Commercial Law Review: Maria Zarah - Villanueva - Castro

Commercial Law Review
Banking Laws
Maria Zarah Villanueva - Castro
BANKING LAW (R.A. 8791)
General Banking Law:
Sec. 3 of the General Banking Law
provides that: "Banks" shall refer to entities
engaged in the lending of funds obtained in
the form of deposits.
provides that: The Monetary Board may
authorize the organization of a bank or quasibank subject to the following conditions:
8.1 That the entity is a stock corporation;
8.2 That its funds are obtained from the
public, which shall mean twenty (20) or more
persons; and
8.3 That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied.
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 banks ownership
structure, directors and senior management,
its operating plan and internal controls as
well as its projected financial condition and
capital base.
*To be registered as bank, it must be a stock
corporation.
*Banks must obtain funds from the public.
Minimum number of depositor is 20 persons.
Nature of Business:
Sec. 2 of the General Banking Law states
that: The State recognizes the vital role of
banks 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.
Consequences:
1. Sec. 9 of the General Banking Law
provides that: 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.
2. Bank must be an open corporation
Reason: Vital to industry
3. The word bank cannot be used if
such person or entity is not engaged
in banking business.
4. It is subject to heavy and close
supervision and/or regulation by the
Bangko Sentral ng Pilipinas.
5. Banks must observe highest degree of
diligence.
6. Sec. 22 of the General Banking
Law states that: The banking
industry is hereby declared as
indispensable to the national interest
and, notwithstanding the provisions of
any law to the contrary, any strike or
lockout involving banks, if unsettled
after seven (7) calendar days shall be
reported by the Bangko Sentral to the
Secretary of Labor who may assume
jurisdiction over the dispute or decide
it or certify the same to the National
Labor
Relations
Commission
for
compulsory arbitration. However, the
President of the Philippines may at any
time intervene and assume jurisdiction
over such labor dispute in order to
settle or terminate the same.
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Banking Laws
*In DBP v CA, the SC held that while an
innocent mortgagee is not expected to
conduct an exhaustive investigation on
the history of the mortgagors title, in
case of a banking institution, it must
exercise due diligence before entering
into said contract, and cannot rely upon
on what is or is not annotated on the title.
Cases: China Banking v Lagon;
Citibank v Cabangongan
Authority to incorporate and operate:
states that: The Securities and Exchange
Commission shall not register the articles of
incorporation
of
any
bank,
or
any
amendment thereto, unless accompanied by
a certificate of authority issued by the
Monetary Board, under its seal. Such
certificate shall not be issued unless the
Monetary Board is satisfied from the
evidence submitted to it:
14.1. That all requirements of existing laws
and regulations to engage in the business for
which the applicant is proposed to be
incorporated have been complied with;
14.2. That the public interest and economic
conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the
financing,
organization,
direction
and
administration, as well as the integrity and
responsibility
of
the
organizers
and
administrators reasonably assure the safety
of deposits and the public interest.
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.
*The articles of incorporation must be
accompanied
by
the
favorable
recommendation of the BSP.

provides that: No person or entity shall
engage in banking operations or quasibanking 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 quasibanking 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
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Banking Laws
authority from the Bangko Sentral shall be
subject to appropriate sanctions under the
New Central Bank Act and other applicable
laws.
Classification of banks:
Sec. 3.2 of the General Banking Law
provides that: 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.
Distinctions between different kinds of
banks:
a. As to Capitalization: They have
different
minimum
capitalization
requirements.
b. As to Purpose: Some of the banks
have specific purposes and social
functions.
c. As to Powers or Functions: There
are functions and powers that are not
exercised by one that are exercised by
others. Some banks may exercise

certain powers only upon prior
approval of the Monetary Board.
*Universal banks can engage into nonallied enterprises. It can also act as an
investment house, thus, it can enter
into underwriting commitments and do
underwriting securities.
d. As to who can be directors: Public
officers can
be directors of Rural
Banks
while
such
officers
are
prohibited from being directors or
officers of other types of banks.
e. As to Incorporators: General Rule:
Incorporators must be natural persons.
Exception: In rural banks, it can be
organized
or
established
by
cooperatives
and
corporations
primarily organized to hold equities in
rural banks.
f. As to Foreign Equity: A rural bank
must be wholly owned by Filipinos
while other banks require only 40%
Filipino ownership of their voting
stocks.
*In RA 6938, majority of the shares
must be owned by cooperatives.
g. As to necessity of public offering:
Public offering of shares is necessary
for domestic banks seeking authority
to act as universal bank while there is
no such requirement for other banks.
Functions of the bank:
1. Deposit Functions
2. Loan Functions
Deposit Function:
*The relationship created is one of creditordebtor relation.
*There is passing of ownership to the bank.
*The bank can appropriate the deposits
without the consent of the depositor.

Banking Laws
*Legal compensation can take place because
they are mutually creditor-debtor of each
other.
*Prior to incorporation, the deposits can be
named to corporate treasurer. He will held it
in trust for the corporation.
Depositors:
1. Minors:
- They can open bank accounts in their
own right provided that they are at
least 7 years of age; they are able to
read and write and have sufficient
discretion; they are not otherwise
disqualified by any other incapacity;
and it should only be savings or time
deposits.
* They cannot open checking account
nor demand deposits.
2. Married Women:
- They are allowed to open bank
accounts without the assistance of
their husbands.
Reason: equality in capacity
*Bank account may be opened by one
individual or two or more persons. Whenever
two or more persons open an account, the
same may be an and/or account or an and
account.
General Rule: Fictitious accounts or
anonymous accounts are prohibited.
Exception: Foreign currency deposits which
may be a numbered account.
*The law requires that necessary measures
are undertaken by the bank to record and
establish the true identity of the depositor.
*Joint accounts may be the subject of
survivorship agreement whereby the codepositors agree to permit either of them to
withdraw the whole deposit during their
lifetime and transferring the balance to the
survivor upon the death of one of them.
Basis: Trust and Confidence
*What is prohibited under the Family Code is
donation inter vivos and not donation mortis
causa.
Peso deposits:
General Rule: Sec. 2 of Republic Act No.
1405 provides that: All deposits of whatever
nature with banks or banking institutions in
the Philippines including investments in
bonds issued by the Government of the
Philippines, its political subdivisions and its
instrumentalities, are hereby considered as
of an absolutely confidential nature and may
not be examined, inquired or looked into by
any person, governmental official, bureau or
office.
Exceptions:
1. When there is written permission of
the depositor or investor;
2. Impeachment cases;
3. Upon the order of a competent court
in cases of bribery or dereliction of
duty of public officials;
4. Upon the order of a competent court
in cases where the money deposited
or invested is the subject of litigation;
5. Upon order of the competent court or
tribunal in cases involving unexplained
wealth under Sec. 8 of the Anti-Graft
and Corrupt Practices Act (R.A. 3019);
6. Upon inquiry by the Commissioner of
Internal Revenue for the purpose of
determining the net estate of a
deceased depositor;
*In case the taxpayer compromised
his tax liability by reason of financial
incapacity.
7. General Rule: Upon the order of a
competent court or in proper cases by
the Anti-Money Laundering Council
where there is probable cause of
money laundering.
Exception: In some instances even
without court order.
8. Disclosure of the Treasurer of the
Philippines for dormant deposits for at
least 10 years under the Unclaimed
Balances Act (R.A. 3936)
*Escheat proceedings
Secrecy of Bank Deposits:
Foreign Currency deposits:

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Banking Laws
*Subsequent to secrecy law.
Under the Foreign Currency Deposit Act,
there is only one exception and that is:
When there is a written consent of depositor.
Secrecy of Deposits under the AntiMoney Laundering Law:
General Rule: The Anti-Money Laundering
Council may inquire into deposits upon order
of the court when there is probable cause
that the deposits are related to the crime of
unlawful activities defined in Sec. 3(1) and
Sec. 4 of R.A. 9160 as amended by R.A.
9194.
Exception: A court order is not even
necessary when the offense or unlawful
activity involved is any of the following: 1.
Kidnapping for ransom under Article 267 of
the Revised Penal Code; 2. Sections 4, 5, 7,
8, 9, 10, 12, 13, 14, 15, and 16 of the
Comprehensive Dangerous Drugs Act of
2002; and Hi-jacking and other violations
under R.A. 6235; destructive arson and
murder, as defined under the Revised Penal
Code,
as
amended,
including
those
perpetrated by terrorists against noncombatant persons and similar targets.
Garnishment:
General Rule: Bank accounts may be
garnished by the creditors of the depositor.
Reason: Not deposits for investment, thus,
law on secrecy is not applicable.
Exceptions:
1. Foreign Currency Deposits
*In Salvacion v Central Bank of the
Philippines, the SC held that foreign
currency deposits of an American
tourist who was found guilty of
repeatedly raping a twelve years old
child is subject to garnishment.
2. Those exempt under the Rules of Civil
Procedure like provision for the family
for four months
Deposit Insurance:
*All deposits of any bank are insured with the

PDIC.
*Obligation to pay the premium lies on the
bank.
Risk insured against: closure of banks due
to liquidity problems.
*Insured deposit under the law means the
net amount due to any depositor for deposits
in an insured bank but should not exceed
P250,000. If the depositor has two or more
accounts with the same bank, the maximum
coverage of P250,000 pertains to the sum of
all such accounts maintained in the same
right and capacity.
*A joint account shall be insured separately
from any individual-owned account.
*A joint account held by a juridical person or
entity jointly with natural person/s shall be
presumed to belong to the juridical person.
*The aggregate share in all joint accounts is
subject to P250,000 threshold.
Loan Function of the Banks:
*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.
Single Borrowers Limit:
provides that: Except as the Monetary
Board may otherwise prescribe for reasons
of national interest, the total amount of
loans,
credit
accommodations
and
guarantees as may be defined by the
Monetary Board that may be extended by
a bank to any person, partnership,
association, corporation or other entity shall
at no time exceed twenty-five percent (25%)
of the net worth of such bank. The basis
for determining compliance with single
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Banking Laws
borrower
limit
is
the
total
credit
commitment of the bank to the borrower.
states that: Unless the Monetary Board
prescribes otherwise, the total amount of
loans,
credit
accommodations
and
guarantees prescribed in the preceding
paragraph may be increased by an
additional ten percent (10%) of the net
worth of such bank provided the additional
liabilities of any borrower are adequately
secured
by
trust
receipts, shipping
documents, warehouse receipts or other
similar documents transferring or securing
title covering readily marketable,
nonperishable goods which must be fully
covered by insurance.
DOSRI ACCOUNTS:
states that: 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, endorser 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.
Purpose: To protect the general public from
the abuse of the directors, officers,
stockholders and related interests of the
bank.
Requisites:
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Banking Laws
1. The borrower is a director, officer or
any stockholder of a bank;
2. He contract a loan or any form of
financial accommodation;
3. The loan or financial accommodation
is from: a. his bank, or b. a bank that
is a subsidiary of a bank holding
company of which both his bank and
lending bank are subsidiaries, c. a
bank in which a controlling proportion
of the shares is owned by the same
interest that owns a controlling
proportion of the shares of his bank;
and
4. The loan or financial accommodation
of the director, officer or stockholder,
singly or with that of his related
interest, is in excess of 5% of the
capital and surplus of the lending bank
or in the maximum amount permitted
by law, whichever is lower.
Examples:
1. If there is interlocking directors
subject to DOSRI restrictions
2. General partner is either a director,
officer, stockholder or related interest
of a lending bank subject to DOSRI
restrictions
3. Stranger applied for a loan and a
property was collateral: a. if the
property is owned by stranger alone
not subject to DOSRI restrictions; b. if
the property is co-owned by a director,
officer, stockholder or related interest
of the bank subject to DOSRI
restrictions
4. A director, officer, stockholder, or
related interests owned more than
20% share in a corporation (borrower)
subject to DOSRI restriction.
Restrictions:
1. Procedural
requirement:
The
account should be upon written
approval of all the director of the
lending bank excluding the director
concerned.
2. Arms Length Rule: The account

should be upon terms not less
favorable to the bank than those
offered to others.
3. Reportorial
requirement:
The
resolution approving the loan shall be
entered in the records of the bank and
a copy of the entry shall be
transmitted
forthwith
to
the
Supervising and Examination Sector of
the BSP.
Foreclosure of Mortgage
provides that: 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 there from.
However, the purchaser at the auction sale
concerned whether in a judicial or extrajudicial 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
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Banking Laws
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 extra judicial 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.
Prohibited acts of Borrowers:
states that: 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.
Ownership of Banks:
provides that: Foreign individuals and nonbank corporations may own or control up to
forty percent (40%) of the voting stock of a
domestic bank. This rule shall apply to
Filipinos
and
domestic
non-bank
corporations.
The percentage of foreign-owned voting

