BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
JANUARY 9, 2019 (1st HOUR)
GENERAL BANKING LAW OF 2000
Next, to your Central Bank Act, is the General Banking
Law. The Central Bank Act is the charter for the BSP.
The GBL (GENERAL BANKING LAW) is actually the
legal provision which governs relationship of banks as
well with its citizens(?).
According to Amando M. Tetangco, Jr.
The law is an important legislative reform that
addressed the need for the regulatory framework to be
more responsive to the rapid changes in the financial
environment.
 because the predecessor of this law, I think RA
8791, it did not answer or it did not conform the
developments of the banking industry. It had to
be amended.
Among others, the law upgrades the country’s banking
laws to meet global standards,
—right now, the banking industry itself is developing
so your law has to be dynamic.
Liberalizes foreign participation in domestic banks,
 because before, the ownership of banks is strictly
with the Filipino citizens but now, there is
actually, even foreign banks can enter the
Filipino market, you’ve know this actually, you’ve
seen it, foreign banks entering the Filipino
market.
…promotes greater transparency in bank practice and
provides the BSP more flexibility in supervising the
banking industry. The GBL 2000 aims to enhance the
supervisory capability and enforcement powers of the
BSP, improve prudential standards and foster greater
competition in the banking industry.
SECTION 2. Declaration of Policy. — The State
recognizes the vital role of banks in providing an
environment conducive to the sustained development
of the national economy and the fiduciary nature of
banking that requires high standards of integrity and
performance.
In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and
responsive to the demands of a developing economy.
Before there were first, second, third world countries –
the correct classification is developed, developing
countries. I think it’s incorrect to categorize developing
countries as third world countries. It’s not politically
correct in a world where political correctness is very
overrated.
The banking institution plays a bigger role than any
other type of financial institution.
What is the function of a bank?
It receives deposits and it blends this out especially it
uses these resources to fuel businesses, commercial
establishments that will greatly contribute to the
national economy. It is the policy of the state to
recognize the role of banks in sustaining and
developing the national economy.
And the fiduciary nature of banks requires high
standard of integrity and performance because you
cannot actually encourage people to invest in you if
you do not exercise the utmost or the highest degree
of integrity and performance for in furtherance thereof,
the State is that it shall promote and maintain a stable
and efficient banking and financial system that is that
is globally competitive, dynamic and responsive to the
demands of a developing economy.
If you are into policy making you always look at the
policy of the state because the provisions that would
come after should be consistent or should address the
policy of the law.
SIMEX INTERNATIONAL V. CA
FACTS
Petitioner, a private corporation engaged in the
exportation of food products, was a depositor
maintaining a checking account with respondent
Traders Royal Bank. Petitioner deposited to its
account increasing its balance and subsequently,
issued several checks but was surprised to learn
that it had been dishonored for insufficient funds. As
a consequence, petitioner received demand letters
from its suppliers for the dishonored checks.
Investigation disclosed that the deposit was not
credited to it. The error was rectified and the
dishonored checks were consequently paid.
Petitioner demanded reparation from respondent
bank for its gross and wanton negligence but the
later did not heed. Petitioner then filed before the
RTC which later held that respondent bank was
guilty of negligence but petitioner nonetheless was
not entitled to moral damages. CA affirmed.
ISSUE
Whether or not petitioner is entitled to damages due
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
to respondent bank’s negligence.
RULING
YES. The petitioner is entitled to damages due to
respondent bank’s negligence.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant
of moral damages. This rather lackadaisical attitude
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the
respondent court said had not been established by
the petitioner. We shall recognize that the petitioner
did suffer injury because of the private respondent’s
negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that
its prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was
diminished.
The point is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that
relationship. What is especially deplorable is that,
having been informed of its error in not crediting the
deposit in question to the petitioner, the respondent
bank did not immediately correct it but did so only
one week later or twenty-three days after the
deposit was made. It bears repeating that the
record does not contain any satisfactory explanation
of why the error was made in the first place and
why it was not corrected immediately after its
discovery. Such ineptness comes under the concept
of the wanton manner contemplated in the Civil
Code that calls for the imposition of exemplary
damages.
In Simex, the court had the occasion to state the
banking system is an indispensable institution in the
modern world and plays a vital role in the economic life
of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks
have become an ubiquitous presence among the
people, who have come to regard them with respect
and even gratitude and, most of all, confidence. Thus,
even the humble wage-earner has not hesitated to
entrust his life’s savings to the bank of his choice,
knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person,
with equal faith, usually maintains a modest checking
account for security and convenience in the settling of
his monthly bills and the payment of ordinary
expenses.
As well as business entities, the bank is trusted as an
active associate that can help in running, not only in
the form loans but more often in the conduct of day to
day transactions like the issuance of the detachments
and checks. That’s why the bank should exercise the
highest degree of diligence.
Who among have you worked in a bank? There’s a
training and standard of procedures. They’re just
following protocols.
SOLIDBANK VS ARRIETA
FACTS:
Carmen Arrieta is a bank depositor of Solidbank
Corporation under Checking Account No. 123-1996.
On March 1990, Carmen issued SBC Check No.
0293984 in the amount of P330.00 in the name of
Lopues Department Store in payment of her
purchases from said store. When the check was
deposited by the store to its account, the same was
dishonored due to Account Closed despite the fact
that at the time the check was presented for
payment, Carmens checking account was still active
and backed up by a deposit of P1,275.20.
As a consequence of the checks dishonor, Lopues
Department Store sent a demand letter to Carmen.
Before these events though, a similar incident
occurred days before, where Arrieta issued a check
which subsequently bounced.
Thereupon, Carmen filed a complaint against
Solidbank Corporation for damages.
In its answer, the bank claimed that Carmen,
contrary to her undertaking as a depositor, failed to
maintain the required balance of at least P1,000.00
on any day of the month. Moreover, she did not
handle her account in a manner satisfactory to the
bank. In view of her violations of the general terms
and conditions governing the establishment and
operation of a current account, Carmen’s account
was recommended for closure. In any event, the
bank claimed good faith in declaring her
account closed since one of the clerks, who
substituted for the regular clerk, committed an
honest mistake when he thought that the
subject account was already closed when the
ledger containing the said account could not be
found.
ISSUE
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Whether or not Arrieta is entitled to moral damages.
RULING
YES. Arrieta is entitled to moral damages.
The fact that another check Carmen had issued was
previously dishonored does not necessarily imply
that the dishonor of a succeeding check can no
longer cause moral injury and personal hurt for
which the aggrieved party may claim damages.
Such prior occurrence does not prove that
respondent does not have a good reputation that
can be besmirched.
The circumstances surrounding the two checks are
different. The first check was to accommodate a
relative, and the succeeding one to pay for goods
purchased from the Lopues Department Store. That
she might not have suffered damages as a result of
the first dishonored check does not necessarily hold
true for the second.
The following are the conditions for the award of
moral damages:
(1) there is an injury -- whether physical, mental or
psychological -- clearly sustained by the claimant;
(2) the culpable act or omission is factually
established;
(3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the
claimant; and
(4) the award of damages is predicated on any of
the cases stated in Article 2219[11] of the Civil
Code.
In the instant case, all four requisites have
been established.
First, these were the findings of the appellate court:
Carmen Arrieta is a bank depositor of Solidbank
Corporation of long standing. She works with the
Central Negros Electric Cooperative, Inc. (CENECO),
as an executive secretary and later as department
secretary. She is a deaconess of the Christian
Alliance Church in Bacolod City. These are positions
which no doubt elevate her social standing in the
community. Understandably -- and as sufficiently
proven by her testimony -- she suffered mental
anguish, serious anxiety, besmirched reputation,
wounded feelings and social humiliation; and she
suffered thus when the people she worked with --
her friends, her family and even her daughters
classmates -- learned and talked about her bounced
check.
Second, it is undisputed that the subject check was
adequately funded, but that petitioner wrongfully
dishonored it.
Third, Respondent Carmen was able to prove that
petitioners wrongful dishonor of her check was the
proximate cause of her embarrassment and
humiliation in her workplace, in her own home, and
in the church where she served as deaconess.
Proximate cause has been defined as any cause
which, in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the result complained of and without which
would not have occurred x x x.
It is determined from the facts of each case upon
combined considerations of logic, common sense,
policy and precedent. Clearly, had the bank
accepted and honored the check, Carmen would not
have had to face the questions of -- and explain her
predicament to -- her office mates, her daughters,
and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial
court in ruling that her injury arose from the gross
negligence of petitioner in dishonoring her well-
funded check.
Fourth, treating Carmens account as closed, merely
because the ledger could not be found was a
reckless act that could not simply be brushed off as
an honest mistake. The Supreme Court said, We
have repeatedly emphasized that the banking
industry is impressed with public interest.
Consequently, the highest degree of diligence is
expected, and high standards of integrity and
performance are even required of it. By the nature
of its functions, a bank is under obligation to treat
the accounts of its depositors with meticulous care
and always to have in mind the fiduciary nature of
its relationship with them.
Petitioners negligence here was so gross as to
amount to a wilful injury to Respondent Carmen.
Article 21 of the Civil Code states that any person
who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or
public policy shall compensate the latter for the
damage. Further, Article 2219 provides for the
recovery of moral damages for acts referred to in
the aforementioned Article 21. Hence, the bank is
liable for moral damages to respondent.
What is their contention (the spouses)?
It destroyed her reputation.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
How about the contention of the bank your check
was previously dishonored?
The fact that another check Carmen had issued was
previously dishonored does not necessarily imply that
the dishonor of a succeeding check can no longer
cause moral injury and personal hurt for which the
aggrieved party may claim damages. Such prior
occurrence does not prove that respondent does not
have a good reputation that can be besmirched. The
reasons for and the circumstances surrounding the
previous issuance and eventual dishonor of Check No.
0293983 are totally separate -- the payee of the prior
check was different -- from that of Check No.
0293984, subject of present case. Carmen had issued
the earlier check to accommodate a relative, and the
succeeding one to pay for goods purchased from
Lopues Department Store. That she might not have
suffered damages as a result of the first dishonored
check does not necessarily hold true for the second.
TAN VS CA and RCBC
FACTS
Businessman Ramon Tan had maintained an account
with RCBC Binondo since 1976. To avoid carrying
cash while going to Manila, he secured a Cashier’s
Check from PCIB in the amount of P 30K, payable to
his order. He deposited the check to RCBC Binondo.
On the same day, RCBC erroneously sent the same
cashier's check for clearing to the Central Bank
which was returned for having been "missent" or
"misrouted."
The next day, March 16, RCBC debited the amount
covered by the same cashier's check from the
account of the petitioner. Respondent bank at this
time had not informed the petitioner of its action
which the latter claims he learned of only 42 days
after, specifically on March 16, when he received the
bank's debit memo.
Relying on the common knowledge that a
cashier's check was as good as cash, that the
usual banking practice that local checks are
cleared within three (3) working days and
regional checks within seven (7) working days,
and the fact that the cashier's check was
accepted, petitioner issued two (2) personal
checks both dated March 18. Check No. 040719
in the name of Go Lac for Five Thousand Five
Hundred (P5,5000.00) Pesos was presented on
April 25,3 more than 30 days from petitioner's
deposit date of the cashier's check. CheckNo.
040718 in the name of MS Development
Trading Corporation for Six Thousand Fifty-
Three Pesos and Seventy Centavos
(P6,053.70) was returned twice on March 24,
nine (9) days from his deposit date and again
on April 26, twenty-two days after the day the
cashier's check was deposited for insufficiency
of funds.
Tan now files a case against RCBC.
On the other hand, RCBC denied negligence and put
the blame on Tan for the "misrouting" on the
petitioner for using the wrong check deposit slip. It
insisted that the misuse of a local check
deposit slip, instead of a regional check
deposit slip, triggered the "misrouting" by
RCBC of the cashier's check to the Central
Bank and it was petitioner's negligent
"misuse" of a local deposit slip which was the
proximate cause of the "misrouting," thus he
should bear the consequence.
ISSUE
Whether or not the RCBC had been remiss in the
performance of its duty and obligation to its client as
well to itself.
RULING
YES. The RCBC had been remiss in the performance
of its duty and obligation to its client as well to
itself.
The Court cited its earlier ruling in the case of City
Trust Corporation v. The Intermediate Appellate
Court. In that case, the depositor failed to put
another zero in her account number, thus the
checks she issued were dishonored. The Court said
that even if there was a discrepancy in the number,
still the name of the depositor was correct. The
name is controlling in determining in whose account
the deposit is made or should be posted. This is so
because it is not likely to commit an error in one's
name that merely relying on numbers which are
difficult to remember, especially a number with
eight (8) digits as the account numbers of
defendant's depositors.
In the instant case, the teller should not have
accepted the local deposit slip with the cashier's
check that on its face was clearly a regional check
without calling the depositor's attention to the
mistake at the very moment this was presented to
her. Neither should everyone else down the line who
processed the same check for clearing have allowed
the check to be sent to Central Bank. Depositors do
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
not pretend to be past master of banking
technicalities, much more of clearing procedures. As
soon as their deposits are accepted by the
bank teller, they wholly repose trust in the
bank personnel's mastery of banking, their and
the bank's sworn profession of diligence and
meticulousness in giving irreproachable
service.
So it is in the instant case, where the conclusion is
inevitable that RCBC had been remiss in the
performance of its duty and obligation to its client as
well as to itself.
Again, the banking industry is affected with public
interest. The bank is under the obligation to treat the
account of its depositors with meticulous care, always
in mind the fiduciary nature of their relationship.
METROPOLITAN BANK AND TRUST COMPAN vs.
THE HON. COURT OF APPEALS, RURAL BANK OF
PADRE GARCIA, INC. and ISABEL R. KATIGBAK
FACTS
Katigbak is the president and director of RBPG,
while MBTC is the rural bank's depository bank,
where Katigbak maintains current accounts.
April 6, 1982, MBTC received from the CB a credit
memo dated April 5, 1982 that its demand deposit
account was credited with P304,000.00 for the
account of RBPG, representing loans granted by the
Central Bank to RBPG.
Katigbak issued several checks in the total amount
of P300,000.00, payable to Dr. Felipe and Mrs. Eliza
Roque for P25,000.00 each.
Dr. and Mrs. Roque deposited the checks with PBC,
but the checks were returned by MBTC with the
annotations "DAIF — TNC" (Drawn Against
Insufficient Funds — Try Next Clearing) so they
were redeposited on April 14, 1982, which was
again dishonored for the following reason: "DAIF —
TNC — NO ADVICE FROM CB."
The Roques went to Katigbak and the latter paid
them in P50,000 cash.
While Katigbak was on a business-vacation trip, she
received overseas phone calls from Mrs. San Juan
informing her that a certain Mr. Dungo, Assistant
Cashier of MBTC insisted on talking to Mrs. San Juan
(Dungo thought she is Isabel Katigbak), berating
her about the checks which bounced, saying "Nag-
issue kayo ng tseke, wala namang pondo."
Mrs. Katigbak asked Mrs. San Juan to request MBTC
to check and verify the records regarding the CB
credit memo for P304,000.00 but Mrs. San Juan
received another insulting call from Mr. Dungo
("Bakit kayo nag-issue ng tseke na wala namang
pondo, Three Hundred Thousand na.") When Mrs.
San Juan explained to him the need to verify the
records regarding the Central Bank memo, he
merely brushed it aside, telling her sarcastically that
he was very sure that no such credit memo existed.
Subsequent events led to hospitalization of Katigbak
for 2 days.
ISSUE:
Whether or not Metropolitan Bank remiss in its
duty and obligation to treat Katigbak’s account
with the highest degree of care.
HELD:
YES. The Metropolitan Bank remissed in its
duty and obligation to treat Katigbak’s account
with the highest degree of care considering the
fiduciary nature of their relationship.
In this case, the bank is under obligation to treat
the accounts of its depositors with meticulous care,
whether such account consists only of a few hundred
pesos or of millions. It must bear the blame for
failing to discover the mistake of its employee
despite the established procedure requiring bank
papers to pass through bank personnel whose duty
it is to check and countercheck them for possible
errors. Responsibility arising from negligence in the
performance of every kind of obligation is
demandable. While the bank's negligence may not
have been attended with malice and bad faith,
nevertheless, it caused serious anxiety,
embarrassment and humiliation to private
respondents for which they are entitled to recover
reasonable moral damages.
It was established that when Mrs. Katigbak learned
that her checks were not being honored and Mr.
Dungo repeatedly made the insulting phone calls,
her wounded feelings and the mental anguish
suffered by her caused her blood pressure to rise
beyond normal limits, necessitating medical
attendance for two (2) days at a hospital.
The damage to private respondents' reputation and
social standing entitles them to moral damages.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation and similar injury.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
What did the SC mention regarding the financial
credit of the businessman?
The financial credit of a businessman is a prized and
valuable asset, it being a significant part of the
foundation of his business. Any adverse reflection
thereon constitutes some financial loss to him. it can
hardly be possible that a customer's check can be
wrongfully refused payment without some
impeachment of his credit, which must in fact be an
actual injury, though he cannot, from the nature of the
case, furnish independent, distinct proof thereof".
Please take note of the Supreme Court’s ruling.
PHILIPPINE NATIONAL BANK vs. COURT OF
APPEALS and CARMELO H. FLORES
FACTS
Flores, business man engaged in real estate,
purchased from PNB 2 manager's checks worth
P500,000.00 each, paying a total of P1,000,040.00,
including the service charge. A receipt for said
amount was issued by the petitioner.
On 12 July 1989, Flores presented these checks at
the Baguio Hyatt Casino unit of PNB. However, PNB
initially refused to encash the checks but after a
lengthy discussion, it agreed to encash one 1 of the
checks, and deferred the payment of the other
check. Flores tried to encashed the check on several
occasions, to no avail.
Left with no other choice, Flores filed a case with the
RTC.
ISSUE:
Whether or not PNB’s act of issuing the manager’s
checks and corresponding receipt before payment
thereof acted recklessly and grossly negligent.
HELD:
YES. The Supreme Court said that the petitioner's
act of issuing the manager's checks and
corresponding receipt before payment thereof was
completely counted reckless and grossly negligent.
It is an appalling breach of bank procedures and
must never be repeated.
In Bautista v. Mangaldan Rural Bank, Inc., we stated
that the banking system has become an
indispensable institution in the modern world and
plays a vital role in the economic life of every
civilized society. Whether as mere passive entities
for the safe-keeping and saving of money or as
active instruments of business and commerce,
banks have attained an unbiquitous presence among
the people, who have come to regard them with
respect and even gratitude and, most of all,
confidence.
What is a manager’s check?
It is a check issued by the bank, payable to a payee as
indicated by the person who buys the Manager’s
Check. It is often used in situations when the
beneficiary does not accept cash or personal checks.
What distinguishes it from an ordinary check?
If you notice when it comes to important payments,
they usually require a manager’s check or a cashier’s
check.
Who signs? Who is the drawer? It is a check issued
by the bank against its own account, and is signed by
a manager and maybe another officer. Compare that
with a regular check which is issued by
persons/corporations against their account with the
bank. It is good as cash.
BANK OF THE PHILIPPINE ISLANDS v. CA and
BENJAMIN C. NAPIZA
FACTS
On September 3, 1987, BENJAMIN C. NAPIZA
deposited in his Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187 to BPI
Buendia Avenue Extension Branch, a Continental
Bank Managers Check No. 00014757 dated August
17, 1984, payable to "cash" in the amount of
$2,500.00 and duly endorsed by BENJAMIN C.
NAPIZA on its dorsal side.
A certain RUBEN GAYON, JR . (employee in BPI
Buendia Ave. Extension branc) was able to withdraw
the amount of $2,541.67 from FCDU Savings
Account No. 028-187.
On November 20, 1984, BPI received
communication from the Wells Fargo Bank
International of New York that the said check
deposited by NAPIZA was a counterfeit check
because it was "not of the type or style of checks
issued by Continental Bank International.
Mr. Ariel Reyes, the manager of BPI Buendia Avenue
Extension Branch, sent a telegram to NAPIZA
regarding the dishonor of the check.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
BPI’s lawyer sent a letter to NAPIZA demanding the
return of the $2,500.00.
On August 12, 1986, BPI filed a complaint against
NAPIZA, praying for the return of the amount of
$2,500.00.
ISSUE
Whether or not BPI is grossly negligent in
treating the account Napiza.
HELD
YES. BPI is grossly negligent in treating the account
Napiza.
Under Sec. 2 of RA 8791 which provides that the
fiduciary nature of banking requires high standards
of integrity and performance.
Banking business is affected with public interest. By
the nature of its functions, a bank is under
obligation to treat the accounts of its depositors
"with meticulous care, always having in mind the
fiduciary nature of their relationship." As such, in
dealing with its depositors, a bank should exercise
its functions not only with the diligence of a good
father of a family but it should do so with
the highest degree of care.
In the case at bar, BPI, in allowing the withdrawal of
NAPIZA’s deposit, failed to exercise the diligence of
a good father of a family. In total disregard of its
own rules, BPI’s personnel negligently handled
NAPIZA account to BPI detriment.
BPI violated its own rules by allowing the withdrawal
of an amount that is definitely over and above the
aggregate amount of NAPIZA dollar deposits that
had yet to be cleared. BPI personnel allowed the
withdrawal of an amount bigger than the original
deposit of $750.00 and the value of the check
deposited in the amount of $2,500.00 although they
had not yet received notice from the clearing bank
in the United States on whether or not the check
was funded.
In the passbook that BPI issued to NAPIZA, the
rules to be able to withdraw from the savings
account deposit under the Philippine foreign
currency deposit system, two requisites must be
presented to BPI bank by the person withdrawing
an amount: (a) a duly filled-up withdrawal slip, and
(b) the depositors passbook.
Moreover, the withdrawal slip contains a boxed
warning that states: "This receipt must be signed
and presented with the corresponding foreign
currency savings passbook by the depositor in
person. For withdrawals thru a representative,
depositor should accomplish the authority at the
back."
BPI likewise overlooked another rule that is printed
in the passbook, that “All deposits will be received
as current funds and will be repaid in the same
manner; provided, however, that deposits
of drafts, checks, money orders, etc. will be
accepted as subject to collection only and credited
to the account only upon receipt of the notice of
final payment”.
While it is true that NAPIZA having signed a blank
withdrawal slip set in motion the events that
resulted in the withdrawal and encashment of the
counterfeit check, the negligence of BPI
personnel was the proximate cause of the loss
that BPI sustained.
 Proximate cause, which is determined by a
mixed consideration of logic, common sense,
policy and precedent, is "that cause, which,
in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury, and without which the
result would not have occurred."
The proximate cause of the withdrawal and eventual
loss of the amount of $2,500.00 on BPI part was its
personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing
requirement in the banking system. In so doing,
BPI assumed the risk of incurring a loss on account
of a forged or counterfeit foreign check and hence, it
should suffer the resulting damage.
In this particular case, what happened was that the
endorsement, what happened, when you try to deposit
a check especially if the bank is different and you have
this collecting bank, let’s say I have a deposit in BPI,
and someone paid me through the BDO account so if I
deposit it in the BPI the collecting bank is the BPI.
It is a standard practice that before they received it
that they have to ensure it is proper. That’s why
sometimes it gets returned. You issue a check.
Especially on the dates, even a slight blot with the pen,
they will consider it as not valid. They will ask you to
issue again. When the pens overlap, because it’s their
job to do that, it’s their job to scrutinize as a protocol
in the banking industry given that their business is
imbued with public interest.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Wag po tayo magalit if mgpa-issue sila ulit, trabaho
lang nila yun.
What you can do is that most business, they type it in
already so there will be no mistakes. It’s easier if the
collecting bank is the same bank where the person will
get the money to deposit. Let’s say BPI, BPI. They’ll
just call the person and ask did you issue this check?
But if the collecting bank is different the collecting
bank would ensure that there is a proper scrutiny.
Why? What happens if they accept it and it’s wrong.
They will shoulder it.
SECTION 3. Definition and Classification of Banks. —
3.1. "Banks" shall refer to entities engaged in the
lending of funds obtained in the form of deposits. (2a)
This is the strict definition of banks. There’s
deposits and there’s lending.
The framework of a GBL is actually to encourage safe
and sound banking.
What is the framework or qualities to say that
there is safe and sound banking system?
FRAMEWORK FOR A SAFE AND SOUND BANKING
SYSTEM
1. Internal or corporate governance;
These are some of the provisions of the law which
encourage proper internal or corporate governance
— compensation for directors. Independent directors seek
 Independent directors as members of board of
directors;
Normal corporation, there is a BOD— should be
interested in the running of the corporation. In
addition, it should also be interested in the
ownership of the corporation that’s why they
have to have a minimum required share.
When you say independent directors, these are
not stockholders, officers, or whatever related to
the business. That’s why they’re called
independent. Now, there is a different school of
thought, independent directors actually harm
rather than do good in a corporation because how
would you want a corporation to succeed, when
you’re not even invested in it, you don’t even
care if it survives. That’s another school of
thought.
But because of precisely we are going into the
interest of the corporation which is profit making
that you would tend do some unethical moves in
order to increase the value of the share which
prejudices the public. That’s why there is an
independent, there is a need that somebody from
the outside who will oversee the operations so
that there will be no problem. In reality, the
previous corporation code (not the revised one)
the current corporation law provides a maximum
compensation for the directors. You have your
manual regulations. Who approves transactions
of a corporation? The BOD.
In reality, they have this maximum 10% because
the law would try to avoid them adding an
interest on transactions because what they do
they become brokers of certain transactions.
They sell property and they’ll say, I’ll broker for
you and I’ll have a commission on this. I will let it
be approved with the board. If the board doesn’t
have a commission you cannot get the property
acquisition what will happen there will be an
interest. That’s why the law gives a maximum
commission, a maximum compensation
That’s why the law gives a maximum commission or
compensation for corporate directors. But in reality, in
paper, hindi na sinasabing commission yun –
underground na lang. Kaya may mga properties na
sabihin mo: “Bakit in-acquire siya ni X & X
Corporation, eh parang hindi naman ito valuable in this
area? Bakit sila may property nito?” Hindi natin alam,
baka may commission ang directors nun.
These are just some of the transactions that go beyond
the boardroom. That’s why may maximum
to prevent those kinds of transactions in that kind of
situation.
1. Limitations on directors, officers,
stockholders and related interests
(DOSRI) lending;
iii. Allowing teleconferencing or video-
conferencing in meetings of the board of
directors
On teleconferencing and video-conferencing – before,
it is only in public companies that we were allowed to
teleconference. Now, it is an explicit provision in the
Corporation Code na pwede nang mag-teleconference.
In some jurisdictions, meron naman talagang nags-
Skype calls – basta meron lang modes or methods of
ensuring the identity of the person.
iv. Granting authority to the Monetary Board
to set “fit-and-proper” rules; and
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
If you’re going to be, not just a director, but an officer
– or even an employee of a banking corporation, you
have to be fit and proper.
What is “fit and proper”? You have to be competent
and ethical.
v. Adoption of risk-based capital adequacy
ratios.
That’s why different types of banking corporations
have different capital adequacy ratios. Meaning –
magkano dapat ang liability to equity ratio ninyo? Hindi
sa lahat ng bangko pare-pareha yan. Kasi it would
depend on how risky the bank is. So yung mga medyo
risky na bangko, yun yung may mga malaking capital
adequacy ratios, dun naman sa mga hindi masyado
risky, maliit. Kasi risk-based.
Before, ang ginagawa nila – fixed. There’s no
variability with regard to the risk. Ngayon, ginawa na
nilang risk-based, which is more proper.
MARKET DISCIPLINE
This means that the market, if working properly and
not subjected to unnecessary or misguided or
unknowing interventions from government can exert
pressure on banks to maintain their safety and
soundness.
One of the more significant change under the GBL is
that it gives a liberal policy on foreign banks and entry
of foreign investors. It’s a good thing because these
foreign banks are foreign-owned tapos kung magfo-
foreclose sila ng property – hindi sila pwedeng mag-
acquire ng land – so they are given a very short period
to sell it. So ang tendency niyan, the price would be
sacrificial.
EXTERNAL GOVERNANCE
Regulation and supervision cannot be the solitary
isolated answer to depositor protection. Instead, the
approach taken is to make bank regulation and
supervision supportive of internal governance and
market discipline.
So you should have these 3 frameworks for you to
have a safe and sound banking system:
1. Corporate governance
2. Market discipline
3. External governance
Section 3. Definition and Classification of Banks. -
3.1. "Banks" shall refer to entities engaged in the
lending of funds obtained in the form of deposits. (2a)
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and
mortgage banks, (ii) Stock savings and loan
associations, and (iii) Private development banks, as
defined in the Republic Act No. 7906 (hereafter the
"Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 73S3
(hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No
6938 (hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848,
otherwise known as the "Charter of Al Amanah Islamic
Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas. (6-
A)
BASIC FUNCTIONS OF BANKS:
1. To accept deposits from the public; and
2. Lending of funds obtained from deposits.
They just go in-between the depositor and yung mag-
lelend ng funds to the depositor.
A. UNIVERSAL BANK
 Universal banks have the authority to exercise,
in addition to the powers granted to
commercial banks, the powers of an
investment house and to invest in non-allied
enterprises.
 Additionally, it can own up to 100% equity in
thrift bank, rural bank, financial allied
enterprise, or non-financial allied enterprise.
That’s why you’ve seen na itong mga malalaking
company, meron silang ‘thrift bank’.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
A. If publicly-listed, it may own up to 100% of the
voting stock of only 1 other universal or
commercial bank.
In fact, it can own another universal or commercial
bank – kapang publicly-listed.
B. COMMERCIAL BANKS
B. Commercial banks are banks that have – in
addition to the general powers incident to
corporations – all such powers as may be
necessary to carry on the business of
commercial banking, such as:
o Accepting drafts
o Issuing letters of credit
o Discounting and negotiating promissory
notes, drafts, bills of exchange and
other evidences of debt
o Accepting or creating demand deposits
o Receiving other types of deposits and
deposit substitutes
o Buying and selling foreign exchange
and gold or silver bullion
o Acquiring marketable bonds and other
debt securities
o Extending credit
PLEASE MEMORIZE.
C. THRIFT BANKS
C. Thrift banks include:
o Savings and mortgage banks
o Private development banks
o Stock savings and loan associations
organized under existing laws
o Any banking corporation that may be
organized for the following purposes:
i. Accumulating the savings of depositors and
investing them together with capital loans
secured by bonds, mortgages in real estate
and insured improvements thereon, chattel
mortgage, bonds and other forms of security or
in loans for personal or household finance –
secured or unsecured, or in financing for
homebuilding and home development, in
readily marketable and debt securities, in
commercial papers and accounts receivables,
drafts, bills of exchange, acceptances or notes
arising out of commercial transactions, and in
such other investments and loans which the
Monetary Board may determine as necessary
in the furtherance of national economic
objectives;
ii. Providing short-term working capital, medium
and long-term financing, to businesses
engaged in agriculture, services, industry and
housing; and
iii. Providing diversified financial and allied
services for its chosen market and
constituencies especially for small and medium
enterprises and individuals.
So take note – a thrift bank has a particular purpose.
They are for small and medium enterprises, usually
farmers and mga small businesses. Kaya siya tinawag
na “thrift bank” – tipid.
D. RURAL BANKS
 Rural banks are organized to promote
comprehensive rural development with the end
view of attaining equitable distribution of
opportunities, income and wealth, a sustained
increase in the amount of goods and services
produced by the nation for the benefit of the
people, and in expanding productivity as a key
in raising the quality of life for all, especially
the underprivileged.
Question: Why does the law have to create a specific
bank? Why not put it in the universal bank nalang?
Why do we have to put it into segments? I’ll leave
that up to you.
E. COOPERATIVE BANKS
 Cooperative banks are organized for the
primary purpose of providing a wide range of
financial services to cooperatives and their
members.
 A cooperative bank shall primarily provide
financial banking and credit services to
cooperative organizations and their members.
 In addition to the powers granted by the
Philippine Cooperative Code of 2008 and other
existing laws, any cooperative bank may
perform any or all of the banking services
offered by other types of banks subject to the
prior approval of the BSP.
F. ISLAMIC BANK
As we have previously discussed, the Shari’a Law has a
particular principle with regards to lending.
 The primary purpose of the Islamic Bank is to
promote and accelerate the socio-economic
development of the Autonomous Region by
performing banking, financing and investment
operations and to establish and participate in
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
agricultural, commercial and industrial
ventures based on the Islamic concept of
banking.
G. GOVERNMENT BANKS
 Government banks refer to universal or
commercial banks owned or controlled by the
national government – such as the
Development Bank of the Philippines and the
Land Bank of the Philippines.
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
Section 4. Supervisory Powers. The operations and
activities of banks shall be subject to supervision of the
Bangko Sentral. "Supervision" shall include the
following:
4.1. The issuance of rules of, conduct or the
establishment standards of operation for uniform
application to all institutions or functions covered,
taking into consideration the distinctive character of
the operations of institutions and the substantive
similarities of specific functions to which such rules,
modes or standards are to be applied;
4.2 The conduct of examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by the
Monetary Board;
4.3 Overseeing to ascertain that laws and regulations
are complied with;
4.4 Regular investigation which shall not be oftener
than once a year from the last date of examination to
determine whether an institution is conducting its
business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the
institution (2-D); or
4.6 Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over
the operations of and exercise regulatory powers over
quasi-banks, trust entities and other financial
institutions which under special laws are subject to
Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer
to entities engaged in the borrowing of funds through
the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as
defined in Section 95 of Republic Act No. 7653
(hereafter the "New Central Bank Act") for purposes of
re-lending or purchasing of receivables and other
obligations. (2-Da)
Section 5. Policy Direction; Ratios, Ceilings and
Limitations. - The Bangko Sentral shall provide policy
direction in the areas of money, banking and credit.
(n)
For this purpose, the Monetary Board may prescribe
ratios, ceilings, limitations, or other forms of regulation
on the different types of accounts and practices of
banks and quasi-banks which shall, to the extent
feasible, conform to internationally accepted
standards, including of the Bank for International
Settlements (BIS). The Monetary Board may exempt
particular categories of transactions from such ratios,
ceilings. and limitations, but not limited to exceptional
cases or to enable a bank or quasi-bank under
rehabilitation or during a merger or consolidation to
continue in business, with safety to its creditors,
depositors and the general public. (2-Ca)
Section 6. Authority to Engage in Banking and Quasi-
Banking Functions. - No person or entity shall engage
in banking operations or quasi-banking functions
without authority from the Bangko Sentral: .Provided,
however, That an entity authorized by the Bangko
Sentral to perform universal or commercial banking
functions shall likewise have the authority to engage in
quasi-banking functions.
The determination of whether a person or entity is
performing banking or quasi-banking functions without
Bangko Sentral authority shall be decided by the
Monetary Board. To resolve such issue, the Monetary
Board may; through the appropriate supervising and
examining department of the Bangko Sentral,
examine, inspect or investigate the books and records
of such person or entity. Upon issuance of this
authority, such person or entity may commence to
engage in banking operations or quasi-banking
function and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended
or annulled by the Bangko Sentral in accordance with
this Act or other special laws.
The department head and the examiners of the
appropriate supervising and examining department are
hereby authorized to administer oaths to any such
person, employee, officer, or director of any such
entity and to compel the presentation or production of
such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
the true functions and operations of such person or
entity. Failure or refusal to comply with the required
presentation or production of such books, documents,
papers or records within a reasonable time shall
subject the persons responsible therefore to the penal
sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or
quasi-banking functions without authority from the
Bangko Sentral shall be subject to appropriate
sanctions under the New Central Bank Act and other
applicable laws. (4a)
FIRST PARAGRAPH: No person or entity shall engage
in banking operations or quasi-banking functions
without authority from the Bangko Sentral: .Provided,
however, That an entity authorized by the Bangko
Sentral to perform universal or commercial banking
functions shall likewise have the authority to engage in
quasi-banking functions.
In other words – pag wala kang authority to engage in
quasi-banking functions and you are not a universal or
commercial banking institution, then that is unlawful.
SO HOW DO YOU SET UP A BANK?
A person or entity intending to engage in banking
operations must secure from the BSP:
1. Authority to establish a bank;
2. Authority to register a bank; and
3. Authority to operate a bank.
Magka-ibang authorizations ito sila. Who grants you
the authority? It’s the BSP.
Let’s go to QUASI-BANKING TRANSACTIONS
Elements:
1. Borrowing funds for the borrower’s own
account;
2. 20 or more lenders at any one time;
3. Methods of borrowing are issuance,
endorsement, or acceptance of debt
instruments of any kind, other than deposits,
such as acceptances, promissory notes,
participations, certificates of assignments or
similar instruments with recourse, trust
certificates, repurchase agreements, and such
other instruments as the Monetary Board may
determine; and
4. The purpose of which is relending or
purchasing receivables or other obligations.
Please take note – particular ang method of borrowing
dito.
Is a cooperative a quasi-bank? It can engage in quasi-
banking, but it has to be authorized. But it is not
necessarily a quasi-bank.
Take note – you can only engage in quasi-banking if
there are 20 or more lenders at one time. How do we
count? Is it per product? NO. You count per institution.
So even if you only have 1 acceptance, but you have
19 or 20 promissory notes, you can be engaged in
quasi-banking.
TRANSACTIONS NOT CONSTITUTING QUASI-
BANKING:
1. Borrowing by commercial, industrial and other
non-financial companies through the issuance,
endorsement or acceptance of debt
instruments of any kind, other than deposits,
for the limited purpose of financing their own
needs or the needs of their agents or dealers;
and
2. The mere buying and selling without recourse
of instruments of any kind, other than
deposits, such as acceptances, promissory
notes, participations, certificates of
assignments, trust certificates, repurchase
agreements and such other instruments as the
MB may determine, provided that:
a. The institution buying and selling
without recourse shall indicate in
conspicuous print on its instrument the
phrase “without recourse”, “sans
recourse”, or words of similar import
that will convey the absence of liability
or guarantee by said institution; and
b. In the absence of the phrase “without
recourse”, “sans recourse”, or words of
similar import, the instrument so
issued, endorsed or accepted, shall
automatically be considered as falling
within the purview of the Manual of
Regulations for Banks and regulations
on quasi-banking, provided further,
that any of the following practices or
practices similar and/or tantamount
thereto in connection with a “without
recourse” transaction is hereby
prohibited:
i. Issuance of postdated checks
by a financial intermediary,
whether for its own account or
as an agent of the debt
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

