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TOPICS UNDER THE SYLLABUS
VIII. Banking Laws
A. The New Central Banking Act (R.A. 7653)
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A. The New Central Banking Act (R.A. 7653)
1.

upon the order of the Philippine Treasurer

(Villanueva, 2009).
Other Basic Functions of BSP:
1. It shall have the sole power and authority to
issue currency within the territory of the
Republic of the Philippines;
2. The power to issue regulations to prevent the
circulation of foreign currencies, or currency
substitutes as well as the reproduction of
facsimiles of BSP notes;
3. It has the power to investigate, make arrests,
conduct searches and seizure for the purpose
of maintaining the integrity of the currency;
4. To engage in foreign engage transactions in
order to maintain price stability;
5. To make rediscounts, discounts, loans and
advances to banking and other financial
institutions to influence the volume of credit
consistent with the objectives of price stability;
6. To engage in open market operations--purchase and sale of securities ---exclusively in
accordance with its objectives of achieving
price stability;
7. To engage in marketing and stabilization of
securities for the account of the government;
8. To act as the financial advisor of the
government; (Sundiang, 2006)

State Policies and Creation of the Bangko Sentral

ng Pilipinas (BSP)
The Bangko Sentral ng Pilipinas (BSP) is the States
Central Monetary Authority mandated in the 1987
Philippine Constitution, which shall function and
operate as an independent and accountable body
corporate in the discharge of its mandated
responsibilities concerning money, banking and
credit

2.

Responsibility and Primary Objective

Primary Objectives:
a. To maintain price stability conducive to a
balanced and sustainable growth of the
economy;
b. To promote and maintain the monetary
stability and convertibility of the peso;
c. To provide policy directions in areas of
money, banking and credit, with
supervision over operations of banks and
with regulatory powers over operations of
finance companies, and non-bank
financial institutions performing quasibanking functions.
Roles of BSP:
a. Banker of Government
The Act as a banker of the Government, its
political subdivisions and instrumentalities,
and their cash balances should be deposited to
the BSP, with only minimum working balances
to be held by government-owned banks, and
such other banks incorporated in the
Philippines as the Monetary Board may
prescribe.
b. Representation with the International
Monetary Board
To represent Government in all dealings,
negotiations and transactions with the IMF,
and shall carry such accounts as may result
from the Philippine membership
in or
operations with the said Fund.
c. Representation
with
Other
Financial
Institutions
May represent the Government in dealings,
negotiations or transactions with the World
Bank and with other foreign or international
financial institutions or agencies.
d. Fiscal Operations
Shall open a general cash account for the
Treasurer of the Philippines, in which the liquid
funds of the Government shall be deposited,
and with transfer of funds to be made only

3.

Monetary Board---Powers and Functions

Corporate Powers
The BSP is a government owned and controlled
corporation that is invested by law with corporate
powers. The corporate powers specified in Section
5 of the New Central Bank Act are as follows:
a. The power to adopt, alter and use a corporate
seal which shall be judicially noticed;
b. To enter into contracts;
c. To lease or own real and personal property;
d. To sell or otherwise dispose of its real and
personal property;
e. To sue and be sued;
f.
To perform any and all things that may be
necessary or proper to carry out the purposes
of the New Central Bank Act;
g. To compromise, condone or release, in whole
or in part, any claim of or settled liability
(Sundiang, 2006).
The BSP powers and functions are exercised by the
Monetary Board.
Composition of the Monetary Board:
There are 7 members who are appointed by the
President of the Republic of the Philippines. They
are only appointed once.
a. Governor, as Chairman;
b. A member of the Cabinet designated by the
President of the Philippines;
c. Five (5) members who shall come from the
sector, all of whom shall serve full-time.

