BANKING FINALS REVIEWER
Spouse or relative within the first degree of consanguinity or affinity,
LOAN FUNCTIONS OF BANKS
I. GENERAL CONCEPTS
- A loan is the lending of money by one or more individuals, organizations, and/or other entities
to other individuals, organizations, etc. It may be short term or long term, depending on the
purpose.
- Banks shall grant loans only in amounts and for periods of time essential to the effective
completion of operations to be financed, consistent with safe and sound banking practices.
- CREDIT LINE are to businessmen to assist them in operation of their business. A fixed limit
or ceiling may placed in the amount, provided its balance does not exceed such stipulated
ceiling or limit.
- REVOLVING CREDIT is formal commitment by a bank to lend a borrower up to a specified
amount of money over a given period of time.
- If a bank enters into a well defined contractual relationship, it is imperative that the bank and
other party should honor and adhere to their respective rights and obligations thereunder.
- INTEREST (CIRC. NO 799) 6 percent per annum
- ESCALATION CLAUSE is a provision in the loan document that allows the unilateral increase
of interest rate is void in this jurisdiction.
- NEW SAMPAGUITA BUILDERS CONSTRUCTION V. PNB – the unilateral determination
and imposition of increased rates is violative of the principle of mutuality of contracts under
art. 1308, cc.
- AMORTIZATION is the accounting term that refers to the process of allocating the cost of an
intangible asset over a period of time. It also refers to the repayment of the loan principal over
time.
- AMORTIZATION SCHEDULE
- (Sec. 44 of the 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 the loan maturity is more than five years and the loan is to be employed to
purposes which do not sufficient revenues, the initial amortization may be deferred
provided that it should not be later than 5 years from the time it is granted
a. GUIDELINES FOR GRANT OF LOANS
- Bank must ascertain the capability of debtor in fulfilling his commitments, thru:
§ Statement of assets and liabilities
§ Proof of income and expenditures
b. NATURE OF LOAN DOCUMENTS
- It is a contract of adhesion, because its terms are prepared by only one party while
the other party merely affixes his signature signifying his adhesion thereto.
c. DUTY OF BORROWERS
- Should familiarize themselves with the terms and conditions of the loan agreement
before singing the same.
- It is presumed that the borrower took ordinary care of his concerns by reading the
provisions of the contract of loan. (RUIZ V. CA)
- The natural presumption is that one does not sign a document without first
informing himself of its contents and consequences.
II. DOSRI ACCOUNTS
- Borrowings and security arrangement by Directors, Officers, Stockholders and
their Related Interest
- Not illegal per se but are subject to restrictions
§ Restrictions under Sec. 36 of the General Banking Law
§ Restrictions under Sec. 26 of the New Central Bank Act
- The law does not want banks to make unsound credit decisions because of insider
pressure and to have earnings reduces as a result of self-dealing on more
favorable terms than would be available to other bank customers.
a. PERSONS COVERED
- Directors
- Officers of the bank - officers identified in the by-laws of the lending bank and those
generally known to be officers of the bank either through announcement,
representation, publication or any kind of communication made by the bank.
- Stockholders - Stockholders of record in the lending bank’s books.
- Related Interest
zwenzens
1.
