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LAWS ON BANKS

INTRODUCTION
1. Concept
Banks entities engaged in the lending of funds obtained in the form of deposits

QUASI-BANKS - Entities engaged in the borrowing of funds through the issuance,


endorsement or assignment with recourse or acceptance of deposit substitutes -
( Sec.95, GBL)

Entities authorized to perform universal or commercial banking functions may


also engage inquasi-banking functions.

2. Nature of Business/Degree of Diligence


Impressed with public interest where the trust and confidence of the public in
general is of paramount importance such that:
a) The appropriate standard of diligence must bevery high, if not the highest,
degree of diligence; highest degree of care (PCI Bank vs.CA, 350 SCRA
446, PBCom vs. CA, G.R. No.121413, 29 Jan. 2001)

This applies only to cases where banksare acting in their fiduciary capacity, thatis, as
depository of the deposits of their depositors (Reyes vs. CA, G.R. No.118492, 15 Aug. 2001)

b) Subject to reasonable regulation under thepolice power of the state.

SPECIAL RULES ON STRIKES AND LOCKOUTS:


Any strike or lockout involving banks, if unsettled after 7calendar days shall
be reported by the BSP to the Sec. of Labor who has 2 options:
a) He may assume jurisdiction over and decidethe dispute; or
b) certify it to the NLRC for compulsory arbitration
The President may also intervene at any time and assume jurisdiction over
such labor dispute in order to settle or terminate the same.

3. Pertinent provisions on incorporation, change of charter/By-laws


The SEC shall not register the articles of incorporation of any bank or any
amendment thereto unless accompanied by a certificate of authority issued by
the Monetary Board under its seal - (Sec. 14, GBL).

ORGANIZATION OF A BANK OR QUASI-BANK


Requirements:
a) The entity is a stock corporation;
b) Its funds are obtained from the public,i.e. 20 or more persons; and
c) The minimum capital requirements prescribed by the Monetary Board are
satisfied -(Sec. 8, GBL).

A person or entity cannot engage in banking or quasi-banking functions without


a certificate of authority from the BSP - (Sec. 6, GBL).

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4. Classification (universal, commercial, rural, cooperative, foreign)
Universal banks - Primarily governed by the General Banking Law (GBL), can
exercise the powers of an investment house and invest in non-allied enterprises
and have the highest capitalization requirement.

Commercial banks - Ordinary banks governed by the GBL which have a lower
capitalization requirement than universal banks and can neither exercise the
powers of an investment house nor invest in non-allied enterprises.

Thrift banks: These are


a) Savings and mortgage banks;
b) Stock savings and loan associations;
c) Private development banks, which are primarily governed by the Thrift
Banks Act (R.A. 7906).

Rural banks - Mandated to make needed credit available and readily


accessible in the rural a reason reasonable terms and which are primarily
governed by the Rural Banks Act of 1992 (RA7353).

Cooperative banks - Those banks organized whose majority shares are owned
and controlled by cooperatives primarily to provide financial and credit services
to cooperatives. It shall include cooperative rural banks. They are governed
primarily by the Cooperative Code (RA 6938).

Islamic banks - Banks whose business dealings and activities are subject to the
basic principles and rulings of Islamic Sharia, such as the Al Amanah Islamic
Investment Bank of the Philippines which was created by RA 6848.

Other classification of banks as determined by the Monetary Board of the


Bangko Sentral ng Pilipinas.

DEPOSIT FUNCTION
1. Capacity of depositor (minor, women, would-be corporation)
Minors:
a. At least seven years of age
b. Able to read and write
c. Not disqualified by any incapacity
d. It should only be savings or time deposits

Note: Parents may deposit for their minor children or wards (Sec.1, PD No.734)

If the guardian shall give notice in writing to any thrift bank not to make
payments of deposits, dividends, or interest to the minor of whom he is the
guardian, then such payment shall be made to the guardian. (Sec.22, Thrift
Banks Act of 1995)

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Married Women are allowed to open bank accounts without assistance of their
husbands (RA No. 7192)

Corporations may open bank accounts as follows:


a. Incorporation Stage
b. Post-incorporation Stage

2. Relationship between the bank and depositor; implications


As debtor-creditor
a) Savings
b) Time
c) Demand

Characteristics:
i) In the nature of irregular deposits ( Serranovs. Central Bank, 96 SCRA 96)
ii) Contract of loan/mutuum with the depositor as creditor
iii) Bank acquires ownership of the thing deposited and the right to use and
dispose
iv) Money deposited is commingled with the other money, constituting a
common fund.
v) Not preferred credits (Central Bank vs.Morfe, 20 SCRA 507).

