JH CERILLES STATE COLLEGE

Pagadian City Campus

College of Law
F. Consolation St., Pagadian City

TOPICAL OUTLINE

SUBECT : Commercial Law II (JD 202)

TOPIC : General Banking Law (RA 8791)
DATE REPORTED : 09/23 and 10/07/2021
PREPARED BY : Rowena T. Absin
Stella Maris G. Escabarte

R.A. 8791
AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS,
QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES
GENERAL BANKING LAW

 Section 2 – Declaration of Policy (Summary of Key points)

1. The State recognizes the vital role of banks in providing an environment conducive
to the sustained development of the National Economy.
- The bank plays either a passive or an active role:
 Passive – as a depositary of your millions.
 Active – it conducts not only banking and lending activities but more importantly
it helps in the conduct of day to day transactions of several businesses. Banks
are considered as trusted partners of business entities.
- Banks play a vital role in the economic life of the country and for the sustained
development of the country.
 Imagine if there are no banks, how would we facilitate our transactions as
individuals, as business entities and as a country in general?

2. The State also recognizes the fiduciary nature of banks.

- Banks are impressed with public interest.
- Because of the said fiduciary nature, banks are expected to exercise the highest
standards of integrity and performance as compared to other entities.
- The bank must not only exercise “high standards of integrity and performance,”
it must also ensure that its employees do likewise, because this is the only way
to ensure that the bank will comply with its fiduciary duty.

SAMPLE CASE 1
Principle: Banks are liable for the wrongful and tortuous acts of their employees so long as those
acts were done in the course of the latter’s employment. The bank’s liability is not merely
vicarious but PRIMARY, and so, the defense of due diligence in the selection and supervision of
its employees is NOT A VALID DEFENSE.

FACTS: Ford was assessed of percentage taxes. It drew an account with Citibank and
deposited the check to PCI Bank. Ford was surprised when it received a demand letter. The CIR did
not receive any payment at all and Ford was compelled to pay the CIR. An investigation was
RA 8791– General Banking Law
Absin / Escabarte
P a g e 1 | 28
conducted and it was found out that there was a syndicate involving employees of Ford, PCI Bank
and Citibank.

ISSUE: Whether or not PCI Bank and Citibank are liable.

HELD: The Court decided against PCI Bank because PCI Bank is expected to exercise the
highest degree of diligence and should not have allowed itself to easily fall for the machinations of the
Ford employee without checking first with Ford. Likewise, Citibank failed to notice that at the back of
the check, there were no verifications/ initials. And so, Citibank was not able to discover that those
were not the same checks that were issued by Ford, as the checks presented were those that have
been replaced by the syndicate.

SAMPLE CASE 2
Principle: In every case, the depositor expects the bank to treat his account with utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible.

FACTS: Respondent Valenzuela opened a savings account with Petitioner Prudential Bank. It
availed of the Bank’s service of automatic transfer of funds from his savings account to his current
account. When respondent deposited a check, it did not reflect immediately in his account. The check
was deposited on June 1. However, the bank failed to have it reflected in his account. It was only
reflected on June 24. It was posted 23 days after the check was deposited. Valenzuela issued a check
against Legaspi in payment of jewelries. Legaspi subsequently endorsed the said check to Lhuiller.
Lhuiller went to his bank and there he found out that the check was dishonored for insufficiency of
funds. He checked with the bank and inquired why his check was dishonored. It was there that he
found out that it was only after 23 days that the check was posted.

ISSUE : Whether or not Prudential Bank is liable.

HELD : Yes. The Court said that it is not enough for the bank to say sorry because that mistake
should not have been committed had the bank exercised that degree of care expected of them. The
misposting of checks shows on the part of the bank the lack of care and supervision. Since the bank
is an entity impressed with public interest, the accounts of the depositors should be treated with
meticulous care.

 AUTHORITY TO INCORPORATE AND OPERATE

 TO INCORPORATE: Articles of Incorporation must be accompanied by a certificate of
authority issued by the MB, under its seal.

 TO OPERATE: Certificate of authority from the BSP

 CAPITAL STRUCTURE OF BANKS AND QUASI-BANKS

Can a partnership or sole proprietorship organize a bank?
- No, it cannot because of the conditions provided for under the law.
What are those conditions? (3)
1. The entity is a stock corporation
- The bank cannot be a partnership or sole proprietorship. There reason is the capital
requirement for banks.

