Chapter 4

UNIVERSAL BANKS
Powers of a Universal Bank
1. Powers authorized for a commercial bank
2. Powers of an investment house
3. Power to invest in non-allied enterprises
a. Financial
b. Non-financial
Rules:
1. Total investment in equities of allied and non-allied enterprises shall not exceed 50% of
the net worth of the bank
2. Equity investment in one enterprise, whether allied or non-allied shall not exceed 25% of
the networth of bank (subject to approval of the Monetary Board which shall promulgate
appropriate guidelines to govern such investments)

Net Worth - total unimpaired paid in capital including paid in surplus, retained earnings and
undivided profit, net of valuation reserves and other adjustments as may be required by Bangko
Sentral

Equity Investments of a Universal Bank in Financial Allied Enterprises

1. Universal bank can own 100% equity in a:
a. Thrift bank
b. Rural bank
c. Financial allied enterprise
i. Leasing companies
ii. Banks
iii. Investment houses
iv. Financing companies
v. Credit card companies
vi. Financial institutions catering to small and medium scale industries
including venture capital corporation (VCC)
vii. Companies engaged in stock brokerage/securities dealership
viii. Companies engaged in foreign exchange dealership/brokerage
ix. Insurance companies
x. Holding companies, provided, the investment are confined to equities
allowed under BSP regulations
2. Publicly listed universal/commercial bank can own 100% voting stock of only one other
universal or commercial bank

Equity investments of a Universal Bank in Non-Financial Allied Enterprises

Universal bank may own 100% of the equity
1. Warehousing companies
2. Storage companies
 3. Safe deposit box companies
4. Companies engaged in the management of mutual funds
5. Management corporations engaged or to be engaged in an activity similar to the
management of mutual funds
6. Companies engaged in providing computer services
7. Insurance agencies/brokerage
8. Companies engaged in home building and home development
9. Companies providing drying and/or milling facilities for agricultural crops such as rice
and corn
10. Service bureaus, organized to perform for and in behalf of banks and non-bank financial
institutions the services companies may be allowed to invest up to 40% in the equity of
services bureaus
11. Philippines Clearing House Corporation (PCHC), Philippines Central Depository Inc, and
Fixed Income Exchange
12. Such other similar activities as the Monetary board may declare
13. Health Maintenance Organizations (HMOs)

Rural/Cooperative Banks may invest as a non-financial allied undertaking in the equities of

companies engaged in:
1. Warehousing and other post harvest facilities
2. Fertilizer and agricultural chemical and pesticides distribution
3. Farm equipment distribution
4. Trucking and transportation of agricultural products
5. Marketing of agricultural products
6. Leasing
7. Other undertaking as may be determined by the Monetary board

UNIVERSAL BANKS Total Equity Stock Voting Stock Total investment

Allied and non allied 25% of networth of 50% of net worth of

enterprise Universal Bank Universal Bank

Thrift bank, rural 100% 100% (if publicly

bank, financial allied listed universal or
enterprise commercial bank)

Non financial 100%

enterprise

Single non allied 35% 35%

enterprise

Quasi Banks 40% (also for

commercial banks)
Only Universal banks may invest in the equity of an enterprise engaged in non-allied or
non-related activities.
a. Enterprises engaged in physically productive activities (based on Philippine Standard
Industrial Classification PSIC)
i. Agriculture
ii. Mining and quarrying
iii. Manufacturing
iv. Public utilities
v. Construction
vi. Wholesale trade
vii. Community and social services
b. Industrial park projects and/or industrial estate developments
c. Financial and commercial complex projects arising from or in connection with
Government’s privatization program
d. Such other broad categories as the Monetary board may declare as appropriate

COMMERCIAL BANKS

Power of a commercial banks

1. General powers incident to corporations
2. Powers necessary to carry on the business of commercial banking
a. Accepting drafts and issuing letters of credit
b. Discounting and negotiating negotiable instruments 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
f. Extending credit subject to rule of Monetary Board
i. Rules include determination of bonds and other debt securities eligible for
investment, other maturities and aggregate amount of such investment

Letter of Credit
- Financial device developed by merchants as a convenient and relatively safe mode of
dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller
who refuses to part with his goods before he is paid and a buyer who wants to have
control of the goods before paying.
- Engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit

> Banker advances money to an intending imported retaining the title of the goods as his
indispensable security
>imported goods reach the intended vendee
> once credit is established, the seller ships the goods to the buyer
> seller executes draft and present it together with required documents to the issuing bank
> issuing bank redeems the draft and pays cash to seller
> buyer reimburses the issuing bank and acquires the documents entitling him to the goods

Seller gets paid only if he delivers the documents of title over the goods, the buyer acquires the
said documents and control over the goods only after reimbursing the bank

