LAWS ON BANKS
INTRODUCTION
1. Concept
Banks – entities engaged in the lending of funds obtained in the form of deposits
QUASI-BANKS - Entities engaged in the borrowing of funds throughthe issuance,
endorsement or assignment withrecourse or acceptance of deposit substitutes -(
Sec.95, GBL)
Entities authorized to perform universal or commercial banking functions may also
engage inquasi-banking functions.
2. Nature of Business/Degree of Diligence
Impressed with public interest where the trust andconfidence of the public in
general is of paramountimportance such that:
a) The appropriate standard of diligence must bevery high, if not the
highest, degree of diligence; highest degree of care (PCI Bank vs.CA, 350
SCRA 446, PBCom vs. CA, G.R. No.121413, 29 Jan. 2001)
This applies only to cases where banksare acting in their fiduciary
capacity, thatis, as depository of the deposits of their depositors (Reyes
vs. CA, G.R. No.118492, 15 Aug. 2001)
b) Subject to reasonable regulation under thepolice power of the state.
SPECIAL RULES ON STRIKES AND LOCKOUTS:
 Any strike or lockout involving banks, if unsettled after 7calendar days
shall be reported by the BSP to theSec. of Labor who has 2 options:
a) He may assume jurisdiction over and decidethe dispute; or
b) certify it to the NLRC for compulsoryarbitration
 The President may also intervene at any time andassume jurisdiction
over such labor dispute in order tosettle or terminate the same.
3. Pertinent provisions on incorporation, change of charter/By-laws
The SEC shall not register the articles of incorporation of any bank or any
amendmentthereto unless accompanied by a certificate of authority issued by the
Monetary Board under itsseal - (Sec. 14, GBL).
ORGANIZATION OF A BANK OR QUASI-BANK
Requirements:
a) The entity is a stock corporation;
b) Its funds are obtained from the public,i.e. 20 or more persons; and
c) The minimum capital requirements prescribedby the Monetary Board are
satisfied -(Sec. 8, GBL).
A person or entity cannot engage in banking or quasi-banking functions without a
LAWS ON BANKS1 of 17
certificate of authority from the BSP - (Sec. 6, GBL).
4. Classification (universal, commercial, rural, cooperative, foreign)
Universal banks - Primarily governed by theGeneral Banking Law (GBL), can
exercise thepowers of an investment house and invest in non-allied enterprises and
have the highestcapitalization requirement.
Commercial banks- Ordinary banks governed bythe GBL which have a lower
capitalizationrequirement than universal banks and can neither exercise the
powers of an investment house nor invest in non-allied enterprises.
Thrift banks:These are
a) Savings and mortgage banks;
b) Stock savings and loan associations;
c) Private development banks, which are primarily governed by the Thrift
Banks Act (R.A. 7906).
Rural banks - Mandated to make needed creditavailable and readily accessible in
the rural a reason reasonable terms and which are primarily governed by the Rural
Banks Act of 1992(RA7353).
Cooperative banks - Those banks organized whose majority shares are owned and
controlled by cooperatives primarily to provide financial and credit services to
cooperatives. It shall include cooperative rural banks. They are governed primarily
by the Cooperative Code(RA 6938).
Islamic banks - Banks whose business dealings and activities are subject to the
basic principles and rulings of Islamic Shari’a, such as the Al AmanahIslamic
Investment Bank of the Philippines whichwas created byRA 6848.
Other classification of banksas determined by the Monetary Board of the Bangko
Sentral ngPilipinas.
DEPOSIT FUNCTION
1. Capacity of depositor (minor, women, would-be corporation)
Minors:
a. At least seven years of age
b. Able to read and write
c. Not disqualified by any incapacity
d. It should only be savings or time deposits
Note:Parents may deposit for their minor childrenor wards (Sec.1, PD No.734)
If the guardian shall give notice inwriting to any thrift bank not to make
paymentsof deposits, dividends, or interest to the minor of whom he is the
guardian, then suchpayment shall be made to the guardian. (Sec.22, Thrift Banks
 Act of 1995) withdraw the money he deposited on the very same day.

