TABLE OF CONTENTS i COMMERCIAL LAW

BANKING
A. The New Central Bank Act (R.A. No. 7653) ...... 1
1. State Policies ............................... 1
The Bangko Sentral ng Pilipinas (BSP) ........ 1
2. Responsibility and Primary Objective of
the BSP .......................................... 1
3. Monetary Board – Powers and Functions 1
Powers and Functions ........................... 1
Composition ...................................... 1
Members .......................................... 1
Qualifications .................................... 2
Disqualifications ................................. 2
4. How the BSP Handles Banks in Distress . 2
Banks in Distress ................................. 2
a. Conservatorship .............................. 2
b. Closure ........................................ 2
c. Receivership .................................. 3
d. Liquidation .................................... 3
5. Legal Tender Power ....................... 4
BSP Circular 537, series of 2006 ............... 4
6. Foreign Exchange Operations ............ 4
Purchases and Sales of Foreign Exchange .... 4
Convertibility of the Peso ...................... 4
B. Law on Secrecy of Bank Deposits (R.A. No.
1405, as amended)................................................ 5
1. Purpose ...................................... 5
2. Prohibited Acts ............................. 5
3. Deposits Covered ........................... 5
4. Exceptions ................................... 5
5. Garnishment of Deposits, including
Foreign Deposits ............................... 6
C. General Banking Law of 2000 (R.A. No. 8791) . 6
1. Definition and Classification of Banks .. 6
Classification of Banks .......................... 6
2. Distinction of Banks from Quasi-Banks
and Trust Entities ............................. 7
3. Bank Powers and Liabilities .............. 7
a. Corporate Powers ............................ 7
b. Banking and Incidental Powers ............. 7
4. Diligence Required of Banks .............. 8
5. Nature of Bank Funds and Bank Deposits
................................................... 8
6. Stipulation on Interests ................... 9
7. Grant of Loans and Security
Requirements a Single Borrower’s Limits . 9
a. Ratio of Bet Worth to Total Risk Assets ... 9
b. Single Borrower’s Limit ..................... 9
c. Restrictions on Bank Exposure to DOSRI
(Directors, Officers, Stockholders and their
Related Interests) ............................. 10

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A. The New Central 3. MONETARY BOARD – POWERS AND

FUNCTIONS
Bank Act (R.A. No. The Monetary Board
The body through which the powers and functions of
7653) the BSP are exercised. [Sec 6]
1. STATE POLICIES POWERS AND FUNCTIONS
The State shall maintain a central monetary
(1) Issue rules and regulations it considers necessary
authority that shall function and operate as an
for the effective discharge of the
independent and accountable body corporate in the
responsibilities and exercise of the powers
discharge of its mandated responsibilities concerning
vested in it;
money, banking and credit. [Sec. 1]
(2) Direct the management, operations, and
In line with this, the BSP is:
administration of the BSP, reorganize its
(1) The central monetary authority;
personnel and issue such rules and regulations as
it may deem necessary or desirable for this
(2) An independent and accountable body; and
purpose;
(3) A government-owned corporation that enjoys
(3) Establish a human resource management system
fiscal and administrative autonomy. [Secs. 1 &
which governs the selection, hiring,
2]
appointment, transfer, promotion, or dismissal
of all personnel;
THE BANGKO SENTRAL NG PILIPINAS (BSP) (4) Adopt an annual budget for and authorize such
There is hereby established an independent central expenditures by BSP as are in the interest of the
monetary authority, which shall be a body corporate effective administration and operations of
known as the Bangko Sentral ng Pilipinas. [Sec. 2] Bangko Sentral in accordance with applicable
laws and regulations;
NATURE OF THE BSP
(1) A central monetary authority; (5) Indemnify its members and other officials of the
BSP, including personnel of the departments
(2) An independent and accountable body; performing supervision and examination
functions, against all costs and expenses
(3) A GOCC but enjoys fiscal and administrative reasonably incurred by such persons in
autonomy. connection with an civil or criminal action, suit
or proceeding, to which any of them may be
made a party by reason of the performance of
2. RESPONSIBILITY AND PRIMARY OBJECTIVE his functions or duties, unless such members or
other officials is found to be liable for
OF THE BSP negligence or misconduct. [Sec. 15]
The Primary Objectives are:
(1) To maintain price stability conducive to
balanced and sustainable economic growth. COMPOSITION
(2) To promote and maintain monetary stability and The MB shall be composed of 7 members appointed
the convertability of the peso. by the President with a 6-year term. [Sec. 6]