Independence Principle
- The bank determines compliance with letters of credit only by examining shipping
documents presented, it is precluded from determining whether the main contract is
actually accomplished or not
Letter of Credit Transaction
3 distinct but intertwined relationships
1. Party applying for LC (buyer or importer) + Party for whose benefit the LC is issued
(beneficiary, seller, exporter)
2. Account party + issuing bank (Application and Agreement/Reimbursement Agreement)
3. Issuing Bank + Beneficiary

Parties
1. Buyer - procures the LC and obliges himself to reimburse the bank
2. Bank - issuing the LC undertakes to pay the seller upon receipt of draft
3. Seller - ships the goods to buyer and delivers documents to bank to recover payment

COMMERCIAL BANKS Equity investment Total investment

Allied enterprises 25% net worth of the 35% net worth of the
bank bank

Thrift bank or rural bank 100%

Other financial allied MINORITY HOLDING

enteprise ONLY

Non-financial 100%
RISK BASED CAPITAL

Minimum Ratio
- Which the net worth of a bank must bear to its total risk assets which may include
contingent accounts
- Prescribed by the Monetary Board
1. Such ratio may be determined on the basis of the net worth and risk assets
2. Conform to internationally accepted standards including Bank for International
Settlements (BIS)
3. May alter or suspend compliance with such ratio max. 1 year
4. Shall be applied uniformly to banks of the same category

Effect of non-compliance
1. Limit or prohibit distribution of net profits and may require that part or all of the net profits
be used to increase capital accounts of the bank until the min. Requirement has been
met
2. Restrict or prohibit acquisition of major assets and the making of new investments by the
bank

Single Borrowers Limit

- Shall not exceed 20% net worth of the bank
Exceptions:
1. Monetary board may otherwise prescribe for reasons of national interest
 2. Deposits of rural banks with GOCC like Land Bank, Development bank of the Phil and
Philippine National Bank (General Banking Act)
3. Total amount may be increased by 10% if secured by trust receipts, shipping docs,
warehouse receipt or other similar docs.except other prescribed by Monetary board
Basis: total credit commitment of the bank to the borrower

Loans - all accounts under the loan portfolio of a bank as enumerated in the manual accounts
for banks
Other credit accommodation - credit and specific market risk exposures of banks arising from
accommodation of receivables
Total credit commitment - outstanding loans and other credit accommodations, deferred letters
of credit less margin deposits and guarantees
Readily Marketable Goods - articles of commerce, agriculture or industry of such uses as to
make them the subject of constant dealings in ready markets with such frequent quotations to
make their prices easily and definitely ascertainable or which fend themselves easily to disposal
by sale at any time to pay the obligations secured by the said goods.

Inclusion to the Limit

Prescribed ceiling shall include:
1. Direct liability of the maker or acceptor of paper
2. In case of an individual who owns or controls majority interest
3. In case of a corporation, all liabilities to such banks
4. In case of a partnership, association or other entities

Control of Majority interest

- Synonymous with controlling interest
- Exists when the parent owns directly or indirectly through subsidiaries more than ½ of
the voting power of an enterprise if it constitutes control
- Parent owns ½ or less of the voting power
- Power over ½ of the voting rights
- By virtue of an agreement
- Power to appoint or remove majority members of the board of directors
- Power to cast the majority votes
- Other similar arrangement

Exclusion to the limit

1. Loans secured by obligation of BSP
The state is always SOLVENT (WEEEEHHH??)
2. Those fully guaranteed by the government
3. Those covered by assignment of deposits maintained in the lending bank and held in the
Phils.
4. Those under letters of credit to the extent covered by margin deposits
5. Those accommodation which the Monetary Board may specify as non-risk items
Bank Guarantee
- An irrevocable commitment of a bank binding itself to pay a sum of money in the event of
non-performance of a contract by a 3rd party
Contingent Accounts
- Also included in the limits as prescribed by the monetary board
Assignment of Credits
- Agreement by virtue of which the owner of credit, known as assignor, by a legal cause
such as sale, dation in payment, exchange or donation and w/o need of the consent of
debtor transfers his credit and its accessory rights to another known as assignee who
acquires the power to enforce the same against debtor
NOTICE ONLY NOT CONSENT - to inform only of the date of assignment

Pacto Commissorio
- Provision for the automatic appropriation of the pledged or mortgaged property by the
creditor in payment of the loan upon its maturity
- NO PACTO COMMISSORIO IN ASSIGNMENT OF DEBTS
- Creditor cannot appropriate things given by way of pledge or mortgage or dispose of
them
- To protect obligor whose mortgage is more than the value of the debt

RESTRICTIONS
1. No director or officer shall directly or indirectly for himself or as the representative or
agent of others borrow from bank nor become a guarantor, indorser or surety for loans
except with written approval of the majority of all the directors of the bank excluding the
director concerns
a. Written approval must be approved by BSP
b. Be entered upon the records and transmitted to BSP