As trustee-trustor
a) Trust account

As bailee-bailor
a) Deposit strictly for safekeeping and for specific purposes
Safety deposit boxes - the relation between a bank renting out safety
deposit boxes and its customer with respect to the contents of the box is
that of a bailor and bailee, the bailment for hire and mutual benefit has
been adopted in this jurisdiction. It cannot be considered as a contract of
lease because the full possessionand control of the safety deposit box is
notgiven to the renters (Sia vs. CA, 222 SCRA 24[1993]).

As agent-principal
a) Deposit of check for collection
b) Deposit for specific purpose
c) Deposit for safekeeping

3. Kinds of deposit (Savings, Time, Demand)

Demand deposits are those liabilities of banks which are denominated in


Philippine currency and are subject to payment in legal tender upon demand
by presentation of checks. In here, no interest is paid by the bank because the
depositor can take out his funds any time. It is called demand deposit because
the depositor can withdraw the money he deposited on the very same day.

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Savings Account, which is the most common type of deposit, is usually
evidenced by a passbook. Under the fine print, if you deposit today, you cannot
withdraw the amount until 60 days later. Bank pays an interest rate, but not as
high as time deposits.

Time Deposit is an account with fixed term. The interest rate is stipulated
depending on the number of days. During this period, the money deposited
cannot be withdrawn. It has a higher rate of interest than saving account.

A bank other than a Universal Bank or Commercial Bank cannot accept


or create demand deposits except upon prior approval of, and subject to
such conditions and rules as may be prescribed by the Monetary Board.

4. Concept of and rules on Joint Account


a. And account
Co-ownership
The signatures of both co-depositors are required for withdrawals

b. And/or account
Either one of the co-depositors may deposit and withdraw from the
account without the knowledge, consent and signature of the other. And
upon the death of one, the survivor may withdraw the entire balance on
deposit.
The account may be deemed a survivorship agreement depending on
the intention of the parties; aleatory contract supported by a lawful
consideration which is valid unless when made as a mere cloak to hide an
inofficious donation, to transfer property in fraud of creditors, or to defeat
the legitime of a forced heir (Riveravs. Peoples Bank and Trust Co., 73
Phil.546 [1942]).

5. Anonymous accounts
Anonymous accounts are prohibited - (R.A. No9160 as amended by RA 9194;
BSP Circular No. 251,July 21, 2000)
exception:
Foreign currency deposits may be a numbered account. However, the law
requires that the necessary measures are undertaken by the bank to record and
establish the true identity of the depositor.

6. Deceased depositors
If a bank has knowledge of the death of a person, who maintained a bank
deposit account alone, or jointly with another, it shall not allow any withdrawal
from the said deposit account, unless the Commissioner has certified that the
taxes imposed thereon by this Title have been paid: Provided, however, That the
administrator of the estate or any one (1) of the heirs of the decedent may,
upon authorization by the Commissioner, withdraw an amount not exceeding
Twenty thousand pesos (P20,000) without the said certification. (Par 2, Sec 97,
National Internal Revenue Code of 1997)

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7. Survivorship Agreements
Survivorship agreement is a contract that imposes a mere obligation with a
term, the term being death. Such agreements are permitted under Art 2012 of
the Civil Code, an aleatory contract. But although the survivorship agreement is
per se not contrary to law, its operation or effect may be violative of the law. For
instance, if it be shown in a given case that such agreement is a mere cloak to hide an
inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such grounds.
Joint account may be the subject of a survivorship agreement whereby the co-
depositor agree to permit either of them to withdraw the whole deposit during their
lifetime and transferring the balance to the survivor upon the death of one of them -
(Vitug vs. CA, 29 March 1990).