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3.
Term: 6 years
Qualifications of the Members of the Board:
a. Must be a natural-born citizens of the Philippines;
b. At least 35 years of age with the exception of the Governor,
who should at least be 40 years of age;
c. Of good moral character, of unquestionable integrity, of
known probity and patriotism.
d. With recognized competence in social and economic
disciplines.
Grounds for Removal of a Member of the Board:
The President may remove any member of the Board for any of
the following reasons:
a. Subsequent disqualification
b. Physical or mental incapacity that he cannot properly
discharge his duties and responsibilities and such incapacity
has lasted for more than 6 months.
c. Guilty of acts or operations which are of fraudulent or illegal
character or which are manifestly opposed to the aims and
interests of the BSP;
d. No longer possessing qualifications specified in the Act.
The major functions of the Monetary Board include the power
to:
1. Issue rules and regulations it considers necessary for the
effective discharge of the responsibilities and exercise of
the powers vested in it;
2. Direct the management, operations, and administration
of Bangko Sentral, organize its personnel and issue such
rules and regulations as it may deem necessary or
desirable for this purpose;
3. Establish a human resource management system which
governs the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel;
4. Adopt an annual budget for and authorize such
expenditures by Bangko Sentral as are in the interest of
the effective administration and operations of Bangko
Sentral in accordance with applicable laws and
regulations; and
5. Indemnify its members and other officials of Bangko
Sentral, including personnel of the departments
performing supervision and examination functions,
against all costs and expenses reasonably incurred by
such persons in connection with any civil or criminal
action, suit or proceeding, to which any of them may be
made a party by reason of the performance of his
functions or duties, unless such members or other
officials is found to be liable for negligence or
misconduct..
The Governors Powers and Duties as a Chief Executive Officer:
The Governor is the chief executive officer of BSP and is required
to direct and supervise the operations and internal administration
of BSP. Specifically, the Governor:
1. prepares the agenda for the meetings of the Monetary
Board and submits policy recommendations for
consideration of the Board;
2. executes and administers policies and measures
approved by the Monetary Board;

4.

5.
6.

appoints and fixes the remunerations and other

emoluments of personnel, as well as imposes
disciplinary measures upon personnel of the Bangko
Sentral;
renders opinions, decisions, or rulings, which shall be
final and executory until reversed or modified by the
Monetary Board, on matters regarding application or
enforcement of laws pertaining to institutions
supervised by the BSP and laws pertaining to quasibanks, as well as regulations, policies or instructions
issued by the Monetary Board, and the implementation
thereof; and
Exercises such other powers as may be vested in him by
the Monetary Board.
Serves as the principal representative of the Monetary
Board and of the BSP. As such, the Governor is
empowered to:
a. Represent the Monetary Board and the BSP in all
dealings with other offices, agencies and
instrumentalities of the Government and all other
persons or entities, public or private, whether
domestic, foreign or international; and
b. Sign contracts entered into by the BSP, notes and
securities issued by the BSP, all reports, balance
sheets, profit and loss statements, correspondence
and other documents of the BSP.

Disqualifications:
1. In addition to the disqualifications imposed by Republic Act
No. 6713, a member of the Monetary Board is disqualified
from being a director, officer, employee, consultant, lawyer,
agent or stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or examination by
the Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such
institution before assumption of office as member of the
Monetary Board.
2. The member of the Monetary Board coming from the private
sector shall not hold any other public office or public
employment during their tenure.
3. No person shall be a member of the Monetary Board if he has
been connected with any multilateral banking or financial
institution or has a substantial interest in any private bank in
the Philippines, within one (1) year prior to his appointment;
likewise, no member of the Monetary Board shall be
employed in any such institution within two (2) years after
the expiration of his term except when he serves as an official
representative of the Philippine Government to such
institution.
Responsibility and liability of the members of the Monetary
Board
a. Members of the Monetary Board, officials, examiners, and
employees of the Bangko Sentral who willfully violate RA
7653 or who are guilty of negligence, abuses or acts of
malfeasance or misfeasance or fail to exercise extraordinary
diligence in the performance of his duties shall be held liable
for any loss or injury suffered by the Bangko Sentral or other
banking institutions as a result of such violation, negligence,
abuse, malfeasance, misfeasance or failure to exercise
extraordinary diligence.

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b.

c.

Similar responsibility shall apply to members, officers and

employees of the Bangko Sentral for;
1. The disclosure of any information of a confidential
nature, or any information on the discussions or
resolutions of the Monetary Board, or about the
confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of
official functions with the Bangko Sentral, or is with prior
authorizaytion of the Monetary Board or the Governor;
or
2. The use of such information for personal gain or to the
detriment of the Government, the Bangko Sentral or
third parties.
However, any data or information required to be submitted
to the President and/or Congress, or to be published under
the provisions of RA 7653 shall not be considered
confidential.

Outside interests of the Governor and the full-time members of

the Board
a. The Governor of the Bangko Sentral and the full-time
members of the Board shall limit their professional activities
to those pertaining directly to their positions with the Bangko
Sentral.
b. They may not accept any other employment, whether public
or private, remunerated or ad honorem.
c. Exceptions:
1.
Positions in eleemosynary, civic, cultural or
religious organizations
2.
Whenever, by designation of the President,
the Governor or the full-time member is
tasked to represent the interest of the
Government or other government agencies in
matters connected with or affecting the
economy or the financial system of the country
Prohibitions on personnel of the Bangko Sentral
In addition to the prohibitions found in RA 3019 and 6713,
personnel of the Bangko Sentral are hereby prohibited from:
1.
Being an officer, director, lawyer or agent, employee,
consultant or stockholder, directly or indirectly, of any
institution subject to supervision or examination by the
Bangko Sentral, except non-stock savings and loan
associations and provident funds organized exclusively
for employees of the Bangko Sentral, and except as
otherwise provided in RA 7653;
2.
Directly or indirectly requesting or receiving any gift,
present or pecuniary or material benefit for himself or
another, from any institution subject to supervision or
examination by the Bangko Sentral;
3.
Revealing in any manner, except upon orders of the
court, the Congress or any government office or agency
authorized by law, or under such conditions as may be
prescribed by the Monetary Board, information relating
to the condition or business of any such institution. This
prohibition shall not apply to the giving of information to
the Monetary Boar or the Governor of the Bangko
Sentral, or to any person authorized by either of them, in
writing, to receive such information; and
4.
Borrowing from any institution subject to supervision or
examination by the Bangko Sentral unless said