DIRECTORS
1. Named in articles of incorporation
2. Duly elected in subsequent meeting of the stockholders
3. Elected to fill vacancies

OFFICERS
1. President
2. EVP, SVP, VP
3. GM
4. Secretary
5. Treasurer
6. Trust officer
7. Others known to be officers
8. Chairman, vice chairman who also performs functions of management

STOCKHOLDER
 1. Act personally
2. Through an attorney in fact
3. Authorized person
4. Trustee pursuant to a proxy or voting trust
5. Individual, his spouse and/or relative within 1st deg. Of consanguinity or affinity or legal
adoption
6. Partnership
7. Corporation
a. Own 50% of total subscribed capital stock

RELATED INTERESTS
1. Spouse or relative within 1st deg. Of consanguinity/affinity/adoption
2. Partnership
3. Co-owner
4. Corporation, association, or firm even if spouse is also director
5. Corporation, association or firm relatives on or hold 20% of stock
6. Corporation or association wholly or majority owned by 2,4 and 5
7. corporation , association or firm own 20$ of subscribed capital
8. Corporation, association or firm lending bank 20% subscribed capital of such

EFFECT OF VIOLATION
1. Due notice
2. Declared vacant or subject to penal provision of New Central Bank Act

LIMITS OF LOANS

TUMIGIL SA PAGEG 148

CHAPTER 5
1. Prohibited Transaction
a. Insurance business
i. Making or proposing, as insurer, any insurance contract
ii. Making or proposing, as surety, any suretyship contract as a vocation not
as merely incidental to other legitimate business
iii. Anything specifically said to be insurance business within the meaning of
the Insurance Code
iv. Doing or proposing to do any business that evades the Insurance code
(doesnt matter if there is not profit.)

b. Prohibited acts:
i. No director, officer, employee or agent of any bank shall:
1. Make false entries/fraudulent transactions
2. Disclose to unauthorized person information
 3. Accept gifts in connection with approval of loan or credit
4. Overvalue
5. Outsource inherent banking functions (deposit transactions,
management functions except as authorized by the monetary
board)
ii. No Borrower of a bank shall
1. Fraudulently overvalue property offered as security
2. Furnish false or make misrepresentations
3. Attempt to defraud the bank
4. Offer any gift to employee into approving a loan
iii. No examiner, officer or employee of the BSP, government
officer/employee shall
1. Make false reports or misrepresentation or suppression of material
facts
Criminal Sactions: New Central Bank Act

Unsafe/Unsound manner of business considerations of the Monetary Board

1. May result in material loss or damage or abnormal risk or danger to society, stability,
liquidity
2. Has resulted in material loss or damage or abnormal risk or danger to society
3. Has cause undue injury or has given unwarranted benefits
4. Entering into any contract or transaction manifestly and grossly disadvantaged

When bank persists in unsafe/unsound business:

Monetary bank may:
1. Without prejudice to administrative sanctions, take action
2. Immediately exclude erring bank from clearing

NO BANK OR QUASI BANK SHALL DECLARE DIVIDENDS GREATER THAN ITS

ACCUMULATED NET PROFITS THEN ON HAND, DEDUCTING THEREFROM ITS LOSSES
AND BAD DEBTS

Banking organizations (bank holding companies and independent banks)

distribute capital to their shareholders via dividends (common plus preferred)
and share repurchases.[

Not allowed to declare dividends at the time:

1. Clerking account with BSP is overdrawn
2. Deficient in the required liquidity floor for government deposits for 5 or more consecutive
days
3. Does not comply with liquidity standards/rations prescribed by BSP
 4. Has committed a major violation with BSP

Corporation Code:
Sec. 43 - Power to declare dividends
Who? Directors of a stock corporation
What? - dividends out of unrestricted retained earning payable in cash, in property or in stock to
all stock holders
Provided:
1. Any cash dividends due on delinquent stock shall be applied to the unpaid balance on
the subscription plus costs and expenses
2. No stock dividend shall be issued without approval of ⅔ stockholders

Prohibition: retaining surplus profits in excess of 100% of their paid-in capital stock
Exception:
1. When justified by definite corporate expansion projects/programs approved by board of
directors
2. When the corporation is prohibited under any loan agreement
3. When it is clearly shown such retention is necessary

Unauthorized Advertisements or Business Representation

No authority, not allowed to advertise as the following:

1. Bank
2. Banking
3. Banker
4. Quasi bank
5. Quasi banking
6. Quasi banker
7. Savings and loan association
8. Trust corporation
9. Trust company

PLACEMENT UNDER CONSERVATORSHIP

Governing law - GBL section 67

Conservator
- appointed by Monetary Board
- Takes place of a bank’s board of directors. What the board can not do the conservator
can not do
- Can only revoke contracts that are defective - void, voidable, unenforceable, rescissible
- Power only to repudiate valid obligations of the bank
- Authority to only bring court actions to assail such contracts

