BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
JANUARY 9, 2019 (1st HOUR)
GENERAL BANKING LAW OF 2000
Next, to your Central Bank Act, is the General Banking
Law. The Central Bank Act is the charter for the BSP.
The GBL (GENERAL BANKING LAW) is actually the
legal provision which governs relationship of banks as
well with its citizens(?).
According to Amando M. Tetangco, Jr.
The law is an important legislative reform that
addressed the need for the regulatory framework to be
more responsive to the rapid changes in the financial
environment.
 because the predecessor of this law, I think RA
8791, it did not answer or it did not conform the
developments of the banking industry. It had to be
amended.
Among others, the law upgrades the country’s banking
laws to meet global standards,
—right now, the banking industry itself is developing so
your law has to be dynamic.
Liberalizes foreign participation in domestic banks,
 because before, the ownership of banks is strictly
with the 1Filipino citizens but now, there is
actually, even foreign banks can enter the Filipino
market, you’ve know this actually, you’ve seen it,
foreign banks entering the 1Filipino market.
…promotes greater transparency in bank practice and
provides the BSP more flexibility in supervising the
banking industry. The GBL 2000 aims to enhance the
supervisory capability and enforcement powers of the
BSP, improve prudential standards and foster greater
competition in the banking industry.
SECTION 2. Declaration of Policy. — The State
recognizes the vital role of banks in providing an
environment conducive to the sustained development of
the national economy and the fiduciary nature of
banking that requires high standards of integrity and
performance.
In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and
responsive to the demands of a developing economy.
Before there were first, second, third world countries –
the correct classification is developed, developing
countries. I think it’s incorrect to categorize developing
countries as third world countries. It’s not politically
correct in a world where political correctness is very
overrated.
The banking institution plays a bigger role than any
other type of financial institution.
What is the function of a bank?
It receives deposits and it blends this out especially it
uses these resources to fuel businesses, commercial
establishments that will greatly contribute to the
national economy. It is the policy of the state to
recognize the role of banks in sustaining and developing
the national economy.
And the fiduciary nature of banks requires high standard
of integrity and performance because you cannot
actually encourage people to invest in you if you do not
exercise the utmost or the highest degree of integrity
and performance for in furtherance thereof, the State is
that it shall promote and maintain a stable and efficient
banking and financial system that is that is globally
competitive, dynamic and responsive to the demands of
a developing economy.
If you are into policy making you always look at the
policy of the state because the provisions that would
come after should be consistent or should address the
policy of the law.
SIMEX INTERNATIONAL V. CA
FACTS
Petitioner, a private corporation engaged in the
exportation of food products, was a depositor
maintaining a checking account with respondent
Traders Royal Bank. Petitioner deposited to its
account increasing its balance and subsequently,
issued several checks but was surprised to learn that
it had been dishonored for insufficient funds. As a
consequence, petitioner received demand letters
from its suppliers for the dishonored checks.
Investigation disclosed that the deposit was not
credited to it. The error was rectified and the
dishonored checks were consequently paid. Petitioner
demanded reparation from respondent bank for its
gross and wanton negligence but the later did not
heed. Petitioner then filed before the RTC which later
held that respondent bank was guilty of negligence
but petitioner nonetheless was not entitled to moral
damages. CA affirmed.
ISSUE
Whether or not petitioner is entitled to damages due
to respondent bank’s negligence.
RULING
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
YES. The petitioner is entitled to damages due to
respondent bank’s negligence.
As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant
of moral damages. This rather lackadaisical attitude
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the
respondent court said had not been established by
the petitioner. We shall recognize that the petitioner
did suffer injury because of the private respondent’s
negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that its
prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was
diminished.
The point is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been
informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did
not immediately correct it but did so only one week
later or twenty-three days after the deposit was
made. It bears repeating that the record does not
contain any satisfactory explanation of why the error
was made in the first place and why it was not
corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for
the imposition of exemplary damages.
In Simex, the court had the occasion to state the
banking system is an indispensable institution in the
modern world and plays a vital role in the economic life
of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks
have become an ubiquitous presence among the people,
who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the
humble wage-earner has not hesitated to entrust his
life’s savings to the bank of his choice, knowing that
they will be safe in its custody and will even earn some
interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for
security and convenience in the settling of his monthly
bills and the payment of ordinary expenses.
As well as business entities, the bank is trusted as an
active associate that can help in running, not only in the
form loans but more often in the conduct of day to day
transactions like the issuance of the detachments and
checks. That’s why the bank should exercise the highest
degree of diligence.
Who among have you worked in a bank? There’s a
training and standard of procedures. They’re just
following protocols.
SOLIDBANK VS ARRIETA
FACTS:
Carmen Arrieta is a bank depositor of Solidbank
Corporation under Checking Account No. 123-1996.
On March 1990, Carmen issued SBC Check No.
0293984 in the amount of P330.00 in the name of
Lopues Department Store in payment of her
purchases from said store. When the check was
deposited by the store to its account, the same was
dishonored due to Account Closed despite the fact
that at the time the check was presented for
payment, Carmens checking account was still active
and backed up by a deposit of P1,275.20.
As a consequence of the checks dishonor, Lopues
Department Store sent a demand letter to Carmen.
Before these events though, a similar incident
occurred days before, where Arrieta issued a check
which subsequently bounced.
Thereupon, Carmen filed a complaint against
Solidbank Corporation for damages.
In its answer, the bank claimed that Carmen,
contrary to her undertaking as a depositor, failed to
maintain the required balance of at least P1,000.00
on any day of the month. Moreover, she did not
handle her account in a manner satisfactory to the
bank. In view of her violations of the general terms
and conditions governing the establishment and
operation of a current account, Carmen’s account was
recommended for closure. In any event, the bank
claimed good faith in declaring her account
closed since one of the clerks, who substituted
for the regular clerk, committed an honest
mistake when he thought that the subject
account was already closed when the ledger
containing the said account could not be found.
ISSUE
Whether or not Arrieta is entitled to moral damages.
RULING
YES. Arrieta is entitled to moral damages.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The fact that another check Carmen had issued was
previously dishonored does not necessarily imply that
the dishonor of a succeeding check can no longer
cause moral injury and personal hurt for which the
aggrieved party may claim damages. Such prior
occurrence does not prove that respondent does not
have a good reputation that can be besmirched.
The circumstances surrounding the two checks are
different. The first check was to accommodate a
relative, and the succeeding one to pay for goods
purchased from the Lopues Department Store. That
she might not have suffered damages as a result of
the first dishonored check does not necessarily hold
true for the second.
The following are the conditions for the award of
moral damages:
(1) there is an injury -- whether physical, mental or
psychological -- clearly sustained by the claimant;
(2) the culpable act or omission is factually
established;
(3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the
claimant; and
(4) the award of damages is predicated on any of the
cases stated in Article 2219[11] of the Civil Code.
In the instant case, all four requisites have been
established.
First, these were the findings of the appellate court:
Carmen Arrieta is a bank depositor of Solidbank
Corporation of long standing. She works with the
Central Negros Electric Cooperative, Inc. (CENECO),
as an executive secretary and later as department
secretary. She is a deaconess of the Christian Alliance
Church in Bacolod City. These are positions which no
doubt elevate her social standing in the community.
Understandably -- and as sufficiently proven by her
testimony -- she suffered mental anguish, serious
anxiety, besmirched reputation, wounded feelings
and social humiliation; and she suffered thus when
the people she worked with -- her friends, her family
and even her daughters classmates -- learned and
talked about her bounced check.
Second, it is undisputed that the subject check was
adequately funded, but that petitioner wrongfully
dishonored it.
Third, Respondent Carmen was able to prove that
petitioners wrongful dishonor of her check was the
proximate cause of her embarrassment and
humiliation in her workplace, in her own home, and
in the church where she served as deaconess.
Proximate cause has been defined as any cause
which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the
result complained of and without which would not
have occurred x x x.
It is determined from the facts of each case upon
combined considerations of logic, common sense,
policy and precedent. Clearly, had the bank accepted
and honored the check, Carmen would not have had
to face the questions of -- and explain her
predicament to -- her office mates, her daughters,
and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial
court in ruling that her injury arose from the gross
negligence of petitioner in dishonoring her well-
funded check.
Fourth, treating Carmens account as closed, merely
because the ledger could not be found was a reckless
act that could not simply be brushed off as an honest
mistake. The Supreme Court said, We have
repeatedly emphasized that the banking industry is
impressed with public interest. Consequently, the
highest degree of diligence is expected, and high
standards of integrity and performance are even
required of it. By the nature of its functions, a bank
is under obligation to treat the accounts of its
depositors with meticulous care and always to have
in mind the fiduciary nature of its relationship with
them.
Petitioners negligence here was so gross as to
amount to a wilful injury to Respondent Carmen.
Article 21 of the Civil Code states that any person who
wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
Further, Article 2219 provides for the recovery of
moral damages for acts referred to in the
aforementioned Article 21. Hence, the bank is liable
for moral damages to respondent.
What is their contention (the spouses)?
It destroyed her reputation.
How about the contention of the bank your check
was previously dishonored?
The fact that another check Carmen had issued was
previously dishonored does not necessarily imply that
the dishonor of a succeeding check can no longer cause
moral injury and personal hurt for which the aggrieved
party may claim damages. Such prior occurrence does
not prove that respondent does not have a good
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
reputation that can be besmirched. The reasons for and
the circumstances surrounding the previous issuance
and eventual dishonor of Check No. 0293983 are totally
separate -- the payee of the prior check was different -
- from that of Check No. 0293984, subject of present
case. Carmen had issued the earlier check to
accommodate a relative, and the succeeding one to pay
for goods purchased from Lopues Department Store.
That she might not have suffered damages as a result
of the first dishonored check does not necessarily hold
true for the second.
TAN VS CA and RCBC
FACTS
Businessman Ramon Tan had maintained an account
with RCBC Binondo since 1976. To avoid carrying
cash while going to Manila, he secured a Cashier’s
Check from PCIB in the amount of P 30K, payable to
his order. He deposited the check to RCBC Binondo.
On the same day, RCBC erroneously sent the same
cashier's check for clearing to the Central Bank which
was returned for having been "missent" or
"misrouted."
The next day, March 16, RCBC debited the amount
covered by the same cashier's check from the account
of the petitioner. Respondent bank at this time had
not informed the petitioner of its action which the
latter claims he learned of only 42 days after,
specifically on March 16, when he received the bank's
debit memo.
Relying on the common knowledge that a
cashier's check was as good as cash, that the
usual banking practice that local checks are
cleared within three (3) working days and
regional checks within seven (7) working days,
and the fact that the cashier's check was
accepted, petitioner issued two (2) personal
checks both dated March 18. Check No. 040719
in the name of Go Lac for Five Thousand Five
Hundred (P5,5000.00) Pesos was presented on
April 25,3 more than 30 days from petitioner's
deposit date of the cashier's check. CheckNo.
040718 in the name of MS Development Trading
Corporation for Six Thousand Fifty-Three Pesos
and Seventy Centavos (P6,053.70) was
returned twice on March 24, nine (9) days from
his deposit date and again on April 26, twenty-
two days after the day the cashier's check was
deposited for insufficiency of funds.
Tan now files a case against RCBC.
On the other hand, RCBC denied negligence and put
the blame on Tan for the "misrouting" on the
petitioner for using the wrong check deposit slip. It
insisted that the misuse of a local check deposit
slip, instead of a regional check deposit slip,
triggered the "misrouting" by RCBC of the
cashier's check to the Central Bank and it was
petitioner's negligent "misuse" of a local
deposit slip which was the proximate cause of
the "misrouting," thus he should bear the
consequence.
ISSUE
Whether or not the RCBC had been remiss in the
performance of its duty and obligation to its client as
well to itself.
RULING
YES. The RCBC had been remiss in the performance
of its duty and obligation to its client as well to itself.
The Court cited its earlier ruling in the case of City
Trust Corporation v. The Intermediate Appellate
Court. In that case, the depositor failed to put another
zero in her account number, thus the checks she
issued were dishonored. The Court said that even if
there was a discrepancy in the number, still the name
of the depositor was correct. The name is controlling
in determining in whose account the deposit is made
or should be posted. This is so because it is not likely
to commit an error in one's name that merely relying
on numbers which are difficult to remember,
especially a number with eight (8) digits as the
account numbers of defendant's depositors.
In the instant case, the teller should not have
accepted the local deposit slip with the cashier's
check that on its face was clearly a regional check
without calling the depositor's attention to the
mistake at the very moment this was presented to
her. Neither should everyone else down the line who
processed the same check for clearing have allowed
the check to be sent to Central Bank. Depositors do
not pretend to be past master of banking
technicalities, much more of clearing procedures. As
soon as their deposits are accepted by the bank
teller, they wholly repose trust in the bank
personnel's mastery of banking, their and the
bank's sworn profession of diligence and
meticulousness in giving irreproachable
service.
So it is in the instant case, where the conclusion is
inevitable that RCBC had been remiss in the
performance of its duty and obligation to its client as
well as to itself.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Again, the banking industry is affected with public
interest. The bank is under the obligation to treat the
account of its depositors with meticulous care, always in
mind the fiduciary nature of their relationship.
METROPOLITAN BANK AND TRUST COMPAN vs.
THE HON. COURT OF APPEALS, RURAL BANK OF
PADRE GARCIA, INC. and ISABEL R. KATIGBAK
FACTS
Katigbak is the president and director of RBPG, while
MBTC is the rural bank's depository bank, where
Katigbak maintains current accounts.
April 6, 1982, MBTC received from the CB a credit
memo dated April 5, 1982 that its demand deposit
account was credited with P304,000.00 for the
account of RBPG, representing loans granted by the
Central Bank to RBPG.
Katigbak issued several checks in the total amount of
P300,000.00, payable to Dr. Felipe and Mrs. Eliza
Roque for P25,000.00 each.
Dr. and Mrs. Roque deposited the checks with PBC,
but the checks were returned by MBTC with the
annotations "DAIF — TNC" (Drawn Against
Insufficient Funds — Try Next Clearing) so they were
redeposited on April 14, 1982, which was again
dishonored for the following reason: "DAIF — TNC —
NO ADVICE FROM CB."
The Roques went to Katigbak and the latter paid them
in P50,000 cash.
While Katigbak was on a business-vacation trip, she
received overseas phone calls from Mrs. San Juan
informing her that a certain Mr. Dungo, Assistant
Cashier of MBTC insisted on talking to Mrs. San Juan
(Dungo thought she is Isabel Katigbak), berating her
about the checks which bounced, saying "Nag-issue
kayo ng tseke, wala namang pondo."
Mrs. Katigbak asked Mrs. San Juan to request MBTC
to check and verify the records regarding the CB
credit memo for P304,000.00 but Mrs. San Juan
received another insulting call from Mr. Dungo ("Bakit
kayo nag-issue ng tseke na wala namang
pondo, Three Hundred Thousand na.") When Mrs.
San Juan explained to him the need to verify the
records regarding the Central Bank memo, he merely
brushed it aside, telling her sarcastically that he was
very sure that no such credit memo existed.
Subsequent events led to hospitalization of Katigbak
for 2 days.
ISSUE:
Whether or not Metropolitan Bank remiss in its
duty and obligation to treat Katigbak’s account
with the highest degree of care.
HELD:
YES. The Metropolitan Bank remissed in its duty
and obligation to treat Katigbak’s account with
the highest degree of care considering the
fiduciary nature of their relationship.
In this case, the bank is under obligation to treat the
accounts of its depositors with meticulous care,
whether such account consists only of a few hundred
pesos or of millions. It must bear the blame for failing
to discover the mistake of its employee despite the
established procedure requiring bank papers to pass
through bank personnel whose duty it is to check and
countercheck them for possible errors. Responsibility
arising from negligence in the performance of every
kind of obligation is demandable. While the bank's
negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to private
respondents for which they are entitled to recover
reasonable moral damages.
It was established that when Mrs. Katigbak learned
that her checks were not being honored and Mr.
Dungo repeatedly made the insulting phone calls, her
wounded feelings and the mental anguish suffered by
her caused her blood pressure to rise beyond normal
limits, necessitating medical attendance for two (2)
days at a hospital.
The damage to private respondents' reputation and
social standing entitles them to moral damages.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation and similar injury.
What did the SC mention regarding the financial
credit of the businessman?
The financial credit of a businessman is a prized and
valuable asset, it being a significant part of the
foundation of his business. Any adverse reflection
thereon constitutes some financial loss to him. it can
hardly be possible that a customer's check can be
wrongfully refused payment without some impeachment
of his credit, which must in fact be an actual injury,
though he cannot, from the nature of the case, furnish
independent, distinct proof thereof".
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Please take note of the Supreme Court’s ruling.
PHILIPPINE NATIONAL BANK vs. COURT OF
APPEALS and CARMELO H. FLORES
FACTS
Flores, business man engaged in real estate,
purchased from PNB 2 manager's checks worth
P500,000.00 each, paying a total of P1,000,040.00,
including the service charge. A receipt for said
amount was issued by the petitioner.
On 12 July 1989, Flores presented these checks at
the Baguio Hyatt Casino unit of PNB. However, PNB
initially refused to encash the checks but after a
lengthy discussion, it agreed to encash one 1 of the
checks, and deferred the payment of the other check.
Flores tried to encashed the check on several
occasions, to no avail.
Left with no other choice, Flores filed a case with the
RTC.
ISSUE:
Whether or not PNB’s act of issuing the manager’s
checks and corresponding receipt before payment
thereof acted recklessly and grossly negligent.
HELD:
YES. The Supreme Court said that the petitioner's act
of issuing the manager's checks and corresponding
receipt before payment thereof was completely
counted reckless and grossly negligent. It is an
appalling breach of bank procedures and must never
be repeated.
In Bautista v. Mangaldan Rural Bank, Inc., we stated
that the banking system has become an
indispensable institution in the modern world and
plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the
safe-keeping and saving of money or as active
instruments of business and commerce, banks have
attained an unbiquitous presence among the people,
who have come to regard them with respect and even
gratitude and, most of all, confidence.
What is a manager’s check?
It is a check issued by the bank, payable to a payee as
indicated by the person who buys the Manager’s Check.
It is often used in situations when the beneficiary does
not accept cash or personal checks.
What distinguishes it from an ordinary check?