or relative by legal adoption, of a director, officer or stockholder of the
bank;
2. Partnership of which a director, officer, or stockholder of a bank or his
spouse or relative within the first degree of consanguinity or affinity, or
relative by legal adoption, is a general partner;
3. Co-owner with the director, officer, stockholder or his spouse or relative
within the first degree of consanguinity or affinity, or relative by legal
adoption, except when the mortgage, pledge or assignment covers only
said co-owner’s undivided interest;
4. Corporation, association, or firm of which a director or officer of the
bank, or his spouse is also a director or officer of such corporation,
association, or firm except
§ where the securities of such corporation association or firm
are listed and traded in the big board or commercial and
industrial board of domestic stock exchanges and less than
50% of the voting stock thereof is owned by any one (1)
person or by persons related to each other within
§ the first degree of consanguinity or affinity; or
§ where the director, officer or stockholder of the bank sits as
a representative of the bank in the board of directors of such
corporation. The bank representative shall not have any
equity interest in the borrower corporation except for the
minimum shares required by law, rules and regulations, or
by the by-laws of the corporation, and the borrowing
corporation is not among those mentioned below
5. Corporation, association or firm of which any or a group of directors,
officers, stockholders of the lending bank and/or their spouses or
relatives within the first degree of consanguinity or affinity, or relative by
legal adoption, hold or own at least 20% of the subscribed capital of
such corporation, or of the equity of such association or firm;
6. Corporation, association, or firm wholly or majority owned or
controlled by any related entity or a group of related entities
7. Corporation, association or firm which owns or controls directly or
indirectly whether singly or as a part of a group of related interest at
least 20% of the subscribed capital of a substantial stockholder of the
lending bank or which controls majority interest of the bank pursuant to
Subsec. X303.1 of the MOR;
8. Corporation, association or firm in which the lending bank and/or its
parent/subsidiary holds or owns at least 20% of the subscribed capital
of such corporation, or in the equity of such association or firm, or has
an existing management contract or any similar arrangement with the
lending bank or its parent/subsidiary.
b. RESTRICTIONS UNDER SEC. 36 OF GBL
- [PROCEDURAL REQUIREMENT] The account should be upon the written
approval of the majority of all the directors of the lending bank excluding the
director concerned.
- [REPORTORIAL REQUIREMENT] The resolution approving the loan shall be
entered in the records of the bank and a copy of the entry shall be transmitted
forthwith to the Supervising and Examination Sector of the BSP.
- [AGGREGATE CEILINGS] The Monetary Board may regulate the amount of loans,
credit accommodations and guarantees that may be extended directly or indirectly
by a bank to its directors, officers, stockholders and their related interests, as well
as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. The manual of regulations for
Banks provide that the aggregate is 15% of the total loan portfolio of the bank or
100% of the combined capital accounts whichever is lower.
- [INDIVIDUAL CEILINGS] The outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its stockholders, directors, or
officers and their related interests, shall be limited to an amount equivalent to their
1
 respective unencumbered deposits and the book value of their paid-in capital
contribution in the bank.
- [EXCEPTIONS] Ceilings do not apply to loans, credit accommodations and
guarantees:
1. secured by assets considered by the Monetary Board as non-risk items,
2. under a fringe benefit plan approved by the BSP
3. extended by cooperative banks to its cooperative stockholders
c. RESTRICTIONS UNDER SEC. 26 OF THE NEW CB ACT
- Borrower shall be required by the lending bank to waive the secrecy of his deposits
of whatever nature in all banks in the Philippines.
- The accounts are subject to examination but any information obtained from an
examination of his deposits shall be held strictly confidential and may be used by
examiners only in connection with the supervisory and examination responsibility
or by the BSP in an appropriate legal action it has initiated involving the deposit
account.
1. The borrower is a director, officer any stockholder of a bank (and related
interests); 
 d.
2. He contracts a loan or any form of financial accommodation; 
 -
3. The loan or financial accommodation is from: (1) his bank; or (2) from a
bank that 
is a subsidiary of a bank holding company of which both his
bank and the lending bank are subsidiaries; (3) a bank in which a
controlling proportion of the shares is owned by the same interest that
owns a controlling proportion of the shares of his bank; and 

4. The loan or financial accommodation of the director, officer, or
stockholder, singly or with that of his related interests, is in excess of
five percent (5%) of the capital and surplus of the lending bank, or in
the maximum amount permitted by law, whichever is lower.
d. ARMS LENGTH RULE
- The account should be upon terms not less favorable to the bank than those
offered to others.
- Being insiders does not mean that the DOSRI should get better terms when they
borrow from the bank.
