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BANKING: Sept 9

Sept 9 Assignment

I. Authority of BSP

i. Chapter II, Sections 4-7, GBL

ii. Subsidiaries and affiliates of banks (See Section 25, RA No. 7653);

iii. Quasi-banks (See also Section 95, RA. No 7653; Elements of Quasi Banking;
Manual of Regulations for Banks Section X234, including Subsection X234.1-
234.3)

iv. Case: Baas v. Asia Pacific Corporation, GR 128703, October 18, 2000

II. Organization, Management and Administration of Banks, QB and Trust Entities

i. Chapter III, Sections 8-13, GBL

1. Organization, Issuance of Stocks; Treasury Shares (Sections 8-10, GBL)

2. Manual of Regulations for Banks, Section X104

3. Foreign Stockholdings (Sections 11-13, GBL)

4. Foreign Banks (Section 73, GBL)

5. Foreign Bank Liberalization Act (RA 7721, as amended by RA No. 10641)

ii. Case: GSIS Family Bank v. BPI Family Bank, G.R. No. 175278. September 23,
2015.

iii. Chapter III, Sections 15-17, GBL -Board of Directors

1. Qualifications-MORB Section X141; X141.1; X141.2 (skim through)

2. Disqualifications MORB Section X143.1 (Skim through)


Authority of BSP For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks and
i. Chapter II, Sections 4-7, GBL
quasi-banks which shall, to the extent feasible, conform to internationally accepted
CHAPTER II standards, including of the Bank for International Settlements (BIS). The Monetary
AUTHORITY OF THE BANGKO SENTRAL Board may exempt particular categories of transactions from such ratios, ceilings, and
limitations, but not limited to exceptional cases or to enable a bank or quasi-bank
Sec. 4. Supervisory Powers. The operations and activities of banks shall be subject to under rehabilitation or during a merger or consolidation to continue in business, with
supervision of the Bangko Sentral. Supervision shall include the following: safety to its creditors, depositors and the general public.
4.1. The issuance of rules of, conduct or the establishment standards of Sec. 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or
operation for uniform application to all institutions or functions covered, entity shall engage in banking operations or quasi-banking functions without authority
taking into consideration the distinctive character of the operations of from the Bangko Sentral: Provided, however, That an entity authorized by the Bangko
institutions and the substantive similarities of specific functions to which such Sentral to perform universal or commercial banking functions shall likewise have the
rules, modes or standards are to be applied; authority to engage in quasi-banking functions.
4.2.The conduct of examination to determine compliance with laws and The determination of whether a person or entity is performing banking or quasi-
regulations if the circumstances so warrant as determined by the Monetary banking functions without Bangko Sentral authority shall be decided by the Monetary
Board; Board. To resolve such issue, the Monetary Board may; through the appropriate
supervising and examining department of the Bangko Sentral, examine, inspect or
4.3. Overseeing to ascertain that laws and regulations are complied with;
investigate the books and records of such person or entity. Upon issuance of this
4.4. Regular investigation which shall not be oftener than once a year from authority, such person or entity may commence to engage in banking operations or
the last date of examination to determine whether an institution is conducting quasi-banking function and shall continue to do so unless such authority is sooner
its business on a safe or sound basis: Provided, That the surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance
deficiencies/irregularities found by or discovered by an audit shall be with this Act or other special laws.
immediately addressed;
The department head and the examiners of the appropriate supervising and examining
4.5. Inquiring into the solvency and liquidity of the institution; or 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
4.6. Enforcing prompt corrective action. such books, documents, papers or records that are reasonably necessary to ascertain
The Bangko Sentral shall also have supervision over the operations of and exercise the facts relative to the true functions and operations of such person or entity. Failure
regulatory powers over quasi-banks, trust entities and other financial institutions 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
which under special laws are subject to Bangko Sentral supervision.
responsible therefore to the penal sanctions provided under the New Central Bank Act.
For the purposes of this Act, quasi-banks shall refer to entities engaged in the
Persons or entities found to be performing banking or quasi-banking functions without
borrowing of funds through the issuance, endorsement or assignment with recourse
authority from the Bangko Sentral shall be subject to appropriate sanctions under the
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653
New Central Bank Act and other applicable laws.
(hereafter the New Central Bank Act) for purposes of re-lending or purchasing of
receivables and other obligations. Sec.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
Sec.5. Policy Direction; Ratios, Ceilings and Limitations. The Bangko Sentral shall
majority-owned or controlled by the bank.
provide policy direction in the areas of money, banking and credit.
ii. Subsidiaries and affiliates of banks (See Section 25, RA No. 7653) X234.2 Definition of terms and phrases. The following terms and phrases shall be
understood as follows:
Section 25. Supervision and Examination. The Bangko Sentral shall have supervision
over, and conduct periodic or special examinations of, banking institutions and quasi- a. Borrowing shall refer to all forms of obtaining or raising funds through any of the
banks, including their subsidiaries and affiliates engaged in allied activities. methods and for any of the purposes provided in Subsec. X234.1 whether the
borrowers liability thereby is treated as real or contingent.