If you notice when it comes to important payments, they
usually require a manager’s check or a cashier’s check.
Who signs? Who is the drawer? It is a check issued
by the bank against its own account, and is signed by a
manager and maybe another officer. Compare that with
a regular check which is issued by persons/corporations
against their account with the bank. It is good as cash.
BANK OF THE PHILIPPINE ISLANDS v. CA and
BENJAMIN C. NAPIZA
FACTS
On September 3, 1987, BENJAMIN C. NAPIZA
deposited in his Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187 to BPI Buendia
Avenue Extension Branch, a Continental Bank
Managers Check No. 00014757 dated August 17,
1984, payable to "cash" in the amount of $2,500.00
and duly endorsed by BENJAMIN C. NAPIZA on its
dorsal side.
A certain RUBEN GAYON, JR . (employee in BPI
Buendia Ave. Extension branc) was able to withdraw
the amount of $2,541.67 from FCDU Savings Account
No. 028-187.
On November 20, 1984, BPI received communication
from the Wells Fargo Bank International of New York
that the said check deposited by NAPIZA was a
counterfeit check because it was "not of the type or
style of checks issued by Continental Bank
International.
Mr. Ariel Reyes, the manager of BPI Buendia Avenue
Extension Branch, sent a telegram to NAPIZA
regarding the dishonor of the check.
BPI’s lawyer sent a letter to NAPIZA demanding the
return of the $2,500.00.
On August 12, 1986, BPI filed a complaint against
NAPIZA, praying for the return of the amount of
$2,500.00.
ISSUE
Whether or not BPI is grossly negligent in
treating the account Napiza.
HELD
YES. BPI is grossly negligent in treating the account
Napiza.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Under Sec. 2 of RA 8791 which provides that the
fiduciary nature of banking requires high standards of
integrity and performance.
Banking business is affected with public interest. By
the nature of its functions, a bank is under obligation
to treat the accounts of its depositors "with
meticulous care, always having in mind the fiduciary
nature of their relationship." As such, in dealing with
its depositors, a bank should exercise its functions not
only with the diligence of a good father of a family but
it should do so with the highest degree of care.
In the case at bar, BPI, in allowing the withdrawal of
NAPIZA’s deposit, failed to exercise the diligence of
a good father of a family. In total disregard of its own
rules, BPI’s personnel negligently handled NAPIZA
account to BPI detriment.
BPI violated its own rules by allowing the withdrawal
of an amount that is definitely over and above the
aggregate amount of NAPIZA dollar deposits that
had yet to be cleared. BPI personnel allowed the
withdrawal of an amount bigger than the original
deposit of $750.00 and the value of the check
deposited in the amount of $2,500.00 although they
had not yet received notice from the clearing bank in
the United States on whether or not the check was
funded.
In the passbook that BPI issued to NAPIZA, the rules
to be able to withdraw from the savings account
deposit under the Philippine foreign currency deposit
system, two requisites must be presented to BPI
bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositors
passbook.
Moreover, the withdrawal slip contains a boxed
warning that states: "This receipt must be signed and
presented with the corresponding foreign currency
savings passbook by the depositor in person. For
withdrawals thru a representative, depositor should
accomplish the authority at the back."
BPI likewise overlooked another rule that is printed in
the passbook, that “All deposits will be received as
current funds and will be repaid in the same manner;
provided, however, that deposits
of drafts, checks, money orders, etc. will be accepted
as subject to collection only and credited to the
account only upon receipt of the notice of final
payment”.
While it is true that NAPIZA having signed a blank
withdrawal slip set in motion the events that resulted
in the withdrawal and encashment of the counterfeit
check, the negligence of BPI personnel was the
proximate cause of the loss that BPI sustained.
 Proximate cause, which is determined by a
mixed consideration of logic, common sense,
policy and precedent, is "that cause, which,
in natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury, and without which the
result would not have occurred."
The proximate cause of the withdrawal and eventual
loss of the amount of $2,500.00 on BPI part was its
personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing
requirement in the banking system. In so doing, BPI
assumed the risk of incurring a loss on account of a
forged or counterfeit foreign check and hence, it
should suffer the resulting damage.
In this particular case, what happened was that the
endorsement, what happened, when you try to deposit
a check especially if the bank is different and you have
this collecting bank, let’s say I have a deposit in BPI,
and someone paid me through the BDO account so if I
deposit it in the BPI the collecting bank is the BPI.
It is a standard practice that before they received it that
they have to ensure it is proper. That’s why sometimes
it gets returned. You issue a check. Especially on the
dates, even a slight blot with the pen, they will consider
it as not valid. They will ask you to issue again. When
the pens overlap, because it’s their job to do that, it’s
their job to scrutinize as a protocol in the banking
industry given that their business is imbued with public
interest.
Wag po tayo magalit if mgpa-issue sila ulit, trabaho
lang nila yun.
What you can do is that most business, they type it in
already so there will be no mistakes. It’s easier if the
collecting bank is the same bank where the person will
get the money to deposit. Let’s say BPI, BPI. They’ll just
call the person and ask did you issue this check? But if
the collecting bank is different the collecting bank would
ensure that there is a proper scrutiny. Why? What
happens if they accept it and it’s wrong. They will
shoulder it.
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. (2a)
This is the strict definition of banks. There’s
deposits and there’s lending.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The framework of a GBL is actually to encourage safe
and sound banking.
What is the framework or qualities to say that
there is safe and sound banking system?
FRAMEWORK FOR A SAFE AND SOUND BANKING
SYSTEM
1. Internal or corporate governance;
These are some of the provisions of the law which
encourage proper internal or corporate
governance—
 Independent directors as members of board of
directors;
Normal corporation, there is a BOD— should be
interested in the running of the corporation. In
addition, it should also be interested in the
ownership of the corporation that’s why they have
to have a minimum required share.
When you say independent directors, these are not
stockholders, officers, or whatever related to the
business. That’s why they’re called independent.
Now, there is a different school of thought,
independent directors actually harm rather than
do good in a corporation because how would you
want a corporation to succeed, when you’re not
even invested in it, you don’t even care if it
survives. That’s another school of thought.
But because of precisely we are going into the
interest of the corporation which is profit making
that you would tend do some unethical moves in
order to increase the value of the share which
prejudices the public. That’s why there is an
independent, there is a need that somebody from
the outside who will oversee the operations so that
there will be no problem. In reality, the previous
corporation code (not the revised one) the current
corporation law provides a maximum
compensation for the directors. You have your
manual regulations. Who approves transactions of
a corporation? The BOD.
In reality, they have this maximum 10% because
the law would try to avoid them adding an interest
on transactions because what they do they
become brokers of certain transactions. They sell
property and they’ll say, I’ll broker for you and I’ll
have a commission on this. I will let it be approved
with the board. If the board doesn’t have a
commission you cannot get the property
acquisition what will happen there will be an
interest. That’s why the law gives a maximum
commission, a maximum compensation
That’s why the law gives a maximum commission or
compensation for corporate directors. But in reality, in
paper, hindi na sinasabing commission yun –
underground na lang. Kaya may mga properties na
sabihin mo: “Bakit in-acquire siya ni X & X Corporation,
eh parang hindi naman ito valuable in this area? Bakit
sila may property nito?” Hindi natin alam, baka may
commission ang directors nun.
These are just some of the transactions that go beyond
the boardroom. That’s why may maximum
compensation for directors. Independent directors seek
to prevent those kinds of transactions in that kind of
situation.
1. Limitations on directors, officers,
stockholders and related interests
(DOSRI) lending;
iii. Allowing teleconferencing or video-
conferencing in meetings of the board of
directors
On teleconferencing and video-conferencing – before, it
is only in public companies that we were allowed to
teleconference. Now, it is an explicit provision in the
Corporation Code na pwede nang mag-teleconference.
In some jurisdictions, meron naman talagang nags-
Skype calls – basta meron lang modes or methods of
ensuring the identity of the person.
iv. Granting authority to the Monetary Board
to set “fit-and-proper” rules; and
If you’re going to be, not just a director, but an officer
– or even an employee of a banking corporation, you
have to be fit and proper.
What is “fit and proper”? You have to be competent and
ethical.
v. Adoption of risk-based capital adequacy
ratios.
That’s why different types of banking corporations have
different capital adequacy ratios. Meaning – magkano
dapat ang liability to equity ratio ninyo? Hindi sa lahat
ng bangko pare-pareha yan. Kasi it would depend on
how risky the bank is. So yung mga medyo risky na
bangko, yun yung may mga malaking capital adequacy
ratios, dun naman sa mga hindi masyado risky, maliit.
Kasi risk-based.
Before, ang ginagawa nila – fixed. There’s no variability
with regard to the risk. Ngayon, ginawa na nilang risk-
based, which is more proper.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
MARKET DISCIPLINE
This means that the market, if working properly and not
subjected to unnecessary or misguided or unknowing
interventions from government can exert pressure on
banks to maintain their safety and soundness.
One of the more significant change under the GBL is that
it gives a liberal policy on foreign banks and entry of
foreign investors. It’s a good thing because these
foreign banks are foreign-owned tapos kung magfo-
foreclose sila ng property – hindi sila pwedeng mag-
acquire ng land – so they are given a very short period
to sell it. So ang tendency niyan, the price would be
sacrificial.
EXTERNAL GOVERNANCE
Regulation and supervision cannot be the solitary
isolated answer to depositor protection. Instead, the
approach taken is to make bank regulation and
supervision supportive of internal governance and
market discipline.
So you should have these 3 frameworks for you to have
a safe and sound banking system:
1. Corporate governance
2. Market discipline
3. External governance
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. (2a)
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-
A)
BASIC FUNCTIONS OF BANKS:
1. To accept deposits from the public; and
2. Lending of funds obtained from deposits.
They just go in-between the depositor and yung mag-
lelend ng funds to the depositor.
A. UNIVERSAL BANK
 Universal banks have the authority to exercise,
in addition to the powers granted to commercial
banks, the powers of an investment house and
to invest in non-allied enterprises.
 Additionally, it can own up to 100% equity in
thrift bank, rural bank, financial allied
enterprise, or non-financial allied enterprise.
That’s why you’ve seen na itong mga malalaking
company, meron silang ‘thrift bank’.
A. If publicly-listed, it may own up to 100% of the
voting stock of only 1 other universal or
commercial bank.
In fact, it can own another universal or commercial bank
– kapang publicly-listed.
B. COMMERCIAL BANKS
B. Commercial banks are banks that have – in
addition to the general powers incident to
corporations – all such powers as may be
necessary to carry on the business of
commercial banking, such as:
o Accepting drafts
o Issuing letters of credit
o Discounting and negotiating promissory
notes, drafts, bills of exchange and
other evidences of debt
o Accepting or creating demand deposits
o Receiving other types of deposits and
deposit substitutes
o Buying and selling foreign exchange and
gold or silver bullion
o Acquiring marketable bonds and other
debt securities
o Extending credit
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
PLEASE MEMORIZE.
C. THRIFT BANKS
C. Thrift banks include:
o Savings and mortgage banks
o Private development banks
o Stock savings and loan associations
organized under existing laws
o Any banking corporation that may be
organized for the following purposes:
i. Accumulating the savings of depositors and
investing them together with capital loans
secured by bonds, mortgages in real estate and
insured improvements thereon, chattel
mortgage, bonds and other forms of security or
in loans for personal or household finance –
secured or unsecured, or in financing for
homebuilding and home development, in readily
marketable and debt securities, in commercial
papers and accounts receivables, drafts, bills of
exchange, acceptances or notes arising out of
commercial transactions, and in such other
investments and loans which the Monetary
Board may determine as necessary in the
furtherance of national economic objectives;
ii. Providing short-term working capital, medium
and long-term financing, to businesses engaged
in agriculture, services, industry and housing;
and
iii. Providing diversified financial and allied services
for its chosen market and constituencies
especially for small and medium enterprises and
individuals.
So take note – a thrift bank has a particular purpose.
They are for small and medium enterprises, usually
farmers and mga small businesses. Kaya siya tinawag
na “thrift bank” – tipid.
D. RURAL BANKS
 Rural banks are organized to promote
comprehensive rural development with the end
view of attaining equitable distribution of
opportunities, income and wealth, a sustained
increase in the amount of goods and services
produced by the nation for the benefit of the
people, and in expanding productivity as a key
in raising the quality of life for all, especially the
underprivileged.
Question: Why does the law have to create a specific
bank? Why not put it in the universal bank nalang? Why
do we have to put it into segments? I’ll leave that up
to you.
E. COOPERATIVE BANKS
 Cooperative banks are organized for the primary
purpose of providing a wide range of financial
services to cooperatives and their members.
 A cooperative bank shall primarily provide
financial banking and credit services to
cooperative organizations and their members.
 In addition to the powers granted by the
Philippine Cooperative Code of 2008 and other
existing laws, any cooperative bank may
perform any or all of the banking services
offered by other types of banks subject to the
prior approval of the BSP.
F. ISLAMIC BANK
As we have previously discussed, the Shari’a Law has a
particular principle with regards to lending.
 The primary purpose of the Islamic Bank is to
promote and accelerate the socio-economic
development of the Autonomous Region by
performing banking, financing and investment
operations and to establish and participate in
agricultural, commercial and industrial ventures
based on the Islamic concept of banking.
G. GOVERNMENT BANKS
 Government banks refer to universal or
commercial banks owned or controlled by the
national government – such as the Development
Bank of the Philippines and the Land Bank of the
Philippines.
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
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 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;
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Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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 re-lending or purchasing of
receivables and other obligations. (2-Da)
Section 5. Policy Direction; Ratios, Ceilings and
Limitations. - The Bangko Sentral shall provide policy
direction in the areas of money, banking and credit. (n)
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 quasi-banks which shall, to the extent feasible,
conform to internationally accepted standards, including
of the Bank for International Settlements (BIS). The
Monetary 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 under rehabilitation or during a merger or
consolidation to continue in business, with safety to its
creditors, depositors and the general public. (2-Ca)
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 function and shall continue
to do so unless 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)
FIRST PARAGRAPH: 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.
In other words – pag wala kang authority to engage in
quasi-banking functions and you are not a universal or
commercial banking institution, then that is unlawful.
SO HOW DO YOU SET UP A BANK?
A person or entity intending to engage in banking
operations must secure from the BSP:
1. Authority to establish a bank;
2. Authority to register a bank; and
3. Authority to operate a bank.
Magka-ibang authorizations ito sila. Who grants you the
authority? It’s the BSP.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

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

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

a. The institution buying and selling
without recourse shall indicate in
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 said institution; and
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. (2-Ba)
Therefore, the question is – is the examination powers
of the BSP limited to banking or quasi-banking
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
institutions? Can the BSP examine a non-bank
institution?
Now it’s easy to determine as regards to whether or not
it is wholly or majority-owned by the bank. Pero pwede
rin ‘controlled’ by the bank eh.
Control exists when the parent owns directly or
indirectly through subsidiaries more than ½ of the
voting power of an enterprise. This is different from your
Corporation Law. Kasi ang sinabi, more than ½ of the
voting power – so kailangan may voting.
Control may also exist even when ownership is ½ or less
of the voting power of an enterprise when there is:
1. Power over more than ½ of the voting rights by
virtue of an agreement with other stockholders;
Example – trust agreement. Kunyari, I own 50% of the
shares, now binayaran ako ni Mr. C – “I’ll give you 1
million, and we will execute a trust agreement but I am
relinquishing my right to vote.” Pwede yun.
2. Power to govern the financial and operating
policies of the enterprise under a statute or an
agreement;
Kahit hindi ikaw yung nagmamay-ari ng more than half,
but if you have the power to govern the financial and
operating policies of the enterprise under a statute or
an agreement, you are deemed to have control over that
enterprise.
3. Power to appoint or remove the majority of the
members of the board of directors or equivalent
governing body;
4. Power to case the majority votes at meetings of
the board of directors or equivalent governing
body; or
So therefore, even if you own less than half of the voting
shares, but kayo na grupo 3 kayo sa board na may 5
members, may control kayo because you are a majority
of the board.
5. Any other arrangement similar to any of the
above.
CHAPTER III
ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS. QUASI-BANKS AND
TRUST ENTITIES
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.
That the entity is a stock corporation.
 Relate this to your Corporation Code – what are
the businesses or industries that have to be a
stock corporation? One of which is the quasi-
bank.
That its funds are obtained from the public, which
shall mean twenty (20) or more persons.
 So kung 15 lang, you are not authorized to
organize a bank.
That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied.
Section 9. Issuance of Stocks. - The Monetary Board
may prescribe rules and regulations on the types of
stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance
with laws and regulations governing capital and equity
structure of banks; Provided, That banks shall issue par
value stocks only.
So again – different banks, different rules.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

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

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

pwedeng i-keep siya within 6 months. C. Combined ownership of
the voting stock of foreign
Why is that the rule? Bakit kailangan may holding individuals and/or foreign
period? Because treasury shares are actually not funded non-bank corporations in
– ang bumili ng mga iyan ay si company mismo. So a domestic:
since hindi siya funded, kailangan ibenta siya ulit. (a) universal/commercial 40%
bank
What will happen pag hindi? These are not funded (b) thrift bank 60%
capitals. In fact, how do we present it in financial (c) rural bank No foreign
statements? It is presented as a deduction in the Equity stockholdings
portion in the balance sheet – so contra-equity account
siya. So kung maraming treasury shares, it actually D. Combined ownership of 40%
means that you are not a well-funded company. That is the voting shares of stick
why the GBL does not encourage banks to have treasury in a domestic bank of an
shares. individual and a
corporation/s which is/are
wholly-owned or a
Section 11. Foreign Stockholdings. - Foreign majority of the voting
individuals and non-bank corporations may own or shares of which is owned
control up to forty percent (40%) of the voting stock of by such individual
a domestic bank. This rule shall apply to Filipinos and
domestic non-bank corporations. The percentage of
UNDER RA 7721
foreign-owned voting stocks in a bank shall be
A. Voting shares of stock 60%
determined by the citizenship of the individual
of qualified Philippine
stockholders in that bank. The citizenship of the
corporation in a domestic
corporation which is a stockholder in a bank shall follow
bank
the citizenship of the controlling stockholders of the
corporation, irrespective of the place of incorporation.
