DRAGON NOTES MERCANTILE LAW

DRAGON NOTES MERCANTILE LAW

INSTITUTE OF LAW STEERING COMMITTEE FACULTY ADVISER

School of Law and Governance FOR ACADEMICS
CHAIRPERSON JUDGE ROWENA NIEVES A. TAN
University of Asia and the Pacific
HANNAH BARRANTES
DEAN
Atty. MARIA CONCEPCION S. NOCHE ACADEMICS HEAD
REUEL REALIN
SECRETARY
Atty. DELIA S. TANTUICO LOGISTICS HEAD
CRIS TACUBOY

HUMAN RESOURCES HEAD

REM SERRANO

FINANCE HEAD
ANNA MANALO

SECRETARIAT
VANYA NUQUE

OVERALL COORDINATOR
OLIVER M. TUAZON

ASSISTANT COORDINATORS
JOSEMARIA BASSIG
CHRISTIAN ESPAÑO

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DRAGON NOTES MERCANTILE LAW

SUBJECT TEAM
(INSERT)

FACULTY ADVISERS
[INSERT]

SUBJECT HEAD
[INSERT]

COMMITTEE MEMBERS
[INSERT]

DESIGN TEAM

COMMITTEE MEMBERS
KARLA BABA
NATHAN ESPINO
ANGELO GABRILLO
KAYE LEGASPI
COURTNEY TIROL
NAOMI YMBANG

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DRAGON NOTES MERCANTILE LAW

d. Liquidation
5. Legal Tender Power
6. Foreign Exchange Operations
B. Law on Secrecy of Bank Deposits (R.A.
No. 1405, as amended)
1. Purpose
2. Prohibited Acts
TABLE OF CONTENTS 3. Deposits Covered
4. Exceptions
VIII. BANKING LAWS 5. Garnishment of Deposits, including
A. The New Central Bank Act (R.A. No. Foreign Deposits
7653) C. General Banking Law of 2000 (R.A. No.
1. State Policies 8791)
2. Responsibility and Primary Objective 1. Definition and Classification of Banks
of the BSP 2. Distinction of Banks from Quasi-
3. Monetary Board; Powers and Banks and Trust Entities
Functions 3. Bank Powers and Liabilities
4. The BSP and Banks in Distress a. Corporate Powers
a. Conservatorship b. Banking and Incidental Powers
b. Closure 4. Diligence Required of Banks
c. Receivership

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DRAGON NOTES MERCANTILE LAW

5. Nature of Bank Funds and Bank - In line with this policy, and considering its
Deposits unique functions and responsibilities, the
6. Stipulation on Interests central monetary authority established under
this Act, while being a government‐owned
7. Grant of Loans and Security
corporation, shall enjoy fiscal and
Requirements administrative autonomy (Sec. 1.)
a. Ratio of Net Worth to Total
Risk Assets Nature of the BSP
b. Single Borrower’s Limit (1) A central monetary authority;
c. Restrictions on Bank Exposure (2) An independent and accountable body; and
to DOSRI (Directors, Officers, (3) A government-owned corporation enjoying
fiscal and administrative autonomy. (Sec. 1)
Stockholders and their Related
Interests) Capitalization Requirements
The BSP shall have a capitalization of P50B to
I. The New Central Bank Act (RA 7653) be fully subscribed by the Government. (Sec.2,
NCBA)
A. State Policies
- The State shall maintain a central monetary B. Responsibility and Primary Objectives of
authority that shall function and operate as an the BSP
independent and accountable body corporate in
the discharge of its mandated responsibilities The Responsibilities of the BSP:
concerning money, banking and credit. (Sec. 1)

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DRAGON NOTES MERCANTILE LAW

(1) To provide policy directions in the areas 2. Custodian of reserves. (Secs. 64‐66, 94,
of money, banking, and credit; 103)
(2) To supervise bank operations; and 3. Clearing channel or house; especially
(3) To regulate the operations of finance where the PCHC does not operate. (Sec.
companies and non‐bank financial 102)
institutions performing quasi‐banking 4. Banker of the government (Secs. 110‐
functions, and similar institutions. (Sec. 116)
3) 5. Financial advisor of the government
(Secs. 123‐124)
The Primary objectives of the BSP: 6. Source of credit (Secs. 61‐63, 81‐
89,109)
(1) To maintain price stability conducive to a 7. Supervisor of the banking system
balanced and sustainable growth of the (Sec.25)
economy. 8. Government agent (Secs. 117‐122)
(2) To promote and maintain monetary
stability and the convertibility of the C. Monetary Board
peso. (Sec. 3) The body through which the powers and
functions of the Bangko Sentral are exercised
Functions of the BSP (Sec 6, NCBA)
1. Issuer of currency. (Sec. 49‐60)