Other Responsibilities: MEMBERS

(1) To provide policy directions in the areas of (1) The BSP Governor or his designated alternate;
money, banking and credit;
(2) A Cabinet member to be designated by the
(2) To supervise operations of banks; President (the Secretary of Finance);

(3) Regulates finance companies and non-bank (3) 5 Members from the private sector (bankers)
financial institutions performing quasi-banking [Sec. 6]
functions. [Sec. 3]

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QUALIFICATIONS (2) Unwillingness to maintain a condition of

liquidity deemed adequate to protect the
(1) Natural born-citizen; interest of depositors and creditors. [Sec. 29]
(2) Governor – at least 40 y/o; members – at least
35 y/o; REQUISITES
(1) A report must be submitted by the appropriate
(3) Of good moral character; supervising or examining department of the BSP;
(4) Of unquestionable integrity; (2) A positive finding of the grounds for
conservatorship;
(5) Of known probity and patriotism;
(3) The Board of Directors must be informed in
(6) With recognized competence in social and writing the Order of the MB.
economic disciplines. [Sec. 8]

TERMINATION
DISQUALIFICATIONS (1) When the MB is satisfied that the institution can
In addition to the disqualifications under the Code of continue to operate on its own and the
Conduct and Ethical Standards for Public Officials conservatorship is no longer necessary;
and Employees [RA 6713], a member of the MB is
disqualified by: (2) When, on the basis of the report of the
conservator or its own findings, the MB
(1) Direct connection with any multilateral determines that the continuance in business of
banking or financial institution; the institution would involve probable loss to its
depositors or creditors. (The institution will be
(2) Substantial interest in any private bank in placed under receivership.)
the PH, within 1 year prior to his
appointment. [Sec. 9]
POWERS AND DUTIES OF A CONSERVATOR
(1) To take charge of the assets, liabilities, and the
4. HOW THE BSP HANDLES BANKS IN DISTRESS management thereof;

BANKS IN DISTRESS (2) To reorganize the management;

Illiquidity
Occurs when the bank is not liquid, i.e., the bank (3) To collect all monies and debts due said
cannot meet its current liabilities. institution;

(4) To exercise all powers necessary to restore its

Liquidity viability;
The ability of an asset to be converted into cash,
i.e., when it is able to pay its liabilities when they (5) To report and be responsible to the MB;
fall due.
(6) To overrule or revoke the actions of the
previous management and board of directors of
Insolvency the institution. [Sec. 29]
When the actual market value of assets is
insufficient to pay its liabilities, not considering
capital stock and surplus which are not liabilities for B. CLOSURE
such purpose. An entity is insolvent when it is unable The Monetary Board may summarily and without
to meet its current and long-term obligations. need for prior hearing close a bank and place it
under receivership. (“Close now, hear later”
doctrine)
A. CONSERVATORSHIP
Conservatorship involves the appointment of a GROUNDS
conservator to preserve the assets of the bank when (1) Notifies the BSP or publicly announces a bank
the latter is illiquid, and take measures. holiday; or

(2) Suspends the payment of its deposit liabilities

GROUNDS continuously for more than 30 days in any
(1) In a state of continuing inability; manner. [Sec. 53, GBL]

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transactions which amount to fraud or a

(3) Persistence in conducting business in an unsafe disposition of assets of the institution.
or unsound manner. [Sec. 56, GBL]
Special Rule: In this case, the MB may act
(4) Unable to pay its liabilities as they become due summarily and without hearing. [Sec. 30, NCBA]
in the ordinary course of business, except for
inability to pay caused by extraordinary
demands induced by financial panic in the POWERS AND DUTIES
banking community; (1) Immediately gather and take charge of all the
assets and liabilities of the institution;
(5) Has insufficient realizable assets, as determined
by the BSP, to meet its liabilities; (2) Administer the assets for the benefit of the
creditors;
(6) Cannot continue in business without involving
probable losses to its depositors or creditors; (3) Exercise the general powers of a receiver under
the Rules of Court;
(7) Has willfully violated a CDO under Sec. 37
(NCBA) that has become final, involving acts or (4) Not to pay or commit any act that will involve
transactions which amount to fraud or a the transfer or disposition of any asset of the
disposition of assets of the institution. institution.