instrument issuer, in payment
of the debt instrument, sold,
assigned or transferred without
recourse;
ii. Issuance by a financial
intermediary of any form of
guaranty on sale transactions
or on negotiations or
assignment of debt instruments
without recourse;
iii. Payment with its own funds by
a financial intermediary which
assigned, sold or transferred
the debt instrument without
recourse, unless the financial
intermediary can show that the
issuer has with the said
financial intermediary funds
corresponding to the amount of
the obligation.
“WITHOUT RECOURSE” TRANSACTION – the
person or party will claim no responsibility if a
negotiable instrument would be dishonored – the other
party cannot go after the party who issued the
instrument
1. Power over more than ½ of the voting rights
by virtue of an agreement with other
stockholders;
Example – trust agreement. Kunyari, I own 50% of the
shares, now binayaran ako ni Mr. C – “I’ll give you 1
million, and we will execute a trust agreement but I
am relinquishing my right to vote.” Pwede yun.
2. Power to govern the financial and operating
policies of the enterprise under a statute or an
agreement;
Kahit hindi ikaw yung nagmamay-ari ng more than
half, but if you have the power to govern the financial
and operating policies of the enterprise under a statute
or an agreement, you are deemed to have control over
that enterprise.
3. Power to appoint or remove the majority of the
members of the board of directors or
equivalent governing body;
4. Power to case the majority votes at meetings
of the board of directors or equivalent
governing body; or

That is precisely why in quasi-banking, it has to be So therefore, even if you own less than half of the
“with recourse”. Because, remember na ang binigay sa voting shares, but kayo na grupo 3 kayo sa board na
iyo is a debt instrument. What will happen kung may 5 members, may control kayo because you are a
“without recourse” yun? You are practically giving out majority of the board.
money in exchange for nothing, because you cannot go
after the endorser. 5. Any other arrangement similar to any of the
above.
Section 7. Examination by the Bangko Sentral. - The
Bangko Sentral shall, when examining a bank, have
the authority to examine an enterprise which is wholly
or majority-owned or controlled by the bank. (2-Ba)

Therefore, the question is – is the examination powers

of the BSP limited to banking or quasi-banking
institutions? Can the BSP examine a non-bank CHAPTER III
institution? ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS. QUASI-BANKS AND
Now it’s easy to determine as regards to whether or TRUST ENTITIES
not it is wholly or majority-owned by the bank. Pero
pwede rin ‘controlled’ by the bank eh.
Section 8. Organization. - The Monetary Board may
authorize the organization of a bank or quasi-bank
Control exists when the parent owns directly or subject to the following conditions:
indirectly through subsidiaries more than ½ of the
voting power of an enterprise. This is different from
8.1 That the entity is a stock corporation (7);
your Corporation Law. Kasi ang sinabi, more than ½ of
the voting power – so kailangan may voting.
8.2 That its funds are obtained from the public, which
shall mean twenty (20) or more persons (2-Da); and
Control may also exist even when ownership is ½ or
less of the voting power of an enterprise when there
is:
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
8.3 That the minimum capital requirements prescribed
by the Monetary Board for each category of banks are
satisfied. (n)
No new commercial bank shall be established within
three (3) years from the effectivity of this Act. In the
exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in
terms of their financial resources and technical
expertise and integrity. The bank licensing process
shall incorporate an assessment of the bank's
ownership structure, directors and senior
management, its operating plan and internal controls
as well as its projected financial condition and capital
base.
That the entity is a stock corporation.
 Relate this to your Corporation Code – what
are the businesses or industries that have to
be a stock corporation? One of which is the
quasi-bank.
That its funds are obtained from the public,
which shall mean twenty (20) or more persons.
 So kung 15 lang, you are not authorized to
organize a bank.
That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied.
Section 9. Issuance of Stocks. - The Monetary Board
may prescribe rules and regulations on the types of
stock a bank may issue, including the terms thereof
and rights appurtenant thereto to determine
compliance with laws and regulations governing capital
and equity structure of banks; Provided, That banks
shall issue par value stocks only.
So again – different banks, different rules.
Section 10. Treasury Stocks. - No bank shall purchase
or acquire shares of its own capital stock or accept its
own shares as a security for a loan, except when
authorized by the Monetary Board: Provided, That in
every case the stock so purchased or acquired shall,
within six (6) months from the time of its purchase or
acquisition, be sold or disposed of at a public or private
sale. (24a)
This is an exception to your concept of “Treasury
shares” under your Corporation Code.
TREASURY SHARES – these are stocks which were
issued but then reacquired. Nag-issue ako dati ng
shares, binili ko siya tapos hindi ko siya ni-retire.
Nilagay ko lang siya sa treasury – pwede ko pa siya
ma-issue in the future.
Take note - That in every case the stock so purchased
or acquired shall, within six (6) months from the time
of its purchase or acquisition, be sold or disposed of at
a public or private sale.
So kailang siyang ire-issue, ibenta, or i-retire. Hindi
pwedeng i-keep siya within 6 months.
Why is that the rule? Bakit kailangan may holding
period? Because treasury shares are actually not
funded – ang bumili ng mga iyan ay si company
mismo. So since hindi siya funded, kailangan ibenta
siya ulit.
What will happen pag hindi? These are not funded
capitals. In fact, how do we present it in financial
statements? It is presented as a deduction in the
Equity portion in the balance sheet – so contra-equity
account siya. So kung maraming treasury shares, it
actually means that you are not a well-funded
company. That is why the GBL does not encourage
banks to have treasury shares.
Section 11. Foreign Stockholdings. - Foreign
individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock of
a domestic bank. This rule shall apply to Filipinos and
domestic non-bank corporations. The percentage of
foreign-owned voting stocks in a bank shall be
determined by the citizenship of the individual
stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall
follow the citizenship of the controlling stockholders of
the corporation, irrespective of the place of
incorporation. (n)
Take note, the GBL is very specific – so dapat voting
stock. Unlike the Corporation Code, ang basis is 40%
of the capital stock.
By default, the test of nationality applied to banks is
the control test.
OWNERSHIP CEILING
UNDER RA 8791, RA CEILING
7906, and RA 7353
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

A. Voting shares of stock 40% stick in a domestic bank

of a Filipino individual of a of an individual and a
Philippine non-bank corporation/s which is/are
corporation in a domestic wholly-owned or a
bank majority of the voting
shares of which is owned
by such individual

B. Voting shares of stock

of foreign individual or a
foreign non-bank UNDER RA 7721
corporation in a domestic:
40%
(a) universal/commercial
A. Voting shares of stock 60%
and thrift bank
of qualified Philippine
corporation in a domestic
bank
(b) rural bank No foreign
stockholdings

B. Combined ownership 60%

of the voting shares of
C. Combined ownership stock of qualified foreign
of the voting stock of banks including foreign
foreign individuals and/or individuals and non-bank
foreign non-bank corporations in a
corporations in a domestic bank
domestic:

REPUBLIC ACT 7721 - AN ACT LIBERALIZING THE

(a) universal/commercial 40% ENTRY AND SCOPE OF OPERATIONS OF FOREIGN
bank BANKS IN THE PHILIPPINES AND FOR OTHER
PURPOSES.