- The arms length rule is further affirmed in the General Policy stated in the Manual
of Regulations as amended by BSP Circular 423 that states:
1. SECTION X326. General Policy. Dealings of a bank with any of its
Directors, Officers, Stockholders and their Related Interests (DOSRI)
should be in the regular course of business and upon terms not less
favorable to the bank than those offered to others
III. SECURITY/COLLATERALS
- Monetary Board is authorized to issue such regulations as it may deem necessary
with respect to unsecured loans or other credit accommodations that may be
granted by banks. (Section 41, General Banking Law)
- Unsecured loans may be in the form of microfinancing.
a. RATIONALE FOR REQUIRING COLLATERALS
- The liquidity of banks and the safety of the funds of the depositors require that the
collaterals secure the loans obtained from the banks.
- Collaterals can be in the form of:
1. Real Property
2. Personal Property
3. Personal Guaranty
b. REAL & PERSONAL PROPERTY AS MORTGAGE
- [REAL PROPERTY] SECTION 37. Loans and Other Credit Accommodations
Against Real Estate.
1. Except as the Monetary Board may otherwise prescribe, loans and
other credit accommodations against real estate shall not exceed
seventy-five percent (75%) of the appraised value of the respective real
estate security, plus sixty percent (60%) of the appraised value of the
insured improvements, and such loans may be made to the owner of
the real estate or to his assignees.
zwenzens
- [PERSONAL PROPERTY] SECTION 38. Loans and Other Credit
Accommodations on Security of Chattels and Intangible Properties
1. Except as the Monetary Board may otherwise prescribe, loans and
other credit accommodations on security of chattels and intangible
properties, such as, but not limited to, patents, trademarks, trade
names, and copyrights shall not exceed seventy-five percent (75%) of
the appraised value of the security, and such loans and other credit
accommodations may be made to the title-holder of the chattels and
intangible properties or his assignees.
c. WHEN IS A BANK A MORTGAGEE IN GOOD FAITH
- GENERAL RULE: Purchaser or mortgagor is not required to explore further than
what the Torrens Title indicate on its face, in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto.
- The nature of the business of banks demands due care in accepting properties as
security for the obligations of its borrowers. This may take the form of failure to
conduct an exhaustive investigation on the history of the mortgagor’s title.
WHEN IS A BANK A MORTGAGEE IN BAD FAITH
The Supreme Court had consistently taken judicial notice of standard of practice
for banks, before approving a loan, to send representatives to the premises of the
land offered as collateral and to investigate who are the real owners thereof.
- If a bank fails to follow this standard procedure, it cannot be considered as a
mortgagee in good faith.
e. FORECLOSURE OF MORTGAGE
- GENERAL RULE: REDEMPTION PERIOD
- [NATURAL PERSONS]
1. within 1 year after the sale of the real estate
2. 1 year redemption period should be counted from the registration of the
certificate of sale in the ROD
- [JURIDICAL PERSONS]
1. have the right to redeem the property but not after the registration of the
certificate if foreclosure sale with the proper Register of Deeds which in
no case be more than 3 months after the foreclosure, whichever is
earlier
- EXCEPTION:
- [EXTENSION BY AGREEMENT]
1. period of redemption can be extended by agreement of the parties such
agreement converts legal redemption into conventional redemption
- [EXCENSION BY ESTOPPEL]
1. extension is unilaterally made
f. RESTRAINING ORDER
- [REDEMPTION PRICE] Section 47 of the General Banking Law
1. by paying the amount due under the mortgage deed, with interest
thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody
of said property less the income derived therefrom.
- [POSSESSION] Before the expiration of the redemption period
1. Bank may ask for a writ of possession from a competent court
§ ex parte motion under oath for that purpose
- Issuance of a writ of possession is a ministerial function provided a bond is posted
- After the expiration of the redemption period
1. purchaser at the auction sale become the absolute owner of the
property thus, he have the right to take possession of the property
immediately
2. writ of possession may also be issued
§ payment of bond is no longer necessary
- Writ of possession becomes a matter of right and issuance thereof is merely a
ministerial function
- [INJUNCTION AND BOND]
1. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due
2
 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 foreclosure
proceeding.
g. DEPOSITS AS SECURITY
- Bank deposits may be used as security for a separate loan obligation of the
depositor.