borrowings are adequately secured, fully disclosed to

the Monetary Boar, and shall be subject to such further
rules and regulations as the Monetary Board may
prescribe.
HOW BSP HANDLE BANKS IN DISTRESS
A. CONSERVATORSHIP
-a bank or quasi-bank is
1. in a state of continuing inability or
2. unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors
Action of the Monetary Board
The Monetary Board may appoint a conservator (who
shall be competent and knowledgeable in bank
operations and management) for a period not exceeding
1 year
i. take charge of the assets, liabilities and management
of the bank or quasi-bank in question
ii. reorganize the management thereof
iii. collect all monies and debts due and
iv. exercise all powers necessary to restore its viability,
including the power to overrule or revoke the actions
of the previous management and board of directors
While admittedly, the Central Bank gives vast and farreaching powers to the conservator, such powers must
be related to preservation of the assets of the bank, the
reorganization of the management thereof, and the
restoration of its viability. Such powers, enormous and
extensive as they are, cannot extend to post-facto
repudiation of perfected transactions, otherwise they
would infringe against the non-impairment clause of the
Constitution.
It merely gives the conservator the power to revoke
contracts that are under existing law, deemed to be
defective i.e. void, voidable, unenforceable or
rescissible. Hence, the conservator merely takes the
place of a Banks BOD. What the said Board cannot do
such as repudiating a contract validly entered into under
the doctrine of implied authority, the conservator
cannot do either. Ineluctably, his power is not unilateral,
and he cannot simply repudiate valid obligations of the
Bank. His authority would be only to bring court actions
to assail such contract as he has already done so in the
instant case. (First Phil. Intl Bank v. CA, 252 SCRA 259)

Termination of Conservatorship
(a) When MB is satisfied that the institution can
continue to operate on its own and the
conservatorship is no longer necessary; or
(b) When MB determines that the continuance in
business of the institution would involve probable
loss to its depositors or creditors, in which case
proceedings for receivership and liquidation shall
be pursued.
B. CLOSURE
-prohibit a bank or quasi-bank from doing business in
the Philippines
Grounds for Closure

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(a) Unable to pay its liabilities as they become due in the
ordinary course of business (cash flow test)
BUT: shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community.
(b) Insufficient realizable assets to meet its liabilities
(balance sheet test)
(c) Cannot continue in business without involving probable
losses to its depositors and creditors
(d) Willfully violated a cease and desist order under Sec. 37
(administrative sanctions) that has become final and
involves acts or transactions which amount to fraud or
dissipation of assets
(e) Notifies the BSP or publicly announces a bank holiday
(f) Suspends the payment of its deposit liabilities
continuously for more than 30 days
(g) Persists in conducting its business in an unsafe or
unsound manner

This may be done summarily and without need of prior

hearing.
Note that during conservatorship, no claims can be paid.
Sec. 29 of the Central Bank Act does not contemplate
prior notice and hearing before a bank is placed under
receivership. It is enough that such action is made the
subject of a subsequent judicial review. The Close now
and hear later scheme under the Act is for the purpose
of protecting the depositors, creditors, stockholders and
the general public. (Central Bank vs. CA, 220 SCRA 536)

from intermeddling with the property of the bank in any

way.
The receiver only has the authority to administer the
properties of the bank for the benefit of the creditors.
Consequently, the receiver has no authority to approve
the acts of ownership, such as the grant of exclusive
option to purchase a particular property of the bank.
(Abacus Real Estate Dev. Center vs. Manila Banking
Corp., 452 SCRA 97)

(1)

(2)

(3)

(4)

D. LIQUIDATION
-from the determination of receiver if institution cannot
be rehabilitated or permitted to resume business
Duties of the Receiver/Liquidator
File ex parted with the RTC a petition for assistance in
the liquidation of the institution pursuant to a
liquidation plan adopted by the PDIC for banks, and by
MB for quasi-banks
Upon motion by receiver, upon RTCs acquisition of
jurisdiction, RTC shall assist enforcement of the
individual liabilities of the stockholders, directors, and
officers and decide on other issues as may be material to
the liquidation plan adopted
Receiver shall convert the assets to money and proceeds
shall be applied in paying the debts of the institution in
accordance with rules on concurrence and preference of
credit
Receiver shall institute such actions as may be necessary

C. RECEIVERSHIP
Who are Receivers?
(a) For Banks PDIC
(b) For Quasi-Banks Any person of recognized competence
in banking or finance
Functions of Receiver
(a) Immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the
benefit of its creditors e.g.