(b) thrift bank 60%  With the passage of RA 7721, the Philippine
banking and financial system was liberalized to
create a more competitive environment and to
encourage greater foreign participation through
(c) rural bank No foreign an increase in the allowable ownership in
stockholdings domestic banks by foreign banks and the entry
of new foreign bank branches.

In accordance with market competitiveness, what is

good about competition? Why is there a policy to
liberalize the entry of foreign banks?

D. Combined ownership 40% This is actually for the banks to be more competitive.
of the voting shares of This is the issue on regulation vs. deregulation –
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
because sometimes in regulating industries like
banking, it has a contra-productive effect. That’s why
the move for the GBL is to move for deregulation and
just allow the market forces to play. In fact, they have
now allowed the entry of foreign corporation.
Under RA 7721, the MB is empowered to authorize
foreign banks to operate in the Philippine banking
system through any of the following modes of entry
by:
1. Acquiring, purchasing or owning up to 60% of
the voting stock of an existing bank;
2. Investing up to 60% of the voting stock of a
new banking subsidiary incorporated under
the laws of the Philippines; or
3. Establishing branches with full banking
authority.
A foreign bank may avail itself of only 1 mode of entry.
Further, a foreign bank or a Philippine corporation may
own up to 60% of the voting stock of only 1 domestic
bank or new banking subsidiary.
NOTE: These are the only allowed modes of entry.
Be careful because a BRANCH is different from a
SUBSIDIARY.
Pag sinabing “X Company, Philippine branch” – that is
a branch. Pero pag sinabing “X Company” – that is a
new corporation, which may or may not be a
subsidiary.
NOW THIS IS REVISED FURTHER BY REPUBLIC
ACT 10641 - AN ACT ALLOWING THE FULL ENTRY
OF FOREIGN BANKS IN THE PHILIPPINES,
AMENDING FOR THE PURPOSE REPUBLIC ACT
NO. 7721
Before the percentage was 60-60. With RA 10641:
The Monetary Board may authorize foreign banks to
operate in the Philippine banking system through any
one of the following modes of entry:
(i) by acquiring, purchasing or owning up to one
hundred percent (100%) of the voting stock of an
existing bank;
(ii) by investing in up to one hundred percent
(100%) of the voting stockof a new banking
subsidiary incorporated under the laws of the
Philippines; or
(iii) by establishing branches with full banking
authority.
So therefore, you can have a bank which is 100%
owned by a foreign company. That’s the trend now.
Also under RA 10641 –
SEC. 9. Participation in Foreclosure Proceedings.—
Foreign banks which are authorized to do banking
business in the Philippines through any of the modes
of entry under Section 2 hereof shall be allowed to bid
and take part in foreclosure sales of real property
mortgaged to them, as well as to avail of enforcement
and other proceedings, and accordingly take
possession of the mortgaged property, for a period not
exceeding five (5) years from actual
possession: Provided, That in no event shall title to the
property be transferred to such foreign bank. In case
said bank is the winning bidder, it shall, during the
said five (5)-year period, transfer its rights to a
qualified Philippine national, without prejudice to a
borrower’s rights under applicable laws. Should the
bank fail to transfer such property within the five (5)-
year period, it shall be penalized one half (1/2) of one
percent (1%) per annum of the price at which the
property was foreclosed until it is able to transfer the
property to a qualified Philippine national.
Under RA 10641, they can foreclose the property, but
they have a 5-year period within which they have to
sell it, otherwise they will be penalized.
Section 12. Stockholdings of Family Groups of
Related Interests. - Stockholdings of individuals related
to each other within the fourth degree of consanguinity
or affinity, legitimate or common-law, shall be
considered family groups or related interests and must
be fully disclosed in all transactions by such
corporations or related groups of persons with the
bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or more
corporations owned or controlled by the same family
group or same group of persons shall be considered
related interests and must be fully disclosed in all
transactions by such corporations or related group of
persons with the bank. (12-Ba)
So if there is a related interest, you must disclose it.
That’s why, if you have time, you try to get a copy of
the Annual Stockholder’s Report, dun nakalagay yan.
You will see, naka-disclose diyan yung related
interests, related party transactions – because that is
mandated by our laws.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Section 14. Certificate of Authority to Register. - The

Securities and Exchange Commission shall no register
the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a
certificate of authority issued by the Monetary Board,
under it seal. Such certificate shall not be issued unless
the Monetary Board is satisfied from the evidence
submitted to it:
14.1 That all requirements of existing laws and
regulations to engage in the business for which the
applicant is proposed to be incorporated have been
complied with;
14.2 That the public interest and economic conditions,
both general and local, justify the authorization; and
14.3 That the amount of capital, the financing,
organization, direction and administration, as well as
the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits
and the public interest. (9)
The Securities and Exchange Commission shall not
register the by-laws of any bank, or any amendment
thereto, unless accompanied by a certificate of
authority from the Bangko Sentral. (10)
Section 15. Board of Directors. - The provisions of the
Corporation Code to the contrary notwithstanding,
there shall be at least five (5), and a maximum of
fifteen (15) members of the board or directors of a
bank, two (2) of whom shall be independent directors.
An "independent director" shall mean a person other
than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-
Filipino citizens may become members of the board of
directors of a bank to the extent of the foreign
participation in the equity of said bank. (Sec. 7, RA
7721) The meetings of the board of directors may be
conducted through modern technologies such as, but
not limited to, teleconferencing and video-
conferencing. (n)
 Is a person other than an officer or employee
of a corporation, its subsidiaries or affiliates or
related interests.
AN INDEPENDENT DIRECTOR IS A PERSON WHO IS
NOT:
i. An officer or employee, or has not been an
officer or employee, of the entity, its
subsidiaries or affiliates or related interests
during the past 3 years counted from the date
of his election;
ii. A director or officer of the related companies of
the institution’s majority stockholder;
iii. A majority stockholder of the institution, any of
its related companies, or of its majority
stockholders;
iv. A relative within the 4th degree of
consanguinity or affinity, legitimate or
common-law of any director, officer, or
majority shareholder of the entity or any of its
related companies;
v. Acting as a nominee or representative of any
director or substantial shareholder of the
entity, any of its related companies or any of
its substantial shareholders; and
vi. Retained as professional adviser, consultant,
agent or counsel of the institution, any of its
related companies or any of its substantial
shareholders, either in his personal capacity or
through his firm.
An independent director must also only serve for a
term of 5 years.
Question: Can an independent director own a share of
stock? Pwede – as long as it is not sufficient to elect 1
seat in the board of directors.

BOARD OF DIRECTORS

 The board of directors is primarily responsible

for the corporate governance of the entity.
Directors are those:
o Named as such in the articles of
incorporation;
o Duly elected in subsequent meetings of
the stockholders; or
o Elected to fill vacancies in the board of
directors.

INDEPENDENT DIRECTOR
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
January 23 ( 1 of 4) - Gillian
FIT AND PROPER RULE
SECTION 16. Fit and Proper Rule. — 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.
(9-Aa)
Take note, it’s not only limited to the directors but also
to the officers.
This is actually in compliance with the Basel
Committee on Banking Supervision
Principle 5: Licensing Criteria
The licensing authority has the power to set criteria
and reject applications for establishments that do not
meet the criteria. At a minimum, the licensing process
consists of assessment of the ownership structure and
governance (including the fitness and propriety of
Board members and senior management) of the bank
and its wider group, and its strategic and operating
plan, internal conflicts, risk management and projected
financial condition (including capital base).
So as we all know the banking industry is imbued with
public interest so there is heavy regulation when it
comes to banking.
The Fit and Proper Rule is very specific in the banking
industry, you can read this in all jurisdictions. Again
you have to look at the integrity, probity, experience,
education, training, and competence.
Q: What’s probity?
A: The quality of having strong moral principles
Now the problem with this kind of qualification is that
there’s actually no test to determine it. Ang ginagawa
lang nilang test is if you are convicted of a crime
involving moral turpitude. That’s a common test but
it’s in the negative. How can you determine a person’s
moral intergrity diba.
Manual of Regulations for Banks
Qualifications of a director
A director shall have the following minimum
qualifications:
a. He shall be at least twenty-five (25) years of age at
the time of his election or appointment;
b. He shall be at least a college graduate, or have at
least five (5) years experience in business;
c. He must have attended a special seminar on
corporate governance for board of directors accredited
by the Bangko Sentral
d. He must be fit and proper for the position of a
director of a bank
Mind you. Kung may MCLE tayo, sila may corporate
governance. Mga best practices. They have to finish a
certain number of units before they are given the
license
That the following persons are exempted from
attending said seminar:
i. Foreign nationals who have attended corporate
governance training covering core topics in the Bangko
Sentral
ii. Filipino citizens with recognized stature, influence
and reputation in the banking community and whose
business practices stand as testimonies to good
corporate governance;
iii. Distinguished Filipino and foreign nationals who
served as senior officials in central banks and/or
financial regulatory agencies, including former
Monetary Board members; or
iv. Former Chief Justices of the Philippines
Q: Pag si Sereno ba, pwede ba syang ma exempt?
Please note, the fit and proper rule also applies to
officers. Sino ba yung officers? Please take note of this
definition, it’s very specific:
Definition of officers. Officers shall include the
president, executive vice president, senior vice-
president, vice president, general manager, treasurer,
secretary, trust officer and others mentioned as
officers of the bank, or those whose duties as such are
defined in the by-laws, or are generally known to be
the officers of the bank (or any of its branches and
offices other than the head office) either through
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
announcement, representation, publication or any kind
of communication made by the bank:
Therefore even if hindi sya official but the bank
represented that this particular person is an officer of
the bank, he has to be compliant with the fit and
proper rule. Please take note of that nuance.
(Continuation)
Provided, That a person holding the position of
chairman or vice chairman of the board or another
position in the board shall not be considered as an
officer unless the duties of his position in the board
include functions of management such as those
ordinarily performed by regular officers:
Provided, further, That members of a groupor
committee, including sub-groups or subcommittees,
whose duties include functions of management such as
those ordinarily performed by regular officers, and are
not purely recommendatory or advisory, shall likewise
be considered as officers.
What are purely recommendatory or advisory
committees?
Audit committee, whose purpose is to find out if they
comply with the rules and regulations of tax laws,
banking, etc. So itong mga operations ng company are
actually subject to the audit committee.
Get a stockholder’s meeting manual of any big
corporations. Tingnan nyo yun para malaman nyo yung
sinasabi ko, para magka intindihan tayo.
Qualifications of an officer.
An officer shall have the following minimum
qualifications:
a. He shall be at least twenty-one (21) years of age;
b. He shall be at least a college graduate, or have at
least five (5) years experience in banking or trust
operations or related activities or in a field related to
his position and responsibilities, or have undergone
training in banking or trust operations acceptable to
the appropriate department of the Supervising and
Examining Sector of the BSP.
Provided, however, That the trust officer who shall be
appointed shall possess any of the following:
(1) at least five (5) years of actual experience in trust
operations;
(2) at least three (3) years of actual experience in
trust operations and must have:
(a) completed at least ninety (90) training hours in
trust, other fiduciary business, or investment
management activities acceptable to the Bangko
Sentral; or
(b) completed a relevant global or local professional
certification program; or (3) at least five (5) years of
actual experience as an officer of a bank and must
have:
(a) completed at least ninety (90) training hours in
trust, other fiduciary business, or
investment management activities acceptable to the
Bangko Sentral; or
(b) completed a relevant global or local professional
certification program; and
c. He must be fit and proper for the position he is
being proposed/appointed to.
(PLEASE MEMORIZE) In determining whether a
person is fit and proper for a particular position, the
following matters must be considered:
integrity/probity, competence, education, diligence and
experience/training.
So walang jail dyan. If you go to jail, it does not
necessarily make you not fit and proper.
Disqualification and Watchlisting of Directors and
Officers
a. Permanently disqualified
Directors/officers/employees permanently disqualified
by the Monetary Board from holding a director
position:
(1) Persons who have been convicted by final
judgment of a court for offenses involving
dishonesty or breach of trust such as, but not
limited to, estafa, embezzlement, extortion,
forgery, malversation, swindling, theft,
robbery, falsification, bribery, violation of B.P.
Blg. 22, violation of Anti-Graft and Corrupt
Practices Act and prohibited acts and
transactions under Section 7 of R.A. No. 6713
(2) Persons who have been convicted by final
judgment of a court sentencing them to serve
a maximum term of imprisonment of more
than 6 years
(3) Persons who have been convicted by final
judgment of a court for violation of banking
laws, rules and regulations;
(4) Persons who have been judicially declared
insolvent, spendthrift or incapacitated to
contract
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
So bawal pubri but you have to be judicially declared
insolvent.
(5) Directors, officers or employees of closed
banks who were found to be culpable for such
institution’s closure as determined by the
Monetary Board
(6) Directors and officers found by the MB as
administratively liable for violation of banking
laws
(7) Directors and officers of banks or any person
found by the MB to be unfit for the position of
directors or officers because they were found
administratively liable by another government
agency for violation of banking laws, rules and
regulations or any offense
b. Temporarily disqualified
Meaning pag mawala ang disqualification pwede ra
paring maging officer
(1) Persons who refuse to fully disclose the extent
of their business interest or any material
information to the appropriate department of
the SES
(2) Directors who have been absent or who have
not participated for whatever reasons in more
than 50 % of all meeting, both regular and
special of the board of directors during their
incumbency
Meaning what the law requires is for the directors to
be working directors.
(Continuation) and directors who failed to physically
attend for whatever reasons in at least 25% of all
board meetings in any year
Bakit sila sineperate? Kasi meetings can be through
teleconferencing or videoconferencing, pero dapat wag
mung abusuhin, you still have to be physically present
(3) Persons who are delinquent in the payment of
their obligation
(4) Persons who have been convicted by a court
for offenses involving dishonesty or breach of
trust
(5) Directors and officers of closed banks pending
their clearance by the MB
(6) Directors disqualified for their failure to
observe or discharge their duties and
responsibilities prescribed under existing
regulations
(7) Directors who failed to attend special seminar
for board of directors
(8) Persons dismissed/terminated form
employment for a cause
(9) Those under preventive suspension
(10) Persons with derogatory records
You can see, masyadong maraming requirements just
to be an officer or director. Kailangan talaga walang
bahid.
Persons disqualified to become officers
- The spouses or relative within the second
degree of consanguinity or affinity are
prohibited from holding officership positions
across the following functional categories
within a bank:
1. decision making and senior management
function e.g. chairman, CEO, COO, CFO
2. treasury function
3. record keeping and financial functions
4. safekeeping of assets
5. risk management function
6. compliance function
7. internal audit function
So what does this prevent? Nepotism. Culture kasi ng
Pinoy, they might compromise violation of another kasi
kamag anak nila.
In the standards of auditing, hindi pwedeng same
functions si record keeping, safekeeping of assets at
yung approval. Kung sino yung nag aaprove different
sya from record keeping or safekeeping
The spouse or a relative within the second degree of
consanguinity or affinity of any person holding the
position of manager cashier or accountant of a branch
or extension office of a bank
- Any appointive or elective official whether full
time or part time except if it is incident to
financial assistance
- In the case of Coop Banks, any officer or
employees of the CDA or any elective public
official except a barangay official
Watchlisting
How does the Central Bank monitor the people within
the banks?
To provide the Bangko Sentral with a central
information file to be used as reference in passing
upon and reviewing the qualifications of persons
elected or appointed as director or officer of a bank,
QB or trust entity, the SES shall maintain a watchlist of
persons disqualified to be a director or officer of such
entities under its supervision
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
For the purpose of determining na disqualified ka.
Tapos after 1 yr lumipat lang pala sa ibang bangko,
nag apply or kinuha as officer. Parang NBI ba, may
lista sila ng may mga kasalanan
In the case of bank merger or consolidation_______,
so this is an exception to your Corporation Code.
What’s the maximum for the number of directors in
your Corpo Code, Private? 15
Why is it that in General Banking Law it is 21?
January 23
40:01 – 1:00:00
SECTION 17. Directors of Merged or
Consolidated Banks. — In the case of a bank
merger or
consolidation, the number of directors shall not
exceed twenty-one (21). (13a)
What’s the maximum?
15.
Why is it that in the General Banking Law it is 21?
Kase the policy of the state is to encourage merger.
Pooling of resources when it comes to this type of
industry. Now the problem with merger is that there is
a power struggle. Kung mag merge si A & B, sino
mamahala? There will always be a power struggle.
That’s why ginawang 21 so that, in the board, there is
equal representation.
Bakit di ginawang 20? Para 10-10, pantay walang
issue.
Ginawang 21 para may mag tiebreaker. Di maka move
ang board if 20, walang mag break in case of a tie.
SECTION 18. Compensation and Other Benefits
of Directors and Officers. — To protect the
funds of depositors and creditors, the Monetary
Board may regulate the payment by the bank to its
directors and officers of compensation, allowance,
fees, bonuses, stock options, profit sharing and
fringe
benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to
the
following:
18.1. When a bank is under comptrollership or
conservatorship; or
18.2. When a bank is found by the Monetary Board
to be conducting business in an unsafe or unsound
manner; or
18.3. When a bank is found by the Monetary Board
to be in an unsatisfactory financial condition.(n)
Again the compensation is regulated to protect the
funds of depositors and creditors…
In these particular instances (18.1-18.3) the MB may
regulate payment. So even if malaki, this is an
exception.
You cannot use your Labor code on the non-diminution
of benefits if these are the instances.
Let’s say tumatanggap ka ng 300,000 a month, tapos
biglang sinabi ng MB na 50,000 ka nalang. Kasi the
bank is under conservatorship.
You cannot use the provision in the Labor code on the
non-diminution of benefits to say that that is illegal,
because that is perfectly allowed under the general
banking law.
SECTION 19. Prohibition on Public Officials. —
Except as otherwise provided in the Rural
Banks Act, no appointive or elective public official,
whether full-time or part-time shall at the same time
serve as officer of any private bank, save in cases
where such service is incident to financial assistance
provided by the government or a government-
owned or controlled corporation to the bank or
unless
otherwise provided under existing laws. (13)
Can Public officials be appointed or can they sit as a
director or officer of any private bank?
Except in Rural Banks Act (so kung mga rural banks
pwede), no appointive or elective public official,
whether full-time or part-time shall at the same time
serve as officer of any private bank unless it is incident
to financial assistance provided by the government or
a government-owned or controlled corporation to the
bank or unless otherwise provided under existing laws.
So dalawa lang ang exception mo.
you have the:
1. Rural Banks Act
2. If it is incident to financial assistance given by
the government.
What’s the purpose kung bakit pinaupo ang officer?
It could be to check if the financial assistance is really
disbursed in the manner of which it was given.
So exception rural banks act; you have Section 5 of
the Rural Banks Act.
Section 5. All members of the Board of Directors of
the rural bank shall be citizens of the Philippines at
the time of their assumption to office: Provided,
however, That nothing in this Act shall be
construed as prohibiting any appointive or
elective public official from serving as director,
officer, consultant or in any capacity in the
bank. xxxx
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

