BANKING LAWS

AT T Y. D A R Y L G . L I A N G C O , C P A
A. GENERAL BANKING LAWS
1. General Banking Law (RA 8791)
2. New Central Bank Act (RA 7653)

B. SPECIAL BANKING LAWS

1. Rural Banks Act (RA 7353)
2. Private Development Banks Act
3. Savings and Loan Association Act
4. Thrift Banks Act
5. Al Amanah Islamic Investment Bank
6. Cooperative Code of the Philippines
C. OTHER LAWS AFFECTING BANKS

1. Secrecy of Bank Deposits

1.1. Peso
1.2. Foreign Currency
2. PDIC
3. Anti-Money Laundering Act
4. Unclaimed Balances Law
FUNCTIONS OF BANKS

A. Loan
B. Deposit
C. Others
c.1. Trustee
c.2. Managing Agent
c.3. Financial Agent
c.4. Make collection and payments for their customers
c.5. Rent out safety deposit box
GENERAL BANKING LAW OF 2000

BANKS – entities engaged in the lending of funds

obtained from the public

PUBLIC – borrowing from 20 or more creditors

NATURE OF BANKING BUSINESS

1. Debtor-Creditor Relationship
2. Fiduciary Duty
3. Not a Trust Agreement
4. Indispensable Institution
5. Impressed with Public Interest
6. Not Expected to be Infallible
SINGLE BORROWER’S LIMIT (SBL)

- shall not exceed 25% of the net worth of the bank

May this limit be increased? If YES, how much?

 EXCLUSIONS (NON-RISK LOANS)
Loans:
1. Secured by BSP or the Philippine Gov’t.
2. Fully guaranteed by the government
3. Covered by assignment of deposit maintained in the
lending bank and held in the Philippines
4. Under letters of credit to the extent covered by
margin deposits
5. Which the MB may specify as non-risk items
 DOSRI

Director
Officer
Stockholder
Related Interest
 RELATED INTEREST

(1) Spouse or relative within the first degree of

consanguinity or affinity, or relative by legal adoption, of
a director, officer or stockholder of the bank;

(2) Partnership of which a director, officer, or

stockholder of a bank or his spouse or relative within the
first degree of consanguinity or affinity, or relative by
legal adoption, is a general partner;
 RELATED INTEREST

(3) Co-owner with the director, officer, stockholder or his

spouse or relative within the first degree of
consanguinity or affinity, or relative by legal adoption, of
the property or interest or right mortgaged, pledged or
assigned to secure the loans or other credit
accommodations, except when the mortgage, pledge or
assignment covers only said co-owner's undivided
interest;
 RELATED INTEREST

(4) Corporation, association, or firm of which a director or officer

of the bank, or his spouse is also a director or officer of such
corporation, association or firm, except (a) where the securities of
such corporation, association or firm are listed and traded in the
big board or commercial and industrial board of domestic stock
exchanges and less than fifty percent (50%) of the voting stock
thereof is owned by any one person or by persons related to each
other within the first degree of consanguinity or affinity; or (b)
where the director, officer or stockholder of the bank sits as a
representative of the bank in the board of directors of such
corporation: Provided, That the bank representative shall not have
any equity interest in the borrower corporation except for the
minimum shares required by law, rules and regulations, or by the
by-laws of the corporation: Provided, further, that the borrowing
corporation is not among those mentioned in items e(5), e(6), e(7)
and e(8) of this Section;
 RELATED INTEREST
(5) Corporation, association or firm of which any or a group
of directors, officers, stockholders of the lending bank
and/or their spouses or relatives within the first degree of
consanguinity or affinity, or relative by legal adoption, hold or
own at least twenty percent (20%) of the subscribed capital
of such corporation, or of the equity of such association or
firm;

(6) Corporation, association or firm wholly or majority-

owned or controlled by any related entity or a group of
related entities mentioned in Items e(2), e(4) and e(5) of this
Section.
 RELATED INTEREST
(7) Corporation, association or firm which owns or
controls directly or indirectly whether singly or as part of
a group of related interest at least twenty percent (20%)
of the subscribed capital of a substantial stockholder of
the lending bank or which controls majority interest of
the bank pursuant to Subsection X303.1 of the MOR.
(8) Corporation, association or firm in which the lending
bank and/or its parent/subsidiary holds or owns at least
twenty percent (20%) of the subscribed capital of such
corporation, or in the equity of such association or
firm, or has an existing management contract or any
similar arrangement with the lending bank or its
parent/subsidiary.
 LIMIT ON THE COLLATERAL

