RA 8791 GENERAL

BANKING LAW

Maria Ginalyn Calderon

Definition and
Classification of Banks
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the
form of deposits.
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings
and loan associations, and (iii) Private development banks, as defined in the
Republic Act No. 7906 (hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural
Banks Act");
(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the
"Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the
"Charter of Al Amanah Islamic Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of
the Bangko Sentral ng Pilipinas. (6-Aa)
Definition and
Classification of Banks
ELEMENTS:
1. Must be authorized by law;

2. Accepts fund, in the form of a deposit, from the public; and

3. Lends money to the public.

Examples of engaged in banking
functions
1. An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and
borrower is a bank (Western Investment Banking v. Murray).
2. A stock corporation may be considered engaged in banking if it is
lending money to shareholders who are required to deposit certain
sums as security (Karp v. Harlem Business Protective Corporation,
259 NYS 921).
3. A department store is engaged in banking functions when it received
deposits up to a certain amount, issues passbooks therefor, pays
interests on the amount deposited and pays the principal with interest
on demand in money or in goods. (MacLaren v. State, 124 NW 667)
Examples of not engaged in banking
functions
A corporation organized as an investment house engaged in
“investing, reinvesting or trading in securities” is not performing
in banking functions. Hence, banking laws are inapplicable to the
respondent corporation (Banas v. Asia Pacific Finance
Corporation, GR 128703).

Banks should be distinguished from Quasi-banks, which are

entities that do not accept deposits.
WHO SHALL AUTHORIZE A PERSON OR
ENTITY FROM ENGAGING IN BANK OR
QUASI-BANKING OPERATIONS
• Bangko Sentral ng Pilipinas
• An entity authorized by the Bangko Sentral to perform
universal or commercial banking functions shall likewise have
the authority to engage in quasi-banking functions.
• The determination of whether a person or entity is performing
banking or quasi-banking functions without Bangko Sentral
authority shall be decided by the Monetary Board.
• Persons or entities found to be performing banking or quasi-
banking functions without authority from the Bangko Sentral
shall be subject to appropriate sanctions under the New Central
Bank Act and other applicable laws.
WHO SHALL AUTHORIZE A PERSON OR
ENTITY FROM ENGAGING IN BANK OR
QUASI-BANKING OPERATIONS
• In addition: No person, association or corporation, unless duly
authorized to engage in the business of a bank, quasi-bank,
trust entity or savings and loan association, shall:
a. Advertise or hold itself out as being engaged in such business
b. Use in connection with its business title, the words “bank”,
“banking”, “banker”, etc.; or
c. Transact business of any such bank, corporation or
association
BANK VS QUASI-BANKS
• Quasi-banks are 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.
• Deposit substitutes are alternative forms of obtaining funds
from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the
borrower’s own account, for the purpose of relending or
purchasing of receivables and other obligations (Sec. 95,
NCBA).
BANK VS QUASI-BANKS
Banks deal with deposits which are governed by the law on
loans. Deposits are normally in the form of cash or legal tender.
Quasi-banks deal with deposit substitutes which are alternative
form of obtaining funds from the public, other than deposits,
through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of
relending or purchasing of receivables and other obligations.
These instruments may include, but need not be limited to,
bankers acceptances, promissory notes, participations, certificates
of assignment and similar instruments with recourse, and
repurchase agreements (Sec. 95, RA 7653, the New Central Bank
Act[NCBA]).
BANK VS TRUST ENTITIES
TRUST ENTITIES SEC 80
A trust entity shall administer the funds or property under its custody with
the diligence that a prudent man would exercise in the conduct of an enterprise
of a like character and with similar aims. No trust entity shall, for the account
of the trustor or the beneficiary of the trust, purchase or acquire property from,
or sell, transfer, assign, or lend money or property to, or purchase debt
instruments of, any of the departments, directors, officers, stockholders, or
employees of the trust entity, relatives within the first degree of consanguinity
or affinity, or the related interests, of such directors, officers and stockholders,
unless the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the transaction is
fully disclosed to the trustor of beneficiary of the trust prior to the transaction.
The Monetary Board shall promulgate such rules and regulations as may be
necessary to prevent circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity.
BANK VS TRUST ENTITIES
TRUST ENTITIES
Section 79. Authority to Engage in Trust Business. -
Only a stock corporation or a person duly authorized by
the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in
trust or on deposit for the use, benefit, or behoof of
others. For purposes of this Act, such a corporation shall
be referred to as a trust entity.
BANK VS TRUST ENTITIES
• A trust is any bundle of money or other assets that is put away for a specific
purpose.
• Banks, strictly speaking, do none of these things. They do not deal with assets in
the specialized way a trust firm will. They are two very different types of
financial organization, though a commercial bank might own and operate a
specific trust organization. Because trusts deal with large amounts of assets
from those who need specialized assistance, like the elderly or ill, the
temptations to “skim” this money can be irresistible. Hence, the trusts are
tightly regulated by the government, and no assets from clients can be mixed
with the specific income or asset base of the firm. Since trusts are regulated in
this very strict, specific way, they must be operated differently from the typical
bank.
SEC 8. ORGANIZATION OF BANKS
Section 8. Organization. - The Monetary Board may authorize the
organization of a bank or quasi-bank subject to the following
conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall
mean twenty (20) or more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied. (n)