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DRAGON NOTES MERCANTILE LAW

Powers and Functions of the Monetary operations of the Bangko Sentral in

Board accordance with applicable laws and
regulations.
1. Issue rules and regulations it considers
necessary for the effective discharge of 5. Indemnify its members and other
the responsibilities and exercise of its officials of the Bangko Sentral, including
powers. personnel of the departments performing
supervision and examination functions
2. Direct the management, operations, and against all costs and expenses reasonably
administration of the Bangko Sentral, incurred by such persons in connection
reorganize its personnel, and issue such with any civil or criminal action. (Sec 15,
rules and regulations as it may deem NCBA)
necessary or convenient for this purpose.
D. The BSP and banks in distress
3. Establish a human resource management When a bank is distressed, the BSP may
system. appoint a conservator, receiver, or proceed with
the closure of the bank
4. Adopt an annual budget for and
authorize such expenditures by the Insolvency – When the realizable assets of a
Bangko Sentral as are in the interest of bank are insufficient to meet its liabilities1
the effective administration and
1
Ignacio, Larry P., Banking and Allied Laws (2016)

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DRAGON NOTES MERCANTILE LAW

E. Conservatorship II. Expenses for Conservatorship

I. Appointment The expenses attendant to the conservatorship
Whenever, on the basis of a report submitted by shall be borne by the bank or quasi-bank
the appropriate supervising or examining concerned (Sec.29).
department, the Monetary Board finds that a
bank or a quasi-bank is in a state of: GR: The conservator shall receive
(1) Continuing inability; or remuneration in an amount not to exceed 2/3 of
(2) Unwillingness to maintain a condition of the salary of the president of the institution in 1
liquidity deemed adequate to protect the year, payable in 12 equal monthly payments.
interest of depositors and creditors (Sec.
29 NCBA) Exception: A conservator connected with the
BSP, in which case said conservator shall not
(3) The conservator should be competent and be entitled to receive any remuneration or
knowledgeable in bank operations and emolument. (Sec. 29, NCBA)
management. The conservatorship shall
not exceed one (1) year (Sec. 29). III. Effects of Conservatorship
(1) Bank/Quasi-bank retains juridical
(4) The appointment of a conservator shall personality;
be vested exclusively in the MB. (Sec. (2) Not a precondition to the designation of a
30, NCBA) receiver (Sec. 30, NCBA), and;

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DRAGON NOTES MERCANTILE LAW

(3) Perfected transactions cannot be repudiated (2) When, on the basis of the report of the
(First Philippine International Bank v. CA, conservator or of its own findings, the
1996) MB determines that the continuance in
business of the institution would involve
IV. Powers and Duties of a Conservator probable loss to its depositors or
1. To take charge of the assets, liabilities, creditors.
and the management thereof;
2. Recognize the management; the bank or quasi-bank would then be placed
3. Collect all monies and debts due said under receivership if the continuance of
bank; business would result in probable loss based
4. Exercise all powers necessary to restore on the conservator’s reports (Sec. 29, NCBA)
its viability with the power to overrule or
revoke the actions of the previous F. Closure
management and board of directors of The MB may summarily and without need for
the bank or quasi‐bank (Sec. 29, NCBA). prior hearing close a banking institution and
place it under receivership.
V. Termination of Conservatorship
(1) When MB is satisfied that the institution Close now-hear later Doctrine
can continue to operate on its own and The law does not contemplate prior notice and
the conservatorship is no longer hearing before the bank may be directed to stop
necessary; or operations and placed under receivership. The

