Banking TSN 2nd Exam 2016-2017

BANKING LAWS TSN
From the lectures of Father Agustin Nazareno,

SY 2016 - 2017
January 4, 2017 - Hernandez
Welcome to the most lively law subject! I think we are finish with the New Central Bank Act so we can go now to the functions
of the Central Bank. Is the Central Bank a true bank? We shall know the definition in the General Banking Law of 2000 (RA
8791).
What makes a bank a bank and not a pawnshop? Is a pawnshop open to the public? Of course, it is open! In ordinary
language you pawn something. In legal language, it is a pledge! A pledge has nothing to do with taking an oath. When you
pledge something you borrow money and you secure it with personal property which you turn over to the creditor for his
possession. The public vis-a-vis the pawnshop is the borrower but in banking, who is the borrower? The bank is the borrower,
opposite. It is the bank who is the borrower because it is not a contract of deposit. At least the contract of deposit you
mastered in civil law. It is a contract of mutuum. You lend the bank money.
The general rule in a contract of deposit is you cant deposit something that is fungible, only in exceptional cases. Because,
the personal property that you deposit must be returned to you as much as possible as close to its condition and state when
you deposited it.
You deposit your car with somebody. He agrees to be the depositary. What is his obligation? He accepts the obligation to do
the general things that a car owner will do to maintain the car in viable running condition. In the very least, now and then he
should start the motor of the car. He cant just set it aside, pasagdan kung baga. He is not doing the due diligence of a
depositary. Whether it is gratuitous in nature or with consideration there are basic duties of a depositary. One key duty, he
must not prefer his own property over and above that deposited property in his care. Example is the obligation to prioritize
saving the deposited car over his own in case of a fire.
This is not the case with a bank deposit. With the bank, the one who entrusts his money to the bank is the creditor and the
bank is the debtor. That is the first element of the definition of a bank in the General Banking Law (GBL).
Section 3. Definition and Classification of Banks. -
3.1. "Banks" shall refer to entities engaged in the lending of

funds obtained in the form of deposits.
Under Section 3.1 (which follows the format of the US law), banks are defined as entities engaged in the lending of funds
obtained in the form of deposits. So, in the form of deposits, banks accept deposits of money and lends out of the deposits.
[Recit]
Is the act of lending an act of disposition or an act of administration? It is an act of disposition because it involves
parting of the possession of the property which is an attribute of ownership.
Under what authority does the bank have in disposing the property, does the bank own the money? The GBL
authorizes banks to lend the money that the bank also borrows. The bank does not exercise rights to dispose the money out
of a contract.
There is a system of registration through the BSP. The bank must comply with the requirements. Once you have complied,
then you can be a bank. You have a license to engage in banking. Also, a bank must be a corporation and it cant be a
partnership. You must register first as a corporation and obtain a secondary franchise with the BSP to be able to lend out the
money that is deposited to you. And your authority to do that is the banking license.
The first basic concept outlined in the GBL is the classifications or categories of banks. This question has come out more
than thrice in the Bar. Give the different classes of banks that are provided in the GBL. The best way to answer is not to
enumerate because that would take so much of your time but that you know that there is a significance in each classification.
Give not only the correct answer but the incomparable one.
The underlying key is that there are classifications here that betray the definitions of banking. Why is it key? Because it is the
root cause of the past financial crises that the world experienced. Banks departed from their original definition.
BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

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Banking is people lend you money, you pay interest to this people, then you lend it out. And the difference between the
interest you pay to the people and the interest you earned from lending it is the gross profit. And you deduct the expenses
and administrative costs and then you arrive at a net profit.
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage

banks, (ii) Stock savings and loan associations, and (iii)
Private development banks, as defined in the Republic Act
No. 7906 (hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 73S3

(hereafter the "Rural Banks Act");
(e) Cooperative banks, as defined in Republic Act No 6938

(hereafter the "Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848,

otherwise known as the "Charter of Al Amanah Islamic
Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the

Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)
Now there are classifications that allow banks to go beyond that particular function especially when they start classifying
commercial and universal banks.
In commercial banks (ComBanks), they are also allowed to engage in allied functions. The essence of commercial functions
is demand deposits or in laymans term, checking accounts. Monies that do not earn interest and by issuing a check you can
demand the money right then and there. Like in money that is deposited in thrift banks (i.e. savings and mortgage banks).
If you look at the bank book in fine print it says there that the bank reserves the right to require a certain period before they
will answer your withdrawal slip. Probably a day after youll be able to withdraw your money.
This is contrary to practice since we can withdraw our money immediately. Banks will not do that because based on
experience, refusal to allow withdrawal creates an impression that the bank has no money (bank run).
But actually the money that a depositor can only demand immediately is from a checking account because the bank keeps it
without interest.
But again, why is there some checking account that earns interest (like maxi or savings that you can automatically withdraw
from your current account)? That is a function of competition and marketing.
When you come down to licenses and permits; by virtue of you being issued a commercial banking license, you can issue
checking accounts. If you are a rural bank or a savings bank, how can you issue a checking account? Because you were
given a special license by the BSP but that does not go with you being a credit bank.
Again, commercial functions of commercial bank - Letters of credit, you can engage in transactions such as letters of credit.
Rural, savings and development banks are not licensed to do that because those are commercial banking functions that goes
with the license of ComBanks. Are checking accounts and letters of credit banking per se? No. It is an allied function of
banking. But you are allowed do that if you are a commercial bank.

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Now you have a universal bank (UBank). The BSP cant allow them to do non-allied functions. Non-allied functions include
insurance. UBanks offer insurance right inside their offices. Large UBanks have their own insurance companies, MBTC have
Axa which is a non-allied function.
Who is the supervening oversight agency function of insurance? Insurance Commissioner. Are they exempt from the
oversight function of the Commissioner? No. But the insurance arm is controlled by the bank that is non-allied.
Another non-allied function is leasing or leasing companies. If you are engaged in trucking, you go to BDO Leasing. You
show your contract with SMB that you are authorized to carry thousands of SMB pale Pilsen between Davao and GSC.
Armed with the contract, you inform BDO Leasing that you want the use of trucks which they will allow. If you dont have
enough money, they will offer the services of the BDO bank. If youll later purchase the trucks, you will have lease-purchase
agreement with BDO Leasing. That is a question that was asked in the Bar.
What is a lease-purchase agreement? It is a contract that ostensibly the provisions appear that you are leasing the vehicle
from this owner-creditor but there is a built-in option that the lease payments can be at the same time considered as
amortization for the value of the property you are leasing. You can decide that this is just a lease and you can let the term
expire as a lease. But you have the choice. You can become a purchaser of the thing leased. How? At the end of the lease
payment your last payment becomes a balloon payment which you come across this balloon payment, the thing leased
becomes your own. The lease payment become amortization payment.
That is the lease option agreement created by the leasing company. But because they know that you lack collateral, you cant
use the truck since it is not under your name but of the leasing company but is in your possession. So, what is the security of
the leasing company which is the subsidiary of the UBank? They will make you sign a trust receipts agreement. The
proceeds you earned from using the vehicles under the name of the leasing company is not really yours. It is theirs. So, if you
fail to settle the lease payments, that is estafa. (Makes interjections about being prosecuted for estafa.)
Warehousing is also a non-allied function. Money changing, forex. It is not part of banking. But UBanks can do almost
everything. So much so that most the banks income is from forex than the banking functions. Theyll buy dollars and engage
in forex services. People believe that you are a great banker but out of nowhere the exchange rates plummet, how can you
recover?
This is the reason why Paul Volcker (former Federal Reserve Chairman) is pushing for the Volcker rule. The rule pushes for
the return to the original banking function as described by Section 3 of GBL. He is the successor of Alan Greenspan who
pushed for banks to be the one-stop shop of financial services needs like car service shops. He started the whole idea of
allowing banks to perform non-allied services. Result can be seen in Citicore which is now just one half its size of what it
used to be. It almost lost half its banks, its clients but luckily was saved unlike the other banks that went down the drain
because they engaged in other than the banking functions.
If the Bar Examiner sees that answer, they will be impressed because you did not only memorize the GBL but you
have seen the light on the loopholes of the GBL! (Interjections on the plan of PRRD to reappoint Tetanco as the BSP
Governor)
Supposed you tell your friends that you can accept deposit and lend money, are you engaged in banking? You have no
banking license from the BSP. You were able to get more than 20 friends to give you money. You were later reported to BSP,
can they run after you for engaging in banking without a license? That is already a decided US case, the moment you accept
deposits from at least twenty (20) people although you havent lent it out as long as you have intent to then you are engaged
in banking.
How can you accept deposits and lend out money to more than 20 people without being subjected to the BSP? You set up a
cooperative, a credit cooperative. This is actually a misnomer because it is not credit but lending. People do not join
cooperatives to be members but to borrow. You can do the same functions as a bank but you cant lend out to non-members
unlike a bank.
Rural banks are covered by specific law, the Rural Banks Act (RA 7353). It is confined to the countryside. Normally,
agricultural loans which are loans of small amount.
Now they have a new classification, micro-lending which began in Bangladesh, spread though out Pakistan whose founder
won a Noble Peace Prize (Muhammad Yunus). Micro-lending is very discriminatory because they only lend to women.
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Women form themselves into selda, so the lending is not made individually but in the form of selda. You are 5 to 12 persons,
you are lent small amounts. This amount is used as income-generating capital for example in goat-raising as source of milk
for personal consumption and for sale.
What is the difference between micro lending and loan shark? 5/6 kumbaga. (Interjection on goat-raising versus pagkompra
ug pirit and the miraculous Sto. Nino) The difference is muscle. The loan shark can enforce his claims using muscle. Both are
unsecured loans. And the GBL prohibits lending without collateral.
Technically speaking, no bank can engage in micro lending. Thats why micro lending is by a non-bank, thats a micro lending
cooperative.
Thats why rural banks have a special window wherein rural banks can borrow from Land Bank which they lend out as an
extension of Land Bank. If you are a rural bank and you lend out funds from your own deposit, you might as well commit
suicide because these debtors cant pay their debts. If you will lend out without collateral, how can you collect your claims?
You need to have muscle. Thats why loan sharks have enforcers. Those who cant pay, you make it unpleasant for him for
not paying and you make everybody else know it. Kulatahon na siya in public.
How can you incorporate that in banking? The business of credit card, masakit man ka ana Illusions of plenty. You think
you have lots of money and you are drowned in debts. The BSP knows that and that is the reason why credit cards have
higher interest rates because it is unsecured. It is a violation of the GBL. This is the problem of modern society and the credit
card is a no arm bandit. Who can run credit cards? ComBanks after obtaining a special license and for UBank its included in
their regular license.
Other classification of banks is Islamic Banks under Charter of El Amanah Islamic Bank of the Philippines (RA 6848). Is the
establishment of an Islamic bank not a violation of a non-establishment clause found in the Constitution?
ARTICLE III - BILL OF RIGHTS

Section 5. No law shall be made respecting an
establishment of religion, or prohibiting the free exercise
thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or
preference, shall forever be allowed. No religious test shall
be required for the exercise of civil or political rights.
When you talk about religion in the bill of rights, there are supposed to be two rights. The first is the free exercise of religion.
Anybody can believe what he wants. The second is non-establishment. The government cant impose or officially establish a
religion as a partner of a govern nor force it upon the people. No religion can be established by the government.
No one has asked it yet so better think about it when you become lawyers. (Interjection about Tan vs Macapagal a case
related to the 1935 ConCon defining the elements of the SCs power of judicial review).
In the Quran, it says to lend upon interest is a great sin. It is prohibited. You cant take advantage of the difficulty of
somebody. It is not just a monopoly of what the Quran hold as the Old Testament also calls it. This is where the idea of usury
springs from. For the use of money, you cant ask for money.
But slowly, the Christian religion got over it. For the use of money, there can be interest charge but it should be reasonable
interest. But in the Islamic faith, it is still prohibited. So, they put up the Islamic Bank, to facilitate the extension of credit
without violating the Islamic religion.
Why is governmental intervention allowed by the law? Because the law considers that its a huge segment of the population
that will be deprived of banking services and they need the banking services. So, they how do they borrow money without
interest? You will have lots of contracts to sign so they can circumvent the prohibition in the Quran. That is the purpose of
the Islamic bank. This is the same for other Islamic jurisdictions.
The question is the BSP a real bank? It is not open to the public but to its own public which are banks. Do they lend money?
Yes, to the banks. Do they lend money to the public? No. So, is it a bank?

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The BSP is not limited to the Volcker rule. It goes into proprietary transactions. It deals with buys and sells forex and credit
instruments like bonds and treasury bills. So how do they not violate the Volcker rule if they engage in non-allied
transactions? It is different for the BSP because they do not do it for profit but to influence the peso and the monetary policy
of the Philippines. They enter into proprietary functions to keep the peso healthy.
January 11, 2017 - Jennifer Lim
AUTHORITY OF THE BANGKO SENTRAL
The Bangko Sentral shall also have the supervision over the exercise of regulatory powers of quasi-banks, vast entities, and
other financial institutions which under special laws are subject to Bangko Sentral supervision.
DEFINITION OF QUASI-BANKS (Section 4)
SECTION 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko
Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive similarities of specific functions
to which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or
sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit
shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks,
trust entities and other financial institutions which under special laws are subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No.
7653 (hereafter the "New Central Bank Act") for purposes of relending or purchasing of receivables and other obligations. (2-
Da)
For the purposes of this Act, quasi-banks shall refer to entities engaged in the borrowing of funds through the issuance and
endorsement or assignment with recourse or acceptance of deposits as defined in Section 95 of the New Central Bank Act.
For purposes of re-lending or purchasing of receivables and other obligation, a bank accepts deposits from more than 20
people and re-lends these deposits to certain borrowers with interest and collateral. That is the function of a bank, but quasi-
banks are those that are supervised.
WHAT IS THE MEANING OF THE WORD QUASI?
Mura-mura og bangko pero dili bangko. It is referred to as an entity engaged in the borrowing of funds through issuance,
endorsement or assignment with recourse of acceptance of deposits.
HOW DOES A QUASI-BANK WORK?
ILLUSTRATION
BORROW QUASI- SOURCE

ER BANK

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Quasi-bank borrows money and then lends it to another. It is an intermediary just like a bank. Accepts deposits and lends
money.
HOW DO THEY FUNCTION? WHY ARE THEY DIFFERENT?
ALLADO QUASI- NCCC