stocks in a bank shall be determined by the
citizenship of the individual stockholders in
that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow
the citizenship of the controlling stockholders
of the corporation, irrespective of the place
of incorporation.
General Rule: Banks are partly nationalized
*The 60% minimum threshold must be
satisfied by the bank.
*Filipino ownership voting stocks owned by
Filipinos
Examples:
X bank has 1M voting stocks: 600,000 owned
by Filipinos and 400,000 owned by
foreigners. The bank complied with the 60%
requirement.
X bank has 1M voting shares: 400,000 owned
by Filipinos; 400,000 owned by foreigners
and 200,000 owned by Y Corporation.
Q: Does the 60% requirement satisfied?
A: IT DEPENDS. Depending on the
citizenship of Y Corporation. If the majority
controlling stockholders are Filipino thus Y
Corporation is a Filipino citizen hence the
60% is complied with. If Y corporation is
controlled by a foreigners there is noncompliance of the 60% requirement.
*The 40% requirement is applicable not only
to foreigners but also to individual Filipino
shareholders
and
domestic
non-bank
corporation.
*If the corporation acquiring is a bank the
40% threshold is not applicable.
Examples:
600,000 owned by Filipinos; 400,000 owned
by foreigners
A owned 500,000 shares
*A single Filipino stockholders can only own
upto 40% of the voting stock of the bank.
A Corporation which is not
institution 500,000 shares
banking

Banking Laws
*A domestic non-bank corporation can only
own upto 40% of the voting stock of the
bank.
800,000 owned by Filipinos; 200,000 owned
by foreigners
In the 800,000 owned by Filipinos; 400,000
of which is owned by A and the 200,000 is
owned by A Corporation
In A Corporation, A is a stockholder owning
50% of the controlling stock of A Corporation.
Q: Is this allowed?
A: NO. 50% of 200,000 is indirectly owned
by a Filipino individual, the 40% threshold is
violated.
*The 40% threshold includes both direct and
indirect ownership of shares of the bank.
Act Liberalizing Entry of Foreign Banks:
Sec. 2 of Republic Act No. 7721 provides
that: The Monetary Board may authorize
foreign banks to operate in the Philippine
banking system through any of the following
modes of entry: (i) by acquiring, purchasing
or owning up to sixty percent (60%) of the
voting stock of an existing bank; (ii) by
investing in up to sixty percent (60%) of the
voting stock of a new banking subsidiary
incorporated under the laws of the
Philippines; or (iii) by establishing branches
with full banking authority: Provided, That a
foreign bank may avail itself of only one (1)
mode of entry: Provided, further, That a
foreign bank or a Philippine corporation may
own up to a sixty percent (60%) of the voting
stock of only one (1) domestic bank or new
banking subsidiary.
Sec. 3 of Republic Act No. 7721 states
that: In approving entry applications of
foreign banks, the Monetary Board shall: (i)
ensure
geographic
representation
and
complementation; (ii) consider strategic
trade and investment relationships between
the
Philippines
and
the
country
of
incorporation of the foreign bank; (iii) study
the demonstrated capacity, global reputation
for financial innovations and stability in a

competitive environment of the applicant;
(iv) see to it that reciprocity rights are
enjoyed by Philippine banks in the
applicant's country; and (v) consider
willingness to fully share their technology.
Only those among the top one hundred fifty
(150) foreign banks in the world or the top
five (5) banks in their country of origin as of
the date of application shall be allowed entry
in accordance with Section 2 (ii) and (iii)
hereof.
In the exercise of this authority, the
Monetary Board shall adopt such measures
as may be necessary to: (i) ensure that at all
times the control of seventy percent (70%) of
the resources or assets of the entire banking
system is held by domestic banks which are
at least majority-owned by Filipinos; (ii)
prevent a dominant market position by one
bank or the concentration of economic power
in one or more financial institutions, or in
corporations, participations, partnerships,
groups or individuals with related interests;
and (iii) secure the listing in the Philippine
Stock Exchange of the shares of stocks of
banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That
said banking corporations shall establish
stock option plans for their officers and
employees as the resources or assets of
these corporations may allow in the best
business judgment of their respective boards
of directors, pursuant to the Corporation
Code of the Philippines.
To qualify to establish a branch or a
subsidiary, the foreign bank applicant must
be widely-owned and publicly-listed in its
country of origin, unless the foreign bank
applicant is owned by the government of its
country of origin.
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Banking Laws
General Rule: Foreigners must own only
upto 40% of the voting shares of a bank.
Exception: Foreign bank can own upto 60%
of the voting shares of a bank.
Directors and Officers:
Composition:
states that: 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.
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.
The meetings of the board of directors may
be conducted through modern technologies
such as, but not limited to, teleconferencing
and video-conferencing.
states that: 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.
General Rule: The Board of Directors is
composed of 5 to 15 members only.
Exception: In case of merger
provides that: 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.
Justification: Police power
Reason: Banking institution is imbued with
public interest.
Regulations to maintain liquidity and
security:
Law provides that: The Monetary
Board shall prescribe the minimum
ratio which the net worth of a bank
must bear to its total risk assets which
may include contingent accounts.
For purposes of this Section, the
Monetary Board may require such
ratio be determined on the basis of the
net worth and risk assets of a bank
and its subsidiaries, financial or
otherwise, as well as prescribe the
composition and the manner of
determining the net worth and total
risk assets of banks and their
subsidiaries: Provided, That in the
exercise
of
this
authority,
the
Monetary Board shall, to the extent
feasible conform to internationally
accepted standards, including those
of
the
Bank
for
International
Settlements (BIS), relating to riskbased
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
10

Banking Laws
applied uniformly to banks of the
same category. In case a bank does
not comply with the prescribed
minimum ratio, the Monetary Board
may limit or prohibit the distribution of
net profits by such bank and may
require that part or all of the net
profits be used to increase the
capital accounts of the bank until
the minimum requirement has been
met The Monetary Board may,
furthermore, restrict or prohibit the
acquisition of major assets and the
making of new investments by the
bank,
with
the
exception
of
purchases
of readily marketable
evidences of indebtedness of the
Republic of the Philippines and of the
Bangko Sentral and any other
evidences
of
indebtedness
or
obligations
the
servicing
and
repayment
of
which
are
fully
guaranteed by the Republic of the
Philippines,
until
the
minimum
required capital ratio has been
restored. In case of a bank merger
or consolidation, or when a bank is
under rehabilitation under a program
approved by the Bangko Sentral,
Monetary Board may temporarily
relieve
the
surviving
bank,
consolidated bank, or constituent
bank
or
corporations
under
rehabilitation from full compliance
with the required capital ratio under
such conditions as it may prescribe.
Before the effectivity of rules which
the Monetary Board is authorized to
prescribe
under
this
provision,
Section 22 of the General Banking
Act, as amended, Section 9 of the
Thrift Banks Act, and all pertinent
rules issued pursuant thereto, shall
continue to be in force.
2. The law imposes limits on loans, credit
accommodations and guarantees that
may be extended by banks.

