Banking Laws

Mid Term Paper

• Title : On Banco Filipino and the BSP

• Why Banco Filipino failed and what further

reforms can be done to prevent this from
happening again.

• Format : Not less than 10 pages, 1.5 line spacing.

Cambria Font no.14
• DUE : ON MID TERM EXAM DAY
• Email submission: attyguiller@gmail.com
 Importance of Banks
• Indispensable Institution

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 ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, above all, trust and confidence. In this
connection, it is important that banks should guard against injury attributable to negligence
or bad faith on its part. As repeatedly emphasized, since the banking business is impressed
with public interest, the trust and confidence of the public in it is of paramount
importance.

(G.R. No. 170984. January 30, 2009.], SECURITY BANK AND TRUST COMPANY, petitioner, vs.
RIZAL COMMERCIAL BANKING CORPORATION, respondent.

[G.R. No. 170987. January 30, 2009.],RIZAL COMMERCIAL BANKING CORPORATION,

petitioner, vs. SECURITY BANK AND TRUST COMPANY, respondent.
 Banks
 The definition of bank varies from country to
country.

 In common law, Bank- means anyone that carries

on the business of banking.

Business of Banking-means conducting current

accounts for customers, where the amounts are
repayable to the customer’s order, and the person
also either collects cheques payable to the
customer or receives funds from the third parties
to the customer’s current account
Overview of Philippines Financial System

I. Banks
a. Universal Banks
Private Domestic Banks
Government Banks
Branches of Foreign Banks
b. Commercial Banks
Private Domestic Banks
Subsidiaries of Foreign Banks
Branches of Foreign Banks
c. Thrift Banks
d. Rural and Cooperative Banks
II. Non-Bank Financial Institutions
a. With quasi-banking functions
b. Without quasi-banking functions
Non-Stock Savings and Loan Associations
Pawnshops
Others
c. Offshore Banking Units
source : BSP
 Relevant Laws
 General Banking Laws
General Banking Law (RA 8791)
New Central Bank Act (RA 7653)

• Special Banking Laws

Rural Bank Act (RA 7353)
Private Development Banks Act (RA 4093)
Savings and Loan Association Act (RA 3779)
Thrift Banks Act (RA 7906)

• Other Laws affecting banks

Secrecy of Bank Deposits (RA 1405)
Unclaimed Balances Law (Act no.3936)
Philippine Deposit Insurance Corporation (RA 3591)
Special Purpose Vehicle Act (RA 9182)
Anti-Money Laundering Act (RA 9160 as amended by RA 9194)
Five Persons primarily interested in the
Banking System
1. Government
2. Depositors
3. Investors
4. Creditors
5. Borrowers
 Declared Policy of the State
• RA 8791, 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.
 Definition of Banks under GBL
• 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)
 Nature of Banking Business
• Debtor-Creditor Relationship
• Fiduciary Duty
• Not a trust agreement
• Indispensable Institution
• Impressed with public interest
• Not expected to be infallible
 Liability of Banks for Acts of Officers
and Employees
• Primary Liability
• Highest Degree of Responsibility
• Respondeat Superior

• Negligence of Manager
• Negligence of Officers
• Negligence of Tellers
• Right to recover from employees
• Liability for Damages
 The New Central Bank Act
• Purpose
• Primary Objective
• Responsibilities and
Functions
• Organizational Structure
 Governance of the Bank
• The Monetary Board exercises the powers and functions of the BSP, such as the conduct of
monetary policy and supervision of the financial system. Its chairman is the BSP Governor,
with five full-time members from the private sector and one member from the Cabinet.

• The Governor is the chief executive officer of the BSP and is required to direct and supervise
the operations and internal administration of the BSP. A deputy governor heads each of the
BSP's operating sector as follows:

Monetary Stability Sector takes charge of the formulation and implementation of the BSP’s
monetary policy, including serving the banking needs of all banks through accepting deposits,
servicing withdrawals and extending credit through the rediscounting facility.

Supervision and Examination Sector enforces and monitors compliance to banking laws to
promote a sound and healthy banking system.

Resource Management Sector serves the human, financial and physical resource needs of the
BSP
Organizational Structure of the BSP
Organizational Structure of the Monetary Board
 The New Central Bank Act
• Purpose
• Primary Objective
• Responsibilities and Functions
• Organizational Structure
• Constitutional Basis of BSP Purpose
 Purpose
Constitutional Basis: Section 20, Art. XII of 1987
Constitution
Central Monetary Authority that shall function
and operate as an independent and
accountable body corporate in the discharge
of its mandated responsibilities concerning
money, banking and credit.
 Primary Objective
• Maintain Price Stability conducive to a
balanced and sustainable economy.
 Responsibility of BSP
(Section 3, NCBA)

1. Provide policy directions in the areas of money, banking and

credit
2. Supervision over operation of banks
3. Exercise regulatory powers over the operation of finance
companies and non-bank financial institutions performing
quasi-banking functions
4. Maintain price stability conducive to a balanced and
sustainable growth of economy.
5. Promote and maintain monetary stability and the
convertibility of the peso.
• Organizational Structure of BSP
 Organizational Structure
• The Monetary Board exercises the powers and functions of the BSP, such as
the conduct of monetary policy and supervision of the financial system. Its
chairman is the BSP Governor, with five full-time members from the private
sector and one member from the Cabinet.

• The Governor is the chief executive officer of the BSP and is required to direct
and supervise the operations and internal administration of the BSP. A deputy
governor heads each of the BSP's operating sector as follows:

Monetary Stability Sector takes charge of the formulation and implementation

of the BSP’s monetary policy, including serving the banking needs of all banks
through accepting deposits, servicing withdrawals and extending credit
through the rediscounting facility.

Supervision and Examination Sector enforces and monitors compliance to

banking laws to promote a sound and healthy banking system.

Resource Management Sector serves the human, financial and physical

resource needs of the BSP
The authority of the BSP

Section 4, GBL
 The authority of the BSP
A. Supervisory Powers
B. Policy Directions; ratios, ceilings and limitations
• Supervisory Power
 Supervisory Powers
• 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 of 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; or

• 4.6. Enforcing prompt corrective action.

• Does the BSP have supervision over the
operations of and exercise regulatory powers
over quasi-banks, trust entities and other
financial institutions ?
 Supervisory Powers

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.

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 relending or purchasing of receivables and
other obligations.
 Deposit Substitutes
• Section 95, New Central Bank Act
Alternative form of obtaining funds from the public,
other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for
the borrower’s own account, for the purpose of
relending or purchasing of receivables and other
obligations.
 Deposit Substitutes
These instruments may include, but need not be
limited to:
1. Banker’s acceptances
2. Promissory Notes
3. Participations
4. Certificates of Assignments
5. Similar instruments with recourse and
repurchase agreements
• Does the BSP still have jurisdiction over
building and loan associations?
Phase-out of BSP 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
• What is the coverage of the authority of the
BSP to set policy directions?
• Policy Directions, Section 5 GBL
 Policy Directions; Ratios, Ceilings and
Limitations

SECTION 5. Policy Direction; Ratios, Ceilings

and Limitations. — The Bangko Sentral shall
provide policy direction in the areas of
money, banking and credit.
• Authority to set ratios, ceilings and
limitations?
 Ratios, Ceilings and Limitations
• 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 those 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.
What is the legal definition of
Currency ?
 Currency
NCBA, SECTION 49. Definition of Currency. —
The word "currency" is hereby defined, for
purposes of this Act, as meaning all Philippine
notes and coins issued or circulating in
accordance with the provisions of this Act.
 Currency
NCBA, SECTION 48. The Peso. — The unit of
monetary value in the Philippines is the
"peso," which is represented by the sign "P."

The peso is divided into one hundred (100)

equal parts called "centavos," which are
represented by the sign "c."
Exclusive Power to issue Currency
• The BSP has the exclusive power and authority
to issue the national currency. BSP’s notes and
coins are issued against, and in amounts not
exceeding, the assets of the BSP. All notes and
coins issued by the BSP are fully guaranteed
by the government and are considered legal
tender for all private and public debts.
Legal Basis of the power to issue the national
currency?
 Currency

NCBA, SECTION 50. Exclusive Issue Power. — The Bangko Sentral shall have the sole
power and authority to issue currency, within the territory of the Philippines. No other
person or entity, public or private, may put into circulation notes, coins or any other object
or document which in the opinion of the Monetary Board, might circulate as currency, nor
reproduce or imitate the facsimiles of Bangko Sentral notes without prior authority from
the Bangko Sentral.

The Monetary Board may issue such regulations as it may deem advisable in order to prevent
the circulation of foreign currency or of currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral notes.

The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches
and seizures in accordance with law, for the purpose of maintaining the integrity of the
currency.