NOTE: Banks and Quasi-banks may not incorporate as One Person

Corporations (Sec. 116, R.A. No. 11232, otherwise known as the
Revised Corporation Code of the Philippines)
Section 11. Foreign Stockholdings.
Foreign individuals and non-bank corporations may
own or control up to forty percent (40%) of the voting
stock of a domestic bank. 
BANK BOARD OF DIRECTORS
• Section 15. Board of Directors. - The provisions of the
Corporation Code to the contrary notwithstanding, there shall
be at least five (5), and a maximum of fifteen (15) members of
the board or directors of a bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a
person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-Filipino
citizens may become members of the board of directors of a
bank to the extent of the foreign participation in the equity of
said bank. (Sec. 7, RA 7721) The meetings of the board of
directors may be conducted through modern technologies such
as, but not limited to, teleconferencing and video-conferencing.
(n)
BANK BOARD OF DIRECTORS
• Section 16. Fit and Proper Rule. - To maintain the quality of
bank management and afford better protection to depositors
and the public in general the Monetary Board shall prescribe,
pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and
disqualify those found unfit. After due notice to the board of
directors of the bank, the Monetary Board may disqualify,
suspend or remove any bank director or officer who commits
or omits an act which render him unfit for the position. In
determining whether an individual is fit and proper to hold the
position of a director or officer of a bank, regard shall be given
to his integrity, experience, education, training, and
competence. (9-Aa)
CLASSIFICATION OF BANKS
1. Universal Bank (UB) – banks that have authority to exercise:
a. the powers and functions of commercial banks;
b. the powers of an investment house;
c. the power to invest in non-allied enterprises (Sec. 23, GBL);
d. ownership of up to 100% of the equity in a thrift bank, a rural
bank, or a financial allied enterprise (Sec. 25, GBL) or nonfinancial
allied enterprise (Sec. 26, GBL); and
e. ownership of up to 100% of the voting stock of only one (1) other
universal or commercial bank, if publicly listed universal banks
(Sec. 25, GBL).
f. or accept or create demand deposits (Sec. 33, GBL);
g. engage in quasi-banking functions (Sec. 6, GBL).
CLASSIFICATION OF BANKS
2. Commercial Bank (KB) – banks that are given, in addition to
the general powers incident to corporations, all such powers as
may be necessary to carry on the business of commercial
banking, such as:
(TRAIN-QO-BREAD)
a. accepting drafts and Issuing letters of credit;
b. Discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt;
c. accepting or creating demand deposits;
d. Receiving other types of deposits and deposit substitutes;
e. Buying and selling foreign exchange and gold or silver bullion;
CLASSIFICATION OF BANKS
f. Acquiring marketable bonds and other debt securities; and
g. Extending credit
h. own up to 100% of the equity of a Thrift or Rural bank (Sec.
31, GBL);
i. own up to 100% of the equity of in a Non-financial allied
enterprises (Sec. 32, GBL);
j. or Accept or create demand deposits (Sec. 33, GBL);
k. invest (which shall be a minority holding) in Other Financial
allied enterprises (Sec. 31, GBL); and
l. engage in Quasi-banking functions (Sec. 6, GBL).
DIFFERENCE BETWEEN UB
AND CB
A. As to power:
A universal bank is a commercial bank with the authority to
exercise the powers of an investment house and invest in allied
and non-allied enterprises (Secs. 23 and 24, GBL). A commercial
bank, on the other hand, can only invest in allied enterprises
(Sec. 30, GBL).
DIFFERENCE BETWEEN UB
AND CB
A. As to investment
CLASSIFICATION OF BANKS
3. Rural Bank (RB) – banks that are created to make
needed credit available and readily accessible in the
rural areas for the purpose of promoting comprehensive
rural development (Sec. 2, RA 7353).
4. Thrift Bank (TB) –banks established for the purpose
of meeting the needs for capital, personal and
investment credit or medium- and long-term loans for
Filipino entrepreneurs and promoting agriculture and
industry and at the same time place within easy reach of
the people the medium- and long-term facilities at
reasonable cost (Sec. 2, RA 7906).
CLASSIFICATION OF BANKS
5. Cooperative Bank (CB) – banks organized for the
primary purpose of providing a wide range of financial
services to cooperatives and their members (Art. 23,
Republic Act No. 6938, as amended by R.A. No. 9520).
6. Islamic Bank (IB) (R.A. No. 6848)
Al-Amanah Islamic Investment Bank of the Philippines
(AAIIBP) is created to promote and accelerate the socio-
economic development of the Autonomous Region by
performing banking, financing and investment operations
and to establish and participate in agricultural,
commercialand industrial ventures based on the Islamic
concept of banking. (Sec. 3, RA 6848)
DISTINCTIONS BETWEEN TYPES
OF BANKS
1. As to capitalization – they have different minimum capitalization
requirements
2. As to purpose – some of the banks have specific purposes and social
functions (i.e. Rural Banks are meant to hasten rural development).
3. 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. Thus: (i) only
universal banks and commercial banks can create and accept demand deposits
without separate authority from the Monetary Board while other banks must
secure authority from the Monetary Board; (ii) only universal banks may act
as investment houses; (iii) generally, only universal banks and commercial
banks may be involved in quasi-banking functions.
4. As to who can be directors – Public officers can be directors of Rural Banks
(Sec.5, R.A. No. 7353) while such officers are prohibited from being directors
or officers of other types of banks (Sec. 19, GBL).
DISTINCTIONS BETWEEN TYPES
OF BANKS
5. As to incorporators – Consistent with the provisions of the
Corporation Code, incorporators of banks are natural persons. By way
of exception, rural banks can be organized or established by juridical
persons, particularly cooperatives and corporations primarily organized
to hold equities in rural banks (Sec. 4, R.A 7353).
6. As to foreign equity- A rural bank must be wholly owned by
Filipinos (Sec. 4, R.A. No. 7353) while other banks require only forty
percent (40%) Filipino ownership of their voting stocks. (NOTE:
However, RA No. 10641 allows 100% ownership of Foreign Banks
under certain conditions)
7. 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.
BANK POWERS AND LIABILITIES
CORPORATE POWERS
All powers provided by the corporation code like issuance of stocks and
entering into merger or consolidation with other corporation or banks.

1. The Monetary Board may prescribe rules and regulations on the types of
stock a bank may issue;
2. Banks shall issue par value stocks only (Sec. 9);

GR: No bank shall purchase or acquire shares of its own capital stock or
accept its own shares as a security for a loan.