RA 8791– General Banking Law

Absin / Escabarte
P a g e 2 | 28
 - The law requires that the bank must be a stock corporation. There is no non-stock, non-
profit bank.
- It must also issue stocks with par value. It is not authorized to issue stocks with no par
value.
Under the Corporation Code, there are entities which must issue par value shares and one of them is
the bank. Others include insurance companies, public utilities etc. If you look at these corporations,
these are entities vested with public interest.
2. Its funds are obtained from the public, which shall mean twenty (20) or more persons
- The shares of stock must come from the public, meaning that the subscribers to the
shares of stock of the bank must be at least 20.
- In effect, a bank cannot be a close corporation, or a family held or closely held corporation.
- So, if it is a close corporation, it will defeat the purpose of requiring banks to be a stock
corporation. If it is a close corporation, the stockholders can be at the same time directors
of the corporation.
- Take note that when we say 20 or more subscribers, it does not mean that all of the 20
must be incorporators. Because then, you will violate the limitation under the Corporation
Code that the incorporators that it must be a minimum of 5 and maximum of 15. So, it
means that you can have 15 incorporators and the remaining 5 are the original
subscribers.
3. That the minimum capital requirements prescribed by the Monetary Board for each category
of banks are satisfied.
- It must comply with the minimum capital requirement, to be prescribed by the Monetary
Board.
- As a GENERAL RULE, if you put up a corporation (not a bank), there is no minimum
capital requirement which is required by the Corporation Code. The only minimum is your
paid-up capital stock or must be at least P5,000. The SEC does not prescribe. But in case
of banks, as the EXCEPTION, there is a minimum capitalization requirement.
- Based on a circular (As of 2000. I think this has already been amended):
o universal banks, you need at least 4.9 billion
o commercial banks, 2.4 billion
o rural banks, 26 million
o thrift banks, 325 million
- The reason why the law provides for a minimum capital requirement for banks for the
protection of the public. It has the same principle with that of the Trust Fund Doctrine. The
funds held by the corporation are for the protection of the creditors. So, they are saying
that this requirement is to reduce the moral hazards by exposing the money of the bank
owners or the stockholders at risk. If your capital is big, mismanagement would be less
likely. It’s like you have an insurable interest. If you have an insurable interest, you are
trying to make sure that you would take care of the property. Or in this case, you would
take care of the business because a large amount of capital is at risk. You make sure that
you do not mismanage. Again, this is the trust fund doctrine.
- Take note that the SEC will not register the corporation, intending to operate as a bank,
without the certificate of authority from the Central Bank.
RA 8791– General Banking Law
Absin / Escabarte
P a g e 3 | 28
  CLASSIFICATION OF BANKS AND ITS DISTINCTIONS
Banks refer to entities engaged in the lending of funds obtained in the form of deposits,
and are classified as follows:

1. Universal Banks;
2. Commercial Banks;
3. Thrift Banks (3):
- Savings and Mortgage Banks
- Stock Savings and Loan Associations
- Private Development Banks
4. Rural Banks (as defined in “Rural bank Act”);
- Basically, rural banks cater to those in the countryside, in the rural areas.
- Their primary function is to extend loans or credits to farmers, fisher folks
etc.
5. Cooperative Banks (as defined in “Cooperative Code”);
- These banks cater to cooperatives. They extend loans and assistance to
cooperatives.
6. Islamic Banks (as defined in “Charter of Al Amanah Islamic Investment Bank of the
Philippines”).
- These banks cater to our Muslim brothers and sisters.
7. Other classifications of banks as determined by the Monetary Board of the BSP.

SAMPLE PROBLEM

 X Corp. is an investment company;

 It established 74 branches throughout the Philippines;
 It managed to induce the public to open 59,463 savings deposit accounts with an aggregate
deposit of P1,689,136.74; and
 It loans out the money of its customers, collects the interest and charges a commission to both
lender and borrower.

Question: Is X Corp. a bank?

Answer: Yes. Sec. 2, GBL.

1. Funds were derived from the public; and
2. Lent out the deposit to persons

Violation - engaging in banking without securing the authority (banking franchise) from the BSP.

“Quasi-banks” (QB) refer to entities engaged in the borrowing of funds through the issuance,
endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of
relending or purchasing of receivables and other obligations. (Sec. 4, GBL)

Quasi-banking function is an inherent power of Universal Banks and Commercial Banks.

 Universal Banks (UB) – banks that have the authority to exercise, in addition to the powers
authorized for a commercial bank, the powers of an investment house and the power to invest
in non-allied enterprises. (Sec. 23)
E.g. BDO Unibank, Inc., BPI, RCBC, SBC, Union Bank, UCPB, Al-Amanah, DBP, LBP, ANZ
Banking, HSBC
RA 8791– General Banking Law
Absin / Escabarte
P a g e 4 | 28
  Commercial Banks (CB) – 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. (Sec. 29)
E.g. Bank of Commerce, Citibank, Maybank Phil., PBC, Veterans, BDO Private Bank

 Rural Banks – banks that are created to make needed credit available and readily accessible
in the rural areas for purposes of promoting comprehensive rural development. R.A. No. 7353
E.g.Providence Rural Bank, Rural Bank of Gattaran, Claveria Rural Bank, Rural Bank of
Sanchez Mira, Rural Bank of Cauayan, Golden Rural Bank of the Philippines, Banco Agricula
 Thrift Banks – banks that include:
 savings and mortgage banks,
 private development banks, and
 stock savings and loan associations.
E.g. Allied Savings Bank, Bank of Makati, BPI Direct Savings Bank, Century Savings Bank,
Express Savings Bank, Malayan Bank, Win Bank
 Cooperative Banks – banks that primarily provide financial, banking and credit services to
cooperative organizations and their members. (Sec. 100, R.A. 6938 as amended by R.A. 9520)
E.g. Cooperative Bank of Cagayan, Coop of Bulacan, Coop of La Union, Coop of Bohol
 Islamic Banks – Charter of Al Amanah Islamic Investment Bank of the Philippines. (R.A. 6848)
E.g. Al-Amanah Islamic Investment Bank of the Philippines

RA 8791– General Banking Law

Absin / Escabarte
P a g e 5 | 28
  DEPOSIT FUNCTION
 Simple Loan

RA 8791– General Banking Law

Absin / Escabarte
P a g e 6 | 28
  Fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan (Article 1980, Civil Code of the
Philippines).
SAMPLE CASE 3
Principle: The relationship between the bank and the depositor is not that of a deposit, but one that
is called “irregular deposit,” which is actually a CREDITOR-DEBTOR RELATIONSHIP, the creditor
being the depositor and the debtor being the bank. This is because the bank is not required to
return the very same currency bill that was deposited. The deposits are considered as loans or
mutuum.
FACTS: There were time deposits made by two persons in the Overseas Bank of Manila.
Serrano sued Overseas Bank (OB) and Central Bank (CB) to recover his time deposits. So, his
contention was that:

1st : There is solidary liability between the 2 banks because CB was not able to supervise properly
the operations of the OB in the sense that it allowed OB to continue its transaction when such bank
should have been under chronic reserve deficiency because of its unpaid advances and emergency
loans from BSP and as a result, the BSP required the OB to put in additional collaterals.