Violation of this provision or of any regulation issued by the Bangko Sentral pursuant thereto
shall constitute an offense punishable by imprisonment of not less than five (5) years but not
more than ten (10) years. In case the Revised Penal Code provides for a greater penalty, then
that penalty shall be imposed
Who bears liability for banks and notes issued?
 Currency
• SECTION 51. Liability for Notes and Coins. — Notes and
coins issued by the Bangko Sentral shall be liabilities of the
Bangko Sentral and may be issued only against, and in
amounts not exceeding, the assets of the Bangko Sentral.
Said notes and coins shall be a first and paramount lien on all
assets of the Bangko Sentral.

The Bangko Sentral's holdings of its own notes and coins shall
not be considered as part of its currency issue and,
accordingly, shall not form part of the assets or liabilities of
the Bangko Sentral.
Legal tender
• Who guarantees legal tender?
 Legal Tender Power
SECTION 52. Legal Tender Power. — All notes and coins
issued by the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and shall be
legal tender in the Philippines for all debts, both public and
private: Provided, however, That, unless otherwise fixed by
the Monetary Board, coins shall be legal tender in amounts
not exceeding Fifty pesos (P50.00) for denominations of
Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten
centavos or less.
• Text: "Republika ng Pilipinas", "Sanlibong
Piso", "Ang salaping ito ay bayarin ng Bangko
Sentral at pananagutan ng Republika ng
Pilipinas
Checks as legal tender?
• Section 60. Legal Character. – Checks representing
demand deposits do not have legal tender power
and their acceptance in the payment of debts, both
public and private, is at the option of the creditor:
Provided, however, That a check which has been
cleared and credited to the account of the creditor
shall be equivalent to a delivey to the creditor of
cash in an amount equal to the amount credited to
his account.
Civil Code provisions on legal
tender
 Currency
Article 1249, Civil Code

- Payment of debts in money to be made in the

currency stipulated, if not possible, then in the
currency which is legal tender in the
Philippines.
Article 1250. In case an extraordinary inflations
or deflation of the currency stipulated should
supervene, the value of the currency at the
time of the establishment of the obligation
shall be the basis of payment, unless there is
an agreement to the contrary.
 Currency
SECTION 53. Characteristics of the Currency. — The Monetary Board, with the
approval of the President of the Philippines, shall prescribe the denominations,
dimensions, designs, inscriptions and other characteristics of notes issued by the
Bangko Sentral: Provided, however, That said notes shall state that they are
liabilities of the Bangko Sentral and are fully guaranteed by the Government of the
Republic of the Philippines. Said notes shall bear the signatures, in facsimile, of
the President of the Philippines and of the Governor of the Bangko Sentral.

Similarly, the Monetary Board, with the approval of the President of the
Philippines, shall prescribe the weight, fineness, designs, denominations and other
characteristics of the coins issued by the Bangko Sentral. In the minting of coins,
the Monetary Board shall give full consideration to the availability of suitable
metals and to their relative prices and cost of minting.
 Currency
• PERTINENT LAWS AND REGULATIONS TO PROTECT AND MAINTAIN THE INTEGRITY OF THE CURRENCY

1. Article 163, Revised Penal Code (RPC). Making and importing and uttering (issuing or circulating) false
coins.

2. Article 166, Revised Penal Code (RPC). Forging treasury or bank notes or other documents payable to
bearer; importing,and uttering (issuing or circulating) such false or forged
notes and documents.

3. Article 168, Revised Penal Code (RPC). Illegal possession and use of false treasury or bank notes and
other instruments of credit.

4. Article 176, Revised Penal Code (RPC). Manufacturing and possession of instruments or implements for
falsification.

5. PD 247 – Defacement, mutilation, tearing, burning or destruction of Central Bank (BSP) notes and coins.

6. Chapter II, Circular 61, Series of 1995. Reproduction and/or use of facsimiles of legal tender Philippine
currency notes.

7. Chapter III, Circular 61, Series of 1995. Reproduction and/or use of facsimiles of legal tender Philippine
currency coins.
Monetary Stabilization
• Domestic
• International
Guiding Principle on Monetary Stabilization ?
 MONETARY STABILIZATION
SECTION 61. Guiding Principle. — The
Monetary Board shall endeavor to control any
expansion or contraction in monetary
aggregates which is prejudicial to the
attainment or maintenance of price stability.
Monetary Aggregates – Money supply
Why is it necessary to control money supply?
 The policy may mean two things:

1. Increasing money supply during recession

to stimulate spending; or

2. Restricting it during inflation to curtail

spending.
 Mid Term Paper
• Title : On Banco Filipino and the BSP

• Why Banco Filipino failed and what further

reforms can be done to prevent this from
happening again.

• Format : Not less than 10 pages, 1.5 line spacing.

Cambria Font no.14
• DUE : ON MID TERM EXAM DAY
• Email submission: attyguiller@gmail.com
• Difference between Corporation and Banking
Corporation
 Difference between an Ordinary Corporation and a
Banking Corporation
Point Ordinary Corporation
Classification May be stock or non-stock
Stocks Issued May issue par value or no par
value
Registration May be registered without any
certificate of authority issued
by another govt agency
Acquisition of Shares May purchase/acquire its own
shares for a legitimate
corporate purpose, provided it
has unrestricted retained
earnings
Number of Directors 5-15
Declaration of Dividends May declare
Banking Corporation
Must generally be a stock
Par value stocks only
Requires certificate of
authority from Monetary
Board
May not purchase/aqcuire its
shares or accept them as
security for a loan. Except
when authorized by the
Monetary Board
5-15. In case of merger or
consolidation, number of
directors shall not exceed 21
Conditional, subject to section
57 of GBL (RA 8791)
Classification of Banks
 Classification of Banks
• Relevant provisions of the Banking Law (RA 8791)
1. Section 3.2 (Classification of Banks)
2. Section 4 (Supervisory Powers of BSP)
3. Sections 23-28 (Operations of Universal Banks)
4. Sections 29-32 (Operations of Commercial Banks)
5. Section 71 (Other Banking Laws)
 Classification of Banks
• The Monetary Board, in its Resolution No. 2154 dated December 15, 2000,
approved the following regulations implementing Section 3 and other related
sections of R.A. No. 8791 or the General Banking Law of 2000 classified Banks as
follows:
a. Universal banks (UBs);
b. Commercial banks (KBs);
c. Thrift banks (TBs), as defined in Republic Act (R.A.) No. 7906, which shall be
composed of: (i) Savings and mortgage banks, (ii) Stock savings and
loan associations, and (iii) Private development banks;
d. Rural banks (RBs), as defined in R. A. No. 7353;
e. Cooperative banks (Coop Banks), as defined in R. A. No. 6938; and
f. Islamic banks (IBs), as defined in R. A. No. 6848.
• Powers and Authority of different class of
banks
 Classification of Banks
Type of Bank Power
Universal Bank A UB shall have the authority to exercise,
in addition to the powers and services
authorized for a Commercial Bank and
those provided by other laws, the
following:
(1) the powers of an investment house
as provided under existing laws;
(2) the power to invest in non-allied
enterprises; -
(3) the power to own up to one hundred
percent (100%) of the equity in a TB, an
RB, a financial allied enterprise, or a non-
financial allied enterprise; and
(4) in case of publicly-listed UBs, the
power to own up to one hundred
percent (100%) of the voting stock of
only one other UB or KB
Authority
UB may perform the functions of an
investment house either directly or
indirectly through a subsidiary
investment house; in either case, the
underwriting of equity securities and
securities dealing shall be subject to
pertinent laws and regulations of the
Securities and Exchange Commission
(SEC): Provided, That if the investment
house functions are performed directly
by the UB, such functions shall be
undertaken by a separate and distinct
department or other similar unit in the
UB but it cannot perform such functions
both directly and indirectly through a
subsidiary
 Classification of Banks
Type of Bank Power
Commercial Bank In addition to the general powers
incident to corporations and those
provided in other laws, a KB shall have
the authority to exercise all such powers
as may be necessary to carry on the
business of commercial banking, such as
accepting drafts and issuing letters of
credit; discounting and negotiating
promissory notes, drafts, bills of
exchange, and other evidences of debt;
accepting or creating demand deposits;
receiving other types of deposits and
deposit substitutes; buying and selling
foreign exchange and gold or silver
bullion; acquiring marketable bonds and
other debt securities; and extending
credit, subject to such rules as the
Monetary Board may promulgate. These
rules may include the determination of
bonds and other debt securities eligible
for investment, the maturities and
aggregate amount of such investment.
Authority
(1). Invest in the equities of allied
enterprises as may be determined by the
Monetary Board;
(2) purchase, hold and convey real
estate as specified under Sections 51 and
52 of R.A. No. 8791;
(3) receive in custody funds, documents
and valuable objects;
(4) 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;
(5) make collections and payments for
the account of others and perform such
other services for their customers as are
not incompatible with banking business;
(6) upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of
investment management/advisory/-
consultancy accounts;
(7) rent out safety deposit boxes; and
(8) engage in quasi-banking functions.
 Type of Bank Power
Thrift Bank (1) grant loans, whether secured or
unsecured;
(2) invest in readily marketable bonds
and other debt securities, commercial
papers and accounts receivable, drafts,
bills of exchange, acceptances or notes
arising out of commercial transactions;
(3) issue domestic letters of credit;
(4) extend credit facilities to private and
government employees;
(5) extend credit against the security of
jewelry, precious stones and articles of
similar nature, subject to such rules and
regulations as the Monetary Board may
prescribe;
(6) accept savings and time deposits;
(7) rediscount paper with the Land Bank
of the Philippines, (LBP), Development
Bank of the Philippines (DBP), and other
government-owned or controlled
corporations;
Authority
(1) open current or checking accounts;
(2) engage in trust, quasi-banking
functions and money market operations;
(3) act as collection agent for
government entities, including but not
limited to, the Bureau of Internal
Revenue (BIR), Social Security System
(SSS) and the Bureau of Customs (BOC);
(4) act as official depository of national
agencies and of municipal, city or
provincial funds in the municipality, city
or province where the TB is located;
(5) issue mortgage and chattel mortgage
certificates, buy and sell them for its own
account or for the account of others, or
accept and receive them in payment or
as amortization of its loan; and
(
Thrift Bank Power
(8) accept foreign currency deposits as
provided under R.A. No. 6426, as
amended;
(9) act as correspondent for other
financial institutions;
(10) purchase, hold and convey real
estate as specified under Sections 51 and
52 of R.A. No. 8791; and
(11) offer other banking services as
provided in Section 53 of R.A. No. 8791.
Authority
6) to invest in the equity of allied
undertakings.
d. RBs. In addition to the powers
provided in other laws, an RB may
perform any or all of the following
services:
(1) extend loans and advances primarily
for the purpose of meeting the normal
credit needs of farmers, fishermen or
farm families as well as cooperatives,
merchants, private and public
employees;
(2) accept savings and time deposits;
(3) act as correspondent of other
financial institutions;
(4) rediscount paper with the LBP, DBP or
any other bank, including its branches
and agencies. Said banks shall specify the
nature of paper deemed acceptable for
rediscount, as well as the rediscount rate
to be charged by any of these banks;
(5) Act as collection agent; and
(6) Offer other banking services as
provided in Section 53 of R.A. No. 8791.
• Power and Authority of a Rural Bank
 Rural Banks
• Rationale (section 1, RA 7353)
• Principal purpose
 Rural Banks

