BANKING TSN 2018

Based on the lectures of Atty. Raymund Christian Ong-Abrantes

JANUARY 9, 2019 (1st HOUR) countries as third world countries. It’s not politically
correct in a world where political correctness is very
GENERAL BANKING LAW OF 2000 overrated.

The banking institution plays a bigger role than any

Next, to your Central Bank Act, is the General Banking other type of financial institution.
Law. The Central Bank Act is the charter for the BSP.
The GBL (GENERAL BANKING LAW) is actually the What is the function of a bank?
legal provision which governs relationship of banks as It receives deposits and it blends this out especially it
well with its citizens(?). uses these resources to fuel businesses, commercial
establishments that will greatly contribute to the
According to Amando M. Tetangco, Jr. national economy. It is the policy of the state to
recognize the role of banks in sustaining and developing
The law is an important legislative reform that the national economy.
addressed the need for the regulatory framework to be
more responsive to the rapid changes in the financial And the fiduciary nature of banks requires high standard
environment. of integrity and performance because you cannot
actually encourage people to invest in you if you do not
 because the predecessor of this law, I think RA exercise the utmost or the highest degree of integrity
8791, it did not answer or it did not conform the and performance for in furtherance thereof, the State is
developments of the banking industry. It had to be that it shall promote and maintain a stable and efficient
amended. banking and financial system that is that is globally
competitive, dynamic and responsive to the demands of
Among others, the law upgrades the country’s banking a developing economy.
laws to meet global standards,
If you are into policy making you always look at the
—right now, the banking industry itself is developing so policy of the state because the provisions that would
your law has to be dynamic. come after should be consistent or should address the
policy of the law.
Liberalizes foreign participation in domestic banks,
SIMEX INTERNATIONAL V. CA
 because before, the ownership of banks is strictly
with the 1Filipino citizens but now, there is FACTS
actually, even foreign banks can enter the Filipino
market, you’ve know this actually, you’ve seen it, Petitioner, a private corporation engaged in the
foreign banks entering the 1Filipino market. exportation of food products, was a depositor
maintaining a checking account with respondent
…promotes greater transparency in bank practice and Traders Royal Bank. Petitioner deposited to its
provides the BSP more flexibility in supervising the account increasing its balance and subsequently,
banking industry. The GBL 2000 aims to enhance the issued several checks but was surprised to learn that
supervisory capability and enforcement powers of the it had been dishonored for insufficient funds. As a
BSP, improve prudential standards and foster greater consequence, petitioner received demand letters
competition in the banking industry. from its suppliers for the dishonored checks.
Investigation disclosed that the deposit was not
SECTION 2. Declaration of Policy. — The State credited to it. The error was rectified and the
recognizes the vital role of banks in providing an dishonored checks were consequently paid. Petitioner
environment conducive to the sustained development of demanded reparation from respondent bank for its
the national economy and the fiduciary nature of gross and wanton negligence but the later did not
banking that requires high standards of integrity and heed. Petitioner then filed before the RTC which later
performance. held that respondent bank was guilty of negligence
but petitioner nonetheless was not entitled to moral
In furtherance thereof, the State shall promote and damages. CA affirmed.
maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and ISSUE
responsive to the demands of a developing economy.
Whether or not petitioner is entitled to damages due
Before there were first, second, third world countries – to respondent bank’s negligence.
the correct classification is developed, developing
countries. I think it’s incorrect to categorize developing RULING
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

form loans but more often in the conduct of day to day

YES. The petitioner is entitled to damages due to transactions like the issuance of the detachments and
respondent bank’s negligence. checks. That’s why the bank should exercise the highest
degree of diligence.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of Who among have you worked in a bank? There’s a
promptitude in repairing its error, justifies the grant training and standard of procedures. They’re just
of moral damages. This rather lackadaisical attitude following protocols.
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the SOLIDBANK VS ARRIETA
respondent court said had not been established by
the petitioner. We shall recognize that the petitioner FACTS:
did suffer injury because of the private respondent’s
negligence that caused the dishonor of the checks Carmen Arrieta is a bank depositor of Solidbank
issued by it. The immediate consequence was that its Corporation under Checking Account No. 123-1996.
prestige was impaired because of the bouncing On March 1990, Carmen issued SBC Check No.
checks and confidence in it as a reliable debtor was 0293984 in the amount of P330.00 in the name of
diminished. Lopues Department Store in payment of her
purchases from said store. When the check was
The point is that as a business affected with public deposited by the store to its account, the same was
interest and because of the nature of its functions, dishonored due to Account Closed despite the fact
the bank is under obligation to treat the accounts of that at the time the check was presented for
its depositors with meticulous care, always having in payment, Carmens checking account was still active
mind the fiduciary nature of their relationship. In the and backed up by a deposit of P1,275.20.
case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that relationship. As a consequence of the checks dishonor, Lopues
What is especially deplorable is that, having been Department Store sent a demand letter to Carmen.
informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did Before these events though, a similar incident
not immediately correct it but did so only one week occurred days before, where Arrieta issued a check
later or twenty-three days after the deposit was which subsequently bounced.
made. It bears repeating that the record does not
contain any satisfactory explanation of why the error Thereupon, Carmen filed a complaint against
was made in the first place and why it was not Solidbank Corporation for damages.
corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton In its answer, the bank claimed that Carmen,
manner contemplated in the Civil Code that calls for contrary to her undertaking as a depositor, failed to
the imposition of exemplary damages. maintain the required balance of at least P1,000.00
on any day of the month. Moreover, she did not
handle her account in a manner satisfactory to the
In Simex, the court had the occasion to state the bank. In view of her violations of the general terms
banking system is an indispensable institution in the and conditions governing the establishment and
modern world and plays a vital role in the economic life operation of a current account, Carmen’s account was
of every civilized nation. Whether as mere passive recommended for closure. In any event, the bank
entities for the safekeeping and saving of money or as claimed good faith in declaring her account
active instruments of business and commerce, banks closed since one of the clerks, who substituted
have become an ubiquitous presence among the people, for the regular clerk, committed an honest
who have come to regard them with respect and even mistake when he thought that the subject
gratitude and, most of all, confidence. Thus, even the account was already closed when the ledger
humble wage-earner has not hesitated to entrust his containing the said account could not be found.
life’s savings to the bank of his choice, knowing that
they will be safe in its custody and will even earn some ISSUE
interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for Whether or not Arrieta is entitled to moral damages.
security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. RULING

As well as business entities, the bank is trusted as an YES. Arrieta is entitled to moral damages.
active associate that can help in running, not only in the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

The fact that another check Carmen had issued was Proximate cause has been defined as any cause
previously dishonored does not necessarily imply that which, in natural and continuous sequence, unbroken
the dishonor of a succeeding check can no longer by any efficient intervening cause, produces the
cause moral injury and personal hurt for which the result complained of and without which would not
aggrieved party may claim damages. Such prior have occurred x x x.
occurrence does not prove that respondent does not
have a good reputation that can be besmirched. It is determined from the facts of each case upon
combined considerations of logic, common sense,
The circumstances surrounding the two checks are policy and precedent. Clearly, had the bank accepted
different. The first check was to accommodate a and honored the check, Carmen would not have had
relative, and the succeeding one to pay for goods to face the questions of -- and explain her
purchased from the Lopues Department Store. That predicament to -- her office mates, her daughters,
she might not have suffered damages as a result of and the leaders and members of her church.
the first dishonored check does not necessarily hold
true for the second. Furthermore, the CA was in agreement with the trial
court in ruling that her injury arose from the gross
The following are the conditions for the award of negligence of petitioner in dishonoring her well-
moral damages: funded check.

(1) there is an injury -- whether physical, mental or Fourth, treating Carmens account as closed, merely
psychological -- clearly sustained by the claimant; because the ledger could not be found was a reckless
(2) the culpable act or omission is factually act that could not simply be brushed off as an honest
established; mistake. The Supreme Court said, We have
(3) the wrongful act or omission of the defendant is repeatedly emphasized that the banking industry is
the proximate cause of the injury sustained by the impressed with public interest. Consequently, the
claimant; and highest degree of diligence is expected, and high
(4) the award of damages is predicated on any of the standards of integrity and performance are even
cases stated in Article 2219[11] of the Civil Code. required of it. By the nature of its functions, a bank
is under obligation to treat the accounts of its
In the instant case, all four requisites have been depositors with meticulous care and always to have
established. in mind the fiduciary nature of its relationship with
them.
First, these were the findings of the appellate court:
Carmen Arrieta is a bank depositor of Solidbank Petitioners negligence here was so gross as to
Corporation of long standing. She works with the amount to a wilful injury to Respondent Carmen.
Central Negros Electric Cooperative, Inc. (CENECO), Article 21 of the Civil Code states that any person who
as an executive secretary and later as department wilfully causes loss or injury to another in a manner
secretary. She is a deaconess of the Christian Alliance that is contrary to morals, good customs or public
Church in Bacolod City. These are positions which no policy shall compensate the latter for the damage.
doubt elevate her social standing in the community. Further, Article 2219 provides for the recovery of
Understandably -- and as sufficiently proven by her moral damages for acts referred to in the
testimony -- she suffered mental anguish, serious aforementioned Article 21. Hence, the bank is liable
anxiety, besmirched reputation, wounded feelings for moral damages to respondent.
and social humiliation; and she suffered thus when
the people she worked with -- her friends, her family
and even her daughters classmates -- learned and
talked about her bounced check. What is their contention (the spouses)?

Second, it is undisputed that the subject check was It destroyed her reputation.
adequately funded, but that petitioner wrongfully
dishonored it. How about the contention of the bank your check
was previously dishonored?
Third, Respondent Carmen was able to prove that
petitioners wrongful dishonor of her check was the The fact that another check Carmen had issued was
proximate cause of her embarrassment and previously dishonored does not necessarily imply that
humiliation in her workplace, in her own home, and the dishonor of a succeeding check can no longer cause
in the church where she served as deaconess. moral injury and personal hurt for which the aggrieved
party may claim damages. Such prior occurrence does
not prove that respondent does not have a good
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

reputation that can be besmirched. The reasons for and On the other hand, RCBC denied negligence and put
the circumstances surrounding the previous issuance the blame on Tan for the "misrouting" on the
and eventual dishonor of Check No. 0293983 are totally petitioner for using the wrong check deposit slip. It
separate -- the payee of the prior check was different - insisted that the misuse of a local check deposit
- from that of Check No. 0293984, subject of present slip, instead of a regional check deposit slip,
case. Carmen had issued the earlier check to triggered the "misrouting" by RCBC of the
accommodate a relative, and the succeeding one to pay cashier's check to the Central Bank and it was
for goods purchased from Lopues Department Store. petitioner's negligent "misuse" of a local
That she might not have suffered damages as a result deposit slip which was the proximate cause of
of the first dishonored check does not necessarily hold the "misrouting," thus he should bear the
true for the second. consequence.

ISSUE
TAN VS CA and RCBC
Whether or not the RCBC had been remiss in the
performance of its duty and obligation to its client as
FACTS well to itself.

Businessman Ramon Tan had maintained an account RULING

with RCBC Binondo since 1976. To avoid carrying
cash while going to Manila, he secured a Cashier’s YES. The RCBC had been remiss in the performance
Check from PCIB in the amount of P 30K, payable to of its duty and obligation to its client as well to itself.
his order. He deposited the check to RCBC Binondo.
On the same day, RCBC erroneously sent the same The Court cited its earlier ruling in the case of City
cashier's check for clearing to the Central Bank which Trust Corporation v. The Intermediate Appellate
was returned for having been "missent" or Court. In that case, the depositor failed to put another
"misrouted." zero in her account number, thus the checks she
issued were dishonored. The Court said that even if
The next day, March 16, RCBC debited the amount there was a discrepancy in the number, still the name
covered by the same cashier's check from the account of the depositor was correct. The name is controlling
of the petitioner. Respondent bank at this time had in determining in whose account the deposit is made
not informed the petitioner of its action which the or should be posted. This is so because it is not likely
latter claims he learned of only 42 days after, to commit an error in one's name that merely relying
specifically on March 16, when he received the bank's on numbers which are difficult to remember,
debit memo. especially a number with eight (8) digits as the
account numbers of defendant's depositors.
Relying on the common knowledge that a
cashier's check was as good as cash, that the
usual banking practice that local checks are In the instant case, the teller should not have
cleared within three (3) working days and accepted the local deposit slip with the cashier's
regional checks within seven (7) working days, check that on its face was clearly a regional check
and the fact that the cashier's check was without calling the depositor's attention to the
accepted, petitioner issued two (2) personal mistake at the very moment this was presented to
checks both dated March 18. Check No. 040719 her. Neither should everyone else down the line who
in the name of Go Lac for Five Thousand Five processed the same check for clearing have allowed
Hundred (P5,5000.00) Pesos was presented on the check to be sent to Central Bank. Depositors do
April 25,3 more than 30 days from petitioner's not pretend to be past master of banking
deposit date of the cashier's check. CheckNo. technicalities, much more of clearing procedures. As
040718 in the name of MS Development Trading soon as their deposits are accepted by the bank
Corporation for Six Thousand Fifty-Three Pesos teller, they wholly repose trust in the bank
and Seventy Centavos (P6,053.70) was personnel's mastery of banking, their and the
returned twice on March 24, nine (9) days from bank's sworn profession of diligence and
his deposit date and again on April 26, twenty- meticulousness in giving irreproachable
two days after the day the cashier's check was service.
deposited for insufficiency of funds.
So it is in the instant case, where the conclusion is
Tan now files a case against RCBC. inevitable that RCBC had been remiss in the
performance of its duty and obligation to its client as
well as to itself.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Again, the banking industry is affected with public ISSUE:

interest. The bank is under the obligation to treat the
account of its depositors with meticulous care, always in Whether or not Metropolitan Bank remiss in its
mind the fiduciary nature of their relationship. duty and obligation to treat Katigbak’s account
with the highest degree of care.

METROPOLITAN BANK AND TRUST COMPAN vs.

THE HON. COURT OF APPEALS, RURAL BANK OF HELD:
PADRE GARCIA, INC. and ISABEL R. KATIGBAK
YES. The Metropolitan Bank remissed in its duty
FACTS and obligation to treat Katigbak’s account with
the highest degree of care considering the
Katigbak is the president and director of RBPG, while fiduciary nature of their relationship.
MBTC is the rural bank's depository bank, where
Katigbak maintains current accounts. In this case, the bank is under obligation to treat the
accounts of its depositors with meticulous care,
April 6, 1982, MBTC received from the CB a credit whether such account consists only of a few hundred
memo dated April 5, 1982 that its demand deposit pesos or of millions. It must bear the blame for failing
account was credited with P304,000.00 for the to discover the mistake of its employee despite the
account of RBPG, representing loans granted by the established procedure requiring bank papers to pass
Central Bank to RBPG. through bank personnel whose duty it is to check and
countercheck them for possible errors. Responsibility
Katigbak issued several checks in the total amount of arising from negligence in the performance of every
P300,000.00, payable to Dr. Felipe and Mrs. Eliza kind of obligation is demandable. While the bank's
Roque for P25,000.00 each. negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
Dr. and Mrs. Roque deposited the checks with PBC, embarrassment and humiliation to private
but the checks were returned by MBTC with the respondents for which they are entitled to recover
annotations "DAIF — TNC" (Drawn Against reasonable moral damages.
Insufficient Funds — Try Next Clearing) so they were
redeposited on April 14, 1982, which was again It was established that when Mrs. Katigbak learned
dishonored for the following reason: "DAIF — TNC — that her checks were not being honored and Mr.
NO ADVICE FROM CB." Dungo repeatedly made the insulting phone calls, her
The Roques went to Katigbak and the latter paid them wounded feelings and the mental anguish suffered by
in P50,000 cash. her caused her blood pressure to rise beyond normal
limits, necessitating medical attendance for two (2)
While Katigbak was on a business-vacation trip, she days at a hospital.
received overseas phone calls from Mrs. San Juan
informing her that a certain Mr. Dungo, Assistant The damage to private respondents' reputation and
Cashier of MBTC insisted on talking to Mrs. San Juan social standing entitles them to moral damages.
(Dungo thought she is Isabel Katigbak), berating her Moral damages include physical suffering, mental
about the checks which bounced, saying "Nag-issue anguish, fright, serious anxiety, besmirched
kayo ng tseke, wala namang pondo." reputation, wounded feelings, moral shock, social
humiliation and similar injury.
Mrs. Katigbak asked Mrs. San Juan to request MBTC
to check and verify the records regarding the CB What did the SC mention regarding the financial
credit memo for P304,000.00 but Mrs. San Juan credit of the businessman?
received another insulting call from Mr. Dungo ("Bakit
kayo nag-issue ng tseke na wala namang The financial credit of a businessman is a prized and
pondo, Three Hundred Thousand na.") When Mrs. valuable asset, it being a significant part of the
San Juan explained to him the need to verify the foundation of his business. Any adverse reflection
records regarding the Central Bank memo, he merely thereon constitutes some financial loss to him. it can
brushed it aside, telling her sarcastically that he was hardly be possible that a customer's check can be
very sure that no such credit memo existed. wrongfully refused payment without some impeachment
of his credit, which must in fact be an actual injury,
Subsequent events led to hospitalization of Katigbak though he cannot, from the nature of the case, furnish
for 2 days. independent, distinct proof thereof".
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Please take note of the Supreme Court’s ruling. What distinguishes it from an ordinary check?
If you notice when it comes to important payments, they
PHILIPPINE NATIONAL BANK vs. COURT OF usually require a manager’s check or a cashier’s check.
APPEALS and CARMELO H. FLORES
Who signs? Who is the drawer? It is a check issued
FACTS by the bank against its own account, and is signed by a
manager and maybe another officer. Compare that with
Flores, business man engaged in real estate, a regular check which is issued by persons/corporations
purchased from PNB 2 manager's checks worth against their account with the bank. It is good as cash.
P500,000.00 each, paying a total of P1,000,040.00,
including the service charge. A receipt for said
amount was issued by the petitioner. BANK OF THE PHILIPPINE ISLANDS v. CA and
BENJAMIN C. NAPIZA
On 12 July 1989, Flores presented these checks at
the Baguio Hyatt Casino unit of PNB. However, PNB
initially refused to encash the checks but after a FACTS
lengthy discussion, it agreed to encash one 1 of the
checks, and deferred the payment of the other check. On September 3, 1987, BENJAMIN C. NAPIZA
Flores tried to encashed the check on several deposited in his Foreign Currency Deposit Unit
occasions, to no avail. (FCDU) Savings Account No. 028-187 to BPI Buendia
Avenue Extension Branch, a Continental Bank
Left with no other choice, Flores filed a case with the Managers Check No. 00014757 dated August 17,
RTC. 1984, payable to "cash" in the amount of $2,500.00
and duly endorsed by BENJAMIN C. NAPIZA on its
ISSUE: dorsal side.
A certain RUBEN GAYON, JR . (employee in BPI
Whether or not PNB’s act of issuing the manager’s Buendia Ave. Extension branc) was able to withdraw
checks and corresponding receipt before payment the amount of $2,541.67 from FCDU Savings Account
thereof acted recklessly and grossly negligent. No. 028-187.

On November 20, 1984, BPI received communication

HELD: from the Wells Fargo Bank International of New York
that the said check deposited by NAPIZA was a
YES. The Supreme Court said that the petitioner's act counterfeit check because it was "not of the type or
of issuing the manager's checks and corresponding style of checks issued by Continental Bank
receipt before payment thereof was completely International.
counted reckless and grossly negligent. It is an
appalling breach of bank procedures and must never Mr. Ariel Reyes, the manager of BPI Buendia Avenue
be repeated. Extension Branch, sent a telegram to NAPIZA
regarding the dishonor of the check.
In Bautista v. Mangaldan Rural Bank, Inc., we stated
that the banking system has become an BPI’s lawyer sent a letter to NAPIZA demanding the
indispensable institution in the modern world and return of the $2,500.00.
plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the On August 12, 1986, BPI filed a complaint against
safe-keeping and saving of money or as active NAPIZA, praying for the return of the amount of
instruments of business and commerce, banks have $2,500.00.
attained an unbiquitous presence among the people,
who have come to regard them with respect and even ISSUE
gratitude and, most of all, confidence.
Whether or not BPI is grossly negligent in
treating the account Napiza.
What is a manager’s check?
HELD
It is a check issued by the bank, payable to a payee as
indicated by the person who buys the Manager’s Check. YES. BPI is grossly negligent in treating the account
It is often used in situations when the beneficiary does Napiza.
not accept cash or personal checks.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Under Sec. 2 of RA 8791 which provides that the

fiduciary nature of banking requires high standards of  Proximate cause, which is determined by a
integrity and performance. mixed consideration of logic, common sense,
policy and precedent, is "that cause, which,
Banking business is affected with public interest. By in natural and continuous sequence,
the nature of its functions, a bank is under obligation unbroken by any efficient intervening cause,
to treat the accounts of its depositors "with produces the injury, and without which the
meticulous care, always having in mind the fiduciary result would not have occurred."
nature of their relationship." As such, in dealing with
its depositors, a bank should exercise its functions not The proximate cause of the withdrawal and eventual
only with the diligence of a good father of a family but loss of the amount of $2,500.00 on BPI part was its
it should do so with the highest degree of care. personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing
In the case at bar, BPI, in allowing the withdrawal of requirement in the banking system. In so doing, BPI
NAPIZA’s deposit, failed to exercise the diligence of assumed the risk of incurring a loss on account of a
a good father of a family. In total disregard of its own forged or counterfeit foreign check and hence, it
rules, BPI’s personnel negligently handled NAPIZA should suffer the resulting damage.
account to BPI detriment.

BPI violated its own rules by allowing the withdrawal

of an amount that is definitely over and above the
aggregate amount of NAPIZA dollar deposits that In this particular case, what happened was that the
had yet to be cleared. BPI personnel allowed the endorsement, what happened, when you try to deposit
withdrawal of an amount bigger than the original a check especially if the bank is different and you have
deposit of $750.00 and the value of the check this collecting bank, let’s say I have a deposit in BPI,
deposited in the amount of $2,500.00 although they and someone paid me through the BDO account so if I
had not yet received notice from the clearing bank in deposit it in the BPI the collecting bank is the BPI.
the United States on whether or not the check was
funded. It is a standard practice that before they received it that
they have to ensure it is proper. That’s why sometimes
In the passbook that BPI issued to NAPIZA, the rules it gets returned. You issue a check. Especially on the
to be able to withdraw from the savings account dates, even a slight blot with the pen, they will consider
deposit under the Philippine foreign currency deposit it as not valid. They will ask you to issue again. When
system, two requisites must be presented to BPI the pens overlap, because it’s their job to do that, it’s
bank by the person withdrawing an amount: (a) a their job to scrutinize as a protocol in the banking
duly filled-up withdrawal slip, and (b) the depositors industry given that their business is imbued with public
passbook. interest.