Grounds for appointment of conservator

Bank is in a state of:
1. Continuing inability
2. Willingness to maintain a condition of liquidity deemed adequate to protect the interest of
depositors

Conservator powers:
1. Take charge of the assets, liabilities and the management thereof
2. Reorganize the management
3. Collect all monies and debts due said institution
4. Exercise all powers necessary to restore its viability

Duties of conservator:
1. Report and be responsible to the monetary board
2. Overrule or revoke the action of the previous management and board of directors of the
bank

Rehabilitation proceedings
1. Attempt to provide for efficient and equitable distribution of an insolvent debtor’s
remaining assets to the creditor
2. Provide debtor’s fresh start

Liquidity - ability of an asset to be converted into cash without any price discount
Solvency - ability to pay debts
Insolvency of banks - when the actual cash market value of its assets is insufficient to pay its
liabilities not considering capital stock and surplus which are not liabilities for such purpose.

MONETARY BOARD - EXCLUSIVE AUTHORITY TO ASSESS, EVAUATE AND DETERMINE

THE CONDITION OF ANY BANK

Qualification of Conservator
- Should be competent and knowledgeable in bank operations and management

Period of Conservatorship
- 1 year

Remuneration
- Not to exceed ⅔ of the salary of the president of the institution in one year payable in 12
months
- If from BSP, he will not receive remuneration from BSP during the conservatorship
(bawal doble sweldo)

Libre expenses ng conservator ng bangko

Terminations of conservatorship
- When Monetary board is satisfied that institution can operate on its own
- If there can be probable loss to depositors and creditors

Monetary board actions are FINAL AND EXECUTORY.

Petition for Certiorari

- May only be filed by stockholders representing majority of the capital stock within 10
days from receipt of the order
- If there was excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction

CESSATION OF BANKING BUSINESS

1. Voluntary Liquidation
- Done through
a. board of directors,
b. by a trustee appointed by the bank or
c. by a receiver appointed by the bank
Needed:
1. Written notice of liquidation and
2. Liquidation plan to be sent to Monetary board for approval

2. Receivership/Involuntary Liquidation
Sec. 69

Monetary Board
Grounds:
1. Inability to pay liabilities in the ordinary course of business
2. Insufficient realizable assets to meet its liabilities
3. Cannot continue business without involving probable losses to its depositors or creditors
4. Willfully violated a cease and desist order that became final involving acts or transaction
which amount to fraud or a dissipation of the assets of the institution.
5. Sec. 53 GBL - in any manner suspends the payment of its deposit liabilities continuously
for more than 30 days = receivership na yan
6. Sec. 36 NCBA - unlawful or unsafe business practices

QUASI BANKS - RECEIVER (any person) can judge the involuntary liquidation

Report of the head of the supervising or examining department suffices no examination needed
(Rural bank of San Miguel Inc. vs Monetary board, 2007 & RA 7653)
Prior notice and hearing are no longer required before a bank can be closed (Central bank of
the Phils. Vs. CA)

STEP 1
Receiver shall immediately:
a. Gather and take charge of all the assets and liabilities of the institution
b. Administer the same for the benefit of its creditors and
c. Exercise general powers of receiver under Revised Rules of Court
d. Shall not pay or commit any act that will involve the transfer or disposition of any asset of
the institution

STEP 2
Receiver deposits or places the funds in non-speculative investments

STEP 3
Within 90 days from take over, determine whether institution can be rehabilitated

STEP 4
Subject to approval the decision of rehabilitation

Prohibited acts:
1. Refusing to turnover the bank’s records and assets to the designated receivers
2. Tampering with bank records
3. Appropriating for himself or another party, or destroying or causing misrepresetantiona
nad destruction of the bank’s assets
4. Receiving or permitting or causing to be received in said bank any deposit, collection of
loans and/or receivables
5. Paying out or permitting or causing to be paid out any funds of said bank
6. Transferring any securities

HINDI NA KAYANG MATULUNGAN

INSTITUTION CANNOT BE REHABILITATED
1. Kapag nadecide ni receiver LOL
2. Approve dapat ni MB
a. File ex parte with proper RTC petition for assistance in the liquidation pursuant to
liquidation plan adopted by the PDIC (Phil. Deposit Insurance Corp)
i. Quasi Banks - adopted ng MB
b. Adjudicate disputed claims, assist enforcement of individual liabilities and decide
on other issues material to implement liquidation plan
c. Receiver shall pay cost of the proceedings from asset of the institution
3. Liquidate the assets of institution
a. Assets are in custodia legis in the hands of the receiver and be exempt from
order of garnishment, levy, attachment or execution
CLOSE NOW HEAR LATER SCHEME
Central bank of the Phils. Vs CA
- Legislature could not have intended to authorize no prior notice and hearing in the
closure of the bank at the same time allow a suit to annul it on the basis of absence
thereof
- It is enough that a subsequent judicial review be provided
- Within 10 days from date the receiver takes charge of the assets of the bank, judicial
review may be had by filing an appropriate pleading with the court
- To prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police
power.