- Security – something given or pledge to make certain the fulfillment of an
obligation
- Pledge – is a contract by virtue of which the debtor delivers to the creditor (or to a
third person by common agreement) a movable property susceptible of
appropriation or a document evidencing incorporeal rights for the purpose of
securing the fulfillment of a principal obligation, with the understanding that when
the obligation is fulfilled, the thing delivered shall be returned.
- Requirements of contract of Pledge:
1. that it be constituted to secure the fulfillment of a principal obligation;
2. that the pledgor be the absolute owner of the thing pledged;
3. that the persons constituting the pledge have the free disposal of their
property, and in the absence thereof, that they be legally authorized for
the purpose.
- Public auction is no longer necessary to satisfy the obligation because the
collateral is money. 
 transaction or series of transactions having a similar purpose or effect.
- In case of time deposits, all that had to be done to convert the pledgor’s time
deposit certificates into cash was to present them to the bank for encashment after
due notice to the debtor. 
 prescribe
h. ASSIGNMENT OF RIGHTS
- The debtor may also secure his obligation to the bank by assigning rights by way
of security.
- The debtor may assign his right to an obligation that has for its object a
demandable sum
- The debtor may assign his receivables from other persons.
IV. LOAN PARTICIPATION AND SYNDICATED LOAN
- [COMMON FEATURES] Both loan participation and syndicated loan are multi-
lender transactions
- [LOAN PARTICIPATION]
1. The loan is negotiated between the borrower and the lead lender.
2. The lead lender then subsequently sells a percentage of the loan that
has already 
been made to one or more participants.
- [SYNDICATED LOANS]
1. Each lender is a member of the syndicate and a party to the loan
documents.
2. The borrower has a direct contractual relationship with each member of
the 
lending syndicate.
V. TRUTH IN LENDING ACT
- [SECTION 4] Any creditor shall furnish to each person to whom credit is extended,
prior to the
consummation of the transaction, a clear statement in writing setting
forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board
zwenzens
- [INFORMATION PRESCRIBED]
1. the cash price or delivered price of the property or service to be
acquired;
2. the amounts, if any, to be credited as down payment and/or trade-in;
3. the difference between the amounts set forth under clauses (1) and (2);
4. the charges, individually itemized, which are paid or to be paid by 
such
person in connection with the transaction but which are not 
incident to
the extension of credit; 

5. the total amount to be financed;
6. the finance charge expressed in terms of pesos and centavos; and
7. the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance
of the obligation.
- Credit is any loan, mortgage, deed of trust, advance, or discount; any conditional
sales contract; any contract to sell, or sale or contract of sale of property or
services, either for present or future delivery, under which part or all of the price is
payable subsequent to the making of such sale or contract; any rental-purchase
contract; any contract or arrangement for the hire, bailment, or leasing of property;
any option, demand, lien, pledge, or other claim against, or for the delivery of,
property or money; any purchase, or other acquisition of, or any credit upon the
security of, any obligation of claim arising out of any of the foregoing; and any
- Finance Charge are interest, fees, service charges, discounts, and such other
charges incident to the extension of credit as the Board may be regulation
- Creditor is any person engaged in the business of extending credit (including any
person who as a regular business practice make loans or sells or rents property or
services on a time, credit, or installment basis, either as principal or as agent) who
requires as an incident to the extension of credit, the payment of a finance charge.
- Person is any individual, corporation, partnership, association, or other organized
group of persons, or the legal successor or representative of the foregoing, and
includes the Philippine Government or any agency thereof, or any other
government, or of any of its political subdivisions, or any agency of the foregoing.
VI. CASES
- RUIZ V. CA – DUTY OF BORROWERS The Supreme Court ruled that there was
no contract of adhesion; Ruiz could not have her consent to the transaction vitiated.
It was clear in the records that Ruiz made multiple loan agreements with Torres,
all of which had similar imports when it comes to the period of payment, interests,
charges and penalties, she had all those chances to ensure that she knows what
she was consenting herself to do.