(1) accept current or checking accounts: Provided, That such

RB has net assets of at least P5 million;
(2) accept savings and time deposits;
(3) act as trustee over estates or properties of farmers and
merchants;
(4) act as official depository of municipal, city or provincial
funds in the municipality, city or province where it is located;
(5) sell domestic drafts; and
(6) invest in allied undertakings.
• Power and Authority of Cooperative Banks
 Cooperative Banks
A Coop Bank shall be organized primarily to
provide financial and credit services to
cooperatives and may perform any or all of
the services offered by RBs.
• Power and Authority of Islamic Bank
 Islamic Bank

• In addition to the general powers incident to corporations and those provided in other laws, as
well as in Circular No. 105, insofar as they are not inconsistent or incompatible with the provisions
of R.A. No. 6848, an IB may perform any or all of the following services:

(1) open savings accounts for safekeeping or custody with no participation in profit and losses
except unless otherwise authorized by the account holders to be invested;

(2) accept investment account placements and invest the same for a term with the IB’s funds in
Islamically permissible transactions on participation basis;

(3) accept foreign currency deposits from banks, companies, organizations and individuals,
including foreign governments;

(4) buy and sell foreign exchange;

 Islamic Bank
(5) act as correspondent of banks and institutions to handle
remittances or any fund transfers;
(6) accept drafts and issue letters of credit or letters of
guarantee, negotiate notes and bills of exchange and other
evidence of indebtedness under the universally accepted
Islamic financial instruments;
(7) act as collection agent insofar as the payment orders, bills
of exchange or other commercial documents are exclusive of
riba or interest prohibitions;
(8) provide financing with or without collateral by way of
leasing, sale and leaseback, or cost plus profit sales
arrangement;
 Islamic Bank
• (9) handle storage operations for goods or commodity financing secured
by warehouse receipts presented to the Bank;
• (10) Issue shares for the account of institutions and companies assisted by
the Bank in meeting subscription calls or augmenting their capital and or
fund requirements as may be allowed by law;
• (11) Undertake various investments in all transactions allowed by the
Islamic Shari’a in such a way that shall not permit the haram (forbidden),
nor forbid the halal (permissible);
• (12) Act as an official government depository, or its branches, subdivisions
and instrumentalities and of government-owned or controlled
corporations, particularly those doing business in the autonomous region;
 Islamic Bank
(13) Issue investment participation certificates, muquaradah (non-interest-bearing bonds),
debentures, collaterals and/or the renewal and refinancing of the same, with the
approval of the Monetary Board to be used by the IB in its financing operations for projects
that will promote the economic development primarily of the Autonomous Region;
(14) carry out financing and joint investment operations by way of mudarabh purchasing for
others on a cost-plus financing arrangement, and invest funds directly in various projects or
through the use of funds whose owners desire to invest jointly with other resources available
to the IB on a joint mudarabh basis; and
(15) Invest in equities of the following allied undertakings.
(a) Warehousing companies;
(b) Leasing companies;
(c) Storage companies;
(d) Companies engaged in the management of mutual funds but not in the mutual funds
themselves; and
(e) Such other similar activities as the Monetary Board has declared or may declare as
appropriate from time to time, subject to existing limitations imposed by law
 Universal Banks
• Licensed by the BSP to do both commercial
and investment banking
• Authority to exercise
1. Powers authorized for a commercial bank
2. Powers of an investment house as
provided in existing laws
3. Power to invest in non-allied enterprises
 Difference between UB and KB
UB KB

Has additional power other than those No such power. Only such powers as are
authorized for commercial banks, including the necessary to carry on the business of banking.
power of an investment house and the power
to invest in non-allied enterprises
May invest in equities of allied, whether May only invest in equities of allied enterprises,
financial or non-financial and non-allied whether financial or non-financial
enterprises.

Highest capitalization requirement (P4.9 B) Second highest minimum capital requirement

(P2.4 B)
• Allied and Non- Allied Enterprises
 Allied and Non-Allied Enterprises

• Those entities that enhance the business of banking

• Allied Enterprises
> Financial (Leasing companies, Banks,
Investment Houses, Financing Companies, Credit
Card Companies, Financial Institutions caterin to small and
medium scale industries including venture capital corporation,
securities dealership, Foreign exchange dealership/brokerage,
insurance companies, holding company)
 Allied Non-Financial
• Activities that do not involve money matters such as:
1. Warehouse companies
2. Storage companies
3. Safety Deposit Companies
4. Management Mutual Funds
5. Management corporations
6. Computer services
7. Insurance agencies/brokerages
8. Home Building and Home Development
9. Drying and Milling Companies
10. Service Bureaus organized to perform for and in behalf of
banks
11. Philippine Clearing House Corporation, Philippine Central
Depositary Inc.,
12. Such other activities to be determined by the BSP
 Non-Allied Enterprises
• Physically productive activities (agriculture,
mining, quarrying, manufacturing, etc.)
• Industrial Parks and/or Industrial Estates
• Financial and Commercial Complex Projects
• Such other categories as the Monetary Board
may determine
• Minimum Total Investment Requirement for
Allied and Non-Allied Enterprises
 Minimum Total Investment for Allied and Non-Allied
Enterprises (Sections 24-32, GBL)
Type of Investment UB KB
Allied Enterprises 50% of net worth 35% of net worth
Non-Allied 50% of net worth -NA-
In any one Enterprise 25% of net worth 25% of net worth (Allied only)
Financial Allied 100% of equity. Including 100% equity of a thrift or rural
100% voting stock of one bank
other UB/KB
Non-Financial Allied 100% of equity 100% of equity
Single Non-Allied Shall not exceed 35% of total -NA-
equity in that enterprise nor
shall it exceed 35% of voting
stock
Quasi Banking 40% 40%
• Definition of Net Worth
 Net Worth
• Section 24. GBL