Law states that: 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, endorser 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
11

Banking Laws
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.
4. The law imposes restrictions on the
value of collaterals on loans.
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.
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.
Law states that: No bank or quasibank shall declare dividends, if at the
time of declaration:
57.1 Its clearing account with the
Bangko Sentral is overdrawn; or
57.2 It is deficient in the required
liquidity
floor
for
government
deposits for five (5) or more
consecutive days, or
57.3
It does not comply with the
liquidity standards/ratios prescribed by
the Bangko Sentral for purposes of
determining
funds
available
for
dividend declaration; or
57.4
It has committed a major
violation as may be determined by the
Bangko Sentral.
Other functions
Sentral:
of the Bangko
A. Emergency Loan
12

Banking Laws
Sec. 84 of the New Central
Bank Act states that: In periods
of national and/or local emergency
or of imminent financial panic
which directly threaten monetary
and banking stability, the Monetary
Board may, by a vote of at least
five (5) of its members, authorize
the Bangko Sentral to grant
extraordinary loans or advances to
banking institutions secured by
assets as defined hereunder:
Provided, That while such loans or
advances are outstanding, the
debtor institution shall not, except
upon prior authorization by the
Monetary Board, expand the total
volume of its loans or investments.
The Monetary Board may, at its
discretion, likewise authorize the
Bangko Sentral to grant emergency
loans or advances to banking
institutions, even during normal
periods, for the purpose of
assisting a bank in a precarious
financial condition or under serious
financial pressures brought by
unforeseen events, or events
which, though foreseeable, could
not be prevented by the bank
concerned:
Provided,
however,
That the Monetary Board has
ascertained that the bank is not
insolvent and has the assets
defined hereunder to secure the
advances: Provided, further, That a
concurrent vote of at least five (5)
members of the Monetary Board is
obtained.
The amount of any emergency loan
or advance shall not exceed the
sum of fifty percent (50%) of total
deposits and deposit substitutes of
the banking institution and shall be
disbursed in two (2) or more
tranches. The amount of the first
tranche shall be limited to twenty-
five percent (25%) of the total

deposit and deposit substitutes of
the institution and shall be secured
by government securities to the
extent of their applicable loan
values and other unencumbered
first class collaterals which the
Monetary Board may approve:
Provided, That if as determined by
the
Monetary
Board,
the
circumstances
surrounding
the
emergency warrant a loan or
advance greater than the amount
provided hereinabove, the amount
of the first tranche may exceed
twenty-five percent (25%) of the
bank's total deposit and deposit
substitutes
if
the
same
is
adequately secured by applicable
loan
values
of
government
securities and unencumbered first
class collaterals approved by the
Monetary Board, and the principal
stockholders of the institution
furnish an acceptable undertaking
to indemnify and hold harmless
from suit a conservator whose
appointment the Monetary Board
may find necessary at any time.
Prior to the release of the first
tranche, the banking institution
shall submit to the Bangko Sentral
a resolution of its board of directors
authorizing the Bangko Sentral to
evaluate other assets of the
banking institution certified by its
external auditor to be good and
available for collateral purposes
should
the
release
of
the
subsequent tranche be thereafter
applied for.
The Monetary Board may, by a vote
of at least five (5) of its members,
authorize
the
release
of
a
subsequent tranche on condition
that the principal stockholders of
the institution:
13

Banking Laws
(a)
furnish
an
acceptable
undertaking to indemnify and hold
harmless from suit a conservator
whose appointment the Monetary
Board may find necessary at any
time; and
(b) provide acceptable security
which, in the judgment of the
Monetary
Board,
would
be
adequate to supplement, where
necessary, the assets tendered by
the
banking
institution
to
collateralize
the
subsequent
tranche.
In connection with the exercise of
these powers, the prohibitions in
Section 128 of this Act shall not
apply insofar as it refers to
acceptance as collateral of shares
and their acquisition as a result of
foreclosure proceedings, including
the exercise of voting rights
pertaining to said shares: Provided,
however, That should the Bangko
Sentral acquire any of the shares it
has accepted as collateral as a
result of foreclosure proceedings,
the Bangko Sentral shall dispose of
said shares by public bidding within
one (1) year from the date of
consolidation of title by the Bangko
Sentral.
Whenever a financial institution
incurs an overdraft in its account
with the Bangko Sentral, the same
shall be eliminated within the
period prescribed in Section 102 of
this Act.
B. Appointment of Conservator
Bank Act states that: Whenever,
on the basis of a report submitted
by the appropriate supervising or
examining
department,
the
Monetary Board finds that a bank
or a quasi-bank is in a state of
continuing inability or unwillingness
to maintain a condition of liquidity

deemed adequate to protect the
interest of depositors and creditors,
the Monetary Board may appoint a
conservator with such powers as
the Monetary Board shall deem
necessary to take charge of the
assets,
liabilities,
and
the
management thereof, reorganize
the
management,
collect
all
monies and debts due said
institution, and exercise all powers
necessary to restore its viability.
The conservator shall report and be
responsible to the Monetary Board
and shall have the power to
overrule or revoke the actions of
the previous management and
board of directors of the bank or
quasi-bank.
The
conservator
should
be
competent and knowledgeable in
bank operations and management.
The conservatorship shall not
exceed one (1) year.
The conservator shall receive
remuneration to be fixed by the
Monetary Board in an amount not
to exceed two-thirds (2/3) of the
salary of the president of the
institution in one (1) year, payable
in twelve (12) equal monthly
payments: Provided, That, if at any
time within one-year period, the
conservatorship is terminated on
the ground that the institution can
operate on its own, the conservator
shall receive the balance of the
remuneration which he would have
received up to the end of the year;
but if the conservatorship is
terminated on other grounds, the
conservator shall not be entitled to
such
remaining
balance. The
Monetary Board may appoint a
conservator connected with the
Bangko Sentral, in which case he
14