- GO V. BSP – DOSRI ACCOUNTS The following elements of violation of Section
83 of RA 337 which must be present to constitute a violation of its first paragraph:
1. the offender is a director or officer of any banking institution; 2. the offender,
either directly or indirectly, for himself or as representative or agent of another,
performs any of the following acts: a. he borrows any of the deposits or funds of
such bank; or b. he becomes a guarantor, endorser, or surety for loans from such
bank to others, or c. he becomes in any manner an obligor for money borrowed
from bank or loaned by it; 3. the offender has performed any of such acts without
the written approval of the majority of the directors of the bank, excluding the
offender, as the director concerned.
- UCPB V. SAMUEL & BELUSO – TRUTH IN LENDING The interest rate provisions
in the case at bar are illegal not only because of the provisions of the Civil Code
on mutuality of contracts, but also because they violate the Truth in Lending Act.
Not disclosing the true finance charges in connection with the extensions of credit
is, furthermore, a form of deception which we cannot countenance.
- DBP V. ARCILLA TRUTH IN LENDING DBP failed to disclose the requisite
information in the disclosure statement form authorized by the Central Bank, but
did so in the loan transaction documents between it and Arcilla. There is no
evidence on record that DBP sought to collect or collected any interest, penalty or
3
 other charges, from Arcilla other than those disclosed in the said - The 3 contracts are separate and distinct from each other. They are to be
deeds/documents. maintained in a state of perpetual separation.
- The undertaking of the bank to pay, accept and pay drafts or negotiate and/or fulfill
OTHER BANK FUNCTIONS any obligation under the Credit is not subject to claims or defenses by the Applicant
I. SECTION 53 OF GBL resulting from his relationship with the issuing bank or the beneficiary. In the same
- Bank may perform the ff services: manner, the beneficiary can in no case avail himself of the contractual relationships
1. Receive in custody funds, documents and valuable objects; existing between the banks or between the applicant and the issuing bank.
2. Act as financial agent and buy and sell, by order of and for the account - FRAUD EXCEPTION: In the case of Transfield Philippines, Inc v. Luzon Hydro
of their customers, shares, evidences of indebtedness and all types of Corporation, this was recognized by the Supreme Court. This exist when the
securities beneficiary, for the purpose of drawing on the credit fraudulently presents to the
3. Make collections and payments for the account of others and perform confirming bank, documents that contain, expressly or by implication, material
such other services for their customers as are not incompatible with representations of fact that to his knowledge are untrue.
banking business V. ACQUISITION OF MARKETABLE BONDS AND OTHER DEBT SECURITIES &
4. Upon prior approval of the Monetary Board, act as managing agent, DISCOUNTING OF DEBT INSTRUMENTS
adviser, consultant, or administrator of investment - Sec. 29 of GBL authorizes a commercial bank to acquire marketable bonds and
management/advisory/consultancy accounts other debt securities.
5. Rent out safety deposit boxes - It also allows a commercial bank to discount promissory notes, drafts, bills of
II. PURCHASE AND SALE OF FOREIGN EXCHANGE exchange, and other evidence of debt.
- MB may require the banks to sell to the BSP and to other banks all or part of their - Bank cannot sell, discount, assign, or negotiate in whole or in part, such thru
surplus holdings of foreign exchange syndications, participations, and other similar arrangements, any notes,
- Purpose: in order the BSP may at all times have foreign exchange resources receivables, loans, debt instruments, and any type of financial assets or claims,
sufficient to enable it to maintain the international stability and convertibility of the except government securities, on a without-recourse basis unless such
peso, or to promote the domestic investment of bank resources receivables, notes, loans, debt instruments, and financial assets are registered