b. For the borrowers own account shall refer to the assumption of liability in ones
iii. Quasi-banks (See also Section 95, RA. No 7653; Elements of Quasi Banking;
own capacity and not in representation, or as an agent or trustee, of another.
Manual of Regulations for Banks Section X234, including Subsection X234.1-234.3)
c. Purchasing of receivables or other obligations shall refer to the acquisition of claims
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" is
collectible in money, including interbank borrowings or borrowings between financial
defined as an alternative form of obtaining funds from the public, other than deposits,
institutions, or of acquisition of securities, of any amount and maturity, from domestic
through the issuance, endorsement, or acceptance of debt instruments for the
or foreign sources.
borrower's own account, for the purpose of relending or purchasing of receivables and
other obligations. These instruments may include, but need not be limited to, bankers d. Relending shall refer to the extension of loans by an institution with antecedent
acceptances, promissory notes, participations, certificates of assignment and similar borrowing transactions. Relending shall be presumed, in the absence of express
instruments with recourse, and repurchase agreements. The Monetary Board shall stipulations, when the institution is regularly engaged in lending.
determine what specific instruments shall be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided, however, That deposit substitutes of e. Regularly engaged in lending shall refer to the practice of extending loans, advances,
commercial, industrial and other non-financial companies for the limited purpose of discounts or rediscounts as a matter of business, as distinguished from isolated lending
financing their own needs or the needs of their agents or dealers shall not be covered transactions.
by the provisions of Section 94 of this Act.

X234.3 Transactions not considered quasi-banking. The following shall not


X234.1 Elements of quasi-banking - The essential elements of quasi-banking are: constitute quasi-banking:

a. Borrowing funds for the borrowers own account; a. Borrowing by commercial, industrial and other non-financial companies through any
of the means listed in Subsec. X234.1 hereof, for the limited purpose of financing their
b. Twenty (20) or more lenders at any one (1) time; own needs or the needs of their agents or dealers; and

c. Methods of borrowing are issuance, endorsement, or acceptance of debt b. The mere buying and selling without recourse of instruments mentioned in Subsec.
instruments of any kind, other than deposits, such as acceptances, promissory notes, X234.1: Provided, That:
participations, certificates of assignments or similar instruments with recourse, trust
certificates, repurchase agreements, and such other instruments as the Monetary (1) The institution buying and selling without recourse shall indicate in
Board may determine; and conspicuous print on its instrument the phrase without recourse, sans recourse or
words of similar import that will convey the absence of liability or guarantee by
d. The purpose of which is said institution; and

(1) relending, or (2) In the absence of the phrase without recourse, sans recourse or words of
similar import, the instrument so issued, endorsed or accepted, shall automatically
(2) purchasing receivables or other obligations.
be considered as falling within the purview of these regulations: Provided, further,
That any of the following practices or practices similar and/or tantamount thereto operating plan and internal controls as well as its projected financial condition and
in connection with a without recourse transaction is hereby prohibited: capital base.

(a) Issuance of postdated checks by a financial intermediary, whether for its Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and
own account or as an agent of the debt instrument issuer, in payment of the regulations on the types of stock a bank may issue, including the terms thereof and
debt instrument, sold, assigned or transferred without recourse; or rights appurtenant thereto to determine compliance with laws and regulations
governing capital and equity structure of banks; Provided, That banks shall issue par
(b) Issuance by a financial intermediary of any form of guaranty on sale
value stocks only.
transactions or on negotiations or assignment of debt instruments without
recourse; and 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
(c) Payment with its own funds by a financial intermediary which assigned,
by the Monetary Board: Provided, That in every case the stock so purchased or
sold or transferred the debt instrument without recourse, unless the financial
acquired shall, within six (6) months from the time of its purchase or acquisition, be
intermediary can show that the issuer has with the said financial intermediary
sold or disposed of at a public or private sale. (24a)
funds corresponding to the amount of the obligation.
Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic bank.
II. Organization, Management and Administration of Banks, QB and Trust Entities This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa) The
percentage of foreign-owned voting stocks in a bank shall be determined by the
i. Chapter III, Sections 8-13, GBL citizenship of the individual stockholders in that bank. The citizenship of the
1. Organization, Issuance of Stocks; Treasury Shares (Sections 8-10, GBL) corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation.
3. Foreign Stockholdings (Sections 11-13, GBL) (n)