Special Rule: In this case, the MB may act Except:

summarily and without hearing. [Sec. 30, NCBA] a. Administrative expenditures;

b. Receiver may deposit or place funds in non-

C. RECEIVERSHIP speculative investments.
Refers to the stage within which the Philippine (5) Subject to prior approval of the MB, determine,
Deposit Insurance Commission (PDIC) manages the as soon as possible, but not later than 90 days
affairs of the closed bank and preserves its assets for from the take-over, whether the institution may
the benefit of creditors. [RA 9302, Sec. 10 (a, b)] be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume
REQUISITES business with safety to its depositors and
(1) Report of the head of the supervising creditors and the general public.
department involving the bank;
Except:
(2) Finding of the MB of the existence of any of the a. Administrative expenditures;
grounds for receivership;
b. Receiver may deposit or place funds in non-
(3) Order by the MB to forbid the institution from speculative investments. [Sec. 30, NCBA]
doing business (may be summary);
Main duty: Within 90 days from takeover,
(4) Notice in writing, informing the Board of
determine WON the institution can be
Directors of the institution of the order. rehabilitated, otherwise, it will be liquidated.

GROUNDS
(1) Unable to pay its liabilities as they become due D. LIQUIDATION
in the ordinary course of business, except for After undergoing conservatorship, closure, and/or
inability to pay caused by extraordinary receivership, if the bank cannot be rehabilitated, it
demands induced by financial panic in the shall be liquidated.
banking community;
Liquidation refers to the recovery and conversion of
(2) Has insufficient realizable assets, as determined assets into cash for distribution to all creditors in
by the BSP, to meet its liabilities; accordance with the rules on concurrence and
preference of credits.
(3) Cannot continue in business without involving
probable losses to its depositors or creditors;
KINDS OF LIQUIDATION:
(4) Has willfully violated a CDO under Sec. 37 (1) Voluntary Liquidation;
(NCBA) that has become final, involving acts or (2) Involuntary Liquidation

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(3) May engage in foreign exchange transactions

GROUNDS: with the following entities only:
(1) The institution is insolvent;
(2) Continuance would involve probable loss to (a) banking institutions operating in the
creditors; Philippines;
(3) MB determines that the institution cannot be (b) the Government, its political subdivisions
rehabilitated. and instrumentalities;
(c) foreign or international institutions;
(d) foreign governments and their
EFFECTS OF LIQUIDATION: instrumentalities; and
(1) Retention of juridical personality; (e) other entities or persons which the MB is
(2) Suspension of operations; hereby empowered to authorize as foreign
(3) Assets are deemed in custodia legis; exchange dealers. [Sec. 70]
(4) Stay of execution of judgment to prevent
depletion of bank assets;
(5) Bank is not liable to pay interest on deposits CONVERTIBILITY OF THE PESO
which accrued during the period of suspension
of operations; In order to maintain the convertibility of the peso,
(6) Restriction of bank’s capacity to conduct new the BS may, at the request of any banking institution
business, but with obligation to collect pre- operating in the PH, buy any quantity of foreign
existing obligations; exchange offered, and sell any quantity of foreign
(7) Deposits do no become preferred credits. exchange demanded, by such institution, provided
that the foreign currencies so offered or demanded
are freely convertible into gold or United State
dollars. This requirement shall not apply to demands
5. LEGAL TENDER POWER for foreign notes and coins. [Sec. 70]
All notes and coins issued by the BSP shall be fully
guaranteed by the Government of the Republic of
the Philippines and shall be legal tender in the EMERGENCY RESTRICTIONS:
Philippines for all debts, both public and private. In order to:
[Sec. 52] (1) Achieve the primary objective of the BS; or