BANK
Let us say, you have Allado Construction, they have a contract with government by construction of highways. They need
money to pay their workers etc., but the government pays them money on chance basis or progress of construction basis
and the good will of the government of the Management and Budget Bureau.
In the meantime, you have expenses and you need money. You go to a quasi-bank. Dili man ka makaadto sa bank kay tanan
nimong equipment prendado man. Unsa man imohang gigamit ana imohang equipment inig iprenda sad nimo securities sa
utang.
So wa man kaso sa quasi-bank. Unsa man ibaligya? Imohang receivables imohang ibaligya didtoa sa goberyno mao nay
bayrunon ug maka abot kog million.
Kinsa may mupalit ana? Si quasi bank wala sad ni siya. Intermediary lang ni siya. Kinsa may mupalit ani nimo? Kanang
daghang cash. NCCC daghan kayo na sila kwarta. Mag awas-awas ang cash.
Kini siya(QB) mag buhat ug papel kay commercial waiver that NCCC will purchase the receivables of Allado Construction.
NCCC is the creditor kay siya man mupalit, naa siyay receivables gikan sa gobyerno.
WHAT DOES IT MEAN WHEN THE CORNER OF A QUASI-BANKS PAPER HAS TWO DIAGONAL LINES?
In negoatioble instruments gani, it cannot be encashed except with the intervention of the payee. Mao na ang gina-tawag na
with recourse. Dili gani makabayad si Allado. Niining papel na gikuptan sa NCCC, dili na ni siya makabayad. Mahimo ni
yang gukdon ang quasi-bank which has been a recourse against them.
ILLUSTRATION
SAN QUASI- NCCC

MIGUEL BANK
Dili ni si Allado but si San Miguel Corporation. Ang nag pahuman NCCC gihapon. Karon with recourse, kinahanglan ka pa
ana? NO. Dili na man ni makadagan si San Miguel. Kadako ana nga corporation.
DIFFERENCE OF QUASI-BANK AND BANK
BANK QUASI-BANK

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There must always be No collateral.

collateral in accordance
with the general banking
law.
Otherwise, you are If there are, call them CPs or

endangering the money commercial papers
of the depositors. (acceptances, purchase,
receivables).
These quasi-bank and its operations are all subject to the Central Bank. Quasi-banks are not much here in Davao. Mostly in
Manila where you can borrow from quasi-banks and other financial institutions other than quasi-banks.
WHAT ARE TRUST ENTITIES?
EXAMPLES: China Bank and Trust Companies, Metro Bank and Trust Company.
The bank has a banking license, but also obtains from the Bangko Sentral, a license to be a trust company.
WHAT IS THE FUNCTION OF A TRUST COMPANY?
EXAMPLE: Ateneo de Davao has over a thousand employees. Ateneo has to provide for retirement of its workers. it can put
up a retirement fund. If it wants its retirement fund to be tax exempt, they must comply with the requirements of the BIR.
(Didnt you take this up it taxation? Retirement fund. )
The BIR will say:
1. The retirement fund must be irrevocable and fixed retirement fund.
You cannot say one day it is a retirement fund, then the next day, dili na diay kay gikinahanglan ko ni.
The employers contribution to the fund is tax free and those who will get from the fund, those beneficiaries
are tax free. Kung muretire kag sayo, gukdon kag BIR.
2. The fund must be not under the control of the one who created the trust fund.
They have to submit it to a trustee. It must be a licensed trustee who will administer the fund.
DUTY OF THE TRUSTEE TO EMPLOYEES CONTRIBUTIONS
It will make sure that the beneficiaries of the fund will be safe guarded with a vested right over the fund. It vests after some
time when the contribution of the employee rests.
WHEN EMPLOYER SOLELY CONTRIBUTES TO THE FUND
Suppose, its not contributory and only the employer pays. Remember that whatever the employee receives from a retirement
fund must be higher than what he provides in the contributions. Otherwise, it will just be a continuity that the employer gives.
WHO WILL SEE TO IT THAT THE FUNDS ARE PROPERLY ACCOUNTED?
It is the trustee who will administer the fund and not the contributor.
WHAT DOES IT TAKE TO BE A TRUSTEE?
To be a trustee, you need a license given by the Bangko Sentral ng Pilipinas.

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The next time you see trust, naa na siyay lisensya. Like China Bank and Trust Company.
WHY IS IT IMPORTANT?
The General Banking Law provides that the trust of a bank must be a separate and distinct of the banking business. If the
bank goes bankrupt, the trust assets are not included in the assets under the receivership.
PROCESS OF CREATING TRUST
The first thing you do when creating trust is to convey to the trustee. There is a deed of conveyance. Why? Because the
trustee makes acts of disposition. It is lending out money. Such lending out money is not pure acts of administration. It is an
act of disposition under the Civil Code.
IS THE TRUSTEE ENTITLED TO THE PROPERTIES AND MONEY UNDER ITS ADMINISTRATION?
Yes, it is entitled. In fact, that particular purpose is already segregated from the rest. It is no longer part of Ateneo. It has its
own TIN tax account identification number.
You really have to convey to the trustee. There is already conveyance. Hold it as a trustee. For the benefit of the beneficiaries
and that requires a trust, a separate and distinct entity.
IS THE BANK COVERED UNDER THE SAME SECRECY OF BANK ASSETS UNDER ITS CONTROL AS IT IS WITH THE
DEPOSITS UNDER IT?
Yes, bank deposits are covered by secrecy under the Bank Deposits Law.
WHAT ABOUT A TRUST COMPANY?
They are not covered under the same secrecy under the Bank Deposits Law. But there is a general clause under the
Secrecy Law that the bank in any other capacity other than banking.
The difference in the secrecy law under the general banking, because if you divulge, you violate the secrecy of banking. But
the general assets handled by the bank as a trust entity, do not contain criminal sanctions.
Remember that in quasi banks, the same conditions, causes, requirements, related to banks in distress are also true of
quasi-banks.
AUTHORITY TO ENGAGE IN BANKING AND QUASI-BANKING FUNCTIONS (SECTION 6)
SECTION 6. Authority to Engage in Banking and Quasi-

Banking Functions. No person or entity shall engage in
banking operations or quasi-banking functions without authority
from the Bangko Sentral: Provided, however, That an entity
authorized by the Bangko Sentral to perform universal or
commercial banking functions shall likewise have the authority
to engage in quasi-banking functions.
The determination of whether a person or entity is performing

banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board. To resolve
such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral,
examine, inspect or investigate the books and records of such
person or entity. Upon issuance of this authority, such person
or entity may commence to engage in banking operations or
quasi-banking functions and shall continue to do so unless
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such authority is sooner surrendered, revoked, suspended or

annulled by the Bangko Sentral in accordance with this Act or
other special laws.
The department head and the examiners of the appropriate

supervising and examining department are hereby authorized
to administer oaths to any such person, employee, officer, or
director of any such entity and to compel the presentation or
production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the
true functions and operations of such person or entity. Failure
or refusal to comply with the required presentation or
production of such books, documents, papers or records within
a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New
Central Bank Act.
Persons or entities found to be performing banking or quasi-

banking functions without authority from the Bangko Sentral
shall be subject to appropriate sanctions under the New
Central Bank Act and other applicable laws. (4a)
The determination whether a universal banking or commercial banking corporation is operating quasi- banking functions
without license is decided by the Monetary Board.
In such issue, the Monetary Board may, in its supervising and examining department of the Bangko Sentral, examine inspect
or investigate, books and records of such person or entity. Upon issuance of such authority, such person or entity may
commence or engage in banking and quasi-banking functions and shall continue to do so unless such authority is sooner
surrendered, revoked, or suspended by the BSP in accordance with other special laws.
EXAMINATION BY THE BANGKO SENTRAL (SECTION 7)
SECTION 7. Examination by the Bangko Sentral. The

Bangko Sentral shall, when examining a bank, have the
authority to examine an enterprise which is wholly or majority-
owned or controlled by the bank. (21-Ba)
Central Bank shall, when examining a bank, have the authority to examine an enterprise which is only for majority owned or
controlled. This is provision is new.
Before, the authority of the bank examiner or BSP examiners stop the moment the subsidiaries of the bank are those which
are no longer engaged in such activity in bank deposits.
Now they found this to be a weakness of the powers of the Bangko Sentral. It was then expanded by the powers of the BSP.
They can know include in their examination majority owned or wholly owned, enterprises by the bank or quasi-bank.
Supposed you are a company that engages in renting out ATMS. It is not very common here but in the United States you do
not need to be a bank to operate and atm. Pwede gani na retail gas station na mag operate ug atm.
In the US, it is considered as business, separate and distinct from banking. As well as credit cards, it is not a medium, but a
separate and distinct. The examiners can still look into those businesses even it is separate and distinct from the bank.
Banks who cater to a sugar central should be distinct. They can involve in per diems. Those are physical assets and return of
physical assets. Sako bitaw na nga asukal, but it is called a co-op. Unya pag mag examine ka na ana, mag latay latay ka tan
aw sa mga sako dinha wa ka kabalo wa na diay to sa likod.

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Dinha famous until now ang Victorias Milling, used to be one of the major stock holders of PCI Bank. Wa naman
nagkandimao because the examiners cannot examine kay daghang bodega ug lipat-lipat. Cargo trucks ang gina hire, paspas
mulihok. Wa puy nag una didto unya naka inom na, wala na namaaayo ug examine.
Why? Because in banking institutions, mucommit ka, air-con man na, sampling sampling ra ka, major and minor violations.
Daghan na kag nakita, daghan na kag reason for existence and demand for prompt acts.
REQUIREMENTS TO BE A BANK, QUASI BANK AND OTHER TRUST ENTITIES (SECTION 8)
SECTION 8. Organization. The Monetary Board may

authorize the organization of a bank or quasi-bank subject to
the following conditions:
8.1. That the entity is a stock corporation (7);
8.2. That its funds are obtained from the public, which
shall mean twenty (20) or more persons
(2-Da); and
8.3. That the minimum capital requirements
prescribed by the Monetary Board for each category
of banks are satisfied. (n)
No new commercial bank shall be established within three (3)
years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into
consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank
licensing process shall incorporate an assessment of the
bank's ownership structure, directors and senior management,
its operating plan and internal controls as well as its projected
financial condition and capital base.
1. That the entity is a stock corporation.

There is no bar if it is sole proprietorship or partnership. There is a bar if it is held by cooperatives but it is still a
corporation of stock holders. It is called a cooperative rural bank but it is not really a cooperative, it is a corporation
owned by cooperatives.
2. That its funds come from the public meaning 20 or more persons.
3. That the minimum capital requirements prescribed by the monetary board are satisfied.
In 1960 when the rural bank act was put into effect, all it needed was 100k and theBSP will give a counterpart of 100k
and you have a rural bank. Now the capitals are increasing and they say our banks are not increasing in capitalization.
4. Being a corporation, a banking institution is required not only of value shares; it cannot issue no-vat value
shares.
SECTION 10. Treasury Stocks. No bank shall purchase or

acquire shares of its own capital stock or accept its own shares
as a security for a loan, except when authorized by the
Monetary Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months from the
time of its purchase or acquisition, be sold or disposed of at a
public or private sale. (24a)
In cases where a bank purchases its own shares within 6 months, the bank of its purchase or acquisition shall be disposed of
in a public or private sale. There should be no treasury shares. It has to be in the articles of incorporation.
As to FOREIGN STOCK HOLDINGS IN SECTION 11, it has to be amended because banks now can be purchased by
foreigners up to 100% of its outstanding capital stock. Provided; that such interest can only be provided in one bank. It
cannot buy in any other bank.

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But for a controlling interest groups, you can have a controlling interest of two banks and still not violate the general banking
laws. For foreigners only one bank, 100% and there is no restriction whether it be a rural bank, commercial, or universal
bank.
FOREIGNERS CITIZENS/CONTROLLING
INTEREST GROUPS
Can control only one bank Can control two banks
SECTION 12. Stockholdings of Family Groups or Related

Interests. Stockholdings of individuals related to each other
within the fourth degree of consanguinity or affinity, legitimate
or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such
an individual with the bank. (12-Da)
SECTION 13. Corporate Stockholdings. Two or more

corporations owned or controlled by the same family group or
same group of persons shall be considered related interests
and must be fully disclosed in all transactions by such
corporations or related groups of persons with the bank. (12-
Ba)
Stock holdings of family groups or related interest, is restricted up to the 4 th degree of consanguinity or affinity. All of which
are considered up to one family group or one related interest.
Two or more corporations owned or controlled by the same family group or group of persons shall be considered as related
interest and must be fully disclosed in all transactions to such bank.
COMPLIANCE WITH REQUIREMENTS (SECTION 14)
SECTION 14. Certificate of Authority to Register. The

Securities and Exchange Commission shall not register the
articles of incorporation of any bank, or any amendment
thereto, unless accompanied by a certificate of authority issued
by the Monetary Board, under its seal. Such certificate shall
not be issued unless the Monetary Board is satisfied from the
evidence submitted to it:
14.1 That all requirements of existing laws and
regulations to engage in the business for which
the applicant is proposed to be incorporated have
been complied with;
14.2. That the public interest and economic
conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the financing,
organization, direction and administration, as well
as the integrity and responsibility of the organizers
and administrators reasonably assure the
safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register
the by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko
Sentral. (10)

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If you comply with all requirements, you will be issued besides a SEC registration and a certificate of authority to operate as a
bank by the BSP monetary board.
BOARD OF DIRECTORS (SECTION 15)
The board of directors of a SECTION 15. Board of Directors. The provisions of bank must be a member
of the corporation which the Corporation Code to the contrary notwithstanding, must not exceed 15 or
less than 5 members. Two of there shall be at least five (5), and a maximum of fifteen whom shall be
independent directors. An independent director
(15) members of the board of directors of bank, two (2)
shall mean a person not an officer or employee of the
bank, subsidiaries or of whom shall be independent directors. An affiliates.
"independent director" shall mean a person other than
Non-Filipino citizens can an officer or employee of the bank, its subsidiaries or become members of the
board to the extent of equity affiliates or related interests. (n) of survivorship.
Non-Filipino citizens may become members of the board
Meetings of the board of directors may be
conducted through modern of directors of a bank to the extent of the foreign technology such as but
not limited to call participation in the equity of said bank. (Sec. 7, RA 7721) conferencing or video
conferencing. It is The meetings of the board of directors may be expressedly allow for
board of directors. conducted through modern technologies such as, but not
limited to, teleconferencing and video-conferencing. (n)
SECTION 16. Fit and Proper Rule. To maintain the quality
of bank management and afford better protection to depositors
and the public in general, the Monetary Board shall prescribe,
pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and
disqualify those found unfit.
After due notice to the board of directors of the bank, the

Monetary Board may disqualify, suspend or remove any bank
director or officer who commits or omits an act which render
him unfit for the position.
In determining whether an individual is fit and proper to hold

the position of a director or officer of a bank, regard shall be
given to his integrity, experience, education, training, and
competence. (9-Aa)
It is applicable to the supervisory powers of the monetary board over board of directors of banks and quasi-banks. It says to
maintain the quality of bank management, afford them protection, the depositors and public in general, the monetary board
shall prescribe, pass upon, review the qualifications and disqualifications of the individuals directed or appointed as bank
directors and officers.
TWO ASPECTS TO BE CONSIDERED IN THE FIT AND PROPER RULE
1. To legislate the qualifications to be a board of the bank in addition to what is provided by law.
Boards of directors are now required to attend seminar in basic banking law. 15 years ago, I attend and I was forced
kauban tong mga naka wheel chairs, uban directors sa bank tiguwang na mag laway laway na.
Who gives the seminar? Its not the BSP. It has too much to do. They have a system of accrediting institutions that
can give the seminar to the institutions. Manguha na sila ug lecturer from UP, UP Law Center, __ institute of the
Philippines.
2. They can pass upon each single director and check his bio-data and send it to the BSP.
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The Bangko Sentral can oppose, and to which he will get another one not rejected by the BSP. BSP can pass upon,
they can review.
WHEN YOU ARE ASKED IN THE BAR, WHAT IS THE FIT AND PROPER RULE?
It is the power of the monetary board of the Bangko Sentral to be able to prescribe additional qualifications of the board of
directors of banks to pass upon individual directors, for his fitness to the position. They can review the qualifications and
disqualifications.
Finally, after due notice to the board of directors, the monetary board may disqualify, suspend, and remove any bank director
or officer who committed or omits and act unfit for the position. They can remove; suspend any director because of
commission or omission, malfeasance or misfeasance.
DIRECTORS OF MERGED OR CONSOLIDATED BANKS (SECTION 17)
SECTION 17. Directors of Merged or Consolidated Banks.