Married Women are allowed to openbank accounts without assistance of their Savings Account, which is the most common type of deposit, is usually evidenced
husbands (RA No. 7192) by a passbook. Under the fine print, if you deposit today, you cannot withdraw the
amount until 60 days later. Bank pays an interest rate, but not as high as time
Corporations may open bank accounts as follows: deposits.
a. Incorporation Stage
b. Post-incorporation Stage Time Deposit is an account with fixed term. The interest rate is stipulated
depending on the number of days. During this period, the money deposited cannot
2. Relationship between the bank and depositor; implications be withdrawn. It has a higher rate of interest than saving account.
As debtor-creditor
a) Savings  A bank other than a Universal Bank or Commercial Bank cannot accept or
b) Time create demand deposits except upon prior approval of, and subject to
c) Demand such conditions and rules as may be prescribed by the Monetary Board.

Characteristics: 4. Concept of and rules on Joint Account

i) In the nature of irregular deposits( Serranovs. Central Bank, 96 SCRA 96)
ii) Contract of loan/mutuum with the depositor as creditor
iii) Bank acquires ownership of the thing deposited and the right to use and
dispose
iv) Money deposited is commingled with the other money, constituting a
common fund.
v) Not preferred credits (Central Bank vs.Morfe, 20 SCRA 507).
As trustee-trustor
a) Trust account
As bailee-bailor
a) Deposit strictly for safekeeping and for specific purposes
 Safety deposit boxes - the relation between a bank renting out safety
deposit boxes and its customer with respect to the contents of the box is
that of a bailor and bailee, the bailment for hire and mutual benefit has
been adopted in this jurisdiction. It cannot be considered as a contract of
lease because the full possessionand control of the safety deposit box is
notgiven to the renters (Sia vs. CA, 222 SCRA 24[1993]).
As agent-principal
a) Deposit of check for collection
b) Deposit for specific purpose
c) Deposit for safekeeping
3. Kinds of deposit (Savings, Time, Demand)
Demand deposits are those liabilities of banks which are denominated in Philippine
currency and are subject to payment in legal tender upon demand by presentation
of checks. In here, no interest is paid by the bank because the depositor can take
out his funds any time. It is called demand deposit because the depositor can
LAWS ON BANKS2 of 17
a. ‘And’ account
 Co-ownership
 The signatures of both co-depositors arerequired for withdrawals
b. ‘And/or’account
 Either one of the co-depositors may deposit and withdraw from the
account without the knowledge, consent and signature of the other. And
upon the deathof one, the survivor may withdraw the entire balance on
deposit.
 The account may be deemed a survivorship agreement depending on the
intention of the parties; aleatory contract supported by a lawful
consideration which is valid unless when made as a mere cloak to hide an
inofficious donation, to transfer property in fraud of creditors, or to
defeat the legitime of a forced heir (Riveravs. People’s Bank and Trust
Co., 73 Phil.546 [1942]).
5. Anonymous accounts
Anonymous accounts are prohibited - (R.A. No9160 as amended by RA 9194; BSP
Circular No. 251,July 21, 2000)
exception:
Foreign currency deposits may be a “numbered account”. However, the
lawrequires that the necessary measures are undertakenby the bank to record and
establish the true identity of the depositor.
6. Deceased depositors
 If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the
said deposit account, unless the Commissioner has certified that the taxes imposed
thereon by this Title have been paid: Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon authorization by
the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
 (P20,000) without the said certification.– (Par 2, Sec 97, National Internal Revenue
Code of 1997)
7. Survivorship Agreements
 Survivorship agreement is a contract that imposes a mere obligation with a term,
the term being death. Such agreements are permitted under Art 2012 of the Civil
Code, an aleatory contract. But although the survivorship agreement is per se not
contrary to law, its operation or effect may be violative of the law. For instance, if it
be shown in a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime of a
forced heir, it may be assailed and annulled upon such grounds.
 Joint account may be the subject of a survivorship agreement whereby the co-
depositor agree to permit either of them to withdraw the whole deposit during
their lifetime and transferring the balance to the survivor upon the death of one of
them - (Vitug vs. CA, 29 March 1990).