SECRECY OF BANK DEPOSITS


1. Rationale (RA 1405 - SECRECY OF BANK DEPOSITS LAW)
To encourage people to deposit in banks
To discourage private hoarding so that banks may lend such funds and assist in
the economicdevelopment

Coverage:
All deposits of whatever nature with banks or banking institutions in the
Philippines, including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities

PROHIBITED ACTS
a. Examination and inquiry or looking into all deposits,of whatever nature, with the
banks in thePhilippines including investments in bonds issuedby the Government.
b. Any disclosure by any official or employee of anybank to any unauthorized
person of any informationconcerning the said deposits.

GENERAL RULE:
The deposits covered by law areconsidered as of an absolutely confidential
nature and may not be examined, inquired or looked into by anyperson,
governmental bureau, or office.

2. Exceptions:
FROM R.A. NO.1405
a. written permission of depositor
b. impeachment
c. bribery/dereliction of duty
The crime of bribery and the overt acts constitutive of plunder are crimes committed
by public officers, and in either case the noble idea that "a public office is a public
trust and any person who enters upon its discharge does so with the full knowledge
that his life, so far as relevant to his duty, is open to public scrutiny" applies with equal
force. Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder. (Ejercito vs.
Sandiganbayan, 30 November 2006)
d. deposit is the subject matter of litigation
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FROM OTHER LAWS
e. anti-graft & corrupt practices (R.A.No. 3019)
f. net estate determination
Inquiry by the Commissioner of InternalRevenue into bank deposits of:
a. A decedent to determine his gross estate;
b. A taxpayer who has filed an application for compromise of his tax liability
by reason of financial incapacity to pay his tax liability. Hemust file a
written waiver of his privilege under RA1405 or other general or special
laws (Sec.6[f], NIRC)
g. dormant accounts
Disclosure to the Treasurer of the Philippines of dormant deposits for at least
10 years under the Unclaimed Balances Act (Act No. 3936).
h. AMLA (safe harbor provision)
Inquiry or examination by the Anti-Money Laundering Council(AMLC) of any
particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of
the Anti-Money Laundering Law, when it has been established that there is
probable cause that the deposits or investments are related to an unlawful
activity or a money laundering offense, except that no court order shall be
required in the following unlawful activities:
a) Kidnapping for ransom under Art. 267 RPC;
b) Comprehensive Dangerous Drugs Act of 2002(RA No. 9165);
c) Hijacking and other violations under RA 6235;
d) Destructive arson and murder under RPC.Including those perpetrated
by terrorists against non-combatant persons and similar targets. (Sec.
11, R.A. No. 9160 as amended by Sec. 8 of RA 9194)

Safe Harbor Provision. - No administrative, criminal or civil proceedings


shall lie against any person for having made a covered transaction report
in the regular performance of his duties and in good faith, whether or not
such reporting results in any criminal prosecution under the AMLA or any
other Philippine law. - Rules And Regulations Implementing The Anti-
Money Laundering Act of 2001(Sec 2.e, Rule 3, R.A. No. 9160)
i. Human Security Law
The Court of Appeals, designated as a special court, may issue an order
authorizing law enforcement officers to examine and gather information on
the deposits, placements, trust accounts, assets and records in a bank or
financial institution in connection with anti-terrorism case. - (Rep. Act No. 9372 -
often referred to as the Anti-Terror Law or Anti-Terrorism Law. As will be seen in the
text of the law, however, this is properly known as the Human Security Act of 2007)
j. BSPs periodic or special examination of bank
BSPs inquiry into or examination of deposits or investments with any bank,
when the inquiry or examination is made in the course of the BSPs periodic or
special examination of such bank (Section 11, Anti-Money Laundering Act of
2001)

3. Rule on foreign currency deposits


FOREIGN CURRENCY DEPOSIT ACT OF THE PHILIPPINES (REPUBLIC ACT NO. 6426)
Foreign currency deposits refer to funds in foreign currencies which are
accepted and held by authorized banks in the regular course of

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business with the obligation to return an equivalent amount to the
owner thereof, with or without interest.

Absolute Confidentiality of Foreign Currency Deposits


All foreign currency deposits are absolutely confidential and cannot
be examined, inquired, or looked into by any person, government
official, bureau or office, whether judicial or administrative or
legislative, or any other private or public entity. Foreign currency
deposits are also exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or
any administrative body whatsoever. (Sec. 8, Rep. Act No. 6426)

Instances when Confidentiality of Foreign Currency Deposits is Not Absolute


FROM RA NO. 6426
a) Foreign currency deposits may be examined, inquired or looked into
when there is written permission of the depositor.