III. DEPOSITORY OF FUNDS/DOCUMENTS/OTHER VALUABLES FOR SAFEKEEPING with SEC.
- OBLIGATIONS OF DEPOSITARY: VI. ACCEPTANCE OF DEPOSIT SUBSTITUTES
1. Keep the thing safe - Deposit Substitutes are alternative form of obtaining funds from the public, other
2. Exercise due diligence than deposits, through the issuance, endorsements, or acceptance of debt
3. Return the thing instruments from the borrower’s own account, for the purpose of relending or
§ To depositor purchasing of receivables or other obligations
§ Heirs/successors - Examples:
§ Person designated in the stipulation - Bankers acceptances
a. DEGREE OF DILIGENCE REQUIRED - Promissory notes
- Gregorio H. Reyes, et al. v. Hon. Court of Appeals, et al: Banks in handling - Participations
deposits, have the duty to exercise the highest degree of diligence - Certificates of assignemtn and other similar instruments with
- PBCOM v. CA: The degree of diligence required of banks, is more than that of a recourse
good father of a family where the fiduciary nature of their relationship with their - Repurchase agreement
depositors is concerned VII. ACT AS CORRESPONDENT BANK
- SAFETY DEPOSIT BOX: A special kind of deposit. The relation between a bank - A bank may likewise act as correspondent bank in the remittance of funds from
renting out safe deposit box and its customer is that of a “bailor and bailee.” The other countries
primary function is still found within the parameters of a contract of deposit. - A bank in another country enters into an arrangement with a local bank whereby
IV. ISSUANCE OF LETTERS OF CREDIT the foreign bank can ask the correspondent bank to pay amounts to a third party
a. BASIC CONCEPT OF L/Cs – a letter of credit is an engagement by a bank or - Upon payment, the latter bank is entitled to bill the foreign bank for reimbursement.
other person made at the request of a customer that the issuer will honor drafts or VIII. PAYMENT FUNCTION THRU
other demands for payment upon compliance with the conditions specified in the a. CHECKS – payment function is one of the main purposes of checks. It is used as
credit substitute for money in order to satisfy existing obligations.
b. NATURE OF L/Cs b. FUND TRANSFER - can be classified as either credit transfers or debit transfers.
- Relationship between issuer and beneficiary is not strictly contractual The classification is based on the way which payment order is communicated to
- Not a third party beneficiary contract the originator’s bank.
- Not a contract of suretyship or guaranty - Credit transfer: the instruction for the bank is to credit the
- Not a negotiable instrument account of the payee or beneficiary
c. BASIC PARTIES - Debit transfer: instruction to the bank is to collect funds from
4. Buyer applicant the originator
5. Issuing bank c. E-MONEY is a monetary value electronically stored in electronic instruments or
6. Seller beneficiary devices such as cash cards, e-wallets, accessible via mobile phones or other
d. INDEPENDENCE PRINCIPLE AND FRAUD EXCEPTION access device, stored value cards, and other similar products. They are payment
- INDEPENDENCE PRINCIPLE: instruments that can be used to purchase goods and services.
1. Contract of sale between the buyer and the seller - E-money shall mean monetary value represented by a claim
2. Contract of the buyer with the issuing bank, and on its issuer that is
3. Letter of credit proper. a) Electronically stored in an instrument or device

zwenzens

4
 b) Issued against receipt of funds of an amount not
lesser in value than the monetary value issued
c) Accepted as a means of payment by persons or
entities other than the issuer
d) Withdrawable in cash or cash equivalent
PROHIBITED ACTS
I. INSURANCE BUSINESS
- Banks are prohibited from engaging in insurance business
1. Making or proposing to make, as insurer, any insurance contract
2. Making or proposing to make, as surety, any contract of suretyship as
a vocation and not as merely incidental to any other legitimate business
or activity of the surety
3. Doing any kind of business specifically recognized as insurance
business
4. Doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the Insurance Code
a. EXCEPTION IN CASE OF UNIVERSAL BANKS – can own shares in an insurance
corporation because it is authorized to invest in non-allied businesses
II. OUTSOURCING OF BANK FUNCTIONS
- A bank is prohibited by Section 55(1)(e) of the GBL to outsource banking functions
a. WHAT ARE ALLOWED
1. Information technology systems and processes
2. Subject to prior approval of the Monetary Board: data imaging, storage,
retrieval and other related systems; clearing and processing of checks
not included in PCHS; and printing of bank deposit statements
3. May also outsource: credit card services, printing of bank loan