Limitation: Coins shall be legal tender in amounts (2) Protect the international reserves of the BS, in
not exceeding P50 for denominations of 25 centavos the imminence of, or during an exchange crisis;
and above, and in amounts not exceeding P20 for or
denominations of 10 centavos or less.
(3) In time of national emergency and to give the
Exception: Monetary Board may fix otherwise. MB and the Government time in which to take
constructive measures to forestall, combat, or
overcome such crisis or emergency the MB, with
BSP CIRCULAR 537, SERIES OF 2006 the concurrence of at least five (5) of its
members, and with the approval of the
Maximum amount of coins to be considered as legal President, may:
tender is: (1) Temporarily suspend or restrict sales of
• P1000 – for denominations of 1-Piso, 5-Piso exchange by the BS;
and 10-Piso coins; and
(2) May subject all transactions in gold and
• P100 – for denominations of 1-sentimo, 5- foreign exchange to license by the BS;
sentimo, 10-sentimo, and 25-sentimo coins.
6. FOREIGN EXCHANGE OPERATIONS (3) May require that any foreign exchange
thereafter obtained by any person residing
PURCHASES AND SALES OF FOREIGN
or entity operating in the PH be delivered
EXCHANGE to the BS or to any bank or agent
The Bangko Sentral: designated by the BS, for the purpose, at
(1) May buy and sell foreign notes and coins, and the effective exchange rate.
documents and instruments of types customarily
employed for the international transfer of Except: The foreign currency deposits made
funds; under RA 6426 shall be exempt from these
requirements.
(2) May engage in future exchange operations;

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B. Law on Secrecy (1) Upon written permission of the depositor;

of Bank Deposits (2) In cases of impeachment;

(R.A. No. 1405, as (3) Upon order of competent court in cases of

bribery and dereliction of duty;
amended) (4) In cases where the money deposited or invested
1. PURPOSE is the subject matter of litigation.

(1) To encourage the people to deposit their money Others:

in banks; (1) The Commissioner of Internal Revenue can
inquire into the bank accounts of the following
(2) TO discourage private hoarding, so that the taxpayers:
funds can be used by the bank to grant loans to
assist in economic development. (a) A decedent in order to determine his gross
estate; or
The absolute confidentiality rule in RA 1405 actually
aims at protection from unwarranted inquiry or (b) A taxpayer who has filed an application to
investigation if the purpose of such inquiry or compromise his tax liability on the ground
investigation is merely to determine the existence of financial incapacity;
and nature, as well as the amount of the deposit in
any given bank account. [China Banking Corp vs. (c) A taxpayer, information n whose account is
Ortega, G.R. No. L-34964, (1973)] requested by a foreign tax authority.

(2) Unexplained wealth under Sec. 8 of RA 3019;

2. PROHIBITED ACTS
(1) Examination, inquiry, or looking into deposits by (3) Cases under the AMLA [RA 9194]
persons, government officials, bureaus, or
offices; [Sec. 2] (a) Under the Human Security Act of 2007:

(2) Disclosure by banking institutions’ officials or (i) Kidnapping for Ransom;

employees to unauthorized persons regarding
information about covered accounts. [Sec. 3] (ii) Dangerous Drug;

(iii) Hijacking and other violations of RA

6235;
3. DEPOSITS COVERED
All deposits of whatever nature with banks or (iv) Destructive arson and murder.
banking institutions in the Philippines are considered
as of an absolute confidential nature. [Sec. 2] (4) BSP inquiry or examination in the course of its
periodic or special examination of the bank.
This includes investments in bonds issued by the [Sec. 11, AMLA]
Government of the Philippines, its political
subdivisions and its instrumentalities. Note that (5) Disclosure of certain information about bank
investments in bonds in foreign currency are still deposits which have been dormant for at least
covered by RA 1405, and have not been exempted by 10 years, to the Treasurer of the Philippines in a
the Foreign Currency Deposit Act. sworn statement, a copy of which is posted in
Exceptions: the bank premises. [Sec. 2, Act No. 3926]
(1) Foreign Currency Deposits, which are governed
by the Foreign Currency Deposit Act;
(6) The PDIC and/or the BSP can inquire into or
(2) Funds placed in a bank not in the nature of a examine deposit accounts and all information
deposit by private individuals. However, these related thereto in case there is a finding of
may also not be disclosed, under Sec. 55.1 of unsafe and unsound banking practice. [Sec. 8,
the GBL of 2000. [LOOK FOR EJERCITY VS SB par. 8, RA 3591, as amended by RA 9576]
CASE]
Not an exception: Power of the Ombudsman to
examine and have access to bank accounts and
4. EXCEPTIONS records under Sec. 15, par. 8, RA 6770.
Deposits:

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5. GARNISHMENT OF DEPOSITS, INCLUDING

FOREIGN DEPOSITS (6) Acquiring marketable bonds and other debt
securities;

General Rule: The prohibition against examination (7) Extending credit, subject to such rules as
of or inquiry into a bank deposit under RA 1405 does the MB may promulgate. These rules may
not preclude its being garnished to insure include the determination of bonds and
satisfaction of a judgment. other debt securities eligible for
investment, the maturities and aggregate
amount of such investment. [Sec. 29]
Exception: Foreign Currency Deposits