FROM OTHER LAWS


b) Directors, officers, stockholders and related interests who contract a loan
or any form of financial accommodation with their bank or related bank
are required to execute a written waiver of secrecy of deposits pursuant
to The New Central Bank Act. (Sec. 26, Rep. Act No. 7653)
c) The Commissioner of Internal Revenue is authorized to inquire into bank
deposit accounts in relation to:
i) an application for compromise of tax liability or a determination
of a decedents gross estate under The National Internal
Revenue Code (Rep. Act No. 8424, as amended by Rep. Act No.
10021); and
ii) a request for tax information of specific18 taxpayers made by a
foreign tax authority pursuant to a tax treaty under The
Exchange of Information on Tax Matters Act of 2009 (Rep. Act
No. 8424, as amended by Rep. Act No.10021).
d) AMLA
Money Laundering a crime whereby the proceeds of an unlawful
activity is transacted thereby making them appear to have originated
from legitimate sources
AMLC can inquire into deposits upon court order when there is a
probable cause that the deposits are related to any unlawful activity.

No court order is required if examination is in connection with:


(a) Kidnapping for ransom;
(b) Violation of Comprehensive Dangerous Drugs Act of 2002;
(c) Violations of RA 6235;
(d) Destructive arson; and
(e) Murder, including those perpetrated by terrorists.

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Preventive measures:
(1) Covered Transaction Report
Transaction in cash or other monetary instrument in excess
of P500, 000 within one banking day.
Covered institution shall report to the AMLC all covered
and suspicious transactions within 5 working days from the
occurrence thereof, unless the Supervising Authority
prescribes a longer period not exceeding10 working days
(2) Suspicious Transaction Report
Suspicious transaction' are transactions with covered
institutions, regardless of the amounts involved, where any
of the following circumstances exist:
a) There is no underlying legal or trade obligation,
purpose or economic justification;
b) The client is not properly identified;
c) The amount involved is not commensurate with the
business or financial capacity of the client;
d) Taking into account all known circumstances, it may
be perceived that the client's transaction is structured
in order to avoid being the subject of reporting
requirements under the Act;
e) Any circumstances relating to the transaction which is
observed to deviate from the profile of the client
and/or the client's past transactions with the covered
institution;
f) The transactions is in a way related to an unlawful
activity or offense under this Act that is about to be, is
being or has been committed; or
g) Any transactions that is similar or analogous to any of
the foregoing.
(3) Customer Identification
Covered institutions shall establish and record the true
identity of its clients based on official documents. They
shall maintain a system of verifying their clients and incase
of corporate client, require a system of verifying their legal
existence and organizational structure, as well as the
authority and identification of all person purporting to act
on their behalf
(4) 5-year period to store record
All records of all transaction of covered institution shall be
maintained and safely stored for 5 years from the dates of
transaction. With respect to closed accounts, the records
on customer identification, account files and business
correspondence, shall be preserved and safely stored for
at least 5 years from the dates when they were closed.

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e) The Bangko Sentral is authorized to
i) Inquire into or examine bank deposits and investments in the course
of a periodic or special examination to ensure compliance with The
Anti Money Laundering Act, in accordance with the rules of
examination of the Bangko Sentral (Sec. 11, Rep. Act No. 9160, as
amended); and
ii) Conduct annual testing which is limited to the determination of the
existence and true identity of the owners of numbered accounts
(Sec. 9, Rep. Act No 9160, as amended21).
f) The Philippine Deposit Insurance Commission and the Bangko Sentral may
inquire into bank deposits when there is a finding of unsafe or unsound
banking practices. (Sec. 8, Rep. Act No. 3591, as amended)
g) The Commission on Audit is authorized to examine and audit government
deposits pertaining to the revenue and receipts of, and expenditures or uses
of funds and properties, owned or held in trust by, or pertaining to, the
Government or any of its subdivisions, agencies or instrumentalities, including
government-owned and controlled corporations with original charters. (See
Art. IX-D, 1987 Constitution and Pres. Dec. No.1445)
h) The Presidential Commission on Good Government, in the conduct of its
investigations to recover ill-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, may issue subpoenas requiring the attendance and testimony of
witnesses and/or the production of books, papers, contracts, records,
statement of accounts and other documents. (Sec. 3 [e], Exec. Order No.
1[1986])

