practice.
o To avoid overlapping of efforts, the examination shall maximize
the efficient use of the relevant reports, information, and findings
of the BSP which it shall make available to the Corporation.
9. To act as receiver.
10. To prescribe by its Board of Directors such rules and regulations as it may deem
necessary to carry out the provisions of this Act
11. The Corporation may establish its own provident fund
12. To compromise, condone or release, in whole or in part, any claim or settled liability to
the Corporation, regardless of the amount involved, under such terms and conditions as
may be imposed by the Board of Directors to protect the interest of the Corporation, and
to write off the Corporation’s receivables and assets which are no longer recoverable or
realizable;
13. To determine qualified interested acquirers or investors for any of the modes of
resolution or liquidation of banks;
14. To determine the appropriate resolution method and to implement the same for a bank
subject of resolution; and
15. To determine the appropriate mode of liquidation of a closed bank and to implement the
same.
SANCTIONS AGAINST UNSAFE AND UNSOUND BANKING PRACTICES

(S8) (a) Whenever upon examination by the Corporation into the condition of any insured bank,
it shall be disclosed that an insured bank or its directors or agents have committed, are
committing or about to commit unsafe or unsound practices in conducting the business of the
bank, or have violated, are violating or about to violate any provisions of any law or
regulation to which the insured bank is subject, the Board of Directors shall

1. submit the report of the examination to the Monetary Board to secure corrective action
thereon.

2. If no such corrective action is taken by the Monetary Board within forty-five (45) days from
the submission of the report, the Board of Directors shall, motu proprio, institute corrective
action which it deems necessary.

 The Board of Directors may issue a cease and desist order, and require the
bank or its directors or agents concerned to correct the practices or
violations within 45 days.
 If the practice or violation is likely to cause insolvency or substantial
dissipation of assets or earnings of the bank, or is likely to seriously weaken
the condition of the bank or otherwise seriously prejudice the interests of its
depositors and the Corporation, the period to take corrective action shall not
be more than 15 days.

 The Corporation may terminate the insured status of any bank that fails or
refuses to comply, within thirty (30) days from notice, with any cease-and-desist
order issued by the Corporation, or with any corrective action imposed by the
Monetary Board, under this section pertaining to a deposit-related unsafe and/or
unsound banking practice.
 The deposits of each depositor in the bank on the effective date of the termination of
insurance coverage, less all subsequent withdrawals, shall continue to be insured up
to the MDIC for 180 days.
POWERS AND RESPONSIBILITIES AND PROHIBITIONS

The Board of Directors shall:

1. Appoint examiners who shall have the
a) power, on behalf of the Corporation to examine any insured bank or any bank making
application to become an insured bank, whenever in the judgment of the Board of
Directors an examination of the bank is necessary;
b) power to make a thorough examination of all the affairs of the bank;
c) power to administer oaths and to examine and take and preserve the testimony of any
of the officers and agents;
d) Make a full and detailed report of the condition of the bank to the Corporation.

2. Appoint claim agents who shall have

a) power to investigate and examine all claims for insured deposits and transferred
deposits;
b) power to administer oaths and to examine under oath and take and preserve the
testimony of any person relating to such claims.

The INVESTIGATORS appointed by the Board of Directors shall have

1. power on behalf of the Corporation to conduct investigations on frauds,
irregularities and anomalies committed in banks, based on reports of examination
conducted by the Corporation and BSP or complaints from depositors or from other
government agency;
2. Power to administer oaths, and to examine and take and preserve the testimony of
any person relating to the subject of investigation.

TYPES OF EXAMINATION
1. Regular Examination- An examination conducted independently or jointly with the BSP.
It requires the prior approval of the PDIC BOD and the MB.

2. Special Examination- An examination conducted at anytime in coordination with the

BSP, by an affirmative vote of a majority of all the members of the PDIC BOD, without
need of prior approval of the MB, if there is a threatened or impending bank closure as
determined by the PDIC BOD.