B. Combined ownership of 60%
(n)
the voting shares of stock
of qualified foreign banks
Take note, the GBL is very specific – so dapat voting including foreign
stock. Unlike the Corporation Code, ang basis is 40% of individuals and non-bank
the capital stock.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
corporations in a domestic
bank
REPUBLIC ACT 7721 - AN ACT LIBERALIZING THE
ENTRY AND SCOPE OF OPERATIONS OF FOREIGN
BANKS IN THE PHILIPPINES AND FOR OTHER
PURPOSES.
 With the passage of RA 7721, the Philippine
banking and financial system was liberalized to
create a more competitive environment and to
encourage greater foreign participation through
an increase in the allowable ownership in
domestic banks by foreign banks and the entry
of new foreign bank branches.
In accordance with market competitiveness, what is
good about competition? Why is there a policy to
liberalize the entry of foreign banks?
This is actually for the banks to be more competitive.
This is the issue on regulation vs. deregulation –
because sometimes in regulating industries like
banking, it has a contra-productive effect. That’s why
the move for the GBL is to move for deregulation and
just allow the market forces to play. In fact, they have
now allowed the entry of foreign corporation.
Under RA 7721, the MB is empowered to authorize
foreign banks to operate in the Philippine banking
system through any of the following modes of entry by:
1. Acquiring, purchasing or owning up to 60% of
the voting stock of an existing bank;
2. Investing up to 60% of the voting stock of a
new banking subsidiary incorporated under the
laws of the Philippines; or
3. Establishing branches with full banking
authority.
A foreign bank may avail itself of only 1 mode of entry.
Further, a foreign bank or a Philippine corporation may
own up to 60% of the voting stock of only 1 domestic
bank or new banking subsidiary.
NOTE: These are the only allowed modes of entry.
Be careful because a BRANCH is different from a
SUBSIDIARY.
Pag sinabing “X Company, Philippine branch” – that is a
branch. Pero pag sinabing “X Company” – that is a new
corporation, which may or may not be a subsidiary.
NOW THIS IS REVISED FURTHER BY REPUBLIC
ACT 10641 - AN ACT ALLOWING THE FULL ENTRY
OF FOREIGN BANKS IN THE PHILIPPINES,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO.
7721
Before the percentage was 60-60. With RA 10641:
The Monetary Board may authorize foreign banks to
operate in the Philippine banking system through any
one of the following modes of entry:
(i) by acquiring, purchasing or owning up to one
hundred percent (100%) of the voting stock of an
existing bank;
(ii) by investing in up to one hundred percent
(100%) of the voting stockof a new banking subsidiary
incorporated under the laws of the Philippines; or
(iii) by establishing branches with full banking authority.
So therefore, you can have a bank which is 100% owned
by a foreign company. That’s the trend now.
Also under RA 10641 –
SEC. 9. Participation in Foreclosure Proceedings.—
Foreign banks which are authorized to do banking
business in the Philippines through any of the modes of
entry under Section 2 hereof shall be allowed to bid and
take part in foreclosure sales of real property mortgaged
to them, as well as to avail of enforcement and other
proceedings, 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 property be transferred to such
foreign bank. In case said bank is the winning bidder, it
shall, during the said five (5)-year period, transfer its
rights to a qualified Philippine national, without
prejudice to a borrower’s rights under applicable laws.
Should the bank fail to transfer such property within the
five (5)-year period, it shall be penalized one half (1/2)
of one percent (1%) per annum of the price at which the
property was foreclosed until it is able to transfer the
property to a qualified Philippine national.
Under RA 10641, they can foreclose the property, but
they have a 5-year period within which they have to sell
it, otherwise they will be penalized.
Section 12. Stockholdings of Family Groups of 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 corporations or
related groups of persons with the bank. (12-Ba)
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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 group of
persons with the bank. (12-Ba)
So if there is a related interest, you must disclose it.
That’s why, if you have time, you try to get a copy of
the Annual Stockholder’s Report, dun nakalagay yan.
You will see, naka-disclose diyan yung related interests,
related party transactions – because that is mandated
by our laws.
Section 14. Certificate of Authority to Register. - The
Securities and Exchange Commission shall no 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 it 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)
Section 15. Board of Directors. - The provisions of the
Corporation Code to the 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 directors. An "independent
director" shall mean a person other than an officer or
employee of the bank, its subsidiaries or affiliates or
related interests. (n) 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. (Sec. 7, RA 7721) The meetings of the board of
directors may be conducted through modern
technologies such as, but not limited to,
teleconferencing and video-conferencing. (n)
BOARD OF DIRECTORS
 The board of directors is primarily responsible
for the corporate governance of the entity.
Directors are those:
o Named as such in the articles of
incorporation;
o Duly elected in subsequent meetings of
the stockholders; or
o Elected to fill vacancies in the board of
directors.
INDEPENDENT DIRECTOR
 Is a person other than an officer or employee of
a corporation, its subsidiaries or affiliates or
related interests.
AN INDEPENDENT DIRECTOR IS A PERSON WHO IS
NOT:
i. An officer or employee, or has not been an
officer or employee, of the entity, its
subsidiaries or affiliates or related interests
during the past 3 years counted from the date
of his election;
ii. A director or officer of the related companies of
the institution’s majority stockholder;
iii. A majority stockholder of the institution, any of
its related companies, or of its majority
stockholders;
iv. A relative within the 4th degree of consanguinity
or affinity, legitimate or common-law of any
director, officer, or majority shareholder of the
entity or any of its related companies;
v. Acting as a nominee or representative of any
director or substantial shareholder of the entity,
any of its related companies or any of its
substantial shareholders; and
vi. Retained as professional adviser, consultant,
agent or counsel of the institution, any of its
related companies or any of its substantial
shareholders, either in his personal capacity or
through his firm.
An independent director must also only serve for a term
of 5 years.
Question: Can an independent director own a share of
stock? Pwede – as long as it is not sufficient to elect 1
seat in the board of directors.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
January 23 ( 1 of 4) - Gillian
FIT AND PROPER RULE
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)
Take note, it’s not only limited to the directors but also
to the officers.
This is actually in compliance with the Basel
Committee on Banking Supervision
Principle 5: Licensing Criteria
The licensing authority has the power to set criteria and
reject applications for establishments that do not meet
the criteria. At a minimum, the licensing process
consists of assessment of the ownership structure and
governance (including the fitness and propriety of Board
members and senior management) of the bank and its
wider group, and its strategic and operating plan,
internal conflicts, risk management and projected
financial condition (including capital base).
So as we all know the banking industry is imbued with
public interest so there is heavy regulation when it
comes to banking.
The Fit and Proper Rule is very specific in the banking
industry, you can read this in all jurisdictions. Again you
have to look at the integrity, probity, experience,
education, training, and competence.
Q: What’s probity?
A: The quality of having strong moral principles
Now the problem with this kind of qualification is that
there’s actually no test to determine it. Ang ginagawa
lang nilang test is if you are convicted of a crime
involving moral turpitude. That’s a common test but it’s
in the negative. How can you determine a person’s
moral intergrity diba.
Manual of Regulations for Banks
Qualifications of a director
A director shall have the following minimum
qualifications:
a. He shall be at least twenty-five (25) years of age at
the time of his election or appointment;
b. He shall be at least a college graduate, or have at
least five (5) years experience in business;
c. He must have attended a special seminar on
corporate governance for board of directors accredited
by the Bangko Sentral
d. He must be fit and proper for the position of a director
of a bank
Mind you. Kung may MCLE tayo, sila may corporate
governance. Mga best practices. They have to finish a
certain number of units before they are given the license
That the following persons are exempted from
attending said seminar:
i. Foreign nationals who have attended corporate
governance training covering core topics in the Bangko
Sentral
ii. Filipino citizens with recognized stature, influence and
reputation in the banking community and whose
business practices stand as testimonies to good
corporate governance;
iii. Distinguished Filipino and foreign nationals who
served as senior officials in central banks and/or
financial regulatory agencies, including former Monetary
Board members; or
iv. Former Chief Justices of the Philippines
Q: Pag si Sereno ba, pwede ba syang ma exempt?
Please note, the fit and proper rule also applies to
officers. Sino ba yung officers? Please take note of this
definition, it’s very specific:
Definition of officers. Officers shall include the
president, executive vice president, senior vice-
president, vice president, general manager, treasurer,
secretary, trust officer and others mentioned as officers
of the bank, or those whose duties as such are defined
in the by-laws, or are generally known to be the officers
of the bank (or any of its branches and offices other than
the head office) either through announcement,
representation, publication or any kind of
communication made by the bank:
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Therefore even if hindi sya official but the bank
represented that this particular person is an officer of
the bank, he has to be compliant with the fit and proper
rule. Please take note of that nuance.
(Continuation)
Provided, That a person holding the position of chairman
or vice chairman of the board or another position in the
board shall not be considered as an officer unless the
duties of his position in the board include functions of
management such as those ordinarily performed by
regular officers:
Provided, further, That members of a groupor
committee, including sub-groups or subcommittees,
whose duties include functions of management such as
those ordinarily performed by regular officers, and are
not purely recommendatory or advisory, shall likewise
be considered as officers.
What are purely recommendatory or advisory
committees?
Audit committee, whose purpose is to find out if they
comply with the rules and regulations of tax laws,
banking, etc. So itong mga operations ng company are
actually subject to the audit committee.
Get a stockholder’s meeting manual of any big
corporations. Tingnan nyo yun para malaman nyo yung
sinasabi ko, para magka intindihan tayo.
Qualifications of an officer.
An officer shall have the following minimum
qualifications:
a. He shall be at least twenty-one (21) years of age;
b. He shall be at least a college graduate, or have at
least five (5) years experience in banking or trust
operations or related activities or in a field related to his
position and responsibilities, or have undergone training
in banking or trust operations acceptable to the
appropriate department of the Supervising and
Examining Sector of the BSP.
Provided, however, That the trust officer who shall be
appointed shall possess any of the following:
(1) at least five (5) years of actual experience in trust
operations;
(2) at least three (3) years of actual experience in trust
operations and must have:
(a) completed at least ninety (90) training hours in
trust, other fiduciary business, or investment
management activities acceptable to the Bangko
Sentral; or
(b) completed a relevant global or local professional
certification program; or (3) at least five (5) years of
actual experience as an officer of a bank and must have:
(a) completed at least ninety (90) training hours in
trust, other fiduciary business, or
investment management activities acceptable to the
Bangko Sentral; or
(b) completed a relevant global or local professional
certification program; and
c. He must be fit and proper for the position he is being
proposed/appointed to.
(PLEASE MEMORIZE) In determining whether a
person is fit and proper for a particular position, the
following matters must be considered: integrity/probity,
competence, education, diligence and
experience/training.
So walang jail dyan. If you go to jail, it does not
necessarily make you not fit and proper.
Disqualification and Watchlisting of Directors and
Officers
a. Permanently disqualified
Directors/officers/employees permanently disqualified
by the Monetary Board from holding a director position:
(1) Persons who have been convicted by final
judgment of a court for offenses involving
dishonesty or breach of trust such as, but not
limited to, estafa, embezzlement, extortion,
forgery, malversation, swindling, theft, robbery,
falsification, bribery, violation of B.P. Blg. 22,
violation of Anti-Graft and Corrupt Practices Act
and prohibited acts and transactions under
Section 7 of R.A. No. 6713
(2) Persons who have been convicted by final
judgment of a court sentencing them to serve a
maximum term of imprisonment of more than 6
years
(3) Persons who have been convicted by final
judgment of a court for violation of banking
laws, rules and regulations;
(4) Persons who have been judicially declared
insolvent, spendthrift or incapacitated to
contract
So bawal pubri but you have to be judicially declared
insolvent.
(5) Directors, officers or employees of closed banks
who were found to be culpable for such
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
institution’s closure as determined by the
Monetary Board
(6) Directors and officers found by the MB as
administratively liable for violation of banking
laws
(7) Directors and officers of banks or any person
found by the MB to be unfit for the position of
directors or officers because they were found
administratively liable by another government
agency for violation of banking laws, rules and
regulations or any offense
b. Temporarily disqualified
Meaning pag mawala ang disqualification pwede ra
paring maging officer
(1) Persons who refuse to fully disclose the extent
of their business interest or any material
information to the appropriate department of
the SES
(2) Directors who have been absent or who have
not participated for whatever reasons in more
than 50 % of all meeting, both regular and
special of the board of directors during their
incumbency
Meaning what the law requires is for the directors to be
working directors.
(Continuation) and directors who failed to physically
attend for whatever reasons in at least 25% of all board
meetings in any year
Bakit sila sineperate? Kasi meetings can be through
teleconferencing or videoconferencing, pero dapat wag
mung abusuhin, you still have to be physically present
(3) Persons who are delinquent in the payment of
their obligation
(4) Persons who have been convicted by a court for
offenses involving dishonesty or breach of trust
(5) Directors and officers of closed banks pending
their clearance by the MB
(6) Directors disqualified for their failure to observe
or discharge their duties and responsibilities
prescribed under existing regulations
(7) Directors who failed to attend special seminar
for board of directors
(8) Persons dismissed/terminated form
employment for a cause
(9) Those under preventive suspension
(10) Persons with derogatory records
You can see, masyadong maraming requirements just
to be an officer or director. Kailangan talaga walang
bahid.
Persons disqualified to become officers
- The spouses or relative within the second
degree of consanguinity or affinity are
prohibited from holding officership positions
across the following functional categories within
a bank:
1. decision making and senior management
function e.g. chairman, CEO, COO, CFO
2. treasury function
3. record keeping and financial functions
4. safekeeping of assets
5. risk management function
6. compliance function
7. internal audit function
So what does this prevent? Nepotism. Culture kasi ng
Pinoy, they might compromise violation of another kasi
kamag anak nila.
In the standards of auditing, hindi pwedeng same
functions si record keeping, safekeeping of assets at
yung approval. Kung sino yung nag aaprove different
sya from record keeping or safekeeping
The spouse or a relative within the second degree of
consanguinity or affinity of any person holding the
position of manager cashier or accountant of a branch
or extension office of a bank
- Any appointive or elective official whether full
time or part time except if it is incident to
financial assistance
- In the case of Coop Banks, any officer or
employees of the CDA or any elective public
official except a barangay official
Watchlisting
How does the Central Bank monitor the people within
the banks?
To provide the Bangko Sentral with a central information
file to be used as reference in passing upon and
reviewing the qualifications of persons elected or
appointed as director or officer of a bank, QB or trust
entity, the SES shall maintain a watchlist of persons
disqualified to be a director or officer of such entities
under its supervision
For the purpose of determining na disqualified ka. Tapos
after 1 yr lumipat lang pala sa ibang bangko, nag apply
or kinuha as officer. Parang NBI ba, may lista sila ng
may mga kasalanan
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
In the case of bank merger or consolidation_______, so
this is an exception to your Corporation Code. What’s
the maximum for the number of directors in your Corpo
Code, Private? 15
Why is it that in General Banking Law it is 21?
January 23
40:01 – 1:00:00
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)
What’s the maximum?
15.
Why is it that in the General Banking Law it is 21?
Kase the policy of the state is to encourage merger.
Pooling of resources when it comes to this type of
industry. Now the problem with merger is that there is
a power struggle. Kung mag merge si A & B, sino
mamahala? There will always be a power struggle.
That’s why ginawang 21 so that, in the board, there is
equal representation.
Bakit di ginawang 20? Para 10-10, pantay walang issue.
Ginawang 21 para may mag tiebreaker. Di maka move
ang board if 20, walang mag break in case of a tie.
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)
Again the compensation is regulated to protect the
funds of depositors and creditors…
In these particular instances (18.1-18.3) the MB may
regulate payment. So even if malaki, this is an
exception.
You cannot use your Labor code on the non-diminution
of benefits if these are the instances.
Let’s say tumatanggap ka ng 300,000 a month, tapos
biglang sinabi ng MB na 50,000 ka nalang. Kasi the bank
is under conservatorship.
You cannot use the provision in the Labor code on the
non-diminution of benefits to say that that is illegal,
because that is perfectly allowed under the general
banking law.
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 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)
Can Public officials be appointed or can they sit as a
director or officer of any private bank?
Except in Rural Banks Act (so kung mga rural banks
pwede), no appointive or elective public official, whether
full-time or part-time shall at the same time serve as
officer of any private bank unless it 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.
So dalawa lang ang exception mo.
you have the:
1. Rural Banks Act
2. If it is incident to financial assistance given by
the government.
What’s the purpose kung bakit pinaupo ang officer?
It could be to check if the financial assistance is really
disbursed in the manner of which it was given.
So exception rural banks act; you have Section 5 of the
Rural Banks Act.
Section 5. All members of the Board of Directors of
the rural bank shall be citizens of the Philippines at
the time of their assumption to office: Provided,
however, That nothing in this Act shall be construed
as prohibiting any appointive or elective public
official from serving as director, officer,
consultant or in any capacity in the bank. xxxx
General rule: approval from the CSC must first be
sought. Another one is incident to financial assistance.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
SECTION 20. Bank Branches. — Universal or
commercial banks may open branches or other
offices within or outside the Philippines upon prior
approval of the Bangko Sentral.
Branching by all other banks shall be governed by
pertinent laws.
A bank may, subject to prior approval of the Monetary
Board, use any or all of its branches as
outlets for the presentation and/or sale of the
financial products of its allied undertaking or of its
investment house units.
A bank authorized to establish branches or other
offices shall be responsible for all business
conducted in such branches and offices to the same
extent and in the same manner as though such
business had all been conducted in the head office. A
bank and its branches and offices shall be
treated
as one unit. (6-B; 27)
Please take note of the last sentence - A bank and its
branches and offices shall be treated as one unit –
so hindi sila different.
SECTION 21. Banking Days and Hours. — Unless
otherwise authorized by the Bangko Sentral
in the interest of the banking public, all banks
including their branches and offices shall transact
business
on all working days for at least six (6) hours a day. In
addition, banks or any of their branches or offices
may open for business on Saturdays, Sundays or
holidays for at least three (3) hours a day: Provided,
That banks which opt to open on days other than
working days shall report to the Bangko Sentral the
additional days during which they or their branches
or offices shall transact business.
For purposes of this Section, working days shall mean
Mondays to Fridays, except if such days
are holidays. (6-Ca)
Eto yung basis kung bakit 3pm mag cut-off na; because
under the law - shall transact business
on all working days for at least six (6) hours a day.