Collect pre-existing debts

Foreclose mortgages security

(b) Exercise the general powers of a receiver
(c) Determine as soon as possible, but not late than 90 days
from takeover, whether the institution can be
rehabilitated or otherwise placed in such a condition so
that it may be permitted to resume business with safety
to its depositors and creditors, and the general public.
BUT: any determination for resumption of business shall be
subject to the prior approval of the Monetary Board.
If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business, then the MB shall
notify in writing the board of directors of the institution of its
findings and direct the receiver to proceed with the liquidation of
the institution.

Appointment of a receiver operates to suspend the

authority of a bank and its directors and officers over its
properties and effects, such authority being reposed in
the receiver, and in this respect, the receivership is
equivalent to an injunction to restrain the bank officers

The assets under receivership or liquidation deemed in

custodia legis, in the hands of the receiver and shall be
exempt from any order of garnishment, levy, attachment
or execution
Phases of Liquidation Proceeding (Pacific Banking vs.
CA, GR 109373, March 20, 1995)
First: Approval and disapproval of claims
(a) all money claims against the bank are required to be
filed with the liquidation court
(b) phase may end with the declaration by the court
whether claim is with basis or not; if with basis, classified
whether ordinary or preferred
(c) order by court is final and may be appealed by the party
aggrieved
Second: Approval by the court of the distribution plan
prepared by the duly appointed liquidator
(a) order disposes of the issue of how much property is
available for disposal
(b) payment of all allowed claims
DISTINGUISH
BETWEEN
REHABILITATION
LIQUIDATION
Is a winding up of
settling with creditors
and debtors. It is the
winding up of a
corporation so that
assets are distributed
to those entitled to
receive them. It is the

LIQUIDATION

AND

REHABILITATION
Connotes a reopening
or reorganization. It
contemplates
a
continuance
of
corporate life and
activities in an effort
to
restore
and
reinstate
the

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process of reducing
assets
to
cash,
discharging liabilities
and dividing surplus
or loss.

corporation to its
former position of
successful operation
and solvency.

Effects of Liquidation of a Bank or a Quasi-Bank

(a) After payment of the cost of the proceedings, including
reasonable expenses and fees of the receiver to be
allowed by the court, the receiver shall pay the debts of
such institution, under order of the court, in accordance
with the rules on concurrence and preference of credit
as provided in the Civil Code. (Sec. 31)
(b) All revenues and earnings realized by the receiver in
winding up the affairs and administering the assets of
any bank or quasi-bank within the purview of this Act
shall be used to pay the costs, fees and expenses
mentioned in the preceding section, salaries of such
personnel whose employment is rendered necessary in
the discharge of the liquidation together with the other
additional expenses caused thereby. (Sec.32)
The balance of revenues and earnings, after the
payment of all said expenses, shall form part of the
assets available for payment of creditors.

A liquidation proceeding is a single proceeding

Although the claims are litigated in the same proceeding,
the treatment is individual. And the Order issued relative
to a particular claim applies only to said claim, leaving
the other claims unaffected, as each claim is considered
separate and distinct from the others.
The exclusive jurisdiction of the liquidation courts
pertains only to the adjudication of claims against the
bank, and does not cover the reverse situation where it
is the bank which files a claim against another person.
(Manalo vs. CA, 366 SCRA 752)
The actions of the MB under Sec. 29 (appointing a
conservator) and Sec. 30 (closing a bank) are final and
executory and may not be restrained or set aside by a
court
EXCEPT:on petition for certiorari on the ground of excess of
jurisdiction or with grave abuse of discretion filed by stockholders
of record representing the majority of the capital stock within 10
days from receipt by the BOD of the institution of the order
directing conservatorship, receivership or liquidation
Note that the twin requirement of majority of
stockholders and filing within 10 days should be
observed or else action will be dismissed.
A bank ordered closed by the MB retains its juridical
personality which can sue or be sued through its
liquidator
HOW THE BSP HANDLES EXCHANGE CRISIS
A.LEGAL TENDER POWER when the currency is offered
in payment of a debt, public or private, the same must
be accepted.
All notes and coins issued by the Bangko Sentral shall be
fully guaranteed by the Government of the Republic of
the Philippines and shall be legal tender in the
Philippines for all debts, both public and private.