REQUISITES OF IN CAMERA INSPECTION:


i) There must be a pending case before a court of competent
jurisdiction.
ii) The account must be clearly identified, the inspection limited to the
subject matter of the pending case before the court of competent
jurisdiction.
iii) The bank personnel and the account holder must be notified to be
present during the inspection, and
iv) Such inspection may cover only the account identified in the
pending case. (Marquez vs Desierto, G.R. No. 135882, June 27,
2001)

FROM JURISPRUDENCE ON GROUNDS OF EQUITY


i) Account of a Non-resident Alien
The garnishment of a foreign currency deposit account of a non-resident
alien found guilty of raping a minor was allowed on the basis of equity.
(Salvacion v. Central Bank of the Philippines, 278 SCRA 27, Aug 21, 1997)
j) Account of a Co-payee of a Check
A co-payee of a check who filed a suit for recovery of sum of money was
considered, in a pro hac vice ruling by the Supreme Court, as a depositor
in view of the distinctive circumstances of the case. (China Banking
Corporation v. Court of Appeals, 511 S.C.R.A. 110 [2006])

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PDIC - Philippine Deposit Insurance Corporation
FUNCTIONS OF PDIC:
a) Deposit Insurer
b) Co-regulator of Banks
c) Receiver and Liquidator of Closed Banks

1. Mandatory Insurance Coverage (RA 9576)


2. Risk insured against - bank closure
3. Amount insured amount deposited net of any obligation of the depositor to the
bank as of closure
4. Maximum coverage - P500,000 per bank regardless of the number of the
accounts held
5. Joint accounts separately covered
Excluded:
a) deposit in foreign branches;
b) investment products;
c) unfounded, fictitious or fraudulent;
d) deposits emanating from unsafe and unsound banking practices;
e) AMLA;
f) splitting of deposits
6. Filing of claim 2 years from actual take over
7. Remedy for amounts in excess of P500,000
In case the depositors account is more than the insurance coverage,
the balance may still be recovered from the PDIC after the final
liquidation of the remaining assets of the closed bank
8. Period for PDIC to pay the claim
The claim for insured deposit should be settled within six (6) months
from the date of filing provided all requirements are met but the claim
must be filed within twenty-four (24) months after bank takeover. The
six-month period shall not apply if the documents of the claimant are
incomplete or if the validity of the claim requires the resolution of issues
of facts and law by another office, body or agency, independently or
in coordination with PDIC.

LOAN FUNCTION
1. Basic rules on bank loans (Sec. 39, 40 & 55.2, GBL)
Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank
shall grant loans and other credit accommodations only in amounts and for the periods
of time essential for the effective completion of the operations to be financed. Such
grant of loans and other credit accommodations shall be consistent with safe and
sound banking practices. The purpose of all loans and other credit accommodations
shall be stated in the application and in the contract between the bank and the
borrower. If the bank finds that the proceeds of the loan or other credit
accommodation have been employed, without its approval, for purposes other than
those agreed upon with the bank, it shall have the right to terminate the loan or other
credit accommodation and demand immediate repayment of the obligation.

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Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. - Before
granting a loan or other credit accommodation, a bank must ascertain that the debtor
is capable of fulfilling his commitments to the bank. Toward this end, a bank may
demand from its credit applicants a statement of their assets and liabilities and of their
income and expenditures and such information as may be prescribed by law or by rules
and regulations of the Monetary Board to enable the bank to properly evaluate the
credit application which includes the corresponding financial statements submitted for
taxation purposes to the Bureau of Internal Revenue. Should such statements prove to
be false or incorrect in any material detail, the bank may terminate any loan or other
credit accommodation granted on the basis of said statements and shall have the right
to demand immediate repayment or liquidation of the obligation. In formulating rules
and regulations under this Section, the Monetary Board shall recognize the peculiar
characteristics of micro financing, such as cash flow-based lending to the basic sectors
that are not covered by traditional collateral.