SECRECY OF BANK DEPOSITS
1. Rationale (RA 1405 - SECRECY OF BANK DEPOSITS LAW)
 To encourage people to deposit in banks
 To discourage private hoarding so that banks maylend such funds and assist in the
economicdevelopment
Coverage:
 All deposits of whatever nature with banks or bankinginstitutions in the
Philippines, including investments inbonds issued by the Government of the
Philippines, itspolitical subdivisions and its instrumentalities
PROHIBITEDACTS
a. Examination and inquiry or looking into all deposits,of whatever nature, with the
banks in thePhilippines including investments in bonds issuedby the Government.
b. Any disclosure by any official or employee of anybank to any unauthorized person
of any informationconcerning the said deposits.
GENERAL RULE:
 The deposits covered by law areconsidered as of an absolutely confidential
nature and may not be examined, inquired or looked into by anyperson,
governmental bureau, or office.
2. Exceptions:
FROM R.A. NO.1405
a. written permission of depositor
b. impeachment
c. bribery/dereliction of duty
 The crime of bribery and the overt acts constitutive of plunder are
crimes committed by public officers, and in either case the noble idea
that "a public office is a public trust and any person who enters upon
its discharge does so with the full knowledge that his life, so far as
LAWS ON BANKS3 of 17
relevant to his duty, is open to public scrutiny" applies with equal
force. Plunder being thus analogous to bribery, the exception to R.A.
1405 applicable in cases of bribery must also apply to cases of
plunder.(Ejercito vs. Sandiganbayan, 30 November 2006)
d. deposit is the subject matter of litigation
FROM OTHER LAWS
e. anti-graft & corrupt practices – (R.A.No. 3019)
f. net estate determination
 Inquiry by the Commissioner of InternalRevenue into bank deposits
of:
a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for compromise of his
tax liability by reason of financial incapacity to pay his tax
liability. Hemust file a written waiver of his privilege under
RA1405 or other general or special laws (Sec.6[f], NIRC)
g. dormant accounts
 Disclosure to the Treasurer of the Philippines of dormant deposits
for at least10 years under the Unclaimed Balances Act (Act No.
3936).
h. AMLA (safe harbor provision)
 Inquiry or examination by the Anti-Money Laundering
Council(AMLC) of any particular deposit or investment with any
banking institution or non-bank financial institution upon order of
any competent court in cases of violation of the Anti-Money
Laundering Law, when it has been established that there is probable
cause that thedeposits or investments are related to an unlawful
activity or a money laundering offense, except that no court order
shall be required in the followingunlawful activities:
a) Kidnapping for ransom under Art. 267 RPC;
b) Comprehensive Dangerous Drugs Act of 2002(RA No.
9165);
c) Hijacking and other violations under RA 6235;
d) Destructive arson and murder under RPC.Including those
perpetrated by terrorists againstnon-combatant persons
and similar targets. (Sec. 11, R.A. No. 9160 as amended by
Sec. 8 of RA 9194)
Safe Harbor Provision.- No administrative, criminal or civil proceedings
shall lie against any person for having made a covered transaction report
in the regular performance of his duties and in good faith, whether or not
such reporting results in any criminal prosecution under the AMLA or any
other Philippine law. - Rules And Regulations Implementing The Anti-
Money Laundering Act of 2001(Sec 2.e, Rule 3, R.A. No. 9160)
i. Human Security Law
 The Court of Appeals, designated as a special court, may issue an
order authorizing law enforcement officers to examine and gather
information on the deposits, placements, trust accounts, assets and
 records in a bank or financial institution in connection with anti- (Rep. Act No. 8424, as amended by Rep. Act No.10021).
terrorism case. -(Rep. Act No. 9372 - often referred to as the “Anti- d) AMLA
Terror Law” or “Anti-Terrorism Law“. As will be seen in the text of Money Laundering – a crime whereby the proceeds of an unlawful
the law, however, this is properly known as the “Human Security Act activity is transacted thereby making them appear to have originated
of 2007) from legitimate sources
j. BSP’s periodic or special examination of bank  AMLC can inquire into deposits upon court order when there is a
 BSP’s inquiry into or examination of deposits or investments with probable cause that the deposits are related to any unlawful activity.
any bank, when the inquiry or examination is made in the course of
the BSP’s periodic or special examination of such bank (Section 11,  No court order is required if examination is in connection with:
Anti-Money Laundering Act of 2001) (a) Kidnapping for ransom;
(b) Violation of Comprehensive Dangerous Drugs Act of 2002;
3. Rule on foreign currency deposits (c) Violations of RA 6235;
FOREIGN CURRENCY DEPOSIT ACT OF THE PHILIPPINES (REPUBLIC ACT NO. 6426) (d) Destructive arson; and
 Foreign currency deposits refer to funds in foreign currencies which (e) Murder, including those perpetrated by terrorists.