Net Worth shall mean the total of the

unimpaired paid in capital including paid in
surplus, retained earnings, undivided net
profit, net of valuation reserves and other
adjustments as may be required by BSP.
 Examples of Universal Banks in RP
Allied Bank
Banco De Oro
Bank of Philippine Islands
Philippine National Bank
RCBC
UCPB
Security Bank
 Examples of Commercial Banks
• Asia United Bank
• BDO Private Bank
• Philippine Bank of Communications
 Examples of Rural Banks
• Rural Bank of Altavas
• Rural Bank of Kalibo
• Rural Bank of Baguio
• Rural Bank of Maragondon
• Maranao Rural Bank
 Examples of Thrift Banks
• Philippine Postal Savings Bank
• Equicom Savings Bank
• Robinsons Savings Bank
• RCBC Savings Bank
 Cooperative Banks
• Definition (Section 100, RA 6938)
• Functions
 Other Banks
• Islamic Bank (Republic Act 6848)
• Offshore Banks (PD 1034)
• Government Owned Banks
 Organization, Management and Administration of Banks,
Quasi-Banks and Trust Entities

• Organization of Banks
- Authority to engage in Banking
- Organization
- Stockholdings
- Board of Directors
- Fit and Proper Rule
- Directors of merged or consolidated banks
- Compensation and other benefits of directors
and officers
Organization, Management and Administration
of Banks, Quasi-Banks and Trust Entities

Sections 8 – 22, 56, 58 – 64, RA 8791 (GBL of

2000)
 I. Organization of Banks
• Subscription
- 25% of the authorized capital subscribed
- of which 25% has been paid
- Paid up capital be not less than what the law
requires and in no case shall the paid-in
capital be less than the minimum capital
requirement ( note: section 13, Corporation
Code of Philippines and BSP Basic Guidelines
in Operating Banks)
 I. Organization of Banks
• Incorporators/Subscribers
- persons of integrity and of good standing
in the business community;
- not previously convicted of any crime
involving moral turpitude;
- Not less than 5 but not more than 15; 21 in
case of merger and consolidation.
 II. Stockholdings
• Treasury sto cks (section 20, GBL)
• Foreign stockholdings (section 11, GBL)
• Family Groups or Related Interests (section 12,
GBL)
 II. Stockholdings
 Treasury stocks

No bank shall:
1. Purchase or acquire shares of its own capital stock;
2. Accept its own shares as security for a loan

Except when authorized by the MB. Provided further,

shares so purchased or acquired shall within 6 months
from the time of its purchase or acquisition shall be
sold or disposed of at a public or private sale.
 II. Stockholdings
 Foreign stockholdings (section 12, GBL )
 Constitutional basis (Article XII, section 10)
Rules:
1. Foreign individuals and non-bank corporations may
own up to 40% of the voting stocks of a domestic
bank. Provided, that aggregate foreign voting stocks
owned by them shall not exceed 40% of the
outstanding voting stock.
2. A Filipino individual and a domestic non-bank
corporation may each own up to 40% of the voting
stock of a domestic bank. No rule on aggregate
ceiling.
 II. Stockholdings
• Foreign stockholdings (Grandfather Rule)
- In case of an individual, percentage of foreign
owned voting stocks shall be determined by
citizenship of the individual stockholders in that
bank.
- In case of corporations, citizenship of
corporation shall follow citizenship of the
controlling stockholders, irrespective of the place
of incorporation. Controlling stockholders mean
those who hold more than 50% of the voting
stock.
 II. Stockholdings
• Commercial Banks – 60% owned by Filipino
citizens
• Thrift Banks – 40% at least owned by Filipino
citizens
• Rural Banks – wholly owned by Filipinos
 II. Stockholdings
• Family Groups or related interests (sections 12
and 13, GBL)
- Stockholdings of individuals related to each other
within the 4th degree of consanguinity or affinity,
legitimate or common law shall be considered
family groups or related interests. Must be fully
disclosed in all transactions.
- 2 or more corporations owned or controlled by
the same family group or group of persons shall
be considered related interests. Must be fully
disclosed.
 III. Stockholdings
• There is no limit on the number of shares that
can be owned by the same family or related
interest without prejudice to the 40%
restriction on nationality.
 III. Board of Directors
• Number of Directors – at least 5, maximum of
15. two of whom shall be independent
directors (not an officer or employee)
• Number consistent with section 10,
Corporation Code
• Merger or consolidation – maximum of 21
• Meetings – may be conducted thru modern
technologies (note: SEC Rule and section 25 of
Corporation Code)
 III. Board of Directors
• Incorporators/subscribers and proposed
directors and officers must be persons of
integrity and of good credit standing in the
business community. Subscribers must have
adequate financial strength to pay for their
proposed subscription.
• Incorporators/Subscribers/Directors and
Officers must not have been convicted of any
crime involving moral turpitude.
 III. Board of Directors
• At least 2/3 of the members of the Board of
Directors of any commercial bank shall be
Filipino citizens;
• At least a majority of the members of the
Board of Directors of any thrift bank shall be
Filipino citizens;
• All members of the Board of a rural bank shall
be Filipino citizens.
 III. Board of Directors
• Compensation and other benefits may be
regulated by BSP in exceptional cases:
(1) Bank is under comptrollership or
conservatorship;
(2) Bank is found to be conducting business in
an unsafe or unsound manner (section 56,
GBL)
(3) Bank is found to be in unsatisfactory
financial condition.
 III. Board of Directors
• Fit and Proper Rule
• MB to issue rules and regulations to
determine qualifications and disqualifications
of bank directors or officers and disqualify
those unfit.
• Factors to consider – integrity, experience,
education, training and competence.
• Rules on disqualification
 Fit and Proper Rule
• Rules on Disqualification (Permanent and Temporary)
(BSP Circular no.513 s. 2006)
• Disqualifications/Prohibitions under the Corporation Code (section 27,
Corporation Code)
• Disqualification/Prohibitions under the New Central Bank Act
(Sections 9, 27)
• Disqualification/Prohibition under the PDIC (Section 17, Philippine
Deposit Insurance Corporation Law)
• Disqualification/Prohibition under RA 7353 (Rural Bank) – Section 5
• Disqualification/Prohibition under Appendix 38, MORB on Cooperative
Banks
• Prohibition on Public Officials
 V. Banking Days and Hours
• Section 19, GBL
• All working Days (M-F); six hours a day
• Sat.,Sundays, Holidays – 3 hours a day
• Notice to the BSP; changes in banking days or
hours shall not be made oftener than once
every 30 days, except during emergencies
(state of emergency in area/public calamity)
Deposit Functions of Banks
 Deposit Functions of Banks
I. Kinds of Deposits
II. Administration of Deposits
III. Nature of Bank Deposits
IV. Duties of Banks
 I. Kinds of Deposits
• Demand Deposits
• Savings Deposits
• Negotiable Order of Withdrawal (NOW)
Account
• Time Deposits
• Deposit Substitute Operations (Quasi-Banking
Operations)
• Foreign Currency Deposits
• Anonymous and Numbered Accounts
 Savings Deposits
• Servicing of deposits outside of bank premises
• Individual and Joint Accounts
• Withdrawals
 Time Deposits
• Definition
• Time
• Special Time Deposits
 Foreign Currency Deposits
• Authority to deposit foreign currencies
• Authority to accept deposit foreign currencies
Anonymous and Numbered Accounts
• Are they allowed?

• Anonymous accounts are not allowed, but

numbered accounts are.
 II. Administration of Deposits
• Specimen Signature
• Minors and Corporations as Depositors
• Clearing cut-off time
 Nature of Deposits
• Irregular Deposits
Investments, Loans and other
Functions of Banks
 Relevant Provisions of the Law
Sections 34 – 53, RA 8791
 Outline
1. Investment Powers of Banks
2. Loan Functions
3. Limits on Loans, Credit Accomodations and Guarantees
4. Restrictions on Bank Exposure to Directors, Officers,
Stockholders and their Related Interests
 Investment Powers of Banks
Rule on Equity Investments of Universal and
Commercial Banks
 Loan Functions of Banks
• A loan contract is not a consensual contract but a real contract.
It is perfected only upon the delivery of the object of the
contract.
• A contract of loan involves a reciprocal obligation, wherein the
obligation or promise of each party is the consideration for that
of the other.

[G.R. No. 133632. February 15, 2002.]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
 Loan Functions of Banks
• 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
 Loan Function of Banks
• SECTION 40. Requirement for Grant of Loans or Other 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 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 microfinancing, such as cash flow-based lending to the basic
sectors that are not covered by traditional collateral. (76a)
 Loan Functions of Banks
• What happens when borrower submits false
statements to bank?
 Loan Functions of Banks
• Bank may terminate the loan
• Demand immediate repayment or liquidation
of the obligation
• Article 1198, Civil Code of the Philippines
(Debtor loses the right to make use of the
period)
 Loan Functions of Banks
• Rationale for stringent rules in granting loans

The bank invests the money that it holds in trust of its depositors. For this
reason, we have held that the business of a bank is one affected with
public interest, for which reason the bank should guard against loss due to
negligence or bad faith. In approving the loan of an applicant, the bank
concerns itself with proper informations regarding its debtors. The
petitioner, as a bank and a financial institution engaged in the grant of
loans, is expected to ascertain and verify the identities of the persons it
transacts business with.