Moreover, the withdrawal slip contains a boxed Wag po tayo magalit if mgpa-issue sila ulit, trabaho
warning that states: "This receipt must be signed and lang nila yun.
presented with the corresponding foreign currency
savings passbook by the depositor in person. For What you can do is that most business, they type it in
withdrawals thru a representative, depositor should already so there will be no mistakes. It’s easier if the
accomplish the authority at the back." collecting bank is the same bank where the person will
get the money to deposit. Let’s say BPI, BPI. They’ll just
BPI likewise overlooked another rule that is printed in call the person and ask did you issue this check? But if
the passbook, that “All deposits will be received as the collecting bank is different the collecting bank would
current funds and will be repaid in the same manner; ensure that there is a proper scrutiny. Why? What
provided, however, that deposits happens if they accept it and it’s wrong. They will
of drafts, checks, money orders, etc. will be accepted shoulder it.
as subject to collection only and credited to the
account only upon receipt of the notice of final SECTION 3. Definition and Classification of Banks. —
payment”.
3.1. "Banks" shall refer to entities engaged in the
While it is true that NAPIZA having signed a blank lending of funds obtained in the form of deposits. (2a)
withdrawal slip set in motion the events that resulted
in the withdrawal and encashment of the counterfeit This is the strict definition of banks. There’s
check, the negligence of BPI personnel was the deposits and there’s lending.
proximate cause of the loss that BPI sustained.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

The framework of a GBL is actually to encourage safe

and sound banking. That’s why the law gives a maximum commission or
compensation for corporate directors. But in reality, in
paper, hindi na sinasabing commission yun –
What is the framework or qualities to say that underground na lang. Kaya may mga properties na
there is safe and sound banking system? sabihin mo: “Bakit in-acquire siya ni X & X Corporation,
eh parang hindi naman ito valuable in this area? Bakit
FRAMEWORK FOR A SAFE AND SOUND BANKING sila may property nito?” Hindi natin alam, baka may
SYSTEM commission ang directors nun.

1. Internal or corporate governance; These are just some of the transactions that go beyond
the boardroom. That’s why may maximum
These are some of the provisions of the law which compensation for directors. Independent directors seek
encourage proper internal or corporate to prevent those kinds of transactions in that kind of
governance— situation.
 Independent directors as members of board of
directors; 1. Limitations on directors, officers,
stockholders and related interests
Normal corporation, there is a BOD— should be (DOSRI) lending;
interested in the running of the corporation. In
addition, it should also be interested in the iii. Allowing teleconferencing or video-
ownership of the corporation that’s why they have conferencing in meetings of the board of
to have a minimum required share. directors

When you say independent directors, these are not On teleconferencing and video-conferencing – before, it
stockholders, officers, or whatever related to the is only in public companies that we were allowed to
business. That’s why they’re called independent. teleconference. Now, it is an explicit provision in the
Now, there is a different school of thought, Corporation Code na pwede nang mag-teleconference.
independent directors actually harm rather than In some jurisdictions, meron naman talagang nags-
do good in a corporation because how would you Skype calls – basta meron lang modes or methods of
want a corporation to succeed, when you’re not ensuring the identity of the person.
even invested in it, you don’t even care if it
survives. That’s another school of thought. iv. Granting authority to the Monetary Board
to set “fit-and-proper” rules; and
But because of precisely we are going into the
interest of the corporation which is profit making
If you’re going to be, not just a director, but an officer
that you would tend do some unethical moves in
– or even an employee of a banking corporation, you
order to increase the value of the share which
have to be fit and proper.
prejudices the public. That’s why there is an
independent, there is a need that somebody from
the outside who will oversee the operations so that What is “fit and proper”? You have to be competent and
there will be no problem. In reality, the previous ethical.
corporation code (not the revised one) the current
corporation law provides a maximum v. Adoption of risk-based capital adequacy
compensation for the directors. You have your ratios.
manual regulations. Who approves transactions of
a corporation? The BOD. That’s why different types of banking corporations have
different capital adequacy ratios. Meaning – magkano
In reality, they have this maximum 10% because dapat ang liability to equity ratio ninyo? Hindi sa lahat
the law would try to avoid them adding an interest ng bangko pare-pareha yan. Kasi it would depend on
on transactions because what they do they how risky the bank is. So yung mga medyo risky na
become brokers of certain transactions. They sell bangko, yun yung may mga malaking capital adequacy
property and they’ll say, I’ll broker for you and I’ll ratios, dun naman sa mga hindi masyado risky, maliit.
have a commission on this. I will let it be approved Kasi risk-based.
with the board. If the board doesn’t have a
commission you cannot get the property
acquisition what will happen there will be an Before, ang ginagawa nila – fixed. There’s no variability
interest. That’s why the law gives a maximum with regard to the risk. Ngayon, ginawa na nilang risk-
commission, a maximum compensation based, which is more proper.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

MARKET DISCIPLINE (f) Islamic banks as defined in Republic Act No. 6848,
otherwise known as the "Charter of Al Amanah Islamic
This means that the market, if working properly and not Investment Bank of the Philippines"; and
subjected to unnecessary or misguided or unknowing
interventions from government can exert pressure on (g) Other classifications of banks as determined by the
banks to maintain their safety and soundness. Monetary Board of the Bangko Sentral ng Pilipinas. (6-
A)
One of the more significant change under the GBL is that
it gives a liberal policy on foreign banks and entry of BASIC FUNCTIONS OF BANKS:
foreign investors. It’s a good thing because these
foreign banks are foreign-owned tapos kung magfo-
1. To accept deposits from the public; and
foreclose sila ng property – hindi sila pwedeng mag-
2. Lending of funds obtained from deposits.
acquire ng land – so they are given a very short period
to sell it. So ang tendency niyan, the price would be
sacrificial. They just go in-between the depositor and yung mag-
lelend ng funds to the depositor.
EXTERNAL GOVERNANCE
A. UNIVERSAL BANK
Regulation and supervision cannot be the solitary
 Universal banks have the authority to exercise,
isolated answer to depositor protection. Instead, the in addition to the powers granted to commercial
approach taken is to make bank regulation and
banks, the powers of an investment house and
supervision supportive of internal governance and
to invest in non-allied enterprises.
market discipline.
 Additionally, it can own up to 100% equity in
thrift bank, rural bank, financial allied
So you should have these 3 frameworks for you to have enterprise, or non-financial allied enterprise.
a safe and sound banking system:
That’s why you’ve seen na itong mga malalaking
1. Corporate governance company, meron silang ‘thrift bank’.
2. Market discipline
3. External governance
A. If publicly-listed, it may own up to 100% of the
voting stock of only 1 other universal or
Section 3. Definition and Classification of Banks. - commercial bank.

3.1. "Banks" shall refer to entities engaged in the In fact, it can own another universal or commercial bank
lending of funds obtained in the form of deposits. (2a) – kapang publicly-listed.

3.2. Banks shall be classified into: B. COMMERCIAL BANKS

(a) Universal banks; B. Commercial banks are banks that have – in

addition to the general powers incident to
corporations – all such powers as may be
(b) Commercial banks;
necessary to carry on the business of
commercial banking, such as:
(c) Thrift banks, composed of: (i) Savings and mortgage o Accepting drafts
banks, (ii) Stock savings and loan associations, and (iii) o Issuing letters of credit
Private development banks, as defined in the Republic o Discounting and negotiating promissory
Act No. 7906 (hereafter the "Thrift Banks Act"); notes, drafts, bills of exchange and
other evidences of debt
(d) Rural banks, as defined in Republic Act No. 73S3 o Accepting or creating demand deposits
(hereafter the "Rural Banks Act"); o Receiving other types of deposits and
deposit substitutes
(e) Cooperative banks, as defined in Republic Act No o Buying and selling foreign exchange and
gold or silver bullion
6938 (hereafter the "Cooperative Code");
o Acquiring marketable bonds and other
debt securities
o Extending credit
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

PLEASE MEMORIZE. E. COOPERATIVE BANKS

C. THRIFT BANKS  Cooperative banks are organized for the primary

purpose of providing a wide range of financial
C. Thrift banks include: services to cooperatives and their members.
o Savings and mortgage banks  A cooperative bank shall primarily provide
o Private development banks financial banking and credit services to
o Stock savings and loan associations cooperative organizations and their members.
organized under existing laws  In addition to the powers granted by the
o Any banking corporation that may be Philippine Cooperative Code of 2008 and other
organized for the following purposes: existing laws, any cooperative bank may
perform any or all of the banking services
i. Accumulating the savings of depositors and offered by other types of banks subject to the
investing them together with capital loans prior approval of the BSP.
secured by bonds, mortgages in real estate and
insured improvements thereon, chattel F. ISLAMIC BANK
mortgage, bonds and other forms of security or
in loans for personal or household finance – As we have previously discussed, the Shari’a Law has a
secured or unsecured, or in financing for particular principle with regards to lending.
homebuilding and home development, in readily
marketable and debt securities, in commercial  The primary purpose of the Islamic Bank is to
papers and accounts receivables, drafts, bills of promote and accelerate the socio-economic
exchange, acceptances or notes arising out of development of the Autonomous Region by
commercial transactions, and in such other performing banking, financing and investment
investments and loans which the Monetary operations and to establish and participate in
Board may determine as necessary in the agricultural, commercial and industrial ventures
furtherance of national economic objectives; based on the Islamic concept of banking.
ii. Providing short-term working capital, medium
and long-term financing, to businesses engaged G. GOVERNMENT BANKS
in agriculture, services, industry and housing;
and  Government banks refer to universal or
iii. Providing diversified financial and allied services commercial banks owned or controlled by the
for its chosen market and constituencies national government – such as the Development
especially for small and medium enterprises and Bank of the Philippines and the Land Bank of the
individuals. Philippines.

So take note – a thrift bank has a particular purpose. CHAPTER II

They are for small and medium enterprises, usually AUTHORITY OF THE BANGKO SENTRAL
farmers and mga small businesses. Kaya siya tinawag
na “thrift bank” – tipid.
Section 4. Supervisory Powers. The operations and
activities of banks shall be subject to supervision of the
D. RURAL BANKS Bangko Sentral. "Supervision" shall include the
following:
 Rural banks are organized to promote
comprehensive rural development with the end
view of attaining equitable distribution of 4.1. The issuance of rules of, conduct or the
opportunities, income and wealth, a sustained establishment standards of operation for uniform
increase in the amount of goods and services application to all institutions or functions covered, taking
produced by the nation for the benefit of the into consideration the distinctive character of the
people, and in expanding productivity as a key operations of institutions and the substantive
in raising the quality of life for all, especially the similarities of specific functions to which such rules,
underprivileged. modes or standards are to be applied;

Question: Why does the law have to create a specific 4.2 The conduct of examination to determine
bank? Why not put it in the universal bank nalang? Why compliance with laws and regulations if the
do we have to put it into segments? I’ll leave that up circumstances so warrant as determined by the
to you. Monetary Board;
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

4.3 Overseeing to ascertain that laws and regulations Bangko Sentral authority shall be decided by the
are complied with; Monetary Board. To resolve such issue, the Monetary
Board may; through the appropriate supervising and
examining department of the Bangko Sentral, examine,
4.4 Regular investigation which shall not be oftener than
inspect or investigate the books and records of such
once a year from the last date of examination to
person or entity. Upon issuance of this authority, such
determine whether an institution is conducting its
person or entity may commence to engage in banking
business on a safe or sound basis: Provided, That the
operations or quasi-banking function and shall continue
deficiencies/irregularities found by or discovered by an
to do so unless such authority is sooner surrendered,
audit shall be immediately addressed;
revoked, suspended or annulled by the Bangko Sentral
in accordance with this Act or other special laws.
4.5 Inquiring into the solvency and liquidity of the
institution (2-D); or
The department head and the examiners of the
appropriate supervising and examining department are
4.6 Enforcing prompt corrective action. (n) hereby authorized to administer oaths to any such
person, employee, officer, or director of any such entity
The Bangko Sentral shall also have supervision over the and to compel the presentation or production of such
operations of and exercise regulatory powers over books, documents, papers or records that are
quasi-banks, trust entities and other financial reasonably necessary to ascertain the facts relative to
institutions which under special laws are subject to the true functions and operations of such person or
Bangko Sentral supervision. (2-Ca) entity. Failure or refusal to comply with the required
presentation or production of such books, documents,
For the purposes of this Act, "quasi-banks" shall refer to papers or records within a reasonable time shall subject
entities engaged in the borrowing of funds through the the persons responsible therefore to the penal sanctions
issuance, endorsement or assignment with recourse or provided under the New Central Bank Act.
acceptance of deposit substitutes as defined in Section
95 of Republic Act No. 7653 (hereafter the "New Central Persons or entities found to be performing banking or
Bank Act") for purposes of re-lending or purchasing of quasi-banking functions without authority from the
receivables and other obligations. (2-Da) Bangko Sentral shall be subject to appropriate sanctions
under the New Central Bank Act and other applicable
Section 5. Policy Direction; Ratios, Ceilings and laws. (4a)
Limitations. - The Bangko Sentral shall provide policy
direction in the areas of money, banking and credit. (n) FIRST PARAGRAPH: No person or entity shall engage
in banking operations or quasi-banking functions
For this purpose, the Monetary Board may prescribe without authority from the Bangko Sentral: .Provided,
ratios, ceilings, limitations, or other forms of regulation however, That an entity authorized by the Bangko
on the different types of accounts and practices of banks Sentral to perform universal or commercial banking
and quasi-banks which shall, to the extent feasible, functions shall likewise have the authority to engage in
conform to internationally accepted standards, including quasi-banking functions.
of the Bank for International Settlements (BIS). The
Monetary Board may exempt particular categories of
In other words – pag wala kang authority to engage in
transactions from such ratios, ceilings. and limitations,
quasi-banking functions and you are not a universal or
but not limited to exceptional cases or to enable a bank
commercial banking institution, then that is unlawful.
or quasi-bank under rehabilitation or during a merger or
consolidation to continue in business, with safety to its
creditors, depositors and the general public. (2-Ca) SO HOW DO YOU SET UP A BANK?

Section 6. Authority to Engage in Banking and Quasi- A person or entity intending to engage in banking
Banking Functions. - No person or entity shall engage in operations must secure from the BSP:
banking operations or quasi-banking functions without
authority from the Bangko Sentral: .Provided, however, 1. Authority to establish a bank;
That an entity authorized by the Bangko Sentral to 2. Authority to register a bank; and
perform universal or commercial banking functions shall 3. Authority to operate a bank.
likewise have the authority to engage in quasi-banking
functions. Magka-ibang authorizations ito sila. Who grants you the
authority? It’s the BSP.
The determination of whether a person or entity is
performing banking or quasi-banking functions without
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Let’s go to QUASI-BANKING TRANSACTIONS b. In the absence of the phrase “without

recourse”, “sans recourse”, or words of
Elements: similar import, the instrument so
issued, endorsed or accepted, shall
automatically be considered as falling
1. Borrowing funds for the borrower’s own
within the purview of the Manual of
account;
Regulations for Banks and regulations
2. 20 or more lenders at any one time;
on quasi-banking, provided further, that
3. Methods of borrowing are issuance,
any of the following practices or
endorsement, or acceptance of debt
practices similar and/or tantamount
instruments of any kind, other than deposits,
thereto in connection with a “without
such as acceptances, promissory notes,
recourse” transaction is hereby
participations, certificates of assignments or
prohibited:
similar instruments with recourse, trust
certificates, repurchase agreements, and such
i. Issuance of postdated checks
other instruments as the Monetary Board may
by a financial intermediary,
determine; and
whether for its own account or
4. The purpose of which is relending or purchasing
as an agent of the debt
receivables or other obligations.
instrument issuer, in payment
of the debt instrument, sold,
Please take note – particular ang method of borrowing assigned or transferred without
dito. recourse;
ii. Issuance by a financial
Is a cooperative a quasi-bank? It can engage in quasi- intermediary of any form of
banking, but it has to be authorized. But it is not guaranty on sale transactions or
necessarily a quasi-bank. on negotiations or assignment
of debt instruments without
Take note – you can only engage in quasi-banking if recourse;
there are 20 or more lenders at one time. How do we iii. Payment with its own funds by
count? Is it per product? NO. You count per institution. a financial intermediary which
So even if you only have 1 acceptance, but you have 19 assigned, sold or transferred
or 20 promissory notes, you can be engaged in quasi- the debt instrument without
banking. recourse, unless the financial
intermediary can show that the
issuer has with the said financial
TRANSACTIONS NOT CONSTITUTING QUASI- intermediary funds
BANKING: corresponding to the amount of
the obligation.
1. Borrowing by commercial, industrial and other
non-financial companies through the issuance, “WITHOUT RECOURSE” TRANSACTION – the person
endorsement or acceptance of debt instruments or party will claim no responsibility if a negotiable
of any kind, other than deposits, for the limited instrument would be dishonored – the other party
purpose of financing their own needs or the cannot go after the party who issued the instrument
needs of their agents or dealers; and
2. The mere buying and selling without recourse of
instruments of any kind, other than deposits, That is precisely why in quasi-banking, it has to be “with
such as acceptances, promissory notes, recourse”. Because, remember na ang binigay sa iyo is
participations, certificates of assignments, trust a debt instrument. What will happen kung “without
certificates, repurchase agreements and such recourse” yun? You are practically giving out money in
other instruments as the MB may determine, exchange for nothing, because you cannot go after the
provided that: endorser.

a. The institution buying and selling Section 7. Examination by the Bangko Sentral. - The
without recourse shall indicate in Bangko Sentral shall, when examining a bank, have the
conspicuous print on its instrument the authority to examine an enterprise which is wholly or
phrase “without recourse”, “sans majority-owned or controlled by the bank. (2-Ba)
recourse”, or words of similar import
that will convey the absence of liability
Therefore, the question is – is the examination powers
or guarantee by said institution; and
of the BSP limited to banking or quasi-banking
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

institutions? Can the BSP examine a non-bank CHAPTER III

institution? ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS. QUASI-BANKS AND
Now it’s easy to determine as regards to whether or not TRUST ENTITIES
it is wholly or majority-owned by the bank. Pero pwede
rin ‘controlled’ by the bank eh. Section 8. Organization. - The Monetary Board may
authorize the organization of a bank or quasi-bank
Control exists when the parent owns directly or subject to the following conditions:
indirectly through subsidiaries more than ½ of the
voting power of an enterprise. This is different from your 8.1 That the entity is a stock corporation (7);
Corporation Law. Kasi ang sinabi, more than ½ of the
voting power – so kailangan may voting.
8.2 That its funds are obtained from the public, which
shall mean twenty (20) or more persons (2-Da); and
Control may also exist even when ownership is ½ or less
of the voting power of an enterprise when there is:
8.3 That the minimum capital requirements prescribed
by the Monetary Board for each category of banks are
1. Power over more than ½ of the voting rights by satisfied. (n)
virtue of an agreement with other stockholders;
No new commercial bank shall be established within
Example – trust agreement. Kunyari, I own 50% of the three (3) years from the effectivity of this Act. In the
shares, now binayaran ako ni Mr. C – “I’ll give you 1 exercise of the authority granted herein, the Monetary
million, and we will execute a trust agreement but I am Board shall take into consideration their capability in
relinquishing my right to vote.” Pwede yun. terms of their financial resources and technical expertise
and integrity. The bank licensing process shall
2. Power to govern the financial and operating incorporate an assessment of the bank's ownership
policies of the enterprise under a statute or an structure, directors and senior management, its
agreement; operating plan and internal controls as well as its
projected financial condition and capital base.
Kahit hindi ikaw yung nagmamay-ari ng more than half,
but if you have the power to govern the financial and That the entity is a stock corporation.
operating policies of the enterprise under a statute or
an agreement, you are deemed to have control over that  Relate this to your Corporation Code – what are
enterprise. the businesses or industries that have to be a
stock corporation? One of which is the quasi-
3. Power to appoint or remove the majority of the bank.
members of the board of directors or equivalent
governing body; That its funds are obtained from the public, which
4. Power to case the majority votes at meetings of shall mean twenty (20) or more persons.
the board of directors or equivalent governing
body; or
 So kung 15 lang, you are not authorized to
organize a bank.
So therefore, even if you own less than half of the voting
shares, but kayo na grupo 3 kayo sa board na may 5
That the minimum capital requirements
members, may control kayo because you are a majority
prescribed by the Monetary Board for each
of the board.
category of banks are satisfied.

5. Any other arrangement similar to any of the

above. Section 9. Issuance of Stocks. - The Monetary Board
may prescribe rules and regulations on the types of
stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance
with laws and regulations governing capital and equity
structure of banks; Provided, That banks shall issue par
value stocks only.

So again – different banks, different rules.

 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Section 10. Treasury Stocks. - No bank shall purchase By default, the test of nationality applied to banks is the
or acquire shares of its own capital stock or accept its control test.
own shares as a security for a loan, except when
authorized by the Monetary Board: Provided, That in OWNERSHIP CEILING
every case the stock so purchased or acquired shall,
within six (6) months from the time of its purchase or
UNDER RA 8791, RA CEILING
acquisition, be sold or disposed of at a public or private
7906, and RA 7353
sale. (24a)
A. Voting shares of stock 40%
of a Filipino individual of a
This is an exception to your concept of “Treasury shares” Philippine non-bank
under your Corporation Code. corporation in a domestic
bank
TREASURY SHARES – these are stocks which were
issued but then reacquired. Nag-issue ako dati ng B. Voting shares of stock
shares, binili ko siya tapos hindi ko siya ni-retire. of foreign individual or a
Nilagay ko lang siya sa treasury – pwede ko pa siya ma- foreign non-bank
issue in the future. corporation in a domestic:
40%
Take note - That in every case the stock so purchased (a) universal/commercial
or acquired shall, within six (6) months from the time of and thrift bank
its purchase or acquisition, be sold or disposed of at a (b) rural bank No foreign
public or private sale. stockholdings

So kailang siyang ire-issue, ibenta, or i-retire. Hindi

pwedeng i-keep siya within 6 months. C. Combined ownership of
the voting stock of foreign
Why is that the rule? Bakit kailangan may holding individuals and/or foreign
period? Because treasury shares are actually not funded non-bank corporations in
– ang bumili ng mga iyan ay si company mismo. So a domestic:
since hindi siya funded, kailangan ibenta siya ulit. (a) universal/commercial 40%
bank
What will happen pag hindi? These are not funded (b) thrift bank 60%
capitals. In fact, how do we present it in financial (c) rural bank No foreign
statements? It is presented as a deduction in the Equity stockholdings
portion in the balance sheet – so contra-equity account
siya. So kung maraming treasury shares, it actually D. Combined ownership of 40%
means that you are not a well-funded company. That is the voting shares of stick
why the GBL does not encourage banks to have treasury in a domestic bank of an
shares. individual and a
corporation/s which is/are
wholly-owned or a
Section 11. Foreign Stockholdings. - Foreign majority of the voting
individuals and non-bank corporations may own or shares of which is owned
control up to forty percent (40%) of the voting stock of by such individual
a domestic bank. This rule shall apply to Filipinos and
domestic non-bank corporations. The percentage of
UNDER RA 7721
foreign-owned voting stocks in a bank shall be
A. Voting shares of stock 60%
determined by the citizenship of the individual
of qualified Philippine
stockholders in that bank. The citizenship of the
corporation in a domestic
corporation which is a stockholder in a bank shall follow
bank
the citizenship of the controlling stockholders of the
corporation, irrespective of the place of incorporation.
B. Combined ownership of 60%
(n)
the voting shares of stock
of qualified foreign banks
Take note, the GBL is very specific – so dapat voting including foreign
stock. Unlike the Corporation Code, ang basis is 40% of individuals and non-bank
the capital stock.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

corporations in a domestic NOW THIS IS REVISED FURTHER BY REPUBLIC

bank ACT 10641 - AN ACT ALLOWING THE FULL ENTRY
OF FOREIGN BANKS IN THE PHILIPPINES,
REPUBLIC ACT 7721 - AN ACT LIBERALIZING THE AMENDING FOR THE PURPOSE REPUBLIC ACT NO.
ENTRY AND SCOPE OF OPERATIONS OF FOREIGN 7721
BANKS IN THE PHILIPPINES AND FOR OTHER
PURPOSES. Before the percentage was 60-60. With RA 10641:

 With the passage of RA 7721, the Philippine The Monetary Board may authorize foreign banks to
banking and financial system was liberalized to operate in the Philippine banking system through any
create a more competitive environment and to one of the following modes of entry:
encourage greater foreign participation through
an increase in the allowable ownership in (i) by acquiring, purchasing or owning up to one
domestic banks by foreign banks and the entry hundred percent (100%) of the voting stock of an
of new foreign bank branches. existing bank;

In accordance with market competitiveness, what is (ii) by investing in up to one hundred percent
good about competition? Why is there a policy to (100%) of the voting stockof a new banking subsidiary
liberalize the entry of foreign banks? incorporated under the laws of the Philippines; or

(iii) by establishing branches with full banking authority.