statements and other non-deposit records, bank forms and promotional
materials, credit investigation and collect, processing of export, import,
and other trading transactions, transfer agent services for debt and
equity securities, messenger, courier, and postal services, security
guard services, vehicle service contracts, janitorial services, HR related
services, public relations services, procurement services, temporary
staffing, and legal services
b. WHAT ARE DISALLOWED
- No bank or any director, officer, employee, or agent thereof shall outsource
inherent banking functions
- Refers to any contract between the bank and service provider for the latter to
supply, or any act whereby the latter supplies, the manpower to service deposit
transactions of the former
BANKS IN DISTRESS
- Whenever a bank is in distress, whether seriously or otherwise (e.g. having liquidity
problems), BSP may perform any of the following:
1. Grant emergency loans – amount not exceeding 50% of its total
deposits and deposit substitutes
2. Appoint a Conservator – takes charge of the assets, liabilities, and
management thereof; reorganizes the management of the subject bank;
collects all monies and debts due said institution and; exercise all
powers necessary to restore its viability
3. Appoint a Receiver and order the liquidation of the bank
I. LOANS TO BANKS
- The BSP is the bank of banks. Part of its functions is to lend money to banks
- BSP may extend loans and advances to banks for a period of not more than 7 days
without any collateral for the purpose of providing liquidity
II. RECEIVERSHIP
- The only person/entity who may be designated as a receiver of a bank is the Philippine
Deposit Insurance Commission.
- Receiver takes charge of the properties of the bank that is in financial distress. It may
be appointed when:
zwenzens
i. The bank is unable to pay its liabilities as they become due
ii. The bank has insufficient realizable assets to meets its liabilities
iii. The bank cannot continue in business without involving probable losses
to its depositors or creditors
iv. The bank has wilfully violated a cease and desist order that has become
final
- [DUTIES OF THE RECEIVER]
i. Shall immediately gather and take charge of all the assets and liabilities
of the institution, administer the same for the benefit of its creditors
ii. The receiver may deposit or place the funds of the institution in non-
speculative investments
iii. The receiver shall determine whether the institution may be
rehabilitated
iv. The receiver shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution
III. PHILIPPINE DEPOSIT INSURANCE COMMISSION
- Designed statutory receiver of banks
- 3 purposes:
i. to act as deposit insurer
ii. as a co-regulator of banks
iii. as receiver and liquidator of closed banks
- [CLOSE NOW-HEAR LATER] No prior hearing is necessary in appointing a
receiver. It is enough that subsequent judicial review is provided for. It is grounded
on practical and legal considerations to prevent unwarranted dissipation of the
bank’s assets and as a valid exercise of police power, to protect the depositors,
creditors, stockholders, and the general public.
IV. LIQUIDATION
- If the receiver determines that the institution cannot be rehabilitated or permitted
to resume business, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the liquidation of the
institution.
- Liquidation cannot proceed simultaneously with rehabilitation. Liquidation
connotes a winding up of a corporation so that assets are distributed to those
entitled to receive them.
- It is the process of reducing assets to cash, discharging liabilities and dividing
surplus or loss.
- Rehabilitation connotes a reopening or reorganization. It contemplates a
continuance of a corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency.
- How to Liquidate?
i. Convert the assets of the institutions to money
ii. Dispose of the same to creditors and other parties for the purpose of
paying debts of such institution
iii. He may, in the name of the institution, and with the assistance of
counsel as he may retain, institute such actions as may be necessary
to collect and recover accounts and assets of, or defend any action
against, the institution
V. EFFECT OF RECEIVERSHIP AND LIQUIDATION
- Effect on Assets: assets shall be deemed in custodia legis in the hands of the
receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution
- Stoppage of Business: the appointment of a receiver does not dissolve the
corporation nor does it interfere with the exercise of corporate rights.
i. Banks under liquidation retain their legal personality. The bank can sue
and be sued but any case should be initiated and prosecuted through
the liquidator
ii. However the BSP may also forbid the bank from doing business – it can
foreclose mortgaged properties