However: unless otherwise fixed by the Monetary

Board, coins shall be legal tender in amounts

not exceeding Fifty pesos P50 for denominations of 25

centavos and above, and

in amounts not exceeding P20 for denominations of 10

centavos or less. (Sec. 52)
Philippine currency notes have no limit to their legal
tender power. Pursuant to BSP Circular No. 537, Series
of 2006, coins in denomination of

1-, 5- and 10-piso shall be legal tender in amounts not

exceeding P1,000 while

1-, 5- and 10- and 25-sentimo shall be legal tender in

amounts not exceeding P100
B. RATE OF EXCHANGE The MB shall determine the
exchange rate policy of the country to ensure orderly
conditions in the market
BSP maintains a floating exchange rate system. Exchange
rates are determined on the basis of supply and demand
in the foreign exchange market.
C. EMERGENCY RESTRICTIONS ON EXCHANGE
OPERATIONS: To give MB and the Government time in
which to forestall, combat or overcome such crisis or
emergency, MB with concurrence of at least 5 of its
members and with the approval of the President may:
(a) temporarily suspend or restrict sales of exchange by BSP
(b) subject all transactions in gold and foreign exchange to
license by the BSP; and
(c) may require that any foreign exchange obtained by any
person residing or entity operating in the Philippines be
delivered to the BSP or to any bank or agent designated
by the BSP
HOWEVER: foreign currency deposit made under FCDU
Law shall be exempt from these requirements
D. SECTION 105. The Monetary Board may at any time
prescribe minimum cash margins for the opening of
letters of credit, and may relate the size of required
margin to the nature of the transaction to be financed.

E. SECTION 106. In order to promote the liquidity and

solvency of the banking system, the Monetary Board
may issue such regulations as it may deem necessary
with respect to the maximum permissible maturities of
the loans and investments which the banks may make,
and the kind and amount of security to be required
against various types of credit operations of the banks.
DEMAND DEPOSITS this term refers to all those
liabilities of the BSP and of other banks, which are
denominated in Philippine currency, and are subject to
payment in legal tender upon demand by the
presentation of checks (Sec. 58). Only banks duly
authorized may accept funds, or create liabilities payable
in pesos upon demand by presentation of checks, and
such operations shall be subject to the control of the
Monetary Board.
LEGAL CHARACTER OF CHECKS the checks
representing demand deposits do not have legal tender
power, and their acceptance in the payment of debts;
both public and private, is at the option of the creditor.
However, a check which has been cleared and credited
to the account of the creditor, shall be equivalent to a
delivery to the creditor of cash in an amount equal to
the amount credited to his account. (Sec.60)

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C. GENERAL BANKING LAW OF 2000 (R.A. NO. 8791)

b. TRUST ENTITIES

1. DEFINITION AND CLASSIFICATION OF BANKS

i. Any bank, investment house or a stock corporation duly

authorized by the Monetary Board to engage in trust,
investment management and fiduciary business
methodology.

a. UNIVERSAL BANKS these used to be called expanded

commercial banks and their operations are primarily governed by
the General Banking laws. They can exercise the powers of an
investment house and invest in non-allied enterprises. They have
the highest capitalization requirement.
b. COMMERCIAL BANKS these are ordinary or regular
commercial banks, as distinguished from a universal bank. They
have a lower capitalization requirement than a universal bank and
cannot exercise the powers of an investment house and invest in
non-allied enterprises.
c. THRIFT BANKS shall include savings and mortgage banks,
private development banks, and stock savings and loans
association organized under existing laws.

A trust business is any activity resulting from trusteeship

involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or
properties of the trustor by the trustee for the use, benefit
or advantage of the trustor or of beneficiaries.
3. BANK POWERS AND LIABILITIES
a. CORPORATE POWERS these are the powers enumerated
under the Corporation Code. Section 36 of the Corporation Code
provides that every corporation incorporated under this Code has
the power and capacity:

d. RURAL BANKS - banks which are designed to make needed

credit available and readily accessible in the rural areas on
reasonable terms.

i.
ii.

e. COOPERATIVE BANKS one organized, the majority share of

which is owned and controlled by cooperatives, primarily to
provide financial and credit services to cooperatives.

iii.
iv.

f. ISLAMIC BANKS these are banks the business dealings and

activities of which are subject to the basic principles and rulings of
Islamic Sharia. The Al Amanah Islamic Investment Bank of the
Philippines, which was created by RA 6848, is the only Islamic bank
in the country at this time.
Created by Congress to promote and accelerate socio-economic
development of the Autonomous Region by performing banking,
financing and investment operations and to establish and
participate in agricultural, commercial and industrial ventures
based on the Islamic concept of banking. (Sec. 3 RA. 6848).

v.

vi.

vii.

g. Other Classification of banks as determined by the Monetary

Board.
viii.
2. DISTINCTION OF BANKS FROM QUASI-BANKS AND TRUST
ENTITIES

ix.

a. QUASI-BANKS
i. Quasi-Banks shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or
assignment with recourse or acceptance of deposit
substitutes as defined in Section 95 of R.A. 7653 for
purposes of relending or purchasing of receivables and
other obligations (Sec. 4 par. 3 GBL).

x.

xi.