Banking Laws
shall not be entitled to receive any
remuneration or emolument from
the Bangko Sentral during the
conservatorship.
The
expenses
attendant to the conservatorship
shall be borne by the bank or
quasi-bank concerned.
The
Monetary
Board
shall
terminate
the
conservatorship
when it is satisfied that the
institution can continue to operate
on its own and the conservatorship
is no longer necessary. The
conservatorship shall likewise be
terminated should the Monetary
Board, on the basis of the report of
the conservator or of its own
findings,
determine
that
the
continuance in business of the
institution would involve probable
loss to its depositors or creditors, in
which case the provisions of
Section 30 shall apply.
*Experiencing liquidity problems
only.
Powers of Conservator:
1. To take charge of the assets,
liabilities, and the management
thereof;
2. To reorganize the management
of the subject bank;
3. To collect all monies and debts
due said institutions; and
4. To exercise all powers necessary
to restore its viability
Except:
Those
already
perfected
C. Appointment of Receiver
Bank
Act
provides
that:
Whenever, upon report of the
head
of
the
supervising
or
examining
department,
the
Monetary Board finds that a bank
or quasi-bank:
(a) is unable to pay its liabilities as
they become due in the ordinary
course of business: Provided, That

this shall not include inability to
pay
caused
by
extraordinary
demands induced by financial
panic in the banking community;
(b)
has insufficient realizable
assets, as determined by the
Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business
without involving probable losses
to its depositors or creditors; or
(d) has willfully violated a cease
and desist order under Section 37
that has become final, involving
acts or transactions which amount
to fraud or a dissipation of the
assets of the institution; in which
cases, the Monetary Board may
summarily and without need for
prior hearing forbid the institution
from doing business in the
Philippines and designate the
Philippine
Deposit
Insurance
Corporation as receiver of the
banking institution.
For a quasi-bank, any person of
recognized competence in banking
or finance may be designed as
receiver.
The receiver shall immediately
gather and take charge of all the
assets and liabilities of the
institution, administer the same for
the benefit of its creditors, and
exercise the general powers of a
receiver under the Revised Rules of
Court but shall not, with the
exception
of
administrative
expenditures, pay or commit any
act that will involve the transfer or
disposition of any asset of the
institution: Provided, That the
receiver may deposit or place the
funds of the institution in nonspeculative
investments.
The
receiver shall determine as soon as
15

Banking Laws
possible, but not later than ninety
(90) days from takeover, whether
the institution may be rehabilitated
or otherwise placed in such a
condition so that it may be
permitted to resume business with
safety to its depositors and
creditors and the general public:
Provided, That any determination
for the resumption of business of
the institution shall be subject to
prior approval of the Monetary
Board.
If the receiver determines that the
institution cannot be rehabilitated
or permitted to resume business in
accordance
with
the
next
preceding paragraph, the Monetary
Board shall notify in writing the
board of directors of its findings
and direct the receiver to proceed
with
the
liquidation
of
the
institution. The receiver shall:
(1) file ex parte with the proper
regional trial court, and without
requirement of prior notice or any
other
action,
a
petition
for
assistance in the liquidation of the
institution pursuant to a liquidation
plan adopted by the Philippine
Deposit Insurance Corporation for
general application to all closed
banks. In case of quasi-banks, the
liquidation plan shall be adopted by
the
Monetary
Board.
Upon
acquiring jurisdiction, the court
shall, upon motion by the receiver
after
due
notice,
adjudicate
disputed
claims
against
the
institution, assist the enforcement
of individual liabilities of the
stockholders, directors and officers,
and decide on other issues as may
be material to implement the
liquidation plan adopted. The
receiver shall pay the cost of the
proceedings from the assets of the

institution.
(2) convert the assets of the
institutions to money, dispose of
the same to creditors and other
parties, for the purpose of paying
the debts of such institution in
accordance with the rules on
concurrence and preference of
credit under the Civil Code of the
Philippines and he may, in the
name of the institution, and with
the assistance of counsel as he
may retain, institute such actions
as may be necessary to collect and
recover accounts and assets of, or
defend any action against, the
institution. The assets of an
institution under receivership or
liquidation shall be deemed in
custodia legis in the hands of the
receiver and shall, from the
moment the institution was placed
under
such
receivership
or
liquidation, be exempt from any
order
of
garnishment,
levy,
attachment, or execution.
The actions of the Monetary Board
taken under this section or under
Section 29 of this Act shall be final
and executory, and may not be
restrained or set aside by the court
except on petition for certiorari on
the ground that the action taken
was in excess of jurisdiction or with
such grave abuse of discretion as
to amount to lack or excess of
jurisdiction.
The
petition
for
certiorari may only be filed by the
stockholders of record representing
the majority of the capital stock
within ten (10) days from receipt
by the board of directors of the
institution of the order directing
receivership,
liquidation
or
conservatorship. The designation of
a conservator under Section 29 of
16

Banking Laws
this Act or the appointment of a
receiver under this section shall be
vested
exclusively
with
the
Monetary Board. Furthermore, the
designation of a conservator is not
a precondition to the designation of
a receiver.
*There is a bank closure.
Close Now, Hear Later Scheme:
Sec. 29 of the New Central Bank Act
states that: Whenever, on the basis of a
report
submitted
by
the
appropriate
supervising or examining department, the
Monetary Board finds that a bank or a quasibank is in a state of continuing inability or
unwillingness to maintain a condition of
liquidity deemed adequate to protect the
interest of depositors and creditors, the
Monetary Board may appoint a conservator
with such powers as the Monetary Board
shall deem necessary to take charge of the
assets, liabilities, and the management
thereof, reorganize the management, collect
all monies and debts due said institution, and
exercise all powers necessary to restore its
viability. The conservator shall report and be
responsible to the Monetary Board and shall
have the power to overrule or revoke the
actions of the previous management and
board of directors of the bank or quasi-bank.
The conservator should be competent and
knowledgeable in bank operations and
management. The conservatorship shall not
exceed one (1) year.
The conservator shall receive remuneration
to be fixed by the Monetary Board in an
amount not to exceed two-thirds (2/3) of the
salary of the president of the institution in
one (1) year, payable in twelve (12) equal
monthly payments: Provided, That, if at any
time
within
one-year
period,
the
conservatorship is terminated on the ground
that the institution can operate on its own,
the conservator shall receive the balance of
the remuneration which he would have
received up to the end of the year; but if the
conservatorship is terminated on other