XPN: When authorized by the Monetary Board; Provided, Every case stock so
purchased/acquired shall be sold/disposed of within 6 months from purchase
or acquisition.
BANK POWERS AND LIABILITIES
FUNCTIONS OF BANKS
1. Deposit Function
2. Loan Function
OTHER FUNCTIONS
Universal banks and commercial banks (as well as other banks depending on the type
of bank and/or the corresponding authority given by the Monetary Board) may also
exercise any of the following functions:
1. Receive in custody funds, documents and valuable objects;
2. Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all types of securities;
3. Make collections and payments fir the account if others and perform such other
services for their customers as are not incompatible with banking business;
4. Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management/advisory/consultancy accounts;
and
5. Rent out safety deposit boxes.
BANK POWERS AND LIABILITIES
PROHIBITED ACTS
1. Banks are prohibited from engaging in insurance business as insurer
(Sec. 54, GBL). However, it can indirectly engage in the insurance
business by distributing product of insurance. (Sec. 53.3, GBL)
2. Outsourcing of functions is generally prohibited. Example: A bank
cannot hire another company to accept deposits (Sec. 55.1, GBL).
3. No bank or quasi-bank shall declare dividends under any of the
following conditions:
a. if it is greater than its accumulated net profits then on hand,
deducting therefrom its losses and bad debts.; or
b. If at the time of its declaration, its clearing account with the Bangko
Sentral is overdrawn;
BANK POWERS AND LIABILITIES
c. It is deficient in the required liquidity floor for government
deposits for five (5) or more consecutive days;
d. It does not comply with the liquidity standards/ratios
prescribed by the Bangko Sentral for purposes of determining
funds available for dividend declaration; or
e. It has committed a major violation as may be determined by
the Bangko Sentral.
4. 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 (Sec. 55.1, GBL).
DILIGENCE REQUIRED OF BANKS
• Section 2. Declaration Of Policy. - 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. (n)
• Banking business is so impressed with public interest where the trust
and confidence of the public in general is of paramount importance
such that the appropriate standard of diligence must be a high degree
of diligence, if not the utmost diligence (BA v. Phil Racing, G.R. NO.
150228, July 30, 2009).
NATURE OF BANK FUNDS AND
BANK DEPOSITS
• SERRANO VS CB 96 SCRA 1980
The relationship between the bank and its depositor is not that
of deposit, but one that is called “irregular deposit” which is
actually CREDITOR-DEBTOR RELATIONSHIP, since the bank
is not required to return the very same currency bill that was
deposited. Under Article 1953 of Civil Code, a person who
receives a loan or money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality. Article 1980 provides that
savings and current deposits of money in banks shall be governed
by the provision concerning simple loan.
NATURE OF BANK FUNDS AND
BANK DEPOSITS
• CONSOLIDATED BANK VS CA 410 SCRA 562
The fiduciary nature of banking does not convert a simple
loan into a trust relationship because banks do not accept deposits
to enrich depositors but to earn money for themselves. Law
allows banks to offer the lowest possible interest rate to
depositors while charging the highest possible interest rate on
their own borrowers; and the interest spread belongs to the bank
and not to the depositors who are not cestui que trust; otherwise,
the interest spread belongs to depositors, a situation that
Congress certainly did not intend in enacting GBL
CONSEQUENCES OF CREDITOR
DEBTOR RELATIONSHIP