CHAPTER III Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS individuals related to each other within the fourth degree of consanguinity or affinity,
AND TRUST ENTITIES legitimate or common-law, shall be considered family groups or related interests and
must be fully disclosed in all transactions by such corporations or related groups of
Section 8. Organization. - The Monetary Board may authorize the organization of a persons with the bank. (12-Ba)
bank or quasi-bank subject to the following conditions:
Section 13. Corporate Stockholdings. - Two or more corporations owned or controlled
8.1 That the entity is a stock corporation (7);
by the same family group or same group of persons shall be considered related
8.2 That its funds are obtained from the public, which shall mean twenty (20) or interests and must be fully disclosed in all transactions by such corporations or related
more persons (2-Da); and group of persons with the bank. (12-Ba)

8.3 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)
2. Manual of Regulations for Banks, Section X104
No new commercial bank shall be established within three (3) years from the effectivity
Sec. X104 (2008 - X167) Business Name
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 a. UBs/KBs. Only a bank that is granted universal/commercial banking authority may
technical expertise and integrity. The bank licensing process shall incorporate an represent itself to the public as such in connection with its business name.
assessment of the bank's ownership structure, directors and senior management, its
b. TBs. TBs may be allowed to adopt and use any name: Provided, That the words A g. Responsibility for compliance with the above rules and regulations rests with the
Thrift Bank, A Savings Bank, A Private Development Bank or A Stock Savings and Loan bank officers or directors who caused the approval or placement of such
Association, as the case may be, are affixed after its business name. advertisement.

c. RBs/Coop Banks. RBs/Coop Banks may adopt a corporate name or use a business
name/style with the word Rural or Coop, as the case may be. Said banks may also adopt
4. Foreign Banks (Section 73, GBL)
a name without such words: Provided, That the identifying phrase, A Cooperative Bank
or A Rural Bank, as the case may be, is affixed after its business name: Provided,
Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years
further, That where the name of the bank is shown on letterheads, billboards and other
from the effectivity of this act and subject to guidelines issued pursuant to the Foreign
advertising materials, the size of the letters of such phrase shall be at least one-half
Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire
() the size of the business name. (As amended by CL Nos. 2008-053 dated 21 August
up to one hundred percent (100%) of the voting stock of only one (1) bank organized
2008 and 2008-007 dated 21 January 2008)
under the laws of the Republic of the Philippines. Within the same period, the
Monetary Board may authorize any foreign bank, which prior to the effectivity of this
Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock
X104.1 (2008-X607) Bank Advertisements. The following rules and regulations shall of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further
govern bank advertisements. a. No bank shall publish, issue or distribute in any form, acquire voting shares such bank to the extent necessary for it to own one hundred
any advertisement that shall degrade, deprecate or otherwise prejudice other banking percent (100%) of the voting stock thereof. In the exercise of the authority, the
and financial institutions. Monetary Board shall adopt measures as may be necessary to ensure that at all times
the control of seventy percent (70%) of the resources or assets of the entire banking
b. No bank shall publish, issue or distribute in any form of advertisement (in
system is held by banks which are at least majority-owned by Filipinos. Any right,
newspapers, magazines, television, radio, billboards, brochures, prospectuses, or any
privilege or incentive granted to a foreign bank under this Section shall be equally
other medium) or allow itself to be used/ mentioned in any form of advertisement
enjoyed by and extended under the same conditions to banks organized under the laws
unless such advertisement is in pursuance of its business or investment.
of the Republic of the Philippines. (Secs. 2 and 3, RA 7721
c. No bank shall place or cause to be placed any advertisement tending to mislead a
depositor into believing that he will get more in benefits than what the bank is legally
5. Foreign Bank Liberalization Act (RA 7721, as amended by RA No. 10641)
authorized to give. No bank advertisement shall contain any false claim or exaggerated
representation as to its liquidity, solvency, resources, deposits and banking services.
REPUBLIC ACT NO. 7721
d. No bank advertisement shall give the impression that the bank is engaged in a AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS
business other than banking.
IN THE PHILIPPINES AND FOR OTHER PURPOSES.
e. Banks shall inform their depositors and other clients by advertisement or publication
SECTION 1. Declaration of Policy. The State shall develop a self-reliant and
of the termination of benefits previously advertised or publicized.
independent national economy effectively controlled by Filipinos and encourage,
f. Banks shall discontinue any advertisement whenever the same is deemed promote, and maintain a stable, competitive, efficient, and dynamic banking and
unethical/unwarranted or violative of the provisions of these regulations. The client financial system that will stimulate economic growth, attract foreign investments,
banks and/or their advertising agencies shall incorporate in their contract/ agreement provide a wider variety of financial services to Philippine enterprises, households and
for time and space with media the condition that such contract/agreement for time individuals, strengthen linkages with global financial centers, enhance the country's
and space can be cancelled/ terminated immediately whenever the client bank is competitiveness in the international market and serve as a channel for the flow of
directed by the BSP to desist or discontinue the particular advertisement in question. funds and investments into the economy to promote industrialization.
Pursuant to this policy, the Philippine banking and financial system is hereby liberalized "The foreign bank branch may open up to five (5) sub-branches as may be approved by
to create a more competitive environment and encourage greater foreign participation the Monetary Board. Locally incorporated subsidiaries of foreign banks pursuant to
through increase in ownership in domestic banks by foreign banks and the entry of Section 2(h) of this Act shall have the same branching privileges as domestic banks of
new foreign bank branches. the same category.