PETITION FOR REVIEW

Effect:
- Does not diminish the authority of the designated liquidator to administer and continue
the bank’s transactions
- Normal operations of a bank continues
- Provided interests were legal

REASON BEHIND RECEIVERSHIP AND INVOLUNTARY LIQUIDATION

1. PUBLIC INTEREST
2. BSP authorized to take necessary steps against any banking institutions if its continued
operations would cause prejudice to its depositors, creditors and the general public
3. Public faith in the banking system to avoid deteriorating to the prejudice of the national
economy itself
4. Retain juridical personality
5. Not liable to pay interest
6. Assets are deemed in custodia legis
7. Stay of execution
8. Restriction of bank’s capacity to act
9. Exclusive jurisdiction of liquidation court
CHAPTER 6

LAWS:
1. Foreign Banks Liberalization Act, RA 7721
- Governs entry and branching of foreign banks
2. Offshore Banking System Decree, PD1034
- Governs conduct of offshore banking business

Offshore Banking - the conduct of banks transacting in foreign currencies involving the receipt of
funds from external sources and the utilization of such funds

Offshore Banking Unit - any branch, subsidiary or affiliate of a foreign banking corporation which
is duly authorized by the BSP to transact offshore banking business in the Philippines.

Corporation Code:
Sec. 133
- Prohibits and bars a foreign corporation from doing business in the Philippines without
license access to our courts
- Foreign corpos are not ipso facto incapacitated from bbringing an action
- Compel corporations to submit itself to the jurisdiction of the courts

Rules for Foreign Banks in the Philippines

1. Within 7 years from effectivity of GBL - 100% voting stock of only 1 Filipino Bank
2. Prior to effectivity of GBL, banks who availed 60% of the voting stock of a bank under
the Foreign banks liberalization act and thrift banks act can acquire now up to 100% of
the voting stock of such bank.
3. Monetary Board shall adopt measures and ensure 70% of the resources or assets of the
entire banking system is held by banks majority owned by Filipinos.
4. Any of the foregoing right, privilege or incentive granted to foreign banks shall be
enjoyed by Filipino banks.

All branches of Foreign banks shall be treated as 1 unit for the purpose of the GBL.
- Applies to commercial and universal banks duly established and organized as a
Philippine Corporation

Residents and Citizens of the Philippines who are creditors of a branch in the Phils of a foreign
bank shall have preferential right to the assets of such banks in accordance with existing laws.

Head office Guarantee - guarantees the prompt payment of liabilities of its Philippine Branch
- Necessary to bring the head office within Philippine jurisdiction and to hold the same
answerable for the liabilities of its Philippine branches
Does a client obtaining a loan from a foreign bank’s Philippine branch make the client a
debtor to the head office and all other branches of the foreign bank around the world?
NO. Section 25 of the United States Federal Reserve Act provision mandates that the
accounts of foreign branches of an american bank shall be conducted independently of each
other. It is only at the end of the fiscal year that the bank is required to transfer to its general
leger the profit or loss accrued at each bank, but still reporting it as a separate item.

A branch is not merely a teller’s window. It is a separate business entity.

Purposes:
1. Deposits payable only at branch where made
2. Checks need to be honored only when drawn on branch where deposited.
3. Subpoena duces tecum on foreign bank’s record barred
4. A foreign branch separate for collection of forwarded paper

Courts obtain jurisdiction over foreign banks as follows:

1. Philippine agents and head - summons and legal process, they shall give jurisdiction to
the courts, service of notices served to them shall be binding upon the bank they
represent.
2. Should authority to the agents and heads be revoked or they be incapacitated, it shall be
the duty of the banks to name and designate promptly another agent and file with the
SEC the duly authenticated nomination of such agent
3. If no agent or head - service of summons, processes and legal notices may be made
upon the Bangko Sentral Deputy Governor In Charge
4. Deputy governor shall register and transmit by mail to the president or the secretary of
the bank at its head or principal office a copy duly certified by him of the summons,
process or notice.
5. Registry receipt - prima facie evidence of the transmission of the summons, process, or
notice. All costs shall be paid in advance by the party at whose instance the service is
made.