Section 55.2. No borrower of a bank shall -


(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the purpose
of obtaining, renewing, or increasing a loan or other credit accommodation or extending
the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan or
other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or
any other form of compensation in order to influence such persons into approving a loan or
other credit accommodation application.

2. Specific rules on:


amortization (Sec. 44, GBL);
The amortization schedule of bank loans and other credit accommodations
shall be adapted to the nature of the operations to be financed. In case of
loans and other credit accommodations with maturities of more than five (5)
years, provisions must be made for periodic amortization payments, but such
payments must be made at least annually: Provided, however, That when the
borrowed funds are to be used for purposes which do not initially produce
revenues adequate for regular amortization payments therefrom, the bank
may permit the initial amortization payment to be deferred until such time as
said revenues are sufficient for such purpose, but in no case shall the initial
amortization date be later than five (5) years from the date on which the
loan or other credit accommodation is granted. In case of loans and other
credit accommodations to micro finance sectors, the schedule of loan
amortization shall take into consideration the projected cash flow of the
borrower and adopt this into the terms and conditions formulated by banks.
prepayment (Sec. 45, GBL);
A borrower may at any time prior to the agreed maturity date prepay, in
whole or in part, the unpaid balance of any bank loan and other credit
accommodation, subject to such reasonable terms and conditions as may
be agreed upon between the bank and its borrower.
renewal (Sec. 48, GBL);
The Monetary Board may, by regulation, prescribe the conditions and
limitations under which a bank may grant extensions or renewals of its loans
and other credit accommodations.
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losses/write-offs (Sec. 49, GBL);
All debts due to any bank on which interest is past due and unpaid for such
period as may be determined by the Monetary Board, unless the same are welt-
secured and in the process of collection shall be considered bad debts within
the meaning of this Section. The Monetary Board may fix, by regulation or by
order in a specific case, the amount of reserves for bad debts or doubtful
accounts or other contingencies. Writing off of loans, other credit
accommodations, advances and other assets shall be subject to regulations
issued by the Monetary Board.
escalation clause
raising of interest.
allowed ONLY when the monetary board has increased the rate of interest
provided that there is also a stipulation that interest will be lowered if MB has
lowered the rate of interest
Both instances should be present before escalation clause is allowed
Exception: if the creditor unilaterally decreased the interest even if it was not
stipulated, esacalation will be allowed.

3. DOSRI Restrictions
Rationale
The general policy behind the DOSRI limit is to level the lending field between insiders
(namely, directors, officers, stockholders, and their related interests) and the outsiders.
The rules require that loans and other credit accommodations to DOSRI are to be in the
regular course of business and upon terms not less favorable to the bank than those
offered to those outside the DOSRI circle.
The aim is to prevent the bank from becoming a captive source of finance of the DOSRI.
The evil sought to be avoided is the abuse of confidence.

Requisites:
a) borrower director, officer, stockholder of the bank (1%) or their related interests
b) loan
c) from his bank or bank subsidiary (or affiliate) or bank controlling interest of
which is the same as his bank
d) Amount of loan in excess of 5% of capital surplus of the lending bank

Related Interests
a) Relatives (spouse and 1st degree relatives)
b) Partnership (of which the DOS is a general partner)
c) Co-owner of the collateral
d) certain corporations, association or firm where:
i) DOS or relative is also a director or officer
ii) any or group of DOS or relative holds at least 20% of the capital
stock
iii) wholly/majority owned by any related entity or group of related
entities
iv) owns at least 20% of the capital stock of a substantial
stockholder of the lending bank or which controls majority
interest of the bank
v) lending bank owns 20% of the corporation or has management
contract with the lending bank (CB Circular 423, 2004)

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DOSRI Requirements:
a) written approval of all the directors of the lending bank
b) report to BSP
c) arms length
Arms Length Rule - Dealings of a bank with any of its DOSRI shall be upon
terms not less favorable to the bank than those offered to others.
d) aggregate ceiling of DOSRI loans
15% of the banks loan portfolio or 100% of combined capital
accounts whichever is lower
e) individual ceiling
encumbered deposit and book value of paid up shares
an amount equivalent to his or her unencumbered deposits in the
lending bank plus the book value of paid-capital contribution
therein.