In allowing increased foreign participation in the financial system, it shall be the policy Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall
of the State that the financial system shall remain effectively controlled by Filipinos. guarantee prompt payment of all liabilities of its Philippine branches.

SEC. 2. Modes of Entry. The Monetary Board may authorize foreign banks to operate REPEALED Sec. 6. Entrants under Section 2(iii). Foreign banks shall be allowed entry
in the Philippine banking system through any one of the following" modes of entry: (i) under Section 2 (iii) within five (5) years from the effectivity of this Act. During this
by acquiring, purchasing or owning up to one hundred percent (100%) of the voting period, six (6) new foreign banks shall be allowed entry under Section 2(iii) upon the
stock of an existing bank; (ii) by investing in up to one hundred percent (100%) of the approval of the Monetary Board. An additional four (4) foreign banks may be allowed
voting stockof a new banking subsidiary incorporated under the laws of the Philippines; entry on recommendation of the Monetary Board, subject to compliance with Sections
or (iii) by establishing branches with full banking authority. 2, 3, 4, and 5 of this Act, upon approval of the President as the national interest may
require.
SEC. 3. Guidelines for Approval. In approving entry applications of foreign banks, the
Monetary Board shall: (i) ensure geographic representation and complementation; (ii) Sec. 7. Board of Directors. Non-Filipino citizens may become members of the Board
consider strategic trade and investment relationships between the Philippines and the of Directors of a bank to the extent of the foreign participation in the equity of said
country of incorporation of the foreign bank; (iii) study the demonstrated capacity, bank.
global reputation for financial innovations and stability in a competitive environment
of the applicant; (iv) see to it that reciprocity rights are enjoyed by Philippine banks in SEC. 8. Equal Treatment. Foreign banks authorized to operate under Section 2 of this
the applicants country; and (v) consider willingness to fully share their technology. Act, shall perform the same functions, enjoy the same privileges, and be subject to the
same limitations imposed upon a Philippine bank of the same category. The single
"Only established, reputable and financially sound foreign banks shall be allowed entry borrowers limit of a foreign bank branch shall be aligned with that of a domestic bank.
in accordance with Section 2 of this Act. The foreign bank applicant must be widely-
owned and publicly-listed in its country of origin, unless the foreign bank applicant is "The foreign banks shall guarantee the observance of the rights of their employees
owned and controlled by the government of its country of origin. under the Constitution.