The foreign currency deposits shall be exempt from In addition to the operations authorized, a bank may
attachment, garnishment, or any other order or perform the following services:
process of any court, legislative body, government
agency or any administrative body whatsoever. [Sec. (1) Receive in custody funds, documents and
8, Foreign Currency Deposit Act] valuable objects;

(2) Act as financial agent and buy and sell, by order

C. General Banking of and for the account of their customers,
shares, evidence of indebtedness and all types
Law of 2000 (R.A. of securities;

No. 8791) (3) Make collections and payments for the account
of others and perform such other services for
1. DEFINITION AND CLASSIFICATION OF BANKS their customers as are not incompatible with
banking business;
“Banks”
Refer to entities engaged in the lending of funds
(4) Upon prior approval of the MB, act as managing
obtained in the form of deposits. [Sec. 3, par. 1]
agent, adviser, consultant or administrator of
investment/management/advisory/ consultancy
accounts; and
CLASSIFICATION OF BANKS
a. Universal Bank (5) Rent out safety deposit boxes. [Sec. 53]
A universal bank shall have the authority to
exercise, in addition to the powers authorized
for a commercial bank in Sec. 29, the powers of c. Thrift Bank
an investment house as provided in existing laws Thrift Banks are banks that focus on basic
and the power to invest in non-allied banking services for their clients, with an
enterprises. emphasis on individuals and small businesses;
primarily governed by RA 7906 or the Thrift
b. Commercial Bank Bank Act. Thrift Bank includes;
A commercial bank shall have, in addition to the (1) Savings and mortgage banks;
general powers incident to corporations, all such (2) Savings and loan associations;
powers as may be necessary to carry on the (3) Private development banks
business of commercial banks such as:
d. Rural Banks
(1) Accepting drafts and issuing letters of Banks that are formed for the purpose of
credit; providing adequate credit facilities to farmers
and merchants, or to cooperatives of such
(2) Discounting and negotiating PNs, drafts, farmers and merchants in general, the people of
bills of exchange, and other evidence of the rural communities. Primarily governed by RA
debts; 7353, or the Rural Bank Act.

(3) Accepting or creating demand deposits; e. Cooperative banks

Banks which are organized as cooperatives
(4) Receiving other types of deposits and under RA 6938, the Cooperatives Code.
deposit substitutes;
f. Islamic Banks
(5) Buying and selling foreign exchange and Banks that aims to provide banking under the
gold or silver bullion; Shari’a principles governing banking. TRIVIA:
There is only one Islamic Bank in the PH – the

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Al-Amanah Islamic Bank

(11) Exercise such other powers as may be essential
g. Other Banks Classified by the BSP or necessary to carry out its purposes.
Land Bank of the Philippines, Veteran’s Bank,
and the Development Bank of the Philippines
B. BANKING AND INCIDENTAL POWERS
(1) Accepting drafts and issuing letters of credit;
2. DISTINCTION OF BANKS FROM QUASI-BANKS
AND TRUST ENTITIES (2) Discounting and negotiating PNs, drafts, bills of
Quasi-banks refer to entities engaged in the exchange, and other evidence of debts;
borrowing of funds through the issuance,
endorsement or assignment with recourse or (3) Accepting or creating demand deposits;
acceptance of deposit substitutes as defined in Sec.
95 of the NCBA for the purposes of re-lending or General Rule: Only Universal and Commercial
purchasing of receivables and other obligations. Banks can accept or create demand deposits.
[Sec. 33]
Trust Entities refer to a bank or a non-bank financial
institution, through its specifically designated Exception: Banks with prior approval of, and
business unit to perform trust functions; or a trust subject to such conditions and rules as may be
corporation, authorized by the BSP to engage in trust prescribed by the Monetary Board. [Sec. 33]
and other fiduciary business under the GBL or to
perform investment management services under Sec. (4) Receiving other types of deposits and deposit
53 of GBL. substitutes;

3. BANK POWERS AND LIABILITIES TYPES OF DEPOSITS

i. Time Deposit – Interest rate stipulated
A. CORPORATE POWERS depending on the number of days. During
(1) Sue and be sued in its corporate name; this period, the money deposited may not
be withdrawn without incurring penalty.
(2) Succession; High interest rates.