1. The bank can make use as its own the money deposited. Said
amount is not being held in trust for the depositor nor is it being
kept for safekeeping. (Tang Tiong Tick v American Apothecaries,
65 Phil 414)
2. Third persons who may have a right to the money deposited cannot
hold the bank responsible unless there is a court order or
garnishment. The duty of the bank is to its creditor-depositor and
not to third persons. If a third person has a valid right over the
money deposited, he must prove the same before a court of
competent jurisdiction.
3. a. The officers of the bank cannot be held liable for estafa if they
are authorized the use of the money deposited by the depositor.
There would be no liability for estafa under Articles 315 (1)(b) of
the Revised Penal Code(RPC) even if the bank failed to return the
amount deposited.
CONSEQUENCES OF CREDITOR
DEBTOR RELATIONSHIP
3.b. If an employee who is entrusted with possession of the
money deposited takes the same money, the crime committed by
the employee is Qualified Theft.
4. The bank has the right to compensation. The relationship
between a bank and its depositor is that of creditor and debtor – a
bank has the right to set-off the deposits in its hands for the
payment of a depositor’s indebtedness (Equitable PCI Bank v. Ng
Sheung Ngor, 541 SCRA 223).
5. No breach of trust on the part of the bank in case of failure to
honor its obligations (deposits). A bank’s failure to honor a
deposit is failure to pay its obligation as debtor and not a breach
of trust arising from the depository’s failure to return the subject
matter of deposit (Serrano v. CA, 96 SCRA 96).
KIND OF DEPOSITS
1. Demand deposits refer to all those liabilities of banks which are
denominated in Philippine currency and are subject to payment in
legal tender upon demand by presentation of checks subject to the
following rules:
a. Generally, only a universal bank or commercial bank can accept
or create demand deposits. Other banks cannot accept demand
deposits except upon prior approval of the Monetary Board (Sec. 33,
GBL).
Demand deposits are deposits subject to withdrawal either by check
or through the automated tellering machines. They are otherwise
known as current or checking accounts. (Miravite, J. (2013), Bar
Review Materials in Commercial Law). They are non-interest
bearing except upon special arrangement (Ignacio, L. (2016),
Banking & Allied Laws). But is not prohibited by the BSP to earn
KIND OF DEPOSITS
2. Savings account. Savings deposits are interest-bearing deposits which are
withdrawable either upon presentation of a properly accomplished withdrawal
slip together with the corresponding passbook or through the automated
tellering machines.
a. Banks are prohibited from issuing/accepting withdrawal slips or any
other similar instruments designed to effect withdrawals of savings deposits
without requiring the depositors concerned to present their passbooks and
accomplishing the necessary withdrawal slips, except for bank authorized by
the BSP to adopt the no passbook withdrawal system (Sec. X214, Manual of
Regulations for Banks, or MORB).
b. The requirement of presentation of passbooks is usually included in the
terms and conditions printed in the passbooks. A bank is negligent if it allows
the withdrawal without requiring the presentation of a passbook (Sundiang, Sr.,
(2014) Reviewer on Commercial Law, p. 317).
KIND OF DEPOSITS
3. Negotiable Order of Withdrawal Accounts (NOW) are interest-
bearing deposit accounts that combine the payable on demand
feature of checks and investment feature of savings accounts
(Sundiang, Sr., (2014) Reviewer on Commercial Law, p. 317).
NOW Accounts are withdrawable by means of Negotiable
Orders of Withdrawal (Miravite, J. (2013), Bar Review Materials
in Commercial Law).