In the case of a bank merger or consolidation, the number
of directors shall not exceed twenty-one (21). (13a)
GENERAL RULE: not less than 5, not more than 15 directors. Two of whom must be independent.
EXCEPTION: If it is a merger or consolidation, then you are allowed at least 21 members of the board of directors.
If it is a merged or consolidated bank, two or more banks come together and form one bank. If it is the survivor that
dominates the other then it is merger. If a new corporation dominates the coming together of two or more banks, then it is
considered a consolidation.
WHY IS IT ALLOWED?
Because in mergers and consolidations, some of the largest problems are the egos of these corporations. So as many as
possible, 21 ang maximum.
Because in the BSP, most especially, rural banks in loans and reservations, there is no capital. Gamay ra kayo. Uban bangko
isa ra way lain branch. We want size. Increase in size would result to increase in technology. We are encouraging mergers
and consolidations, in the end, they allow up to 21 members in the board of directors.
COMPENSATION AND PROHIBITION (SECTION 18 AND 19)
SECTION 18. Compensation and Other Benefits of

Directors and Officers. To protect the funds of depositors
and creditors, the Monetary Board may regulate the payment
by the bank to its directors and officers of compensation,
allowance, fees, bonuses, stock options, profit sharing and
fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or
conservatorship; or
18.2. When a bank is found by the Monetary Board to
be conducting business in an unsafe or
unsound manner; or
18.3. When a bank is found by the Monetary Board to
be in an unsatisfactory financial condition.
(n)
SECTION 19. Prohibition on Public Officials. Except as

otherwise provided in the Rural Banks Act, no appointive or
elective public official, whether full-time or part-time shall at the
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same time serve as officer of any private bank, save in cases

where such service is incident to financial assistance provided
by the government or a government-owned or controlled
corporation to the bank or unless otherwise provided under
existing laws. (13)
An example of that is when you have a rural bank and it is encouraged to conduct micro lending and the government now is
saving to conduct micro lending. Who can borrow from the land bank? You can no longer borrow kay wala kay collateral but
they bank will say you can even without collateral. It is called a debenture.
In government, one can be a co-treasurer of the bank. So the vice president of land bank, considered as a GOCC, will be
seating in your board of directors because you have to follow the huge amount of money borrowed in micro lending. You
cannot make expenditures or issue checks, he can borrow because he is a co-signatory. Kung ikaw nay bangko, gusto ka
ingon ana, or collateral. Maypa collateral, dili ka dungawan diha sa imong suod.
If you allow that, financial existence. Mao na ang nahitabo sa Masagana Farmers. Sige pahuwam, walay collateral. The
farmers are the worst borrowers. Nay may sakit sa pamilya, diadto maadto ang kwarta, dli sa nahuwaman .unsa may
palabihon nimo.
Now, Marcos has ordered to increase the lending of money to the countryside. They even had an experiment of it through a
corporative. In a cooperative, highest body is the general assembly. In the corporative, you have plenty of farmers but still
governed by the board of directors.
Now he is telling the banks, you must have at least 10 % of your loanable funds must be lend to cultural countryside. Since
nobody is complying with that and they are fined. BDO is paying 86 million per quarter because he cannot comply. Ngano
man? The reason would always be that they cannot find worthy borrowers. The proposal is to amend that law on the
proposal of 10% of loanable funds by securing that and keeping that depository on the bank itself.
Now will history repeat itself? The idea of the new administration is that not any of the money should reach the farmer.
Muabot na gani na sa farmer, wala na. Dili na maabot sa fertiziler sa yuta. Hantod rana sa mga damgo na wa matuman. Pag
sugod nimo ug pirma, wala na. dli na incoming generating. Destruction na kayo.
STRIKES (SECTION 22)

SECTION 22. Strikes and Lockouts. The banking industry
is hereby declared as indispensable to the national interest
and, notwithstanding the provisions of any law to the contrary,
any strike or lockout involving banks, if unsettled after seven
(7) calendar days shall be reported by the Bangko Sentral to
the Secretary of Labor who may assume jurisdiction over the
dispute or decide it or certify the same to the National Labor
Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and
assume jurisdiction over such labor dispute in
order to settle or terminate the same. (6-E)
There are several rules, but Id like to point out Section 22. It is actually a labor provision in relation to Article 277 of the Labor
Code.
So this is a provision allowing an injunction. It is practically impossible to conduct a strike, because it is an industry
indispensible to the national interest.
Nevertheless, the Secretary of Labor can assume jurisdiction, and once he assumes jurisdiction, all strikes are enjoined.
Intended only for progress and protecting banks against labor congress.
Recall the FEBC case (FAR EASTERN BANKING CORP.). FEBTC bought by BPI, organized its labor concession. BPI must
be covered but they said NO. It reached the Supreme Court. After 10 years, SC said you must be part of the labor

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concession. You are now included in the bargaining. That is required under the union-shop-clause signed by the
management of the bank vis--vis exclusive of the BSP.
Note: No citation was given, but this may be the case

referred to.
G.R. No. 164301: October 19, 2011
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. BPI

EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF
UNIONS IN BPI UNIBANK, Respondent.
LEONARDO-DE CASTRO, J.:
FACTS: In 2000, Far East Bank and trust Company (FEBTC)

merged with Bank of the Philippine Islands. Petitioner had a
Union Shop agreement with respondent BPI Employees Union-
Davao Chapter-Federation of Unions in BPI Unibank (the
Union).Pursuant to the merger, respondent requested BPI to
terminate the employment of those new employees from
FEBTC who did not join the union.
BPI refused to undertake such action and brought the

controversy before a voluntary arbitrator. Although BPI won the
initial battle at the Voluntary Arbitrator level, BPIs position was
rejected by the Court of Appeals which ruled that the Voluntary
Arbitrators interpretation of the Union Shop Clause was at war
with the spirit and rationale why the Labor Code allows the
existence of such provision.
ISSUE: Whether or not the "absorbed" FEBTC employees fell

within the definition of "new employees" under the Union Shop
Clause, such that they may be required to join respondent
union or suffer termination upon request by the union.
HELD: The court agreed with Justice Brions view that it is

more in keeping with the dictates of social justice and the State
policy of according full protection to labor to deem employment
contracts as automatically assumed by the surviving
corporation in a merger, without break in the continuity of their
employment, and even in the absence of an express
stipulation in the articles of merger or the merger plan.
By upholding the automatic assumption of the non-surviving

corporations existing employment contracts by the surviving
corporation in a merger, the Court strengthens judicial
protection of the right to security of tenure of employees
affected by a merger and avoid confusion regarding the status
of their various benefits.However, it shall be noted that nothing
in the Resolution shall impair the right of an employer to
terminate the employment of the absorbed employees for a
lawful or authorized cause or the right of such an employee to
resign, retire or otherwise sever his employment, whether
before or after the merger, subjectto existing contractual
obligations.
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In other words, the obligation of BPI to pay the salaries and

benefits of the former FEBTC employees and its right of
discipline and control over them only arose with the effectivity
of the merger.Concomitantly, the obligation of former FEBTC
employees to render service to BPI and their right to receive
benefits from the latter also arose upon the effectivity of the
merger.What is material is that all of these legal consequences
of the merger took place during the life of an existing and valid
CBA between BPI and the Union wherein they have mutually
consented to include a Union Shop Clause.
BANK DEPOSITS
The bank deposits are checking accounts.
Why it is savings deposits na when you demand it pwede man pud siya cheke dba? Pag hatag nimo sa withdrawal slip
pwede man sad kwarta.
Why is it not called bank deposit? Ngano cheke ra may gina tawag na bank deposit?
Because if you read the fine print of the contract that you signed, you will see there that proviso in fine print that the bank
reserves the right to come up with the money for a day or two, you could not see this for any ordinary deposit.
Demand deposits are money on demand. The moment you demand, it must be given and it has no interest. It technically
does not earn interest. It is a system automatic to your savings account. It is the banks peculiar arrangement to attract more
investors.
LIST OF FINANCIAL ALLIED ENTERPRISES

Leasing companies
Banks
Housing companies
Financing companies
Credit card companies
Financial institution companies engaged in stock brokerage
Companies engaged in foreign exchange dealership
FINANCIAL NON-ALLIED ENTERPRISES

Warehouse companies
Storage companies
Safe deposit box companies
o SDB-
real contract of deposit, not a loan
companies primarily engaged in mutual funds but not mutual funds themselves
Companies engaged in giving computers to companies
Insurance agencies
Brokerages
Companies in housekeeping and home development or agricultural crops
Bank service operation
o Armored car service:
It is maintained by other companies so that the bank would not have to deal with its maintenance.
END
January 18, 2017 Mortejo, Jennifer

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The last time we met, we talked about the fit and proper rule under Section 16. And in connection with that section is the
Circular No. 296 dated September 17, 2001 (Medyo taas siya so dili na nako i-incorporate diri ha). The BSP has
prescribed additional qualifications to the Members of the Board of Directors of banks and quasi-banks. And not all the
prescribed additional qualifications, they can pass upon the qualifications of specific members of the Board. In determining
whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given to the
integrity, experience, education, training, and competence of the person.
So, how does the BSP had qualifications? For instance, they can require that Members of the Board must attend certain
types of training or seminars and that the Members of the Board of the bank pay for the consequence. The consequence is if
you do not attend these trainings, you are not fit and so you can be removed as a Director if you still continue to serve in the
Board of the bank without the requisite training. That is the example of fit and proper rule.
Let us say one of the Directors of the bank is a well-known private lender. He is engaged in the 5-6 business. He lends out 5
pesos on Monday and on Friday, it becomes 6 pesos. Suppose the BSP sends operatives and they are successful of
borrowing money from this person. Then the BSP can suspend or remove that Board Director.
Any other examples of how the BSP implements the fit and proper rule? The provision goes this way,
SECTION 16. Fit and Proper Rule. To maintain the quality

of bank management and afford better protection to depositors
and the public in general, the Monetary Board shall prescribe,
pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and
disqualify those found unfit.
After due notice to the board of directors of the bank, the

Monetary Board may disqualify, suspend or remove any bank
director or officer who commits or omits an act which render
him unfit for the position.
In determining whether an individual is fit and proper to hold the

position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and
competence. (9-Aa)
This is a very important provision. Remember, the BSP acts even before it gives the concerned Director a chance to argue
his case. They suspend you first and when you complain, thats the time theyll listen. Why? Because banking is a privilege
and the welfare of the banking public is paramount compared to the welfare of the members of the Board. That is why the
Government acts first and then hears later.
Alright, I told you about the leeway that is given banks if they merge or they consolidate. But the maximum number has been
increased from the maximum number of directors of a corporation in the Corporation Code. Section 17 now provides:
SECTION 17. Directors of Merged or Consolidated Banks.

In the case of a bank merger or consolidation, the number of
directors shall not exceed twenty-one (21). (13a)
So for mergers and consolidation, the corporation maximum limit of 15 has been stretched to 21. That is in order to
encourage mergers and consolidations. A more capitalized bank, the less probability or possibility that its going to be
bankrupt and the more services it can offer to the public. That is the reasoning. If the egos of the Directors are what prevent
the merger, then this law accommodates all of them in the Board of Directors because the number has been increased to 21.
Other ways that BSP controls the bank so that its Directors will not abuse, by way of getting compensation and other benefits
that is deleterious to the bank and the banking public.
SECTION 18. Compensation and Other Benefits of
Directors and Officers. To protect the funds of depositors
and creditors, the Monetary Board may regulate the payment
by the bank to its directors and officers of compensation,
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allowance, fees, bonuses, stock options, profit sharing and

fringe benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship;
or
18.2. When a bank is found by the Monetary Board to be
conducting business in an unsafe or unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an
unsatisfactory financial condition. (n)
Father (referring to 18.1): it is still the conservator that controls. The conservator has power to counteract a resolution, (of the
more?), paying the compensation of Directors or officers.
(Referring to 18.3): Ah. That is very general, when it is found to be in an unsatisfactory financial condition.
Now, universal bank and a commercial bank are distinguished by the type of businesses that they can enter into. Commercial
banks can only enter into allied businesses but a universal bank can enter into non-allied businesses. And the list is given as
to these businesses in the Manual of Regulations for Banks (MORB), as amended by BSP Circular No. 263 (dili nako ma-
search pero naa ko nakita sa MORB na same sa gi-enumerate ni Father),
Sec. X377 Financial Allied Undertakings - With prior BSP

approval, banks may invest in equities of the following financial
allied undertakings, subject to the limits prescribed under Sec.
X378:
a. Leasing companies including leasing of stalls and spaces in
a commercial establishment: Provided, That bank investment
in/acquisition of shares of such leasing company shall be
limited/applicable only in cases of conversion of outstanding
loan obligations into equity;
b. Banks;
c. IHs;
d. Financing companies;
e. Credit card companies;
f. FIs catering to small and medium scale industries including
venture capital corporation (VCC), subject to the provisions of
Sec. X379 and its subsections;
g. Companies engaged in stock brokerage/securities
dealership; and
h. Companies engaged in foreign exchange
dealership/brokerage.
In addition, UBs may invest in the following as financial allied

undertakings:
(1) Insurance companies; and
(2) Holding company: Provided, That the investments of such
holding company are confined to the equities of allied
undertakings and/or non-allied undertakings of UBs allowed
under BSP regulations.
The Monetary Board may declare such other activities as

financial allied undertakings of banks.
The determination of whether the corporation is engaged in a

financial allied undertaking shall be based on its primary
purpose as stated in its articles of incorporation and the volume
of its principal business.
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The non-financial allied enterprises are also listed, these are:

Xxx
UBs/KBs and TBs may invest in equities of the following non-
financial allied undertakings:
(1) Warehousing companies;
(2) Storage companies;
(3) Safe deposit box companies;
(4) Companies primarily engaged in the management of mutual
funds but not
in the mutual funds themselves;
(5) Management corporations engaged or to be engaged in an
activity similar to the management of mutual funds;
(6) Companies engaged in providing computer services;
(7) Insurance agencies/brokerages;
(8) Companies engaged in home building and home
development;
(9) Companies providing drying and/or milling facilities for
agricultural crops such as rice and corn;
(10) Service bureaus, organized to perform for and in behalf of
banks and NBFIs the services allowed to be outsourced
enumerated in Sec. X169: Provided, That data processing
companies may be allowed to invest up to forty percent (40%)
in the equity of service bureaus;
(11) Philippine Clearing House Corporation (PCHC), Philippine
Central Depository, Inc. and Fixed Income Exchange; and
(12) Such other similar activities as the Monetary Board may
declare as nonfinancial allied undertakings of banks.
UBs may further invest in health maintenance organizations

(HMOs).
Commercial banks, if they engage in allied businesses, these businesses are open to be examined by BSP examiners. If
universal banks engage in non-allied banking enterprises, these enterprises are also open to be examined by the BSP.
Alright, what is an SBL? Section 35 of the General Banking Law provides for it. An SBL is called a Single Borrowers
Limit. It regulates the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any
person, partnership, association, corporation or other entity. The Rules seek to protect a bank from making excessive loans
to a single borrower by prohibiting it from lending beyond the specified ceiling. The current ceiling is 20% of the net worth of
the bank concerned, subject to possible increase by an additional 10% under certain conditions.
Example, you are a Corporation and you just have won the bid to revise, rebuild and enlarge Manila International Airport. And
based on the stipulations and pointers approved by the NEDA, you will bid 60 billion pesos at present expense. Now, the
capital needed for a mini-bank is not even 10 billion pesos. Where will you borrow 60 billion pesos? That is when banks will
organize themselves into syndication. Several banks come together and they will lend you, let us say of that amount. The
bank that lends the biggest amount will be called the lead bank. What is the function of the lead bank? The lead bank holds
the collateral for and in behalf of the syndication. Lain man kaayo na paminawon ang sindikato, but a syndication is a way to
hurdle the limitations of Single Borrowers Limit. A bank cannot lend more than 20% of its net worth but banks would like to
lend to these kinds of projects. Why? Because these are public utilities, you can almost forecast the earnings of public
utilities. So, they will lend and sometimes they will even borrow in order to be able to lend.
So, the type of documentation that is needed is considerable if you do have many banks involved. And to reduce the
agreement into contract, the lawyers have to cooperate and do the work. Because when the bankers sit down, they make
agreements and then lawyers have to reduce it into contract language. So the rule is more than 20% of the net worth of the
bank cannot be lend out to just one single borrower. And that single borrower is not necessarily an individual. It can be a
partnership, association, corporation or recognizable business interest.
(whole provision)
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SECTION 35. Limit on Loans, Credit Accommodations and

Guarantees.
35.1. Except as the Monetary Board may otherwise prescribe
for reasons of national interest, the total amount of loans, credit
accommodations and guarantees as may be defined by the
Monetary Board that may be extended by a bank to any
person, partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) of the net worth
of such bank. The basis for determining compliance with single-
borrower limit is the total credit commitment of the bank to the
borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total

amount of loans, credit accommodations and guarantees
prescribed in the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are
adequately secured by trust receipts, shipping documents,
warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable
goods which must be fully covered by insurance.
35.3. The above prescribed ceilings shall include: (a) the direct
liability of the maker or acceptor of paper discounted with or
sold to such bank and the liability of a 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 of said entities to such bank;
(c) in the case of a corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or controls a
majority interest; and
(d) in the case of a partnership, association or other entity, the
liabilities of the members thereof to such bank.
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 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: (a) the parent
corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities;
(b) the liabilities were incurred for the accommodation of the
parent corporation or another subsidiary or of the partnership or
association or entity or such individual; or
(c) the subsidiaries though separate entities operate merely as
departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit

accommodations and guarantees shall exclude:
(a) loans and other credit accommodations secured by

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obligations of the Bangko Sentral or of the Philippine

Government;
(b) loans and other credit accommodations fully guaranteed by
the government as to the payment of principal and interest;
(c) loans and other credit accommodations covered by
assignment of deposits maintained in the lending bank and held
in the Philippines;
(d) loans, credit accommodations and acceptances under
letters of credit to the extent covered by margin deposits; and
(e) other loans or credit accommodations which the Monetary
Board may from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations, deposits

maintained with, and usual guarantees by a bank to any other
bank or non-bank entity, whether locally or abroad, shall be
subject to the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be

included among those subject to these prescribed limits as may
be determined by the Monetary Board. (23a)
Alright, we already talked about DOSRI. What is DOSRI again? Directors, officers, stockholders, related interests (e.g.
asawa sa officer sa banko). You have to read the BSP Circular No. 170 because related interests is the most complicated.
It traces corporate relations and it also traces relationship by consanguinity and affinity. So, what are the formalities required
to be observed by a Director or officer of a bank who wishes to borrow from such bank? (Section 36)
a. The borrowing must be with the written approval of the majority of all the directors of the bank, excluding the director
or officer concerned;
Remember, the corporation law is a self-dealing provision. When a corporation enters into an agreement with a
Director, the Directors presence must not be included in the determination of the quorum. His vote must not be
necessary to make the majority vote that is required for approval.
b. Such approval must be entered upon the records of the bank;

That is the minutes of the Board meeting in which the approval was given. Remember, the BSP has access to all
the minutes of the Boards meetings. Now why is it necessary to state it must be the Board of Directors that must
approve the DOSRI loan? It is necessary because most banks, to facilitate faster approval of loans, they have
thresholds. Example, some loans just require approval of the Executive Committee. Some smaller loans just require
the approval of a VP. Now, if the loan of a DOSRI falls within that amount that just requires the approval of the
Executive Committee, is that sufficient? The answer is no matter how small the loan, if it is a DOSRI loan, it
must be approved by the Board of Directors. To be safe, corporate secretaries makes all the members of the
Board sign the DOSRI loan approval. And then the minutes itself must also be signed by everybody because it is
stated that the approval must be recorded in the minutes of the Board meeting in which the approval was made.
Again, let me remind you, the formalities are more important than the legality itself.
c. A copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the
Bangko Sentral;
Under the New Central Bank Act, what is required is that the DOSRI must waive his/her right to secrecy of bank
deposits. Now, tagaan kag problem sa BAR Examination (had to include this one kay murag importante): naay
tiguwang 84 years old, grandmother diay sa Executive VP sa bangko. Wa kahibalo ang Executive VP nga nisud ang
tiguwang sa bangko kay manghuwam syag kwarta kay magpabuhat na siya sa iyang mausoleum. Kadaut lang,
pag-examine sa bangko, wa sila magkasinabot kay bungol2 na ang tiguwang. Tawgon dayon nila ang Executive VP
para siya nalang ang magco-signatory sa loan sa tiguwang ug nisugot pud ang Executive VP ug nipirma dayon siya.
What has happened? You have a DOSRI loan and the formalities have not yet been complied with and theyve
already released the loan. Thats a violation. Another example, kung manager ka sa branch, officer na ka. Unya
nag-emergency loan ka kay na-caesarian imong asawa. Deretso lang dayon unya release, DOSRI na.
d. Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms
not less favorable to the bank than those offered to others;
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e. It shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in
capital contribution in the bank;
What is the meaning of an unencumbered deposits? How is a deposit encumbered? Ug nakahuwam na diay ka
sa una unya ang imong security sa imong gihuwam kay ang imo ra sad deposits. So mu-sign ka ug non-withdrawal
agreement. You cannot withdraw your bank deposit for as long as your loan is outstanding. Now mu-DOSRI pa ka,
muhuwam na sad ka usab, di na to iapil sa value nga imong mahuwam because it is already encumbered. That is
the meaning of unencumbered deposits.
Section 36 says, The Monetary Board shall define the term "related interests" and its definition is found in BSP Circular No.
170.
(whole provision)
SECTION 36. Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related Interests. No
director or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, borrow from
such bank nor shall he become a guarantor, indorser or surety
for loans from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank except with
the written approval of the majority of all the directors of the
bank, excluding the director concerned: Provided, That such
written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a
fringe benefit plan approved by the Bangko Sentral. The
required approval shall be entered upon the records of the bank
and a copy of such entry shall be transmitted forthwith to the
appropriate supervising and examining department of the
Bangko Sentral.
Dealings of a bank with any of its directors, officers or

stockholders and their related interests shall be upon terms not
less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office
of any bank director or officer who violates the provisions of this
Section may be declared vacant and the director or officer shall
be subject to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit

accommodations and guarantees that may be extended,
directly or indirectly, by a bank to its directors, officers,
stockholders and their related interests, as well as investments
of such bank in enterprises owned or controlled by said
directors, officers, stockholders and their related interests.
However, the outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its
stockholders, directors, or officers and their related interests,
shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital
contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall be
excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe
benefits granted in accordance with rules as may be prescribed

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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. (83a)
Loan includes financial accommodation and shall refer to transactions which involve the grant, renewal or extension of
increase of any loan (BSP Circular No.170). You have heard of a credit-line. Bank grants to a corporation the credit-line,
that is a loan. But it is called a line because it is at the option of the borrower when it activates.
Also under DOSRI, there is a special credit limit against real estate. Section 37 says,
SECTION 37. Loans and Other Credit Accommodations
Against Real Estate. Except as the Monetary Board may
otherwise prescribe, loans and other credit accommodations
against real estate shall not exceed seventy-five percent (75%)
of the appraised value of the respective real estate security,
plus sixty percent (60%) of the appraised value of the insured
improvements, and such loans may be made to the owner of
the real estate or to his assignees. (78a)
Except as the Monetary Board may otherwise prescribe so, the Monetary Board can modify this one.
But then Section 42 says,
SECTION 42. Other Security Requirements for Bank
Credits. The Monetary Board may, by regulation, prescribe
further security requirements to which the various types of bank
credits shall be subject, and, in accordance with the authority
granted to it in Section 106 of the New Central Bank Act, the
Board may by regulation, reduce the maximum ratios
established in Sections 36 and 37 of this Act, or, in special
cases, increase the maximum ratios established therein. (78)
So this is very generous, diba? 75% of the appraised value of the security.
Sections 40, 43 and 44 are about microfinancing. This is implemented by BSP Circular No. 272 dated January 30, 2001
and BSP Circular No. 273 dated February 27, 2001.
Date Issued: 01.30.2001
CIRCULAR NO. 272

Series of 2001
Pursuant to Monetary Board Resolution No. 40 dated January
11, 2001, the following guidelines shall be observed in
implementing the provisions of Sections 40, 43 and 44 of the
General Banking Law of 2000 with respect to microfinancing
loans:
1. Microfinancing loans are small loans granted to the
basic sectors, as defined in the Social Reform and Poverty
Alleviation Act of 1997 (Republic Act 8425), and other
loans granted to the poor and low-income households for
their microenterprises and small businesses so as to
enable them to raise their income levels and improve their
living standards. These loans are granted on the basis of
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the borrowers cash flow and are typically unsecured.
2. The maximum principal amount of microfinance loans shall

not exceed P150,000. This is equivalent to the maximum
capitalization of microenterprise under R.A. 8425.
3. The schedule of loan amortization shall take into

consideration the projected cash flow of the borrowers which is
adopted into the terms and conditions formulated. Hence,
microfinance loans may be amortized on a daily, weekly, bi-
monthly or monthly basis, depending on the cash flow
conditions of the borrowers.
4. Interest on such microfinancing loans shall be reasonable

and just as may be determined by management to be
consistent with its credit policies. The interest rate shall not be
lower than the prevailing market rates to enable the lending
institution to recover the financial and operational costs
incidental to this type of microfinance lending.
5. In cases of microfinancing loans which meet the criteria in

Items 1 to 3 of this Circular, a bank may not require from its
credit applicants, a statement of assets and liabilities, and of
their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary
Board to enable the bank to properly evaluate the credit
application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of
Internal Revenue, as prescribed under Section 40 of R.A.
8791.
6. Microfinance loans shall be considered compliance with

required loans to small and medium enterprises required under
R.A. 6977.
7. In view of the unique characteristics of microfinance loans,

i.e., small unsecured and based on cash flow of borrowers,
these loans may be exempted from rules and regulations which
may be issued by the Monetary Board with respect to
unsecured loans under Section 41 of the General Banking Law
of 2000, provided that the bank has:
(1) well-defined standards, credit policies and procedures for
microfinance loans which are in conformity with microfinance
international best practices;
(2) specific measures to be undertaken to ensure collection
such as close supervision of borrowers projects and
operations; and
(3) Loan Portfolio and Other Risk Assets Review System
required under X302 of the Manual of Regulations for Banks
which would serve as:
a) An adequate loan tracking system that allows daily
monitoring of the status of loan releases, collection and
arrearages, any restructuring or refinancing;
b) A regular monitoring of past due loans and portfolio at risk.
8. In the implementation of this Circular, bank should be

guided by the attached Notes on Microfinance.