General rule: approval from the CSC must first be

sought. Another one is incident to financial assistance.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
SECTION 20. Bank Branches. — Universal or
commercial banks may open branches or other
offices within or outside the Philippines upon prior
approval of the Bangko Sentral.
Branching by all other banks shall be governed by
pertinent laws.
A bank may, subject to prior approval of the
Monetary Board, use any or all of its branches as
outlets for the presentation and/or sale of the
financial products of its allied undertaking or of its
investment house units.
A bank authorized to establish branches or other
offices shall be responsible for all business
conducted in such branches and offices to the same
extent and in the same manner as though such
business had all been conducted in the head office.
A bank and its branches and offices shall be
treated
as one unit. (6-B; 27)
Please take note of the last sentence - A bank and its
branches and offices shall be treated as one unit
– so hindi sila different.
SECTION 21. Banking Days and Hours. — Unless
otherwise authorized by the Bangko Sentral
in the interest of the banking public, all banks
including their branches and offices shall transact
business
on all working days for at least six (6) hours a day.
In addition, banks or any of their branches or offices
may open for business on Saturdays, Sundays or
holidays for at least three (3) hours a day: Provided,
That banks which opt to open on days other than
working days shall report to the Bangko Sentral the
additional days during which they or their branches
or offices shall transact business.
For purposes of this Section, working days shall
mean Mondays to Fridays, except if such days
are holidays. (6-Ca)
Eto yung basis kung bakit 3pm mag cut-off na;
because under the law - shall transact business
on all working days for at least six (6) hours a day.
So pwedeng 6 hours lang. they have the right to say
na “ipa cut-off na namin.” Di naman ibig sabihin na
less than 8 hours sila, mag ihap pa man yan sila ng
pera mag work pa man yan.
SECTION 22. Strikes and Lockouts. — The
banking industry is hereby declared as
indispensable to the national interest and, not
withstanding the provisions of any law to the
contrary, any
strike or lockout involving banks, if unsettled after
seven (7) calendar days shall be reported by the
Bangko Sentral to the Secretary of Labor who may
assume jurisdiction over the dispute or decide it or
certify the same to the National Labor Relations
Commission for compulsory arbitration. However,
the
President of the Philippines may at any time
intervene and assume jurisdiction over such labor
dispute in
order to settle or terminate the same. (6-E)
Strikes and lockouts I leave that to your labor
relations.
SECTION 23. Powers of a Universal Bank. — A
universal bank shall have the authority to
exercise, in addition to the powers authorized for a
commercial bank in Section 29, the powers of an
investment house as provided in existing laws and
the power to invest in non-allied enterprises as
provided in this Act. (21 -B)
Please take note: ang power ng universal bank =
commercial bank + power of investment house +
power to invest in allied enterprises.
Universal bank has the following powers, you have:
1. Powers of a commercial bank;
2. Powers of an investment house;
3. Powers to invest in non-allied enterprise;
4. Power to own up to 100% equity in a thrift
bank, rural bank or financial allied enterprise
and;
5. Power to own up to 100% equity in a non-
financial allied enterprise.
In case of a publicly-listed universal bank, power to
own up to one hundred percent (100%) of the voting
stock of only one other universal or commercial bank.
So a universal bank may be owned by a universal
bank. So pwedeng universal bank is 100% owned by
another universal bank, provided that the owner UB is
a publicly-listed universal bank.
Take note: 100% of the voting stock
So pwede bang magkaroon ng corporation ng non-
voting stock?
Kailangan ba lahat voting?
The investment house is an enterprise…anong
investment house? – engaged in the underwriting of
securities of other corporations.
What is underwriting of securities? Diba may insurance
underwriter…what is an underwriter?
When you say underwriting you are actually
guaranteeing the securities. kaya when you buy
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
insurance, hindi naman basta-basta na-aaprove yan,
they will have to underwrite for them to guarantee.
So an investment house is an enterprise which
engages in the underwriting of securities of other
corporation – it guarantees the shares and securities of
other corporation.
In Corpo, when we go to the Securities regulation
code, we would know that the term securities is not
limited to shares of stock. There are other types of
financial instruments considered as securities…but for
purposes of discussion, you can liken the securities to
shares of stock but it’s not exclusively the shares of
stock.
You have your PD 129, which is the enabling law of
investment houses.
So an investment house is authorized to do the
following: (See PD 129 for full list)
Sec. 7. Powers. — In addition to the powers
granted to corporations in general, an Investment
House is authorized to do the following:
xxx (6) Act as financial consultant, investment
adviser, or broker xxx
SECTION 24. Equity Investments of a Universal
Bank. — A universal bank may, subject to the
conditions stated in the succeeding paragraph,
invest in the equities of allied and non-allied
enterprises as may be determined by the Monetary
Board. Allied enterprises may either be financial or
non-financial.
Except as the Monetary Board may otherwise
prescribe:
24.1. The total investment in equities of allied and
non-allied enterprises shall not exceed fifty percent
(50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise,
whether allied or non-allied, shall not exceed
twenty-five percent (25%) of the net worth of the
bank.
As used in this Act, "net worth" shall mean the total
of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net
of valuation reserves and other adjustments as may
be required by the Bangko Sentral.
The acquisition of such equity or equities is subject
to the prior approval of the Monetary Board
which shall promulgate appropriate guidelines to
govern such investments. (21 -Ba)
Deposits, loans and other operations. Equity
investment of universal bank, again invest in the
equities of allied and non-allied enterprises.
Take note: 24.1. The total investment in equities of
allied and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank;
Bakit may limit - 50%?
This is because the policies of the bank have to be
prudent. Remember this serves for the investors and
depositors and the public.
Pag non-allied naman ka the equity investment in any
one enterprise, shall not exceed
twenty-five percent (25%) of the net worth of the
bank.
Take note: the total investment in equity (meaning
ang total investment niya/total shares of stock na
hawak niya for allied and non-allied) shall not exceed
50% of the net worth of the bank.
Pero individually it should not exceed 25%.
The maximum is 25%. So kung meron siyang hawak
na 25%, the maximum that it can invest in other
enterprise is 25 also. Eto at the individual enterprise
level -25%.
On the totality level, you have the 50%.
Pag financial allied, can own up to 100% equity in a
thrift bank
SECTION 25. Equity Investments of a Universal
Bank in Financial Allied Enterprises. — A
universal bank can own up to one hundred percent
(100%) of the equity in a thrift bank, a rural bank or
a
financial allied enterprise.
A publicly-listed universal or commercial bank may
own up to one hundred percent (100%) of the
voting stock of only one other universal or
commercial bank. (21 -B; 21 -Ca)
Take note: 100% of the equity. It did not say 100% of
the voting stock. Magkaiba po si equity and si voting
stock. Kasi your equity might also have non-voting
stocks.
These are financial allied undertakings.
SEC. X377 Financial Allied Undertakings. With prior
BSP approval, banks may invest in equities of the
following financial allied undertakings, subject to the
limits prescribed under Sec. X378
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
a. Leasing companies including leasing of stalls and
spaces in a commercial establishment; provided,
That bank investment in/acquisition of shares of
such leasing company shall be limited/applicable
only in cases of conversion of outstanding loan
obligations into equity;
b. Banks;
c. Investment houses;
d. Financing companies;
e. Credit card companies;
f. Financial institutions catering to small and
medium scale industries including venture capital
corporation (VCC), subject to the provisions under
Sec. X379
g. Companies engaged in stock broke-
rage/securities dealership; and
h. Companies engaged in foreign exchange
dealership/brokerage.
In addition, EKBs may invest in the following as
financial allied undertakings:
a. Insurance companies; and
b. Holding company, provided that the investments
of such holding company are confined to the equities
of allied undertakings and/or non-allied
undertakings of UBs allowed under BSP regulations.
The Monetary Board may declare such other
activities as financial allied undertakings of banks.
The determination of whether the corporation is
engaged in a financial allied undertaking shall be
based on its primary purpose as stated in its articles
of incorporation and the volume of its principal
business.
What is a venture capital corporation?
These are corporations the purpose of which is
primarily to provide capital.
SECTION 26. Equity Investments of a Universal
Bank in Non-Financial Allied Enterprises.
— A universal bank may own up to one hundred
percent (100%) of the equity in a non-financial
allied
enterprise. (21 -Ba)
SECTION 27. Equity Investments of a Universal
Bank in Non-Allied Enterprises. — The
equity investment of a universal bank, or of its
wholly or majority-owned subsidiaries, in a single
nonallied enterprise shall not exceed thirty-five
percent (35%) of the total equity in that enterprise
nor shall it
exceed thirty-five percent (35%) of the voting stock
in that enterprise. (21 -B)
Take note: of the limitations. Familiarize it.
SEC. X380 Non-Financial Allied Undertakings. A
bank may acquire up to one hundred percent
(100%) of the equity of a non-financial allied
undertaking: x x x.
The determination of whether the corporation is
engaged in a non-financial allied undertaking shall
be based on the primary purpose as stated in its
articles of incorporation and the volume of its
principal business.
UBs/KBs/TBs
UBs/KBs and TBs may invest in equities of the
following non-financial allied undertakings:
(1) Warehousing companies;
(2) Storage companies;
(3) Safe deposit box companies;
(4) Companies primarily engaged in the ma-
nagement of mutual funds but not in the mutual
funds themselves;
(5) Management corporations engaged or to be
engaged in an activity similar to the management of
mutual funds;
(6) Companies engaged in providing computer
services;
(7) Insurance agencies/brokerages;
(8) Companies engaged in home building and
home development;
(9) Companies providing drying and/or milling
facilities for agricultural crops such as rice and corn;
(10) Service Bureaus organized to perform for and
in behalf of banks and non-bank financial institutions
the services allowed to be outsourced under Circular
No. 268; provided, that data processing companies
may be allowed to invest up to 40% in the equity of
Service Bureaus;
(11) Philippine Clearing House Corporation (PCHC)
and Philippine Central Depository, Inc. (PDIC); and
(12) Such other similar activities as the Monetary
Board may declare as non-financial allied
undertakings of banks.
UBs may further invest in health maintenance
organizations (HMOs).
In addition, TBs may also invest in the equities of
companies enumerated in Item b of this Section
Non-allied undertakings. Familiarize. Marami sila.
SECTION 28. Equity Investments in Quasi-
Banks. — To promote competitive conditions in
financial markets, the Monetary Board may further
limit to forty percent (40%) equity investments of
universal banks in quasi-banks. This rule shall also
apply in the case of commercial banks. (12-E)
Quasi-banks – 40%. As you can see limited.
The main features of the general banking law, is that it
actually provides restrictions to the banking
operations. Yun lang yun isipin niyo.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