4. Single Borrower Limit 25% of the net worth of the bank


The single borrowers limit (SBL) serves to allocate bank resources to different
sectors of the economy. It prevents the bank from making excessive loans and
other credit accommodations to a single borrower or corporate group. Thus, the
bank is prohibited from placing all of its eggs in the basket of a single client,
thereby safeguarding the bank from too large a risk exposure to a single client.
Currently, the SBL is 25 per cent of the net worth of the bank. There could be an
incremental SBL of 10 per cent of the net worth of the bank, provided that the
additional liabilities of the borrower are adequately secured by documents of
title to goods that are readily marketable, non-perishable, and fully insured.

Included in the SBL:


direct and indirect liability
liabilities of corporations, etc. in which the borrower is a major stockholder
liabilities of subsidiaries, if the borrower is a corporation
liabilities of members, if borrower is a partnership or association

Excluded from the SBL:


loans secured by: the BSP, government US Treasury, other central banks of
foreign countries with high credit quality, hold out on/security on deposit,
others MB

5. Collaterals 75% of the appraised value of the real property plus 60% of the value of
the improvement or 75% of the appraised value of the chattel (Sec 37 & 38, GBL)
Note: The limit on loans, credit accommodations and guarantees prescribed herein
shall not apply to loans, credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders.

6. Redemption Real Estate


if natural person - one (1) year after the sale
if juridical person until but not after registration of certificate of
foreclosure sale, in no case more than 3 months after foreclosure which
ever is earlier
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Effect of Restraining Order
Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course
only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may
suffer by the enjoining or the restraint of the foreclusure proceedings.

Truth In Lending Act (RA 3765- Disclosure of Finance Charges)


Policy - protect the citizens from a lack of awareness of the true cost of credit by
assuring a full disclosure of such cost.

Disclosure shall include:


a) The cash price of the property or service to be acquired
b) Amounts for downpayment
c) Charges which are paid in connection with the transaction
d) Amount to be financed
e) Finance charge - interest and fees incident to the extension of credit

Truth in Lending Act may also be violated if the agreement provides for an escalation
clause on interest which is dependent solely on the will of the bank. (UCPB vs Sps Beluso,
G.R. No. 159912, August 17, 2007)
Subsequent compliance with the disclosure requirement cannot be deemed in
substantial compliance with the Truth in Lending Act. (UCPB vs Sps Beluso, G.R. No.
159912, August 17, 2007)

Penalty- either civil or criminal (1k-5k fine or imprisonment for 6-12 months, or both)
- Government is exempted from the punishment or penalty

BANK OWNERSHIP
RULES UNDER THE MANUAL OF REGULATIONS FOR BANKS
1. Foreign Individuals and non-bank corps 40% of the voting stock (Aggregate
ceiling 40%)
2. Filipino individual and domestic non-bank each up to 40%
No aggregate ceiling
3. Citizenship of the corporation which is a stockholder of a bank citizenship of
the controlling (more than 50%) stockholders
4. Commercial banks 60% (Filipino)
Rural banks 100% (Filipino)
Thrift bank - 40% (Filipino)

DIRECTORS & OFFICERS


1. Board Composition - 5 to 15 members (2 should be independent)
An independent director shall mean a person other than an officer or employee
of the bank, its subsidiaries or affiliates or related interests.
Public officials (appointive or elective, whether full-time or part-time) not qualified -
except for rural banks (Section 19, GBL)

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2. Meetings can be done electronically

3. Fit and Proper Rule - Section 16, GBL


Fit and Proper Rule states that to maintain the quality of bank management and
afford better protection to depositors and the public in general, the Monetary
Board shall prescribe, pass upon and review the qualifications and disqualifications
of individuals elected or appointed bank directors or officers and disqualify those
found unfit.
After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an
act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a
director or officer of a bank, regard shall be given to his integrity, experience,
education, training, and competence.

4. Disqualifications
a) Conviction of offenses involving dishonesty or breach of trust;
b) Sentenced more than 6 years;
c) Violation of banking laws;
d) Responsible D&O of closed banks;
e) D&O found administratively liable for violation of banking laws where removal
from office is imposed;
f) Those found unfit for the position of D&O

OWNERSHIP OF REAL PROPERTY


A bank can acquire real estate necessary for the conduct of its Business. BUT,
total investment in real property shall not exceed 50% of the combined capital
accounts.