are accepted and held by authorized banks in the regular course of
business with the obligation toreturn an equivalent amount to the
owner thereof, with or without interest. Preventive measures:
(1) Covered Transaction Report
Absolute Confidentiality of Foreign Currency Deposits  Transaction in cash or other monetary
 All foreign currency deposits are absolutelyconfidential and cannot instrument in excess of P500, 000 within one
be examined, inquired, or lookedinto by any person, government banking day.
official, bureau or office,whether judicial or administrative or  Covered institution shall report to the AMLC all
legislative, or any otherprivate or public entity. Foreign currency covered and suspicious transactions within 5
deposits are alsoexempt from attachment, garnishment, or any working days from the occurrence thereof,
other orderor process of any court, legislative body, unless the Supervising Authority prescribes a
governmentagency or any administrative body whatsoever. (Sec. 8, longer period not exceeding10 working days
Rep.Act No. 6426) (2) Suspicious Transaction Report
 Suspicious transaction' are transactions with
Instances when Confidentiality of Foreign Currency Deposits is Not Absolute covered institutions, regardless of the amounts
FROM RA NO. 6426 involved, where any of the following
a) Foreign currency deposits may be examined,inquired or looked into when circumstances exist:
there is writtenpermission of the depositor. a) There is no underlying legal or trade
obligation, purpose or economic
FROM OTHER LAWS justification;
b) Directors, officers, stockholders and relatedinterests who contract a loan b) The client is not properly identified;
or any form offinancial accommodation with their bank orrelated bank c) The amount involved is not
are required to execute awritten waiver of secrecy of depositspursuant to commensurate with the business or
The New Central Bank Act. (Sec.26, Rep. Act No. 7653) financial capacity of the client;
c) The Commissioner of Internal Revenue isauthorized to inquire into bank d) Taking into account all known
depositaccounts in relation to: circumstances, it may be perceived
i) an application for compromise of tax liability or a that the client's transaction is
determination of a decedent’s gross estate under The structured in order to avoid being the
National Internal Revenue Code (Rep. Act No. 8424, as subject of reporting requirements
amended by Rep. Act No. 10021); and under the Act;
ii) a request for tax information of specific18 taxpayers made e) Any circumstances relating to the
by a foreign tax authority pursuant to a tax treaty under transaction which is observed to
The Exchange of Information on Tax Matters Act of 2009 deviate from the profile of the client
LAWS ON BANKS4 of 17
 and/or the client's past transactions
with the covered institution;
f) The transactions is in a way related to
an unlawful activity or offense under
this Act that is about to be, is being or
has been committed; or
g) Any transactions that is similar or
analogous to any of the foregoing.
(3) Customer Identification
 Covered institutions shall establish and record
the true identity of itsclients based on official
documents. They shallmaintain a system of
verifying their clients and incase of corporate
client, require a system of verifying their legal
existence and organizationalstructure, as well as
the authority and identification of all person
purporting to act on their behalf
(4) 5-year period to store record
 All records of all transaction of covered
institution shall be maintained and safelystored
for 5 years from the dates of transaction.With
respect to closed accounts, the records
oncustomer identification, account files and
businesscorrespondence, shall be preserved and
safelystored for at least 5 years from the dates
when theywere closed.
e) The Bangko Sentral is authorized to –
i) Inquire into or examine bank deposits and investments in
the course of aperiodic or special examination to ensure
compliance with The Anti MoneyLaundering Act, in
accordance with the rules of examination of the Bangko
Sentral (Sec. 11, Rep. Act No. 9160, as amended); and
ii) Conduct annual testing which is limited to the
determination of the existenceand true identity of the
owners of numbered accounts (Sec. 9, Rep. Act No 9160,
as amended21).
f) The Philippine Deposit Insurance Commission and the Bangko Sentral
may inquire into bank deposits when there is a finding of unsafe or
unsound banking practices. (Sec. 8, Rep. Act No. 3591, as amended)
g) The Commission on Audit is authorized to examine and audit government
deposits pertaining to the revenue and receipts of, and expenditures or
uses of funds and properties, owned or held in trust by, or pertaining to,
the Government or any of its subdivisions, agencies or instrumentalities,
including government-owned and controlled corporations with original
LAWS ON BANKS5 of 17
charters. (See Art. IX-D, 1987 Constitution and Pres. Dec. No.1445)
h) The Presidential Commission on Good Government, in the conduct of its
investigations to recover ill-gotten wealth accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, may issue subpoenas requiring the
attendance and testimony of witnesses and/or the production of books,
papers, contracts, records, statement of accounts and other documents.