Personnel of the Corporation are hereby prohibited from:

1. being an officer, director, consultant, employee or stockholder, directly or indirectly, of

any bank or banking institution except as otherwise provided in this Act;
2. receiving any gift or thing of value from any officer, director or employee thereof;
3. Revealing in any manner, except as provided in this Act or under order of the court,
information relating to the condition or business of any such institution. This prohibition
shall not apply to the giving of information to the Board of Directors, the President of the
Corporation, Congress, any agency of government authorized by law, or to any person
authorized by either of them in writing to receive such information.

PDIC as the RECEIVER:

It shall control, manage and administer the affairs of the closed bank.

Effective immediately upon takeover as receiver of such bank, the powers, functions
and duties, as well as all allowances, remunerations and perquisites of the directors,
officers, and stockholders of such bank are suspended, and the relevant provisions of the
Articles of Incorporation and By-laws of the closed bank are likewise deemed suspended.

 The assets of the closed bank under receivership shall be deemed in custodia legis in
the hands of the receiver. From the time the closed bank is placed under such
 receivership, its assets shall not be subject to attachment, garnishment, execution,
levy or any other court processes.

BANK RESOLUTION(S11)

The Corporation, in coordination with the BSP, may commence the resolution of a bank
under this section upon:

1. Failure of prompt corrective action as declared by the Monetary Board; or

2. Request by a bank to be placed under resolution.

 Within a period of 180 days from a bank’s entry into the resolution, the Corporation, through
the affirmative vote of atleast 5 members of the PDIC BOD, shall determine whether the
bank may be resolved through the purchase of all its assets and assumption of all its
liabilities, by a qualified investor.

For this purpose, the Corporation may:

1. Determine a resolution package for the bank;

2. Identify and, with the approval of the MB, pre- qualify possible acquirers or investors;
3. Authorize pre-qualified acquirers or investors to conduct due diligence on the bank, for
purposes of determining the valuation of a bank through an objective and thorough
review and appraisal of its assets and liabilities, and assessment of risks or events that
may affect its valuation;
4. Conduct a bidding to determine the acquirer of the bank.

Considerations in determining the appropriate resolution method for a bank:

1. FMV of the assets of the bank, its franchise, as well as the amount of liabilities;
2. Availability of a qualified investor;
3. Least cost to the DIF; and
4. Interest of the depositing public.

LIQUIDATION OF CLOSED BANKS (S12)

 When a bank is ordered closed by the MB, the Corporation shall be designated as receiver
and it shall proceed with the takeover and the liquidation of the closed bank.
 (S13) The receiver is authorized to adopt and implement, without need of consent of the
stockholders, BOD, creditors or depositors of the closed bank, any or a combination of the
following modes of liquidation:

1. Conventional Liquidation(S16):

a. The assets gathered by the receiver shall be evaluated and

verified as to their existence, ownership, condition, and other
factors to determine their realizable value. In the management,
preservation and disposition of assets, the receiver shall be guided
by cost- benefit considerations, resources of the closed bank, and
potential asset recovery.

b. The conversion of assets of the closed bank shall be carried

out in a fair and transparent manner in accordance with the rules
and procedures as may be determined by the receiver.

2. Purchase of assets and/or assumption of liabilities.

 Additional powers of a receiver:

 a. Represent and act for and on behalf of the closed bank;
b. Gather and take charge of all the assets, records and affairs of the
closed bank, and administer the same for the benefit of its
creditors;
c. Convert the assets of the closed bank to cash or other forms of
liquid assets, as far as practicable; and
d. Bring suits to enforce liabilities of the directors, officers,
employees, agents of the closed bank and other entities
related or connected to the closed bank or to collect,
recover, and preserve all assets, including assets over which
the bank has equitable interest.

EFFECTS TO BANKS PLACED UNDER LIQUIDATION:

1. On corporate franchise or existence

 The banks shall continue as a corporate body, for the purpose of
liquidating, settling and closing its affairs and for the disposal,
conveyance or distribution of its assets, until the termination of the
winding-up period.

2. On the powers and functions of its DOS

 The powers, voting rights, functions and duties as well as allowances etc.
of the DOS are terminated upon its closure. Hence, they are barred from
interfering in any way with the assets, records, and affairs of the bank.