2nd: There was a constructive trust created between him and CB in the sense that when the CB
required OB to put in additional collaterals, the collaterals were from depositors’ money which includes
his time deposits. Since he was not paid, CB is liable under constructive trust for failure to return.
ISSUE: Whether or not Serrano can recover.
HELD: No. They are loans because they earned interest and all kinds of deposits under
savings or current are to be treated as loans to be covered by the laws of Loans. So, failure to return
the deposit is just like failure of the bank to pay loan. It is not a breach of trust because deposits in the
banks are not governed by Contract of Deposits that if you are not able to return the thing deposited,
you are liable.

 KINDS OF DEPOSIT
 Demand deposits
 The depositor can take out his funds any time.
 No interest is paid by the bank
 The depositor can withdraw the money he deposited on the very same day.

 Negotiable Order of Withdrawal (NOW) Account is an interest-bearing deposit account that

combines the payable on demand feature of checks and investment feature of savings
accounts.
 Other Account is one that may be opened by one individual or by two or more persons.
Whenever two or more persons open an account, the same may be an “and/or account” or an
“and” account.
 Safety Deposit Boxes
 Special kind of deposit
 Not an ordinary contract of lease
 Bailer and bailee

 SINGLE BORROWER’S LIMIT (SBL)

RA 8791– General Banking Law
Absin / Escabarte
P a g e 7 | 28
  Not exceed 25% of the net worth of bank
 Basis: total credit commitment of the bank to the borrower
 GBL provides that the total amount of loans, etc. may be increased by an additional 10% of
the net worth of such bank provided:
 The additional liabilities of any borrower are adequately secured
 Sec. 35.2
What is the purpose of SBL?
- To prevent granting excessive loans to a single person or to limit the exposure of the
bank to a single person.
- Again, to spread the risk. “Do not place all your eggs in one basket.”
- Imagine if all your receivables come from a client who cannot pay later on?

 In computing the 25%, you have to consider the total credit commitment of the bank.
The total credit commitment shall include all types of loans, such as housing loan, car
loan, letters of credit perhaps, or any other kind of loan. So, all credit commitments.

 If the borrower is an individual, you consider not only this individual’s loan from the bank
but you consider the loan of a corporation wherein this individual is a majority stockholder
as well. Example he is a majority stockholder of Corporation A. That is Individual plus
Corporation A. In no case shall the total (Individual + Corp A) exceed 25%.

 In the case of a corporation, all liabilities to such bank of all subsidiaries in which such
corporation owns or controls a majority interest. So, again, example Company A has two
subsidiaries, B and C. So, for purposes of determining whether it exceeds the 25% limit,
consider not only the loans to Company A but also to the subsidiaries B and C. [A+B+C]
- Let’s say 25% of the net worth of the bank is 25M. If the parent company has obtained
a loan of 10M and the other subsidiary 10M, so, 20M in all. Even if the parent
company has not obtained loan but only the subsidiaries, the loan is still imputed to
the parent company. Because it’s not only the corporation but includes also all of its
subsidiaries.

Can the 25% limit be increased?

- YES. The 25% can be increased by another 10% provided that the additional
liabilities of any borrower are adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents transferring or securing
title covering readily marketable, non-perishable goods which must be fully covered
by insurance.
- Take note that it only mentions “adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents transferring or securing
title covering readily marketable, non-perishable goods.” It does not mention of real
estate mortgage. So, meaning, if I apply a loan and secured by a real estate
mortgage, it cannot be extended by 10%.

- What is the reason? Trust receipts, shipping documents, warehouse receipts and
other similar documents are easier to dispose. Meaning less risky.

There are exclusions where in the loan and credit accommodations which are not
covered or not included in the computation of 25%. What are those loans which are
excluded? Those considered as non-risk.
a. loans and other credit accommodations secured by obligations of the Bangko Sentral
RA 8791– General Banking Law
Absin / Escabarte
P a g e 8 | 28
 or of the Philippine Government:
- Treasury shares. Again, the government is not expected to go bankrupt.
b. loans and other credit accommodations fully guaranteedby 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.

So,
- 10M loan is secured by treasury bonds issued by the government = excluded
- 1M of the LC is covered by a margin deposit = excluded
- 10M, the 5M is covered by hold-out agreement = the 5M deposit (under the hold- out
agreement) is excluded. The exposure is the remaining amount, the other 5M.

What about back to back deposits?

- You have a loan and at the same time deposit. The loan is secured by the deposit.
So long as there is an agreement that this deposit will be applied to the loan, it will
be excluded.

 DOSRI ACCOUNT (Directors, Officers, Stockholders, Related Interest)

 GENERAL RULE:
 CANNOT BECOME AN OBLIGOR OF THE BANK.
 cannot borrow from bank;
 cannot become a guarantor, indorser or surety for loans from such bank to others;
 EXCEPTION:
 written approval of the majority of all the directors
 entered upon the records of the bank
 copy of such entry transmitted to BSP.
▪ 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 BSP.
 Individual lending ceiling =
 insider’s unencumbered deposit + book value of his paid-in capital contribution

 Aggregate Ceiling =
 Whichever is lower between 15% of the total loan portfolio and 100% of combined
capital accounts
 Unsecured portion of the loan =
 It should not exceed 30% of the loan of the insider

RA 8791– General Banking Law

Absin / Escabarte
P a g e 9 | 28
 Restriction on bank exposure to DOSRI (Directors, Officers, Stockholders, Related
Interest)

What is the rule?