(3) Adopt and use a corporate seal; ii. Savings Deposit – bank pays an interest rate,
but not as high as time deposits.
(4) Amend its AOI;
iii. Demand Deposit/Current Deposit – All those
(5) Adopt and amend By-Laws; liabilities of the BSP and of other banks
which are denominated in Philippine
(6) For stock corporations – issue or sell stocks to currency and are subject to payment in
subscribers and sell treasury stocks; for non- legal tender upon demand by the
profit corporation – admit members to the presentation of checks. [Sec. 58, NCBA] No
corporation. interest is paid by the bank because the
(7) Purchase, receive, take or grant, hold, convey, depositor can take out his funds any time.
sell, lease, pledge, mortgage and otherwise deal [Villanueva, Commercial Law Review, 2012]
with such real and personal property, pursuant
to its lawful business; iv. Negotiable Order of Withdrawal Accounts –
Interest-bearing deposit accounts that
(8) Enter into merger or consolidation with other combine the payable on demand feature of
corporations as provided in the Code; checks and investment feature of savings
accounts. [Manual of Regulations for Banks]
(9) Make reasonable donations, including those for
the public welfare or for hospital, charitable, (5) Buying and selling foreign exchange and gold or
cultural, scientific, civic or similar purposes: silver bullion;
Provided, no corporation, domestic or foreign,
shall give donations in aid of any political party (6) Acquiring marketable bonds and other debt
or candidate or for purposes of partisan political securities;
activity;
(7) Extending credit, subject to such rules as the MB
(10) Establish pension, retirement, and other plans may promulgate. These rules may include the
for the benefit of its directors, trustees, officers determination of bonds and other debt
and employees; and securities eligible for investment, the maturities

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and aggregate amount of such investment. [Sec. (2) Consistent with safe and sound banking
29] practices. [Sec. 39, GBL]

“KNOW YOUR CUSTOMER” RULE PURPOSE OF LOANS

Before granting a loan or other credit The purpose shall be stated in the application and in
accommodation, a bank must ascertain that the the contract between the bank and the borrower.
debtor is capable of fulfilling its commitments to the [Sec. 39, GBL]
bank.

The bank may demand from its credit applicants a EFFECT OF USAGE OF LOAN PROCEEDS FOR
statement of their assets and liabilities and of their PURPOSES OTHER THAN THOSE AGREED UPON
income and expenditure and such information as WITH THE BANK
may be prescribed by law or by rules and regulations The bank shall have the right to terminate the loan
of MB to enable the bank to properly evaluate the or other credit accommodation and demand
credit application which includes the corresponding immediate repayment of the obligation. [Sec. 39,
financial statements submitted for taxation purposes GBL]
to the BIR. [Sec. 40, GBL]

4. DILIGENCE REQUIRED OF BANKS

MATERIAL MISREPRESENTATION
The State recognizes the vital role of banks providing
If there is Material Misrepresentation, the bank:
an environment conducive of the sustained
(1) May terminate any loan or other credit
development of the national economy and the
accommodation granted on the basis of said
fiduciary nature of banking that requires high
statements;
standards of integrity and performance. In
furtherance thereof, the State shall promote and
(2) Shall have the right to demand immediate
maintain a stable and efficient banking and financial
repayment or liquidation of the obligation. [Sec.
system the is globally competitive, dynamic and
40, GBL]
responsive to the demands of a developing economy.
[Sec. 2, GBL]
LIMITS ON LOANS, CREDIT ACCOMMODATION
BSP Circular 857 provides that financial institutions
AND GUARANTEES
must adhere to the highest service standards.
AGAINST REAL ESTATE:
These standards apply not only to the bank per se,
General Rule: Not exceed 75% of the appraised
but also to its employees. [Cadiz vs. CA, G.R. No.
value of the respective real estate security, plus 60%
153784, 2005]
of the appraised value of the insured improvements,
and such loans may be made to the owner of the real
The fiduciary nature of banking requires banks to
estate or to his assignees.
assume a degree of diligence higher than that of a
good father of a family. [People vs. Go, G.R. No.
Exception: Where the MB otherwise prescribes [Sec.
168539, 2014]
37, GBL]
The banking is so impressed with public interest
ON SECURITY OF CHATTELS AND INTANGIBLE where the trust and confidence of the public in
PROPERTIES (IPS) general is of paramount importance such that the
General Rule: Not exceed 75% of the appraised appropriate standard of diligence must be a high
value of the appraised value of the security, and degree of diligence, if not the utmost diligence.
such loans and other credit accommodations may be [Bank of America vs. Philippine Racing Club, G.R.
made to the title holder of the chattels and No. 150228, 2009]
intangible properties or to his assignees.