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DRAGON NOTES MERCANTILE LAW

purpose is to prevent unwarranted dissipation of which amount to fraud or a dissipation of

the bank’s assets and as a valid exercise of the assets (Sec 30, NCBA).
police power to protect the depositors, (5) Notification to the BSP or public
creditors, stockholders and the general public. announcement of a bank holiday (Sec 53,
(Central Bank of the Philippines v. CA, G.R. General Banking Law).
No. 76118 Mar. 30, 1993) (6) Suspension of payment of its deposit
liabilities continuously for more than 30
Grounds for closure days (Sec 53, GBL).
(7) Persisting in conducting its business in
(1) Inability to pay liabilities as they become an unsafe or unsound manner (Sec 56,
due in the ordinary course of business GBL).
(Sec. 30, NCBA).
(2) Insufficiency of realizable assets to meet Bank Holiday:
its liabilities (Sec 30, NCBA). When a bank or quasi-bank suspends the
(3) Inability to continue business without payment of its deposit liabilities continuously
involving probable losses to its for more than 30 days
depositors and creditors (Sec 30, NCBA).
(4) willful violation of a cease and desist G. Receivership
order under Section 37 that has become
final, involving acts or transactions Definition:

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DRAGON NOTES MERCANTILE LAW

One appointed if bank is already insolvent (4) Has willfully violated a cease-and-desist
which means that its liabilities are greater than order under Sec. 37 that has become
its assets. final, involving acts or transactions
which amount to fraud or a dissipation of
I. Grounds for Receivership the assets of the institution. Special rule:
When the MB finds that a bank or quasi-bank: in this situation, the MB may act
summarily and without hearing (Sec. 30,
(1) Is unable to pay its liabilities as they NCBA)
become due in the ordinary course of business.
II. Appointment of a Receiver
Exception: This shall not include inability to The appointment of a receiver shall be vested
pay caused by extraordinary demands induced exclusively in the MB, and the designation of a
by financial panic in the banking community; conservator is not a precondition to the
designation of a receiver (Sec. 30, NCBA)
(2) Has insufficient realizable assets, as
determined by the BSP, to meet its Acting receiver:
liabilities; or (1) If a banking institution: the PDIC
(3) Cannot continue in business without (2) If a quasi-bank: any person of recognized
involving probable losses to its competence in banking or finance
depositors or creditors; or
III. Duties of a Receiver

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DRAGON NOTES MERCANTILE LAW

deemed in custodia legis and shall be

(1) Immediately gather and take charge of all exempt from any order of garnishment,
the assets and liabilities of the institution levy, attachment, or execution (Sec. 30,
(2) Administer the same for the benefit of its NCBA).
creditors, and exercise the general
powers of a receiver under the Revised H. Liquidation
Rules of Court I. Notice
(3) But shall not, with the exception of If the receiver determines that the institution
administrative expenditures, pay or cannot be rehabilitated or permitted to resume
commit any act that will involve the business in accordance with the next preceding
transfer or disposition of any asset of the paragraph, the MB shall notify in writing the
institution: board of directors of its findings and direct the
receiver to proceed with the liquidation of the
Provided, That the receiver may deposit institution (Sec. 30, NCBA).
or place the funds of the institution in
non-speculative investments. II. Procedure for Liquidation
(1) The receiver shall file ex parte with the
proper RTC, and without requirement of prior
Note: notice or any other action, a petition for
The assets of the institution under assistance in the liquidation of the institution
receivership and liquidation shall be

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DRAGON NOTES MERCANTILE LAW

pursuant to the liquidation plan adopted by the

PDIC.
III. Effects of Receivership/Liquidation
(2) Upon acquiring jurisdiction, the court shall, (1) Retention of juridical personality;
upon motion by the receiver after due notice: (2) Suspension of operations
(a) Adjudicate disputed claims against (3) Assets are deemed in custodia legis,
the institution; exempt from garnishment, levy or
(b) Assist the enforcement of individual execution;
liabilities of the stockholders, directors, (4) Stay of execution of judgment to prevent
and officers; and depletion of bank assets;
(c) Decide on other issues as may be (5) Bank is not liable to pay interest on
material to implement the liquidation deposits which accrued during the period
plan of suspension of operation;
(6) Restriction of bank’s capacity to do new
(3) The receiver shall convert the assets of the business (new loans, deposits) but with
institutions to money, dispose of the same to obligation to collect pre-existing debts.
creditors and other parties, for the purpose of
paying the debts of such institution in
accordance with the rules on concurrence and
preference of credit under the Civil Code. [Sec.
30, NCBA] I. Legal Tender Power