3. On the assets
 Deemed in custodia legis in the hands of the receiver, and may not be
subject to attachment, garnishment, execution, levy or any other court
processes.

4. On labor relations
 Employer-Employee relationship shall be deemed terminated upon service
of the notice of closure of the bank.

5. Contractual Obligations
 The receiver may cancel, terminate, rescind or repudiate any contract of
the closed bank that is not necessary for the orderly liquidation of the
bank, or is grossly disadvantageous to the closed bank, or for any ground
provided by law.

6. On interest payments
 Liability to pay interest and all other obligations shall cease upon its
closure by the MB

7. Liability for penalties and surcharges for late payment and nonpayment of taxes
 From the time of closure, the closed bank shall not be liable for the
payment of penalties and surcharges arising from the late payment or
nonpayment of real property tax, capital gains tax, transfer tax and similar
charges.

8. Bank charges and fees on services

 The receiver may impose, on behalf of the closed bank, charges and fees
for services rendered after bank closure, such as, but not limited to, the
execution of pertinent deeds and certifications.
 9. Actions pending for or against the closed bank
 “Except for actions pending before the Supreme Court, actions pending
for or against the closed bank in any court or quasi-judicial body shall,
upon motion of the receiver, be suspended for a period not exceeding one
hundred eighty (180) days and referred to mandatory mediation. Upon
termination of the mediation, the case shall be referred back to the court or
quasi-judicial body for further proceedings.

10. Final decisions against the closed bank

 The execution and enforcement of a final decision of a court other than the
liquidation court against the assets of a closed bank shall be stayed.

11. Docket and other court fees

 Payment of docket and other court fees relating to all cases or actions filed
by the receiver with any judicial or quasi-judicial bodies shall be deferred
until the action is terminated with finality. Any such fees shall constitute
as a first lien on any judgment in favor of the closed bank or in case of
unfavorable judgment, such fees shall be paid as liquidation costs and
expenses during the distribution of the assets of the closed bank.

12. All assets, records, and documents in the possession of the closed bank at the time of
its closure are presumed held by the bank in the concept of an owner.

13. The exercise of authority, functions, and duties by the receiver under this Act shall be
presumed to have been performed in the regular course of business.

14. Assets and documents of the closed bank shall retain their private nature even if
administered by the receiver.

PETITION FOR ASSISTANCE IN THE LIQUIDATION OF A CLOSED BANK

- A special proceeding for the liquidation of a closed bank, and includes the declaration
of the concomitant right of creditors and the order of payment of their valid claims in
the disposition of assets.
- Proceeding shall be considered a proceeding in rem.
- Shall be filed with the RTC which has jurisdiction over the principal office of the
closed bank/ the receiver, at the option of the latter

- Shall be filed ex parte within a reasonable period from receipt of the MB resolution
placing the bank under liquidation
 The liquidation court shall have exclusive jurisdiction to adjudicate disputed
claims against other closed banks, assist in the enforcement of individual
liabilities of the stockholders, directors and officers and decide on all other
issues as may be material to implement the distribution plan adopted by the
Corporation for general application to all closed banks.

FILING OF CLAIMS

 All persons or entities with claims against the assets of the closed bank shall
file their claims with the receiver within 60 days from the date of publication
of the notice of closure.
 Claims denied by the receiver shall be filed with the liquidation court within
60 days from receipt of the final notice of denial of claim.
PERMANENT INSURANCE FUND (S17)
PIF: 3 Billion Pesos

Deposit Insurance Fund which is the capital account shall consist of the following:
a. Permanent Insurance Fund
b. Assessment collections
c. Reserves for insurance and financial assistance losses which shall be maintained at a
reasonable level to ensure capital adequacy; and
d. Retained earnings

PAYMENT OF INSURED DEPOSIT(S19)

MANNER OF PAYMENT:
1. by Cash; and
2. by making available to each depositor a transferred deposit in another insured bank in
an amount equal to insured deposit of such depositor.

PROOF OF CLAIMS
 The Corporation may require proof of claims to be filed before paying the insured
deposits
 In any case, where it is not satisfied as to the viability of a claim for an insured deposit, it
may require final determination of a court of competent jurisdiction before paying such
claim.