4. Time deposit are interest-bearing deposits with specific maturity

dates and evidenced by certificates issued by the bank(Miravite, J.
(2013), Bar Review Materials in Commercial Law).
STIPULATION ON INTEREST
• Fidelity Savings and Mortgage Bank v. Cenzon (G.R. No. L-46208)
Whether or not petitioner bank may be adjudged to pay interest on
unpaid deposits even after its closure by the Central Bank by reason of
insolvency.
NO. It is settled jurisprudence that a banking institution which has
been declared insolvent and subsequently ordered closed by the Central
Bank of the Philippines cannot be held liable to pay interest on bank
deposits which accrued during the period when the bank is actually closed
and non-operational. In The Overseas Bank of Manila vs. Court of Appeals
and Tony D. Tapia, we held that:
It is a matter of common knowledge, which We take judicial notice of,
that what enables a bank to pay stipulated interest on money deposited
with it is that thru the other aspects of its operation it is able to generate
funds to cover the payment of such interest.
STIPULATION ON INTEREST
• Unless a bank can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities from
which it can derive income, it is inconceivable how it can carry on
as a depository obligated to pay stipulated interest. Conventional
wisdom dictates this inexorable fair and just conclusion. And it can
be said that all who deposit money in banks are aware of such a
simple economic proposition. Consequently, it should be deemed
read into every contract of deposit with a bank that the obligation to
pay interest on the deposit ceases the moment the operation of the
bank is completely suspended by the duly constituted authority, the
Central Bank
GRANT OF LOAN AND SECURITY
REQUIREMENTS
RISK BASED CAPITAL REQUIREMENT

The minimum ratio prescribed by the Monetary Board which the

net worth of a bank must bear to its total risk assets which may
include contingent accounts.