(Sec. 3 [e], Exec. Order No. 1[1986])
REQUISITES OF IN CAMERA INSPECTION:
i) There must be a pending case before a court of competent
jurisdiction.
ii) The account must be clearly identified, the inspection
limited to the subject matter of the pending case before
the court of competent jurisdiction.
iii) The bank personnel and the account holder must be
notified to be present during the inspection, and
iv) Such inspection may cover only the account identified in
the pending case. (Marquez vs Desierto, G.R. No. 135882,
June 27, 2001)
FROM JURISPRUDENCE ON GROUNDS OF EQUITY
i) Account of a Non-resident Alien
 The garnishment of a foreign currency deposit account of a non-
resident alien found guilty of raping a minor was allowed on the
basis of equity. (Salvacion v. Central Bank of the Philippines, 278
SCRA 27, Aug 21, 1997)
j) Account of a Co-payee of a Check
 A co-payee of a check who filed a suit forrecovery of sum of money
was considered,in a pro hac vice ruling by the SupremeCourt, as a
depositor in view of thedistinctive circumstances of the case.
(ChinaBanking Corporation v. Court of Appeals,511 S.C.R.A. 110
[2006])
PDIC - Philippine Deposit Insurance Corporation
FUNCTIONS OF PDIC:
a) Deposit Insurer
b) Co-regulator of Banks
c) Receiver and Liquidator of Closed Banks
1. Mandatory Insurance Coverage (RA 9576)
2. Risk insured against - bank closure
3. Amount insured – amount deposited net of any obligation of the depositor to the bank
as of closure
4. Maximum coverage - P500,000 per bank regardless of the number of the accounts held
5. Joint accounts separately covered
Excluded:
 a) deposit in foreign branches;
b) investment products;
c) unfounded, fictitious or fraudulent;
d) deposits emanating from unsafe and unsound banking practices;
e) AMLA;
f) splitting of deposits
6. Filing of claim – 2 years from actualtake over
7. Remedy for amounts in excess of P500,000
 In case the depositor’s account is more than theinsurance coverage,
the balance may still berecovered from the PDIC after the final
liquidationof the remaining assets of the closed bank
8. Period for PDIC to pay the claim
 The claim for insured deposit should be settled within six (6) months
from the date of filing provided all requirements are met but the
claim must be filed within twenty-four (24) months after bank
takeover. The six-month period shall not apply if the documents of
the claimant are incomplete or if the validity of the claim requires
the resolution of issues of facts and law by another office, body or
agency, independently or in coordination with PDIC.
LOAN FUNCTION
1. Basic rules on bank loans(Sec. 39, 40 & 55.2, GBL)
Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A
bank shall grant loans and other credit accommodations only in amounts and for
the periods of time essential for the effective completion of the operations to be
financed. Such grant of loans and other credit accommodations shall be consistent
with safe and sound banking practices. The purpose of all loans and other credit
accommodations shall be stated in the application and in the contract between the
bank and the borrower. If the bank finds that the proceeds of the loan or other
credit accommodation have been employed, without its approval, for purposes
other than those agreed upon with the bank, it shall have the right to terminate the
loan or other credit accommodation and demand immediate repayment of the
obligation.
Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. -
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank. Toward this end, a
bank may demand from its credit applicants a statement of their assets and
liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the
bank to properly evaluate the credit application which includes the corresponding
financial statements submitted for taxation purposes to the Bureau of Internal
Revenue. Should such statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or other credit accommodation granted on
the basis of said statements and shall have the right to demand immediate
repayment or liquidation of the obligation. In formulating rules and regulations
LAWS ON BANKS6 of 17
under this Section, the Monetary Board shall recognize the peculiar characteristics
of micro financing, such as cash flow-based lending to the basic sectors that are not
covered by traditional collateral.