So pwedeng 6 hours lang. they have the right to say na
“ipa cut-off na namin.” Di naman ibig sabihin na less
than 8 hours sila, mag ihap pa man yan sila ng pera mag
work pa man yan.
SECTION 22. Strikes and Lockouts. — The
banking industry is hereby declared as
indispensable to the national interest and, not
withstanding 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)
Strikes and lockouts I leave that to your labor relations.
SECTION 23. Powers of a Universal Bank. — A
universal bank shall have the authority to
exercise, in addition to the powers authorized for a
commercial bank in Section 29, the powers of an
investment house as provided in existing laws and the
power to invest in non-allied enterprises as
provided in this Act. (21 -B)
Please take note: ang power ng universal bank =
commercial bank + power of investment house + power
to invest in allied enterprises.
Universal bank has the following powers, you have:
1. Powers of a commercial bank;
2. Powers of an investment house;
3. Powers to invest in non-allied enterprise;
4. Power to own up to 100% equity in a thrift bank,
rural bank or financial allied enterprise and;
5. Power to own up to 100% equity in a non-
financial allied enterprise.
In case of a publicly-listed universal bank, power to own
up to one hundred percent (100%) of the voting stock
of only one other universal or commercial bank.
So a universal bank may be owned by a universal bank.
So pwedeng universal bank is 100% owned by another
universal bank, provided that the owner UB is a publicly-
listed universal bank.
Take note: 100% of the voting stock
So pwede bang magkaroon ng corporation ng non-
voting stock?
Kailangan ba lahat voting?
The investment house is an enterprise…anong
investment house? – engaged in the underwriting of
securities of other corporations.
What is underwriting of securities? Diba may insurance
underwriter…what is an underwriter?
When you say underwriting you are actually
guaranteeing the securities. kaya when you buy
insurance, hindi naman basta-basta na-aaprove yan,
they will have to underwrite for them to guarantee.
So an investment house is an enterprise which engages
in the underwriting of securities of other corporation –
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
it guarantees the shares and securities of other
corporation.
In Corpo, when we go to the Securities regulation code,
we would know that the term securities is not limited to
shares of stock. There are other types of financial
instruments considered as securities…but for purposes
of discussion, you can liken the securities to shares of
stock but it’s not exclusively the shares of stock.
You have your PD 129, which is the enabling law of
investment houses.
So an investment house is authorized to do the
following: (See PD 129 for full list)
Sec. 7. Powers. — In addition to the powers granted
to corporations in general, an Investment House is
authorized to do the following:
xxx (6) Act as financial consultant, investment
adviser, or broker xxx
SECTION 24. Equity Investments of a Universal
Bank. — A universal bank may, subject to the
conditions stated in the succeeding paragraph, invest
in the equities of allied and non-allied enterprises as
may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise
prescribe:
24.1. The total investment in equities of allied and
non-allied enterprises shall not exceed fifty percent
(50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise,
whether allied or non-allied, shall not exceed twenty-
five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total
of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be
required by the Bangko Sentral.
The acquisition of such equity or equities is subject to
the prior approval of the Monetary Board
which shall promulgate appropriate guidelines to
govern such investments. (21 -Ba)
Deposits, loans and other operations. Equity investment
of universal bank, again invest in the equities of allied
and non-allied enterprises.
Take note: 24.1. The total investment in equities of
allied and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank;
Bakit may limit - 50%?
This is because the policies of the bank have to be
prudent. Remember this serves for the investors and
depositors and the public.
Pag non-allied naman ka the equity investment in any
one enterprise, shall not exceed
twenty-five percent (25%) of the net worth of the bank.
Take note: the total investment in equity (meaning ang
total investment niya/total shares of stock na hawak
niya for allied and non-allied) shall not exceed 50% of
the net worth of the bank.
Pero individually it should not exceed 25%.
The maximum is 25%. So kung meron siyang hawak na
25%, the maximum that it can invest in other enterprise
is 25 also. Eto at the individual enterprise level -25%.
On the totality level, you have the 50%.
Pag financial allied, can own up to 100% equity in a
thrift bank
SECTION 25. Equity Investments of a Universal
Bank in Financial Allied Enterprises. — A
universal bank can own up to one hundred percent
(100%) of the equity in a thrift bank, a rural bank or
a
financial allied enterprise.
A publicly-listed universal or commercial bank may
own up to one hundred percent (100%) of the voting
stock of only one other universal or commercial bank.
(21 -B; 21 -Ca)
Take note: 100% of the equity. It did not say 100% of
the voting stock. Magkaiba po si equity and si voting
stock. Kasi your equity might also have non-voting
stocks.
These are financial allied undertakings.
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. Investment houses;
d. Financing companies;
e. Credit card companies;
f. Financial institutions catering to small and
medium scale industries including venture capital
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
corporation (VCC), subject to the provisions under
Sec. X379
g. Companies engaged in stock brokerage/securities
dealership; and
h. Companies engaged in foreign exchange
dealership/brokerage.
In addition, EKBs may invest in the following as
financial allied undertakings:
a. Insurance companies; and
b. 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.
What is a venture capital corporation?
These are corporations the purpose of which is primarily
to provide capital.
SECTION 26. Equity Investments of a Universal
Bank in Non-Financial Allied Enterprises.
— A universal bank may own up to one hundred
percent (100%) of the equity in a non-financial allied
enterprise. (21 -Ba)
SECTION 27. Equity Investments of a Universal
Bank in Non-Allied Enterprises. — The
equity investment of a universal bank, or of its wholly
or majority-owned subsidiaries, in a single nonallied
enterprise shall not exceed thirty-five percent (35%)
of the total equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock
in that enterprise. (21 -B)
Take note: of the limitations. Familiarize it.
SEC. X380 Non-Financial Allied Undertakings. A bank
may acquire up to one hundred percent (100%) of
the equity of a non-financial allied undertaking: x x x.
The determination of whether the corporation is
engaged in a non-financial allied undertaking shall be
based on the primary purpose as stated in its articles
of incorporation and the volume of its principal
business.
UBs/KBs/TBs
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 ma-
nagement 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 non-bank financial institutions
the services allowed to be outsourced under Circular
No. 268; provided, that data processing companies
may be allowed to invest up to 40% in the equity of
Service Bureaus;
(11) Philippine Clearing House Corporation (PCHC)
and Philippine Central Depository, Inc. (PDIC); and
(12) Such other similar activities as the Monetary
Board may declare as non-financial allied
undertakings of banks.
UBs may further invest in health maintenance
organizations (HMOs).
In addition, TBs may also invest in the equities of
companies enumerated in Item b of this Section
Non-allied undertakings. Familiarize. Marami sila.
SECTION 28. Equity Investments in Quasi-
Banks. — To promote competitive conditions in
financial markets, the Monetary Board may further
limit to forty percent (40%) equity investments of
universal banks in quasi-banks. This rule shall also
apply in the case of commercial banks. (12-E)
Quasi-banks – 40%. As you can see limited.
The main features of the general banking law, is that it
actually provides restrictions to the banking operations.
Yun lang yun isipin niyo.
When you read the banking law, it provides: restrictions,
limitations, qualifications, prohibitions to the banks for
the banking industry to be safe. Otherwise if wala,
magpataka. That is why.
Take note of the prohibitions, restrictions, limitations
under the General Banking Act.
Power of Commercial Banks
Let’s go to the Power of Commercial Banks.
Remember the universal bank has the power of a
commercial bank + …..
So we have to determine. What are the powers of a
commercial banks?
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

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

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

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

30.1. The total investment in equities of allied
enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bank; and
30.2. The equity investment in any one enterprise
shall not exceed twenty-five percent (25%) of the
net worth of the bank.
The acquisition of such equity or equities is subject to
the prior approval of the Monetary Board
which shall promulgate appropriate guidelines to
govern such investments. (21A-a; 21 -Ca)
Take note: xxx invest only in the equities of allied
enterprises as may be determined by the Monetary
Board. Allied enterprises may either be financial or non-
financial. xxxx
Take note of the limitations:
30.1. The total investment in equities of allied
enterprises shall not exceed thirty-five percent (35%) of
For purposes of this Section, the Monetary Board may
require that 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
requirements: Provided, further, That it may alter or
suspend compliance with such ratio whenever
necessary for a maximum period of one (1) year:
Provided,
finally, That such ratio shall be applied uniformly to
banks of the same category.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes

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

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

xxx the total amount of loans, credit accommodations How can you increase the single borrowers limit?
and guarantees xxx (*take note: loans,
accommodations, guarantees lang.) xxx It must be adequately secured by trust receipts,
shipping documents, warehouse receipts or other
xxx guarantees as may be defined by the Monetary similar documents transferring or securing title covering
Board that may be extended by a bank to any person,
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
readily marketable, non-perishable goods which must
be fully covered by insurance
It can only be increased if it is covered by documents
transferring or securing title
(*not just any title: the title must be readily marketable,
non-perishable goods)
So may trust receipt nga, but the goods under that
receipt are not readily marketable, non-perishable
goods then that is not a reason for the bank to increase
the single borrowers limit.
So what is the purpose of this? “i-increase naming yun
borrowers mo because in the event of default there is
an easy money.” You can easily convert the security into
money.
So pagsinabi sa true or false: nag increase siya kasi nag
issue ng trust receipt, is it true or false?
Can the bank increase up to 10% of the limit if the
borrower issues a trust receipt.
Answer is false because it is not just any trust receipt.
The trust receipt must cover readily marketable, non-
perishable goods fully covered by insurance.
Take note:
xxxx The above prescribed ceilings shall include:
(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; xxxx
(*kasi pwede naming I have a limit so ang gawin ko, I
will create a corporation. That corporation, another
25%, me - 25%, pero ako pa din may-ari nun eh, so 50
na ako all in all)
I will just course it through the corporation.
January 23 – Part 3 1:00:01 – 1:20:00
Please take note that it includes a case of individual who
owns or controls the majority interest in a corporation,
partnership or association of any other entity. It does
not only limit to just owning but also to controlling.
Pwede naman hindi sa akin ang majority interest.
There’s a difference between owning and controlling.
The law provides it’s either own or control. You can own
something, but you do not have control or vice versa.
Please take note of the exclusions: (Sec. 35.5)
(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.
Please check BSP Circular 425. This has the
consolidated regulation for single borrower’s limit.
What’s the penalty if you exceed the limit?
(BSP Circular 425)
Series of 2004
a. Monetary Penalties - Fines of one-tenth of one
percent (1/10 of 1%) of the excess over the ceiling
but not to exceed Thirty Thousand Pesos
(P30,000.00) a day for each SBL violation shall be
assessed on the bank to be reckoned from the date
the excess started up to the date when such excess
was eliminated: Provided, That a maximum fine of
Five Hundred Pesos (P500.00) a day for each violation
shall be imposed against banks with total resources
of less than P50 million at the time of granting of
loan/credit accommodation.
b. Other Sanctions
First Offense – Reprimand for the directors/officers
who approved the credit availment which resulted in
the excess with a warning that subsequent violations
will be subject to more severe sanctions.
Subsequent Offenses –
1. Fine of One Thousand Pesos (P1,000.00) for
directors/officers who approved the credit availment
which resulted in the excess.
2. Suspension of the bank’s branching privileges and
access to Bangko Sentral rediscounting facilities until
the excess is eliminated.
3. Other penalties as the Monetary Board may
impose depending on the gravity of the offense.
BSP recently issued last 2017 an exemption to the single
borrower’s limit. They provided an exclusion that the
SPE or special purpose entities are not covered under
the single borrower’s limit. So, they can actually loan
more than 25%.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
What are special purpose vehicles or special
purpose entities?
Ex. If you are a big corporation, gagawa ka ng SPV/SPE.
The purpose of that is actually to secure assets. Kaya
bankruptcy remote siya. In the event that the parent
company will be bankrupt, the assets by the SPV/SPE
will be secured. Whatever happens to the owner, these
will not be affected.
So, ikaw if marami kang pera and you want to distribute
the risks and may mga assets ka na ayaw mo madamay,
itago mo dun sa SPV/SPE. But it is highly regulated
because of ENDRON case.
What happened before with ENDRON is that their share
skyrocketed from $1 to $1000 per share. What they did
was they created SPV/SPEs to secure their assets.
However, the SPV/SPE are not reflected in the books of
ENDRON. Kasi that is allowed naman.
Ang nangyari, the funding for the SPV/SPE are
guaranteed by the assests of ENDRON. So, yung mga
business ventures ng SPV/SPE nalugi so supposedly
yung madamay yun lang pero nakaguarantee kasi. So,
in ENDRON’s finances it would look like the positive and
naga income but it did not reflect the fact that the
assests were guaranteed for the operations of the
SPV/SPE. When the debtors of the SPV/SPE went after
the guarantee, dun na nag erode lahat. And because of
that the PCIOB (Public Companies Oversight Board) was
established. So, now, SPV/SPE are highly regulated
because they are meant to secure the assets.
GO v. BANGKO SENTRAL NG PILIPINAS
FACTS:
On August 20, 1999, an information for violation of
Section 83 of Republic Act No. 337 (RA 337) or the
General Banking Act, as amended by Presidential
Decree No. 1795, was filed against Jose Go ( the
Director and the President and CEO of the Orient
Commercial Banking Corporation), before the
RTC, for borrowing the deposits or funds of the Orient
Bank and/or acting as a guarantor, indorser or
obligor for the banks loans to other persons in total
amount of TWO BILLION AND SEVEN HUNDRED
FIFTY-FOUR MILLION NINE HUNDRED
FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN
AND 0/100 PESOS, Philippine Currency, without the
written approval of the majority of the Board of
Directors of said Orient Bank
On May 28, 2001, Go pleaded not guilty to the offense
charged.
Go filed on February 26, 2003 a motion to quash the
Information, claiming that the Information was
defective, as the facts charged therein do not
constitute an offense under Section 83 of RA 337.
ISSUE
WHETHER GO’s ACTIONS/ TRANSACTIONS
CONSTITUTE VIOLATIONS OF SEC. 83 OF RA 337.
RULING
YES. GO’s ACTIONS/ TRANSACTIONS CONSTITUTE
VIOLATIONS OF SEC. 83 OF RA 337.
Under Section 83, RA 337, the following elements
must be present to constitute a violation of its first
paragraph:
1. the offender is a director or officer of any
banking institution;
2. the offender, either directly or indirectly, for
himself or as representative or agent of another,
performs any of the following acts:
a. he borrows any of the deposits or funds of such
bank; or
b. he becomes a guarantor, indorser, or surety for
loans from such bank to others, or
c. he becomes in any manner an obligor for
money borrowed from bank or loaned by it;
3. the offender has performed any of such acts
without the written approval of the majority of the
directors of the bank, excluding the offender, as the
director concerned.
The essence of the crime is becoming an obligor
of the bank without securing the necessary
written approval of the majority of the banks
directors.
The second element merely lists down the various
modes of committing the offense. The prohibition is
directed against a bank director or officer who
becomes in any manner an obligor for money
borrowed from or loaned by the bank without the
written approval of the majority of the banks board of
directors.
Contrary to Gos claims, the second paragraph of
Section 83, RA 337 does not provide for an exception
to a violation of the first paragraph thereof, nor does
it constitute as an element of the offense
charged. Section 83 of RA 337 actually imposes three
restrictions: approval, reportorial, and ceiling
requirements.
 The approval requirement (found in the
first sentence of the first paragraph of the
law) refers to the written approval of the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
majority of the banks board of directors
required before bank directors and officers
can in any manner be an obligor for money
borrowed from or loaned by the bank. Failure
to secure the approval renders the bank
director or officer concerned liable for
prosecution and, upon conviction, subjects
him to the penalty provided in the third
sentence of first paragraph of Section 83.
 The reportorial requirement, on the other
hand, mandates that any such approval
should be entered upon the records of the
corporation, and a copy of the entry be
transmitted to the appropriate supervising
department. The reportorial requirement is
addressed to the bank itself, which, upon its
failure to do so, subjects it to quo
warranto proceedings under Section 87 of RA
337.
 The ceiling requirement under the second
paragraph of Section 83 regulates the
amount of credit accommodations that banks
may extend to their directors or officers by
limiting these to an amount equivalent to the
respective outstanding deposits and book
value of the paid-in capital contribution in the
bank. Again, this is a requirement directed at
the bank.
The prosecution for violation of the first paragraph of
Section 83, does not require an allegation that the
loan exceeded the legal limit. Even if the loan
involved is below the legal limit, a written approval by
the majority of the banks directors is still required;
otherwise, the bank director or officer who becomes
an obligor of the bank is liable. Compliance with the
ceiling requirement does not dispense with the
approval requirement.
The failure to observe the three requirements under
Section 83 paves the way for the prosecution of three
different offenses, each with its own set of
elements. A successful indictment for failing to
comply with the approval requirement will not
necessitate proof that the other two were likewise not
observed.
In the case at bar, it was alleged that GO’s
transactions were without written approval of the
majority of the Board of Directors of the Orient
Bank. Hence, he should be prosecuted for the crime
charged.
Please take note of the three requirements:
1. Approval requirement. It has to be approved by
written approval of the majority of the bank’s
board of directors.
2. Reportorial requirement
3. Ceiling requirement
So just because hindi pa umabot sa ceiling, that does
not mean that you cannot be held liable. Please take
note that this paves the way for the prosecution of three
different offenses, each with its own set of elements.
SORIANO v. PEOPLE
FACTS
Two separate informations were filed against Hilario
Soriano, one for estafa through falsification of
commercial documents, the other for violation of
section 83 of RA 337.
ISSUE
Whether or not a person can be concurrently held
liable for estafa and violation of DOSRI regulations for
a single act or transaction.
RULING
YES. A person can be concurrently held liable for
estafa and violation of DOSRI regulations for a single
act or transaction.
We have examined the two informations against
petitioner and we find that they contain allegations
which, if hypothetically admitted, would establish the
essential elements of the crime of DOSRI violation
and estafa thru falsification of commercial
documents.
Petitioner raises the theory that he could not possibly
be held liable for estafa in concurrence with the
charge for DOSRI violation. According to him, the
DOSRI charge presupposes that he acquired a loan,
which would make the loan proceeds his own money
and which he could neither possibly misappropriate
nor convert to the prejudice of another, as required
by the statutory definition of estafa. On the other
hand, if petitioner did not acquire any loan, there can
be no DOSRI violation to speak of. Thus, petitioner
posits that the two offenses cannot co-exist. This
theory does not persuade us.