"In the exercise of this authority, the Monetary Board shall adopt such measures as "Any right, privilege or incentive granted to foreign banks or their subsidiaries or
may be necessary to ensure that the control of at least sixty percent (60%) of the affiliates under this Act, shall be equally enjoyed by and extended under the same
resources or assets of the entire banking system is held by domestic banks which are conditions to Philippine banks.
majority-owned by Filipinos. SEC. 9. Participation in Foreclosure Proceedings.Foreign banks which are authorized
SEC. 4. Capital Requirements. (i) For Locally Incorporated Subsidiaries The to do banking business in the Philippines through any of the modes of entry under
minimum capital required for locally incorporated subsidiaries of foreign banks shall Section 2 hereof shall be allowed to bid and take part in foreclosure sales of real
be equal to that prescribed by the Monetary Board for domestic banks of the same property mortgaged to them, as well as to avail of enforcement and other proceedings,
category. and accordingly take possession of the mortgaged property, for a period not exceeding
five (5) years from actual possession: Provided, That in no event shall title to the
"(ii) For Foreign Bank Branches Foreign banks that shall be authorized to establish property be transferred to such foreign bank. In case said bank is the winning bidder,
branches pursuant to Section 2(hi) of this Act shah permanently assign capital of an it shall, during the said five (5)-year period, transfer its rights to a qualified Philippine
amount not less than the minimum capital required for domestic banks of the same national, without prejudice to a borrowers rights under applicable laws. Should the
category. The permanently assigned capital shall be inwardly remitted and converted bank fail to transfer such property within the five (5)-year period, it shall be penalized
into Philippine currency.
one half (1/2) of one percent (1%) per annum of the price at which the property was Sec. 15. Effectivity Clause. This Act shall take effect fifteen (15) days after its
foreclosed until it is able to transfer the property to a qualified Philippine national. publication in the Official Gazette or in two (2) national newspapers of general
circulation.
Sec. 10. Transitory Provisions. Foreign banks which are already authorized to do
banking business in the Philippines through any of the modes of entry under Section 2 Approved: May 18, 1994
hereof may apply to change their original mode of entry.

Foreign banks operating through branches in the Philippines upon the effectivity of this iii. Chapter III, Sections 15-17, GBL -Board of Directors
Act shall retain their original privilege upon entry to establish a limited number of sub-
branches. However, the previous restriction on the locations of such additional Section 15. Board of Directors. - The provisions of the Corporation Code to the
branches is hereby lifted. contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15)
members of the board or directors of a bank, two (2) of whom shall be independent
The existing Philippine branches of foreign banks shall comply within one (1) year from directors. An "independent director" shall mean a person other than an officer or
the effectivity of this Act with the minimum capital requirements as prescribed under employee of the bank, its subsidiaries or affiliates or related interests. (n) Non-Filipino
Section 4(ii) of this Act, unless otherwise extended by the Monetary Board. citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721) The meetings of the
Sec. 11. Separability Clause. If any provision of this Act is declared unconstitutional,
board of directors may be conducted through modern technologies such as, but not
the same shall not affect the validity of the other provisions not affected thereby.
limited to, teleconferencing and video-conferencing. (n)
SEC. 12. Applicability of Other Banking Laws. The provisions of Republic Act No. 7653,
Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
otherwise known as the New Central Bank Act and the provisions of Republic Act No.
afford better protection to depositors and the public in general the Monetary Board
8791, otherwise known as The General Banking Law of 2000, insofar as they are
shall prescribe, pass upon and review the qualifications and disqualifications of
applicable and not in conflict with any provision of this Act, shall apply to banks
individuals elected or appointed bank directors or officers and disqualify those found
authorized pursuant to this Act.
unfit. After due notice to the board of directors of the bank, the Monetary Board may
SEC. 13. Rule-Making Powers of the Monetary Board of the Bangko Sentral ng Pilipinas disqualify, suspend or remove any bank director or officer who commits or omits an
and Compliance Reports. The Monetary Board is hereby authorized to issue such act which render him unfit for the position. In determining whether an individual is fit
rules and regulations as may be needed to implement "the provisions of this Act. On and proper to hold the position of a director or officer of a bank, regard shall be given
or before May 30 of each year, the Monetary Board shall file a written report to to his integrity, experience, education, training, and competence. (9-Aa)
Congress and its respective Banks Committees, on the developments in the
Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank merger
implementation of this Act. The implementing rules and regulations of this Act shall be
or consolidation, the number of directors shall not exceed twenty-one (21). (l3a)
published in at least two (2) newspapers of general circulation.