When you read the banking law, it provides: 30.2. The equity investment in any one enterprise
restrictions, limitations, qualifications, prohibitions to shall not exceed twenty-five percent (25%) of the
the banks for the banking industry to be safe. net worth of the bank.
Otherwise if wala, magpataka. That is why.
The acquisition of such equity or equities is subject
Take note of the prohibitions, restrictions, limitations to the prior approval of the Monetary Board
under the General Banking Act. which shall promulgate appropriate guidelines to
govern such investments. (21A-a; 21 -Ca)
Power of Commercial Banks
Let’s go to the Power of Commercial Banks.
Take note: xxx invest only in the equities of allied
Remember the universal bank has the power of a
enterprises as may be determined by the Monetary
commercial bank + …..
Board. Allied enterprises may either be financial or
So we have to determine. What are the powers of a
non-financial. xxxx
commercial banks?
Take note of the limitations:
30.1. The total investment in equities of allied
SECTION 29. Powers of a Commercial Bank. — enterprises shall not exceed thirty-five percent (35%)
A commercial bank shall have, in addition to of the net worth of the bank; and
the general powers incident to corporations, all such 30.2. The equity investment in any one enterprise shall
powers as may be necessary to carry on the not exceed twenty-five percent (25%) of the net worth
business of commercial banking, such as accepting of the bank.
drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; accepting or Sa UB magkano yun? 50 & 25. Eto 35 & 25.
creating
demand deposits; receiving other types of deposits SECTION 31. Equity Investments of a
and deposit substitutes; buying and selling foreign Commercial Bank in Financial Allied
exchange and gold or silver bullion; acquiring Enterprises. —
marketable bonds and other debt securities; and A commercial bank may own up to one hundred
extending percent (100%) of the equity of a thrift bank or a
credit, subject to such rules as the Monetary Board rural bank.
may promulgate. These rules may include the
determination of bonds and other debt securities Where the equity investment of a commercial bank
eligible for investment, the maturities and aggregate is in other financial allied enterprises,
amount of such investment. (21a) including another commercial bank, such investment
shall remain a minority holding in that enterprise.
xxxx; buying and selling foreign exchange and gold or (21 -Aa; 21 -Ca)
silver bullion xxxx (therefore you can only exchange;
maka exchange lang ka ug dollars to a commercial SECTION 32. Equity Investments of a
bank (CB) or a universal bank (UB). Sila lang yung Commercial Bank in Non-Financial Allied
may power.) Enterprises. — A commercial bank may own up to
one hundred percent (100%) of the equity in a
Just like a UB, a CB is also allowed to have equity nonfinancial allied enterprise. (21 -Aa)
investment.
SECTION 30. Equity Investments of a SECTION 33. Acceptance of Demand Deposits.
Commercial Bank. — A commercial bank may, — A bank other than a universal or
subject commercial bank cannot accept or create demand
to the conditions stated in the succeeding deposits except upon prior approval of, and subject
paragraphs, invest only in the equities of allied to
enterprises as such conditions and rules as may be prescribed by
may be determined by the Monetary Board. Allied the Monetary Board. (72-Aa)
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise SECTION 34. Risk-Based Capital. — The
prescribe: Monetary Board shall prescribe the minimum ratio
which the net worth of a bank must bear to its total
30.1. The total investment in equities of allied risk assets which may include contingent accounts.
enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bank; and For purposes of this Section, the Monetary Board
may require that such ratio be determined on
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
the basis of the net worth and risk assets of a bank
and its subsidiaries, financial or otherwise, as well as
prescribe the composition and the manner of
determining the net worth and total risk assets of
banks and
their subsidiaries: Provided, That in the exercise of
this authority, the Monetary Board shall, to the
extent
feasible, conform to internationally accepted
standards, including those of the Bank for
International
Settlements (BIS), relating to risk-based capital
requirements: Provided, further, That it may alter or
suspend compliance with such ratio whenever
necessary for a maximum period of one (1) year:
Provided,
finally, That such ratio shall be applied uniformly to
banks of the same category.
In case a bank does not comply with the prescribed
minimum ratio, the Monetary Board may limit
or prohibit the distribution of net profits by such
bank and may require that part or all of the net
profits be
used to increase the capital accounts of the bank
until the minimum requirement has been met. The
Monetary Board may, furthermore, restrict or
prohibit the acquisition of major assets and the
making of
new investments by the bank, with the exception of
purchases of readily marketable evidences of
indebtedness of the Republic of the Philippines and
of the Bangko Sentral and any other evidences of
indebtedness or obligations the servicing and
repayment of which are fully guaranteed by the
Republic of
the Philippines, until the minimum required capital
ratio has been restored.
In case of a bank merger or consolidation, or when a
bank is under rehabilitation under a program
approved by the Bangko Sentral, the Monetary
Board may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or
corporations under rehabilitation from full
compliance with the
required capital ratio under such conditions as it
may prescribe.
Before the effectivity of the rules which the
Monetary Board is authorized to prescribe under this
provision, Section 22 of the General Banking Act, as
amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall
continue to be in force. (22a)
xxxx The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank must bear to its
total risk assets xxxx
Take note: in every bank (UB, CB, TB) makaiba yung
requirement for ratios.
Ano yung ratios? – It’s like, you have to have this
particular debt compared to your assets. You have to
have this particular investment in this particular
field/industry compared to your total assets.
Magkaiba yan sila because they have different risks.
That is why it is called risk-based capital. The General
banking law does not give you a standard minimum
ratio. It gives you a risk based capital ratio.
So it is based on the risk that a particular bank has.
Kung magkano yung risk ng particular bank.
Siyempre magkaiba naman kayo. Yung isa maliit, yung
isa mas risky…so there is no standard for risks.
xxx the MB shall, to the extent feasible, conform to
internationally accepted standards, including those of
the Bank for International Settlements (BIS), relating
to risk-based capital requirements xxx
xxx Provided, finally, That such ratio shall be applied
uniformly to banks of the same category. Xxx
so there is no standard but if UB, it should apply to all
UBs . pag CB, it should apply to all CBs. Because it is
based on risk; they have the same risk.
SECTION 35. Limit on Loans, Credit
Accommodations and Guarantees. —
35.1. Except as the Monetary Board may otherwise
prescribe for reasons of national interest, the
total amount of loans, credit accommodations and
guarantees as may be defined by the
Monetary Board that may be extended by a bank to
any person, partnership, association,
corporation or other entity shall at no time exceed
twenty percent (20%) of the net worth of
such bank. The basis for determining compliance
with single-borrower limit is the total credit
commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the
preceding paragraph may be increased
by an additional ten percent (10%) of the net worth
of such bank provided the additional
liabilities of any borrower are adequately secured by
trust receipts, shipping documents,
warehouse receipts or other similar documents
transferring or securing title covering readily
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
marketable, non-perishable goods which must be
fully covered by insurance.
35.3. The above prescribed ceilings shall include: (a)
the direct liability of the maker or acceptor of
paper discounted with or sold to such bank and the
liability of a general indorser, drawer or
guarantor who obtains a loan or other credit
accommodation from or discounts paper with or
sells papers to such bank; (b) in the case of an
individual who owns or controls a majority
interest in a corporation, partnership, association or
any other entity, the liabilities of said
entities to such bank; (c) in the case of a
corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or
controls a majority interest; and (d) in the
case of a partnership, association or other entity,
the liabilities of the members thereof to
such bank.
35.4. Even if a parent corporation, partnership,
association, entity or an individual who owns or
controls a majority interest in such entities has no
liability to the bank, the Monetary Board
may prescribe the combination of the liabilities of
subsidiary corporations or members of the
partnership, association, entity or such individual
under certain circumstances, including but
not limited to any of the following situations: (a) the
parent corporation, partnership,
association, entity or individual guarantees the
repayment of the liabilities; (b) the liabilities
were incurred for the accommodation of the parent
corporation or another subsidiary or of
the partnership or association or entity or such
individual; or (c) the subsidiaries though
separate entities operate merely as departments or
divisions of a single entity.
35.5. For purposes of this Section, loans, other
credit accommodations and guarantees shall
exclude:
(a) loans and other credit accommodations secured
by obligations of the Bangko Sentral or
of the Philippine Government; (b) loans and other
credit accommodations fully guaranteed by the
government as to the payment of principal and
interest; (c) loans and other credit accommodations
covered by assignment of deposits maintained in the
lending bank and held in the Philippines; (d)
loans, credit accommodations and acceptances
under letters of credit to the extent covered by
margin deposits; and (e) other loans or credit
accommodations which the Monetary Board may
from
time to time, specify as non-risk items.
35.6. Loans and other credit accommodations,
deposits maintained with, and usual guarantees by
a bank to any other bank or non-bank entity,
whether locally or abroad, shall be subject to
the limits as herein prescribed.
35.7. Certain types of contingent accounts of
borrowers may be included among those subject to
these prescribed limits as may be determined by the
Monetary Board. (23a)
This is very important. This is what you call single
borrowers limit.
xxx Except as the Monetary Board may otherwise
prescribe for reasons of national interest, (*take note
of the exception: national interest) xxxx
xxx the total amount of loans, credit accommodations
and guarantees xxx (*take note: loans,
accommodations, guarantees lang.) xxx
xxx guarantees as may be defined by the Monetary
Board that may be extended by a bank to any person,
partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) of the
net worth of such bank. xxx (*ngayon based on the
circular issued in 2004, it is now 25% of the net
worth of such bank)
So you cannot actually say na “BPI, mayaman ako,
pautangin mo ako ng ganitong milyones”
Your right to make utang from a bank is not unlimited,
it is limited. This is what you call the single borrowers
limit.
So one borrower is limited sa kanyang utang which is
now 25% of the net worth of such bank.
Why is that? Bakit may limit?
You can pay a 100M, tapos ang net worth lang naman
pala ng bank nasa 120M, sobra na siya 25%, so hindi
ka pautangin ng bank.
The purpose of this is to avoid over concentration of
risk. Kung ico-concentrate ko buong net worth ko sa
isang tao,what happens if mamatay ang tao?
It would be really risky to the bank.
So this avoids the overconcentration of risk to a
particular borrower, this is why we have the single
borrowers limit.
The basis for determining compliance with single-
borrower limit is the total credit commitment of the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
bank to the borrower; consisting of loans, credit
accommodations and guarantees.
So hindi lang loans perse, but pwede din guarantees;
the total credit commitment.
So yung total credit commitment ng tao, yun yung ico-
compare mo sa net worth. If it exceeds 25%, that is
not allowed.
xxxx the total amount of loans, credit
accommodations and guarantees prescribed in the
preceding paragraph may be increased
by an additional ten percent (10%) of the net worth of
such bank provided the additional
liabilities of any borrower are ADEQUATELY
SECURED by trust receipts, shipping documents,
warehouse receipts or other similar documents
transferring or securing title covering readily
marketable, non-perishable goods which must be fully
covered by insurance. Xxxxx
How can you increase the single borrowers limit?
It must be adequately secured by trust receipts,
shipping documents, warehouse receipts or other
similar documents transferring or securing title
covering readily marketable, non-perishable goods
which must be fully covered by insurance
It can only be increased if it is covered by documents
transferring or securing title
(*not just any title: the title must be readily
marketable, non-perishable goods)
So may trust receipt nga, but the goods under that
receipt are not readily marketable, non-perishable
goods then that is not a reason for the bank to
increase the single borrowers limit.
So what is the purpose of this? “i-increase naming yun
borrowers mo because in the event of default there is
an easy money.” You can easily convert the security
into money.
So pagsinabi sa true or false: nag increase siya kasi
nag issue ng trust receipt, is it true or false?
Can the bank increase up to 10% of the limit if the
borrower issues a trust receipt.
Answer is false because it is not just any trust receipt.
The trust receipt must cover readily marketable, non-
perishable goods fully covered by insurance.
Take note:
xxxx The above prescribed ceilings shall include:
(b) in the case of an individual who owns or controls a
majority interest in a corporation, partnership,
association or any other entity, the liabilities of said
entities to such bank; xxxx
(*kasi pwede naming I have a limit so ang gawin ko, I
will create a corporation. That corporation, another
25%, me - 25%, pero ako pa din may-ari nun eh, so
50 na ako all in all)
I will just course it through the corporation.
January 23 – Part 3 1:00:01 – 1:20:00
Please take note that it includes a case of individual
who owns or controls the majority interest in a
corporation, partnership or association of any other
entity. It does not only limit to just owning but also to
controlling. Pwede naman hindi sa akin ang majority
interest.
There’s a difference between owning and controlling.
The law provides it’s either own or control. You can
own something, but you do not have control or vice
versa.
Please take note of the exclusions: (Sec. 35.5)
(a) loans and other credit accommodations secured by
obligations of the Bangko Sentral or of the Philippine
Government;
(b) loans and other credit accommodations fully
guaranteed by the government as to the payment of
principal and interest;
(c) loans and other credit accommodations covered by
assignment of deposits maintained in the lending bank
and held in the Philippines;
(d) loans, credit accommodations and acceptances
under letters of credit to the extent covered by
margin deposits; and
(e) other loans or credit accommodations which the
Monetary Board may from time to time, specify as
non-risk items.
Please check BSP Circular 425. This has the
consolidated regulation for single borrower’s limit.
What’s the penalty if you exceed the limit?
(BSP Circular 425)
Series of 2004
a. Monetary Penalties - Fines of one-tenth of one
percent (1/10 of 1%) of the excess over the ceiling
but not to exceed Thirty Thousand Pesos
(P30,000.00) a day for each SBL violation shall be
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
assessed on the bank to be reckoned from the date
the excess started up to the date when such excess
was eliminated: Provided, That a maximum fine of
Five Hundred Pesos (P500.00) a day for each
violation shall be imposed against banks with total
resources of less than P50 million at the time of
granting of loan/credit accommodation.
b. Other Sanctions
First Offense – Reprimand for the directors/officers
who approved the credit availment which resulted in
the excess with a warning that subsequent violations
will be subject to more severe sanctions.
Subsequent Offenses –
1. Fine of One Thousand Pesos (P1,000.00) for
directors/officers who approved the credit availment
which resulted in the excess.
2. Suspension of the bank’s branching privileges
and access to Bangko Sentral rediscounting facilities
until the excess is eliminated.
3. Other penalties as the Monetary Board may
impose depending on the gravity of the offense.
BSP recently issued last 2017 an exemption to the
single borrower’s limit. They provided an exclusion that
the SPE or special purpose entities are not covered
under the single borrower’s limit. So, they can actually
loan more than 25%.
What are special purpose vehicles or special
purpose entities?
Ex. If you are a big corporation, gagawa ka ng
SPV/SPE. The purpose of that is actually to secure
assets. Kaya bankruptcy remote siya. In the event that
the parent company will be bankrupt, the assets by the
SPV/SPE will be secured. Whatever happens to the
owner, these will not be affected.
So, ikaw if marami kang pera and you want to
distribute the risks and may mga assets ka na ayaw
mo madamay, itago mo dun sa SPV/SPE. But it is
highly regulated because of ENDRON case.
What happened before with ENDRON is that their share
skyrocketed from $1 to $1000 per share. What they
did was they created SPV/SPEs to secure their assets.
However, the SPV/SPE are not reflected in the books of
ENDRON. Kasi that is allowed naman.
Ang nangyari, the funding for the SPV/SPE are
guaranteed by the assests of ENDRON. So, yung mga
business ventures ng SPV/SPE nalugi so supposedly
yung madamay yun lang pero nakaguarantee kasi. So,
in ENDRON’s finances it would look like the positive
and naga income but it did not reflect the fact that the
assests were guaranteed for the operations of the
SPV/SPE. When the debtors of the SPV/SPE went after
the guarantee, dun na nag erode lahat. And because of
that the PCIOB (Public Companies Oversight Board)
was established. So, now, SPV/SPE are highly
regulated because they are meant to secure the
assets.
GO v. BANGKO SENTRAL NG PILIPINAS
FACTS:
On August 20, 1999, an information for violation of
Section 83 of Republic Act No. 337 (RA 337) or the
General Banking Act, as amended by Presidential
Decree No. 1795, was filed against Jose Go ( the
Director and the President and CEO of the
Orient Commercial Banking Corporation),
before the RTC, for borrowing the deposits or funds
of the Orient Bank and/or acting as a guarantor,
indorser or obligor for the banks loans to other
persons in total amount of TWO BILLION AND
SEVEN HUNDRED FIFTY-FOUR MILLION NINE
HUNDRED FIVE THOUSAND AND EIGHT HUNDRED
FIFTY-SEVEN AND 0/100 PESOS, Philippine
Currency, without the written approval of the
majority of the Board of Directors of said
Orient Bank
On May 28, 2001, Go pleaded not guilty to the
offense charged.
Go filed on February 26, 2003 a motion to quash the
Information, claiming that the Information was
defective, as the facts charged therein do not
constitute an offense under Section 83 of RA 337.
ISSUE
WHETHER GO’s ACTIONS/ TRANSACTIONS
CONSTITUTE VIOLATIONS OF SEC. 83 OF RA 337.
RULING
YES. GO’s ACTIONS/ TRANSACTIONS CONSTITUTE
VIOLATIONS OF SEC. 83 OF RA 337.
Under Section 83, RA 337, the following elements
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, indorser, 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;
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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.
The essence of the crime is becoming an
obligor of the bank without securing the
necessary written approval of the majority of
the banks directors.
The second element merely lists down the various
modes of committing the offense. The prohibition is
directed against a bank director or officer who
becomes in any manner an obligor for money
borrowed from or loaned by the bank without the
written approval of the majority of the banks board
of directors.
Contrary to Gos claims, the second paragraph of
Section 83, RA 337 does not provide for an
exception to a violation of the first paragraph
thereof, nor does it constitute as an element of the
offense charged. Section 83 of RA 337 actually
imposes three restrictions: approval, reportorial,
and ceiling requirements.
 The approval requirement (found in the
first sentence of the first paragraph of the
law) refers to the written approval of the
majority of the banks board of directors
required before bank directors and officers
can in any manner be an obligor for money
borrowed from or loaned by the bank.
Failure to secure the approval renders the
bank director or officer concerned liable for
prosecution and, upon conviction, subjects
him to the penalty provided in the third
sentence of first paragraph of Section 83.
 The reportorial requirement, on the other
hand, mandates that any such approval
should be entered upon the records of the
corporation, and a copy of the entry be
transmitted to the appropriate supervising
department. The reportorial requirement is
addressed to the bank itself, which, upon its
failure to do so, subjects it to quo
warranto proceedings under Section 87 of
RA 337.
 The ceiling requirement under the second
paragraph of Section 83 regulates the
amount of credit accommodations that
banks may extend to their directors or
officers by limiting these to an amount
equivalent to the respective outstanding
deposits and book value of the paid-in
capital contribution in the bank. Again, this
is a requirement directed at the bank.
The prosecution for violation of the first paragraph
of Section 83, does not require an allegation that
the loan exceeded the legal limit. Even if the loan
involved is below the legal limit, a written approval
by the majority of the banks directors is still
required; otherwise, the bank director or officer who
becomes an obligor of the bank is liable. Compliance
with the ceiling requirement does not dispense with
the approval requirement.
The failure to observe the three requirements under
Section 83 paves the way for the prosecution of
three different offenses, each with its own set of
elements. A successful indictment for failing to
comply with the approval requirement will not
necessitate proof that the other two were likewise
not observed.
In the case at bar, it was alleged that GO’s
transactions were without written approval of
the majority of the Board of Directors of the
Orient Bank. Hence, he should be prosecuted for
the crime charged.
Please take note of the three requirements:
1. Approval requirement. It has to be approved
by written approval of the majority of the
bank’s board of directors.
2. Reportorial requirement
3. Ceiling requirement
So just because hindi pa umabot sa ceiling, that does
not mean that you cannot be held liable. Please take
note that this paves the way for the prosecution of
three different offenses, each with its own set of
elements.
SORIANO v. PEOPLE
FACTS
Two separate informations were filed against Hilario
Soriano, one for estafa through falsification of
commercial documents, the other for violation of
section 83 of RA 337.
ISSUE
Whether or not a person can be concurrently held
liable for estafa and violation of DOSRI regulations
for a single act or transaction.
RULING
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
YES. A person can be concurrently held liable for
estafa and violation of DOSRI regulations for a
single act or transaction.
We have examined the two informations against
petitioner and we find that they contain allegations
which, if hypothetically admitted, would establish
the essential elements of the crime of DOSRI
violation and estafa thru falsification of commercial
documents.
Petitioner raises the theory that he could not
possibly be held liable for estafa in concurrence with
the charge for DOSRI violation. According to him,
the DOSRI charge presupposes that he acquired a
loan, which would make the loan proceeds
his own money and which he could neither possibly
misappropriate nor convert to the prejudice of
another, as required by the statutory definition of
estafa. On the other hand, if petitioner did not
acquire any loan, there can be no DOSRI violation to
speak of. Thus, petitioner posits that the two
offenses cannot co-exist. This theory does not
persuade us.
Petitioners theory is based on the false premises
that the loan was extended to him by the bank in
his own name, and that he became the owner of the
loan proceeds. Both premises are wrong.
The bank money (amounting to P8 million)
which came to the possession of petitioner was
money held in trust or administration by him
for the bank, in his fiduciary capacity as the
President of said bank. It is not accurate to say
that petitioner became the owner of the P8
million because it was the proceeds of a
loan. That would have been correct if the
bank knowingly extended the loan to
petitioner himself. But that is not the case
here. According to the information for estafa,
the loan was supposed to be for another
person, a certain Enrico Carlos; petitioner,
through falsification, made it appear that said
Enrico Carlos applied for the loan when in fact
he (Enrico Carlos) did not. Through such
fraudulent device, petitioner obtained the loan
proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner
became the legal owner of the P8
million. Thus, petitioner remained the banks
fiduciary with respect to that money, which
makes it capable of misappropriation or
conversion in his hands.
The next question is whether there can also be, at
the same time, a charge for DOSRI violation in such
a situation wherein the accused bank officer
did not secure a loan in his own name, but was
alleged to have used the name of another person in
order to indirectly secure a loan from the bank. We
answer this in the affirmative. Section 83 of RA 337
reads:
Section 83. No director or officer of any banking
institution shall, either directly or indirectly, for
himself or as the representative or agent of others,
borrow any of the deposits of funds of such
bank, nor shall he become a guarantor, indorser, or
surety for loans from such bank to others, or in any
manner be an obligor for moneys borrowed from the
bank or loaned by it, except with the written
approval of the majority of the directors of the bank,
excluding the director concerned. Any such approval
shall be entered upon the records of the corporation
and a copy of such entry shall be transmitted
forthwith to the Superintendent of Banks. The office
of any director or officer of a bank who violates the
provisions of this section shall immediately become
vacant and the director or officer shall be punished
by imprisonment of not less than one year nor more
than ten years and by a fine of not less than one
thousand nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough
to cover various modes of borrowing. It covers
loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly,
(2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies
even if the director or officer is a mere
guarantor, indorser or surety for someone
else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by it.
The covered transactions are prohibited unless
the approval, reportorial and ceiling
requirements under Section 83 are complied
with.
The prohibition is intended to protect the public,
especially the depositors from the overborrowing of
bank funds by bank officers, directors, stockholders
and related interests, as such overborrowing may
lead to bank failures. It has been said that banking
institutions are not created for the benefit of the
directors [or officers]. While directors have great
powers as directors, they have no special privileges
as individuals. They cannot use the assets of the
bank for their own benefit except as permitted by
law. Stringent restrictions are placed about them so
that when acting both for the bank and for one of
themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature
as essential to safety in the banking business.
A direct borrowing is obviously one that is
made in the name of the DOSRI himself or
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
where the DOSRI is a named party, while
an indirect borrowing includes one that is
made by a third party, but the DOSRI has a
stake in the transaction. The latter type
indirect borrowing applies here. The information
in Criminal Case 238-M-2001 alleges that
petitioner in his capacity as President of Rural
Bank of San Miguel San Ildefonso branch x x x
indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same
has been done by him without the written
consent and approval of the majority of the
board of directors x x x, and which consent
and approval the said accused deliberately
failed to obtain and enter the same upon the
records of said banking institution and to
transmit a copy thereof to the supervising
department of the said bank x x x by using the
name of one depositor Enrico Carlos x x x, the
latter having no knowledge of the said loan,
and once in possession of the said amount of
eight million pesos (P8 million), [petitioner]
converted the same to his own personal use
and benefit.
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as
the benefactor of the indirect loan; and states that
the requirements of the law were not complied with.
It contains all the required elements for a violation
of Section 83, even if petitioner did not secure the
loan in his own name.
The broad interpretation of the prohibition in Section
83 is justified by the fact that it
even expressly covers loans to third parties where
the third parties are aware of the transaction (such
as principals represented by the DOSRI), and where
the DOSRIs interest does not appear to be beneficial
but even burdensome (such as in cases when the
DOSRI acts as a mere guarantor or surety). If the
law finds it necessary to protect the bank and the
banking system in such situations, it will surely be
illogical for it to exclude a case like this where the
DOSRI acted for his own benefit, using the name of
an unsuspecting person. A contrary interpretation
will effectively allow a DOSRI to use dummies to
circumvent the requirements of the law.
So it does not only involve direct bargaining, but also
indirect bargaining.
You read BSP Circular 423 for the regulations on
DOSRI transactions.
Ceiling Requirement
1. Individual
2. Aggregate
3. Individual unsecured
4. Aggregate unsecured
Secured and Unsecured
Secured loan, borrowing or other credit
accommodation shall refer to any loan, or credit
accommodation or portion thereof which is secured by
physical collateral, financial guarantee, or other
instruments, that are enforceable, realizable, and
marketable and meets the standards prescribed.
Unsecured loan, borrowing or other credit
accommodation shall refer to any loan or other credit
accommodation or portion thereof which is not
secured.
Individual Ceilings
The total outstanding loans, other credit
accommodations and guarantees to each of the bank’s
DOSRI shall be limited to an amount equivalent to
their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank.
Unencumbered deposits shall refer to savings, time
and demand deposits, which are not subject to an
assignment or hold-out agreement or any other
encumbrance.
Book value of the paid-in capital contribution shall
mean the proportional amount of the bank’s total
capital accounts (net of such unbooked valuation
reserves and other capital adjustments as may be
required by the Bangko Sentral) as the corresponding
paid-in capital contribution of each of the bank’s
directors, officers, stockholders and their related
interests bear to the total paid-in capital of the bank:
Provided, That as a basis for determining the individual
ceiling, the corresponding book value of the shares of
stock of said directors, officers, stockholders and their
related interests which are he subject of pledge,
assignment or any other encumbrance shall be
deducted therefrom.
If you want to read, may computations for the ceiling,
but I will not ask you to compute that.
Individual Unsecured Ceiling
Unsecured loans, other credit accommodations and
guarantees to each of the bank’s DOSRI shall not
exceed 30% of their respective total loans, other credit
accommodations and guarantees.
Aggregate Ceilings
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Except with the prior approval of the Monetary Board,
the total outstanding loans, other credit
accommodations and guarantees to DOSRI shall not
exceed 15% of the total loan portfolio of the bank or
100% of net worth whichever is lower.
Credit Card Operations
Does the limitations on DOSRI loans include credit
cards? Ano ba ang nature ng credit card? Utang diba.
Pwede mong nakawin. You can be liable for qualified
theft because of credit card charges.
The credit card operations of banks shall not be subject
to these regulations where the credit cardholders are
bank’s DOSRI: Provided, That
(a) the privilege of becoming a credit cardholder is
open to all qualified persons on the basis of
selective criterial which are applied by the bank
to all applicants thereof; and
(b) the bank’s DOSRIs reimburse/pay the bank for
the billed amount in full on or before the
payment due date in the billing or statement of
account, as set by the bank for all other
qualified credit cardholders on availments
made for the same period on their credit cards.
So kung merong overdue, that might be considered in
what is considered as “total credit accommodation.” So
pwede siyang papasok dun pag overdue, because the
bank’s DOSRI should pay in full on or before the
payment due date.
For example, director ng BPI, meron siyang credit card
ng BPI. Is this covered by the total credit
accommodation for purposes of the ceiling? It will only
be covered pag hindi niya nabayaran on due date. So
kung nagbayad siya within the period prescribed, he
will not be covered by the ceiling requirement.
However, the transaction shall be subject to applicable
DOSRI regulations if the bank’s DOSRIs:
(a) fail to reimburse/pay the bank within the
period mentioned herein; or
(b) on the outset, opt for deferred payment
scheme, and the availment is booked by the
bank.
SECTION 36. Restriction on Bank Exposure to
Directors, Officers, Stockholders and Their
Related Interests. — No director or officer of any
bank shall, directly or indirectly, for himself or as
the
representative or agent of others, borrow from such
bank nor shall he become a guarantor, indorser or
surety for loans from such bank to others, or in any
manner be an obligor or incur any contractual
liability
to the bank except with the written approval of the
majority of all the directors of the bank, excluding
the
director concerned: Provided, That such written
approval shall not be required for loans, other credit
accommodations and advances granted to officers
under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered upon
the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate
supervising and examining department of the
Bangko
Sentral.
Dealings of a bank with any of its directors, officers
or stockholders and their related interests
shall be upon terms not less favorable to the bank
than those offered to others.
After due notice to the board of directors of the
bank, the office of any bank director or officer who
violates the provisions of this Section may be
declared vacant and the director or officer shall be
subject
to the penal provisions of the New Central Bank Act.
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.
However, 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 respective unencumbered
deposits and
book value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall
be excluded from such limit: Provided, further, That
loans, credit accommodations and advances to
officers in the form of fringe benefits granted in
accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual
limit.
The Monetary Board shall define the term "related
interests."
The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative
shareholders. (83a)
Section 37. Loans and Other Credit
Accommodations Against Real Estate. - 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. (78a)
Pag may collateral ka na lupa, bakit pinapa-appraise
ng bangko? Bakit yung appraisal ng bangko, ang konti
konti? Bakit pag 100 million yung kanilang appraisal,
ang pinapa-loan sayo ay less than 100 million?
Because under Section 37, loans and other credit
accommodations against real estate shall not exceed
75% of the appraised value of the respective real
estate security, plus 60% of the appraised value of the
insured improvements (so kung may building, 60%),
and such loans may be made to the owner of the real
estate or to his assignees. Please take note that this is
only the limit. So pwedeng babaan ng bangko.
Section 38. Loans And Other Credit
Accommodations on Security of Chattels and
Intangible Properties. - 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, an such loans and
other credit accommodation may be made to the
title-holder of the chattels and intangible properties
or his assignees. (78a)
Please take note that even intangible property could be
made collateral.
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. (75a) 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. (77)
That is why when you try to apply for a loan, meron
yang purpose. This is consistent with the safe and
sound banking practices because the bank will assume
the risk.
A bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank, and in
ascertaining that, he may require the borrower to
submit the corresponding financial statements
submitted for taxation purposes to the BIR. In reality,
you’re earning millions but you submitted to the BIR a
lower amount because you want to evade paying the
taxes. Now here comes the time that you have to loan,
hindi ka tuloy iaapprove sa loan na amount na gusto
mo.
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 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. (76a)
Section 41. Unsecured Loans or Other Credit
Accommodations. - The Monetary Board is hereby
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. (n)
Section 42. Other Security Requirements for Bank
Credits. - The Monetary Board may, by regulation,
prescribe further security requirements to which the
various types of bank credits shall be subject, and,
in accordance with the authority granted to it in
Section 106 of the New Central Bank Act, the Board
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
may by regulation, reduce the maximum ratios
established in Sections 36 and 37 of this Act, or, in
special cases, increase the maximum ratios
established therein. (78)
Section 43. Authority to Prescribe Terms and
Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may,
similarly in accordance with the authority granted to
it in Section 106 of the New Central Bank Act, and
taking into account the requirements of the
economy for the effective utilization of long-term
funds, prescribe the maturities, as well as related
terms and conditions for various types of bank loans
and other credit accommodations. Any change by
the Board in the maximum maturities, as well as
related terms and conditions for various types of
bank loans and other credit accommodations. Any
change by the Board in the maximum maturities
shall apply only to loans and other credit
accommodations made after the date of such action.
The Monetary Board shall regulate the interest
imposed on micro finance borrowers by lending
investors and similar lenders such as, but not
limited to, the unconscionable rates of interest
collected on salary loans and similar credit
accommodations. (78a)
Section 44. Amortization on Loans and Other
Credit Accommodations. - 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. (79a) 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.
(n)
Take note: “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 years.” Pwede mo naman istructure ang loan mo
na magbabayad ka on a later date, but it must not be
later than five years from the date on which the loan
or other credit accommodation is granted. So you have
that maximum deferment of period of payment.
Section 45. Prepayment of Loans and Other Credit
Accommodations. - 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. (80a)
Section 46. Development Assistance Incentives. -
The Bangko Sentral shall provide incentives to banks
which, without government guarantee, extend loans
to finance educational institutions cooperatives,