Petitioners theory is based on the false premises that
the loan was extended to him by the bank in his own
name, and that he became the owner of the loan
proceeds. Both premises are wrong.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The bank money (amounting to P8 million)
which came to the possession of petitioner was
money held in trust or administration by him for
the bank, in his fiduciary capacity as the
President of said bank. It is not accurate to say
that petitioner became the owner of the P8
million because it was the proceeds of a
loan. That would have been correct if the
bank knowingly extended the loan to petitioner
himself. But that is not the case here. According
to the information for estafa, the loan was
supposed to be for another person, a certain
Enrico Carlos; petitioner, through falsification,
made it appear that said Enrico Carlos applied
for the loan when in fact he (Enrico Carlos) did
not. Through such fraudulent device, petitioner
obtained the loan proceeds and converted the
same. Under these circumstances, it cannot be
said that petitioner became the legal owner of
the P8 million. Thus, petitioner remained the
banks fiduciary with respect to that money,
which makes it capable of misappropriation or
conversion in his hands.
The next question is whether there can also be, at the
same time, a charge for DOSRI violation in such a
situation wherein the accused bank officer
did not secure a loan in his own name, but was
alleged to have used the name of another person in
order to indirectly secure a loan from the bank. We
answer this in the affirmative. Section 83 of RA 337
reads:
Section 83. No director or officer of any banking
institution shall, either directly or indirectly, for
himself or as the representative or agent of others,
borrow any of the deposits of funds of 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 for moneys borrowed from the bank or
loaned by it, except with the written approval of the
majority of the directors of the bank, excluding the
director concerned. Any such approval shall be
entered upon the records of the corporation and a
copy of such entry shall be transmitted forthwith to
the Superintendent of Banks. The office of any
director or officer of a bank who violates the
provisions of this section shall immediately become
vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than
ten years and by a fine of not less than one thousand
nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to
cover various modes of borrowing. It covers
loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly,
(2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies
even if the director or officer is a mere
guarantor, indorser or surety for someone
else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by it.
The covered transactions are prohibited unless
the approval, reportorial and ceiling
requirements under Section 83 are complied
with.
The prohibition is intended to protect the public,
especially the depositors from the overborrowing of
bank funds by bank officers, directors, stockholders
and related interests, as such overborrowing may
lead to bank failures. It has been said that banking
institutions are not created for the benefit of the
directors [or officers]. While directors have great
powers as directors, they have no special privileges
as individuals. They cannot use the assets of the bank
for their own benefit except as permitted by law.
Stringent restrictions are placed about them so that
when acting both for the bank and for one of
themselves at the same time, they must keep within
certain prescribed lines regarded by the legislature as
essential to safety in the banking business.
A direct borrowing is obviously one that is made
in the name of the DOSRI himself or where the
DOSRI is a named party, while
an indirect borrowing includes one that is made
by a third party, but the DOSRI has a stake in
the transaction. The latter type indirect
borrowing applies here. The information in
Criminal Case 238-M-2001 alleges that
petitioner in his capacity as President of Rural
Bank of San Miguel San Ildefonso branch x x x
indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same
has been done by him without the written
consent and approval of the majority of the
board of directors x x x, and which consent and
approval the said accused deliberately failed to
obtain and enter the same upon the records of
said banking institution and to transmit a copy
thereof to the supervising department of the
said bank x x x by using the name of one
depositor Enrico Carlos x x x, the latter having
no knowledge of the said loan, and once in
possession of the said amount of eight million
pesos (P8 million), [petitioner] converted the
same to his own personal use and benefit.
The foregoing information describes the manner of
securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It
contains all the required elements for a violation of
Section 83, even if petitioner did not secure the loan
in his own name.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The broad interpretation of the prohibition in Section
83 is justified by the fact that it even expressly covers
loans to third parties where the third parties are
aware of the transaction (such as principals
represented by the DOSRI), and where the DOSRIs
interest does not appear to be beneficial but even
burdensome (such as in cases when the DOSRI acts
as a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking
system in such situations, it will surely be illogical for
it to exclude a case like this where the DOSRI
acted for his own benefit, using the name of an
unsuspecting person. A contrary interpretation will
effectively allow a DOSRI to use dummies to
circumvent the requirements of the law.
So it does not only involve direct bargaining, but also
indirect bargaining.
You read BSP Circular 423 for the regulations on DOSRI
transactions.
Ceiling Requirement
1. Individual
2. Aggregate
3. Individual unsecured
4. Aggregate unsecured
Secured and Unsecured
Secured loan, borrowing or other credit accommodation
shall refer to any loan, or credit accommodation or
portion thereof which is secured by physical collateral,
financial guarantee, or other instruments, that are
enforceable, realizable, and marketable and meets the
standards prescribed.
Unsecured loan, borrowing or other credit
accommodation shall refer to any loan or other credit
accommodation or portion thereof which is not secured.
Individual Ceilings
The total outstanding loans, other credit
accommodations and guarantees to each of the bank’s
DOSRI shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of
their paid-in capital contribution in the bank.
Unencumbered deposits shall refer to savings, time and
demand deposits, which are not subject to an
assignment or hold-out agreement or any other
encumbrance.
Book value of the paid-in capital contribution shall mean
the proportional amount of the bank’s total capital
accounts (net of such unbooked valuation reserves and
other capital adjustments as may be required by the
Bangko Sentral) as the corresponding paid-in capital
contribution of each of the bank’s directors, officers,
stockholders and their related interests bear to the total
paid-in capital of the bank: Provided, That as a basis for
determining the individual ceiling, the corresponding
book value of the shares of stock of said directors,
officers, stockholders and their related interests which
are he subject of pledge, assignment or any other
encumbrance shall be deducted therefrom.
If you want to read, may computations for the ceiling,
but I will not ask you to compute that.
Individual Unsecured Ceiling
Unsecured loans, other credit accommodations and
guarantees to each of the bank’s DOSRI shall not exceed
30% of their respective total loans, other credit
accommodations and guarantees.
Aggregate Ceilings
Except with the prior approval of the Monetary Board,
the total outstanding loans, other credit
accommodations and guarantees to DOSRI shall not
exceed 15% of the total loan portfolio of the bank or
100% of net worth whichever is lower.
Credit Card Operations
Does the limitations on DOSRI loans include credit
cards? Ano ba ang nature ng credit card? Utang diba.
Pwede mong nakawin. You can be liable for qualified
theft because of credit card charges.
The credit card operations of banks shall not be subject
to these regulations where the credit cardholders are
bank’s DOSRI: Provided, That
(a) the privilege of becoming a credit cardholder is
open to all qualified persons on the basis of
selective criterial which are applied by the bank
to all applicants thereof; and
(b) the bank’s DOSRIs reimburse/pay the bank for
the billed amount in full on or before the
payment due date in the billing or statement of
account, as set by the bank for all other qualified
credit cardholders on availments made for the
same period on their credit cards.
So kung merong overdue, that might be considered in
what is considered as “total credit accommodation.” So
pwede siyang papasok dun pag overdue, because the
bank’s DOSRI should pay in full on or before the
payment due date.
For example, director ng BPI, meron siyang credit card
ng BPI. Is this covered by the total credit
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
accommodation for purposes of the ceiling? It will only
be covered pag hindi niya nabayaran on due date. So
kung nagbayad siya within the period prescribed, he will
not be covered by the ceiling requirement.
However, the transaction shall be subject to applicable
DOSRI regulations if the bank’s DOSRIs:
(a) fail to reimburse/pay the bank within the period
mentioned herein; or
(b) on the outset, opt for deferred payment
scheme, and the availment is booked by the
bank.
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 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)
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)
Pag may collateral ka na lupa, bakit pinapa-appraise ng
bangko? Bakit yung appraisal ng bangko, ang konti
konti? Bakit pag 100 million yung kanilang appraisal,
ang pinapa-loan sayo ay less than 100 million? Because
under Section 37, loans and other credit
accommodations against real estate shall not exceed
75% of the appraised value of the respective real estate
security, plus 60% of the appraised value of the insured
improvements (so kung may building, 60%), and such
loans may be made to the owner of the real estate or to
his assignees. Please take note that this is only the limit.
So pwedeng babaan ng bangko.
Section 38. Loans And Other Credit
Accommodations on Security of Chattels and
Intangible Properties. - Except as the Monetary Board
may otherwise prescribe, loans and other credit
accommodations on security of chattels and
intangible properties such as, but not limited to,
patents, trademarks, trade names, and copyrights
shall not exceed seventy-five percent (75%) of the
appraised value of the security, an such loans and
other credit accommodation may be made to the title-
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
holder of the chattels and intangible properties or his
assignees. (78a)
Please take note that even intangible property could be
made collateral.
Section 39. Grant and Purpose of Loans and Other
Credit Accommodations. - A bank shall grant loans
and other credit accommodations only in amounts
and for the periods of time essential for the effective
completion of the operations to be financed. Such
grant of loans and other credit accommodations shall
be consistent with safe and sound banking practices.
(75a) The purpose of all loans and other credit
accommodations shall be stated in the application
and in the contract between the bank and the
borrower. If the bank finds that the proceeds of the
loan or other credit accommodation have been
employed, without its approval, for purposes other
than those agreed upon with the bank, it shall have
the right to terminate the loan or other credit
accommodation and demand immediate repayment
of the obligation. (77)
That is why when you try to apply for a loan, meron
yang purpose. This is consistent with the safe and sound
banking practices because the bank will assume the risk.
A bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank, and in
ascertaining that, he may require the borrower to
submit the corresponding financial statements
submitted for taxation purposes to the BIR. In reality,
you’re earning millions but you submitted to the BIR a
lower amount because you want to evade paying the
taxes. Now here comes the time that you have to loan,
hindi ka tuloy iaapprove sa loan na amount na gusto mo.
Section 40. Requirement for Grant Of Loans or 0ther
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 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.
Should 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 micro financing, such as
cash flow-based lending to the basic sectors that are
not covered by traditional collateral. (76a)
Section 41. Unsecured Loans or Other Credit
Accommodations. - The Monetary Board is hereby
authorized to issue such regulations as it may deem
necessary with respect to unsecured loans or other
credit accommodations that may be granted by
banks. (n)
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)
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, 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 micro finance 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. (78a)
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
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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 micro finance
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)
Take note: “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
years.” Pwede mo naman istructure ang loan mo na
magbabayad ka on a later date, but it must not be later
than five years from the date on which the loan or other
credit accommodation is granted. So you have that
maximum deferment of period of payment.
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)
Section 46. Development Assistance Incentives. -
The Bangko Sentral shall provide incentives to banks
which, without government guarantee, extend loans
to finance educational institutions cooperatives,
hospitals and other medical services, socialized or
low-cost housing, local government units and other
activities with social content. (n)
Section 47. Foreclosure of Real Estate Mortgage. -
In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate which
is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property
has been sold for the full or partial payment of his
obligation shall have the right within one year after
the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed,
with interest thereon at rate specified in the
mortgage, and all the costs and expenses incurred by
the bank or institution from the sale and custody of
said property less the income derived therefrom.
However, the purchaser at the auction sale concerned
whether in a judicial or extra-judicial foreclosure shall
have the right to enter upon and take possession of
such property immediately after the date of the
confirmation of the auction sale and administer the
same in accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall
be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which
the bank may suffer by the enjoining or the restraint
of the foreclosure proceeding. Notwithstanding Act
3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have
the right to redeem the property in accordance with
this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall
retain their redemption rights until their expiration.
(78a)
Section 48. Renewal or Extension of Loans and
Other Credit Accommodations. - The Monetary Board
may, by regulation, prescribe the conditions and
limitations under which a bank may grant extensions
or renewals of its loans and other credit
accommodations. (81)
Section 49. Provisions for Losses and Write-Offs. -
All debts due to any bank on which interest is past
due and unpaid for such period as may be determined
by the Monetary Board, unless the same are welt-
secured and in the process of collection shall be
considered bad debts within the meaning of this
Section. The Monetary Board may fix, by regulation
or by order in a specific case, the amount of reserves
for bad debts or doubtful accounts or other
contingencies. Writing off of loans, other credit
accommodations, advances and other assets shall be
subject to regulations issued by the Monetary Board.
(84a)
Section 50. Major Investments. - For the purpose or
enhancing bank supervision, the Monetary Board
shall establish criteria for reviewing major
acquisitions of investments by a bank including
corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective
supervision.
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)
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Very important. Hindi pwedeng puro na lang real estate
ang hawak na asset ng bangko. That is why in some
instances, they really have to sell real properties.
GOVERNMENT v. EL HOGAR
FACTS
On August 28, 1913, the respondent (El Hogar
Filipino) purchased 1,413 square meters of land at
the corner of Juan Luna Street and the Muelle de la
Industria, in the City of Manila, immediately adjacent
to the building then occupied by the Hongkong and
Shanghai Banking Corporation. At the time the
respondent acquired this lot there stood upon it a
building, then nearly fifty years old, which was
occupied in part by the offices of an importing firm
and in part by warehouses of the same firm. The
material used in the construction was Guadalupe
stone and hewn timber, and the building contained
none of the facilities usually found in a modern office
building.
In purchase of a design which had been formed prior
to the purchase of the property, the directors of the
El Hogar Filipino caused the old building to be
demolished; and they erected thereon a modern
reinforced concrete office building. As at first
constructed the new building was three stories high
in the main, but in 1920, in order to obtain greater
advantage from the use of the land, an additional
story was added to the building, making a structure
of four stories except in one corner where an
additional story was place, making it five stories high
over an area of 117.52 square meters. It is admitted
in the plaintiffs brief that this "noble and imposing
structure" — to use the words of the Attorney-
General — "has greatly improved the aspect of the
banking and commercial district of Manila and has
greatly contributed to the movement and campaign
for the Manila Beautiful." It is also admitted that the
competed building is reasonably proportionate in
value and revenue producing capacity to the value of
the land upon which it stands. The total outlay of the
respondent for the land and the improvements
thereon was P690,000 and at this valuation the
property is carried on the books of the company,
while the assessed valuation of the land and
improvements is at P786,478.
Since the new building was completed the respondent
has used about 324 square meters of floor space for
its own offices and has rented the remainder of the
office space in said building, consisting of about 3,175
square meters, to other persons and entities. In the
second cause of action of the complaint it is supposed
that the acquisition of this lot, the construction of the
new office building thereon, and the subsequent
renting of the same in great part to third persons, are
ultra vires acts on the part of the corporation, and
that the proper penalty to be enforced against it in
this action is that if dissolution.
Now, the Government filed an action against
respondent on the ground that it violated the express
provision of the Constitution and as well as the
Statutes.
ISSUE:
Whether or not El Hogar violated the express
provision under Constitution and the Statute.
HELD
NO. The El Hogar did not violate the express provision
under Constitution and the Statute
The Supreme Court said, the limitation which th
statute imposes is that it shall not own more real
estate than is necessary for the proper conduct of its
business, but it does not attempt to place any
restriction or limitation upon the right of the
corporation or association as to the character of the
building it shall erect on the said real estate; and,
while the Constitution and Statutes provide tht no
corporation shall engage in any business other than
that expressly authorized by its charter, we are of
opinion that, in renting out the unoccupied and
unused portions of the building so erected, the
association could not be said to be engaged in any
other business than that authorized by its charter.
The renting of the unused portions of the building is
a mere incident in the conduct of its real business. We
would not say that a building association might
embark in the business of building houses and renting
or leasing them, but there is quite a difference in
building or renting a house in which to conduct it own
business and leasing the unused portion thereof for
the time being, or until such time as they may be
needed by the association, and in building for the
purpose of renting or leasing them.
The one might properly be said to be the proper
exercise of a power incident to the conduct of its
legitimate business, whereas the other would be a
clear violation of that provision of the statute which
denies to any corporation the right to conduct any
business other than that authorized by its charter.
To hold otherwise would to charge most of the
banking institution, trust companies and other
corporations, such as title guaranty companies, etc.,
doing business in the state, and especially in the large
cities, with violating the law; for it is well-known that
there are few of such institutions that do not, at
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
times, rent out or lease the unneeded portions of the
building occupied by them as homes. We do not think
that in so doing they are violating the provisions of
the law, but that the renting out of the unused or
unoccupied portions of their buildings is but an
incident in the conduct of their business.
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, subject to the limitations of the
preceding Section. (25a)
This refers to the right of a bank to actually foreclose a
property. Please take note that it has limitations. A bank
may acquire, hold or convey real property under the
following circumstances:
1. Mortgaged to it in good faith by way of security
for debts;
2. Conveyed to it in satisfaction of debts previously
contracted in the course of its dealings.
So pwedeng dacion en pago.
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.
Please take note they are still subject to the ceiling
provided. So any real property acquired or held under
the circumstances enumerated above shall be disposed
of by the bank within a period of five (5) years or as
may be prescribed by the Monetary Board. Provided
that after said period, the bank may continue to hold the
property for its own use, subject to the limitations of the
preceding Section.
Before diba we’ve discussed kung ilang percent lang
yung kayang hawakan ng Bank for real estate. Now,
total investment in such real estate and improvements
thereof, including bank equipment, shall not exceed fifty
percent (50%) because a bank should not diversify such
to be primarily for the purpose of real estate.
Bakit bawal? To think diba lands appreciate so bakit
hinayaan na may limitations to hold properties? Please
take note that if you invest much of your asset in land
it is not realizable. So you cannot actually meet your
short-term debts. But as against a foreign bank, you can
hold it even after five years provided that you respect
the ceiling.
SECTION 53. Other Banking Services. — In
addition to the operations specifically authorized in
this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types of
securities;
53.3. Make collections and payments for the
account of others and perform such other services
for their customers as are not incompatible with
banking business;
53.4. Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts;
and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under
Subsections 53.1, 53.2, 53.3 and 53.4 as depositary
or as an agent. Accordingly, it shall keep the funds,
securities and other effects which it receives duly
separate from the bank's own assets and liabilities.