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DRAGON NOTES MERCANTILE LAW

All notes and coins issued by the BSP shall be 3. After the expiration of this latter period, the
fully guaranteed by the Government of the notes and coins which have not been exchanged
Republic of the Philippines and shall be legal shall cease to be a liability of BSP and shall be
tender in the Philippines for all debts, both demonetized. (Sec. 57)
public and private (Sec. 52, NCBA)
Legal Character:
Limitations on coins: Checks representing demand deposits do not
1. 1‐Peso, 5‐Peso and 10‐Peso coins: In have legal tender power and their acceptance in
amounts not exceeding P1,000.00 the payment of debts, both public and private, is
2. 25 centavo coin or less: In amounts not at the option of the creditor.
exceeding P100.00 (Circular No. 537, However, a check which has been cleared and
2006) credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash
Rules on Legal Tender: in an amount equal to the amount credited to
1. Notes and coins called in for replacement his account (Sec. 60).
shall remain legal tender for a period of one
year from the date of call. J. Foreign Exchange Operations
2. After that period, they shall cease to be legal
tender during the following year or for such Rate of exchange
longer period as MB may determine.

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DRAGON NOTES MERCANTILE LAW

(1) The Monetary Board shall determine the additional costs or expenses involved in each
rates at which the Bangko Sentral shall type of transactions (Sec. 74, NCBA).
buy and sell spot exchange
II, Law on Secrecy of Bank Deposits (R.A.
(2) shall establish deviation limits from the No. 1405, as amended)
effective exchange rate or rates as it may
deem proper. A. Purpose
(1) To encourage deposit in banking
(3) The Monetary Board shall similarly institutions; and
determine the rates for other types of
foreign exchange transactions by the (2) To discourage private hoarding so that
Bangko Sentral, including purchases and banks may lend such funds and assist in
sales of foreign notes and coins (Sec. 74, the economic development of the
NCBA) country.

Limitations: B. Prohibited Acts

The margins between the effective exchange (1) Examination/inquiry/looking into all
rates and the rates thus established may not deposits of whatever nature with banks or
exceed the corresponding margins for spot banking institutions in the Philippines
exchange transactions by more than the (including investment in bonds issued by the

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DRAGON NOTES MERCANTILE LAW

government) by any person, government Special rule:

official or office (Sec. 2) The confidentiality of foreign-currency deposits
is governed by the Foreign Currency Deposit
(2) Disclosure by any official or employee of Act (RA 6426).
any banking institution to any authorized
person of any information concerning said Under the same law, all authorized foreign
deposit (Sec. 3) currency deposits are considered of an
absolutely confidential nature and, except upon
C. Deposits Covered the written permission of the depositors, in no
instance shall be examined, inquired or looked
General Rule: into by any person, government official, bureau
(1) All deposits of whatever nature with banks or office whether judicial or administrative
or banking institutions found in the private.
Philippines2; or
D. Exceptions
(2) Investments in bonds issued by the Instances where examination or disclosure of
Philippine government, its branches, and information about deposits is allowed:
institutions. (Sec. 2, R.A. 1405)
(1) Upon written consent of the depositor.
(Sec. 2)
2
Exclusions: Money-market placement is not covered by RA 1405 (2) In cases of impeachment. (Sec. 2)
because it is not deposited in the bank.