Exception: Where the MB otherwise prescribes. 5. NATURE OF BANK FUNDS AND BANK
[Sec. 38, GBL] DEPOSITS
The contract between the bank and its depositor is
governed by the provisions of the NCC on simple
GRANT OF LOANS
loan. [Consolidated Bank and Trust Corporation vs.
(1) Only in amounts and for the periods of time CA, G.R. No. 138569, 2003]
essential for the effective completion of the
operations to be financed; and Bank deposits are in the nature of irregular deposits,

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thus, the prohibition on compensation when one of

the debts arises from depositum does not apply. In case a bank does not comply with the prescribed
[Serrano vs. Central Bank, G.R. No. L-30511, 1980] minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such bank
The relationship being contractual in nature, and may require that part or all of the net profits be
mandamus is therefore not an available remedy used to increase the capital accounts of the bank
since mandamus does not lie to enforce the until the minimum requirement has been met. The
performance of contractual obligations. [Maclaring Monetary Board may, furthermore, restrict or
Lucman vs. Alimantar Malawi, G.R. No. 159794, prohibit the acquisition of major assets and the
2006] making of new investments by the bank, with the
exception of purchases of readily marketable
evidence of indebtedness of the Republic of the
6. STIPULATION ON INTERESTS Philippines and of the Bangko Sentral and any other
evidence of indebtedness or obligations the servicing
The Monetary Board, may, similarly in accordance and repayment of which are fully guaranteed by the
with the authority granted to it in Section 106 of the Republic of the Philippines, until the minimum
New Central Bank Act, and taking into account the required capital ratio has been restored.
requirements of the economy for the effective
utilization of long-term funds, prescribe the In case of a bank merger or consolidation, or when a
maturities, as well as related terms and conditions bank is under rehabilitation under a program
for various types of bank loans and other credit approved by the Bangko Sentral, Monetary Board
accommodations. Any change by the Board in the may temporarily relieve the surviving bank,
maximum maturities shall apply only to loans and consolidated bank, or constituent bank or
other credit accommodations made after the date of corporations under rehabilitation from full
such action. compliance with the required capital ratio under
such conditions as it may prescribe. [Sec. 34, GBL]
The Monetary Board shall regulate the interest
imposed on micro-finance borrowers by lending
investors and similar lenders such as, but not limited
to, the unconscionable rates of interest collected on B. SINGLE BORROWER’S LIMIT
salary loans and similar credit accommodations. Except as the Monetary Board may otherwise
[Sec. 43, GBL] prescribe for reasons of national interest, the total
amount of loans, credit accommodations and
guarantees as may be defined by the Monetary Board
7. GRANT OF LOANS AND SECURITY that may be extended by a bank to any person,
REQUIREMENTS A SINGLE BORROWER’S LIMITS partnership, association, corporation or other entity
shall at no time exceed twenty-five percent (25%) of
the net worth of such bank (previously 20%,
A. RATIO OF BET WORTH TO TOTAL RISK amended by MB Circular No. 425). The basis for
ASSETS determining compliance with single borrower limit is
the total credit commitment of the bank to the
The Monetary Board shall prescribe the minimum borrower.
ratio which the net worth of a bank must bear to its
total risk assets which may include contingent Unless the Monetary Board prescribed otherwise, the
accounts. total amount of loans, credit accommodations and
guarantees prescribed in the preceding paragraph
For purposes of this section, the Monetary Board may may be increased by an additional ten percent (10%)
require such ratio be determined on the basis of the of the net worth of such bank provided the
net worth and risk assets of a bank and its additional liabilities of any borrower are adequately
subsidiaries, financial or otherwise, as well as secured by trust receipts shipping documents,
prescribe the composition and manner of
warehouse receipts or other similar documents
determining the net worth and total risk assets of transferring or securing title covering readily
banks and their subsidiaries: Provided, that in the marketable, non-perishable goods which must be
exercise of this authority, the Monetary Board shall, fully covered by insurance.
to the extent feasible conform to the internationally
accepted standards, including those of the Bank for The above prescribed ceilings shall include;
International Settlements (BIS), relating to risk- (1) the direct liability of the maker or acceptor of
based capital requirements: Provided further, that it paper discounted with or sold to such bank and
may alter or suspend compliance with such ratio
the liability of a general endorser, drawer or
whenever necessary for a maximum period of one
guarantor who obtains a loan or other credit
year: Provided, finally, that such ratio shall be accommodation from or discounts paper with or
applied uniformly to banks of the same category. sells paper to such bank;