grounds, the conservator shall not be
entitled to such remaining balance. The
Monetary Board may appoint a conservator
connected with the Bangko Sentral, in which
case he shall not be entitled to receive any
remuneration or emolument from the Bangko
Sentral during the conservatorship. The
expenses attendant to the conservatorship
shall be borne by the bank or quasi-bank
concerned.
The Monetary Board shall terminate the
conservatorship when it is satisfied that the
institution can continue to operate on its own
and the conservatorship is no longer
necessary. The conservatorship shall likewise
be terminated should the Monetary Board, on
the basis of the report of the conservator or
of its own findings, determine that the
continuance in business of the institution
would involve probable loss to its depositors
or creditors, in which case the provisions of
Section 30 shall apply.
*No prior hearing is necessary in appointing
a receiver and in closing the bank. It is
enough that subsequent judicial review is
provided for. Indeed, to require such previous
hearing would not only be impractical but
would tend to defeat the very purpose of the
law when it invested the Monetary Board
with such authority.
Purpose: To avoid creation of panic from the
depositors or public.
Reason: The government has responsibility
to see to it that the person dealing with the
bank is protected.
Effects of receivership and liquidation:
1. Suspension of operation
2. The assets under receivership or
liquidation shall be deemed in
custodia legis in the hands of the
receiver and shall be exempt from
garnishment, levy, attachment or
execution
3. Bank is not liable to pay interest on
deposits
during
the
period
of
suspension of operation
17

Banking Laws
Reason: There is no source of income
4. Banks under liquidation retain their
legal personality
*The bank can sue and be sued but
any case should be initiated and
prosecuted through the liquidator.
5. There will be no preference even if the
claimant-depositor obtained a writ of
preliminary attachment.
Supervision of Banks:
Sec. 4 of the General Banking Law states
that: 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;
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; or
4.6 Enforcing prompt corrective action.
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.
For the purposes of this Act, quasibanks 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.
Money Function:
Sec. 50 of the New Central Bank Act
states that: The Bangko Sentral shall have
the sole power and authority to issue
currency, within the territory of the
Philippines. No other person or entity, public
or private, may put into circulation notes,
coins or any other object or document which,
in the opinion of the Monetary Board, might
circulate as currency, nor reproduce or
imitate the facsimiles of Bangko Sentral
notes without prior authority from the
Bangko Sentral.
The Monetary Board may issue such
regulations as it may deem advisable in
order to prevent the circulation of foreign
currency or of currency substitutes as well as
to prevent the reproduction of facsimiles of
Bangko Sentral notes.
The Bangko Sentral shall have the authority
to investigate, make arrests, conduct
searches and seizures in accordance with
law, for the purpose of maintaining the
integrity of the currency.
Violation of this provision or any regulation
issued by the Bangko Sentral pursuant
thereto
shall
constitute
an
offense
punishable by imprisonment of not less than
five (5) years but not more than ten (10)
years. In case the Revised Penal Code
provides for a greater penalty, then that
penalty shall be imposed.
Anti-Money Laundering Act:
18

Banking Laws
Sec. 4.1 of Republic Act 9160 states that:
Money laundering is a crime whereby the
proceeds of an unlawful activity AS HEREIN
DEFINED are transacted, thereby making
them appear to have originated from
legitimate sources. It is committed by the
following:
a) Any person knowing that any monetary
instrument or property represents, involves,
or relates to, the proceeds of any unlawful
activity, transacts or attempts to transact
said monetary instrument or property.
b) Any person knowing that any monetary
instrument or property involves the proceeds
of any unlawful activity, performs or fails to
perform any act as a result of which he
facilitates the offense of money laundering
referred to in paragraph (a) above.
c) Any person knowing that any monetary
instrument or property is required under this
Act to be disclosed and filed with the AntiMoney Laundering
Council (AMLC), fails to do so.
Definitions:
Covered Transaction is a transaction in
cash
or
other
equivalent
monetary
instrument involving total amount in excess
of P500,000 within one banking day.
*P500,000 is the threshold/controlling
Suspicious Transaction are transactions,
regardless of amount, where any of the
following circumstances exists:
1. There is no underlying legal or trade
obligation, purpose or economic
justification;
2. The client is not properly identified;
3. The
amount
involved
is
not
commensurate with the business or
financial capacity of the client;
4. Taking
into
account
all
known
circumstances, it may be perceived
that the clients transaction
is
structured in order to avoid being the
subject of reporting requirements
under the ACT;
5. Any circumstance relating to the

transaction which is observed to
deviate from the profile of the client
and/or the clients past transactions
with the covered institution;
6. The transaction is in any way related
to an unlawful activity or any money
laundering activity or offense under
this ACT that is about to be, is being or
has been committed; or
7. Any transaction that is similar,
analogous or identical to any of the
foregoing.
Sec. 3.i. of Republic Act 9160 states that:
Unlawful activity" refers to any act or
omission or series or combination thereof
involving or having relation, to the following:
(A) Kidnapping for ransom under Article 267
of Act No. 3815, otherwise known as the
Revised Penal Code, as amended; (14)
Kidnapping for ransom
(B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15
and 16 of Republic Act No.9165, otherwise
known as the COMPREHENSIVE Dangerous
Drugs Act of 2002;
(14) Importation of prohibited drugs;
(15) Sale of prohibited drugs;
(16) Administration of prohibited drugs;
(17) Delivery of prohibited drugs
(18) Distribution of prohibited drugs
(19) Transportation of prohibited drugs
(20) Maintenance of a Den, Dive or Resort for
prohibited users
(21) Manufacture of prohibited drugs
(22) Possession of prohibited drugs
(23) Use of prohibited drugs
(24) Cultivation of plants which are sources
of prohibited drugs
(25) Culture of plants which are sources of
prohibited drugs
(C) Section 3 paragraphs b, c, e, g, h and i of
Republic Act No. 3019, as amended,
otherwise known as the Anti-Graft and
Corrupt Practices Act;
(14) Directly or indirectly requesting or
receiving any gift, present, share, percentage
or benefit for himself or for any other person
19