The Monetary Board may regulate the operations
authorized by this Section in order to ensure that such
operations do not endanger the interests of the
depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the Bangko
Sentral or publicly announces a bank holiday, or in
any manner suspends the payment of its deposit
liabilities continuously for more than thirty (30) days,
the Monetary Board may summarily and without need
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
for prior hearing close such banking institution and
place it under receivership of the Philippine Deposit
Insurance Corporation. (72a)
These are other banking services:
1. Receive in custody funds, documents and
valuable objects.
What goes into your mind? Mga security deposits,
yung mga gold or diamonds nyo na ayaw nyo istore
sa bahay kasi baka manakaw. So what you do is
deposit them. Most of the banks meron nito. They
will give you a key and meron din silang key. Usually
titles pero mga gold and diamonds dun talaga yan.
2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types
of securities.
It can actually be a financial agent.
3. Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business.
4. Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts.
Advisory consultancy accounts. So pwede silang
maghandle ng investments BUT as an investment
manager only.
5. Rent out safety deposit boxes.
In case a bank or quasi-bank notifies the Bangko Sentral
or publicly announces a bank holiday, or in any manner
suspends the payment of its deposit liabilities
continuously for more than thirty (30) days, the
Monetary Board may summarily and without need for
prior hearing close such banking institution and place it
under receivership. Correlate this with your provision
under the New Central Bank Act.
 CASE: In Re: Liquidation of Mercantile Bank of
China, Tan Tiong Tick vs American Apothecaries Co.
In re Liquidation of Mercantile Bank of China.
TAN TIONG TICK, v. AMERICAN APOTHECARIES
CO., ET AL
FACTS:
In the proceedings for the liquidation of the
Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased to
operate on September 19, 1931, his current account
in said bank showed a balance of P9,657.50 in his
favor; that on the same date his savings account in
the said bank also showed a balance in his favor of
P20,000 plus interest then due amounting to
P194.78; that, on the other hand, he owed the bank
in the amount of P13,262.58, the amount of the trust
receipts which he signed because of his withdrawal
from the bank of certain merchandise consigned to
him without paying the drafts drawn upon him by the
remittors thereof; that the credits thus described
should be set off against each other according to law,
and on such set off being made it appeared that he
was still the creditor of the bank in the sum of
P16,589.70.
And he asked that the court order the Bank
Commissioner to pay him the aforesaid balance and
that the same be declared as a preferred credit. The
claim was referred to the commissioner appointed by
the court, who at the same time acted as referee, and
this officer recommended that the balance claimed be
paid without interest and as an ordinary credit. The
court approved the recommendation and entered
judgment in accordance therewith. The claimant took
an appeal.
"RECOMMENDATION OF THE COMMISSIONER”
"Having established the existence of such deposits in
the name of Tan Tiong Tick and the latter having
recognized the obligation in favor of the bank alleged
by the Bank Commissioner, for the security of which
he constituted the savings deposit in the amount of
P20,000, it is recommended that from this amount
there be deducted the amount of the obligation of
P13,778.90 which the claimant acknowledges in favor
of the Mercantile Bank of China, and that the
difference, plus the other current account deposit of
P7,390.11, be considered as ordinary credits subject
to the equal division of the funds of the said bank.
"As to the interest on said deposits also claimed by
Mr. Tan Tiong Tick, the rejection thereof is
recommended in view of the fact that the Bank
Commissioner has not credited any interest to the
current and savings accounts of the Mercantile Bank
of China, and it would be unfair that interest, not
credited to the others, be allowed to this claimant."
ISSUE
Whether or not the current account and savings
deposit are not preferred credits.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
HELD
YES. The current account and savings deposit are not
preferred credits.
Revolving the claims under the first group of the
report of the commissioner, the court rejected the
recommendation of this official to the effect that they
be declared ordinary credits only, and approved them
as preferred credits. However, in considering the
other claims, among them that of the appellant,
classified under the fifth group, the court approved
the recommendation of the commissioner that they
be declared ordinary credits; in other words, the court
considered and declared the claim of the appellant as
an ordinary credit just because the latter is at the
same time a debtor of the bank, notwithstanding the
fact that his claim is of the same kind as those
classified under the first group, inasmuch as they are
also current account and savings deposits.
But we are of the opinion, for the reason
presently to be stated, that current account and
savings deposits are not preferred credits in the
cases, like the present, involving the insolvency
and liquidation of a bank, where there are
various creditors and it becomes necessary to
ascertain the preference of various credits.
In our opinion, these deposits are essentially
mercantile contracts and should, therefore, be
governed by the provisions of the Code of Commerce.
The Code of Commerce contains express provisions
regulating deposits of the nature under consideration,
and they are articles 303 to 310. The first and the
second to the last of the said articles are as follows:
"ART. 303. In order that a deposit may be considered
commercial, it is necessary —
"1. That the depositary, at least, be a merchant.
"2. That the things deposited be commercial objects.
"3. That the deposit constitute in itself a commercial
transaction, or be made by reason or as a
consequence of commercial transactions."
"ART. 309. Whenever, with the consent of the
depositor, the depositary disposes of the articles on
deposit either for himself or for his business, or for
transactions intrusted to him by the former, the rights
and obligations of the depositary and of the depositor
shall cease, and the rules and provisions applicable to
the commercial loans, commission, or contract which
took the place of the deposit shall be observed."
In accordance with article 309, the so-called
current account and savings deposits have lost
the character of deposits properly so-called,
and are converted into simple commercial
loans, because the bank disposed of the funds
deposited by the claimant for its ordinary
transactions and for the banking business in
which it was engaged. That the bank had the
authority of the claimant to make use of the
money deposited on current and savings
accounts is deducible from the fact that the
bank has been paying interest on both deposits,
and the claimant himself asks that he be
allowed interest up to the time when the bank
ceased its operations.
Sir: In your knowledge of Preference of Credits under
CredTrans, is credit deposit among the preferred
credits? Where can you find Preference of Credits? What
kind of contract are deposits?
*sir did not answer his questions
So you have to be familiar with your preference of
credits. Kahit yung preference lang. Ang nuances lang
naman dun is the labor and then the taxes, what kind of
taxes are preferred because not all taxes are preferred.
So you have to consider that.
 CASE: Sesbreno vs CA
RAUL SESBREÑO vs. HON. COURT OF APPEALS,
DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.
FACTS
Petitioner Raul Sesbreño made a money market
placement in the amount of P300,000.00 with the
Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a
term of thirty-two (32) days, would mature on 13
March 1981.
Petitioner sought to encash the postdated checks
issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient
funds. Thereafter, Philfinance delivered to petitioner
the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas").
Petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch, and handed her
a demand letter informing the bank that his
placement with Philfinance in the amount reflected in
the DCR No. 10805 had remained unpaid and
outstanding, and that he in effect was asking for the
physical delivery of the underlying promissory note.
Petitioner then examined the original of the DMC PN
No. 2731 and found: that the security had been
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
issued on 10 April 1980; that it would mature on 6
April 1981; that it had a face value of P2,300,833.33,
with the Philfinance as "payee" and private
respondent Delta Motors Corporation ("Delta") as
"maker;" and that on face of the promissory note was
stamped "NON NEGOTIABLE." Pilipinas did not deliver
the Note, nor any certificate of participation in respect
thereof, to petitioner.
Petitioner later made similar demand letters asking
private respondent Pilipinas for physical delivery of
the original of DMC PN No. 2731. Pilipinas allegedly
referred all of petitioner's demand letters to
Philfinance for written instructions, as has been
supposedly agreed upon in "Securities Custodianship
Agreement" between Pilipinas and Philfinance.
Philfinance did not provide the appropriate
instructions; Pilipinas never released DMC PN No.
2731, nor any other instrument in respect thereof, to
petitioner.
Petitioner also made a written demand upon private
respondent Delta for the partial satisfaction of DMC
PN No. 2731, explaining that Philfinance, as payee
thereof, had assigned to him said Note to the extent
of P307,933.33. Delta, however, denied any liability
to petitioner on the promissory note, and explained in
turn that it had previously agreed with Philfinance to
offset its DMC PN No. 2731 (along with DMC PN No.
2730) against Philfinance PN No. 143-A issued in
favor of Delta.
In the meantime, Philfinance was placed under the
joint management of the Securities and exchange
commission ("SEC") and the Central Bank. Pilipinas
delivered to the SEC DMC PN No. 2731, which to date
apparently remains in the custody of the SEC.
As petitioner had failed to collect his investment and
interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court
("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.
ISSUE
Whether or not Sesbreno is entitled to demand
physical delivery of the Note held by Pilipinas.
HELD
YES. Sesbreno is entitled to demand physical delivery
of the Note held by Pilipinas.
The Supreme Court said, We believe and so hold that
a contract of deposit was constituted by the act
of Philfinance in designating Pilipinas as
custodian or depositary bank.
The depositor was initially Philfinance; the obligation
of the depository was owed, however, to petitioner
Sesbreño as beneficiary of the custodianship or
depository agreement. We do not consider that this is
a simple case of a stipulation pour autri.
The custodianship or depositary agreement was
established as an integral part of the money
market transaction entered into by petitioner
with Philfinance.
Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note
with Pilipinas in order that the thing sold would be
placed outside the control of the vendor. Indeed, the
constituting of the depositary or custodianship
agreement was equivalent to constructive
delivery of the Note (to the extent it had been
sold or assigned to petitioner) to petitioner.
It will be seen that custodianship agreements are
designed to facilitate transactions in the money
market by providing a basis for confidence on the part
of the investors or placers that the instruments
bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely
beyond their reach, that those instruments will be
there available to the placers of funds should they
have need of them. The depositary in a contract
of deposit is obliged to return the security or the
thing deposited upon demand of the depositor
(or, in the presented case, of the beneficiary) of
the contract, even though a term for such return
may have been established in the said contract.
Accordingly, any stipulation in the contract of deposit
or custodianship that runs counter to the fundamental
purpose of that agreement or which was not brought
to the notice of and accepted by the placer-
beneficiary, cannot be enforced as against such
beneficiary-placer.
We believe that the position taken above is
supported by considerations of public policy. If
there is any party that needs the equalizing protection
of the law in money market transactions, it is the
members of the general public whom place their
savings in such market for the purpose of generating
interest revenues. The custodian bank, if it is not
related either in terms of equity ownership or
management control to the borrower of the funds, or
the commercial paper dealer, is normally a preferred
or traditional banker of such borrower or dealer (here,
Philfinance). The custodian bank would have every
incentive to protect the interest of its client the
borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the
impact of stipulations privately made between the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
borrowers or dealers and the custodian banks,and
disclosed to fund-providers only after trouble has
erupted.
In the case at bar, the custodian-depositary
bank Pilipinas refused to deliver the security
deposited with it when petitioner first
demanded physical delivery thereof on 2 April
1981. We must again note, in this connection, that
on 2 April 1981, DMC PN No. 2731 had not yet
matured and therefore, compensation or offsetting
against Philfinance PN No. 143-A had not yet taken
place.
Instead of complying with the demand of the
petitioner, Pilipinas purported to require and
await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR
to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner
Sesbreño. The ostensible term written into the
DCR (i.e., "should this [DCR] remain outstanding in
your favor thirty [30] days after its maturity") was
not a defense against petitioner's demand for
physical surrender of the Note on at least three
grounds:
firstly, such term was never brought to the
attention of petitioner Sesbreño at the time the
money market placement with Philfinance was
made;
secondly, such term runs counter to the very
purpose of the custodianship or depositary
agreement as an integral part of a money
market transaction; and
thirdly, it is inconsistent with the provisions of
Article 1988 of the Civil Code noted above.
Indeed, in principle, petitioner became entitled
to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market
placement matured on 13 March 1981 without
payment from Philfinance.
Sir: Why didn’t Pilipinas Bank heed such demand? What
was its contention?
S: Pilipinas allegedly referred all of petitioner's demand
letters to Philfinance for written instructions, as has
been supposedly agreed upon in "Securities
Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate
instructions therefore Pilipinas never released DMC PN
No. 2731, nor any other instrument in respect thereof,
to Sesbreno.
Sir: How did the Supreme Court appreciate that
argument?
S: That contention that Pilipinas Bank made was not a
defense against Sesbreno's demand for physical
surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of
Sesbreño at the time the money market placement with
Philfinance was made; secondly, such term runs counter
to the very purpose of the custodianship or depositary
agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the
provisions of Article 1988 of the Civil Code. Therefore,
Sesbreno became entitled to demand physical delivery
of the Note held by Pilipinas as soon as Sesbreno's
money market placement matured on 13 March 1981.
Sir: So in other words, even if they have agreed
otherwise, it must be in accordance with the law. That’s
the main difference between a common law and a civil
law jurisdiction. Pag common law you can actually agree
at anything, pag civil law you have to follow certain
codal provisions.
 CASE: Philippine Commercial International Bank vs
CA
PCIB v CA
FACTS
Ford Philippines drew and issued Citibank Check. No.
SN 04867 on October 19, 1977, Citibank Check No.
SN 10597 on July 19, 1978 and Citibank Check No.
SN-16508 on April 20, 1979, all in favor of the
Commissioner of Internal Revenue (CIR) for payment
of its percentage taxes.
The checks were crossed and deposited with the
IBAA, now PCIB, BIR's authorized collecting bank.
The first check was cleared containing an
indorsement that "all prior indorsements and/or lack
of indorsements guaranteed." The same, however,
was replaced with two (2) IBAA's managers' checks
based on a call and letter request made by Godofredo
Rivera, Ford's General Ledger Accountant, on an
alleged error in the computation of the tax due
without IBAA verifying the authority of Rivera. These
manager's checks were later deposited in another
bank and misappropriated by the syndicate.
The last two checks were cleared by the Citibank but
failed to discover that the clearing stamps do not bear
any initials. The proceeds of the checks were also
illegally diverted or switched by officers of PCIB —
members of the syndicate, who eventually encashed
them. Ford, which was compelled to pay anew the
percentage taxes, sued in two actions for collection
against the two banks on January 20, 1983, barely
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
six years from the date the first check was returned
to the drawer. The direct perpetrators of the crime
are now fugitives from justice.
ISSUE
Whether or not the bank acting as collecting agent is
duty bound to consult its principal regarding
unwarranted instructions given by the payor or its
agent.
RULING
YES. The bank acting as collecting agent is duty
bound to consult its principal regarding unwarranted
instructions given by the payor or its agent.
In this case, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is duty
bound to consult its principal regarding the
unwarranted instructions given by the payor or its
agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was
deposited with IBAA [now PCIBank], which
claimed to be a depository/collecting bank of
BIR, it has the responsibility to make sure
that the check in question is deposited in
Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check),
defendant IBAA should receive instructions only from
its principal BIR and not from any other person
especially so when that person is not known to the
defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone
call of one (Godofredo Rivera and in his signature to
the authenticity of such signature considering that the
plaintiff is not a client of the defendant IBAA.
It is a well-settled rule that the relationship between
the payee or holder of commercial paper and the bank
to which it is sent for collection is, in the absence of
an agreement to the contrary, that of principal and
agent.22 A bank which receives such paper for
collection is the agent of the payee or holder.
Even considering arguendo, that the diversion of the
amount of a check payable to the collecting bank in
behalf of the designated payee may be allowed, still
such diversion must be properly authorized by the
payor. Otherwise stated, the diversion can be justified
only by proof of authority from the drawer, or that the
drawer has clothed his agent with apparent authority
to receive the proceeds of such check.
Sir: What’s the role of the bank here? Diba yung bank
ang taga-collect diba? So in relation to our topic, this
case is related to your 53.3. Make collections and
payments for the account of others and perform such
other services for their customers as are not
incompatible with banking business. So ang nangyari
dito, may pagkakamali ang bank. So ang sabi ng court?
S: …
Sir: So in performing other banking functions or other
banking services, the bank must always still exercise?
S: Diligence sir.
Sir: Ordinary diligence?
Answer from full text: “Banking business is so impressed
with public interest where the trust and confidence of
the public in general is of paramount importance such
that the appropriate standard of diligence must be
very high, if not the highest, degree of diligence. A
bank's liability as obligor is not merely vicarious but
primary, wherein the defense of exercise of due
diligence in the selection and supervision of its
employees is of no moment.”
 CASE: CA Agro-Industrial Development Corporation
vs CA
CA-Agro Industrial Devt Corp vs CA
FACTS
On July 3, 1979, petitioner (through its President-
Sergio Aguirre) and the Spouses Ramon and Paula
Pugao entered into an agreement whereby the former
purchase two parcel of lands from the latter. It was
paid of downpayment while the balance was covered
by there postdated checks. Among the terms and
conditions embodied in the agreement were the titles
shall be transferred to the petitioner upon full
payment of the price and the owner's copies of the
certificate of titles shall be deposited in a safety
deposit box of any bank. Petitioner and the Pugaos
then rented Safety Deposit box of private respondent
Security Bank and Trust Company.
Thereafter, a certain Margarita Ramos offered to buy
from the petitioner. Mrs Ramos demand the execution
of a deed of sale which necessarily entailed the
production of the certificate of titles. In view thereof,
Aguirre, accompanied by the Pugaos, then proceed to
the respondent Bank to open the safety deposit box
and get the certificate of titles. However, when
opened in the presence of the Bank's representative,
the box yielded no such certificate. Because of the
delay in the reconstitution of the title, Mrs Ramos
withdrew her earlier offer to purchase.
Hence this petition.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
ISSUE
Whether or not the contract of rent between a
commercial bank and another party for the use of
safety deposit box can be considered alike to a lessor-
lessee relationship.
RULING
NO. The contract of rent between a commercial bank
and another party for the use of safety deposit box
cannot be considered alike to a lessor-lessee
relationship
The petitioner is correct in making the contention that
the contract for the rent of the deposit box is not a
ordinary contract of lease as defined in Article 1643
of the Civil Code. However, the Court do not really
subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the
provisions in Civil Code on Deposit; the contract in
the case at bar is a special kind of deposit. It cannot
be characterized as an ordinary contract of lease
under Article 1643 because the full and absolute
possession and control of the safety deposit box was
not given to the joint renters- the petitioner and the
Pugaos. The guard key of the box remained with the
respondent bank; without this key, neither of the
renters could open the box.
On the other hand, the respondent bank could not
likewise opt The prevailing rule in American
Jurisprudence is that the relation between a bank
renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bailor
and bailee, the bailment being for hire and mutual
benefit. While, in the context of our laws, particularly
Section 72(a) of the General Banking Act (now
Section 52) which authorizes banking institutions to
rent out safety deposit boxes, it is clear that the
prevailing rule in the United States has been adopted.