This is actually for the banks to be more competitive.
This is the issue on regulation vs. deregulation –
because sometimes in regulating industries like So therefore, you can have a bank which is 100% owned
banking, it has a contra-productive effect. That’s why by a foreign company. That’s the trend now.
the move for the GBL is to move for deregulation and
just allow the market forces to play. In fact, they have Also under RA 10641 –
now allowed the entry of foreign corporation.
SEC. 9. Participation in Foreclosure Proceedings.—
Foreign banks which are authorized to do banking
Under RA 7721, the MB is empowered to authorize
business in the Philippines through any of the modes of
foreign banks to operate in the Philippine banking
entry under Section 2 hereof shall be allowed to bid and
system through any of the following modes of entry by:
take part in foreclosure sales of real property mortgaged
to them, as well as to avail of enforcement and other
1. Acquiring, purchasing or owning up to 60% of proceedings, and accordingly take possession of the
the voting stock of an existing bank; mortgaged property, for a period not exceeding five (5)
2. Investing up to 60% of the voting stock of a years from actual possession: Provided, That in no event
new banking subsidiary incorporated under the shall title to the property be transferred to such foreign
laws of the Philippines; or bank. In case said bank is the winning bidder, it shall,
3. Establishing branches with full banking during the said five (5)-year period, transfer its rights
authority. to a qualified Philippine national, without prejudice to a
borrower’s rights under applicable laws. Should the
A foreign bank may avail itself of only 1 mode of entry. bank fail to transfer such property within the five (5)-
Further, a foreign bank or a Philippine corporation may year period, it shall be penalized one half (1/2) of one
own up to 60% of the voting stock of only 1 domestic percent (1%) per annum of the price at which the
bank or new banking subsidiary. property was foreclosed until it is able to transfer the
property to a qualified Philippine national.
NOTE: These are the only allowed modes of entry.
Under RA 10641, they can foreclose the property, but
they have a 5-year period within which they have to sell
Be careful because a BRANCH is different from a
it, otherwise they will be penalized.
SUBSIDIARY.

Section 12. Stockholdings of Family Groups of Related

Pag sinabing “X Company, Philippine branch” – that is a Interests. - Stockholdings of individuals related to each
branch. Pero pag sinabing “X Company” – that is a new other within the fourth degree of consanguinity or
corporation, which may or may not be a subsidiary. affinity, legitimate or common-law, shall be considered
family groups or related interests and must be fully
disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

technologies such as, but not limited to,

teleconferencing and video-conferencing. (n)
Section 13. Corporate Stockholdings. - Two or more
corporations owned or controlled by the same family BOARD OF DIRECTORS
group or same group of persons shall be considered
related interests and must be fully disclosed in all  The board of directors is primarily responsible
transactions by such corporations or related group of for the corporate governance of the entity.
persons with the bank. (12-Ba) Directors are those:
o Named as such in the articles of
So if there is a related interest, you must disclose it. incorporation;
That’s why, if you have time, you try to get a copy of o Duly elected in subsequent meetings of
the stockholders; or
the Annual Stockholder’s Report, dun nakalagay yan.
o Elected to fill vacancies in the board of
You will see, naka-disclose diyan yung related interests,
related party transactions – because that is mandated directors.
by our laws.
INDEPENDENT DIRECTOR
Section 14. Certificate of Authority to Register. - The
 Is a person other than an officer or employee of
Securities and Exchange Commission shall no register
a corporation, its subsidiaries or affiliates or
the articles of incorporation of any bank, or any
related interests.
amendment thereto, unless accompanied by a
certificate of authority issued by the Monetary Board,
AN INDEPENDENT DIRECTOR IS A PERSON WHO IS
under it seal. Such certificate shall not be issued unless
NOT:
the Monetary Board is satisfied from the evidence
submitted to it:
i. An officer or employee, or has not been an
officer or employee, of the entity, its
14.1 That all requirements of existing laws and subsidiaries or affiliates or related interests
regulations to engage in the business for which the during the past 3 years counted from the date
applicant is proposed to be incorporated have been of his election;
complied with; ii. A director or officer of the related companies of
the institution’s majority stockholder;
14.2 That the public interest and economic conditions, iii. A majority stockholder of the institution, any of
both general and local, justify the authorization; and its related companies, or of its majority
stockholders;
14.3 That the amount of capital, the financing, iv. A relative within the 4th degree of consanguinity
organization, direction and administration, as well as or affinity, legitimate or common-law of any
the integrity and responsibility of the organizers and director, officer, or majority shareholder of the
administrators reasonably assure the safety of deposits entity or any of its related companies;
and the public interest. (9) v. Acting as a nominee or representative of any
director or substantial shareholder of the entity,
any of its related companies or any of its
The Securities and Exchange Commission shall not substantial shareholders; and
register the by-laws of any bank, or any amendment vi. Retained as professional adviser, consultant,
thereto, unless accompanied by a certificate of authority agent or counsel of the institution, any of its
from the Bangko Sentral. (10) related companies or any of its substantial
shareholders, either in his personal capacity or
Section 15. Board of Directors. - The provisions of the through his firm.
Corporation Code to the contrary notwithstanding, there
shall be at least five (5), and a maximum of fifteen (15) An independent director must also only serve for a term
members of the board or directors of a bank, two (2) of of 5 years.
whom shall be independent directors. An "independent
director" shall mean a person other than an officer or Question: Can an independent director own a share of
employee of the bank, its subsidiaries or affiliates or stock? Pwede – as long as it is not sufficient to elect 1
related interests. (n) Non-Filipino citizens may become seat in the board of directors.
members of the board of directors of a bank to the
extent of the foreign participation in the equity of said
bank. (Sec. 7, RA 7721) The meetings of the board of
directors may be conducted through modern
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

January 23 ( 1 of 4) - Gillian
Manual of Regulations for Banks
FIT AND PROPER RULE Qualifications of a director

SECTION 16. Fit and Proper Rule. — To maintain A director shall have the following minimum
the quality of bank management and afford qualifications:
better protection to depositors and the public in
general, the Monetary Board shall prescribe, pass a. He shall be at least twenty-five (25) years of age at
upon the time of his election or appointment;
and review the qualifications and disqualifications of
individuals elected or appointed bank directors or b. He shall be at least a college graduate, or have at
officers and disqualify those found unfit. least five (5) years experience in business;

After due notice to the board of directors of the bank, c. He must have attended a special seminar on
the Monetary Board may disqualify, suspend or corporate governance for board of directors accredited
remove any bank director or officer who commits or by the Bangko Sentral
omits an act which render him unfit for the position.
d. He must be fit and proper for the position of a director
In determining whether an individual is fit and proper of a bank
to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience, Mind you. Kung may MCLE tayo, sila may corporate
education, training, and competence. (9-Aa) governance. Mga best practices. They have to finish a
certain number of units before they are given the license

Take note, it’s not only limited to the directors but also That the following persons are exempted from
to the officers. attending said seminar:

This is actually in compliance with the Basel i. Foreign nationals who have attended corporate
Committee on Banking Supervision governance training covering core topics in the Bangko
Sentral
Principle 5: Licensing Criteria
ii. Filipino citizens with recognized stature, influence and
The licensing authority has the power to set criteria and reputation in the banking community and whose
reject applications for establishments that do not meet business practices stand as testimonies to good
the criteria. At a minimum, the licensing process corporate governance;
consists of assessment of the ownership structure and
governance (including the fitness and propriety of Board iii. Distinguished Filipino and foreign nationals who
members and senior management) of the bank and its served as senior officials in central banks and/or
wider group, and its strategic and operating plan, financial regulatory agencies, including former Monetary
internal conflicts, risk management and projected Board members; or
financial condition (including capital base).
iv. Former Chief Justices of the Philippines
So as we all know the banking industry is imbued with
public interest so there is heavy regulation when it Q: Pag si Sereno ba, pwede ba syang ma exempt?
comes to banking. Please note, the fit and proper rule also applies to
The Fit and Proper Rule is very specific in the banking officers. Sino ba yung officers? Please take note of this
industry, you can read this in all jurisdictions. Again you definition, it’s very specific:
have to look at the integrity, probity, experience,
education, training, and competence. Definition of officers. Officers shall include the
president, executive vice president, senior vice-
Q: What’s probity? president, vice president, general manager, treasurer,
secretary, trust officer and others mentioned as officers
A: The quality of having strong moral principles of the bank, or those whose duties as such are defined
Now the problem with this kind of qualification is that in the by-laws, or are generally known to be the officers
there’s actually no test to determine it. Ang ginagawa of the bank (or any of its branches and offices other than
lang nilang test is if you are convicted of a crime the head office) either through announcement,
involving moral turpitude. That’s a common test but it’s representation, publication or any kind of
in the negative. How can you determine a person’s communication made by the bank:
moral intergrity diba.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Therefore even if hindi sya official but the bank management activities acceptable to the Bangko
represented that this particular person is an officer of Sentral; or
the bank, he has to be compliant with the fit and proper
rule. Please take note of that nuance. (b) completed a relevant global or local professional
(Continuation) certification program; or (3) at least five (5) years of
actual experience as an officer of a bank and must have:
Provided, That a person holding the position of chairman
or vice chairman of the board or another position in the (a) completed at least ninety (90) training hours in
board shall not be considered as an officer unless the trust, other fiduciary business, or
duties of his position in the board include functions of investment management activities acceptable to the
management such as those ordinarily performed by Bangko Sentral; or
regular officers:
(b) completed a relevant global or local professional
Provided, further, That members of a groupor certification program; and
committee, including sub-groups or subcommittees,
whose duties include functions of management such as c. He must be fit and proper for the position he is being
those ordinarily performed by regular officers, and are proposed/appointed to.
not purely recommendatory or advisory, shall likewise
be considered as officers. (PLEASE MEMORIZE) In determining whether a
person is fit and proper for a particular position, the
What are purely recommendatory or advisory following matters must be considered: integrity/probity,
committees? competence, education, diligence and
experience/training.
Audit committee, whose purpose is to find out if they
comply with the rules and regulations of tax laws, So walang jail dyan. If you go to jail, it does not
banking, etc. So itong mga operations ng company are necessarily make you not fit and proper.
actually subject to the audit committee.
Disqualification and Watchlisting of Directors and
Get a stockholder’s meeting manual of any big Officers
corporations. Tingnan nyo yun para malaman nyo yung
sinasabi ko, para magka intindihan tayo. a. Permanently disqualified
Directors/officers/employees permanently disqualified
Qualifications of an officer. by the Monetary Board from holding a director position:

An officer shall have the following minimum (1) Persons who have been convicted by final
qualifications: judgment of a court for offenses involving
dishonesty or breach of trust such as, but not
a. He shall be at least twenty-one (21) years of age; limited to, estafa, embezzlement, extortion,
forgery, malversation, swindling, theft, robbery,
b. He shall be at least a college graduate, or have at falsification, bribery, violation of B.P. Blg. 22,
least five (5) years experience in banking or trust violation of Anti-Graft and Corrupt Practices Act
operations or related activities or in a field related to his and prohibited acts and transactions under
position and responsibilities, or have undergone training Section 7 of R.A. No. 6713
in banking or trust operations acceptable to the (2) Persons who have been convicted by final
appropriate department of the Supervising and judgment of a court sentencing them to serve a
Examining Sector of the BSP. maximum term of imprisonment of more than 6
years
Provided, however, That the trust officer who shall be (3) Persons who have been convicted by final
appointed shall possess any of the following: judgment of a court for violation of banking
laws, rules and regulations;
(1) at least five (5) years of actual experience in trust (4) Persons who have been judicially declared
operations; insolvent, spendthrift or incapacitated to
contract
(2) at least three (3) years of actual experience in trust
operations and must have: So bawal pubri but you have to be judicially declared
insolvent.
(a) completed at least ninety (90) training hours in
trust, other fiduciary business, or investment (5) Directors, officers or employees of closed banks
who were found to be culpable for such
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

institution’s closure as determined by the You can see, masyadong maraming requirements just
Monetary Board to be an officer or director. Kailangan talaga walang
bahid.
(6) Directors and officers found by the MB as
administratively liable for violation of banking Persons disqualified to become officers
laws - The spouses or relative within the second
degree of consanguinity or affinity are
(7) Directors and officers of banks or any person prohibited from holding officership positions
found by the MB to be unfit for the position of across the following functional categories within
directors or officers because they were found a bank:
administratively liable by another government 1. decision making and senior management
agency for violation of banking laws, rules and function e.g. chairman, CEO, COO, CFO
regulations or any offense 2. treasury function
3. record keeping and financial functions
4. safekeeping of assets
b. Temporarily disqualified 5. risk management function
6. compliance function
Meaning pag mawala ang disqualification pwede ra 7. internal audit function
paring maging officer
So what does this prevent? Nepotism. Culture kasi ng
(1) Persons who refuse to fully disclose the extent Pinoy, they might compromise violation of another kasi
of their business interest or any material kamag anak nila.
information to the appropriate department of
the SES In the standards of auditing, hindi pwedeng same
(2) Directors who have been absent or who have functions si record keeping, safekeeping of assets at
not participated for whatever reasons in more yung approval. Kung sino yung nag aaprove different
than 50 % of all meeting, both regular and sya from record keeping or safekeeping
special of the board of directors during their
incumbency The spouse or a relative within the second degree of
consanguinity or affinity of any person holding the
Meaning what the law requires is for the directors to be position of manager cashier or accountant of a branch
working directors. or extension office of a bank

(Continuation) and directors who failed to physically - Any appointive or elective official whether full
attend for whatever reasons in at least 25% of all board time or part time except if it is incident to
meetings in any year financial assistance
- In the case of Coop Banks, any officer or
Bakit sila sineperate? Kasi meetings can be through employees of the CDA or any elective public
teleconferencing or videoconferencing, pero dapat wag official except a barangay official
mung abusuhin, you still have to be physically present
Watchlisting
(3) Persons who are delinquent in the payment of
their obligation How does the Central Bank monitor the people within
(4) Persons who have been convicted by a court for the banks?
offenses involving dishonesty or breach of trust
(5) Directors and officers of closed banks pending To provide the Bangko Sentral with a central information
their clearance by the MB file to be used as reference in passing upon and
(6) Directors disqualified for their failure to observe reviewing the qualifications of persons elected or
or discharge their duties and responsibilities appointed as director or officer of a bank, QB or trust
prescribed under existing regulations entity, the SES shall maintain a watchlist of persons
(7) Directors who failed to attend special seminar disqualified to be a director or officer of such entities
for board of directors under its supervision
(8) Persons dismissed/terminated form
employment for a cause For the purpose of determining na disqualified ka. Tapos
(9) Those under preventive suspension after 1 yr lumipat lang pala sa ibang bangko, nag apply
(10) Persons with derogatory records or kinuha as officer. Parang NBI ba, may lista sila ng
may mga kasalanan
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

In the case of bank merger or consolidation_______, so Let’s say tumatanggap ka ng 300,000 a month, tapos
this is an exception to your Corporation Code. What’s biglang sinabi ng MB na 50,000 ka nalang. Kasi the bank
the maximum for the number of directors in your Corpo is under conservatorship.
Code, Private? 15
Why is it that in General Banking Law it is 21? You cannot use the provision in the Labor code on the
non-diminution of benefits to say that that is illegal,
January 23 because that is perfectly allowed under the general
40:01 – 1:00:00 banking law.

SECTION 17. Directors of Merged or SECTION 19. Prohibition on Public Officials. —

Consolidated Banks. — In the case of a bank Except as otherwise provided in the Rural
merger or Banks Act, no appointive or elective public official,
consolidation, the number of directors shall not whether full-time or part-time shall at the same time
exceed twenty-one (21). (13a) serve as officer of any private bank, save in cases
where such service is incident to financial assistance
What’s the maximum? provided by the government or a government-owned
15. or controlled corporation to the bank or unless
otherwise provided under existing laws. (13)
Why is it that in the General Banking Law it is 21?
Can Public officials be appointed or can they sit as a
Kase the policy of the state is to encourage merger. director or officer of any private bank?
Pooling of resources when it comes to this type of
industry. Now the problem with merger is that there is Except in Rural Banks Act (so kung mga rural banks
a power struggle. Kung mag merge si A & B, sino pwede), no appointive or elective public official, whether
mamahala? There will always be a power struggle. full-time or part-time shall at the same time serve as
That’s why ginawang 21 so that, in the board, there is officer of any private bank unless it is incident to
equal representation. financial assistance provided by the government or a
government-owned or controlled corporation to the
Bakit di ginawang 20? Para 10-10, pantay walang issue. bank or unless otherwise provided under existing laws.
Ginawang 21 para may mag tiebreaker. Di maka move So dalawa lang ang exception mo.
ang board if 20, walang mag break in case of a tie. you have the:

SECTION 18. Compensation and Other Benefits 1. Rural Banks Act

of Directors and Officers. — To protect the 2. If it is incident to financial assistance given by
funds of depositors and creditors, the Monetary Board the government.
may regulate the payment by the bank to its
directors and officers of compensation, allowance, What’s the purpose kung bakit pinaupo ang officer?
fees, bonuses, stock options, profit sharing and fringe It could be to check if the financial assistance is really
benefits only in exceptional cases and when the disbursed in the manner of which it was given.
circumstances warrant, such as but not limited to the So exception rural banks act; you have Section 5 of the
following: Rural Banks Act.
18.1. When a bank is under comptrollership or
conservatorship; or Section 5. All members of the Board of Directors of
18.2. When a bank is found by the Monetary Board to the rural bank shall be citizens of the Philippines at
be conducting business in an unsafe or unsound the time of their assumption to office: Provided,
manner; or however, That nothing in this Act shall be construed
18.3. When a bank is found by the Monetary Board to as prohibiting any appointive or elective public
be in an unsatisfactory financial condition.(n) official from serving as director, officer,
consultant or in any capacity in the bank. xxxx
Again the compensation is regulated to protect the
funds of depositors and creditors… General rule: approval from the CSC must first be
sought. Another one is incident to financial assistance.
In these particular instances (18.1-18.3) the MB may
regulate payment. So even if malaki, this is an
exception.

You cannot use your Labor code on the non-diminution

of benefits if these are the instances.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

assume jurisdiction over the dispute or decide it or

SECTION 20. Bank Branches. — Universal or certify the same to the National Labor Relations
commercial banks may open branches or other Commission for compulsory arbitration. However, the
offices within or outside the Philippines upon prior President of the Philippines may at any time intervene
approval of the Bangko Sentral. and assume jurisdiction over such labor dispute in
Branching by all other banks shall be governed by order to settle or terminate the same. (6-E)
pertinent laws.
A bank may, subject to prior approval of the Monetary Strikes and lockouts I leave that to your labor relations.
Board, use any or all of its branches as
outlets for the presentation and/or sale of the SECTION 23. Powers of a Universal Bank. — A
financial products of its allied undertaking or of its universal bank shall have the authority to
investment house units. exercise, in addition to the powers authorized for a
A bank authorized to establish branches or other commercial bank in Section 29, the powers of an
offices shall be responsible for all business investment house as provided in existing laws and the
conducted in such branches and offices to the same power to invest in non-allied enterprises as
extent and in the same manner as though such provided in this Act. (21 -B)
business had all been conducted in the head office. A
bank and its branches and offices shall be Please take note: ang power ng universal bank =
treated commercial bank + power of investment house + power
as one unit. (6-B; 27) to invest in allied enterprises.

Please take note of the last sentence - A bank and its Universal bank has the following powers, you have:
branches and offices shall be treated as one unit – 1. Powers of a commercial bank;
so hindi sila different. 2. Powers of an investment house;
3. Powers to invest in non-allied enterprise;
SECTION 21. Banking Days and Hours. — Unless 4. Power to own up to 100% equity in a thrift bank,
otherwise authorized by the Bangko Sentral rural bank or financial allied enterprise and;
in the interest of the banking public, all banks 5. Power to own up to 100% equity in a non-
including their branches and offices shall transact financial allied enterprise.
business
on all working days for at least six (6) hours a day. In In case of a publicly-listed universal bank, power to own
addition, banks or any of their branches or offices up to one hundred percent (100%) of the voting stock
may open for business on Saturdays, Sundays or of only one other universal or commercial bank.
holidays for at least three (3) hours a day: Provided, So a universal bank may be owned by a universal bank.
That banks which opt to open on days other than So pwedeng universal bank is 100% owned by another
working days shall report to the Bangko Sentral the universal bank, provided that the owner UB is a publicly-
additional days during which they or their branches listed universal bank.
or offices shall transact business.
For purposes of this Section, working days shall mean Take note: 100% of the voting stock
Mondays to Fridays, except if such days So pwede bang magkaroon ng corporation ng non-
are holidays. (6-Ca) voting stock?

Eto yung basis kung bakit 3pm mag cut-off na; because Kailangan ba lahat voting?
under the law - shall transact business
on all working days for at least six (6) hours a day. The investment house is an enterprise…anong
investment house? – engaged in the underwriting of
So pwedeng 6 hours lang. they have the right to say na securities of other corporations.
“ipa cut-off na namin.” Di naman ibig sabihin na less
than 8 hours sila, mag ihap pa man yan sila ng pera mag What is underwriting of securities? Diba may insurance
work pa man yan. underwriter…what is an underwriter?

SECTION 22. Strikes and Lockouts. — The When you say underwriting you are actually
banking industry is hereby declared as guaranteeing the securities. kaya when you buy
indispensable to the national interest and, not insurance, hindi naman basta-basta na-aaprove yan,
withstanding the provisions of any law to the they will have to underwrite for them to guarantee.
contrary, any
strike or lockout involving banks, if unsettled after So an investment house is an enterprise which engages
seven (7) calendar days shall be reported by the in the underwriting of securities of other corporation –
Bangko Sentral to the Secretary of Labor who may
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

it guarantees the shares and securities of other Bakit may limit - 50%?
corporation. This is because the policies of the bank have to be
prudent. Remember this serves for the investors and
In Corpo, when we go to the Securities regulation code, depositors and the public.
we would know that the term securities is not limited to Pag non-allied naman ka the equity investment in any
shares of stock. There are other types of financial one enterprise, shall not exceed
instruments considered as securities…but for purposes twenty-five percent (25%) of the net worth of the bank.
of discussion, you can liken the securities to shares of
stock but it’s not exclusively the shares of stock. Take note: the total investment in equity (meaning ang
total investment niya/total shares of stock na hawak
You have your PD 129, which is the enabling law of niya for allied and non-allied) shall not exceed 50% of
investment houses. the net worth of the bank.