Banking Laws
in connection with any contract or
transaction between the Government and
any party, wherein the public officer in his
official capacity has to intervene under the
law;
(15) Directly or indirectly requesting or
receiving any gift, present or other pecuniary
or material benefit, for himself or for
another, from any person for whom the
public officer, in any manner or capacity, has
secured or obtained, or will secure or obtain,
any government permit or license, in
consideration for the help given or to be
given, without prejudice to Section 13 of R.A.
3019;
(16) Causing any undue injury to any party,
including the government, or giving any
private party any unwarranted benefits,
advantage or preference in the discharge of
his
official,
administrative
or
judicial
functions through manifest partiality, evident
bad faith or gross inexcusable negligence;
(17) Entering, on behalf of the government,
into any contract or transaction manifestly
and grossly disadvantageous to the same,
whether or not the public officer profited or
will profit thereby;
(18) Directly or indirectly having financial or
pecuniary interest in any business contract
or transaction in connection with which he
intervenes or takes part in his official
capacity, or in which he is prohibited by the
Constitution or by any law from having any
interest;
(19)
Directly
or
indirectly
becoming
interested, for personal gain, or having
material interest in any transaction or act
requiring the approval of a board, panel or
group of which he is a member, and which
exercise of discretion in such approval, even
if he votes against the same or he does not
participate in the action of the board,
committee, panel or group.
(D) Plunder under Republic Act No. 7080, as
amended;
(20) Plunder through misappropriation,

conversion, misuse or malversation of public
funds or raids upon the public treasury;
(21) Plunder by receiving, directly or
indirectly, any commission, gift, share,
percentage, kickbacks or any other form of
pecuniary benefit from any person and/or
entity in connection with any government
contract or project or by reason of the office
or position of the public officer concerned;
(22) Plunder by the illegal or fraudulent
conveyance
or
disposition
of
assets
belonging to the National Government or any
of
its
subdivisions,
agencies,
instrumentalities or government-owned or
controlled corporations or their subsidiaries;
(23) Plunder by obtaining, receiving or
accepting, directly or indirectly, any shares
of stock, equity or any other form of interest
or participation including the promise of
future
employment
in
any
business
enterprise or undertaking;
(24) Plunder by establishing agricultural,
industrial or commercial monopolies or other
combinations and/or implementation of
decrees and orders intended to benefit
particular persons or special interests;
(25) Plunder by taking undue advantage of
official position, authority, relationship,
connection or influence to unjustly enrich
himself or themselves at the expense and to
the damage and prejudice of the Filipino
people and the Republic of the Philippines
(E) Robbery and extortion under Articles 294,
295, 296, 299, 300, 301 and 302 of the
Revised Penal Code, as amended;
(26) Robbery with violence or intimidation of
persons;
(27)
Robbery
with
physical
injuries,
committed in an uninhabited place and by a
band, or with use of firearms on a street,
road or alley;
(28) Robbery in an uninhabited house or
public building or edifice devoted to worship.
(F) Jueteng and Masiao punished as illegal
gambling under Presidential Decree No.
1602;
20

Banking Laws
(29) Jueteng;
(30) Masiao.
(G) Piracy on the high seas under the
Revised Penal Code, as amended and
Presidential Decree No. 532;
(31) Piracy on the high seas;
(32) Piracy in inland Philippine waters;
(33) Aiding and abetting pirates and
brigands.
(H) Qualified theft under Article 310 of the
(34) Qualified theft.
(I) Swindling 'under Article 315 of the
(35) Estafa with unfaithfulness or abuse of
confidence by altering the substance, quality
or quantity of anything of value which the
offender shall deliver by virtue of an
obligation to do so, even though such
obligation be based on an immoral or illegal
consideration;
confidence
by
misappropriating
or
converting, to the prejudice of another,
money, goods or any other personal property
received by the offender in trust or on
commission, or for administration, or under
any other obligation involving the duty to
make delivery or to return the same, even
though such obligation be totally or partially
guaranteed by a bond; or by denying having
received such money, goods, or other
property;
confidence by taking undue advantage of the
signature of the offended party in blank, and
by writing any document above such
signature in blank, to the prejudice of the
offended party or any third person;
(38) Estafa by using a fictitious name, or
falsely pretending to possess power,
influence, qualifications, property, credit,
agency, business or imaginary transactions,
or by means of other similar deceits;
(39) Estafa by altering the quality, fineness
or weight of anything pertaining to his art or
business;
(40) Estafa by pretending to have bribed any

government employee;
(41) Estafa by postdating a check, or issuing
a check in payment of an obligation when
the offender has no funds in the bank, or his
funds deposited therein were not sufficient to
cover the amount of the check;
(42) Estafa by inducing another, by means of
deceit, to sign any document;
(43) Estafa by resorting to some fraudulent
practice to ensure success in a gambling
game;
(44) Estafa by removing, concealing or
destroying, in whole or in part, any court
record, office files, document or any other
papers.
(J) Smuggling under Republic Act Nos. 455
and 1937;
(45) Fraudulent importation of any vehicle;
(46) Fraudulent exportation of any vehicle;
(47) Assisting in any fraudulent importation;
(48) Assisting in any fraudulent exportation;
(49) Receiving smuggled article after
fraudulent importation;
(50) Concealing smuggled article after
(51) Buying smuggled article after fraudulent
importation;
(52) Selling smuggled article after fraudulent
importation;
(53) Transportation of smuggled article after
(54) Fraudulent practices against customs
revenue.
(K) Violations under Republic Act No. 8792,
otherwise known as the Electronic Commerce
Act of 2000;
K.1. Hacking or cracking, which refers to:
(55) unauthorized access into or interference
in a computer system/server or information
and communication system; or
(56) any access in order to corrupt, alter,
steal, or destroy using a computer or other
similar information and communication
devices, without the knowledge and consent
of the owner of the computer or information
and communications system, including
21

Banking Laws
(57) the introduction of computer viruses and
the like, resulting in the corruption,
destruction, alteration, theft or loss of
electronic data messages or electronic
document;
K.2. Piracy, which refers to:
(58) the unauthorized copying, reproduction,
(59)
the
unauthorized
dissemination,
distribution,
(60) the unauthorized importation,
(61)
the
unauthorized
use,
removal,
alteration, substitution, modification,
(62) the unauthorized storage, uploading,
downloading,
communication,
making
available to the public, or
(63) the unauthorized broadcasting, of
protected material, electronic signature or
copyrighted works including legally protected
sound
recordings
or
phonograms
or
information material on protected works,
through the use of telecommunication
networks, such but not limited to, the
internet, in a manner that infringes
intellectual property rights;
K.3. Violations of the Consumer Act or
Republic Act No. 7394 and other relevant or
pertinent laws through transactions covered
by or using electronic data messages or
electronic documents:
(64) Sale of any consumer product that is not
in conformity with standards under the
Consumer Act;
(65) Sale of any product that has been
banned by a rule under the Consumer Act; ,
(66) Sale of any adulterated or mislabeled
product using electronic documents;
(67) Adulteration or misbranding of any
consumer product;
(68) Forging, counterfeiting or simulating any
mark, stamp, tag, label or other identification
device;
(69) Revealing trade secrets;
(70) Alteration or removal of the labeling of
any drug or device held for sale;
(71) Sale of any drug or device not registered
in accordance with the provisions of the ECommerce Act;
(72) Sale of any drug or device by any