To sue and be sued in its corporate name;

Of succession by its corporate name for the period of
time stated in the articles of incorporation and the
certificate of incorporation;
To adopt and use a corporate seal;
To amend its articles of incorporation in accordance with
the provisions of this Code;
To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same in accordance
with this Code;
In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance
with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation;
To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such
real and personal property, including securities and
bonds of other corporations, as the transaction of the
lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed
by law and the Constitution;
To enter into merger or consolidation as provided in this
Code;
To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, that no
corporation, domestic or foreign, shall give donations in
aid of any political party or candidate or for purposes of
partisan political activity;
To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees;
and
To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated
in the articles of incorporation.

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b. BANKING AND INCIDENTAL POWERS
All such powers as may be necessary to carry on the business of
commercial banking (Sec. 29).
i.
ii.
iii.

Accepting drafts
Issuing letters of credit
Discounting and negotiating promissory notes, drafts,
bills of exchange and other evidence of debt
Accepting or creating demand deposits
Receiving other types of deposits and deposit substitutes
Buying and selling foreign exchange and gold or silver
bullion
Acquiring marketable bonds and other debt securities
Extending credit

iv.
v.
vi.
vii.
viii.

4. DILIGENCE REQUIRED OF BANKS RELEVANT JURISPRUDENCE

(Sec. 2) The State recognizes the vital role of banks in
providing an environment conducive to the sustained
development of the national economy and the fiduciary
nature of banking that requires high standards of integrity
and performance. In furtherance thereof, the State shall
promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy.
Banks are required to exercise the highest degree of
diligence.
Fiduciary Nature of Banks

Failure on the part of the bank to satisfy the degree of

diligence required of banks may warrant the award of
damages.
Under Sec. 2, the degree of diligence is high
standards of integrity and performance.

Fiduciary Obligation of Banks

BPI v. Lifetime Marketing Corp. 555 SCRA 373, 2008
The degree of diligence required of banks is more than
that of a reasonable man or a good father of a family. In
view of the fiduciary nature of their relationship with
their depositors, banks are duty-bound to treat the
accounts of their clients with the highest degree of care.
Fiduciary Obligation of Bank Employees
PNB v. Pike 470 SCRA 328
It bears emphasizing that the negligence of banking
institutions should never be countenance. Although its

employees may be the ones negligent, a banks liability

as obligor is not merely vicarious, but primary, as banks
are expected to exercise the highest degree of diligence
in the selection and supervision of their employees.
Duty on Bank Accounts of Clients
BPI Family Bank v. Franco 538 SCRA 184, 2007
In every case, the depositor expects the bank to treat his
account with utmost fidelity, whether such account
consists only of a few hundreds of pesos or of millions.
The bank must record every single transaction
accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect
at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever directed. A blunder on
the part of the bank, such as the dishonor of the check
without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation. The point is that as
business affected with public interest and because of the
nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship.
Dealings with Registered Land
Ursal v. CA 473 SCRA 52, 2005
Banks cannot merely rely on certificates of title in
ascertaining the status of mortgaged properties. As
their business is impressed with public interest, they are
expected to exercise more care and prudence in their
dealings than private individuals. Indeed, the rule that
persons dealing with registered land can rely solely on
the certificate of tile does not apply to banks.
Degree of Diligence Required of Banks as LendersMortgagees
Consolidated Rural Bank (Cagayan Valley) v. CA 448
SCRA 347, 2005
Banks, their business being impressed with public
interest [in this case taking-up real estate mortgages to
secure the loans given], are expected to exercise more
care and prudence than private individual in their
dealings, even those involving registered lands. Hence,
for merely relying on the certificates of title and for its
failure to ascertain the status of the mortgaged
properties as is the standard procedure in its operations,
the bank is a mortgagee in bad faith.

8
Relevant Jurisprudence

enforce those exceptions and inquire into bank deposits.