• G.R. No. 147800. November 11, 2003.]

UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS,
respondent.
 Loan Functions of Banks
• The business of a bank is one affected with public interest, for
which reason the bank should guard against loss due to
negligence or bad faith. In approving the loan of an applicant,
the bank concerns itself with proper [information] regarding its
debtors." Any investigation previously conducted on the
property offered by petitioners as collateral did not preclude
PNB from considering new information on the same property as
security for a subsequent loan.

[G.R. No. 161319. January 23, 2007.]

SPS. EDGAR AND DINAH OMENGAN, petitioners, vs. PHILIPPINE

NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S.
ACIERTO, * respondents.
 Loan Functions of Banks
Continuing power of the BSP to regulate banks

• 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 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.
 Loan Functions of Banks
• 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 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 microfinance

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.

This section of RA 7653 authorizes the Monetary Board to issue such regulations as
it may deem necessary with respect to the maximum permissible maturities of the
loans and investments which the banks may make, and the kind and amount of
security to be required against the various types of credit operations of the banks.
 Loan Functions of Banks
Authority to impose amortization schedule for
payment of loans and other credit
accomodations

Section 44, RA 8791

 Loan Functions of Banks
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 microfinance 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)
 Loan Functions of Banks
• Interest Rate for payment of loan
• Escalation and De-escalation Clause
• Unilateral increase of rates
• Iniquitous, Unconscionable and Exorbitant
Interest Rates
 Loan Functions of Banks
• Article 1253 of the New Civil Code provides that, if the debt produces
interest, payment of the principal shall not be deemed to have been made
until the interests have been covered.

To hold that bank debtors should not pay interest on their loans would be
anathema to the nature of any bank's business. The charging of interest
for loans forms a very essential and fundamental element of the banking
business. In fact, it may be considered to be the very core of the
banking's existence or being.

G.R. No. 159748. July 31, 2007.]

SPOUSES VIRGILIO AND DIGNA ANASTACIO-CALINA, petitioners, vs.
DEVELOPMENT BANK OF THE PHILIPPINES, respondent
 Loan Functions of Banks
• The charging of interest for loans forms a very essential and
fundamental element of the banking business, which may truly
be considered to be at the very core of its existence or being. It
is inconceivable for a bank to grant loans for which it will not
charge any interest at all.

[G.R. No. 128833. April 20, 1998.]

• RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING
AND ELI D. LAO, petitioner, vs. COURT OF APPEALS AND GOYU &
SONS, INC., respondent.
 Loan Functions of Banks
• Validity of Escalation Clause in Loans/Credit
Facilities ?

". . . the Bank to correspondingly increase the

interest rate presently stipulated in this
transaction without advance notice to me/us
in the event the Central Bank of the Philippines
raises its rediscount rate to member banks,
and/or the interest rate on savings and time
deposit, and/or the interest rate on such loans
and/or advances."
valid escalation clause provides:

1. That the rate of interest will only be increased if the applicable

maximum rate of interest is increased by law or by the Monetary Board;
and

2.That the stipulated rate of interest will be reduced if the applicable

maximum rate of interest is reduced by law or by the Monetary Board (de-
escalation clause).

G.R. No. 171545. December 19, 2007.;EQUITABLE PCI BANK, * AIMEE YU

and BEJAN LIONEL APAS, petitioners, vs. NG SHEUNG NGOR ** doing
business under the name and style "KEN MARKETING," KEN APPLIANCE
DIVISION, INC. and BENJAMIN E. GO, respondents.
 Limits on Loan Functions and other Credit
Accomdations

• Single Borrowers’ Limit

Rules and Regulations issued by the BSP

(Manual on Regulations of Banks)
 Limits on Loan Functions and other Credit
Accomodations
• General Rule on Single Borrowers Limit:

• Consistent with national interest, the total amount of loans, credit

accommodations and guarantees that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed
twenty five percent (25%) of the net worth of such bank. The basis for
determining compliance with the single borrower’s limit (SBL) is the total credit
commitment of the bank to or on behalf of the borrower.

The total amount of loans, credit accommodations and guarantees prescribed in

the first paragraph may be increased by an additional ten percent (10%) of the net
worth of such bank: Provided, That the additional liabilities 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.
 Restrictions on Bank Exposure to Directors, Officers, Stockholders and their
Related Interests (DOSRI)

• 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.
 Restrictions on Bank Exposure to Directors, Officers,
Stockholders and their Related Interests (DOSRI)

• Banks were not created for the benefit of their directors and officers; they
cannot use the assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to impose
restrictions on borrowings by bank directors and officers in order to
protect the public, especially the depositors. Hence, when the law
prohibits directors and officers of banking institutions from becoming in
any manner an obligor of the bank (unless with the approval of the board),
the terms of the prohibition shall be the standards to be applied to
directors' transactions such as those involved in the present case.

[G.R. No. 178429. October 23, 2009.]

JOSE C. GO, petitioner, vs. BANGKO SENTRAL NG PILIPINAS, respondent.

 Restrictions on Bank Exposure to Directors, Officers,
Stockholders and their Related Interests

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.
 Restrictions on Bank Exposure to Directors, Officers,
Stockholders and their Related Interests (DOSRI)

• Related Interests as defined by the BSP CIRCULAR NO. 423 s.2004:

Related Interest shall refer to any of the following:

(1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal
adoption, of a director, officer or stockholder of the bank;

(2) Partnership of which a director, officer, or stockholder of a bank or his spouse or relative
within the first degree of consanguinity or affinity, or relative by legal adoption, is a general
partner;

(3) Co-owner with the director, officer, stockholder or his spouse or relative within the first
degree of consanguinity or affinity, or relative by legal adoption, of the property or interest
or right mortgaged, pledged or assigned to secure the loans or other credit
accommodations, except when the mortgage, pledge or assignment covers only said co-
owner's undivided interest;
• (4) Corporation, association, or firm of which a director or officer of the bank, or his
spouse is also a director or officer of such corporation, association or firm, except (a) where
the securities of such corporation, association or firm are listed and traded in the big board
or commercial and industrial board of domestic stock exchanges and less than fifty percent
(50%) of the voting stock thereof is owned by any one person or by persons related to each
other within the first degree of consanguinity or affinity; or (b) where the director, officer
or stockholder of the bank sits as a representative of the bank in the board of directors of
such corporation: Provided, That the bank representative shall not have any equity interest
in the borrower corporation except for the minimum shares required by law, rules and
regulations, or by the by-laws of the corporation: Provided, further, that the borrowing
corporation is not among those mentioned in items e(5), e(6), e(7) and e(8) of this Section;

• (5) Corporation, association or firm of which any or a group of directors, officers,

stockholders of the lending bank and/or their spouses or relatives within the first degree of
consanguinity or affinity, or relative by legal adoption, hold or own at least twenty percent
(20%) of the subscribed capital of such corporation, or of the equity of such association or
firm;
 Restrictions on Bank Exposure to Directors, Officers,
Stockholders and their Related Interests

• 6. Corporation, association or firm wholly or majority-owned or

controlled by any related entity or a group of related entities
mentioned in Items e(2), e(4) and e(5) of this Section.

• 7. Corporation, association or firm which owns or controls directly or

indirectly whether singly or as part of a group of related interest at least
twenty percent (20%) of the subscribed capital of a substantial stockholder
of the lending bank or which controls majority interest of the bank pursuant
to Subsection X303.1 of the MOR.

8. Corporation, association or firm in which the lending bank and/or

its parent/subsidiary holds or owns at least twenty percent (20%) of the
subscribed capital of such corporation, or in the equity of such association or
firm, or has an existing management contract or any similar arrangement with
the lending bank or its parent/subsidiary.
 Securities on Loans and Other Credit Accomodations

• 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)

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, and such loans and other credit accommodations
may be made to the title-holder of the chattels and intangible properties or his
assignees.
SECRECY OF BANK DEPOSITS
 Governing Law and Rationale
• Republic Act 1405

• SEC. 1. It is hereby declared to be the policy

of the Government to give encouragement to
the people to deposit their money in banking
institutions and to discourage private hoarding
so that the same may be properly utilized by
banks in authorized loans to assist in the
economic development of the country.
What kind of deposits are covered
• SEC. 2. All deposits of whatever nature with
bank or banking institutions in the Philippines
including investments in bonds issued by the
Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature
and may not be examined, inquired or looked
into by any person, government official, bureau
or office, except upon written permission of the
depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases
 Basis
• Bank deposits under R.A. No. 1405 (the
Secrecy of Bank Deposits Law) are statutorily
protected or recognized zones of privacy
 Right to Privacy
• Zones of privacy are recognized and protected in our
laws. The Civil Code provides that "[e]very person shall
respect the dignity, personality, privacy and peace of
mind of his neighbors and other persons" and punishes
as actionable torts several acts for meddling and prying
into the privacy of another. It also holds a public officer
or employee or any private individual liable for
damages for any violation of the rights and liberties of
another person, and recognizes the privacy of letters
and other private communications.