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions
other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit boxes for
the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as
depositories or as agents. . . .
Nevertheless, the primary function is still found within
the parameters of a contract of deposit, and, in
relation to Article 1306 of the Civil Code, the parties
thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good
customs, public order or public policy. Thus, the
depositary's responsibility for the safekeeping of the
objects deposited in this case is governed by Title I,
Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement, and in the absence of any stipulation
prescribing the degree of diligence required, that of a
good father of a family is to be observed. Corollary,
any stipulation exempting the depositary from any
liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void
for being contrary to law and public policy.
Furthermore, it is not correct to assert that the Bank
has neither the possession nor control of the contents
of the box since in fact; the safety deposit box itself
is located in its premises and is under its absolute
control. Moreover, the Bank keeps the guard key to
the said box and renters cannot open their respective
boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent
above stated, conditions 13 and 14 in the contract in
question are void and ineffective.
Sir: Why is it not characterized as a contract of lease?
What’s peculiar about this safety deposit box vis-à-vis
lease?
S: Because in a safety deposit box sir, the contents and
the box are placed in the custody of the bank sir.
Sir: So the possession is not actually transferred. When
you lease something the possession is usually
transferred.
So here, just take note of the nature of a contract of
safety deposit box.
SECTION 54. Prohibition to Act as Insurer. — A
bank shall not directly engage in insurance business
as the insurer. (73)
Very important, a bank is not authorized to directly
engage in insurance business as the insurer. Take note
that what is prohibited is the direct engagement in
insurance business as the insurer.
Why are banks prohibited from entering into insurance
business?
Kasi in insurance you are actually managing risks, you
are distributing the risk. So it’s very risky for a bank to
enter into insurance business because banks remember
are paying, they are accepting deposits and they are
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
relending it. Whereas in insurance, accepts premium
payments and then redistribute the risk, and the
happening of the event where the liability of payment
occurs, saka sila magbabayad. So walang ganun na
aspect when it comes to banking.
*chikka on Bar Exam re: insurable interest questions
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.
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as
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.
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. (87-Aa)
The making of false reports or misrepresentation or
suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act
No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits.
Very important prohibited transaction:
(e) Outsource inherent banking functions.
Correlate this with your labor discussion on banking
functions. There is actually a circular
“Statement of Principle on Outsourcing” (BSP Circular
No. 899).
This is the principle of the central bank act, bawal mag
outsource. Eh ang mahal maghire ng tao. So what is this
statement of principle on outsourcing?
“A bank may outsource to third parties or to related
companies in the group, in accordance with existing
BSP regulations, certain services or activities to
have access to certain areas of expertise or to
address resource constraints, Provided, That it has
in place appropriate processes, procedures, and
information system that can adequately identify,
monitor, and mitigate operational risks arising from
the outsourced activities. Provided further, that the
bank’s board of directors and senior management
shall remain responsible for ensuring that
outsourced activities are conducted in a safe and
sound manner and in compliance with applicable
laws, rules and regulations.”
So it’s a highly regulated industry so that’s why it is
prohibited for you to outsource human resource kasi nga
there’s operational risk, the risk of leaking information
which is very material to the bank.
CHANYEE, KAYE
JAN 30, 2019
(e) Outsource inherent banking functions
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Take note what is prohibited is inherent banking
functions.
What are inherent banking functions?
1. Taking of deposits from the public
2. Granting of loans and other credits exposures
(yung mga loan officers)
3. Managing of risk exposures and general banking
So this is circular dated January 10, 2017 so this is fairly
recent. So those are what we call inherent banking
functions. You can outsource these banking functions.
Only those banks with “Camels” (lol). Ano ba tong
Camels?
C-Capital Adequacy
A-Assets
M-Management Capability
E-Earnings
L-Liquidity
S-Sensitivity
This is actually an international banking standard. Kung
i-aaudit ka within the National Banking Community,
maglalagay sila sayo ng rating based on the CAMELs.
CAMELs ito yung criteria for judging. If you have at least
3, and the xxx(inaudible) lower than 3, you are allowed
to outsource designated activities without prior BSP
approval.
So even if hindi ka inherent banking function, you still
need a BSP approval. But if you are a Camel or xxx not
lower than 3, you can outsource non-inherent banking
functions without BSP approval.
Saan ka maghihingi? Specifically sa appropriate
department of the SES. Remember the SES? The
Supervision and Examining Sector. Diba we discussed
the different Sectors of the BSP?
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as
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.
Ito naman we are referring to the prohibition of the
borrower. Kanina we were referring to the prohibition of
the officer. Ito yung sa bank. Ito naman, dun sa
borrower. Meaning yung public.
(a) Fraudulently overvalue property offered as
security for a loan or other credit accommodation
from the bank;
So if you fraudulently overvalue tapos ibanko naman or
aid in overvaluing, both of you will be liable.
(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.
Please take note na dito, accept gifts, you are liable. Eto,
the fact of offering makes you liable. So question, kung
magpadungog sa officer? Can you make that officer
liable? Magpadungog lang sya.
So what will you do? Hindi ka talaga magsalita. Kasi
pagmagsalita ka, offer nay yun. Haha
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. (87-Aa).
The making of false reports or misrepresentation or
suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud and
shall be subject to the administrative and criminal
sanctions provided under the New Central Bank Act.
Ito naman, this pertains to the BSP in examining. So we
are done talking about the officers of the bank. We are
done talking about the borrower, now we are talking of
the officer examining of the BSP.
55.4. Consistent with the provisions of Republic Act
No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular
personnel or too lengthy probationary personnel in
the conduct of its business involving bank deposits.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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
institution's 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. (n).
These are actually what are deemed to be
unsound/unsafe banking practice.
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;
Syempre mahirap talaga to.
56.2. The act or omission has resulted or may
result in material loss or damage or abnormal risk
to the institution's depositors, creditors,
investors, stockholders or to the Bangko Sentral
or to the public in general;
So again, when you talk about unsound banking
practice, there’s actually no guidelines. These are just
principles.
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
Sounds familiar? Saan nyo nabasa yan?
A: anti-graft and practices law? Haha
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.
So you can see how regulated banking industry is. Even
the dividend declaration, you cannot just declare
dividends. Again, a bank is still a corporation. So as a
corporation, as an incident of being a corporation, they
can actually distribute dividends. So because it’s
banking, it is prohibited from declaring dividends in the
following circumstances.
Sec 57 of General Banking Act
SECTION 57. Prohibition on Dividend Declaration. —
No bank or quasi-bank shall declare dividends greater
than its accumulated net profits then on hand,
deducting therefrom its losses and bad debts. Neither
shall the bank nor quasi-bank 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
an 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. (84a)
Ano yung liquidity ratio?
A: this is actually the ratio of your liquid assets to your
liabilities. Dapat iniinsure nila that the bank is liquid.
Kung may magwithdraw jan na depositor mamaya or
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
tomorrow, it can easily pay off kay liquid sya. Marami
syang tubig (haha). Liquid.
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
engagements, but in any case, the independent
auditor shall be responsible to the bank's, quasi-
bank's or trust entity's 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, trusty
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. (6-
Da)
“from a list of certified public accountants
acceptable to the Monetary Board”
So not just any CPA, it must be accepted by the MB.
Ito very important:
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, quasibank or trust entity,
including the delivery of services and products to
customers by such entity. (n)
So yung mga incoming transactions, that is actually
regulated by the BSP.
SECTION 60. Financial Statements. —
Every bank, quasi-bank or trust entity shall submit to
the appropriate supervising and examining
department of the Bangko Sentral financial
statements in such form and frequency as may be
prescribed by the Bangko Sentral. Such statements,
which shall be as of a specific date designated by the
Bangko Sentral, shall show the actual financial
condition of the institution submitting the statement,
and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall
contain such information as may be required in
Bangko Sentral regulations. (n)
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 by the 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, in 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, quasibank or trust entity
to defer for a stated period of time the publication of
the statement of financial condition required herein.
(n)
SECTION 62. Publication of Capital Stock. —
A bank, quasi-bank or trust entity incorporated under
the laws of the Philippines shall not publish the
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
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. In
case no capital has been definitely assigned to such
branch, such fact shall be stated in, and shall form
part of the publication. (82).
SECTION 63. Settlement of Disputes. —
The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be
consulted by other government agencies or
instrumentalities in actions or proceedings initiated
by or brought before them involving controversies in
banks, quasibanks or trust entities arising out of and
involving relations between and among their
directors, officers or stockholders, as well as disputes
between any or all of them and the bank, quasi-bank
or trust entity of which they are directors, officers or
stockholders. (n)
Ito please take note:
SECTION 64. Unauthorized Advertisement or
Business Representation. —
No person, association, or corporation unless duly
authorized to engage in the business of a bank, quasi-
bank, trust entity, or savings and loan association as
defined in this Act, or other banking laws, shall
advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or
association, or use in connection with its business
title, the word or words "bank", "banking", "banker",
"quasi-bank", "quasibanking", "quasi-banker",
"savings and loan association", "trust corporation",
"trust company" or words of similar import or transact
in any manner the business of any such bank,
corporation or association. (6)
Even the name, you cannot use the name bank. You
already know this in your corpo. You cannot use the
term "bank", "banking", "banker", "quasi-bank",
"quasibanking", "quasi-banker", "savings if you are not
actually those kinds of businesses.
What we are trying to prevent here is you appear to be
a bank or quasi-banking or trust entity when in fact you
do not have the authority to be a bank.
Remember the 3 kinds of authority?
1. Authority to operate
2. Xxx
SECTION 65. Service Fees. —
The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the
Monetary Board for supervision, examination and
other services
which it renders under this Act. (n)
SECTION 66. Penalty for Violation of this Act. —
Unless otherwise herein provided, the violation of any
of the provisions of this Act shall be subject to
Sections 34, 35, 36 and 37 of the New Central Bank
Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary
Board may also suspend or remove such director or
officer. If the violation is committed by a corporation,
such corporation may be dissolved by quo warranto
proceedings instituted by the Solicitor General. (87).
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
SECTION 67. Conservatorship. —
The grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of
the conservator appointed for the bank shall be
governed by the provisions of Section 29 and the last
two paragraphs of Section 30 of the New Central Bank
Act: Provided, That this Section shall also apply to
conservatorship proceedings of quasi-banks. (n)
This is in line with your provisions on the new central
bank act.
CHAPTER VI
CESSATION OF BANKING BUSINESS
SECTION 68. Voluntary Liquidation. —
In case of the voluntary liquidation of any bank
organized under the laws of the Philippines, or of any
branch or office in the Philippines of a foreign bank,
written notice of such liquidation shall be sent to the
Monetary Board before such liquidation is
undertaken, and the Monetary Board shall have the
right to intervene and take such steps as may be
necessary to protect the interests of creditors. (86)
If you voluntarily liquidate, please take note, you can
voluntarily liquidate, you should first give a written
notice to the MB before such liquidation.
SECTION 69. Receivership and Involuntary
Liquidation. —
The grounds and procedures for placing a bank under
receivership or liquidation, as well as the powers and
duties of the receiver or liquidator appointed for the
bank shall be governed by the provisions of Sections
30, 31, 32, and 33 of the New Central Bank Act:
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
Provided, That the petitioner or plaintiff files with the
clerk or judge of the court in which the action is
pending a bond, executed in favor of the Bangko
Sentral, in an amount to be fixed by the court. This
Section shall also apply to the extent possible to the
receivership and liquidation proceedings of quasi-
banks. (n)
This is in relation to your Central bank provisions that
we have already discussed.
SECTION 70. Penalty for Transactions After a
Bank Becomes Insolvent. —
Any director or officer of any bank declared insolvent
or placed under receivership by the Monetary Board
who refuses to turn over the bank's records and
assets to the designated receivers, or who tampers
with banks records, or who appropriates for himself
or another party or destroys or causes the
misappropriation and destruction of the bank's
assets, or who receives or permits or causes to be
received in said bank any deposit, collection of loans
and/or receivables, or who pays out or permits or
causes to be paid out any funds of said bank, or who
transfers or permits or causes to be transferred any
securities or property of said bank shall be subject to
the penal provisions of the New Central Bank Act.
(85a)
So other banking laws, we will discuss these after we
discuss the general banking act.
CHAPTER VIII
FOREIGN BANKS
SECTION 72. Transacting Business in the
Philippines. —
The entry of foreign banks in the Philippines through
the establishment of branches shall be governed by
the provisions of the Foreign Banks Liberalization Act.
The conduct of offshore banking business in the
Philippines shall be governed by the provisions of the
Presidential Decree No. 1034, otherwise known as the
"Offshore Banking System Decree." (14a).
Please take note of the amendment. Remember we
discussed this. Yung foreign equity? The bank can
actually set up a new branch.
What are offshore banking units?
 An offshore banking unit (OBU) is a bank shell
branch, located in another international
financial center (or, in the case of India, a
Special Economic Zone). Offshore banking units
(OBUs) make loans in the Eurocurrency market,
when they accept deposits from foreign banks
and other OBUs.
Diba naintroduce na kayo nito sa tax? Aw huhu
In your tax, what are the implications of your OBU?
Lower income tax? What is the portion that was
amended by the train law?
A: Yes sa employees lang. But provided that theses
OBUs are registered after Jan 1, 2018. So you might be
asked, what if there was an existing OBU? Tapos the
employee was employed subsequently. Let’s say
existing OBU tapos nag employ sila Jan 2, 2018. Kasi
ang nakalagay, what’s the letter of the law? This only
refers to companies registered after Jan 1, 2018. So it
refers to the company registered. So what if the
employee was hired after Jan 1 2018 but to an existing
OBU?
Would it still be under the new amended provision or to
the old preferential treatment? That would be asked.
TRAIN LAW
“(D) Alien Individual Employed by Offshore Banking
Units.— There shall be levied, collected and paid for
each taxable year upon the gross income received by
every alien individual employed by offshore banking
units established in the Philippines as salaries, wages,
annuities, compensation, remuneration and other
emoluments such as honoraria and allowances, from
such offshore banking units, a tax equal to fifteen
percent (15%) of such gross income: Provided,
however, That the same tax treatment shall apply to
Filipinos employed and occupying the same position
as those of aliens employed by these offshore banking
units.
“(E) Alien Individual Employed by Petroleum Service
Contractor and Subcontractor.— An alien individual
who is a permanent resident of a foreign country but
who is employed and assigned in the Philippines by a
foreign service contractor or by a foreign service
subcontractor engaged in petroleum operations in the
Philippines shall be liable to a tax of fifteen percent
(15%) of the salaries, wages, annuities,
compensation, remuneration and other emoluments,
such as honoraria and allowances, received from such
contractor or subcontractor: Provided, however, That
the same tax treatment shall apply to a Filipino
employed and occupying the same position as an
alien employed by petroleum service contractor and
subcontractor.
“Any income earned from all other sources within the
Philippines by the alien employees referred to under
Subsections (C), (D), and (E) hereof shall be subject
to the pertinent income tax, as the case may be,
imposed under this Code.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
“(F) The preferential tax treatment provided in
Subsections (C), (D), and (E) of this Section shall not
be applicable to regional headquarters (RHQs),
regional operating headquarters (ROHQs), offshore
banking units (OBUs) or petroleum service
contractors and subcontractors registering with the
Securities and Exchange Commission (SEC) after
January 1, 2018: Provided, however, That existing
RHQs/ROHQs, OBUs or petroleum service contractors
and subcontractors presently availing of preferential
tax rates for qualified employees shall continue to be
entitled to avail of the preferential tax rate for present
and future qualified employees.”
So again what are OBUs? Offshore?
Yung parang dito lang sya sa Pilipinas and they are
catering for foreign clients. That is why it is given
preferential treatment because it gives employment to
the Filipino people and it gives what?
What is the benefit of your OBUs?
A: forex diba? The regulation. Magiging high demand
ang currency.
SECTION 73. Acquisition of Voting Stock in a
Domestic Bank. —
Within seven (7) years from the effectivity of this Act
and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary Board
may authorize a foreign bank to acquire up to one
hundredpercent (100%) of the voting stock of only
one (1) bank organized 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
of a bank under the Foreign Banks Liberalization Act
and the Thrift Banks Act, to further acquire voting
shares of such bank to the extent necessary for it to
own one hundred percent (100%) of the voting stock
thereof.
In the exercise of this authority, the 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
system is held by banks which are at least majority-
owned by Filipinos.
Any right, privilege or incentive granted to a foreign
bank under this Section shall be equally enjoyed by
and extended under the same conditions to banks
organized under the laws of the Republic of the
Philippines. (Secs. 2 and 3, RA 7721).
Ah you already know this.
SECTION 74. Local Branches of Foreign Banks.
—
In the case of a foreign bank which has more than
one (1) branch in the Philippines, all such branches
shall be treated as one (1) unit for the purpose of this
Act, and all references to the Philippine branches of
foreign banks shall be held to refer to
such units. (68)
SECTION 75. Head Office Guarantee. — In order to
provide effective protection of the interests of the
depositors and other creditors of Philippine branches
of a foreign bank, the head office of such branches
shall fully guarantee the prompt payment of all
liabilities of its Philippine branch. (69)
Residents and citizens of the Philippines who are
creditors of a branch in the Philippines of a foreign
bank shall have preferential rights to the assets of
such branch in accordance with existing laws.
(19)
SECTION 76. Summons and Legal Process. —
Summons and legal process served upon the
Philippine agent or head of any foreign bank
designated to accept service thereof shall give
jurisdiction to the courts over such bank, and service
of notices on such agent or head shall be as binding
upon the bank which he represents as if made upon
the bank itself.
Should the authority of such agent or head to accept
service of summons and legal processes for the bank
or notice to it be revoked, or should such agent or
head become mentally incompetent or otherwise
unable to accept service while exercising such
authority, it shall be the duty of the bank to name and
designate promptly another agent or head upon
whom service of summons and processes in
legal proceedings against the bank and of notices
affecting the bank may be made, and to file with the
Securities and Exchange Commission a duly
authenticated nomination of such agent.
In the absence of the agent or head or should there
be no person authorized by the bank upon whom
service of summons, processes and all legal notices
may be made, service of summons, processes and
legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and
examining departments and such service shall be as
effective as if made upon the bank or its duly
authorized agent or head.