Recognition of Owner
The PDIC or any insured bank is not required to recognize as the owner of any portion
of a deposit evidenced by a passbook, certificate of deposit or other evidence of deposit
determined by the Corporation to be an authentic document or record of a closed bank

a. under a name other than that of the claimant;

b. any person whose name or interest as such owner is not disclosed on the passbook,
certificate of deposit or other evidence of deposit or other evidence of such closed
bank as part owner of said deposit
c. the recognition would increase the aggregate amount of the insured deposits in such
closed bank.

PAYMENT OF INSURED DEPOSITS AS PREFERRED CREDIT UNDER ART. 2244 OF

THE NCC
All payments by the Corporation of insured deposits in closed banks partake of the
nature of public funds, and as such, must be considered a preferred credit similar to taxes due
to the National Government in the order of preference under Art. 2244 of the Civil Code.

FAILURE TO SETTLE CLAIM- EFFECTS

 Failure to settle the claim, within 6 months from the date of the filing of the claim
for insured deposit, shall subject the directors, officers or employees of the
Corporation responsible for the delay, to imprisonment from 6months to 1 year.
 Provided, that such failure was due to grave abuse of discretion, gross negligence,
bad faith, or malice.
 The period shall not apply if the validity of the claim requires the resolution of
issues of facts and or law by another office, body or agency.
EFFECTS OF PAYMENT TO THE DEPOSITOR
1. Discharges the Corporation from further liability (S21); and
2. Subrogates the Corporation to all the rights of the depositor against the closed bank to the
extent of such payment (S20).

FAILURE TO CLAIM INSURED DEPOSITS

All rights of the depositor against the Corporation with respect to the insured deposits
shall be barred if:
 1. the depositor fails to claim his insured deposits within 2 years from actual takeover
2. the depositor does not enforce his claim filed within 2 years after the 2 year period
to file a claim

PROHIBITION AGAINST SPLITTING OF DEPOSITS

Splitting of deposits occurs whenever a deposit account with an outstanding balance
more than the statutory maximum amount of insured deposit maintained under the name of
natural or juridical persons is broken down and transferred into 2 or more accounts in the
name/s of natural or juridical persons or entities who have no beneficial ownership on transferred
deposits in their names within 120 days immediately preceding or during a bank declared
holiday, or immediately preceding closure order issued by the MB of the BSP for the purpose of
availing of maximum deposit insurance coverage.

PROHIBITION AGAINST ISSUANCE OF TROs, etc.

No court except the Court of Appeals, shall issue a temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the PDIC for any action
under RA 3591. The prohibition shall apply to all cases, disputes or controversies instituted by a
private party, the insured bank, or any shareholder of the insured bank.

XPN: The Supreme Court may issue a restraining order or injunction when the matter is of
extreme urgency involving a constitutional issue, such that unless a TRO is issued, grave
injustice and irreparable injury will arise.

SECRECY OF BANK DEPOSITS (RA 1405)

PURPOSE(S1):
1. To encourage deposit in banking institutions: and
2. To discourage private hoarding so that banks may lend such funds and assist in
the economic development of the country.

COVERAGE:
1. All deposits of whatever nature with banks or banking institutions found in the
Philippines;
2. Investments in bonds issued by the Philippine Government, its political
subdivisions and instrumentalities.

PROHIBITED ACTS:
1. Examination/ inquiry/ looking into all deposits of whatever nature with banks or banking
institutions in the Philippines including investment bonds issued by the government, by
any person, government official or office(S2).

2. Disclosure by any official or employee of any banking institution to any authorized

person of any information concerning said deposits (S3).