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DRAGON NOTES MERCANTILE LAW

(3) Upon order of competent court in cases (8) When the examination is made by the
of bribery or dereliction of duty of public BSP to insure compliance with the AML
officials. (Sec. 2) Law in the course of a periodic or special
(4) In cases where the money deposited or examination
invested is the subject matter of the (9) With a court order:
litigation. (Sec. 2) a. In cases of unexplained wealth
(5) Upon order of the Commissioner of under Sec. 8 of the Anti‐Graft and
Internal Revenue in respect of the bank Corrupt Practices Act (PNB v.
deposits of a decedent for the purpose of Gancayco, L‐18343, Sept. 30,
determining such decedent’s gross estate. 1965)
(Sec. 6[F][1], NIRC)
(6) Upon the order of the Commissioner of b. In cases filed by the
Internal Revenue in respect of bank Ombudsman and upon the latter’s
deposits of a taxpayer who has filed an authority to examine and have
application for compromise of his tax access to bank accounts and
liability by reason of financial incapacity records (Marquez v. Desierto, GR
to pay his tax liability. (Sec. 6[f] 138569, Sept. 11, 2003)
[1],NIRC)
(7) In case of dormant accounts/deposits for (10) Without a court order: If the AMLC
at least 10 years under the Unclaimed determines that a particular deposit or
Balances Act. (Sec. 2, Act No. 3936).

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DRAGON NOTES MERCANTILE LAW

investment with any banking institution full knowledge that his life, so far as relevant to
is related to the following: his duty, is open to public scrutiny. (PNB v.
a. Destructive Arson Gancayco, G.R. No. L‐18343, Sept. 30, 1965)
b. Kidnapping
c. Murder E. Garnishment of Deposits, including
d. Hijacking Foreign Deposits
e. Violation of the Dangerous
Drugs Act. General rule:
The prohibition against examination of or
inquiry into a bank deposit under Republic Act
Jurisprudence on unexplained wealth 1405 does not preclude its being garnished to
insure satisfaction of a judgment (PCIB v. CA,
Cases of unexplained wealth are similar to G.R. No. 84526, Jan. 28, 1991).
cases of bribery or dereliction of duty and no Exception: Foreign Currency Deposits
reason is seen why these two classes of cases
cannot be excepted from the rule making bank Foreign currency deposits shall be exempt from
deposits confidential. The policy as to one attachment, garnishment, or any other order or
cannot be different from the policy as to the process of any court, legislative body,
other. This policy expresses the motion that a government agency or any administrative body
public office is a public trust and any person whatsoever. (Sec 8. R.A. 6426)
who enters upon its discharge does so with the

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DRAGON NOTES MERCANTILE LAW

Exception to the Exception: Bank – Entities engaged in the lending of funds

The garnishment of a foreign currency deposit obtained in the form of deposits (Sec.
should be allowed to prevent injustice and for 3.1, GBL)
equitable grounds, otherwise, it would negate
Article 10 of the New Civil Code which Universal banks ‐ Primarily governed by the
provides that “in case of doubt in the General Banking Law (GBL), can
interpretation or application of laws, it is exercise the powers of an investment
presumed that the lawmaking body intended house and invest in non‐allied enterprises
right and justice to prevail. (Salvacion vs. and have the highest capitalization
Central Bank of the Philippines, G.R. 94723, requirement.
August 21, 1997)
Commercial banks ‐ Ordinary banks governed
Penalties by the GBL which have a lower
(1) Imprisonment of not more than 5 years; capitalization requirement than universal
or banks and can neither exercise the
(2) Fine of not more than P20,000; or powers of an investment house nor invest
(3) Both, in the discretion of the court (Sec. in non‐allied enterprises.
5, RA 1405)
III. General Banking Law (R.A. 8791) Rural banks – Mandated to make needed
A. Definition and Classification of Banks credit available and readily accessible in
the rural areas on reasonable terms

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DRAGON NOTES MERCANTILE LAW

(2) Commercial Banks (KB)

Cooperative banks – Those banks organized (3) Thrift Banks (RA 7906)
whose majority shares are owned and (a) Savings and mortgage banks
controlled by cooperatives primarily to (b) Stock savings and loan
provide financial and credit services to associations
cooperatives. It shall include cooperative (c) Private development banks
rural banks. (4) Rural Banks (RA 7353)
(5) Cooperative Banks (RA 6938)
Islamic banks – Banks whose business (6) Islamic Banks (RA 6848)
dealings and activities are subject to the (7) Other classification of banks as may be
basic principles and rulings of Shari’a determined by the Monetary Board of the
law BSP

Elements of a bank B. Distinction of Banks from Quasi-

(1) Must be authorized by law Banks and Trust Entities
(2) Accept funds, in the form of a deposit
from the public; and Quasi-banks
(3) Lends funds to the public These are entities engaged in the borrowing of
funds through the issuance, endorsement or
Classifications of Banks assignment with recourse or acceptance of
(1) Universal Banks (UB) deposit substitutes for purposes of re‐lending or

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DRAGON NOTES MERCANTILE LAW

purchasing of receivables and other obligations

(Sec 4, GBL). C. Bank Powers and Liabilities

Trust Entities I. Corporate Powers

These are entities engaged in trust business that All powers provided by the corporation code
act as a trustee or administer any trust or hold like issuance of stocks and entering into merger
property in trust or on deposit for the use, or consolidation with other corporation or
benefit of others (Sec. 79, GBL). banks.