- No direct or officer of a bank shall borrow from such bank, nor shall he become a
guarantor or surety for loans from such bank to others
- UNLESS there is a written approval of majority of the directors of the bank but
excluding the director concerned.
- It’s not really prohibited; you just have to comply with the requirement.

What is the limit which you can lend to a DOSRI?

- It shall be equivalent to their respective unencumbered deposits and book value of
their paid-in capital contribution in the bank.
- So, if I am a director, I can borrow from the bank where I am a director provided
there is a written approval, etc. but it shall not exceed the unencumbered deposit.
- So, if my deposit in that bank is 100K, I can borrow only up to the extent of 100K.
In short, it is secured. If I don’t have a deposit, I cannot borrow.
- Or, plus the book value of your paid-in capital contribution which will apply only if
you are a stockholder. Because if you are not a stockholder, you don’t have paid-in
capital contribution.
- Why unencumbered? Meaning free deposit, not held in escrow.

Do you remember the discussion we had with New Central Bank Act? There
was also a provision regarding DOSRI that if a DOSRI obtained a loan or credit
accommodation from his bank or other bank wherein a subsidiary has the same parent
with the lending bank and the bank in which he is a director, what is the requirement
under the act?
- There must be a WAIVER OF SECRECY OF BANK DEPOSITS.
- In addition to that, this is the requirement under the General Banking Law.

What is the penalty if a bank extends a loan to a DOSRI without following

these requirements?
- The position of the officer, director will be declared as vacant
- Additionally, the director, officer will be subject to the penal provisions of the New
Central Bank Act.
 Take note, another principle, if a bank extends a loan to a DOSRI, the terms of the loan
should not be less favorable to the bank than those offered to others. So, just because
you are a DOSRI, the bank will grant you loan with a lower interest. The prevailing
interest rate applied to third parties must also be applied to DOSRI. This is what you
call insider lending (DOSRI borrows from bank which he is a DOSRI).

 EXCEPTIONS:
1. Fringe benefits, like when the DOSRI obtained cash advances, loans from the ban
by way of transportation allowance, travel allowance…that is not included. So,
meaning even if I have no cash deposit, I can obtain cash advances or loans but
those loans or cash advances are needed for my travel representation allowance,
under a fringe benefit plan approved by the BSP like car loan, housing program…etc.
Other than those items, those not covered by the fringe benefit plan approved by
BSP, you must comply with the requirements.

2. Loans and credit accommodations which are secured by assets considered again
as non-risk.

RA 8791– General Banking Law

Absin / Escabarte
P a g e 10 | 28
 - So, even if I am a director, I can borrow but my loan must be secured by non-
risk assets (hold-out deposits, loans secured by government secured securities
or LC with margin deposit).

Related Interest? No definition under the law.

- What about a spouse or child of the director, are they covered by DOSRI? Yes. So,
spouse, relative within the first degree of consanguinity or affinity are considered as
DOSRI.
- A corporation or association in which the director is also a director, or the spouse
or child - that is still related interest.

What is the purpose of DOSRI limitation?

- To prevent a substantial portion of the bank funds from being borrowed by DOSRI.
- There is a danger that instead of making the funds available to legitimate borrowers,
those funds will all be borrowed by the DOSRI. This is what happened to Legacy.

 Take note of two things, (1) the requirements [written approval + waiver of secrecy] and
(2) the individual limit.

 GRANT AND PURPOSE OF LOAN AND OTHER CREDIT

AMORTIZATIONS
Every time you apply for a loan, the purpose of the loan or any credit accommodation should be stated
in the application form.
Why?
 The purpose shall be considered by the bank in determining the terms or the conditions of
loan, whether they would be consistent with the purpose for obtaining the loan.

 DOCUMENTARY REQUIREMENTS WHEN YOU APPLY FOR A LOAN FROM

THE BANK
 So, the bank would require from you certain documents. Normally, these documents would
consist of income tax return, financial statements. If you are an individual, a copy of your pay
slip or withholding tax certificate. If it is for business loan, it would require you to submit a
financial study or a feasibility study.
 In relation to granting of loans, there are certain security measures, applied by the bank to
ensure that it can collect. We have what you call JSS Practice in the banking industry, or the
Joint and Solidary Signatories. It’s common in promissory notes. “I” jointly and severally
promise to pay.

 INTEREST RATES AND ESCALATION CLAUSE

 As a rule, no interest is due unless it is stipulated in writing. Now, is it valid, this common
practice of some banks to stipulate in the promissory note these what you call escalation
clauses regarding interest – that the bank has the right to increase during the period the term
of the loan, the right to increase the interest rates?
SAMPLE CASE NO. 4
RA 8791– General Banking Law
Absin / Escabarte
P a g e 11 | 28
Principle: Now, is it valid, this common practice of some banks to stipulate in the promissory note
these what you call escalation clauses regarding interest – that the bank has the right to increase
during the period the term of the loan, the right to increase the interest rates? NO. Read case below.
There was a case involving PNB wherein in the loan agreement, there is a stipulation or there is an
escalation clause. Now pursuant to that escalation clause, the PNB, without informing the borrower,
unilaterally increased the interest rates.
FACTS: At the time the loan was entered into, the IR was 10%. After 2 years, PNB unilaterally
increased it 12%. The justification of the PNB is that in the promissory note there is already an
escalation clause. According to PNB, it is already agreed between the parties. During the time that
the promissory note was made, there was already an escalation clause that from time to time, PNB
may increase the interest rates. Pursuant to that, without informing the borrower, it increased the
interest rate to 12%. The borrower now comes to court alleging that increase is not valid.
ISSUE: Whether or not PNB has the right to unilaterally increase the interest rate pursuant to
the escalation clause stated in the promissory note without informing the borrower.
HELD: No. An escalation clause per se is valid. Although there is an escalation clause, before
PNB can apply the increase, it must first inform the borrower. It must obtain the consent of the
borrower.