• The Revised Penal Code makes a crime of the violation

of secrets by an officer, the revelation of trade and
industrial secrets, and trespass to dwelling. Invasion of
privacy is an offense in special laws like the Anti-
• The framers of the 1987 Constitution likewise
recognized that bank accounts are not
covered by either the right to information
under Section 7, Article III or under the
requirement of full public disclosure under
Section 28, Article II. Unless the Bank Secrecy
Act is repealed or amended, the legal order is
obliged to conserve the absolutely
confidential nature of Philippine bank
deposits.
 Exceptions
(1.) In an examination made in the course of a special or
general examination of a bank that is specifically
authorized by the Monetary Board after being satisfied
that there is reasonable ground to believe that a bank
fraud or serious irregularity has been or is being
committed and that it is necessary to look into the
deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor
hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only
and the results thereof shall be for the exclusive use of
the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or
 Ant-Money Laundering Law
• The AMLA also provides exceptions to the Bank Secrecy
Act. Under Section 11, the AMLC may inquire into a
bank account upon order of any competent court in
cases of violation of the AMLA, it having been
established that there is probable cause that the
deposits or investments are related to unlawful
activities as defined in Section 3 (i) of the law, or a
money laundering offense under Section 4 thereof.

• Further, in instances where there is probable cause

that the deposits or investments are related to
kidnapping for ransom, certain violations of the
Comprehensive Dangerous Drugs Act of 2002, hijacking
and other violations under R.A. No. 6235, destructive
arson and murder, then there is no need for the AMLC
• An examination of the law shows that the
term “deposits” used therein is to be
understood broadly and not limited only to
accounts which give rise to a creditor-debtor
relationship between the depositor and the
bank.
 Foreign Currencies
• Republic Act No. 1405 was enacted for the
purpose of giving encouragement to the
people to deposit their money in banking
institutions and to discourage private hoarding
so that the same may be properly utilized by
banks in authorized loans to assist in the
economic development of the country. It
covers all bank deposits in the Philippines and
no distinction was made between domestic
and foreign deposits. Thus, Republic Act No.
• Republic Act No. 6426 was intended to
encourage deposits from foreign lenders and
investors. It is a special law designed
especially for foreign currency deposits in the
Philippines. A general law does not nullify a
specific or special law. Generalia specialibus
non derogant
• For foreign currency deposits, such as U.S.
dollar deposits, the applicable law is Republic
Act No. 6426.

• RA 6426 is the applicable law for foreign

currency deposits and not Republic Act No.
1405.
• Section 8. Secrecy of foreign currency deposits. – All
foreign currency deposits authorized under this Act, as
amended by PD No. 1035, as well as foreign currency
deposits authorized under PD No. 1034, are hereby declared
as and considered of an absolutely confidential nature
and, except upon the written permission of the depositor,
in no instance shall foreign currency deposits be examined,
inquired or looked into by any person, government official,
bureau or office whether judicial or administrative or
legislative, or any other entity whether public or private;
Provided, however, That said foreign currency deposits
shall be exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government
agency or any administrative body whatsoever. (As
amended by PD No. 1035, and further amended by PD No.
1246, prom. Nov. 21, 1977.)
 Waiver
• The written consent under RA 6426
constitutes a waiver of the depositor’s right to
privacy in relation to such deposit
 Coverage – Dissenting Opinion J. Sereno

• R.A. 6426 does not apply to the foreign currency deposit

accounts, since the protection under the said law is
intended only for depositors who are non residents and
are not engaged in trade and business in the Philippines.
In coming out with such ruling, this office has as its basis
one of the Whereas clauses of P.D. 1246 which amended
Sec. 8 of R.A. 6426. For emphasis, the pertinent provision
of the said law is hereby quoted:
• WHEREAS, in order to assure the development and speedy
growth of the Foreign Currency Deposit System and
offshore Banking System in the Philippines, certain
incentives were provided for under the two systems such
as confidentiality of deposits subject to certain exceptions
and tax exemptions on the interest of the income of
depositors who are non-residents and are not engaged in
trade or business in the Philippines.
 J.Sereno
• Those who accept a public office do so cum
onere, or with a burden, and are considered as
accepting its burdens and obligations,
together with its benefits. They thereby
subject themselves to all constitutional and
legislative provisions relating thereto, and
undertake to perform all the duties of their
office. The public has the right to demand the
performance of those duties
• One of these burdens or duties is explicitly
articulated in Sec. 17 of Art. XI of the 1987
Constitution, viz:

A public officer or employee shall, upon

assumption of office and as often thereafter as
may be required by law, submit a declaration
under oath of his assets, liabilities, and net
worth. In the case of the President, the Vice-
President, the Members of the Cabinet, the
Congress, the Supreme Court, the Constitutional
Commissions and other constitutional offices, and
 Prohibited Transactions of Banks

1. Prohibited to act as insurer

2. Conducting business in an unsafe or
unsound manner
3. Prohibition on Dividend Declaration
4. Unauthorized advertisement or business
representation
Prohibited Transactions of Banks

Conservatorship

Cessation of Banking Business

Deposit Insurance
 Prohibited Transactions of Banks
1. Prohibition to act as insurer (Section 54, RA
8791 GBL)
Bank shall not directly engage in insurance
business as insurer, e.g., making or proposing
to make as insurer any contract of insurance;
making or proposing to make any contract of
suretyship; doing any kind of reinsurance
business; and, doing or proposing to do any
business in substance equivalent to the
foregoing.
 Prohibited Transactions of Banks
2. Conducting business in an unsafe or unsound
manner

- Monetary Board to consider the following

circumstances :

a.) Has resulted in or may result in material

loss or damage , or abnormal risk or
danger to the safety, stability, liquidity or
solvency of the bank;
b.) Act or omission has resulted or may result in
material loss or damage to the bank, BSP or public in
general;

c.) Unwarranted benefit, advantage or preference to any bank

d.) Entering into any contract or transaction manifestly and

grossly disadvantageous to the bank.
• Whenever a bank, quasi-bank or trust entity
persists in conducting its business in an unsafe
or unsound manner, the Monetary Board may,
without prejudice to the administrative
sanctions provided in Section 37 of the New
Central Bank Act, take action under Section 30
of the same Act and/or immediately exclude
the erring bank from clearing, the provisions
of law to the contrary notwithstanding.
Section 30 of the NCBA – Receivership and
liquidation

Section 37 of the NCBA – Administrative

sanction and fines
 Prohibited Transactions of Banks
3. Prohibition on Dividend Declaration

Section 57, RA 8791 (NCBA)

Section 43, Corporation Code

SECTION 57. Prohibition on Dividend Declaration. — No bank or quasi-bank
shall declare dividends greater than its accumulated net profits then on hand,
deducting therefrom its losses and bad debts. Neither shall the bank nor quasi-
bank declare dividends, if at the time of declaration:

57.1 Its clearing account with the Bangko Sentral is overdrawn; or

57.2 It is deficient in the required liquidity floor for government deposits for five
(5) or more consecutive days; or

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.
 Prohibited Transactions of Banks

4. Prohibition on unauthorized advertisement or business representation:

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", "quasi-banking",
"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.
 Prohibited Transactions of Banks
Prohibited acts of :

A. Director, officer, employee or agent of any bank (section 55.1,

GBL)

B. Borrower of Bank (section 55.2, GBL)

C. Examiner, officer or employee of the BSP or any other (section

55.3 GBL in relation to sections 34, 35, 36 of the New Central
Bank Act)
 Prohibited acts of Director, officer, employee or agent
of any bank

• Making false entries in any bank report, or

Prohibited
participating transactions
in any banks
fraudulent transaction
• Violation of RA 1405
• Accepting gifts, fees or commission in
consideration of approving any credit facility
• Over valuing any security
• Outsource inherent bank functions – to
prevent violations of confidentiality
 Prohibited acts of borrower
• Fraudulently over valuing any property for
credit facility
• Furnishing false or make misrepresentations
• Attempt to defraud a bank
• Offering any director, officer or employee any
gift, fee or commission
Same Prohibitions apply to examiner, officer or
employee of the BSP

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
Conservatorship
 Conservatorship
Governing Law

Section 67, RA 8791 in relation to Sections 29

and 30
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.
Who is a conservator and what are his powers?
 Conservatorship
Powers of Conservator

1.) Take charge of the assets, liabilities and

the management of the bank;
2.) Reorganize the management;
3.) Collect all monies and debts due;
4.) Exercise all powers necessary to restore
the viability of the bank;
 Conservatorship
Grounds for appointment of a Conservator

Bank or a quasi-bank is in a state of:

1.) Continuing inability; or

2.) Unwillingness to maintain a condition of

liquidity deemed adequate to protect the
interest of depositors and creditors.
 Conservatorship
Qualifications

Competent and knowledgeable in bank

operations and management
 Conservatorship

Period of conservatorship shall not exceed one

(1) year
 Conservatorship
Grounds for Termination:

1. MB is satisfied that the institution can continue to operate

on its own and the conservatorship is no longer necessary;

2. MB, based on the report of the conservator or its own

findings determine that the continuance in business of the
institution would involve probable loss to its depositors or
creditors, in which case liquidation and receivership shall
apply
 Conservatorship
• Actions of the MB shall be final and executory
and may not be restrained or set aside by the
court except on Certiorari.