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 BANKING 10 COMMERCIAL LAW

(v) Other loans or credit accommodations

(2) In the case of an individual who owns or controls which the Monetary Board may from time to
a majority interest in a corporation, time, specify as non-risk items.
partnership, association or any other entity, the
liabilities of said entities to such bank; Loans and other credit accommodations,
deposits maintained with, and usual
(3) In the case of corporation, all liabilities to such guarantees by a bank to any other bank or
bank of all subsidiaries in which such non-bank entity, whether locally or abroad,
corporation owns or controls a majority interest; shall be subject to the limits as herein
and prescribed.

(4) In the case of a partnership, association or other Certain types of contingent accounts of
entity, the liabilities of the members thereof to borrowers may be included among those
such bank. subject to these prescribed limits as may be
determined by the Monetary Board. [Sec.
Even if a parent corporation, partnership, 35, GBL]
association, entity or an individual who owns or
controls a majority interest in such entities has
no liability to the bank, the Monetary Board may C. RESTRICTIONS ON BANK EXPOSURE TO
prescribe the combination of the liabilities of DOSRI (DIRECTORS, OFFICERS,
subsidiary corporations or members of the
partnership, association entity or such individual
STOCKHOLDERS AND THEIR RELATED
under certain circumstances, including but not INTERESTS)
limited to, any of the following situations: No director or officer of any bank shall, directly and
indirectly, for himself or as the representative or
(i) The parent corporation, partnership, agent of others, borrow from such bank nor shall he
association, entity or individual guarantees become a guarantor, endorser or surety for loans
the repayment of the liabilities; from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank
(ii) The liabilities were incurred for the except with the written approval of the majority of
accommodation of the parent corporation all the directors of the bank, excluding the director
or another subsidiary or of the partnership concerned: Provided, that such written approval
or association or entity or such individual; shall not be required for loans, other credit
or accommodations and advances granted to officers
(iii) The subsidiaries though separate entities under fringe benefit plan approved shall be entered
operate merely as departments or divisions upon the records of the bank and a copy of such
of a single entity; entry shall upon the records of the bank and a copy
of such entry shall be transmitted forthwith to the
appropriate supervising and examining department
For purposes of this Section, loans, other credit of the Bangko Sentral.
accommodations and guarantees shall exclude:
Dealings of a bank with any of its directors, officers
(i) Loans and other credit accommodations or stockholders and their related interests shall be
secured by obligations of the BSP or of the upon terms not less favorable to the bank than those
Philippine Government; offered to others.

(ii) Loans and other credit accommodations After due notice to the board of directors of the
covered by assignment of deposits bank, the office of any bank director or officer who
maintained in the lending bank and held in violates the provisions of this Section may be
the Philippines; declared vacant and the director or officer shall be
subject to the penal provisions of the NCBA.
(iii) Loans and other credit accommodations
covered by assignment of deposits The Monetary Board may regulate the amount of
maintained in the lending bank and held in loans, credit accommodations and guarantees that
the Philippines; may be extended, directly or indirectly, by a bank to
its directors, officers, stockholders and their related
(iv) Loans, credits accommodations and interests, as well as investments of such bank in
acceptances under letters of credit to the enterprises owned or controlled by said directors,
extent covered by margin deposits; officers, stockholders and their related interests.
However, the outstanding loans, credit
accommodations and guarantees which a bank may

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 BANKING 11 COMMERCIAL LAW

extend to each of its stockholders, directors, or

officers and their related interests, shall be limited
to an amount equivalent to their respective
unencumbered deposits and book value of their paid-
in capital contribution in the bank: Provided,
however, that loans, credit accommodations and
advances to officers in the form of fringe benefits
granted in accordance with rules as may be
prescribed by the Monetary Board shall not be
subject to the individual limit.

The Monetary Board shall define the term “related

interests.”

The limit on loans, credit accommodations and

guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative
shareholders.

LA SALLIAN COMMISION ON BAR OPERATIONS