Note: However, the Monetary Board may require or suspend

compliance with such ratio whenever necessary for a maximum
period of one year and that such ratio shall be applied uniformly
to banks of the same category (Sec. 34).
GRANT OF LOAN AND SECURITY
REQUIREMENTS
RISK BASED CAPITAL REQUIREMENT
EFFECT OF NON COMPLIANCE

1. Distribution of net profits may be limited or prohibited and MB

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; or

2. GR: Acquisition of major assets and making of new investments

may be restricted.

XPN: purchases of evidence of indebtedness guaranteed by the

Government (Sec. 34).
GRANT OF LOAN AND SECURITY
REQUIREMENTS
1. 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 finance (Sec. 39, GBL). Safe
and Sound Banking Practices
2. Such grant of loans and other credit accommodations shall be
consistent with safe and sound banking practices (Sec. 39, GBL).
3. Before granting a loan or other credit accommodation, a bank
must ascertain that the debtor is capable of fulfilling his
commitments to the bank. (Sec. 40, GBL)
GRANT OF LOAN AND SECURITY
REQUIREMENTS
PAYMENTS
1. The amortization schedule of bank loans and other credit
accommodations shall be adapted to the nature of the operations to be
financed (Sec. 44, GBL).
2. Loans and other credit accommodations with maturities of more than
five (5) years, provisions must be made for periodic amortization
payments, but such payments must be made at least annually (Sec. 44,
GBL).
3. A borrower may at any time prior to the agreed maturity date prepay,
in whole or in part, the unpaid balance of any bank loan and other
credit accommodation, subject to such reasonable terms and
conditions as may be agreed upon between the bank and its borrower
(Sec. 45, GBL).
GRANT OF LOAN AND SECURITY
REQUIREMENTS
SINGLE BORROWER’S LIMIT
CEILING
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 (as increased by BSP Circular No. 425). The basis for
determining compliance with single-borrower limit is the total
credit commitment of the bank to the borrower (Sec. 35.1, GBL).
GRANT OF LOAN AND SECURITY
REQUIREMENTS
SINGLE BORROWER’S LIMIT
CEILING
Unless the Monetary Board prescribes otherwise, the total amount of
loans, credit accommodations and guarantees prescribed in the preceding
paragraph may be increased by an additional ten percent (10%) of the net
worth of such bank provided the additional liabilities of any borrower are
adequately secured by trust receipts, shipping documents, warehouse
receipts or other similar documents transferring or securing title covering
readily marketable, non-perishable goods which must be fully covered by
insurance (Sec. 35.2, GBL).

Net worth means the total and unimpaired paid-in capital including
paid in surplus, retained earnings and undivided profit, net valuation of
reserves and other adjustments as may be required by the BSP (Section 24,
GBL).
GRANT OF LOAN AND SECURITY
REQUIREMENTS
DOSRI ACCOUNTS
Restrictions (not a total prohibition) are imposed on borrowings
and security arrangement by Directors, Officers and Stockholders
of the bank directors, officers, stockholders and their Related
Interests (hence, the term DOSRI)

Section 83 of RA 337(General Banking Act), as well as other

banking laws adopting the same prohibition, was enacted to
ensure that loans by banks and similar financial institutions to
their own directors, officers, and stockholders are above board.
GRANT OF LOAN AND SECURITY
REQUIREMENTS
DOSRI ACCOUNTS
No director or officer of any bank shall directly or indirectly for
himself or as the representative or agent of others:
1. Borrow from such bank
2. Shall become guarantor, indorser, or surety for loans from
such bank to others
3. To be an obligor or incur any contractual liability to the bank