Agent or head
- Written power of attorney
- Resident of the Philippines
- On whom any summons or legal proceedings may be served

If no agent or head and the business ceases to transact

- Service of any summons or other legal process may be made upon the SEC and that
such service shall have the same force and effect as if made upon the duly authorized
officers of the corporation at its home office.
RA 7721
Revocation of License
1. If the bank is insolvent
2. In imminent danger
3. Continuance in business will involve probable loss to those transacting business with it
Guidelines for approval:
1. Ensure geographic representation and complementation
2. Consider strategic trade and investment relationships between the Philippines and the
country of incorporation of the foreign bank
3. Study the demonstrated capacity, global reputation for financial innovation and stability in
a competitive environment of the applicant
4. See to it that reciprocity rights are enjoyed by Philippine banks in the applicant’s country
5. Consider willingness to fully share their technology

Capital Requirements:
Locally incorporated subsidiaries
- Minimum requirement shall be equal to that prescribed by the Monetary board for
domestic banks of the same category

Sec 2- Modes of entry

1. By acquiring, purchasing or owning up to 60% of the voting stock of any existing bank
2. By investing up to 60% of the voting stock of a new banking subsidiary incorporated
under the laws of the Philippines
3. By Establishing branches with full banking authority
Provided, only 1 mode of entry, 60% voting stock of only 1 bank.

Foreign Bank Branches

- Capital of not less than US dollar equivalent of P210 million pesos at the exchange rate
on the date of the effectivity of this Act.
- Permanently assigned capital shall be inwardly remitted and converted into Philippine
currency
- 3 branches
- Additional 3 branches by inwardly remitting and converting into Philippine currency as
permanently assigned capital, the US dollar equivalent of P35 million per additional
branch
- Total number of branches shall not exceed 6

Capital - permanently assigned capital plus 15% net due to head office, branches and
subsidiaries and offices outside the Philippines (to be inwardly remitted and converted to Phil.
currency)

Amounts invested in productive enterprises or utilized by Philippine companies for export

activities shall not be subject to conversion into Philippine Currency.
MB shall monitor the effective use of the net due to funds.

Net due from head office outside the philippines shall be deducted from capital accounts for
purposes of determining required capital ratios

Foreign banks shall be allowed entry within 5 years from the effectivity of RA 7721
6 BANKS WILL BE ALLOWED ENTRY, 4 ADDITIONAL BANKS UPON RECOMMENDATION
OF MB and upon approval of the President as the national interest may require

Non Filipino citizens may be directors of a bank to the extent of foreign participation in the equity
of said bank

Sec. 9 - Development of Loans Incentives

Loans to finance
1. Educational institutions
2. Cooperatives
3. Socialized or low cost Housing
4. Hospital and other medical services
5. LGU
Shall be included for purposes of determining compliance with the provision of PD 717

Sec. 10 - Transitory Provisions

Foreign banks can operate up to 6 branches provided they comply with the prescribed
permanently assigned capital
3 branches - in locations of choice of the bank
3 branches - locations designated by the MB to insure balanced economic development in all
regions

Sec. 13 - Delegation of Rule-Making powers and Compliance Reports

MB - authorized to issue such rules and regulations as may be needed to implement the
provisions of this act after consultation with the chairpersons of the Banks Committee of the
House of Representatives and the Senate.
On or before May 30 of each year, the MB shall file a written report and its Banks Committee on
the developments in the implementation of this act.

TRUST OPERATIONS
Trust Business
- Refers to any activity resulting from trustor-trustee relationship (trusteeship) involving the
appointment of a trustee by a trustor for the administration, holding, management of
funds and/or properties of the trsutor by the trustee for the use, benefit or advantage of
the trustor or of others called beneficiaries.
- Cardinal principle: FIDELITY
- Trust entity
Conduct of Business:
1. A trust entity shall administer funds or property in their custody with the diligence that a
prudent man would exercise in the conduct of an enterprise of a like character and with
similar aims
2. No trust business for:
a. Relatives within the first degree of consanguinity or affinity
b. Related interests of such directors, officers and stockholders

Registration of Articles of Incorporation and By-Laws of a Trust Entity

Requirements - CERTIFICATE OF AUTHORITY ISSUED BY THE BSP

Corporation Code Provisions

No articles of incorporation or ammendment to articles shall be accepted or approved by the
commission unless:
1. Favorable recommendation and
2. Certificate of the appropriate government agency to the effect that such articles or
amendment is in accordance with the law

Powers of a trust entity

1. Act as trustee and execute any trust consistent with law
2. Act as guardian, receiver, trustee or depositary for Minor, incompetent person and
money and property under the jurisdiction of the court
3. Act as the executor of any will when it is named the executor thereof
4. Act as administrator of the estate of any deceased person
5. Accept and execute any trust for the holding, management and administration of any
estate
6. Establish and manage common trust funds subject to the rules and regulations of the
MB.

Transactions requiring prior authority

Except - if transaction has been fully disclosed and specifically authorized in writing by the
client, beneficiary, other party in interest, court of competent jurisdiction or other competent
authority:
1. Relatives within the 1st degree of consanguinity or affinity or the related interest of such
directors, officers and stockholders; or to any corporation where the trustee or fiduciary
owns at least 50% of the subscribed capital or voting stock in its own right and not as
trustee nor in a representative capacity
2. Purchase or acquire properties or debt instruments from (up)
3. Invest in equities of or in securities underwritten by, the trustee or fiduciary or a
corporation in which the trustee or fiduciary owns at least 05% (up)
4. Sell, transfer, assign or lend money or property from one trust or fiduciary account to
another except the the investment is allowed by the monetary board.