INSTANCES WHERE EXAMINATION OR DISCLOSURE OF INFORMATION

ABOUT DEPOSITS ARE ALLOWED:

RA 1405
 Upon written consent of the depositor.
 In cases of impeachment.
 Upon order of a competent court in cases of bribery and dereliction of duty of public
officials
 In cases of money deposited or invested is the subject matter of the litigation.
OTHER LAWS:
Anti-Graft and Corrupt Practices Act
 In cases of unexplained wealth
NIRC
1. Upon order of the CIR in respect of the bank deposits of a decedent for the purpose of
determining such decedent’s gross estate.
2. Upon order of the CIR in respect of bank deposits of a taxpayer who has filed an
application for compromise of his tax liability by reason of financial incapacity to pay his
tax liability.
AMLA
 If the AMLC determines that a particular deposit or investment with any banking
institution is related to the following: HK-MAD
a. Hijacking
b. Kidnapping
c. Murder
d. Destructive Arson
e. Violation of the Dangerous Drugs Act
Unclaimed Balances Act
 In case of dormant accounts/ deposits for atleast 10 years
Foreign Currency Deposit Act
 Upon written consent of the depositor
Note: A co-payee in a check deposited in a bank is likewise a co-depositor. No written
consent of the other co-payee is necessary in an inquiry of the deposits by the said co-
depositor.
NCBA
1. DOSRI loans;
2. When the examination is made by the BSP to insure compliance with the AML Law in
the course of a periodic or special examination
In-camera inspection by the Ombudsman
Requisites:
a. Pending case before a court of competent jurisdiction;
b. Account must be clearly identified;
c. The inspection is limited to the subject of the pending litigation;
d. The bank personnel and account holder must be notified to be present during the
inspection; and
e. The inspection must cover only the account identified in the pending case
Human Security Act
 The justices of the Court of Appeals designated as special court to handle the anti-
terrorism cases may authorize the examination of bank deposits of:
1. A person charged or suspected of the crime of terrorism or conspiracy to commit
terrorism;
2. A judicially declared and outlawed terrorist organization, association, or group of
persons; and
3. A member of such judicially declared and outlawed organization, association or
group of persons.
JURISPRUDENCE:
1. Examination of deposits of persons charged

PENALTIES:
The penalty of imprisonment of not more than 5 years or a fine of not more than 20,000
pesos or both, in the discretion of the court.

GARNISHMENT:
Bank accounts may be garnished by the creditors of the depositor. There is NO violation
of the Law on Secrecy of Bank Deposits if the accounts are garnished. It was not the intention of
the legislature to place bank deposits beyond the reach of execution to satisfy a final judgment.
Its purpose is merely to secure information as to the name of the depositor and whether or not the
defendant had a deposit in said bank, only or purposes of garnishment. Any disclosure is purely
incidental to the execution process.
 The amount of deposit is actually not disclosed and the intent of the legislature does not
cover garnishment.

EXEMPTION: Foreign deposits cannot be garnished.

XPN: In a case which involved an American tourist who was found guilty or repeatedly
raping a 12 year-old child, the Supreme Court allowed the garnishment of foreign deposits
belonging to the American because the law was not intended to cause injustice.

Q: Are trust funds covered by the term “deposit?”

A: Yes, the money deposited under the trust agreement is intended not merely to remain with the
bank but to be invested by it elsewhere. To hold that this type of account is not protected by R.A.
1405 would encourage private hoarding of funds that could otherwise be invested by banks in
other ventures, contrary to the policy behind the law.

Note: Despite such pronouncement that trust funds are considered deposits, trust funds remain
not covered by PDIC.

Q: Are foreign currency deposits covered by the Secrecy in Bank Deposits (R. A. 1405)?
A: No. Foreign currency deposits are covered by R.A. 6426 otherwise known as the Foreign
Currency Act. Under the same law, all authorized foreign currency deposits are considered of an
absolutely confidential nature and, except upon the written permission of the depositors, in no
instance shall be examined, inquired or looked into by any person, government official, bureau
or office whether judicial or administrative private.

Q: Does garnishment of a bank deposit violate the law?

A. No, prohibition against examination does not preclude its being garnished for satisfaction of
judgment. The disclosure is purely incidental to the execution process and it was not the
intention of the legislature to place bank deposits beyond reach of judgment creditor.