Deposit substitutes Universal Banks

Funds obtained from the public, other than (1) Corporate powers (Sec. 36, Corporation
deposits, through the issuance, endorsement, or Code)
acceptance of deposit-substitute instruments for (2) Banking and incidental powers
the borrower's own account, for the purpose of (3) Powers of an Investment House
relending or purchasing of receivables and (4) Power to invest in non-allied enterprises
other obligations. (Sec. 23, GBL)
(5) Power to invest in allied enterprises
It includes bankers’ acceptances, promissory (Sec. 24, GBL)
notes, participations, certificates of assignment
and similar instruments with recourse, and Commercial Banks
repurchase agreements. (Sec. 95, NCBA)

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DRAGON NOTES MERCANTILE LAW

(1) Corporate powers (Sec. 36, Corporation XPN: Prior approval of, and subject to
Code) such conditions and rules as may be
(2) Banking and incidental powers prescribed by the Monetary Board
(Sec. 29, GBL) (5) Receiving other types of deposits and
(3) Power to invest in allied enterprises deposit substitutes
(Sec. 30, GBL) (6) Buying and selling foreign exchange and
gold or silver bullion
II. Banking and Incidental Powers (7) Acquiring marketable bonds and other
All such powers as may be necessary to carry debt securities
on the business of commercial banking (Sec. (8) Extending credit
29, GBL)
Doctrines
(1) Accepting drafts Presumption of ownership of deposits
(2) Issuing letters of credit It is presumed that money deposited in a bank
(3) Discounting and negotiating promissory account belongs to the person in whose name
notes, drafts, bills of exchange, and other the deposit account is opened.
evidence of debt
(4) Accepting or creating demand deposits No duty to set-off
GR: Only UB/KB may create or accept A bank is under no duty or obligation to make
demand deposits (Sec. 33, GBL) an application or set-off against the deposit
accounts of a borrower. To apply the deposit to

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DRAGON NOTES MERCANTILE LAW

the payment of a loan is a privilege, a right of diligence is expected, and high standards of
set-off which the bank has the option [but not integrity and performance are even required.
the obligation] to exercise. (BPI v. CA and Banks must treat depositors’ accounts with
Eastern Plywood, 1994) meticulous care and always to have in mind the
fiduciary nature of its relationship with them.
Safety deposit boxes (Metrobank v. Rosales, 2014)
The rent of safety deposit boxes is a special Fiduciary Duty of Banks
kind of deposit and cannot be characterized as Failure on the part of the bank to satisfy the
an ordinary contract of lease because the full degree of diligence required of banks may
and absolute possession and control of the warrant the award of damages.
deposit box is not given to the renters. The
prevailing rule is that the relation between the Banks are expected to exercise the highest
bank renting out and the renter is that of bailor degree of diligence in the selection and
and bailee the bailment being for hire and supervision of their employees (PCI Bank v.
mutual benefit. (CA Agro-industrial Dev. Corp. CA, 2001).
v. CA, 1983)
E. Nature of Bank Funds and Bank
D. Diligence Required of Banks Deposits
Extraordinary Diligence
The banking industry is impressed with public Bank deposits are the function of the bank to
interest. As such, the highest degree of receive a thing, primarily money, from

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DRAGON NOTES MERCANTILE LAW

depositors with the obligation of safely keeping

it and returning the same. Exception:
In case where numbered accounts is allowed
such as in foreign currency deposits. However,
The relationship between a depositor and a banks/non‐bank financial institutions should
bank is that of a creditor and debtor in relation ensure that the client is identified in an official
to the bank’s deposit functions (Gullas vs. or other identifying documents. (Sec. 8, R.A.
PNB, G.R. No. L-43191, November 13, 1935) 6426 as amended)