person not licensed in accordance with the
provisions of the E-Commerce Act;
(73) Sale of any drug or device beyond its
expiration date;
(74) Introduction into commerce of any
mislabeled or banned hazardous substance;
(75) Alteration or removal of the labeling of a
hazardous substance;
(76) Deceptive sales acts and practices;
(77) Unfair or unconscionable sales acts and
practices;
(78) Fraudulent practices relative to weights
and measures;
(79) False representations in advertisements
as the existence of a warranty or guarantee;
(80) Violation of price tag requirements;
(81) Mislabeling consumer products;
(82)
False,
deceptive
or
misleading
advertisements;
(83) Violation of required disclosures on
consumer loans;
(84) Other violations of the provisions of the
E-Commerce Act;
(L) Hijacking and other violations under
Republic Act No. 6235; destructive arson and
murder, as defined under the Revised Penal
Code,
as
amended,
including
those
perpetrated by terrorists against noncombatant persons and similar targets;
(85) Hijacking;
(86) Destructive arson;
(87) Murder;
(88) Hijacking, destructive arson or murder
perpetrated by terrorists against noncombatant persons and similar targets;
(M) Fraudulent practices and other violations
under Republic Act No. 8799, otherwise
known as the Securities Regulation Code of
2000;
(89) Sale, offer or distribution of securities
within the Philippines without a registration
statement duly filed with and approved by
the SEC;
(90) Sale or offer to the public of any preneed plan not in accordance with the rules
22

Banking Laws
and regulations which the SEC shall
prescribe;
(91) Violation of reportorial requirements
imposed upon issuers of securities;
(92) Manipulation of security prices by
creating a false or misleading appearance of
active trading in any listed security traded in
an Exchange or any other trading market;
effecting, alone or with others, a series of
transactions in securities that raises their
prices to induce the purchase of a security,
whether of the same or different class, of the
same issuer or of a controlling, controlled or
commonly controlled company by others;
effecting, alone or with others, series of
transactions in securities that depresses
their price to induce the sale of a security,
whether of the same or different class, of the
same issuer or of a controlling, controlled or
commonly controlled company by others;
effecting, alone or with others, a series of
transactions in securities that creates active
trading to induce such a purchase or sale
though manipulative devices such as
marking the close, painting the tape,
squeezing the float, hype and dump, boiler
room operations and such other similar
devices;
circulating or disseminating' information that
the price of any security listed in an
Exchange will or is likely to rise or fall
because of manipulative market operations
of anyone or more persons conducted for the
purpose of raising or depressing the price of
the security for the purpose of inducing the
purchase or sale of such security;
making false or misleading statements with
respect to any material fact; which he knew
or had reasonable ground to believe was so
false and misleading, for the purpose of
inducing the purchase or sale of any security
listed or traded in an Exchange;

effecting, alone or with others, any series of
transactions for the purchase and/or sale of
any security traded in an Exchange for the
purpose of pegging, fixing or stabilizing the
price of such security, unless otherwise
allowed by the Securities Regulation Code or
by the rules of the SEC;
(99) Sale or purchase of any security using
any manipulative deceptive device or
contrivance;
(100) Execution of short sales or stop-loss
order in connection with the purchase or sale
of any security not in accordance with such
rules and regulations as the SEC may
prescribe as necessary and appropriate in
the public interest or the protection of the
investors;
(101) Employment of any device, scheme or
artifice to defraud in connection with the
purchase and sale of any securities;
(102) Obtaining money or property in
connection with the purchase and sale of any
security by means of any untrue statement
of a material fact or any omission to state a
material fact necessary in order to make the
statements made, in the light of the
circumstances under which they were made,
not misleading;
(103) Engaging in any act, transaction,
practice or course of action in the sale and
purchase of any security which operates or
would operate as a fraud or deceit upon any
person;
(104) Insider trading;
(105) Engaging in the business of buying and
selling securities in the Philippines as a
broker or dealer, or acting as a salesman, or
an associated person of any broker or dealer
without
any
registration
from
the
Commission;
(106) Employment by a broker or dealer of
any salesman or associated person or by an
issuer of any salesman, not registered with
the SEC; ,
(107) Effecting any transaction in any
security, or reporting such transaction, in an
23

Banking Laws
Exchange or using the facility of an
Exchange which is not registered with the
SEC;
(108) Making use of the facility of a clearing
agency which is not registered with the SEC;
(109) Violations of margin requirements;
(110) Violations on the restrictions on
borrowings by members, brokers and
dealers;
(111) Aiding and Abetting in any violations of
the Securities Regulation Code;
(112) Hindering, obstructing or delaying the
filing of any document required under the
Securities Regulation Code or the rules and
regulations of the SEC;
(113) Violations of any of the provisions of
the implementing rules and regulations of
the SEC;
(114) Any other violations of any of the
provisions of the Securities Regulation Code.
(N) Felonies or offenses of a similar nature to
the afore-mentioned unlawful activities that
are punishable under the penal laws of other
countries.
In determining whether or not a felony or
offense punishable under the penal laws of
other countries, is "of a similar nature", as to
constitute the same as an unlawful activity
under the AMLA, the nomenclature of said
felony or offense need not be identical to any
of the predicate crimes listed under Rule 3.i.
person to whom credit is extended, prior to

the consummation of the transaction, a clear
statement in writing setting forth, to the
extent applicable and in accordance with
rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of the
property or service to be acquired;
(2) the amounts, if any, to be credited as
down payment and/or trade-in;
(3) the difference between the amounts set
forth under clauses (1) and (2);
(4) the charges, individually itemized, which
are paid or to be paid by such person in
connection with the transaction but which
are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of
pesos and centavos; and
(7) the percentage that the finance bears to
the total amount to be financed expressed as
a simple annual rate on the outstanding
unpaid balance of the obligation.
*Failure to comply with the Truth in Lending
Act, the contract of loan is still valid
however, the bank cannot recover finance
charges.
Purpose: To avoid hidden charges; to know
the actual amount borrowed.
Safe Harbor Provisions:

Sec. 9.3.e of Republic Act 9160 states
that: No administrative, criminal or civil
proceedings, shall lie against any person for
having made a covered transaction report or
a suspicious transaction report in the regular
performance of his duties and in good faith,
whether or not such reporting results in any
criminal prosecution under this Act or any
other Philippine law.
Truth in Lending Act:
Sec. 4 of Republic Act No. 3765 states
that: Any creditor shall furnish to each
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Commercial Law Review: Maria Zarah - Villanueva - Castro

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