So an investment house is authorized to do the Pero individually it should not exceed 25%.
following: (See PD 129 for full list)
The maximum is 25%. So kung meron siyang hawak na
Sec. 7. Powers. — In addition to the powers granted 25%, the maximum that it can invest in other enterprise
to corporations in general, an Investment House is is 25 also. Eto at the individual enterprise level -25%.
authorized to do the following: On the totality level, you have the 50%.

xxx (6) Act as financial consultant, investment Pag financial allied, can own up to 100% equity in a
adviser, or broker xxx thrift bank

SECTION 24. Equity Investments of a Universal SECTION 25. Equity Investments of a Universal
Bank. — A universal bank may, subject to the Bank in Financial Allied Enterprises. — A
conditions stated in the succeeding paragraph, invest universal bank can own up to one hundred percent
in the equities of allied and non-allied enterprises as (100%) of the equity in a thrift bank, a rural bank or
may be determined by the Monetary Board. Allied a
enterprises may either be financial or non-financial. financial allied enterprise.
Except as the Monetary Board may otherwise
prescribe: A publicly-listed universal or commercial bank may
own up to one hundred percent (100%) of the voting
24.1. The total investment in equities of allied and stock of only one other universal or commercial bank.
non-allied enterprises shall not exceed fifty percent (21 -B; 21 -Ca)
(50%) of the net worth of the bank; and
Take note: 100% of the equity. It did not say 100% of
24.2. The equity investment in any one enterprise, the voting stock. Magkaiba po si equity and si voting
whether allied or non-allied, shall not exceed twenty- stock. Kasi your equity might also have non-voting
five percent (25%) of the net worth of the bank. stocks.

As used in this Act, "net worth" shall mean the total These are financial allied undertakings.
of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net of SEC. X377 Financial Allied Undertakings. With prior
valuation reserves and other adjustments as may be BSP approval, banks may invest in equities of the
required by the Bangko Sentral. following financial allied undertakings, subject to the
limits prescribed under Sec. X378
The acquisition of such equity or equities is subject to a. Leasing companies including leasing of stalls and
the prior approval of the Monetary Board spaces in a commercial establishment; provided, That
which shall promulgate appropriate guidelines to bank investment in/acquisition of shares of such
govern such investments. (21 -Ba) leasing company shall be limited/applicable only in
cases of conversion of outstanding loan obligations
Deposits, loans and other operations. Equity investment into equity;
of universal bank, again invest in the equities of allied b. Banks;
and non-allied enterprises. c. Investment houses;
d. Financing companies;
Take note: 24.1. The total investment in equities of e. Credit card companies;
allied and non-allied enterprises shall not exceed fifty f. Financial institutions catering to small and
percent (50%) of the net worth of the bank; medium scale industries including venture capital
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

corporation (VCC), subject to the provisions under (4) Companies primarily engaged in the ma-
Sec. X379 nagement of mutual funds but not in the mutual funds
g. Companies engaged in stock brokerage/securities themselves;
dealership; and (5) Management corporations engaged or to be
h. Companies engaged in foreign exchange engaged in an activity similar to the management of
dealership/brokerage. mutual funds;
(6) Companies engaged in providing computer
In addition, EKBs may invest in the following as services;
financial allied undertakings: (7) Insurance agencies/brokerages;
(8) Companies engaged in home building and home
a. Insurance companies; and development;
b. Holding company, provided that the investments (9) Companies providing drying and/or milling
of such holding company are confined to the equities facilities for agricultural crops such as rice and corn;
of allied undertakings and/or non-allied undertakings (10) Service Bureaus organized to perform for and
of UBs allowed under BSP regulations. in behalf of banks and non-bank financial institutions
The Monetary Board may declare such other activities the services allowed to be outsourced under Circular
as financial allied undertakings of banks. No. 268; provided, that data processing companies
The determination of whether the corporation is may be allowed to invest up to 40% in the equity of
engaged in a financial allied undertaking shall be Service Bureaus;
based on its primary purpose as stated in its articles (11) Philippine Clearing House Corporation (PCHC)
of incorporation and the volume of its principal and Philippine Central Depository, Inc. (PDIC); and
business. (12) Such other similar activities as the Monetary
Board may declare as non-financial allied
undertakings of banks.
What is a venture capital corporation? UBs may further invest in health maintenance
These are corporations the purpose of which is primarily organizations (HMOs).
to provide capital. In addition, TBs may also invest in the equities of
companies enumerated in Item b of this Section
SECTION 26. Equity Investments of a Universal
Bank in Non-Financial Allied Enterprises. Non-allied undertakings. Familiarize. Marami sila.
— A universal bank may own up to one hundred
percent (100%) of the equity in a non-financial allied SECTION 28. Equity Investments in Quasi-
enterprise. (21 -Ba) Banks. — To promote competitive conditions in
financial markets, the Monetary Board may further
SECTION 27. Equity Investments of a Universal limit to forty percent (40%) equity investments of
Bank in Non-Allied Enterprises. — The universal banks in quasi-banks. This rule shall also
equity investment of a universal bank, or of its wholly apply in the case of commercial banks. (12-E)
or majority-owned subsidiaries, in a single nonallied
enterprise shall not exceed thirty-five percent (35%) Quasi-banks – 40%. As you can see limited.
of the total equity in that enterprise nor shall it The main features of the general banking law, is that it
exceed thirty-five percent (35%) of the voting stock actually provides restrictions to the banking operations.
in that enterprise. (21 -B) Yun lang yun isipin niyo.

Take note: of the limitations. Familiarize it. When you read the banking law, it provides: restrictions,
limitations, qualifications, prohibitions to the banks for
SEC. X380 Non-Financial Allied Undertakings. A bank the banking industry to be safe. Otherwise if wala,
may acquire up to one hundred percent (100%) of magpataka. That is why.
the equity of a non-financial allied undertaking: x x x.
The determination of whether the corporation is Take note of the prohibitions, restrictions, limitations
engaged in a non-financial allied undertaking shall be under the General Banking Act.
based on the primary purpose as stated in its articles
of incorporation and the volume of its principal Power of Commercial Banks
business. Let’s go to the Power of Commercial Banks.
UBs/KBs/TBs Remember the universal bank has the power of a
UBs/KBs and TBs may invest in equities of the commercial bank + …..
following non-financial allied undertakings: So we have to determine. What are the powers of a
(1) Warehousing companies; commercial banks?
(2) Storage companies;
(3) Safe deposit box companies;
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

SECTION 29. Powers of a Commercial Bank. — A the net worth of the bank; and
commercial bank shall have, in addition to 30.2. The equity investment in any one enterprise shall
the general powers incident to corporations, all such not exceed twenty-five percent (25%) of the net worth
powers as may be necessary to carry on the of the bank.
business of commercial banking, such as accepting
drafts and issuing letters of credit; discounting and Sa UB magkano yun? 50 & 25. Eto 35 & 25.
negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; accepting or SECTION 31. Equity Investments of a
creating Commercial Bank in Financial Allied Enterprises.
demand deposits; receiving other types of deposits —
and deposit substitutes; buying and selling foreign A commercial bank may own up to one hundred
exchange and gold or silver bullion; acquiring percent (100%) of the equity of a thrift bank or a rural
marketable bonds and other debt securities; and bank.
extending
credit, subject to such rules as the Monetary Board Where the equity investment of a commercial bank is
may promulgate. These rules may include the in other financial allied enterprises,
determination of bonds and other debt securities including another commercial bank, such investment
eligible for investment, the maturities and aggregate shall remain a minority holding in that enterprise.
amount of such investment. (21a) (21 -Aa; 21 -Ca)

xxxx; buying and selling foreign exchange and gold or SECTION 32. Equity Investments of a
silver bullion xxxx (therefore you can only exchange; Commercial Bank in Non-Financial Allied
maka exchange lang ka ug dollars to a commercial Enterprises. — A commercial bank may own up to
bank (CB) or a universal bank (UB). Sila lang yung one hundred percent (100%) of the equity in a
may power.) nonfinancial allied enterprise. (21 -Aa)

Just like a UB, a CB is also allowed to have equity SECTION 33. Acceptance of Demand Deposits. —
investment. A bank other than a universal or
SECTION 30. Equity Investments of a commercial bank cannot accept or create demand
Commercial Bank. — A commercial bank may, deposits except upon prior approval of, and subject
subject to
to the conditions stated in the succeeding such conditions and rules as may be prescribed by the
paragraphs, invest only in the equities of allied Monetary Board. (72-Aa)
enterprises as
may be determined by the Monetary Board. Allied SECTION 34. Risk-Based Capital. — The Monetary
enterprises may either be financial or non-financial. Board shall prescribe the minimum ratio
Except as the Monetary Board may otherwise which the net worth of a bank must bear to its total
prescribe: risk assets which may include contingent accounts.

30.1. The total investment in equities of allied For purposes of this Section, the Monetary Board may
enterprises shall not exceed thirty-five percent require that such ratio be determined on
(35%) of the net worth of the bank; and the basis of the net worth and risk assets of a bank
and its subsidiaries, financial or otherwise, as well as
30.2. The equity investment in any one enterprise prescribe the composition and the manner of
shall not exceed twenty-five percent (25%) of the determining the net worth and total risk assets of
net worth of the bank. banks and
their subsidiaries: Provided, That in the exercise of
The acquisition of such equity or equities is subject to this authority, the Monetary Board shall, to the extent
the prior approval of the Monetary Board feasible, conform to internationally accepted
which shall promulgate appropriate guidelines to standards, including those of the Bank for
govern such investments. (21A-a; 21 -Ca) International
Settlements (BIS), relating to risk-based capital
Take note: xxx invest only in the equities of allied requirements: Provided, further, That it may alter or
enterprises as may be determined by the Monetary suspend compliance with such ratio whenever
Board. Allied enterprises may either be financial or non- necessary for a maximum period of one (1) year:
financial. xxxx Provided,
Take note of the limitations: finally, That such ratio shall be applied uniformly to
30.1. The total investment in equities of allied banks of the same category.
enterprises shall not exceed thirty-five percent (35%) of
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

In case a bank does not comply with the prescribed xxx the MB shall, to the extent feasible, conform to
minimum ratio, the Monetary Board may limit internationally accepted standards, including those of
or prohibit the distribution of net profits by such bank the Bank for International Settlements (BIS), relating to
and may require that part or all of the net profits be risk-based capital requirements xxx
used to increase the capital accounts of the bank until xxx Provided, finally, That such ratio shall be applied
the minimum requirement has been met. The uniformly to banks of the same category. Xxx
Monetary Board may, furthermore, restrict or prohibit
the acquisition of major assets and the making of so there is no standard but if UB, it should apply to all
new investments by the bank, with the exception of UBs . pag CB, it should apply to all CBs. Because it is
purchases of readily marketable evidences of based on risk; they have the same risk.
indebtedness of the Republic of the Philippines and of
the Bangko Sentral and any other evidences of SECTION 35. Limit on Loans, Credit
indebtedness or obligations the servicing and Accommodations and Guarantees. —
repayment of which are fully guaranteed by the 35.1. Except as the Monetary Board may otherwise
Republic of prescribe for reasons of national interest, the
the Philippines, until the minimum required capital total amount of loans, credit accommodations and
ratio has been restored. guarantees as may be defined by the
Monetary Board that may be extended by a bank to
In case of a bank merger or consolidation, or when a any person, partnership, association,
bank is under rehabilitation under a program corporation or other entity shall at no time exceed
approved by the Bangko Sentral, the Monetary Board twenty percent (20%) of the net worth of
may temporarily relieve the surviving bank, such bank. The basis for determining compliance with
consolidated bank, or constituent bank or single-borrower limit is the total credit
corporations under rehabilitation from full compliance commitment of the bank to the borrower.
with the
required capital ratio under such conditions as it may 35.2. Unless the Monetary Board prescribes
prescribe. otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the
Before the effectivity of the rules which the Monetary preceding paragraph may be increased
Board is authorized to prescribe under this by an additional ten percent (10%) of the net worth
provision, Section 22 of the General Banking Act, as of such bank provided the additional
amended, Section 9 of the Thrift Banks Act, and all liabilities of any borrower are adequately secured by
pertinent rules issued pursuant thereto, shall trust receipts, shipping documents,
continue to be in force. (22a) warehouse receipts or other similar documents
transferring or securing title covering readily
xxxx The Monetary Board shall prescribe the minimum marketable, non-perishable goods which must be
ratio which the net worth of a bank must bear to its total fully covered by insurance.
risk assets xxxx
35.3. The above prescribed ceilings shall include: (a)
Take note: in every bank (UB, CB, TB) makaiba yung the direct liability of the maker or acceptor of
requirement for ratios. paper discounted with or sold to such bank and the
liability of a general indorser, drawer or
Ano yung ratios? – It’s like, you have to have this guarantor who obtains a loan or other credit
particular debt compared to your assets. You have to accommodation from or discounts paper with or
have this particular investment in this particular sells papers to such bank; (b) in the case of an
field/industry compared to your total assets. individual who owns or controls a majority
interest in a corporation, partnership, association or
Magkaiba yan sila because they have different risks. any other entity, the liabilities of said
That is why it is called risk-based capital. The General entities to such bank; (c) in the case of a corporation,
banking law does not give you a standard minimum all liabilities to such bank of all
ratio. It gives you a risk based capital ratio. subsidiaries in which such corporation owns or
controls a majority interest; and (d) in the
So it is based on the risk that a particular bank has. case of a partnership, association or other entity, the
Kung magkano yung risk ng particular bank. liabilities of the members thereof to
such bank.
Siyempre magkaiba naman kayo. Yung isa maliit, yung
isa mas risky…so there is no standard for risks. 35.4. Even if a parent corporation, partnership,
association, entity or an individual who owns or
controls a majority interest in such entities has no
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

liability to the bank, the Monetary Board partnership, association, corporation or other entity
may prescribe the combination of the liabilities of shall at no time exceed twenty percent (20%) of the net
subsidiary corporations or members of the worth of such bank. xxx (*ngayon based on the circular
partnership, association, entity or such individual issued in 2004, it is now 25% of the net worth of
under certain circumstances, including but such bank)
not limited to any of the following situations: (a) the
parent corporation, partnership, So you cannot actually say na “BPI, mayaman ako,
association, entity or individual guarantees the pautangin mo ako ng ganitong milyones”
repayment of the liabilities; (b) the liabilities
were incurred for the accommodation of the parent Your right to make utang from a bank is not unlimited,
corporation or another subsidiary or of it is limited. This is what you call the single borrowers
the partnership or association or entity or such limit.
individual; or (c) the subsidiaries though
separate entities operate merely as departments or So one borrower is limited sa kanyang utang which is
divisions of a single entity. now 25% of the net worth of such bank.
Why is that? Bakit may limit?
35.5. For purposes of this Section, loans, other credit
accommodations and guarantees shall You can pay a 100M, tapos ang net worth lang naman
exclude: pala ng bank nasa 120M, sobra na siya 25%, so hindi
ka pautangin ng bank.
(a) loans and other credit accommodations secured
by obligations of the Bangko Sentral or The purpose of this is to avoid over concentration of risk.
of the Philippine Government; (b) loans and other Kung ico-concentrate ko buong net worth ko sa isang
credit accommodations fully guaranteed by the tao,what happens if mamatay ang tao?
government as to the payment of principal and It would be really risky to the bank.
interest; (c) loans and other credit accommodations
covered by assignment of deposits maintained in the So this avoids the overconcentration of risk to a
lending bank and held in the Philippines; (d) particular borrower, this is why we have the single
loans, credit accommodations and acceptances under borrowers limit.
letters of credit to the extent covered by
margin deposits; and (e) other loans or credit The basis for determining compliance with single-
accommodations which the Monetary Board may from borrower limit is the total credit commitment of the bank
time to time, specify as non-risk items. to the borrower; consisting of loans, credit
accommodations and guarantees.
35.6. Loans and other credit accommodations, So hindi lang loans perse, but pwede din guarantees;
deposits maintained with, and usual guarantees by the total credit commitment.
a bank to any other bank or non-bank entity, whether
locally or abroad, shall be subject to So yung total credit commitment ng tao, yun yung ico-
the limits as herein prescribed. compare mo sa net worth. If it exceeds 25%, that is not
allowed.
35.7. Certain types of contingent accounts of
borrowers may be included among those subject to xxxx the total amount of loans, credit
these prescribed limits as may be determined by the accommodations and guarantees prescribed in the
Monetary Board. (23a) preceding paragraph may be increased
by an additional ten percent (10%) of the net worth of
such bank provided the additional
This is very important. This is what you call single liabilities of any borrower are ADEQUATELY SECURED
borrowers limit. by trust receipts, shipping documents,
warehouse receipts or other similar documents
xxx Except as the Monetary Board may otherwise transferring or securing title covering readily
prescribe for reasons of national interest, (*take note of marketable, non-perishable goods which must be fully
the exception: national interest) xxxx covered by insurance. Xxxxx

xxx the total amount of loans, credit accommodations How can you increase the single borrowers limit?
and guarantees xxx (*take note: loans,
accommodations, guarantees lang.) xxx It must be adequately secured by trust receipts,
shipping documents, warehouse receipts or other
xxx guarantees as may be defined by the Monetary similar documents transferring or securing title covering
Board that may be extended by a bank to any person,
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

readily marketable, non-perishable goods which must (a) loans and other credit accommodations secured by
be fully covered by insurance obligations of the Bangko Sentral or of the Philippine
It can only be increased if it is covered by documents Government;
transferring or securing title
(b) loans and other credit accommodations fully
(*not just any title: the title must be readily marketable, guaranteed by the government as to the payment of
non-perishable goods) principal and interest;

So may trust receipt nga, but the goods under that (c) loans and other credit accommodations covered by
receipt are not readily marketable, non-perishable assignment of deposits maintained in the lending bank
goods then that is not a reason for the bank to increase and held in the Philippines;
the single borrowers limit.
(d) loans, credit accommodations and acceptances
So what is the purpose of this? “i-increase naming yun under letters of credit to the extent covered by
borrowers mo because in the event of default there is margin deposits; and
an easy money.” You can easily convert the security into
money. (e) other loans or credit accommodations which the
Monetary Board may from time to time, specify as non-
So pagsinabi sa true or false: nag increase siya kasi nag risk items.
issue ng trust receipt, is it true or false?
Can the bank increase up to 10% of the limit if the Please check BSP Circular 425. This has the
borrower issues a trust receipt. consolidated regulation for single borrower’s limit.

Answer is false because it is not just any trust receipt. What’s the penalty if you exceed the limit?
The trust receipt must cover readily marketable, non-
perishable goods fully covered by insurance. (BSP Circular 425)
Series of 2004
Take note: a. Monetary Penalties - Fines of one-tenth of one
percent (1/10 of 1%) of the excess over the ceiling
xxxx The above prescribed ceilings shall include: but not to exceed Thirty Thousand Pesos
(b) in the case of an individual who owns or controls a (P30,000.00) a day for each SBL violation shall be
majority interest in a corporation, partnership, assessed on the bank to be reckoned from the date
association or any other entity, the liabilities of said the excess started up to the date when such excess
entities to such bank; xxxx was eliminated: Provided, That a maximum fine of
Five Hundred Pesos (P500.00) a day for each violation
(*kasi pwede naming I have a limit so ang gawin ko, I shall be imposed against banks with total resources
will create a corporation. That corporation, another of less than P50 million at the time of granting of
25%, me - 25%, pero ako pa din may-ari nun eh, so 50 loan/credit accommodation.
na ako all in all) b. Other Sanctions
First Offense – Reprimand for the directors/officers
I will just course it through the corporation. who approved the credit availment which resulted in
the excess with a warning that subsequent violations
will be subject to more severe sanctions.
Subsequent Offenses –
January 23 – Part 3 1:00:01 – 1:20:00 1. Fine of One Thousand Pesos (P1,000.00) for
directors/officers who approved the credit availment
Please take note that it includes a case of individual who which resulted in the excess.
owns or controls the majority interest in a corporation, 2. Suspension of the bank’s branching privileges and
partnership or association of any other entity. It does access to Bangko Sentral rediscounting facilities until
not only limit to just owning but also to controlling. the excess is eliminated.
Pwede naman hindi sa akin ang majority interest. 3. Other penalties as the Monetary Board may
impose depending on the gravity of the offense.
There’s a difference between owning and controlling.
The law provides it’s either own or control. You can own BSP recently issued last 2017 an exemption to the single
something, but you do not have control or vice versa. borrower’s limit. They provided an exclusion that the
SPE or special purpose entities are not covered under
Please take note of the exclusions: (Sec. 35.5) the single borrower’s limit. So, they can actually loan
more than 25%.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

What are special purpose vehicles or special defective, as the facts charged therein do not
purpose entities? constitute an offense under Section 83 of RA 337.

Ex. If you are a big corporation, gagawa ka ng SPV/SPE.

The purpose of that is actually to secure assets. Kaya ISSUE
bankruptcy remote siya. In the event that the parent
company will be bankrupt, the assets by the SPV/SPE WHETHER GO’s ACTIONS/ TRANSACTIONS
will be secured. Whatever happens to the owner, these CONSTITUTE VIOLATIONS OF SEC. 83 OF RA 337.
will not be affected.
RULING
So, ikaw if marami kang pera and you want to distribute
the risks and may mga assets ka na ayaw mo madamay, YES. GO’s ACTIONS/ TRANSACTIONS CONSTITUTE
itago mo dun sa SPV/SPE. But it is highly regulated VIOLATIONS OF SEC. 83 OF RA 337.
because of ENDRON case.
Under Section 83, RA 337, the following elements
What happened before with ENDRON is that their share must be present to constitute a violation of its first
skyrocketed from $1 to $1000 per share. What they did paragraph:
was they created SPV/SPEs to secure their assets.
However, the SPV/SPE are not reflected in the books of 1. the offender is a director or officer of any banking
ENDRON. Kasi that is allowed naman. institution;
2. the offender, either directly or indirectly, for
Ang nangyari, the funding for the SPV/SPE are himself or as representative or agent of another,
guaranteed by the assests of ENDRON. So, yung mga performs any of the following acts:
business ventures ng SPV/SPE nalugi so supposedly a. he borrows any of the deposits or funds of such
yung madamay yun lang pero nakaguarantee kasi. So, bank; or
in ENDRON’s finances it would look like the positive and b. he becomes a guarantor, indorser, or surety for
naga income but it did not reflect the fact that the loans from such bank to others, or
assests were guaranteed for the operations of the c. he becomes in any manner an obligor for
SPV/SPE. When the debtors of the SPV/SPE went after money borrowed from bank or loaned by it;
the guarantee, dun na nag erode lahat. And because of 3. the offender has performed any of such acts
that the PCIOB (Public Companies Oversight Board) was without the written approval of the majority of the
established. So, now, SPV/SPE are highly regulated directors of the bank, excluding the offender, as the
because they are meant to secure the assets. director concerned.