Limitation does not apply to real properties:


a) Mortgaged to it;
b) Conveyed to it in satisfaction of debts;
c) Purchased at sales under judgments, etc.

BANKS IN DISTRESS
A. UNSECURED LOANS to provide liquidity (not more than 7 days)
Sec 83, NCBA. Loans for Liquidity Purposes. - The Bangko Sentral may extend
loans and advances to banking institutions for a period of not more than seven
(7) days without any collateral for the purpose of providing liquidity to the
banking system in times of need.

B. EMERGENCY LOANS not more than 50% of total deposits


Sec 84, NCBA. Emergency Loans and Advances. - The BSP, upon the approval
of at least 5 members of the MB, may also grant emergency loans or advances
in the amount not exceeding 50% of its total deposits and deposit substitutes.

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C. CONSERVATORSHIP (Sec 29, NCBA)
Condition: continuing inability or unwillingness to maintain liquidity
Period: 1 year
Powers:
1) Take charge of/manage the assets & liabilities
2) Reorganize management
3) Collect receivables
4) Necessary powers

D. RECEIVERSHIP (Sec 30, NCBA)


Condition:
1) Unable to pay liabilities
2) Insufficient assets
3) More losses if business will continue
4) Willful violation of CDO

Close Now Hear Later Scheme


No prior hearing needed, but subject to subsequent judicial review
(certiorari by holders of majority of the capital stock within 10 days from
receipt of order)
The law does not contemplate prior notice and hearing before the
bank may be directed to stop operations and placed under
receivership. The purpose is to prevent unwarranted dissipation of the
banks assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public. (Central
Bank of the Philippines v. CA, G.R. No. 76118 Mar. 30, 1993)

EFFECTS OF RECEIVERSHIP:
1) Exemption from garnishment, levy, attachment & execution
2) Stoppage of business
3) Suspension of banks authority over its properties (Assets are deemed
under custodia legis)
4) Exemption from payment of interests on deposits
5) Retention of juridical personality
6) Exclusive jurisdiction of liquidation court

E. LIQUIDATION
- Cannot proceed simultaneously with rehabilitation
- Receiver to file ex parte petition with the proper RTC for assistance in the
liquidation of the bank
- All claims (including disputed claims) subject to the liquidation courts jurisdiction

Distinguished from liquidation under the Corporation Code (In Re: Petition for
Assistance in the Liquidation of Rural Bank of Bokod, 18 December 2006)
- Prior notice and hearing not required (summary)
- Bank has no option to undertake its own liquidation
- Can be dissolved even without prior BIR clearance

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SUBSTANTIAL DIFFERENCES IN THE PROCEDURE FOR INVOLUNTARY DISSOLUTION AND
LIQUIDATION - In Re: Petition for Assistance in the Liquidation of Rural Bank of Bokod, 18 Dec. 2006
UNDER THE CORPORATION CODE NEW CENTRAL BANK ACT
The Monetary Board may summarily and
The SEC may dissolve a corporation, upon the without need for prior hearing, forbid the
filing of a verified complaint and after proper banking corporation from doing business in
notice and hearing, on grounds provided by the Philippines, for causes enumerated in
existing laws, rules, and regulations. Section 30 of the New Central Bank Act; and
appoint the PDIC as receiver of the bank.
The actions of the Monetary Board shall be
final and executory, and may not be
The SEC shall issue the final order of dissolution restrained or set aside by the court except on
only after the corporation has submitted its a Petition for Certiorari filed by the
tax clearance; or in case of involuntary stockholders of record of the bank
dissolution, the SEC may proceed with the representing a majority of the capital stock.
dissolution after 30 days from receipt by the PDIC, as the appointed receiver, shall file ex
BIR of the documentary requirements without parte with the proper RTC, and without
a tax clearance having been issued requirement of prior notice or any other
action, a petition for assistance in the
liquidation of the bank.
The corporation may undertake its own
liquidation, or at any time during the said
three years, it may convey all of its property to The bank is not given the option to undertake
trustees for the benefit of its stockholders, its own liquidation.
members, creditors, and other persons in
interest.

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