Section 55.2. No borrower of a bank shall -
(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the
purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan
or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such persons
into approving a loan or other credit accommodation application.
2. Specific rules on:
amortization (Sec. 44, GBL);
 The amortization schedule of bank loans and other credit
accommodations shall be adapted to the nature of the operations to
be financed. In case of loans and other credit accommodations with
maturities of more than five (5) years, provisions must be made for
periodic amortization payments, but such payments must be made
at least annually: Provided, however, That when the borrowed funds
are to be used for purposes which do not initially produce revenues
adequate for regular amortization payments therefrom, the bank
may permit the initial amortization payment to be deferred until
such time as said revenues are sufficient for such purpose, but in no
case shall the initial amortization date be later than five (5) years
from the date on which the loan or other credit accommodation is
granted. In case of loans and other credit accommodations to micro
finance sectors, the schedule of loan amortization shall take into
consideration the projected cash flow of the borrower and adopt
this into the terms and conditions formulated by banks.
prepayment (Sec. 45, GBL);
 A borrower may at any time prior to the agreed maturity date
prepay, in whole or in part, the unpaid balance of any bank loan and
other credit accommodation, subject to such reasonable terms and
conditions as may be agreed upon between the bank and its
borrower.
renewal(Sec. 48,GBL);
 The Monetary Board may, by regulation, prescribe the conditions
and limitations under which a bank may grant extensions or
renewals of its loans and other credit accommodations.
losses/write-offs(Sec. 49,GBL);
 All debts due to any bank on which interest is past due and unpaid
for such period as may be determined by the Monetary Board,
 unless the same are welt-secured and in the process of collection
shall be considered bad debts within the meaning of this Section.
The Monetary Board may fix, by regulation or by order in a specific
case, the amount of reserves for bad debts or doubtful accounts or
other contingencies. Writing off of loans, other credit
accommodations, advances and other assets shall be subject to
regulations issued by the Monetary Board.
escalation clause
 raising of interest.
 allowed ONLY when the monetary board has increased the rate of
interest provided that there is also a stipulation that interest will be
lowered if MB has lowered the rate of interest
 Both instances should be present before escalation clause is allowed
 Exception: if the creditor unilaterally decreased the interest even if it
was not stipulated, esacalation will be allowed.
3. DOSRI Restrictions
Rationale
 The general policy behind the DOSRI limit is to level the lending field between
insiders (namely, directors, officers, stockholders, and their related interests)
and the outsiders. The rules require that loans and other credit
accommodations to DOSRI are to be in the regular course of business and
upon terms not less favorable to the bank than those offered to those outside
the DOSRI circle. The aim is to prevent the bank from becoming a captive
source of finance of the DOSRI.
Requisites:
a) borrower – director, officer,stockholder of the bank (1%) or their related
interests
b) loan
c) from his bank or bank subsidiary(or affiliate) or bank controlling interest
of which is the same as his bank
d) Amount of loan in excess of 5% of capital surplus of the lending bank
Related Interests
a) Relatives (spouse and 1st degree relatives)
b) Partnership (of which the DOSR is a general partner)
c) Co-owner of the collateral
d) certain corporations, association or firm where:
i) DOS or relative is also a director or officer
ii) any or group of DOS or relative holds at least 20% of the
capital stock
iii) wholly/majority owned by any related entity or group of
related entities
iv) owns at least 20% of the capital stock of a substantial
stockholder of the lending bank or which controls majority
interest of the bank
v) lending bank owns 20% of the corporation or has
LAWS ON BANKS7 of 17
management contract with the lending bank (CB Circular
423, 2004)
DOSRI Requirements:
a) written approval of all the directors of the lending bank
b) report to BSP
c) arms length
Arms Length Rule - Dealings of a bank with any of its DOSRI shall beupon
terms not less favorable to the bank thanthose offered to others.
d) aggregate ceiling of DOSRI loans
– 15% of the bank’s loan portfolio or 100% of combined capital
accounts whichever is lower
e) individual ceiling
– encumbered deposit and book value of paid up shares
– an amount equivalent to his or her unencumbered deposits in
the lending bank plus the book value of paid-capital
contribution therein.