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This Circular shall take effect immediately.
These loans are granted on the basis of the borrowers cash flow and are typically unsecured This is a statutory exception
to the general statutory rule that banks cannot lend without security.
This is justified with its small amounts lend to housewives who organize themselves into a ___with other housewives. 3 mo
kabuok. You look after each other. You are responsible for each other. Mubayad gani ang isa, pangutan-on dayon sa bangko
ug kumusta naman imong mga kauban. Its not justified to hire for a person who will monitor these borrowers kay gagmay ra
man ni sila. So this is encouraged by the Government. The whole idea now is to further expand the money allotted by the
Government to microfinancing.
Date Issued: 02.27.2001

CIRCULAR NO. 273
Series of 2001
The Monetary Board, in its Resolution No. 147 dated 25
January 2001 approved the partial lifting of the general
moratorium on the licensing of new thrift and rural banks to
allow the entry of microfinance-oriented banks, as follows:
Section 1. Microfinance-oriented banks may be established on

a very selective basis, preferably in places not fully served by
existing rural banks or in areas not fully serviced by
microfinance-oriented banks, subject to the following additional
criteria (in addition to standard licensing requirements):
1. That the microfinance-oriented bank to be established shall
either be a thrift bank or a rural bank;
2. That the capital of the microfinance-oriented banks to be

established should be owned by private persons, multilateral
entities or a combination thereof;
3. That in the case of a rural bank to be established as a

microfinance bank, the minimum paid-in capital shall be P5
million or the applicable existing capitalization requirement for a
new rural bank, whichever is higher. The capitalization
requirement under existing regulations shall apply to thrift
banks;
4. That the organizers must have the capacity to engage in

microfinancing, which may be indicated by the following:
a. At least twenty percent (20%) of the paid-in capital of the
proposed bank must be owned by persons or entities with track
record in microfinancing.
b. Majority of the members of the board of directors have
experience in microfinancing with at least one member having
actual banking experience.
c. The proposed bank must have as a minimum, an adequate
loan tracking system that allows daily monitoring of loan
releases, collection and arrearages, and any restructuring and
refinancing.
5. In addition to the requirements for the establishment of

banks, in general, the application for authority to establish a
microfinance-oriented bank must be accompanied by the
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following documents:
a. A vision and mission statement with clear expression of the
commitment to reach low-income clients.
b. A written manual of operations, which shall include the
administrative and credit program systems and procedures.
The Manual must be consistent with the core principles,
characteristics and features of microfinance, attached as Annex
A.
6. At least fifty percent (50%) of the banks gross loan

portfolio at all times shall consist of microfinance loans as
defined under existing Bangko Sentral ng Pilipinas regulations.
Section 2. The requirement that the President, Chief

Operating Officer or General Manager of a rural or thrift bank
must have at least two (2) years experience in banking and/or
finance may be substituted with microfinance experience in
cases of officers of a microfinance organization applying for
authority to establish, or convert into a rural or thrift bank
provided that the concerned officer is a college graduate.
Section 3. Subject to the standard branching requirements,

microfinance-oriented banks are also hereby exempted from
the general moratorium on the establishment of bank branches.
After one year of profitable operations, a microfinance-oriented
bank may apply for establishment of a branch but the Monetary
Board may require additional capital to be put up for every
branch in addition to the minimum capital of the thrift bank/rural
bank.
Section 4. Existing microfinance organizations applying for

authority to establish, or convert into a rural or thrift bank may
be allowed to also convert their existing branches/offices into
branches of the bank proposed to be established by
simultaneously applying for authority for the purpose. However,
the standard requirements for the establishment of branches,
particularly the capitalization requirement, have to be complied
with. Moreover, there must be a showing that the area is not
fully served by any existing rural bank.
This Circular shall take effect immediately.
Sections 40, 43 and 44:

SECTION 40. Requirement for Grant of Loans or Other
Credit Accommodations. Before granting a loan or other
credit accommodation, a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank.
Toward this end, a bank may demand from its credit applicants
a statement of their assets and liabilities and of their income
and expenditures and such information as may be prescribed
by law or by rules and regulations of Monetary Board to enable
the bank to properly evaluate the credit application which
includes the corresponding financial statements submitted for
taxation purposes to the Bureau of Internal Revenue. Should
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such statements prove to be false or incorrect in any material

detail, the bank may terminate any loan or other credit
accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or
liquidation of the obligation.
In formulating rules and regulations under this Section, the

Monetary Board shall recognize the peculiar characteristics of
microfinancing, such as cash flow-based lending to the basic
sectors that are not covered by traditional collateral. (76a)
SECTION 43. Authority to Prescribe Terms and Conditions

of Loans and Other Credit Accommodations. The
Monetary Board may, similarly, in accordance with the authority
granted to it in Section 106 of the New Central Bank Act, and
taking into account the requirements of the economy for the
effective utilization of long-term funds, prescribe the maturities,
as well as related terms and conditions for various types of
bank loans and other credit accommodations. Any change by
the Board in the maximum maturities shall apply only to loans
and other credit accommodations made after the date of such
action.
The Monetary Board shall regulate the interest imposed on

microfinance borrowers by lending investors and similar
lenders, such as, but not limited to, the unconscionable rates of
interest collected on salary loans and similar credit
accommodations.
SECTION 44. Amortization on Loans and Other Credit

Accommodations. The amortization schedule of bank loans
and other credit accommodations shall be adapted to the
nature of the operations to be financed.
In case of loans and other credit accommodations with

maturities of more than five (5) years, provisions must be made
for periodic amortization payments, but such payments must be
made at least annually: Provided, however, That when the
borrowed funds are to be used for purposes which do not
initially produce revenues adequate for regular amortization
payments therefrom, the bank may permit the initial
amortization payment to be deferred until such time as said
revenues are sufficient for such purpose, but in no case shall
the initial amortization date be later than five (5) years from the
date on which the loan or other credit accommodation is
granted. (79a)
In case of loans and other credit accommodations to

microfinance sectors, the schedule of loan amortization shall
take into consideration the projected cash flow of the borrower
and adopt this into the terms and conditions formulated by
banks. (n)
You will come to a question, covered by Section 45; can a bank prohibit a borrower from prepaying a loan? Let us say the
loan is 5 years. After he got the loan, he won the lotto in year 2. He went to the bank and offered to pay his loan so that he
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could also get the title to his property which was used as a security for his loan. Can the bank prohibit him from prepaying his
loan? The answer is NO. Section 45 says,
SECTION 45. Prepayment of Loans and Other Credit
Accommodations. A borrower may at any time prior to the
agreed maturity date prepay, in whole or in part, the unpaid
balance of any bank loan and other credit accommodation,
subject to such reasonable terms and conditions as may be
agreed upon between the bank and its borrower. (80a)
Some banks impose prepayment penalty. A prepayment penalty entered into at the time the loan is taken is fairly
reasonable. But if you negotiate that at the time you already had money, medyo taas2 na. But the bank can never prohibit
you from prepaying your loan. That is the same thing universally.
Can a bank acquire real estate? The rules for acquisition by the bank of real estate are found in Sections 51 and 52 of the
General Banking Law.
SECTION 51. Ceiling on Investments in Certain Assets.

Any bank may acquire real estate as shall be necessary for its
own use in the conduct of its business: Provided, however, That
the total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty
percent (50%) of combined capital accounts: Provided, further,
That the equity investment of a bank in another corporation
engaged primarily in real estate shall be considered as part of
the bank's total investment in real estate, unless otherwise
provided by the Monetary Board. (25a)
50% of combined capital accounts - that is the limit for the investment of the bank in real property. Included in that is lending
out to corporations primarily in real estate. BSP included that because of the big abuse which has happened before in the
earlier rubbles of real estate. For example, there is a bank and then naay mag-develop diri ug condominium, Euro Towers.
Pahuwamon na nimo ug kwarta. Pagtukod nila naa silay very good collateral, kana ra sad ilang gitukod. So the bank is
already exposed to that corporation that is engaged in real property. Now, natukod na pero wa pa man nabaligya ang mga
units. Kanang Euro Towers, ngadto na nila i-direct kanang ilang gibaligyaan ug units na ngadto manghulam sa bangko para
naa silay ikabayad sa units. Unya ingnon sad nila ang bangko na pahuwama baya na ha kay di mi makabayad ninyo ug dili
ninyo pahulmon. So what has happened? The same set of asset is already twice placed in jeopardy. That is why the BSP
now says that the limit of 50% of your capital account for purposes of acquisition of real property includes your exposure to
real estate companies. That the equity investment of a bank in another corporation engaged primarily in real estate shall be
considered as part of the bank's total investment in real estate , unless otherwise provided by the Monetary Board.
SECTION 52. Acquisition of Real Estate by Way of

Satisfaction of Claims. Notwithstanding the limitations of
the preceding Section, a bank may acquire, hold or convey real
property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of
security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts
previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as it
shall purchase to secure debts due it.
Any real property acquired or held under the circumstances

enumerated in the above paragraph shall be disposed of by the
bank within a period of five (5) years or as may be prescribed
by the Monetary Board: Provided, however, That the bank may,
after said period, continue to hold the property for its own use,
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subject to the limitations of the preceding Section. (25a)
Now that the banks can be 100% foreign-owned, they can even foreclose all properties even if they are foreign-owned. So
they can now own property out of foreclosure sales.
January 25, 2017 Tito
There is a famous case which is the bone of contention between the BIR and the BSP. The BSP has it in its official
commentary of The General Banking Law. What is this particular controversy?
It is the controversy known as the controversy of the Survivorship Clause. You open a bank account, savings account, let
us say there are 2 names Mr. Jose Vitug or Mrs. Alejandra Vitug. And the terms of the account says that any single one of
the main depositors may deposit money in this account and may likewise withdraw money from this account without any limit
as to the amount. And should one of the depositors predecease the other, then the surviving depositor becomes the owner of
the entire deposit. That last clause is the Survivorship Agreement.
This particular deposit arrangement takes into form in the celebrated case of Vitug vs. Court of Appeals.
What are the facts of that case?
Of course, there is a Vitug couple. They have made survivorship agreement account with the bank. The Mrs. Vitug dies,
predeceases the husband Mr. Vitug, holding the account in an or capacity. The estate of Mrs. Vitug, since she left the will, is
placed under probate. By virtue of the will, the husband is appointed administrator because he is named in the will as the
preferred administrator. The husband asked for reimbursement of expenses because he has been spending for
administrating a piece of property of the estate. The court approved the petition for reimbursement.
One of the heirs named in the estate, opposes the order of the court. The oppositor says Mr. Vtug is not entitled to
reimbursement because he has been using money from the estate in funding this particular property for rent at the expense
of the administrator of the property. The money comes from the survivorship account of Mr. Vitug and Mrs. Vitug. And now
that Mrs. Vitug is gone, all the money belongs to the estate.
When asked for comment from the probate court, Mr. Vitug says it is not the money of the estate but his own money because
the account says so. The both of them (Mr. and Mrs.) understood that.

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The reply of the oppositor is this how did it become your money? It either became your money while Mrs. Vitug was still
alive or after she has died. If you say that it is donation mortis causa because of her death, you became the owner, then that
is a transmission because of death. That should have the formalities of a will. But the signed papers you have does not have
the formalities of a will. So how can it be that youre the owner by virtue of the death? Its either donation mortis causa or
donation inter vivos. It cannot be donation inter vivos also because it is prohibited for couples to donate to each other. It c
annot be donation mortis causa because it does not have the formalities of a will. Therefore, it is not your money but rather
the money of the estate.
And sure enough, the judge in the probate court said, correct! Vitug appeals to the Court of Appeals. CA affirmed the
probate courts interlocutory judgment. Vitug went all the way to the Supreme Court for a question of law. This question is, if it
is true that this money belongs to the estate, then this survivorship agreement that banks may assign, is invalid.
So what is the decision of the Supreme Court? The Supreme Court says that the survivorship agreement is valid. It is not a
donation mortis causa nor is it a donation inter vivos but it is an aleatory contract. An example of an aleatory contract is a
contract of insurance. One party does his part and then after he has done his part, they wait for a condition to happen before
the other party is called upon to do his part. In a survivorship agreement, each party does his part but upon the happening of
an event, death, then the surviving party now exercises his right over the entire purpose funds that is covered by the aleatory
contract.
Now the banks will tell you, naa gani nay or. Mamatay nang usa, what happens? The surviving signatory/depositor only
pose of the amount of the . The other half belongs to the estate of the dead depositor. That is what the BIR tells the
banking community and that is how the BIR recovers estate tax. Because if it belongs to the survivor, the BIR will never get
tax. And yet the SC says this survivor rightfully owns the entire purpose funds because it is an aleatory contract and the
condition has happened.
Who is right or who is wrong is beside the point. What is the point is what you should do. Naa gani mamatay na nay bank
account, siya ray makawithdraw, wala kay mahimo unless naa ka niyay pre-signed withdrawal slip. But if its 2, mamatay
nang usa, buhay pa nang usa, what the surviving depositor can do is open a new account, withdraw the entire amount, put it
in the new account, this time with only the name of the surviving depositor. The bank will not oppose that because they are
not losing any money. It is still remaining there and it is already out of reach of the BIR. The only problem is when you go
there, and the bank is already informed.
When is the bank considered informed? The bank is considered informed
a) if you have sent a formal letter telling the bank that hes dead or
b) if you put an obituary notice in the paper.
Once you put an obituary notice in the paper, that means publication. That is notice to all at the time of its publication.
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One word is enough for a wise man. Be careful with bank accounts. First, a bank account just with one signatory is a stupid
bank account. Only stupid people have a bank account with just one depositor named. You must either be God or have
advanced knowledge when you are going to die. Because when you die, that entirely goes to BIR. Second, either one must
know what to do in case you die. The government takes 20% of interest income of a bank account and itss supposed to be a
final tax. You dont report that anymore in your income. Why should it still be taxing the amount that is there?
BIR Commissioner Kim Henares, she has just been reversed again by the Supreme Court, 3 days ago. She reversed the
former commissioners circular that finished products out of petroleum are no longer subject to tax. She reversed that and
she taxed. So Shell went to the Supreme Court and the SC countermanded the order of Henares. The Supreme Court said
you cannot change the rules just because you want to change the rules. It is the Congress who can change the rules.
So good review for your civil law, Vitug vs. Court of Appeals.
VITUG VS. COURT OF APPEALS
G.R. No. 82027 (March 29, 1990)
Facts: This case is a chapter in an earlier suit decided by this

Court involving the probate of the two wills of the late Dolores
Luchangco Vitug, who died in New York, U. S.A., on November
10, 1980, naming private respondent Rowena Faustino-
Corona executrix. In our said decision, we upheld the
appointment of Nenita Alonte as co-special administrator of
Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner
Romarico G. Vitug, pending probate.
On January 13, 1985, Romarico G. Vitug filed a motion asking

for authority from the probate court to sell certain shares of
stock and real properties belonging to the estate to cover
allegedly his advances to the estate in the sum of
P667,731.66, plus interests, which he claimed were personal
funds. As found by the Court of Appeals, the alleged advances
consisted of P58,147.40 spent for the payment of estate tax,
P518,834.27 as deficiency estate tax, and P90,749.99 as
"increment thereto." 3 According to Mr. Vitug, he withdrew the
sums of P518,834.27 and P90,749.99 from savings account
No. 35342-038 of the Bank of America, Makati, Metro Manila.