hospitals and other medical services, socialized or
low-cost housing, local government units and other
activities with social content. (n)
Section 47. Foreclosure of Real Estate Mortgage. -
In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate
which is security for any loan or other credit
accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or
partial payment of his obligation shall have the right
within one year after the sale of the real estate, to
redeem the property by paying the amount due
under the mortgage deed, with interest thereon at
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. However, the purchaser
at the auction sale concerned whether in a judicial
or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property
immediately after the date of the confirmation of the
auction sale and administer the same in accordance
with law. 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 foreclosure
proceeding. Notwithstanding Act 3135, juridical
persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to
redeem the property in accordance with this
provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more
than three (3) months after foreclosure, whichever
is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
expiration. (78a)
Section 48. Renewal or Extension of Loans and
Other Credit Accommodations. - 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. (81)
Section 49. Provisions for Losses and Write-Offs. -
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. (84a)
Section 50. Major Investments. - For the purpose
or enhancing bank supervision, the Monetary Board
shall establish criteria for reviewing major
acquisitions of investments by a bank including
corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder
effective supervision.
Section 51. Ceiling on Investments in Certain
Assets. - Any bank may acquire real estate as shall
be necessary for its own use in the conduct of its
business: Provided, however, That the total
investment in such real estate and improvements
thereof including bank equipment, shall not exceed
fifty percent (50%) of combined capital accounts:
Provided, further, That the equity investment of a
bank in another corporation engaged primarily in
real estate shall be considered as part of the bank's
total investment in real estate, unless otherwise
provided by the Monetary Board. (25a)
Very important. Hindi pwedeng puro na lang real
estate ang hawak na asset ng bangko. That is why in
some instances, they really have to sell real properties.
GOVERNMENT v. EL HOGAR
FACTS
On August 28, 1913, the respondent (El Hogar
Filipino) purchased 1,413 square meters of land at
the corner of Juan Luna Street and the Muelle de la
Industria, in the City of Manila, immediately
adjacent to the building then occupied by the
Hongkong and Shanghai Banking Corporation. At the
time the respondent acquired this lot there stood
upon it a building, then nearly fifty years old, which
was occupied in part by the offices of an importing
firm and in part by warehouses of the same firm.
The material used in the construction was
Guadalupe stone and hewn timber, and the building
contained none of the facilities usually found in a
modern office building.
In purchase of a design which had been formed
prior to the purchase of the property, the directors
of the El Hogar Filipino caused the old building to be
demolished; and they erected thereon a modern
reinforced concrete office building. As at first
constructed the new building was three stories high
in the main, but in 1920, in order to obtain greater
advantage from the use of the land, an additional
story was added to the building, making a structure
of four stories except in one corner where an
additional story was place, making it five stories
high over an area of 117.52 square meters. It is
admitted in the plaintiffs brief that this "noble and
imposing structure" — to use the words of the
Attorney-General — "has greatly improved the
aspect of the banking and commercial district of
Manila and has greatly contributed to the movement
and campaign for the Manila Beautiful." It is also
admitted that the competed building is reasonably
proportionate in value and revenue producing
capacity to the value of the land upon which it
stands. The total outlay of the respondent for the
land and the improvements thereon was P690,000
and at this valuation the property is carried on the
books of the company, while the assessed valuation
of the land and improvements is at P786,478.
Since the new building was completed the
respondent has used about 324 square meters of
floor space for its own offices and has rented the
remainder of the office space in said building,
consisting of about 3,175 square meters, to other
persons and entities. In the second cause of action
of the complaint it is supposed that the acquisition
of this lot, the construction of the new office building
thereon, and the subsequent renting of the same in
great part to third persons, are ultra vires acts on
the part of the corporation, and that the proper
penalty to be enforced against it in this action is that
if dissolution.
Now, the Government filed an action against
respondent on the ground that it violated the
express provision of the Constitution and as well as
the Statutes.
ISSUE:
Whether or not El Hogar violated the express
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
provision under Constitution and the Statute.
HELD
NO. The El Hogar did not violate the express
provision under Constitution and the Statute
The Supreme Court said, the limitation which th
statute imposes is that it shall not own more real
estate than is necessary for the proper conduct of
its business, but it does not attempt to place any
restriction or limitation upon the right of the
corporation or association as to the character of the
building it shall erect on the said real estate; and,
while the Constitution and Statutes provide tht no
corporation shall engage in any business other than
that expressly authorized by its charter, we are of
opinion that, in renting out the unoccupied and
unused portions of the building so erected, the
association could not be said to be engaged in any
other business than that authorized by its charter.
The renting of the unused portions of the building is
a mere incident in the conduct of its real business.
We would not say that a building association might
embark in the business of building houses and
renting or leasing them, but there is quite a
difference in building or renting a house in which to
conduct it own business and leasing the unused
portion thereof for the time being, or until such time
as they may be needed by the association, and in
building for the purpose of renting or leasing them.
The one might properly be said to be the proper
exercise of a power incident to the conduct of its
legitimate business, whereas the other would be a
clear violation of that provision of the statute which
denies to any corporation the right to conduct any
business other than that authorized by its charter.
To hold otherwise would to charge most of the
banking institution, trust companies and other
corporations, such as title guaranty companies, etc.,
doing business in the state, and especially in the
large cities, with violating the law; for it is well-
known that there are few of such institutions that do
not, at times, rent out or lease the unneeded
portions of the building occupied by them as homes.
We do not think that in so doing they are violating
the provisions of the law, but that the renting out of
the unused or unoccupied portions of their buildings
is but an incident in the conduct of their business.
SECTION 52. Acquisition of Real Estate by Way
of Satisfaction of Claims. — Notwithstanding the
limitations of the preceding Section, a bank may
acquire, hold or convey real property under the
following circumstances:
52.1. Such as shall be mortgaged to it in good
faith by way of security for debts;
52.2. Such as shall be conveyed to it in
satisfaction of debts previously contracted in the
course of its dealings; or
52.3. Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure
debts due it.
Any real property acquired or held under the
circumstances enumerated in the above paragraph
shall be disposed of by the bank within a period of
five (5) years or as may be prescribed by the
Monetary Board: Provided, however, That the bank
may, after said period, continue to hold the property
for its own use, subject to the limitations of the
preceding Section. (25a)
This refers to the right of a bank to actually foreclose a
property. Please take note that it has limitations. A
bank may acquire, hold or convey real property under
the following circumstances:
1. Mortgaged to it in good faith by way of security
for debts;
2. Conveyed to it in satisfaction of debts
previously contracted in the course of its dealings.
So pwedeng dacion en pago.
3. Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure
debts due it.
Please take note they are still subject to the ceiling
provided. So any real property acquired or held under
the circumstances enumerated above shall be disposed
of by the bank within a period of five (5) years or
as may be prescribed by the Monetary Board.
Provided that after said period, the bank may continue
to hold the property for its own use, subject to the
limitations of the preceding Section.
Before diba we’ve discussed kung ilang percent lang
yung kayang hawakan ng Bank for real estate. Now,
total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed
fifty percent (50%) because a bank should not
diversify such to be primarily for the purpose of real
estate.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Bakit bawal? To think diba lands appreciate so bakit
hinayaan na may limitations to hold properties? Please
take note that if you invest much of your asset in land
it is not realizable. So you cannot actually meet your
short-term debts. But as against a foreign bank, you
can hold it even after five years provided that you
respect the ceiling.
SECTION 53. Other Banking Services. — In
addition to the operations specifically authorized in
this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types
of securities;
53.3. Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business;
53.4. Upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of investment
management/advisory/consultancy accounts;
and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under
Subsections 53.1, 53.2, 53.3 and 53.4 as depositary
or as an agent. Accordingly, it shall keep the funds,
securities and other effects which it receives duly
separate from the bank's own assets and liabilities.
The Monetary Board may regulate the operations
authorized by this Section in order to ensure that
such operations do not endanger the interests of the
depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the Bangko
Sentral or publicly announces a bank holiday, or in
any manner suspends the payment of its deposit
liabilities continuously for more than thirty (30)
days, the Monetary Board may summarily and
without need for prior hearing close such banking
institution and place it under receivership of the
Philippine Deposit Insurance Corporation. (72a)
These are other banking services:
1. Receive in custody funds, documents and
valuable objects.
What goes into your mind? Mga security deposits,
yung mga gold or diamonds nyo na ayaw nyo istore
sa bahay kasi baka manakaw. So what you do is
deposit them. Most of the banks meron nito. They
will give you a key and meron din silang key.
Usually titles pero mga gold and diamonds dun
talaga yan.
2. Act as financial agent and buy and sell, by
order of and for the account of their
customers, shares, evidences of indebtedness
and all types of securities.
It can actually be a financial agent.
3. Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business.
4. Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts.
Advisory consultancy accounts. So pwede silang
maghandle ng investments BUT as an investment
manager only.
5. Rent out safety deposit boxes.
In case a bank or quasi-bank notifies the Bangko
Sentral or publicly announces a bank holiday, or in any
manner suspends the payment of its deposit liabilities
continuously for more than thirty (30) days, the
Monetary Board may summarily and without need for
prior hearing close such banking institution and place it
under receivership. Correlate this with your provision
under the New Central Bank Act.
 CASE: In Re: Liquidation of Mercantile Bank of
China, Tan Tiong Tick vs American Apothecaries
Co.
In re Liquidation of Mercantile Bank of China.
TAN TIONG TICK, v. AMERICAN APOTHECARIES
CO., ET AL
FACTS:
In the proceedings for the liquidation of the
Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased
to operate on September 19, 1931, his current
account in said bank showed a balance of P9,657.50
in his favor; that on the same date his savings
account in the said bank also showed a balance in
his favor of P20,000 plus interest then due
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
amounting to P194.78; that, on the other hand, he
owed the bank in the amount of P13,262.58, the
amount of the trust receipts which he signed
because of his withdrawal from the bank of certain
merchandise consigned to him without paying the
drafts drawn upon him by the remittors thereof; that
the credits thus described should be set off against
each other according to law, and on such set off
being made it appeared that he was still the creditor
of the bank in the sum of P16,589.70.
And he asked that the court order the Bank
Commissioner to pay him the aforesaid balance and
that the same be declared as a preferred credit. The
claim was referred to the commissioner appointed
by the court, who at the same time acted as referee,
and this officer recommended that the balance
claimed be paid without interest and as an ordinary
credit. The court approved the recommendation and
entered judgment in accordance therewith. The
claimant took an appeal.
"RECOMMENDATION OF THE COMMISSIONER”
"Having established the existence of such deposits
in the name of Tan Tiong Tick and the latter having
recognized the obligation in favor of the bank
alleged by the Bank Commissioner, for the security
of which he constituted the savings deposit in the
amount of P20,000, it is recommended that from
this amount there be deducted the amount of the
obligation of P13,778.90 which the claimant
acknowledges in favor of the Mercantile Bank of
China, and that the difference, plus the other
current account deposit of P7,390.11, be considered
as ordinary credits subject to the equal division of
the funds of the said bank.
"As to the interest on said deposits also claimed by
Mr. Tan Tiong Tick, the rejection thereof is
recommended in view of the fact that the Bank
Commissioner has not credited any interest to the
current and savings accounts of the Mercantile Bank
of China, and it would be unfair that interest, not
credited to the others, be allowed to this claimant."
ISSUE
Whether or not the current account and savings
deposit are not preferred credits.
HELD
YES. The current account and savings deposit are
not preferred credits.
Revolving the claims under the first group of the
report of the commissioner, the court rejected the
recommendation of this official to the effect that
they be declared ordinary credits only, and approved
them as preferred credits. However, in considering
the other claims, among them that of the appellant,
classified under the fifth group, the court approved
the recommendation of the commissioner that they
be declared ordinary credits; in other words, the
court considered and declared the claim of the
appellant as an ordinary credit just because the
latter is at the same time a debtor of the bank,
notwithstanding the fact that his claim is of the
same kind as those classified under the first group,
inasmuch as they are also current account and
savings deposits.
But we are of the opinion, for the reason
presently to be stated, that current account
and savings deposits are not preferred credits
in the cases, like the present, involving the
insolvency and liquidation of a bank, where
there are various creditors and it becomes
necessary to ascertain the preference of
various credits.
In our opinion, these deposits are essentially
mercantile contracts and should, therefore, be
governed by the provisions of the Code of
Commerce.
The Code of Commerce contains express provisions
regulating deposits of the nature under
consideration, and they are articles 303 to 310. The
first and the second to the last of the said articles
are as follows:
"ART. 303. In order that a deposit may be
considered commercial, it is necessary —
"1. That the depositary, at least, be a merchant.
"2. That the things deposited be commercial
objects.
"3. That the deposit constitute in itself a commercial
transaction, or be made by reason or as a
consequence of commercial transactions."
"ART. 309. Whenever, with the consent of the
depositor, the depositary disposes of the articles on
deposit either for himself or for his business, or for
transactions intrusted to him by the former, the
rights and obligations of the depositary and of the
depositor shall cease, and the rules and provisions
applicable to the commercial loans, commission, or
contract which took the place of the deposit shall be
observed."
In accordance with article 309, the so-called
current account and savings deposits have lost
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
the character of deposits properly so-called,
and are converted into simple commercial
loans, because the bank disposed of the funds
deposited by the claimant for its ordinary
transactions and for the banking business in
which it was engaged. That the bank had the
authority of the claimant to make use of the
money deposited on current and savings
accounts is deducible from the fact that the
bank has been paying interest on both
deposits, and the claimant himself asks that he
be allowed interest up to the time when the
bank ceased its operations.
Sir: In your knowledge of Preference of Credits under
CredTrans, is credit deposit among the preferred
credits? Where can you find Preference of Credits?
What kind of contract are deposits?
*sir did not answer his questions
So you have to be familiar with your preference of
credits. Kahit yung preference lang. Ang nuances lang
naman dun is the labor and then the taxes, what kind
of taxes are preferred because not all taxes are
preferred. So you have to consider that.
 CASE: Sesbreno vs CA
RAUL SESBREÑO vs. HON. COURT OF APPEALS,
DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.
FACTS
Petitioner Raul Sesbreño made a money market
placement in the amount of P300,000.00 with the
Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a
term of thirty-two (32) days, would mature on 13
March 1981.
Petitioner sought to encash the postdated checks
issued by Philfinance. However, the checks were
dishonored for having been drawn against
insufficient funds. Thereafter, Philfinance delivered
to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas").
Petitioner approached Ms. Elizabeth de Villa of
private respondent Pilipinas, Makati Branch, and
handed her a demand letter informing the bank that
his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid
and outstanding, and that he in effect was asking for
the physical delivery of the underlying promissory
note. Petitioner then examined the original of the
DMC PN No. 2731 and found: that the security had
been issued on 10 April 1980; that it would mature
on 6 April 1981; that it had a face value of
P2,300,833.33, with the Philfinance as "payee" and
private respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of the
promissory note was stamped "NON NEGOTIABLE."
Pilipinas did not deliver the Note, nor any certificate
of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters asking
private respondent Pilipinas for physical delivery of
the original of DMC PN No. 2731. Pilipinas allegedly
referred all of petitioner's demand letters to
Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship
Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate
instructions; Pilipinas never released DMC PN No.
2731, nor any other instrument in respect thereof,
to petitioner.
Petitioner also made a written demand upon private
respondent Delta for the partial satisfaction of DMC
PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent
of P307,933.33. Delta, however, denied any liability
to petitioner on the promissory note, and explained
in turn that it had previously agreed with Philfinance
to offset its DMC PN No. 2731 (along with DMC PN
No. 2730) against Philfinance PN No. 143-A issued
in favor of Delta.
In the meantime, Philfinance was placed under the
joint management of the Securities and exchange
commission ("SEC") and the Central Bank. Pilipinas
delivered to the SEC DMC PN No. 2731, which to
date apparently remains in the custody of the SEC.
As petitioner had failed to collect his investment and
interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court
("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.
ISSUE
Whether or not Sesbreno is entitled to demand
physical delivery of the Note held by Pilipinas.
HELD
YES. Sesbreno is entitled to demand physical
delivery of the Note held by Pilipinas.
The Supreme Court said, We believe and so hold
that a contract of deposit was constituted by
the act of Philfinance in designating Pilipinas
as custodian or depositary bank.
The depositor was initially Philfinance; the obligation
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
of the depository was owed, however, to petitioner
Sesbreño as beneficiary of the custodianship or
depository agreement. We do not consider that this
is a simple case of a stipulation pour autri.
The custodianship or depositary agreement
was established as an integral part of the
money market transaction entered into by
petitioner with Philfinance.
Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note
with Pilipinas in order that the thing sold would be
placed outside the control of the vendor. Indeed,
the constituting of the depositary or
custodianship agreement was equivalent to
constructive delivery of the Note (to the extent
it had been sold or assigned to petitioner) to
petitioner.
It will be seen that custodianship agreements are
designed to facilitate transactions in the money
market by providing a basis for confidence on the
part of the investors or placers that the instruments
bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely
beyond their reach, that those instruments will be
there available to the placers of funds should they
have need of them. The depositary in a contract
of deposit is obliged to return the security or
the thing deposited upon demand of the
depositor (or, in the presented case, of the
beneficiary) of the contract, even though a
term for such return may have been
established in the said contract.
Accordingly, any stipulation in the contract of
deposit or custodianship that runs counter to the
fundamental purpose of that agreement or which
was not brought to the notice of and accepted by
the placer-beneficiary, cannot be enforced as
against such beneficiary-placer.
We believe that the position taken above is
supported by considerations of public policy. If
there is any party that needs the equalizing
protection of the law in money market transactions,
it is the members of the general public whom place
their savings in such market for the purpose of
generating interest revenues. The custodian bank, if
it is not related either in terms of equity ownership
or management control to the borrower of the
funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or
dealer (here, Philfinance). The custodian bank would
have every incentive to protect the interest of its
client the borrower or dealer as against the placer of
funds. The providers of such funds must be
safeguarded from the impact of stipulations
privately made between the borrowers or dealers
and the custodian banks,and disclosed to fund-
providers only after trouble has erupted.
In the case at bar, the custodian-depositary
bank Pilipinas refused to deliver the security
deposited with it when petitioner first
demanded physical delivery thereof on 2 April
1981. We must again note, in this connection, that
on 2 April 1981, DMC PN No. 2731 had not yet
matured and therefore, compensation or offsetting
against Philfinance PN No. 143-A had not yet taken
place.
Instead of complying with the demand of the
petitioner, Pilipinas purported to require and
await the instructions of Philfinance, in
obvious contravention of its undertaking under
the DCR to effect physical delivery of the Note
upon receipt of "written instructions" from
petitioner Sesbreño. The ostensible term
written into the DCR (i.e., "should this [DCR]
remain outstanding in your favor thirty [30] days
after its maturity") was not a defense against
petitioner's demand for physical surrender of the
Note on at least three grounds:
firstly, such term was never brought to the
attention of petitioner Sesbreño at the time the
money market placement with Philfinance was
made;
secondly, such term runs counter to the very
purpose of the custodianship or depositary
agreement as an integral part of a money
market transaction; and
thirdly, it is inconsistent with the provisions of
Article 1988 of the Civil Code noted above.
Indeed, in principle, petitioner became entitled
to demand physical delivery of the Note held
by Pilipinas as soon as petitioner's money
market placement matured on 13 March 1981
without payment from Philfinance.
Sir: Why didn’t Pilipinas Bank heed such demand?
What was its contention?
S: Pilipinas allegedly referred all of petitioner's demand
letters to Philfinance for written instructions, as has
been supposedly agreed upon in "Securities
Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate
instructions therefore Pilipinas never released DMC PN
No. 2731, nor any other instrument in respect thereof,
to Sesbreno.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Sir: How did the Supreme Court appreciate that
argument?
S: That contention that Pilipinas Bank made was not a
defense against Sesbreno's demand for physical
surrender of the Note on at least three grounds:
firstly, such term was never brought to the attention of
Sesbreño at the time the money market placement
with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money
market transaction; and thirdly, it is inconsistent with
the provisions of Article 1988 of the Civil Code.
Therefore, Sesbreno became entitled to demand
physical delivery of the Note held by Pilipinas as soon
as Sesbreno's money market placement matured on
13 March 1981.
Sir: So in other words, even if they have agreed
otherwise, it must be in accordance with the law.
That’s the main difference between a common law and
a civil law jurisdiction. Pag common law you can
actually agree at anything, pag civil law you have to
follow certain codal provisions.
 CASE: Philippine Commercial International Bank vs
CA
PCIB v CA
FACTS
Ford Philippines drew and issued Citibank Check. No.
SN 04867 on October 19, 1977, Citibank Check No.
SN 10597 on July 19, 1978 and Citibank Check No.
SN-16508 on April 20, 1979, all in favor of the
Commissioner of Internal Revenue (CIR) for
payment of its percentage taxes.
The checks were crossed and deposited with the
IBAA, now PCIB, BIR's authorized collecting bank.
The first check was cleared containing an
indorsement that "all prior indorsements and/or lack
of indorsements guaranteed." The same, however,
was replaced with two (2) IBAA's managers' checks
based on a call and letter request made by
Godofredo Rivera, Ford's General Ledger
Accountant, on an alleged error in the computation
of the tax due without IBAA verifying the authority
of Rivera. These manager's checks were later
deposited in another bank and misappropriated by
the syndicate.
The last two checks were cleared by the Citibank but
failed to discover that the clearing stamps do not
bear any initials. The proceeds of the checks were
also illegally diverted or switched by officers of PCIB
— members of the syndicate, who eventually
encashed them. Ford, which was compelled to pay
anew the percentage taxes, sued in two actions for
collection against the two banks on January 20,
1983, barely six years from the date the first check
was returned to the drawer. The direct perpetrators
of the crime are now fugitives from justice.
ISSUE
Whether or not the bank acting as collecting agent is
duty bound to consult its principal regarding
unwarranted instructions given by the payor or its
agent.
RULING
YES. The bank acting as collecting agent is duty
bound to consult its principal regarding unwarranted
instructions given by the payor or its agent.
In this case, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its
agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check
was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting
bank of BIR, it has the responsibility to
make sure that the check in question is
deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check),
defendant IBAA should receive instructions only
from its principal BIR and not from any other person
especially so when that person is not known to the
defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone
call of one (Godofredo Rivera and in his signature to
the authenticity of such signature considering that
the plaintiff is not a client of the defendant IBAA.
It is a well-settled rule that the relationship between
the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the
absence of an agreement to the contrary, that of
principal and agent.22 A bank which receives such
paper for collection is the agent of the payee or
holder.
Even considering arguendo, that the diversion of the
amount of a check payable to the collecting bank in
behalf of the designated payee may be allowed, still
such diversion must be properly authorized by the
payor. Otherwise stated, the diversion can be
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
justified only by proof of authority from the drawer,
or that the drawer has clothed his agent with
apparent authority to receive the proceeds of such
check.
Sir: What’s the role of the bank here? Diba yung bank
ang taga-collect diba? So in relation to our topic, this
case is related to your 53.3. Make collections and
payments for the account of others and perform such
other services for their customers as are not
incompatible with banking business. So ang nangyari
dito, may pagkakamali ang bank. So ang sabi ng
court?
S: …
Sir: So in performing other banking functions or other
banking services, the bank must always still exercise?
S: Diligence sir.
Sir: Ordinary diligence?
Answer from full text: “Banking business is so
impressed with public interest where the trust and
confidence of the public in general is of paramount
importance such that the appropriate standard of
diligence must be very high, if not the highest,
degree of diligence. A bank's liability as obligor is not
merely vicarious but primary, wherein the defense of
exercise of due diligence in the selection and
supervision of its employees is of no moment.”
 CASE: CA Agro-Industrial Development
Corporation vs CA
CA-Agro Industrial Devt Corp vs CA
FACTS
On July 3, 1979, petitioner (through its President-
Sergio Aguirre) and the Spouses Ramon and Paula
Pugao entered into an agreement whereby the
former purchase two parcel of lands from the latter.
It was paid of downpayment while the balance was
covered by there postdated checks. Among the
terms and conditions embodied in the agreement
were the titles shall be transferred to the petitioner
upon full payment of the price and the owner's
copies of the certificate of titles shall be deposited in
a safety deposit box of any bank. Petitioner and the
Pugaos then rented Safety Deposit box of private
respondent Security Bank and Trust Company.
Thereafter, a certain Margarita Ramos offered to buy
from the petitioner. Mrs Ramos demand the
execution of a deed of sale which necessarily
entailed the production of the certificate of titles. In
view thereof, Aguirre, accompanied by the Pugaos,
then proceed to the respondent Bank to open the
safety deposit box and get the certificate of titles.
However, when opened in the presence of the
Bank's representative, the box yielded no such
certificate. Because of the delay in the reconstitution
of the title, Mrs Ramos withdrew her earlier offer to
purchase.
Hence this petition.
ISSUE
Whether or not the contract of rent between a
commercial bank and another party for the use of
safety deposit box can be considered alike to a
lessor-lessee relationship.
RULING
NO. The contract of rent between a commercial
bank and another party for the use of safety deposit
box cannot be considered alike to a lessor-lessee
relationship
The petitioner is correct in making the contention
that the contract for the rent of the deposit box is
not a ordinary contract of lease as defined in Article
1643 of the Civil Code. However, the Court do not
really subscribe to its view that the same is a
contract of deposit that is to be strictly governed by
the provisions in Civil Code on Deposit; the contract
in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and
absolute possession and control of the safety deposit
box was not given to the joint renters- the petitioner
and the Pugaos. The guard key of the box remained
with the respondent bank; without this key, neither
of the renters could open the box.
On the other hand, the respondent bank could not
likewise opt The prevailing rule in American
Jurisprudence is that the relation between a bank
renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bailor
and bailee, the bailment being for hire and mutual
benefit. While, in the context of our laws,
particularly Section 72(a) of the General Banking Act
(now Section 52) which authorizes banking
institutions to rent out safety deposit boxes, it is
clear that the prevailing rule in the United States
has been adopted.
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions
other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit boxes for
the safeguarding of such effects.
xxx xxx xxx
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The banks shall perform the services permitted
under subsections (a), (b) and (c) of this section as
depositories or as agents. . . .
Nevertheless, the primary function is still found
within the parameters of a contract of deposit, and,
in relation to Article 1306 of the Civil Code, the
parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.
Thus, the depositary's responsibility for the
safekeeping of the objects deposited in this case is
governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of
the agreement, and in the absence of any stipulation
prescribing the degree of diligence required, that of
a good father of a family is to be observed.
Corollary, any stipulation exempting the depositary
from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay
would be void for being contrary to law and public
policy.
Furthermore, it is not correct to assert that the Bank
has neither the possession nor control of the
contents of the box since in fact; the safety deposit
box itself is located in its premises and is under its
absolute control. Moreover, the Bank keeps the
guard key to the said box and renters cannot open
their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly
then, to the extent above stated, conditions 13 and
14 in the contract in question are void and
ineffective.
Sir: Why is it not characterized as a contract of lease?
What’s peculiar about this safety deposit box vis-à-vis
lease?
S: Because in a safety deposit box sir, the contents
and the box are placed in the custody of the bank sir.
Sir: So the possession is not actually transferred.
When you lease something the possession is usually
transferred.
So here, just take note of the nature of a contract of
safety deposit box.
SECTION 54. Prohibition to Act as Insurer. — A
bank shall not directly engage in insurance business
as the insurer. (73)
Very important, a bank is not authorized to directly
engage in insurance business as the insurer. Take note
that what is prohibited is the direct engagement in
insurance business as the insurer.
Why are banks prohibited from entering into insurance
business?
Kasi in insurance you are actually managing risks, you
are distributing the risk. So it’s very risky for a bank to
enter into insurance business because banks
remember are paying, they are accepting deposits and
they are relending it. Whereas in insurance, accepts
premium payments and then redistribute the risk, and
the happening of the event where the liability of
payment occurs, saka sila magbabayad. So walang
ganun na aspect when it comes to banking.
*chikka on Bar Exam re: insurable interest questions
SECTION 55. Prohibited Transactions. —
55.1. No director, officer, employee, or agent of any
bank shall —
(a) Make false entries in any bank report or
statement or participate in any fraudulent
transaction, thereby affecting the financial
interest of, or causing damage to, the bank or
any person;
(b) Without order of a court of competent
jurisdiction, disclose to any unauthorized person
any information relative to the funds or
properties in the custody of the bank belonging
to private individuals, corporations, or any other
entity: Provided, That with respect to bank
deposits, the provisions of existing laws shall
prevail;
(c) Accept gifts, fees or commissions or any
other form of remuneration in connection with
the approval of a loan or other credit
accommodation from said bank;
(d) Overvalue or aid in overvaluing any security
for the purpose of influencing in any way the
actions of the bank or any bank; or
(e) Outsource inherent banking functions.
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;
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
(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.
55.3. No examiner, officer or employee of the
Bangko Sentral or of any department, bureau,
office, branch or agency of the Government that is
assigned to supervise, examine, assist or render
technical assistance to any bank shall commit any of
the acts enumerated in this Section or aid in the
commission of the same. (87-Aa)
The making of false reports or misrepresentation or
suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud
and shall be subject to the administrative and
criminal sanctions provided under the New Central
Bank Act.
55.4. Consistent with the provisions of Republic Act
No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits.
Very important prohibited transaction:
(e) Outsource inherent banking functions.
Correlate this with your labor discussion on banking
functions. There is actually a circular
“Statement of Principle on Outsourcing” (BSP Circular
No. 899).
This is the principle of the central bank act, bawal mag
outsource. Eh ang mahal maghire ng tao. So what is
this statement of principle on outsourcing?
“A bank may outsource to third parties or to
related companies in the group, in accordance with
existing BSP regulations, certain services or
activities to have access to certain areas of
expertise or to address resource constraints,
Provided, That it has in place appropriate
processes, procedures, and information system
that can adequately identify, monitor, and mitigate
operational risks arising from the outsourced
activities. Provided further, that the bank’s board
of directors and senior management shall remain
responsible for ensuring that outsourced activities
are conducted in a safe and sound manner and in
compliance with applicable laws, rules and
regulations.”
So it’s a highly regulated industry so that’s why it is
prohibited for you to outsource human resource kasi
nga there’s operational risk, the risk of leaking
information which is very material to the bank.
CHANYEE, KAYE
JAN 30, 2019
(e) Outsource inherent banking functions
Take note what is prohibited is inherent banking
functions.
What are inherent banking functions?
1. Taking of deposits from the public
2. Granting of loans and other credits exposures
(yung mga loan officers)
3. Managing of risk exposures and general
banking
So this is circular dated January 10, 2017 so this is
fairly recent. So those are what we call inherent
banking functions. You can outsource these banking
functions.
Only those banks with “Camels” (lol). Ano ba tong
Camels?
C-Capital Adequacy
A-Assets
M-Management Capability
E-Earnings
L-Liquidity
S-Sensitivity
This is actually an international banking standard.
Kung i-aaudit ka within the National Banking
Community, maglalagay sila sayo ng rating based on
the CAMELs. CAMELs ito yung criteria for judging. If
you have at least 3, and the xxx(inaudible) lower than
3, you are allowed to outsource designated activities
without prior BSP approval.
So even if hindi ka inherent banking function, you still
need a BSP approval. But if you are a Camel or xxx not
lower than 3, you can outsource non-inherent banking
functions without BSP approval.
Saan ka maghihingi? Specifically sa appropriate
department of the SES. Remember the SES? The
Supervision and Examining Sector. Diba we discussed
the different Sectors of the BSP?
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