Sec. 14. Amendment and Repeal of Inconsistent Laws. Sections 11, 12, 12-A, 12-B,
13, 14-A, 21-B, and 68 of Republic Act No. 337, as amended, otherwise known as the 1. Qualifications-MORB Section X141; X141.1; X141.2 (skim through)
General Banking Act: Sections 4 and 5 of Republic Act No. 7353, otherwise known as
the Rural Banks Act; Sections 4 and 14 of Republic Act No. 3779, as amended, otherwise Sec. X141 Definition and Qualifications of Directors; Responsibilities and Duties of
known as the Savings and Loan Association Act; and Section 4 of Republic Act No. 4093, Board of Directors. For purposes of this Section, the following shall be the definition
as amended, otherwise known as the Private Development Banks Act insofar as they and qualifications, responsibilities and duties of directors and board of directors,
are inconsistent with this Act, are hereby repealed or modified accordingly. respectively.

X141.1 Definition/limits

a. Definition of directors. Directors shall include:


(1) directors who are named as such in the articles of incorporation; (d) other related companies, or vice-versa: Provided, That he is not a substantial
shareholder of the bank or any of the said concerned entities.
(2) directors duly elected in subsequent meetings of the stockholders; and
The foregoing terms and phrases used in Items (1) to (6) of this Section shall have
(3) those elected to fill vacancies in the board of directors.
the following meaning:
b. Limits on the number of the members of the board of directors. Pursuant to Sections
(a) Parent is a corporation which has control over another corporation directly or
15 and 17 of R.A. No. 8791, there shall be at least five (5), and a maximum of fifteen
indirectly through one (1) or more intermediaries.
(15) members of the board of directors of a bank at least two (2) of whom shall be
independent directors: Provided, That in case of a bank/QB/ trust entity merger or (b) Subsidiary means a corporation more than fifty percent (50%) of the voting
consolidation, the number of directors may be increased up to twenty-one (21). stock of which is owned or controlled directly or indirectly through one (1) or more
intermediaries by a bank.
An independent director shall mean a person who
(c) Affiliate is a juridical person that directly or indirectly, through one (1) or more
(1) Is not or has not been an officer or employee of the bank, its subsidiaries or
intermediaries, is controlled by, or is under common control with the bank or its
affiliates or related interests during the past three (3) years counted from the date
affiliates.
of his election;
(d) Related interests as defined under Sections 12 and 13 of R.A. No. 8791 shall
(2) Is not a director or officer of the related companies of the institutions majority mean individuals related to each other within the fourth degree of consanguinity
stockholder; or affinity, legitimate or common law, and two (2) or more corporations owned or
(3) Is not a majority stockholder of the institution, any of its related companies, or controlled by a single individual or by the same family group or the same group of
of its majority shareholders; persons.