 FOREIGN OWNERSHIP
 Foreign stockholdings
 Up to 40% of the voting stock of domestic banks
 Foreigners - total equity participation
 Corporate stockholder – citizenship is determined by citizenship of controlling
stockholders

 FILIPINO OWNERSHIP
 Filipino stockholdings
 Proivision of GBL applies to Filipinos and domestic non-bank corporations.
 individual equity participation should not exceed 40% of the voting shares

 Family GROUPS AND RELATED INTEREST

 No prohibition
 Full disclosure

QUIZZER I - Topic: General Banking Law

1. The General Banking Law applies primarily to Universal Banks, Commercial Banks, Thrift
Banks, Rural Banks, Cooperative Banks and Islamic Banks.
Answer: FALSE. The General Banking Law applies PRIMARILY to Universal and
Commercial Banks and SUPPLETORILY to Thrift Banks, Rural Banks, Cooperative
Banks

RA 8791– General Banking Law

Absin / Escabarte
P a g e 12 | 28
 2. What kind of standard of diligence required of banks as embodied in the provision of General
Banking Law (Section 2 - Declaration of Policy)

Answer: High Standards of Integrity and Performance.

3. Pursuant to Section 8 of GBL, the Monetary Board may authorize the organization of a bank
or quasi-bank subject to the following condition/s:
Answer. All of the above.
 That the entity is a stock corporation.
 That its funds are obtained from the public, which shall mean twenty (20) or more
persons.
 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied.

4. An entity does not have a banking franchise but it obtained funds from the public by accepting
deposits. The funds obtained from the public are loaned out to its members with interest.

Question 1: Is the activity of the corporation is considered as banking?

Question 2: Would a banking license necessary in this case?
Answer: Yes and Yes
The activity is banking. It is classical banking actually, obtaining funds from
the public and lend it out to the public. Since you are into banking activities
without the necessary banking franchise, then, you can be held liable. Under
the law, no person or entity can engage in banking operations or quasi-
banking functions without authority (banking franchise) from the BSP.

5. Can a commercial bank engage in quasi-banking even without approval of the BSP?
Answer: Yes, because it says here (in the law) – to receive other types of deposits and
deposit substitutes. Remember that quasi-banking is “receiving, obtaining funds from
the public through issuance of deposit substitutes.” In short, that is quasi-banking.
So, yes, it is within the powers of a commercial bank.

QUIZZER 2 - Topic: General Banking Law

1. The relationship between the bank and the depositor is not that of a deposit, but one that is
called “irregular deposit,” which is actually a CREDITOR-DEBTOR RELATIONSHIP, the
creditor being the depositor and the debtor being the bank. This is because the bank is not
required to return the very same currency bill that was deposited. The deposits are considered
as loans or mutuum.

Answer: True

RA 8791– General Banking Law

Absin / Escabarte
P a g e 13 | 28
 2. It is the maximum which a person may borrow from a bank or the bank may extend to a
single borrower whether it is a person, partnership or corporation.
Answer. Single Borrower’s Limit
3. This is one of the classification of banks that has the authority to exercise, in addition to the
powers authorized for a commercial bank, the powers of an investment house and the power
to invest in non-allied enterprises. (Sec. 23).

Answer: Universal Bank (Sec. 23).

4. This is one of the classification of banks that has, in addition to the general powers incident to
corporations, all such powers as may be necessary to carry on the business of banking.

Answer: Commercial Bank (Sec. 29)

RA 8791– General Banking Law

Absin / Escabarte
P a g e 14 | 28
  Ownership of Real Property

A. Ceiling on Investments
- must not exceed 50% of combined capital accounts. Investments includes equity
investments of the bank in another corporation engaged primarily in real estate, unless
otherwise provided by the Monetary Board (MB).

B. A bank may acquire, hold or convey real property under the following circumstance:
a. Such as shall be mortgaged to it in good faith by way of security for debts;
b. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of
dealings; or
c. 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.
Note: Any real property acquired or held under the circumstances enumerated shall be disposed of
by the bank within a period of 5 years or as may be prescribed by the MB. After said, period, the bank
may continue to hold the property for its own use, subject to limitations mentioned.

Register of Deeds v. China Banking Corp.

4 SCRA 1146 (1962)

FACTS: A bank teller misappropriated the amount of money in his custody. To avoid
prosecution, he mortgaged his property to the bank to answer for the amount. Upon his failure
to pay, the bank brought action to foreclose the mortgage. At the auction sale, there being no
bidders, the bank bidded for the property. Register of Deeds refused to register the sale in
bank’s favor on ground that bank being an alien cannot acquire the lands.
ISSUE: WON China Bank can acquire ownership of the lot.
HELD: If mortgage was executed in favor of the bank in the course of an ordinary banking
transaction, alien bank would have personality to bid at the public auction, if there are no
bidders. On the other hand, if the mortgage was not within the normal banking transaction, it
must be prohibited from bidding. It is clear that the mortgage here is not within normal banking
transactions. Therefore, China Bank had no personality to bid.

 Other Banking Services

a. Receive in custody funds, documents and valuable objects;

b. 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;
c. Make collections and payments for the account of others and perform such other services for their
customers as are not incompatible with banking business;

RA 8791– General Banking Law

Absin / Escabarte
P a g e 15 | 28
d. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management/advisory/consultancy accounts; and
e. Rent out safety deposit boxes.