Except: when with written approval of majority of all directors of

the bank, excluding director concerned.
GRANT OF LOAN AND SECURITY
REQUIREMENTS
REQUISITES UNDER ARTICLE 26 OF NCBA
1. The borrower is a director, officer or any stockholder of a bank
(and related interests);
2. He contracts a loan or any form of financial accommodation;
3. The load or financial accommodation is from: (1) his bank, or (2) a
bank that is a subsidiary of a bank holding company of which both
his bank and lending bank are subsidiaries, (3) 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 interests, 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.
GRANT OF LOAN AND SECURITY
REQUIREMENTS
RESTRICTIONS UNDER THE GBL
DOSRI Accounts are subject to the following rules under Section
36 of the GBL:
1. Procedural Requirement. The account should be upon
written approval of the majority of all the directors 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.
GRANT OF LOAN AND SECURITY
REQUIREMENTS
RESTRICTIONS UNDER THE GBL
DOSRI Accounts are subject to the following rules under Section 36 of the GBL:
4. Aggregate Ceilings. 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. The Manual of Regulations for
Banks provide that the aggregate is fifteen percent (15%) of the total loan portfolio
of the bank or one hundred percent (100%) of the combined capital accounts
whichever is lower.
5. Individual Ceilings. 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.
GRANT OF LOAN AND SECURITY
REQUIREMENTS
SANCTION AGAINST DIRECTOR OR OFFICER
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 (Sec. 36, GBL ).

VIOLATION OF DOSRI RULES WILL NOT RENDER A LOAN VOID

The loans, assuming that they were of a Directors, Officers, Stockholders
and their Related Interests (DOSRI) nature without the benefit of the required
approvals or in excess of the Single Borrower’s Limit, would not be void for
that reason – instead, the bank or the officers responsible for the approval and
grant of the DOSRI loan would be subject only to sanctions under the law.
(Republic v. Sandiganbayan, 649 SCRA 47, 12 April 2011)
GRANT OF LOAN AND SECURITY
REQUIREMENTS
COLLATERALS
VALUE OF COLLATERALS
The loan shall not exceed 75% of the appraised value of the
real property plus 60% of the appraised value of the improvement
or 75% of the appraised value of the chattel (Sec. 37 and 38,
GBL).
Loans and Other Credit Accommodations Against Real Estate: shall not
exceed seventy-five percent (75%) of the appraised value of the respective
real estate security, plus sixty percent (60%) of the appraised value of the
insured improvements, and such loans may be made to the owner of the real
estate or to his assignees
Loans And Other Credit Accommodations on Security of Chattels and
Intangible Properties: shall not exceed seventy-five percent (75%) of the
appraised value of the security
PROHIBITED ACTS OF BORROWER
1. Fraudulently overvalue property offered as security for a loan
or other credit accommodation from the bank;
2. 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;
3. Attempt to defraud the said bank in the event of a court action
to recover a loan or other credit accommodation; or
4. 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 (Sec. 55.2, GBL).
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
PRIMARY FUNCTIONS:
1. Deposit insurer
2. Co-regulator of banks
3. Receiver an liquidator of banks

Promote and safeguard the interests of the depositing public by

way of providing permanent and continuing insurance coverage
on all insured deposits.
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
REGULATOR : EXAMINATION AND INVESTIGATION OF BANKS
a. Examination involves an evaluation of the current status of a band
and determines its compliance with set of standards regarding
solvency, liquidity, asset evaluation, operations, systems
management and compliance with banking laws, rules and
regulations. Such process requires an intrusion into the bank records.
b. Investigation is conducted based on specific findings of certain acts
or omissions which are subject of a complaint or Final Report of
Examination made by PDIC.
c. Prior consent for examination must be obtained from the Monetary
Board, investigation does not require.
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
Compulsory insurance coverage of bank deposits
It is obligatory for banks to insure their deposits with, and
pay premiums thereon to, the PDIC, with the DEPOSIT
INSURANCE FUND (DIF) created as permanent insurance fund.

a. Deposit- the unpaid balance of money or its equivalent

received by a bank in the usual course of business and for which
it has given or is obliged to give credit to a commercial,
checking, savings, time or thrift accounts; but nit
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
PDIC provides a maximum deposit insurance coverage of
PhP500,000 per depositor per bank. It covers all types of
bank deposits in banks whether denominated in local or foreign
currencies. All deposit accounts of a depositor in a closed bank
maintained in the same right and capacity shall be added
together. INSURED DEPOSIT