(4) Is not a relative within the fourth degree of consanguinity or affinity, legitimate (e) Control exists when the parent owns directly or indirectly through subsidiaries
or common-law of any director, officer or majority shareholder of the bank or any more than one-half of the voting power of an enterprise unless, in exceptional
of its related companies; circumstance, it can be clearly demonstrated that such ownership does not
constitute control. Control may also exist even when ownership is one-half or less
(5) Is not acting as a nominee or representative of any director or substantial of the voting power of an enterprise when there is:
shareholder of the bank, any of its related companies or any of its substantial
shareholders; and i. power over more than one-half of the voting rights by virtue of an
agreement with other stockholders; or
(6) Is not retained as professional adviser, consultant, agent or counsel of the
institution, any of its related companies or any of its substantial shareholders, ii. power to govern the financial and operating policies of the enterprise under
either in his personal capacity or through his firm; is independent of management a statute or an agreement; or
and free from any business or other relationship, has not engaged and does not iii. power to appoint or remove the majority of the members of the board of
engage in any transaction with the institution or with any of its related companies directors or equivalent governing body; or
or with any of its substantial shareholders, whether by himself or with other
persons or through a firm of which he is a partner or a company of which he is a iv. power to cast the majority votes at meetings of the board of directors or
director or substantial shareholder, other than transactions which are conducted equivalent governing body; or
at arms length and could not materially interfere with or influence the exercise of
v. any other arrangement similar to any of the above.
his judgment.
(f) Related company means another company which is: (a) its parent or holding
An independent director of a bank can be elected as an independent director of its: (a)
company; (b) its subsidiary or affiliate; or (c) a corporation where a bank or its
parent or holding company; (b) subsidiary or affiliate; (c) substantial shareholder; or
majority stockholder own such number of shares that will allow/enable him to c. He must have attended a special seminar on corporate governance for board of
elect at least one (1) member of the board of directors or a partnership where directors conducted or accredited by the BSP: Provided, That incumbent directors
such majority stockholder is a partner. as well as those elected after 17 September 2001 must attend said seminar on or
before 30 June 2003 or within a period of six (6) months from date of election for
(g) Substantial or major shareholder shall mean a person, whether natural or
those elected after 30 June 2003, as the case may be; and
juridical, owning such number of shares that will allow him to elect at least one (1)
member of the board of directors of a bank or who is directly or indirectly the d. He must be fit and proper for the position of a director of the bank. In
registered or beneficial owner of more than ten percent (10%) of any class of its determining whether a person is fit and proper for the position of a director, the
equity security. following matters must be considered: integrity/probity, competence, education,
diligence and experience/training.
(h) Majority stockholder or majority shareholder means a person, whether natural
or juridical, owning more than fifty percent (50%) of the voting stock of a bank. The foregoing qualifications for directors shall be in addition to those required or
prescribed under R.A. No. 8791 and other existing applicable laws and regulations.
Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank: Provided, That pursuant 2. Disqualifications MORB Section X143.1 (Skim through)
to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the
X143.1 Persons disqualified to become directors. Without prejudice to specific
directors must be residents of the Philippines.
provisions of law prescribing disqualifications for directors, the following are
The meetings of the board of directors may be conducted through modern disqualified from becoming directors:
technologies such as, but not limited to, teleconferencing and videoconferencing as
a. Permanently disqualified
long as the director who is taking part in said meetings can actively participate in the
deliberations on matters taken up therein: Provided, That every member of the board Directors/officers/employees permanently disqualified by the Monetary Board from
shall participate in at least fifty percent (50%) and shall physically attend at least holding a director position:
twenty-five percent (25%) of all board meetings every year: Provided, further, That in
the case of a director who is unable to physically attend or participate in board (1) Persons who have been convicted by final judgment of a court for offenses
meetings via teleconferencing or videoconferencing, the corporate secretary shall involving dishonesty or breach of trust such as, but not limited to, estafa,
execute a notarized certification attesting that said director was given the agenda embezzlement, extortion, forgery, malversation, swindling, theft, robbery,
materials prior to the meeting and that his/ her comments/decisions thereon were falsification, bribery, violation of B.P. Blg. 22, violation of Anti-Graft and Corrupt
submitted for deliberation/discussion and were taken up in the actual board meeting, Practices Act and prohibited acts and transactions under Section 7 of R.A. No. 6713
and that the submission of said certification shall be considered compliance with the (Code of Conduct and Ethical Standards for Public Officials and Employees);
required fifty percent (50%) minimum attendance in board meetings.
(2) Persons who have been convicted by final judgment of a court sentencing them
to serve a maximum term of imprisonment of more than six (6) years;
X141.2 Qualifications of a director
(3) Persons who have been convicted by final judgment of the court for violation
A director shall have the following minimum qualifications: of banking laws, rules and regulations;

a. He shall be at least twenty-five (25) years of age at the time of his election or (4) Persons who have been judicially declared insolvent, spendthrift or
appointment; incapacitated to contract;