security for a loan or other credit accommodation Bank Act.

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;
Ito naman, this pertains to the BSP in examining. So
we are done talking about the officers of the bank. We
are done talking about the borrower, now we are
talking of the officer examining of the BSP.

(c) Attempt to defraud the said bank in the event of

55.4. Consistent with the provisions of Republic Act
a court action to recover a loan or other credit
No. 1405, otherwise known as the Banks Secrecy
accommodation; or
Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in
(d) Offer any director, officer, employee or agent of
the conduct of its business involving bank deposits.
a bank any gift, fee, commission, or any other form
of compensation in order to influence such persons
SECTION 56. Conducting Business in an Unsafe or
into approving a loan or other credit accommodation
Unsound Manner. — In determining whether a
application.
particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting
banks, quasi-banks or trust entities, may be deemed
Ito naman we are referring to the prohibition of the
as conducting business in an unsafe or unsound
borrower. Kanina we were referring to the prohibition
manner for purposes of this Section, the Monetary
of the officer. Ito yung sa bank. Ito naman, dun sa
Board shall consider any of the following
borrower. Meaning yung public.
circumstances:
(a) Fraudulently overvalue property offered as
56.1. The act or omission has resulted or may result
security for a loan or other credit accommodation
in material loss or damage, or abnormal risk or
from the bank;
danger to the safety, stability, liquidity or solvency
of the institution;
So if you fraudulently overvalue tapos ibanko naman
or aid in overvaluing, both of you will be liable.
56.2. The act or omission has resulted or may result
in material loss or damage or abnormal risk to the
(d) Offer any director, officer, employee or agent
institution's depositors, creditors, investors,
of a bank any gift, fee, commission, or any other
stockholders or to the Bangko Sentral or to the
form of compensation in order to influence such
public in general;
persons into approving a loan or other credit
accommodation application.
56.3. The act or omission has caused any undue
injury, or has given any unwarranted benefits,
Please take note na dito, accept gifts, you are liable.
advantage or preference to the bank or any party in
Eto, the fact of offering makes you liable. So question,
the discharge by the director or officer of his duties
kung magpadungog sa officer? Can you make that
and responsibilities through manifest partiality,
officer liable? Magpadungog lang sya.
evident bad faith or gross inexcusable negligence; or
So what will you do? Hindi ka talaga magsalita. Kasi
56.4. The act or omission involves entering into any
pagmagsalita ka, offer nay yun. Haha
contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust
55.3. No examiner, officer or employee of the
entity, whether or not the director or officer profited
Bangko Sentral or of any department, bureau,
or will profit thereby.
office, branch or agency of the Government that is
assigned to supervise, examine, assist or render
Whenever a bank, quasi-bank or trust entity persists
technical assistance to any bank shall commit any of
in conducting its business in an unsafe or unsound
the acts enumerated in this Section or aid in the
manner, the Monetary Board may, without prejudice
commission of the same. (87-Aa).
to the administrative sanctions provided in Section
37 of the New Central Bank Act, take action under
The making of false reports or misrepresentation or
Section 30 of the same Act and/or immediately
suppression of material facts by personnel of the
exclude the erring bank from clearing, the provisions
Bangko Sentral ng Pilipinas shall constitute fraud
of law to the contrary notwithstanding. (n).
and shall be subject to the administrative and
criminal sanctions provided under the New Central
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

These are actually what are deemed to be an consecutive days; or

unsound/unsafe banking practice.
56.1. The act or omission has resulted or may
result in material loss or damage, or abnormal
risk or danger to the safety, stability, liquidity or
solvency of the institution;
Syempre mahirap talaga to.
57.3 It does not comply with the liquidity
standards/ratios prescribed by the Bangko Sentral
for purposes of determining funds available for
dividend declaration; or
57.4 It has committed a major violation as may be
determined by the Bangko Sentral. (84a)