A deposit insurance is essentially the assured amount a bank

depositor gets in the case that the bank cannot fulfill its
obligations. It is mandatory by law and is designed to maintain
financial stability.
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
INSURED DEPOSIT – amount due to a bonafide depositor for
legitimate deposits in insured bank, net of depositor’s obligation to
insured bank as of closure date, including FCDU accounts, not to
exceed Php 500,000.00 but which may be adjusted upward or
downward:
a. In case of a condition that threatens monetary and financial
stability of banking system that may have systematic
consequences, as determined by MB
b. Adjustments shall be in such amount, for such period, and/or for
such deposit products, as may be determined by:
1. a unanimous vote of the PDIC BOD, chaired by DOF Sec
2. Approved by the President of the Philippines
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
NET AMOUNT DUE TO EACH DEPOSITOR- determined as
follows:
1. Add together all deposits in the bank maintained in the same
right and capacity for his benefit, either in his own name or in
the names of others;
2. A joint account regardless of whether the conjunction “and”,
“or”, “and/or” is used shall be insured separately from any
individually-owned deposit account;
Provided:
a. If account is held jointly by two or more natural persons, or by
two or more juridical entities, maximum insured deposit shall be
divided into as many equal shares as there are individuals, juridical
entities, unless a different sharing is stipulated in the document of
the deposit
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
b. If account is held by a juridical entity jointly with one or more
natural persons, maximum insured deposit is presumed to belong
entirely to such juridical entity.
c. Aggregate of interests of each co-owner over several joint
accounts, whether owned by the same or different combinations
of individuals, juridical entities, shall likewise be subject to the
maximum insured deposit of P500,000.00
d. No owner/holder of any negotiable certificate of depposti shall
be recognized as depositor entitled unless his name is registered
as owner/holder in bank’s book.
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
What are covered by PDIC Deposit Insurance?
PDIC insures valid deposits in domestic offices of its member-banks:
• By Deposit Type:
a. Savings
b. Special Savings
c. Demand/Checking
d. Negotiable Order of Withdrawal (NOW)
e. Time Deposits

• By Deposit Account:
a. Single Account
b. Joint Account
c. Account “By”. “In Trust For” (ITF) or “For the Account of” (FAD) another person
d. By Currency:
e. Philippine Peso
f. Foreign currencies considered as part of BSP’s International reserves
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
DEPOSITS NOT COVERED BY INSURANCE:
1. The amount in excess of insured deposit of P500,000.00
2. Deposit that is payable in a place outside of the Philippines
3. Investment products such as bonds and securities, trust accounts
and other similar instruments
4. Deposit accounts or transactions which are fictitious or
fraudulent
5. Deposit accounts or transactions constituting, and/or emanating
from unsafe and unsound banking practice/s as determined by
PDIC’s Board after notice and hearing and publication of cease
and desist order
6. Deposits that are determined to be the proceeds of unlawful
activity as defined under RA No 9160 (AMLA Law)
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
7. Deposit accounts that resulted from splitting of deposits
8. Money placements by the head office of a foreign bank in its
branch in the Phil because there is only one entity

Inter-branch deposits are not covered by deposit insurance. Inter-

branch deposits refer to funds of one branch or the Head Office
of a bank in another branch. These branches are part of one and
the same juridical entity
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
 Splitting of deposits occurs when a deposit account of more than
P500,000 is broken down and transferred into two or more
accounts in the names of person or entities with no beneficial
ownership on transferred deposits. Under RA 9576, splitting is
prohibited within a 120 day-window immediately preceding a
bank-declared bank holiday or closure order by the Monetary
Board (MB) up from 30 days in the old Charter.
 Philippine Deposit Insurance
Corporation Act (RA 3591, as
amended)
 WHEN PAYMENT IS MADE
The proceeds of the insurance shall be paid by the PDIC
within 6 months to the depositor counted from the filing of the
claim whenever the insured bank is closed on account of
insolvency; otherwise the concerned officer, director or employee
of the PDIC shall have criminal liability if there is grave abuse of
discretion, gross negligence, bad faith, or malice. SEC 19 PDIC
Law

An insured bank shall be deemed to have been closed on

account of insolvency when ordered closed by the Monetary
Board of the BSP. SEC 19 PDIC Law
THANK YOU!
• Purpose of reserve
1. To control money flow/supply in the economy
2. To make sure that there is enough fund in case of demand of
depositor
3. To enable the government to finance its operation

AMLA
SAFETY DEPOSIT BOX