 It shall not exceed 75% of the appraised value of

the real estate plus 60% of the appraised valued of
the insured improvements
 In case of chattels and intangible properties it shall
not exceed 75% of the appraised value

 However, under Circular 855 the limit is lowered to

60%
  COLLATERAL
Effect when foreclosed:
 The deficiency may still be recovered by the bank
REDEMPTION PERIOD
IF Juridical person 3 months or before COS is
registered in the RD whichever is earlier
If Natural person 1 year from the time COS is
registered in the registry of deeds
REDEMPTION PRICE
The price shall be TOTAL indebtedness plus the
expenses of the foreclosure
NEW CENTRAL BANK ACT
 Purpose
 To maintain a central monetary authority that shall
function and operate as an independent and
accountable body in the discharge of its
responsibilities concerning money, banking and
credit

 To maintain price stability

 To promote and maintain monetary stability and the
convertibility of peso
LEGAL TENDER
 Notes
 Coins
 Checks
 Retirement of Old notes and Coins
CONSERVATORSHIP
 When:
Whenever, on the basis of a report submitted by
the appropriate supervising or examining department,
the MB finds that a bank or quasi-bank is
1. In a state of continuing inability; or
2. Unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors
and creditors

 The bank need not be declared insolvent

RECEIVERSHIP
 When:
Under NCBA
1. Inability to pay liabilities as they become due in
the ordinary course of business
2. Insufficiency of realizable assets to meet its
liabilities
3. Inability to continue business without involving
probable losses to its depositors or creditors
4. Willful violation of a cease and desist order
under Sec. 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of
assets
RECEIVERSHIP
 When:
Under GBL
1. Notification to the BSP or public announcement
of bank holiday
2. Suspension of payment of deposit liabilities
continuously for more than 30 days
3. Persistence in conducting business in an unsafe
and unsound manner
UNSAFE AND UNSOUND BANKING PRACTICE
1. The act or omission has resulted or may result in material
loss or damage, or abnormal risk or danger to the safety,
stability, liquidity or solvency of the institution;
2. The act or omission has resulted or may result in material
loss or damage or abnormal risk to the institution's depositors,
creditors, investors, stockholders or to the Bangko Sentral or to
the public in general;
3. The act or omission has caused any undue injury, or has
given any unwarranted benefits, advantage or preference to the
bank or any party in the discharge by the director or officer of
his duties and responsibilities through manifest partiality,
evident bad faith or gross inexcusable negligence; or
4. The act or omission involves entering into any contract or
transaction manifestly and grossly disadvantageous to the
bank, quasi-bank or trust entity, whether or not the director or
officer profited or will profit thereby.
RECEIVERSHIP
 It is equivalent to an injunction to restrain the bank
in any way. Thus the appointment of a receiver
operates to suspend the authority of the bank and
of its directors and officers over its property and
effects

 “CLOSE NOW, HERE LATER” SCHEME

MANDATORY REQUIREMENTS FOR BANK CLOSURE
1. Examination by the appropriate BSP department as
to the condition of the bank
2. Examination shows that the condition of the bank
is one of insolvency
3. shall inform the MB in writing of such fact
4. If the MB shall find the statement of the
department to be true, it shall appoint a receiver of
the assets and liabilities of the bank
5. Within 60 days, the MB shall determine and
confirm if the bank is insolvent, and if the public
interest requires, shall order the liquidation of the
bank
PDIC
 Insured Deposits
 Net amount after deducting any offsets but should not
exceed P500,000
 If the depositor has 2 or more accounts with same
bank, it shall be the sum total which are held in the
same capacity
 Single account – “by”, “ITF”
 Joint account– “and”, “or”, “and/or”
 Payment of insured deposits
 To be paid, generally file a claim
 Manner of payment
 Cash
 Transferred deposit
EXERCISE:
Determine the amount of claim:
Where Maintained Amount
1. Juan Dela Cruz