CA Agro-Industrial Dev. Corp. v. Court of Appeals

219 SCRA 426 (1993)

FACTS: Petitioner and Pugaos rented a safety deposit box from Security Bank, and signed a
contract of lease with conditions that: bank is not a depositary of the contents and has neither
the possession nor control of the same; bank has no interest in said contents and assumes
no liability in connection therewith. Safety deposit box had two keyholes: one for guard key
which remained with bank and the other for the renter’s key and can be opened only with the
use of both keys. Certificates of title that were placed inside the box were gone when the box
was opened in the presence of bank representative. Loss of certificate caused damages for
the petitioner, and for which claim is made upon the bank

ISSUE: WON Security Bank is liable.

HELD: The contract is a special kind of deposit and cannot be characterized as an ordinary
contract of lease because the full and absolute possession and control of the deposit box was
not given to the renters. The prevailing rule is that the relation between the bank renting out
and the renter is that of bailor and bailee, the bailment being for hire and mutual benefit.

Section 72 of the General Banking Act (Now Sec. 53) provides that banking institutions may
receive in custody of funds documents and valuable objects and rent safety deposit boxes as
depositaries or as agents. Since the function of renting safety deposit boxes is still found
within the parameters of contract of deposit, any stipulation exempting the depositary from
any liability arising from loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy. Bank is liable for damages since it
is not correct to assert that it had neither control nor possession of the contents of the box
since it was located within its premise and under its absolute control.

 Prohibitions for Banks

 Banks cannot act as insurer

 Banks cannot employ casual or non-regular personnel in the conduct of its business involving
bank deposits

 Banks should not conduct business in an unsafe or unsound Manner.

Note: 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:

RA 8791– General Banking Law

Absin / Escabarte
P a g e 16 | 28
  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;

 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;

 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

 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)

 Prohibited Transactions of Bank and Officers:

 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;

 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;

 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;

 Overvalue or aid in overvaluing any security for the purpose of influencing in any way the
actions of the bank or any bank; or

 Outsource inherent banking functions.

 Prohibited Acts of Borrower:

 Fraudulently overvalue property offered as security for a loan or other credit accommodation
from the bank;
RA 8791– General Banking Law
Absin / Escabarte
P a g e 17 | 28
  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;

 Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or

 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.

 Dividend Declaration

No bank or quasi-bank shall declare dividends, if at the time of declaration:

 Its clearing account with BSP is overdrawn; or
 It is deficient in the required liquidity floor for government deposits for five (5) or more
consecutive days, or
 It does not comply with the liquidity standards/ratios prescribed by BSP for purposes of
determining funds available for dividend declaration; or
 It has committed a major violation as may be determined by BSP.

 Independent Auditor

MB may require a bank, quasi-bank or trust entity to engage the services of an independent
auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board.

Term of the engagement shall be as prescribed by the MB which may either be on a continuing
basis where the auditor shall act as resident examiner, or on the basis of special engagements;
In either case, the independent auditor shall be responsible to the bank's, quasi-bank's or trust
entity's board of directors.

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)

 Authority to Regulate Electronic Transactions

BSP has full authority to regulate the use of electronic devices, such as computers, and processes
for recording, storing and transmitting information or data in connection with the operations of a
bank; quasi-bank or trust entity, including the delivery of services and products to customers by
such entity.

RA 8791– General Banking Law

Absin / Escabarte
P a g e 18 | 28
  Publication of Financial Statements

Every bank, quasi-bank or trust entity shall submit to BSP financial statements (FS) in such form
and frequency as may be prescribed thereof and be published at least once every quarter in a
newspaper of general circulation.

For Domestic Banks - in the city or province where the principal office is located.
For Foreign Banks - in the city or province where the principal branch is located.

Note:
 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 Monetary Board may allow the posting of the financial statements of a bank, quasi-
bank or trust entity in public places it may determine, lieu of the publication required when
warranted by the circumstances.

 In periods of national and/or local emergency or of imminent panic which directly threaten
monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its
members, in special cases and upon application of the bank, quasi-bank or trust entity,
may allow such bank, quasi-bank or trust entity to defer for a stated period of time the
publication of the statement of financial condition required herein

 The FS shall show thee 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)

 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.

 Publication of Capital Stock

 A domestic bank, quasi-bank or trust shall not publish its authorized or subscribed capital
stock without indicating 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 with equal prominence the amount of the capital, if any, definitely assigned to
such branch.

 PLACEMENT UNDER CONSERVATORSHIP

RA 8791– General Banking Law
Absin / Escabarte
P a g e 19 | 28
 I. GROUNDS
Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the MB 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 MB may appoint a conservator with such powers as the MB shall
deemed necessary.
The conservatorship shall not exceed 1 year. (Sec. 29 of the New Central Bank Act)

II. Powers of Conservator

The powers that may be conferred to the conservator are such powers as may be necessary
for the following purposes:
 To take charge of the assets, liabilities, and the management thereof;
 To reorganize the management if the subject bank;
 To collect all monies and debts due said institution;
 To exercise powers necessary to restore its viability.

III. Termination of Conservatorship

When the MB, on the basis of the report of the conservator or of its own findings, determine
that:
 The institution can continue to operate on its own and conservatorship is no longer
necessary; or
 The continuance of the institution would involve probable loss to its depositors or creditors.