4. Single Borrower Limit – 25% of the net worth of the bank
 The single borrower’s limit (‘SBL’) serves to allocate bank resources to
different sectors of the economy. It prevents the bank from making excessive
loans and other credit accommodations to a single borrower or corporate
group. Thus, the bank is prohibited from placing all of its eggs in the basket of
a single client, thereby safeguarding the bank from too large a risk exposure to
a single client. Currently, the SBL is 25 per cent of the net worth of the bank.
There could be an incremental SBL of 10 per cent of the net worth of the bank,
provided that the additional liabilities of the borrower are adequately secured
by documents of title to goods that are readily marketable, non-perishable,
and fully insured.
Included in the SBL:
 direct and indirect liability
 liabilities of corporations, etc. in which the borrower is a major
stockholder
 liabilities of subsidiaries, if the borrower is a corporation
 liabilities of members, if borrower is a partnership or association
Excluded from the SBL:
 loans secured by: the BSP, government US Treasury, other centralbanks
of foreign countries with high credit quality, hold out on/security on
deposit,
 others – MB
5. Collaterals – 75% of the appraised value of the real property plus 60% of the value of the
improvement or 75% of the appraised value of the chattel(Sec 37 & 38, GBL)
Note: The limit on loans, credit accommodations and guarantees prescribed herein
shall not apply to loans, credit accommodations and guarantees extended by a
 cooperative bank to its cooperative shareholders.
6. Redemption – Real Estate
 if natural person - one (1) year after the sale
 if juridical person – until but not after registration of certificate of
foreclosure sale, in no case more than 3 months after foreclosure
which ever is earlier
Effect of Restraining Order
 Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount
fixed by the court conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint of the
foreclusure proceedings.
Truth In LendingAct(RA 3765- Disclosure of Finance Charges)
Policy- protect the citizens from a lack of awareness of the true cost of credit
byassuring a full disclosure of such cost.
Disclosure shall include:
a) The cash price of the property or service to be acquired
b) Amounts for downpayment
c) Charges which are paid in connection with the transaction
d) Amount to be financed
e) Finance charge - interest and fees incident to the extension of credit
 Truth in Lending Act may also be violated if the agreement provides for an
escalation clause on interest which is dependent solely on the will of the bank.
(UCPB vs Sps Beluso, G.R. No. 159912, August 17, 2007)
 Subsequent compliance with the disclosure requirement cannot be deemed in
substantial compliance with the Truth in Lending Act. (UCPB vs Sps Beluso, G.R. No.
159912, August 17, 2007)
Penalty- either civil or criminal (1k-5k fine or imprisonment for 6-12 months, or both)
- Government is exempted from the punishment or penalty
BANK OWNERSHIP
RULES UNDER THE MANUAL OF REGULATIONS FOR BANKS
1. Foreign Individuals and non-bank corps – 40% of the voting stock (Aggregate
ceiling – 40%)
2. Filipino individual and domestic non-bank – each up to 40%
No aggregate ceiling
3. Citizenship of the corporation which is a stockholder of a bank – citizenship of the
controlling (more than 50%) stockholders
4. Commercial banks – 60% (Filipino)
Rural banks – 100% (Filipino)
LAWS ON BANKS8 of 17
Thrift bank - 40% (Filipino)
DIRECTORS & OFFICERS
1. Board Composition - 5 to 15 members (2 should be independent)
An “independent director” shall mean a person other than an officer or employee of the
bank, its subsidiaries or affiliates or related interests.
Public officials(appointive or elective, whether full-time or part-time) not qualified -
except for rural banks – (Section 19, GBL)
2. Meetings – can be done electronically
3. Fit and Proper Rule - Section 16, GBL
“Fit and Proper Rule” states that “to maintain the quality of bank management and
afford better protection to depositors and the public in general, the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found
unfit.”
“After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an act
which render him unfit for the position.”
“In determining whether an individual is fit and proper to hold the position of a director
or officer of a bank, regard shall be given to his integrity, experience, education,
training, and competence.”
4. Disqualifications
a) Conviction of offenses involving dishonesty or breach of trust;
b) Sentenced – more than 6 years;
c) Violation of banking laws;
d) Responsible D&O of closed banks;
e) D&O found administratively liable for violation of banking laws where removal
from office is imposed;
f) Those found unfit for the position of D&O
OWNERSHIP OF REAL PROPERTY
A bank can acquire real estate necessary for the conduct of its Business. BUT, total
investment in real property shall not exceed 50% of the combined capital accounts.