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On April 12, 1985, Rowena Corona opposed the motion to sell

on the ground that the same funds withdrawn from savings
account No. 35342-038 were conjugal partnership properties
and part of the estate, and hence, there was allegedly no
ground for reimbursement. She also sought his ouster for
failure to include the sums in question for inventory and for
"concealment of funds belonging to the estate."
Vitug insists that the said funds are his exclusive property
having acquired the same through a survivorship agreement
executed with his late wife and the bank on June 19, 1970.
The agreement provides:
We hereby agree with each other and with

the BANK OF AMERICAN NATIONAL TRUST AND
SAVINGS ASSOCIATION (hereinafter referred to as
the BANK), that all money now or hereafter deposited
by us or any or either of us with the BANK in our joint
savings current account shall be the property of all or
both of us and shall be payable to and collectible or
withdrawable by either or any of us during our
lifetime, and after the death of either or any of us
shall belong to and be the sole property of the
survivor or survivors, and shall be payable to and
collectible or withdrawable by such survivor or
survivors.
We further agree with each other and the

BANK that the receipt or check of either, any or all of
us during our lifetime, or the receipt or check of the
survivor or survivors, for any payment or withdrawal
made for our above-mentioned account shall be valid
and sufficient release and discharge of the BANK for
such payment or withdrawal.
Issue: In his petition, Vitug, the surviving spouse, assails the

appellate court's ruling on the strength of our decisions
in Rivera v. People's Bank and Trust Co. and Macam v.
Gatmaitan in which we sustained the validity of "survivorship
agreements" and considering them as aleatory contracts.
SC Ruling: The petition is meritorious. The conveyance in

question is not, first of all, one of mortis causa, which should
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be embodied in a will. A will has been defined as "a personal,

solemn, revocable and free act by which a capacitated person
disposes of his property and rights and declares or complies
with duties to take effect after his death." In other words, the
bequest or device must pertain to the testator. In this case, the
monies subject of savings account No. 35342-038 were in the
nature of conjugal funds In the case relied on, Rivera v.
People's Bank and Trust Co., we rejected claims that a
survivorship agreement purports to deliver one party's
separate properties in favor of the other, but simply, their joint
holdings:
xxx xxx xxx
... Such conclusion is evidently predicated

on the assumption that Stephenson was the exclusive
owner of the funds-deposited in the bank, which
assumption was in turn based on the facts (1) that the
account was originally opened in the name of
Stephenson alone and (2) that Ana Rivera "served
only as housemaid of the deceased." But it not
infrequently happens that a person deposits money in
the bank in the name of another; and in the instant
case it also appears that Ana Rivera served her
master for about nineteen years without actually
receiving her salary from him. The fact that
subsequently Stephenson transferred the account to
the name of himself and/or Ana Rivera and executed
with the latter the survivorship agreement in question
although there was no relation of kinship between
them but only that of master and servant, nullifies the
assumption that Stephenson was the exclusive owner
of the bank account. In the absence, then, of clear
proof to the contrary, we must give full faith and credit
to the certificate of deposit which recites in effect that
the funds in question belonged to Edgar Stephenson
and Ana Rivera; that they were joint (and several)
owners thereof; and that either of them could
withdraw any part or the whole of said account during
the lifetime of both, and the balance, if any, upon the
death of either, belonged to the survivor.
xxx xxx xxx
In Macam v. Gatmaitan, it was held:
xxx xxx xxx
This Court is of the opinion that Exhibit C is

an aleatory contract whereby, according to article
1790 of the Civil Code, one of the parties or both
reciprocally bind themselves to give or do something
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as an equivalent for that which the other party is to

give or do in case of the occurrence of an event which
is uncertain or will happen at an indeterminate time.
As already stated, Leonarda was the owner of the
house and Juana of the Buick automobile and most of
the furniture. By virtue of Exhibit C, Juana would
become the owner of the house in case Leonarda
died first, and Leonarda would become the owner of
the automobile and the furniture if Juana were to die
first. In this manner Leonarda and Juana reciprocally
assigned their respective property to one another
conditioned upon who might die first, the time of
death determining the event upon which the
acquisition of such right by the one or the other
depended. This contract, as any other contract, is
binding upon the parties thereto. Inasmuch as
Leonarda had died before Juana, the latter thereupon
acquired the ownership of the house, in the same
manner as Leonarda would have acquired the
ownership of the automobile and of the furniture if
Juana had died first.
xxx xxx xxx
There is no showing that the funds exclusively belonged to one

party, and hence it must be presumed to be conjugal, having
been acquired during the existence of the marita. relations.
Neither is the survivorship agreement a donation inter

vivos, for obvious reasons, because it was to take effect after
the death of one party. Secondly, it is not a donation between
the spouses because it involved no conveyance of a spouse's
own properties to the other.
It is also our opinion that the agreement involves no

modification petition of the conjugal partnership, as held by the
Court of Appeals, by "mere stipulation" and that it is no
"cloak" to circumvent the law on conjugal property relations.
Certainly, the spouses are not prohibited by law to invest
conjugal property, say, by way of a joint and several bank
account, more commonly denominated in banking parlance as
an "and/or" account. In the case at bar, when the spouses
Vitug opened savings account No. 35342-038, they merely put
what rightfully belonged to them in a money-making venture.
They did not dispose of it in favor of the other, which would
have arguably been sanctionable as a prohibited donation.
And since the funds were conjugal, it can not be said that one
spouse could have pressured the other in placing his or her
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deposits in the money pool.
The validity of the contract seems debatable by reason of its

"survivor-take-all" feature, but in reality, that contract imposed
a mere obligation with a term, the term being death. Such
agreements are permitted by the Civil Code.
Under Article 2010 of the Code:
ART. 2010. By an aleatory contract,

one of the parties or both reciprocally bind
themselves to give or to do something in
consideration of what the other shall give or
do upon the happening of an event which is
uncertain, or which is to occur at an
indeterminate time.
Under the aforequoted provision, the fulfillment of an aleatory

contract depends on either the happening of an event which is
(1) "uncertain," (2) "which is to occur at an indeterminate time."
A survivorship agreement, the sale of a sweepstake ticket, a
transaction stipulating on the value of currency, and insurance
have been held to fall under the first category, while a contract
for life annuity or pension under Article 2021, et sequentia, has
been categorized under the second. 25 In either case, the
element of risk is present. In the case at bar, the risk was the
death of one party and survivorship of the other.
However, as we have warned:
xxx xxx xxx
But although the survivorship agreement is per se not

contrary to law its operation or effect may be violative
of the law. For instance, if it be shown in a given case
that such agreement is a mere cloak to hide an
inofficious donation, to transfer property in fraud of
creditors, or to defeat the legitime of a forced heir, it
may be assailed and annulled upon such grounds. No
such vice has been imputed and established against
the agreement involved in this case.

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xxx xxx xxx
There is no demonstration here that the survivorship

agreement had been executed for such unlawful purposes, or,
as held by the respondent court, in order to frustrate our laws
on wills, donations, and conjugal partnership.
The conclusion is accordingly unavoidable that Mrs. Vitug

having predeceased her husband, the latter has acquired upon
her death a vested right over the amounts under savings
account No. 35342-038 of the Bank of America. Insofar as the
respondent court ordered their inclusion in the inventory of
assets left by Mrs. Vitug, we hold that the court was in error.
Being the separate property of petitioner, it forms no more part
of the estate of the deceased.
Alright. In the General Banking Law, there are Labor Code provisions. What are these labor provisions? Section 55.1 sub
paragraph (e) subsequently imiplemented by Bangko Sentral ng Pilipinas Circular No. 268 dated December 5, 2000. What is
this provision? This provision identifies the particular banking activities that may be outsourced. All other functions or
activities of the bank that are not listed here may be outsourced.
Section 55, RA 8791. Prohibited Transactions.
55.1. No director, officer, employee, or agent of any bank shall

- x x x
(e) Outsource inherent banking functions
Now, a bank may not outsource inherent banking functions. That is, a bank may not enter into a contract with a service
provider or non agency for the latter to supply manpower of activities that are inherently understood as banking functions so
as not to violate the secrecy of Bank Deposits Law. Subject to the prior approval of the Monetary Board, the bank may
outsource the following:
#1. Outsourcing of Information Technology Systems/Processes

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Section 3, BSP Circular No. 268. Outsourcing of

Information Technology Systems/Processes. Subject to
prior approval of the Monetary Board, banks may outsource all
information technology systems and processes except for
functions excluded in Section 3.1.
Section 3.1 Certain functions affecting the ability of the bank

to ensure the fit of technology services deployed to meet its
strategic and business objectives and to comply with all
pertinent banking laws and regulations, such as but not limited
to strategic planning for the use of information technology;
determination of system functionalities; change management
inclusive of quality assurance and testing; service level and
contract management; and security policy and administration,
may not be outsourced.
x x x
So information technology is generally subcontracting. For that matter, many, if not most of business establishments,
normally contract out computer and information technology services. Theres just too much development going on there that
you cannot keep up by maintaining regular information technology purpose. So if you have a regular employee who is
information technology, chances are, in about 5 years he is working in passe. So you cannot make that as a regular. You
must outsource that.
#2.
Section 4, BSP Circular No. 268. Outsourcing of Other Bank

Functions
Section 4.1. Subject to prior approval of the Monetary Board,

banks may outsource data imaging, storage, retrieval and
other related systems; clearing and processing of checks not
included in the Philippine Clearing House System; printing of
bank deposit statements; and such other activities as may be
determined by the Monetary Board. The bank concerned must
submit the same documentary requirements listed in Section
3.2 hereof, except where they exclusively pertain to
information technology operations.
Section 4.2. Banks may outsource credit card services;

printing of bank loan statements and other non-deposit
records, bank forms and promotional materials; credit
investigation and collection; processing of export, import and
other trading transactions; transfer agent services for debt
and equity securities; property appraisal; property
management services; messenger, courier and postal
services; security guard services; vehicle service contracts;
janitorial services; and such other activities as may be
determined by the Monetary Board.
messenger, courier and postal services

Although you have to differentiate this with Phil Banking Communications vs. NLRC. The messengers there were those who
were pushing papers within the bank. Kanang teller, pag dawat niya sa deposit slip, una na niya ma-release kinahanglan ug
approval from the officers. Sa kanang mukuha sa papel nga na, i-dala ditto sa kung kinsa man magduty, cashier ba, janitor.

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Dal-on na sad na sa laing officer, unya ibalik na sad na sa teller. Kanang sa teller ang na-signed na ron, una pa siya ma-
release. Kadtong naglibot libot na labor code messengers, the Supreme Court said in the Philippine Bank Communications
case, those are bank messengers, not messengerial service. If they are operating within the bank premises, they must be
under the command and control of the managers and officers. They are directly supervised by the officers of the bank. They
are not messengers. Ang messengers, naa sa gawas mudala didto ug message.
By the way, in Makati, there is now a growing need for special service. Unsa man na? Wala man gud moy notary public na
mu-notarize. Dili ka mu-personally appear before me on such and such day in Manila, etc. Do you expect the president of a
company to go to a notary public? Dili gud na mahitabo but the Supreme Court keeps on saying that that is a requirement for
notarization that the notary must be able to say that he appeared before me. So, there are these special messengers that
bring to the notary the documents.
Now, if there is one function that is clearly to be contracted out in the bank, what is that function? According to the BSP
Circular, the teller can never be contracted out. Why? That teller represents the bank in receiving your deposit. The teller
represents the bank when you take out your money. Payment by the bank is made through the teller. According to BSP, that
is quintessentially the banking function.
Section 55. Prohibited Transactions.
xxx
55.4. Consistent with the provisions of Republic Act

No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or non regular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits.
So the main reason for prohibiting the contracting out of banking functions is the Secrecy of Bank Deposits Law. Our bank
deposit law is traditional, meaning we adhere to the old standard of secrecy probably because of cultural biases. But more
and more throughout the world, secrecy of bank deposits is no longer held that sacrosanct because so much more
irregularities have been committed in the name of secrecy of bank deposits. So there has been some relaxation.
The Central Bank just issued a uniform rule as to when a bank can consider a particular rule as past due loans and non-
performing loans. Past due loans the moment when you cannot pay when due, a particular installment, service of a loan,
the day after, you are already classified as past due.
Now, when does the loan become non-performing. 90 days from past June and you still cannot pay, you have not made any
payment, the loan becomes non-performing and conditioning(?) on the part of the bank is mandatory.
One of the tricks in banking is to window dress over your non-performing loans. You add up the interest due which has not
been paid plus all the penalties, you are lump it together with the original loan and you restructure the loan. So the payments
that have been made are considered a new loan. That is no longer allowed. They are following the Basil(?) principles of
international banking. Katong mga bangko, dugay una bago sila maka-provision sa loan because they do not have enough
capital. The purpose of the capital of the bank is precisely to meet the contingency that loans are not paid and you make
provisioning. The money you lend are deposits. You make money from the difference between the interest you earn and the
interest you pay. That is strict banking business.
What is the obligation of the bank when it lends money?
One of the obligations of the bank is found in the Truth in Lending Act which is again repeated by the General Banking Law.
One rule is that a copy of the Truth in Lending Act must be found and readable within the premises of the bank. Di ka na
kakita ana ron because Transparency in Lending Act na man ron. From the latest Central Bank Circular, gi-pagamay nila ang
disclosure requirements. Gi-simplify nila kuno because before, the item to be disclosed were too many for the general public
to understand. So karon, Transparency in Lending na.