FOREIGN CURRENCY DEPOSIT ACT(RA 6426)

The FCDA allows any person, natural or juridical, to deposit and banks to accept deposit, any
foreign currency acceptable as part of the Philippines’ international reserve except those which
are required by the Central Bank to be surrendered(S2).

Foreign currency cover requirements

- Except as the Monetary Board may otherwise prescribe or allow, the depository banks
shall maintain at all times a one hundred percent foreign currency cover for their
liabilities,

 15% shall be in the form of foreign currency deposit with the Central Bank
 The balance in the form of foreign currency loans or securities, which loans or
securities shall be of short term maturities and readily marketable.
o Such foreign currency loans may include loans to domestic enterprises which are
export-oriented or registered with the Board of Investments, subject to the
limitations to be prescribed by the Monetary Board on such loans.

 Except as the Monetary Board may otherwise prescribe or allow, the foreign currency
cover shall be in the same currency as that of the corresponding foreign currency deposit
liability. The Central Bank may pay interest on the foreign currency deposit, and if
requested shall exchange the foreign currency notes and coins into foreign currency
instruments drawn on its depository banks.
Exemption from the requirements:
 Depository banks which, on account of networth, resources, past performance, or other
pertinent criteria, have been qualified by the Monetary Board to function under an
expanded foreign currency deposit system

 Subject to prior CB approval when required by Central Bank regulations, said depository
banks may extend foreign currency loans to any domestic enterprise, without the
limitations in maturity and marketability, and such loans shall be eligible for purposes of
the 100% foreign currency coverage.

AUTHORITY OF BANKS TO ACCEPT FOREIGN CURRENCY DEPOSITS(S3)

The banks designated by the central bank shall have the authority:
1. To accept deposits and to accept foreign currencies in trust
2. To accept said deposits as collateral for loans subject to such rules and regulations as may
be promulgated by the CB from time to time;
3. To issue certificates to evidence such deposits;
4. To pay interest in foreign currency on such deposits; and
5. To discount said certificates.

Secrecy of Foreign Currency Deposit

 All FCD are declared as and considered of an absolutely confidential nature.
 Except upon the written permission of the depositor, in no instance shall be examined,
inquired or looked into by any person, government official, bureau or office, whether
judicial or administrative, or legislative or any other entity whether public or private.
 FCD are exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever.

Exceptions:
1. Upon Written permission of the depositor;
2. Upon order of a competent court in cases of violation of the Anti-money
Laundering Act of 2001;
3. During BSP’s periodic or special examination;
4. Disclosure of the Treasurer of the Philippines, when the Unclaimed Balances Law
apply;
5. BSP/PDIC inquiry if there is a finding of unsafe and unsound banking practice;
6. In Salvacion v CB, where a Filipino child was raped by a foreigner, the SC
allowed, pro hac vice, garnishment of foreign currency deposit because if it would
rule otherwise, there would be injustice.
Withdrawability and transferability of deposits(S5)
There shall be no restriction on the withdrawal by the depositor of his deposit or on the
transferability of the same abroad except those arising from the contract between the depositor
and the bank.

Q: Are foreign currencies covered by the PDIC?

Ans. Yes. Deposit obligations in foreign currency of any insured bank are likewise insured.
Foreign Currency Deposits are covered under the provisions of RA 3591, as amended and
insurance payment shall be in the same currency in which the insured deposits are denominated.

Privilege: Tax Exemption(S6)

- The FCD, including interests and all other income or earnings of such deposits, are
exempt from any and all taxes whatsoever if these deposits are made by non-residents
and irrespective of whether or not the non-resident are engaged in trade or business in
the Philippines.
 - Interests on FCDs of residents are subject to 7.5% WT

OTHER FEATURES:
a. Authorized banks may adopt a numbered account system for recording and servicing
deposits in non-checking accounts(S3)
b. In the event of a new enactment or regulation is issued decreasing the rights granted
under the law, it shall not apply to FCDs already made or existing at the time of issuance
of such new regulation or enactment(S12)
PENALTY: Imprisonment of not less than 1 year nor more than 5 years or a fine of not less
than P5,000 nor more than P25,000, or both such fine and imprisonment at the discretion of the
court..