GO v. BANGKO SENTRAL NG PILIPINAS The essence of the crime is becoming an obligor

of the bank without securing the necessary
FACTS: written approval of the majority of the banks
directors.
On August 20, 1999, an information for violation of
Section 83 of Republic Act No. 337 (RA 337) or the The second element merely lists down the various
General Banking Act, as amended by Presidential modes of committing the offense. The prohibition is
Decree No. 1795, was filed against Jose Go ( the directed against a bank director or officer who
Director and the President and CEO of the Orient becomes in any manner an obligor for money
Commercial Banking Corporation), before the borrowed from or loaned by the bank without the
RTC, for borrowing the deposits or funds of the Orient written approval of the majority of the banks board of
Bank and/or acting as a guarantor, indorser or directors.
obligor for the banks loans to other persons in total
amount of TWO BILLION AND SEVEN HUNDRED
FIFTY-FOUR MILLION NINE HUNDRED Contrary to Gos claims, the second paragraph of
FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN Section 83, RA 337 does not provide for an exception
AND 0/100 PESOS, Philippine Currency, without the to a violation of the first paragraph thereof, nor does
written approval of the majority of the Board of it constitute as an element of the offense
Directors of said Orient Bank charged. Section 83 of RA 337 actually imposes three
restrictions: approval, reportorial, and ceiling
On May 28, 2001, Go pleaded not guilty to the offense requirements.
charged.
 The approval requirement (found in the
Go filed on February 26, 2003 a motion to quash the first sentence of the first paragraph of the
Information, claiming that the Information was law) refers to the written approval of the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

majority of the banks board of directors Please take note of the three requirements:
required before bank directors and officers 1. Approval requirement. It has to be approved by
can in any manner be an obligor for money written approval of the majority of the bank’s
borrowed from or loaned by the bank. Failure board of directors.
to secure the approval renders the bank 2. Reportorial requirement
director or officer concerned liable for 3. Ceiling requirement
prosecution and, upon conviction, subjects
him to the penalty provided in the third So just because hindi pa umabot sa ceiling, that does
sentence of first paragraph of Section 83. not mean that you cannot be held liable. Please take
note that this paves the way for the prosecution of three
 The reportorial requirement, on the other different offenses, each with its own set of elements.
hand, mandates that any such approval
should be entered upon the records of the SORIANO v. PEOPLE
corporation, and a copy of the entry be
transmitted to the appropriate supervising FACTS
department. The reportorial requirement is
addressed to the bank itself, which, upon its Two separate informations were filed against Hilario
failure to do so, subjects it to quo Soriano, one for estafa through falsification of
warranto proceedings under Section 87 of RA commercial documents, the other for violation of
337. section 83 of RA 337.

 The ceiling requirement under the second ISSUE

paragraph of Section 83 regulates the
amount of credit accommodations that banks Whether or not a person can be concurrently held
may extend to their directors or officers by liable for estafa and violation of DOSRI regulations for
limiting these to an amount equivalent to the a single act or transaction.
respective outstanding deposits and book
value of the paid-in capital contribution in the RULING
bank. Again, this is a requirement directed at
the bank. YES. A person can be concurrently held liable for
estafa and violation of DOSRI regulations for a single
The prosecution for violation of the first paragraph of act or transaction.
Section 83, does not require an allegation that the
loan exceeded the legal limit. Even if the loan We have examined the two informations against
involved is below the legal limit, a written approval by petitioner and we find that they contain allegations
the majority of the banks directors is still required; which, if hypothetically admitted, would establish the
otherwise, the bank director or officer who becomes essential elements of the crime of DOSRI violation
an obligor of the bank is liable. Compliance with the and estafa thru falsification of commercial
ceiling requirement does not dispense with the documents.
approval requirement.
Petitioner raises the theory that he could not possibly
The failure to observe the three requirements under be held liable for estafa in concurrence with the
Section 83 paves the way for the prosecution of three charge for DOSRI violation. According to him, the
different offenses, each with its own set of DOSRI charge presupposes that he acquired a loan,
elements. A successful indictment for failing to which would make the loan proceeds his own money
comply with the approval requirement will not and which he could neither possibly misappropriate
necessitate proof that the other two were likewise not nor convert to the prejudice of another, as required
observed. by the statutory definition of estafa. On the other
hand, if petitioner did not acquire any loan, there can
be no DOSRI violation to speak of. Thus, petitioner
In the case at bar, it was alleged that GO’s posits that the two offenses cannot co-exist. This
transactions were without written approval of the theory does not persuade us.
majority of the Board of Directors of the Orient
Bank. Hence, he should be prosecuted for the crime Petitioners theory is based on the false premises that
charged. the loan was extended to him by the bank in his own
name, and that he became the owner of the loan
proceeds. Both premises are wrong.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

The bank money (amounting to P8 million) even if the director or officer is a mere
which came to the possession of petitioner was guarantor, indorser or surety for someone
money held in trust or administration by him for else's loan or is in any manner an obligor for
the bank, in his fiduciary capacity as the money borrowed from the bank or loaned by it.
President of said bank. It is not accurate to say The covered transactions are prohibited unless
that petitioner became the owner of the P8 the approval, reportorial and ceiling
million because it was the proceeds of a requirements under Section 83 are complied
loan. That would have been correct if the with.
bank knowingly extended the loan to petitioner
himself. But that is not the case here. According The prohibition is intended to protect the public,
to the information for estafa, the loan was especially the depositors from the overborrowing of
supposed to be for another person, a certain bank funds by bank officers, directors, stockholders
Enrico Carlos; petitioner, through falsification, and related interests, as such overborrowing may
made it appear that said Enrico Carlos applied lead to bank failures. It has been said that banking
for the loan when in fact he (Enrico Carlos) did institutions are not created for the benefit of the
not. Through such fraudulent device, petitioner directors [or officers]. While directors have great
obtained the loan proceeds and converted the powers as directors, they have no special privileges
same. Under these circumstances, it cannot be as individuals. They cannot use the assets of the bank
said that petitioner became the legal owner of for their own benefit except as permitted by law.
the P8 million. Thus, petitioner remained the Stringent restrictions are placed about them so that
banks fiduciary with respect to that money, when acting both for the bank and for one of
which makes it capable of misappropriation or themselves at the same time, they must keep within
conversion in his hands. certain prescribed lines regarded by the legislature as
essential to safety in the banking business.
The next question is whether there can also be, at the
same time, a charge for DOSRI violation in such a A direct borrowing is obviously one that is made
situation wherein the accused bank officer in the name of the DOSRI himself or where the
did not secure a loan in his own name, but was DOSRI is a named party, while
alleged to have used the name of another person in an indirect borrowing includes one that is made
order to indirectly secure a loan from the bank. We by a third party, but the DOSRI has a stake in
answer this in the affirmative. Section 83 of RA 337 the transaction. The latter type indirect
reads: borrowing applies here. The information in
Criminal Case 238-M-2001 alleges that
Section 83. No director or officer of any banking petitioner in his capacity as President of Rural
institution shall, either directly or indirectly, for Bank of San Miguel San Ildefonso branch x x x
himself or as the representative or agent of others, indirectly borrow[ed] or secure[d] a loan with
borrow any of the deposits of funds of such bank, nor [RBSM] x x x knowing fully well that the same
shall he become a guarantor, indorser, or surety for has been done by him without the written
loans from such bank to others, or in any manner be consent and approval of the majority of the
an obligor for moneys borrowed from the bank or board of directors x x x, and which consent and
loaned by it, except with the written approval of the approval the said accused deliberately failed to
majority of the directors of the bank, excluding the obtain and enter the same upon the records of
director concerned. Any such approval shall be said banking institution and to transmit a copy
entered upon the records of the corporation and a thereof to the supervising department of the
copy of such entry shall be transmitted forthwith to said bank x x x by using the name of one
the Superintendent of Banks. The office of any depositor Enrico Carlos x x x, the latter having
director or officer of a bank who violates the no knowledge of the said loan, and once in
provisions of this section shall immediately become possession of the said amount of eight million
vacant and the director or officer shall be punished by pesos (P8 million), [petitioner] converted the
imprisonment of not less than one year nor more than same to his own personal use and benefit.
ten years and by a fine of not less than one thousand
nor more than ten thousand pesos. x x x The foregoing information describes the manner of
securing the loan as indirect; names petitioner as the
The prohibition in Section 83 is broad enough to benefactor of the indirect loan; and states that the
cover various modes of borrowing. It covers requirements of the law were not complied with. It
loans by a bank director or officer (like herein contains all the required elements for a violation of
petitioner) which are made either: (1) directly, Section 83, even if petitioner did not secure the loan
(2) indirectly, (3) for himself, (4) or as the in his own name.
representative or agent of others. It applies
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

The broad interpretation of the prohibition in Section Bangko Sentral) as the corresponding paid-in capital
83 is justified by the fact that it even expressly covers contribution of each of the bank’s directors, officers,
loans to third parties where the third parties are stockholders and their related interests bear to the total
aware of the transaction (such as principals paid-in capital of the bank: Provided, That as a basis for
represented by the DOSRI), and where the DOSRIs determining the individual ceiling, the corresponding
interest does not appear to be beneficial but even book value of the shares of stock of said directors,
burdensome (such as in cases when the DOSRI acts officers, stockholders and their related interests which
as a mere guarantor or surety). If the law finds it are he subject of pledge, assignment or any other
necessary to protect the bank and the banking encumbrance shall be deducted therefrom.
system in such situations, it will surely be illogical for
it to exclude a case like this where the DOSRI If you want to read, may computations for the ceiling,
acted for his own benefit, using the name of an but I will not ask you to compute that.
unsuspecting person. A contrary interpretation will
effectively allow a DOSRI to use dummies to Individual Unsecured Ceiling
circumvent the requirements of the law.
Unsecured loans, other credit accommodations and
guarantees to each of the bank’s DOSRI shall not exceed
So it does not only involve direct bargaining, but also 30% of their respective total loans, other credit
indirect bargaining. accommodations and guarantees.

You read BSP Circular 423 for the regulations on DOSRI Aggregate Ceilings
transactions.
Except with the prior approval of the Monetary Board,
Ceiling Requirement the total outstanding loans, other credit
1. Individual accommodations and guarantees to DOSRI shall not
2. Aggregate exceed 15% of the total loan portfolio of the bank or
3. Individual unsecured 100% of net worth whichever is lower.
4. Aggregate unsecured
Credit Card Operations
Secured and Unsecured
Does the limitations on DOSRI loans include credit
Secured loan, borrowing or other credit accommodation cards? Ano ba ang nature ng credit card? Utang diba.
shall refer to any loan, or credit accommodation or Pwede mong nakawin. You can be liable for qualified
portion thereof which is secured by physical collateral, theft because of credit card charges.
financial guarantee, or other instruments, that are
enforceable, realizable, and marketable and meets the The credit card operations of banks shall not be subject
standards prescribed. to these regulations where the credit cardholders are
bank’s DOSRI: Provided, That
Unsecured loan, borrowing or other credit
accommodation shall refer to any loan or other credit (a) the privilege of becoming a credit cardholder is
accommodation or portion thereof which is not secured. open to all qualified persons on the basis of
selective criterial which are applied by the bank
Individual Ceilings to all applicants thereof; and

The total outstanding loans, other credit (b) the bank’s DOSRIs reimburse/pay the bank for
accommodations and guarantees to each of the bank’s the billed amount in full on or before the
DOSRI shall be limited to an amount equivalent to their payment due date in the billing or statement of
respective unencumbered deposits and book value of account, as set by the bank for all other qualified
their paid-in capital contribution in the bank. credit cardholders on availments made for the
same period on their credit cards.
Unencumbered deposits shall refer to savings, time and
demand deposits, which are not subject to an So kung merong overdue, that might be considered in
assignment or hold-out agreement or any other what is considered as “total credit accommodation.” So
encumbrance. pwede siyang papasok dun pag overdue, because the
bank’s DOSRI should pay in full on or before the
Book value of the paid-in capital contribution shall mean payment due date.
the proportional amount of the bank’s total capital
accounts (net of such unbooked valuation reserves and For example, director ng BPI, meron siyang credit card
other capital adjustments as may be required by the ng BPI. Is this covered by the total credit
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

accommodation for purposes of the ceiling? It will only related interests, shall be limited to an amount
be covered pag hindi niya nabayaran on due date. So equivalent to their respective unencumbered deposits
kung nagbayad siya within the period prescribed, he will and
not be covered by the ceiling requirement. book value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit
However, the transaction shall be subject to applicable accommodations and guarantees secured by assets
DOSRI regulations if the bank’s DOSRIs: considered as non-risk by the Monetary Board shall
(a) fail to reimburse/pay the bank within the period be excluded from such limit: Provided, further, That
mentioned herein; or loans, credit accommodations and advances to
(b) on the outset, opt for deferred payment officers in the form of fringe benefits granted in
scheme, and the availment is booked by the accordance with rules as may be prescribed by the
bank. Monetary Board shall not be subject to the individual
limit.

SECTION 36. Restriction on Bank Exposure to The Monetary Board shall define the term "related
Directors, Officers, Stockholders and Their interests."
Related Interests. — No director or officer of any
bank shall, directly or indirectly, for himself or as the The limit on loans, credit accommodations and
representative or agent of others, borrow from such guarantees prescribed herein shall not apply to
bank nor shall he become a guarantor, indorser or loans, credit accommodations and guarantees
surety for loans from such bank to others, or in any extended by a cooperative bank to its cooperative
manner be an obligor or incur any contractual liability shareholders. (83a)
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 Section 37. Loans and Other Credit Accommodations
approval shall not be required for loans, other credit Against Real Estate. - Except as the Monetary Board
accommodations and advances granted to officers may otherwise prescribe, loans and other credit
under a fringe benefit plan approved by the Bangko accommodations against real estate shall not exceed
Sentral. The required approval shall be entered upon seventy-five percent (75%) of the appraised value of
the records of the bank and a copy of such entry the respective real estate security, plus sixty percent
shall be transmitted forthwith to the appropriate (60%) of the appraised value of the insured
supervising and examining department of the Bangko improvements, and such loans may be made to the
Sentral. owner of the real estate or to his assignees. (78a)

Dealings of a bank with any of its directors, officers Pag may collateral ka na lupa, bakit pinapa-appraise ng
or stockholders and their related interests bangko? Bakit yung appraisal ng bangko, ang konti
shall be upon terms not less favorable to the bank konti? Bakit pag 100 million yung kanilang appraisal,
than those offered to others. ang pinapa-loan sayo ay less than 100 million? Because
under Section 37, loans and other credit
After due notice to the board of directors of the bank, accommodations against real estate shall not exceed
the office of any bank director or officer who 75% of the appraised value of the respective real estate
violates the provisions of this Section may be security, plus 60% of the appraised value of the insured
declared vacant and the director or officer shall be improvements (so kung may building, 60%), and such
subject loans may be made to the owner of the real estate or to
to the penal provisions of the New Central Bank Act. his assignees. Please take note that this is only the limit.
So pwedeng babaan ng bangko.
The Monetary Board may regulate the amount of
loans, credit accommodations and guarantees Section 38. Loans And Other Credit
that may be extended, directly or indirectly, by a bank Accommodations on Security of Chattels and
to its directors, officers, stockholders and their Intangible Properties. - Except as the Monetary Board
related interests, as well as investments of such bank may otherwise prescribe, loans and other credit
in enterprises owned or controlled by said directors, accommodations on security of chattels and
officers, stockholders and their related interests. intangible properties such as, but not limited to,
However, the outstanding loans, credit patents, trademarks, trade names, and copyrights
accommodations shall not exceed seventy-five percent (75%) of the
and guarantees which a bank may extend to each of appraised value of the security, an such loans and
its stockholders, directors, or officers and their other credit accommodation may be made to the title-
holder of the chattels and intangible properties or his
assignees. (78a)
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Please take note that even intangible property could be Section 41. Unsecured Loans or Other Credit
made collateral. Accommodations. - The Monetary Board is hereby
authorized to issue such regulations as it may deem
Section 39. Grant and Purpose of Loans and Other necessary with respect to unsecured loans or other
Credit Accommodations. - A bank shall grant loans credit accommodations that may be granted by
and other credit accommodations only in amounts banks. (n)
and for the periods of time essential for the effective
completion of the operations to be financed. Such Section 42. Other Security Requirements for Bank
grant of loans and other credit accommodations shall Credits. - The Monetary Board may, by regulation,
be consistent with safe and sound banking practices. prescribe further security requirements to which the
(75a) The purpose of all loans and other credit various types of bank credits shall be subject, and, in
accommodations shall be stated in the application accordance with the authority granted to it in Section
and in the contract between the bank and the 106 of the New Central Bank Act, the Board may by
borrower. If the bank finds that the proceeds of the regulation, reduce the maximum ratios established in
loan or other credit accommodation have been Sections 36 and 37 of this Act, or, in special cases,
employed, without its approval, for purposes other increase the maximum ratios established therein.
than those agreed upon with the bank, it shall have (78)
the right to terminate the loan or other credit
accommodation and demand immediate repayment Section 43. Authority to Prescribe Terms and
of the obligation. (77) Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may,
That is why when you try to apply for a loan, meron similarly in accordance with the authority granted to
yang purpose. This is consistent with the safe and sound it in Section 106 of the New Central Bank Act, and
banking practices because the bank will assume the risk. taking into account the requirements of the economy
for the effective utilization of long-term funds,
A bank must ascertain that the debtor is capable of prescribe the maturities, as well as related terms and
fulfilling his commitments to the bank, and in conditions for various types of bank loans and other
ascertaining that, he may require the borrower to credit accommodations. Any change by the Board in
submit the corresponding financial statements the maximum maturities, as well as related terms and
submitted for taxation purposes to the BIR. In reality, conditions for various types of bank loans and other
you’re earning millions but you submitted to the BIR a credit accommodations. Any change by the Board in
lower amount because you want to evade paying the the maximum maturities shall apply only to loans and
taxes. Now here comes the time that you have to loan, other credit accommodations made after the date of
hindi ka tuloy iaapprove sa loan na amount na gusto mo. such action. The Monetary Board shall regulate the
interest imposed on micro finance borrowers by
Section 40. Requirement for Grant Of Loans or 0ther lending investors and similar lenders such as, but not
Credit Accommodations. - Before granting a loan or limited to, the unconscionable rates of interest
other credit accommodation, a bank must ascertain collected on salary loans and similar credit
that the debtor is capable of fulfilling his accommodations. (78a)
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 Section 44. Amortization on Loans and Other Credit
expenditures and such information as may be Accommodations. - The amortization schedule of
prescribed by law or by rules and regulations of the bank loans and other credit accommodations shall be
Monetary Board to enable the bank to properly adapted to the nature of the operations to be
evaluate the credit application which includes the financed. In case of loans and other credit
corresponding financial statements submitted for accommodations with maturities of more than five (5)
taxation purposes to the Bureau of Internal Revenue. years, provisions must be made for periodic
Should such statements prove to be false or incorrect amortization payments, but such payments must be
in any material detail, the bank may terminate any made at least annually: Provided, however, That
loan or other credit accommodation granted on the when the borrowed funds are to be used for purposes
basis of said statements and shall have the right to which do not initially produce revenues adequate for
demand immediate repayment or liquidation of the regular amortization payments therefrom, the bank
obligation. In formulating rules and regulations under may permit the initial amortization payment to be
this Section, the Monetary Board shall recognize the deferred until such time as said revenues are
peculiar characteristics of micro financing, such as sufficient for such purpose, but in no case shall the
cash flow-based lending to the basic sectors that are initial amortization date be later than five (5) years
not covered by traditional collateral. (76a) from the date on which the loan or other credit
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

accommodation is granted. (79a) In case of loans and of the foreclosure proceeding. Notwithstanding Act
other credit accommodations to micro finance 3135, juridical persons whose property is being sold
sectors, the schedule of loan amortization shall take pursuant to an extrajudicial foreclosure, shall have
into consideration the projected cash flow of the the right to redeem the property in accordance with
borrower and adopt this into the terms and conditions this provision until, but not after, the registration of
formulated by banks. (n) the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is
Take note: “The bank may permit the initial earlier. Owners of property that has been sold in a
amortization payment to be deferred until such time as foreclosure sale prior to the effectivity of this Act shall
said revenues are sufficient for such purpose, but in no retain their redemption rights until their expiration.
case shall the initial amortization date be later than five (78a)
years.” Pwede mo naman istructure ang loan mo na
magbabayad ka on a later date, but it must not be later Section 48. Renewal or Extension of Loans and Other
than five years from the date on which the loan or other Credit Accommodations. - The Monetary Board may,
credit accommodation is granted. So you have that by regulation, prescribe the conditions and limitations
maximum deferment of period of payment. under which a bank may grant extensions or renewals
of its loans and other credit accommodations. (81)
Section 45. Prepayment of Loans and Other Credit
Accommodations. - A borrower may at any time prior Section 49. Provisions for Losses and Write-Offs. -
to the agreed maturity date prepay, in whole or in All debts due to any bank on which interest is past
part, the unpaid balance of any bank loan and other due and unpaid for such period as may be determined
credit accommodation, subject to such reasonable by the Monetary Board, unless the same are welt-
terms and conditions as may be agreed upon between secured and in the process of collection shall be
the bank and its borrower. (80a) considered bad debts within the meaning of this
Section. The Monetary Board may fix, by regulation
Section 46. Development Assistance Incentives. - or by order in a specific case, the amount of reserves
The Bangko Sentral shall provide incentives to banks for bad debts or doubtful accounts or other
which, without government guarantee, extend loans contingencies. Writing off of loans, other credit
to finance educational institutions cooperatives, accommodations, advances and other assets shall be
hospitals and other medical services, socialized or subject to regulations issued by the Monetary Board.
low-cost housing, local government units and other (84a)
activities with social content. (n)
Section 50. Major Investments. - For the purpose or
Section 47. Foreclosure of Real Estate Mortgage. - enhancing bank supervision, the Monetary Board
In the event of foreclosure, whether judicially or shall establish criteria for reviewing major
extra-judicially, of any mortgage on real estate which acquisitions of investments by a bank including
is security for any loan or other credit accommodation corporate affiliations or structures that may expose
granted, the mortgagor or debtor whose real property the bank to undue risks or in any way hinder effective
has been sold for the full or partial payment of his supervision.
obligation shall have the right within one year after
the sale of the real estate, to redeem the property by Section 51. Ceiling on Investments in Certain
paying the amount due under the mortgage deed, Assets. - Any bank may acquire real estate as shall
with interest thereon at rate specified in the be necessary for its own use in the conduct of its
mortgage, and all the costs and expenses incurred by business: Provided, however, That the total
the bank or institution from the sale and custody of investment in such real estate and improvements
said property less the income derived therefrom. thereof including bank equipment, shall not exceed
However, the purchaser at the auction sale concerned fifty percent (50%) of combined capital accounts:
whether in a judicial or extra-judicial foreclosure shall Provided, further, That the equity investment of a
have the right to enter upon and take possession of bank in another corporation engaged primarily in real
such property immediately after the date of the estate shall be considered as part of the bank's total
confirmation of the auction sale and administer the investment in real estate, unless otherwise provided
same in accordance with law. Any petition in court to by the Monetary Board. (25a)
enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall Very important. Hindi pwedeng puro na lang real estate
be given due course only upon the filing by the ang hawak na asset ng bangko. That is why in some
petitioner of a bond in an amount fixed by the court instances, they really have to sell real properties.
conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