If there are doubts in upholding the absolutely
confidential nature of bank deposits against the
affirming authority to inquire into such accounts, then
such doubts must be resolved in favor of the former.
Such a stance would persist unless Congress passes a law
reversing the general state policy of preserving the
absolutely confidential nature of Philippine bank
deposits.
BSP Group, Inc. v. Go, 2010
It is conceded that while the fundamental law has not
bothered with the triviality of specifically addressing
privacy rights relative to banking accounts, there,
nevertheless, exists in our jurisdiction a legitimate
expectation of privacy governing such accounts. The
source of this right of expectation is statutory, and is
found in R.A.No. 1405, otherwise known as the Bank
Secrecy Act of 1955.
Subsequent statutory enactments have expanded the
list of exceptions to this policy yet the secrecy of bank
deposits still lies as the general rule, falling as it does
within the legally recognized zones of privacy. There is,
in fact, much disfavor to construing these primary and
supplemental exceptions in a manner that would
authorize unbridled discretion, whether governmental
or otherwise, in utilizing these exceptions as authority to
unwarranted inquiry into bank accounts. It is then
perceivable that the present legal order is obliged to
conserve the absolutely confidential nature of bank
deposits.

Simex International v. CA, 1990

As a business affected with public interest and because
of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary
nature of their relationship.
PCI Bank v. CA, 2001
Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their
employees.
PS Bank v. Chowking Food Corp., 2008
It cannot be overemphasized that the banking business
is impressed with public interest. Of paramount
importance is the trust and confidence of the public in
general in the banking industry. Consequently, the
diligence required of banks is more than that of the
Roman pater familias or a good father of a family. The
highest degree of diligence is expected.
Bank of America NT&SA v. Philippine Racing Club, 2009
The banking business is so impressed with public interest
where the trust and confidence of the public in general
is of paramount importance such that the appropriate
standard of diligence must be high degree of diligence, if
not the utmost diligence.

5. NATURE OF BANK FUNDS AND BANK DEPOSITS

The bank can make use as its own the money deposited
(Tan Tiong Tick v. American Apothecaries 65 Phil 414,
1938). Said amount is not being held in trust for the
depositor nor is it being kept for safekeeping.

Art. 1990 (Civil Code). Fixed, savings, and current

deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan.

Confidentiality of Bank Deposits

The prevailing policy of the matter is to preserve the
absolute confidentiality enjoyed by bank deposits.
Republic v. Eugenio, 2008
Indeed, by force of statute, all bank deposits are
absolutely confidential, and that nature is unaltered
even by the legislated exceptions referred to above.
There is disfavor towards construing these exceptions in
such a manner that would authorize unlimited discretion
on the part of the government or of any party seeking to

Bank as a Debtor
Deposit is a voluntary agreement, Know Your
Customer standards
Bank acquires ownership of money deposited; obligation
to pay amount, but not obligation to return the same
money (Guingona, Jr. v. City Fiscal of Manila 128 SCRA
577, 1984)
Payment to proper party-depositor (Fulton Iron Works
Co. V. China Banking Corp. 58 Phil. 206, 1930)
Deposits are not preferred credits (Central Bank v.
Morfe 63 SCRA 114, 1975
Bank has right to compensation (Gullas v. PNB 62 Phil.
519, 1935)
No breach of trust - mandamus not a remedy (Lucman
v. Malawi 511 SCRA 268, 2006).
6. STIPULATION ON INTEREST
Interests on Deposits
The Monetary Board has declared that the interest on
deposits are not subject to ceilings (Section 242, MORB).
Interest or yield on time deposit/deposit substitute may
be paid at maturity or upon withdrawal or in advance.
However, interest or yield paid in advance shall not
exceed the interest for one year (Section 242.1, MORB)

9
(ii)
Interest on Loans
While the Usury Law ceiling on interest rates was lifted
by Central Bank Circular 905, nothing in the said circular
grants lenders carte blanche authority to raise interest
rate to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets (Solangon v.
Salazar 360 SCRA 379).
Effect of Excessive interest Rates:
Art. 1229. The judge shall equitably reduce the penalty
when the principal has been partly or irregularly or
partly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.
Escalation Clause
Agreement by the Bank and the borrower that the
obligation shall become due and demandable upon
default of the latter.
While such a agreement is valid, the bank cannot be
given unbridled right to adjust the interest rate
independently and upwardly. Such would negate the
mutuality of contracts Floirendo v. Metropolitan Bank,
G.R. No. 148325 September 3, 2007).
Floating Rate of Interest
While it may be acceptable, for practical reasons given
the fluctuating economic conditions, for banks to
stipulate that interest rate on a loan not be fixed and
instead be made dependent upon prevailing market
conditions, there should always be a reference rate upon
which to peg such variable interest rates (Consolidated
Bank and Trust Corporation (Solid Bank) v. CA 356 SCRA
671).