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The Truth in Lending Act became effective in 1963. Who are covered? Not just banks. All entities got extend credit must
comply with the Truth or Transparency in Lending Act. So if you are the clients/dealer for credit, you must comply with the
Truth in Lending Act. The whole purpose of the law is to protect users of credit from a lack of awareness of the true cause of
such credit by requiring a full disclosure of the cost of credit. The law assumes that the uninformed use of credit is
detrimental to the national economy. Lack of credit is the cause. If you are an informal sector, kinsa man imong hulaman?
Informal lenders na.
What is the duty of the bank and all those who provide credit?
Section 4, RA 3765 (Truth in Lending Act). Any

creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable and
in accordance with rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of the property or service
to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be
paid by such person in connection with the transaction but
which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total amount
to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
That is the extent of disclosure that you have to make. Under the new Transparency Laws, 5 na lang.
What is the difference between nominal rate interest and the effective rate of interest?
Nominal rate interest is what the creditor says is charging you for the amount you need. The rate of interest that you are
actually paying.
Give me an example of the difference. You borrow P10,000 and then the nominal rate of interest is just 10%. So P1,000 ang
ibayad nimo ng a interst. Pero sa paghatag sa kwarta nimo na P10,000, gideduct na daana ng interest. Pero mao ra gihapon
imong bayrunon kada-bulan hantod mahuman nimo bayad, P11,000. P10,000 lang imong principal, P1,000 imong interest.
Pero paghatag nila sa imuha, P9,000 na lang. What is the effective rate? The effective rate of interest is P1,000 divided by
P9,000. Mao na ang imong tinuod na interest. So ang nominal is lahi sa effective rate of interest.
What credit transactions are within the scope of the Transparency in Lending?
Section 3, RA 3765 (Truth in Lending Act). As used in this

Act, the term
(2) "Credit" means any loan, mortgage, deed of trust, advance,

or discount; any conditional sales contract; any contract to sell,
or sale or contract of sale of property or services, either for
present or future delivery, under which part or all of the price is
payable subsequent to the making of such sale or contract;
any rental-purchase contract; any contract or arrangement for
the hire, bailment, or leasing of property; any option, demand,

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lien, pledge, or other claim against, or for the delivery of,

property or money; any purchase, or other acquisition of, or
any credit upon the security of, any obligation of claim arising
out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
Is a lay-away arrangement included in Truth in Lending Act?
The Supreme Court said that a lay-away agreement is a security(?). Its based on a piece of paper made payments after
which you have title to that thing. Lahi ran a kung kuhaon na nimo and magbayad ka. That is extension of credit. Lahi ang
cash price and lahi ang installment price. If you do not get it and you pay installment, there is no interest, its the cash price
that you are paying, that is the security. That is not covered by Transparency in Lending Act.
The old law, Truth in Lending Act, makes a differentiation between a finance charge and a non-finance charge.
Finance charges according to BSP Circular No. 158, are the amounts to be paid by the debtor incident to the extension of
credit such as interest, discounts, collection fees, credit investigation fees, and attorneys fees.
Non-finance charges are the amounts advanced by the creditor for items normally associated with the ownership of property
or the availment of purchases which are not incident to the extension of credit. Example, when a debtor purchases a car on
credit, the creditor may advance the insurance premium as well as the registration fee for the amount of the debtor.
Necessary man na because you cannot drive your car without registration. So these are non-finance charges which must
also be disclosed for proper knowledge of how much you are borrowing.
The Supreme Court has held that while banks are authorized by the BSP Circular No. 504 to collect and handle charges, the
same circular requires banks to adhere strictly to the provisions of the Truth in Lending Act such that if the promissory note
signed by the borrower does not contain a stipulation on the payment of handling charges, the banks cannot charge and
collect such handling charges for the borrower.
There is this rule now where they are trimming down the banking business. There is a move to return banking into its original
business which is to get from deposits, use the money of the depositors to lend out. That is basic and timely. The large
unibanks are engaged in so many things, not just accepting deposits or lending out of deposits but they are into insurance,
credit cards, leasing, etc. In insurance, it is not really the bank itself that gets you to buy insurance from them. It is the
insurance company where the unibank has an interest in. The bank cannot directly engage in an insurance business as an
insurer but a universal bank is allowed to invest in the equity of an insurance company and that insurance company is given
people within the bank premises.
There is so much competition in insurance business. As Warren Buffet says, there is no risk that is not insured. If you are a
bank, and you are engaged in that business, then you are carrying an insurance risk.
February 8, 2017 - Petallo
ESCALATION INTEREST
Banks, over practice, in which the term loan, let us say of five years, and there is an escalating interest. Can you agree to the
escalation of interest? That is yet undetermined at the time of the loan agreement. Is that valid?
Lets say the interest in the first two years is 6%. Then we do not know yet but in the succeeding year, the interest will be
raised to 8%. But you already agree to an increase in the interest rate, which depends on a reference rate. Lets say, if the
interest of treasury bills increase by this much, then the interest rate of succeeding years will also increase by this much. Is
that valid? And is that automatic?
The SC says it is valid, provided the borrower agrees. Not only agrees at the inception of the contract, but at the time of the
implementation of the contract. And the agreement is secure and it is specific. In other words, there is no such thing as an
automatic agreement, simply because the bank hasnt told you that the interest really has increased and has said nothing to
the said agreement, according to the SC. You have to explicitly agree.

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Now, if you agree on the escalation rate depending on a reference rate, what does it mean? There must also be a de-
escalation rate if the interest rate of the method goes down. So, if you agree, the interest is raised because the reference
rate, treasury bill rate, has increased, there must also be the opposite agreement that if the treasury bill rate goes down, then
the interest rate of a loan must also go down. To be fair. That is what the SC said.
FIDUCIARY NATURE OF BANKS
Now, what is the relationship with the bank? The obligation of the bank employees to its bank? That obligation of
characterization of the relationship is fiduciary in nature.
CITYTRUST BANKING CORP. VS CRUZ (2010)
According to the SC, a banking institution has a direct obligation to supervise very closely the employees handling its
depositors accounts, and should always be mindful of the fiduciary nature of its relationship with the depositors. Such
relationship requires it and its employees to record accurately every single transaction, and as promptly as possible,
considering that the depositors accounts should always reflect the amounts of money the depositors could dispose of as
they saw fit, confident that, as a bank, it would deliver the amounts to whomsoever they directed. The failure of the bank to
exercise diligence and meticulousness warrants its liability for exemplary damages and for reasonable attorneys fees.
During those days, it is the wife of the mayor. And they agreed to deliver the money to where the wife of the mayor is
supposed to live. They dont even know the looks of the wife of the mayor. It turns out it was not the wife of the mayor.
SC says, the fiduciary nature requires that it exercise extraordinary diligence.
RISK-BASED CAPITAL
Now, what is this so-called risk-based capital?
RA 8791
Section 34. Risk-Based Capital. The Monetary Board shall prescribe minimum ratio which the net worth of
a bank must bear to its total risk assets which may include contingent account.
For purposes of this Section, the Monetary Board may require such ratio be determined on the basis of
the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk assets of banks and their
subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall, to the extent feasible
conform to internationally accepted standards, including those of the Bank for International Settlements (BIS),
relating to risk-based capital requirement; Provided further, That it may alter or suspend compliance with such
ratio whenever necessary to a maximum period of one (1) year; Provided finally, That such ratio shall be
applied uniformly to banks of the same category.
In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or prohibit the
distribution of net profits by such bank and may require that part or all of the net profits be used to
increase the capital accounts of the bank until the minimum requirement has been met.
The Monetary Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of
new investments by the bank, with the exception of purchases of readily marketable evidences of
indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of
indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the
Philippines, until the minimum required capital ratio has been restored.
In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by the Bangko Sentral, Monetary Board may temporarily relieve the surviving bank,
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consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with the
required capital ratio under such conditions as it may prescribe.
Before the effectivity of the rules which the Monetary Board is authorized to prescribe under this provision, Section
22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all pertinent rules issued
pursuant thereto, shall continue to be in force.
The MB shall prescribe minimum ratio which the net worth of a bank must bear to the total risk assets which may include
contingent accounts, and may require such ratio be determined on the basis of the net worth and risk assets of the bank and
its subsidiaries, financial or otherwise, or prescribe the composition and the manner of determining the net worth and total
risk assets of banks and their subsidiaries.
So, the MB may require or suspend compliance with such ratio whenever necessary for a maximum period of one (1) year,
ratio applied uniformly to banks of the same category.
What is the effect if you cannot maintain this risk asset ratio?
FIRST: Limited or prohibited distributing net profits by such bank and may require that part or all of the net profits
be used to increase the capital accounts until the minimum requirement has been met.
So, this is one of the grounds by which the banks are prevented because these risk-based capital requirements are not met.
SECOND: The bank will be restricted or prohibited in acquisition of major assets and making of new investments
with the exception of purchases of readily marketable evidences of indebtedness of the Republic of the Philippines
and of BSP.
So, you cannot intervene in the open market except to buy or to sell [] indebtedness.
THIRD: In case of bank merger, consolidation, or when a bank is under BSP approved rehabilitation, the MB may
temporarily relieve the surviving, consolidated, or constituent bank or corporations under rehabilitation from full
compliance with the required capital ratio.
SINGLE BORROWERS LIMIT
RA 8791
Section 35. Limit on Loans, Credit Accommodations and Guarantees
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of
loans, credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by
a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty
percent (20%) of the net worth of such bank. The basis for determining compliance with single borrower limit
is the total credit commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations
and guarantees prescribed in the preceding paragraph may be increased by an additional ten percent
(10%) of the net worth of such bank provided the additional liabilities of any borrower are adequately
secured by trust receipts, shipping documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, non-perishable goods which must be fully
covered by insurance.
35.3 The above prescribed ceilings shall include: (a) the direct liability of the maker or acceptor of paper
discounted with or sold to such bank and the liability of a 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 of said entities to such bank; (c) in the case of a corporation,
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all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority
interest;; and (d) in the case of a partnership, association or other entity, the liabilities of the members
thereof to such bank.
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 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: (a) the parent corporation,
partnership, association, entity or individual guarantees the repayment of the liabilities; (b) the liabilities were
incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association
or entity or such individual; or (c) the subsidiaries though separate entities operate merely as departments or
divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:
(a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the
Philippine Government; (b) loans and other credit accommodations fully guaranteed by the government as
to the payment of principal and interest; (c) loans and other credit accommodations covered by
assignment of deposits maintained in the lending bank and held in the Philippines; (d) loans, credit
accommodations and acceptances under letters of credit to the extent covered by margin deposits; and
(e) other loans or credit accommodations which the Monetary Board may from time to time, specify as
non-risk items.
We saw before the single borrowers limit. Remember, the single borrowers limit is 20% of the net worth of such bank. Now,
this 20% may be increased or decreased by the MB. Unless the MB prescribes otherwise, this single borrowers limit may
increase by an additional 10% of net worth, provided the additional amount is supported adequately by trust receipts,
shipping documents, warehouse receipts. In other words, additional assets, now which must be fully covered by insurance,
which shall include:
1) Direct liability of maker or acceptor of paper discounted with or sold to such bank and liability of general endorser;
2) In case of an individual who owns or controls a majority interest of a corporation, partnership, association, or any
other entity, the liabilities of such bank;
3) In case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a
majority interest
What is the coverage for the single borrowers limit?

For purposes of single borrowers limit coverage, loans, other credit accommodations and guarantees shall exclude:
35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:
(a) Those secured by obligations of the BSP or the Philippine Government;
(b) Again, fully guaranteed by the government as to payment of principal and interest, these are not covered;
(c) Those covered by assignment of deposits maintained in the lending bank and held in the Philippines;
(d) And other letters of credit to the extent covered by margin deposits;
(e) And those which the Monetary Board may from time to time specify as non-risk items.
This enumeration is not counted for purposes of single borrowers limit coverage.
Weve taken up the various distress levels of the bank, namely conservatorship, receivership, and liquidation.
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BANKING LAWS TSN
SY 2016 - 2017
PROHIBITIONS UNDER THE GENERAL BANKING LAW:
A. PROHIBITIONS WITH RESPECT TO BANKS
RA 8791
Section 54. Prohibition to Act as Insurer. A bank shall not directly engage in insurance business as the
insurer.
Banks cannot act as insurer. A bank cannot directly engage in the insurance business, but a bank can invest in an insurance
company, and if it does so, all its branches may be the site for the insurance business where the bank has investments.
So all the branches may sell government bond insurance that is under the control of the bank, but the bank itself cannot
directly engage in the insurance business.
B. PROHIBITED TRANSACTIONS BY BANK DIRECTORS AND OFFICERS
RA 8791
Section 55. Prohibited Transactions.
55.1. No director, officer, employee, or agent of any bank shall
(a) Make false entries in any bank report or statement or participate in any fraudulent transaction,
thereby affecting the financial interest of, or causing damage to, the bank or any person;
(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any
information relative to the funds or properties in the custody of the bank belonging to private
individuals, corporations, or any other entity; Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(c) Accept gifts, fees, or commissions or any other form of remuneration in connection with the
approval of a loan or other credit accommodation from said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions
of the bank or any bank; or
(e) Outsource inherent banking functions.
XXX
Regarding 55.1 (b).
The law, of course, internationally, bank deposits secrecy is now frowned upon. With the Philippines, we are the last that
has very strict bank secrecy deposits law. (Talks about bank secrecy in Switzerland.)
Regarding 55.1 (c).
Suppose a bank manager offers to a client, proper payment has been foreclosed by the bank and which is open for
resale to the public. It offers it to the public. Can he get a commission for that? Is there acceptance of gifts, fees, or
commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation
from said bank?

44
BANKING LAWS TSN
SY 2016 - 2017
That is not a violation of the prohibition because it is in connection with a loan or other credit accommodation from said
bank.
But it is frowned upon in banking practice because instead of making a mortgage execution sale as open to the public so
that you will get the proper price or value of that particular property, you do something in favor of a particular buyer, and
because a bank is supposed to be able to get the best price in an open auction, you limit that possibility because you
favor a particular buyer.
Regarding 55.1 (d)
Overvaluing. There is a thin line that divides overvaluing and maximizing value. There is a very thin line.
Regarding 55.1 (e)
You remember what are the inherent functions? Better to memorize them: messengerial purposes, computer
programming, etc.
C. PROHIBITED ACTS BY THE BORROWER
(continuation of SEC. 55)
XXX
55.2. No borrower of a bank shall
(a) Fraudulently overvalue property offered as a

security for a loan or other credit accommodation
from the bank;
(b) Furnish false or make misrepresentation or

suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other
credit accommodation or extending the period
thereof;
(c) Attempt to defraud the said bank in the event of a

court action to recover a loan or other credit
accommodation; or
(d) Offer any director, officer, employee or agent of a

bank any gift, fee, commission, or any other form
of compensation in order to influence such
persons into approving a loan or other credit
accommodation application.
XXX
D. PROHIBITED ACTS OF BSP OFFICERS

45
BANKING LAWS TSN
SY 2016 - 2017
(continuation of SEC. 55)
XXX
55.3. No examiner, officer or employee of the Bangko

Sentral or of any department, bureau, office, branch or
agency of the Government that is assigned to supervise,
examine, assist or render technical assistance to any bank
shall commit any of the acts enumerated in this Section or
aid in the commission of the same.
The making of false reports or misrepresentations or

suppression of material facts by personnel of the Bangko
Sentral ng Pilipinas shall be subject to the administrative
and criminal sanctions provided under the New Central
Bank Act.
XXX
E. PROHIBITED ACT OF BANK IN CONDUCTING BUSINESS IN UNSAFE OR UNSOUND MANNER
When does this happen?
RA 8791
Section 56. Conducting Business in an Unsafe or Unsound Manner In determining whether a particular act or
omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust
entities, may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the
Monetary Board shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the
safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institutions
depositors, creditors, investors, stockholders, or to the Bangko Sentral or to the public in general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or
preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities
through manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous
to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the
Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act,
take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law
to the contrary notwithstanding.
Now, suppose there is a general bank failure from loans from a definite industry or sector, is it unsafe or unsound banking
practice to give more loans to the borrowers to that particular industry? There is a general bank failure. Can the bank still give
loans to that particular industry? Or is that a violation of any of these rules?
Has resulted or may result in any material loss or damage or abnormal risk or danger to the stability, liquidity, or solvency of
the institution