 CESSATION OF BANKING BUSINESS

Voluntary Liquidation
In case of voluntary liquidation of any domestic bank or of any Philippine branch or office of a
foreign bank, written notice of such liquidation shall be sent to the MB before such liquidation
is undertaken, and the MB shall have the right to intervene and take such steps as may be
necessary to protect the interests of creditors.
Note: When the continuance of the institution would involve probable loss to its depositors or
creditors Section 30 of NCBA or the rules on receivership and liquidation shall apply. (Section
29 of the New Central Bank Act)

Receivership and Involuntary Liquidation

RA 8791– General Banking Law

Absin / Escabarte
P a g e 20 | 28
 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.
Provided: Petitioner/plaintiff files with the RTC where the action is pending a bond, executed
in favor of BSP.

Penalty for Transactions After a Bank Becomes Insolvent

Penal provisions of the New Central Bank Act shall govern 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,
 tampers with banks records,
 appropriates for himself for another party or destroys or causes the misappropriation and
destruction of the bank's assets,
 Receives, permits or causes to be received in said bank any deposit, collection of loans
and/or receivables;
 Pays out or permits or causes to be transferred any securities or property of said bank

 LAWS GOVERNING OTHER TYPES OF BANKS

Thrift banks, rural banks and cooperative banks shall be governed by the provisions of the
Thrift Banks Act, the Rural Banks Act, and the Cooperative Code, respectively.
The organization, ownership and capital requirements, powers, supervision and general
conduct of business of Islamic banks shall be governed by special laws.

 FOREIGN BANKS
I. Governing Rules
a. Entry of foreign banks under FBLA may be through any of the following modes:
1. Acquiring, purchasing, or owning a maximum of 60% voting equity of a domestic bank’
2. Investing in the voting stock of a new banking subsidiary locally incorporated to a max
of 60%
3. Establishing branches with full banking authority with a required to inward remittance
of a minimum capital of 210 million in foreign exchange.
However, entry were restricted to banks among top150 foreign banks worldwide or to banks
in the top5 in their country origin.
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)
b. GBL 2000 introduced the following amendments:
RA 8791– General Banking Law
Absin / Escabarte
P a g e 21 | 28
 1. Within 7 years from its effectivity, foreign banks may be allowed to own up to 100%
equity of one domestic bank as a mode of entry;
2. Other foreign individuals and non-bank corporations may only own up to 40% of voting
stock of domestic bank, where such nationality will be traced through the grandfather
rule to determine foreign ownership of domestic bank;
3. However, at least 60% of thrift banks may be-foreign owned.
c. RA 10641 (amending FBLA) authorized the MB to authorize foreign banks to:
1. Acquire, purchase or own up to 100% of the voting stock of an existing bank;
2. Invest up to 100% of the voting stock of anew domestic banking subsidiary; or
3. Establish branches with full banking authority.
HOWEVER: RA 10641 mandates the MB to ensure that control of at least 60% of the
resources or assets of the entire Philippine banking system is held by domestic banks that
are majority-owned by Filipinos
ALSO: Only foreign banks widely owned and publicly listed in their country of origin may
be allowed to enter the Philippines: UNLESS, such foreign bank is owned and controlled
by the government of its country of origin.

II. Real Property Collaterals of Foreign Banks

Foreign banks are allowed to bid and take part in foreclosure sales of real property mortgaged
to them, and take possession thereof for a period not exceeding 5 years, provided:
 Title shall not be transferred to the foreign bank; and
 Within the 5-year period, transfer its rights to a qualified Philippine national
Note: If it fails to transfer such rights, penalty shall be at the rate of ½ of 1% per annum
of the price at which the property was foreclosed until it is able to transfer the same.

III. Equal Treatment Clause

Foreign banks authorized to operate in the Philippines shall perform the same functions, enjoy
the same privileges, and subject to the same limitations imposed upon Philippine bank of the
same category;
Any right, privilege or incentive granted to foreign banks, their subsidiaries or affiliates shall
be equally enjoyed by and extended to Philippine banks under the same conditions.

IV. Revocation of License of Foreign Bank

MB may revoke license of any foreign bank, if it finds that foreign bank is insolvent or in
imminent danger thereof that its continuance in business will involve probable loss to those
transacting business with it.
After the revocation of the license:

RA 8791– General Banking Law

Absin / Escabarte
P a g e 22 | 28
 a. It shall be unlawful for such foreign bank to transact business in the Philippines unless its
license is renewed or reissued;
b. BSP shall take necessary action to protect creditors of such foreign bank and the public.

 TRUST OPERATIONS

I. Authority to Engage in Trust Business

Only a stock corporation or a person duly authorized by the MB 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, on behalf of others.
For purposes of this Act, such a corporation shall be referred to as a trust entity. (56a; 57a)
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)

II. Conduct of Trust Business

A. Prohibited Transactions - No trust entity shall, for the account of the trustor or the beneficiary
of the trust, purchase debt instruments of:
a. Any of the departments, directors, officers, stockholders, or employees of the trust entity;
b. Relatives within the first degree of consanguinity or affinity;
c. Related interests, of such directors, officers and stockholders, unless the transaction is
specifically authorized by the trustor who previously received full disclosure of the
relationship.
Note: 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.

III. Powers of Trust Entity

In addition to the general powers incident to corporations, a trust entity shall have the power
to:
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;
2. Under the order or appointment of to court
 as guardian, receiver, trustee, or depositary of the estate of any minor or other
incompetent person,
 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;
RA 8791– General Banking Law
Absin / Escabarte
P a g e 23 | 28
 3. Act as the executor of any will when it is named or as administrator of the estate of any
deceased person when there is no will;
4. 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
5. Establish and manage common trust funds

IV. Deposit for the Faithful Performance of Trust Duties

Before transacting trust business, every trust entity shall deposit with BSP, as security for the
faithful performance of its trust duties, cash or securities approved by the MB in an amount
equal to or not less than Five hundred thousand pesos (P500,000.00) or such higher amount
as may fixed by the MB.