• Certiorari may only be filed by the

stockholders of record.
 Conservatorship

Conservator cannot impair the obligations of

contracts

- Power is not unilateral

- Remedy is to bring actions in court
 G.R. No. 115849. January 24, 1996.]
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

Hence, the conservator merely takes the place of a bank's board of directors. What
the said board cannot do — such as repudiating a contract validly entered into
under the doctrine of implied authority — the conservator cannot do either.
Ineluctably, his power is not unilateral and he cannot simply repudiate valid
obligations of the Bank. His authority would be only to bring court actions to assail
such contracts — as he has already done so in the instant case. A contrary
understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the
conservator to unilaterally revoke all previous dealings which had one way or
another come to be considered unfavorable to the Bank, yielding nothing to
perfected contractual rights nor vested interests of the third parties who had
dealt with the Bank.
CESSATION OF BANKING
BUSINESS
 CESSATION OF BANKING BUSINESS

Governing Laws:

CHAPTER VI. Cessation of Banking Business,

RA 8791, SECTIONS 68, 69 and 70

Sections 30, 31, 32, and 33 of the New Central

Bank Act
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head
of the supervising or examining department, the Monetary Board finds that a bank or quasi-
bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or
creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become
final, involving acts or transactions which amount to fraud or a dissipation of the
assets of the institution
 WHERE BANK IS UNDER RECEIVERSHIP/LIQUIDATION

When a bank is declared insolvent and placed under receivership, the Central
Bank, through the Monetary Board, determines whether to proceed with the
liquidation or reorganization of the financially distressed bank. A receiver, who
concurrently represents the bank, then takes control and possession of its assets
for the benefit of the bank's creditors.

A liquidator meanwhile assumes the role of the receiver upon the determination
by the Monetary Board that the bank can no longer resume business. His task is to
dispose of all the assets of the bank and effect partial payments of the bank's
obligations in accordance with legal priority.

In both receivership and liquidation proceedings, the bank retains its juridical
personality notwithstanding the closure of its business and may even be sued as
its corporate existence is assumed by the receiver or liquidator.
WHEN BANK IS UNDER RECEIVERSHIP/LIQUIDATION

The receiver or liquidator meanwhile acts not only for the benefit of the bank, but
for its creditors as well.

In Provident Savings Bank vs. Court of Appeals, we further stated that: When a
bank is prohibited from continuing to do business by the Central Bank and a
receiver is appointed for such bank, that bank would not be able to do new
business, i.e., to grant new loans or to accept new deposits. However, the receiver
of the bank is in fact obliged to collect debts owing to the bank, which debts form
part of the assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation of
such assets. Accordingly, the receiver of the bank is obliged to collect pre-existing
debts due to the bank, and in connection therewith, to foreclose mortgages
securing such debts.

[G.R. No. 135706. October 1, 2004.]

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners, vs. PHILIPPINE
VETERANS BANK, respondent.
 Effect of Appointment of a Receiver

The appointment of a receiver operates to suspend the authority of the

bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers
from intermeddling with the property of the bank in any way. (65 Am. Jur.
2d Receivers, §146 [1963]. In a nutshell, the insolvency of a bank and the
consequent appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property.

G.R. No. 114870. May 26, 1995.]

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-
TIRADOS, petitioners, vs. COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES,
ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.
 WHO MAY BE APPOINTED AS RECEIVER ?

The Monetary Board may summarily and

without need for prior hearing forbid the
institution from doing business in the
Philippines and designate the Philippine
Deposit Insurance Corporation as receiver of
the banking institution.

For a quasi-bank, any person of recognized

competence in banking or finance may be
designed as receiver. (Section 30, NCBA)
 WHO MAY APPOINT A RECEIVER

Section 30, NCBA:

"The designation of a conservator under Section

29 of this Act or the appointment of a receiver
under this section shall be vested exclusively
with the Monetary Board. Furthermore, the
designation of a conservator is not a
precondition to the designation of a receiver."
WHAT ARE THE POWERS OF RECEIVER ?

Congress itself has recognized that a bank receiver only has powers of
administration. Section 30 of the New Central Bank Act expressly provides
that "[t]he receiver shall immediately gather and take charge of all the
assets and liabilities of the institution, administer the same for the benefit
of its creditors, and exercise the general powers of a receiver under the
Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution . . .“

[G.R. No. 162270. April 6, 2005.]

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE
MANILA BANKING CORPORATION, respondent.
 Rationale for appointment of a Receiver

• This is consistent with the purpose of receivership proceedings,

i.e., to receive collectibles and preserve the assets of the bank in
substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the
bank.

[G.R. No. 135706. October 1, 2004.]

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS,
petitioners, vs. PHILIPPINE VETERANS BANK, respondent.
 What is the responsibility of Receiver

• The receiver shall determine as soon as

possible, but not later than ninety (90) days
from take over, whether the institution may
be rehabilitated or otherwise placed in such a
condition so that it may be permitted to
resume business with safety to its depositors
and creditors and the general public:
Provided, That any determination for the
resumption of business of the institution shall
be subject to prior approval of the Monetary
Board. (section 30, NCBA)
 What is responsibility of receiver in case bank
cannot be rehabilitated ?
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in
writing the board of directors of its findings and direct the receiver to proceed with the
liquidation of the institution. The receiver shall:

• (1) file ex parte with the proper regional trial court, and without requirement of
prior notice or any other action, a petition for assistance in the liquidation of the
institution pursuant to a liquidation plan adopted by the Philippine Deposit
Insurance Corporation for general application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice,
adjudicate disputed claims against the institution, assist the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on other issues as
may be material to implement the liquidation plan adopted. The receiver shall pay
the cost of the proceedings from the assets of the institution.
 What is responsibility of receiver?
(2) convert the assets of the institutions to money, dispose of the same to
creditors and other parties, for the purpose of paying the debts of
such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he
may, in the name of the institution, and with the assistance of
counsel as he may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action
against, the institution. The assets of an institution under
receivership or liquidation shall be deemed in custodia legis in
the hands of the receiver and shall, from the moment the institution
was placed under such receivership or liquidation, be exempt
from any order of garnishment, levy, attachment, or execution.
 Rules in distribution of Assets – RA
7653 / NCBA
• SECTION 31. Distribution of Assets. — In case
of liquidation of a bank or quasi-bank, after
payment of the cost of proceedings, including
reasonable expenses and fees of the receiver
to be allowed by the court, the receiver shall
pay the debts of such institution, under order
of the court, in accordance with the rules on
concurrence and preference of credit as
provided in the Civil Code.“
Rules in Distribution of Assets – RA
7653 / NCBA
SECTION 32. Disposition of Revenues and Earnings. — All
revenues and earnings realized by the receiver in winding up the
affairs and administering the assets of any bank or quasi-bank
within the purview of this Act shall be used to pay the costs, fees
and expenses mentioned in the preceding section, salaries of
such personnel whose employment is rendered necessary in the
discharge of the liquidation together with other additional
expenses caused thereby. The balance of revenues and earnings,
after the payment of all said expenses, shall form part of the
assets available for payment to creditors."
 Rules in Distribution of Assets – RA
7653 / NCBA
SECTION 33. Disposition of Banking Franchise.
— The Bangko Sentral may, if public interest
so requires, award to an institution, upon such
terms and conditions as the Monetary Board
may approve, the banking franchise of a bank
under liquidation to operate in the area where
said bank or its branches were previously
operating: Provided, That whatever proceeds
may be realized from such award shall be
subject to the appropriate exclusive
disposition of the Monetary Board."
Anti- Money Laundering Act
(AMLA)
 History of the Law
• Republic Act No. 9160 otherwise known as The Anti-Money
Laundering Act of 2001 was signed into law on September 29,
2001 and took effect on October 17, 2001. The Implementing
Rules and Regulations took effect on April 2, 2002.
• On March 7, 2003, R.A. No. 9194 (An Act Amending R.A. No.
9160) was signed into law and took effect on March 23, 2003.
• The revised Implementing Rules and Regulations took effect
on September 7, 2003.
 Rationale
• Need to contribute our share and play a vital
role in the global fight against money
laundering.
• Establish and strengthen an anti-money
laundering regime in the country to increase
investor’s confidence
• Ensure that the Philippines is not used as a
site to launder proceeds of unlawful activities.
 Salient Features of AMLA
• Criminalizes money laundering
• Creates a financial intelligence unit
• Imposes requirements on customer identification, record
keeping and reporting of covered and suspicious transactions
• Relaxes strict bank deposits secrecy laws
• Provides for freezing/seizure/forfeiture/recovery of dirty
money/property
• Provides for international cooperation
 What is Money Laundering ?
• Money Laundering is a crime whereby the
proceeds of an unlawful activity as defined in
the Anti- Money Laundering Act are
transacted or attempted to be transacted to
make them appear to have originated from
legitimate sources.
 Unlawful Activity under AMLA
• Unlawful Activity is the offense which
generates dirty money. It is commonly called
the predicate crime. It refers to any act or
omission or series or combination thereof
involving or having direct relation to the
following:
 Predicate Crimes/Unlawful Activity
• Kidnapping for ransom
• Drug trafficking and related offenses
• Graft and corrupt practices
• Plunder
• Robbery and Extortion
• Jueteng and Masiao
• Piracy
• Qualified theft
• Swindling
• Smuggling
• Violations under the Electronic Commerce Act of 2000
• Hijacking; destructive arson; and murder, including those perpetrated by terrorists against
non-combatant persons and similar targets
• Fraudulent practices and other violations under the Securities Regulation Code of 2000
• Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries.
 Money Laundering Offenses and Penalties