56.2. The act or omission has resulted or may

result in material loss or damage or abnormal
Ano yung liquidity ratio?
risk to the institution's depositors, creditors,
A: this is actually the ratio of your liquid assets to your
investors, stockholders or to the Bangko Sentral
liabilities. Dapat iniinsure nila that the bank is liquid.
or to the public in general;
Kung may magwithdraw jan na depositor mamaya or
tomorrow, it can easily pay off kay liquid sya. Marami
So again, when you talk about unsound banking
syang tubig (haha). Liquid.
practice, there’s actually no guidelines. These are just
principles.
56.3. The act or omission has caused any undue
SECTION 58. Independent Auditor. —
injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party
The Monetary Board may require a bank, quasi-bank
in the discharge by the director or officer of his
or trust entity to engage the services of an
duties and responsibilities through manifest
independent auditor to be chosen by the bank,
partiality, evident bad faith or gross inexcusable
quasi-bank or trust entity concerned from a list of
negligence; or
certified public accountants acceptable to the
Monetary Board.
Sounds familiar? Saan nyo nabasa yan?
The term of the engagement shall be as prescribed
A: anti-graft and practices law? Haha
by the Monetary Board which may either be on a
continuing basis where the auditor shall act as
56.4. The act or omission involves entering into
resident examiner, or on the basis of special
any contract or transaction manifestly and
engagements, but in any case, the independent
grossly disadvantageous to the bank, quasi-bank
auditor shall be responsible to the bank's, quasi-
or trust entity, whether or not the director or
bank's or trust entity's board of directors.
officer profited or will profit thereby.
A copy of the report shall be furnished to the
So you can see how regulated banking industry is.
Monetary Board. The Monetary Board may also
Even the dividend declaration, you cannot just declare
direct the board of directors of a bank, quasi-bank,
dividends. Again, a bank is still a corporation. So as a
trusty entity and/or the individual members thereof,
corporation, as an incident of being a corporation, they
to conduct, either personally or by a committee
can actually distribute dividends. So because it’s
created by the board, an annual balance sheet audit
banking, it is prohibited from declaring dividends in the
of the bank, quasi-bank or trust entity to review the
following circumstances.
internal audit and control system of the bank, quasi-
bank or trust entity and to submit a report of such
Sec 57 of General Banking Act
audit. (6-Da)
SECTION 57. Prohibition on Dividend Declaration. —
No bank or quasi-bank shall declare dividends
“from a list of certified public accountants
greater than its accumulated net profits then on
acceptable to the Monetary Board”
hand, deducting therefrom its losses and bad debts.
Neither shall the bank nor quasi-bank declare
So not just any CPA, it must be accepted by the MB.
dividends, if at the time of declaration:
Ito very important:
57.1 Its clearing account with the Bangko Sentral is
SECTION 59. Authority to Regulate Electronic
overdrawn; or
Transactions. —
57.2 It is deficient in the required liquidity floor for
The Bangko Sentral shall have full authority to
government deposits for five (5) or more
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
regulate the use of electronic devices, such as
computers, and processes for recording, storing and
transmitting information or data in connection with
the operations of a bank, quasibank or trust entity,
including the delivery of services and products to
customers by such entity. (n)
So yung mga incoming transactions, that is actually
regulated by the BSP.
SECTION 60. Financial Statements. —
Every bank, quasi-bank or trust entity shall submit
to the appropriate supervising and examining
department of the Bangko Sentral financial
statements in such form and frequency as may be
prescribed by the Bangko Sentral. Such statements,
which shall be as of a specific date designated by
the Bangko Sentral, shall show the actual financial
condition of the institution submitting the statement,
and of its branches, offices, subsidiaries and
affiliates, including the results of its operations, and
shall contain such information as may be required in
Bangko Sentral regulations. (n)
SECTION 61. Publication of Financial
Statements. —
Every bank, quasi-bank or trust entity, shall publish
a statement of its financial condition, including those
of its subsidiaries and affiliates, in such terms
understandable to the layman and in such frequency
as may be prescribed by the Bangko Sentral, in
English or Filipino, at least once every quarter in a
newspaper of general circulation in the city or
province where the principal office, in the case of a
domestic institution, or the principal branch or office
in the case of a foreign bank, is located, but if no
newspaper is published in the same province, then
in a
newspaper published in Metro Manila or in the
nearest city or province.
The Bangko Sentral may by regulation prescribe the
newspaper where the statements prescribed herein
shall be published.
The Monetary Board may allow the posting of the
financial statements of a bank, quasi-bank or trust
entity in public places it may determine, in lieu of
the publication required in the preceding paragraph,
when warranted by the circumstances.
Additionally, banks shall make available to the public
in such form and manner as the Bangko Sentral may
prescribe the complete set of its audited financial
statements as well as such other relevant
information including those on enterprises majority-
owned or controlled by the bank, that will inform the
public of the true financial condition of a bank as of
any given time.
In periods of national and/or local emergency or of
imminent panic which directly threaten monetary
and banking stability, the Monetary Board, by a vote
of at least five (5) of its members, in special cases
and upon application of the bank, quasi-bank or
trust entity, may allow such bank, quasibank or
trust entity to defer for a stated period of time the
publication of the statement of financial condition
required herein. (n)
SECTION 62. Publication of Capital Stock. —
A bank, quasi-bank or trust entity incorporated
under the laws of the Philippines shall not publish
the amount of its authorized or subscribed capital
stock without indicating at the same time and with
equal prominence, the amount of its capital actually
paid up.
No branch of any foreign bank doing business in the
Philippines shall in any way announce the amount of
the capital and surplus of its head office, or of the
bank in its entirety without indicating at the same
time and with equal prominence the amount of the
capital, if any, definitely assigned to such branch. In
case no capital has been definitely assigned to such
branch, such fact shall be stated in, and shall form
part of the publication. (82).
SECTION 63. Settlement of Disputes. —
The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be
consulted by other government agencies or
instrumentalities in actions or proceedings initiated
by or brought before them involving controversies in
banks, quasibanks or trust entities arising out of and
involving relations between and among their
directors, officers or stockholders, as well as
disputes between any or all of them and the bank,
quasi-bank or trust entity of which they are
directors, officers or stockholders. (n)
Ito please take note:
SECTION 64. Unauthorized Advertisement or
Business Representation. —
No person, association, or corporation unless duly
authorized to engage in the business of a bank,
quasi-bank, trust entity, or savings and loan
association as defined in this Act, or other banking
laws, shall advertise or hold itself out as being
engaged in the business of such bank, quasi-bank,
trust entity, or association, or use in connection with
its business title, the word or words "bank",
"banking", "banker", "quasi-bank", "quasibanking",
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
"quasi-banker", "savings and loan association",
"trust corporation", "trust company" or words of
similar import or transact in any manner the
business of any such bank, corporation or
association. (6)
Even the name, you cannot use the name bank. You
already know this in your corpo. You cannot use the
term "bank", "banking", "banker", "quasi-bank",
"quasibanking", "quasi-banker", "savings if you are not
actually those kinds of businesses.
What we are trying to prevent here is you appear to be
a bank or quasi-banking or trust entity when in fact
you do not have the authority to be a bank.
Remember the 3 kinds of authority?
1. Authority to operate
2. Xxx
SECTION 65. Service Fees. —
The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the
Monetary Board for supervision, examination and
other services
which it renders under this Act. (n)
SECTION 66. Penalty for Violation of this Act.
— the extent possible to the receivership and
Unless otherwise herein provided, the violation of
any of the provisions of this Act shall be subject to
Sections 34, 35, 36 and 37 of the New Central Bank
Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary
Board may also suspend or remove such director or
officer. If the violation is committed by a
corporation, such corporation may be dissolved by
quo warranto proceedings instituted by the Solicitor
General. (87).
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
SECTION 67. Conservatorship. —
The grounds and procedures for placing a bank
under conservatorship, as well as, the powers and
duties of the conservator appointed for the bank
shall be governed by the provisions of Section 29
and the last two paragraphs of Section 30 of the
New Central Bank Act: Provided, That this Section
shall also apply to conservatorship proceedings of
quasi-banks. (n)
This is in line with your provisions on the new central
bank act.
CHAPTER VI
CESSATION OF BANKING BUSINESS
SECTION 68. Voluntary Liquidation. —
In case of the voluntary liquidation of any bank
organized under the laws of the Philippines, or of
any branch or office in the Philippines of a foreign
bank, written notice of such liquidation shall be sent
to the Monetary Board before such liquidation is
undertaken, and the Monetary Board shall have the
right to intervene and take such steps as may be
necessary to protect the interests of creditors. (86)
If you voluntarily liquidate, please take note, you can
voluntarily liquidate, you should first give a written
notice to the MB before such liquidation.
SECTION 69. Receivership and Involuntary
Liquidation. —
The grounds and procedures for placing a bank
under receivership or liquidation, as well as the
powers and duties of the receiver or liquidator
appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the New
Central Bank Act: Provided, That the petitioner or
plaintiff files with the clerk or judge of the court in
which the action is pending a bond, executed in
favor of the Bangko Sentral, in an amount to be
fixed by the court. This Section shall also apply to
liquidation proceedings of quasi-banks. (n)
This is in relation to your Central bank provisions that
we have already discussed.
SECTION 70. Penalty for Transactions After a
Bank Becomes Insolvent. —
Any director or officer of any bank declared
insolvent or placed under receivership by the
Monetary Board who refuses to turn over the bank's
records and assets to the designated receivers, or
who tampers with banks records, or who
appropriates for himself or another party or destroys
or causes the misappropriation and destruction of
the bank's assets, or who receives or permits or
causes to be received in said bank any deposit,
collection of loans and/or receivables, or who pays
out or permits or causes to be paid out any funds of
said bank, or who transfers or permits or causes to
be transferred any securities or property of said
bank shall be subject to the penal provisions of the
New Central Bank Act. (85a)
So other banking laws, we will discuss these after we
discuss the general banking act.
CHAPTER VIII
FOREIGN BANKS
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
SECTION 72. Transacting Business in the
Philippines. —
The entry of foreign banks in the Philippines through
the establishment of branches shall be governed by
the provisions of the Foreign Banks Liberalization
Act.
The conduct of offshore banking business in the
Philippines shall be governed by the provisions of
the Presidential Decree No. 1034, otherwise known
as the "Offshore Banking System Decree." (14a).
Please take note of the amendment. Remember we
discussed this. Yung foreign equity? The bank can
actually set up a new branch.
What are offshore banking units?
 An offshore banking unit (OBU) is a bank shell
branch, located in another international
financial center (or, in the case of India, a
Special Economic Zone). Offshore banking
units (OBUs) make loans in the Eurocurrency
market, when they accept deposits from
foreign banks and other OBUs.
Diba naintroduce na kayo nito sa tax? Aw huhu
In your tax, what are the implications of your OBU?
Lower income tax? What is the portion that was
amended by the train law?
A: Yes sa employees lang. But provided that theses
OBUs are registered after Jan 1, 2018. So you might
be asked, what if there was an existing OBU? Tapos
the employee was employed subsequently. Let’s say
existing OBU tapos nag employ sila Jan 2, 2018. Kasi
ang nakalagay, what’s the letter of the law? This only
refers to companies registered after Jan 1, 2018. So it
refers to the company registered. So what if the
employee was hired after Jan 1 2018 but to an existing
OBU?
Would it still be under the new amended provision or
to the old preferential treatment? That would be asked.
TRAIN LAW
“(D) Alien Individual Employed by Offshore Banking
Units.— There shall be levied, collected and paid for
each taxable year upon the gross income received
by every alien individual employed by offshore
banking units established in the Philippines as
salaries, wages, annuities, compensation,
remuneration and other emoluments such as
honoraria and allowances, from such offshore
banking units, a tax equal to fifteen percent (15%)
of such gross income: Provided, however, That the
same tax treatment shall apply to Filipinos employed
and occupying the same position as those of aliens
employed by these offshore banking units.
“(E) Alien Individual Employed by Petroleum Service
Contractor and Subcontractor.— An alien individual
who is a permanent resident of a foreign country but
who is employed and assigned in the Philippines by
a foreign service contractor or by a foreign service
subcontractor engaged in petroleum operations in
the Philippines shall be liable to a tax of fifteen
percent (15%) of the salaries, wages, annuities,
compensation, remuneration and other emoluments,
such as honoraria and allowances, received from
such contractor or subcontractor: Provided,
however, That the same tax treatment shall apply to
a Filipino employed and occupying the same position
as an alien employed by petroleum service
contractor and subcontractor.
“Any income earned from all other sources within
the Philippines by the alien employees referred to
under Subsections (C), (D), and (E) hereof shall be
subject to the pertinent income tax, as the case may
be, imposed under this Code.
“(F) The preferential tax treatment provided in
Subsections (C), (D), and (E) of this Section shall
not be applicable to regional headquarters (RHQs),
regional operating headquarters (ROHQs), offshore
banking units (OBUs) or petroleum service
contractors and subcontractors registering with the
Securities and Exchange Commission (SEC) after
January 1, 2018: Provided, however, That existing
RHQs/ROHQs, OBUs or petroleum service
contractors and subcontractors presently availing of
preferential tax rates for qualified employees shall
continue to be entitled to avail of the preferential
tax rate for present and future qualified employees.”
So again what are OBUs? Offshore?
Yung parang dito lang sya sa Pilipinas and they are
catering for foreign clients. That is why it is given
preferential treatment because it gives employment to
the Filipino people and it gives what?
What is the benefit of your OBUs?
A: forex diba? The regulation. Magiging high demand
ang currency.
SECTION 73. Acquisition of Voting Stock in a
Domestic Bank. —
Within seven (7) years from the effectivity of this
Act and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Board may authorize a foreign bank to acquire up to
one hundredpercent (100%) of the voting stock of
only one (1) bank organized under the laws of the
Republic of the Philippines.
Within the same period, the Monetary Board may
authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to
acquire up to sixty percent (60%) of the voting
stock of a bank under the Foreign Banks
Liberalization Act and the Thrift Banks Act, to further
acquire voting shares of such bank to the extent
necessary for it to own one hundred percent (100%)
of the voting stock
thereof.
In the exercise of this authority, the Monetary Board
shall adopt measures as may be necessary to ensure
that at all times the control of seventy percent
(70%) of the resources or assets of the entire
banking system is held by banks which are at least
majority-owned by Filipinos.
Any right, privilege or incentive granted to a foreign
bank under this Section shall be equally enjoyed by
and extended under the same conditions to banks
organized under the laws of the Republic of the
Philippines. (Secs. 2 and 3, RA 7721).
Ah you already know this.
SECTION 74. Local Branches of Foreign Banks.
— head or principal office a copy, duly certified by him,
In the case of a foreign bank which has more than
one (1) branch in the Philippines, all such branches
shall be treated as one (1) unit for the purpose of
this Act, and all references to the Philippine
branches of foreign banks shall be held to refer to
such units. (68)
SECTION 75. Head Office Guarantee. — In order to
provide effective protection of the interests of the
depositors and other creditors of Philippine branches
of a foreign bank, the head office of such branches
shall fully guarantee the prompt payment of all
liabilities of its Philippine branch. (69)
Residents and citizens of the Philippines who are
creditors of a branch in the Philippines of a foreign
bank shall have preferential rights to the assets of
such branch in accordance with existing laws.
(19)
SECTION 76. Summons and Legal Process. —
Summons and legal process served upon the
Philippine agent or head of any foreign bank
designated to accept service thereof shall give
jurisdiction to the courts over such bank, and
service of notices on such agent or head shall be as
binding upon the bank which he represents as if
made upon the bank itself.
Should the authority of such agent or head to accept
service of summons and legal processes for the
bank or notice to it be revoked, or should such
agent or head become mentally incompetent or
otherwise unable to accept service while exercising
such authority, it shall be the duty of the bank to
name and designate promptly another agent or head
upon whom service of summons and processes in
legal proceedings against the bank and of notices
affecting the bank may be made, and to file with the
Securities and Exchange Commission a duly
authenticated nomination of such agent.
In the absence of the agent or head or should there
be no person authorized by the bank upon whom
service of summons, processes and all legal notices
may be made, service of summons, processes and
legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and
examining departments and such service shall be as
effective as if made upon the bank or its duly
authorized agent or head.
In case of service for the bank upon the Bangko
Sentral Deputy Governor In-Charge of the
supervising and examining departments, the said
Deputy Governor shall register and transmit by mail
to the president or the secretary of the bank at its
of the summons, process, or notice.
The sending of such copy of the summons, process,
or notice shall be a
necessary part of the services and shall complete
the service. The registry receipt of mailing shall be
prima facie evidence of the transmission of the
summons, process or notice.
All costs necessarily incurred by the said Deputy
Governor for the making and mailing and sending of
a copy of the summons, process, or notice to the
president or the secretary of the bank at its head or
principal office shall be paid in advance by the party
at whose instance the service is made. (17)
SECTION 77. Laws Applicable. —
In all matters not specifically covered by special
provisions applicable only to a foreign bank or its
branches and other offices in the Philippines, any
foreign bank licensed to do business in the
Philippines shall be bound by the provisions of this
Act, all other laws, rules and regulations applicable
to banks organized under the laws of the Philippines
of the same class, except those that provide for the
creation, formation, organization or dissolution of
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
corporations or for the fixing of the relations,
liabilities, responsibilities, or duties of stockholders,
members, directors or officers of corporations to
each other or to the corporation. (18)
SECTION 78. Revocation of License of a Foreign
Bank. —
The Monetary Board may revoke the license to
transact business in the Philippines of any foreign
bank, if it finds that the foreign bank is insolvent or
in imminent danger thereof or that its continuance
in business will involve probable loss to
those transacting business with it. After the
revocation of its license, it shall be unlawful for any
such foreign bank to transact business in the
Philippines unless its license is renewed or reissued.
After the revocation of such license, the Bangko
Sentral shall take the necessary action to protect
the creditors of such foreign bank and the public.
The provisions of the New Central Bank Act on
sanctions and penalties shall likewise be applicable.
So let’s talk about trust operations. This is what we
call, business trust. Remember when we talked about
trust in your partnership? The trust that we are talking
about here is your business trust.
CHAPTER IX
TRUST OPERATIONS
SECTION 79. Authority to Engage in Trust
Business. —
Only a stock corporation or a person duly authorized
by the Monetary Board to engage in trust business
shall act as a trustee or administer any trust or hold
property in trust or on deposit for the use, benefit,
or behoof of others. For purposes of this Act, such a
corporation shall be referred to as a trust entity.
(56a; 57a)
When you go to US, this is very important. Yung may
mayayaman? They put their money and fund in a trust
entity. Yan yung magmamanage ng fund. But in the
Philippine setting, what is common in the Philippines is
the trust that is related to investments. Yung mga
money-market placements. Wala tayo nung trust na
naririnig nyo sa mga stories abroad.
Diba kung may mayaman abroad, they put their assets
in trust para may makain ang kanilang mga dogs.
Yung mga ganon na kwento. It’s not really explored in
the Philippine jurisdiction coz I don’t know there is
something quite taboo in it.
Statement of principle. So the common principle is all
this is fidelity. So what is common to trust is fidelity.
So without fidelity there is no trust. And without
fidelity, there is no trust. Without trust there is no
partnership. Diba mutual trust? Partnership is based on
mutual trust. So kaylangan may trust and kaylangan
ang trust mutual in partnership.
These are the international principles common to all
trust entities:
1. Prudent administrator
2. Undivided loyalty and utmost care
3. Non-delegation of responsibility
The fact that you are chosen as a trustee, the trustor
has considered your personal circumstances.
SECTION 80. Conduct of Trust Business. —
A trust entity shall administer the funds or property
under its custody with the diligence that a prudent
man would exercise in the conduct of an enterprise
of a like character and with similar aims.
No trust entity shall, for the account of the trustor or
the beneficiary of the trust, purchase or acquire
property from, or sell, transfer, assign or lend
money or property to, or purchase debt instruments
of, any of the departments, directors, officers,
stockholders, or employees of the trust entity,
relatives within the first degree of consanguinity or
affinity, or the related interests, of such directors,
officers and stockholders, unless the transaction is
specifically authorized by the trustor and the
relationship of the trustee and the other party
involved in the transaction is fully disclosed to the
trustor or beneficiary of the trust prior to the
transaction.
The Monetary Board shall promulgate such rules and
regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of
the responsibility herein imposed on a trust entity.
(56)
Because of the above provision, we have the prudent
man rule which is actually very specific to a trust
entity.
This is the PRUDENT MAN RULE.
So pagtinanong kayo, what is the prudent man rule?
So this refers to trust.
PRUDENT MAN RULE
 Directs trustees to observe how man of
prudence, discretion, and intelligence manage
their own affairs not in regard to speculation
but in regard to the permanent disposition of
their funds considering the income as well as
the safety of the capital investment.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
So if you try to apply the prudent man rule, you are
not actually managing the affairs for purposes na
kumita sya but for not the purposes of speculation. It
is for the purpose of permanent disposition of funds
considering the income and the safety of the capital.
Kasi pwede ka naming kumita ng malaki but you do
not consider the safety of the capital. Because
remember the principle in finance, the higher the risk,
the higher the return. Pwede mong igamble ang
capital, para malaki ang kita. But that’s not the
prudent man rule. You have to consider the safety of
the capital.
Now this is from an 1830 Massachusetts decision:
John McClean. Si John McClean sobrang mayaman
nyan tapos bago sya namatay, nilagay nya sa will, I
will entrust all my properties to a certain Brothers of
Amory Sabi nya, nilagay nya sa trust that I will entrust
my funds to this Amory and this Amori will manage the
funds for the benefit of a hospital in the Harvard
college. That is why the case is Harvard college v
Amory. So what happened was that namismanage. It
was losing. So walang funds na napunta sa Harvard.
So they sued Mr. Amory saying na he was negligent on
his duty as trustee. He was actually convicted on first
instance but on appeal, sabi ng court no. What is only
required by the trustee is to be prudent.
You cannot make the trustee liable when talaga
naming kinonsider nya ang safety ng capital. And it’s
just that hindi talaga kumita. In other words, there is
no assurance. What is only required by law is to be
prudent. Hindi naman sinabi sa batas na you really
have to earn income. Maging prudent ka lang.
So if you think that a certain investment would earn
but the risk is too high, then wag na.
The Prudent Investor Rule: How It Began
In the 1830s, a now-famous court case was decided
in Massachusetts. Known as Harvard College v.
Amory, it involved a man named John McClean, who
had passed away seven years earlier on October 23,
1823. His heirs were to inherit what was then a
sizable estate, ultimately valued at $228,120. Of
that, $100,800 was invested in manufacturing stock,
$48,000 was invested in insurance company stock,
and $24,700 was invested in bank stock with the
remainder consisting of real estate, personal items,
and cash.
To his wife, Ann McClean, he bequeathed a variety
of chattel, his primary residence, and $35,000
outright. He also left $27,500 worth of financial
gifts to others. On top of this, he bequeathed
$50,000 to Jonathan and Francis Amory, to be held
in trust, with specific instructions that they were to
invest or lend the money, "in safe and productive
stock, either in the public funds, bank shares, or
other stock, according to their best judgment and
discretion." The passive income generated by the
trust fund was to be paid to his wife, Ann, in either
quarterly or semi-annual distributions for her to
maintain her standard of living based on whatever
was most convenient for the trustees.
When Ann McClean died, the trust fund was to be
divided among to charitable beneficiaries. Fifty
percent of the trust assets were to go the President
and Fellow of Harvard College to establish a
professorship of ancient and modern history,
covering the salary of the new position. The other
fifty percent of the trust assets were to be gifted to
the Trustees of the Massachusetts General Hospital
for general charitable purposes.
Over the next few years, what followed was a long
and complicated series of investments, dividends,
distributions paid out as part of an international
treaty with Spain, and a host of other legal
entanglements that left the trust with less value
than it had when was originally established. Then,
in 1928, the surviving trustee, Francis Amory,
tendered his resignation. Harvard College sued the
trustee for the losses, claiming that the money had
been invested in risky operating companies solely to
provide a high income or the widow Ann while
disregarding their interest as a remainder
beneficiary.
The court sided with the trustees for multiple
reasons. When the decision was appealed, and
affirmed, Justice Samuel Putnam famously wrote
what is now known as the prudent man rule, or
prudent investor rule:
All that can be required of a trustee is, that he shall
conduct himself faithfully and exercise a sound
discretion. He is to observe how men of prudence,
discretion and intelligence manage their own affairs,
not in regard to speculation, but in regard to the
permanent disposition of their funds, considering the
probable income as well as the probable safety of
the capital to be invested… Do what you will, the
capital is at hazard.
https://www.thebalance.com/what-is-the-prudent-
man-rule-or-prudent-investor-rule-357258
What is the principle in finance for you to
manage the risk?
A: Diversification
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
So ang nangyayari, you invest, tapos ito mataas yung
risk, invest ka dun sa lower risk para kung kumita ka
ditto, lugi ka don. (vice versa) You diversy your risk.
SECTION 81. Registration of Articles of
Incorporation and By-Laws of a Trust Entity. —
The Securities and Exchange Commission shall not
register the articles of incorporation and by-laws or
any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by
the Bangko Sentral. (n)
SECTION 82. Minimum Capitalization. — A trust
entity, before it can engage in trust or other
fiduciary business, shall comply with the minimum
paid-in capital requirement which will be determined
by the Monetary Board. (n)
What can a trust entity do? We are talking about the
trust entity ha, a separate entity.
SECTION 83. Powers of a Trust Entity. —
A trust entity, in addition to the general powers
incident to corporations, shall have the power to:
83.1. Act as trustee on any mortgage or bond issued
by any municipality, corporation, or any body politic
and to accept and execute any trust consistent with
law;
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or depositary of
the estate of any minor or other incompetent
person, and as receiver and depositary of any
moneys paid into court by parties to any legal
proceedings and of property of any kind which may
be brought under the jurisdiction of the court;
83.3. Act as the executor of any will when it is
named the executor thereof;
83.4. Act as administrator of the estate of any
deceased person, with the will annexed, or as
administrator of the estate of any deceased person
when there is no will;
83.5. Accept and execute any trust for the holding,
management, and administration of any estate, real
or personal, and the rents, issues and profits
thereof; and
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board. (58)
So again, a trust entity is a corporation. So you have
your usual powers of a corporation. So in addition to
that you have the powers above.
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or
depositary of the estate of any minor or other
incompetent person, and as receiver and
depositary of any moneys paid into court by
parties to any legal proceedings and of property
of any kind which may be brought under the
jurisdiction of the court;
Now you have your special proceedings ngayon? You
will encounter trust, guardianship. Just correlate this.
So paano kumikita ang isang trust entity?
A: meron silang administration fee usually in
percentage.
Pag sobrang dami ng trust fund, ayun na. Yung mga
usually nakikita nyo sa mga shows diba. Trust fund
baby. Ang nagmamanage ng property nila is yung
trust. And at the age of 18, makukuha nila ang funds.
Nagmamanage lang trust.
SECTION 84. Deposit for the Faithful
Performance of Trust Duties. —
Before transacting trust business, every trust entity
shall deposit with the Bangko Sentral as security for
the faithful performance of its trust duties, cash or
securities approved by the Monetary Board in an
amount equal to not less than Five hundred
thousand pesos (P500,000.00) or such higher
amount as may be fixed by the
Monetary Board: Provided, however, That the
Monetary Board shall require every trust entity to
increase the amount of its cash or securities on
deposit with the Bangko Sentral whenever in its
judgment such increase is necessary by reason of
the trust business of such entity:
Provided, further, That the paid-in capital and
surplus of such entity must be at least equal to the
amount required to be deposited with the Bangko
Sentral in accordance with the provisions of this
paragraph. Should the capital and surplus fall below
said amount, the Monetary Board shall have the
same authority as that granted to it under the
provisions of the fifth paragraph of Section 34 of this
Act.
A trust entity so long as it shall continue to be
solvent and comply with laws or regulations shall
have the right to collect the interest earned on such
securities deposited with the Bangko Sentral and,
from time to time, with the approval of the Bangko
Sentral, to exchange the securities for others.
If the trust entity fails to comply with any law or
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
regulation, the Bangko Sentral shall retain such
interest on the securities deposited with it for the
benefit of rightful claimants. All claims arising out of
the trust business of a trust entity shall have priority
over all other claims as regards the cash or
securities deposited asabove provided. The
Monetary Board may not permit the cash or
securities deposited in accordance with the
provisions of this Section to be reduced below the
prescribed minimum amount until the
depositingentity shall discontinue its trust business
and shall satisfy the Monetary Board that it has
complied with all
its obligations in connection with such business.
(65a).
So this is what you call a bond. Security for the faithful
performance of its trust duties. Now in your
guardianship meron din bond to ensure that you would
perform your duties.
SECTION 85. Bond of Certain Persons for the
Faithful Performance of Duties. — Before an
executor, administrator, guardian, trustee, receiver
or depositary appointed by the court enters upon
the execution of his duties, he shall, upon order of
the court, file a bond in such sum, as the court may
direct.
Upon the application of any executor, administrator,
guardian, trustee, receiver, depositary or any other
person in interest, the court may, after notice and
hearing, order that the subject matter of the trust or
any part thereof be deposited with a trust entity.
Upon presentation of proof to the court that the
subject matter of the trust has been deposited with
a trust entity, the court may order that the bond
given by such persons for the faithful performance
of their duties be reduced to such sums as it may
deem proper:
Provided, however, That the reduced bond shall be
sufficient to secure adequately the proper
administration and care of any property remaining
under the control of such persons and the proper
accounting for such property.
Property deposited with any trust entity in
conformity with this Section shall be held by such
entity under the orders and direction of the court.
(59)
SECTION 86. Exemption of Trust Entity from
Bond Requirement. —
No bond or other security shall be required by the
court from a trust entity for the faithful performance
of its duties as court appointed trustee, executor,
administrator, guardian, receiver, or depositary.
However, the court may, upon proper application
with it showing special cause therefor, require the
trust entity to post a bond or other security for the
protection of funds or property confided to such
entity. (59)
So if court appointed ka, you are not required to
furnish a bond. Kasi nga inappoint ka na nga tapos
magbond ka pa.
Please take note, very important:
SECTION 87. Separation of Trust Business from
General Business. —
The trust business and all funds, properties or
securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or
depositary shall be kept separate and distinct
from the general business including all other
funds, properties, and assets of such trust entity.
The accounts of all such funds, properties, or
securities shall likewise be kept separate and distinct
from the accounts of the general business of the
trust entity. (61)
So kaylangan may separate accounting.
SECTION 88. Investment Limitations of a Trust
Entity. —
Unless otherwise directed by the instrument creating
the trust, the lending and investment of funds and
other assets acquired by a trust entity as executor,
administrator, guardian, trustee, receiver or
depositary of the estate of any minor or other
incompetent person shall be limited to loans or
investments as may be prescribed by law, the
Monetary Board or any court of competent
jurisdiction. (63a)
SECTION 89. Real Estate Acquired by a Trust
Entity. —
Unless otherwise specifically directed by the trustor
or the nature of the trust, real estate acquired by a
trust entity in whatever manner and for whatever
purpose, shall likewise be governed by the relevant
provisions of Section 52 of this Act. (64a)
SECTION 90. Investment of Non-Trust Funds.
—
The investment of funds other than trust funds of a
trust entity which is a bank, financing company or
an investment house shall be governed by the
relevant provisions of this Act and other applicable
laws. (64)
SECTION 91. Sanctions and Penalties. —
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

A trust entity or any of its officers and directors
found to have willfully violated any pertinent
provisions of this Act, shall be subject to the
sanctions and penalties provided under Section 66 of
this Act as well as Sections 36 and 37 of the New
Central Bank Act. (63)
SECTION 92. Exemption of Trust Assets from
Claims. —
No assets held by a trust entity in its capacity as
trustee shall be subject to any claims other than
those of the parties interested in the specific trusts.
(65)
Can the trust entity establish branches?
SECTION 93. Establishment of Branches of a
Trust Entity. —
The ordinary business of a trust entity shall be
transacted at the place of business specified in its
articles of incorporation. Such trust entity may, with
prior approval of the Monetary Board, establish
branches in the Philippines, and the said entity shall
be responsible for all business conducted in such
branches to the same extent and in the same
manner as though such business had all been
conducted in the head office.
be provided for in Sections 34 and 94 of this Act, the
General Banking Act, as amended, and the
provisions of any other law, special charters, rule or
regulation issued pursuant to said General Banking
Act, as amended, or parts thereof, which may be
inconsistent with the provisions of this Act are
hereby repealed. The provisions of paragraph 8,
Section 8,Republic Act No. 3591, as amended by
Republic Act No. 7400, are likewise repealed. (90a)
SECTION 96. Separability Clause. — If any
provision or section of this Act or the application
thereof to any person or circumstance is held
invalid, the other provisions or sections of this Act,
and the application of such provision or section to
other persons or circumstances, shall not be
affected thereby.
(n)
SECTION 97. Effectivity Clause. — This Act shall
take effect fifteen (15) days following its publication
in the Official Gazette or in two (2) national
newspapers of general circulation. (91)

For the purpose of this Act, the trust entity and its
branches shall be treated as one unit. (67)

CHAPTER X
FINAL PROVISIONS

SECTION 94. Phase Out of Bangko Sentral Powers

Over Building and Loan Associations.
— Within a period of three (3) years from the
effectivity of this Act, the Bangko Sentral shall phase
out and transfer its supervising and regulatory
powers over building and loan associations to the
Home Insurance and Guaranty Corporation which
shall assume the same. Until otherwise provided by
law, building and loan associations shall continue to
be governed by Sections 39 to 55, Chapter VI of the
General Banking Act, as amended, including such
rules and regulations issued pursuant thereto. Upon
assumption by the Home Insurance and Guaranty
Corporation of supervising and regulatory powers
over building and loan associations, all references in
Sections 39 to 55 of the General Banking Act, as
amended, to the Bangko Sentral and the Monetary
Board shall be deemed to refer to the Home
Insurance and Guaranty Corporation and its board of
directors, respectively. (n)

SECTION 95. Repealing Clause. — Except as may