FOREIGN INVESTMENT ACT of 1991 (RA 7042)

POLICY(S2):

It shall be the policy of the State:

 To attract, promote and welcome productive investments from foreign individuals,

partnerships, corporations, and governments, including their political subdivisions, in
activities which significantly contribute to national industrialization and socioeconomic
development to the extent that foreign investment is allowed in such activity by the
Constitution and relevant laws.
 To significantly expand livelihood and employment opportunities for Filipinos;
enhance economic value of farm products; promote the welfare of Filipino consumers;
expand the scope, quality and volume of exports and their access to foreign markets;
and/or transfer relevant technologies in agriculture, industry and support services.
 To supplement to Filipino capital and technology in those enterprises serving mainly
the domestic market.

RULE ON RESTRICTION OF OWNERSHIP (S2)

GR: There are no restrictions on extent of foreign ownership of export enterprises.

- In domestic market enterprises, foreigners can invest as much as 100% equity

XPN: in areas included in the negative list.

DEFINITION OF TERMS:

1. Investment: Equity participation in any enterprise organized or exiting under the laws of
the Philippines.
2. Foreign Investment: An equity investment made by a non-Philippine national in the
form of foreign exchange and/or other assets actually transferred to the Philippines duly
registered with the CB which shall assess and appraise the value of such assets other than
foreign exchange.
3. “Doing business” in the Philippines shall include:
a. soliciting orders, service contracts, opening offices, whether called "liaison"
offices or branches;
b. appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totaling one hundred
eighty (180) days or more;
c. participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and
d. any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or
the exercise of some of the functions normally incident to, and in progressive
 prosecution of, commercial gain or of the purpose and object of the business
organization.

Under the Foreign Investment Act, the following are not considered doing business:

a. mere investment as a shareholder by a foreign entity in domestic corporations

duly registered to do business;
b. the exercise of rights as such investor;
c. having a nominee director or officer to represent its interests in such corporation
d. Appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;
e. Publication of general advertisement through print or broadcast media;
f. Maintaining a stock of goods in the Philippines solely for the purpose of having
the same processed by another entity in the Philippines;
g. Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export; and
h. Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it and similar incidental services.

Note: To be “doing or transacting business in the Philippines” for purposes of Sec 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a continuing
basis, in its own name or for its own account.

4. Export Enterprise: An enterprise wherein a manufacturer, processor or service

(including tourism) enterprise exports 60% or more of its output, or wherein a trader
purchases products domestically and exports 60% or more of such purchases.
5. Domestic Market Enterprise: An enterprise which produces goods for sale, or renders
services to the domestic market entirely or if exporting a portion of its output fails to
consistently export at least 60% thereof.

WHO IS A PHILIPPINE NATIONAL?

Under the Foreign Investment Act, the following are considered as Philippine National:

a. Citizens of the Philippines;

b. Domestic partnership or association wholly owned by citizens of the Philippines;
c. Corporation organized under the laws of the Philippines of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines;
d. Corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which 100% of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos;
e. Trustee of funds for pension or other employee retirement, where the trustee is a
Philippine national and at least 60% of the fund will accrue to the benefit of
Philippine nationals.

REGISTRATION OF INVESTMENTS OF NON-PHILIPPINE NATIONALS

- Registration with the SEC or with the Bureau of Trade Regulation and Consumer
Protection (BTRCP) of the DTI in the case of single proprietorships, unless
 participation of non-Philippine nationals in the enterprise is prohibited or limited to a
smaller percentage by existing laws and/or under the provisions of this Act.

- The SEC/ BTRCP shall not impose any limitations on the extent of foreign
ownership in an enterprise additional to those provided in this Act.

- Any enterprise seeking to avail of incentives under the Omnibus Investment Code of
1987 must apply for registration with the Board of Investments (BOI), which shall
process such application for registration in accordance with the criteria for evaluation
prescribed in said Code.

- A non-Philippine national intending to engage in the same line of business as an

existing joint venture, in which he or his majority shareholder is a substantial partner,
must disclose the fact and the names and addresses of the partners in the existing
joint venture in his application for registration with the SEC.