V. 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.

VI. Investment Limitations

Unless otherwise directed by the instrument creating the trust, 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 MB or any court of competent
jurisdiction.

VII. 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.

VIII. Establishment of Branches

With prior approval of the MB, trust entity may establish branches but shall be responsible for
all business conducted in such branches to the same extent as though such business had all
been conducted in the head office.

RA 8791– General Banking Law

Absin / Escabarte
P a g e 24 | 28
 QUIZZER 3 - Topic: General Banking Law

Q1. What is the Ceiling on the Investment of real property of banks?

Answer: For ownership of real assets the ceiling for investment must not exceed 50% of combined
capital accounts and such investments includes equity investments of the bank in another corporation
engaged primarily in real estate, unless otherwise provided by the Monetary Board (MB) pursuant to
Sec. 51 of RA 8791 otherwise known as the General Banking Law of 2000.

Q2. True or False.

(1) A bank may acquire, hold or convey real property in any manner as it could.

(2) Any real property acquired or held under the ordinary course of banking business shall be
disposed of by the bank within a period of 5 years or as may be prescribed by the MB. After said
period, the bank definitely cannot continue to hold the property for its own use.

Answer: False, false.

As provided by Sec. 52 of the General Banking Law, bank may acquire, hold or convey real
property under the following circumstance:

a. Such as shall be mortgaged to it in good faith by way of security for debts;

b. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course

of dealings; or

RA 8791– General Banking Law

Absin / Escabarte
P a g e 25 | 28
 c. 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.

After the holding period of 5 years where the acquired real property must be disposed of, the
properties not disposed shall be subjected to the 50% ceiling, thus the bank can continue to
hold the property provided it does not exceed the ceiling.

Q3. The following are other Banking Services, Except:

a. Receive in custody funds, documents and valuable objects
b. 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;
c. Act as financial advisor, directly doing Insurance business as may be approved by the Monetary
Board.
d. Make collections and payments for the account of others and perform such other services for their
customers as are not incompatible with banking business;
e. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management/advisory/consultancy accounts;

Answer: C

Other banking services are enumerated under Section 53 of the General Banking Law.
However, Bank acting as an insurer is prohibited under the Section 54 of the same law.

Q4. Banks cannot employ casual or non-regular personnel in the conduct of its business involving
bank deposits as consistent with the provisions of:

Answer: Consistent with the provisions of Republic Act No. 1405, otherwise known as the
Banks Secrecy Law, no bank shall employ casual or non-regular personnel or too lengthy
probationary personnel in the conduct of its business involving bank deposits. (Section 55.4
of GBL)

Q5. True or False.

The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or trust
entity in public places as it may determine in lieu of the publication required, when warranted by the
circumstances.

Answer: True. Section 61 of the General Banking Law provides that the Monetary Board may
allow the posting of the financial statements of a bank, quasi-bank or trust entity in public
places it may determine, lieu of the publication required when warranted by the circumstances.

QUIZZER 4 - Topic: General Banking Law

RA 8791– General Banking Law
Absin / Escabarte
P a g e 26 | 28
Q1. What is the ground where the bank may be placed under conservatorship as provided under
Section 29 of the New Central Bank Act?

Answer: A bank may be placed under conservatorship whenever, on the basis of a report
submitted by the appropriate supervising or examining department, the MB finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of
liquidity and it deemed adequate to protect the interest of depositors and creditors, the MB
may appoint a conservator with such powers as the MB shall deemed necessary.

Q2. The powers that may be conferred to the conservator are such powers as may be necessary for
the following purposes, except:

a. To take charge of the assets, liabilities, and the management thereof;

b. To reorganize the management if the subject bank
c. To collect all monies and debts due said institution
d. To place the funds of the institution in non-speculative investments
e. To exercise powers necessary to restore its viability
Answer: The powers that may be conferred to the conservator are such powers as may be
necessary for the following purposes:
a. To take charge of the assets, liabilities, and the management thereof;
b. To reorganize the management of the subject bank;
c. To collect all monies and debts due said institution;
d. To exercise powers necessary to restore its viability.

To place the funds of the institution in non-speculative investments is not under the powers
of a conservator but of the receiver as provided under the New Central Bank Act.

Q3. True or False.

Foreign banks are not allowed to bid and take part in foreclosure sales of real property mortgaged
to them, and take possession thereof for a period not exceeding 5 years.

Answer: Same with domestic banks, foreign banks are allowed to bid and take part in
foreclosure sales of real property mortgaged to them, and take possession thereof for a period
not exceeding 5 years. provided that the title shall not be transferred to the foreign bank and
within the 5-year period, transfer its rights to a qualified Philippine national.

Q4. Before transacting trust business, every trust entity shall deposit with BSP, as security for the
faithful performance of its trust duties, cash or securities approved by the MB in an amount equal to
or not less than ______________ or such higher amount as may fixed by the MB. (answer in figures)

RA 8791– General Banking Law

Absin / Escabarte
P a g e 27 | 28
 Answer: Pursuant to Section 84 of the General Banking Law, 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 or not less than Five hundred thousand pesos (P500,000.00) or such higher
amount as may fixed by the Monetary Board

Q5. True or False.

1st Statement: The ordinary business of a trust entity shall be transacted at the place of business
specified in its articles of incorporation.

2nd Statement: trust entity and its branches shall not be treated as one unit.

Answer: True, False.

Section 93 of the General banking Law of 2000 provides that the ordinary business of a trust
entity shall be transacted at the place of business specified in its articles of incorporation. and
that the trust entity and its branches shall be treated as one unit.

- END

RA 8791– General Banking Law

Absin / Escabarte
P a g e 28 | 28