GOVERNMENT v. EL HOGAR Now, the Government filed an action against

respondent on the ground that it violated the express
FACTS provision of the Constitution and as well as the
Statutes.
On August 28, 1913, the respondent (El Hogar
Filipino) purchased 1,413 square meters of land at ISSUE:
the corner of Juan Luna Street and the Muelle de la
Industria, in the City of Manila, immediately adjacent Whether or not El Hogar violated the express
to the building then occupied by the Hongkong and provision under Constitution and the Statute.
Shanghai Banking Corporation. At the time the
respondent acquired this lot there stood upon it a HELD
building, then nearly fifty years old, which was
occupied in part by the offices of an importing firm NO. The El Hogar did not violate the express provision
and in part by warehouses of the same firm. The under Constitution and the Statute
material used in the construction was Guadalupe
stone and hewn timber, and the building contained The Supreme Court said, the limitation which th
none of the facilities usually found in a modern office statute imposes is that it shall not own more real
building. estate than is necessary for the proper conduct of its
business, but it does not attempt to place any
In purchase of a design which had been formed prior restriction or limitation upon the right of the
to the purchase of the property, the directors of the corporation or association as to the character of the
El Hogar Filipino caused the old building to be building it shall erect on the said real estate; and,
demolished; and they erected thereon a modern while the Constitution and Statutes provide tht no
reinforced concrete office building. As at first corporation shall engage in any business other than
constructed the new building was three stories high that expressly authorized by its charter, we are of
in the main, but in 1920, in order to obtain greater opinion that, in renting out the unoccupied and
advantage from the use of the land, an additional unused portions of the building so erected, the
story was added to the building, making a structure association could not be said to be engaged in any
of four stories except in one corner where an other business than that authorized by its charter.
additional story was place, making it five stories high
over an area of 117.52 square meters. It is admitted The renting of the unused portions of the building is
in the plaintiffs brief that this "noble and imposing a mere incident in the conduct of its real business. We
structure" — to use the words of the Attorney- would not say that a building association might
General — "has greatly improved the aspect of the embark in the business of building houses and renting
banking and commercial district of Manila and has or leasing them, but there is quite a difference in
greatly contributed to the movement and campaign building or renting a house in which to conduct it own
for the Manila Beautiful." It is also admitted that the business and leasing the unused portion thereof for
competed building is reasonably proportionate in the time being, or until such time as they may be
value and revenue producing capacity to the value of needed by the association, and in building for the
the land upon which it stands. The total outlay of the purpose of renting or leasing them.
respondent for the land and the improvements
thereon was P690,000 and at this valuation the The one might properly be said to be the proper
property is carried on the books of the company, exercise of a power incident to the conduct of its
while the assessed valuation of the land and legitimate business, whereas the other would be a
improvements is at P786,478. clear violation of that provision of the statute which
denies to any corporation the right to conduct any
Since the new building was completed the respondent business other than that authorized by its charter.
has used about 324 square meters of floor space for
its own offices and has rented the remainder of the To hold otherwise would to charge most of the
office space in said building, consisting of about 3,175 banking institution, trust companies and other
square meters, to other persons and entities. In the corporations, such as title guaranty companies, etc.,
second cause of action of the complaint it is supposed doing business in the state, and especially in the large
that the acquisition of this lot, the construction of the cities, with violating the law; for it is well-known that
new office building thereon, and the subsequent there are few of such institutions that do not, at
renting of the same in great part to third persons, are times, rent out or lease the unneeded portions of the
ultra vires acts on the part of the corporation, and building occupied by them as homes. We do not think
that the proper penalty to be enforced against it in that in so doing they are violating the provisions of
this action is that if dissolution. the law, but that the renting out of the unused or
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

unoccupied portions of their buildings is but an Before diba we’ve discussed kung ilang percent lang
incident in the conduct of their business. yung kayang hawakan ng Bank for real estate. Now,
total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty
SECTION 52. Acquisition of Real Estate by Way percent (50%) because a bank should not diversify such
of Satisfaction of Claims. — Notwithstanding the to be primarily for the purpose of real estate.
limitations of the preceding Section, a bank may
acquire, hold or convey real property under the Bakit bawal? To think diba lands appreciate so bakit
following circumstances: hinayaan na may limitations to hold properties? Please
take note that if you invest much of your asset in land
52.1. Such as shall be mortgaged to it in good it is not realizable. So you cannot actually meet your
faith by way of security for debts; short-term debts. But as against a foreign bank, you can
hold it even after five years provided that you respect
52.2. Such as shall be conveyed to it in the ceiling.
satisfaction of debts previously contracted in the
course of its dealings; or SECTION 53. Other Banking Services. — In
addition to the operations specifically authorized in
52.3. Such as it shall purchase at sales under this Act, a bank may perform the following services:
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure 53.1. Receive in custody funds, documents and
debts due it. valuable objects;

Any real property acquired or held under the 53.2. Act as financial agent and buy and sell, by
circumstances enumerated in the above paragraph order of and for the account of their customers,
shall be disposed of by the bank within a period of shares, evidences of indebtedness and all types of
five (5) years or as may be prescribed by the securities;
Monetary Board: Provided, however, That the bank
may, after said period, continue to hold the property 53.3. Make collections and payments for the
for its own use, subject to the limitations of the account of others and perform such other services
preceding Section. (25a) for their customers as are not incompatible with
banking business;
This refers to the right of a bank to actually foreclose a
property. Please take note that it has limitations. A bank 53.4. Upon prior approval of the Monetary Board,
may acquire, hold or convey real property under the act as managing agent, adviser, consultant or
following circumstances: administrator of investment
management/advisory/consultancy accounts;
1. Mortgaged to it in good faith by way of security and
for debts;
53.5. Rent out safety deposit boxes.
2. Conveyed to it in satisfaction of debts previously
contracted in the course of its dealings. The bank shall perform the services permitted under
Subsections 53.1, 53.2, 53.3 and 53.4 as depositary
So pwedeng dacion en pago. or as an agent. Accordingly, it shall keep the funds,
securities and other effects which it receives duly
3. Such as it shall purchase at sales under separate from the bank's own assets and liabilities.
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure The Monetary Board may regulate the operations
debts due it. authorized by this Section in order to ensure that such
operations do not endanger the interests of the
Please take note they are still subject to the ceiling depositors and other creditors of the bank.
provided. So any real property acquired or held under
the circumstances enumerated above shall be disposed In case a bank or quasi-bank notifies the Bangko
of by the bank within a period of five (5) years or as Sentral or publicly announces a bank holiday, or in
may be prescribed by the Monetary Board. Provided any manner suspends the payment of its deposit
that after said period, the bank may continue to hold the liabilities continuously for more than thirty (30) days,
property for its own use, subject to the limitations of the the Monetary Board may summarily and without need
preceding Section. for prior hearing close such banking institution and
place it under receivership of the Philippine Deposit
Insurance Corporation. (72a)
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

in said bank showed a balance of P9,657.50 in his

These are other banking services: favor; that on the same date his savings account in
the said bank also showed a balance in his favor of
1. Receive in custody funds, documents and P20,000 plus interest then due amounting to
valuable objects. P194.78; that, on the other hand, he owed the bank
in the amount of P13,262.58, the amount of the trust
What goes into your mind? Mga security deposits, receipts which he signed because of his withdrawal
yung mga gold or diamonds nyo na ayaw nyo istore from the bank of certain merchandise consigned to
sa bahay kasi baka manakaw. So what you do is him without paying the drafts drawn upon him by the
deposit them. Most of the banks meron nito. They remittors thereof; that the credits thus described
will give you a key and meron din silang key. Usually should be set off against each other according to law,
titles pero mga gold and diamonds dun talaga yan. and on such set off being made it appeared that he
was still the creditor of the bank in the sum of
2. Act as financial agent and buy and sell, by P16,589.70.
order of and for the account of their customers,
shares, evidences of indebtedness and all types And he asked that the court order the Bank
of securities. Commissioner to pay him the aforesaid balance and
that the same be declared as a preferred credit. The
It can actually be a financial agent. claim was referred to the commissioner appointed by
the court, who at the same time acted as referee, and
3. Make collections and payments for the this officer recommended that the balance claimed be
account of others and perform such other paid without interest and as an ordinary credit. The
services for their customers as are not court approved the recommendation and entered
incompatible with banking business. judgment in accordance therewith. The claimant took
an appeal.
4. Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or "RECOMMENDATION OF THE COMMISSIONER”
administrator of investment
management/advisory/consultancy accounts. "Having established the existence of such deposits in
the name of Tan Tiong Tick and the latter having
Advisory consultancy accounts. So pwede silang recognized the obligation in favor of the bank alleged
maghandle ng investments BUT as an investment by the Bank Commissioner, for the security of which
manager only. he constituted the savings deposit in the amount of
P20,000, it is recommended that from this amount
5. Rent out safety deposit boxes. there be deducted the amount of the obligation of
P13,778.90 which the claimant acknowledges in favor
In case a bank or quasi-bank notifies the Bangko Sentral of the Mercantile Bank of China, and that the
or publicly announces a bank holiday, or in any manner difference, plus the other current account deposit of
suspends the payment of its deposit liabilities P7,390.11, be considered as ordinary credits subject
continuously for more than thirty (30) days, the to the equal division of the funds of the said bank.
Monetary Board may summarily and without need for
prior hearing close such banking institution and place it "As to the interest on said deposits also claimed by
under receivership. Correlate this with your provision Mr. Tan Tiong Tick, the rejection thereof is
under the New Central Bank Act. recommended in view of the fact that the Bank
Commissioner has not credited any interest to the
 CASE: In Re: Liquidation of Mercantile Bank of current and savings accounts of the Mercantile Bank
China, Tan Tiong Tick vs American Apothecaries Co. of China, and it would be unfair that interest, not
credited to the others, be allowed to this claimant."
In re Liquidation of Mercantile Bank of China.
TAN TIONG TICK, v. AMERICAN APOTHECARIES ISSUE
CO., ET AL
Whether or not the current account and savings
deposit are not preferred credits.
FACTS:

In the proceedings for the liquidation of the HELD

Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased to YES. The current account and savings deposit are not
operate on September 19, 1931, his current account preferred credits.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

deposited by the claimant for its ordinary

Revolving the claims under the first group of the transactions and for the banking business in
report of the commissioner, the court rejected the which it was engaged. That the bank had the
recommendation of this official to the effect that they authority of the claimant to make use of the
be declared ordinary credits only, and approved them money deposited on current and savings
as preferred credits. However, in considering the accounts is deducible from the fact that the
other claims, among them that of the appellant, bank has been paying interest on both deposits,
classified under the fifth group, the court approved and the claimant himself asks that he be
the recommendation of the commissioner that they allowed interest up to the time when the bank
be declared ordinary credits; in other words, the court ceased its operations.
considered and declared the claim of the appellant as
an ordinary credit just because the latter is at the Sir: In your knowledge of Preference of Credits under
same time a debtor of the bank, notwithstanding the CredTrans, is credit deposit among the preferred
fact that his claim is of the same kind as those credits? Where can you find Preference of Credits? What
classified under the first group, inasmuch as they are kind of contract are deposits?
also current account and savings deposits. *sir did not answer his questions
So you have to be familiar with your preference of
But we are of the opinion, for the reason credits. Kahit yung preference lang. Ang nuances lang
presently to be stated, that current account and naman dun is the labor and then the taxes, what kind of
savings deposits are not preferred credits in the taxes are preferred because not all taxes are preferred.
cases, like the present, involving the insolvency So you have to consider that.
and liquidation of a bank, where there are
various creditors and it becomes necessary to  CASE: Sesbreno vs CA
ascertain the preference of various credits.
RAUL SESBREÑO vs. HON. COURT OF APPEALS,
In our opinion, these deposits are essentially DELTA MOTORS CORPORATION AND PILIPINAS
mercantile contracts and should, therefore, be BANK, respondents.
governed by the provisions of the Code of Commerce.

The Code of Commerce contains express provisions FACTS

regulating deposits of the nature under consideration,
and they are articles 303 to 310. The first and the Petitioner Raul Sesbreño made a money market
second to the last of the said articles are as follows: placement in the amount of P300,000.00 with the
Philippine Underwriters Finance Corporation
"ART. 303. In order that a deposit may be considered ("Philfinance"), Cebu Branch; the placement, with a
commercial, it is necessary — term of thirty-two (32) days, would mature on 13
March 1981.
"1. That the depositary, at least, be a merchant.
Petitioner sought to encash the postdated checks
"2. That the things deposited be commercial objects. issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient
"3. That the deposit constitute in itself a commercial funds. Thereafter, Philfinance delivered to petitioner
transaction, or be made by reason or as a the DCR No. 10805 issued by private respondent
consequence of commercial transactions." Pilipinas Bank ("Pilipinas").

"ART. 309. Whenever, with the consent of the Petitioner approached Ms. Elizabeth de Villa of private
depositor, the depositary disposes of the articles on respondent Pilipinas, Makati Branch, and handed her
deposit either for himself or for his business, or for a demand letter informing the bank that his
transactions intrusted to him by the former, the rights placement with Philfinance in the amount reflected in
and obligations of the depositary and of the depositor the DCR No. 10805 had remained unpaid and
shall cease, and the rules and provisions applicable to outstanding, and that he in effect was asking for the
the commercial loans, commission, or contract which physical delivery of the underlying promissory note.
took the place of the deposit shall be observed." Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been
In accordance with article 309, the so-called issued on 10 April 1980; that it would mature on 6
current account and savings deposits have lost April 1981; that it had a face value of P2,300,833.33,
the character of deposits properly so-called, with the Philfinance as "payee" and private
and are converted into simple commercial respondent Delta Motors Corporation ("Delta") as
loans, because the bank disposed of the funds "maker;" and that on face of the promissory note was
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

stamped "NON NEGOTIABLE." Pilipinas did not deliver depository agreement. We do not consider that this is
the Note, nor any certificate of participation in respect a simple case of a stipulation pour autri.
thereof, to petitioner.
The custodianship or depositary agreement was
Petitioner later made similar demand letters asking established as an integral part of the money
private respondent Pilipinas for physical delivery of market transaction entered into by petitioner
the original of DMC PN No. 2731. Pilipinas allegedly with Philfinance.
referred all of petitioner's demand letters to
Philfinance for written instructions, as has been Petitioner bought a portion of DMC PN No. 2731;
supposedly agreed upon in "Securities Custodianship Philfinance as assignor-vendor deposited that Note
Agreement" between Pilipinas and Philfinance. with Pilipinas in order that the thing sold would be
Philfinance did not provide the appropriate placed outside the control of the vendor. Indeed, the
instructions; Pilipinas never released DMC PN No. constituting of the depositary or custodianship
2731, nor any other instrument in respect thereof, to agreement was equivalent to constructive
petitioner. delivery of the Note (to the extent it had been
sold or assigned to petitioner) to petitioner.
Petitioner also made a written demand upon private
respondent Delta for the partial satisfaction of DMC It will be seen that custodianship agreements are
PN No. 2731, explaining that Philfinance, as payee designed to facilitate transactions in the money
thereof, had assigned to him said Note to the extent market by providing a basis for confidence on the part
of P307,933.33. Delta, however, denied any liability of the investors or placers that the instruments
to petitioner on the promissory note, and explained in bought by them are effectively taken out of the
turn that it had previously agreed with Philfinance to pocket, as it were, of the vendors and placed safely
offset its DMC PN No. 2731 (along with DMC PN No. beyond their reach, that those instruments will be
2730) against Philfinance PN No. 143-A issued in there available to the placers of funds should they
favor of Delta. have need of them. The depositary in a contract
of deposit is obliged to return the security or the
In the meantime, Philfinance was placed under the thing deposited upon demand of the depositor
joint management of the Securities and exchange (or, in the presented case, of the beneficiary) of
commission ("SEC") and the Central Bank. Pilipinas the contract, even though a term for such return
delivered to the SEC DMC PN No. 2731, which to date may have been established in the said contract.
apparently remains in the custody of the SEC.
Accordingly, any stipulation in the contract of deposit
As petitioner had failed to collect his investment and or custodianship that runs counter to the fundamental
interest thereon, he filed on 28 September 1982 an purpose of that agreement or which was not brought
action for damages with the Regional Trial Court to the notice of and accepted by the placer-
("RTC") of Cebu City, Branch 21, against private beneficiary, cannot be enforced as against such
respondents Delta and Pilipinas. beneficiary-placer.

We believe that the position taken above is

ISSUE supported by considerations of public policy. If
there is any party that needs the equalizing protection
Whether or not Sesbreno is entitled to demand of the law in money market transactions, it is the
physical delivery of the Note held by Pilipinas. members of the general public whom place their
savings in such market for the purpose of generating
HELD interest revenues. The custodian bank, if it is not
related either in terms of equity ownership or
YES. Sesbreno is entitled to demand physical delivery management control to the borrower of the funds, or
of the Note held by Pilipinas. the commercial paper dealer, is normally a preferred
or traditional banker of such borrower or dealer (here,
The Supreme Court said, We believe and so hold that Philfinance). The custodian bank would have every
a contract of deposit was constituted by the act incentive to protect the interest of its client the
of Philfinance in designating Pilipinas as borrower or dealer as against the placer of funds. The
custodian or depositary bank. providers of such funds must be safeguarded from the
impact of stipulations privately made between the
The depositor was initially Philfinance; the obligation borrowers or dealers and the custodian banks,and
of the depository was owed, however, to petitioner disclosed to fund-providers only after trouble has
Sesbreño as beneficiary of the custodianship or erupted.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

In the case at bar, the custodian-depositary surrender of the Note on at least three grounds: firstly,
bank Pilipinas refused to deliver the security such term was never brought to the attention of
deposited with it when petitioner first Sesbreño at the time the money market placement with
demanded physical delivery thereof on 2 April Philfinance was made; secondly, such term runs counter
1981. We must again note, in this connection, that to the very purpose of the custodianship or depositary
on 2 April 1981, DMC PN No. 2731 had not yet agreement as an integral part of a money market
matured and therefore, compensation or offsetting transaction; and thirdly, it is inconsistent with the
against Philfinance PN No. 143-A had not yet taken provisions of Article 1988 of the Civil Code. Therefore,
place. Sesbreno became entitled to demand physical delivery
of the Note held by Pilipinas as soon as Sesbreno's
Instead of complying with the demand of the money market placement matured on 13 March 1981.
petitioner, Pilipinas purported to require and
await the instructions of Philfinance, in obvious Sir: So in other words, even if they have agreed
contravention of its undertaking under the DCR otherwise, it must be in accordance with the law. That’s
to effect physical delivery of the Note upon the main difference between a common law and a civil
receipt of "written instructions" from petitioner law jurisdiction. Pag common law you can actually agree
Sesbreño. The ostensible term written into the at anything, pag civil law you have to follow certain
DCR (i.e., "should this [DCR] remain outstanding in codal provisions.
your favor thirty [30] days after its maturity") was
not a defense against petitioner's demand for  CASE: Philippine Commercial International Bank vs
physical surrender of the Note on at least three CA
grounds:
PCIB v CA
firstly, such term was never brought to the
attention of petitioner Sesbreño at the time the FACTS
money market placement with Philfinance was
made; Ford Philippines drew and issued Citibank Check. No.
SN 04867 on October 19, 1977, Citibank Check No.
secondly, such term runs counter to the very SN 10597 on July 19, 1978 and Citibank Check No.
purpose of the custodianship or depositary SN-16508 on April 20, 1979, all in favor of the
agreement as an integral part of a money Commissioner of Internal Revenue (CIR) for payment
market transaction; and of its percentage taxes.

thirdly, it is inconsistent with the provisions of The checks were crossed and deposited with the
Article 1988 of the Civil Code noted above. IBAA, now PCIB, BIR's authorized collecting bank.
The first check was cleared containing an
Indeed, in principle, petitioner became entitled indorsement that "all prior indorsements and/or lack
to demand physical delivery of the Note held by of indorsements guaranteed." The same, however,
Pilipinas as soon as petitioner's money market was replaced with two (2) IBAA's managers' checks
placement matured on 13 March 1981 without based on a call and letter request made by Godofredo
payment from Philfinance. Rivera, Ford's General Ledger Accountant, on an
alleged error in the computation of the tax due
Sir: Why didn’t Pilipinas Bank heed such demand? What without IBAA verifying the authority of Rivera. These
was its contention? manager's checks were later deposited in another
bank and misappropriated by the syndicate.
S: Pilipinas allegedly referred all of petitioner's demand
letters to Philfinance for written instructions, as has The last two checks were cleared by the Citibank but
been supposedly agreed upon in "Securities failed to discover that the clearing stamps do not bear
Custodianship Agreement" between Pilipinas and any initials. The proceeds of the checks were also
Philfinance. Philfinance did not provide the appropriate illegally diverted or switched by officers of PCIB —
instructions therefore Pilipinas never released DMC PN members of the syndicate, who eventually encashed
No. 2731, nor any other instrument in respect thereof, them. Ford, which was compelled to pay anew the
to Sesbreno. percentage taxes, sued in two actions for collection
against the two banks on January 20, 1983, barely
Sir: How did the Supreme Court appreciate that six years from the date the first check was returned
argument? to the drawer. The direct perpetrators of the crime
are now fugitives from justice.
S: That contention that Pilipinas Bank made was not a
defense against Sesbreno's demand for physical
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

ISSUE other services for their customers as are not

incompatible with banking business. So ang nangyari
Whether or not the bank acting as collecting agent is dito, may pagkakamali ang bank. So ang sabi ng court?
duty bound to consult its principal regarding S: …
unwarranted instructions given by the payor or its Sir: So in performing other banking functions or other
agent. banking services, the bank must always still exercise?
S: Diligence sir.
RULING
Sir: Ordinary diligence?
YES. The bank acting as collecting agent is duty
bound to consult its principal regarding unwarranted Answer from full text: “Banking business is so impressed
instructions given by the payor or its agent. with public interest where the trust and confidence of
the public in general is of paramount importance such
In this case, it was admitted that PCIBank is that the appropriate standard of diligence must be
authorized to collect the payment of taxpayers in very high, if not the highest, degree of diligence. A
behalf of the BIR. As an agent of BIR, PCIBank is duty bank's liability as obligor is not merely vicarious but
bound to consult its principal regarding the primary, wherein the defense of exercise of due
unwarranted instructions given by the payor or its diligence in the selection and supervision of its
agent. As aptly stated by the trial court, to wit: employees is of no moment.”