- During the transitory period, SEC shall disallow registration of the applying non-
Philippine national if the existing JVE, particularly the Filipino partners therein, can
reasonably prove they are capable of making investment needed for domestic market
activities to be undertaken by the competing applicant.

- The SEC shall effect registration of any enterprise applying under this Act within 15
days upon submission of completed requirements.

FOREIGN INVESTMENT IN EXPORT ENTERPRISE

1. Foreign investment in export enterprises whose products and services do not fall within
Lists A and B of the Foreign Investment Negative List is allowed up to 100% ownership.
2. Export enterprises which are non-Philippine nationals shall register with the BOI and
submit the reports that may be required to ensure continuing compliance of the export
enterprise with its export requirement.
3. BOI shall advice SEC/ BTRCP of any export enterprise that fails to meet the export ratio.
4. The SEC/ BTRCP shall order non-complying export enterprise to reduce its sales to the
domestic market to not more than 40% of its total production
- Failure to comply with the order without justifiable reason, shall subject the
enterprise to cancellation of SEC/ BTRCP registration, and/or the penalties provided
in this law.
FOREIGN INVESMENT ACT IN DOMESTIC MARKET ENTERPRISE

Non-Philippine nationals may own up to 100% of domestic market enterprises

- UNLESS foreign ownership therein is prohibited or limited by the Constitution,

existing laws or the Foreign Investment Negative List (S7)

FOREIGN INVESTENT NEGATIVE LIST

The “negative list” shall mean a list of areas of economic activity whose foreign ownership is
limited to a maximum of 40% of the equity capital of the enterprises engaged therein.

Purpose: The FINL reserves to Filipino sensitive areas of investment.

Component Lists:

1. List A enumerates the activities reserved to Philippine nationals by mandate of the

Constitution and specific laws.
 2. List B contains the areas of activities and enterprises regulated pursuant to law:

a. Which are defense-related activities, requiring prior clearance and

authorization from Department of National Defense to engage in such activity,
such as the manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and
similar materials
o Unless such manufacturing or repair activity is specifically authorized, with a
substantial export component, to a non-Philippine National by the Secretary of
National Defense
b. Which have implications on public health and morals, such as the manufacture
and distribution of dangerous drugs; all forms of gambling; nightclubs, bars,
beerhouses, dance halls; sauna and steam bath houses and massage clinics.

3. List C shall contain the areas of investment in which existing enterprises already serve
adequately the needs of the economy and the consumer and do not require further foreign
investments, as determined by NEDA applying the criteria provided in Section 9 of this
Act, approved by the President and promulgated in a Presidential Proclamation.

(S9) Determination of Areas of Investment for Inclusion in List C of the Foreign

Investment Negative List.

- Upon petition by a Philippine national engage therein, an area of investment may be

recommended by NEDA for inclusion in List C of the Foreign Investment Negative
List upon determining that it complies with all the following criteria:

a. The industry is controlled by firms owned at least sixty percent (60%) by

Filipinos;
b. Industry capacity is ample to meet domestic demand;
c. Sufficient competition exists within the industry;
d. Industry products comply with Philippine standards of health and safety or, in the
absence of such, with international standards, and are reasonably competitive in
quality with similar products in the same price range imported into the country;
e. Quantitative restrictions are not applied on imports of directly competing
products;
f. The leading firms of the industry substantially comply with environmental
standards; and
g. The prices of industry products are reasonable.

 Each Foreign Investment Negative List shall be prospective in operation and shall in no
way affect foreign investment existing on the date of its publication.

STRATEGIC INDUSTRIES(S10)

- The term "strategic industries" shall mean industries that are characterized by all of the
following:

a. Crucial to the accelerated industrialization of the country;

b. Require massive capital investments to achieve economies of scale for efficient
operations;
c. Require highly specialized or advanced technology which necessitates
technology transfer and proven production techniques in operations;
d. Characterized by strong backward and forward linkages with most industries
existing in the country, and
e. Generate substantial foreign exchange savings through import substitution and
collateral foreign exchange earnings through export of part of the output that will
result with the establishment, expansion or development of the industry.