46
BANKING LAWS TSN
SY 2016 - 2017
Ill give you an example, typhoon Pablo, bagsak ang tanang mga saging sa Davao, Compostela Valley. Kana sila tanan naa
may utang sa bangko. Unsaon man pagbangon? Dili na ni kabayad ug utang. Dili na lang na pautangon usab. Muingon ang
bangko, mao man ni ang guideline. Dili na ka makautang kay it has resulted in a material loss and damage. Wa may
makabayad ug utang ana mao dili nimo pautangon usab.
In other words, is there some ill will?
Material loss that is caused by force majeure or act of God. If there is an act of God or force majeure, that is not the material
risk, damage or abnormal risk that is referred to here that results in the loss. Because if you follow that, nobody can recover
from generalized loss caused by circumstances over, beyond, and above the control of the borrower.
F. PROHIBITION ON DIVIDEND DECLARATION
Guidelines for BSP where it can prohibit declaration of dividends to a bank or quasi-bank.
No bank or quasi-bank shall declare dividends greater than its accumulated net profits then on hand deducting therefrom its
losses and bad debts.
So, your audited financial statement must first go the BSP, and BSP will again look over it and consider your loan losses, bad
debts, and the amount that you have to provide for these causes, commission which is taken from your net profits of the year.
So, your net profits actually becomes formed at once the BSP has already gone through it. And you cannot declare dividends
greater than its accumulated net profits then on hand, deducting therefrom its losses and bad debts.
RA 8791
Section 57. Prohibition on Dividend Declaration. No bank or

quasi-bank shall declare dividends, if at the time of
declaration:
57.1. Its clearing account with the Bangko Sentral is

overdrawn; or
57.2. It is deficient in the required liquidity floor for

government deposits for five (5) or more consecutive days,
or
57.3. It does not comply with the liquidity standards/ratios

prescribed by the Bangko Sentral for purposes of
determining funds available for dividend declaration; or
57.4. It has committed a major violation as may be

determined by the Bangko Sentral.
Again, you cannot declare dividends if at the time of declaration:
1) Its clearing account with the BSP is overdrawn; or
2) It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days, or
3) It does not comply with the BSP prescribed liquidity standards/ratios for purposes of determining funds available
for dividend declaration; or
4) It has committed major violations as determined by the BSP.
So there are many grounds that the BSP may rely upon to stop the bank from declaring dividends. That is despite of the
banks making a profit. It can have other grounds to stop.
47
BANKING LAWS TSN
SY 2016 - 2017
INDEPENDENT AUDITOR BANKS
RA 8791
Section 58. Independent Auditor. The Monetary Board may require a bank, quasi-bank or trust entity to engage the
services of an 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. The term of the engagement shall be as prescribed
by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner,
or on the basis of special engagement; but in any case, the independent auditor shall be responsible to the banks,
quasi-banks or trust entitys board of directors. A copy of the report shall be furnished to the Monetary Board. The
Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity and/or the individual
members thereof, to conduct, either personally or by a committee created by the board, an annual balance sheet
audit of the bank, quasi-bank or trust entity to review the internal audit and control system of the bank, quasi-bank
or trust entity and to submit a report of such audit.
Now, as to independent auditor banks. The MB may require a bank, quasi-bank or trust entity to engage the services of an
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.
Nakapasa na ka. CPA na ka. Maka-audit ba ka ug bangko? Ah di. Just because you are a CPA, you are not qualified to audit
a bank. You must be accredited by the BSP.
(Talks about lawyer qualifications in specific offices)
Then, the term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis
where the auditor shall act as resident examiner, or on the basis of special engagement. In any case, the independent
auditors shall be responsible directly to the board of directors.
The MB may also direct the board of directors of a bank, quasi-bank, trust entity and/or the individual members thereof, to
conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or
trust entity to review the internal audit and control systems of the bank, quasi-bank or trust entity and to submit a report of
such audit.
So, the MB can order an internal audit.
AUTHORITY TO REGULATE ELECTRONIC TRANSACTIONS
RA 8791
Section 59. Authority to Regulate Electronic Transactions.

The Bangko Sentral shall have full authority to regulate the
use of electronic devices, such as computers, and
processes for recording, storing, and transmitting
information or data in connection with the operations of a
bank, quasi-bank or trust entity, including the delivery of
services and products to customers by such entity.
Does the MB have authority to regulate electronic transactions? Electronic transactions, mga online banking.
The BSP shall have full authority to regulate the use of electronic devices, such as computers, and processes for recording,
storing, transmitting information or data in connection with the operations of a bank, quasi-bank or trust entity, including the
delivery of services and products to customers by such entity.
All your branches are already electronically connected to the main office.
48
BANKING LAWS TSN
SY 2016 - 2017
(Talks about banks in far flung places)
The rule of the BSP now, if you open a bank in these places, you must not only have an internet connection, one internet
connection. You must have a redundant internet connection. Unsa may buot pasabot anang redundant? Di lang kay usa ra
ka internet connection. Duha. Kay kung mubagsak gani tung isa, naa pay lain.
The standard of the BSP now is redundant online connection.
(Talks about cellular networks and satellites)
PUBLICATION
RA 8791
Section 62. Publication of Capital Stock. A bank, quasi-bank

or trust entity incorporated under the laws of the
Philippines shall not publish the amount of its authorized or
subscribed capital stock without indicating at the same
time and with equal prominence, the amount of its capital
actually paid up. No branch of any foreign bank doing
business in the Philippines shall in any way announce the
amount of the capital and surplus of its head office, or of
the bank in its entirety without indicating at the same time
and with equal prominence the amount of the capital, if any,
definitely assigned to such branch, such fact shall be
stated in, and shall form part of the publication.
Now, also required of the bank with respect to financial statement is a publication of its capital stock.
A domestic bank, quasi-bank or such entity, according to Sec. 62, shall not publish its authorized or subscribed capital stock
without indicating with equal prominence the amount of its capital actually paid up.
Authorized capital stock imong ibutang, dako kaayong numero. Kinahanglan pa ganig butangag arrow(?). I-type sa printing
nimo sa imong annual report ang imong paid-up capital.
No branch of any foreign bank doing business in the Philippines shall in any way announce the amount of capital and surplus
of its head office, or of the bank in its entirety without indicating with equal prominence the amount of the capital definitely
assigned to such branch.
Muingon ka paid-up capital niining bangkoha, 1 trillion dollars. Dakoa. [] Kailangan you must state in [] foreign bank just
how much capital is assigned to the branch here in the Philippines.
So, this is aside from the obligation to submit to the BSP your financial statement in such form and frequency as may be
prescribed by the BSP.

49
BANKING LAWS TSN
SY 2016 - 2017
RA 8791
Section 61. Publication of Financial Statements. - Every bank,

quasi-bank or trust entity, shall publish a statement of its
financial condition, including those of its subsidiaries and
affiliates, in such terms understandable to the layman and
in such frequency as may be prescribed Bangko Sentral, in
English or Filipino, at least once every quarter in a newspaper
of general circulation in the city or province where the principal
office, in the case of a domestic institution or the principal
branch or office in the case of a foreign bank, is located, but if
no newspaper is published in the same province, then in a
newspaper published in Metro Manila or in the nearest city or
province. The Bangko Sentral may by regulation prescribe the
newspaper where the statements prescribed herein shall be
published. The Monetary Board may allow the posting of the
financial statements of a bank, quasi-bank or trust entity in
public places it may determine, lieu of the publication required
in the preceding paragraph, when warranted by the
circumstances. Additionally, banks shall make available to the
public in such form and manner as the Bangko Sentral may
prescribe the complete set of its audited financial statements as
well as such other relevant information including those on
enterprises majority-owned or controlled by the bank, that will
inform the public of the true financial condition of a bank as of
any given time. In periods of national and/or local
emergency or of 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
upon application of the bank, quasi-bank or trust entity,
may allow such bank, quasi-bank or trust entity to defer for
a stated period of time the publication of the statement of
financial condition required herein.
Every bank, quasi-bank or trust entity shall publish its statement of its financial condition including those of subsidiaries and
affiliates in such terms understandable to the layman and in such frequency as may be prescribed by the BSP.
In periods of a national and/or local emergency or imminent panic, which directly threaten monetary and banking stability, the
MB, by vote of 5 members in special cases, may allow such bank, quasi-bank or trust entity to defer such publication. (E.g.
bank run)
The BSP has a circular that each bank must cause their publication of their financial condition every quarter in a newspaper
of general circulation according to its location. If you are a commercial bank, it is a national newspaper in the Philippines.
Newspaper of general circulation.
(Talks about Manila Standard Today)
CASES ABOUT INTEREST RATES AND ESCALATION CLAUSES:
CONSOLIDATED BANK AND TRUST BANK VS CA, 353 SCRA 671 (2001)
RE: FLOATING INTEREST RATES

A stipulation for a floating interest in a letter of credit in which there is no reference rate set either by it or by the Bangko
Sentral, leaving the determination thereof to the sole will and control of the lender bank, is INVALID.

50
BANKING LAWS TSN
SY 2016 - 2017
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest
rates on a loan not to 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.
So, the importance of a reference rate.
FLORENDO VS CA
Here is a bank that offers a concessionary rate for loans made

by its employees.
Concessional interest rates granted by banks who loans to its

officers and employees which are really intended as a means to
remunerate its employees are valid, and the escalation due to
resignation should be a valid stipulation in loan agreement.
So, mukuhag interest rate, kay employee man ka. Mu-resign

gani ka, mao niy ordinary rate. So that is concessional interest
rate.
Is that stipulation valid? Valid stipulation in a loan document

according to this.
However, where no such stipulation was in fact made when the

bank granted the concessional interest rates to its employees,
the application of the escalation provision would not be legally
sanctioned upon the resignation of the employees since it will
violate the characteristic of mutuality of contracts.
So, tagaan kag concessional rate kay employee ka. And then
ni-resign ka. Unya muingon dayon ang bangko, niresign man
ka, e di na concessional rate ang i-apply nimo. That cannot be
allowed if that was not there from the very start.
If the condition is not there, once you resign, it will be a higher

rate than the concessional rate. Then, you cannot do that.
PNB VS CA, 259 SCRA 174 (1996)

Escalation clause still requires an agreement to be reached between the bank and borrower.
Because of concern for the unequal status of borrowers vis-a-vis banks, the fashioned rule is that any increase in the rate, or
interest rate, pursuant to an escalation clause must be the result of agreement between the parties.
Therefore, increases unilaterally imposed by the PNB are in violation of the principle of mutuality of contracts as embodied in
Art. 1308 of the Civil Code, which provides that the contract must bind both contracting parties. Its validity or compliance
cannot be left to the will of one of the parties.
Apparently, no attempt is made by the PNB herein to secure the conformity of the borrowers to the successive increases in
the interest rate. Neither can there assent be implied from their lack of response to the letters sent by PNB informing them of
the increases.
Is agreement implied by your not answering the letter directed to you? SC says your agreement as a borrower cannot be
presumed just because you did not answer the letter. Why? Because no one receiving a proposal to change the contract is
obliged to answer it.

51
BANKING LAWS TSN
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You must sign a form that you agreed otherwise your silence is not deemed consent, because there is no obligation to reply
to a proposed novation to a contract.
End of Second Exam Coverage
GODBLESS!
Therefore we do not lose heart. Though outwardly we are wasting away, yet inwardly we are
being renewed day by day. For our light and momentary troubles are achieving for us an
eternal glory that far outweighs them all. 2 Corinthians 4:16-17

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BANKING LAWS TSN

From the lectures of Father Agustin Nazareno,

January 4, 2017 - Hernandez

Section 3. Definition and Classification of Banks. -

3.1. "Banks" shall refer to entities engaged in the lending of

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

3.2. Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

(c) Thrift banks, composed of: (i) Savings and mortgage

(d) Rural banks, as defined in Republic Act No. 73S3

(e) Cooperative banks, as defined in Republic Act No 6938

(f) Islamic banks as defined in Republic Act No. 6848,

(g) Other classifications of banks as determined by the

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

ARTICLE III - BILL OF RIGHTS

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

January 11, 2017 - Jennifer Lim

AUTHORITY OF THE BANGKO SENTRAL

DEFINITION OF QUASI-BANKS (Section 4)

WHAT IS THE MEANING OF THE WORD QUASI?

HOW DOES A QUASI-BANK WORK?

BORROW QUASI- SOURCE

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

HOW DO THEY FUNCTION? WHY ARE THEY DIFFERENT?

ALLADO QUASI- NCCC

SAN QUASI- NCCC

DIFFERENCE OF QUASI-BANK AND BANK

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

There must always be No collateral.

Otherwise, you are If there are, call them CPs or

WHAT ARE TRUST ENTITIES?

WHAT IS THE FUNCTION OF A TRUST COMPANY?

The BIR will say:

1. The retirement fund must be irrevocable and fixed retirement fund.

DUTY OF THE TRUSTEE TO EMPLOYEES CONTRIBUTIONS

WHEN EMPLOYER SOLELY CONTRIBUTES TO THE FUND

WHO WILL SEE TO IT THAT THE FUNDS ARE PROPERLY ACCOUNTED?

WHAT DOES IT TAKE TO BE A TRUSTEE?

To be a trustee, you need a license given by the Bangko Sentral ng Pilipinas.

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

PROCESS OF CREATING TRUST

WHAT ABOUT A TRUST COMPANY?

AUTHORITY TO ENGAGE IN BANKING AND QUASI-BANKING FUNCTIONS (SECTION 6)

SECTION 6. Authority to Engage in Banking and Quasi-

The determination of whether a person or entity is performing

such authority is sooner surrendered, revoked, suspended or

The department head and the examiners of the appropriate

Persons or entities found to be performing banking or quasi-

EXAMINATION BY THE BANGKO SENTRAL (SECTION 7)

SECTION 7. Examination by the Bangko Sentral. The

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

REQUIREMENTS TO BE A BANK, QUASI BANK AND OTHER TRUST ENTITIES (SECTION 8)

SECTION 8. Organization. The Monetary Board may

1. That the entity is a stock corporation.

SECTION 10. Treasury Stocks. No bank shall purchase or

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

SECTION 12. Stockholdings of Family Groups or Related

SECTION 13. Corporate Stockholdings. Two or more

COMPLIANCE WITH REQUIREMENTS (SECTION 14)

SECTION 14. Certificate of Authority to Register. The

BATACAN, CALLANTA, GINGCO, HERNANDEZ, LIM, MORTEJO, TITO, PETALLO

BOARD OF DIRECTORS (SECTION 15)

After due notice to the board of directors of the bank, the