"xxx. Since the questioned crossed check was  CASE: CA Agro-Industrial Development Corporation
deposited with IBAA [now PCIBank], which vs CA
claimed to be a depository/collecting bank of
BIR, it has the responsibility to make sure CA-Agro Industrial Devt Corp vs CA
that the check in question is deposited in
Payee's account only. FACTS
On July 3, 1979, petitioner (through its President-
xxx xxx xxx Sergio Aguirre) and the Spouses Ramon and Paula
Pugao entered into an agreement whereby the former
As agent of the BIR (the payee of the check), purchase two parcel of lands from the latter. It was
defendant IBAA should receive instructions only from paid of downpayment while the balance was covered
its principal BIR and not from any other person by there postdated checks. Among the terms and
especially so when that person is not known to the conditions embodied in the agreement were the titles
defendant. It is very imprudent on the part of the shall be transferred to the petitioner upon full
defendant IBAA to just rely on the alleged telephone payment of the price and the owner's copies of the
call of one (Godofredo Rivera and in his signature to certificate of titles shall be deposited in a safety
the authenticity of such signature considering that the deposit box of any bank. Petitioner and the Pugaos
plaintiff is not a client of the defendant IBAA. then rented Safety Deposit box of private respondent
Security Bank and Trust Company.
It is a well-settled rule that the relationship between
the payee or holder of commercial paper and the bank Thereafter, a certain Margarita Ramos offered to buy
to which it is sent for collection is, in the absence of from the petitioner. Mrs Ramos demand the execution
an agreement to the contrary, that of principal and of a deed of sale which necessarily entailed the
agent.22 A bank which receives such paper for production of the certificate of titles. In view thereof,
collection is the agent of the payee or holder. Aguirre, accompanied by the Pugaos, then proceed to
the respondent Bank to open the safety deposit box
Even considering arguendo, that the diversion of the and get the certificate of titles. However, when
amount of a check payable to the collecting bank in opened in the presence of the Bank's representative,
behalf of the designated payee may be allowed, still the box yielded no such certificate. Because of the
such diversion must be properly authorized by the delay in the reconstitution of the title, Mrs Ramos
payor. Otherwise stated, the diversion can be justified withdrew her earlier offer to purchase.
only by proof of authority from the drawer, or that the
drawer has clothed his agent with apparent authority Hence this petition.
to receive the proceeds of such check.
ISSUE
Sir: What’s the role of the bank here? Diba yung bank
ang taga-collect diba? So in relation to our topic, this Whether or not the contract of rent between a
case is related to your 53.3. Make collections and commercial bank and another party for the use of
payments for the account of others and perform such
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

safety deposit box can be considered alike to a lessor- depositary's responsibility for the safekeeping of the
lessee relationship. objects deposited in this case is governed by Title I,
Book IV of the Civil Code.
RULING
Accordingly, the depositary would be liable if, in
NO. The contract of rent between a commercial bank performing its obligation, it is found guilty of fraud,
and another party for the use of safety deposit box negligence, delay or contravention of the tenor of the
cannot be considered alike to a lessor-lessee agreement, and in the absence of any stipulation
relationship prescribing the degree of diligence required, that of a
good father of a family is to be observed. Corollary,
The petitioner is correct in making the contention that any stipulation exempting the depositary from any
the contract for the rent of the deposit box is not a liability arising from the loss of the thing deposited on
ordinary contract of lease as defined in Article 1643 account of fraud, negligence or delay would be void
of the Civil Code. However, the Court do not really for being contrary to law and public policy.
subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the Furthermore, it is not correct to assert that the Bank
provisions in Civil Code on Deposit; the contract in has neither the possession nor control of the contents
the case at bar is a special kind of deposit. It cannot of the box since in fact; the safety deposit box itself
be characterized as an ordinary contract of lease is located in its premises and is under its absolute
under Article 1643 because the full and absolute control. Moreover, the Bank keeps the guard key to
possession and control of the safety deposit box was the said box and renters cannot open their respective
not given to the joint renters- the petitioner and the boxes unless the Bank cooperates by presenting and
Pugaos. The guard key of the box remained with the using this guard key. Clearly then, to the extent
respondent bank; without this key, neither of the above stated, conditions 13 and 14 in the contract in
renters could open the box. question are void and ineffective.

On the other hand, the respondent bank could not Sir: Why is it not characterized as a contract of lease?
likewise opt The prevailing rule in American What’s peculiar about this safety deposit box vis-à-vis
Jurisprudence is that the relation between a bank lease?
renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bailor S: Because in a safety deposit box sir, the contents and
and bailee, the bailment being for hire and mutual the box are placed in the custody of the bank sir.
benefit. While, in the context of our laws, particularly
Section 72(a) of the General Banking Act (now Sir: So the possession is not actually transferred. When
Section 52) which authorizes banking institutions to you lease something the possession is usually
rent out safety deposit boxes, it is clear that the transferred.
prevailing rule in the United States has been adopted.
Sec. 72. In addition to the operations specifically So here, just take note of the nature of a contract of
authorized elsewhere in this Act, banking institutions safety deposit box.
other than building and loan associations may
perform the following services: SECTION 54. Prohibition to Act as Insurer. — A
bank shall not directly engage in insurance business
(a) Receive in custody funds, documents, and as the insurer. (73)
valuable objects, and rent safety deposit boxes for
the safeguarding of such effects. Very important, a bank is not authorized to directly
engage in insurance business as the insurer. Take note
xxx xxx xxx that what is prohibited is the direct engagement in
insurance business as the insurer.
The banks shall perform the services permitted under Why are banks prohibited from entering into insurance
subsections (a), (b) and (c) of this section as business?
depositories or as agents. . . .
Kasi in insurance you are actually managing risks, you
Nevertheless, the primary function is still found within are distributing the risk. So it’s very risky for a bank to
the parameters of a contract of deposit, and, in enter into insurance business because banks remember
relation to Article 1306 of the Civil Code, the parties are paying, they are accepting deposits and they are
thereto may establish such stipulations, clauses, relending it. Whereas in insurance, accepts premium
terms and conditions as they may deem convenient, payments and then redistribute the risk, and the
provided they are not contrary to law, morals, good happening of the event where the liability of payment
customs, public order or public policy. Thus, the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

occurs, saka sila magbabayad. So walang ganun na or agency of the Government that is assigned to
aspect when it comes to banking. supervise, examine, assist or render technical
assistance to any bank shall commit any of the acts
*chikka on Bar Exam re: insurable interest questions enumerated in this Section or aid in the commission
of the same. (87-Aa)
SECTION 55. Prohibited Transactions. —
The making of false reports or misrepresentation or
55.1. No director, officer, employee, or agent of any suppression of material facts by personnel of the
bank shall — Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
(a) Make false entries in any bank report or sanctions provided under the New Central Bank Act.
statement or participate in any fraudulent
transaction, thereby affecting the financial 55.4. Consistent with the provisions of Republic Act
interest of, or causing damage to, the bank or any No. 1405, otherwise known as the Banks Secrecy
person; Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in
(b) Without order of a court of competent the conduct of its business involving bank deposits.
jurisdiction, disclose to any unauthorized person
any information relative to the funds or properties Very important prohibited transaction:
in the custody of the bank belonging to private
individuals, corporations, or any other entity: (e) Outsource inherent banking functions.
Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail; Correlate this with your labor discussion on banking
functions. There is actually a circular
(c) Accept gifts, fees or commissions or any other “Statement of Principle on Outsourcing” (BSP Circular
form of remuneration in connection with the No. 899).
approval of a loan or other credit accommodation
from said bank; This is the principle of the central bank act, bawal mag
outsource. Eh ang mahal maghire ng tao. So what is this
(d) Overvalue or aid in overvaluing any security statement of principle on outsourcing?
for the purpose of influencing in any way the
actions of the bank or any bank; or “A bank may outsource to third parties or to related
companies in the group, in accordance with existing
(e) Outsource inherent banking functions. BSP regulations, certain services or activities to
have access to certain areas of expertise or to
55.2. No borrower of a bank shall — address resource constraints, Provided, That it has
in place appropriate processes, procedures, and
(a) Fraudulently overvalue property offered as information system that can adequately identify,
security for a loan or other credit accommodation monitor, and mitigate operational risks arising from
from the bank; the outsourced activities. Provided further, that the
bank’s board of directors and senior management
(b) Furnish false or make misrepresentation or shall remain responsible for ensuring that
suppression of material facts for the purpose of outsourced activities are conducted in a safe and
obtaining, renewing, or increasing a loan or other sound manner and in compliance with applicable
credit accommodation or extending the period laws, rules and regulations.”
thereof;
So it’s a highly regulated industry so that’s why it is
(c) Attempt to defraud the said bank in the event prohibited for you to outsource human resource kasi nga
of a court action to recover a loan or other credit there’s operational risk, the risk of leaking information
accommodation; or which is very material to the bank.

(d) Offer any director, officer, employee or agent CHANYEE, KAYE

of a bank any gift, fee, commission, or any other JAN 30, 2019
form of compensation in order to influence such
persons into approving a loan or other credit (e) Outsource inherent banking functions
accommodation application.
Take note what is prohibited is inherent banking
55.3. No examiner, officer or employee of the Bangko functions.
Sentral or of any department, bureau, office, branch
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

What are inherent banking functions?

1. Taking of deposits from the public
2. Granting of loans and other credits exposures Ito naman we are referring to the prohibition of the
(yung mga loan officers) borrower. Kanina we were referring to the prohibition of
3. Managing of risk exposures and general banking the officer. Ito yung sa bank. Ito naman, dun sa
borrower. Meaning yung public.
So this is circular dated January 10, 2017 so this is fairly
recent. So those are what we call inherent banking (a) Fraudulently overvalue property offered as
functions. You can outsource these banking functions. security for a loan or other credit accommodation
from the bank;
Only those banks with “Camels” (lol). Ano ba tong
Camels? So if you fraudulently overvalue tapos ibanko naman or
aid in overvaluing, both of you will be liable.
C-Capital Adequacy
A-Assets (d) Offer any director, officer, employee or agent
M-Management Capability of a bank any gift, fee, commission, or any other
E-Earnings form of compensation in order to influence such
L-Liquidity persons into approving a loan or other credit
S-Sensitivity accommodation application.

This is actually an international banking standard. Kung Please take note na dito, accept gifts, you are liable. Eto,
i-aaudit ka within the National Banking Community, the fact of offering makes you liable. So question, kung
maglalagay sila sayo ng rating based on the CAMELs. magpadungog sa officer? Can you make that officer
CAMELs ito yung criteria for judging. If you have at least liable? Magpadungog lang sya.
3, and the xxx(inaudible) lower than 3, you are allowed
to outsource designated activities without prior BSP So what will you do? Hindi ka talaga magsalita. Kasi
approval. pagmagsalita ka, offer nay yun. Haha

So even if hindi ka inherent banking function, you still 55.3. No examiner, officer or employee of the Bangko
need a BSP approval. But if you are a Camel or xxx not Sentral or of any department, bureau, office, branch
lower than 3, you can outsource non-inherent banking or agency of the Government that is assigned to
functions without BSP approval. supervise, examine, assist or render technical
assistance to any bank shall commit any of the acts
Saan ka maghihingi? Specifically sa appropriate enumerated in this Section or aid in the commission
department of the SES. Remember the SES? The of the same. (87-Aa).
Supervision and Examining Sector. Diba we discussed
the different Sectors of the BSP? The making of false reports or misrepresentation or
suppression of material facts by personnel of the
55.2. No borrower of a bank shall — Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
(a) Fraudulently overvalue property offered as sanctions provided under the New Central Bank Act.
security for a loan or other credit accommodation
from the bank;
Ito naman, this pertains to the BSP in examining. So we
(b) Furnish false or make misrepresentation or are done talking about the officers of the bank. We are
suppression of material facts for the purpose of done talking about the borrower, now we are talking of
obtaining, renewing, or increasing a loan or other the officer examining of the BSP.
credit accommodation or extending the period
thereof;
55.4. Consistent with the provisions of Republic Act
(c) Attempt to defraud the said bank in the event of No. 1405, otherwise known as the Banks Secrecy
a court action to recover a loan or other credit Law, no bank shall employ casual or nonregular
accommodation; or personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits.
(d) Offer any director, officer, employee or agent of a
bank any gift, fee, commission, or any other form of SECTION 56. Conducting Business in an Unsafe or
compensation in order to influence such persons into Unsound Manner. — In determining whether a
approving a loan or other credit accommodation particular act or omission, which is not otherwise
application. prohibited by any law, rule or regulation affecting
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

banks, quasi-banks or trust entities, may be deemed 56.3. The act or omission has caused any undue
as conducting business in an unsafe or unsound injury, or has given any unwarranted benefits,
manner for purposes of this Section, the Monetary advantage or preference to the bank or any party
Board shall consider any of the following in the discharge by the director or officer of his
circumstances: duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable
56.1. The act or omission has resulted or may result negligence; or
in material loss or damage, or abnormal risk or
danger to the safety, stability, liquidity or solvency of Sounds familiar? Saan nyo nabasa yan?
the institution;
A: anti-graft and practices law? Haha
56.2. The act or omission has resulted or may result
in material loss or damage or abnormal risk to the 56.4. The act or omission involves entering into
institution's depositors, creditors, investors, any contract or transaction manifestly and grossly
stockholders or to the Bangko Sentral or to the public disadvantageous to the bank, quasi-bank or trust
in general; entity, whether or not the director or officer
profited or will profit thereby.
56.3. The act or omission has caused any undue
injury, or has given any unwarranted benefits, So you can see how regulated banking industry is. Even
advantage or preference to the bank or any party in the dividend declaration, you cannot just declare
the discharge by the director or officer of his duties dividends. Again, a bank is still a corporation. So as a
and responsibilities through manifest partiality, corporation, as an incident of being a corporation, they
evident bad faith or gross inexcusable negligence; or can actually distribute dividends. So because it’s
banking, it is prohibited from declaring dividends in the
56.4. The act or omission involves entering into any following circumstances.
contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust Sec 57 of General Banking Act
entity, whether or not the director or officer profited
or will profit thereby. SECTION 57. Prohibition on Dividend Declaration. —
No bank or quasi-bank shall declare dividends greater
Whenever a bank, quasi-bank or trust entity persists than its accumulated net profits then on hand,
in conducting its business in an unsafe or unsound deducting therefrom its losses and bad debts. Neither
manner, the Monetary Board may, without prejudice shall the bank nor quasi-bank declare dividends, if at
to the administrative sanctions provided in Section 37 the time of declaration:
of the New Central Bank Act, take action under
Section 30 of the same Act and/or immediately 57.1 Its clearing account with the Bangko Sentral is
exclude the erring bank from clearing, the provisions overdrawn; or
of law to the contrary notwithstanding. (n).
57.2 It is deficient in the required liquidity floor for
These are actually what are deemed to be an government deposits for five (5) or more consecutive
unsound/unsafe banking practice. days; or

56.1. The act or omission has resulted or may 57.3 It does not comply with the liquidity
result in material loss or damage, or abnormal risk standards/ratios prescribed by the Bangko Sentral for
or danger to the safety, stability, liquidity or purposes of determining funds available for dividend
solvency of the institution; declaration; or

Syempre mahirap talaga to. 57.4 It has committed a major violation as may be
determined by the Bangko Sentral. (84a)
56.2. The act or omission has resulted or may
result in material loss or damage or abnormal risk
to the institution's depositors, creditors, Ano yung liquidity ratio?
investors, stockholders or to the Bangko Sentral A: this is actually the ratio of your liquid assets to your
or to the public in general; liabilities. Dapat iniinsure nila that the bank is liquid.
Kung may magwithdraw jan na depositor mamaya or
So again, when you talk about unsound banking tomorrow, it can easily pay off kay liquid sya. Marami
practice, there’s actually no guidelines. These are just syang tubig (haha). Liquid.
principles.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

SECTION 58. Independent Auditor. — and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall
The Monetary Board may require a bank, quasi-bank contain such information as may be required in
or trust entity to engage the services of an Bangko Sentral regulations. (n)
independent auditor to be chosen by the bank, quasi-
bank or trust entity concerned from a list of certified
public accountants acceptable to the Monetary Board. SECTION 61. Publication of Financial
Statements. —
The term of the engagement shall be as prescribed by Every bank, quasi-bank or trust entity, shall publish
the Monetary Board which may either be on a a statement of its financial condition, including those
continuing basis where the auditor shall act as of its subsidiaries and affiliates, in such terms
resident examiner, or on the basis of special understandable to the layman and in such frequency
engagements, but in any case, the independent as may be prescribed by the Bangko Sentral, in
auditor shall be responsible to the bank's, quasi- English or Filipino, at least once every quarter in a
bank's or trust entity's board of directors. newspaper of general circulation in the city or
province where the principal office, in the case of a
A copy of the report shall be furnished to the domestic institution, or the principal branch or office
Monetary Board. The Monetary Board may also direct in the case of a foreign bank, is located, but if no
the board of directors of a bank, quasi-bank, trusty newspaper is published in the same province, then in
entity and/or the individual members thereof, to a
conduct, either personally or by a committee created newspaper published in Metro Manila or in the nearest
by the board, an annual balance sheet audit of the city or province.
bank, quasi-bank or trust entity to review the internal
audit and control system of the bank, quasi-bank or The Bangko Sentral may by regulation prescribe the
trust entity and to submit a report of such audit. (6- newspaper where the statements prescribed herein
Da) shall be published.

The Monetary Board may allow the posting of the

“from a list of certified public accountants financial statements of a bank, quasi-bank or trust
acceptable to the Monetary Board” entity in public places it may determine, in lieu of the
publication required in the preceding paragraph,
So not just any CPA, it must be accepted by the MB. when warranted by the circumstances.
Ito very important:
Additionally, banks shall make available to the public
SECTION 59. Authority to Regulate Electronic in such form and manner as the Bangko Sentral may
Transactions. — prescribe the complete set of its audited financial
statements as well as such other relevant information
The Bangko Sentral shall have full authority to including those on enterprises majority-owned or
regulate the use of electronic devices, such as controlled by the bank, that will inform the public of
computers, and processes for recording, storing and the true financial condition of a bank as of any given
transmitting information or data in connection with time.
the operations of a bank, quasibank or trust entity,
including the delivery of services and products to In periods of national and/or local emergency or of
customers by such entity. (n) imminent panic which directly threaten monetary and
banking stability, the Monetary Board, by a vote of at
least five (5) of its members, in special cases and
So yung mga incoming transactions, that is actually upon application of the bank, quasi-bank or trust
regulated by the BSP. entity, may allow such bank, quasibank or trust entity
to defer for a stated period of time the publication of
SECTION 60. Financial Statements. — the statement of financial condition required herein.
(n)
Every bank, quasi-bank or trust entity shall submit to
the appropriate supervising and examining SECTION 62. Publication of Capital Stock. —
department of the Bangko Sentral financial A bank, quasi-bank or trust entity incorporated under
statements in such form and frequency as may be the laws of the Philippines shall not publish the
prescribed by the Bangko Sentral. Such statements, amount of its authorized or subscribed capital stock
which shall be as of a specific date designated by the without indicating at the same time and with equal
Bangko Sentral, shall show the actual financial prominence, the amount of its capital actually paid
condition of the institution submitting the statement, up.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Monetary Board for supervision, examination and

No branch of any foreign bank doing business in the other services
Philippines shall in any way announce the amount of which it renders under this Act. (n)
the capital and surplus of its head office, or of the
bank in its entirety without indicating at the same SECTION 66. Penalty for Violation of this Act. —
time and with equal prominence the amount of the Unless otherwise herein provided, the violation of any
capital, if any, definitely assigned to such branch. In of the provisions of this Act shall be subject to
case no capital has been definitely assigned to such Sections 34, 35, 36 and 37 of the New Central Bank
branch, such fact shall be stated in, and shall form Act. If the offender is a director or officer of a bank,
part of the publication. (82). quasi-bank or trust entity, the Monetary
Board may also suspend or remove such director or
officer. If the violation is committed by a corporation,
SECTION 63. Settlement of Disputes. — such corporation may be dissolved by quo warranto
The provisions of any law to the contrary proceedings instituted by the Solicitor General. (87).
notwithstanding, the Bangko Sentral shall be
consulted by other government agencies or
instrumentalities in actions or proceedings initiated CHAPTER V
by or brought before them involving controversies in PLACEMENT UNDER CONSERVATORSHIP
banks, quasibanks or trust entities arising out of and SECTION 67. Conservatorship. —
involving relations between and among their
directors, officers or stockholders, as well as disputes The grounds and procedures for placing a bank under
between any or all of them and the bank, quasi-bank conservatorship, as well as, the powers and duties of
or trust entity of which they are directors, officers or the conservator appointed for the bank shall be
stockholders. (n) governed by the provisions of Section 29 and the last
two paragraphs of Section 30 of the New Central Bank
Ito please take note: Act: Provided, That this Section shall also apply to
SECTION 64. Unauthorized Advertisement or conservatorship proceedings of quasi-banks. (n)
Business Representation. —
No person, association, or corporation unless duly
authorized to engage in the business of a bank, quasi- This is in line with your provisions on the new central
bank, trust entity, or savings and loan association as bank act.
defined in this Act, or other banking laws, shall
advertise or hold itself out as being engaged in the CHAPTER VI
business of such bank, quasi-bank, trust entity, or CESSATION OF BANKING BUSINESS
association, or use in connection with its business SECTION 68. Voluntary Liquidation. —
title, the word or words "bank", "banking", "banker", In case of the voluntary liquidation of any bank
"quasi-bank", "quasibanking", "quasi-banker", organized under the laws of the Philippines, or of any
"savings and loan association", "trust corporation", branch or office in the Philippines of a foreign bank,
"trust company" or words of similar import or transact written notice of such liquidation shall be sent to the
in any manner the business of any such bank, Monetary Board before such liquidation is
corporation or association. (6) undertaken, and the Monetary Board shall have the
right to intervene and take such steps as may be
Even the name, you cannot use the name bank. You necessary to protect the interests of creditors. (86)
already know this in your corpo. You cannot use the
term "bank", "banking", "banker", "quasi-bank", If you voluntarily liquidate, please take note, you can
"quasibanking", "quasi-banker", "savings if you are not voluntarily liquidate, you should first give a written
actually those kinds of businesses. notice to the MB before such liquidation.

What we are trying to prevent here is you appear to be SECTION 69. Receivership and Involuntary
a bank or quasi-banking or trust entity when in fact you Liquidation. —
do not have the authority to be a bank. The grounds and procedures for placing a bank under
Remember the 3 kinds of authority? receivership or liquidation, as well as the powers and
1. Authority to operate duties of the receiver or liquidator appointed for the
2. Xxx bank shall be governed by the provisions of Sections
30, 31, 32, and 33 of the New Central Bank Act:
SECTION 65. Service Fees. — Provided, That the petitioner or plaintiff files with the
clerk or judge of the court in which the action is
The Bangko Sentral may charge equitable rates, pending a bond, executed in favor of the Bangko
commissions or fees, as may be prescribed by the Sentral, in an amount to be fixed by the court. This
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Section shall also apply to the extent possible to the Lower income tax? What is the portion that was
receivership and liquidation proceedings of quasi- amended by the train law?
banks. (n) A: Yes sa employees lang. But provided that theses
OBUs are registered after Jan 1, 2018. So you might be
This is in relation to your Central bank provisions that asked, what if there was an existing OBU? Tapos the
we have already discussed. employee was employed subsequently. Let’s say
existing OBU tapos nag employ sila Jan 2, 2018. Kasi
SECTION 70. Penalty for Transactions After a ang nakalagay, what’s the letter of the law? This only
Bank Becomes Insolvent. — refers to companies registered after Jan 1, 2018. So it
Any director or officer of any bank declared insolvent refers to the company registered. So what if the
or placed under receivership by the Monetary Board employee was hired after Jan 1 2018 but to an existing
who refuses to turn over the bank's records and OBU?
assets to the designated receivers, or who tampers
with banks records, or who appropriates for himself Would it still be under the new amended provision or to
or another party or destroys or causes the the old preferential treatment? That would be asked.
misappropriation and destruction of the bank's
assets, or who receives or permits or causes to be
received in said bank any deposit, collection of loans TRAIN LAW
and/or receivables, or who pays out or permits or
causes to be paid out any funds of said bank, or who “(D) Alien Individual Employed by Offshore Banking
transfers or permits or causes to be transferred any Units.— There shall be levied, collected and paid for
securities or property of said bank shall be subject to each taxable year upon the gross income received by
the penal provisions of the New Central Bank Act. every alien individual employed by offshore banking
(85a) units established in the Philippines as salaries, wages,
annuities, compensation, remuneration and other
emoluments such as honoraria and allowances, from
So other banking laws, we will discuss these after we such offshore banking units, a tax equal to fifteen
discuss the general banking act. percent (15%) of such gross income: Provided,
however, That the same tax treatment shall apply to
CHAPTER VIII Filipinos employed and occupying the same position
FOREIGN BANKS as those of aliens employed by these offshore banking
SECTION 72. Transacting Business in the units.
Philippines. —
The entry of foreign banks in the Philippines through “(E) Alien Individual Employed by Petroleum Service
the establishment of branches shall be governed by Contractor and Subcontractor.— An alien individual
the provisions of the Foreign Banks Liberalization Act. who is a permanent resident of a foreign country but
who is employed and assigned in the Philippines by a
The conduct of offshore banking business in the foreign service contractor or by a foreign service
Philippines shall be governed by the provisions of the subcontractor engaged in petroleum operations in the
Presidential Decree No. 1034, otherwise known as the Philippines shall be liable to a tax of fifteen percent
"Offshore Banking System Decree." (14a). (15%) of the salaries, wages, annuities,
compensation, remuneration and other emoluments,
such as honoraria and allowances, received from such
Please take note of the amendment. Remember we contractor or subcontractor: Provided, however, That
discussed this. Yung foreign equity? The bank can the same tax treatment shall apply to a Filipino
actually set up a new branch. employed and occupying the same position as an
alien employed by petroleum service contractor and
What are offshore banking units? subcontractor.