7. GRANT OF LOAN AND SECURITY REQUIREMENTS

a. RATIO OF NETWORTH TO TOTAL RISK ASSETS
The Monetary Board shall prescribe the minimum ratio
which the net worth of a bank must bear to its total risk
assets wh.ich may include contingent accounts, and
may:
Require that such ratio be determined on the basis
of the Net Worth and Risk Assets of a bank and is
subsidiaries, financial or otherwise;
Prescribe composition and manner of determining
Net Worth and Total Risk Assets of the banks and
their subsidiaries.
Provided:
(i)
The Monetary Board may require or suspend
compliance with such ratio whenever
necessary for a maximum period of one year;

a.

The ratio applied uniformly to banks of same

category.
SINGLE BORROWERS LIMIT (SBL)

Except as the Monetary Board ay otherwise prescribe for

reason of national interest, total amount of loans, credit,
accommodations and guarantees that may be extended
by a bank to any person, partnership, association or
other entity shall at no time exceed 20% of the net
worth of such bank. However, in 2010, the SBL was
increased to 25% for a period of 3 Years. Further, in
2013, the Bankong Sentral ng Pilipinas issued Circular
No. 779 which extended the 25% SBL for another 3
years.
Also, unless the Monetary Board prescribes otherwise,
the SBL may be increased by an additional 10% of Net
Worth, provided that the additional is supported
adequately by trust receipts, shipping documents,
warehouse receipts or other similar documents
transferring or securing title covering readily
marketable, non-perishable goods which must be fully
recovered by insurance, which shall include:
a. Direct liability of the maker or acceptor of paper
discounted with or sold to such bank, and liability of
general indorser, drawer or guarantor who obtains
a loan or other credit accommodation from, or
discounts paper with, or sells papers to such bank;
b. In the case of an individual who owns or controls a
majority interest in a corporation, partnership,
association or any other entity, the liabilities to
such bank;
c. In case of the corporation, all liabilities to such bank
of all subsidies in which such corporation owns or
controls a majority interest; and
d. In case of a partnership, association or other entity,
the liabilities of the members thereof to such bank.
Coverage For purposes of the SBL coverage, loans and
other credit, accommodations and guarantees shall
exclude those which are:

Secured by obligations of the BSP or Philippine

Government;

Fully guaranteed by the Government as to the

payment of principal and interest;

Covered by assignment of deposits maintained in

the lending bank and held in the Philippines;

Under letters of credit, to the extent covered by

margin deposits;

Those which the Monetary Board may, from time to

time, specify as non-risk items

Loans and other credit accommodations, deposits

maintained with, and usual guarantees by a bank to
any other banks or non-bank entity, whether locally
or abroad.
Inclusion of Parent Corporation
Even if a parent corporation, partnership, association,
entity or an individual who owns or controls a majority

10
interest in such entities has no liability to the bank, the
Monetary Board may prescribe the combination of the
liabilities of subsidiary corporations or members of the
partnership, association, entity or such individual under
certain circumstances, including but not limited to any of
the following situations:

Parent corporation, partnership, association, entity

or individual guarantees the repayment of the
liabilities;

Liabilities were incurred for the accommodation of

the parent corporation or another subsidiary or the
partnership or association or entity or such
individual; or

Subsidiaries through separate entities operate

merely as departments or divisions of a single
entity. (Villanueva, 2009)
b.

RESTRICTIONS ON BANK EXPOSURE TO DOSRI

(Directors, Officers, Stockholders and their Related
Interest)

No director or officer of any bank shall, directly or

indirectly, for himself or as the representative or agent
of others:
(1) Borrow from such bank; nor
(2) Shall he become a guarantor, endorser, or surety
for loans from such bank to others; nor
(3) In any manner be an obligor, or incur any
contractual liability to the bank.
EXCEPT with the written approval of the majority of all
the directors of the bank, excluding the director
concerned.
However, such written approval shall not be required for
loans, other credit accommodations and advances
granted to officers under a fringe benefit plan approved
by the Banko Sentral.
After due notice to the board of directors of the bank,
the office of any bank director or officer who violates the
provisions of the DOSRI restriction may be declared
vacant and the director or officer shall be subject to the
penal provisions of the New Central Bank Act.
DOSRI accounts shall be limited to an amount equivalent
to their respective encumbered deposits and book value
of their paid-in capital contribution in the bank.
Provided:
(i)
Loans, credit accommodations and guarantees
secured by assets considered as non-risk by
the Monetary Board shall be excluded from
such limits;
(ii)
Loans, credit accommodations and advances
to officers in the form of fringe benefits
granted shall not apply to loans, credit
accommodations, and guarantees extended by
a cooperative bank to its cooperative
shareholders.