• Knowingly transacting or attempting to transact any monetary

instrument/property which represents, involves or relates to the proceeds
of an unlawful activity. Penalty is 7 to 14 years imprisonment and a fine of
not less than P3M but not more than twice the value of the monetary
instrument/property.
• Knowingly performing or failing to perform an act in relation to any
monetary instrument/property involving the proceeds of any unlawful
activity as a result of which he facilitated the offense of money laundering.
Penalty is 4 to 7 years imprisonment and a fine of not less than P1.5M but
not more than P3M.
• Knowingly failing to disclose and file with the AMLC any monetary
instrument/property required to be disclosed and filed. Penalty is 6
months to 4 years imprisonment or a fine of not less than P100,000 but
not more than P500,000, or both.
 Other offenses and penalties
• Failure to keep records is committed by any responsible
official or employee of a covered institution who fails to
maintain and safely store all records of all transactions of said
institution, including closed accounts, for five (5) years from
the date of the transaction/closure of the account. Penalty is
6 months to 1 year imprisonment or a fine of not less than
P100,000 but not more than P500,000, or both.
 Other offenses and penalties
• Malicious reporting is committed by any person who, with
malice or in bad faith, reports/files a completely unwarranted
or false information relative to money laundering transaction
against any person. Penalty is 6 months to 4 years
imprisonment and a fine of not less than P100,000 but not
more than P500,000, at the discretion of the court. The
offender is not entitled to avail the benefits of the Probation
Law.
 Other offenses and penalties
• Breach of confidentiality. When reporting covered or suspicious transactions to
the AMLC, covered institutions and their officers/employees are prohibited from
communicating directly or indirectly, in any manner or by any means, to any
person/entity/media, the fact that such report was made, the contents thereof, or
any other information in relation thereto. In case of violation thereof, the
concerned official and employee of the covered institution shall be criminally
liable. Neither may such reporting be published or aired in any manner or form by
the mass media, electronic mail or other similar devices. In case of a breach of
confidentiality published or reported by media, the responsible reporter, writer,
president, publisher, manager and editor-in-chief shall also be held criminally
liable. Penalty is 3 to 8 years imprisonment and a fine of not less than P500,000
but not more than P1M.
 Other offenses - Imposition of
penalty
• If the offender is a corporation, association, partnership or any juridical
person, the penalty shall be imposed upon the responsible officers, as the
case may be, who participated in, or allowed by their gross negligence, the
commission of the crime.
• If the offender is a juridical person, the court may suspend or revoke its
license.
• If the offender is an alien, he shall, in addition to the penalties
prescribed, be deported without further proceedings after serving the
penalties prescribed.
• If the offender is a public official or employee, he shall, in addition to the
penalties prescribed, suffer perpetual or temporary absolute
disqualification from office, as the case may be.
 Covered Institutions
Covered Institutions are those mandated by the AMLA to submit covered and
suspicious transaction reports to the AMLC. These are:
• Banks and all other entities, including their subsidiaries and affiliates,
supervised and regulated by the Bangko Sentral ng Pilipinas
• Insurance companies and all other institutions supervised or regulated by
the Insurance Commission
• Securities dealers, pre-need companies, foreign exchange corporations
and other entities supervised or regulated by the Securities and Exchange
Commission
 Covered and Suspicious Transactions

• Covered transactions are single transactions in

cash or other equivalent monetary instrument
involving a total amount in excess of Five
Hundred Thousand (P500,000) Pesos within
one (1) banking day
 Covered and Suspicious Transactions

Suspicious transactions are transactions with covered institutions, regardless of the

amounts involved, where any of the following circumstances exists:
• there is no underlying legal/trade obligation, purpose or economic justification;
• the client is not properly identified;
• the amount involved is not commensurate with the business or financial capacity
of the client;
• the transaction is structured to avoid being the subject of reporting requirements
under the AMLA;
• there is a deviation from the client’s profile/past transactions;
• the transaction is related to an unlawful activity/offense under the AMLA; and
• transactions similar or analogous to the above
 Provisional Remedies
• Freezing of Monetary Instruments or Property
under Section 10
• Authority to inquire into Bank Deposits under
Section 11
 Freezing of Monetary Instrument or Property

• The Court of Appeals, upon application ex

parte (without notice to the other party) by
the AMLC and after determination that
probable cause exists that any monetary
instrument or property is in any way related to
an unlawful activity, may issue a freeze order
which shall be effective immediately. The
freeze order shall be for a period of 20 days
unless extended by the court
 Authority to Inquire into Bank Deposits

• Notwithstanding the provisions of R.A. No. 1405, as amended, R.A. No.

6426, as amended, R.A. No. 8791, and other laws, the AMLC may inquire
into or examine any particular deposit or investment with any banking
institution or non-bank financial institution upon order of any competent
court in cases of violation of this act when it has been established that
there is probable cause that the deposits/investments are
involved/related to an unlawful activity as defined in Sec. 3(i) of the AMLA
or a money laundering offense under Sec. 4 thereof; except that no court
order shall be required in cases involving kidnapping for ransom; drug
trafficking and related offenses; and hijacking, destructive arson and
murder, including those perpetrated by terrorists against non-combatant
persons and similar targets.
 Provisional Remedies
• Freezing of Monetary Instruments or Property
under Section 10 – can be done Ex Parte
• Authority to inquire into Bank Deposits under
Section 11 – Ex Parte not allowed
 Rationale on Ex Parte
• Freezing of Monetary Instruments or Property
under Section 10 – Involves physical seizure of
the assets
• Authority to inquire into Bank Deposits under
Section 11 – does not involve physical seizure
of the assets
 Authority to inquire into bank
deposits
• Not a search warrant
• Right to notice and right to be heard
 Related Web of Accounts
• Provisional remedy on freeze of accounts
covers as well related web of accounts.
• Related web of accounts is defined as those
accounts, the funds and sources of which
originated from and/or materially linked to
the monetary instrument (s) or properties
subject of the freeze order.
 Mutual Assistance among States
• Request for assistance from a foreign state,
based on the principles of mutuality and
reciprocity.
• AMLC may also obtain assistance from a
foreign state
 Prohibitions
1. Shall not be used for political persecution or
harassment;
2. Shall not be used as an instrument to hamper
competition in trade and commerce;
3. No case for money laundering may be filed to
the prejudice of a candidate for an electoral
office during an election period
 Restitution allowed
• Restitution for any aggrieved party shall be
governed by the provisions of the Civil Code.
 Ex post facto
• No person may be prosecuted under the penal
provisions of the AMLA for acts committed
prior to the enactment of the law on 17
October 2001.
 Forfeiture

• When ?
When there is a suspicious transaction report or a
covered transaction report deemed suspicious after
investigation by the AMLC and the court has, in a petition
filed for the purpose, ordered the seizure of any
monetary instrument or propert, in whole or in part,
directly or indirectly, related to said report, the Revised
Rules on Court on forfeiture shall apply.
 Organization implementing AMLA
• Anti Money Laundering Council (AMLC)
• Composition:
Governor of BSP – Chairman
Commissioner, Insurance Commission
Commissioner, SEC