b. He shall be at least a college graduate or have at least five (5) years experience (5) Directors, officers or employees of closed banks who were found to be culpable
in business; for such institutions closure as determined by the Monetary Board;
(6) Directors and officers of banks found by the Monetary Board as (i) A director or officer for his own account or as the representative or
administratively liable for violation of banking laws, rules and regulations where a agent of others or where he/she acts as a guarantor, endorser or surety
penalty of removal from office is imposed, and which finding of the Monetary for loans from such FIs;
Board has become final and executory; or
(ii) The spouse or child under the parental authority of the director or
(7) Directors and officers of banks or any person found by the Monetary Board to officer;
be unfit for the position of directors or officers because they were found
(iii) Any person whose borrowings or loan proceeds were credited to the
administratively liable by another government agency for violation of banking
account of, or used for the benefit of a director or officer;
laws, rules and regulations or any offense/violation involving dishonesty or breach
of trust, and which finding of said government agency has become final and (iv) A partnership of which a director or officer, or his/her spouse is the
executory. managing partner or a general partner owning a controlling interest in
the partnership; and
b. Temporarily disqualified
(v) A corporation, association or firm wholly-owned or majority of the
Directors/officers/employees disqualified by the Monetary Board from holding a
capital of which is owned by any or a group of persons mentioned in the
director position for a specific/ indefinite period of time. Included are:
foregoing Items (i), (ii) and (iv);
(1) Persons who refuse to fully disclose the extent of their business interest or any
material information to the appropriate department of the SES when required This disqualification shall be in effect as long as the delinquency persists.
pursuant to a provision of law or of a circular, memorandum, rule or regulation of (4) Persons who have been convicted by a court for offenses involving dishonesty
the BSP. This disqualification shall be in effect as long as the refusal persists; or breach of trust such as, but not limited to, estafa, embezzlement, extortion,
(2) Directors who have been absent or who have not participated for whatever forgery, malversation, swindling, theft, robbery, falsification, bribery, violation of
reasons in more than fifty percent (50%) of all meetings, both regular and special, B.P. Blg. 22, violation of Anti-Graft and Corrupt Practices Act and prohibited acts
of the board of directors during their incumbency, and directors who failed to and transactions under Section 7 of R.A. No. 6713, violation of banking laws, rules
physically attend for whatever reasons in at least twenty-five percent (25%) of all and regulations or those sentenced to serve a maximum term of imprisonment of
board meetings in any year, except that when a notarized certification executed more than six (6) years but whose conviction has not yet become final and
by the corporate secretary has been submitted attesting that said directors were executory;
given the agenda materials prior to the meeting and that their comments/ (5) Directors and officers of closed banks pending their clearance by the Monetary
decisions thereon were submitted for deliberation/discussion and were taken up Board;
in the actual board meeting, said directors shall be considered present in the board
meeting. This disqualification applies only for purposes of the immediately (6) Directors disqualified for failure to observe/discharge their duties and
succeeding election; responsibilities prescribed under existing regulations. This disqualification applies
until the lapse of the specific period of disqualification or upon approval by the
(3) Persons who are delinquent in the payment of their obligations as defined Monetary Board on recommendation by the appropriate department of the SES
hereunder: of such directors election/reelection;
(a) Delinquency in the payment of obligations means that an obligation of a (7) Directors who failed to attend the special seminar for board of directors
person with a bank where he/she is a director or officer, or at least two (2) required under Item c of Subsec. X141.2. This disqualification applies until the
obligations with other banks/FIs, under different credit lines or loan contracts, director concerned had attended such seminar;
are past due pursuant to Sec. X306;
(8) Persons dismissed/terminated from employment for cause. This
(b) Obligations shall include all borrowings from a bank obtained by: disqualification shall be in effect until they have cleared themselves of
involvement in the alleged irregularity or upon clearance, on their request, from
the Monetary Board after showing good and justifiable reasons, or after the lapse
of five (5) years from the time they were officially advised by the appropriate
department of the SES of their disqualification;

(9) Those under preventive suspension;

(10) Persons with derogatory records as certified by, or on the official files of, the
judiciary, NBI, Philippine National Police (PNP), quasi-judicial bodies, other
government agencies, international police, monetary authorities and similar
agencies or authorities of foreign countries for irregularities or violations of any
law, rules and regulations that would adversely affect the integrity of the
director/officer or the ability to effectively discharge his duties. This
disqualification applies until they have cleared themselves of the alleged
irregularities/violations or after a lapse of five (5) years from the time the
complaint, which was the basis of the derogatory record, was initiated;

(11) Directors and officers of banks found by the Monetary Board as


administratively liable for violation of banking laws, rules and regulations where a
penalty of removal from office is imposed, and which finding of the Monetary
Board is pending appeal before the appellate court, unless execution or
enforcement thereof is restrained by the court;

(12) Directors and officers of banks or any person found by the Monetary Board to
be unfit for the position of director or officer because they were found
administratively liable by another government agency for violation of banking
laws, rules and regulations or any offense/violation involving dishonesty or breach
of trust, and which finding of said government agency is pending appeal before
the appellate court, unless execution or enforcement thereof is restrained by the
court; and

(13) Directors and officers of banks found by the Monetary Board as


administratively liable for violation of banking laws, rules and regulations where a
penalty of suspension from office or fine is imposed, regardless whether the
finding of the Monetary Board is final and executory or pending appeal before the
appellate court, unless execution or enforcement thereof is restrained by the
court. The disqualification shall be in effect during the period of suspension or so
long as the fine is not fully paid. (As amended by Circular Nos.584 dated 28
September 2007 and 513 dated 10 February 2006)