 BANKING TSN 2018
Based on the lectures of Atty. Raymund Christian Ong-Abrantes
In case of service for the bank upon the Bangko
Sentral Deputy Governor In-Charge of the
supervising and examining departments, the said
Deputy Governor shall register and transmit by mail
to the president or the secretary of the bank at its
head or principal office a copy, duly certified by him,
of the summons, process, or notice.
The sending of such copy of the summons, process,
or notice shall be a
necessary part of the services and shall complete the
service. The registry receipt of mailing shall be prima
facie evidence of the transmission of the summons,
process or notice.
All costs necessarily incurred by the said Deputy
Governor for the making and mailing and sending of
a copy of the summons, process, or notice to the
president or the secretary of the bank at its head or
principal office shall be paid in advance by the party
at whose instance the service is made. (17)
SECTION 77. Laws Applicable. —
In all matters not specifically covered by special
provisions applicable only to a foreign bank or its
branches and other offices in the Philippines, any
foreign bank licensed to do business in the Philippines
shall be bound by the provisions of this Act, all other
laws, rules and regulations applicable to banks
organized under the laws of the Philippines of the
same class, except those that provide for the
creation, formation, organization or dissolution of
corporations or for the fixing of the relations,
liabilities, responsibilities, or duties of stockholders,
members, directors or officers of corporations to each
other or to the corporation. (18)
SECTION 78. Revocation of License of a Foreign Bank.
— 1. Prudent administrator
The Monetary Board may revoke the license to
transact business in the Philippines of any foreign
bank, if it finds that the foreign bank is insolvent or
in imminent danger thereof or that its continuance in
business will involve probable loss to
those transacting business with it. After the
revocation of its license, it shall be unlawful for any
such foreign bank to transact business in the
Philippines unless its license is renewed or reissued.
After the revocation of such license, the Bangko
Sentral shall take the necessary action to protect the
creditors of such foreign bank and the public. The
provisions of the New Central Bank Act on sanctions
and penalties shall likewise be applicable.
So let’s talk about trust operations. This is what we call,
business trust. Remember when we talked about trust
in your partnership? The trust that we are talking about
here is your business trust.
CHAPTER IX
TRUST OPERATIONS
SECTION 79. Authority to Engage in Trust
Business. —
Only a stock corporation or a person duly authorized
by the Monetary Board to engage in trust business
shall act as a trustee or administer any trust or hold
property in trust or on deposit for the use, benefit, or
behoof of others. For purposes of this Act, such a
corporation shall be referred to as a trust entity. (56a;
57a)
When you go to US, this is very important. Yung may
mayayaman? They put their money and fund in a trust
entity. Yan yung magmamanage ng fund. But in the
Philippine setting, what is common in the Philippines is
the trust that is related to investments. Yung mga
money-market placements. Wala tayo nung trust na
naririnig nyo sa mga stories abroad.
Diba kung may mayaman abroad, they put their assets
in trust para may makain ang kanilang mga dogs. Yung
mga ganon na kwento. It’s not really explored in the
Philippine jurisdiction coz I don’t know there is
something quite taboo in it.
Statement of principle. So the common principle is all
this is fidelity. So what is common to trust is fidelity. So
without fidelity there is no trust. And without fidelity,
there is no trust. Without trust there is no partnership.
Diba mutual trust? Partnership is based on mutual trust.
So kaylangan may trust and kaylangan ang trust mutual
in partnership.
These are the international principles common to all
trust entities:
2. Undivided loyalty and utmost care
3. Non-delegation of responsibility
The fact that you are chosen as a trustee, the trustor
has considered your personal circumstances.
SECTION 80. Conduct of Trust Business. —
A trust entity shall administer the funds or property
under its custody with the diligence that a prudent
man would exercise in the conduct of an enterprise of
a like character and with similar aims.
No trust entity shall, for the account of the trustor or
the beneficiary of the trust, purchase or acquire
property from, or sell, transfer, assign or lend money
or property to, or purchase debt instruments of, any
of the departments, directors, officers, stockholders,
or employees of the trust entity, relatives within the
first degree of consanguinity or affinity, or the related
interests, of such directors, officers and stockholders,
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unless the transaction is specifically authorized by the
trustor and the relationship of the trustee and the
other party involved in the transaction is fully
disclosed to the trustor or beneficiary of the trust
prior to the transaction.
The Monetary Board shall promulgate such rules and
regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity. (56)
Because of the above provision, we have the prudent
man rule which is actually very specific to a trust entity.
This is the PRUDENT MAN RULE.
So pagtinanong kayo, what is the prudent man rule? So
this refers to trust.
PRUDENT MAN RULE
 Directs trustees to observe how man of
prudence, discretion, and intelligence manage
their own affairs not in regard to speculation but
in regard to the permanent disposition of their
funds considering the income as well as the
safety of the capital investment.
So if you try to apply the prudent man rule, you are not
actually managing the affairs for purposes na kumita
sya but for not the purposes of speculation. It is for the
purpose of permanent disposition of funds considering
the income and the safety of the capital.
Kasi pwede ka naming kumita ng malaki but you do not
consider the safety of the capital. Because remember
the principle in finance, the higher the risk, the higher
the return. Pwede mong igamble ang capital, para
malaki ang kita. But that’s not the prudent man rule.
You have to consider the safety of the capital.
Now this is from an 1830 Massachusetts decision:
John McClean. Si John McClean sobrang mayaman nyan
tapos bago sya namatay, nilagay nya sa will, I will
entrust all my properties to a certain Brothers of Amory
Sabi nya, nilagay nya sa trust that I will entrust my
funds to this Amory and this Amori will manage the
funds for the benefit of a hospital in the Harvard college.
That is why the case is Harvard college v Amory. So
what happened was that namismanage. It was losing.
So walang funds na napunta sa Harvard. So they sued
Mr. Amory saying na he was negligent on his duty as
trustee. He was actually convicted on first instance but
on appeal, sabi ng court no. What is only required by
the trustee is to be prudent.
You cannot make the trustee liable when talaga naming
kinonsider nya ang safety ng capital. And it’s just that
hindi talaga kumita. In other words, there is no
assurance. What is only required by law is to be prudent.
Hindi naman sinabi sa batas na you really have to earn
income. Maging prudent ka lang.
So if you think that a certain investment would earn but
the risk is too high, then wag na.
The Prudent Investor Rule: How It Began
In the 1830s, a now-famous court case was decided
in Massachusetts. Known as Harvard College v.
Amory, it involved a man named John McClean, who
had passed away seven years earlier on October 23,
1823. His heirs were to inherit what was then a
sizable estate, ultimately valued at $228,120. Of
that, $100,800 was invested in manufacturing stock,
$48,000 was invested in insurance company stock,
and $24,700 was invested in bank stock with the
remainder consisting of real estate, personal items,
and cash.
To his wife, Ann McClean, he bequeathed a variety of
chattel, his primary residence, and $35,000 outright.
He also left $27,500 worth of financial gifts to others.
On top of this, he bequeathed $50,000 to Jonathan
and Francis Amory, to be held in trust, with specific
instructions that they were to invest or lend the
money, "in safe and productive stock, either in the
public funds, bank shares, or other stock, according
to their best judgment and discretion." The passive
income generated by the trust fund was to be paid to
his wife, Ann, in either quarterly or semi-annual
distributions for her to maintain her standard of living
based on whatever was most convenient for the
trustees.
When Ann McClean died, the trust fund was to be
divided among to charitable beneficiaries. Fifty
percent of the trust assets were to go the President
and Fellow of Harvard College to establish a
professorship of ancient and modern history, covering
the salary of the new position. The other fifty percent
of the trust assets were to be gifted to the Trustees
of the Massachusetts General Hospital for general
charitable purposes.
Over the next few years, what followed was a long
and complicated series of investments, dividends,
distributions paid out as part of an international treaty
with Spain, and a host of other legal entanglements
that left the trust with less value than it had when
was originally established. Then, in 1928, the
surviving trustee, Francis Amory, tendered his
resignation. Harvard College sued the trustee for the
losses, claiming that the money had been invested in
risky operating companies solely to provide a high
income or the widow Ann while disregarding their
interest as a remainder beneficiary.
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Based on the lectures of Atty. Raymund Christian Ong-Abrantes
The court sided with the trustees for multiple reasons.
When the decision was appealed, and affirmed,
Justice Samuel Putnam famously wrote what is now
known as the prudent man rule, or prudent investor
rule:
All that can be required of a trustee is, that he shall
conduct himself faithfully and exercise a sound
discretion. He is to observe how men of prudence,
discretion and intelligence manage their own affairs,
not in regard to speculation, but in regard to the
permanent disposition of their funds, considering the
probable income as well as the probable safety of the
capital to be invested… Do what you will, the capital
is at hazard.
https://www.thebalance.com/what-is-the-prudent-
man-rule-or-prudent-investor-rule-357258
What is the principle in finance for you to manage
the risk?
A: Diversification
So ang nangyayari, you invest, tapos ito mataas yung
risk, invest ka dun sa lower risk para kung kumita ka
ditto, lugi ka don. (vice versa) You diversy your risk.
SECTION 81. Registration of Articles of Incorporation
and By-Laws of a Trust Entity. —
The Securities and Exchange Commission shall not
register the articles of incorporation and by-laws or
any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by
the Bangko Sentral. (n)
SECTION 82. Minimum Capitalization. — A trust
entity, before it can engage in trust or other fiduciary
business, shall comply with the minimum paid-in
capital requirement which will be determined by the
Monetary Board. (n)
What can a trust entity do? We are talking about the
trust entity ha, a separate entity.
SECTION 83. Powers of a Trust Entity. —
A trust entity, in addition to the general powers
incident to corporations, shall have the power to:
83.1. Act as trustee on any mortgage or bond issued
by any municipality, corporation, or any body politic
and to accept and execute any trust consistent with
law;
83.2. Act under the order or appointment of any court
as guardian, receiver, trustee, or depositary of the
estate of any minor or other incompetent person, and
as receiver and depositary of any moneys paid into
court by parties to any legal proceedings and of
property of any kind which may be brought under the
jurisdiction of the court;
83.3. Act as the executor of any will when it is named
the executor thereof;
83.4. Act as administrator of the estate of any
deceased person, with the will annexed, or as
administrator of the estate of any deceased person
when there is no will;
83.5. Accept and execute any trust for the holding,
management, and administration of any estate, real
or personal, and the rents, issues and profits thereof;
and
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board. (58)
So again, a trust entity is a corporation. So you have
your usual powers of a corporation. So in addition to
that you have the powers above.
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent
person, and as receiver and depositary of any
moneys paid into court by parties to any legal
proceedings and of property of any kind which
may be brought under the jurisdiction of the court;
Now you have your special proceedings ngayon? You will
encounter trust, guardianship. Just correlate this.
So paano kumikita ang isang trust entity?
A: meron silang administration fee usually in
percentage.
Pag sobrang dami ng trust fund, ayun na. Yung mga
usually nakikita nyo sa mga shows diba. Trust fund
baby. Ang nagmamanage ng property nila is yung trust.
And at the age of 18, makukuha nila ang funds.
Nagmamanage lang trust.
SECTION 84. Deposit for the Faithful
Performance of Trust Duties. —
Before transacting trust business, every trust entity
shall deposit with the Bangko Sentral as security for
the faithful performance of its trust duties, cash or
securities approved by the Monetary Board in an
amount equal to not less than Five hundred thousand
pesos (P500,000.00) or such higher amount as may
be fixed by the
Monetary Board: Provided, however, That the
Monetary Board shall require every trust entity to
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Based on the lectures of Atty. Raymund Christian Ong-Abrantes
increase the amount of its cash or securities on
deposit with the Bangko Sentral whenever in its
judgment such increase is necessary by reason of the
trust business of such entity:
Provided, further, That the paid-in capital and surplus
of such entity must be at least equal to the amount
required to be deposited with the Bangko Sentral in
accordance with the provisions of this paragraph.
Should the capital and surplus fall below said amount,
the Monetary Board shall have the same authority as
that granted to it under the provisions of the fifth
paragraph of Section 34 of this Act.
A trust entity so long as it shall continue to be solvent
and comply with laws or regulations shall have the
right to collect the interest earned on such securities
deposited with the Bangko Sentral and, from time to
time, with the approval of the Bangko Sentral, to
exchange the securities for others.
If the trust entity fails to comply with any law or
regulation, the Bangko Sentral shall retain such
interest on the securities deposited with it for the
benefit of rightful claimants. All claims arising out of
the trust business of a trust entity shall have priority
over all other claims as regards the cash or securities
deposited asabove provided. The Monetary Board
may not permit the cash or securities deposited in
accordance with the provisions of this Section to be
reduced below the prescribed minimum amount until
the depositingentity shall discontinue its trust
business and shall satisfy the Monetary Board that it
has complied with all
its obligations in connection with such business.
(65a).
So this is what you call a bond. Security for the faithful
performance of its trust duties. Now in your
guardianship meron din bond to ensure that you would
perform your duties.
SECTION 85. Bond of Certain Persons for the Faithful
Performance of Duties. — Before an executor,
administrator, guardian, trustee, receiver or
depositary appointed by the court enters upon the
execution of his duties, he shall, upon order of the
court, file a bond in such sum, as the court may
direct.
Upon the application of any executor, administrator,
guardian, trustee, receiver, depositary or any other
person in interest, the court may, after notice and
hearing, order that the subject matter of the trust or
any part thereof be deposited with a trust entity.
Upon presentation of proof to the court that the
subject matter of the trust has been deposited with a
trust entity, the court may order that the bond given
by such persons for the faithful performance of their
duties be reduced to such sums as it may deem
proper:
Provided, however, That the reduced bond shall be
sufficient to secure adequately the proper
administration and care of any property remaining
under the control of such persons and the proper
accounting for such property.
Property deposited with any trust entity in conformity
with this Section shall be held by such entity under
the orders and direction of the court. (59)
SECTION 86. Exemption of Trust Entity from
Bond Requirement. —
No bond or other security shall be required by the
court from a trust entity for the faithful performance
of its duties as court appointed trustee, executor,
administrator, guardian, receiver, or depositary.
However, the court may, upon proper application with
it showing special cause therefor, require the trust
entity to post a bond or other security for the
protection of funds or property confided to such
entity. (59)
So if court appointed ka, you are not required to furnish
a bond. Kasi nga inappoint ka na nga tapos magbond ka
pa.
Please take note, very important:
SECTION 87. Separation of Trust Business from
General Business. —
The trust business and all funds, properties or
securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or
depositary shall be kept separate and distinct from
the general business including all other funds,
properties, and assets of such trust entity. The
accounts of all such funds, properties, or securities
shall likewise be kept separate and distinct from the
accounts of the general business of the trust entity.
(61)
So kaylangan may separate accounting.
SECTION 88. Investment Limitations of a Trust
Entity. —
Unless otherwise directed by the instrument creating
the trust, the lending and investment of funds and
other assets acquired by a trust entity as executor,
administrator, guardian, trustee, receiver or
depositary of the estate of any minor or other
incompetent person shall be limited to loans or
investments as may be prescribed by law, the
Monetary Board or any court of competent
jurisdiction. (63a)
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SECTION 89. Real Estate Acquired by a Trust
Entity. —
Unless otherwise specifically directed by the trustor
or the nature of the trust, real estate acquired by a
trust entity in whatever manner and for whatever
purpose, shall likewise be governed by the relevant
provisions of Section 52 of this Act. (64a)
SECTION 90. Investment of Non-Trust Funds. —
The investment of funds other than trust funds of a
trust entity which is a bank, financing company or an
investment house shall be governed by the relevant
provisions of this Act and other applicable laws. (64)
SECTION 91. Sanctions and Penalties. —
A trust entity or any of its officers and directors found
to have willfully violated any pertinent provisions of
this Act, shall be subject to the sanctions and
penalties provided under Section 66 of this Act as well
as Sections 36 and 37 of the New Central Bank Act.
(63)
SECTION 92. Exemption of Trust Assets from
Claims. —
No assets held by a trust entity in its capacity as
trustee shall be subject to any claims other than those
of the parties interested in the specific trusts. (65)
Can the trust entity establish branches?
SECTION 93. Establishment of Branches of a
Trust Entity. —
The ordinary business of a trust entity shall be
transacted at the place of business specified in its
articles of incorporation. Such trust entity may, with
prior approval of the Monetary Board, establish
branches in the Philippines, and the said entity shall
be responsible for all business conducted in such
branches to the same extent and in the same manner
as though such business had all been conducted in
the head office.
For the purpose of this Act, the trust entity and its
branches shall be treated as one unit. (67)
CHAPTER X
FINAL PROVISIONS
SECTION 94. Phase Out of Bangko Sentral Powers
Over Building and Loan Associations.
— Within a period of three (3) years from the
effectivity of this Act, the Bangko Sentral shall phase
out and transfer its supervising and regulatory
powers over building and loan associations to the
Home Insurance and Guaranty Corporation which
shall assume the same. Until otherwise provided by
law, building and loan associations shall continue to
be governed by Sections 39 to 55, Chapter VI of the
General Banking Act, as amended, including such
rules and regulations issued pursuant thereto. Upon
assumption by the Home Insurance and Guaranty
Corporation of supervising and regulatory powers
over building and loan associations, all references in
Sections 39 to 55 of the General Banking Act, as
amended, to the Bangko Sentral and the Monetary
Board shall be deemed to refer to the Home Insurance
and Guaranty Corporation and its board of directors,
respectively. (n)
SECTION 95. Repealing Clause. — Except as may
be provided for in Sections 34 and 94 of this Act, the
General Banking Act, as amended, and the provisions
of any other law, special charters, rule or regulation
issued pursuant to said General Banking Act, as
amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed.
The provisions of paragraph 8, Section 8,Republic Act
No. 3591, as amended by Republic Act No. 7400, are
likewise repealed. (90a)
SECTION 96. Separability Clause. — If any
provision or section of this Act or the application
thereof to any person or circumstance is held invalid,
the other provisions or sections of this Act, and the
application of such provision or section to other
persons or circumstances, shall not be affected
thereby.
(n)
SECTION 97. Effectivity Clause. — This Act shall
take effect fifteen (15) days following its publication
in the Official Gazette or in two (2) national
newspapers of general circulation. (91)