Limitation does not apply to real properties:
a) Mortgaged to it;
b) Conveyed to it in satisfaction of debts;
c) Purchased at sales under judgments, etc.
BANKS IN DISTRESS
A. UNSECURED LOANS – to provide liquidity (not more than 7 days)
Sec 83, NCBA. Loans for Liquidity Purposes. - The Bangko Sentral may extend loans
 and advances to banking institutions for a period of not more than seven (7) days - Receiver to file ex parte petition with the proper RTC for assistance in the
without any collateral for the purpose of providing liquidity to the banking system liquidation of the bank
in times of need. - All claims (including disputed claims) subject to theliquidation court’s jurisdiction

B. EMERGENCY LOANS – not more than 50% of total deposits Distinguished from liquidation under the Corporation Code (In Re: Petition for Assistance
Sec 84, NCBA. Emergency Loans and Advances.- The BSP, upon the approval of at in the Liquidation of Rural Bank of Bokod, 18 December 2006)
least 5 members of the MB, may also grant emergency loans or advances in the - Prior notice and hearing not required (summary)
amount not exceeding 50% of its total deposits and deposit substitutes. - Bank has no option to undertake its own liquidation
- Can be dissolved even without prior BIR clearance
C. CONSERVATORSHIP(Sec 29, NCBA)
Condition: continuing inability or unwillingness to maintain liquidity SUBSTANTIAL DIFFERENCES IN THE PROCEDURE FOR INVOLUNTARY DISSOLUTION AND
Period: 1 year LIQUIDATION - In Re: Petition for Assistance in the Liquidation of Rural Bank of Bokod, 18
Powers: Dec. 2006
1) Take charge of/manage the assets & liabilities UNDER THE CORPORATION CODE NEW CENTRAL BANK ACT
2) Reorganize management The Monetary Board may summarily and
3) Collect receivables The SEC may dissolve a corporation, upon the without need for prior hearing, forbid the
4) Necessary powers filing of a verified complaint and after proper banking corporation from doing business in
notice and hearing, on grounds provided by the Philippines, for causes enumerated in
D. RECEIVERSHIP (Sec 30, NCBA) existing laws, rules, and regulations. Section 30 of the New Central Bank Act; and
Condition: appoint the PDIC as receiver of the bank.
1) Unable to pay liabilities The actions of the Monetary Board shall be
2) Insufficient assets final and executory, and may not be
3) More losses if business will continue The SEC shall issue the final order of
restrained or set aside by the court except
4) Willful violation of CDO dissolution only after the corporation has
on a Petition for Certiorari filed by the
submitted its tax clearance; or in case of
stockholders of record of the bank
Close Now Hear Later Scheme involuntary dissolution, the SEC may proceed
representing a majority of the capital stock.
 No prior hearing needed, but subject to subsequent judicial review with the dissolution after 30 days from
PDIC, as the appointed receiver, shall file ex
(certiorari by holders of majority of the capital stock within 10 days receipt by the BIR of the documentary
parte with the proper RTC, and without
from receipt of order) requirements without a tax clearance having
requirement of prior notice or any other
 The law does not contemplate prior notice and hearing before the been issued
action, a petition for assistance in the
bank may be directed to stop operations and placed under liquidation of the bank.
receivership. The purpose is to prevent unwarranted dissipation of The corporation may undertake its own
the bank’s assets and as a valid exercise of police power to protect liquidation, or at any time during the said
the depositors, creditors, stockholders and the general public. three years, it may convey all of its property The bank is not given the option to
(Central Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993) to trustees for the benefit of its stockholders, undertake its own liquidation.
members, creditors, and other persons in
EFFECTS OF RECEIVERSHIP: interest.
1) Exemption from garnishment, levy, attachment & execution
2) Stoppage of business
3) Suspension of bank’s authority over its properties(Assets are deemed
under custodia legis)
4) Exemption from payment of interests on deposits
5) Retention of juridical personality
6) Exclusive jurisdiction of liquidation court

E. LIQUIDATION
- Cannot proceed simultaneously with rehabilitation

LAWS ON BANKS9 of 17