Deposit for the faithful performance of Trust Duties

 1. Deposit P500,000.00 or higher to the BSP before transacting trust business
2. MB shall require every trust entity to increase the amount of it cash or securities on
deposit whenever its judgment such increase is necessary
3. Paid in capital and surplus must be at least equal to the amount required to be deposited
with bsp.
4. A trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the right to collect the interest earned on such securities
deposited with the BSP
5. All claims arising out of the trust business of a trust entity shall have priority over other
claims

Bond Requirements
1. Before an executor, administrator, guardian, trustee, receiver or depositary appointed by
the court
2. Upon application of the trustee, the court after notice and hearing, order that the subject
matter of the trust or any part thereof be deposited with the trust entity
3. Upon deposit, the court may order that the bond given be reduced to such sums it may
deem proper
4. Reduced bond shall be sufficient to secure adequately the proper administration and
care of any property

Separation
- Trust business and all funds shall be kept separate and distinct from general banking
business
- Accounts should be kept separate and distinct
- All moneys, properties or securities shall be kept physically separate and distinct from
other businesses and shall be under joint custody of at least 2 persons. One of whom
shall be an officer of the trust or investment management department.

Investment Limitation
Loans and investments of the fund shall be limited to:
1. Evidences of indebtedness of the Philippines and of the BSP
2. Loans fully granted by the Rep. of the Phils. As to the payment of principal and interest
3. Loans fully secured by a hold-out on, assignment or pledge of deposits
4. Loans fully secured by real estate or chattels

Required Specific Directives:

1. The transaction to be entered into
2. The borrower’s name
3. Amount involved
4. Collateral security/ies if any

Real Estate Acquired by a Trust Entity

Circumstances to hold or convey real property:
 1. Such as shall be mortgaged to it in good faith by way of security for debts
2. In satisfaction of debts previously contracted
3. Purchase at sales under judgments, decrees, mortgages or trust deed held by it and
such as it shall purchase to secure debts due it.

Any real property acquired or held under the circumstances shall be disposed of within a period
of 5 years or as may be prescribed by the monetary board

If property will be subject to the bank’s own use:

1. Total investment shall not exceed 50% of combined capital accounts
2. Equity investment of a bank in another corporation engaged primarily in real estate shall
be considered as part of the total investment in real state

CHAPTER 7
The Bangko Sentral ng Pilipinas
- Central monetary authority that shall function and operate as an independent and
accountable body corporate in the discharge of its mandated responsibilities concerning
money, banking and credit
- Enjoys fiscal and administrative autonomy
- Artificial person - limited to statutory powers

Capital = 50Billion
10Billion = shall be fully paid for by the government

Place of Business - Metro Manila

Responsibility
- To provide policy directions in the areas of money, banking and credit
- Supervision over the operation of banks
- Exercise regulatory powers over finance companies and non-bank financial institutions
performing quasi-banking functions
- Promote and maintain monetary stability and the convertibility of the peso

Primary Responsibility
- Maintain price stability conducive to a balanced and sustainable growth of the economy

Corporate powers of the BSP (SCP-SPAL)

Corporate SEAL
Enter into CONTRACTS
Lease or own real and personal PROPERTY
SUE and be sued
PEFORM anything to carry out the purposes of the NCBA
Acquire and hold ASSETS
Compromise, condone or release any claim or LIABILITY

Supervisory power of the BSP (REO-ISC)

1. Issuance of RULES of conduct
2. Conduct of EXAMINATION to determine compliance
3. OVERSEEING
4. Regular INVESTIGATION
5. Inquiring into the SOLVENCY and liquidity of the institution
6. Enforcing prompt and CORRECTIVE action

Monetary Board
Composition
1. The Governor of the Bangko Sentral aka Chairman of the Monetary board
a. 3 Deputy governors - alternate
b. Commission on appointments
2. Member of the Cabinet
a. Designated by the president
b. Undersecretary - alternate
3. 5 members - private sector
a. 3 member - 6 years
b. 2 members - 3 years

Qualifications
1. Natural born citizen of the Philippines
2. 35 years of age, governor should be 40 years
3. Good moral character
4. Unquestionably integrity
5. Known probity and patriotism
6. Recognized competence in social and economic disciplines
- Disclosure of interest

Disqualifications (SIGN)
1. Subsequently disqualified under Sec. 8 of the NCBA
2. Incapacity - physical or mental
3. Guilty - fraudulent or illegal
4. No longer possess qualifications