 An offshore banking unit (OBU) is a bank shell “Any income earned from all other sources within the
branch, located in another international Philippines by the alien employees referred to under
financial center (or, in the case of India, a Subsections (C), (D), and (E) hereof shall be subject
Special Economic Zone). Offshore banking units to the pertinent income tax, as the case may be,
(OBUs) make loans in the Eurocurrency market, imposed under this Code.
when they accept deposits from foreign banks
and other OBUs. “(F) The preferential tax treatment provided in
Subsections (C), (D), and (E) of this Section shall not
Diba naintroduce na kayo nito sa tax? Aw huhu be applicable to regional headquarters (RHQs),
In your tax, what are the implications of your OBU? regional operating headquarters (ROHQs), offshore
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

banking units (OBUs) or petroleum service SECTION 74. Local Branches of Foreign Banks.
contractors and subcontractors registering with the —
Securities and Exchange Commission (SEC) after In the case of a foreign bank which has more than
January 1, 2018: Provided, however, That existing one (1) branch in the Philippines, all such branches
RHQs/ROHQs, OBUs or petroleum service contractors shall be treated as one (1) unit for the purpose of this
and subcontractors presently availing of preferential Act, and all references to the Philippine branches of
tax rates for qualified employees shall continue to be foreign banks shall be held to refer to
entitled to avail of the preferential tax rate for present such units. (68)
and future qualified employees.”
SECTION 75. Head Office Guarantee. — In order to
provide effective protection of the interests of the
So again what are OBUs? Offshore? depositors and other creditors of Philippine branches
of a foreign bank, the head office of such branches
Yung parang dito lang sya sa Pilipinas and they are shall fully guarantee the prompt payment of all
catering for foreign clients. That is why it is given liabilities of its Philippine branch. (69)
preferential treatment because it gives employment to
the Filipino people and it gives what? Residents and citizens of the Philippines who are
creditors of a branch in the Philippines of a foreign
What is the benefit of your OBUs? bank shall have preferential rights to the assets of
such branch in accordance with existing laws.
A: forex diba? The regulation. Magiging high demand (19)
ang currency.

SECTION 73. Acquisition of Voting Stock in a SECTION 76. Summons and Legal Process. —
Domestic Bank. — Summons and legal process served upon the
Philippine agent or head of any foreign bank
Within seven (7) years from the effectivity of this Act designated to accept service thereof shall give
and subject to guidelines issued pursuant to the jurisdiction to the courts over such bank, and service
Foreign Banks Liberalization Act, the Monetary Board of notices on such agent or head shall be as binding
may authorize a foreign bank to acquire up to one upon the bank which he represents as if made upon
hundredpercent (100%) of the voting stock of only the bank itself.
one (1) bank organized under the laws of the Republic
of the Philippines. Should the authority of such agent or head to accept
service of summons and legal processes for the bank
Within the same period, the Monetary Board may or notice to it be revoked, or should such agent or
authorize any foreign bank, which prior to the head become mentally incompetent or otherwise
effectivity of this Act availed itself of the privilege to unable to accept service while exercising such
acquire up to sixty percent (60%) of the voting stock authority, it shall be the duty of the bank to name and
of a bank under the Foreign Banks Liberalization Act designate promptly another agent or head upon
and the Thrift Banks Act, to further acquire voting whom service of summons and processes in
shares of such bank to the extent necessary for it to legal proceedings against the bank and of notices
own one hundred percent (100%) of the voting stock affecting the bank may be made, and to file with the
thereof. Securities and Exchange Commission a duly
authenticated nomination of such agent.
In the exercise of this authority, the Monetary Board
shall adopt measures as may be necessary to ensure In the absence of the agent or head or should there
that at all times the control of seventy percent (70%) be no person authorized by the bank upon whom
of the resources or assets of the entire banking service of summons, processes and all legal notices
system is held by banks which are at least majority- may be made, service of summons, processes and
owned by Filipinos. legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and
Any right, privilege or incentive granted to a foreign examining departments and such service shall be as
bank under this Section shall be equally enjoyed by effective as if made upon the bank or its duly
and extended under the same conditions to banks authorized agent or head.
organized under the laws of the Republic of the
Philippines. (Secs. 2 and 3, RA 7721). In case of service for the bank upon the Bangko
Sentral Deputy Governor In-Charge of the
supervising and examining departments, the said
Ah you already know this. Deputy Governor shall register and transmit by mail
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

to the president or the secretary of the bank at its Only a stock corporation or a person duly authorized
head or principal office a copy, duly certified by him, by the Monetary Board to engage in trust business
of the summons, process, or notice. shall act as a trustee or administer any trust or hold
property in trust or on deposit for the use, benefit, or
The sending of such copy of the summons, process, behoof of others. For purposes of this Act, such a
or notice shall be a corporation shall be referred to as a trust entity. (56a;
necessary part of the services and shall complete the 57a)
service. The registry receipt of mailing shall be prima
facie evidence of the transmission of the summons,
process or notice. When you go to US, this is very important. Yung may
mayayaman? They put their money and fund in a trust
All costs necessarily incurred by the said Deputy entity. Yan yung magmamanage ng fund. But in the
Governor for the making and mailing and sending of Philippine setting, what is common in the Philippines is
a copy of the summons, process, or notice to the the trust that is related to investments. Yung mga
president or the secretary of the bank at its head or money-market placements. Wala tayo nung trust na
principal office shall be paid in advance by the party naririnig nyo sa mga stories abroad.
at whose instance the service is made. (17)
Diba kung may mayaman abroad, they put their assets
SECTION 77. Laws Applicable. — in trust para may makain ang kanilang mga dogs. Yung
In all matters not specifically covered by special mga ganon na kwento. It’s not really explored in the
provisions applicable only to a foreign bank or its Philippine jurisdiction coz I don’t know there is
branches and other offices in the Philippines, any something quite taboo in it.
foreign bank licensed to do business in the Philippines
shall be bound by the provisions of this Act, all other Statement of principle. So the common principle is all
laws, rules and regulations applicable to banks this is fidelity. So what is common to trust is fidelity. So
organized under the laws of the Philippines of the without fidelity there is no trust. And without fidelity,
same class, except those that provide for the there is no trust. Without trust there is no partnership.
creation, formation, organization or dissolution of Diba mutual trust? Partnership is based on mutual trust.
corporations or for the fixing of the relations, So kaylangan may trust and kaylangan ang trust mutual
liabilities, responsibilities, or duties of stockholders, in partnership.
members, directors or officers of corporations to each
other or to the corporation. (18) These are the international principles common to all
SECTION 78. Revocation of License of a Foreign Bank. trust entities:
—
The Monetary Board may revoke the license to 1. Prudent administrator
transact business in the Philippines of any foreign 2. Undivided loyalty and utmost care
bank, if it finds that the foreign bank is insolvent or 3. Non-delegation of responsibility
in imminent danger thereof or that its continuance in
business will involve probable loss to The fact that you are chosen as a trustee, the trustor
those transacting business with it. After the has considered your personal circumstances.
revocation of its license, it shall be unlawful for any
such foreign bank to transact business in the SECTION 80. Conduct of Trust Business. —
Philippines unless its license is renewed or reissued. A trust entity shall administer the funds or property
After the revocation of such license, the Bangko under its custody with the diligence that a prudent
Sentral shall take the necessary action to protect the man would exercise in the conduct of an enterprise of
creditors of such foreign bank and the public. The a like character and with similar aims.
provisions of the New Central Bank Act on sanctions
and penalties shall likewise be applicable. No trust entity shall, for the account of the trustor or
the beneficiary of the trust, purchase or acquire
So let’s talk about trust operations. This is what we call, property from, or sell, transfer, assign or lend money
business trust. Remember when we talked about trust or property to, or purchase debt instruments of, any
in your partnership? The trust that we are talking about of the departments, directors, officers, stockholders,
here is your business trust. or employees of the trust entity, relatives within the
first degree of consanguinity or affinity, or the related
CHAPTER IX interests, of such directors, officers and stockholders,
TRUST OPERATIONS unless the transaction is specifically authorized by the
SECTION 79. Authority to Engage in Trust trustor and the relationship of the trustee and the
Business. — other party involved in the transaction is fully
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

disclosed to the trustor or beneficiary of the trust So if you think that a certain investment would earn but
prior to the transaction. the risk is too high, then wag na.

The Monetary Board shall promulgate such rules and The Prudent Investor Rule: How It Began
regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the In the 1830s, a now-famous court case was decided
responsibility herein imposed on a trust entity. (56) in Massachusetts. Known as Harvard College v.
Amory, it involved a man named John McClean, who
had passed away seven years earlier on October 23,
Because of the above provision, we have the prudent 1823. His heirs were to inherit what was then a
man rule which is actually very specific to a trust entity. sizable estate, ultimately valued at $228,120. Of
that, $100,800 was invested in manufacturing stock,
This is the PRUDENT MAN RULE. $48,000 was invested in insurance company stock,
and $24,700 was invested in bank stock with the
So pagtinanong kayo, what is the prudent man rule? So remainder consisting of real estate, personal items,
this refers to trust. and cash.

PRUDENT MAN RULE To his wife, Ann McClean, he bequeathed a variety of

 Directs trustees to observe how man of chattel, his primary residence, and $35,000 outright.
prudence, discretion, and intelligence manage He also left $27,500 worth of financial gifts to others.
their own affairs not in regard to speculation but On top of this, he bequeathed $50,000 to Jonathan
in regard to the permanent disposition of their and Francis Amory, to be held in trust, with specific
funds considering the income as well as the instructions that they were to invest or lend the
safety of the capital investment. money, "in safe and productive stock, either in the
public funds, bank shares, or other stock, according
So if you try to apply the prudent man rule, you are not to their best judgment and discretion." The passive
actually managing the affairs for purposes na kumita income generated by the trust fund was to be paid to
sya but for not the purposes of speculation. It is for the his wife, Ann, in either quarterly or semi-annual
purpose of permanent disposition of funds considering distributions for her to maintain her standard of living
the income and the safety of the capital. based on whatever was most convenient for the
trustees.
Kasi pwede ka naming kumita ng malaki but you do not
consider the safety of the capital. Because remember When Ann McClean died, the trust fund was to be
the principle in finance, the higher the risk, the higher divided among to charitable beneficiaries. Fifty
the return. Pwede mong igamble ang capital, para percent of the trust assets were to go the President
malaki ang kita. But that’s not the prudent man rule. and Fellow of Harvard College to establish a
You have to consider the safety of the capital. professorship of ancient and modern history, covering
the salary of the new position. The other fifty percent
Now this is from an 1830 Massachusetts decision: of the trust assets were to be gifted to the Trustees
John McClean. Si John McClean sobrang mayaman nyan of the Massachusetts General Hospital for general
tapos bago sya namatay, nilagay nya sa will, I will charitable purposes.
entrust all my properties to a certain Brothers of Amory
Sabi nya, nilagay nya sa trust that I will entrust my Over the next few years, what followed was a long
funds to this Amory and this Amori will manage the and complicated series of investments, dividends,
funds for the benefit of a hospital in the Harvard college. distributions paid out as part of an international treaty
That is why the case is Harvard college v Amory. So with Spain, and a host of other legal entanglements
what happened was that namismanage. It was losing. that left the trust with less value than it had when
So walang funds na napunta sa Harvard. So they sued was originally established. Then, in 1928, the
Mr. Amory saying na he was negligent on his duty as surviving trustee, Francis Amory, tendered his
trustee. He was actually convicted on first instance but resignation. Harvard College sued the trustee for the
on appeal, sabi ng court no. What is only required by losses, claiming that the money had been invested in
the trustee is to be prudent. risky operating companies solely to provide a high
income or the widow Ann while disregarding their
You cannot make the trustee liable when talaga naming interest as a remainder beneficiary.
kinonsider nya ang safety ng capital. And it’s just that
hindi talaga kumita. In other words, there is no The court sided with the trustees for multiple reasons.
assurance. What is only required by law is to be prudent. When the decision was appealed, and affirmed,
Hindi naman sinabi sa batas na you really have to earn Justice Samuel Putnam famously wrote what is now
income. Maging prudent ka lang.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

known as the prudent man rule, or prudent investor property of any kind which may be brought under the
rule: jurisdiction of the court;

All that can be required of a trustee is, that he shall 83.3. Act as the executor of any will when it is named
conduct himself faithfully and exercise a sound the executor thereof;
discretion. He is to observe how men of prudence, 83.4. Act as administrator of the estate of any
discretion and intelligence manage their own affairs, deceased person, with the will annexed, or as
not in regard to speculation, but in regard to the administrator of the estate of any deceased person
permanent disposition of their funds, considering the when there is no will;
probable income as well as the probable safety of the
capital to be invested… Do what you will, the capital 83.5. Accept and execute any trust for the holding,
is at hazard. management, and administration of any estate, real
or personal, and the rents, issues and profits thereof;
https://www.thebalance.com/what-is-the-prudent- and
man-rule-or-prudent-investor-rule-357258
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board. (58)
What is the principle in finance for you to manage
the risk?
So again, a trust entity is a corporation. So you have
A: Diversification your usual powers of a corporation. So in addition to
that you have the powers above.
So ang nangyayari, you invest, tapos ito mataas yung
risk, invest ka dun sa lower risk para kung kumita ka 83.2. Act under the order or appointment of any
ditto, lugi ka don. (vice versa) You diversy your risk. court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent
SECTION 81. Registration of Articles of Incorporation person, and as receiver and depositary of any
and By-Laws of a Trust Entity. — moneys paid into court by parties to any legal
The Securities and Exchange Commission shall not proceedings and of property of any kind which
register the articles of incorporation and by-laws or may be brought under the jurisdiction of the court;
any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by Now you have your special proceedings ngayon? You will
the Bangko Sentral. (n) encounter trust, guardianship. Just correlate this.
So paano kumikita ang isang trust entity?
SECTION 82. Minimum Capitalization. — A trust
entity, before it can engage in trust or other fiduciary A: meron silang administration fee usually in
business, shall comply with the minimum paid-in percentage.
capital requirement which will be determined by the
Monetary Board. (n) Pag sobrang dami ng trust fund, ayun na. Yung mga
usually nakikita nyo sa mga shows diba. Trust fund
baby. Ang nagmamanage ng property nila is yung trust.
What can a trust entity do? We are talking about the And at the age of 18, makukuha nila ang funds.
trust entity ha, a separate entity. Nagmamanage lang trust.

SECTION 83. Powers of a Trust Entity. — SECTION 84. Deposit for the Faithful
A trust entity, in addition to the general powers Performance of Trust Duties. —
incident to corporations, shall have the power to: Before transacting trust business, every trust entity
shall deposit with the Bangko Sentral as security for
83.1. Act as trustee on any mortgage or bond issued the faithful performance of its trust duties, cash or
by any municipality, corporation, or any body politic securities approved by the Monetary Board in an
and to accept and execute any trust consistent with amount equal to not less than Five hundred thousand
law; pesos (P500,000.00) or such higher amount as may
be fixed by the
83.2. Act under the order or appointment of any court Monetary Board: Provided, however, That the
as guardian, receiver, trustee, or depositary of the Monetary Board shall require every trust entity to
estate of any minor or other incompetent person, and increase the amount of its cash or securities on
as receiver and depositary of any moneys paid into deposit with the Bangko Sentral whenever in its
court by parties to any legal proceedings and of
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

judgment such increase is necessary by reason of the

trust business of such entity: Provided, however, That the reduced bond shall be
sufficient to secure adequately the proper
Provided, further, That the paid-in capital and surplus administration and care of any property remaining
of such entity must be at least equal to the amount under the control of such persons and the proper
required to be deposited with the Bangko Sentral in accounting for such property.
accordance with the provisions of this paragraph.
Should the capital and surplus fall below said amount, Property deposited with any trust entity in conformity
the Monetary Board shall have the same authority as with this Section shall be held by such entity under
that granted to it under the provisions of the fifth the orders and direction of the court. (59)
paragraph of Section 34 of this Act.
A trust entity so long as it shall continue to be solvent SECTION 86. Exemption of Trust Entity from
and comply with laws or regulations shall have the Bond Requirement. —
right to collect the interest earned on such securities No bond or other security shall be required by the
deposited with the Bangko Sentral and, from time to court from a trust entity for the faithful performance
time, with the approval of the Bangko Sentral, to of its duties as court appointed trustee, executor,
exchange the securities for others. administrator, guardian, receiver, or depositary.
However, the court may, upon proper application with
If the trust entity fails to comply with any law or it showing special cause therefor, require the trust
regulation, the Bangko Sentral shall retain such entity to post a bond or other security for the
interest on the securities deposited with it for the protection of funds or property confided to such
benefit of rightful claimants. All claims arising out of entity. (59)
the trust business of a trust entity shall have priority
over all other claims as regards the cash or securities So if court appointed ka, you are not required to furnish
deposited asabove provided. The Monetary Board a bond. Kasi nga inappoint ka na nga tapos magbond ka
may not permit the cash or securities deposited in pa.
accordance with the provisions of this Section to be
reduced below the prescribed minimum amount until Please take note, very important:
the depositingentity shall discontinue its trust
business and shall satisfy the Monetary Board that it SECTION 87. Separation of Trust Business from
has complied with all General Business. —
its obligations in connection with such business.
(65a). The trust business and all funds, properties or
securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or
So this is what you call a bond. Security for the faithful depositary shall be kept separate and distinct from
performance of its trust duties. Now in your the general business including all other funds,
guardianship meron din bond to ensure that you would properties, and assets of such trust entity. The
perform your duties. accounts of all such funds, properties, or securities
shall likewise be kept separate and distinct from the
SECTION 85. Bond of Certain Persons for the Faithful accounts of the general business of the trust entity.
Performance of Duties. — Before an executor, (61)
administrator, guardian, trustee, receiver or
depositary appointed by the court enters upon the So kaylangan may separate accounting.
execution of his duties, he shall, upon order of the
court, file a bond in such sum, as the court may SECTION 88. Investment Limitations of a Trust
direct. Entity. —
Unless otherwise directed by the instrument creating
Upon the application of any executor, administrator, the trust, the lending and investment of funds and
guardian, trustee, receiver, depositary or any other other assets acquired by a trust entity as executor,
person in interest, the court may, after notice and administrator, guardian, trustee, receiver or
hearing, order that the subject matter of the trust or depositary of the estate of any minor or other
any part thereof be deposited with a trust entity. incompetent person shall be limited to loans or
Upon presentation of proof to the court that the investments as may be prescribed by law, the
subject matter of the trust has been deposited with a Monetary Board or any court of competent
trust entity, the court may order that the bond given jurisdiction. (63a)
by such persons for the faithful performance of their
duties be reduced to such sums as it may deem SECTION 89. Real Estate Acquired by a Trust
proper: Entity. —
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

Unless otherwise specifically directed by the trustor General Banking Act, as amended, including such
or the nature of the trust, real estate acquired by a rules and regulations issued pursuant thereto. Upon
trust entity in whatever manner and for whatever assumption by the Home Insurance and Guaranty
purpose, shall likewise be governed by the relevant Corporation of supervising and regulatory powers
provisions of Section 52 of this Act. (64a) over building and loan associations, all references in
Sections 39 to 55 of the General Banking Act, as
SECTION 90. Investment of Non-Trust Funds. — amended, to the Bangko Sentral and the Monetary
The investment of funds other than trust funds of a Board shall be deemed to refer to the Home Insurance
trust entity which is a bank, financing company or an and Guaranty Corporation and its board of directors,
investment house shall be governed by the relevant respectively. (n)
provisions of this Act and other applicable laws. (64)
SECTION 95. Repealing Clause. — Except as may
SECTION 91. Sanctions and Penalties. — be provided for in Sections 34 and 94 of this Act, the
A trust entity or any of its officers and directors found General Banking Act, as amended, and the provisions
to have willfully violated any pertinent provisions of of any other law, special charters, rule or regulation
this Act, shall be subject to the sanctions and issued pursuant to said General Banking Act, as
penalties provided under Section 66 of this Act as well amended, or parts thereof, which may be inconsistent
as Sections 36 and 37 of the New Central Bank Act. with the provisions of this Act are hereby repealed.
(63) The provisions of paragraph 8, Section 8,Republic Act
No. 3591, as amended by Republic Act No. 7400, are
SECTION 92. Exemption of Trust Assets from likewise repealed. (90a)
Claims. —
No assets held by a trust entity in its capacity as SECTION 96. Separability Clause. — If any
trustee shall be subject to any claims other than those provision or section of this Act or the application
of the parties interested in the specific trusts. (65) thereof to any person or circumstance is held invalid,
the other provisions or sections of this Act, and the
application of such provision or section to other
Can the trust entity establish branches? persons or circumstances, shall not be affected
thereby.
SECTION 93. Establishment of Branches of a (n)
Trust Entity. — SECTION 97. Effectivity Clause. — This Act shall
The ordinary business of a trust entity shall be take effect fifteen (15) days following its publication
transacted at the place of business specified in its in the Official Gazette or in two (2) national
articles of incorporation. Such trust entity may, with newspapers of general circulation. (91)
prior approval of the Monetary Board, establish
branches in the Philippines, and the said entity shall
be responsible for all business conducted in such
branches to the same extent and in the same manner
as though such business had all been conducted in
the head office.

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

CHAPTER X
FINAL PROVISIONS

SECTION 94. Phase Out of Bangko Sentral Powers

Over Building and Loan Associations.
— Within a period of three (3) years from the
effectivity of this Act, the Bangko Sentral shall phase
out and transfer its supervising and regulatory
powers over building and loan associations to the
Home Insurance and Guaranty Corporation which
shall assume the same. Until otherwise provided by
law, building and loan associations shall continue to
be governed by Sections 39 to 55, Chapter VI of the