The contract between the bank and its depositor F. Stipulation on Interests
is governed by the provisions of the NCC on
simple loan (Consolidated Bank and Trust The Monetary Board may prescribe the
Corporation vs. CA, G.R. No. 138569, maturities, as well as related terms and
September 11, 2003). conditions for various types of bank loans and
other credit accommodations.
Anonymous Accounts
General rule: Any change by the Board in the maximum
Anonymous accounts or those under fictitious maturities shall apply only to loans and other
names are prohibited. (R.A. 9160 as amended credit accommodations made after the date of
by by R.A. 9194; BSP Circular No. 251, July such action.
21, 2000)

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DRAGON NOTES MERCANTILE LAW

The Monetary Board shall regulate the interest have a sufficient net worth relative to total risk
imposed on micro finance borrowers by lending assets, which may include contingent accounts
investors and similar lenders such as, but not
limited to, the unconscionable rates of interest However, the MB may require or suspend
collected on salary loans and similar credit compliance with such ratio whenever necessary
accommodations (Sec. 43, GBL) for a maximum period of one year and that such
ratio shall be applied uniformly to banks of the
G. Grant of Loans and Security same category (Sec. 34, GBL)
Requirements
Exceptions:
Ratio of Net Worth to Total Risk Assets (1) In case of a bank merger or consolidation;
(2) When a bank is under rehabilitation under a
Net worth program approved by the BSP; (Sec. 34, GBL)
The total of the unimpaired paid‐in surplus,
retained earnings and undivided profit, net of Effect of non-compliance
valuation reserves and other adjustments as 1. Distribution of net profits may be limited or
may be required by the BSP. (Sec. 24.2, GBL) prohibited and MB may require that part or all
of the net profits be used to increase the capital
General Rule: accounts of the bank until the minimum
A bank must conform to the risk-based capital requirement has been met;
ratio prescribed by the MB whereby it must

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DRAGON NOTES MERCANTILE LAW

2. Acquisition of major assets and making of additional liabilities are adequately secured by
new investments may be restricted. trust receipt, shipping documents, warehouse
receipts and other similar documents which
Exception: must be fully covered by an insurance. (Sec.
Purchases of evidence of indebtedness 35.2, GBL)
guaranteed by the Government (Sec. 34).
3. Loans and other credit accommodations
Single Borrower’s Limit secured by REM shall not exceed 75% of the
1. The total amount of loans, credit appraised value of the real estate security plus
accommodations and guarantees that the bank 60% of the appraised value of the insured
could grant should at no time exceed 25% of improvements (Sec. 37, GBL)
the bank’s net worth. (Sec 35.1, GBL)
Restrictions on Bank Exposure to DOSRI
Exception: (Directors, Officers, Stockholders and their
As the Monetary Board may otherwise Related Interests)
prescribe for reasons of national interest. Loans granted to DOSRI:
a. Director
2. The total amount of loans, credit b. Officer
accommodations and guarantees prescribed in c. Stockholder, which should at least 1%
(a) may be increased by an additional 10% of (if below 1% ‐ not anymore covered)
the net worth of such bank provided that

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DRAGON NOTES MERCANTILE LAW

d. Related Interests, such as DOS’s the portfolio or 100% of the net worth,
spouses, their relatives within the first whichever is lower.) (Sec. 36.4, GBL)
degree whether by consanguinity or Arm’s Length Rule for DOSRI
affinity, partnership whereby DOS is a Any dealings of a bank with any of its DOSRI
partner or a corporation where DOS shall be upon terms not less favorable to the
owns at least 20%. bank than those offered to others. (Sec. 36.2,
GBL)
Requirements for Compliance with DOSRI Note: No favorable treatment
Accounts
1. Procedural requirement ‐ Loan must be
approved by the majority of all the directors not
including the director concerned. CB approval
is not necessary; however, there is a need to
inform them prior to the transaction. Loan must
be entered in the books of the corporation. (Sec.
36)

2. Substantive requirement ‐ Loan must not

exceed the paid in contribution and
unencumbered deposits. (Not to exceed 15% of

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