Meetings
- Once a week
Quorum
- 4 members that in all cases the governor or his alternate shallbe among the four
Decisions
- All decisions shall require the concurrence of 4 members
 - 5 member concurrence
- Release of financial statements
- Examination and fees
- Emergency restrictions on exchange operations
- Emergency loans and advances

SCOPE OF AUTHORITY OF THE MONETARY BOARD

1. Issue rules and regulations
2. Direct bangko sentral as it may deem necessary
3. Establish and HR management system
4. Adopt an annual budget for the expenditure of bangko sentral
5. Indemnify its member and other officials against all costs and expenses reasonably
incurred by such person in connection with any civil or criminal action by reason of his
function or duties

Extraordinary diligence in the performance of duties

Violation, negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary
diligence

Powers and Duties of the Governor

1. Prepare agenda for the meetings and submit for consideration of the board the policies
and measures
2. Execute and administer policies
3. Direct and supervise the operations of the bangko sentral
4. Appoint and fix the remunerations and other emoluments of personnel
5. Render opinions, decisions or rulings
6. Exercise other powers that may be vested in him
As Representative of the monetary board…
1. Represent the monetary board
2. Sign contracts
3. Represent bangko sentral
4. delegate

Subsidiary
- corporation more than 50% of the voting stock of which is owned by a bank or quasi
bank

Affiliate
- Corporation the voting stock of which, to the extent of 50% or less, is owned by a bank
or quasi bank
- Related or linked to such institution through common stockholders

Prohibitions against Personnel of Bangko Sentral

1. Anti Graft and Corrupt Practices Act
 2. Code of conduct and ethical standard for Public officials and employees
3. Being an officer etc. to any institution subject to supervision by BSP
4. Requesting or receiving any gift
5. Revealing in any manner information
6. Borrowing from any institution under the supervision of BSP unless fully disclosed to
Monetary board

Examination
- Every 12 months
- Opportunity to examine books, cash, assets and general condition
- Service fee - first 30 days of each year Sec. 65 GBL

Anti Money Laundering Act (RA 9160)

Money Laundering - any act or attempted act to conceal or disguise the identity of illegally
obtained proceeds so that they appear to have originated from legitimate sources

Sec. 4
Money laundering is a crime whereby the proceeds of an unlawful activity as defined in the law
are transacted, thereby making them appear to have originated from legitimate sources

3 modes:
1. What are the exceptions to the bank secrecy law?

2. What are the powers of the monetary board and the governor of the bsp?

3. Can foreign banks conduct business in the Philippines? What is offshore banking?

4. What are the different types of bank deposit? explain each.

5. What is a letter of credit? What are the rights of an entruster in a trust receipt
transaction?

6. A is the corporate secretary and legal counsel of X company, A’s brother B (owns a patis
business) applied for a loan with X, B complied with the requirements of X, before the loan
can be approved, D (competitor of B in patis business) opposed loan on the ground of
conflict of interest and violation of banking laws? Advice X with regards to this. (see rules of
DOSRI)

I would advise X company to follow the proper procedures of extending loans to DOSRI
relatives.
The first step would be to require the approval of the board of directors. The applicant of the
loan is a brother of the corporate secretary and legal counsel. There must be the
concurrence of the board for the loan to be extended. They must establish a ceiling for the
credit by following the established computations for aggregate ceiling. Before the loan is
released, it must be cleared by the Central Liability Unit. Reports as required by law must
be submitted on the schedules pursuant to the BSP circulars.

If these procedures are followed, there is no conflict of interest nor a violation of banking
laws. D cannot oppose the loan.

7. 3 brothers, A, B, and C found a suitcase with a gun and cocaine, they sold the contents,
they converted the proceeds to gold bars. A sold his gold bar on facebook and bought a
new car. B pawned his gold bar and deposited the proceeds in the bank, while C swapped
his gold bar with a condominium unit. Did the 3 brothers commit money laundering? Was
the 3 stages of money laundering present? Should the entities they dealt with report them to
the AMLA board?

Not all 3 brothers committed money laundering. Only B committed by having the proceeds
of their drug trafficking be deposited in a bank which is a covered financial institution. A sold
his in facebook which is not covered and C swapped his with a condominium unit.
With regards to the only brother who is committing actual money laundering, B, he hasnt
finished all 3 stages. He is still in the process of layering and there is not integration yet
wherein the proceeds of the unlawful activity are reintroduced into the economy and making
it seem like it came from a lawful activity because he just deposited the proceeds in the
bank.

With regards only to the brother B, it depends if his transaction with the bank is a reportable
transaction. For the other brothers, the entities they dealt with are not among those financial
institutions that are required by the AMLC to report suspicious transactions, namely,
Facebook and the process of swapping or barter with the condominium unit.

8. PDIC deposit insurance related hypo (AND accounts, AND/OR accounts, Savings
accounts, Current accounts, Borrowers)