Head Office P 200,000

Branch 1 P 400,000

Branch 2 P 300,000
EXERCISE:
Determine the amount of claim:
Account Name Amount

Juan Dela Cruz P 200,000

JDC Gen. Mdse. (owned by Juan Dela P 400,000

Cruz)
Juan Dela Cuz by Maria Cruz P 300,000

Maria Cruz by Juan Dela Cruz P 150,000

Pedro Cruz by Maria Cruz or Juan P 300,000

Dela Cruz
Maria Cruz and/or Pedro Cruz P 400,000

Pedro Cruz ITF John Doe P 450,000

AMLA
 MONEY LAUNDERING
- A crime whereby the proceeds of an
unlawful activity are transacted,
thereby making them appear to have
originated from legitimate sources
 Covered Transactions
 Transactions in cash or other equivalent
monetary instrument involving a total
amount in excess of P500,000, within one
banking day
 Suspicious Transactions
are transactions with covered institutions, regardless of the amounts
involved, where any of the following circumstances exist:
1. there is no underlying legal or trade obligation, purpose or
economic justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business or
financial capacity of the client;
4. taking into account all known circumstances, it may be perceived
that the client’s transaction is structured in order to avoid being the
subject of reporting requirements under the Act;
5. any circumstance relating to the transaction which is observed to
deviate from the profile of the client and/or the client’s past
transactions with the covered institution;
6. the transaction is in any way related to an unlawful activity or
offense under this Act that is about to be, is being or has been
committed; or
7. any transaction that is similar or analogous to any of the foregoing.
 Reportorial Requirement
- Covered institutions shall report to the AMLC all
covered transactions and suspicious transactions
within five (5) working days from occurrence thereof,
unless the [Supervising Authority] AMLC prescribes a
[longer] different period not exceeding [ten (10)] 15
working days.
- Should a transaction be determined to be both
a covered transaction and a suspicious transaction,
the covered institution shall be required to report the
same as a suspicious transaction.
 Reportorial Requirement
- Lawyers and accountants acting as
independent legal professionals are not required to
report covered and suspicious transactions if the
relevant information was obtained in circumstances
where they are subject to professional secrecy or legal
professional privilege.

- Neither may such reporting be published or

aired in any manner or form by the mass media”,
electronic mail, or other similar devices. In case of
violation thereof, the concerned
SECRECY OF BANK DEPOSITS
PESO FOREIGN CURRENCY
RA 1405 RA 6426
Several exceptions 2 exceptions; one
provided by law and
in AMLA
May be garnished or Gen. rule: Exempt
attached Exception. Salvacion
Case
SECRECY OF BANK DEPOSITS
 GENERAL RULE:

- ALL DEPOSITS of whatever nature with banks

or banking institutions in the Philippines, including
investment in bonds issued by the government of the
Philippines, its political subdivisions and its
intrumentalities.
SECRECY OF BANK DEPOSITS
 EXCEPTIONS:
1. Upon written permission of the depositor
2. In cases of impeachment
3. Upon order of a competent court in cases of bribery
or dereliction of duty of public officials
4. Upon order of a competent court in cases where
the money deposited or invested is the subject
matter of the litigation
5. Upon order of a competent court or tribunal in
cases involving unexplained wealth under RA 3019
SECRECY OF BANK DEPOSITS
 EXCEPTIONS:
6. Upon inquiry by the CIR into bank deposits of:
a. A decedent to determine his gross estate
b. Any taxpayer who has filed an application for
compromise of his tax liability due to financial
incapacity (express waiver)
7. Upon order of competent court in cases of
violation of AMLA except that no court order is
required in the ff:
a. Kidnapping for ransom
b. Violation of RA 9165
c. Hijacking and other violations under RA 6235
d. Destructive arson and murder under RPC
SECRECY OF BANK DEPOSITS
 EXCEPTIONS:
8. Disclosure to the Treasurer of the Philippines
under the Unclaimed Balances Act
9. Under the NCBA
a. DOSRI loans
b. Periodic and special examinations
10. Examination by an independent auditor hired by
the bank to conduct its regular audit provided that
the examination is for audit purposes only and the
results thereof shall be for the exclusive use of the
bank
SECRECY OF BANK DEPOSITS

Under the GBL it is provided that no

bank shall employ casual or non-regular
personnel or too lengthy probationary
personnel in the conduct of its business
involving bank deposits.
UNCLAIMED BALANCES LAW

 The credit or deposit must be with a bank,

building and loan association, or trust
corporation
 It involves credits or deposits (money, bullion,
security, other evidence of indebtedness)
 The credit or deposit is in favor of a person:
 Who is known to be dead
 Who has not made further deposits or
withdrawals during the preceding 10 years or
more (dormant for at least years)